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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-84191
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ACME COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0866283
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2101 E. FOURTH STREET, SUITE 202 A
SANTA ANA, CALIFORNIA, 92705
(714) 245-9499
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of May 11, 2001, ACME Communications, Inc. had 16,750,000 shares of
common stock outstanding.
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ACME COMMUNICATIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
ITEM
NUMBER PAGE
------ ----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ACME Communications, Inc. and Subsidiaries
Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000......................... 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 2001 and March 31, 2000.............................................................. 4
Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2001..... 5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2001 and March 31, 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..................................... 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 11
Item 6. Exhibits and Reports on Form 8-K............................................................... 11
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AS OF
DECEMBER 31, MARCH 31,
2000 2001
------------ ---------
(UNAUDITED)
(IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents $ 31,037 $ 33,021
Accounts receivable, net 15,005 12,364
Current portion of programming rights 12,477 12,270
Prepaid expenses and other current assets 2,444 2,744
Deferred income taxes 1,139 1,140
--------- ---------
Total current assets 62,102 61,539
========= =========
Property and equipment, net 29,471 30,144
Programming rights, net of current portion 10,984 7,729
Intangible assets, net 287,748 283,642
Other assets 9,140 8,925
--------- ---------
Total assets $ 399,445 $ 391,979
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,337 $ 7,051
Accrued liabilities 9,354 14,470
Current portion of programming rights payable 12,108 11,091
Current portion of obligations under lease 2,271 2,311
--------- ---------
Total current liabilities 31,070 34,923
========= =========
Programming rights payable, net of current portion 10,205 7,744
Obligations under lease, net of current portion 7,258 6,664
Other liabilities 250 252
Deferred income taxes 15,614 12,279
10 7/8% senior discount notes 175,000 175,000
12% senior secured notes 54,722 56,523
--------- ---------
Total liabilities 294,119 293,385
========= =========
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized, no
shares issued and outstanding -- --
Common stock, $.01 par value; 16,750,000 shares issued
and outstanding 168 168
Additional paid-in capital 130,808 130,940
Accumulated deficit (25,650) (32,542)
--------- ---------
Total stockholders' equity 105,326 98,566
--------- ---------
Total liabilities and stockholders' equity $ 399,445 $ 391,951
========= =========
See the notes to the consolidated financial statements
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 2001
------------ ------------
(IN THOUSANDS)
Net revenues $ 16,218 $ 16,481
Operating expenses:
Station operating expenses 12,655 13,585
Depreciation and amortization 5,444 5,223
Corporate expenses 908 965
Equity-based compensation 132 132
------------ ------------
Operating loss (2,921) (3,424)
Other income (expenses):
Interest income 297 430
Interest expense (6,356) (7,144)
Other expense (1) (49)
------------ ------------
Loss before income taxes (8,981) (10,187)
Income tax benefit 2,791 3,295
------------ ------------
Net loss $ (6,190) $ (6,892)
============ ============
Net loss per share, basic and diluted $ (0.37) $ (0.41)
============ ============
Basic and diluted weighted average
common shares outstanding 16,750,000 16,750,000
============ ============
See the notes to the consolidated financial statements.
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ---------- ----------- -------------
Balance at December 31, 2000 16,750 $168 $130,808 $(25,650) $105,326
Equity-based compensation -- -- 132 -- 132
Net loss -- -- -- (6,892) (6,892)
------ ---- -------- -------- --------
Balance at March 31, 2001 (unaudited) 16,750 $168 $130,940 $(32,542) $ 98,566
====== ==== ======== ======== ========
See the notes to the consolidated financial statements.
