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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-84191
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ACME COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0866283
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2101 E. FOURTH STREET, SUITE 202 A
SANTA ANA, CALIFORNIA, 92705
(714) 245-9499
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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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 13, 2001, ACME Communications, Inc. had 16,750,000 shares of
common stock outstanding.
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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 June 30, 2001 and
December 31, 2000................................................. 3
Consolidated Statements of Operations for the Three Months
and Six Months Ended June 30, 2001 and June 30, 2000............. 4
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 2001.................................... 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2001 and June 30, 2000............................. 6
Notes to Consolidated Financial Statements........................ 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results Of Operations......................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................. 13
Item 6. Exhibits and Reports on Form 8-K.................................. 13
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3
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AS OF
DECEMBER 31, JUNE 30,
2000 2001
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 31,037 $ 25,536
Accounts receivable, net 15,005 14,930
Current portion of programming rights 12,477 11,016
Prepaid expenses and other current assets 2,444 2,729
Deferred income taxes 1,139 1,139
--------- ---------
Total current assets 62,102 55,350
Property and equipment, net 29,471 30,124
Programming rights, net of current portion 10,984 7,283
Intangible assets, net 287,748 279,554
Other assets 9,140 8,581
--------- ---------
Total assets $ 399,445 $ 380,892
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,337 $ 6,812
Accrued liabilities 9,354 9,847
Current portion of programming rights payable 12,108 9,638
Current portion of obligations under lease 2,271 2,806
--------- ---------
Total current liabilities 31,070 29,103
Programming rights payable, net of current portion 10,205 7,531
Obligations under lease, net of current portion 7,258 8,640
Other liabilities 250 265
Deferred income taxes 15,614 9,459
10 7/8% senior discount notes 175,000 175,000
12% senior secured notes 54,722 58,446
--------- ---------
Total liabilities 294,119 288,444
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, $.01 par value; 16,750,000 shares
issued and outstanding 168 168
Additional paid-in capital 130,808 131,073
Accumulated deficit (25,650) (38,793)
--------- ---------
Total stockholders' equity 105,326 92,448
--------- ---------
Total liabilities and stockholders' equity $ 399,445 $ 380,892
========= =========
See the notes to the consolidated financial statements.
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2000 2001 2000 2001
------------ ------------ ------------ ------------
Net revenues $ 19,169 $ 18,895 $ 35,387 $ 35,376
Operating expenses:
Station operating expenses 13,922 14,431 26,577 28,016
Depreciation and amortization 4,976 5,174 10,420 10,397
Corporate 989 1,046 1,897 2,011
Equity-based compensation 133 133 265 265
------------ ------------ ------------ ------------
Operating loss (851) (1,889) (3,772) (5,313)
Other income (expenses):
Interest income 328 272 625 702
Interest expense (6,716) (7,314) (13,072) (14,458)
Gain (loss) on sale of assets, net 1,511 (10) 1,511 (10)
Other expense (3) (46) (4) (95)
------------ ------------ ------------ ------------
Loss before income taxes (5,731) (8,987) (14,712) (19,174)
Income tax benefit 1,546 2,736 4,337 6,031
------------ ------------ ------------ ------------
Net loss $ (4,185) $ (6,251) $ (10,375) $ (13,143)
============ ============ ============ ============
Net loss per share, basic and diluted $ (0.25) $ (0.37) $ (0.62) $ (0.78)
============ ============ ============ ============
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.
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
Balance at December 31, 2000 16,750 $168 $130,808 $(25,650) $ 105,326
Equity-based compensation -- -- 265 -- 265
Net loss -- -- -- (13,143) (13,143)
------ ---- -------- -------- ---------
Balance at June 30, 2001 (unaudited) 16,750 $168 $131,073 $(38,793) $ 92,448
====== ==== ======== ======== =========
See the notes to the consolidated financial statements.
