~~UNITED STATES SECURITIES AND EXCHANGE COMMISSION~~ .

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30~~March 31, ~~2015~~2016

o ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-30700

Crown Media Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware		84-1524410
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

12700 Ventura Boulevard,

Suite 200

Studio City, California 91604

(Address of principal executive offices) ( Zip Code)

(818) 755-2400

(Registrant’s telephone number, including area code)

(Former name, former address, and former fiscal year,

if changed since last report.)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x ☒ No o ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x ☒ No o ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o☐ Accelerated filer x☒ Non-accelerated filer (do not check if a smaller reporting company)o ☐ Smaller reporting company o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o ☐ No x☒

As of ~~October 28~~May 1, ~~2015~~2016, the number of shares of Class A Common Stock, $0.01 par value per share, outstanding was 359,675,936.

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TABLE OF CONTENTS

		~~Page~~	Page
PART I	Financial Information
Item 1	Unaudited Financial Statements	4	5
	CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES
	Unaudited Condensed Consolidated Balance Sheets — December 31, 2014 and September 30, 2015	4
	Unaudited Condensed Consolidated Balance Sheets — December 31, 2015 and March 31, 2016		5
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - Three and Nine Months Ended September 30, 2014 and 2015	5
	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - Three Months Ended March 31, 2015 and 2016		6
	Unaudited Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2014 and 2015	6
	Unaudited Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, 2015 and 2016		7
	Notes to Unaudited Condensed Consolidated Financial Statements	7	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20	21
Item 3	Quantitative and Qualitative Disclosures About Market Risk	28	29
Item 4	Controls and Procedures	29	30
PART II	Other Information	29	32
Item 1A	Risk Factors	29	32
Item 6	Exhibits	30	32
Signatures		31	33
Exhibit Index		32	34

1 2

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In this Quarterly Report on Form 10-Q the terms “Crown Media Holdings,” the “Company,” “we,” “us” and “our” refer to Crown Media Holdings, Inc. and, unless the context requires otherwise, subsidiaries of Crown Media Holdings that operate or have operated our businesses, including Crown Media United States, LLC (“Crown Media United States”).

The name “Hallmark” and other product or service names are trademarks or registered trademarks of entities owned by Hallmark Cards, Incorporated (“Hallmark Cards”).

Certain Terms

Certain terms used throughout this Annual Report on Form 10-Q are defined below.

2011 Credit Agreement		Our Credit Agreement, dated as of July 14, 2011, with the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, which provides for the 2011 Term Loan and the 2011 Revolver, as amended by Amendment No. 1.
2011 Refinancing		The July 14, 2011 transaction pursuant to which we issued the 2011 Term Loan and the Notes to repay certain obligations to Hallmark Cards.
2011 Revolver		The five year $30.0 million senior secured super-priority revolving credit facility issued pursuant to the 2011 Credit Agreement.
2011 Term Loan		The $210.0 million senior secured term loan issued pursuant to the 2011 Credit Agreement.
2015 Credit Agreement		Our 2015 Credit Agreement, dated as of June 25, 2015, with the lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent, which provides for the 2015 Term Loan and the 2015 Revolver.
2015 Refinancing		The June 25, 2015 transaction pursuant to which we issued the 2015 Term Loan and the 2015 Revolver, certain proceeds of which we used to repay the 2011 Term Loan and the Notes.
2015 Revolver		The five year $100 million senior secured revolving credit facility issued pursuant to the 2015 Credit Agreement.
2015 Term Loan		The five year $325 million senior secured term loan issued pursuant to the 2015 Credit Agreement.
Amendment No. 1		Amendment No. 1 to our 2011 Credit Agreement as executed March 29, 2013.
ADUs		Audience Deficiency Units, or units of advertising inventory that are made available to advertisers as fulfillment for past advertisements purchased by the advertiser that did not deliver the guaranteed viewership ratings. The liability for these units is called the audience deficiency reserve.
Common Stock		Our Class A common stock, $0.01 par value per share, unless the context requires otherwise.
CPM		Cost per thousand or advertising rate per thousand viewers.
GAAP		Generally accepted accounting principles in the United States.
Hallmark Cards or Hallmark		Hallmark Cards, Incorporated, our ultimate parent.
Hallmark Channel		A 24-hour cable television destination for family-friendly programming and a leader in the production of original movies.
Hallmark Movies and Mysteries		A 24-hour cable television destination dedicated to offering viewers a collection of movies and long form programming appropriate for the entire family, featuring a mix of original movies and series of the mystery genre, in addition to classic theatrical films, and Hallmark Hall of Fame movie presentations.

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HCC		H C Crown, LLC, formerly H C Crown Corp., a subsidiary of Hallmark Cards and Crown Media Holdings’ immediate parent.
Indenture		The Indenture, dated as of July 14, 2011, among us, our subsidiaries party thereto, and The Bank of New York Mellon Trust Company, N.A., as Trustee, as supplemented by a Supplemental Indenture dated as of June 10, 2014.
Network or Networks		Hallmark Channel or Hallmark Movies and Mysteries, individually or collectively, as the context requires.
Nielsen		Nielsen Media Research or The Nielsen Company, an information and measurement company that provides television ratings, media measurements and other marketing and consumer information.
Notes		$300.0 million of 10.5% senior unsecured notes due in 2019 issued by us pursuant to the terms and conditions of the Indenture.
Scatter Market		The period after the close of the Upfront Season during which advertising is sold in close proximity to its air date.
Subscriber		A household that receives, on a full- or part-time basis, a Network as part of a program package or a program tier of a distributor.
Upfront Season		The period of time (usually during the month of May) when advertisers commit to a certain volume of advertising for the fourth quarter of the same year and the first three quarters of the following year.

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Hallmark Channel		A 24-hour cable television destination for family-friendly programming and a leader in the production of original movies.

Hallmark Movies and Mysteries		A 24-hour cable television destination dedicated to offering viewers a collection of movies and long form programming appropriate for the entire family, featuring a mix of original movies and series of the mystery genre, in addition to classic theatrical films, and Hallmark Hall of Fame movie presentations, formerly known as Hallmark Movie Channel.

HCC		H C Crown, LLC, formerly H C Crown Corp., a subsidiary of Hallmark Cards and our immediate parent.

Indenture		The Indenture, dated as of July 14, 2011, by and among us, our subsidiaries party thereto, and The Bank of New York Mellon Trust Company, N.A., as Trustee, as supplemented by a Supplemental Indenture dated as of June 10, 2014.

Network or Networks		Hallmark Channel or Hallmark Movies and Mysteries, individually or collectively, as the context requires.

Nielsen		Nielsen Media Research or The Nielsen Company, an information and measurement company that provides television ratings, media measurements and other marketing and consumer information.

Notes		$300.0 million of 10.5% senior unsecured notes issued on July 14, 2011, by us pursuant to the terms and conditions of the Indenture.

Scatter Market		The period after the close of the Upfront Season during which advertising is sold in close proximity to its air date.

Subscriber		A household that receives, on a full- or part-time basis, a Network as part of a program package or a program tier of a distributor.

Upfront Season		The period of time (usually during the month of May) when advertisers commit to a certain volume of advertising for the fourth quarter of the same year and the first three quarters of the following year.

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PA RT I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and number of shares)

	As of December 31,			As of ~~September~~March 3031,
	2014			2015
	2015			2016
ASSETS
Cash and cash equivalents	$	6050,~~888~~604		$	70117,~~542~~345
Accounts receivable, less allowance for doubtful accounts of $265 and $732, respectively	118,277			103,682
Accounts receivable, less allowance for doubtful accounts of $251 and $420, respectively		155,813			124,481
Programming rights	~~85,950~~	108,000		~~83,475~~	105,432
Prepaid programming rights	~~33,844~~	—		~~36,784~~	388
Deferred tax assets, net	46,900			46,900
Prepaid and other assets		4,109			3,988
Prepaid and other assets	3,459			4,048
Total current assets		318,526			351,634
Total current assets	349,318			345,431
Long-term receivable		293			426
Long-term receivable	—			604
Programming rights		272,016			289,412
Programming rights	221,664			240,168
Prepaid programming rights		23,947			21,796
Prepaid programming rights	5,938			2,961
Property and equipment, net		8,588			8,193
Property and equipment, net	10,763			8,795
Deferred tax assets, net		146,180			131,064
Deferred tax assets, net	147,468			122,211
Debt issuance costs, net		805			760
Debt transaction costs, net	227			849
Prepaid and other assets		3,749			6,840
Prepaid and other assets	5,051			3,961
Goodwill		314,033			314,033
Goodwill	314,033			314,033
Total assets	$	1,088,137		$	1,124,158
Total assets	$	1,054,462		$	1,039,013
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Accounts payable and accrued liabilities	$	2930,~~588~~920		$	2522,~~176~~648
Audience deficiency reserve liability	~~5,926~~	10,928		~~6,748~~	11,173
Programming rights payable	~~66,726~~	73,654		~~61,543~~	71,260
Payables to Hallmark Cards affiliates	~~150~~	353		~~212~~	658
Interest payable	~~13,079~~	1,266		~~1,075~~	1,394
Current maturities of long-term debt	~~20,000~~	12,188		~~33,125~~	16,250
Total current liabilities	~~135,469~~	129,309		~~127,879~~	123,383
Accrued liabilities	~~17,629~~	19,399		~~20,479~~	22,696
Programming rights payable	~~45,676~~	48,909		~~34,222~~	58,687
Derivative payable	—			3,337
Derivative liability		735			5,145
Long-term debt, net of current maturities	~~362,050~~	310,222		~~314,108~~	306,372
Total liabilities	~~560,824~~	508,574		~~500,025~~	516,283
COMMITMENTS AND CONTINGENCIES:
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Class A common stock, $.01 par value; 500,000,000 shares authorized; 359,675,936 shares issued and outstanding as of both December 31, 2014 and September 30, 2015	3,597			3,597
Class A common stock, $.01 par value; 500,000,000 shares authorized; 359,675,936 shares issued and outstanding as of both December 31, 2015 and March 31, 2016		3,597			3,597
Paid-in capital	~~2,062,818~~	2,062,818		~~2,062,818~~	2,062,818
Accumulated other comprehensive income (loss)	—			(1,875		)
Accumulated comprehensive loss		(158)			(3,012)
Accumulated deficit	~~(1,572,777~~	(1,486,694)	)	~~(1,525,552~~	(1,455,528)	)
Total stockholders’ equity	~~493,638~~	579,563		~~538,988~~	607,875
Total liabilities and stockholders’ equity	$	1,~~054~~088,~~462~~137		$	1,~~039~~124,~~013~~158

The accompanying notes are an integral part of these unaudited condensed consolidated balance sheets.

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CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	Three Months Ended March 31,
	2014			2015			2014			2015
	2015			2016
Revenue:
Advertising	$	7178,~~373~~378		$	83100,~~601~~763		$	~~214,855~~		$	~~250,839~~
Advertising by Hallmark Cards	—	759		—	—		~~1,725~~			~~1,259~~
Subscriber fees	~~20,665~~	20,896		~~21,869~~	21,736		~~62,636~~			~~63,336~~
Other revenue	~~1,289~~	479		~~744~~	1,724		~~2,139~~			~~4,540~~
Total revenue, net	~~93,327~~	100,512		~~106,214~~	124,223		~~281,355~~			~~319,974~~
Cost of Services:
Programming costs
Non-affiliates	~~36,065~~	33,818		~~42,673~~	40,725		~~111,931~~			~~117,147~~
Hallmark Cards affiliates	735			785			2,501			2,480
Hallmark Cards affiliate		940			762
Other costs of services	~~4,199~~	4,455		~~5,730~~	5,491		~~11,982~~			~~15,797~~
Total cost of services	~~40,999~~	39,213		~~49,188~~	46,978		~~126,414~~			~~135,424~~
Selling, general and administrative expense (exclusive of depreciation and amortization expense shown separately below)	~~15,543~~	17,572		~~18,390~~	19,423		~~47,655~~			~~55,017~~
Marketing expense	~~1,353~~	4,608		~~985~~	4,675		~~6,195~~			~~7,637~~
Depreciation and amortization expense	~~650~~	679		~~702~~	856		~~1,753~~			~~2,022~~
Income from operations before interest, income tax expense and discontinued operations	34,782			36,949			99,338			119,874
Income from continuing operations before interest and income tax expense		38,440			52,291
Interest income	91	48		80	18		~~295~~			~~326~~
Interest expense	~~(10,030~~	(9,137)	)	~~(4,276~~	(3,024)	)	~~(30,336~~		)	~~(22,360~~		)
Loss on extinguishment of debt	(1,180		)	(18,581		)	(1,180		)	(22,478		)
Income before income tax expense		29,351			49,285
Income before income tax expense and discontinued operations	23,663			14,172			68,117			75,362
Income tax expense		(10,845)			(18,119)
Income tax expense	(8,766		)	(5,471		)	(25,220		)	(28,093		)
Net income	$	18,506		$	31,166
Income from continuing operations	14,897			8,701			42,897			47,269
Other comprehensive income (loss):
Loss from sale of discontinued operations, net of tax	—			(44		)	—			(44		)
Unrealized loss on derivatives, net of tax		—			(2,854)
Net income	$	14,897		$	8,657		$	42,897		$	47,225
Comprehensive income (loss)	$	18,506		$	28,312
Other Comprehensive income (loss):
Weighted average number of shares of common stock outstanding, basic and diluted		359,676			359,676
Unrealized loss on derivatives, net of tax	—			(1,875		)	—			(1,875		)
Net income per share from operations, basic and diluted	$	0.05		$	0.09
Comprehensive income (loss)	$	14,897		$	6,782		$	42,897		$	45,350
Weighted average number of common shares outstanding, basic and diluted	359,676			359,676			359,676			359,676
Loss from sales of discontinued operations, basic and diluted	$	0.00		$	0.00		$	0.00		$	0.00
Net income per common share, basic and diluted	$	0.04		$	0.02		$	0.12		$	0.13

The accompanying notes are an integral part of these unaudited condensed consolidated statements of operations and comprehensive income (loss).

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CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2014			2015
	2015			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4218,~~897~~506		$	4731,~~225~~166
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on extinguishment of debt	1,180			22,478
Depreciation and amortization		36,515			43,362
Loss on sales of discontinued operations	—			44
Provision for allowance for doubtful accounts		130			963
Gain on sale of property and equipment	—			(5		)
Loss on sale of property and equipment		8			—
Depreciation and amortization	119,360			124,806
Deferred tax expense		10,251			16,771
Provision for allowance for doubtful accounts	123			827
Income tax expense	23,819			26,619
Non-cash compensation	36			—
Changes in operating assets and liabilities:
Decrease in accounts receivable	~~19,372~~	18,507		~~13,163~~	31,043
Additions to programming rights	~~(140,969~~	(55,254)	)	~~(135,656~~	(56,316)	)
Increase in prepaid and other assets	(9,800		)	(1,021		)
Decrease (increase) in prepaid and other assets		1,995			(2,015)
Increase in accounts payable, accrued and other liabilities	8,150			1,480
Decrease in accounts payable, accrued and other liabilities		(4,945)			(4,827)
Decrease in interest payable	(8,065		)	(12,068		)
(Decrease) increase in interest payable		(7,174)			109
Increase in derivative payable	—			362
Decrease in derivative payable		—			(99)
Decrease in programming rights payable	(4,754		)	(16,637		)
Increase in programming rights payable		5,370			7,385
Increase in payables to Hallmark Cards affiliates	10			4
Decrease in payables to Hallmark Cards affiliates		—			(6)
Net cash provided by operating activities	~~51,359~~	23,909		~~71,621~~	67,536
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	~~(2,412~~	(201)	)	~~(1,716~~	(416)	)
Proceeds from disposal of property and equipment	—	5		18	—
Net cash used in investing activities	~~(2,412~~	(196)	)	~~(1,698~~	(416)	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on the 2011 Term Loan	~~(36,503~~	(20,000)	)	~~(119,637~~	—	)
Redemption of the Notes	(8,497		)	(271,503		)
Principal payments on capital lease obligations		(347)			(379)
Premium on redemption of the Notes	(1,019		)	(14,254		)
Net cash used in financing activities		(20,347)			(379)
Issuance of the 2015 Term Loan	—			325,000
Net increase in cash and cash equivalents		3,366			66,741
Issuance of the 2015 Revolver	—			25,000
Cash and cash equivalents, beginning of year		60,888			50,604
Transaction costs incurred for the 2015 Refinancing	—			(3,808		)
Cash and cash equivalents, end of year	$	64,254		$	117,345
Principal payments on capital lease obligations	(974		)	(1,067		)
Net cash used in financing activities	(46,993		)	(60,269		)
Net increase in cash and cash equivalents	1,954			9,654
Cash and cash equivalents, beginning of period	63,750			60,888
Cash and cash equivalents, end of period	$	65,704		$	70,542
Supplemental disclosure of cash and non-cash activities:
Interest paid	$	3615,~~557~~815		$	322,~~526~~679
Income taxes paid	$	1,929		$	2,365
Taxes paid	$	109		$	—
Capital expenditures included in accounts payable and accrued liabilities	$	501		$	1,340
Capital expenditures included in accounts payable	$	137		$	3
Asset acquired through capital lease obligation	$	21		$	—

The accompanying notes are an integral part of these unaudited condensed consolidated statements of cash flows.

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CROWN MEDIA HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three ~~and Nine~~ Months Ended ~~September 30~~March 31, ~~2014~~2015 and ~~2015~~2016

1. Business and Organization

Crown Media Holdings through its wholly owned subsidiary Crown Media United States, LLC (“Crown Media United States”), owns and operates pay television networks dedicated to high quality entertainment programming for adults and families in the United States. Majority ownership of the Company is held by Hallmark Cards through its ~~subsidiaries~~indirect ~~HCC~~wholly-owned ~~and~~subsidiary ~~Hallmark~~CM ~~Cards~~Merger ~~GmbH~~Co.

The Company’s continuing operations are currently organized into one operating segment, the Networks.

2. Summary of Significant Accounting Policies and Estimates

Interim Financial Statements

In the opinion of management, the accompanying unaudited condensed consolidated balance sheets and related interim unaudited condensed consolidated statements of operations and comprehensive income (loss) and cash flows include all adjustments, consisting of normal recurring items necessary for their fair presentation in conformity with GAAP. Interim results are not necessarily indicative of results for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to those statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2014~~2015.

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Crown Media Holdings and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The preparation of financial statements in accordance with GAAP requires the consideration of events or transactions that occur after the balance sheet date but before the financial statements are issued. Depending on the nature of the subsequent event, financial statement recognition or disclosure of the subsequent event may be required.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Such estimates include the collectibility of accounts receivable, the valuation of goodwill, intangible assets and other long-lived assets, the net realizable value of programming rights, the fair value of film assets, legal contingencies, indemnifications, barter transactions, ~~audience deficiency reserve obligations~~ and assumptions used in the calculation of income taxes and related valuation allowance, among others.

All of the estimates that are employed are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes, if any, in those estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

~~Allowance for Doubtful Accounts~~ 8

~~The~~ Table ~~allowance for doubtful accounts is based upon the Company’s assessment~~ of probable loss related to uncollectible accounts receivable. The Company uses a number of factors in determining the allowance, including, among other things, the financial condition of specific customers and collection trends. The Company’s bad debt expense was $10,000 and $135,000 for the three months ended September 30, 2014 and 2015, respectively. The Company’s bad debt expense was $123,000 and $827,000 for the nine months ended September 30, 2014 and 2015, respectively.Contents

7Allowance for Doubtful Accounts

~~Table~~ The allowance for doubtful accounts is based upon the Company’s assessment of ~~Contents~~probable loss related to uncollectible accounts receivable. The Company uses a number of factors in determining the allowance, including, among other things, the financial condition of specific customers and collection trends. The Company’s bad debt expense was $130,000 and $963,000 for the three months ended March 31, 2015 and 2016, respectively.

Barter Transactions

The Company enters into transactions that involve the exchange of its on air advertising spots, in part, for other products and services, such as programming rights. Programming rights and the related deferred advertising revenue that result from such transactions are recognized at the estimated fair value of the advertising spots conveyed when the programming is available for telecast. Barter programming rights are amortized in the same manner as non-barter programming rights and advertising revenue is recognized when delivered. The Company recognized $376,000 and $520,000 in barter advertising revenue during the three months ended September 30, 2014 and 2015, respectively. The Company recognized $1.7 million and $2.1 million in barter advertising revenue during the nine months ended September 30, 2014 and 2015, respectively. The Company recognized $525,000 and $656,000 in barter expense included in programming costs on the unaudited condensed consolidated statements of operations and comprehensive income (loss) during the three months ended September 30, 2014 and 2015, respectively. The Company recognized $1.9 million and $2.2 million in barter expense included in programming costs on the unaudited condensed consolidated statements of operations and comprehensive income (loss) during the nine months ended September 30, 2014 and 2015, respectively.

~~Film~~ The ~~Assets~~Company ~~Included~~recognized $982,000 and $727,000 in ~~Long-Term~~barter ~~Programming~~advertising ~~Rights~~revenue during the three months ended March 31, 2015 and 2016, respectively. The Company recognized $881,000 and $631,000 in barter expense included in programming costs on the unaudited condensed consolidated statements of operations and comprehensive income (loss) during the three months ended March 31, 2015 and 2016, respectively.

~~The~~ Film ~~Company~~Assets ~~amortizes~~Included ~~its~~in ~~film assets using the individual~~Long-~~film-forecast-computation~~Term ~~method.~~Programming ~~The individual-film-forecast-computation method amortizes such assets in the same ratio that current period actual revenue bears to estimated ultimate future revenues.~~Rights

On The ~~a quarterly basis, the~~ Company ~~assesses~~amortizes ~~whether~~its ~~events~~film orassets ~~circumstances~~using ~~have changed indicating that~~ the ~~fair~~individual-film-forecast-computation ~~value~~method. ofThe a individual-film-forecast-computation ismethod ~~lower~~amortizes ~~than~~such ~~its~~assets ~~unamortized~~in ~~cost or carrying value. If~~ the ~~carrying~~same ~~value~~ratio ofthat ~~any~~current ~~individual~~period ~~film~~actual ~~asset~~revenue ~~exceeds~~bears ~~its fair value, the film asset is written-down~~ to ~~its~~ estimated ~~fair~~ultimate ~~value~~future revenues.

~~The~~ On ~~Company~~a ~~reviews~~quarterly ~~its~~basis, ~~estimates~~the ofCompany ~~ultimate~~assesses ~~future~~whether ~~revenues~~events ~~and~~or ~~participation~~circumstances ~~costs~~have aschanged ofindicating ~~each~~that ~~reporting~~the ~~date~~fair tovalue ~~reflect~~of ~~currently~~a ~~available~~film ~~information.~~is ~~Estimated~~lower ~~ultimate~~than ~~future~~its ~~revenues~~unamortized ~~are~~cost ~~based~~or oncarrying ~~sales plans and other factors, all of which require significant judgment and estimation by management~~value. ~~Differences~~If ~~between amortization expense determined using~~ the ~~new~~carrying ~~estimates~~value ~~and~~of any ~~amounts~~individual ~~previously~~film ~~expensed~~asset ~~during~~exceeds ~~that~~its ~~current~~fair ~~fiscal~~value, ~~year~~the ~~are~~film ~~charged~~asset oris ~~credited~~written-down to ~~the~~its ~~statement~~estimated offair ~~operations in the period in which the estimates are revised~~value.

~~Deferred~~ The ~~Revenue~~Company reviews its estimates of ultimate future revenues and participation costs as of each reporting date to reflect currently available information. Estimated ultimate future revenues are based on sales plans and other factors, all of which require significant judgment and estimation by management. Differences between amortization expense determined using the new estimates and any amounts previously expensed during that current fiscal year are charged or credited to the statement of operations in the period in which the estimates are revised.

~~Payments~~ Deferred received in advance of being earned are recorded as deferred revenue. Included in accounts payable and accrued liabilities as of December 31, 2014 and September 30, 2015, are $2.9 million and $3.4 million, respectively, of deferred revenue. Further, $5.9 million and $6.7 million, respectively, are included in the long-term portion of accrued liabilities as of December 31, 2014 and September 30, 2015.Revenue

~~Transaction~~ Payments ~~Costs~~received in advance of being earned are recorded as deferred revenue. Included in accounts payable and accrued liabilities as of December 31, 2015 and March 31, 2016, are $3.1 million and $2.5 million, respectively, of deferred revenue. Further, $6.0 million and $8.5 million, respectively, are included in the long-term portion of accrued liabilities as of December 31, 2015 and March 31, 2016.

Transaction costs in the amount of $897,000 related to the 2015 Revolver are being deferred as an asset and presented as debt transaction costs on the accompanying unaudited condensed consolidated balance sheet and are being amortized ratably over the term of the 2015 Revolver. Transaction costs in the amount $2.9 million related to the 2015 Term Loan are presented as a direct deduction of the carrying amount of the 2015 Term Loan on the accompanying unaudited condensed consolidated balance sheet as of September 30, 2015.Costs

The 2015 Term Loan transaction costs are being amortized using the effective interest method. The 2015 Revolver transaction costs are being amortized on a straight line basis over the term.

Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurements and Disclosures, provides guidance which defines fair value, establishes a framework for measuring fair value and specifies disclosures about fair value measurements. The Company determines fair value as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The Company has balance sheet items (the derivative liability and other comprehensive loss) measured at fair value on a recurring basis related to its interest rate swap. Significant balance sheet items which are subject to non-recurring fair value measurements consist of impairment valuations of goodwill, promotion and placement fees, property and equipment, and owned programming and barter advertising revenue and programming. 9

8 Table of Contents

~~Table~~ The Company has balance sheet items (the derivative liability and other comprehensive loss) measured at fair value on a recurring basis related to its interest rate swap. Significant balance sheet items which are subject to non-recurring fair value measurements consist of ~~Contents~~impairment valuations of goodwill, promotion and placement fees, property and equipment, and owned programming and barter advertising revenue and programming.

