<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 MARCH 31, 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 May 12, 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
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
------ ----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACME Communications, Inc. and Subsidiaries
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999......................... 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 2000 and March 31, 1999.............................................................. 4
Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2000..... 5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2000 and March 31, 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 4. Submission of Matters to a Vote of Security Holders............................................ 13
Item 6. Exhibits and Reports on Form 8-K............................................................... 14
</TABLE>
2
<PAGE> 3
ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1999 2000
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,846 $ 21,260
Accounts receivable, net 14,090 12,126
Current portion of programming rights 11,331 11,135
Prepaid expenses and other current assets 1,065 1,885
Deferred income taxes 2,448 2,574
--------- ---------
Total current assets 52,780 48,980
Property and equipment, net 25,116 24,969
Programming rights, net of current portion 14,704 12,537
Intangible assets, net 303,812 300,029
Other assets 11,295 11,197
--------- ---------
Total assets $ 407,707 $ 397,712
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,570 $ 5,845
Accrued liabilities 8,231 3,826
Current portion of programming rights payable 10,727 10,854
Current portion of obligations under lease 1,617 1,590
--------- ---------
Total current liabilities 26,145 22,115
Programming rights payable, net of current portion 13,605 11,076
Obligations under lease, net of current portion 5,796 5,434
Other liabilities 297 268
Deferred income taxes 25,364 22,518
10 7/8% senior discount notes 161,695 165,975
12% senior secured notes 47,970 49,549
--------- ---------
Total liabilities 280,872 276,935
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, $.01 par value; 16,750,000 shares issued and
outstanding at March 31, 2000 and December 31, 1999 168 168
Additional paid-in capital 130,279 130,411
Accumulated deficit (3,612) (9,802)
--------- ---------
Total stockholders' equity 126,835 120,777
--------- ---------
Total liabilities and stockholders' equity $ 407,707 $ 397,712
========= =========
</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
MARCH 31,
-----------------------------
1999 2000
-----------------------------
(IN THOUSANDS)
<S> <C> <C>
Net revenues $ 11,123 $ 16,218
----------- ------------
Operating expenses:
Station operating expenses 8,430 12,655
Depreciation and amortization 3,766 5,444
Corporate 721 908
Equity-based compensation 2,500 132
----------- ------------
Operating loss (4,294) (2,921)
Other income (expenses):
Interest income 9 297
Interest expense (6,466) (6,356)
Other income (expense) 5 (1)
----------- ------------
Loss before income taxes and
minority interest (10,746) (8,981)
Income tax benefit (expense) (2,255) 2,791
----------- ------------
Loss before minority interest (13,001) (6,190)
Minority interest 723 --
----------- ------------
Net loss $ (12,278) $ (6,190)
=========== ============
Pro forma net loss per share:
Loss before income taxes and
minority interest, as reported $ (10,746) $ (8,981)
Pro forma tax benefit 4,297 2,791
----------- ------------
Loss before minority interest (6,449) (6,190)
Pro forma minority interest allocation 451 --
----------- ------------
Pro forma net loss $ (5,998) $ (6,190)
=========== ============
Pro forma net loss per share, basic
and diluted $ (1.16) $ (0.37)
=========== ============
Basic and diluted weighted average
common shares outstanding 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
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK 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 -- -- 132 -- 132
Net loss -- -- -- (6,190) (6,190)
------ ---- -------- ------- ---------
Balance at March 31, 2000 (unaudited) 16,750 $168 $130,411 $(9,802) $ 120,777
====== ==== ======== ======= =========
</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 THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 2000
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(12,278) $ (6,190)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,766 5,445
Amortization of program rights 1,582 2,949