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------
2000 2001
-------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net loss $(10,375) $(13,143)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,420 10,397
Amortization of program rights 6,347 7,076
Amortization of debt issuance costs 595 796
Amortization of discount on 10 7/8%
senior discount notes 8,793 --
Amortization of discount on 12% senior secured notes 3,265 3,724
Equity-based compensation 265 265
Deferred taxes (4,337) (6,031)
(Gain) loss on sale of assets, net (1,511) 10
Changes in assets and liabilities:
(Increase) decrease in accounts receivables, net (697) 75
Increase in prepaid expenses (48) (285)
Increase in other assets (720) (200)
Increase (decrease) in accounts payable 1,259 (525)
Increase (decrease) in accrued liabilities (4,043) 386
Payments for programming rights (6,130) (7,060)
Decrease in other liabilities (104) --
-------- --------
Net cash provided by (used in) operating activities 2,979 (4,515)
Cash flows from investing activities:
Purchase of property and equipment (4,293) (3,082)
Proceeds from sale of assets 2,634 230
Purchases of and deposits for station interests (221) (51)
-------- --------
Net cash used in investing activities (1,880) (2,903)
Cash flows from financing activities:
Capital lease obligations -- 2,966
Payments on capital lease obligations (776) (1,049)
-------- --------
Net cash provided by (used in) financing activities (776) 1,917
Net increase (decrease) in cash 323 (5,505)
Cash at beginning of period 23,846 31,037
-------- --------
Cash at end of period $ 24,169 $ 25,536
======== ========
Cash Payments for:
Interest $ 212 $ 10,021
Taxes $ 197 $ 244
======== ========
Non-Cash Transactions:
Program rights in exchange for program rights payable $ 1,489 $ 1,914
======== ========
See the notes to the consolidated financial statements.
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND JUNE 30, 2001
(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 its 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 its indirect wholly-owned subsidiary, ACME Television. ACME
Television, through its wholly-owned subsidiaries, owns and operates the
following ten commercially licensed broadcast television stations located
throughout the United States:
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 50 WB
KASY 50 Albuquerque-Santa Fe, NM 50 UPN
WBXX 20 Knoxville, TN 56 WB
WTVK 46 Ft. Myers-Naples, FL 63 WB
WBDT 26 Dayton, OH 69 WB
WIWB 14 Green Bay-Appleton, WI 81 WB
WBUI 23 Champaign-Springfield-Decatur, IL 83 WB
(2) PRESENTATION OF INTERIM FINANCIAL STATEMENTS
Unless the context requires otherwise, references to the Company refer to
ACME Communications, Inc and its wholly-owned subsidiaries. Segment information
is not presented because all of the Company's revenues are attributed to a
single reportable segment -- television broadcasting.
The accompanying consolidated financial statements for the three and six
month periods ended June 30, 2001 and 2000 are unaudited and have been prepared
in accordance with accounting principles generally accepted in the United States
of America, the instructions to this Form 10-Q and Article 10 of Regulation S-X.
In the opinion of management, such financial statements include all adjustments
(consisting of normal recurring accruals) considered necessary for the fair
presentation of the financial position and the results of operations, and cash
flows for these periods. As permitted under the applicable rules and regulations
of the Securities and Exchange Commission
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("SEC"), these consolidated financials statements do not include all disclosures
and footnotes normally included with annual consolidated financial statements,
and accordingly, should be read in conjunction with the consolidated financial
statements and the notes thereto, included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, filed with the SEC on March 30,
2001. The results of operations presented in the accompanying consolidated
financial statements are not necessarily indicative of the results that may be
expected for the year ending December 31, 2001.
(3) LOSS PER COMMON SHARE
The Company calculates loss per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No.
128 requires a presentation of basic earnings per share ("EPS") and diluted EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from securities that
could share in the earnings of the Company. In calculating diluted EPS, no
potential shares of common stock are to be included in the computation when a
loss from continuing operations available to common stockholders exists. The
statement requires dual presentation of basic and diluted EPS by entities with
complex capital structures.
Stock options outstanding amounting to 3,206,391 shares at June 30, 2001,
were not included in the computation of diluted EPS because to do so would have
been antidilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements. In addition, when used in
this report, the words "believe," "may," "expects," "anticipates," "will,"
"intend" and any similar expressions are intended to identify forward-looking
statements. Such statements are subject to a number of risks and uncertainties.
Actual results in the future could differ materially and adversely from those
described in the forward-looking statements as a result of various important
factors, including (but not limited to) the impact of changes in national and
regional economies, our ability to service our outstanding debt, or to borrow in
the future, pricing fluctuations in local and national advertising, volatility
in programming costs, the effects of governmental regulation of broadcasting and
the other risk factors set forth in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 30, 2001 and the
Company's Form S-1 Registration Statement filed with the Securities and Exchange
Commission on September 29, 1999 pursuant to the Securities Act of 1933. The
Company undertakes no obligation to publicly release the result of any revisions
to these forward-looking statements that may be made to reflect any future
events or circumstances.
OVERVIEW
We derive our revenues primarily from the sale of advertising time to
local, regional and national advertisers. Our revenues depend on popular
programming that attracts audiences in the demographic groups targeted by
advertisers, allowing us to sell advertising time at satisfactory rates. Our
revenues also depend significantly on factors such as the national and local
economy and the level of local competition.
