<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
---------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 Charters)
<TABLE>
<S> <C> <C>
DELAWARE ACME INTERMEDIATE HOLDINGS, LLC 52-2050589
DELAWARE ACME TELEVISION, LLC 52-2050588
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identifications No.)
</TABLE>
2101 E. FOURTH STREET, SUITE 202A
SANA ANA, CALIFORNIA, 92705
(714) 245-9499
(Address and Telephone number of Principal Executive Offices)
---------------
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 Intermediate Holdings, LLC are owned
directly or indirectly by ACME Communications, Inc. 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 and, therefore,
have no separate, quantifiable market value.
As of November 14, 2000, ACME Intermediate Holdings, LLC and ACME Television,
LLC had 910,986 and 200, respectively, common membership units outstanding; all
such units are owned, directly or indirectly, by ACME Communications, Inc.
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<PAGE> 2
ACME INTERMEDIATE HOLDINGS, LLC
AND
ACME TELEVISION, LLC
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM
NUMBER PAGE
------ ----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000....................3
Consolidated Statements of Operations and Members' Capital for the Three Months Ended
September 30, 1999 and September 30, 2000......................................................4
Consolidated Statements of Operations and Members' Capital for the Nine Months Ended
September 30, 1999 and September 30, 2000......................................................5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and September 30, 2000......................................................6
Notes to Consolidated Financial Statements.....................................................7
Item 2. Management's Discussion and Analysis of Financial Condition and Results Of Operations..............8
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................13
Item 6. Exhibits and Reports on Form 8-K..................................................................13
</TABLE>
2
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ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999 AS OF SEPTEMBER 30, 2000
-------------------------------- --------------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------- --------------- ------------- ---------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,012 $ 4,012 $ 6,986 $ 6,986
Accounts receivable, net 13,978 13,978 12,945 12,945
Due from affiliates -- 128 -- 128
Current portion of programming rights 11,331 11,331 10,620 10,620
Prepaid expenses and other current assets 1,065 1,065 1,052 1,052
Deferred income taxes 2,448 2,448 1,148 1,148
--------- --------- --------- ---------
Total current assets 32,834 32,962 32,751 32,879
Property and equipment, net 25,116 25,116 27,114 27,114
Programming rights, net of current portion 14,704 14,704 11,758 11,758
Intangible assets, net 282,972 282,972 271,768 271,768
Other assets 11,295 9,760 11,273 9,812
--------- --------- --------- ---------
Total assets $ 366,921 $ 365,514 $ 354,664 $ 353,331
========= ========= ========= =========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable 5,330 5,330 5,158 5,158
Accrued liabilities 8,142 8,142 4,331 4,331
Due to affiliates 1,188 1,188 1,170 1,170
Current portion of programming rights
payable 10,727 10,727 11,363 11,363
Current portion of obligations under
lease 1,617 1,617 1,832 1,832
--------- --------- --------- ---------
Total current liabilities 27,004 27,004 23,854 23,854
Programming rights payable, net of
current portion 13,605 13,605 9,779 9,779
Obligations under lease, net of
current portion 5,796 5,796 5,242 5,242
Other liabilities 259 259 250 250
Deferred income taxes 25,187 25,799 18,134 20,666
10 7/8% senior discount notes 161,695 161,695 175,000 175,000
12% senior secured notes 47,970 -- 52,921 --
--------- --------- --------- ---------
Total liabilities 281,516 234,158 285,180 234,791
Members' capital 182,728 216,889 183,125 217,286
Accumulated deficit (97,323) (85,533) (113,641) (98,746)
--------- --------- --------- ---------
Total members' capital 85,405 131,356 69,484 118,540
Total liabilities and
members' capital $ 366,921 $ 365,514 $ 354,664 $ 353,331
========= ========= ========= =========
</TABLE>
See the notes to the consolidated financial statements.
