<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q/AA
[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
-----------------
ACME TELEVISION, LLC
and
ACME INTERMEDIATE HOLDINGS, LLC
(Exact name of registrants as specified in their charter)
-----------------
<TABLE>
<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>
----------------
2101 E. Fourth Street, Suite 202
Santa Ana, California 92705
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code: 714-245-9499
----------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
- --------------------------------- ------------------------
<S> <C>
None None
</TABLE>
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.
================================================================================
<PAGE> 2
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
FORM 10-Q/AA
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NUMBER
Page
<S> <C> <C>
PART I - FINANCIAL STATEMENTS
Item 1. FINANCIAL STATEMENTS
Introductory Comments 3
ACME INTERMEDIATE HOLDINGS, LLC and ACME TELEVISION, LLC and
Subsidiaries
Consolidated Balance Sheets as of December 31, 1997 and
September 30, 1998 4
Consolidated Statements of Operations and Members' Capital
for the Three Months Ended September 30, 1998 and
September 30, 1997 5
Consolidated Statements of Operations and Member' Capital for
the Nine Months Ended September 30, 1998 and September
30, 1997 6
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and September 30, 1997 7
Notes to Consolidated Financial Statements 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 12
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II - OTHER INFORMATION
SIGNATURES 17
</TABLE>
2
<PAGE> 3
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
This document contains forward-looking statements. In addition, when used in
this document, the words "intends to", "believes", "anticipates", "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results in
the future could differ materially and adversely from those described in the
forward-looking statements. Differences could come about as a result of various
important factors including but not limited to: the impact of changes in
national and regional economies, successful integration of acquired television
stations, completion of pending acquisitions, pricing fluctuations in local and
national advertising, implementation of Year 2000 compliance measures, and
volatility in programming costs. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
that may be made to reflect any future events or circumstances.
Certain Definitions and Market and Industry Data
Unless otherwise indicated, information set forth herein as to designated market
area, rank demographic statistics, station audience and revenue share and number
of commercial broadcasters is as currently reported by BIA Publications, Inc. or
by A.C. Nielsen Company. Set forth below are certain terms commonly used in the
broadcast television industry that are used throughout this report. Unless the
context otherwise requires, such terms shall have the respective meanings set
forth below.
DMA .......................Designated Market Area. There are 211 DMAs in the
United States with each county in the continental
United States assigned uniquely to one DMA. Ranking
of DMAs is based upon Nielsen Media Research
estimates of the number of television households.
LMA........................Local marketing agreement, time brokerage agreement
or licensee pursuant to which the broadcaster
provides similar arrangement between a broadcaster
and a station programming to, sells advertising time
for and funds operating expenses for the applicable
station, manages certain station activities, and
retains the advertising revenues of such station, in
exchange for fees paid to the licensee.
Syndicated programming ....Programming purchased from production studios to be
broadcast during non-network time periods. Syndicated
programming includes both original programming and
previously broadcast programming.
PART 1
ITEM 1. FINANCIAL STATEMENTS
Important Explanatory Note
This integrated Form 10-Q is filed pursuant to the Securities Exchange Act of
1934, as amended, for each of ACME Intermediate Holdings, LLC ("ACME
Intermediate") and its subsidiary, ACME Television, LLC ("ACME Television").
Separate financial information has been provided for each entity and, where
appropriate, separate disclosure. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to such rules and
regulations. It is suggested that these Consolidated Financial Statements be
read in conjunction with the financial information set forth in the Annual
Reports on Form 10-K of each of ACME Intermediate Holdings, LLC and ACME
Television, LLC for the fiscal year ended December 31, 1997.
Unless the context requires otherwise, references to the "Company" refers to
both ACME Intermediate and ACME Television.