Our revenues are generally highest during the fourth quarter of each year,
primarily due to increased expenditures by advertisers in anticipation of
holiday season consumer spending and an increase in viewership during this
period. We generally pay commissions to advertising agencies on local, regional
and national advertising and to national sales representatives on national
advertising. Our revenues reflect deductions from gross revenues for commissions
payable to advertising agencies and national sales representatives.
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Our primary operating expenses are programming costs, employee
compensation, advertising and promotion expenditures and depreciation and
amortization. Programming expense consists primarily of amortization of
broadcast rights relating to syndicated programs as well as news production and
sports rights fees. Changes in employee compensation expense result primarily
from increases in total staffing levels, from adjustments to fixed salaries
based on individual performance and inflation and from changes in sales
commissions paid to our sales staff based on levels of advertising revenues.
Advertising and promotion expenses consist primarily of media and related
production costs resulting from the promotion of our stations and programs. This
amount is net of any reimbursement received or due to us for such advertisement
and promotion from The WB Network or from other program suppliers.
RESULTS OF OPERATIONS
The following table sets forth our calculation of broadcast cash flow and
adjusted EBITDA along with a summary of our statement of cash flow data for the
periods indicated:
OTHER OPERATING DATA:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- -----------------------
2000 2001 2000 2001
------- ------- -------- --------
(Unaudited) (Unaudited)
Broadcast cash flow and adjusted
EBITDA(1):
Operating loss $ (851) $(1,889) $ (3,772) $(5,313)
Add back:
Equity-based compensation 133 133 265 265
Depreciation and amortization 4,976 5,174 10,420 10,397
Amortization of program rights 3,398 3,561 6,347 7,076
Corporate expenses 989 1,046 1,897 2,011
Adjusted program payments (1) (3,195) (3,538) (6,130) (7,060)
------- ------- -------- -------
Broadcast cash flow 5,450 4,487 9,027 7,376
Less:
Corporate expenses 989 1,046 1,897 2,011
------- ------- -------- -------
Adjusted EBITDA $ 4,461 $ 3,441 $ 7,130 $ 5,365
Broadcast cash flow margin (1) 28.4% 23.7% 25.5% 20.9%
Adjusted EBITDA margin (1) 23.3% 18.2% 20.1% 15.2%
CASH FLOWS PROVIDED BY (USED IN): (Unaudited)
Operating activities $ 2,979 $(4,519)
Investing activities $(1,880) $(2,903)
Financing activities $ (776) $ 1,917
----------
(1) We define:
o broadcast cash flow as operating income, plus equity-based compensation,
depreciation and amortization, time brokerage fees, amortization of
program rights, and corporate expenses, less program payments -- the
latter as adjusted to reflect reductions for liabilities relating to
expired rights or rights which have been written-off in connection with
acquisitions;
o adjusted EBITDA as broadcast cash flow less corporate expenses;
o broadcast cash flow margin as broadcast cash flow as a percentage of net
revenues; and
o adjusted EBITDA margin as adjusted EBITDA as a percentage of net
revenues.
We have included broadcast cash flow, broadcast cash flow margin, adjusted
EBITDA and adjusted EBITDA margin data because management believes that
these measures are useful to an investor to evaluate our ability to service
debt and to assess the earning ability of our stations' operations. However,
you should not consider these items in isolation or as substitutes for net
income, cash flows from operating activities and other statement of
operations or cash flows data prepared in accordance with generally accepted
accounting principles. These measures are not necessarily comparable to
similarly titled measures employed by other companies.
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QUARTER AND SIX MONTHS ENDED JUNE 30, 2001 AND JUNE 30, 2000
Net revenues for the second quarter of 2001 decreased 1% to $18.9 million
compared to $19.2 million for the same period a year ago while the six-month
year-to-date net revenues were $35.4 million for both 2000 and 2001. The slight
decrease for the quarter and the zero growth for the six-month periods reflect
the net effect of ratings and revenue growth at most of our stations, offset by
the adverse impact of continued lower advertising demand.
Station operating expenses increased 4% to $14.4 million for the second
quarter of 2001 compared to $13.9 million for the same period a year ago and
increased 5% to $28.0 million for the six months ended June 30, 2001 compared
with $26.6 million for June 30, 2000. These increases reflect our increased
programming, staffing and sales related costs at most of our developing stations
(all stations except KPLR in St. Louis).
Depreciation and amortization increased 4% to $5.2 million in the second
quarter of 2001 compared to $5.0 million in the same period a year ago. This
increase reflects our continued investment in improved transmission and studio
equipment for our stations, including costs associated with the transition to
digital broadcast required by the Federal Communications Commission to be
completed for all of our stations by May 2002. Depreciation and amortization
expense remained flat at $10.4 million for both the six-month periods reflecting
the sale of two buildings in June 2000 offset by the increased expenditures in
the second half of 2000 and the first half of 2001.
