ACNI American Community Newspapers Inc (CE)

DALLAS, Nov. 19 /PRNewswire-FirstCall/ -- American Community Newspapers Inc. (Pink Sheets: ACNI) ("ACN" or the "Company") today reported financial results for the third quarter ended September 28, 2008. Summary of Key Events As previously reported, the Company is not in compliance with certain terms of its credit agreements, including financial and payment covenants, violation of which constitute events of default under such agreements. The Company and its financial advisors continue to work with its lenders to restructure the Company's debt. While the Company does not expect its lenders to immediately terminate its credit facilities and/or demand immediate repayment of outstanding debt, they have the right to do so as a result of the events of default. In such event, the Company's senior lenders could seek to foreclose on their security interests in ACN's assets and those of its subsidiaries. Alternatively, the Company's lenders could exercise the other rights and remedies available to them under their respective credit agreements. Such actions would materially and negatively impact the Company's liquidity, results of operations and financial condition. The Company's senior lenders have restricted the Company's access to additional borrowings under the Company's credit agreement with them. Since there is no assurance that the Company's negotiations and/or restructuring efforts with its lenders will be successful, the entire $144.8 million aggregate balance of all loans outstanding at September 28, 2008 has been reflected as a current liability in the accompanying balance sheet. This has resulted in a liquidity deficiency of $139.1 million, the amount by which current liabilities of $151.8 million exceed current assets of $12.7 million at September 28, 2008. Any restructuring that reduces the Company's outstanding debt is likely to have a substantial impact on the Company's capital structure, including but not limited to its common equity. This financial press release should be read in conjunction with the Company's Form 10-K filed with the Securities and Exchange Commission ("SEC") for the year ended December 30, 2007 and Forms 10-Q filed with the SEC for the quarters ended March 30, 2008 and June 29, 2008. Third Quarter Ended September 28, 2008 Results: -- Total revenue was $16.3 million, down 12.3% from total revenue of $18.5 million in the prior year quarter. The decline was primarily due to the macro-economic weakness nationwide and the resulting soft advertising environment, with the Company's Minneapolis-St. Paul cluster affecting results the most negatively. Excluding the Minneapolis-St. Paul cluster, total revenue was down 8.7%. There has been a significant slowdown in advertising expenditures in newspapers nationwide and in advertising in general across all media. -- Advertising revenue decreased 13.6% to $14.8 million in the third quarter of 2008 compared to advertising revenue in the same quarter of the prior year. -- ACN's 100 print products had a total circulation of approximately 1.3 million in the third quarter of 2008. ACN has a free, controlled-distribution model for most of its print products, with circulation accounting for 4.1% of total Company revenues in the period. -- Total operating costs and expenses decreased 6.9% to $12.6 million in the third quarter of 2008 versus the prior year as a result of cost-saving initiatives and lower sales volume. -- Newspaper Cash Flow (NCF) decreased 26.9% to $3.6 million in the third quarter of 2008 compared to NCF in the third quarter of 2007. The decrease was driven primarily by the aforementioned revenue decline. -- Corporate expenses increased approximately $0.8 million or 144.5% to $1.4 million year-over-year in the 2008 third quarter primarily due to approximately $0.8 million expense for professional fees related to the Company's restructuring efforts. About $0.4 million of these professional fees are being paid to professionals working on behalf of the Company's senior lenders pursuant to the Company's obligations under its loan agreement. Nine Months Ended September 28, 2008 Pro forma Results: -- Total revenue was $49.4 million, down 12.8% from total revenue of $56.7 million in the prior year period on a pro forma basis. The decline was primarily due to the macro-economic nationwide weakness and the resulting soft advertising environment, with the Company's Minneapolis-St. Paul cluster affecting results the most negatively. Excluding the Minneapolis-St. Paul cluster, total revenue was