<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACTS OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999
COMMISSION FILE NUMBERS:
ACME Intermediate Holdings, LLC 333-40277
ACME Television, LLC 333-40281
----------------
ACME INTERMEDIATE HOLDINGS, LLC
and
ACME TELEVISION, LLC
(Exact name of registrants as specified in their charter)
----------------
<TABLE>
<CAPTION>
Delaware ACME Intermediate Holdings,LLC 52-2050589
Delaware ACME Television, LLC 52-2050588
<S> <C> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
----------------
2101 E. Fourth Street, Suite 202
Santa Ana, California, 92705
(714) 245-9499
(Address and Telephone number of Principal Executive Offices)
----------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrants (1) have 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) have been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
92.14% of the membership units of ACME Intermediate Holdings, LLC are owned
directly or indirectly by ACME Television Holdings, LLC. 100% of the membership
units of ACME Television, LLC are owned directly or indirectly by ACME
Intermediate Holdings, LLC. Such membership units are not publicly traded.
As of May 14, 1999, ACME Intermediate Holdings, LLC had outstanding 910,986
membership units, without par value, its only class of equity.
As of May 14, 1999, ACME Television, LLC had outstanding 200 membership units,
without par value, its only class of equity.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Amendment Number 1 to ACME Intermediate Holdings, LLC and ACME Television,
LLC's (together, the Companies) reports on Form 10-Q for the quarter ended March
31, 1999, is being filed to adjust the income tax expense for the first quarter
of 1999 and the associated deferred tax liability, footnotes and management
discussion and analysis to record the estimated tax effect relating to an
inadvertent merger of two of the Company's subsidiaries during the first
quarter. The Company was not aware of the tax exposure at time of the original
filing of this document. The Company obtained appropriate state governmental
rescissions of the merger during the quarter ended September 30, 1999, and the
adjustment to the tax provision made for the first quarter 1999, as reflected in
this filing, was reversed at that time and is reflected in the Companies'
reports on Form 10-Q for the quarter ended September 30, 1999.
In response to the SEC's request in conjunction with the Companies' parent, ACME
Communications', initial public offering and ACME Communications' prospectus
filed with the SEC on September 29, 1999, we have also changed the presentation
format of our broadcast cash flow and adjusted EBITDA tables and made minor
grammatical changes to certain footnotes and management discussion and analysis
comments to conform this document to the Companies' Form 10-K/As for the year
ended December 31, 1998, which was filed October 14, 1999.
<PAGE> 3
ACME INTERMEDIATE HOLDINGS, LLC
And
ACME TELEVISION, LLC
FORM 10-Q/A
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
NUMBER Page
------ ----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ACME INTERMEDIATE HOLDINGS, LLC and Subsidiaries and
ACME TELEVISION, LLC and Subsidiaries
Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998........................................ 4
Consolidated Statements of Operations and Members' Capital
for the Three Months Ended March 31, 1999
and March 31, 1998.......................................................... 5
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 1999
and March 31, 1998........................................................... 6
Notes to Consolidated Financial Statements...................................... 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..... 9
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................ 12
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS......................................................................... 12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.......................................................... 12
</TABLE>
<PAGE> 4
PART I - FINANCIAL INFORMATION
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF DECEMBER 31,
------------------------------ ----------------------------
1999 1998
------------------------------ ----------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS TELEVISION HOLDINGS TELEVISION
------------ ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 938 $ 938 $ 953 $ 953
Accounts receivable, net 9,009 9,009 10,609 10,609
Due from affiliates 9 100 4 131
Current portion of programming rights 6,591 6,591 6,357 6,357
Prepaid expenses and other current assets 663 663 414 414
---------------------------- ----------------------------
Total current assets 17,210 17,301 18,337 18,464
Property and equipment, net 18,420 18,420 16,441 16,441
Programming rights, net of current portion 6,858 6,858 8,046 8,046
Deposits 616 616 36 36
Deferred income taxes 3,811 3,811 3,811 3,811
Intangible assets, net 229,528 229,528 222,987 222,987
Other assets 10,819 9,233 17,187 15,592
---------------------------- ----------------------------
Total assets $ 287,262 $ 285,767 $ 286,845 $ 285,377
============================ ============================
LIABILITIES AND MEMBERS' CAPITAL
Current Liabilities:
Bank borrowings $ 12,900 $ 12,900 $ 8,000 $ 8,000
Accounts payable 3,187 3,187 4,425 4,425
Accrued liabilities 4,892 4,892 4,210 4,210
Current portion of programming rights
payable 6,913 6,913 7,649 7,649
Current portion of obligations under
lease 1,304 1,304 1,273 1,273
Other current liabilities 35 -- -- --
---------------------------- ----------------------------
Total current liabilities 29,231 29,196 25,557 25,557
Programming rights payable, net of
current portion 5,804 5,804 6,512 6,512