Derivative Instrument and Hedging Activities

The Company records derivative financial instruments on the unaudited condensed consolidated balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Changes in fair value of derivative financial instruments that are designated and qualify as cash flow hedges are reflected in other comprehensive earnings. Changes in fair value that are deemed ineffective relative to the hedged risk are recorded in earnings as they occur.

Foreign Currency Translation Adjustments

Foreign currency monetary items are stated in U.S. dollars, the Company’s functional currency, measured at exchange rates at the balance sheet date, with currency translation gains and losses recorded in income. ~~Translation~~No translation adjustment ~~expense~~income ofwas ~~$84,000 and $94,000 has been~~ recorded ~~both~~ for the three ~~and nine~~ months ended ~~September 30~~March 31, 2015. Translation adjustment income of $183,000 ~~respectively.~~has ~~The~~been ~~Company~~recorded ~~did~~for ~~not~~the ~~have~~three ~~transactions~~months ~~adjustment~~ended ~~expense~~March ~~during~~31, ~~2014~~2016.

Net Income per Share

Basic net income per share for each period is computed by dividing net income attributable to common stock by the weighted average number of common shares outstanding during the period. Diluted net income per share for each period is computed by dividing net income attributable to common stock by the weighted average number of common shares plus potentially dilutive common shares outstanding except whenever any such effect would be antidilutive.

Concentration of Risk

Financial instruments, which potentially subject Crown Media Holdings to a concentration of credit risk, consist primarily of cash, cash equivalents and accounts receivable. Generally, Crown Media Holdings does not require collateral to secure receivables. Crown Media Holdings has no significant off balance sheet financial instruments with risk of accounting losses.

Five and ~~four~~three of the Company’s distributors individually accounted for more than 10% of the Company’s consolidated subscriber revenue and collectively accounted for 8887% and 7354% of the Company’s consolidated subscriber revenue during the three months ended ~~September 30~~March 31, ~~2014~~2015 and ~~2015~~2016, respectively. Two of the Company’s distributors individually accounted for approximately 15% or more of the Company’s consolidated subscribers and collectively accounted for 45% and 4243% of the Company’s subscribers during each of the three months ended ~~June 30~~March 31, ~~2014~~2015 and ~~2015~~2016. The loss of one of these distributors could have a significant impact on the Company’s operations.

~~Five~~ Four and two of the Company’s ~~distributors~~programming content providers individually accounted for more than 10% of the Company’s ~~consolidated~~total ~~subscriber~~programming ~~revenue~~rights payable and collectively accounted for 8867% and 8548% of the ~~Company’s~~ consolidated ~~subscriber~~programming ~~revenue~~rights ~~during~~payable ~~the~~as ~~nine~~of ~~months~~March ~~ended September 30~~31, ~~2014 and~~ 2015~~. Two~~ ~~of the Company’s distributors individually accounted for approximately 15% or more of the Company’s consolidated subscribers~~ and ~~collectively accounted for 45% and 42% of the Company’s subscribers during each of the nine months ended September 30~~2016, ~~2014 and 2015~~respectively. The loss of one of these ~~distributors~~program content providers could have a significant impact on the Company’s operations.

~~Four~~ Recently ofIssued ~~the~~Accounting Company’s programming content providers individually accounted for more than 10% of the Company’s total programming rights payable and collectively accounted for 73% and 63% of the consolidated programming rights payable as of September 30, 2014 and 2015, respectively. The loss of one of these program content providers could have a significant impact on the Company’s operations.Pronouncements

~~Recently~~ In ~~Issued~~May 2014, the FASB issued Accounting ~~Pronouncements~~Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in ASC 605—Revenue Recognition and most industry specific guidance throughout the Codification. The standard requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in ASC 605—Revenue Recognition and most industry specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier adoption is permitted for annual reporting periods beginning after December 15, 2016. The Company is in the process of assessing the impact of the adoption of accounting standards update ASU No. 2014-09 on its financial position and results of operations. 10

In Table ~~January 2015, the FASB issued new accounting rules that remove the concept~~ of ~~extraordinary items from U.S. GAAP. Under the existing guidance, an entity is required to separately disclose extraordinary items, net of tax, in the income statement after income~~Contents

9expects to be entitled in exchange for those goods or services. The updated guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier adoption is permitted for annual reporting periods beginning after December 15, 2016. The Company is in the process of assessing the impact of the adoption of accounting standards update ASU No. 2014-09 on its financial position and results of operations.

~~Table~~ In February 2016, the FASB issued its final lease accounting standard, FASB Accounting Standard Codification ("ASC") Topic 842, Leases, which requires lessees to reflect most leases on their balance sheet as assets and obligations. The effective date for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. The company is in the process of ~~Contents~~evaluating the effect that ASC 842 will have on its consolidated financial statements and related disclosures. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.

~~from~~ Reclassification ~~continuing operations if an event or transaction is~~ of anPrior ~~unusual~~Year nature and occurs infrequently. This separate, net of tax presentation (and corresponding earnings per share impact) will no longer be allowed. The new rules will be effective for the Company in the first quarter of 2016. The Company does not expect the adoption of the new accounting rules to have a material impact on the Company’s financial condition, results of operations or cash flows.Presentation

~~Adoption~~ Certain ofprior ~~Recent~~period ~~Accounting~~amounts ~~Principle~~have been reclassified to conform to the current period presentation.

~~The Company historically presented debt issuance costs as assets on its unaudited accompanying condensed consolidated balance sheets~~ 3. Programming In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This guidance requires retrospective application. In conjunction with the 2015 Refinancing, the Company early adopted this guidance beginning the second quarter ended June 30, 2015 and applied this guidance retrospectively to all prior periods presented in the Company’s accompanying condensed consolidated balance sheets.Rights

~~The~~ Programming ~~reclassification~~rights ~~does~~are ~~not~~comprised ~~impact any prior amounts reported in the statements~~ of ~~operations and comprehensive income (loss) or cash flows. The following table presents~~ the ~~effects of the retrospective application of this change in accounting principle on the Company’s accompanying condensed consolidated balance sheet as of December 31, 2014.~~following:

	As of December 31, 2014
		As of December 31,		As of March 31,
	Prior to Adoption of ASU 2015-03		ASU 2015-03 Adjustment			As Adopted
	2015		2016
	(In thousands)
Debt transaction costs, net	$	7,878	$	(7,651	)	$	227
Programming rights — non-affiliates
Total assets	1,062,113		(7,651		)	1,054,462
Acquired programming
Long term debt, net of current maturities	369,701		(7,651		)	362,050
Licensed for less than 12 years	$	292,990	$	317,248
Total liabilities	568,475		(7,651		)	560,824
Original programming
Total liabilities and stockholders’ equity	1,062,113		(7,651		)	1,054,462
Licensed for less than 12 years		250,189		249,668
Licensed for 12 years or longer		118,717		136,547
Owned		83,140		92,988
Programming rights— Hallmark Cards affiliates
Licensed for less than 12 years		28,334		28,334
Programming rights, at cost		773,370		824,785
Accumulated amortization		(398,582)		(435,398)
Programming rights available for broadcast		374,788		389,387
Owned programming in development		5,228		5,457
Programming rights, net	$	380,016	$	394,844

3 In the regular course of evaluating the remaining usefulness of its various program rights, the Company may determine that certain rights may be of little future value. ~~Programming~~In ~~Rights~~such instances, the Company shortens the estimated remaining life of the asset, often to zero, thereby accelerating amortization of the remaining net book value. During both the three months ended March 31, 2015 and 2016, no such changes in estimates resulted in additional amortization of programming rights.

~~Programming~~ At December 31, 2015 and March 31, 2016, $24.0 million and $22.2 million, respectively, of programming rights ~~are~~were ~~comprised~~included in prepaid programming rights in the accompanying unaudited condensed consolidated balance sheets. The various license periods associated with such amounts had not commenced as of the ~~following:~~respective balance sheet dates.

	As of December 31,			As of September 30,
	2014			2015
	(In thousands)
Programming rights—non-affiliates
Acquired programming
Licensed for less than 12 years	$	298,731		$	283,874
Original programming
Licensed for less than 12 years	200,760			234,414
Licensed for 12 years or longer	62,585			99,459
Owned	43,271			61,033
Programming rights—Hallmark Cards affiliates
Licensed for less than 12 years	25,694			26,354
Programming rights, at cost	631,041			705,134
Accumulated amortization	(325,046		)	(397,751		)
Programming rights available for broadcast	305,995			307,383
Owned programming in development	1,619			16,260
Programming rights, net	$	307,614		$	323,643

In Table ~~the regular course~~ of evaluating the remaining usefulness of its various program rights, the Company may determine that certain rights may be of little future value. In such instances, the Company shortens the estimated remaining life of the asset, often to zero, thereby accelerating amortization of the remaining net book value. During both the three months ended September 30, 2014 and 2015, no such changes in estimates resulted in additional amortization of programming rights. During the nine months ended September 30, 2014 and 2015, such changes in estimates resulted in additional amortization of programming rights of $7,000 and $30,000, respectively.Contents

10Programming rights payable are comprised of the following:

Table of Contents


	As of December 31,		As of March 31,
	2015		2016
	(In thousands)
Programming rights payable — non-affiliates
Acquired programming	$	94,201	$	105,071
Original programming		14,719		11,922
Programming rights payable — Hallmark Cards affiliates		13,643		12,954
Total programming rights payable		122,563		129,947
Less current maturities		(73,654)		(71,260)
Long-term programming rights payable	$	48,909	$	58,687

~~At December 31, 2014 and September 30, 2015, $39~~ 4.8 million and $39.7 million, respectively, of programming rights were included in prepaid programming rights in the accompanying unaudited condensed consolidated balance sheets. The various license periods associated with such amounts had not commenced as of the respective balance sheet dates. Debt

~~Programming~~ 2015 ~~rights~~Credit ~~payable are comprised of the following:~~Facility

	As of December 31,			As of September 30,
	2014			2015
	(In thousands)
Programming rights payable—non-affiliates
Acquired programming	$	88,856		$	70,148
Original programming	9,923			13,219
Programming rights payable—Hallmark Cards affiliates	13,623			12,398
Total programming rights payable	112,402			95,765
Less current maturities	(66,726		)	(61,543		)
Long-term programming rights payable	$	45,676		$	34,222

On June 25, 2015, the Company entered into the 2015 Credit Agreement. The 2015 Credit Agreement provides for the 2015 Term Loan and the 2015 Revolver. The 2015 Credit Agreement also provides for the issuance of letters of credit and the provision of swingline loans under the 2015 Revolver, subject to a $15.0 million sublimit for letters of credit and a $5.0 million sublimit for swingline loans. The Company used $80.0 million of proceeds from the 2015 Term Loan to repay the 2011 Term Loan. On July 24, 2015, the Company funded the redemption of the Notes using the proceeds from the remaining $245.0 million under the 2015 Term Loan and $25.0 million under the 2015 Revolver along with cash on hand.

4 The 2015 Credit Agreement provides for the 2015 Term Loan, a five year $325.0 ~~Debt~~million senior secured term loan, the 2015 Revolver, a five year $100.0 million senior secured revolver, and the issuance of letters of credit and the provision of swingline loans under the 2015 Revolver, subject to a $15.0 million sublimit for letters of credit and a $5.0 million sublimit for swingline loans. The Company’s subsidiaries (the “Guarantors”) have guaranteed the Company’s obligations under the 2015 Credit Agreement. The 2015 Credit Agreement is collateralized by a first priority interest in substantially all of the present and future assets of the Company and the Guarantors, other than their interests in the Hallmark trademarks and associated rights.

The Company must elect Eurodollar or base rate loans prior to borrowing. Eurodollar loans will bear interest at the adjusted LIBO rate (with that rate not to be deemed to be below 0.00%), plus an interest margin ranging from 1.50% to 2.25%, depending on the Company’s Consolidated Leverage Ratio (as defined in the 2015 Credit ~~Facility~~Agreement). All base rate loans will bear interest at the alternate base rate (as defined in the 2015 Credit Agreement), plus an interest margin ranging from 0.50% to 1.25%, depending on the Company’s Consolidated Leverage Ratio. The adjusted LIBO rate is based on the three month LIBOR.

On Commitment ~~June 25,~~fees ~~2015,~~are ~~the~~payable ~~Company~~on ~~entered into~~ the ~~2015~~unused ~~Credit Agreement. The 2015 Credit Agreement provides for the 2015 Term Loan and the 2015 Revolver. The 2015 Credit Agreement also provides for the issuance of letters of~~ credit ~~and~~commitment ~~the~~at ~~provision of swingline loans under the 2015 Revolver, subject to~~ a ~~$15.0~~rate ~~million~~ranging ~~sublimit~~from ~~for letters of credit and a $5.~~0 ~~million sublimit for swingline loans~~.25% ~~The Company used $80.0 million of proceeds from the 2015 Term Loan~~ to ~~repay the 2011 Term Loan~~0. ~~On July 24~~40%, ~~2015,~~depending on the Company’s ~~funded~~Consolidated ~~the~~Leverage ~~redemption of the Notes using the proceeds from the remaining $245~~Ratio.0 ~~million under the 2015 Term Loan and $25.0 million under the 2015 Revolver along with cash on hand.~~

The ~~2015~~Company ~~Credit~~is ~~Agreement~~required ~~provides~~to ~~for~~make prepayments under the 2015 Term Loan, ain ~~five~~amounts ~~year~~equal ~~$325.0~~to ~~million~~(1) ~~senior~~50% ~~secured~~of ~~term~~excess ~~loan~~cash flow, as defined in the 2015 ~~Revolver~~Credit Agreement, aof ~~five~~the ~~year~~Company ~~$100.0~~for ~~million~~the ~~senior~~six ~~secured~~months ~~revolver~~ending December 31, 2015, and ~~the~~for ~~issuance~~each ofyear ~~letters~~thereafter, ofwhich ~~credit~~percentage ~~and~~will ~~the~~be ~~provision~~reduced ofto ~~swingline~~25% ~~loans~~if ~~under~~ the ~~2015~~Consolidated ~~Revolver,~~Leverage ~~subject~~Ratio is equal to aor ~~$15.0~~less ~~million~~than ~~sublimit~~3.00 ~~for~~to ~~letters~~1.00 ofbut ~~credit~~greater ~~and~~than a2.00 $5to 1.00, and 0% ~~million~~if ~~sublimit~~the ~~for~~Consolidated ~~swingline~~Leverage ~~loans~~Ratio is equal to or less than 2. ~~The~~00 ~~Company’s~~to ~~subsidiaries~~1; (~~the “Guarantors”~~2) ~~have~~100% ~~guaranteed~~of ~~the~~net ~~Company’s~~cash ~~obligations~~proceeds ~~under~~of ~~the~~dispositions ~~2015~~or ~~Credit~~casualty ~~Agreement. The~~events ~~2015~~if ~~Credit~~the ~~Agreement~~Company ishas ~~collateralized~~not byinvested asuch ~~first~~proceeds ~~priority~~within ~~interest~~one inyear ~~substantially~~after ~~all~~the occurrence of the ~~present~~disposition or casualty event; and ~~future~~(3) ~~assets~~100% of ~~the~~net ~~Company~~cash ~~and~~proceeds from the ~~Guarantors,~~issuance ~~other~~of ~~than~~indebtedness ~~their~~not ~~interests~~otherwise inpermitted by the ~~Hallmark~~2015 ~~trademarks~~Credit ~~and associated rights~~Agreement.

The ~~Company~~covenants ~~must~~in ~~elect~~the ~~Eurodollar~~2015 orCredit ~~base~~Agreement ~~rate~~limit ~~loans~~the ~~prior~~ability toof ~~borrowing. Eurodollar loans will bear interest at~~ the ~~adjusted~~Company ~~LIBO~~and ~~rate~~certain ~~(with~~of ~~that~~its ~~rate~~subsidiaries ~~not~~ to, beamong ~~deemed~~other tothings: ~~be below 0.00%~~(1), ~~plus~~incur anindebtedness; ~~interest~~(2) ~~margin~~create ~~ranging~~or ~~from~~permit ~~1.50%~~liens ~~to 2.25%, depending~~ on ~~the~~assets; ~~Company’s Consolidated Leverage Ratio~~ (as3) ~~defined~~pay incertain ~~the~~dividends ~~2015~~or ~~Credit~~make ~~Agreement). All~~certain ~~base~~stock ~~rate~~repurchases ~~loans~~and ~~will~~redemptions ~~bear~~and ~~interest~~other atrestricted ~~the~~payments; ~~alternate base rate~~ (as4) ~~defined~~make incertain ~~the~~investments; ~~2015 Credit Agreement~~(5), ~~plus~~prepay anindebtedness; ~~interest margin ranging from 0.50% to 1.25%, depending on the Company’s Consolidated Leverage Ratio.~~

~~Commitment fees are payable on the unused credit commitment at a rate ranging from 0.25% to 0.40%, depending on the Company’s Consolidated Leverage Ratio.~~ 12

~~The~~ Table ~~Company is required to make prepayments under the 2015 Term Loan in amounts equal to (1) 50%~~ of excess cash flow, as defined in the 2015 Credit Agreement, of the Company for the six months ending December 31, 2015, and for each year thereafter, which percentage will be reduced to 25% if the Consolidated Leverage Ratio is equal to or less than 3.00 to 1.00 but greater than 2.00 to 1.00, and 0% if the Consolidated Leverage Ratio is equal to or less than 2.00 to 1; (2) 100% of net cash proceeds of dispositions or casualty events if the Company has not invested such proceeds within one year after the occurrence of the disposition or casualty event; and (3) 100% of net cash proceeds from the issuance of indebtedness not otherwise permitted by the 2015 Credit Agreement.Contents

~~The covenants in the 2015 Credit Agreement limit the ability of the Company and certain of its subsidiaries to, among other things:~~ (1) incur indebtedness; (2) create or permit liens on assets; (3) pay certain dividends or make certain stock repurchases and redemptions and other restricted payments; (4) make certain investments; (5) prepay indebtedness; (6) enter into certain transactions with its affiliates; (7) dispose of assets; (8) merge or consolidate; (9) enter into new unrelated lines of business; and (10) enter into sale and leaseback transactions. The 2015 Credit Agreement also requires compliance by the Company with a Consolidated Leverage Ratio test and a Consolidated Secured Leverage Ratio test (as defined in the 2015 Credit Agreement).

The Company was in compliance with its covenants under the 2015 Credit Agreement as of ~~September 30~~March 31, ~~2015~~2016.

11 At December 31, 2015, the outstanding balance under the 2015 Term Loan, net of unamortized transaction costs of $2.6 million, was $322.4 million. At March 31, 2016, the outstanding balance under the 2015 Term Loan, net of unamortized transaction costs of $2.4 million, was $322.6 million. The Company made an interest payment of $1.8 million under the 2015 Term Loan during the three months ended March 31, 2016.

~~Table~~ Interest ofexpense ~~Contents~~under the 2015 Term Loan was $2.1 million for the three months ended March 31, 2016. The effective interest rate was approximately 2.63% during the three months ended March 31, 2016. The weighted average nominal interest rate was approximately 2.34% during the three months ended March 31, 2016.

The 2015 ~~Term~~Revolver ~~Loan~~ was not in place during the ~~year~~three months ended ~~December~~ March 31, ~~2014~~2015. AtCommitment ~~September 30,~~fee ~~2015,~~expense for the ~~outstanding~~three ~~balance~~month ~~under~~periods ~~the~~ended ~~2015~~March ~~Term Loan~~31, ~~net of unamortized transaction costs of $2.8 million~~2016, was $~~322.2 million. The Company made an interest payment of $422~~75,000 ~~under the 2015 Term Loan during the three and nine months ended September 30, 2015~~.

~~Interest~~ At ~~expense~~both ~~under~~December ~~the~~31, 2015 ~~Term Loan was $1.5 million for the three~~ and ~~nine~~March ~~months~~31, ~~ended September 30~~2016, ~~2015.~~one ~~The~~letter ~~effective~~of ~~interest~~credit ~~rate~~in ~~was approximately 2.33% during~~ the ~~three~~amount ~~and~~of ~~nine months ended September 30~~$909,000 ~~2015. The weighted average nominal interest rate~~ was ~~approximately 2~~outstanding.~~09% during the three and nine months ended September 30, 2015.~~

~~The~~ 2011 ~~2015~~Credit ~~Revolver was not in place during the year ended December 31, 2014. Commitment fee expense for the three and nine month periods ended September 30, 2015, was $15,000.~~Facility

~~One~~ Pursuant ~~letter~~to ofthe ~~credit~~2011 ~~was~~Credit ~~issued~~Agreement, inthe Company entered into the ~~amount~~2011 ofTerm ~~$909,000~~Loan onand ~~June 29,~~the ~~2015~~2011 Revolver.

~~2015~~ The ~~Refinancing~~Company ~~and~~made ~~Redemption~~principal payments of ~~Notes~~$20.0 million under the 2011 Term Loan during the three months ended March 31, 2015.

In Interest ~~June 2015,~~expense ~~the Company repaid $99.6 million of principal~~ under ~~its~~the 2011 Term Loan ~~using~~was ~~cash on hand of~~ $191.65 million ~~and~~for ~~proceeds from~~ the ~~2015~~three ~~Term~~months ~~Loan~~ended ofMarch ~~$80.0 million. In conjunction with this transaction~~31, ~~the Company recorded a charge of $2~~2015.7 ~~million~~The ~~for~~effective ~~debt~~interest ~~issuance~~rate ~~costs~~was ~~and~~approximately $15.225% ~~million~~during ~~original~~the ~~issue~~three ~~discount~~months ~~costs~~ended ~~related~~March to31, ~~the~~2015. ~~2011~~The ~~Term~~weighted ~~Loan,~~average ~~which~~nominal ~~resulted~~interest inrate anwas ~~aggregate~~approximately ~~pre-tax~~4.05% ~~loss~~during onthe ~~extinguishment~~three ofmonths ~~debt~~ended ofMarch ~~$3.9~~31, ~~million~~2015.

In Interest ~~July 2015,~~expense ~~the~~under ~~Company redeemed $271.5 million in principal amount of Notes (representing 100% of~~ the ~~outstanding~~2011 ~~Notes)~~Revolver for ~~a price of $285.8 million (representing a redemption price of 105.25% of~~ the ~~principal~~three ~~amount,~~months ~~plus~~ended ~~accrued~~March ~~and unpaid interest) and recorded a charge for the associated debt issuance costs of approximately $4.3 million~~31, ~~which~~2015 ~~resulted~~was ~~in an aggregate, pre-tax loss on extinguishment of debt of approximately~~ $180.6 ~~million.~~

Commitment fees on the 2011 ~~Credit~~Revolver ~~Facility~~were payable on the unused revolving credit commitment at the rate of 0.50% per annum, payable quarterly. Commitment fee expense for the three-month period ended March 31, 2015, was $37,000.

~~Pursuant~~ The ~~to the 2011 Credit Agreement, the Company had the 2011 Term Loan and the 2011 Revolver. At December 31, 2014, the Company had no outstanding borrowings under the 2011 Revolver.~~Notes

At Interest ~~December 31,~~expense ~~2014, the outstanding balance~~ under the ~~2011~~Notes ~~Term~~was ~~Loan, net of unamortized transaction costs of~~ $47.3 million, ~~was~~for ~~$115.4~~the ~~million.~~three ~~The~~months ~~Company~~ended ~~made~~March ~~principal~~31, ~~payments~~2015. ofAfter ~~$11.5~~giving ~~million~~effect ~~under~~to the ~~2011~~amortization ~~Term~~of ~~Loan~~associated ~~during~~debt ~~the~~issuance ~~three months ended September 30~~costs, ~~2014.~~the ~~The~~effective ~~Company~~interest ~~made~~rate ~~principal payments~~ of ~~$36.5 million and $119.6 million under~~ the ~~2011~~Notes ~~Term~~was ~~Loan~~approximately 11.0% during the ~~nine~~three months ended ~~September 30,~~March ~~2014 and 2015~~31, ~~respectively~~2015.

~~Interest~~ Debt ~~expense~~Service under the 2011 Term Loan was $1.6 million for the three months ended September 30, 2014. The effective interest rate was approximately 5.10% during the three months ended September 30, 2014. The weighted average nominal interest rate was approximately 4.05% during the three months ended September 30, 2014.Requirements

~~Interest~~ Debt ~~expense~~service ~~under~~requirements, ~~the~~including ~~2011~~estimated ~~Term~~future ~~Loan~~interest ~~was $5.1 million~~ and ~~$2.7~~premium, ~~million~~ for ~~the~~each ~~nine~~of ~~months~~the ~~ended~~five ~~September 30,~~years ~~2014~~subsequent ~~and~~to ~~2015,~~March ~~respectively. The effective interest rate was approximately 5.03% during the nine months ended September 30~~31, ~~2014.~~2016 ~~The~~and ~~weighted average nominal interest rate was approximately 4.05% during~~ the ~~nine-month~~ period ~~ended September 30~~thereafter, ~~2014.~~are as follows:

Interest expense under the 2011 Revolver for the three months ended September 30, 2014 was $0. Interest expense under the 2011 Revolver for both the nine months ended September 30, 2014 and 2015, was $0. Under the 2011 Revolver, one letter of credit was outstanding in the amount of $202,000 at December 31, 2014. Commitment fees on the 2011 Revolver were payable on the unused revolving credit commitment at the rate of 0.50% per annum, payable quarterly. Commitment fee expense for the three-month period ended September 30, 2014 was $38,000. Commitment fee expense for the nine-month periods ended September 30, 2014 and 2015, was $113,000 and $89,000, respectively.