down 9.4%. There has been a significant slowdown in advertising expenditures in newspapers nationwide and in advertising in general across all media. -- Advertising revenue decreased 13.9% to $45.1 million for the first nine months of 2008 compared to the 2007 comparable period on a pro forma basis. -- Total operating costs and expenses decreased 9.5% to $38.1 million during the first nine months of 2008 versus the 2007 first nine months on a pro forma basis as a result of cost-saving initiatives and lower sales volume. -- Newspaper Cash Flow decreased 22.4% to $11.3 million for the first nine months of 2008 compared to pro forma NCF during the comparable prior year period. The decrease was driven primarily by the aforementioned revenue decline. -- Corporate expenses increased by $1.2 million or 90.8% to $2.5 million during the first nine months of 2008 compared to the comparable period, primarily due to approximately $0.8 million expense for professional fees related to the Company's restructuring efforts and to a lesser extent from other corporate costs related to the Company becoming an operating business as of July 2, 2007. About $0.4 million of these professional fees are being paid to professionals working on behalf of the Company's senior lenders pursuant to the Company's obligations under its loan agreement. On July 1, 2008, ACN retained an advisor to provide financial advisory services. On August 26, 2008 the Company retained restructuring legal counsel. These advisors are assisting the Company in exploring strategic alternatives relating to, among other things restructuring its long-term debt. Any restructuring that reduces the Company's outstanding debt is likely to have a substantial impact on its capital structure, including but not limited to its common equity. As of August 13, 2008, the Company has been in violation of a financial covenant under each of its credit facility with the Bank of Montreal, as agent, and a group of banks and other commercial lenders (the "Credit Facility") and its unsecured term loan credit facility with Ares Capital Corporation (the "Subordinated Credit Facility"). Violation of these financial covenants constitutes an event of default under the Credit Facility and the Subordinated Credit Facility. In addition, due to cross-default provisions under the Credit Facility, the financial covenant default under the Subordinated Credit Facility constitutes an additional event of default under the Credit Facility. Additionally, on September 30, 2008, the Company did not make a principal payment in the amount of $1.05 million as required by the Credit Facility. Such failure to pay constitutes an additional event of default under the Credit Facility. As a consequence of these events of default, any interest due and payable under the Credit Facility shall be at a rate that is 2 percentage points in excess of the interest otherwise payable with respect to the applicable Loans ("Default Interest Rate"). Furthermore, under a cross default provision contained in the certificate of designations for the Company's Series A Preferred Stock, the imposition of Default Interest Rate under the Subordinated Credit Facility has caused the dividend rate on Series A Preferred Stock to increase by 2 percentage points. On November 30, 2007, the Company executed two interest rate swaps, one in the notional amount of $30 million and one in the notional amount of $25 million, with a spot starting date of December 4, 2007. The interest rate swaps had identical terms of two years. Under these swaps, the Company paid an amount to the swap counterparty representing interest on a notional amount at a fixed rate of 3.91% and received an amount from the swap counterparty representing interest on the notional amount at a rate equal to the three-month LIBOR. At the request of its senior lenders, the Company terminated the interest rate swap contracts on September 29, 2008 and incurred a total close-out fee of approximately $0.7 million which is included in current liabilities for the period ended September 28, 2008. This transaction resulted in an immaterial gain for the three months ended September 28, 2008 and loss of approximately $0.7 million for the nine months ended September 28, 2008. On August 21, 2008, the Company received notice from the American Stock Exchange ("AMEX," now known as NYSE Alternext US LLC) staff indicating that the Company was not in compliance with certain of AMEX's continued listing standards, as set forth in Sections 134 and 1101 of the AMEX Company Guide, due to its