<PAGE> 1
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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 SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-84191
----------------
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)
----------------
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 14, 2000, ACME Communications, Inc. had 16,750,000
shares of common stock outstanding.
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<PAGE> 2
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 December 31, 1999 and
September 30, 2000............................................ 3
Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 1999 and September 30, 2000... 4
Consolidated Statements of Stockholders' Equity for the
Nine Months Ended September 30, 2000.......................... 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and September 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
2
<PAGE> 3
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, SEPTEMBER 30,
1999 2000
------------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,846 $ 27,373
Accounts receivable, net 14,090 12,968
Current portion of programming rights 11,331 10,620
Prepaid expenses and other current assets 1,065 1,058
Deferred income taxes 2,448 1,147
--------- ---------
Total current assets 52,780 53,166
Property and equipment, net 25,116 27,114
Programming rights, net of current portion 14,704 11,758
Intangible assets, net 303,812 291,815
Other assets 11,295 11,273
--------- ---------
Total assets $ 407,707 $ 395,126
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,570 $ 5,169
Accrued liabilities 8,231 4,379
Current portion of programming rights payable 10,727 11,363
Current portion of obligations under lease 1,617 1,832
--------- ---------
Total current liabilities 26,145 22,743
Programming rights payable, net of current portion 13,605 9,779
Obligations under lease, net of current portion 5,796 5,242
Other liabilities 297 269
Deferred income taxes 25,364 18,610
10 7/8% senior discount notes 161,695 175,000
12% senior secured notes 47,970 52,921
--------- ---------
Total liabilities 280,872 284,564
--------- ---------
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
outstanding at September 30, 2000 and December 31, 1999 168 168
Additional paid-in capital 130,279 130,676
Accumulated deficit (3,612) (20,282)
--------- ---------
Total stockholders' equity 126,835 110,562
--------- ---------
Total liabilities and stockholders' equity $ 407,707 $ 395,126
========= =========
</TABLE>
See the notes to the consolidated financial statements.
3
<PAGE> 4
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ------------------------------
1999 2000 1999 2000
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 15,803 $ 18,045 $ 42,438 $ 53,432
----------- ------------ ----------- ------------
Operating expenses:
Station operating expenses 12,829 12,804 32,819 39,381
Depreciation and amortization 4,847 5,230 13,006 15,650
Corporate 3,897 780 5,380 2,677
Equity-based compensation 28,856 132 39,556 397
----------- ------------ ----------- ------------
Operating loss (34,626) (901) (48,323) (4,673)
Other income (expenses):
Interest income 49 405 76 1,030
Interest expense (8,294) (6,724) (22,362) (19,796)
Gain on sale of assets, net -- -- -- 1,511
Other expense -- (1) -- (5)
----------- ------------ ----------- ------------
Loss before income taxes and minority
interest (42,871) (7,221) (70,609) (21,933)
Income tax benefit 3,421 926 1,357 5,263
----------- ------------ ----------- ------------
Loss before minority interest (39,450) (6,295) (69,252) (16,670)
Minority interest 682 -- 2,085 --
----------- ------------ ----------- ------------
Net loss $ (38,768) $ (6,295) $ (67,167) $ (16,670)
=========== ============ =========== ============
Pro forma net loss per share:
Loss before income taxes and minority
interest, as reported $ (42,871) $ (7,221) $ (70,609) $ (21,933)
Pro forma tax benefit 4,842 926 10,333 5,263
----------- ------------ ----------- ------------
Loss before minority interest (38,029) (6,295) (60,276) (16,670)
Pro forma minority interest allocation 721 -- 1,629 --
----------- ------------ ----------- ------------
Pro forma net loss $ (37,308) $ (6,295) $ (58,647) $ (16,670)
=========== ============ =========== ============
Pro forma net loss per share, basic and diluted $ (7.20) $ (0.38) $ (11.32) $ (1.00)
=========== ============ =========== ============
Basic and diluted weighted average common
shares outstanding 5,180,051 16,750,000 5,180,051 16,750,000
=========== ============ =========== ============
</TABLE>
See the notes to the consolidated financial statements.
4
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 16,750 $168 $130,279 $ (3,612) $ 126,835
Equity-based compensation -- -- 397 -- 397
Net loss -- -- -- (16,670) (16,670)
------ ---- -------- -------- ---------
Balance at September 30, 2000 (unaudited) 16,750 $168 $130,676 $(20,282) $ 110,562
====== ==== ======== ======== =========
</TABLE>
See the notes to the consolidated financial statements.