Obligations under lease, net of
current portion 4,348 4,348 4,199 4,199
Other liabilities 833 833 1,125 1,125
Deferred income taxes 33,471 33,471 31,241 31,241
Senior discount notes 10 7/8% 149,298 149,298 145,448 145,448
Senior secured notes 12% 43,436 -- 42,051 --
---------------------------- ----------------------------
Total liabilities 266,421 222,950 256,133 214,082
---------------------------- ----------------------------
Members' capital 60,902 95,063 58,402 92,563
Accumulated deficit (40,061) (32,246) (27,690) (21,268)
---------------------------- ----------------------------
Total members' capital 20,841 62,817 30,712 71,295
Total liabilities and members' capital $ 287,262 $ 285,767 $ 286,845 $ 285,377
============================ ============================
</TABLE>
<PAGE> 5
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND MEMBERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------
1999 1998
-------------------------------- ---------------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------- --------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Revenues $ 11,123 $ 11,123 $ 7,757 $ 7,757
-------- -------- -------- --------
Operating expenses:
Station operating expenses 8,430 8,430 5,951 5,951
Depreciation and amortization 3,766 3,766 848 848
Corporate 721 721 589 589
Equity-based compensation 2,500 2,500 -- --
-------- -------- -------- --------
Total operating expenses 15,417 15,417 7,388 7,388
-------- -------- -------- --------
Operating income (loss) (4,294) (4,294) 369 369
Other Income (Expenses)
Interest income 8 8 45 45
Interest expense (5,830) (4,437) (4,864) (3,652)
-------- -------- -------- --------
Net loss before income taxes (10,116) (8,723) (4,450) (3,238)
Income tax expense (2,255) (2,255) (20) (20)
-------- -------- -------- --------
Net Loss $(12,371) $(10,978) $ (4,470) $ (3,258)
Parent's contribution 2,500 2,500 6,000 6,000
Members' Capital at the
beginning of the period 30,712 71,295 44,721 80,098
-------- -------- -------- --------
Members' Capital at the
end of the period $ 20,841 $ 62,817 $ 46,251 $ 82,840
======== ======== ======== ========
</TABLE>
<PAGE> 6
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------------
MARCH 31, 1999 MARCH 31, 1998
------------------------------- ------------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------------------------- ------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(12,371) $(10,978) $(4,470) $(3,258)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,766 3,766 848 848
Amortization of program rights 1,582 1,582 1,009 1,009
Amortization of debt issuance cost 128 119 -- --
Amortization of discount on Senior Discount Notes 3,850 3,850 3,463 3,463
Amortization of discount on Senior Secured Notes 1,384 -- 1,212 --
Non-cash compensation expense - Management Carry Units 2,500 2,500 -- --
Deferred taxes 2,230 2,230 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivables, net 1,600 1,600 (318) (318)
(Increase) decrease in prepaid expenses (249) (249) 743 743
(Increase) decrease in due from affiliates (5) 31 -- --
Increase in deposits (80) (80) -- --
(Increase) other assets (2,428) (2,428) -- --
Decrease in accounts payable (1,238) (1,238) (42) (42)
Increase in accrued expenses 682 682 442 442
Payments on programming rights payable (2,072) (2,072) (1,151) (1,151)
Decrease in other liabilities (256) (292) -- --
------------------------- ------------------------
Net cash provided by (used in) operating activities (977) (977) 1,736 1,736
------------------------- ------------------------
Cash flows from investing activities:
Purchase of property and equipment (2,171) (2,171) (2,970) (2,970)
Purchase of station interests (1,009) (1,009) (2,225) (2,225)
Cash acquired in acquisition - St. Louis -- -- 779 779
Deposits relating to station acquisitions (500) (500) (2,500) (2,500)
------------------------- ------------------------
Net cash used in investing activities (3,680) (3,680) (6,916) (6,916)
------------------------- ------------------------
Cash flows from financing activities:
Increase in notes payable to bank 4,900 4,900 -- --
Payments on capital leases (258) (258) (70) (70)
------------------------- ------------------------
Net cash provided by (used in) financing activities (4,642) (4,642) (70) (70)
------------------------- ------------------------
Net increase (decrease) in cash (15) (15) (5,250) (5,250)
Cash at beginning of period 953 953 8,820 8,820
------------------------- ------------------------
Cash at end of period $ 938 $ 938 $ 3,570 $ 3,570
========================= ========================
Cash Payments for:
Interest 372 372 24 24
Taxes 25 25 -- --
Non-Cash Transactions:
Purchases of property and equipment in exchange
for capital lease obligations 438 438 -- --
Exchange of note receivable and option deposit as
purchase consideration for station interest 7,000 7,000 -- --
Contribution of Parent for membership units $ -- $ -- $ 6,000 $ 6,000
========================= ========================
</TABLE>
<PAGE> 7
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1999 and March 31, 1998
(Unaudited)
(1) DESCRIPTION OF THE BUSINESS AND FORMATION
Presentation / Interim Financial Statements
Financial statements are presented for each of ACME Intermediate Holdings, LLC
and its subsidiary, ACME Television, LLC. Unless the context requires otherwise,
references to the "Company" refers to ACME Intermediate Holdings, LLC and its
consolidated subsidiaries and references to "ACME Television" refer to ACME
Television, LLC and its consolidated subsidiaries. Segment information is not
presented since all of the Company's revenue is attributed to a single
reportable segment. Certain amounts previously reported for 1998 have been
reclassified to conform to the 1999 financial statement presentation.
