<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 JUNE 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 August 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
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACME Communications, Inc. and Subsidiaries
Consolidated Balance Sheets as of June 30, 2000 and
December 31, 1999.......................................... 3
Consolidated Statements of Operations for the Three Months
and Six Months Ended June 30, 2000 and June 30, 1999....... 4
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 2000............................. 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and June 30, 1999...................... 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, JUNE 30,
1999 2000
------------ --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,846 $ 24,169
Accounts receivable, net 14,090 14,787
Current portion of programming rights 11,331 10,570
Prepaid expenses and other current assets 1,065 1,113
Deferred income taxes 2,448 2,700
--------- ---------
Total current assets 52,780 53,339
Property and equipment, net 25,116 26,100
Programming rights, net of current portion 14,704 10,159
Intangible assets, net 303,812 295,859
Other assets 11,295 11,420
--------- ---------
Total assets $ 407,707 $ 396,877
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,570 $ 6,829
Accrued liabilities 8,231 4,248
Current portion of programming rights payable 10,727 10,292
Current portion of obligations under lease 1,617 1,682
--------- ---------
Total current liabilities 26,145 23,051
Programming rights payable, net of current portion 13,605 8,888
Obligations under lease, net of current portion 5,796 4,955
Other liabilities 297 436
Deferred income taxes 25,364 21,099
10 7/8% senior discount notes 161,695 170,488
12% senior secured notes 47,970 51,235
--------- ---------
Total liabilities 280,872 280,152
--------- ---------
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 June 30, 2000 and December 31, 1999 168 168
Additional paid-in capital 130,279 130,544
Accumulated deficit (3,612) (13,987)
--------- ---------
Total stockholders' equity 126,835 116,725
--------- ---------
Total liabilities and stockholders' equity $ 407,707 $ 396,877
========= =========
</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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1999 2000 1999 2000
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 15,512 $ 19,169 $ 26,635 $ 35,387
----------- ------------ ----------- ------------
Operating expenses:
Station operating expenses 11,560 13,922 19,990 26,577
Depreciation and amortization 4,393 4,976 8,159 10,420
Corporate 762 989 1,483 1,897
Equity-based compensation 8,200 133 10,700 265
----------- ------------ ----------- ------------
Operating loss (9,403) (851) (13,697) (3,772)
Other income (expenses):
Interest income 18 328 27 625
Interest expense (7,602) (6,716) (14,068) (13,072)
Gain on sale of assets, net -- 1,511 -- 1,511
Other expense (5) (3) -- (4)
----------- ------------ ----------- ------------
Loss before income taxes and minority
interest (16,992) (5,731) (27,738) (14,712)
Income tax benefit (expense) 191 1,546 (2,064) 4,337
----------- ------------ ----------- ------------
Loss before minority interest (16,801) (4,185) (29,802) (10,375)
Minority interest 680 -- 1,403 --
----------- ------------ ----------- ------------
Net loss $ (16,121) $ (4,185) $ (28,399) $ (10,375)
=========== ============ =========== ============
Pro forma net loss per share:
Loss before income taxes and minority
interest, as reported $ (16,992) $ (5,731) $ (27,738) $ (14,712)
Pro forma tax benefit 2,850 1,546 5,491 4,337
----------- ------------ ----------- ------------
Loss before minority interest (14,142) (4,185) (22,247) (10,375)
Pro forma minority interest allocation 467 -- 908 --
----------- ------------ ----------- ------------
Pro forma net loss $ (13,675) $ (4,185) $ (21,339) $ (10,375)
=========== ============ =========== ============
Pro forma net loss per share, basic and diluted $ (2.64) $ (0.25) $ (4.12) $ (0.62)
