UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2002
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-27105
ACME COMMUNICATIONS, INC.
| Delaware | 33-0866283 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) |
2101 E. Fourth Street, Suite 202 A
Santa Ana, California, 92705
(714) 245-9499
(Address and telephone number of principal executive offices)
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, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of November 13, 2002, ACME Communications, Inc. had 16,750,000 shares of common stock outstanding.
ACME COMMUNICATIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
| Item | ||||
| Number | Page | |||
| Part I — Financial Information | ||||
| Item 1. | Financial Statements | |||
| ACME Communications, Inc. and Subsidiaries | ||||
| Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 | 3 | |||
| Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and September 30, 2001 | 4 | |||
| Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2002 | 5 | |||
| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and September 30, 2001 | 6 | |||
| Notes to Consolidated Financial Statements | 7 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 | ||
| Item 4. | Controls and Procedures | 16 | ||
| Part II — Other Information | ||||
| Item 1. | Legal Proceedings | 16 | ||
| Item 6. | Exhibits and Reports on Form 8-K | 16 | ||
2
ACME Communications, Inc. and Subsidiaries
Consolidated Balance Sheets
| As of | ||||||||||||
| September 30, | December 31, | |||||||||||
| 2002 | 2001 | |||||||||||
| (Unaudited) | ||||||||||||
| (In thousands) | ||||||||||||
| ASSETS | ||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 2,570 | $ | 17,275 | ||||||||
Restricted cash |
2,895 | 1,741 | ||||||||||
Accounts receivable, net |
14,744 | 13,563 | ||||||||||
Current portion of programming rights |
17,422 | 14,539 | ||||||||||
Prepaid expenses and other current assets |
2,303 | 1,475 | ||||||||||
Deferred income taxes |
— | 809 | ||||||||||
Total current assets |
39,934 | 49,402 | ||||||||||
Property and equipment, net |
40,886 | 36,493 | ||||||||||
Programming rights, net of current portion |
30,077 | 20,490 | ||||||||||
Intangible assets, net |
271,324 | 271,324 | ||||||||||
Other assets |
9,987 | 9,217 | ||||||||||
Total assets |
$ | 392,208 | $ | 386,926 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 8,423 | $ | 8,660 | ||||||||
Accrued liabilities |
5,190 | 13,279 | ||||||||||
Current portion of programming rights payable |
17,813 | 14,121 | ||||||||||
Current portion of obligations under lease |
3,932 | 3,290 | ||||||||||
Total current liabilities |
35,358 | 39,350 | ||||||||||
Programming rights payable, net of current portion |
28,668 | 19,931 | ||||||||||
Obligations under lease, net of current portion |
9,222 | 9,436 | ||||||||||
Other liabilities |
349 | 363 | ||||||||||
Deferred income taxes |
30,533 | 2,416 | ||||||||||
Notes payable under revolving credit facility |
14,600 | — | ||||||||||
10 7/8% senior discount notes |
175,000 | 175,000 | ||||||||||
12% senior secured notes |
68,866 | 62,424 | ||||||||||
Total liabilities |
362,596 | 308,920 | ||||||||||
Stockholders’ equity: |
||||||||||||
Preferred stock, $.01 par value; 10,000,000 shares authorized, no
shares issued and outstanding |
— | — | ||||||||||
Common stock, $.01 par value; 50,000,000 shares authorized,
16,750,000 shares issued and outstanding |
168 | 168 | ||||||||||
Additional paid-in capital |
131,683 | 131,337 | ||||||||||
Accumulated deficit |
(102,239 | ) | (53,499 | ) | ||||||||
Total stockholders’ equity |
29,612 | 78,006 | ||||||||||
Total liabilities and stockholders’ equity |
$ | 392,208 | $ | 386,926 | ||||||||
See the notes to the consolidated financial statements.
3
ACME Communications, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Net revenues |
$ | 20,035 | $ | 16,693 | $ | 57,783 | $ | 52,069 | ||||||||||
Operating expenses: |
||||||||||||||||||
Station operating expenses |
15,979 | 13,237 | 46,881 | 41,253 | ||||||||||||||
Depreciation and amortization |
1,325 | 5,217 | 3,777 | 15,614 | ||||||||||||||
Corporate expenses |
884 | 836 | 2,810 | 2,847 | ||||||||||||||
Equity-based compensation |
115 | 132 | 346 | 397 | ||||||||||||||
LMA fees |
70 | — | 74 | — | ||||||||||||||
Operating income (loss) |
1,662 | (2,729 | ) | 3,895 | (8,042 | ) | ||||||||||||
Other income (expenses): |
||||||||||||||||||
Interest income |
29 | 229 | 113 | 931 | ||||||||||||||
Interest expense |
(7,892 | ) | (7,315 | ) | (23,396 | ) | (21,773 | ) | ||||||||||
Gain (loss) on disposal of assets, net |
1 | — | (15 | ) | (10 | ) | ||||||||||||
Other expense |
(69 | ) | (51 | ) | (223 | ) | (146 | ) | ||||||||||
Loss before income taxes |
(6,269 | ) | (9,866 | ) | (19,626 | ) | (29,040 | ) | ||||||||||
Income tax benefit (expense) |
848 | 3,133 | (29,114 | ) | 9,164 | |||||||||||||
Net loss |
$ | (5,421 | ) | $ | (6,733 | ) | $ | (48,740 | ) | $ | (19,876 | ) | ||||||
Net loss per share, basic and diluted |
$ | (0.32 | ) | $ | (0.40 | ) | $ | (2.91 | ) | $ | (1.19 | ) | ||||||
Basic and diluted weighted average
common shares outstanding |
16,750,000 | 16,750,000 | 16,750,000 | 16,750,000 | ||||||||||||||
See the notes to the consolidated financial statements.