The accompanying consolidated financial statements for the three months ended
March 31, 1999 and 1998 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 audited consolidated financial statements, and
accordingly, should be read in conjunction with the consolidated financial
statements, and the notes thereto, included in the integrated Annual Report on
Form 10-K for ACME Television and ACME Intermediate for the year ended December
31, 1998. 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, 1999.
Nature of Business
ACME Intermediate Holdings, LLC is a holding company with no assets or
independent operations other than its wholly-owned subsidiary, ACME Television,
LLC. ACME Television, through is subsidiaries, owns and/or operates six
commercially licensed broadcast television stations (the "Stations" or
"Subsidiaries") located throughout the United States: Station KPLR (serving the
St. Louis DMA), Station KWBP (serving the Portland, Oregon DMA), Station KUWB
(serving the Salt Lake City DMA), Station KWBQ (serving the Albuquerque, NM
DMA), Station WBXX (serving the Knoxville DMA) and WTVK (serving the Ft.
Myers/Naples DMA).
(2) ACQUISITIONS
On March 13, 1998, ACME Missouri completed its acquisition of Koplar
Communications, Inc. ("KCI") and acquired all of the outstanding stock of KCI
for a total consideration of approximately $146.3 million. The acquisition was
accounted for using the purchase method. Pursuant to an interim LMA entered into
with KCI in connection with the acquisition, effective October 1, 1997 all
revenues and operating expenses (except depreciation and amortization) of the
station for the period from September 30, 1997 to March 31, 1998 (the effective
date of the purchase transaction) are included in ACME Television's historical
operating results. The purchase transaction was recorded on the consolidated
balance sheet of ACME Television effective March 31, 1998 and beginning on April
1, 1998, ACME Television's results includes the amortization of all intangible
assets related to the acquisition.
On June 30, 1998, ACME Television acquired substantially all the assets and
assumed certain liabilities of WTVK-Channel 46 serving the Fort Myers/Naples,
Florida marketplace for approximately $14.5 million in cash and 1,047 membership
units in ACME Intermediate's parent, ACME Television Holdings, LLC ("ACME
Parent"), (valued at approximately $1.0 million). The acquisition was accounted
for using the purchase method and the value of the Parent membership units
issued was treated as a contribution from ACME Parent to ACME Intermediate and
then from ACME Intermediate to ACME Television. The excess of the purchase price
over the fair value of the net assets assumed of approximately $15.5 million was
recorded as an intangible asset and is being amortized over a period of 20
years. In connection with the acquisition, ACME Television entered into an LMA
agreement with WTVK wherein ACME Television, effective March 3, 1998, retained
all revenues generated by the station, bore all operating expenses (except
depreciation and amortization) of the station and had the right to program the
station (subject to WTVK's ultimate authority for programming) and the station's
existing programming commitments. The LMA terminated upon the consummation of
the acquisition. Consequently, under the LMA the revenues and operating expenses
of the station are included in the Company's results of operations from March 3,
1998 to June 30, 1998. The purchase transaction was recorded on the consolidated
balance sheet of the Company on June 30, 1998 and the Company's results of
operations includes revenues and expenses (including amortization of intangible
assets) beginning July 1, 1998.
<PAGE> 8
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
(2) ACQUISITIONS (CONTINUED)
On February 16, 1999, ACME Television acquired the remaining 51% interest in
Station KUPX in exchange for the payment of $7.0 million (consisting of (i) $3.0
million paid in December 1997 for an option to acquire the remaining 51% of
Station KUPX and (ii) $4.0 million in repayment of a loan from ACME Parent to
the sellers of this station) plus approximately $1.0 million in cash. In March
1999, the FCC approved the swap of station KUPX for station KUWB, which ACME
Television has been operating under an LMA since April 1998. Station KUPX has
been operated by the current owner of Station KUWB since May 1998 under a
reciprocal LMA agreement. The swap is expected to close in May 1999, at which
time the LMAs will terminate. ACME Television intends to account for the swap as
a business combination using its fair market value and will record KUPX at its
fair value. Any difference between its fair value and the carrying value of KUWB
will result in a gain or loss, however, the Company believes that the fair value
of station KUWB approximates the historical cost of station KUPX.