=========== ============ =========== ============
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
<PAGE> 5
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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 -- -- 265 -- 265
Net loss -- -- -- (10,375) (10,375)
------ ---- -------- -------- ---------
Balance at June 30, 2000 (unaudited) 16,750 $168 $130,544 $(13,987) $ 116,725
====== ==== ======== ======== =========
</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 SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 2000
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(28,399) $(10,375)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 8,159 10,420
Amortization of program rights 3,250 6,347
Amortization of debt issuance costs 337 595
Amortization of discount on 10 7/8% senior discount notes 7,909 8,793
Amortization of discount on 12% senior secured notes 2,861 3,265
Minority interest allocation (1,403) --
Gain on sale of assets, net -- (1,511)
Equity-based compensation 10,700 265
Deferred taxes (962) (4,337)
Changes in assets and liabilities:
Increase in accounts receivables, net (2,311) (697)
Increase in prepaid expenses (353) (48)
Increase in other assets -- (720)
Increase in accounts payable 526 1,259
Increase (decrease) in accrued liabilities 5,215 (4,043)
Payments on programming rights payable (4,227) (6,193)
Increase (decrease) in other liabilities 2,429 (41)
-------- --------
Net cash provided by operating activities 3,731 2,979
Cash flows from investing activities:
Purchase of property and equipment (4,493) (4,293)
Proceeds from the sale of property -- 2,634
Purchase of and deposits for station interests (41,765) (221)
Investments in and advances to subsidiaries (2,583) --
-------- --------
Net cash used in investing activities (48,841) (1,880)
Cash flows from financing activities:
Increase in revolving credit facility, net of repayments 31,400 --
Increase in bridge loan, net of repayments 15,000 --
Payments of capital lease obligations (572) (776)
Debt issuance costs (50) --
-------- --------
Net cash provided by (used in) financing activities 45,778 (776)
Net decrease in cash 668 323
Cash at beginning of period 1,001 23,846
-------- --------
Cash at end of period $ 1,669 $ 24,169
======== ========
Cash Payments for:
Interest $ 630 $ 212
Taxes $ 70 $ --
======== ========
Non-Cash Transactions:
Addition of program rights contracts $ 1,047 $ 788
======== ========
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 SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 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:
NETWORK
STATION MARKET AFFILIATION
--------- ------ -----------
KPLR - 11 St. Louis, MO................................ WB
KWBP - 32 Portland, OR................................. WB
KUWB - 30 Salt Lake City, UT........................... WB
KWBQ - 19 Albuquerque-Santa Fe, NM..................... WB
KASY - 50 Albuquerque-Santa Fe, NM..................... UPN
WBXX - 20 Knoxville, TN................................ WB
WTVK - 46 Ft. Myers-Naples, FL......................... WB
WBDT - 26 Dayton, OH................................... WB
WIWB - 14 Green Bay-Appleton, WI....................... WB
WBUI - 23 Champaign-Springfield-Decatur, IL............ 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. Certain
amounts previously reported for 1999 have been reclassified to conform to the
2000 financial statement presentation.
7
<PAGE> 8
The accompanying consolidated financial statements for the six months
ended June 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, the studio building for our stations KWBQ and
KASY in Albuquerque, NM. Mr. Michael Roberts is one of the principal owners of
Roberts Brothers Properties, III, LLC and is also a member of the Company's
board of directors. 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 3,029,541 shares with exercise
prices ranging from $15.00 to $25.06 at June 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
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 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.