	Payments Due by Period
	Total		Year 1		Year 2		Year 3		Year 4		Year 5
	(In thousands)
Term Loan, due June 25, 2020	$	355,702	$	23,982	$	23,608	$	31,295	$	38,826	$	237,991

~~The Notes~~ 13

At Table ~~December 31, 2014, the outstanding balance under the Notes, net~~ of ~~unamortized transaction costs of $4.8 million, was $266.7 million.~~Contents

Interest expense under the Notes was $8.0 million and $2.0 million for the three months ended September 30, 2014 and 2015, respectively. After giving effect to the amortization of associated debt issuance costs, the effective interest rate of the Notes was approximately 11.0% during both the three months ended September 30, 2014 and 2015.Guarantees

12 Because Crown Media Holdings has no independent assets or operations, the guarantees by the Guarantors under the 2015 Credit Agreement are full and unconditional, as well as joint and several. All subsidiaries of Crown Media Holdings are Guarantors. The 2015 Credit Agreement imposes restrictions on the payment of dividends by Crown Media Holdings and the Guarantors.

~~Table~~ 5. Derivatives ofInstrument ~~Contents~~and Hedging Activities

Interest ~~expense~~Rate ~~under~~Swap the Notes was $24.1 million and $16.6 million for the nine months ended September 30, 2014 and 2015, respectively. After giving effect to the amortization of associated debt issuance costs, the effective interest rate of the Notes was approximately 11.0% during both the nine months ended September 30, 2014 and 2015.Agreement

In As ~~August 2014,~~of ~~the~~both ~~Company~~December ~~redeemed~~31, ~~$8.5~~2015 ~~million~~and inMarch ~~principal~~31, ~~amount~~2016, ofthe ~~its~~Company ~~Notes~~has ~~due~~one ~~July 2019~~traditional ~~for~~interest arate ~~price~~swap ~~of $9~~agreement.5 ~~million~~The ~~and~~interest ~~retired~~rate aswap ~~portion~~agreement ofhas ~~the~~a ~~related~~notional ~~debt~~amount ~~issuance costs~~ of $~~160~~200.0 million,~~000,~~ ~~which~~matures ~~resulted~~on inJune an25, ~~aggregate~~2020, ~~pre-tax~~requires ~~loss~~the onCompany ~~extinguishment~~to pay a fixed rate of ~~debt~~interest of $1.26775% ~~million.~~per ~~In October 2014~~annum, ~~the~~a ~~Company~~swap ~~redeemed~~counterparty ~~$20.0~~pays ~~million~~the inCompany ~~principal~~a ~~amount~~variable rate of ~~its~~interest ~~Notes~~based ~~due~~upon ~~July 2019~~the ~~for~~three amonth ~~purchase~~LIBOR, ~~price~~and ofhas ~~$22.1~~interest ~~million~~settlement ~~and~~dates ~~retired~~occurring aon ~~portion of~~ the ~~related~~25th ~~debt issuance costs~~ of ~~$368~~January,~~000~~ April, ~~which~~July, ~~resulted~~and inOctober ~~aggregate~~through amaturity ~~pre-tax~~to ~~loss~~coincide onwith ~~extinguishment~~the ofinterest ~~debt~~payment dates of ~~$2.5~~the ~~million~~2015 Term Loan.

~~Debt~~ The ~~Service~~Company ~~Requirements~~designated the interest rate swap agreement as a qualifying cash flow hedge.

~~Debt~~ The ~~service~~Company ~~requirements,~~did ~~including~~not ~~estimated~~have ~~future~~any ~~interest~~settlements ~~and premium,~~ for ~~each of~~ the ~~five~~three ~~years~~months ~~subsequent~~ended toMarch ~~September 30~~31, 2015. The ~~and~~Company paid interest under the ~~period~~swap ~~thereafter~~agreement of $658,000 ~~are~~during asthe ~~follows:~~three months ended March 31, 2016.

	Payments Due by Period
	Total		Year 1		Year 2		Year 3		Year 4		Year 5
Revolver, due June 25, 2020	$	25,099	$	25,099	$	—	$	—	$	—	$	—
Term Loan, due June 25, 2020	354,621		14,622		22,762		26,484		34,156		256,597
	$	379,720	$	39,721	$	22,762	$	26,484	$	34,156	$	256,597

Risk Management Objective of Using Derivatives

~~Guarantees~~ The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from the payment of future uncertain cash amounts, which are determined by interest rates. The Company’s derivative financial instrument is used to manage differences in the amount of the Company’s expected cash payments related to the Company’s borrowings. The Company does not speculate using derivative instruments.

~~Because~~ As ~~Crown~~of ~~Media~~both ~~Holdings~~December ~~has no independent assets or operations~~31, ~~the guarantees by the Guarantors under the~~ 2015 ~~Credit Agreement are full~~ and ~~unconditional~~2016, asthe ~~well~~Company asdid ~~joint~~not ~~and~~have ~~several.~~any ~~All~~derivatives ~~subsidiaries~~outstanding ofthat ~~Crown~~were ~~Media~~not ~~Holdings~~designated ~~are~~in ~~Guarantors. The~~hedge ~~2015~~accounting ~~Credit Agreement imposes restrictions on the payment of dividends by Crown Media Holdings and the Guarantors~~relationships.

During the next twelve months, the Company estimates that $1.5 million will be reclassified to interest expense. ~~Derivatives~~This ~~Instrument~~interest ~~and~~expense ~~Hedging~~will ~~Activities~~also impact income tax expense.

~~Interest~~ Tabular ~~Rate~~Disclosure ~~Swap~~of ~~Agreement~~Fair Values of Derivative Instruments on the Balance Sheet

As The oftable ~~September 30,~~below ~~2015,~~presents the ~~Company~~fair ~~has~~value ~~one traditional interest rate swap agreement. The interest rate swap agreement has a notional amount~~ of ~~$200.0 million; matures on June 25, 2020; requires~~ the Company’s toderivative ~~pay~~financial ainstrument ~~fixed~~as ~~rate~~well ofas ~~interest~~its ofclassification ~~1.645% per~~on ~~annum; a swap counterparty pays~~ the ~~Company~~unaudited acondensed ~~variable~~consolidated ~~rate~~balance ofsheet ~~interest~~as ~~based upon the three month LIBOR; and has interest settlement dates occurring on the 25th~~ of ~~January,~~December ~~April~~31, ~~July,~~2015 and ~~October through~~March ~~maturity~~31, ~~to coincide with the interest payment dates of the 2015 Term Loan.~~2016:

The Company designated the interest rate swap agreement above as qualifying cash flow hedge.

As of December 31, 2015

As of March 31, 2016

Derivative Liability

Balance Sheet
Location

Fair Value
(in thousands)

Balance Sheet
Location

Fair Value
(in thousands)

Interest rate swap designated as a hedging instrument

Derivative Payable

735

Derivative Payable

5,145

The ~~Company~~unrealized ~~did~~loss ~~not~~on ~~have~~derivatives ~~any~~is ~~such~~recorded ~~settlements~~net of a tax benefit of $93,000 for the ~~three~~year orended ~~nine~~December 31, 2015 and $1.7 million for the three months ended ~~September 30~~March 31, ~~2015~~2016.

~~Risk Management Objective of Using Derivatives~~ 14

~~The~~ Table ~~Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety~~ of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from the payment of future uncertain cash amounts, which are determined by interest rates. The Company’s derivative financial instrument is used to manage differences in the amount of the Company’s expected cash payments related to the Company’s borrowings. The Company does not speculate using derivative instruments.Contents

AsCredit ofRisk-Related ~~September 30,~~Contingent ~~2015,~~Features ~~the Company did not have any derivatives outstanding that were not designated in hedge accounting relationships.~~

13 The Company has an agreement with its derivative counterparty that contains a provision pursuant to which defaults by the Company, including defaults where repayment of the indebtedness has not been accelerated by the lender, could also be declared as defaults under the Company’s derivative obligations.

~~Table~~ As of ~~Contents~~December 31, 2015, and March 31, 2016, the termination value of derivative in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to this agreement was $735,000 and $5.1 million, respectively. As of December 31, 2015 and March 31, 2016, the Company has posted no collateral related to this agreement. If the Company had breached any of these provisions at December 31, 2015 and March 31, 2016, it could have been required to settle its obligation under the agreement at its termination value of $735,000 and $5.1 million, respectively.

~~Cash~~ Changes ~~Flow~~in ~~Hedges~~Accumulated ofOther ~~Interest~~Comprehensive ~~Rate~~Loss ~~Risk~~

The ~~Company’s~~following ~~objectives~~table inreflects ~~using an interest rate derivative are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives,~~ the Company uses an interest rate swap as part of its interest rate risk management strategy. During the three and nine months ended September 30, 2015, one derivative was used to hedge the variable cash flows associated with existing variable-rate debt. As of September 30, 2015, the Company had one outstanding interest rate swap agreement with a notional value of $200.0 million that was designated as a cash flow hedge of interest rate risk. The effective portion of changes in ~~the fair value of derivatives designated and that qualify as cash flow hedges is recorded in~~ accumulated other comprehensive loss ~~and~~for ~~subsequently reclassified into earnings in~~ the ~~period~~year ~~that~~ended ~~the~~December ~~hedged~~31, ~~forecasted~~2015 ~~transaction~~and ~~affects earnings. The ineffective portion of~~ the ~~change~~three inmonths ~~fair~~ended ~~value~~March of31, ~~the derivatives is recognized directly in earnings. During the next twelve months~~2016, ~~the~~net ~~Company~~of ~~estimates that $2.3 million will be reclassified to interest expense. This interest expense will also impact income~~ tax ~~expense.~~:

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet


	(Losses) Gains on Cash Flow Hedges
	(In thousands)
Accumulated other comprehensive loss:
Balance at December 31, 2014	$	—
Other comprehensive loss before reclassifications, net of tax		(808)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		650
Unrealized loss on derivatives, net of tax, balance at December 31, 2015		(158)

Other comprehensive loss before reclassifications, net of tax		(3,212)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax		358
Unrealized loss on derivatives, net of tax		(2,854)

Balance at March 31, 2016	$	(3,012)

~~The~~ 6. Fair ~~table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the unaudited condensed consolidated balance sheet as of September 30, 2015:~~Value

The following table presents the carrying amounts (including interest) and estimated fair values (including interest) of the Company’s financial instruments at December 31, 2015 and March 31, 2016.

The unrealized loss on derivatives is recorded net of a tax benefit of $1.1 million for the three and nine months ended September 30, 2015.


	December 31, 2015				March 31, 2016
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In thousands)

Interest rate swap (Level 2)	$	735	$	735	$	5,145	$	5,145
2015 Term Loan and interest payable (Level 3)		323,675		325,500		324,016		326,462

~~Tabular~~ ASC ~~Disclosure~~Topic 820 Fair Value Measurements and Disclosures defines fair value of a liability as the ~~Effect~~price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company estimated the fair value of ~~Derivative~~the ~~Instrument~~interest rate swap using the trading prices obtained from Bloomberg on December 31, 2015 and March 31, 2016, a Level 2 input. The Company estimated the ~~Statements~~fair value of ~~Operations~~its ~~and~~2015 ~~Comprehensive~~Term ~~Income~~Loan ~~(Loss)~~using a yield-to-maturity rate obtained from a pricing service, a Level 3 input.

~~The~~ At ~~table~~December 31, ~~below~~2015 ~~presents~~and March 31, 2016, the ~~pre-tax~~fair ~~effect~~values of the ~~Company’s~~Level ~~derivative~~3 financial ~~instrument~~instruments onwere ~~the~~$325.5 ~~unaudited~~million ~~condensed~~and ~~consolidated~~$326.5 ~~statements~~million, ofrespectively. ~~operations~~No ~~and~~transfers ~~comprehensive~~between ~~income~~levels ~~(loss)~~occurred ~~for~~during ~~the~~2015 ~~three~~ and ~~nine months ended September 30, 2015:~~2016.

	Three Months Ended September 30, 2015 (in thousands)			Nine Months Ended September 30, 2015 (in thousands)
Derivative in Cash Flow Hedging Relationship:
Loss related to effective portion of derivative recognized in accumulated other comprehensive loss	$	(3,337	)	$	(3,337	)
Gain related to effective portion of derivative reclassified from accumulated other comprehensive loss to interest expense	$	362		$	362
Loss related to ineffective portion of derivative recognized in other expense (income), net	$	—		$	—

~~Credit~~ Table ~~Risk-Related~~of ~~Contingent Features~~Contents

~~The~~Accounts ~~Company~~payable ~~has~~and anaccrued ~~agreement~~liabilities ~~with~~and ~~its~~receivables ~~derivative~~are ~~counterparty~~carried ~~that~~at ~~contains~~reasonable aestimates ~~provision~~of ~~where~~their iffair values because of the ~~Company~~short-term ~~defaults~~nature of these instruments. Interest rates on ~~any~~borrowings ofunder ~~its~~the ~~indebtedness,~~revolvers ~~including~~are ~~default~~for ~~where~~relatively ~~repayment~~short ofperiods and variable. Therefore, the ~~indebtedness~~fair ~~has~~value of this debt is not ~~been~~significantly ~~accelerated~~affected by fluctuations in interest rates. The credit spread on the ~~lender~~debt is fixed, ~~then~~but the ~~Company~~market ~~could~~rate ~~also~~will befluctuate. ~~declared~~Only a significant change in ~~default~~the oncreditworthiness ~~its~~of ~~derivative~~the ~~obligations~~Company would impact the credit spread. The Company believes that there has not been a significant change in this regard since issuance.

As of September 30, 2015, the termination value of derivative in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to this agreement was $3 7.3 Related ~~million.~~Party As of September 30, 2015, the Company has posted no collateral related to this agreement. If the Company had breached any of these provisions at September 30, 2015, it could have been required to settle its obligation under the agreement at its termination value of $3.3 million.Transactions

~~Changes~~ State inTax ~~Accumulated~~Sharing ~~Other Comprehensive Loss~~Agreements

~~The~~ For ~~following~~the ~~table~~tax ~~reflects~~year ended December 31, 2015, it is estimated that the ~~changes~~Company inwill ~~accumulated~~owe ~~other~~Hallmark ~~comprehensive~~Cards ~~loss~~approximately $358,000 with respect to the state tax sharing agreement, which will be paid during 2016 two days prior to the due date of the state tax returns. At March 31, 2016, it is estimated that the Company will owe Hallmark Cards approximately $221,000 with respect to a state tax sharing agreement for the ~~nine~~three months ended ~~September 30~~March 31, ~~2015~~2016, ~~net~~which will be paid during 2017 two days prior to the due date of the state tax: return.

14 The state tax sharing agreement will continue as long as the Company is included in Hallmark Cards’ consolidated or combined returns. The Company expects it will continue to be included in Hallmark Cards’ consolidated or combined returns for certain states.

~~Table~~ Canadian ~~of Contents~~Funds

Accumulated other comprehensive loss:	(Losses) Gains on Cash Flow Hedges (in thousands)
Balance at December 31, 2014	$	—
Other comprehensive loss before reclassifications, net of tax	(2,103		)
Amounts reclassified from accumulated other comprehensive loss to interest expense, net of tax	228
Unrealized loss on derivatives, net of tax	(1,875		)
Balance at September 30, 2015	$	(1,875	)

During 2015, Hallmark Cards paid $6.7 million of Canadian film costs on our behalf which we reimbursed during the same period. Additionally, we purchased $8.8 million of Canadian dollars from Hallmark Cards during 2015 at market rates.

6 During the three months ended March 31, 2015, Hallmark Cards paid $3.8 ~~Fair~~million ~~Value~~of Canadian film costs on our behalf which we reimbursed. During the three months ended March 31, 2016, we purchased $3.6 million of Canadian dollars from Hallmark Cards at market rates.

~~The~~ Services ~~following~~Agreement ~~table~~with ~~presents~~Hallmark ~~the carrying amounts (including interest) and estimated fair values (including interest) of the Company’s financial instruments at December 31, 2014 and September 30, 2015.~~Cards

	December 31, 2014				September 30, 2015
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In thousands)
2011Term Loan and interest payable (Level 3)	$	115,367	$	115,975	$	—	$	—
2015 Term Loan and interest payable (Level 3)	—		—		323,210		326,102
Interest rate swap (Level 2)	—		—		3,337		3,337
The Notes and interest payable (Level 2)	279,763		309,256		—		—

Hallmark Cards provides Crown Media Holdings with tax, risk management, health, safety, environmental, insurance, legal, treasury, human resources, cash management and real estate consulting services. In exchange, the Company is obligated to pay Hallmark Cards a fee, plus out-of-pocket expenses and third party fees, in arrears on the last business day of each month. Fees for Hallmark Cards’ services were $389,000 for 2015 and are expected to be $426,000 for 2016.

~~ASC~~ At ~~Topic~~December 31, ~~820~~2015 ~~Fair Value Measurements~~ and ~~Disclosures~~March ~~defines~~31, ~~fair~~2016, ~~value of a liability as~~ the ~~price~~Company’s ~~that~~payables ~~would be paid~~ to ~~transfer~~Hallmark aCards ~~liability~~affiliates in anthe ~~orderly~~accompanying ~~transaction~~consolidated ~~between~~balance ~~market~~sheets ~~participants~~were at$353,000 ~~the~~and ~~measurement~~$658,000, ~~date~~respectively. The ~~Company estimated the fair value of the Notes using the trading prices obtained from Bloomberg on~~ December 31, ~~2014,~~2015 abalance ~~Level 2~~was ~~input,~~comprised ~~due~~of to$346,000 ~~the limited amount~~ of ~~trading~~taxes ~~activity.~~and ~~The~~$7,000 ~~Company estimated the fair value~~ of ~~the~~invoices ~~interest~~paid ~~rate~~on ~~swap using~~ the ~~trading~~Company’s ~~prices obtained from Bloomberg on September 30, 2015, a Level 2 input~~behalf. The ~~Company~~March ~~estimated~~31, ~~the~~2016 ~~fair~~balance ~~value~~was comprised of ~~its 2011 Term Loan and 2015 Term Loan using a yield-to-maturity rate obtained from a pricing service, a Level 3 input~~taxes.

At “Hallmark ~~December 31,~~Hall ~~2014 and September 30, 2015, the fair values~~ of ~~the~~Fame” ~~Level 3~~Programming ~~financial~~License ~~instruments were $116.0 million and $326.1 million, respectively. No transfers between levels occurred during 2014 and 2015.~~Agreement

~~Accounts~~ In ~~payable~~2008, ~~and~~Crown ~~accrued~~Media ~~liabilities~~United ~~and~~States ~~receivable~~entered ~~are~~into ~~carried~~an atagreement ~~reasonable~~with ~~estimates~~Hallmark Hall of ~~their~~Fame ~~fair~~Productions, ~~values~~LLC ~~because~~for of the ~~short-term~~exclusive ~~nature~~television license of ~~these~~58 ~~instruments.~~“Hallmark ~~Interest~~Hall ~~rates~~of onFame” ~~borrowings~~movies, ~~under~~consisting ~~the~~of ~~revolvers~~16 ~~are~~contemporary ~~for~~Hallmark ~~relatively~~Hall ~~short~~of ~~periods~~Fame ~~and~~titles ~~variable~~(i. ~~Therefore~~e., ~~the~~produced ~~fair~~from ~~value~~2003 ofto ~~this~~2008) ~~debt~~and is42 ~~not~~older ~~significantly~~titles, ~~affected~~for byexhibition ~~fluctuations~~on inHallmark ~~interest~~Channel ~~rates.~~and ~~The~~Hallmark ~~credit~~Movies ~~spread~~and onMysteries. ~~the~~These ~~debt~~titles isare ~~fixed,~~licensed ~~but~~for ~~the~~ten ~~market~~year ~~rate~~windows, ~~will~~which ~~fluctuate.~~commenced ~~Only~~at avarious ~~significant~~times ~~change~~between in2007 ~~the~~and ~~creditworthiness~~2010. The oftotal ~~the~~license ~~Company~~fee ~~would~~for ~~impact~~these ~~the~~movies ~~credit~~is ~~spread~~$17.2 ~~The~~million ~~Company~~and ~~believes~~is ~~that~~payable ~~there~~in ~~has~~equal ~~not~~monthly ~~been~~installments aover ~~significant~~the ~~change~~various inten-year ~~this~~exhibition ~~regard since issuance~~windows.

~~7. Related Party Transactions~~ 16

~~State~~ Table ~~Tax~~of ~~Sharing Agreements~~Contents

~~During~~In ~~2014~~2011, ~~the~~Crown ~~Company~~Media ~~reimbursed~~United ~~Hallmark~~States ~~Cards~~entered ~~approximately~~into ~~$385,000~~an ~~with~~additional ~~respect to a state tax sharing~~ agreement with Hallmark ~~Cards~~Hall ~~for~~of ~~the~~Fame ~~2013~~Productions, ~~tax~~LLC ~~year.~~for ~~For~~ the ~~tax~~exclusive ~~year~~television ~~ended~~license ~~December 31,~~of ~~2014,~~16 ~~the~~“Hallmark ~~Company~~Hall ~~owed~~of ~~Hallmark~~Fame” ~~Cards~~movies ~~approximately~~produced ~~$72,000~~from ~~with~~2009 ~~respect~~through to2014, ~~the~~for ~~state~~exhibition ~~tax~~on ~~sharing~~Hallmark ~~agreement,~~Channel ~~which~~and ~~was~~Hallmark ~~paid~~Movies ~~during~~and ~~October 2015~~Mysteries. ~~At September~~ ~~30,~~These ~~2015,~~titles itare islicensed ~~estimated~~for ~~that~~ten-year ~~the~~windows, ~~Company~~with ~~will~~windows ~~owe~~commencing ~~Hallmark~~at ~~Cards~~various ~~approximately~~times ~~$148,000~~between ~~with~~2011 ~~respect~~and to2014, adepending ~~state~~on ~~tax~~availability. The ~~sharing~~total ~~agreement,~~license ~~which~~fee ~~will~~for bethese ~~paid~~movies ~~during~~is ~~2016~~$10.0 ~~two~~million ~~days~~and ~~prior~~is topayable ~~the~~in ~~due~~equal ~~date~~monthly ofinstallments over the ~~state~~various ~~tax~~ten-year ~~return~~exhibition windows.

~~The~~ Effective ~~state~~October ~~tax~~1, ~~sharing~~2014, Crown Media United States entered into an additional agreement ~~will~~with ~~continue~~Hallmark asHall ~~long~~of asFame Productions, LLC for the ~~Company~~exclusive istelevision ~~included~~license inof “Hallmark ~~Cards’~~Hall ~~consolidated~~of orFame” ~~combined~~movies ~~returns.~~produced ~~The~~from ~~Company~~2014 ~~expects~~through it2016, ~~will~~for ~~continue~~exhibition toon beHallmark ~~included~~Channel inand Hallmark ~~Cards’~~Movies ~~consolidated~~and orMysteries. ~~combined~~These ~~returns~~titles are licensed for ~~certain~~ten-year ~~states~~windows, with windows commencing at times as agreed to by the parties. The license fee for these movies is $660,000 per movie and is payable in equal yearly installments over the license term.

~~Services~~ Effective ~~Agreement~~September 12, 2014, the Company entered into an agreement with Hallmark Cards whereby Hallmark Cards has purchased advertising time from the Company and has provided exclusive premier rights to the two new “Hallmark Hall of Fame” two-hour movies. Additionally, the Company had exclusive rights to broadcast two “Hallmark Hall of Fame” two-hour movies, which had premiered in a previous year. The Company has received $3.0 million under this agreement in connection with Hallmark Cards’ advertising on Hallmark Channel. The Company recognized advertising revenue of approximately $3.8 million as it fulfilled its advertising obligations to Hallmark Cards over the life of the agreement. As of December 31, 2015, four of these movies have aired on Hallmark Channel.

~~Hallmark~~ Effective ~~Cards~~July ~~provides~~28, ~~Crown~~2015, ~~Media~~the ~~Holdings~~Company entered into a new agreement with ~~tax~~Hallmark Cards, ~~risk~~pursuant ~~management,~~to ~~health,~~which ~~safety,~~Hallmark ~~environmental,~~Cards ~~insurance,~~has ~~legal,~~agreed ~~treasury,~~to ~~human~~provide ~~resources,~~exclusive ~~cash~~premier ~~management~~rights to a new holiday Hallmark Hall of Fame two-hour movie and ~~real~~to ~~estate~~purchase ~~consulting~~advertising ~~services~~time from the Company for $2.3 Inmillion. ~~exchange~~As of December 31, ~~the~~2015, ~~Company~~this ismovie ~~obligated~~has toaired ~~pay~~on Hallmark Channel.

15 In February 2016, the Company entered into a new agreement with Hallmark Cards, pursuant to which the Company will become the producer and premier broadcaster of the Hallmark Hall of Fame television series. Hallmark Cards will continue to sponsor the series and will remain involved in the creative process, including approving scripts that build upon the series’ reputation for movies that entertain, enlighten and inspire. The Company would be obligated to produce two movies per year, one for Christmas and one for Valentine’s Day.

~~Table~~ Northpole ofLicensing ~~Contents~~Agreements

~~Hallmark~~ The ~~Cards~~Company ahas ~~fee~~produced Northpole, ~~plus~~a ~~out-of-pocket~~Hallmark ~~expenses~~Channel ~~and~~original ~~third~~holiday ~~party fees~~movie, inwhich ~~arrears~~premiered onduring the ~~last~~2014 ~~business~~holiday ~~day of each month~~season. ~~Fees~~It ~~for~~was ~~Hallmark~~the ~~Cards’~~first ~~services~~full-length, ~~were~~two-hour ~~$342,000~~original ~~for~~holiday ~~2014~~movie ~~and~~by ~~are~~Hallmark ~~expected~~Channel tobased beon ~~$389,000~~Hallmark ~~for~~Cards’ ~~2015~~intellectual property.