5
<PAGE> 6
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 2000
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(67,167) $(16,670)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 13,004 15,650
Amortization of program rights 5,560 9,890
Amortization of debt issuance costs 492 911
Amortization of discount on 10 7/8% senior
discount notes 11,967 13,305
Amortization of discount on 12% senior
secured notes 4,340 4,951
Minority interest allocation 2,085 --
Gain on sale of assets, net -- (1,511)
Equity-based compensation 39,556 397
Deferred taxes (1,357) (5,263)
Changes in assets and liabilities:
(Increase) decrease in accounts receivables, net (2,079) 1,122
(Increase) decrease in prepaid expenses (1,740) 7
Increase in other assets (814) (380)
Increase (decrease) in accounts payable 1,130 (401)
Increase (decrease) in accrued liabilities 10,741 (3,852)
Payments on programming rights payable (6,906) (9,423)
Decrease in other liabilities (4,990) (218)
-------- --------
Net cash provided by operating activities 3,822 8,515
Cash flows from investing activities:
Purchase of property and equipment (4,333) (6,457)
Proceeds from the sale of property -- 2,634
Purchase of and deposits for station interests (45,654) (826)
-------- --------
Net cash used in investing activities (49,987) (4,649)
Cash flows from financing activities:
Increase in revolving credit facility, net
of repayments 32,000 --
Increase in bridge loan, net of repayments 15,000 --
Payments of capital lease obligations, net
of borrowings (1,030) (339)
-------- --------
Net cash provided by (used in) financing activities 45,970 (339)
Net increase (decrease) in cash (195) 3,527
Cash at beginning of period 1,001 23,846
-------- --------
Cash at end of period $ 806 $ 27,373
======== ========
Cash payments for:
Interest $ 2,069 $ 209
Taxes $ 102 $ 176
======== ========
Non-cash transactions:
Addition of program rights contracts $ 18,099 $ 6,006
======== ========
Conversion of convertible debt into stockholders' equity 30,131 $ --
Issuance of equity in exchange for management carry units 39,556 $ --
Exchange of note receivable and option deposit as
purchase consideration for station interest $ 7,000 $ --
======== ========
</TABLE>
See the notes to the consolidated financial statements.
6
<PAGE> 7
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
(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 ("ACME Television"). All transactions contemplated as part of
the Reorganization closed on October 5, 1999.
Among the significant transactions of the Reorganization were the
exchange of shares of the Company's common stock for members' units, management
carry units ("MCU's") and convertible debt of ACME Television Holdings. The
common stock exchanged for members' units in ACME Television Holdings was
recorded at historical cost. The management carry units were treated as a
variable compensation plan. As the number of shares of common stock issued to
the holders of the management carry units were fixed and fully vested,
compensation expense was recorded for the difference between the fair value of
the shares issued and the MCU expense previously recorded. The convertible debt
was converted pursuant to its original conversion terms, and accordingly, no
gain or loss was recognized. Also, the Company acquired the minority interest in
ACME Intermediate Holdings for 923,938 shares of the Company's common stock. The
acquisition of the minority interest was accounted for at fair market value.
The financial statements give effect to the exchange of common stock
for members' units for all periods presented.
On October 5, 1999, the Company completed its initial public offering
of 5,000,000 shares of common stock at $23 per share, before underwriters'
discounts and other issuance costs (the "IPO"). The Company received net
proceeds of approximately $105 million.
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:
<TABLE>
<CAPTION>
STATION MARKET
(CALLS / CHANNEL) RANK (*) AFFILIATION
----------------- -------- -----------
<S> <C> <C> <C>
St. Louis, MO................................ KPLR - 11 22 WB
Portland, OR................................. KWBP - 32 23 WB
Salt Lake City, UT........................... KUWB - 30 36 WB
Albuquerque-Santa Fe, NM..................... KWBQ - 19 50 WB
Albuquerque-Santa Fe, NM..................... KASY - 50 50 UPN
Dayton, OH................................... WBDT - 26 55 WB
Knoxville, TN................................ WBXX - 20 63 WB
Green Bay-Appleton, WI....................... WIWB - 14 69 WB
Ft. Myers-Naples, FL......................... WTVK - 46 81 WB
Champaign-Springfield-Decatur, IL............ WBUI - 23 83 WB
</TABLE>
-----------
(*) - per A.C. Nielsen, based on television households
7
<PAGE> 8
(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. Certain
amounts previously reported for 1999 have been reclassified to conform to the
2000 financial statement presentation.
