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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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
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ACME INTERMEDIATE HOLDINGS, LLC
AND
ACME TELEVISION, LLC
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR CHARTER)
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DELAWARE ACME INTERMEDIATE HOLDINGS, LLC 52-2050589
DELAWARE ACME TELEVISION, LLC 52-2050588
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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2101 E. FOURTH STREET, SUITE 202A
SANTA ANA, CALIFORNIA, 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: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) have been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
100% of the membership units of ACME Intermediate Holdings, LLC are owned
directly or indirectly by the Registrants' parent, 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 March 30, 2000, ACME Intermediate Holdings, LLC and ACME Television, LLC
had 910,986 and 200, respectively, membership units outstanding; all such units
are owned, directly or indirectly, by the Registrants' parent, ACME
Communications, Inc.
The Registrants meet the conditions set forth in General Instruction I (1) (a)
and (b) of Form 10-K and are therefore filing this Form 10-K with the reduced
disclosure format.
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ACME INTERMEDIATE HOLDINGS, LLC
AND
ACME TELEVISION, LLC
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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PART I
Item 1. Business (Abbreviated pursuant to General
Instruction I(2)(d) of Form 10-K) ......................................... 3
Item 2. Properties ................................................................ 8
Item 3. Legal Proceedings ......................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders (Omitted pursuant to
General Instruction I(2)(c) of Form 10-K) ................................. 9
PART II
Item 5. Market for Common Equity and Related Stockholder Matters .................. 9
Item 6. Selected Financial Data (Omitted pursuant to General Instruction I(2)(a)
of Form 10-K) ............................................................. 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Abbreviated pursuant to General
Instruction I(2)(a) of Form 10-K) ......................................... 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................ 10
Item 8. Financial Statements and Supplementary Data:
Independent Auditors' Report .............................................. 11
Consolidated Balance Sheets ............................................... 12
Consolidated Statements of Operations ..................................... 13
Consolidated Statements of Members' Capital ............................... 14
Consolidated Statements of Cash Flows ..................................... 15
Notes to Consolidated Financial Statements ................................ 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ................................................................ 28
PART III
Item 10. Directors and Executive Officers of the Registrant (Omitted pursuant to
General Instruction I(2)(c) of Form 10-K) ................................. 28
Item 11. Executive Compensation (Omitted pursuant to General Instruction I(2)(c)
of Form 10-K) ............................................................. 28
Item 12. Security Ownership of Certain Beneficial Owners and
Management (Omitted pursuant to General Instruction I(2)(c)
of Form 10-K) ............................................................. 28
Item 13. Certain Relationships and Related Transactions (Omitted
pursuant to General Instruction I(2)(c) of Form 10-K) ..................... 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ........... 28
Schedule I - Condensed Financial Information of ACME Intermediate Holdings,
LLC and ACME Television, LLC (Parent Companies) ........................... 37
Schedule II - Valuation and Qualifying Accounts ........................... 41
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PART I
ITEM 1. BUSINESS
(ABBREVIATED PURSUANT TO GENERAL INSTRUCTION I (2) (d) OF FORM 10-K).
ACME Communications, Inc. ("ACME Parent") 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 members and the Board of Directors and stockholder of ACME Parent
approved a merger and reorganization (the "Reorganization"), whereby ACME Parent
became the direct parent of ACME Television Holdings. As a result of the
Reorganization, ACME Communications is the ultimate parent of ACME Intermediate,
and its wholly owned subsidiary, ACME Television, LLC ("ACME Television"). All
transactions contemplated as part of the Reorganization closed on October 5,
1999.
This integrated Form 10-K is filed pursuant to the Securities Exchange
Act of 1934, as amended, for each of ACME Intermediate and its subsidiary, ACME
Television. Separate financial information has been provided for each entity
and, where appropriate, separate disclosure. Unless the context requires
otherwise, references to the "Company" refers to both ACME Intermediate and ACME
Television.
We currently own and operate ten commercially licensed broadcast
television stations in medium-sized markets across the United States. Nine of
our stations are network affiliates of The WB Network, making us the third
largest WB Network affiliated station group in the country. Our tenth station is
a UPN affiliate. Our television stations broadcast in markets that cover, in
aggregate, approximately 5.4% of the total U.S. television households.
Since our formation in 1997, we have focused primarily on acquiring
independently-owned stations, under-performing stations and construction permits
for new stations in markets that we believe have the growth potential and
demographic profile to support the successful launch of a new WB Network
affiliate. We believe that medium-sized markets provide advantages such as fewer
competitors and lower operating costs compared to large markets.
OUR COMPETITION
Broadcast television stations compete for advertising revenues primarily
with other broadcast television stations in their respective markets and, to a
lesser but increasing extent, with radio stations, cable television system
operators, newspapers, billboard companies, direct mail and internet sites.
The broadcasting industry is continuously faced with technical changes
and innovations, the popularity of competing entertainment and communications
media, changes in labor conditions, and governmental restrictions or actions of
federal regulatory bodies, including the FCC, any of which could possibly have
an adverse effect on a television station's operations and profits. Sources of
video service other than conventional television stations, the most common being
cable television, can increase competition for a broadcast television station by
bringing distant broadcasting signals not otherwise available to the station's
audience, serving as a distribution system for national satellite-delivered
programming and other non-broadcast programming originated on a cable system and
selling advertising time to local advertisers. Other principal sources of
competition include home video exhibition, direct-to-home broadcast satellite
television, entertainment services and multi-channel multi-point distribution
services. Currently, two FCC permittees, DirecTV and Echostar, provide
subscription DBS
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services via high-power communications satellites and small dish receivers, and
other companies provide direct-to-home video service using lower powered
satellites and larger receivers.