At The ~~December 31,~~Company ~~2014~~has ~~and~~produced ~~September 30,~~Northpole: ~~2015,~~Open ~~the~~for ~~Company’s~~Christmas, ~~payables~~a to Hallmark ~~Cards~~Channel ~~affiliates~~original inholiday ~~the~~movie, ~~accompanying~~which ~~consolidated~~premiered ~~balance~~during ~~sheets~~the ~~were~~2015 ~~$150,000~~holiday ~~and $212,000, respectively~~season. ~~The~~It ~~December 31,~~is ~~2014 balance was comprised of taxes and~~ the ~~September 30~~second full-length, ~~2015~~two-hour ~~balance~~original ~~was~~holiday ~~comprised~~movie ofproduced ~~$208,000~~by ofHallmark ~~taxes~~Channel ~~and~~based ~~$4,000~~on ofHallmark ~~intercompany~~Cards’ ~~expenses~~intellectual property.

~~“Hallmark~~ Sublease ~~Hall of Fame” Programming License~~ Agreement

In During ~~2008,~~the ~~Crown~~first ~~Media~~quarter ~~United~~of ~~States~~2016, the Company entered into ana sublease agreement with Hallmark ~~Hall~~Cards ~~of Fame Productions, LLC~~ for ~~the~~additional ~~exclusive~~Studio ~~television~~City, ~~license of 58 “Hallmark Hall of Fame” movies~~California, ~~consisting~~office ofspace. 16The ~~contemporary~~lease ~~Hallmark~~will ~~Hall~~commence ofon ~~Fame~~May ~~titles (i.e.~~1, ~~produced~~2016 ~~from 2003 to 2008)~~ and 42terminate ~~older titles, for exhibition~~ on ~~Hallmark~~January ~~Channel~~31, ~~and~~2017. Future ~~Hallmark~~minimum ~~Movies~~lease ~~and~~payments ~~Mysteries.~~under ~~These~~the ~~titles~~agreement are ~~licensed~~$102,000 for ~~ten year windows~~5,681 ~~which~~square ~~commenced at various times between 2007 and 2010~~feet. ~~The total license fee for these movies is $17.2 million and is payable in equal monthly installments over the various ten-year exhibition windows.~~

In Trademark ~~2011,~~Agreement ~~Crown Media United States entered into an additional agreement~~ with Hallmark Hall of Fame Productions, LLC for the exclusive television license of 16 “Hallmark Hall of Fame” movies produced from 2009 through 2014, for exhibition on Hallmark Channel and Hallmark Movies and Mysteries. These titles are licensed for ten-year windows, with windows commencing at various times between 2011 and 2014, depending on availability. The total license fee for these movies is $10.0 million and is payable in equal monthly installments over the various ten-year exhibition windows.Cards

~~Effective October 1, 2014,~~ Crown Media United States ~~entered~~has ~~into~~a antrademark ~~additional~~license agreement with Hallmark ~~Hall of Fame Productions~~Licensing, LLC ~~for~~(f/k/a ~~the~~Hallmark ~~exclusive~~Licensing, ~~television~~Inc., ~~license of~~ “Hallmark ~~Hall of Fame~~Licensing”), ~~movies~~an ~~produced~~affiliate ~~from~~of ~~2014~~Hallmark ~~through 2016~~Cards, for ~~exhibition~~use onof the “Hallmark” mark for Hallmark Channel and for Hallmark Movies and Mysteries. ~~These~~The ~~titles~~agreement ~~are~~terminates ~~licensed~~upon ~~for~~the ~~ten-year~~earlier ~~windows,~~of ~~with~~(i) ~~windows~~June ~~commencing~~30, at2021 ~~times~~or as(ii) ~~agreed to by~~ the ~~parties.~~payment ~~The~~in ~~license~~full ~~fee~~of ~~for~~all ~~these movies is $660~~obligations,~~000~~ ~~per movie~~ and isterminations ~~payable~~of inall ~~equal~~commitments, ~~yearly~~under ~~installments over~~ the ~~license~~2015 ~~term~~Credit Agreement.

Effective July 6, 2013, the Company and Hallmark Cards extended their July 6, 2011 agreement for another year, whereby Hallmark Cards purchased advertising time from the Company and provided one-week, limited play licenses for each of two new “Hallmark Hall of Fame” two-hour movies produced by Hallmark Cards and up to two additional Hallmark Hall of Fame movies premiered in a previous year. The Company recognized advertising revenue of approximately $2.1 million as it fulfilled its advertising obligation to Hallmark Cards over the life of the agreement. 17

~~Effective~~ Table September 12, 2014, the Company entered into an agreement with Hallmark Cards whereby Hallmark Cards has purchased advertising time from the Company and has provided exclusive premier rights to the two new “Hallmark Hall of Fame” two-hour movies. Additionally, the Company had exclusive rights to broadcast two “Hallmark Hall of Fame” two-hour movies, which had premiered in a previous year. The Company has received $3.0 million under this agreement in connection with Hallmark Cards’ advertising on Hallmark Channel. The Company recognized advertising revenue of approximately $3.8 million as it fulfilled its advertising obligations to Hallmark Cards over the life of the agreement. As of September 30, 2015, four of these movies have aired on Hallmark Channel.Contents

~~Effective~~The ~~July 28,~~Company ~~2015,~~is ~~the~~not ~~Company~~required ~~entered~~to ~~into~~pay aany ~~new~~royalty ~~agreement~~fees ~~with~~under ~~Hallmark~~the ~~Cards,~~trademark ~~pursuant~~license toagreement. ~~which~~Accordingly, ~~Hallmark~~no ~~Cards~~amounts ~~has~~have ~~agreed~~been toreflected ~~provide~~in ~~exclusive~~the ~~premier~~accompanying ~~rights~~consolidated tobalance asheets ~~new~~or ~~holiday~~consolidated ~~Hallmark~~statements ~~Hall~~ of ~~Fame~~operations ~~two-hour movie~~ and tocomprehensive ~~purchase~~income ~~advertising~~(loss) ~~time~~of ~~from~~ the Company for ~~$2.3~~these ~~million~~licenses.

~~Northpole~~ Under the license agreement, the Company would be in default if it (i) distributed any programming which fails to comply with the standards outlined, or fails to comply with any other term of the agreement and does not cure such failure within 10 days of notice, (ii) fails to make any payment due under any loan agreement within five days of its due date or (iii) receives an opinion from its auditors that expresses their doubt with respect to the Company’s ability to continue as a going concern, among others.

~~The Company has produced Northpole, a Hallmark Channel original holiday movie, which premiered during the 2014 holiday season~~ 8. Income It was the first full-length, two-hour original holiday movie produced by Hallmark Channel based on Hallmark Cards’ intellectual property. Costs in the amount of $6.6 million related to this movie have been capitalized and are included in long-term programming rights on the unaudited condensed consolidated balance sheet at December 31, 2014. At September 30, 2015, the unaudited condensed consolidated balance sheet reflected $3.6 million related to this film. The Company recognized licensing revenue of approximately $900,000 related to a merchandising rights agreement with Hallmark Cards during the year ended December 31, 2014, and $0 for both the three and nine months ended September 30, 2015.Taxes

~~Northpole~~ As IIa result of the Federal Tax Deconsolidation in 2012, the Company files a separate-company federal tax return. For 2013, 2014 and 2015, the Company generated federal and state taxable income for both regular tax and alternative minimum tax (“AMT”) purposes. For regular tax purposes, this income will be fully offset by net operating loss carryforwards. However, for federal AMT purposes, loss carryforwards used to offset the AMT income are subject to a 90% limitation.

~~The~~ During ~~Company~~the ~~has~~three ~~produced~~months ~~Northpole~~ended IIMarch 31, a2015 ~~Hallmark~~and ~~Channel original holiday movie~~2016, ~~which will premier during~~ the ~~2015~~Company ~~holiday~~paid ~~season.~~AMT Itof is$61,000 ~~the~~and ~~second full-length~~$0, ~~two-hour~~respectively. ~~original~~During ~~holiday~~the ~~movie~~three ~~produced~~months byended ~~Hallmark~~March ~~Channel~~31, ~~based~~2015 onand ~~Hallmark~~2016, ~~Cards’~~the ~~intellectual~~Company ~~property.~~recognized ~~Costs~~AMT inof ~~the~~$594,000 ~~amount~~and of $61.20 million, ~~related~~respectively, toand ~~this~~these ~~movie~~amounts ~~have been capitalized and~~ are included inas ~~long-term~~components ~~programming~~of ~~rights~~accrued liabilities on the accompanying unaudited condensed consolidated balance ~~sheet at September 30, 2015~~sheets. ~~Deferred revenue of~~

16 At December 31, 2015, the Company had federal NOLs of $305.0 million and various state NOLs. The Company maintains a $2.3 million valuation allowance against net deferred tax assets, which are comprised of state NOLs that the Company does not anticipate being able to realize. The federal NOLs will expire between 2020 and 2021, and the state NOLs will expire between 2016 and 2032.

~~Table~~ At both December 31, 2015, and March 31, 2016, the Company did not have any unrecognized tax benefits for uncertain tax positions. The Company recognized no increase or decrease in the amount of ~~Contents~~unrecognized tax benefits for uncertain tax positions. Accordingly, at both December 31, 2015, and March 31, 2016, there is no accrued interest related to uncertain tax positions.

~~approximately~~ By ~~$855~~virtue of its inclusion in Hallmark Cards consolidated tax returns,~~000~~ ~~related~~the Company is subject to aexamination ~~merchandising~~by ~~rights~~the ~~agreement~~Internal ~~with~~Revenue Service for periods subsequent to March 10, 2003, and prior to the Federal Tax Deconsolidation. The Internal Revenue Service audited the Hallmark Cards consolidated tax returns for 2010 through 2013. The separate tax returns of the Company from November 1 through December 31, 2012, 2013, 2014 through 2015 are also subject to examination by the Internal Revenue Service. Further, net operating loss carry forwards are subject to examination in the year they are utilized regardless of whether the tax year in which they were generated has been ~~included~~closed inby ~~accounts~~statute. ~~payable~~The ~~and~~amount ~~accrued~~subject ~~liabilities~~to ondisallowance is limited to the ~~unaudited~~NOL ~~condensed~~utilized. ~~consolidated~~Accordingly, ~~balance~~the ~~sheet~~Company atis ~~September 30~~subject to examination for SRLY NOLs generated prior to March 11, ~~2015~~2003, as such NOLs are utilized.

~~Trademark~~ 9. Long ~~Agreement~~Term ~~with~~Incentive ~~Hallmark Cards~~Plan

Crown Media United States has a trademark license agreement with Hallmark Licensing, LLC (f/k/a Hallmark Licensing, Inc., “Hallmark Licensing”), an affiliate of Hallmark Cards, for use of the “Hallmark” mark for Hallmark Channel and for Hallmark Movies and Mysteries. The agreement terminates upon the earlier of (i) June 30, 2021 or (ii) the payment in full of all obligations, and terminations of all commitments, under the 2015 Credit Agreement. Employee

The Company isgrants ~~not~~incentive ~~required~~awards pursuant to ~~pay~~the ~~any~~2012 ~~royalty~~Long ~~fees~~Term ~~under~~Incentive Plan (the ~~trademark~~“2012 ~~license agreement~~Plan”). For ~~Accordingly~~awards granted in 2012 through 2016, nothe ~~amounts~~target ~~have~~amount ~~been~~of ~~reflected~~an award granted was based on a percentage of each employee’s annual base salary ranging from 18% to 85%. Each award is comprised of a Performance Award and an Employment Award. For awards granted in 2013 through 2016, the ~~accompanying~~Performance ~~unaudited~~Award ~~condensed~~constituted ~~consolidated~~60% ~~balance~~of ~~sheets~~the oraward ~~unaudited~~and ~~condensed~~the ~~consolidated~~Employment ~~statements~~Award constituted 40% of ~~operations~~the award. The Performance Award is based on the Company’s achievement of a predetermined cash flow goal (cash flow before interest, taxes and ~~comprehensive~~long ~~income~~term incentive expense, and debt repayments) and an adjusted EBITDA goal (~~loss~~earnings before interest and taxes) ofover ~~the~~a ~~Company~~three ~~for~~year ~~these~~performance ~~licenses~~period.

Under the license agreement, the Company would be in default if it (i) distributed any programming which fails to comply with the standards outlined, or fails to comply with any other term of the agreement and does not cure such failure within 10 days of notice, (ii) fails to make any payment due under any loan agreement within five days of its due date or (iii) receives an opinion from its auditors that expresses their doubt with respect to the Company’s ability to continue as a going concern, among others. 18

~~8. Income~~ Table ~~Taxes~~of Contents

~~The~~Each ~~Company~~of ~~files a separate-company federal tax return. In 2013 and 2014~~ the ~~Company~~40% ~~generated~~Employment ~~federal~~Awards ~~and~~are ~~state~~subject ~~taxable~~to ~~income~~continued ~~for~~employment ~~both regular tax~~ and ~~alternative~~each ~~minimum~~of ~~tax~~the ~~(“AMT”)~~60% ~~purposes. For~~Performance ~~regular~~Awards ~~tax~~are ~~purposes,~~subject ~~this~~to ~~income was, and~~ the Company’s ~~expects~~achievement itof ~~will~~financial ~~continue~~performance tocriteria. ~~be,~~Each ~~fully~~award ~~offset~~will bybe ~~net~~settled ~~operating~~in ~~loss~~cash ~~carryforwards~~and ~~(“NOLs”). However,~~is ~~for~~subject ~~federal~~to ~~AMT~~earlier ~~purposes,~~pro ~~loss~~rata ~~carryforwards~~settlement ~~used~~as toprovided ~~offset~~in the ~~AMT~~2012 ~~income are subject to a 90% limitation~~Plan.

~~During~~ Changes ~~the~~in ~~three months ended September 30, 2014 and 2015,~~ the ~~Company~~employee ~~paid~~long ~~AMT~~term ofincentive ~~$650,000~~plan ~~and~~account ~~$750,000, respectively. During the three months ended September 30, 2014 and 2015, the Company recognized AMT of $489,000 and $244,000, respectively, and these amounts~~ are ~~included~~ as ~~components of accrued liabilities on the accompanying unaudited condensed consolidated balance sheets.~~follows:

During the nine months ended September 30, 2014 and 2015, the Company paid AMT of $1.9 million and $2.2 million, respectively. During the nine months ended September 30, 2014 and 2015, the Company recognized AMT of $1.4 million and $1.5 million, respectively, and these amounts are included as components of accrued liabilities on the accompanying unaudited condensed consolidated balance sheets.

Granted Incentive

Settlement (in thousands)

Compensation Range

Vesting Date

Employment Awards

Performance Awards

Grant Date

Low Grant

High Grant

Employment
Awards

Performance
Awards

Date

Amount

Date

Amount

3/1/2012

22,000

652,000

8/31/2014

12/31/2014

9/5/2014

1,509

3/6/2015

1,938

3/1/2013

20,000

680,000

12/31/2015

2/26/2016

1,308

2/26/2016

2,457

3/1/2014

27,000

707,000

12/31/2016

N/A

—

N/A

—

3/1/2015

29,000

741,000

12/31/2017

N/A

—

N/A

—

3/1/2016

20,000

797,000

12/31/2018

N/A

—

N/A

—

At Independent December 31, 2014, the Company had federal NOLs of $447.3 million and various state NOLs. The Company maintains a $3.4 million valuation allowance against net deferred tax assets, which are comprised of state NOLs that the Company does not anticipate being able to realize. The federal NOLs will expire between 2019 and 2021, and the state NOLs will expire between 2016 and 2032.Directors

At The ~~both~~Company ~~December 31,~~entered ~~2014,~~into ~~and~~agreements ~~September 30,~~(“LTI ~~2015,~~Agreements”) ~~the~~granting ~~total~~incentive ~~amount~~compensation ofto ~~unrecognized~~each ~~tax~~director ~~benefits~~who ~~for~~is ~~uncertain~~not ~~tax~~an ~~positions~~employee ~~was~~of ~~$0.~~the ~~The~~ Company ~~recognized~~or noHallmark ~~increase~~Cards or ~~decrease~~their inrespective subsidiaries subject to continued membership on the ~~amount~~Company’s ofboard ~~unrecognized~~and ~~tax~~achievement ~~benefits~~of ~~for~~the ~~uncertain~~financial ~~tax~~performance ~~positions~~criteria. ~~Accordingly,~~ atEach ~~both~~award ~~December 31,~~will ~~2014,~~be ~~and~~settled ~~September 30,~~in ~~2015,~~cash ~~there~~and is nosubject ~~accrued~~to ~~interest~~earlier ~~related~~pro torata ~~uncertain~~settlement ~~tax~~as ~~positions~~provided in each LTI Agreement.

By Changes ~~virtue of its previous inclusion~~ in ~~Hallmark Cards consolidated tax group,~~ the ~~Company~~independent isdirector ~~subject~~long toterm ~~examination~~incentive byplan ~~the~~account ~~Internal Revenue Service for periods subsequent to March 10, 2003. Further, NOLs~~ are subject to examination in the year they are utilized regardless of whether the tax year in which they were generated has been closed by statute of limitations. The amount subject to disallowance is limited to the NOL utilized. Accordingly, the Company is subject to examination for NOLs generated prior to March 11, 2003 as ~~those NOLs are utilized in future tax returns.~~follows:

9. Long Term Incentive Plan

Settlement

Grant
Date

Grant
Amount

Vesting
Date

Date

Amount

8/17/2012

50,000

12/31/2014

3/4/2015

306,000

3/1/2013

50,000

12/31/2015

2/26/2016

294,000

3/1/2014

50,000

12/31/2016

N/A

—

3/1/2015

50,000

12/31/2017

N/A

—

3/1/2016

50,000

12/31/2018

N/A

—

~~Employee~~ Vesting

~~The~~ Vesting ~~Company~~of ~~grants~~the ~~incentive~~2013, ~~awards~~2014, ~~pursuant~~2015 toand ~~the~~2016 ~~2012~~performance ~~Long~~awards ~~Term~~under ~~Incentive Plan (~~the ~~“2012~~LTI ~~Plan”).~~Agreements ~~For~~will ~~awards~~be ~~granted~~determined in ~~2012~~accordance ~~through~~with ~~2015,~~ the ~~target amount of an award granted was based on a percentage of each employee~~Company’s ~~annual~~performance ~~base~~criteria ~~salary~~concerning ~~ranging~~adjusted ~~from~~EBITDA ~~18% to 85%. Each award is comprised of a Performance Award~~ and ancash ~~Employment~~flow ~~Award. For awards granted in 2010 through 2012, the Performance Award~~ and ~~the~~subject ~~Employment~~to ~~Award~~earlier ~~each~~pro ~~constituted~~rata ~~half~~settlement ofas ~~the~~provided ~~award. For awards granted~~ in ~~2013~~each ~~through~~LTI ~~2015, the Performance Award constituted 60% of the award and the Employment Award constituted 40% of the award~~Agreement. ~~The~~

17 In recognition of these LTI Agreements, the accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss) include $872,000 million and $1.4 million among selling, general and administrative expense for the three months ended March 31, 2015 and 2016, respectively. Additionally, the $8.2 million and $5.5 million liabilities for these agreements were included in accounts payable and accrued liabilities in the accompanying unaudited condensed consolidated balance sheets at December 31, 2015, and March 31, 2016, respectively.

~~Table~~ 10. ofCommitments ~~Contents~~and Contingencies

~~Performance~~ In ~~Award is based on~~ the ~~Company’s~~normal ~~achievement~~course of ~~a predetermined cash flow goal (cash flow before interest~~business, ~~taxes~~the ~~and~~Company ~~long~~has ~~term~~entered ~~incentive~~into ~~expense,~~agreements ~~and~~that ~~debt~~commit ~~repayments)~~it ~~and~~to anmake ~~adjusted~~cash ~~EBITDA~~payments ~~goal~~in ~~(before~~future ~~long~~periods ~~term~~with ~~incentive)~~respect ~~over~~to anon-cancelable ~~three~~leases ~~year~~and ~~performance~~programming ~~period~~contracts.

Each of the 40% Employment Awards are subject to continued employment and each of the 60% Performance Awards are subject to the Company’s achievement of financial performance criteria. Each award will be settled in cash and is subject to earlier pro rata settlement as provided in the 2012 Plan. 19

~~Changes~~ Table inof ~~the employee long term incentive plan account are as follows:~~Contents

	Granted Incentive
	Compensation Range				Vesting Date		Settlement (in thousands)
Grant	Low		High		Employment	Performance	Employment Awards			Performance Awards
Date	Grant		Grant		Awards	Awards	Date	Amount		Date	Amount
4/25/2011	$	23,000	$	550,000	8/31/2013	12/31/2013	9/6/2013	$	1,452	3/14/2014	$	1,551
3/1/2012	$	22,000	$	652,000	8/31/2014	12/31/2014	9/5/2014	$	1,509	3/6/2015	$	1,938
3/1/2013	$	20,000	$	680,000	12/31/2015	12/31/2015	N/A	$	—	N/A	$	—
3/1/2014	$	27,000	$	707,000	12/31/2016	12/31/2016	N/A	$	—	N/A	$	—
3/1/2015	$	29,000	$	741,000	12/31/2017	12/31/2017	N/A	$	—	N/A	$	—

Legal Proceedings

~~Independent~~ From ~~Directors~~time to time, the Company and/or various officers and directors may be named as defendants in legal actions involving various claims incident to the conduct of its business. Whenever the Company concludes that an adverse outcome in any such action is probable and a loss amount can reasonably be estimated, the Company records such loss amount. Related legal costs, net of anticipated insurance reimbursements, are expensed as incurred.

The Company entered into agreements (“LTI Agreements”) granting incentive compensation to each director who is not an employee of the Company or Hallmark Cards or their respective subsidiaries subject to continued membership on the Company’s board and achievement of the financial performance criteria 11. ~~Each~~Subsequent ~~award will be settled in cash and is subject to earlier pro rata settlement as provided in each LTI Agreement.~~Events

~~Changes~~ On inMay 2, 2016, Hallmark Cards completed a short-form merger of Crown Media Holdings with CM Merger Co., an indirect wholly-owned subsidiary of Hallmark Cards, pursuant to Section 253 of the ~~independent~~Delaware ~~director~~General ~~long~~Corporation ~~term~~Law. ~~incentive~~Following ~~plan~~the ~~account~~Merger, ~~are~~the asCompany ~~follows:~~became a wholly-owned indirect subsidiary of Hallmark Cards. Trading on The Nasdaq Stock Market has been suspended and the Company is being delisted from The Nasdaq Stock Market and deregistered with the Securities and Exchange Commission.

Grant				Settlement
Date	Grant Amount		Vesting Date	Date	Amount
8/17/2012	$	50,000	12/31/2014	3/4/2015	$	306,000
3/1/2013	$	50,000	12/31/2015	N/A	$	—
8/16/2013	$	35,000	8/15/2014	8/19/2014	$	262,000
3/1/2014	$	50,000	12/31/2016	N/A	$	—
3/1/2015	$	50,000	12/31/2017	N/A	$	—

~~Vesting~~ Table of Contents

~~Vesting~~ITEM ~~of the 2013, 2014 and 2015 performance awards under the LTI Agreements will be determined in accordance with the Company~~2. Management’s ~~performance~~Discussion ~~criteria~~and ~~concerning~~Analysis ~~adjusted~~of ~~EBITDA~~Financial ~~and~~Condition ~~cash flow~~ and ~~subject~~Results toof ~~earlier pro rata settlement as provided in each LTI Agreement.~~Operations

In The ~~recognition~~following ofdiscussion ~~these~~and ~~LTI~~analysis ~~Agreements,~~of ~~the~~our ~~accompanying~~financial ~~unaudited~~condition ~~condensed~~and ~~consolidated~~results ~~statements~~ of operations ~~and~~should ~~comprehensive~~be ~~income~~read ~~(loss)~~in ~~include~~conjunction ~~$1.0~~with ~~million~~our ~~and~~unaudited ~~$1.1~~condensed ~~million~~consolidated ~~among~~financial ~~selling,~~statements ~~general~~ and ~~administrative~~related ~~expense~~notes ~~for~~included ~~the~~in ~~three months ended September~~Part 30I, Item 1 ~~2014~~in ~~and~~this ~~2015,~~Quarterly ~~respectively.~~Report Inon ~~recognition~~Form 10-Q. The offollowing ~~these~~analysis ~~LTI~~contains ~~Agreements,~~forward-looking ~~the accompanying unaudited condensed consolidated~~ statements ofabout ~~operations~~our ~~and~~future ~~comprehensive income (loss) include $2.9 million and $3.3 million among selling~~revenue, ~~general~~operating ~~and~~results ~~administrative expense for the nine months ended September 30, 2014~~ and ~~2015, respectively~~expectations. ~~Additionally,~~See ~~the~~‘‘Risk ~~$5.9~~Factors ~~million~~ and ~~$6.9~~Forward ~~million~~Looking ~~liabilities~~Statements’’ below for ~~these~~a ~~agreements~~discussion ~~were~~of ~~included in accounts payable and accrued liabilities in~~ the ~~accompanying unaudited condensed consolidated balance sheets at December 31~~risks, ~~2014,~~assumptions and ~~September 30,~~uncertainties ~~2015,~~affecting ~~respectively~~these statements.