3
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ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------
1999 2000
------------------------------- -------------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------- --------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues $ 15,803 $ 15,803 $ 18,045 $ 18,045
-------- -------- -------- ---------
Operating expenses:
Station operating expenses 12,829 12,829 12,804 12,804
Depreciation and amortization 4,847 4,847 4,967 4,967
Corporate 3,897 3,897 758 758
Equity-based compensation 28,856 28,856 132 132
-------- -------- -------- ---------
Operating loss (34,626) (34,626) (616) (616)
Other income (expenses):
Interest income 49 49 75 75
Interest expense (6,752) (5,259) (6,724) (5,011)
Other -- -- 1 --
-------- -------- -------- ---------
Net loss before income taxes (41,329) (39,836) (7,264) (5,552)
Income tax benefit 3,421 3,421 1,050 396
-------- -------- -------- ---------
Net loss $(37,908) $(36,415) $ (6,214) $ (5,156)
Equity-based compensation 28,856 28,856 132 132
Redeemable preferred dividend (884) -- -- --
Total members' capital at the
beginning of the period 12,875 71,709 75,566 123,564
-------- -------- -------- ---------
Total members' capital at the
end of the period $ 2,939 $ 64,150 $ 69,484 $ 118,540
======== ======== ======== =========
</TABLE>
See the notes to the consolidated financial statements.
4
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ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------
1999 2000
------------------------------- -------------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------- --------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues $ 42,438 $ 42,438 $ 53,432 $ 53,432
-------- -------- -------- ---------
Operating expenses:
Station operating expenses 32,819 32,819 39,381 39,381
Depreciation and amortization 13,006 13,006 14,859 14,859
Corporate 5,380 5,380 2,578 2,578
Equity-based compensation 39,556 39,556 397 397
-------- -------- -------- ---------
Operating loss (48,323) (48,323) (3,783) (3,783)
Other income (expenses):
Interest income 69 69 118 118
Interest expense (19,182) (14,804) (19,796) (14,771)
Gain on sale of assets, net -- -- 1,511 1,511
Other -- -- (4) (4)
-------- -------- -------- ---------
Net loss before income taxes (67,436) (63,058) (21,954) (16,929)
Income tax benefit 1,357 1,357 5,636 3,716
-------- -------- -------- ---------
Net loss $(66,079) $(61,701) (16,318) (13,213)
Equity-based compensation 39,556 39,556 397 397
Redeemable preferred dividend (1,250) 15,000 -- --
Total members' capital at the
beginning of the period 30,712 71,295 85,405 131,356
-------- -------- -------- ---------
Total members' capital at the
end of the period $ 2,939 $ 64,150 $ 69,484 $ 118,540
======== ======== ======== =========
</TABLE>
See the notes to the consolidated financial statements.
5
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ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1999 2000
------------------------------ ----------------------------
ACME ACME ACME ACME
INTERMEDIATE TELEVISION, INTERMEDIATE TELEVISION,
HOLDINGS, LLC LLC HOLDINGS, LLC LLC
------------- ----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(66,079) $(61,701) $(16,318) $(13,213)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 13,006 13,006 14,859 14,859
Amortization of program rights 5,560 5,560 9,890 9,890
Amortization of debt issuance costs 441 404 911 911
Amortization of discount on 10 7/8% senior
discount notes 11,967 11,967 13,305 13,305
Amortization of discount on 12% senior
secured notes 4,341 -- 4,951 --
Gain on sale of assets, net -- -- (1,511) (1,511)
Equity-based compensation 39,556 39,556 397 397
Deferred taxes (1,357) (1,357) (5,636) (3,716)
Changes in assets and liabilities:
(Increase) decrease in accounts receivables, net (2,181) (2,181) 1,033 1,033
(Increase) decrease in prepaid expenses (1,656) (1,656) 13 13
Decrease in due from affiliates 236 111 -- --
Increase in other assets (1,853) (1,853) (382) (456)
Increase (decrease) in accounts payable 669 669 (172) (172)
Increase (decrease) in accrued liabilities 6,992 6,992 (3,811) (3,811)
Payments on programming rights payable (6,906) (6,906) (9,423) (9,423)
Decrease in due to affiliates -- -- (18) (18)
Decrease in other liabilities (1,499) (1,374) (126) (126)
-------- -------- -------- --------
Net cash provided by operating activities 1,237 1,237 7,962 7,962
Cash flows from investing activities:
Purchase of property and equipment (4,333) (4,333) (6,457) (6,457)
Proceeds from the sale of assets -- -- 2,634 2,634
Purchase of and deposits for station interests (43,071) (43,071) (826) (826)
-------- -------- -------- --------
Net cash used in investing activities (47,404) (47,404) (4,649) (4,649)
Cash flows from financing activities:
Increase in revolving credit facility 32,000 32,000 -- --
Payments of capital lease obligations, net (1,030) (1,030) (339) (339)
Issuance of redeemable preferred membership units 15,000 15,000 -- --
-------- -------- -------- --------
Net cash provided by (used in) financing activities 45,970 45,970 (339) (339)
Net decrease in cash (197) (197) 2,974 2,974
Cash at beginning of period 953 953 4,012 4,012
-------- -------- -------- --------
Cash at end of period $ 756 $ 756 $ 6,986 $ 6,986
======== ======== ======== ========
Cash payments for:
Interest $ 2,069 $ 2,069 $ 209 $ 209
Taxes $ 102 $ 102 $ 176 $ 176
======== ======== ======== ========
Non-cash transactions:
Addition of program rights contracts $ 18,099 $ 18,099 $ 6,006 $ 6,006
======== ======== ======== ========
Dividend on redeemable preferred stock $ 1,250 $ -- $ -- $ --
======== ======== ======== ========
Exchange of note receivable and option deposit as
purchase consideration for station interest $ 7,000 $ 7,000 $ -- $ --
======== ======== ======== ========
</TABLE>
See the notes to the consolidated financial statements.