4
ACME Communications, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands)
| Additional | Total | ||||||||||||||||||||
| Common Stock | Paid-in | Accumulated | Stockholders' | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||
Balance at December 31, 2001 |
16,750 | $ | 168 | $ | 131,337 | $ | (53,499 | ) | $ | 78,006 | |||||||||||
Equity-based compensation |
— | — | 346 | — | 346 | ||||||||||||||||
Net loss |
— | — | — | (48,740 | ) | (48,740 | ) | ||||||||||||||
Balance at September 30, 2002 (unaudited) |
16,750 | $ | 168 | $ | 131,683 | $ | (102,239 | ) | $ | 29,612 | |||||||||||
See the notes to the consolidated financial statements.
5
ACME Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended | |||||||||||
| September 30, | |||||||||||
| 2002 | 2001 | ||||||||||
| (In thousands) | |||||||||||
Cash flows from operating activities: |
|||||||||||
Net loss |
$ | (48,740 | ) | $ | (19,876 | ) | |||||
Adjustments to reconcile net loss to net cash
provided by operating activities: |
|||||||||||
Depreciation and amortization |
3,777 | 15,614 | |||||||||
Amortization of program rights |
12,140 | 10,487 | |||||||||
Amortization of debt issuance costs |
1,578 | 940 | |||||||||
Amortization of discount on 12% senior secured notes |
6,442 | 5,648 | |||||||||
Equity-based compensation |
346 | 397 | |||||||||
Deferred taxes |
28,926 | (9,334 | ) | ||||||||
Loss on disposal of assets, net |
15 | 10 | |||||||||
Changes in assets and liabilities: |
|||||||||||
(Increase) decrease in accounts receivables, net |
(1,181 | ) | 1,409 | ||||||||
Increase in prepaid expenses |
(828 | ) | (432 | ) | |||||||
Decrease in other assets |
35 | 16 | |||||||||
Increase in accounts payable |
2,630 | 66 | |||||||||
Increase (decrease) in accrued liabilities |
(8,021 | ) | 4,416 | ||||||||
Payments for programming rights |
(12,255 | ) | (10,486 | ) | |||||||
Increase (decrease) in other liabilities |
(8 | ) | 28 | ||||||||
Net cash used in operating activities |
(15,144 | ) | (1,097 | ) | |||||||
Cash flows from investing activities: |
|||||||||||
Purchase of property and equipment |
(11,052 | ) | (4,653 | ) | |||||||
Proceeds from the sale of assets |
— | 230 | |||||||||
Purchases of and deposits for station interests |
(290 | ) | (89 | ) | |||||||
Purchase of minority interest in automobile website |
(871 | ) | — | ||||||||
Net cash used in investing activities |
(12,213 | ) | (4,512 | ) | |||||||
Cash flows from financing activities: |
|||||||||||
Increase in revolving credit facility |
14,600 | — | |||||||||
Payment of financing costs on credit facility |
(1,222 | ) | — | ||||||||
Cash restricted as collateral under capital lease facilities |
(1,154 | ) | — | ||||||||
Proceeds from capital lease facilities |
3,334 | 2,966 | |||||||||
Payments on capital lease obligations |
(2,906 | ) | (1,743 | ) | |||||||
Net cash provided by financing activities |
12,652 | 1,223 | |||||||||
Net decrease in cash |
(14,705 | ) | (4,386 | ) | |||||||
Cash at beginning of period |
17,275 | 31,037 | |||||||||
Cash at end of period |
$ | 2,570 | $ | 26,651 | |||||||
Cash payments for: |
|||||||||||
Interest |
$ | 20,890 | $ | 10,252 | |||||||
Taxes |
$ | 187 | $ | 205 | |||||||
Non-cash transactions: |
|||||||||||
Program rights in exchange for program rights payable |
$ | 24,622 | $ | 23,155 | |||||||
See the notes to the consolidated financial statements.
6
ACME Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
For the Nine months ended September 30, 2001 and September 30, 2002
(1) Formation and Description of the Business
Formation
ACME Communications, Inc. (the “Company”) was formed on July 23, 1999, in preparation for and in conjunction with an initial public offering of its stock.
On September 27, 1999, the Board of Advisors of ACME Television Holdings, LLC and its members and the Board of Directors of the Company and its stockholder approved a merger and reorganization (the “Reorganization”), whereby the Company became the direct parent of ACME Television Holdings. As a result of the Reorganization, the Company is the ultimate parent of ACME Intermediate Holdings, LLC, (“ACME Intermediate”) and it’s wholly-owned subsidiary ACME Television, LLC. All transactions contemplated as part of The Reorganization closed on October 5, 1999.
Description of the Business
ACME Communications is a holding company with no independent operations other than through its wholly-owned subsidiary, ACME Television. ACME Television, through its wholly-owned subsidiaries, owns and operates a television production company and the following ten commercially licensed broadcast television stations located throughout the United States:
| U.S. | ||||||||||||
| Market | Network | |||||||||||
| Station | Channel | Market | Rank* | Affiliation | ||||||||
| KPLR | 11 | St. Louis, MO | 22 | WB | ||||||||
| KWBP | 32 | Portland, OR | 23 | WB | ||||||||
| KUWB | 30 | Salt Lake City, UT | 36 | WB | ||||||||
| KWBQ | 19 | Albuquerque-Santa Fe, NM | 49 | WB | ||||||||
| KASY | ||||||||||||