8
<PAGE> 9
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -------------------------
1999 2000 1999 2000
-------- ------- -------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
BROADCAST CASH FLOW AND ADJUSTED EBITDA(1):
Operating loss $ (9,403) $ (851) $(13,697) $ (3,772)
Add back:
Equity-based compensation 8,200 133 10,700 265
Depreciation and amortization 4,393 4,976 8,159 10,420
Amortization of program rights 1,668 3,398 3,250 6,347
Corporate expenses 762 989 1,483 1,897
Adjusted program payments (1) (1,737) (3,195) (3,379) (6,130)
-------- ------- -------- --------
Broadcast cash flow 3,883 5,450 6,516 9,027
Less:
Corporate expenses 762 989 1,483 1,897
-------- ------- -------- --------
Adjusted EBITDA $ 3,121 $ 4,461 $ 5,033 $ 7,130
Broadcast cash flow margin (1) 25.0% 28.4% 24.5% 25.5%
Adjusted EBITDA margin (1) 20.1% 23.3% 18.9% 20.1%
CASH FLOWS PROVIDED BY (USED IN):
Operating activities $ 2,312 $ 3,661 $ 3,731 $ 2,979
Investing activities $(42,733) $ (365) $(48,841) $ (1,880)
Financing activities $ 41,136 $ (387) $ 45,778 $ (776)
</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;
- 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 SIX MONTHS ENDED JUNE 30, 2000 vs. JUNE 30, 1999
Operations:
Net revenues increased 24% to $19.2 million for the second quarter and
33% to $35.4 for the six months of 2000 compared to $15.5 million and $26.6
million for the same periods a year ago. These increases reflect significant
growth (averaging 45%) at our developing stations and the revenue from the four
stations we have 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 for the 2000
season of our St. Louis Cardinal contract from a rights fee arrangement, where
we paid the Cardinals a rights fee and sold the advertising time, to a time
period buy, 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 six stations we owned and operated for the full second quarter
and the five stations we owned and operated for the full six months of 2000 and
1999) and excluding the impact from the conversion of the St. Louis Cardinals
baseball contract, our second quarter 2000 net revenues rose 27% and the six
month net revenues rose 29% as compared to 1999.
Station operating expenses increased 20% to $14.0 million for second
three months and 33% to $26.6 for the six months of 2000 compared to the same
periods a year ago when station operating expenses were $11.6 million and $20.0
million, respectively. This increase relates primarily to same station expense
increases, before the impact of the reduction in operating costs related to the
conversion of the Cardinals contract referenced above, of 22% for the quarter
and 23% for the six months period, which in turn principally relate to the
Company's continued investment in programming and promotion. In addition, our
operating expenses increased due to the addition of the four Acquired Stations.
Depreciation and amortization increased 13% to $5.0 million in the
second quarter and 28% to $10.4 million for the six months of 2000 compared to
$4.4 million and $8.2 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 since June 1999.
Corporate expenses increased 30% to $989,000 for the second quarter of
2000 and 28% to $1.9 million year to date as compared to $762,000 and $1.5
million for the same period a year ago. These increases primarily relate to
increased staffing to support the growing operations of our station group, which
increased from 5 to 10 stations between June and November 1999.
Equity-based compensation of $133,000 in the second quarter of 2000
($265,000 year to date) relates to stock options issued at below market value in
connection with the conversion of our long-term incentive plan awards. The
equity-based compensation charge of $8.2 million in the second quarter of 1999
($10.7 year to date) 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.
10
<PAGE> 11
Interest expense for the second quarter of 2000 was $6.7 million, a
decrease of $886,000 over the prior year second quarter expenses of $7.6
million. On a year to date basis, interest expense in 2000 was $13.1 million, a
decrease of $996,000 over 1999's year to date expense of $14.1 million. The
decrease relates 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 had zero balances in 2000 compared to an average combined
balance of $71.3 million in the second quarter and $53.3 million for the six
month period of 1999. The decrease is net of the increased interest expense for
ACME Intermediate's 12% senior secured notes, ACME Television's 10 7/8% senior
discount notes and our capital equipment facility. Interest income for both the
three and six months ended June 30, 2000 reflects interest on significantly
higher cash balances generated, primarily, by our net IPO proceeds 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 (see the
Related Party disclosure in the notes to these financial statements). 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 an 18-month leaseback
arrangement with the buyer of the property to allow us adequate time to secure
new studio facilities.
The minority interest of $680,000 in the second quarter of 1999 and $1.4
million for the six 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 $1.5 million during the
second quarter compared to a benefit of $191,000 in the corresponding quarter of
1999. For the six months ended June 30, 2000 the income tax benefit was $4.3
million as compared with the $2.1 million expense for the same six-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 second quarter and six months of 2000 is the
result of taxable losses generated during the periods. The tax expense for the
six months ended June 30, 1999 reflects a $3.0 million expense booked in January
of 1999 in connection with an inadvertent merger of a C corporation subsidiary
into it's non-taxable parent, net of approximately $900,000 in tax benefit that
was generated by the Missouri subsidiary. During September 1999, the Company
obtained a judicial rescission of the merger transaction and reversed the $3.0
million provision.