6
<PAGE> 7
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000
(1) FORMATION AND DESCRIPTION OF THE BUSINESS
REORGANIZATION OF PARENT
ACME Communications, Inc. was formed on July 23, 1999, in preparation for
and in conjunction with an initial public offering of its stock.
On September 27, 1999, the Board of Advisors of ACME Television Holdings,
LLC the parent company of ACME Intermediate Holdings, LLC ("ACME Intermediate")
and its wholly-owned subsidiary ACME Television, LLC ("ACME Television") and its
members and the Board of Directors of ACME Communications, Inc. and its
stockholder approved a merger and reorganization (the "Reorganization"), whereby
ACME Communications, Inc., became the direct parent of ACME Television Holdings,
LLC. As a result of the Reorganization, ACME Communications, Inc. is the
ultimate parent of ACME Intermediate and its wholly-owned subsidiary ACME
Television. All transactions contemplated as part of the Reorganization closed
on October 5, 1999. References to "ACME Parent" herein refer to either ACME
Television Holdings, LLC, or, subsequent to the Reorganization, ACME
Communications, Inc.
FORMATION
ACME Intermediate was formed on August 8, 1997. Upon formation, ACME
Intermediate received a contribution from 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 net
assets. This Contribution of $25,455,000 (including cash of $2,380,000) 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 contributed entities
for the year ended December 31, 1997. In addition, on September 30, 1997, ACME
Parent made an additional contribution of $21,746,000 in exchange for membership
units in ACME Intermediate.
ACME Television was formed on August 8, 1997. Upon formation, ACME
Television received a contribution from ACME Parent through ACME Intermediate of
ACME Parent's wholly-owned subsidiaries - ACME Oregon and ACME Tennessee and
certain other net assets. This Contribution of $25,455,000 (including cash of
$2,380,000) was made in exchange for membership units in the Company 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 Television has reflected the results of operations of the
contributed entities for the year ended December 31, 1997. In addition, on
September 30, 1997, ACME Intermediate made an additional contribution of
$60,061,000 in exchange for membership units in ACME Television.
ACME Parent owns directly or indirectly, 100% of the outstanding member
units of ACME Intermediate. ACME Intermediate owns, directly or indirectly, 100%
of the outstanding member units of ACME Television.
7
<PAGE> 8
DESCRIPTION OF THE BUSINESS
ACME Intermediate is a holding company with no independent operations other
than its indirect wholly-owned subsidiary, ACME Television. ACME Television,
through its wholly-owned subsidiaries, owns and operates the following ten
commercially licensed broadcast television stations located throughout the
United States:
<TABLE>
<CAPTION>
STATION MARKET
(CALLS / CHANNEL) RANK (*) AFFILIATION
----------------- -------- -----------
<S> <C> <C> <C>
St. Louis, MO......................... KPLR - 11 22 WB
Portland, OR.......................... KWBP - 32 23 WB
Salt Lake City, UT.................... KUWB - 30 36 WB
Albuquerque-Santa Fe, NM.............. KWBQ - 19 50 WB
Albuquerque-Santa Fe, NM.............. KASY - 50 50 UPN
Dayton, OH............................ WBDT - 26 55 WB
Knoxville, TN......................... WBXX - 20 63 WB
Green Bay-Appleton, WI................ WIWB - 14 69 WB
Ft. Myers-Naples, FL.................. WTVK - 46 81 WB
Champaign-Springfield-Decatur, IL..... WBUI - 23 83 WB
</TABLE>
----------
(*) - per A.C. Nielsen, based on television households
(2) PRESENTATION OF INTERIM FINANCIAL STATEMENTS
Financial statements are presented for each of ACME Intermediate Holdings,
LLC and its wholly owned subsidiary, ACME Television, LLC. Unless the context
requires otherwise, references to the "Company" refers to both ACME Intermediate
and ACME Television. Segment information is not presented since all of the
Company's revenue is attributed to a single reportable segment - television
broadcasting. Certain amounts previously reported for 1999 have been
reclassified to conform to the 2000 financial statement presentation.
