ACME COMMUNICATIONS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 June 30, 2003

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

Commission File Number: 000-27105

ACME COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		33-0866283 (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 August 14, 2003, ACME Communications, Inc. had 16,766,834 shares of common stock outstanding.

TABLE OF CONTENTS


		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statements of Stockholders’ Equity
		Consolidated Statements Of Cash Flows
		Notes to Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II – OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
EXHBIT 10.1
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

ACME COMMUNICATIONS, INC.

FORM 10-Q

TABLE OF CONTENTS


Item
Number		Page

	Part I - Financial Information	3
Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and June 30, 2002	4
	Consolidated Statements of Stockholders’ Equity for the Six Months Ended June 30, 2003	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and June 30, 2002	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	16
Item 1.	Legal Proceedings	16
Item 6.	Exhibits and Reports on Form 8-K	16
Signature		17

ACME Communications, Inc. and Subsidiaries
Consolidated Balance Sheets


					As of

					June 30,			December 31,
					2003			2002

					(Unaudited)
					(In Thousands)
				ASSETS
Current assets:
	Cash and cash equivalents				$	11,258		$	1,860
	Restricted cash					7,218			1,233
	Accounts receivable, net					8,643			10,458
	Current portion of programming rights					9,269			9,894
	Prepaid expenses and other current assets					1,660			1,084
	Assets held for sale					—			211,964

		Total current assets				38,048			236,493
Restricted cash, net of current portion						1,171			1,677
Property and equipment, net						29,417			30,165
Programming rights, net of current portion						11,007			15,102
Goodwill, net						18,476			18,476
Broadcast licenses, net						84,442			84,394
Other assets						4,442			6,969

			Total assets		$	187,003		$	393,276

				LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable				$	6,504		$	8,163
	Accrued liabilities					5,052			11,583
	Current portion of programming rights payable					8,772			9,627
	Current portion of obligations under lease					2,774			3,710
	Current portion of income taxes payable					1,662			—
	Liabilities included with assets held for sale					—			45,810

		Total current liabilities				24,764			78,893
Programming rights payable, net of current portion						11,002			14,814
Obligations under lease, net of current portion						6,179			8,441
Other liabilities						85			89
Deferred income taxes						7,203			5,698
Notes payable under revolving credit facility						—			18,789
10 7/8% senior discount notes						—			175,000
12% senior secured notes						29,107			69,061

			Total liabilities			78,340			370,785

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, 16,766,834 and 16,750,000 shares issued and outstanding at June 30, 2003 and December 31, 2002, respectively					168			168
	Additional paid-in capital					131,938			131,798
	Accumulated deficit					(23,443	)		(109,475	)

			Total stockholders’ equity			108,663			22,491

				Total liabilities and stockholders’ equity	$	187,003		$	393,276

See the notes to the consolidated financial statements.

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 Six Months Ended
			June 30,						June 30,

			2003			2002			2003			2002

Net revenues			$	11,532		$	9,240		$	21,524		$	16,727
Operating expenses:
	Station operating expenses			11,297			9,222			21,660			17,595
	Depreciation and amortization			1,131			1,002			2,192			1,965
	Corporate expenses			969			1,028			1,939			1,926
	Equity-based compensation			12			67			24			133

		Operating loss		(1,877	)		(2,079	)		(4,291	)		(4,892	)
Other income (expenses):
	Interest income			198			8			294			79
	Interest expense			(2,496	)		(7,578	)		(10,880	)		(15,164	)
	Loss on early extinguishment of debt			(9,926	)		—			(9,926	)		—
	Other expense, net			(3	)		(72	)		(40	)		(88	)

Loss from continuing operations before income taxes				(14,104	)		(9,721	)		(24,843	)		(20,065	)
Income tax benefit (expense), continuing operations				(300	)		909			(783	)		(27,279	)

Loss from continuing operations				(14,404	)		(8,812	)		(25,626	)		(47,344	)
Income (loss) from discontinued operations (including gain on disposal), net of tax				(33	)		2,450			111,658			4,024

		Net income (loss)	$	(14,437	)	$	(6,362	)	$	86,032		$	(43,320	)

Income (loss) per share, basic and diluted:
	Continuing operations		$	(0.86	)	$	(0.53	)	$	(1.53	)	$	(2.83	)
	Discontinued operations			(0.00	)		0.15			6.67			0.24

		Net income (loss) per share	$	(0.86	)	$	(0.38	)	$	5.14		$	(2.59	)

Basic and diluted common shares outstanding				16,752,964			16,750,000			16,751,482			16,750,000

See the notes to the consolidated financial statements.