3
<PAGE> 4
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
Consolidated Balance Sheets
(Unaudited - In thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1998
---------------------------- ------------------------------
ACME ACME
ACME INTERMEDIATE ACME INTERMEDIATE
ASSETS TELEVISION HOLDINGS TELEVISION HOLDINGS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 8,820 $ 8,820 $ 1,288 $ 1,288
Accounts receivable, net 699 677 8,812 8,812
Due from affiliates 162 54 132 39
Current portion of program broadcast rights 614 614 4,416 4,416
Prepaid expenses and other assets 3,032 3,060 823 823
Deferred income taxes -- -- 342 342
--------- --------- --------- ---------
Total current assets 13,327 13,225 15,813 15,720
Property and equipment, net 7,346 7,346 13,131 13,131
Program broadcast rights, less current
portion 587 587 10,322 10,322
Intangible assets, net 36,004 36,004 230,574 230,574
Investment in affiliates -- -- 5,766 5,766
Deposits 143,000 143,000 163 163
Other assets 17,418 19,010 10,624 12,223
--------- --------- --------- ---------
$ 217,682 $ 219,172 $ 286,393 $ 287,899
========= ========= ========= =========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable $ 3,361 $ 3,363 $ 2,669 $ 2,669
Accrued expenses 651 651 6,363 6,363
Notes payable to banks -- -- 8,000 8,000
Current portion of program rights payable 653 653 6,825 6,825
Current portion of obligations under lease 292 292 819 819
Other current liabilities -- -- -- 28
--------- --------- --------- ---------
Total current liabilities 4,957 4,959 24,676 24,704
Program broadcast rights payable, net of
current portion 1,351 1,351 8,204 8,204
Obligations under lease, net of current
portion 443 443 2,457 2,457
Deferred taxes -- -- 33,140 33,140
Other liabilities -- -- 1,654 1,654
Senior discount notes 130,833 130,833 141,598 141,598
Senior secured notes -- 36,863 -- 40,668
--------- --------- --------- ---------
Total liabilities 137,584 174,449 211,729 252,425
--------- --------- --------- ---------
Members' deficit 85,516 51,357 92,561 58,400
Accumulated deficit (5,418) (6,634) (17,897) (22,926)
--------- --------- --------- ---------
Total members' capital 80,098 44,723 74,664 35,474
--------- --------- --------- ---------
Total liabilities and members' capital $ 217,682 $ 219,172 $ 286,393 $ 287,899
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
Consolidated Statements of Operations and Members' Capital
(Unaudited - In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------------
1997 1998
---------------------------- ----------------------------
ACME ACME
ACME INTERMEDIATE ACME INTERMEDIATE
TELEVISION HOLDINGS TELEVISION HOLDINGS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Broadcast revenues $ 759 $ 759 $ 11,805 $ 11,805
Operating expenses:
Programming 439 439 4,610 4,610
Selling, general and administrative 1,291 1,291 5,234 5,234
LMA fees -- -- -- --
Depreciation and amortization 385 385 3,534 3,534
-------- -------- -------- --------
Operating expenses 2,115 2,115 13,378 13,378
Operating loss (1,356) (1,356) (1,573) (1,573)
Interest income (3) (3) 20 20
Interest expense (112) (112) (4,102) (5,404)
Gain on sale of asset -- -- 1,112 1,112
-------- -------- -------- --------
Loss before taxes (1,471) (1,471) (4,543) (5,845)
Income tax benefit -- -- 402 402
-------- -------- -------- --------
Net loss (1,471) (1,471) (4,141) (5,443)
Parent's contribution 59,852 21,537 -- --
Unit offering -- 4,162 -- --
Members' capital (deficit) at beginning of period 23,897 23,897 78,805 40,917
-------- -------- -------- --------
Members' capital at end of period $ 82,278 $ 48,125 $ 74,664 $ 35,474
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
Consolidated Statements of Operations and Members' Capital
(Unaudited - In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------------
1997 1998
---------------------------- ----------------------------
ACME ACME
ACME INTERMEDIATE ACME INTERMEDIATE
TELEVISION HOLDINGS TELEVISION HOLDINGS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Broadcast revenues $ 2,155 $ 2,155 $ 31,132 $ 31,132
Operating expenses:
Programming 1,096 1,096 11,073 11,073
Selling, general and administrative 3,173 3,173 14,902 14,902
LMA fees -- -- 228 228
Depreciation and amortization 551 551 7,715 7,715
-------- -------- -------- --------
Operating expenses 4,820 4,820 33,918 33,918
Operating loss (2,665) (2,665) (2,786) (2,786)
Interest income -- -- 208 208
Interest expense (573) (573) (11,785) (15,600)