The accompanying consolidated financial statements for the three and nine
month periods ended September 30, 2000 and 1999 are unaudited and have been
prepared in accordance with generally accepted accounting principles, the
instructions to this Form 10-Q and Article 10 of Regulation S-X. In the opinion
of management, such financial statements include all adjustments (consisting of
normal recurring accruals) considered necessary for the fair presentation of the
financial position and the results of operations, and cash flows for these
periods. As permitted under the applicable rules and regulations of the
Securities and Exchange Commission, these financials statements do not include
all disclosures and footnotes normally included with annual consolidated
financial statements, and accordingly, should be read in conjunction with the
consolidated financial statements, and the notes thereto, included in the
Company's Annual Report on Form 10-K filed with the SEC on March 30, 2000. The
results of operations presented in the accompanying financial statements are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
(3) RELATED PARTY TRANSACTION
On May 31, 2000, the Company sold to and leased-back from Roberts Brothers
Properties, III, LLC ("RBPIII"), the studio building for our stations KWBQ and
KASY in Albuquerque, NM. Mr. Michael Roberts, who is a member of ACME Parent's
board of directors, and Mr. Steven Roberts, his brother, who is a shareholder of
ACME Parent, control RBPIII. The sale and leaseback of the building was set
forth in an option granted in 1999 to an entity the Roberts brothers controlled.
In accordance with the option agreement, the property was sold back at our
original cost, however, transaction charges associated with the sale resulted in
a loss of approximately $65,000, which is included in the gain on sale of
assets, net, on the accompanying consolidated statement of operations
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited consolidated financial statements and related notes included elsewhere
in this report on Form 10-Q and with the audited financial statements and
Management's Discussion and Analysis contained in the Company's Form 10-K for
the year ended December 31, 1999.
Forward-Looking Statements:
This report includes forward-looking statements. In addition, when used in
this report, the words "believe," "expects" and any 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
as a result of various important factors, including (but not limited to) the
impact of changes in national and regional economies, our ability to service our
outstanding debt, successful integration of acquired entities (including
achievement of synergies and cost reductions), pricing fluctuations in
8
<PAGE> 9
local and national advertising, volatility in programming costs, the effects of
governmental regulation of broadcasting and the other risk factors set forth in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 30, 2000. 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.
OVERVIEW
We derive our revenues primarily from the sale of advertising time to local,
regional and national advertisers. Our revenues depend on popular programming
that attracts audiences in the demographic groups targeted by advertisers,
allowing us to sell advertising time at satisfactory rates. Our revenues also
depend significantly on factors such as the national and local economy and the
level of local competition.
Our revenues are generally highest during the fourth quarter of each year,
primarily due to increased expenditures by advertisers in anticipation of
holiday season consumer spending and an increase in viewership during this
period. We generally pay commissions to advertising agencies on local, regional
and national advertising and to national sales representatives on national
advertising. Our revenues reflect deductions from gross revenues for commissions
payable to advertising agencies and national sales representatives.
Our primary station operating expenses are programming costs, employee
compensation, advertising and promotion expenditures and depreciation and
amortization. Programming expense consists primarily of amortization of
broadcast rights relating to syndicated programs as well as news production and
sports rights fees. Changes in employee compensation expense result primarily
from increases in total staffing levels, from adjustments to fixed salaries
based on individual performance, inflation and from changes in sales commissions
paid to our sales staff based on levels of advertising revenues. Advertising and
promotion expenses consist primarily of media and related production costs
resulting from the promotion of our stations and programs. This amount is net of
any reimbursement received or due to us for such advertisement and promotion
from The WB Network or from other program suppliers.