The accompanying consolidated financial statements for the three months
and nine months ended September 30, 2000 and 1999 are unaudited and have been
prepared in accordance with generally accepted accounting principles, 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, these 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 filed with the SEC on March 28, 2000. The
results of operations presented in the accompanying financial statements are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
(3) RELATED PARTY TRANSACTION
On May 31, 2000, the Company sold to and leased-back from Roberts
Brothers Properties, III, LLC ("RBPIII"), the studio building for our stations
KWBQ and KASY in Albuquerque, NM. Mr. Michael Roberts, who is a member of the
Company's board of directors, and Mr. Steven Roberts, his brother, who is a
shareholder of the Company, control RBPIII. The sale and leaseback of the
building was set forth in an option granted in 1999 to an entity the Roberts
brothers controlled. In accordance with the option agreement, the property was
sold back at our original cost, however, transaction charges associated with the
sale resulted in a loss of approximately $65,000, which is included in the gain
on sale of assets, net, on the accompanying consolidated statement of
operations.
(4) 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, similar to fully diluted EPS under
APB No. 15. 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.
For periods prior to October 1, 1999, the Company calculated pro forma
net loss per share based upon the historical results of operations adjusted to
reflect (i) a provision for income taxes on historical earnings before income
taxes, which gives effect to the change in the Company's income tax status to a
C corporation and (ii) the impact on the net loss allocated to minority
interests. In addition, the Company has reflected the exchange of common stock
for units for all periods presented.
Stock options outstanding amounting to 3,028,091 shares at exercise
prices ranging from $15.00 to $25.06 at September 30, 2000, 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 unaudited consolidated financial statements and related notes included
elsewhere in this report on Form 10-Q and with the audited financial statements
and Management's Discussion and Analysis contained in the Company's Form 10-K
for the year ended December 31, 1999.
Forward -Looking Statements:
This report includes forward-looking statements. In addition, when used
in this report, the words "believe," "expects" 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
8
<PAGE> 9
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, successful integration of acquired entities (including
achievement of synergies and cost reductions), pricing fluctuations in local and
national advertising, volatility in programming costs, the effects of
governmental regulation of broadcasting, the ability to secure suitable studio
and tower leases at the end of their respective terms 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 28, 2000 and the Company's Form S-1
Registration Statement filed with the Security 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.
Our primary station 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, 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 tables set forth selected operating and cash flow data for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
1999 2000 1999 2000
-------- ------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BROADCAST CASH FLOW AND ADJUSTED
EBITDA(1):
Operating loss $(34,626) $ (901) $(48,323) $ (4,673)
Add back:
Equity-based compensation 28,856 132 39,556 397
Depreciation and amortization 4,847 5,230 13,006 15,650
Amortization of program rights 2,310 3,543 5,560 9,890
Corporate expenses 3,897 780 5,380 2,677
Adjusted program payments (1) (2,410) (3,198) (5,789) (9,328)
-------- ------- -------- --------
Broadcast cash flow 2,874 5,586 9,390 14,613
Less:
Corporate expenses 3,897 780 5,380 2,677
-------- ------- -------- --------
Adjusted EBITDA (1) $ (1,023) $ 4,806 $ 4,010 $ 11,936
Broadcast cash flow margin (1) 18.2% 31.0% 22.1% 27.3%
Adjusted EBITDA margin (1) (6.5)% 26.6% 9.4% 22.3%
CASH FLOWS PROVIDED BY (USED IN):
Operating activities $ 3,822 $ 8,515
Investing activities $(49,987) $ (4,649)
Financing activities $ 45,970 $ (339)
</TABLE>
9
<PAGE> 10
----------
(1) We define:
- 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 and adjusted to allocate
evenly over the payment term any advance deposits;
- adjusted EBITDA as broadcast cash flow less corporate expenses;
- broadcast cash flow margin as broadcast cash flow as a percentage of
net revenues; and
- 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.