failure to file its Form 10-Q for the fiscal quarter ended June 29, 2008 with the SEC. The Company was afforded the opportunity to submit a plan of compliance to AMEX and, on September 4, 2008, the Company did so. On September 23, 2008, AMEX notified the Company that it accepted its plan of compliance and allowed it until November 19, 2008, to regain compliance with the continued listing standards. On October 21, 2008 the Company notified AMEX of its intent to voluntarily delist its common stock, warrants and units from AMEX and that it intended to voluntarily deregister its common stock, warrants and units under the Securities Exchange Act of 1934, as amended, and cease filing reports with the SEC. On November 6, 2008 the Company filed its Form 10-Q for the three and six months ended June 29, 2008 with the SEC. On November 10, 2008, the Company filed a Form 15 with the SEC to voluntarily deregister its common stock, warrants and units under the Securities Exchange Act of 1934, as amended, suspending its obligation to file reports with the SEC, including Forms 10-K, 10-Q, and 8-K. The Company expects that the deregistration will become effective on or about February 8, 2009. Also on November 10, 2008, the Company's common stock, warrants and units were delisted from AMEX and commenced trading on the Pink OTC Markets, a centralized electronic quotation service for over-the-counter securities, under the ticker symbols ACNI.PK, ACNIW.PK and ACNIU.PK, respectively. About American Community Newspapers Inc. ACN is a community newspaper publisher in the United States, operating within four major U.S. markets: Minneapolis - St. Paul, Dallas, Northern Virginia (suburban Washington, D.C.) and Columbus, Ohio. These markets are some of the most affluent, high growth markets in the United States, with ACN strategically positioned in many of the wealthiest counties within each market. ACN's goal is to be the preeminent provider of local content and advertising in any market its serves. Forward-Looking Statements This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to ACN's future financial or business performance, strategies and expectations. Forward-looking statements are typically identified by words or phrases such as "trend," "potential," "opportunity," "pipeline," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "outlook," "continue," "remain," "maintain," "sustain," " seek, " "achieve," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" and similar expressions. Pro Forma The Company has presented its operating results on a pro forma basis for the nine months ended September 28, 2008 and September 30, 2007. This pro forma presentation for the nine months ended September 28, 2008 and September 30, 2007 assumes that the July 2, 2007 acquisition of the Company's operating business and related financings occurred at the beginning of the pro forma period. This pro forma presentation is not necessarily indicative of what the Company's operating results would have actually been had the acquisition and related financings occurred at the beginning of the pro forma period. This pro forma presentation is required for comparison purposes as the Company had no operations for the first two quarters in 2007. Non-GAAP Financial Measures This press release includes the following financial information defined as non-GAAP financial measures by the Securities and Exchange Commission: EBITDA and Newspaper Cash Flow. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information is not intended to be considered in isolation or as a substitute for financial information prepared and presented in accordance with generally accepted accounting principles. ACN believes that the presentation of these non-GAAP measures provides information that is useful to investors as it indicates more clearly the ability of ACN to meet capital expenditures and working capital requirements and otherwise meet its obligations as they become due. ACN's EBITDA was derived by taking earnings before interest, taxes, depreciation and amortization as adjusted for discontinued operations and certain one-time non-recurring items and exclusions. ACN's Newspaper Cash Flow was derived by taking earnings before interest, taxes, depreciation and amortization as adjusted for corporate expenses, discontinued operations and certain one-time non-recurring items and exclusions. See the following "Reconciliation of net income to EBITDA / Adjusted EBITDA and Newspaper Cash Flow" table for further information regarding these non-GAAP financial measures. Selected