~~10. Commitments~~ Description of Business and ~~Contingencies~~Overview

In Recent ~~the normal course of business, the Company has entered into agreements that commit it to make cash payments in future periods with respect to non-cancelable leases and programming contracts.~~Developments

18 On March 8, 2016, Hallmark Cards announced that it intended to take action to complete a short-form merger (the “Merger”) of Crown Media Holdings with CM Merger Co., an indirect wholly-owned subsidiary of Hallmark Cards, pursuant to Section 253 of the Delaware General Corporation Law (the “DGCL”). Following the Merger, which was completed on May 2, 2016:

~~Table~~· we, as the survivor, became a wholly-owned indirect subsidiary of ~~Contents~~Hallmark Cards;

~~Legal~~· ~~Proceedings~~each share of our Common Stock not owned by Hallmark Cards was automatically converted into the right to receive $5.05 in cash, without interest, except for those shares for which statutory appraisal rights are properly exercised;

~~From~~· ~~time~~our toCommon ~~time,~~Stock ~~the~~is ~~Company~~being ~~and/or~~delisted ~~various~~from ~~officers~~The ~~and~~Nasdaq ~~directors~~Stock ~~may~~Market ~~be named as defendants in legal actions involving various claims incident to the conduct of its business. Whenever the Company concludes that an adverse outcome in any such action is probable~~ and aderegistered ~~loss~~with ~~amount can reasonably be estimated,~~ the ~~Company~~SEC; ~~records such loss amount. Related legal costs, net of anticipated insurance reimbursements, are expensed as incurred.~~and

~~International~~· ~~Residual~~once ~~and~~our ~~Participation~~Common ~~Obligation~~Stock has been deregistered, we will no longer be required to file annual, quarterly or other reports with the SEC.

~~Accounts~~ Since ~~payable~~CM ~~and~~Merger ~~accrued~~Co. ~~liabilities~~owned as90.3% of ~~both~~our ~~December 31,~~outstanding ~~2014,~~Common ~~and~~Stock ~~September 30,~~at ~~2015~~the ~~include~~time ~~$1.6~~of ~~million~~the ~~for~~Merger, Hallmark Cards had the ~~estimated~~ownership ~~cost~~required ofunder ~~residuals~~DGCL ~~and~~to ~~participations~~unilaterally ~~that~~complete the ~~buyer~~Merger. Under DGCL, no action was, or is, required by our board of directors or our ~~international~~stockholders, ~~business~~other ~~(which~~than ~~included~~Hallmark ~~the~~Cards, ~~international~~for ~~rights~~the Merger to ~~our~~become ~~film~~effective. ~~library)~~Our ~~would~~board ~~otherwise~~of bedirectors ~~obligated~~did tonot ~~pay~~take action to ~~third~~approve ~~parties~~or indisapprove ~~connection~~the ~~with~~Merger, ~~international~~nor ~~film~~were ~~library~~our ~~sales~~stockholders ~~between~~asked to approve or disapprove the ~~April 2005~~Merger ~~sale~~or ~~and~~furnish ~~April 2015~~a proxy in connection with the Merger.

19 Current Business

~~Table~~ We own and operate two pay television Networks, Hallmark Channel and Hallmark Movies and Mysteries, each of ~~Contents~~which is dedicated to high-quality entertainment programming for families and an attractive outlet for advertisers seeking to target our viewers. Consistent with the Hallmark brand, both Networks are preeminent sources of holiday programming, with Hallmark Channel often ranking first among cable networks for movies during the Christmas holiday season.

~~ITEM~~ Hallmark 2.Channel ~~Management’s~~features ~~Discussion~~popular television series such as Golden Girls, The Middle and ~~Analysis~~Frasier, ofas ~~Financial~~well ~~Condition~~as original television series such as When Calls the Heart and ~~Results~~Good ofWitch, ~~Operations~~and movies with compelling stories and internationally recognized stars. It also features “lifestyle” programming with the two hour weekday series, Home and Family.

~~The~~ We ~~following~~rebranded ~~discussion~~Hallmark Movie Channel to Hallmark Movies and ~~analysis~~Mysteries ofin ~~our~~September ~~financial~~2014 ~~condition~~to give this Network a distinctly different identity and ~~results~~programming lineup than that of ~~operations~~Hallmark ~~should~~Channel. bePrior ~~read~~to inthe ~~conjunction~~rebranding, ~~with~~Hallmark ~~our~~Movie ~~unaudited~~Channel ~~condensed~~offered ~~consolidated~~original ~~financial~~movies, ~~statements~~classic ~~and~~theatrical ~~related~~films ~~notes~~and ~~included~~movies infrom ~~Part I, Item 1~~the inaward ~~this~~winning ~~Quarterly~~Hallmark ~~Report~~Hall onof ~~Form 10-Q~~Fame collection. ~~The~~ ~~following~~While ~~analysis~~we ~~contains~~continue ~~forward-looking~~to ~~statements~~air ~~about~~the ~~our~~Hall ~~future~~of ~~revenue,~~Fame ~~operating~~collection ~~results~~ and ~~expectations.~~content ~~See~~previously ~~‘‘Risk~~provided ~~Factors~~under ~~and~~Hallmark ~~Forward~~Movie ~~Looking~~Channel, ~~Statements’’~~Hallmark ~~below~~Movies ~~for~~and aMysteries ~~discussion~~emphasizes programming of the ~~risks~~mystery genre, ~~assumptions~~including ~~and~~original ~~uncertainties~~movies, ~~affecting~~movie ~~these~~franchises ~~statements~~and series.

~~Description of Business and Overview~~ 21

~~Current~~ Table ~~Business~~of Contents

We Programming ~~own~~acquired ~~and~~from ~~operate~~third ~~pay~~parties ~~television Networks, each of which~~ is ~~dedicated~~an toimportant ~~high~~component ~~quality~~of ~~entertainment~~the programming for ~~families.~~our ~~Hallmark~~Networks ~~Channel~~as ~~features~~we ~~popular~~continually ~~television~~develop ~~series~~and ~~such~~refine asour ~~Golden~~programming ~~Girls,~~strategy. ~~The~~This ~~Middle~~programming ~~and~~includes ~~Frasier as well as~~ original series ~~such~~and asmovies ~~Cedar~~produced ~~Cove,~~specifically ~~When~~for ~~Calls~~us ~~the~~by ~~Heart~~a ~~and~~variety ~~Good~~of ~~Witch,~~experienced ~~and~~television ~~movies~~production ~~with~~companies ~~compelling stories~~ and ~~internationally~~theatrical ~~recognized~~movies ~~stars.~~and ~~It also features~~ “~~lifestyle~~off network” ~~programming~~television ~~such~~series aslicensed ~~the~~to ~~two~~us ~~hour~~by ~~weekday~~major ~~series,~~studios ~~Home~~ and ~~Family~~distributors. WeOur ~~rebranded~~agreements ~~Hallmark~~for ~~Movie~~original ~~Channel~~series toand ~~Hallmark~~movies ~~Movies~~typically ~~and~~provide ~~Mysteries~~for inexclusive ~~September 2014~~rights toin ~~give~~ the ~~Network~~United aStates ~~distinctly~~in ~~different~~all ~~identity~~media ~~and~~for ~~programming~~periods ~~lineup~~ranging ~~than~~from ~~that~~eight ofyears ~~Hallmark~~to ~~Channel~~perpetuity. Our ~~Prior~~license toagreements ~~the~~for ~~rebranding, the channel offered original movies, classic~~ theatrical films and ~~movies~~off ~~from~~network ~~the~~programming ~~award~~usually ~~winning~~give ~~Hallmark~~us ~~Hall~~more oflimited ~~Fame~~rights ~~collection.~~for ~~Hallmark~~license ~~Movies~~periods ~~and Mysteries emphasizes programming~~ of ~~the~~five ~~mystery~~or ~~genre,~~more ~~including~~years ~~original movies, movie franchises and series, while continuing~~ to ~~offer~~exhibit the ~~content~~programming ~~previously~~on ~~provided~~our ~~under the Hallmark Movie Channel brand~~Networks. ~~Consistent~~From ~~with~~time ~~the~~to ~~Hallmark brand~~time, ~~both~~we ~~Networks~~also ~~are~~exhibit ~~preeminent~~excerpts ~~sources~~ of ~~holiday~~certain programming, ~~with~~on ~~Hallmark~~our ~~Channel often ranking first among cable networks for movies during the Christmas holiday season~~website.

~~Reaching~~ We ~~90.5~~established ~~million~~Crown ~~subscribers~~Media Productions, LLC (“Crown Media Productions”) in 2015 as our in-house production company and plan to increase the production of ~~September~~ original content for multiple platforms. During 2015, ~~Hallmark~~our ~~Channel~~Networks ispremiered ~~one~~seven ofmovies ~~the~~produced ~~most~~by ~~widely~~Crown ~~distributed~~Media ~~independent~~Productions ~~networks~~for inwhich we funded all production costs, owned all worldwide rights and fully controlled the ~~United~~creative ~~States~~and production process. ~~Hallmark~~These ~~Movies~~movies, along with the many other original movies and ~~Mysteries~~series ~~reaches~~which ~~more~~we ~~than~~have ~~62.5~~previously ~~million~~commissioned ~~subscribers~~and asto ofwhich ~~September 2015~~we hold exclusive United States rights in all media, are valuable assets for us.

Hallmark Channel and Hallmark Movies and Mysteries are currently distributed to approximately 91% and 65%, respectively, of all United States pay television subscribers. We ~~believe~~currently ~~that~~distribute we(a) Hallmark ~~have~~Channel ~~established~~through ~~these~~approximately ~~Networks~~5,217 ascable, ~~destinations~~satellite ~~for~~and ~~viewers~~other ~~seeking~~pay ~~outstanding~~television ~~family~~distribution ~~entertainment~~systems and as(b) Hallmark ~~attractive~~Movies ~~outlets~~and ~~for~~Mysteries ~~advertisers~~through ~~seeking~~approximately to4,013 ~~target~~of ~~these~~such ~~viewers~~systems.

~~Programming~~ Three ~~acquired from third parties is an important component~~ of our ~~Networks~~distributors aseach weaccounted ~~continually~~for ~~develop~~more ~~and~~than ~~refine~~10%, ~~our programming strategy. This programming includes original series~~ and ~~movies~~together ~~produced~~accounted ~~specifically~~ for ~~us by~~ a ~~variety~~total of ~~experienced~~54% ~~television~~of ~~production~~our ~~companies~~consolidated ~~and~~subscriber ~~theatrical~~revenue ~~movies~~for ~~and~~the ~~“off~~three ~~network”~~months ~~television~~ended ~~series~~March ~~licensed~~31, to2016. Two usof byour ~~major studios and~~ distributors. ~~Our~~each ~~agreements~~accounted for ~~original~~approximately ~~series~~15% ~~and~~or ~~movies~~more ~~typically~~of ~~provide~~our ~~for~~consolidated ~~exclusive~~subscribers ~~rights~~for in the ~~United~~three ~~States~~months inended ~~all~~March ~~media~~31, ~~for~~2016, ~~periods~~and ~~ranging~~together ~~from~~accounted ~~eight~~for ~~years~~43% toof ~~perpetuity.~~our ~~Our~~consolidated ~~license~~subscribers ~~agreements~~on ~~for~~that ~~theatrical~~date. ~~films~~Two ~~and~~of ~~off~~our ~~network~~ programming ~~usually~~content ~~give~~providers useach ~~more~~accounted ~~limited rights~~ for ~~license~~more ~~periods~~than 10% of ~~five~~our ortotal ~~more~~programming ~~years~~rights topayable ~~exhibit~~for the ~~programming~~three onmonths ~~our~~ended ~~Networks.~~March ~~From~~31, ~~time~~2016, toand ~~time,~~together weaccounted ~~also~~for ~~exhibit~~a ~~excerpts~~total of ~~certain~~48% of the consolidated programming onrights ~~our~~payable ~~website~~during that time period.

We ~~also~~view ~~established~~a ~~Crown~~“subscriber” ~~Media Productions~~ as ~~our~~a ~~in-house~~household ~~production~~that ~~company~~receives, ~~aimed~~on ata ~~increasing~~full ~~the~~or ~~production~~part-time ~~of original content for multiple platforms. During 2015~~basis, ~~Crown~~a ~~Media~~Network ~~Productions~~as ~~will~~part ~~produce~~of upa toprogram ~~six~~package ~~movies~~or ~~for~~a ~~which~~program wetier ~~will~~of ~~fund~~a ~~all production costs, own all worldwide rights and fully control the creative and production process~~distributor. ~~These~~We ~~movies,~~determine ~~along with~~ the ~~many~~number ~~other~~of ~~original~~our ~~movies~~Hallmark ~~and~~Channel ~~series which we have commissioned over the years~~ and toHallmark ~~which~~Movies ~~we hold exclusive U.S. rights in all media, are a valuable asset for us. They will give us the opportunity to meaningfully participate in~~ and ~~profit~~Mysteries subscribers from ~~new~~subscriber ~~distribution~~numbers ~~technologies~~reported asby ~~they develop~~Nielsen.

~~Hallmark~~ We ~~Channel~~license ~~and~~the trademark “Hallmark” ~~Movies~~for ~~and~~use ~~Mysteries~~on ~~are~~our ~~currently~~Networks ~~distributed~~pursuant to ~~approximately~~trademark ~~91%~~license ~~and~~agreements ~~63%,~~from ~~respectively,~~a subsidiary of ~~all~~Hallmark ~~United States pay television subscribers~~Cards. We ~~currently~~believe ~~distribute~~that ~~(a) Hallmark~~the ~~Channel~~use ~~through~~of ~~approximately~~this ~~5,215~~trademark ~~cable,~~is ~~satellite~~important ~~and~~for ~~other~~our ~~pay~~Networks ~~television~~due ~~distribution~~to ~~systems~~the ~~and~~substantial ~~(b) Hallmark~~name ~~Movies~~recognition and ~~Mysteries~~favorable ~~through~~characteristics ~~approximately~~associated ~~3,977~~with ofthe ~~such systems~~name.

~~Four~~ Current and five of our distributors each accounted for more than 10%, and together accounted for a total of 73% and 85% of our consolidated subscriber revenue for the three and nine months ended September 30, 2015, respectively. Two of our distributors each accounted for approximately 15% or more of our consolidated subscribers for both the three and nine months ended September 30, 2015, and together accounted for 42% of our consolidated subscribers on that date. Four of our programming content providers each accounted for more than 10% of our total programming rights payable for the nine months ended September 30, 2015, and together accounted for a total of 63% of the consolidated programming rights payable during that time period.Challenges

We ~~view~~face anumerous ~~“subscriber”~~operating aschallenges. aAmong ~~household~~such ~~that~~challenges ~~receives,~~are onincreasing aviewership ~~full or part-time basis~~ratings, amaintaining ~~Network~~and asincreasing ~~part~~advertising ofrevenue, amaintaining ~~program~~and ~~package~~expanding orthe adistribution ~~program~~of ~~tier~~the ofNetworks, abroadening ~~distributor.~~viewership Wedemographics ~~determine~~to meet our ~~Hallmark~~target ~~Channel~~audience, and ~~Hallmark~~controlling ~~Movies~~costs and ~~Mysteries subscribers from subscriber~~expenses.

20 Ratings

~~Table~~ Ratings success plays a significant role in our ability to achieve our distribution and advertising goals. We believe our ratings are affected by our ability to: (i) acquire the broadcast rights for and produce series and original movies that appeal to our target demographic and (ii) develop a programming schedule that attracts a high number of ~~Contents~~viewers. Original productions are our most high profile programs and generate Hallmark Channel’s highest ratings. We have typically incurred additional marketing and promotional expenses to help drive higher ratings for original programming such as the series Cedar Cove in 2013, 2014 and 2015, When Calls the Heart in 2014, 2015 and 2016, and Good Witch in 2015. We plan to maintain or increase the number of our original productions and develop a programming schedule that attracts a greater number of viewers in our target demographic, all while controlling the costs and expenses relating to these actions.

numbers reported by Nielsen. Subscribers include both viewers who pay a monthly fee for the tier programming and so called “promotional” subscribers who are given free access to the tier by the distributor for a limited time. 22

We Table ~~license the trademark “Hallmark” for use on our Networks pursuant to trademark license agreements with a subsidiary~~ of ~~Hallmark Cards. We believe that the use of this trademark is important for our Networks due to the substantial name recognition and favorable characteristics associated with the name.~~Contents

~~Current~~ Advertising ~~Challenges~~Revenue

We During ~~face~~the ~~numerous~~three ~~operating~~months ~~challenges.~~ended ~~Among~~March ~~such~~31, ~~challenges~~2016, ~~are~~CPMs ~~increasing~~for ~~viewership~~commitments ~~ratings,~~in ~~maintaining~~the ~~and~~2015/2016 ~~increasing~~Scatter ~~advertising~~Market ~~revenue,~~for ~~maintaining~~Hallmark ~~and~~Channel ~~expanding~~were 52% greater than the ~~distribution~~CPMs offor commitments during the ~~Networks,~~2015/2016 ~~broadening~~Upfront ~~viewership~~Season ~~demographics~~and towere ~~meet~~16% ~~our~~higher ~~target~~than ~~audience~~achieved during the three months ended March 31, ~~and~~2015 ~~controlling~~during ~~costs~~2014/2015 ~~and~~Scatter ~~expenses~~Market.

~~Ratings~~ During the three months ended March 31, 2016, CPMs for commitments in the 2015/2016 Scatter Market for Hallmark Movies and Mysteries were 56% greater than the CPMs for commitments during the 2015/2016 Upfront Season and 16% higher than achieved during the three months ended March 31, 2015, during the 2015 Scatter Market.

~~Ratings~~ The ~~success~~Scatter ~~plays~~Marketplace awas significant role in our ability to achieve our distribution and advertising goals. We believe our ratings are affected by our ability to: (i) acquire the broadcast rights for and produce series and original movies that appeal to our target demographic and (ii) develop a programming schedule that attracts a high number of viewers. Original productions are our most high profile programs and generate Hallmark Channel’s highest ratings. We have typically incurred additional marketing and promotional expenses to help drive higher ratings for original programming such as the series Cedar Cove in 2013strong, ~~2014~~with ~~and~~volume ~~2015,~~up ~~When~~significantly ~~Calls~~on ~~the~~both ~~Heart in 2014 and 2015~~Networks, ~~Signed,~~along ~~Sealed,~~with ~~Delivered~~CPM ~~in 2014 and Good Witch in 2015~~growth. We plan to maintain or increase the number of our original productions and develop a programming schedule that attracts a greater number of viewers in our target demographic, all while controlling the costs and expenses relating to these actions.

~~Advertising~~ Our ~~Revenue~~direct response rates for Hallmark Channel during the three months ended March 31, 2016 were 16% higher than those during the three months ended March 31, 2015. Our direct response rates for Hallmark Movies and Mysteries during the three months ended March 31, 2016 were 41% higher than those during the three months ended March 31, 2015. The increased scatter volume placed pressure on the direct response inventory. This, coupled with a strong market, led to increased direct response rates on both Networks.

During the ~~three months ended September 30,~~ 2014/2015, ~~CPMs~~and ~~for commitments in~~ the ~~third quarter of the~~ 2015/2016 ~~Scatter~~Upfront ~~Market~~Seasons, ~~for~~we ~~Hallmark~~entered ~~Channel~~into ~~were~~agreements ~~49%~~with ~~greater~~major ~~than~~advertising ~~the~~firms ~~CPMs~~covering ~~for~~approximately ~~commitments~~41% ~~during the 2014/2015 Upfront Season~~ and ~~were 3~~39% ~~higher than achieved during the three months ended September 30, 2014 during the third quarter~~ of ~~the~~our ~~2014~~advertising ~~Scatter Market. During the three months ended September 30~~inventory, ~~2015~~respectively, ~~CPMs~~ for ~~commitments~~Hallmark inChannel. Advertising ~~the~~inventory ~~third~~units ~~quarter~~committed ofduring the 2015/2016 ~~Scatter~~Upfront ~~Market~~Season for Hallmark ~~Movies~~Channel ~~and~~were ~~Mysteries~~at ~~were~~CPMs 364% ~~greater~~higher than the CPMs for ~~commitments~~those committed during the 2014/2015 Upfront Season, ~~and~~reflecting, 9%in ~~lower than achieved during the three months ended September 30~~part, ~~2014~~increases ~~during~~in ~~the~~rates ~~third~~related ~~quarter~~to ofour ~~the~~lifestyle ~~2014~~programming ~~Scatter Market~~block. ~~The~~We ~~Scatter~~are ~~Marketplace~~selling ~~was~~the ~~strong,~~balance ~~with volume up significantly on both Networks. Hallmark Channel reflected growth in CPM along with high volume~~ of ~~dollars~~our ~~while~~2015/2016 ~~Hallmark~~broadcast ~~Movies~~season ~~and~~inventory ~~Mysteries reflected a decrease~~ in ~~CPM~~the ~~as compared to last year’s~~ Scatter Market~~, but offset by a 128% increase in dollar volume~~.

~~Our~~ During ~~direct~~the ~~response~~2014/2015 ~~rates~~and ~~for~~the 2015/2016 Upfront Seasons, Hallmark ~~Channel~~Movies ~~during~~and ~~the~~Mysteries ~~three~~entered ~~months~~into ~~ended~~advertising ~~September 30,~~commitments ~~2015~~for ~~were~~approximately 330% ~~higher~~of ~~than~~its ~~those~~advertising ~~during~~inventory, ~~the~~respectively. ~~three~~Advertising ~~months~~inventory ~~ended~~units ~~September 30,~~committed ~~2014.~~during ~~Our~~the ~~direct~~2015/2016 ~~response~~Upfront ~~rates~~Season for Hallmark Movies and Mysteries ~~during~~were ~~the~~at ~~three~~CPMs ~~months ended September 30, 2015 were 28~~3% higher than ~~those during~~ the ~~three~~CPMs ~~months~~for ~~ended~~those ~~September 30,~~committed ~~2014.~~during ~~The increased scatter volume placed pressure on~~ the ~~direct~~2014/2015 ~~response~~Upfront ~~inventory~~Season. ~~This, coupled with a strong market, led to increased direct response rates on both Networks.~~

~~During~~ Each ~~the~~advertiser ~~2014/2015~~with ~~and~~an ~~the~~upfront ~~2015/2016~~contract ~~Upfront~~has ~~Seasons,~~the weoption ~~entered~~to ~~into~~terminate ~~agreements~~a ~~with~~portion ~~major~~of ~~advertising~~its ~~firms~~contract. ~~covering~~During ~~approximately~~the ~~41%~~three ~~and~~months ~~39%~~ended ofMarch ~~our~~31, ~~advertising~~2015 ~~inventory,~~and ~~respectively~~2016, ~~for~~ Hallmark Channel~~. Advertising~~ ~~inventory~~experienced ~~units~~cancellation ~~committed~~rates ~~during~~of ~~the~~approximately ~~2015/2016~~7% ~~Upfront~~and ~~Season for Hallmark Channel were at CPMs~~ 4%, ~~higher~~respectively. ~~than~~During the ~~CPMs~~three ~~for~~months ~~those~~ended ~~committed~~March ~~during~~31, ~~the 2014/~~2015 ~~Upfront~~and ~~Season~~2016, ~~reflecting,~~Hallmark inMovies ~~part,~~and ~~increases~~Mysteries inexperienced cancellation rates ~~related to our lifestyle programming block. We are selling the balance~~ of ~~our~~approximately ~~2015/2016~~3% ~~broadcast~~and ~~season~~approximately ~~inventory~~1%, ~~in the Scatter Market~~respectively.

~~During~~ Distribution the 2014/2015 and the 2015/2016 Upfront Seasons, Hallmark Movies and Mysteries entered into advertising commitments for approximately 30% and 29% of its advertising inventory, respectively. Advertising inventory units committed during the 2015/2016 Upfront Season for Hallmark Movies and Mysteries were at CPMs 3% higher than the CPMs for those committed during the 2014/2015 Upfront Season.Agreements

~~Each~~ Distribution ~~advertiser~~agreements with anmultiple ~~upfront~~systems ~~contract~~operators ~~has~~are ~~the~~important ~~option~~because tothey ~~terminate~~affect aour ~~portion~~number of ~~its~~subscribers, ~~contract.~~which ~~During~~in ~~the~~turn ~~three~~has ~~months~~a ~~ended~~major ~~September 30,~~impact ~~2014~~on ~~and~~our ~~2015~~subscriber fees, ~~Hallmark~~the ~~Channel~~number ~~experienced~~of ~~cancellation~~persons ~~rates~~viewing ofour ~~approximately~~programming, ~~13%~~ and ~~15%,~~the ~~respectively~~rates charged for advertising. ~~During~~Our ~~the~~long ~~three~~term ~~months~~distribution ~~ended~~challenge ~~September 30,~~will ~~2014~~be ~~and~~obtaining ~~2015,~~favorable ~~Hallmark~~renewals ~~Movies~~of ~~and~~our ~~Mysteries~~major ~~experienced~~distribution ~~cancellation~~agreements ~~rates~~as ofthey ~~approximately~~expire. ~~10%~~Our ~~and~~major ~~approximately~~distribution ~~9%,~~agreements ~~respectively~~have terms which expire at various times from September 2017 through December 2032.

21 Viewers today have many low cost alternatives outside of the traditional linear cable channels to gain access to programming content. Businesses of most networks, including Hallmark Channel and Hallmark Movies and Mysteries, are threatened by an increase of “cord cutters” (i.e., viewers dropping traditional cable and satellite services to instead receive their programming over the internet from over-the-top services, such as SlingTV, Hulu and Netflix), “cord shavers” (i.e., viewers scaling back the cost of traditional cable packages by opting for less expensive packages) and “cord nevers” (i.e., people who have never subscribed to a traditional pay television service).