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 vs. SEPTEMBER 30, 1999
Operations:
Net revenues increased 14% to $18.0 million for the third quarter and
26% to $53.4 for the nine months of 2000 compared to $15.8 million and $42.4
million for the same periods a year ago. For the third quarter, these increases
primarily reflect the continued significant growth (averaging 33%) at our
developing stations, which continue make gains in both audience and revenue
shares. For the nine-month period, our revenue increase was even greater as a
result of the four stations we acquired since June 1, 1999 (WBDT - Dayton, WIWB
- Green Bay/Appleton, WBUI - Champaign/ Decatur/Springfield and KASY -
Albuquerque/Santa Fe, collectively the "Acquired Stations"). These increases
were offset somewhat by a reduction in baseball revenues at KPLR due to the
conversion of our St. Louis Cardinal contract from a rights fee arrangement in
1999, where we paid the Cardinals a rights fee and sold the advertising time, to
a time period buy in 2000, where the Cardinals paid KPLR to run the games and
sold the advertising time themselves. The resulting impact of this change is
significantly reduced baseball revenues and the elimination of baseball related
expense in 2000 compared to 1999. On a "Same Station" basis (i.e. reflecting the
results of the nine stations we owned and operated for the full third quarter
and the five stations we owned and operated for the full nine months of 2000 and
1999) and excluding the impact from the conversion of the St. Louis Cardinals
baseball contract, our third quarter 2000 net revenues rose 23%. For the
nine-month period, same station month net revenues rose 24% as compared to 1999.
Station operating expenses for the third quarter were equal to the 1999
expenditures of $12.8 million and increased 20% to $39.4 million as compared to
the nine month period a year ago when station operating expenses were $32.8
million. Increases in operating costs at our developing stations during the
third quarter were offset by the elimination of baseball related expenses at
KPLR, as discussed above. Station expenses for the nine months of 2000 were up
due to the addition of our Acquired Stations and increased spending in
programming and promotion costs, partially offset by the elimination of baseball
related expenses at KPLR.
Depreciation and amortization increased 8% to $5.2 million in the third
quarter and 20% to $15.7 million for the nine months of 2000 compared to $4.8
million and $13.0 million in the same periods a year ago. These increases
primarily relate to the amortization of intangibles related to the Acquired
Stations and the amortization that resulted from our purchase of the minority
interest in ACME Intermediate during the IPO. Additionally, depreciation expense
increased due to the addition of property, plant and equipment after September
1999.
10
<PAGE> 11
Corporate expenses were $780,000 for the third quarter of 2000 compared
to $3.9 million for the third quarter of 1999, which included a $3.0 million
charge related to bonuses for certain key executives in connection with the
successful completion of our IPO in September 1999 (the "IPO Bonuses"). Apart
from this non-recurring charge, corporate expenses decreased approximately 13%
primarily due to reduced short-term and eliminated long-term incentive
compensation expense for the current period. For the nine-month period,
corporate expenses were $2.7 million for 2000 compared to $5.4 million for 1999.
The $2.7 million decrease relates to the 1999 charge of $3.0 million and a
reduction in incentive compensation expense, offset somewhat by increased
staffing to support the growing operations of our station group.
Equity-based compensation of $132,000 and $397,000 for the three months
and nine months ended September 30, 2000 relates to stock options issued in 1999
at below market value in connection with the conversion of our long-term
incentive plan awards. The equity-based compensation charge of $28.9 million in
the third quarter of 1999 ($39.6 for the nine month 1999 period) related to
management carry units that were issued to our senior management in June 1997
and which were accounted for as a variable compensation plan. These management
carry units were converted into common stock of the Company in September 1999
and no further compensation charges related to these carry units has or will be
recorded thereafter.
Interest expense for the third quarter of 2000 was $6.7 million, a
decrease of $1.6 million over the prior year's third quarter expenses of $8.3
million. For the nine month period, interest expense in 2000 was $19.8 million,
a decrease of $2.6 million over 1999's year to date expense of $22.4 million.
Both of these decreases relate to reduced interest in connection with our
revolving credit facility, convertible debentures, and bridge loan, all of which
were repaid in early October 1999 and have zero balances in 2000 compared to an
average combined balance of $71.5 million in the third quarter and $59.3 million
for the nine month period of 1999. The decrease is partially offset by increased
interest expense for ACME Intermediate's 12% senior secured notes, ACME
Television's 10 7/8% senior discount notes and our capital lease obligations.
Interest income for both the three and nine months ended September 30, 2000
reflects interest on significantly higher cash balances generated, primarily, by
net proceeds from our IPO received in October 1999.