Corporate expenses increased 6% for both the quarter and year-to-date
periods ended June 30 2001 as compared to the corresponding 2000 periods. Second
quarter corporate expenses increased $57,000 to $1,046,000 for 2001 as compared
to $989,000 for the same period a year ago while the year-to-date expenses
increased $100,000 to $2.0 million from $1.9 million for the same period in
2000. The increased expenses are due to an increase in salary costs and
professional fees.
Equity-based compensation of $133,000 in the second quarter and $265,000
for the six months of 2001 and 2000 relate to stock options issued upon the
conversion of our long-term incentive plan awards during our IPO in September of
1999. These options were issued at a price below market value at the date of
grant and therefore generate compensation expense over the life of the option.
Interest expense increased to $7.3 million in the second quarter of 2001
compared to $6.7 million in the same period a year ago. On a year-to-date basis,
interest expense increased 11% or $1.4 million to $14.5 million from the $13.1
million June 2000 expense. These increases are primarily due to the increased
interest expense on higher accreted principal balances for both our 10-7/8%
senior discount and our 12% senior secured notes, along with increased interest
related to higher capital least obligations compared to a year ago.
The Company recorded an income tax benefit of $2.7 million during the
second quarter compared to a benefit of $1.5 million in the corresponding
quarter of 2000. For the six-month period ended in June the tax benefit was $6.0
million compared to $4.3 million in 2000. The increased tax benefits relate to
increased losses during both periods as compared to the comparable periods of
2000. Goodwill amortization that is not deductible for tax purposes was
approximately $1.4 million for quarter and $2.8 million for the six-month period
for both years.
Broadcast cash flow (as defined) decreased 18% for both the second quarter
and the six-month period ended June 2001 as compared to the same periods a year
ago. This decrease was primarily the result of our continued investment in our
developing stations. This investment consists of increased program costs and
sales related expenses.
Adjusted EBITDA (as defined) decreased 23% to $3.4 million for the second
quarter of 2001 compared to $4.5 million for the second quarter of 2000 and
decreased 25% to $5.4 million from $7.1 million for the six month periods ended
June 30, 2001 and 2000. These decreases were a result of lower broadcast cash
flow and slightly higher corporate expenses for both the second quarter and the
six-month period compared to the year earlier periods.
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The Company's net loss for the second quarter was $6.3 million, a 49%
increase as compared to a net loss of $4.2 million for the second quarter of
2000. For the six-month period, our net loss increased 27% to $13.1 million as
compared to a $10.4 million loss for the comparable period of 2000. The increase
in both the Company's second quarter and six-month net losses is attributable to
reduced adjusted EBITDA, increased interest expense and increased depreciation
and amortization expense. In addition, the Company's 2000 six-month net loss
also included a gain of $1.5 million related to the sale of our studio building
in St. Louis.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow used in operating activities was $4.5 million for the six months
ended June 30, 2001 compared to cash flow provided by operating activities of
$3.0 million for the second six months of 2000. This $7.5 million decrease in
cash flow relates primarily to the second quarter 2001 payment of $9.5 million
in interest on our 10 7/8% senior discount notes and decreased adjusted EBITDA
in 2001, net of the $3.0 million in non-recurring IPO bonuses paid to the
founding executives in the first six months of 2000.
Cash flow used in investing activities during the second six months of 2001
was $2.9 million compared to $1.9 million used during the second six months of
2000. This increase reflects the approximately $1.4 million decrease in
purchases of property, equipment and station interests offset by the decrease in
proceeds from the sale of assets of approximately $2.4 million between the
second quarter of 2000 and 2001.
Cash flow provided by financing activities was $1.9 million for the second
six months of 2001, as compared to cash flow used in financing activities of
$776,000 in 2000 reflects the addition of capital leases during the second
quarter of 2001 offset by the payments on capital leases, which increased by
$273,000 over the same period of 2000.
ACME Television's revolving credit facility allows for borrowings up to
$30.0 million, dependent upon our meeting certain financial tests. A
prerequisite for borrowing on the facility is that ACME Communications
contribute up to $13.2 million in cash or other assets to ACME Television. All
$30.0 million was available as of June 30, 2001. The revolving credit facility
allows borrowings to be used to fund future acquisitions of broadcast stations
and for general corporate purposes. At June 30, 2001 there were no borrowings
outstanding under the facility. In June 2001, we amended the credit agreement,
including certain financial tests for the second and third quarters of 2001. Due
to continuing weak economic conditions, we do not expect to meet certain of the
financial tests for the fourth quarter 2001. We intend to request an amendment
or a waiver to these financial tests. Without such an amendment or a waiver, we
may not be able to borrow under this facility. In such case, the Company
anticipates that it would be able to establish a replacement credit facility.