~~Table~~ The universe of ~~Contents~~cable and satellite TV subscribers in the United States is approximately 99.0 million homes. The top 25 cable TV networks in the United States, measured by the number of subscribers, have 90.7 million or more subscribers. It is a mature market with relatively high penetration. According to Nielsen, in March 2016, Hallmark

~~Distribution Agreements~~ 23

~~Distribution~~ Table ~~agreements with multiple systems operators are important as they affect our number~~ of subscribers, which in turn has a major impact on our subscriber fees, the number of persons viewing our programming, and the rates charged for advertising. Our long-term distribution challenge will be obtaining favorable renewals of our major distribution agreements as they expire. Our major distribution agreements have terms which expire at various times from December 2015 through December 2032.Contents

~~Viewers today have many low cost alternatives outside of the traditional linear cable channels to gain access to programming content. Businesses of most networks, including Hallmark~~ Channel and Hallmark Movies and Mysteries, ~~are~~were ~~threatened~~distributed byto ~~an increase of “cord cutters” (i~~89.~~e.,~~7 ~~viewers~~million ~~dropping~~subscribers ~~traditional cable~~ and ~~satellite~~64.5 ~~services~~million ~~to instead receive their programming over the internet from over-the-top services~~subscribers, ~~such as SlingTV, Hulu and Netflix) and “cord shavers” (i~~respectively.~~e., viewers scaling back the cost of traditional cable packages by opting for less expensive packages).~~

~~The~~ In ~~universe~~July of2015, ~~cable and satellite TV subscribers in~~ the ~~United~~Company ~~States~~and isAT&T ~~approximately~~launched ~~99.8~~Hallmark ~~million~~Channel ~~homes. The~~and ~~top~~Hallmark 30Movies ~~cable~~and TVMysteries ~~networks~~on inAT&T ~~the United States~~U-verse, ~~measured~~making by the ~~number~~channels ofavailable ~~subscribers,~~to ~~have~~AT&T ~~91.0~~U-verse ~~million or more~~ subscribers. It isA aprior ~~mature~~distribution ~~market~~agreement ~~with~~between ~~relatively~~the ~~high~~Company ~~penetration.~~and ~~According~~AT&T tohad ~~Nielsen,~~expired inon ~~September 2015~~August 31, ~~Hallmark~~2010 ~~Channel~~ and ~~Hallmark~~the ~~Movies~~networks ~~and~~had ~~Mysteries~~not ~~were~~been ~~distributed~~on toAT&T ~~90.5~~U-verse ~~million~~since ~~subscribers~~such ~~and 62~~date.~~5 million subscribers, respectively.~~

In July 2015, the Company and AT&T launched Hallmark Channel and Hallmark Movies and Mysteries on AT&T U-verse, again making the channels available to AT&T U-verse subscribers. A prior distribution agreement between the Company and AT&T had expired on August 31, 2010 and the networks had not been on AT&T U-verse since such date. Demographics

~~Demographics~~ Each pay television network attracts a different audience with different viewer demographics (i.e., viewers categorized by characteristics such as age, gender and income). As a result, advertisers are able to target the specific groups of viewers who are most likely to purchase their products by advertising on networks which attract the desired viewer demographic.

~~Each~~ We ~~pay~~believe ~~television~~that ~~network~~the ~~attracts~~key ademographics ~~different~~for ~~audience~~Hallmark ~~with~~Channel ~~different~~and ~~viewer~~Hallmark ~~demographics~~Movies (iand Mysteries are adults aged 25 to 54 and women aged 25 to 54.e The average viewing age for Hallmark Channel was 58.,6 ~~viewers~~and ~~categorized~~58.0 byfor ~~characteristics~~the ~~such~~three asmonths ~~age~~ended March 31, ~~gender~~2015 and ~~income)~~2016, respectively. AsThe aaverage ~~result,~~viewing ~~advertisers~~age ~~are~~for ~~able~~Hallmark toMovies ~~target~~and Mysteries was 66.0 and 64.9 for the ~~specific~~first ~~groups~~quarters ofended ~~viewers~~March ~~who~~31, ~~are~~2015 ~~most~~and ~~likely~~2016, torespectively. ~~purchase~~In ~~their~~order ~~products~~to byachieve ~~advertising~~our onrevenue ~~networks~~goals, ~~which~~we ~~attract~~need ~~the~~to ~~desired~~draw ~~viewer~~in ~~demographic~~our target audience.

~~Our~~ Revenue ~~target~~from ~~viewer~~Continuing demographics for Hallmark Channel and Hallmark Movies and Mysteries are adults aged 25 to 54 and women aged 25 to 54. The average viewing age for Hallmark Channel was 58.9 and 58.3 for the nine months ended September 30, 2014 and 2015, respectively. The average viewing age for Hallmark Movies and Mysteries was 65.0 for both the nine months ended September 30, 2014 and 2015. We believe we need to draw in viewers in our target demographic in order to achieve our revenue goals.Operations

~~Revenue~~ Our ~~from~~revenue ~~Continuing~~primarily ~~Operations~~consists of advertising fees and subscriber fees.

~~Our revenue primarily consists of advertising fees and subscriber fees.~~ Advertising

We earn advertising revenue in the form of spot or general rate advertising and direct response advertising. Spot advertisements and direct response advertisements are generally 30 seconds long and are aired during or between programs. Spot advertisements are priced at a rate per thousand viewers and almost always include our commitment to deliver a specified number of viewers in a particular demographic. Our revenue from direct response advertising varies in proportion to the direct sales achieved by the advertiser in response to the advertising. It is sold without ratings or product sales commitments. Our advertising revenue is affected by the mix of these forms of advertising. Advertising rates also vary by time of year due to seasonal changes in television viewership.

We Advertising ~~earn advertising~~ revenue inis ~~the~~recorded ~~form~~net of ~~spot~~ADUs. orWhenever ~~general~~spot ~~rate~~ advertising ~~and~~is ~~direct~~aired ~~response~~in ~~advertising.~~programs ~~Spot~~that ~~advertisements~~do ~~and~~not ~~direct~~achieve ~~response~~promised ~~advertisements~~viewership ~~are~~ratings, ~~generally~~we 30issue ~~seconds~~ADUs ~~long~~which ~~and~~provide ~~are~~the ~~aired~~advertiser ~~during~~with oradditional ~~between~~spots ~~programs.~~at ~~Spot~~no ~~advertisements~~additional ~~are~~cost ~~priced~~to atmake aup ~~rate~~for ~~per~~the ~~thousand viewers (i~~shortfall.~~e.,~~ ~~the~~We ~~CPM)~~defer ~~and~~a ~~almost~~pro ~~always~~rata ~~include~~amount ~~our~~of ~~commitment~~advertising torevenue ~~deliver~~and recognize a ~~specified~~like ~~number~~amount ofas ~~viewers.~~a ~~Our~~liability ~~revenue~~for ~~from~~advertisements ~~direct~~that ~~response~~do ~~advertising~~not ~~varies~~achieve inpromised ~~proportion~~viewership toratings. When the ~~direct~~make-good ~~sales~~spots ~~achieved~~are bysubsequently ~~the~~aired, ~~advertiser~~revenue inis ~~response~~recognized toand the ~~advertising~~liability is reduced. ItThe islevel ~~sold~~of ~~without~~inventory ~~ratings~~that oris ~~product~~utilized ~~sales~~for ~~commitments.~~our ~~Our~~ADU ~~advertising~~liability ~~revenue~~varies over time and is ~~affected~~influenced by ~~the~~prior ~~mix~~fluctuations ofin ~~these~~our ~~forms~~under-delivery, if any, of ~~advertising.~~viewers ~~Advertising~~against ~~rates~~promised ~~also~~ratings ~~vary~~as bywell ~~time~~as ofthe ~~year~~rate ~~due~~at towhich ~~seasonal~~we ~~changes~~and inour ~~television~~customers ~~viewership~~mutually agree to utilize the ADUs.

~~Advertising~~ We ~~revenue~~typically iscommit ~~recorded~~approximately ~~net~~40% of ~~ADUs.~~Hallmark ~~Whenever~~Channel’s ~~spot~~ advertising isinventory ~~aired~~and in30% ~~programs~~of ~~that~~Hallmark doMovies ~~not~~and ~~achieve~~Mysteries’ ~~promised~~advertising ~~viewership~~inventory ~~ratings,~~in ~~we issue ADUs which provide~~ the ~~advertiser~~broadcast ~~with~~Upfront ~~additional~~Season ~~spots~~based aton noguaranteed ~~additional~~demographic ~~cost to make up for the shortfall~~delivery. We ~~defer~~hold back a ~~pro~~small ~~rata~~percentage ~~amount~~ of ~~advertising~~our ~~revenue~~inventory ~~and recognize a like amount as a liability~~ for ~~advertisements~~ADUs ~~that~~and docommit ~~not~~the ~~achieve~~remainder ~~promised~~to ~~viewership ratings. When~~ the ~~make-good~~Scatter ~~spots are subsequently aired~~Market, ~~revenue~~calendar isyear ~~recognized~~upfront and the ~~liability~~direct isresponse ~~reduced~~market. The level of inventory that is utilized for our ADU liability varies over time and is influenced by prior fluctuations in our under-delivery, if any, of viewers against promised ratings as well as the rate at which we and our customers mutually agree to utilize the ADUs.

We The ~~typically~~volume ~~commit~~of ~~approximately~~advertising ~~40%~~inventory ofthat ~~Hallmark~~we ~~Channel’s~~have ~~advertising~~available ~~inventory~~for ~~and~~sale ~~30%~~is ofdetermined ~~Hallmark~~by ~~Movies~~our ~~and~~chosen ~~Mysteries’~~commercial ~~advertising~~load ~~inventory~~per inhour and the ~~broadcast~~number ~~Upfront~~of ~~Season~~broadcast hours. WeOur ~~hold~~Networks ~~back~~currently abroadcast ~~small~~24 ~~percentage~~hours ofper ~~our~~day. ~~inventory~~Our ~~for~~need ~~ADUs~~to ~~and~~reserve ~~commit~~inventory for the ~~remainder~~use toof ~~the~~ADUs ~~Scatter~~reduces ~~Market,~~the ~~calendar~~amount ~~year~~of ~~upfront~~advertising ~~and~~inventory ~~the~~available ~~direct~~for ~~response~~cash ~~market~~sales.

22 We have advertising sales offices in New York, Los Angeles, Chicago and Atlanta. In addition, we have made significant investments in programming, research, marketing and promotions, all specifically designed to support the sale of advertising time on our Networks.

~~Table of Contents~~ 24

~~The~~ Table ~~volume~~ of advertising inventory that we have available for sale is determined by our chosen commercial load per hour and the number of broadcast hours in which we air licensed program content. Our Networks are broadcast 24 hours per day. Our need to reserve inventory for the use of ADUs reduces the amount of advertising inventory available for cash sales.Contents

We Subscriber have advertising sales offices in New York, Los Angeles, Chicago and Atlanta. In addition, we have made significant investments in programming, research, marketing and promotions, all specifically designed to support the sale of advertising time on our Networks.Fees

Subscriber ~~Fees~~fees are payable to us on a per subscriber basis by pay television distributors for the right to carry our Networks. The fees we receive per subscriber vary with changes in the following factors, among others:

~~Subscriber~~· ~~fees are payable to us on a per subscriber basis by pay television distributors for~~ the ~~right~~degree toof ~~carry~~competition ~~our Networks. The fees we receive per subscriber vary with changes~~ in the ~~following factors, among others:~~market;

· the ~~degree~~relative ofposition ~~competition~~ in the market of the distributor and the popularity of the Network;

· the ~~relative~~packaging ~~position~~arrangements infor the ~~market of the distributor and the popularity of the~~ Network; and

· length of the ~~packaging~~distribution ~~arrangements~~contract ~~for~~and ~~the~~other ~~Network;~~commercial ~~and~~terms.

· We ~~length~~are in continuous negotiations with our existing distributors to have our Networks placed in packages with the greatest number of subscribers, thereby increasing our subscriber base and enhancing our opportunities to generate advertising revenue. At the ~~contract~~time ~~term~~we sign a distribution agreement, and ~~other~~periodically ~~commercial~~thereafter, ~~terms~~we evaluate the recoverability of the costs we incur against the incremental revenue directly and indirectly associated with each agreement.

We Our Networks are inusually ~~continuous~~offered ~~negotiations~~as ~~with~~one ~~our~~of ~~existing~~a ~~distributors~~number toof ~~have~~networks ~~our~~on ~~Networks~~either ~~placed~~a inbasic ~~packages~~tier ~~with~~or apart ~~greater number~~ of ~~subscribers,~~other ~~thereby~~program ~~increasing~~packages ~~our subscriber base~~ and ~~enhancing~~are ~~our~~not ~~opportunities~~generally tooffered ~~generate~~on ~~advertising~~a ~~revenue~~stand-alone basis. ~~Fees~~Thus, ~~that~~while wecable ~~pay~~or tosatellite acustomers ~~distributor~~may ~~are~~subscribe ~~capitalized~~ and ~~amortized~~unsubscribe ~~over~~to the ~~term~~tiers ofand ~~the~~program ~~applicable~~packages ~~distribution agreement as a reduction~~ in ~~subscriber~~which ~~fee~~one ~~revenue.~~of Atour ~~the~~Networks ~~time~~is ~~we sign a distribution agreement~~placed, ~~and~~these ~~periodically~~customers ~~thereafter,~~do wenot ~~evaluate~~subscribe ~~the~~and ~~recoverability~~unsubscribe ofto ~~the~~our ~~costs~~Networks weon ~~incur~~an ~~against~~individual ~~the incremental revenue directly and indirectly associated with each agreement~~basis.

~~Our~~ Each ~~Networks~~Network’s ~~are~~subscriber ~~usually~~count ~~offered~~depends ason ~~one~~the ~~of a~~ number of ~~networks~~distributors oncarrying ~~either~~the aNetwork, ~~basic~~the ~~tier~~size orof ~~part~~such ofdistributors, ~~other~~and the program ~~packages~~tiers ~~and~~on ~~are~~which ~~not~~the ~~generally~~Network ~~offered~~is oncarried aby ~~stand-alone~~these ~~basis~~distributors. ~~Thus~~From time to time, ~~while~~we ~~cable~~experience increases or ~~satellite~~decreases ~~customers~~in ~~may~~the ~~subscribe~~number ~~and~~of ~~unsubscribe~~subscribers toas ~~the~~promotional ~~tiers~~periods ~~and~~end, ~~program~~as ~~packages~~distributors inreposition ~~which~~the Networks from one oftier ~~our~~or ~~Networks~~package isto ~~placed~~another, ~~these~~or ~~customers~~as doa ~~not~~distributor ~~subscribe~~arrangement ~~and~~is ~~unsubscribe~~amended toor ~~our~~terminated ~~Networks~~by ~~alone~~us or the distributor. Management analyzes the estimated effect each new or amended distribution agreement will have on revenue and costs.

~~Each~~ Cost ~~Network’s subscriber count depends on the number~~ of distributors carrying the Network, the size of such distributors, and the program tiers on which the Network is carried by these distributors. From time to time, we experience increases or decreases in the number of subscribers as promotional periods end, as distributors reposition the Networks from one tier or package to another, or as a distributor arrangement is amended or terminated by us or the distributor. Management analyzes the estimated effect each new or amended distribution agreement will have on revenue and costs.Services

~~Cost~~ Our cost of ~~Services~~services consists primarily of the amortization of programming rights, the cost of signal distribution and the cost of promotional segments that are aired between programs.

~~Our~~ Critical ~~cost~~Accounting ~~of services consists primarily of the amortization of programming rights~~Policies, ~~the~~Judgments ~~cost of signal distribution~~ and ~~the cost of promotional segments that are aired between programs.~~Estimates

~~Critical~~ The ~~Accounting~~preparation ~~Policies,~~of ~~Judgments~~financial statements in conformity with GAAP requires us to make estimates and ~~Estimates~~assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

~~The~~ For ~~preparation~~further ofinformation ~~financial~~regarding ~~statements~~our incritical ~~conformity~~accounting ~~with~~policies, ~~GAAP~~judgments ~~requires~~and usestimates, toplease ~~make~~see ~~estimates~~Notes ~~and~~to ~~assumptions~~Unaudited ~~that~~Condensed ~~affect~~Consolidated ~~the~~Financial ~~reported~~Statements ~~amounts~~“Summary of ~~assets~~Significant ~~and~~Accounting ~~liabilities~~Policies and ~~disclosure~~Estimates” ofin ~~contingent~~Part I, Item ~~assets~~1 ~~and~~of ~~liabilities~~this atQuarterly ~~the~~Report ~~date~~on ofForm 10-Q ~~the~~and ~~financial~~“Critical ~~statements~~Accounting Policies, Judgments and ~~the~~Estimates” ~~reported~~in ~~amounts~~Part II, Item 7 of ~~revenue~~our ~~and~~Annual ~~expenses~~Report ~~during~~on Form 10-K as filed with the ~~reporting~~Securities ~~period.~~and ~~Actual~~Exchange ~~results~~Commission ~~could~~(the ~~differ~~“SEC”) ~~from~~for ~~those~~the ~~estimates~~year ended December 31, 2015.

~~For~~ Effects ~~further information regarding our critical accounting policies, judgments and estimates, please see Notes to Unaudited Condensed Consolidated Financial Statements “Summary~~ of ~~Significant~~Transactions Accounting Policies and Estimates” in Part I, Item 1 of this Quarterly Report on Form 10-Q and “Critical Accounting Policies, Judgments and Estimates” in Part II, Item 7 of our Annual Report on Form 10-K as filed with ~~the~~Related ~~Securities~~ and ~~Exchange~~Certain ~~Commission~~Other ~~(the “SEC”) for the year ended December 31, 2014.~~Parties

23 We have entered into a number of significant transactions with Hallmark Cards and certain of its subsidiaries. These transactions include, among other things, trademark licenses, program licenses, and an administrative services

~~Table of Contents~~ 25

~~Effects~~ Table of ~~Transactions with Related and Certain Other Parties~~Contents

We have entered into a number of significant transactions with Hallmark Cards and certain of its subsidiaries. These transactions include, among other things, trademark licenses, program licenses, and an administrative services agreement. A summary of the terms and financial impact of these transactions is described in our Annual Report on Form 10-K as filed with the SEC for the year ended December 31, ~~2014~~2015 and in the footnotes to the financial statements included in this Quarterly Report on Form 10-Q.

Selected Historical Consolidated Financial Data of Crown Media Holdings

In the table below, we provide selected historical unaudited condensed consolidated financial and other data of Crown Media Holdings and its subsidiaries. The following selected unaudited condensed consolidated statement of operations data for three ~~and nine~~ months ended ~~September 30~~March 31, ~~2014~~2015 and ~~2015~~2016, are derived from the unaudited financial statements of Crown Media Holdings and its subsidiaries. Ratings and subscriber information is also unaudited. This data should be read together with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.

	Three Months Ended September 30,						Percent		Nine Months Ended September 30,						Percent
		Three Months Ended March 31,						Percent
	2014			2015			Change		2014			2015			Change
		2015			2016			Change
Revenue:
Advertising	$	~~71,373~~$	79,137	$	~~83,601~~$	100,763	17	%27	$%	~~216,580~~		$	~~252,098~~		16	%
Subscriber fees	~~20,665~~		20,896	~~21,869~~		21,736	6	%4	~~62,636~~%			~~63,336~~			1	%
Other revenue	~~1,289~~		479	~~744~~		1,724	~~-42~~	%260	~~2,139~~%			~~4,540~~			~~112~~	%
Total revenue	~~93,327~~		100,512	~~106,214~~		124,223	14	%24	~~281,355~~%			~~319,974~~			14	%
Cost of Services:
Programming costs	~~36,800~~		34,758	~~43,458~~		41,487	18	%19	~~114,432~~%			~~119,627~~			5	%
Operating costs	~~4,199~~		4,455	~~5,730~~		5,491	36	%23	~~11,982~~%			~~15,797~~			32	%
Total cost of services	~~40,999~~		39,213	~~49,188~~		46,978	20	%20	~~126,414~~%			~~135,424~~			7	%
Selling, general and administrative expense	~~16,193~~		18,251	~~19,092~~		20,279	18	%11	~~49,408~~%			~~57,039~~			15	%
Marketing expense	~~1,353~~		4,608	~~985~~		4,675	~~-27~~	%1	~~6,195~~%			~~7,637~~			23	%
Income before interest and income tax expense	~~34,782~~		38,440	~~36,949~~		52,291	6	%36	~~99,338~~%			~~119,874~~			21	%
Interest expense	~~(9,939~~		(9,089)	~~(4,196~~		(3,006)	~~-58~~	%(67)	~~(30,041~~%		)	~~(22,034~~		)	~~-27~~	%
Loss on extinguishment of debt	(1,180		)	(18,581		)	1475	%	(1,180		)	(22,478		)	1805	%
Income before income tax expense			29,351			49,285		68	%
Income before income tax expense and loss from sale of discontinued operations	23,663			14,172			-40	%	68,117			75,362			11	%
Income tax expense			(10,845)			(18,119)		67	%
Income tax provision	(8,766		)	(5,471		)	-38	%	(25,220		)	(28,093		)	11	%
Net income		$	18,506		$	31,166		68	%
Income from continuing operations	14,897			8,701			-42	%	42,897			47,269			10	%
Cash Flow Data:
Loss on disposal of international business	—			(44		)			—			(44		)
Net cash provided by operating activities		$	23,909		$	67,536		182	%
Net income	$	14,897		$	8,657		-42	%	$	42,897		$	47,225		10	%
Net cash used in investing activities		$	(196)		$	(416)		112	%
Cash Flow Data:
Net cash used in financing activities		$	(20,347)		$	(379)		(98)	%
Net cash provided by operating activities	$	14,409		$	14,059		-2	%	$	51,359		$	71,621		39	%
Other Data (Unaudited):
Net cash used in investing activities	$	(1,132	)	$	(111	)	-90	%	$	(2,412	)	$	(1,698	)	-30	%
HC day household ratings(1)(3)(4)			0.5			0.5		3	%
Net cash used in financing activities	$	(21,351	)	$	(16,116	)	-25	%	$	(46,993	)	$	(60,269	)	28	%
HC primetime household ratings(2)(3)(4)			0.7			0.7		(3)	%
Other Data (Unaudited):
HMM day household ratings(1)(3)(4)			0.4			0.5		14	%
HC day household ratings (1)(3)(4)	0.4			0.5			1	%	0.4			0.4			4	%
HMM primetime household ratings(2)(3)(4)			0.5			0.6		15	%
HC primetime household ratings (2)(3)(4)	0.7			0.6			-8	%	0.6			0.7			6	%
HC day W25-54 ratings(1)(3)(4)			0.3			0.3		(0)	%
HMM day household ratings (1)(3)(4)	0.4			0.5			32	%	0.4			0.5			29	%
HC primetime W25-54 ratings(2)(3)(4)			0.3			0.4		7	%
HMM primetime household ratings (2)(3)(4)	0.5			0.6			17	%	0.5			0.6			19	%
HMM day W25-54 ratings(1)(3)(4)			0.1			0.2		45	%
HC day W25-54 ratings (1)(3)(4)	0.3			0.3			5	%	0.2			0.3			16	%
HMM primetime W25-54 ratings(2)(3)(4)			0.2			0.2		34	%
HC primetime W25-54 ratings (2)(3)(4)	0.3			0.3			-12	%	0.3			0.3			9	%
HC subscribers at year end(4)			85,071			89,699		5	%
HMM day W25-54 ratings (1)(3)(4)	0.1			0.2			37	%	0.1			0.2			45	%
HMM subscribers at year end(4)			56,014			64,492		15	%
HMM primetime W25-54 ratings (2)(3)(4)	0.2			0.2			26	%	0.1			0.2			40	%
HC subscribers at period end (4)	85,406			90,506			6	%	85,406			90,506			6	%
HMM subscribers at period end (4)	54,573			62,509			15	%	54,573			62,509			15	%

24(1) Total day means the time period that Nielsen measures each individual day, 6 a.m. to 6 a.m.

~~Table~~(2) ofPrimetime ~~Contents~~is defined as 8:00 - 11:00 P.M. in the United States.

(13) ~~Total~~ ~~day~~These ~~means~~Nielsen ratings are for the time period ~~that~~December ~~Nielsen~~29, ~~measures~~2014 ~~each~~through ~~individual~~March ~~day~~29, 62015, ~~a.m.~~ compared to 6December a27, 2015 through March 27, 2016.m.

(24) ~~Primetime~~ is“HC” ~~defined~~represents asHallmark ~~8:00~~Channel -and ~~11:00~~“HMM” Prepresents Hallmark Movies & Mysteries.~~M. in~~ ~~the~~Ratings ~~United~~and ~~States~~subscribers are reported by The Nielsen Company.

(3) These Nielsen ratings are for the time period June 30, 2014 through September 28, 2014, compared to June 29, 2015 through September 27, 2015, and December 30, 2013 through September 28, 2014, compared to December 29, 2014 through September 27, 2015. 26

~~(4) “HC”~~ Table ~~represents~~of ~~Hallmark Channel and “HMM” represents Hallmark Movies & Mysteries. Ratings and subscribers are reported~~ Contents

byResults ~~The~~of ~~Nielsen Company.~~ Operations

~~Results~~ Three ofMonths ~~Operations~~Ended March 31, 2015 Compared to Three Months Ended March 31, 2016

~~Three~~ Revenue. Our ~~Months~~revenue ~~Ended~~from ~~September 30~~continuing operations, ~~2014~~comprised ~~Compared~~primarily toof ~~Three~~advertising ~~Months~~and ~~Ended~~subscriber ~~September 30~~fees, increased $23.7 million or 24% from the first quarter of 2015 to the first quarter of 2016.

~~Revenue~~ The $21. ~~Our~~6 million or 27% increase in advertising revenue ~~from~~is ~~continuing~~due ~~operations,~~to ~~comprised~~growth ~~primarily~~in ofaudience ~~advertising~~levels across both channels and ~~subscriber~~ratings ~~fees,~~improvements ~~increased~~for ~~$12.9~~Hallmark ~~million~~Movies orand ~~14%~~Mysteries. Advertising revenue from ~~the~~Hallmark ~~third~~Movies ~~quarter~~and ofMysteries ~~2014~~was to$19.0 million and $29.6 million for the ~~third~~three ~~quarter~~months ofended March 31, 2015 and 2016, respectively.