Gain on sale of asset -- -- 1,112 1,112
-------- -------- -------- --------
Loss before taxes (3,238) (3,238) (13,251) (17,066)
Income tax benefit -- -- 767 767
-------- -------- -------- --------
Net loss (3,238) (3,238) (12,484) (16,299)
Parent's contribution 85,516 47,201 7,050 7,050
Unit Offering -- 4,162 -- --
Members' capital at beginning of period -- -- 80,098 44,723
-------- -------- -------- --------
Members' capital at end of period $ 82,278 $ 48,125 $ 74,664 $ 35,474
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1998 1997
------------------------------- -------------------------------
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 (16,299) (12,484) (3,238) (3,238)
Adjustments to reconcile net loss to net cash -- -- -- --
provided by operating activities: -- -- -- --
Depreciation and amortization 7,715 7,715 551 551
Amortization of discount on Senior Notes & debt
issuance costs 14,580 10,765 -- --
Gain on sale of assets (1,112) (1,112) -- --
Changes in assets and liabilities: -- -- -- --
Increase in accounts receivable, net (3,794) (3,794) (405) (405)
Increase in program contracts (5,545) (5,545) (102) (102)
Increase in prepaid expenses and other current assets (876) (876) (201) (201)
Decrease in deferred income tax liability (560) (560) -- --
Increase (decrease) in accounts payable (1,697) (1,697) 714 714
Increase in accrued expenses 3,083 3,083 499 499
Increase (decrease) in programming rights payable 4,767 4,767 (150) (150)
Decrease in other liabilities (710) (710) -- --
-------- -------- -------- --------
Net cash used in operating activities (448) (448) (2,332) (2,332)
-------- -------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (3,990) (3,990) (854) (854)
Deposit relating to acquisition agreement -- -- (143,016) (143,016)
Debt issuance costs -- -- (4,678) (3,135)
Cash acquired in acquisition 779 779 -- --
Purchase of station (14,450) (14,450) (76) (76)
Purchase of construction permit (2,225) (2,225) -- --
Sale of construction permit 3,337 3,337 -- --
-------- -------- --------
Net cash used in investing activities (16,549) (16,549) (145,757) (145,757)
-------- -------- -------- --------
Cash flows from financing activities:
Increase in notes payable to bank 11,000 11,000 3,500 3,500
Payments of notes payable to bank (3,000) (3,000) -- --
Contribution from Parent -- -- 9,296 47,565
Issuance of Senior Discount Notes -- -- 127,370 127,370
Issuance of Senior Secured Notes -- -- 35,650 --
Issuance of note receivable -- -- (1,811) (1,811)
Additions to capital leases, net of repayments 1,465 1,465 -- --
Issuance of Units -- -- 4,162 --
-------- -------- -------- --------
Net cash provided by financing activities 9,465 9,465 168,474 168,474
-------- -------- -------- --------
Net increase (decrease) in cash (7,532) (7,532) 27,211 27,211
Cash at beginning of period 8,820 8,820 -- --
-------- -------- -------- --------
Cash at end of period 1,288 1,288 27,211 27,211
======== ======== ======== ========
Cash Payments for:
Interest 422 422 540 540
Taxes -- -- -- --
======== ======== ======== ========
Non-Cash Transactions:
Contribution of Parent in exchange for
membership units 7,050 7,050 23,075 23,075
Due from Affiliate in exchange for membership units -- -- 14,830 14,830
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
7
<PAGE> 8
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
Consolidated Statements of Cash Flows, Continued
(Unaudited - In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------------------------------------
1997 1998
---------------------------- ----------------------------
ACME ACME
ACME INTERMEDIATE ACME INTERMEDIATE
TELEVISION HOLDINGS TELEVISION HOLDINGS
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 540 $ 540 $ 422 $ 422
Income taxes -- -- -- --
======= ======= ======= =======
Noncash transactions:
Contribution of station assets from parent
in exchange for membership units $23,075 $23,075 $ 7,050 $ 7,050
Due from Affiliates 14,876 14,830 -- --
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
ACME INTERMEDIATE HOLDINGS, LLC ("ACME Intermediate") is a holding company
with no assets or independent operations other than its investment in ACME
TELEVISION, LLC ("ACME Television"). ACME Television, through its
subsidiaries, owns, operates and / or holds licenses or options to acquire
six commercially licensed broadcast television stations (the "Stations")
located throughout the United States.
