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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACTS OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBERS:
ACME Intermediate Holdings, LLC 333-40277
ACME Television, LLC 333-40281
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ACME TELEVISION, LLC
and
ACME INTERMEDIATE HOLDINGS, LLC
(Exact name of registrants as specified in their charter)
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<S> <C> <C>
Delaware ACME Television, LLC 52-2050588
Delaware ACME Intermediate Holdings, LLC 52-2050589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
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2101 E. FOURTH STREET, SUITE 202
SANTA ANA, CA 92705
(714) 245-9499
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
None None
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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 [ ]
100% of the membership units of ACME TELEVISION, LLC are owned directly or
indirectly by ACME INTERMEDIATE HOLDINGS, LLC. 92% of the membership units of
ACME INTERMEDIATE HOLDINGS, LLC are owned by ACME Television Holdings, LLC. Such
membership units are not publicly traded and have no quantifiable market value.
Indicate the number of membership units outstanding of each of ACME Television,
LLC's classes of equity as of the latest practicable date: At November 13, 1998,
there were outstanding 200 membership units, without par value.
Indicate the number of membership units outstanding of each of ACME Intermediate
Holdings, LLC's classes of equity, as of the latest practicable date: At
November 13, 1998, there were 895,425 membership units without par value.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including changes in national and regional economies, competition in
the television business, pricing fluctuations in local and national advertising,
program ratings and changes in programming costs, regulatory changes and
technological advancements, among other factors.
The operating revenues of the Stations are derived primarily from the sale of
advertising time. The stations sell commercial time during the programs to
national, regional and local advertisers. Credit arrangements are determined on
an individual customer basis. The Company generally pays commissions to
advertising agencies on local, regional and national advertising and to national
sales representatives on national advertising. All such commission is reflected
as deductions from gross revenues in the accompanying consolidated financial
statements.
The primary operating expenses of the Company consist of employee salaries,
programming, advertising and promotional expenses and depreciation and
amortization.
The following table sets forth certain operating data for ACME Television and
ACME Intermediate for the three months and nine months ended September 30, 1998
and 1997:
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THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
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1997 1998 1997 1998
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<S> <C> <C> <C> <C>
Operating income (loss) $(1,356) (1,573) (2,665) (2,786)
Add:
Time brokerage agreement fees -- -- -- 228
Program amortization 484 1,597 484 3,792
Depreciation and amortization 385 3,534 551 7,715
Corporate expense 323 498 742 1,861
Less:
Program payments (425) (1,446) (425) (3,599)
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Broadcast cash flow $ (589) 2,610 (1,313) 7,211
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"Broadcast cash flow" means operating income plus time brokerage fees, program
amortization, depreciation and amortization and corporate expense, less
scheduled program payments as adjusted to reflect reductions for impaired or
expired rights in connection with acquisitions. The Company has included
broadcast cash flow data because such data are commonly used as a measure of
performance for broadcast companies and are also used by investors to measure a
company's ability to service debt. However, the Company's definition of
broadcast cash flow may not be comparable to similarly titled measures presented
by other companies. Broadcast cash flow is not, and should not be used as, an
indicator or alternative to operating income, net income or cash flow as
reflected in the consolidated financial statements, is not a measure of
financial performance under generally accepted accounting principles and should
not be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
Net broadcast revenues for the three months ended September 30, 1998 increased
$11.1 million to $11.8 million compared to $759,000 for the three months ended
September 30, 1997. This increase is due primarily to the expansion in the
number of the Company's operating stations as described in "Note 2 -
Acquisitions" above. Net revenues increased $241,000 for the three months ended
September 30, 1998 compared to the three months ended June 30, 1998 as a result
of increased sports revenues and increased market shares, offset somewhat by
seasonably lower advertising rates.
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Operating expenses increased $11.3 million to $13.4 million compared to the
prior year quarter's operating expense of $2.1 million. This increase was also
due to the additional stations added since the third quarter of 1997. Operating
expenses increased $231,000 for the quarter ended September 30, 1998 compared to
the three months ended June 30, 1998. This increase is due primarily to the
increased program costs attributable to barter contracts.