On February 19, 1999, ACME Television entered into an agreement in principle
with Ramar Communications ("Ramar") to acquire the assets of Ramar's station,
KASY TV-50, serving the Albuquerque, NM, market for approximately $27 million.
In a related transaction, ACME Television will concurrently sell to Ramar the
broadcast license to operate station KWBQ, also serving the Albuquerque market,
for $100,000. An affiliate of ACME Parent will receive an option from Ramar to
repurchase the station's license for $100,000 plus certain reimbursements for
capital equipment purchased by Ramar for KWBQ. This option, which can be
exercised any time within 5 years from the date of the sale of KWBQ, is
expected to be assigned to ACME Television upon completion of the KASY and KWBQ
transactions. Concurrent with these transactions, ACME Television will also
enter into a 10-year LMA agreement with Ramar to operate KWBQ. This transaction
is subject to FCC approval.
(3) RELATED PARTY TRANSACTIONS
On February 15, 1999, ACME Parent acquired 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 - for
approximately $2.5 million. ACME Parent subsequently entered into an agreement
to enter into a long-term lease with ACME Television of Oregon, LLC (a
subsidiary of ACME Television ("ACME Oregon")) which allows station KWBP to
install and operate a digital television antenna and transmitter at the site. In
connection with the acquisition of this lease, ACME Oregon paid to ACME Parent
approximately $2.5 million, which has been treated as deferred tower rent and is
included in other non-current assets as of March 31, 1999.
Also in February 1999, ACME Oregon exercised its option to purchase the property
where KWBP's corporate and studio facilities are located for $1.5 million from a
member of ACME Parent. Before this purchase, the same facility was leased from
an affiliate of this same member.
(4) CERTAIN COMPENSATION ARRANGEMENTS
ACME Parent has issued Management Carry Units ("MCUs") to certain founding
members of management. These units entitle the holders to certain distribution
rights, payable by ACME Parent, upon achievement of certain returns by
non-management investors and are subject to partial forfeiture or repurchase by
ACME Parent in the event of termination of each individual's employment by ACME
Parent under certain specified circumstances. These MCUs are accounted for as a
variable compensation plan, resulting in an expense when it is probable that any
such distributions will be made. Inasmuch as these MCUs represent a non-cash
expense to the Company, any expense incurred by the Company shall be deemed to
have been funded by a capital contribution from ACME Parent. For the quarter
ended March 31, 1999 the Company has recorded compensation expense and a
corresponding capital contribution of $2.5 million related to the MCUs. For the
three months ended March 31, 1998, no expense or related capital contribution
was recorded.
(5) SUBSEQUENT EVENTS
On April 23, 1999, ACME Television entered into a definitive agreement with
Paxson Communications Corporation ("Paxson") pursuant to which ACME Television,
or its designated subsidiaries, will acquire for $40.0 million, substantially
all of the assets of Paxson relating to Station WDPX, Channel 26, which is
licensed to broadcast in the Dayton, Ohio market, Station WPXG, Channel 14,
which is licensed to broadcast in the Green Bay, Wisconsin market, and Station
WPXU, Channel 23, which is licensed to broadcast in the Champaign-Decatur,
Illinois market.
Of the $40.0 million acquisition cost, $32.0 million was paid on April 23, 1999,
and $8.0 million will be payable upon receipt of FCC approval for the transfer
of the broadcast licenses. Related to this transaction, ACME Television has
entered into an interim LMA agreement for each of these stations whereby ACME
Television will operate the three stations being acquired effective June 2,
1999. These LMAs will terminate upon the approvals from the FCC and the payment
by ACME Television of the remaining $8.0 million purchase consideration. During
<PAGE> 9
the LMA Period, ACME Television will retain all revenues generated from the sale
of all advertising time within programs supplied by ACME to each station and the
sale of all local advertising time within all network provided programming for
each station. ACME will also reimburse Paxson for certain operating expenses of
each station and have the right to provide programming for each station subject
to Paxson's ultimate authority for each station and each station's existing
programming commitments.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and related notes included in Item 1 of this
report.
OVERVIEW
We derive our revenues primarily from the sale of advertising time to
local, regional and national advertisers. Our revenues depend on our ability to
provide popular programming that attracts audiences in the demographic groups
targeted by advertisers, thereby 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 for such advertisement and
promotion from any network, including The WB Network, or other program provider.
The carrying value of long-lived assets, consisting of tangible,
identifiable intangible, and goodwill, is reviewed if the facts and
circumstances suggest that they might be impaired. For purposes of this review,
assets are grouped at the operating company level, which is the lowest level for
which there are identifiable cash flows. If this review indicates that an
asset's carrying value will not be recoverable, as determined based on future
expected, undiscounted cash flows, the carrying value is reduced to fair market
value. There are neither facts nor circumstances that would lead management to
believe that any of our long-lived assets are impaired.