ACME Intermediate was formed on August 8, 1997. Upon formation, ACME
Intermediate received a contribution from ACME Television Holdings, LLC
(ACME Parent) of ACME Parent's wholly-owned subsidiaries - ACME Television
of Oregon, LLC ("ACME Oregon") and ACME Television of Tennessee, LLC
("ACME Tennessee") and certain other assets. This contribution was made in
exchange for membership units in ACME Intermediate and was treated as a
transaction between entities under common control, similar to a pooling of
interests. Accordingly, the transaction was recorded at historical cost
and ACME Intermediate has reflected the results of operations of the
entities contributed for all of the periods presented.
ACME Television was formed on August 15, 1997. Upon formation, ACME Parent
contributed to ACME Television, through ACME Intermediate, the net assets
of ACME Oregon, ACME Tennessee and other net assets in exchange for
membership units.
The accompanying unaudited consolidated financial statements of ACME
Intermediate include the accounts of ACME Intermediate and ACME
Television. The accompanying unaudited consolidated financial statements
of ACME Television include the accounts of ACME Television and its
subsidiaries. All significant intercompany items and transactions have
been eliminated in each of the sets of consolidated financial statements.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for the fair presentation of the financial position
as of September 30, 1998 and the results of operations for the three
months ended September 30, 1998 have been included. Operating results for
the three months ended September 30, 1998 are not necessarily indicative
of the results that may be expected for the fiscal year ending December
31, 1998. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Annual Reports on Form
10-K of each of ACME Television and ACME Intermediate for the year ended
December 31, 1997.
NOTE 2 - ACQUISITIONS
ACME Parent was formed in 1997 and operated only one station (under a
Local Marketing Agreement, an "LMA") - KWBP Channel 32, serving Portland,
Oregon - during the second quarter of 1997. In September 1997, ACME Parent
completed its acquisition of KWBP. During the fourth quarter of 1997, ACME
Television completed its acquisition of WBXX Channel 20, serving
Knoxville, Tennessee and launched the station, which was previously off
the air.
In September 1997, ACME Parent entered into, and subsequently assigned to
ACME Television Holdings of Missouri, Inc. ("ACME Missouri"), a purchase
agreement to acquire station KPLR Channel 11, serving St. Louis, Missouri,
and effective October 1, 1997, began operating the station pursuant to an
LMA. The acquisition was completed in March 1998, at which time the LMA
was terminated. The total purchase price was $145 million. The acquisition
was accounted for under the purchase method. The
9
<PAGE> 10
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
Notes to Consolidated Financial Statements, Continued
(Unaudited)
excess of the purchase price over the fair value of net assets acquired
(including $83 million allocated to the FCC license) of approximately $62
million was recorded as goodwill and is being amortized on a straight line
basis over 20 years.
In early March 1998, the Company entered into an agreement to purchase
station WTVK Channel 46, serving the Ft. Myers / Naples, Florida
marketplace and began operating the station pursuant to an LMA. ACME
Television received regulatory approvals and completed its acquisition of
WTVK on June 30, 1998 for a purchase price of approximately $15.6 million.
In connection with this transaction, $1.045 million in membership units
were issued to the sellers by ACME Parent, which was treated as a capital
contribution to ACME Television through ACME Intermediate.
ACME Television also owns a 49% interest in KUPX - Channel 16 (formerly
KZAR) serving the Salt Lake City, Utah marketplace and has exercised its
option to acquire the remaining interests in the station which was granted
its license from the FCC in May 1998. The acquisition of this remaining
interest has not yet been completed, is subject to regulatory approvals
and is not reflected in the accompanying financial statements. ACME
Television and the majority owners of KUPX have entered into an agreement
with another broadcaster in the Salt Lake City market to swap KUPX for
KUWB Channel 30, which ACME Television has operated since April 1998 under
an interim LMA. The swap of channels is subject to regulatory approvals.
In January 1998 ACME Television acquired the construction permit for
station KWBQ Channel 19 (formerly KAUO) serving the Albuquerque, New
Mexico marketplace. ACME Television expects the station to be built and
operational by January 1999.
The following table summarizes the operational status of each of the
stations as of September 30, 1998:
<TABLE>
<CAPTION>
STATIONS IN OPERATION DATE OF LMA DATE ACQUIRED
--------------------------- ------------------- ------------------
<S> <C> <C>
Portland, Oregon January 1997 June 1997
St. Louis, Missouri October 1997 March 1998
Knoxville, Tennessee (1) October 1997
Ft. Myers / Naples, March 1998 June 1998
Florida
Salt Lake City, Utah - KUWB April 1998
Salt Lake City, Utah - KUPX January 1998(2)
</TABLE>
(1) Commenced operations in October 1997.