Interest expense for the current year quarter was $4.1 million for ACME TV and
$5.4 million for ACME Intermediate, primarily representing the amortization of
original issuance discount of the Company's September 1997 issued senior
discount notes (ACME Television) and senior secured notes (ACME Intermediate)
along with related amortization of prepaid financing costs. The interest expense
of $112,000 during the third quarter of 1997 represents interest on ACME TV's
revolving credit facility.
Apart from the Company's Missouri operations (which pertain solely to the
Company's investment in KPLR), which are organized as traditional "C"
corporations, ACME Intermediate and ACME TV and its operating subsidiaries are
organized as limited liability companies. Accordingly, although the Company is
subject to various minimum state taxes, all federal tax attributes are passed
through to the members of the Company. The Company's Missouri operations, after
deduction of allocable interest charges, generated a net taxable loss. The
Company has not recognized the benefit of such a loss. The Company has recorded
a tax benefit for the decrease on the deferred tax liability relating to the
amortization of other intangibles, primarily for the FCC licenses, relating to
the KPLR acquisition which are not deductible for tax purposes.
The Company recorded a gain of $1.1 million in the current year quarter related
to the assignment of a construction permit which it acquired earlier in the
year.
The net loss for ACME TV and for ACME Intermediate for the three months ended
September 30, 1998 was $4.1 million and $5.4 million, respectively, compared to
a net loss of $1.5 for the comparable quarter of the prior year. These increased
net losses are due primarily to the amortization of broadcast licenses relating
to the Companies' newly acquired and operating stations and the substantially
increased interest expense incurred in connection with the September 1997
issuance of long-term debt to finance these acquisitions.
Broadcast cash flow for the three months ended September 30, 1998 was $2.6
million, compared to a negative broadcast cash flow of $587,000 for the
corresponding quarter in 1997. This increase is attributable primarily to the
Company's operations of KPLR, which was operated under an LMA from October 1,
1997 and acquired on March 13, 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net broadcast revenues for the nine months ended September 30, 1998 increased
$28.9 million to $31.1 million compared to $2.2 million for the nine months
ended September 30, 1997. This increase is due primarily to the expansion in the
number of Company's operating stations as described in "Note 2 - Acquisitions"
above.
Operating expenses increased $29.1 million to $33.9 million compared to the
prior year's nine months operating expenses of $4.8 million. This increase was
also due to the additional stations added since the third quarter of 1997.
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Interest expense for the current year was $11.8 million for ACME TV and $15.6
million for ACME Intermediate, primarily representing the amortization of
original issuance discount of the Company's September 1997 issued senior
discount notes (ACME Television) and senior secured notes (ACME Intermediate)
along with related amortization of prepaid financing costs. The interest expense
of $573,000 during the first nine months of 1997 represents primarily the
interest expense assumed by the Company, on behalf of the seller of KWBP
(Portland), during the interim LMA period, and interest expense related to ACME
TV's revolving credit facility.
Apart from the Company's Missouri operations (which pertain solely to the
Company's investment in KPLR), which are organized as traditional "C"
corporations, ACME Intermediate and ACME TV and its operating subsidiaries are
organized as limited liability companies. Accordingly, although the Company is
subject to various minimum state taxes, all federal tax attributes are passed
through to the members of the Company. The Company's Missouri operations, after
deduction of allocable interest charges, generated a net taxable loss, and a
corresponding deferred tax benefit was recorded for the goodwill amortization.
The Company recorded a gain of $1.1 million during the nine months ended
September 30, 1998 related to the purchase and subsequent assignment of a
construction permit serving Harrison, Arkansas.
The net loss for ACME TV and for ACME Intermediate for the nine months ended
September 30, 1998 was $12.5 million and $16.3 million, respectively, compared
to a net loss of $3.2 million for the comparable nine months of the prior year.
These increased net losses are due primarily to the amortization of broadcast
licenses relating to the Companies' newly acquired and operating stations and
the substantially increased interest expense incurred in connection with the
September 1997 issuance of long-term debt to finance these acquisitions.
Broadcast cash flow for the nine months ended September 30, 1998 was $7.2
million, compared to a negative broadcast cash flow of $1.3 million for the
corresponding nine months in 1997. This increase is attributable primarily to
the Company's profitable operations of KPLR, which was operated under an LMA
from October 1, 1997 and acquired on March 13, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities were $800,000 during the nine months
ended September 30, 1998 compared to cash flows used by operating activities of
$23 million during the nine months ended September 30, 1997, an increase of $3.1
million. This increase was primarily due to higher broadcast cash flow offset by
increased working capital needs.