Any such replacement may have terms less favorable than the terms of our current
facility.
Borrowings under lease obligations are generally repaid over five years. As
of June 30, 2001, amounts due under these facilities were $11.4 million bearing
an implicit average interest rate of 8.50% per annum. At June 30, 2000, amounts
due under the facilities were $6.6 million and bore the implicit average
interest rate of 8.95%.
Effective October 1, 2000, the Company's $175 million 10 7/8% Senior
Discount Notes due September 30, 2004 began accruing cash interest. The interest
payment on these notes amounts to approximately $9.5 million every six months,
with our next payment due on September 30, 2001.
At June 30, 2001, the Company had $25.5 million of cash and working capital
of $26.2 million.
The Company believes that existing cash balances and funds generated from
operations will be sufficient to satisfy the Company's cash requirements for its
existing operations for at least the next twelve months. The Company expects
that additional liquidity will be provided by amounts available under its
existing credit facility or replacement credit facility or amounts available
under capital lease facilities we are currently negotiating. The Company expects
that any future acquisitions of television stations would be financed through
these same sources and, if necessary, through additional debt and/or equity
financing. However, there is no guarantee that such additional debt and/or
equity will be available or available at terms acceptable to the Company.
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IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria that must be met before intangible assets acquired in a purchase method
business combination can be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. Statement 142 will require that goodwill and intangible assets
with indefinite useful lives no longer be amortized, but instead, tested for
impairment (at least annually) in accordance with the provisions of Statement
142. Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long Lived Assets and for Long Lived
Assets to Be Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately and Statement 142 effective January 1, 2002. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired
in purchase business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In addition,
to the extent an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of Statement 142 within the first interim
period. Any impairment loss will be measured as of the date of adoption and
recognized as the cumulative effect of a change in accounting principle in the
first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of whether there
is an indication that goodwill is impaired as of the date of adoption. To
accomplish this the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. The Company will then have up to six months from the
date of adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the reporting
unit's goodwill may be impaired and the Company must perform the second step of
the transitional impairment test. In the second step, the Company must compare
the implied fair value of the reporting unit's goodwill, determined by
allocating the reporting unit's fair value to all of it assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation
in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be
completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings.
As of the proposed date of adoption, January 1, 2002, the Company expects
to have unamortized goodwill in the amount of $107.1 million and unamortized
identifiable intangible assets in the amount of $164.3 million, all of which
will be subject to the transition provisions of Statements 141 and 142.
Amortization expense related to goodwill and intangible assets was $16.4 million
and $8.2 million for the year ended December 31, 2000 and the six months ended
June 30, 2001, respectively. It is expected that the majority of the Company's
intangible assets will qualify for an indefinite life and accordingly, there
will be no amortization under Statement 142. Because of the extensive effort
needed to comply with adopting Statements 141 and 142, it is not practicable to
reasonably estimate the impact of adopting these Statements on the Company's
financial statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's revolving credit facility has a variable interest rate.
Accordingly, the Company's interest expense could be materially affected by
future fluctuations in the applicable interest rate. At June 30, 2001, the
Company had no borrowings under the revolving credit facility.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. The Company maintains comprehensive
general liability and other insurance, which it believes to be adequate for the
purpose. The Company is not currently a party to any lawsuit or proceeding that
management believes would have a material adverse affect on its financial
condition or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit
Number Exhibit Description
------- -------------------
10.1* Eighth Amendment to Credit Agreement, dated March 31, 2001.
10.2* Ninth Amendment to Credit Agreement, dated June 29, 2001.
10.3* Restated and Amended Contribution Agreement, dated June 29,
2001.
-----------
* Filed herewith.
(b) REPORTS ON FORM 8-K
The Company has not filed a Current Report on Form 8-K within the
three-month period ended June 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME Communications, Inc.
Date: August 14, 2001 By: /s/ THOMAS ALLEN
----------------------------------
Thomas Allen
Executive Vice President / CFO
(Principal accounting officer)
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EXHIBIT INDEX
Exhibit
Number Exhibit Description
------- -------------------
10.1 Eighth Amendment to Credit Agreement, dated March 31, 2001.
10.2 Ninth Amendment to Credit Agreement, dated June 29, 2001.
10.3 Restated and Amended Contribution Agreement, dated June 29, 2001.