Amortization of debt issuance costs 739 280
Amortization of discount on 10 7/8% senior discount notes 3,850 4,280
Amortization of discount on 12% senior secured notes 1,384 1,579
Minority interest allocation (736) --
Equity-based compensation 2,500 132
Deferred taxes 2,255 (2,791)
Changes in assets and liabilities:
Decrease in accounts receivables, net 1,595 1,964
(Increase) decrease in prepaid expenses (249) 141
Increase in other assets (80) (1,143)
Increase (decrease) in accounts payable (1,238) 273
Increase (decrease) in accrued liabilities 682 (4,403)
Payments on programming rights payable (2,072) (2,988)
Decrease in other liabilities (281) (210)
-------- --------
Net cash provided by (used in) operating activities 1,419 (682)
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (2,171) (1,193)
Purchase of and deposits for station interests (1,509) (322)
Investments in and advances to subsidiaries (2,428) --
-------- --------
Net cash used in investing activities (6,108) (1,515)
-------- --------
Cash flows from financing activities:
Increase in revolving credit facility, net of repayments 4,900 --
Payments of capital lease obligations (258) (389)
-------- --------
Net cash provided by (used in) financing activities 4,642 (389)
-------- --------
Net decrease in cash (47) (2,586)
Cash at beginning of period 1,001 23,846
-------- --------
Cash at end of period $ 954 $ 21,260
======== ========
Cash Payments for:
Interest $ 372 $ 212
Taxes $ 25 $ 181
======== ========
Non-Cash Transactions:
Program rights in exchange for program rights payable $ 628 $ 586
======== ========
</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 THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 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>
NETWORK
STATION MARKET AFFILIATION
------- ------ -----------
<S> <C> <C>
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
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
NETWORK
STATION MARKET AFFILIATION
------- ------ -----------
<S> <C> <C>
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
</TABLE>
(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
ended March 31, 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) 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 3,039,191 shares at March 31,
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 consolidated financial statements and related notes included elsewhere
in this report on Form 10-Q.
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
8
<PAGE> 9
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 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.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following tables set forth selected operating and cash flow data for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1999 2000
------- -------
(Unaudited)
<S> <C> <C>
OPERATING DATA:
Broadcast cash flow and adjusted EBITDA(2):
Operating loss $(4,294) $(2,921)
Add back:
Equity-based compensation 2,500 132
Depreciation and amortization 3,766 5,444
Time brokerage fees -- --
Amortization of program rights 1,582 2,949
Corporate expenses 721 908
Adjusted program payments (2) (1,642) (2,935)
------- -------
Broadcast cash flow 2,633 3,577
Less:
Corporate expenses 721 908
------- -------
Adjusted EBITDA $ 1,912 $ 2,669
Broadcast cash flow margin (2) 23.7% 22.1%
Adjusted EBITDA margin (2) 17.2% 16.5%
CASH FLOWS PROVIDED BY (USED IN): (Unaudited)
Operating activities $ 1,419 $ (682)
Investing activities $(6,108) $(1,515)
Financing activities $ 4,642 $ (389)
</TABLE>
- ----------
(1) The Company's long-term debt consists of our 12% senior secured
discount notes, 10 7/8% senior discount notes and capital lease
obligations.
(2) 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.
10
<PAGE> 11
QUARTER ENDED MARCH 31, 2000 VS MARCH 31, 1999
Net revenues increased 46% to $16.2 million for the first quarter of
2000 compared to $11.1 million for the same period a year ago. This increase
reflects significant growth at our developing stations, increased market share
at our flagship station KPLR, revenue from the four stations we have acquired
since March 1999 (WBDT - Dayton, WIWB - Green Bay/Appleton, WBUI - Champaign/
Decatur/Springfield and KASY - Albuquerque/Santa Fe, collectively the "Acquired
Stations") and increased revenues from KWBQ - Albuquerque/Santa Fe which we
launched in March 1999. On a "Same Station" basis (i.e. reflecting the results
of the five stations we owned and operated for both the full first quarters of
2000 and 1999) our first quarter 2000 net revenues rose 27% as compared to the
first quarter of 1999.