Cash flows used in investing activities were $17.0 million during the nine
months ended September 30, 1998 compared to $145.8 million used in investing
activities during the nine months ended September 30, 1997. Cash flows used in
investing activities during the nine months ended September 30, 1998 related to
the Company's acquisition of WTVK and to capital expenditures principally
related to the build-out of KUWB, offset by net cash provided by the Company's
CP acquisition and subsequent assignment of Channel 31 serving Harrison,
Arkansas. The Company anticipates that future requirements for capital
expenditures will include those incurred in the continued build-out of its
station in Albuquerque, New Mexico and the upgrade of its other stations and
will be financed primarily through its $20 million capital equipment facility
(of which approximately $16.7 million is still available at September 30, 1998)
entered into with General Electric Capital Corporation ("GECC") earlier this
year.
Cash flows provided by financing activities during the nine months ended
September 30, 1998 were $8.665 million related to increases in notes payable and
additions to capital leases, net of repayments and paydowns of prior year-end
financing related liabilities, compared to cash flows provided by financing
activities during the prior year corresponding period related to parent
contributions, the Company's September 30, 1997 issuance of membership interests
in ACME Intermediate and notes in ACME Intermediate and ACME TV, and bank
borrowings of $3.5 million. At September 30, 1998 there was an outstanding
balance of $8 million due under the Company's existing credit agreement facility
with Canadian-Imperial Bank Corporation ("CIBC"). This facility allows for
revolving credit borrowings of up to a maximum of $40,000,000, dependent upon
certain financial ratios of the Company, can be used to fund future acquisitions
of broadcast stations and for general corporate purposes.
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The Company believes that internally generated funds from operations, financings
under the Company's capital equipment facility and additional borrowings under
its credit agreement, if necessary, will be sufficient to satisfy the Company's
cash requirements for its existing operations for the next twelve months and for
the foreseeable future thereafter. The Company expects that any future
acquisitions of television stations would be financed through funds generated
from operations, through additional borrowings under the existing CIBC credit
agreement and through additional debt and equity financings.
Year 2000
The Company is currently in the process of evaluating potential Year 2000 (Y2K)
issues for its internal information technology (IT) and non-IT systems (non-IT
systems include but are not limited to systems such as broadcast equipment,
editing equipment, cameras, microphones, telephone/PBX systems, fax machines,
etc.) It is also in the process of evaluating potential Y2K issues that would
involve third parties with which the Company has material relationships
(suppliers and customers).
All internal software and hardware is purchased or leased from third party
vendors. The Company does not employ or contract computer programmers to write
Company-specific applications. The Company has been advised by suppliers of its
material software applications that such applications are Y2K "compliant". At
this time, the Company is not aware of any significant upgrades or changes that
will need to be made to its internal software and hardware to become Y2K ready,
but this is subject to change as the evaluation and compliance testing process
continues. The Company expects to be able to successfully implement any
software or hardware changes that may be necessary to address Y2K IT and non-IT
readiness issues. Based upon preliminary estimates, the Company 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 increased costs associated with the
implementation of any such changes.
Although the Company has begun the process of polling key third parties to gain
an understanding of their Y2K readiness, we have not yet received sufficient
responses to adequately assess their readiness. The Company cannot guarantee
that Year 2000 compliance problems of third parties with which it has a
material relationship will not have a material adverse effect on the Company's
business, results of operations and financial condition. The Company has not
yet formulated a contingency plan to address difficulties that may arise from
Year 2000 noncompliance of its internal IT and non-IT systems or those of key
third parties.
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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 TELEVISION, LLC
Date: March 2, 1999 By: /s/ Doug Gealy
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Doug Gealy, President
Date: March 2, 1999 By: /s/ Thomas D. Allen
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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: March 2, 1999 By: /s/ Doug Gealy
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Doug Gealy, President
Date: March 2, 1999 By: /s/ Thomas D. Allen
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Thomas D. Allen
Executive Vice President/CFO
(principal financial officer)
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