~~The~~ Our ~~$12.2~~subscriber ~~million~~fee orrevenue ~~17%~~increased ~~increase~~$840,000 inor ~~advertising~~4% ~~revenue is~~ due to ~~growth~~revenue infrom ~~audience~~AT&T. Other ~~levels~~revenue ~~across~~increased ~~both~~$1.2 ~~channels~~million ~~and~~from ~~ratings~~the ~~improvements~~first ~~for~~quarter ~~Hallmark~~of ~~Movies~~2015 ~~and~~to ~~Mysteries.~~the ~~Advertising~~first ~~revenue~~quarter ~~from~~of ~~Hallmark~~2016. During ~~Movies~~the ~~and~~first ~~Mysteries~~quarter ~~was~~of ~~$16.6~~2016, ~~million~~we ~~and~~recorded $231.32 million ~~for~~of ~~the~~revenue ~~three~~from ~~months~~a ~~ended~~licensing ~~September 30,~~agreement ~~2014~~with ~~and 2015, respectively~~Netflix.

~~Our~~ Cost ~~subscriber~~of ~~fee revenue increased $1~~services.2 ~~million~~Cost orof 6%services ~~due~~as toa ~~revenue~~percent ~~from~~of ~~one distributor. Other~~ revenue decreased ~~$545,000~~ from ~~the~~39% ~~third~~during ~~quarter~~the ofthree ~~2014~~months toended ~~the~~March ~~third~~31, ~~quarter~~2015, ofto ~~2015. During~~38% during the ~~third~~three ~~quarter~~months ofended ~~2014~~March 31, we2016. ~~recorded~~This ~~$910,000~~decrease ofresults ~~revenue~~primarily from athe ~~licensing~~effect ~~agreement~~of ~~with~~the an27% ~~independent~~increase ~~content~~in ~~distributor. During~~advertising ~~the~~revenue ~~third~~discussed ~~quarter~~above ~~of 2015~~offset, wein ~~recorded $400~~part,~~000~~ ~~from~~by athe ~~licensing~~19% ~~agreement~~increase ~~with~~in anprogramming ~~international~~costs ~~content~~discussed ~~distributor~~below.

~~Cost~~ Programming ofcosts ~~services~~increased $6.7 ~~Cost~~million ofor ~~services~~19%, asfrom athe ~~percent~~three ofmonths ~~revenue~~ended ~~increased~~March ~~from~~31, ~~44%~~2015, ~~during~~to the three months ended ~~September 30~~March 31, ~~2014~~2016, primarily due to ~~46%~~the ~~during~~higher costs associated with syndicated series and the ~~three~~production ~~months~~of ~~ended~~the ~~September~~current season of Home ~~30,~~& ~~2015~~Family. Operating ~~This~~costs ~~increase~~increased ~~results~~$1.0 ~~primarily~~million from the ~~effect~~three ofmonths ~~the~~ended ~~18%~~March ~~increase~~31, in2015, ~~programming~~to ~~costs~~the ~~discussed~~three ~~below~~months ~~offset,~~ended inMarch ~~part~~31, by2016, ~~the~~due ~~17%~~to ~~increase~~increases of $378,000 in ~~advertising~~employee ~~revenue~~costs ~~discussed~~and ~~above~~$616,000 increases in residuals expense.

~~Programming costs increased $6.7 million or 18%~~ Selling, ~~from~~general ~~the~~and ~~three~~administrative ~~months~~expense. Our ~~ended September 30~~selling, ~~2014,~~general ~~to the three months ended September 30, 2015, primarily due to the higher costs associated with the production of the current seasons of Cedar Cove~~ and ~~the~~administrative ~~Home &~~expense ~~Family. Operating costs~~ increased $12.50 million from the three months ended ~~September 30~~March 31, ~~2014~~2015, to the three months ended ~~September 30,~~March ~~2015~~31, ~~due to increases of $649~~2016,~~000~~ inprimarily ~~residual~~due ~~expenses related~~ to ~~increased~~an ~~usage,~~11% ~~$363,000~~increase in employee costs, and ~~increases~~other innominal ~~the~~increases. Additionally, ~~costs of producing non-programming creative elements and~~ bad debt expense. ~~Bad debt expense~~ increased from $10130,000 during the ~~third~~first quarter of ~~2014~~2015 to $~~135~~963,000 during the ~~third~~first quarter of ~~2015~~2016 primarily due to ~~bankruptcies~~financial ofdifficulties experienced by certain ~~customers~~of our advertisers.

~~Selling,~~ Interest ~~general and administrative~~ expense. ~~Our~~ Interest ~~selling, general and administrative~~ expense ~~increased~~decreased $26.91 million from the three months ended ~~September 30,~~March ~~2014~~31, 2015 to the three months ended ~~September 30~~March 31, ~~2015~~2016, ~~primarily~~ due to alower ~~33%~~rates ~~increase~~on inthe ~~employee~~new ~~costs~~credit ~~and other nominal increases~~facility.

~~Marketing~~ Income ~~expense~~tax provision. ~~Our~~ Provision ~~marketing~~for ~~expense~~income ~~decreased~~tax of $~~368,000,~~10.8 ormillion ~~27%,~~and ~~from~~$18.1 ~~the~~million ~~third~~reflect ~~quarter~~corresponding effective tax rates of ~~2014~~36.9% toand 36.8% for the ~~third~~three ~~quarter~~months ofended March 31, 2015 ~~primarily~~and ~~due~~2016, torespectively. ~~the~~A ~~timing~~significant portion of ~~marketing~~each ~~spends~~provision ~~and~~consists ~~allocation~~ of ~~marketing~~a ~~dollars~~deferred component that represents a non-cash expense.

~~Interest~~ Liquidity ~~expense. Interest~~and ~~expense~~Capital decreased $5.7 million from the three months ended September 30, 2014 to the three months ended September 30, 2015 due to lower rates on the new credit facility, offset slightly by interest attributable to the interest rate swap.Resources

~~Loss~~ Cash onFlow ~~extinguishment~~from ofOperating ~~debt~~Activities. OnFor ~~July 24, 2015,~~ the ~~Company~~three ~~redeemed~~months ~~$271.5~~ended ~~million~~March in31, ~~principal~~2015, ~~amount~~our ofcash ~~Notes~~provided ~~for~~by aoperating ~~price~~activities ofwas $~~285~~23.89 million ~~and~~as ~~recorded~~compared ato ~~charge~~$67.5 million for the ~~associated~~three ~~debt~~months ~~issuance~~ended ~~costs~~March of31, ~~approximately $4~~2016.3 ~~million,~~The ~~which~~increase ~~resulted~~ in ancash ~~aggregate,~~flows ~~pre-tax~~from ~~loss~~operations onwas ~~extinguishment~~primarily ofdriven ~~debt~~by ofimproved ~~approximately~~financial ~~$18.6~~results ~~million. In~~before ~~August 2014,~~consideration ~~the Company redeemed $8.5 million in principal amount~~ of ~~its~~noncash ~~Notes~~items, ~~for~~including a ~~price of~~ $96.58 million ~~and~~increase ~~retired a portion~~ of ~~the~~depreciation ~~related~~and ~~debt~~amortization ~~issuance~~expense ~~costs~~for ofthe ~~$160,000,~~three ~~which~~months ~~resulted~~ended inMarch ~~an aggregate~~31, ~~pre-tax~~2016 ~~loss~~as oncompared ~~extinguishment~~to ofthree ~~debt~~months ofended ~~$1.2~~March ~~million~~31, 2015.

~~Income~~ Cash ~~tax~~Flow ~~provision.~~from ~~Provision~~Investing ~~for income tax of $8~~Activities.8 ~~million~~Net ~~and~~cash ~~$5.5~~used ~~million~~in ~~reflect~~investing ~~corresponding~~activities ~~effective~~was ~~tax~~$196,000 ~~rates of 37.0%~~ and ~~38.6%~~$416,000 ~~for~~during the three months ended ~~September 30~~March 31, ~~2014~~2015 and ~~2015~~2016, respectively. AIn ~~significant~~2016 ~~portion~~we ofinvested ~~each~~in ~~provision~~server ~~consists~~storage ~~of a deferred component that represents a non-cash expense~~equipment.

25 Cash Flow from Financing Activities. Net cash used in financing activities was $20.3 million and $379,000 for the three months ended March 31, 2015 and 2016, respectively. We made a principal payment under the 2011 Term Loan of $20.0 million during the three months ended March 31, 2015.

~~Table of Contents~~ 27

~~Nine~~ Table ~~Months~~of ~~Ended September 30, 2014 Compared to Nine Months Ended September 30, 2015~~Contents

~~Revenue~~Principal Uses of Cash. Our ~~revenue~~management ~~from~~anticipates ~~continuing~~that ~~operations,~~the ~~comprised~~principal ~~primarily~~uses of ~~advertising~~cash ~~and~~during ~~subscriber~~the ~~fees,~~twelve ~~increased~~month ~~$38.6~~period ~~million~~ending orMarch ~~14%~~31, ~~during~~2017, will include the ~~nine~~payment ~~months~~of ~~ended~~operating ~~September 30~~expenses, ~~2014,~~accounts topayable ~~the~~and ~~nine~~accrued ~~months~~expenses, ~~ended~~programming ~~September 30~~costs, ~~2015.~~principal ~~The~~and interest of approximately $3524.50 million orunder ~~16%~~the ~~increase~~2015 inCredit ~~advertising~~Agreement, ~~revenue~~and isadditional ~~due~~principal topayments ~~growth~~under inthe ~~audience~~2015 ~~levels~~Term ~~and ratings across both channels~~Loan. ~~Our~~We ~~subscriber~~believe ~~fee~~that ~~revenue~~cash ~~increased~~on ~~$700~~hand,~~000~~ orcash 1%generated ~~due~~by tooperations, ~~the~~and ~~increase~~borrowing inavailable ~~revenue~~under ~~from~~our ~~one~~2015 ~~distributor. Other~~Credit ~~revenue~~Agreement, ~~increased~~will ~~$2.4~~be ~~million~~sufficient to ~~$4.5~~fund ~~million~~our ~~primarily~~operations ~~due~~and toenable ~~$2.3~~us ~~million~~to ~~from~~meet ~~new~~our ~~licensing~~liquidity ~~agreements~~needs ~~with~~through anMarch ~~independent~~31, ~~content distributor~~2017.

~~Cost~~ We ofare ~~services.~~required ~~Cost~~to ofmake ~~services~~prepayments asunder athe ~~percent~~2015 ofTerm ~~revenue~~Loan ~~decreased~~in ~~from~~amounts 45equal to (1) 50% ~~during~~of ~~the~~our ~~nine~~excess ~~months~~cash ~~ended~~flow, ~~September 30~~as defined in the 2015 Credit Agreement, ~~2014~~for each respective year, which percentage will be reduced to 4225% ~~during~~if the ~~nine~~Consolidated ~~months~~Leverage ~~ended~~Ratio ~~September 30,~~is ~~2015~~equal to or less than 3.00 ~~This~~to ~~decrease~~1.00 ~~results~~but ~~primarily~~greater ~~from~~than ~~the~~2.00 ~~effects~~to of1.00, ~~the~~and 160% ~~increase~~if inthe ~~advertising~~Consolidated ~~revenue~~Leverage ~~discussed~~Ratio ~~above~~is ~~offset,~~equal into ~~part,~~or byless ~~the~~than 5%2.00 ~~increase~~to in1. ~~programming~~Since ~~costs~~our Consolidated Leverage Ratio was equal to or less than 2.00 to 1, ~~discussed~~no ~~below~~excess cash flow payment is expected to be due during the first quarter of 2016.

~~Programming~~ On ~~costs~~August ~~increased~~11, ~~$5.2~~2015, ~~million~~we orentered into a 5%,-year ~~from~~interest-rate ~~the~~swap ~~nine~~to ~~months~~economically ~~ended~~convert ~~September 30,~~the ~~2014,~~debt’s variable rate to ~~the~~a ~~nine~~fixed ~~months~~rate. ~~ended~~Under ~~September 30,~~the ~~2015~~swap contract, ~~primarily~~we ~~due~~pay tointerest ~~the~~at ~~timing~~a ~~and~~fixed ~~mix~~rate of ~~aired programming~~1.6775% ~~Operating~~and ~~costs~~receive ~~increased~~interest $at a variable rate equal to the 3-month LIBOR, based on a notional amount of $200.80 million. ~~from~~The ~~the~~swap ~~nine~~is ~~months~~not ~~ended~~contractually ~~September 30,~~prepayable. ~~2014,~~Both tothe debt and the ~~nine~~swap ~~months~~require ~~ended~~that ~~September 30,~~payments ~~2015,~~be ~~due~~made toor ~~increases~~received inon the ~~costs~~25th of ~~producing~~January, ~~non~~April, July and October. The 3-~~programming~~month ~~creative~~U.S. ~~elements,~~LIBOR ~~residual~~on ~~expense~~each reset date of January, ~~employee~~April, ~~costs~~July and ~~bad~~October ~~debt~~determines ~~expense.~~the ~~Bad~~variable ~~debt~~interest-rate ~~expense~~on ~~increased~~the ~~from~~debt ~~$123,000~~and the swap for the ~~nine~~following ~~months~~3-month ~~ended~~period. ~~September 30~~We designated the swap as a cash flow hedge, ~~2014~~which hedges the exposure to ~~$827,000~~variability ~~for~~in the ~~nine~~cash ~~months~~flows ~~ended~~of ~~September 30~~the variable-rate debt, ~~2015~~with ~~primarily~~changes in cash flows that are due to ~~bankruptcies~~changes ofin ~~two~~the ~~customers.~~3-month ~~Residual~~LIBOR ~~expense~~being ~~increased~~the $1specific risk that is hedged.2 ~~million~~It ~~due~~is toexpected ~~increased~~that ~~usage~~this ~~and~~swap ~~costs~~will ~~while~~fix ~~employee~~the ~~costs~~cash ~~increased~~flows ~~$768,000~~associated with the forecasted interest payments on the notional amount of the debt.

~~Selling~~ 2015 Credit Agreement. On June 25, ~~general~~2015 we entered into the 2015 Credit Agreement. The 2015 Credit Agreement provides for the 2015 Term Loan and ~~administrative~~the ~~expense~~2015 Revolver. ~~Our~~ The ~~selling,~~2015 ~~general~~Credit Agreement also provides for the issuance of letters of credit and ~~administrative~~the ~~expense~~provision ~~increased~~of swingline loans under the 2015 Revolver, subject to a $715.60 million ~~from~~sublimit ~~the~~for ~~nine~~letters ~~months~~of ~~ended~~credit ~~September 30,~~and ~~2014,~~a to$5.0 million sublimit for swingline loans. Our subsidiaries (the ~~nine~~“Guarantors”) ~~months~~have ~~ended~~guaranteed ~~September 30,~~our obligations under the 2015, ~~primarily~~Credit ~~due~~Agreement. The to2015 Credit Agreement is collateralized by a ~~22%~~first ~~increase~~priority interest in ~~employee~~substantially ~~costs,~~all anof 8%our ~~increase~~and inthe ~~research~~Guarantors’ ~~costs~~present and future assets, other ~~nominal~~than ~~increases~~interests in the Hallmark trademarks and associated rights.

~~Marketing~~ We ~~expense. Our~~are ~~marketing~~required ~~expense~~to ~~increased~~make ~~$1.4~~prepayments ~~million,~~under orthe 232015 Term Loan in amounts equal to (1) 50%, ~~from~~of excess cash flow (as defined in the ~~nine~~2015 Credit Agreement) for the six months ended ~~September 30~~December 31, ~~2014~~2015, and for each year thereafter, which percentage will be reduced to 25% if the ~~nine~~Consolidated ~~months~~Leverage ~~ended~~ratio ~~September 30,~~(as defined in the 2015, ~~primarily~~Credit ~~due~~Agreement) is equal to ~~our~~or ~~2015~~less ~~tent~~than ~~pole~~3.00 ~~marketing~~to ~~campaign~~1.00 ~~surrounding~~but ~~our~~greater ~~original~~than ~~series~~2.00 to 1.00, ~~Good~~and ~~Witch~~0% if the Consolidated Leverage ratio is equal to or less than 2.00 to 1.00; (2) 100% of net cash proceeds of dispositions or casualty events if we have not invested such proceeds within one year after the occurrence of the disposition or casualty event; and (3) 100% of net cash proceeds from the issuance of indebtedness not otherwise permitted by the 2015 Credit Agreement.

~~Interest~~ The ~~expense. Interest~~covenants ~~expense~~in ~~decreased~~the ~~$8.0~~2015 ~~million~~Credit ~~from~~Agreement ~~the~~limit ~~nine~~our ~~months~~ability ~~ended~~and ~~September 30,~~certain ~~2014~~of our subsidiaries to, ~~the~~among ~~nine~~other ~~months~~things: ~~ended~~(1) ~~September 30,~~incur ~~2015~~indebtedness; ~~due~~(2) tocreate ~~lower~~or ~~rates~~permit liens on ~~the~~certain assets; (3) pay certain dividends or make certain distributions and other restricted payments; (4) make certain investments; (5) prepay certain indebtedness; (6) enter into certain transactions with affiliates; (7) dispose of assets; (8) merge or consolidate; (9) enter into new ~~credit~~unrelated ~~facility,~~lines ~~offset~~of ~~slightly~~business; and (10) enter into sale and leaseback transactions. The 2015 Credit Agreement also requires compliance by ~~interest~~us ~~attributable~~with toa ~~the~~Consolidated ~~interest~~Leverage ~~rate~~Ratio ~~swap~~test and a Consolidated Secured Leverage Ratio.

~~Loss~~ The ~~on extinguishment of debt. In June 2015, the~~ Company ~~repaid~~must ~~$99.6~~elect ~~million~~Eurodollar ofor ~~principal~~base ~~under~~rate ~~its~~loans ~~2011~~prior ~~Term~~to ~~Loan~~borrowing. ~~using~~Eurodollar ~~cash~~loans onwill ~~hand~~bear ofinterest ~~$19.6~~at ~~million~~the ~~and~~adjusted ~~proceeds~~LIBO ~~from~~rate ~~the~~(with ~~2015~~that ~~Term~~rate ~~Loan~~not ofto ~~$80.0~~be ~~million.~~deemed Into ~~conjunction~~be ~~with~~below ~~this transaction~~0%), itplus ~~retired~~an ~~$2.7~~interest ~~million~~margin ofranging ~~debt~~from ~~issuance costs and $~~1.250% ~~million original issue discount costs related~~ to ~~the 2011 Term Loan~~2.25%, ~~which~~depending ~~resulted in aggregate a pre-tax loss~~ on ~~extinguishment~~the ofCompany’s ~~debt~~Consolidated ofLeverage ~~$3.9~~Ratio ~~million.~~(as Ondefined ~~July 24,~~in ~~2015,~~ the ~~Company~~2015 ~~redeemed~~Credit ~~$271~~Agreement).5 ~~million~~All inbase ~~principal~~rate ~~amount~~loans ofwill ~~Notes~~bear ~~for~~interest aat ~~price~~the ofalternate ~~$285.8~~base ~~million~~rate ~~and~~(as ~~recorded~~defined ain ~~charge for~~ the ~~associated~~2015 ~~debt~~Credit ~~issuance~~Agreement), ~~costs~~plus ofan ~~approximately~~interest ~~$4.3~~margin ~~million,~~ranging ~~which~~from ~~resulted~~0.50% into ~~an aggregate~~1.25%, ~~pre-tax~~depending ~~loss~~ on ~~extinguishment~~the ofCompany’s ~~debt~~Consolidated ofLeverage ~~approximately $18~~Ratio.~~6 million.~~

In August 2014, the Company redeemed $8.5 million in principal amount of its Notes for a price of $9.5 million and retired a portion of the related debt issuance costs of $160,000, which resulted in an aggregate, pre-tax loss on extinguishment of debt of $1.2 million. 28

~~Income~~ Table ~~tax provision. Provision for income tax~~ of $25.2 million and $28.1 million reflect corresponding effective tax rates of 37.0% and 37.3% for the nine months ended September 30, 2014 and 2015, respectively. A significant portion of each provision consists of a deferred component that represents a non-cash expense.Contents

~~Liquidity~~Risk Factors and ~~Capital~~Forward-Looking ~~Resources~~Statements

~~Cash~~ The ~~Flow~~discussion ~~from~~set ~~Operating~~forth ~~Activities.~~in ~~Cash~~this ~~provided~~Quarterly byReport ~~operating~~on ~~activities~~Form 10-Q ~~was~~contains ~~$51.4~~statements ~~million~~concerning ~~and~~potential ~~$71~~future events.6 ~~million~~Such ~~for~~forward-looking ~~the~~statements ~~nine~~are ~~months~~based ~~ended~~on ~~September 30,~~assumptions ~~2014~~by ~~and~~our ~~2015~~management, ~~respectively.~~as Weof ~~had~~the ~~net~~date ~~income~~ of ~~$42.9~~this ~~million~~Quarterly ~~for~~Report ~~the~~on ~~nine months ended September~~Form 3010-Q, ~~2014,~~including asassumptions ~~compared~~about torisks ~~$47.2~~and ~~million~~uncertainties ~~for~~we ~~the~~face. ~~nine~~Readers ~~months~~can ~~ended~~identify ~~September 30,~~these ~~2015.~~forward-looking ~~Our~~statements ~~depreciation~~by ~~and~~their ~~amortization~~use ~~expense~~of ~~for~~such ~~the~~verbs ~~nine~~as ~~months~~“expects,” ~~ended~~“anticipates,” ~~September 30~~“believes,” ~~2015~~“plans” ~~increased~~or ~~$5.4~~similar ~~million~~verbs ~~due~~or toconjugations ~~the timing and mix~~ of ~~aired~~such ~~programming~~verbs. We ~~made~~If ~~programming~~any ~~payments~~ of ~~$142.3~~our ~~million~~assumptions ~~and~~prove ~~$148.9~~incorrect ~~million~~or ~~during~~should ~~the~~unanticipated ~~nine~~circumstances ~~months ended September 30~~arise, ~~2014~~our ~~and~~actual ~~2015~~results, ~~respectively.~~levels ~~Additionally, we had cash receipts~~ of ~~$305.3~~activity, ~~million~~performance, ~~and~~or ~~$334.5~~achievements ~~million~~could ~~during~~differ ~~the~~materially ~~nine~~from ~~months~~those ~~ended~~anticipated ~~September 30,~~by ~~2014~~such ~~and~~forward-looking ~~2015, respectively~~statements.

~~Cash~~ Among ~~Flow~~the ~~from~~factors ~~Investing~~that ~~Activities.~~could ~~Cash~~cause ~~used~~actual inresults ~~investing~~to ~~activities~~differ ~~was~~materially ~~$2.4~~are ~~million~~those ~~and~~discussed ~~$1.7~~in ~~million~~our ~~during~~filings with the ~~nine~~SEC, ~~months~~including the risk factors stated in our Annual Report on Form 10-K for the year ended ~~September~~December 3031, ~~2014~~2015. ~~and~~Such ~~2015~~risk factors include, ~~respectively.~~but Inare ~~2014~~not welimited ~~renovated~~to, athe ~~new~~following: competition ~~floor~~for distribution of networks, viewers, advertisers and the acquisition of programming; fluctuations in the ~~California~~availability ~~office~~of programming; our ability to renew our distribution agreements on favorable terms; our ability to protect our rights to intellectual property; fluctuations in demand for programming which we air on our Networks; our ability to address our liquidity needs; and ~~also~~our ~~replaced~~substantial indebtedness affecting our financial condition and results.

26 Available Information

~~Table~~ Our principal executive offices are located at 12700 Ventura Boulevard, Studio City, California 91604 and our telephone number is (818) 755-2400. We will make available free of ~~Contents~~charge through our website, www.hallmarkchannel.com, the 2015 Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and amendments to such reports, as soon as reasonably practicable after we electronically file or furnish such material with the Securities and Exchange Commission (the “SEC”).

~~computers~~ The public may read and ~~servers~~copy any materials that Crown Media Holdings, Inc. Infiles ~~2015~~with wethe ~~invested~~SEC inat athe ~~co-location~~SEC’s ~~facility~~Public ~~for~~Reference ~~disaster~~Room at ~~recovery~~100 F Street, ~~replaced~~NW, ~~local~~Washington, ~~area~~DC ~~networks~~20549. inThe ~~all~~public ~~office~~may ~~locations~~obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and ~~completed~~information astatements, ~~dedicated~~and ~~storage~~other ~~area~~information ~~network~~regarding ~~for~~issuers ~~our~~that ~~digital~~file ~~endeavors~~electronically with the SEC at www.sec.gov.