Station operating expenses increased 50% to $12.7 million for first
three months of 2000 compared to $8.4 million for the same period a year ago
when station operating expenses were $8.4 million. This increase primarily
relates to increased programming and staffing related costs at our developing
stations and to the station expenses at the Acquired Stations.
Depreciation and amortization increased 45% to $5.4 million in the
first quarter of 2000 compared to $3.8 million in the same period a year ago.
The first quarter increase relates primarily 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 March 1999.
Corporate expenses increased 26% to $908,000 for the first quarter of
2000 as compared to $721,000 for the same period a year ago. This increase
relates primarily to increased staffing to support the growing operations of
our station group, which increased from 5 to 10 stations between March and
November 1999.
Equity-based compensation of $132,000 in the first quarter of 2000
relates to stock options issued below market value in connection with the
conversion of our long-term incentive plan awards. The equity-based compensation
charge of $2.5 million in the first quarter of 1999 relates to management carry
units that were issued to our senior management in June 1997 and which were
accounted for as a variable compensation plan.
Interest expense for the first quarter of 2000 was $6.4 million, a
decrease of $110,000 over the prior year first quarter expenses of $6.5 million.
The decrease relates to reduced interest under our revolving credit facility,
which had a zero balance in the first quarter of 2000 compared to an average
balance of $9 million in the first quarter of 1999, net of increased interest
expense for the first quarter of 2000 related to the increased amortization of
the discount on ACME Intermediate's 12% senior secured notes and ACME
Television's 10 7/8% senior discount notes as well as increased interest on our
capital equipment facility.
The minority interest of $723,000 in the first quarter of 1999
represents the allocation of the losses of ACME Intermediate to its minority
interest holders. In connection 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 $2.8 million during
the first quarter compared to an expense of $2.3 million in the corresponding
quarter of 1999. Prior to the Reorganization in September 1999, ACME Television
Holdings, LLC was a limited liability company, 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 first quarter 2000 tax benefit relates primarily to taxable
losses generated during the period. The first quarter 1999 expense reflects a
$3.0 million expense booked in connection with an inadvertent merger of a C
corporation subsidiary into it's non-taxable parent, net of approximately
$700,000 in tax benefit that was generated by the Missouri subsidiary. During
September 1999, the Company obtained court rescissions of the merger transaction
and reversed the $3.0 million provision.
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<PAGE> 12
Broadcast cash flow for the first quarter of 2000 increased 36% to $3.6
million over the prior year broadcast cash flow of $2.6 million. The increase
during the first quarter was the result of our stations' expanding revenue
shares in their respective markets, driven by continued improvements in ratings
and increased operating margins. On a Same Station basis, our broadcast cash
flow increase for the first quarter of 2000 compared to the first quarter of
1999 was 49%. This growth was moderated by losses at the Company's Acquired
Stations during the first quarter of 2000 and from start-up losses at KWBQ --
the Company's Albuquerque WB Network affiliate that was launched in March 1999.
Adjusted EBITDA was $2.7 million during the first quarter of 2000; a
$757,000, or a 40% increase from the $1.9 million adjusted EBITDA for the first
quarter of 1999. This increase reflects our increased broadcast cash flow, net
of corporate expenses. Corporate overheads represent approximately 5.6% of net
revenues in the first quarter of 2000, as compared to the first quarter of 1999,
when corporate overheads represented 6.5% of net revenues.
The Company's net loss for the first quarter of 2000 was $6.2 million
compared to a net loss for the first quarter of 1999 of $12.3 million. The $6.8
million decrease in the Company's net loss before minority interest is
attributable to our increased adjusted EBITDA, the significantly reduced
equity-based compensation expense and an increase in the tax benefit, offset by
increased amortization and depreciation expense. Significant expenses incurred
in the first quarter of 1999 but not in the first quarter of 2000 include $2.5
million in equity-based compensation expense and the $3.0 million tax expense
related to the inadvertent merger discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow used in operating activities was $682,000 for the three
months ended March 31, 2000 compared to cash flow provided by operating
activities of $1.4 million for the first three months of 1999. This decrease is
related primarily to payment of $2.7 million in IPO bonuses to the Company's
founding executives in the first quarter of 2000 offset by our growth in
broadcast cash flow.