Results of Operations
The following table sets forth our calculation of broadcast cash flow and
adjusted EBITDA along with a recap of our statement of cash flow data for the
periods indicated:
<TABLE>
<CAPTION>
ACME INTERMEDIATE AND ACME TELEVISION
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1998 1999
---------- ----------
<S> <C> <C>
Broadcast cash flow and adjusted EBITDA(1):
Operating income (loss) $ 369 $ (4,294)
Add back:
Equity based compensation -- 2,500
Depreciation and amortization 848 3,766
Time brokerage fees 57 --
Amortization of program rights 1,612 2,420
Corporate expenses 589 721
Adjusted program payments(1) (1,754) (2,480)
-------- ---------
Broadcast cash flow 1,721 2,633
Less:
Corporate expenses 589 721
-------- ---------
Adjusted EBITDA $ 1,132 $ 1,912
Broadcast cash flow margin(1) 22.2% 23.7%
Adjusted EBITDA margin(1) 14.6% 17.2%
Cash flows provided by (used in):
Operating activities $ 1,736 $ (977)
Investing activities $ (6,916) $ (3,680)
Financing activities $ (70) $ (4,642)
</TABLE>
- -------------------------
(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 or 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.
<PAGE> 10
Net revenue increased to $11.0 million for the quarter compared to $7.8
million in the same period of 1998, or 43%. The significant increase in net
revenues is attributable to growth at every station, including those that were
in operation during the first quarter of 1998 and those which were signed-on or
acquired after March 31, 1998.
Operating costs for the quarter ended March 31, 1999 were $15.4 million, an
increase of $8.0 million (109%) over the corresponding quarter of 1998.
Programming, promotion, production and engineering costs increased by $1.5
million (39%), in the aggregate, during the quarter due primarily to the
continued development and growth of the Company's stations. Selling, general
and administrative expenses increased $3.6 million on a year-to-year basis
due primarily to a first-time $2.5 million non-cash compensation expense
recorded in 1999 relating to ACME Parent Management Carry Units issued in June
1997 to certain founding executives of the Company and to increased sales costs
and corporate staffing to support the significant growth in the Company's
business. Depreciation and amortization increased by $2.9 million on a
year-to-year basis due primarily to the amortization of intangible assets at
Station KPLR and Station KUWB, which the Company began to amortize subsequent
to March 31, 1998, and to higher depreciation of property, plant and equipment
related to the Company's continued build-out and upgrade of Station studio and
broadcast facilities since the first quarter of 1998.
Interest expense for ACME Television for the three months ended March 31, 1999
was $4.4 million compared to interest expense of $3.7 million for the
corresponding quarter of the prior year. This increase of $785,000 (21%) is
attributable primarily to increases in the balance of ACME Television's Senior
Discount Notes due to the continued amortization of original issuance discount,
interest on notes payable to bank in connection with the June 1998 WTVK
acquisition and other advances during the first quarter of 1999 and interest on
increased capital lease financings.
Interest expense for ACME Intermediate for the three months ended March 31, 1999
was $5.8 million compared to interest expense of $4.9 million for the
corresponding quarter of the prior year. This increase of $966,000 (20%) is
attributable primarily to the increases in ACME Television's interest expense
described above and to increases in the balance of ACME Intermediate's Senior
Secured Notes due to continued amortization of original issuance discount.
We recorded a net income tax expense of $2.3 million during the first quarter of
1999 compared to an expense of $20,000 recorded for the first quarter
of 1998. The tax expense for the first quarter of 1999 includes a $3.0 million
accrual relating to the merger of two of the Company's subsidiaries offset by a
benefit of $745,000 relating to a net operating loss carryforward at KPLR and a
reduction of a deferred tax liability primarily related to KPLR'S FCC license.
ACME Intermediate's and ACME Television's net losses for the quarter ended March
31, 1999 were $12.4 million and $11.0, respectively, compared to net losses for
the first quarter of 1998 of $4.5 million and $3.3 million, respectively. These
increased net losses of $7.9 million for ACME Intermediate and $7.7 million for
ACME Television are attributable to increased interest expense, amortization of
intangibles, and the non-cash compensation expense for the Management Carry
Units, as described above, and the accrual of the $3.0 million tax expense net
of improved operating results (exclusive of depreciation and amortization) at
the stations.
Broadcast cash flow for the quarter ended March 31, 1999 increased $827,000, or
46%, to $2.6 million compared to $1.8 million in the corresponding period in
1998. This significant increase was driven primarily by the increased revenue
gains at all stations which outpaced the growth in operating expenses. As a
percentage of net revenues, broadcast cash flow margin increased to 23.7% for
the three months ended March 31, 1999 from 23.3% for the three months ended
March 31, 1998.
Adjusted EBITDA for the quarter ended March 31, 1999 increased $465,000, or 32%,
to $1.9 million compared to $1.4 million in the first quarter of 1998. This
increase was primarily driven by increased broadcast cash flow of $827,000,
offset by an increase in year-to-year corporate overhead expense during the
quarter of $132,000.