RESULTS OF OPERATIONS
The following tables set forth selected operating and cash flow data:
BROADCAST CASH FLOW AND ADJUSTED EBITDA(1):
<TABLE>
<CAPTION>
ACME INTERMEDIATE AND ACME TELEVISION ACME INTERMEDIATE AND ACME TELEVISION
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------- -------------------------------------
1999 2000 1999 2000
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Operating loss $(34,626) $ (616) $(48,323) $ (3,783)
Add back:
Equity-based compensation 28,856 132 39,556 397
Depreciation and amortization 4,847 4,967 13,006 14,859
Amortization of program rights 2,310 3,543 5,560 9,890
Corporate expenses 3,897 758 5,380 2,578
Adjusted program payments (1) (2,410) (3,198) (5,789) (9,328)
-------- ------- -------- --------
Broadcast cash flow 2,874 5,586 9,390 14,613
Less:
Corporate expenses 3,897 758 5,380 2,578
-------- ------- -------- --------
Adjusted EBITDA (1) $ (1,023) $ 4,828 $ 4,010 $ 12,035
Broadcast cash flow margin (1) 18.2% 31.0% 22.1% 27.3%
Adjusted EBITDA margin (1) (6.5)% 26.8% 9.4% 22.5%
CASH FLOWS PROVIDED BY (USED IN):
Operating activities $ 1,237 $ 7,962
Investing activities $(47,404) $(4,649)
Financing activities $ 45,970 $ (339)
</TABLE>
9
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------------
(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 and adjusted to allocate evenly over the payment term any
advance deposits;
- adjusted EBITDA as broadcast cash flow less corporate expenses;
- broadcast cash flow margin as broadcast cash flow as a percentage of net
revenues; and
- adjusted EBITDA margin as adjusted EBITDA as a percentage of net
revenues.
We have included broadcast cash flow, broadcast cash flow margin, adjusted
EBITDA and adjusted EBITDA margin data because management believes that
these measures are useful to an investor to evaluate our ability to service
debt and to assess the earning ability of our stations' operations. However,
you should not consider these items in isolation or as substitutes for net
income, cash flows from operating activities and other statement of
operations or cash flows data prepared in accordance with generally accepted
accounting principles. These measures are not necessarily comparable to
similarly titled measures employed by other companies.
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 vs SEPTEMBER 30, 1999
Operations:
Net revenues increased 14% to $18.0 million for the third quarter and 26% to
$53.4 for the nine months of 2000 compared to $15.8 million and $42.4 million
for the same periods a year ago. For the third quarter, these increases
primarily reflect the continued significant growth (averaging 33%) at our
developing stations, which continue make gains in both audience and revenue
shares. For the nine-month period, our revenue increase was even greater as a
result of the four stations we acquired since June 1, 1999 (WBDT - Dayton, WIWB
- Green Bay/Appleton, WBUI - Champaign/ Decatur/Springfield and KASY -
Albuquerque/Santa Fe, collectively the "Acquired Stations"). These increases
were offset somewhat by a reduction in baseball revenues at KPLR due to the
conversion of our St. Louis Cardinal contract from a rights fee arrangement in
1999, where we paid the Cardinals a rights fee and sold the advertising time, to
a time period buy in 2000, where the Cardinals paid KPLR to run the games and
sold the advertising time themselves. The resulting impact of this change is
significantly reduced baseball revenues and the elimination of baseball related
expense in 2000 compared to 1999. On a "Same Station" basis (i.e. reflecting the
results of the nine stations we owned and operated for the full third quarter
and the five stations we owned and operated for the full nine months of 2000 and
1999) and excluding the impact from the conversion of the St. Louis Cardinals
baseball contract, our third quarter 2000 net revenues rose 23%. For the
nine-month period, same station month net revenues rose 24% as compared to 1999.
Station operating expenses for the third quarter were equal to the 1999
expenditures of $12.8 million and increased 20% to $39.4 million as compared to
the nine month period a year ago when station operating expenses were $32.8
million. Increases in operating costs at our developing stations during the
third quarter were offset by the elimination of baseball related expenses at
KPLR, as discussed above. Station expenses for the nine months of 2000 were up
due to the addition of our Acquired Stations and increased spending in
programming and promotion costs, partially offset by the elimination of baseball
related expenses at KPLR.