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 2001
-------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net loss $ (6,190) $ (6,892)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,444 5,223
Amortization of program rights 2,949 3,515
Amortization of debt issuance costs 280 387
Amortization of discount on 10 7/8% senior discount notes 4,280 --
Amortization of discount on 12% senior secured notes 1,579 1,801
Equity-based compensation 132 132
Deferred taxes (2,791) (3,335)
Changes in assets and liabilities:
Decrease in accounts receivables, net 1,964 2,641
(Increase) decrease in prepaid expenses 141 (300)
Increase in other assets (1,143) (172)
Increase (decrease) in accounts payable 273 (286)
Increase (decrease) in accrued expenses (4,402) 5,143
Payments for programming rights (2,988) (3,531)
Increase (decrease) in other liabilities (210) 2
-------- --------
Net cash provided by (used in) operating activities (682) 4,328
Cash flows from investing activities:
Purchase of property and equipment (1,193) (1,790)
Purchases of and deposits for station interests (322) --
-------- --------
Net cash used in investing activities (1,515) (1,790)
Cash flows from financing activities:
Payments on capital lease facilities (389) (554)
-------- --------
Net cash used in financing activities (389) (554)
Net increase (decrease) in cash (2,586) 1,984
Cash at beginning of period 23,846 31,037
-------- --------
Cash at end of period $ 21,260 $ 33,021
======== ========
Cash Payments for:
Interest $ 212 $ 258
Taxes $ 181 $ 157
======== ========
Non-Cash Transactions:
Program rights in exchange for program rights payable $ 586 $ 53
======== ========
See the notes to the consolidated financial statements.
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ACME COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND MARCH 31, 2001
(1) FORMATION AND DESCRIPTION OF THE BUSINESS
FORMATION
ACME Communications, Inc. (the "Company") was formed on July 23, 1999, in
preparation for and in conjunction with an initial public offering of its stock.
On September 27, 1999, the Board of Advisors of ACME Television Holdings,
LLC and its members and the Board of Directors of the Company and its
stockholder approved a merger and reorganization (the "Reorganization"), whereby
the Company became the direct parent of ACME Television Holdings. As a result of
the Reorganization, the Company is the ultimate parent of ACME Intermediate
Holdings, LLC, ("ACME Intermediate") and its wholly-owned subsidiary ACME
Television, LLC. All transactions contemplated as part of The Reorganization
closed on October 5, 1999.
DESCRIPTION OF THE BUSINESS
ACME Communications is a holding company with no independent operations
other than its indirect wholly-owned subsidiary, ACME Television. ACME
Television, through its wholly-owned subsidiaries, owns and operates the
following ten commercially licensed broadcast television stations located
throughout the United States:
NETWORK
STATION CHANNEL MARKET RANK AFFILIATION
------- ------- ------ ---- -----------
KPLR 11 St. Louis, MO 22 WB
KWBP 32 Portland, OR 23 WB
KUWB 30 Salt Lake City, UT 36 WB
KWBQ 19 Albuquerque-Santa Fe, NM 50 WB
KASY 50 Albuquerque-Santa Fe, NM 50 UPN
WBXX 20 Knoxville, TN 56 WB
WTVK 46 Ft. Myers-Naples, FL 63 WB
WBDT 26 Dayton, OH 69 WB
WIWB 14 Green Bay-Appleton, WI 81 WB
WBUI 23 Champaign-Springfield-Decatur, IL 83 WB
(2) PRESENTATION OF INTERIM FINANCIAL STATEMENTS
Unless the context requires otherwise, references to the Company refer to
ACME Communications, Inc and its wholly-owned subsidiaries. Segment information
is not presented because all of the Company's revenues are attributed to a
single reportable segment -- television broadcasting.
The accompanying consolidated financial statements for the three months
ended March 31, 2001 and 2000 are unaudited and have been prepared in accordance
with the generally accepted accounting principles in the United States of
America, the instructions to this Form 10-Q and Article 10 of Regulation S-X. In
the opinion of management, such financial statements include all adjustments
(consisting of normal recurring accruals) considered necessary for the fair
presentation of the financial position and the results of operations, and cash
flows for these
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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 30, 2001. 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, 2001.
(3) LOSS PER COMMON SHARE
The Company calculates loss per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share. SFAS No. 128
requires a presentation of basic earnings per share ("EPS") and diluted EPS.
Basic EPS includes no dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution from securities that
could share in the earnings of the Company, 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.
Stock options outstanding amounting to 3,260,391 shares at March 31, 2001,
were not included in the computation of diluted EPS because to do so would have
been antidilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere in this
report on Form 10-Q.