The net gain on the sale of assets of $1.5 million reflects the sale of
two separate studio facilities. In May 2000, we sold our studio building in
Albuquerque, New Mexico and leased it back under a long-term agreement for a
loss of approximately $65,000 (see the Related Party disclosure in the Notes to
the Consolidated Financial Statements in Part I of this filing). In June 2000,
we sold our studio building in St. Louis, Missouri, which resulted in a gain of
$1,576,000. The Company has entered into a leaseback arrangement through
December 2001 with the buyer of the property to allow us adequate time to secure
new studio facilities.
The minority interest of $682,000 in the third quarter of 1999 and $2.1
million for the nine months of 1999 represents the allocation of the losses of
ACME Intermediate to its minority interest holders. With our Reorganization in
September 1999, the minority interest holders exchanged their membership units
of ACME Intermediate for common stock of the Company; therefore, there is no
minority interest allocation subsequent to the Reorganization.
The Company recorded a net income tax benefit of $926,000 during the
third quarter compared to a benefit of $3.4 million in the corresponding quarter
of 1999. For the nine months ended September 30, 2000 the income tax benefit was
$5.3 million as compared with the $1.4 million benefit for the same nine-month
period in 1999. Prior to the Reorganization in September 1999, ACME Television
Holdings, LLC was a limited liability company and, therefore, no income taxes
were provided for its operations other than at its subsidiary ACME Television of
Missouri, Inc., which is a C corporation subject to federal and state taxation.
Any liability or benefit from the Company's non-taxable entities' consolidated
income or loss was the responsibility of, or benefit to, the individual members.
After the Reorganization all subsidiary operations are considered when providing
for taxes. The tax benefit for the third quarter and nine months of 2000 is the
result of taxable losses generated during the periods. The tax benefit for the
nine months ended September 30, 1999 reflects a $3.0 million benefit that was
booked in September when the Company obtained a judicial rescission of the
January 1999 inadvertent merger transaction of a C corporation subsidiary into
it's non-taxable parent, and reversed the provision associated with that
transaction.
Broadcast cash flow for the third quarter of 2000 increased 94% to $5.6
million over the prior year broadcast cash flow of $2.9 million. For the nine
months ended September 30th, broadcast cash flow increased 56% to $14.6 million
in 2000 as compared to $9.4 million in 1999. These increases are primarily the
result of our stations' expanding revenue shares within their respective markets
driven by their continued improvements in ratings. Our overall broadcast cash
flow margin increased during the third quarter to 31% compared to 18% a year
ago. For the nine-month period, our broadcast cash flow margin increased to 27%
from 22% for the comparable period in 1999. On a Same Station basis, our
broadcast cash flow increased 85% in the third quarter of 2000 compared to the
third quarter of 1999 and increased 38% for the first nine months of 2000
compared to the same period in 1999.
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Adjusted EBITDA for the third quarter of 2000 was $4.8 million compared
to a negative adjusted EBITDA of $1.0 million for the third quarter of 1999, an
increase of $5.8 million. For the nine months ended September 30, 2000, adjusted
EBITDA grew 197% to $11.9 million compared to $4.0 million for the corresponding
nine-month period of 1999. These increases reflect higher broadcast cash flow
and reduced corporate expense as described separately above.
The Company's net loss for the third quarter of 2000 was $6.3 million
compared to a net loss for the third quarter of 1999 of $38.8 million. Net
losses on a year to date basis were $16.7 million for 2000 as compared to $67.2
million in 1999. These respective $32.4 million and $50.5 million decreases in
the Company's net loss before minority interest are primarily attributable to
our increased adjusted EBITDA, the significantly reduced equity-based
compensation expense and, for the nine-month period, a significant increase in
the income tax benefit, offset by increased amortization and depreciation
expense.
Liquidity and Capital Resources:
Cash flow provided by operating activities was $8.5 million for the
nine months ended September 30, 2000 compared to $3.8 million for 1999. The 2000
figure includes a non-recurring payment of approximately $3.0 million relating
to the IPO Bonuses.. Apart from this payment, cash flow from operations
increased by $11.5 million due primarily to the Company's increased adjusted
EBITDA.
Cash flow used in investing activities was $4.6 million during the
first nine months of 2000 compared to $50.0 million used during the same period
in 1999. In 2000, investing activities included (a) purchases of broadcast and
other equipment to improve capabilities at the Acquired Stations, (b) the
purchase of a low-power broadcast license for KWBP - Portland, OR to improve our
coverage of the Portland market and (c) transaction related costs in connection
with construction permits in the Albuquerque, NM, Portland, OR, Richmond, VA,
Flint-Saginaw-Bay City, MI and Lexington, KY markets. These outflows in 2000
were partially offset by our sale our studios in St. Louis and Albuquerque.