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Depreciation and amortization increased 3% to $5.0 million in the third
quarter and 14% to $14.9 million for the nine months of 2000 compared to $4.8
million and $13.0 million in the same periods a year ago. These increases
primarily relate to the amortization of intangibles related to the Acquired
Stations and increased depreciation expense due to the addition of property,
plant and equipment since September 1999.
Corporate expenses were $758,000 for the third quarter of 2000 compared to
$3.9 million for the third quarter of 1999, which included a $3.0 million charge
related to bonuses for certain key executives in connection with the successful
completion of ACME Parent's IPO in September 1999 (the "IPO Bonuses"). Apart
from this non-recurring charge, corporate expenses decreased approximately 16%
primarily due to reduced short-term and eliminated long-term incentive
compensation expense for the current period. For the nine-month period,
corporate expenses were $2.6 million for 2000 compared to $5.4 million for 1999.
The $2.8 million decrease relates to the 1999 charge of $3.0 million and a
reduction in incentive compensation expense, offset somewhat by increased
staffing to support the growing operations of our station group.
Equity-based compensation of $132,000 and $397,000 for the three months and
nine months ended September 30, 2000 relates to stock options in ACME Parent
that were issued in 1999 at below market value in connection with the conversion
of our long-term incentive plan awards. The equity-based compensation charge of
$28.9 million in the third quarter of 1999 ($39.6 for the nine month 1999
period) related to management carry units that were issued to our senior
management in June 1997 and which were accounted for as a variable compensation
plan. These management carry units were converted into common stock of ACME
Parent in September 1999 and no further compensation charges related to these
carry units has or will be recorded thereafter.
ACME Intermediate's interest expense for the third quarter of 2000 was $6.7
million and was $19.8 million for the nine month 2000 period. While the third
quarter expense shows no increase from the prior year, interest expense
increased 3% over the nine month 1999 expenses of $19.2 million. The lack of
increase in interest expense for the three month period and the 3% increase for
the nine month period reflect the increased interest expense for ACME
Intermediate's 12% senior secured notes, ACME Television's 10 7/8% senior
discount notes and our capital equipment facility, offset by the reduced
interest in connection with our revolving credit facility and redeemable
preferred membership units which had zero balances in 2000 compared to an
average balance combined of $55.0 million in the third quarter and $37.3 million
for the nine month period 1999.
ACME Television's interest expense for the third quarter of 2000 was $5.0
million a decrease of 5% from the $5.3 million expense in the third quarter of
1999, and was $14.8 million for the nine month period which is equal to the nine
month period of 1999. The decrease of 5% for the third quarter and the lack of
increase in for the nine month period is the result of increased interest
expense for ACME Television's 10 7/8% senior discount notes and our capital
equipment facility, offset by the reduced interest in connection with our
revolving credit facility which had a zero balance in 2000 compared with an
average balance of $40.0 million in the third quarter and $29.9 million for the
nine month period of 1999.
The net gain on the sale of assets of $1.5 million reflects the sale of two
separate studio facilities. In May 2000, we sold our studio building in
Albuquerque, New Mexico and leased it back under a long-term agreement for a
loss of approximately $65,000 (see the Related Party disclosure in the Notes to
the Consolidated Financial Statements in Part I of this filing). In June 2000,
we sold our studio building in St. Louis, Missouri, which resulted in a gain of
$1,576,000. The Company has entered into a leaseback arrangement through
December 2001 with the buyer of the property to allow us adequate time to secure
new studio facilities.
ACME Intermediate and ACME Television's income tax benefits for the third
quarter of 2000 were $1.1 million and $396,000, respectively, and $5.6 million
and $3.7 million for the nine month period, respectively, compared to an income
tax benefit of $3.4 million for each company in the corresponding quarter and
$1.4 million for each company in the corresponding nine-month period of 1999.