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 operating expenses are programming costs, employee
compensation, advertising and promotion expenditures and depreciation and
amortization. Programming expense consists primarily of amortization of
broadcast rights relating to syndicated programs as well as news production and
sports rights fees. Changes in employee compensation expense result primarily
from increases in total staffing levels, from adjustments to fixed salaries
based on individual performance and inflation and from changes in sales
commissions paid to our sales staff based on levels of advertising revenues.
Advertising and promotion expenses consist primarily of media and related
production costs resulting from the promotion of our stations and programs. This
amount is net of any reimbursement received or due to us for such advertisement
and promotion from The WB Network or from other program suppliers.
RESULTS OF OPERATIONS
The following table sets forth our calculation of broadcast cash flow and
adjusts EBITDA along with a summary of our statement of cash flow data for the
periods indicated:
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OTHER OPERATING DATA: THREE MONTHS ENDED
MARCH 31,
------------------------
2000 2001
------- -------
Broadcast cash flow and adjusted EBITDA(1): (UNAUDITED)
Operating loss $(2,921) $(3,424)
Add back:
Equity-based compensation 132 132
Depreciation and amortization 5,444 5,223
Amortization of program rights 2,949 3,515
Corporate expenses 908 965
Adjusted program payments(1) (2,935) (3,522)
------- -------
Broadcast cash flow 3,577 2,889
Less:
Corporate expenses 908 965
------- -------
Adjusted EBITDA $ 2,669 $ 1,924
Broadcast cash flow margin(1) 22.1% 17.5%
Adjusted EBITDA margin(1) 16.5% 11.7%
CASH FLOWS PROVIDED BY (USED IN): (Unaudited)
Operating activities $ (682) $ 4,328
Investing activities $(1,515) $(1,790)
Financing activities $ (389) $ (554)
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(1) We define:
o broadcast cash flow as operating income, plus equity-based
compensation, depreciation and amortization, time brokerage fees,
amortization of program rights, and corporate expenses, less program
payments -- the latter as adjusted to reflect reductions for
liabilities relating to expired rights or rights which have been
written-off in connection with acquisitions;
o adjusted EBITDA as broadcast cash flow less corporate expenses;
o broadcast cash flow margin as broadcast cash flow as a percentage of
net revenues; and
o adjusted EBITDA margin as adjusted EBITDA as a percentage of net
revenues.
We have included broadcast cash flow, broadcast cash flow margin, adjusted
EBITDA and adjusted EBITDA margin data because management believes that
these measures are useful to an investor to evaluate our ability to service
debt and to assess the earning ability of our stations' operations.
However, you should not consider these items in isolation or as substitutes
for net income, cash flows from operating activities and other statement of
operations or cash flows data prepared in accordance with generally
accepted accounting principles. These measures are not necessarily
comparable to similarly titled measures employed by other companies.
QUARTER ENDED MARCH 31, 2001 VS MARCH 31, 2000
Net revenues increased 2% to $16.5 million for the first quarter of 2001
compared to $16.2 million for the same period a year ago. This significantly
slower rate of revenue growth compared to recent quarters reflects the adverse
impact of the overall soft economy and specifically the lower demand from
advertisers that the broadcast industry has been experiencing since the fall of
2000.
Station operating expenses increased 7% to $13.6 million for first three
months of 2001 compared to $12.7 million for the same period a year ago,
reflecting our continued investment in programming, staffing and sales related
costs.
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Depreciation and amortization decreased 4% to $5.2 million in the first
quarter of 2001 compared to $5.4 million in the same period a year ago. This
decrease relates primarily to the sale of the studio building in St. Louis in
June 2000 and the several assets acquired in 1997 with our station in Portland
reaching full depreciation in the fourth quarter of 2000.
Corporate expenses increased 6% to $965,000 for the first quarter of 2001
as compared to $908,000 for the same period a year ago due to increased salary
costs and an increase in professional fees.
Equity-based compensation of $132,000 in the first quarter of 2001 and 2000
relate to stock options issued upon the conversion of our long-term incentive
plan awards during our IPO in September of 1999. These options were issued at a
price below market value at the date of grant and therefore generate
compensation expense over the life of the option.