Liquidity and Capital Resources
Cash flows used in operating activities for ACME Television and ACME
Intermediate were $986,000 for the quarter-ended March 31, 1999 compared to cash
flows provided by operating activities of $1.7 million for quarter ended March
31, 1998. These decrease were primarily due the payment of certain liabilities
assumed and increases in prepaid expenses and other assets (current and
non-current) in connection with the Station KPLR and Station WTVK acquisitions.
Cash flows used by the Company in investing activities during the first quarter
of 1999 were $3.7 million and related primarily to additions to property and
equipment, including approximately $2.0 million in aggregate purchase price for
the Company's studio facilities for Stations KWBP and KWBQ. Cash flows used by
the Company in investing activities in the first quarter of 1998 of $6.9
million related primarily to purchases to the build-out of Station KUWB's studio
and transmission facilities and to deposits in connection with the acquisition
of WTVK ($2.5 million) and the acquisition of a construction permit serving the
Springfield, Arkansas marketplace for $2.2 million (later sold in the third
quarter of 1998 for $3.3 million).
<PAGE> 11
Cash flows provided by financing activities for the Company of $4,642,000
related primarily to net bank borrowings in 1999, as compared to cash flows used
by financing activities in 1998 of $70,000 for capital lease repayments.
At March 31, 1999, ACME Television's existing credit agreement allows for
revolving credit borrowings of up to a maximum of $40,000,000, dependent upon
its meeting certain financial ratio tests as set forth in the credit agreement.
The revolving credit facility can be used to fund future acquisitions of
broadcast stations and for general corporate purposes. At March 31, 1999, $12.9
million was outstanding and $27.1 million was available under the facility. The
interest rate on this outstanding principal amount was 8.25% per annum at March
31, 1999. In April 1999, the Company borrowed approximately $25 million against
this facility to finance the acquisition of the three Paxson stations discussed
in Note 5 to the financial statements in this document.
ACME Television's 10 7/8% Senior Discount Notes, issued in September 1997, do
not accrue cash interest until October 1, 2000 with the first semi-annual
payment of interest due on March 31, 2001. ACME Intermediate's 12% Senior
Secured Notes, also issued in September 1997, do not accrue cash interest until
October 1, 2002 with the first semi-annual payment of interest due on March 31,
2003.
The Company believes that internally generated funds from operations and
borrowings under its credit agreement, 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 funds generated from operations,
through borrowings under the existing credit agreement and through additional
debt and equity financings. However there is no guarantee that such additional
debt and/or equity financing and/or equity contributions by ACME Parent will be
available or available at rates acceptable to the Company.
Year 2000
The Year 2000 ("Y2K") issue is a result of computer software applications using
a two-digit format, as opposed to a four-digit format, to indicate the year.
These computer software applications will then be unable to uniquely distinguish
dates beyond the year 1999, which could cause a system failure or other computer
errors.
ACME Television is in the process of evaluating potential Year 2000 (Y2K) issues
for both its information technology (IT) and non-IT systems (non-IT systems
include but are not limited to, those systems that are not commonly thought of
as IT systems, such as telephone/PBX systems, fax machines, editing equipment,
cameras, microphones, etc). All internal software and hardware is purchased,
leased or licensed from third party vendors. Most of the Company's station
facilities are new or have been recently upgraded and the Company has polled all
of its significant software vendors and has been advised by them that their
software is Y2K compliant.
The Company has completed its assessment, planning and testing phases, and has
commenced the final phase of its Y2K project-implementation. During this phase,
the Company will fix, retest and implement critical applications that were
discovered to be Y2K deficient during the preceding phases.
At this point in time, the Company is not aware of any additional significant
upgrades or changes that will need to be made to its internal software and
hardware to become Y2K ready, nor is it aware of any material supplier with Y2K
readiness problem, but this is subject to change as the compliance testing
process continues. The Company expects to be able to implement the systems and
programming changes necessary to address Y2K IT and non-IT readiness issues and,
based on preliminary estimates, does not believe that the costs associated with
such actions will have a material effect on the Company's results of operations
or financial condition. There can be no assurance, however, that there will not
be a delay in, or increased costs associated with the implementation of such
changes.
Pending Adoption of Accounting Standard
The FASB (Financial Accounting Standards Board) has issued FASB statement No.
133 "Accounting for Derivative Instruments and Hedging Activities" which the
Company will be required to adopt for its quarter ending June 30, 1999. This
pronouncement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
<PAGE> 12
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. This pronouncement is not expected to have a significant impact
on the Company's financial statements since the Company currently has no
derivative instruments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ACME Television's revolving credit facility has a variable interest rate.
Accordingly, the Company's interest expense can be materially affected by future
fluctuations in the applicable interest rate.