Financial Information ($000s) - Unaudited Three Months Ended September September Period Change 28, 2008 30, 2007 Actual Actual $ % Revenues: Advertising $ 14,821 $ 17,161 $ (2,340) -13.6% Circulation 673 680 (7) -1.0% Commercial printing and other 769 695 74 10.7% Total revenue 16,263 18,536 (2,273) -12.3% Operating costs and expenses: Operating costs 7,634 8,080 (446) -5.5% Selling, general and administrative 5,006 5,498 (492) -8.9% Total operating costs and expenses 12,640 13,578 (938) -6.9% Newspaper Cash Flow 3,623 4,958 (1,335) -26.9% Corporate expense 1,379 564 815 144.5% EBITDA $ 2,244 $ 4,394 $ (2,150) -48.9% Selected Financial Information ($000s) - Unaudited Nine Months Ended September September Period Change 28, 2008 30, 2007 Actual Pro Forma $ % Revenues: Advertising $45,069 $52,317 $(7,248) -13.9% Circulation 2,025 2,378 (353) -14.8% Commercial printing and other 2,307 1,975 332 16.8% Total revenue 49,401 56,670 (7,269) -12.8% Operating costs and expenses: Operating costs 22,806 25,144 (2,338) -9.3% Selling, general and administrative 15,302 16,968 (1,666) -9.8% Total operating costs and expenses 38,108 42,112 (4,004) -9.5% Newspaper Cash Flow 11,293 14,558 (3,265) -22.4% Corporate expense 2,543 1,333 1,210 90.8% EBITDA / Adjusted EBITDA $8,750 $13,225 $(4,475) -33.8% Reconciliation of Net Income to EBITDA / Adjusted EBITDA to Newspapers Cash Flow ($000s) - Unaudited Three Months Ended Nine Months Ended September September September September 28, 2008 30, 2007 28, 2008 30, 2007 Net Loss $(2,967) $(2,332) $(117,959) $(1,816) Interest Expense, net 3,612 3,484 10,758 2,465 Taxes - (106) (1,684) 138 Depreciation and amortization 1,599 3,201 6,724 3,201 Adjustment for acquisitions - - - 9,090 Non-cash stock based compensation expense - 147 230 147 Impairment of goodwill and other intangible assets - 110,026 - Other expense (interest rate swaps) 655 EBITDA / Adjusted EBITDA 2,244 4,394 8,750 13,225 Corporate expense 1,379 564 2,543 1,333 Newspapers Cash Flow $3,623 $4,958 $11,293 $14,558 Loss per share ($ - millions, except per shares and share amounts) - Unaudited Three Months Ended Nine Months Ended September September September September 28, 2008 30, 2007 28, 2008 30, 2007 Net Loss $(2.967) $(2.332) $(117.959) $(1.816) Loss per share: Basic and fully diluted (0.20) (0.16) (8.07) (0.12) Weighted average shares outstanding 14,623,445 14,623,445 14,623,445 14,623,445 American Community Newspapers Inc. Consolidated Balance Sheets (In thousands, except share and per share data) (unaudited) September December 28, 2008 30, 2007 Assets Current assets: Cash and cash equivalents $3,357 $1,521 Accounts receivable, net of allowance for doubtful accounts of $179 and $88 at September 28, 2008 and December 30, 2007, respectively 7,493 7,010 Inventories 904 618 Other current assets 973 754 Total current assets 12,727 9,903 Property, plant, and equipment, net of accumulated depreciation of $2,271 and $897 at September 28, 2008 and December 30, 2007, respectively 8,151 9,324 Goodwill 34,029 90,110 Intangible assets, net of accumulated amortization of $1,894 and $5,184 at September 28, 2008 and December 30, 2007, respectively 42,047 101,341 Deferred financing costs, net 3,335 3,770 Other assets 130 100 Total assets $100,419 $214,548 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $2,218 $1,401 Accrued expenses 2,301 2,232 Accrued interest and interest rate swap liability 1,147 2,018 Deferred revenue 1,304 1,314 Current portion of long-term liabilities 144,797 2,100 Total current liabilities 151,767 9,065 Long-term liabilities: Long-term debt - 137,866 Deferred income taxes - 1,862 Redeemable preferred stock, $.0001 par value, Authorized 1,000,000 shares; 42,193 issued and outstanding shares at September 28, 2008 and December 30, 2007 5,182 4,556 Total liabilities 156,949 153,349 Commitments and contingencies Stockholders' equity (deficit) Common stock, $.0001 par value, Authorized 50,000,000 shares issued and outstanding 14,623,445 shares 1 1 Additional paid-in capital 64,559 64,329 Accumulated deficit (121,090) (3,131) Total stockholders' equity (deficit) (56,530) 61,199 Total liabilities and stockholders' equity (deficit) $100,419 $214,548 The accompanying notes should be read in conjunction with these unaudited consolidated financial statements. DATASOURCE: American Community Newspapers Inc. CONTACT: Corey Kinger (Investors), , or Joe LoBello (Media), , both of Brainerd Communicators, for American Community Newspapers Inc., +1-212-986-6667

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