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, 2002			16,750	$	168	$	131,798	$	(109,475	)	$	22,491
	Exercise of stock options		16		—		116		—			116
	Equity-based compensation		—		—		24		—			24
	Net income		—		—		—		86,032			86,032

Balance at June 30, 2003 (unaudited)			16,766	$	168	$	131,938	$	(23,443	)	$	108,663

See the notes to the consolidated financial statements.

ACME Communications, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)


			For the Six Months Ended
			June 30,

			2003			2002

			(In thousands)
Cash flows from operating activities:
	Net loss from continuing operations		$	(25,626	)	$	(47,344	)
Adjustments to reconcile net loss to net cash used in operating activities:
	Depreciation and amortization			2,192			1,965
	Amortization of program rights			5,403			4,298
	Amortization of debt issuance costs			853			1,069
	Amortization of discount on 12% senior secured notes			298			4,248
	Loss on early extinguishment of debt			9,926			—
	Equity-based compensation			24			133
	Deferred taxes			668			27,132
	(Gain) loss on disposal of assets			(33	)		16
Changes in assets and liabilities:
	Increase in accounts receivables, net			(412	)		(1,424	)
	Increase in prepaid expenses and other current assets			(576	)		(338	)
	Increase in other assets			(126	)		(129	)
	Decrease in accounts payable			(67	)		(333	)
	Decrease in accrued liabilities			(6,300	)		560
	Increase in current taxes payable						—
	Payments for programming rights			(5,313	)		(4,495	)
	Decrease in other liabilities			(40	)		(65	)

		Net cash used in operating activities		(19,129	)		(14,707	)

Cash flows from investing activities:
	Purchase of property and equipment			(1,641	)		(5,310	)
	Purchases of and deposits for station interests			(48	)		(278	)
	Purchase of minority interest in automobile website			—			(871	)

		Net cash used in investing activities		(1,689	)		(6,459	)

Cash flows from financing activities:
	Increase in revolving credit facility			1,429			5,446
	Payments on revolving credit facility			(20,218	)		—
	Payment of financing costs on credit facility			(504	)		(1,162	)
	Redemption of 10 7/8% and 12% notes			(216,635	)		—
	Cash expenses associated with the redemption of notes			(6,240	)		—
	Cash restricted as collateral under capital lease facilities			(5,479	)		(1,128	)
	Proceeds from capital lease facilities			—			2,327
	Payments on capital lease obligations			(2,962	)		(1,915	)
	Proceeds from the issuance of common stock			116			—

		Net cash provided by (used in) financing activities		(250,493	)		3,568

Decrease in cash				(271,311	)		(17,598	)
	Cash from discontinued operations			280,709			2,797

	Net increase (decrease) in cash			9,398			(14,801	)
	Cash at beginning of period			1,860			17,275

	Cash at end of period		$	11,258		$	2,474

Cash payments for:
		Interest	$	16,015		$	9,991
		Taxes	$	115		$	146

Non-cash transactions:
		Program rights in exchange for program rights payable	$	579		$	5,901

See the notes to the consolidated financial statements.

ACME Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
For the Three and six months ended June 30, 2003 and June 30, 2002

(1) Formation and Description of the Business

Formation & Presentation

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 its wholly-owned subsidiary ACME Television, LLC (“ACME Television”). All transactions contemplated as part of The Reorganization closed on October 5, 1999.

In March 2003, we completed the sale of our stations in St. Louis (KPLR-TV) and Portland, OR (KWBP-TV) to subsidiaries of Tribune Company (“the Tribune Transaction”). The results of these stations and gains on sales are included in discontinued operations for all periods presented.

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 the following nine commercially licensed broadcast television stations located throughout the United States:

Network

Station

Channel

Marketplace

Rank

Affiliation

KUWB

Salt Lake City, Utah

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