~~Cash~~ Additionally, ~~Flow~~we ~~from~~will ~~Financing~~make ~~Activities. Cash used in financing activities was $47.0 million and $60.3 million for the nine months ended September 30~~available, ~~2014~~free ~~and 2015, respectively. Redemption~~ of ~~Notes~~charge ~~were~~upon ~~$8.5 million and $271.5 million for the nine months ended September 30~~request, ~~2014~~a ~~and~~copy ~~2015,~~of ~~respectively.~~our ~~Premiums~~Business onConduct ~~Notes were $1.0 million~~ and ~~$14.3~~Ethics ~~million for the nine months ended September 30~~Policy, ~~2014~~which ~~and~~is ~~2015,~~applicable ~~respectively.~~to Weall ~~made principal payments under the 2011 Term Loan~~ of ~~$36.5~~our ~~million and $119.6 million for the nine months ended September 30~~employees, ~~2014~~including ~~and~~our ~~2015,~~senior ~~respectively.~~financial ~~We borrowed $325~~officers.0 ~~million~~Our ~~under~~code ~~the~~is ~~2015~~available ~~Term~~through ~~Loan~~our ~~and $25~~website.0 ~~million~~Copies ~~under~~may ~~the~~be ~~2015~~requested ~~Revolver~~by ~~during~~contacting ~~the~~our ~~nine~~General ~~months~~Counsel ~~ended~~at ~~September 30,~~12700 ~~2015.~~Ventura ~~Additionally~~Boulevard, weStudio ~~paid~~City, ~~transaction~~California ~~costs of $3~~91604.~~8 million due to the 2015 Refinancing.~~

~~Principal~~ Item ~~Uses of Cash~~3. Quantitative ~~Our management anticipates that the principal uses of cash during the twelve month period ending September 30, 2016 will include the payment of operating expenses, accounts payable~~ and ~~accrued~~Qualitative ~~expenses,~~Disclosures ~~programming~~about ~~costs,~~Market principal and interest of $39.7 million under the 2015 credit facilities, and such additional principal payments made from excess cash flows, as may become due under the 2015 Term Loan. We believe that cash on hand, cash generated by operations, and borrowing available under our 2015 credit facility, will be sufficient to fund our operations and enable us to meet our liquidity needs through September 30, 2016.Risk

~~2015~~ As ~~Credit~~of ~~Agreement.~~March On31, ~~June 25~~2016, ~~2015~~our wecash ~~entered~~had ~~into~~a ~~the~~fair ~~2015~~value ~~Credit~~of ~~Agreement~~$117. ~~The~~3 ~~2015 Credit Agreement provides for the 2015 Term Loan and the 2015 Revolver~~million. The ~~2015~~primary ~~Credit~~purpose ~~Agreement also provides for the issuance~~ of ~~letters~~our ofinvesting ~~credit~~activities ~~and~~has ~~the~~been ~~provision~~to ofpreserve ~~swingline~~principal ~~loans~~until ~~under~~ the ~~2015~~cash ~~Revolver,~~is ~~subject~~required to afund ~~$15~~operations.0 ~~million~~Consequently, ~~sublimit~~the ~~for~~size ~~letters~~ of ~~credit~~this ~~and~~portfolio afluctuated ~~$5.0~~significantly ~~million~~as ~~sublimit~~cash ~~for~~was ~~swingline~~provided ~~loans. Our subsidiaries (the “Guarantors”) have guaranteed our obligations under the 2015 Credit Agreement. The 2015 Credit Agreement is collateralized~~ by ~~a first priority interest in substantially all of the present~~ and ~~future~~used ~~assets of us and the Guarantors, other than interests~~ in ~~the~~our ~~Hallmark trademarks and associated rights~~business.

We ~~borrowed~~have ~~$80.0~~not ~~million~~used ~~under~~derivative ~~the~~financial ~~2015~~instruments ~~Term~~for ~~Loan~~speculative ~~on June 25, 2015, and the remaining $245~~purposes.~~0 million on July 24, 2015, to fund the redemption of the Notes.~~

We are ~~required~~exposed to ~~make~~market prepayments under the 2015 Term Loan in amounts equal to (1) 50% of excess cash flow (as defined in the 2015 Credit Agreement) for the six months ending December 31, 2015, and for each year thereafter, which percentage will be reduced to 25% if the Consolidated Leverage Ratio is equal to or less than 3risk.00 to 1.00 but greater than 2.00 to 1.00, and 0% if the Consolidated Leverage ratio is equal to or less than 2.00 to 1; (2) 100% of net cash proceeds of dispositions or casualty events if we have not invested such proceeds within one year after the occurrence of the disposition or casualty event; and (3) 100% of net cash proceeds from the issuance of indebtedness not otherwise permitted by the 2015 Credit Agreement.

~~The~~ We ~~covenants~~are inexposed ~~the~~to ~~2015~~market ~~Credit~~risk, ~~Agreement~~including ~~limit~~changes ~~our ability and certain of our subsidiaries~~ to, ~~among~~interest ~~other~~rates. ~~things:~~To ~~(1) incur~~reduce ~~indebtedness;~~the ~~(2) create~~volatility orrelating ~~permit~~to ~~liens~~these onexposures, ~~assets;~~we ~~(3) pay~~may ~~certain dividends or make certain stock repurchases and redemptions and other restricted payments; (4) make certain investments; (5) prepay indebtedness; (6)~~ enter into ~~certain~~various ~~transactions~~derivative ~~with~~investment ~~affiliates;~~transactions ~~(7) dispose~~in ofthe ~~assets;~~near ~~(8) merge~~term orpursuant ~~consolidate;~~to ~~(9) enter~~our ~~into~~investment ~~new unrelated lines of business;~~ and ~~(10) enter~~risk ~~into~~management ~~sale~~policies and ~~leaseback~~procedures ~~transactions.~~in ~~The~~areas ~~2015~~such ~~Credit~~as ~~Agreement~~hedging ~~also requires compliance by us with a Consolidated Leverage Ratio test~~ and acounterparty ~~Consolidated~~exposure ~~Secured~~practices. ~~Leverage~~We ~~Ratio~~have ~~(as~~not ~~defined~~used inderivatives ~~the~~for ~~2015~~speculative ~~Credit Agreement) test~~purposes.

We If ~~used~~we ~~the~~use ~~proceeds~~risk ofmanagement ~~the~~control ~~2015 Term Loan to (1) repay amounts due under the 2011 Credit Agreement~~policies, ~~(2) pay~~there ~~fees,~~will ~~commissions~~be ~~and~~inherent ~~expenses~~risks inthat ~~connection~~may ~~with~~only ~~the~~be ~~2015~~partially ~~Credit~~offset ~~Agreement,~~by ~~and (3) pay certain other fees and costs. The proceeds of the 2015 Term Loan funded after the effective date of the 2015 Credit Agreement were used to fund the redemption of~~ our ~~Notes.~~hedging Weprograms ~~used~~should ~~the~~there ~~proceeds~~be ofany ~~borrowings~~unfavorable ~~under~~movements ~~the~~in ~~2015~~interest ~~Revolver~~rates ~~for~~or ~~general~~equity ~~corporate~~investment ~~purposes~~prices.

Redemption of Notes. On July 24, 2015, the Company redeemed $271.5 million in principal amount of Notes (representing 100% of the outstanding Notes) for a price of $285.8 million (representing a redemption price of 105.25% of the principal amount, plus accrued and unpaid interest). 29

~~Risk~~ Table ~~Factors~~of ~~and Forward-Looking Statements~~Contents

The ~~discussion~~estimated ~~set~~exposure ~~forth~~discussed inbelow ~~this~~is ~~Quarterly~~intended ~~Report~~to onmeasure ~~Form 10-Q contains statements concerning potential future events. Such forward-looking statements are based on assumptions by our management, as of~~ the ~~date~~maximum ofamount ~~this Quarterly Report on Form 10-Q, including assumptions about risks and uncertainties~~ we ~~face.~~could ~~Readers~~lose ~~can~~from ~~identify~~adverse ~~these~~market ~~forward-looking~~movements ~~statements~~in byinterest ~~their~~rates ~~use~~and ofequity ~~such~~investment ~~verbs as “expects~~prices,” ~~“anticipates,”~~given ~~“believes,”~~a ~~“plans”~~specified orconfidence ~~similar verbs or conjugations of such verbs. If any of our assumptions prove incorrect or should unanticipated circumstances arise~~level, ~~our~~over ~~actual~~a ~~results,~~given ~~levels~~period of ~~activity,~~time. Loss ~~performance,~~is ordefined ~~achievements~~in ~~could~~the ~~differ~~value ~~materially~~at ~~from~~risk ~~those~~estimation ~~anticipated~~as byfair ~~such~~market ~~forward-looking~~value ~~statements~~loss.

27 We are exposed to foreign currency exchange risk.

~~Table~~ We have foreign currency risks related to our programming costs denominated in currencies other than the U.S. dollar, primarily the Canadian dollar. Changes in exchange rates, and in particular a weakening of ~~Contents~~the U.S. dollar, will negatively affect our operating results as expressed in U.S. dollars.

~~Among~~ We ~~the~~have ~~factors~~experienced ~~that~~and ~~could~~will ~~cause~~continue ~~actual results~~ to ~~differ~~experience ~~materially~~fluctuations ~~are those discussed~~ in our ~~filings~~net ~~with~~income ~~the~~as ~~SEC,~~a ~~including~~result ~~the~~of ~~risk~~transaction ~~factors~~gains ~~stated~~or inlosses ~~our~~related ~~Annual~~to ~~Report~~revaluing oncertain ~~Form 10-K~~current ~~for~~asset ~~the year ended December 31, 2014~~ and ~~subsequent~~current ~~Quarterly~~liability ~~Reports~~balances onthat ~~Form 10-Q.~~are ~~Such~~denominated ~~risk~~in ~~factors~~currencies ~~include,~~other ~~but~~than ~~are~~our ~~not~~functional ~~limited~~currency. ~~to,~~We ~~the~~recognized ~~following: competition~~foreign ~~for~~currency ~~distribution~~gains of ~~networks~~$183,000 ~~viewers,~~during ~~advertisers and~~ the ~~acquisition~~three ofmonths ~~programming;~~ended ~~fluctuations~~March in31, ~~the~~2016. ~~availability~~At ofthis ~~programming;~~time ~~our~~we ~~ability~~have tonot ~~renew~~entered, ~~our~~but ~~distribution~~in ~~agreements~~the onfuture ~~favorable~~we ~~terms;~~may ~~our~~enter, ~~ability~~into toderivatives ~~protect~~or ~~our~~other ~~rights~~financial toinstruments ~~intellectual property; fluctuations~~ in ~~demand~~an ~~for~~attempt ~~programming~~to ~~which~~hedge weour ~~air~~foreign oncurrency ~~our~~exchange ~~Networks;~~risk. ~~our~~It ~~ability~~is difficult to ~~address~~predict ~~our~~the ~~liquidity~~impact ~~needs;~~hedging ~~and~~activities ~~our~~would ~~substantial~~have ~~indebtedness~~on ~~affecting~~ our ~~financial~~results ~~condition~~of ~~and results~~operations.

Our ~~use~~interest ofincome ~~certain~~and ~~hedging~~expense ~~techniques~~is ~~may~~subject ~~expose~~to usfluctuations toin ~~counterparty~~interest ~~risks~~rates.

If We anare ~~interest~~exposed ~~rate~~to ~~swap~~market ~~counterparty cannot~~risks ~~perform~~from ~~under~~fluctuations ~~the~~in ~~terms of the~~ interest ~~rate~~rates ~~swap,~~from wetime ~~may~~to ~~not receive payments due under that swap, and thus, we may lose any unrealized gain associated with the interest rate swap~~time. The ~~hedged~~objective ~~liability~~of ~~could~~our ~~cease~~financial ~~to be hedged by the interest rate swap. Additionally, we may also~~ risk ~~the~~management ~~loss~~is ~~of any collateral we may be required~~ to ~~pledge~~reduce tothe ~~secure~~potential ~~our~~negative ~~obligations~~impact ~~under~~of ~~the~~ interest rate ~~swap~~fluctuations ifto ~~the~~acceptable ~~counterparty becomes insolvent or files for bankruptcy~~levels. IfWe wedo ~~are~~not ~~required~~acquire tomarket ~~sell~~risk ~~our~~sensitive ~~derivatives~~instruments ~~under~~for ~~these~~trading ~~circumstances, we may incur losses~~purposes.

~~Available~~ We ~~Information~~are managing interest rate risk through the use of an interest rate swap that fixes $200.0 million of our variable-rate long-term debt. This swap limits the interest rate risk through the use of a cash flow hedge. A decline in interest rates in the future will not generally benefit us with respect to the portion of our debt covered by the notional amount of our interest rate swap, which is $200.0 million at March 31, 2016.

~~Our~~ We ~~principal~~have ~~executive~~$325.0 ~~offices~~million ~~are~~of ~~located~~variable-rate atdebt ~~12700~~as ~~Ventura~~of ~~Boulevard~~March 31, ~~Studio City~~2016, ~~California~~of ~~91604~~which ~~and~~$200.0 ~~our~~million ~~telephone~~is ~~number~~covered isby ~~(818)~~the ~~755~~interest ~~2400~~rate swap hedge notional. WeThe ~~will~~margin ~~make~~rate ~~available~~can ~~free~~fluctuate ofbased ~~charge~~on ~~through~~changes in our ~~website,~~consolidated ~~www~~leverage ratio.~~hallmarkchannel.com,~~ ~~the~~If ~~2014~~our ~~Annual~~consolidated ~~Report~~leverage onratio ~~Form 10~~decreased to less than 1.50-Kto-1.00, our ~~Quarterly~~margin ~~Reports~~would ondecrease ~~Form 10-Q,~~from 1.75% to 1.50%. If our ~~Current~~consolidated ~~Reports~~leverage onratio ~~Form 8~~increased to more than 2.25-Kto-1.00 but less than 3.00-to-1.00, ~~and~~our ~~amendments~~margin would increase from 1.75% to ~~such~~2.00%. An ~~reports,~~increase asin ~~soon~~LIBOR asby ~~reasonably~~1% ~~practicable~~would ~~after~~increase weannual ~~electronically~~interest ~~file~~expense oron ~~furnish~~the ~~such~~unhedged ~~material~~$125.0 ~~with~~million outstanding under the ~~SEC~~2015 Term Loan by approximately $1.3 million.

~~The~~ Amounts ~~public~~reported ~~may~~in ~~read~~accumulated ~~and~~other ~~copy~~comprehensive ~~any~~loss ~~materials~~related ~~that~~to wederivatives ~~file~~will ~~with~~be ~~the~~reclassified ~~SEC~~to atinterest ~~the~~expense ~~SEC’s~~as ~~Public~~interest ~~Reference~~payments ~~Room at~~are ~~100~~made Fon ~~Street,~~our NWswapped, ~~Washington,~~variable-rate ~~DC 20549~~debt. ~~The~~During ~~public may obtain information on~~ the ~~operation~~next oftwelve ~~the~~months, ~~Public~~we ~~Reference~~estimate ~~Room by~~that ~~calling~~we ~~the~~will ~~SEC~~reclassify at $1 ~~800 SEC 0330~~.5 ~~The~~million ~~SEC~~of ~~maintains~~other ancomprehensive ~~Internet~~loss ~~site~~to ~~that~~interest ~~contains~~expense. ~~reports,~~This ~~proxy~~interest ~~and~~expense ~~information~~will ~~statements,~~also ~~and~~impact ~~other~~income ~~information~~tax ~~regarding issuers that file electronically with the SEC at www~~expense.~~sec.gov.~~

~~Additionally,~~ Our wematerial ~~will~~liability ~~make~~subject ~~available,~~to ~~free~~interest ofrate ~~charge~~risk ~~upon~~consisted ~~request,~~of aour ~~copy~~2015 ofTerm Loan and our ~~Code~~interest rate swap. The balance of ~~Business~~these ~~Conduct~~liabilities ~~and~~was ~~Ethics~~$327.8 million, ~~which~~or is63% ~~applicable~~of tototal ~~all~~liabilities, as of ~~our~~March ~~employees~~31, ~~including~~2016. ~~our~~Total ~~senior~~net ~~financial~~interest ~~officers.~~expense ~~Our~~for ~~code~~the isthree ~~available~~months ~~through~~ended March 31, 2016, was $3.0 million, 2%, of our ~~website~~total revenue. Our ~~Copies~~net ~~may~~interest beexpense ~~requested~~for bythe ~~contacting~~2015 ~~our~~Term ~~General~~Loan ~~Counsel~~are atsensitive ~~12700~~to ~~Ventura~~changes ~~Boulevard,~~in ~~Studio~~the ~~City~~general level of interest rates, ~~California~~primarily ~~91604~~U.S. LIBOR interest rates.

Item 34. Controls ~~Quantitative~~ and ~~Qualitative Disclosures about Market Risk~~Procedures.

~~As of September 30, 2015, our cash had~~ a ~~fair value of $70~~.5 Disclosure ~~million.~~Controls The primary purpose of our investing activities has been to preserve principal until the cash is required to fund operations. Consequently, the size of this portfolio fluctuated significantly as cash was provided by and ~~used in our business.~~Procedures

We Our ~~have~~management ~~not~~evaluated, ~~used~~with ~~derivative~~the ~~financial~~participation ~~instruments~~of ~~for~~our ~~speculative~~Chief ~~purposes~~Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15e and 15d-15e under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based

~~We are exposed to market risk.~~ 30

We Table ~~are~~of exposed to market risk, including changes to interest rates. To reduce the volatility relating to these exposures, we may enter into various derivative investment transactions in the near term pursuant to our investment and risk management policies and procedures in areas such as hedging and counterparty exposure practices. We have not used derivatives for speculative purposes.Contents

Ifon wethis ~~use~~evaluation, ~~risk~~our ~~management~~Chief ~~control~~Executive ~~policies,~~Officer ~~there~~and ~~will~~our beChief ~~inherent~~Financial ~~risks~~Officer ~~that~~have ~~may~~concluded ~~only~~that beour ~~partially~~disclosure ~~offset~~controls byand ~~our~~procedures ~~hedging~~were ~~programs~~effective ~~should~~as ~~there~~of bethe ~~any~~end ~~unfavorable~~of ~~movements~~the inperiod ~~interest~~covered ~~rates~~by orthis ~~equity~~Quarterly ~~investment~~Report ~~prices~~on Form 10-Q.

~~The~~ b. Changes ~~estimated exposure discussed below is intended to measure the maximum amount we could lose from adverse market movements~~ in ~~interest~~Internal ~~rates~~Control ~~and equity investment prices, given a specified confidence level,~~ over aFinancial ~~given period of time. Loss is defined in the value at risk estimation as fair market value loss.~~Reporting

We There ~~are~~was ~~exposed~~no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2016, that has materially affected, or is reasonably likely to ~~foreign~~materially ~~currency~~affect, ~~exchange~~our ~~risk~~internal control over financial reporting.

We have foreign currency risks related to our programming costs denominated in currencies other than the U.S. dollar, primarily the Canadian dollar. Changes in exchange rates, and in particular a weakening of the U.S. dollar, will negatively affect our operating results as expressed in U.S. dollars. 31

28 Table of Contents

~~Table~~Part II. OTHER ~~of Contents~~INFORMATION

We Item have experienced and will continue to experience fluctuations in our net income as a result of transaction gains or losses related to revaluing certain current asset and current liability balances that are denominated in currencies other than our functional currency1A. Risk We recognized foreign currency losses of $84,000 and $94,000 during the three and nine month periods ended September 30, 2015. At this time we have not entered, but in the future we may enter, into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.Factors

~~Our~~ You ~~interest~~should ~~income~~carefully consider the risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, as we have updated such risk factors by the filing with the SEC of subsequent periodic and ~~expense~~current isreports ~~subject~~from time to ~~fluctuations~~time, inwhich ~~interest~~factors ~~rates~~could materially affect our business, financial condition, or future results. Such risks, however, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or reporting results.

We Item ~~are exposed to market risks from fluctuations in interest rates from time to time~~6. The objective of our financial risk management is to reduce the potential negative impact of interest rate fluctuations to acceptable levels. We do not acquire market risk sensitive instruments for trading purposes. Exhibits

We INDEX ~~manage~~TO interest rate risk through the use of an interest rate swap that fixes $200.0 million of our variable-rate long-term debt. This swap limits the interest rate risk through the use of a cash flow hedge. At September 30, 2015, a decline in interest rates in the future will not generally benefit us with respect the fixed rate debt.EXHIBITS

We have $150.0 million of variable-rate debt at September 30, 2015. A hypothetical increase in LIBOR by 1% point would increase our annual interest rate expense on $125.0 million of 2015 Term Loan and $25.0 million of 2015 Revolver by approximately $1.5 million as of September 30, 2015.


Exhibit Number		Exhibit Title

3.1		Amended and Restated By-Laws (previously filed as Exhibit 3.2 to our Registration Statement on Form S-1/A (Amendment No. 3), Commission File No. 333-95573, and incorporated herein by reference).
3.2		Second Amended and Restated Certificate of Incorporation of Crown Media Holdings, Inc. (previously filed as Exhibit 3.1 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
3.3		Certificate of Designation, Powers, Preferences, Qualifications, Limitations, Restrictions and Relative Rights of Series A Convertible Preferred Stock of Crown Media Holdings, Inc. (previously filed as Exhibit 3.2 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
3.4		Third Amended and Restated Certificate of Incorporation of Crown Media Holdings, Inc. (previously filed as Exhibit 3.3 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
31.1		Rule 13a-14(a) Certification executed by the Company’s Chief Executive Officer.
31.2		Rule 13a-14(a) Certification executed by the Company’s Executive Vice President and Chief Financial Officer.
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		Taxonomy Extension Calculation Linkbase Document
101. DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. During the next twelve months, our estimate is that an additional $2.3 million will be reclassified as an increase to interest expense. 32

~~Our~~ Table ~~material liability subject to interest rate risk consisted~~ of our 2015 Term Loan, our 2015 Revolver and our interest rate swap. The balance of these liabilities was $350.6 million, or 70% of total liabilities, as of September 30, 2015. Total net interest expense for the nine months ended September 30, 2015, was $22.0 million, 7%, of our total revenue. Our net interest expense for the 2015 Term Loan and 2015 Revolver are sensitive to changes in the general level of interest rates, primarily U.S. LIBOR interest rates. In this regard, changes in U.S. LIBOR interest rates affect the fair value of interest bearing liabilities.Contents

~~Item 4. Controls and Procedures.~~SIGNATURES

~~a. Disclosure~~ Pursuant ~~Controls~~to ~~and~~the ~~Procedures~~requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Our~~ CROWN ~~management~~MEDIA ~~evaluated~~HOLDINGS, ~~with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules~~ ~~13a-15e and 15d-15e under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q~~INC. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

b. Changes in Internal Control over Financial Reporting

Signature		Title	Date

By:	/s/ WILLIAM J. ABBOTT	Principal Executive Officer	May 3, 2016
	William J. Abbott

By:	/s/ ANDREW ROOKE	Principal Financial and Accounting Officer	May 3, 2016
	Andrew Rooke

There was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 33

~~Part II. OTHER~~ Table ~~INFORMATION~~of Contents

~~Item~~INDEX ~~1A.~~TO ~~Risk Factors~~EXHIBITS

You should carefully consider the risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and our subsequent Quarterly Report on Form 10-Q, as we have updated such risk factors by the filing with the SEC of subsequent periodic and current reports from time to time, which factors could materially affect our business, financial condition, or future results. Such risks, however, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or reporting results.

Exhibit Number		Exhibit Title
3.1		Amended and Restated By-Laws (previously filed as Exhibit 3.2 to our Registration Statement on Form S-1/A (Amendment No. 3), Commission File No. 333-95573, and incorporated herein by reference).
3.2		Second Amended and Restated Certificate of Incorporation of Crown Media Holdings, Inc. (previously filed as Exhibit 3.1 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
3.3		Certificate of Designation, Powers, Preferences, Qualifications, Limitations, Restrictions and Relative Rights of Series A Convertible Preferred Stock of Crown Media Holdings, Inc. (previously filed as Exhibit 3.2 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
3.4		Third Amended and Restated Certificate of Incorporation of Crown Media Holdings, Inc. (previously filed as Exhibit 3.3 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
31.1		Rule 13a-14(a) Certification executed by the Company’s Chief Executive Officer.
31.2		Rule 13a-14(a) Certification executed by the Company’s Executive Vice President and Chief Financial Officer.
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		Taxonomy Extension Calculation Linkbase Document
101. DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

29 34

Table of Contents

Item 6. Exhibits

INDEX TO EXHIBITS

Exhibit Number		Exhibit Title
3.1		Amended and Restated By-Laws (previously filed as Exhibit 3.2 to our Registration Statement on Form S-1/A (Amendment No. 3), Commission File No. 333-95573, and incorporated herein by reference).
3.2		Second Amended and Restated Certificate of Incorporation of Crown Media Holdings, Inc. (previously filed as Exhibit 3.1 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
3.3		Certificate of Designation, Powers, Preferences, Qualifications, Limitations, Restrictions and Relative Rights of Series A Convertible Preferred Stock of Crown Media Holdings, Inc. (previously filed as Exhibit 3.2 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
3.4		Third Amended and Restated Certificate of Incorporation of Crown Media Holdings, Inc. (previously filed as Exhibit 3.3 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
31.1		Rule 13a-14(a) Certification executed by the Company’s Chief Executive Officer.
31.2		Rule 13a-14(a) Certification executed by the Company’s Executive Vice President and Chief Financial Officer.
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		Taxonomy Extension Calculation Linkbase Document
101. DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract or compensating plan or arrangement.

Table of Contents

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 thereunto duly authorized.

CROWN MEDIA HOLDINGS, INC.

Signature		Title	Date
By:	/s/ WILLIAM J. ABBOTT	Principal Executive Officer	November 2, 2015
	William J. Abbott
By:	/s/ ANDREW ROOKE	Principal Financial and Accounting Officer	November 2, 2015
	Andrew Rooke

Table of Contents

INDEX TO EXHIBITS

Exhibit Number		Exhibit Title
3.1		Amended and Restated By-Laws (previously filed as Exhibit 3.2 to our Registration Statement on Form S-1/A (Amendment No. 3), Commission File No. 333-95573, and incorporated herein by reference).
3.2		Second Amended and Restated Certificate of Incorporation of Crown Media Holdings, Inc. (previously filed as Exhibit 3.1 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
3.3		Certificate of Designation, Powers, Preferences, Qualifications, Limitations, Restrictions and Relative Rights of Series A Convertible Preferred Stock of Crown Media Holdings, Inc. (previously filed as Exhibit 3.2 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
3.4		Third Amended and Restated Certificate of Incorporation of Crown Media Holdings, Inc. (previously filed as Exhibit 3.3 to our Current Report on Form 8-K filed on March 1, 2010 and incorporated herein by reference).
31.1		Rule 13a-14(a) Certification executed by the Company’s Chief Executive Officer.
31.2		Rule 13a-14(a) Certification executed by the Company’s Executive Vice President and Chief Financial Officer.
32		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		Taxonomy Extension Calculation Linkbase Document
101. DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

* Management contract or compensating plan or arrangement.

As of September 30, 2015

Liability Derivatives

Balance Sheet Location

Fair Value (in thousands)

Interest rate swap designated as a hedging instrument

Derivative Payable

Filing Compare · CROWN MEDIA HOLDINGS INC