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
- ------- -------------------
3.1 Certificate of Formation of ACME Intermediate Holdings, LLC,
incorporated by reference to Exhibit 3.1 of ACME Intermediate Holdings,
LLC's Registration Statement on Form S-4, File No. 333-40277 filed on
November 14, 1997 (the "Intermediate Registration Statement").
3.2 Limited Liability Company Agreement of ACME Intermediate Holdings,
LLC, incorporated by reference to Exhibit 3.2 of Intermediate
Registration Statement.
3.3 Certificate of Formation of ACME Television, LLC, incorporated by
reference to Exhibit 3.1 of ACME Television, LLC's Registration
Statement on Form S-4, File No. 333-40281, filed on November 14, 1997
(the "Television Registration Statement").
3.4 Limited Liability Company Agreement of ACME Television, LLC,
incorporated by reference to Exhibit 3.2 of the Television
Registration Statement.
4.1 Indenture, dated September 30, 1997, by and among ACME Intermediate
Holdings, LLC and ACME Intermediate Finance, Inc., as Issuers, and
Wilmington Trust Company, incorporated by reference to Exhibit 4.2 of
the Intermediate Registration Statement.
4.2 Form of Securities of ACME Intermediate Holdings, LLC, incorporated by
reference to Exhibit 4.3 of the Intermediate Registration Statement.
4.3 Indenture, dated September 30, 1997, by and among ACME Television, LLC
and ACME Finance Corporation, as Issuers, the Guarantors named
therein, and Wilmington Trust Company, incorporated by reference to
Exhibit 4.1 of the Television Registration Statement.
4.5 First Supplemental Indenture, dated February 11, 1998, by and among
ACME Television, LLC and ACME Finance Corporation, the Guarantors
named therein, and Wilmington Trust Company, incorporated by reference
to Registrant's Quarterly Report on Form 10-Q for the period ending
March 31, 1998.
4.6 Second Supplemental Indenture, dated March 13, 1998, by and among ACME
Television, LLC and ACME Finance Corporation, the Guarantors named
therein, and Wilmington Trust Company, incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the period ending March
31, 1998.
4.7 Third Supplemental Indenture, dated August 21, 1998, by and among ACME
Television, LLC and ACME Finance Corporation, as issuers, the
Guarantors named therein, and Wilmington Trust Company, incorporated by
reference to Registrant's Quarterly Report on Form 10-Q for the period
ending September 30, 1998.
10.1 Asset Purchase Agreement, dated February 19, 1999, by and between ACME
Television of New Mexico, LLC and ACME Television Licenses of New
Mexico, LLC and Ramar Communications II, Ltd., with respect to
television station KWBQ-TV, Santa Fe, New Mexico.
10.2 Asset Purchase Agreement, dated February 19, 1999, by and between ACME
Television of New Mexico, LLC and ACME Television Licenses of New
Mexico, LLC and Ramar Communications II, Ltd., with respect to
television station KASY-TV, Albuquerque, New Mexico.
10.3 Membership Purchase Agreement, dated July 10, 1998, by and between
Roberts Broadcasting of Salt Lake City, L.L.C., Michael V. Roberts and
Steven C. Roberts and ACME Television Holdings, LLC for a majority
interest in Roberts Broadcasting of Salt Lake City, L.L.C.
10.4 Asset Exchange Agreement, dated April 20, 1998 by and among Paxson
Salt Lake City License, Inc., Paxson Communications of Salt Lake
City-30, Inc. and Roberts Broadcasting of Salt Lake City, L.L.C.
27.1* Financial Data Schedule for ACME Intermediate Holdings, LLC, available
in electronic format as filed by the Registrant.
27.2* Financial Data Schedule for ACME Television, LLC, available in
electronic format as filed by the Registrant.
- -------------
* Filed herewith
(b) REPORTS ON FORM 8-K.
The Company filed no reports on Form 8-K during the three months ended March 31,
1999.
<PAGE> 13
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 TELEVISION, LLC.
Date: November 15, 1999 By: /s/ Doug Gealy
-------------------------------
Doug Gealy, President
Date: November 15, 1999 By: /s/ Thomas D. Allen
-------------------------------
Thomas D. Allen
Executive Vice President / CFO
(principal financial officer)
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 INTERMEDIATE HOLDINGS, LLC.
Date: November 15, 1999 By: /s/ Doug Gealy
-------------------------------
Doug Gealy, President
Date: November 15, 1999 By: /s/ Thomas D. Allen
-------------------------------
Thomas D. Allen
Executive Vice President / CFO
(principal financial officer)
<PAGE> 14
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Formation of ACME Intermediate Holdings, LLC,
incorporated by reference to Exhibit 3.1 of ACME Intermediate Holdings,
LLC's Registration Statement on Form S-4, File No. 333-40277 filed on
November 14, 1997 (the "Intermediate Registration Statement").
3.2 Limited Liability Company Agreement of ACME Intermediate Holdings,
LLC, incorporated by reference to Exhibit 3.2 of Intermediate
Registration Statement.