(2) 49% interest.
<TABLE>
<CAPTION>
STATION NOT IN OPERATION DATE ACQUIRED
----------------------------------- -------------------------
<S> <C>
Albuquerque, New Mexico January 1998
</TABLE>
In January 1998, ACME Television Licenses of Tennessee, LLC, which is
wholly owned by ACME TV, became the applicant for a construction permit
("CP") for KWMB TV in Harrison, Arkansas through a settlement agreement
with other applicants. The CP was subsequently assigned to Carman-Harrison
LLC on September 11, 1998 resulting in a gain of $1,112,000 recognized by
the Company at September 30, 1998.
NOTE 3 - RECENT PRONOUNCEMENTS
In September 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" which is effective for fiscal
10
<PAGE> 11
ACME TELEVISION, LLC AND
ACME INTERMEDIATE HOLDINGS, LLC
Notes to Consolidated Financial Statements, Continued
(Unaudited)
periods beginning after December 15, 1997. SFAS No. 130 establishes
standards for reporting and displaying comprehensive income and its
components. ACME Intermediate and ACME Television believe SFAS No. 130
will not have an effect on the manner in which they currently report.
In September 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" which is effective for
fiscal periods beginning after December 15, 1997. SFAS No. 131 establishes
standards for reporting information about operating segments and for
related disclosures about products, services, geographic areas and major
customers. ACME Intermediate and ACME Television do not divide the
business into segments and, accordingly, do not believe SFAS No. 131 will
have any applicability to the Company's financial reporting.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133")
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments
and hedging activities. SFAS 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999. ACME Intermediate and ACME
Television are determining the effect of SFAS 133 on their financial
statements.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
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:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- -------------------------
1997 1998 1997 1998
------- ------- ------- -------
<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)
------- ------- ------- -------
Broadcast cash flow(1) $ (589) 2,610 (1,313) 7,211
======= ======= ======= =======
</TABLE>
(1) Broadcast cash flow is defined as operating income, plus depreciation and
amortization, program amortization and corporate overhead, less program payments
- - the latter as adjusted to reflect reductions for impaired or expired rights in
connection with acquisitions. The Company has included broadcast cash flow data
because the Company believes such data is a useful measure for evaluating the
operating performance of the Company's stations. Broadcast cash flow eliminates
the effect of depreciation and amortization which relate to acquisitions under
the purchase method of accounting, the impact of accelerated program
amortization and the impact of corporate expenses, and allows for an evaluation
of the operating performance of the Company's stations relative to that of the
Company's competitors which may not have similar depreciation, amortization or
corporate structures. 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 loss 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.
12
<PAGE> 13
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
Television and $5.4 million for ACME Intermediate, primarily representing the
amortization of original issuance discount of the 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
Televisions' 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 Television 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. ACME Televisions'
Missouri operations, after deduction of allocable interest charges, generated a
net taxable loss. ACME Television has not recognized the benefit of such a loss.
ACME Television 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.
ACME Television 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 Television 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 ACME Televisions' 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
ACME Televisions' 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 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 Television'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 Television 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.
ACME Television 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 Television 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 used in operating activities were $448,000 during the nine months
ended September 30, 1998 compared to cash flows used by operating activities of
$2.3 million during the nine months ended September 30, 1997, an increase of
$1.9 million. This increase was primarily due to higher broadcast cash flow
offset by increased working capital needs.
Cash flows used in investing activities were $16.5 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 $9.5 million related to additions to capital leases, net
of repayments and to paydowns of prior year-end financing related liabilities,
compared to cash flows provided by financing activities of $175.3 million 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 ACME Television, 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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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ACME Televisions' 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.
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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: April 22, 1999 By: /s/ Douglas E. Gealy
-----------------------------------
Douglas E. Gealy, President
Date: April 22, 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: April 22, 1999 By: /s/ Douglas E. Gealy
-----------------------------------
Douglas E. Gealy, President
Date: April 22, 1999 By: /s/ Thomas D. Allen
-----------------------------------
Thomas D. Allen
Executive Vice President/CFO
(principal financial officer)
17