Investing activity in 1999 included (a) the purchase of three of the four
Acquired Stations, (b) a 25% membership interest in Sylvan Tower, LLC - an
entity formed to build digital transmission facilities to service the Portland,
Oregon marketplace, (c) the purchase of the remaining 51% interest in station
KUPX (which was subsequently swapped for KUWB - Salt Lake City) and (d) the
purchase of studio facilities for KWBP -Portland, Oregon.
Cash flow used in financing activities of $339,000 during the nine
months ended September 30, 2000 reflects principle repayments in excess of
borrowings under our capital lease facilities. Cash flows provided by financing
activities for the same period in 1999 were $46.0 million and consisted of $32.0
million in borrowings against our revolving credit facility and $15.0 million in
bridge loan borrowings, slightly offset by the excess of payments over new
borrowings under our capital lease facility.
The Company's revolving credit facility allows for borrowings up to
$38.0 million, dependent upon our meeting certain financial ratio tests. The
facility began amortizing quarterly on September 30, 2000 and matures on
September 30, 2004. The facility can be used to fund future acquisitions of
broadcast stations and for general corporate purposes. At September 30, 2000
there were no borrowings outstanding under the facility. Although the Company
was not in compliance with two of our financial covenants at September 30, 2000,
the banks party to this credit facility waived this non-compliance. Based on
this waiver, the Company would have been able to borrow $38.0 million at
September 30, 2000. The Company is currently negotiating with its lenders to
amend these and certain other financial covenants contained in the agreement.
The Company also has capital lease facilities in the aggregate amount
of $20 million. Borrowings under these facilities are generally repaid over five
years. As of September 30, 2000, amounts due under the facilities were $7.1
million bearing an average implicit interest rate of 8.95% per annum. At
September 30, 1999, amounts due under the facilities were $6.1 million and bore
an average implicit interest rate of 8.66%.
The Company believes that existing cash balances, funds generated from
operations and borrowings under its credit agreement and capital lease
facilities, if necessary, will be sufficient to satisfy the Company's cash
requirements for its existing operations and debt service (including cash
interest on our senior discount notes, the first semi-annual payment which is
due the noteholders on March 31, 2001), for at least the next twelve months. The
Company expects that any future acquisitions of television stations or
construction permits to build 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.
ADOPTION OF ACCOUNTING STANDARDS
The FASB (Financial Accounting Standards Board) has issued FASB
statement No. 133 "Accounting for Derivative Instruments and Hedging Activities"
which we adopted for our quarter ending March 31, 2000. This pronouncement
establishes accounting and
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reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This pronouncement did not
impact the Company's financial statements since the Company currently has no
derivative instruments.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements of all public registrants. Any
change in the Company's revenue recognition policy resulting from the
implementation of SAB 101 would be reported as a change in accounting principle.
In June 2000, the SEC issued SAB 101B which delays the implementation date of
SAB 101 until the fourth fiscal quarter of fiscal years beginning after December
15, 1999. The Company is evaluating the impact, if any, of SAB 101 on its
financial position and results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" ("FIN 44"). FIN 44 clarifies certain issues related to accounting
for stock-based compensation, including (a) the definition of employee for
purposes of applying APB Opinion No. 25, "Accounting for Stock Issued to
Employees," (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000, but covers certain specific events that occur either
after December 15, 1998 or January 12, 2000. To the extent that FIN 44 covers
events occurring during the period after December 15, 1998 or January 12, 2000,
but before the effective date of July 1, 2000, the effects of applying FIN 44
are recognized on a prospective basis from July 1, 2000. The Company does not
believe that FIN 44 will have any impact on its financial position and results
of operations.
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 September 30, 2000, 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
------- -------------------
27.0 Financial Data Schedule for ACME Communications, Inc.
(b) REPORTS ON FORM 8-K
The Company has not filed a Current Report on Form 8-K within the
three-month period ended September 30, 2000.
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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: November 14, 2000 By: /s/ THOMAS ALLEN
----------------------------------
Thomas Allen
Executive Vice President/CFO
(Principal accounting officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
27.0 Financial Data Schedule for ACME Communications, Inc.