Prior to ACME Parent's Reorganization in September 1999, ACME Parent was a
limited liability company, therefore, no income taxes were provided for our
operations other than at our subsidiary ACME Television of Missouri, Inc., which
is a C corporation subject to federal and state taxation. Any liability or
benefit from the Company's non-taxable entities' consolidated income or loss was
the responsibility of, or benefit to, the individual members. Effective with the
Reorganization, ACME Television and ACME Intermediate became part of a
consolidated taxable group and the tax benefit applicable to their respective
consolidated taxable losses is recognized by each of them. The tax benefit for
the third quarter and nine months of 2000 is the result of taxable losses
generated during the periods. The nine month period ending September 30, 1999
benefit reflects the reversal of a $3.0 million expense booked in the first
quarter of 1999 in connection with an inadvertent merger of a C corporation
subsidiary into it's LLC parent. During September 1999, the Company obtained a
judicial rescission of the merger transaction.
Broadcast cash flow for the third quarter of 2000 increased 94% to $5.6
million over the prior year broadcast cash flow of $2.9 million. For the nine
months ended September 30th, broadcast cash flow increased 56% to $14.6 million
in 2000 as compared to $9.4 million in 1999. These increases are primarily the
result of our stations'
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expanding revenue shares within their respective markets driven by their
continued improvements in ratings. Our overall broadcast cash flow margin
increased during the third quarter to 31% compared to 18% a year ago. For the
nine-month period, our broadcast cash flow margin increased to 27% from 22% for
the comparable period in 1999. On a Same Station basis, our broadcast cash flow
increased 85% in the third quarter of 2000 compared to the third quarter of 1999
and increased 38% for the first nine months of 2000 compared to the same period
in 1999.
Adjusted EBITDA for the third quarter of 2000 was $4.8 million compared to a
negative adjusted EBITDA of $1.0 million for the third quarter of 1999, an
increase of $5.8 million. For the nine months ended September 30, 2000, adjusted
EBITDA grew 200% to $12.0 million compared to $4.0 million for the corresponding
nine-month period of 1999. These increases reflect higher broadcast cash flow
and reduced corporate expense as described separately above.
ACME Intermediate's net loss for the third quarter of 2000 was $6.2 million
and ACME Television's was $5.2 million as compared to a net loss for the third
quarter of 1999 of $37.9 million and $36.4 million, respectively. For the first
nine months of 2000, ACME Intermediate's net loss was $16.3 million and ACME
Television's was $13.2 compared to net losses for the nine months of 1999 of
$66.1 million and $61.7 million, respectively. These decreases in the Company's
net losses are attributable to our increased adjusted EBITDA, the significantly
reduced equity-based compensation expense and, for the nine month period, a
significant increase in the income tax benefit, offset by increased amortization
and depreciation expense.
Liquidity and Capital Resources:
Cash flow provided by operating activities was $8.0 million for the nine
months ended September 30, 2000 compared to $1.2 million for 1999. The 2000
figure includes a non-recurring payment of approximately $3.0 million in
executive bonuses related to ACME Parent's September 1999 IPO. Apart from this
payment, cash flow from operations increased by $9.7 million due primarily to
the Company's increased adjusted EBITDA.
Cash flow used in investing activities was $4.6 million during the first
nine months of 2000 compared to $47.4 million used during the same period in
1999. In 2000, investing activities included (a) purchases of broadcast and
other equipment to improve capabilities at the Acquired Stations, (b) the
purchase of a low-power broadcast license for KWBP - Portland, OR to improve our
coverage of the Portland market and (c) transaction related costs in connection
with construction permits in the Albuquerque, NM, Portland, OR, Richmond, VA,
Flint-Saginaw-Bay City, MI and Lexington, KY markets. These outflows in 2000
were partially offset by our sale our studios in St. Louis and Albuquerque.
Investing activity in 1999 included (a) the purchase of three of the four
Acquired Stations, (b) a 25% membership interest in Sylvan Tower, LLC - an
entity formed to build digital transmission facilities to service the Portland,
Oregon marketplace, (c) the purchase of the remaining 51% interest in station
KUPX (which was subsequently swapped for KUWB - Salt Lake City) and (d) the
purchase of studio facilities for KWBP -Portland, Oregon.
Cash flow used in financing activities of $339,000 during the nine months
ended September 30, 2000 related to net payments in excess of new borrowings
under our capital lease facility. Cash flows provided by financing activities
for the same period in 1999 were $46.0 million and consisted of $32.0 million in
borrowings against our revolving credit facility and $15.0 million in the
issuance of redeemable preferred membership units, slightly offset by the excess
of payments over new borrowings under our capital lease facility.