3.3 Certificate of Formation of ACME Television, LLC, incorporated by
reference to Exhibit 3.1 of ACME Television, LLC's Registration
Statement on Form S-4, File No. 333-40281, filed on November 14, 1997
(the "Television Registration Statement").
3.4 Limited Liability Company Agreement of ACME Television, LLC,
incorporated by reference to Exhibit 3.2 of the Television
Registration Statement.
4.1 Indenture, dated September 30, 1997, by and among ACME Intermediate
Holdings, LLC and ACME Intermediate Finance, Inc., as Issuers, and
Wilmington Trust Company, incorporated by reference to Exhibit 4.2 of
the Intermediate Registration Statement.
4.2 Form of Securities of ACME Intermediate Holdings, LLC, incorporated by
reference to Exhibit 4.3 of the Intermediate Registration Statement.
4.3 Indenture, dated September 30, 1997, by and among ACME Television, LLC
and ACME Finance Corporation, as Issuers, the Guarantors named
therein, and Wilmington Trust Company, incorporated by reference to
Exhibit 4.1 of the Television Registration Statement.
4.5 First Supplemental Indenture, dated February 11, 1998, by and among
ACME Television, LLC and ACME Finance Corporation, the Guarantors
named therein, and Wilmington Trust Company, incorporated by reference
to Registrant's Quarterly Report on Form 10-Q for the period ending
March 31, 1998.
4.6 Second Supplemental Indenture, dated March 13, 1998, by and among ACME
Television, LLC and ACME Finance Corporation, the Guarantors named
therein, and Wilmington Trust Company, incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the period ending March
31, 1998.
4.7 Third Supplemental Indenture, dated August 21, 1998, by and among ACME
Television, LLC and ACME Finance Corporation, as issuers, the
Guarantors named therein, and Wilmington Trust Company, incorporated by
reference to Registrant's Quarterly Report on Form 10-Q for the period
ending September 30, 1998.
10.1 Asset Purchase Agreement, dated February 19, 1999, by and between ACME
Television of New Mexico, LLC and ACME Television Licenses of New
Mexico, LLC and Ramar Communications II, Ltd., with respect to
television station KWBQ-TV, Santa Fe, New Mexico.
10.2 Asset Purchase Agreement, dated February 19, 1999, by and between ACME
Television of New Mexico, LLC and ACME Television Licenses of New
Mexico, LLC and Ramar Communications II, Ltd., with respect to
television station KASY-TV, Albuquerque, New Mexico.
10.3 Membership Purchase Agreement, dated July 10, 1998, by and between
Roberts Broadcasting of Salt Lake City, L.L.C., Michael V. Roberts and
Steven C. Roberts and ACME Television Holdings, LLC for a majority
interest in Roberts Broadcasting of Salt Lake City, L.L.C.
10.4 Asset Exchange Agreement, dated April 20, 1998 by and among Paxson
Salt Lake City License, Inc., Paxson Communications of Salt Lake
City-30, Inc. and Roberts Broadcasting of Salt Lake City, L.L.C.
27.1* Financial Data Schedule for ACME Intermediate Holdings, LLC, available
in electronic format as filed by the Registrant.
27.2* Financial Data Schedule for ACME Television, LLC, available in
electronic format as filed by the Registrant.
- -------------
* Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0001049530
<NAME> ACME INTERMEDIATE HOLDINGS, LLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 938
<SECURITIES> 0
<RECEIVABLES> 9,607
<ALLOWANCES> (598)
<INVENTORY> 0
<CURRENT-ASSETS> 17,210
<PP&E> 21,261
<DEPRECIATION> (2,841)
<TOTAL-ASSETS> 287,262
<CURRENT-LIABILITIES> 29,231
<BONDS> 192,734
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 287,262
<SALES> 11,123
<TOTAL-REVENUES> 11,123
<CGS> 0
<TOTAL-COSTS> 15,417
<OTHER-EXPENSES> 5,822
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 5,830
<INCOME-PRETAX> (10,116)
<INCOME-TAX> (2,255)
<INCOME-CONTINUING> (12,371)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,371)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0001049510
<NAME> ACME TELEVISION, LLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 938
<SECURITIES> 0
<RECEIVABLES> 9,607
<ALLOWANCES> (598)
<INVENTORY> 0
<CURRENT-ASSETS> 17,301
<PP&E> 21,261
<DEPRECIATION> (2,841)
<TOTAL-ASSETS> 285,767
<CURRENT-LIABILITIES> 29,196
<BONDS> 149,298
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 285,767
<SALES> 11,123
<TOTAL-REVENUES> 11,123
<CGS> 0
<TOTAL-COSTS> 15,417
<OTHER-EXPENSES> 4,429
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 4,437
<INCOME-PRETAX> (8,723)
<INCOME-TAX> (2,255)
<INCOME-CONTINUING> (10,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,978)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