Cash flow used in investing activities during the first three months of
2000 was $1.5 million compared to $6.1 million used during the first three
months of 1999. During the first quarter of 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, OR to improve our coverage of the Portland market. Investing activity
in the first quarter of 1999 included the purchase of 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 corporate and studio
facilities for KWBP -Portland, Oregon.
Cash flow used in financing activities of $389,000 for the first three
months of 2000 related to payments on our capital lease facilities. Cash flows
provided by financing activities for the first three months of 1999 were $4.6
million in borrowings against our revolving credit facility offset somewhat 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 March 31, 2000 there were no
borrowings outstanding under the facility and approximately $35.1 million was
available.
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 March 31, 2000, amounts due under the facilities were $7.0 million
bearing an implicit average interest rate of 9.24% per annum. At March 31, 1999,
amounts due under the facilities were $7.4 million and bore an implicit average
interest rate of 8.89%.
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 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.
12
<PAGE> 13
ADOPTION OF ACCOUNTING STANDARD
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.
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 March 31, 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of stockholders of ACME Communications, Inc. was
held on April 26, 2000. At the meeting, two items, as set forth in the Company's
proxy statement dated March 31, 2000, were submitted to the stockholders for a
vote: 1) the stockholders elected, for one-year terms, all persons nominated for
directors as set forth in the Company's proxy statement dated March 31, 2000;
and 2) the stockholders voted to ratify the selection of KPMG LLP as the
Company's independent public accountants for the fiscal year 2000 audit.
Approximately 91% of the eligible proxies were returned for voting. The table
below sets forth the results of the voting at the Annual Meeting:
<TABLE>
<CAPTION>
AGAINST
OR
FOR WITHHELD ABSTENTIONS
---------- -------- -----------
<S> <C> <C> <C>
(1) Election of Directors
Jamie Kellner 15,193,109 --- 53,660
Douglas Gealy 15,193,109 --- 53,660
Thomas Allen 15,193,109 --- 53,660
James Collis 15,193,109 --- 53,660
Thomas Embrescia 15,193,109 --- 53,660
Brian McNeill 15,193,109 --- 53,660
Michael Roberts 15,193,109 --- 53,660
Darryl Schall 15,193,109 --- 53,660
(2) RATIFY THE APPOINTMENT OF KPMG LLP AS AUDITORS 15,246,309 240 220
</TABLE>
13
<PAGE> 14
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 March 31, 2000.
14
<PAGE> 15
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: May 12, 2000 By: /s/ THOMAS ALLEN
-----------------------------------
Thomas Allen
Executive Vice President/CFO
(Principal accounting officer)
15
<PAGE> 16
INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
27.0 Financial Data Schedule for ACME Communications, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001092013
<NAME> ACME COMMUNICATIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21,260
<SECURITIES> 0
<RECEIVABLES> 12,916
<ALLOWANCES> 790
<INVENTORY> 0
<CURRENT-ASSETS> 48,980
<PP&E> 31,973
<DEPRECIATION> 7,004
<TOTAL-ASSETS> 397,712
<CURRENT-LIABILITIES> 22,115
<BONDS> 215,524
0
0
<COMMON> 168
<OTHER-SE> 130,411
<TOTAL-LIABILITY-AND-EQUITY> 120,777
<SALES> 16,218
<TOTAL-REVENUES> 16,218
<CGS> 12,655
<TOTAL-COSTS> 19,139
<OTHER-EXPENSES> (296)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,356
<INCOME-PRETAX> (8,981)
<INCOME-TAX> 2,791
<INCOME-CONTINUING> (6,190)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,190)
<EPS-BASIC> (0.37)
<EPS-DILUTED> (0.37)
</TABLE>