Broadcast cash flow for the second quarter of 2000 increased 40% to $5.5
million over the prior year broadcast cash flow of $3.9 million. For the six
months ended June 30, 2000, broadcast cash flow increased 39% to $9.0 million in
2000 as compared to $6.5 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 growth was moderated slightly by losses at the Company's Acquired Stations
in both the second quarter and six months of 2000. On a Same Station basis, our
broadcast cash flow increased 34% in the second quarter of 2000 compared to the
second quarter of 1999 and increased 37% for the first six months of 2000
compared to the same period in 1999.
Adjusted EBITDA was $4.5 million during the second quarter of 2000, a
43% increase from the $3.1 million adjusted EBITDA for the second quarter of
1999. For the six months ended June 30, 2000, our adjusted EBITDA was $7.1
million, representing a 42% increase over the corresponding six-month period of
1999. These increases reflect our increased broadcast cash flow, net of
increased corporate expenses.
The Company's net loss for the second quarter of 2000 was $4.2 million
compared to a net loss for the second quarter of 1999 of $16.1 million. Net
losses on a year to date basis were $10.4 million for 2000 as compared to $28.4
million in 1999. These $11.9 million and $18.0 million (respectively) decreases
in the Company's net loss before minority interest is attributable to our
increased adjusted EBITDA, the significantly reduced equity-based compensation
expense and a significant increase in the income tax benefit, offset by
increased amortization and depreciation expense.
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Liquidity and Capital Resources:
Cash flow provided by operating activities was $3.0 million for the six
months ended June 30, 2000 compared to cash flow provided by operating
activities of $3.7 million for 1999. The 2000 figure included a non-recurring
payment of approximately $3.0 million in executive bonuses related to the
Company's September 1999 IPO. Apart from this payment, cash flow from operations
increased by $2.3 million due primarily to the Company's increased adjusted
EBITDA.
Cash flow used in investing activities was $1.9 million during the
first six months of 2000 compared to $48.8 million used during the same period
in 1999. In 2000, investing activities included purchases of broadcast and other
equipment to improve capabilities at the Acquired Stations and the purchase of a
low-power broadcast license for KWBP - Portland, Oregon to improve our coverage
of the Portland market. Investing activity in 1999 included the purchase of
three of the four Acquired Stations, a 25% membership interest in Sylvan Tower,
LLC - an entity formed for the sole purpose of building digital transmission
facilities to service the Portland, Oregon marketplace, the purchase of the
remaining 51% interest in station KUPX (which was subsequently swapped for KUWB
- Salt Lake City) and the purchase of studio facilities for KWBP -Portland,
Oregon.
Cash flow used in financing activities of $776,000 during the six months
ended June 30, 2000 related to payments on our capital lease facilities. Cash
flows provided by financing activities for the same period in 1999 were $45.8
million and consisted of $31.4 million in borrowings against our revolving
credit facility and $15.0 million in bridge loan borrowings, slightly offset by
capital lease payments.
The Company's revolving credit facility allows for borrowings up to
$40.0 million, dependent upon our meeting certain financial ratio tests. The
revolving credit facility can be used to fund future acquisitions of broadcast
stations and for general corporate purposes. At June 30, 2000 there were no
borrowings outstanding under the facility and approximately $36.8 million was
available. Although the Company was not in compliance with one of our financial
covenants at June 30, 2000 this non-compliance was waived by the banks party to
the facility.
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 June 30, 2000, amounts due under the facilities were $6.6 million
bearing an average implicit interest rate of 8.95% per annum. At June 30, 1999,
amounts due under the facilities were $7.4 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 interest on
our senior discount notes which begin accruing cash interest on October 1,
2000), for at least the next twelve months. 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.
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 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.
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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
noncompensatory 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 June 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 June 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: August 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.