Interest expense increased to $7.1 million in the first quarter of 2001
compared to $6.4 million in the same period a year ago. This increase is
primarily due to the increased interest expense on higher accreted principal
balances for both our 10 7/8% senior discount and our 12% senior secured notes.
The Company recorded a net income tax benefit of $3.3 million during the
first quarter compared to a benefit of $2.8 million in the corresponding quarter
of 2000. The tax benefit relates to the losses generated during the period
reduced by goodwill amortization of approximately $1.2 million that is not
deductible for tax purposes.
Broadcast cash flow for the first quarter decreased 19% to $2.9 million
compared to $3.6 million in the same period a year ago. This decrease was the
result of our slower revenue growth during the current quarter coupled with our
continued investment in programming, staffing and sales related costs.
Adjusted EBITDA decreased to $1.9 million for the first quarter of 2001
compared to $2.7 million adjusted EBITDA for the first quarter of 2000. This
decrease reflects our decreased broadcast cash flow coupled with our increased
corporate overhead expenses. Corporate overheads represent approximately 5.9% of
net revenues in the first quarter of 2001, as compared to the first quarter of
2000, when corporate overheads represented 5.6% of net revenues.
The Company's net loss for the first quarter was $6.9 million compared to a
net loss for the first quarter of 2000 of $6.2 million. This $700,000 increase
in the Company's net loss is attributable to our increased operating loss and
increased interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow provided by operating activities was $4.3 million for the three
months ended March 31, 2001 compared to cash flow used in operating activities
of $682,000 for the first three months of 2000. This increase is related
primarily to the first quarter 2000 payment of $2.7 million in non-recurring IPO
bonuses coupled with higher collections of accounts receivable and lower
payments of accrued expenses during the first quarter of 2001 as compared to
2000.
Cash flow used in investing activities during the first three months of
2001 was $1.8 million compared to $1.5 million used during the first three
months of 2000. The $300,000 increase is attributable to the purchases of
broadcast and other equipment while we continue to improve technical facilities
at our stations.
Cash flow used in financing activities of $554,000 for the first three
months of 2001 an increase of $165,000 over 2000, all of which relates to
increased payments on our capital lease facilities.
The Company's revolving credit facility allows for borrowings up to $30.0
million, dependent upon our meeting certain financial tests. All $30.0 million
was available as of March 31, 2001. The revolving credit facility allows
borrowings to be used to fund future acquisitions of broadcast stations and for
general corporate purposes. At March 31, 2001 there were no borrowings
outstanding under the agreement. We do not expect to meet certain of the
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financial tests for the second quarter 2001 and, due to uncertain economic
conditions affecting advertiser demand, we cannot predict whether we will be
able to meet such tests during the remainder of the year. We intend to request
an amendment to these financial tests. Without such an amendment or a waiver, we
may not be able to borrow under this facility.
The Company also has a capital lease facility which can be drawn against in
the aggregate amount of $4 million, all of which is available for draw down as
of March 31, 2000. This lease commitment expires on June 30, 2001. Borrowings
under this and previous lease facilities are generally repaid over five years.
As of March 31, 2001, amounts due under the facilities were $9.0 million bearing
an implicit average interest rate of 8.91% per annum. At March 31, 2000, amounts
due under this and predecessor facilities were $7.0 million and bore the
implicit average interest rate of 9.30%.
Effective October 1, 2000, the Company's $175 million 10 7/8% Senior
Discount Notes due September 30, 2004 began accruing cash interest. The interest
payment on these notes amounts to approximately $9.5 million every six months,
with the first payment due on March 31, 2001. Since this first payment date fell
on a Saturday, the payment was made on Monday, April 2, 2001.
At March 31, 2001, the Company had $33.0 million of cash and working
capital of $26.6 million.
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.
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, 2001, the
Company had no borrowings under the revolving credit facility.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. The Company maintains comprehensive
general liability and other insurance, which it believes to be adequate for the
purpose. The Company is not currently a party to any lawsuit or proceeding that
management believes would have a material adverse affect on its financial
condition or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
None.
(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, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACME Communications, Inc.
Date: May 11, 2001 By: /s/ THOMAS ALLEN
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Thomas Allen
Executive Vice President / CFO
(Principal accounting officer)
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