The Company's revolving credit facility allows for borrowings up to
$38.0 million, dependent upon our meeting certain financial ratio tests. The
facility began amortizing quarterly on September 30, 2000 and matures on
September 30, 2004. The facility can be used to fund future acquisitions of
broadcast stations and for general corporate purposes. At September 30, 2000
there were no borrowings outstanding under the facility. Although the Company
was not in compliance with two of our financial covenants at September 30, 2000,
the banks party to this credit facility waived this non-compliance. Based on
this waiver, the Company would have been able to borrow $38.0 million at
September 30, 2000. The Company is currently negotiating with its lenders to
amend these and certain other financial covenants contained in the agreement.
The Company also has capital lease facilities in the aggregate amount of $20
million. Borrowings under these facilities are generally repaid over five years.
As of September 30, 2000, amounts due under the facilities were $7.1 million
bearing an average implicit interest rate of 8.95% per annum. At September 30,
1999, amounts due under the facilities were $6.1 million and bore an average
implicit interest rate of 8.66%.
The Company believes that existing cash balances, funds generated from
operations and borrowings under its credit agreement and capital lease
facilities, if necessary, will be sufficient to satisfy the Company's cash
requirements for its existing operations, including our debt service for at
least the next twelve months. The Company
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expects that any future acquisitions of television stations would be financed
through these same sources and, if necessary, through additional debt and/or
equity financing. However, there is no guarantee that such additional debt
and/or equity will be available or available at terms acceptable to the Company.
ADOPTION OF ACCOUNTING STANDARD
The FASB (Financial Accounting Standards Board) has issued FASB statement
No. 133 "Accounting for Derivative Instruments and Hedging Activities" which we
adopted for our quarter ended March 31, 2000. This pronouncement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that entities recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This pronouncement did not
impact the Company's financial statements since the Company currently has no
derivative instruments.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements of all public registrants. Any
change in the Company's revenue recognition policy resulting from the
implementation of SAB 101 would be reported as a change in accounting principle.
In June 2000, the SEC issued SAB 101B which delays the implementation date of
SAB 101 until the fourth fiscal quarter of fiscal years beginning after December
15, 1999. The Company is evaluating the impact, if any, of SAB 101 on its
financial position and results of operations.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation" ("FIN 44"). FIN 44 clarifies certain issues related to accounting
for stock-based compensation, including (a) the definition of employee for
purposes of applying APB Opinion No. 25, "Accounting for Stock Issued to
Employees," (b) the criteria for determining whether a plan qualifies as a
non-compensatory plan, (c) the accounting consequence of various modifications
to the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. FIN 44
is effective July 1, 2000, but covers certain specific events that occur either
after December 15, 1998 or January 12, 2000. To the extent that FIN 44 covers
events occurring during the period after December 15, 1998 or January 12, 2000,
but before the effective date of July 1, 2000, the effects of applying FIN 44
are recognized on a prospective basis from July 1, 2000. The Company does not
believe that FIN 44 will have any impact on its financial position and results
of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's revolving credit facility has a variable interest rate.
Accordingly, the Company's interest expense could be materially affected by
future fluctuations in the applicable interest rate. At September 30, 2000, the
Company had no borrowings under the revolving credit facility.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company currently and from time to time is involved in litigation
incidental to the conduct of its business. The Company maintains comprehensive
general liability and other insurance, which it believes to be adequate for the
purpose. The Company is not currently a party to any lawsuit or proceeding that
management believes would have a material adverse affect on its financial
condition or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
27.1 Financial Data Schedule for ACME Intermediate Holdings, LLC.
27.2 Financial Data Schedule for ACME Television, LLC.
(b) REPORTS ON FORM 8-K
The Company has not filed a Current Report on Form 8-K within the
three-month period ended September 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
ACME INTERMEDIATE HOLDINGS, LLC.
Date: November 14, 2000 By: /s/ THOMAS ALLEN
------------------------------
Thomas Allen
Executive Vice President / CFO
(Principal accounting
officer)
ACME TELEVISION, LLC.
Date: November 14, 2000 By: /s/ THOMAS ALLEN
------------------------------
Thomas Allen Executive
Executive Vice President / CFO
(Principal accounting officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
27.1 Financial Data Schedule for ACME Intermediate Holdings, LLC.
27.2 Financial Data Schedule for ACME Television, LLC.