Other technology advances and regulatory changes affecting programming
delivery through fiber optic telephone lines and video compression could lower
entry barriers for new video channels and encourage the development of
increasingly specialized niche programming. The Telecommunications Act of 1996
permits telephone companies to provide video distribution services via radio
communication, on a common carrier basis, as cable systems or as open video
systems, each pursuant to different regulatory schemes. We cannot predict the
effect that these and other technological and regulatory changes will have on
the broadcast television industry or on the future profitability and value of a
particular broadcast television station.
Broadcast television stations compete with other television stations in
their designated market areas for the acquisition of programming. Generally,
cable systems do not compete with local stations for programming, but various
national cable networks do from time to time and on an increasing basis acquire
programming that could have been offered to local television stations. Public
broadcasting stations generally compete with commercially-rated broadcasters for
viewers, but do not compete for advertising revenues. Historically, the cost of
programming has increased because of an increase in the number of independent
stations and a shortage of quality programming.
FEDERAL REGULATION OF TELEVISION BROADCASTING
Television broadcasting is a regulated industry and is subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended from
time to time. The Communications Act prohibits the operation of television
broadcasting stations except under a license issued by the FCC. The
Communications Act empowers the FCC, among other things:
- to issue, revoke and modify broadcast licenses;
- to decide whether to approve a change of ownership or control of
station licenses;
- to regulate the equipment used by stations; and
- to adopt and implement regulations to carry out the provisions
of the Communications Act.
Failure to observe FCC or other governmental rules and policies can
result in the imposition of various sanctions, including monetary forfeitures,
the grant of short, or less than maximum, license renewal terms or, for a
particularly egregious violations, the denial of a license renewal application,
the revocation of a license or denial of FCC consent to acquire additional
broadcast properties.
License Grant, Renewal, Transfer and Assignment. A party must obtain a
construction permit from the FCC to build a new television station. Once a
station is constructed and commences broadcast operations, the permittee will
receive a license which must be renewed by the FCC at the end of each eight-year
license term. The FCC grants renewal of a broadcast license if it finds that the
station has served the public interest, convenience, and necessity and the
licensee has not seriously violated the Communications Act or FCC rules and
policies. If the FCC finds that a licensee has failed to meet these standards,
the FCC may deny renewal or condition renewal. Any other party with standing may
petition the FCC to deny a broadcaster's application for renewal. However, only
if the FCC issues an order denying renewal will the FCC accept and consider
applications from other parties for a construction permit for a new station to
operate on that channel. The FCC may not consider any applicant in making
determinations concerning the grant or denial of the licensee's renewal
application. Although renewal of licenses is granted in the majority of cases
even when petitions to deny have been filed, we cannot be sure our station
licenses will be renewed for a full term or without modification. Our current
licenses expire on varying dates between February 1, 2005 and February 1, 2007.
The Communications Act prohibits the assignment of a broadcast license
or the transfer of control of a broadcast licensee without the prior approval of
the FCC. In determining whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license, the FCC considers a number
of factors pertaining to the licensee, including:
- compliance with various rules limiting common ownership of media
properties;
- the character of the licensee and those persons holding
attributable interests therein; and
- compliance with the Communications Act's limitations on alien
ownership.
Character generally refers to the likelihood that the licensee or
applicant will comply with applicable law and regulation. Attributable interests
generally refers to the level of ownership or other involvement in station
operations which would result in the FCC attributing ownership of that station
or other media outlet to the person or entity in determining compliance with FCC
ownership limitations.
To obtain the FCC's prior consent to assign a broadcast license or
transfer control of a broadcast licensee, an application must be filed with the
FCC. If the application involves a substantial change in ownership or control,
the application must be placed on public notice for a period of no less than 30
days during which petitions to deny the application may be filed by interested
parties, including certain members of the public. If the FCC grants the
application, interested parties have no less than 30 days from the date of
public notice of the
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grant to seek reconsideration or review of that grant by the full commission or,
as the case may be, a court of competent jurisdiction. The full FCC commission
has an additional 10 days to set aside on its own motion any action taken by the
FCC's staff. When passing on an assignment or transfer application, the FCC is
prohibited from considering whether the public interest might be served by an
assignment or transfer to any party other than the assignee or transferee
specified in the application.
Ownership Restrictions. The officers, directors and equity owners of 5%
or more of our outstanding voting stock or the voting stock of a company holding
one or more broadcast licenses are deemed to have attributable interests in the
broadcast company. However, minority voting stock interests generally will not
be attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. Also, specified institutional investors,
including mutual funds, insurance companies and banks acting in a fiduciary
capacity, may own up to (but not as much as) 20% of the outstanding voting stock
without being subject to attribution if they exercise no control over the
management or policies of the broadcast company.
The FCC will not grant a license to own a second television station to
any party, or parties under common control, that already has an attributable
interest in another television station in the same DMA unless:
- there will be eight independent full-power television stations n
the DMA after the acquisition or merger and one of the two
television stations owned by the same party is not among the top
four-ranked stations in the DMA based on audience share;
- the station to be acquired is a "failing" station under FCC
rules and policies;
- the station to be acquired is a "failed" station under FCC rules
and policies; or
- the acquisition will result in the construction of a previously
unbuilt station.
FCC regulations also prohibit one owner from having attributable
interests in television broadcast stations that reach in the aggregate more than
35% of the nation's television households. For purposes of this calculation,
stations in the UHF band which covers channels 14 - 69 are attributed with only
50% of the households attributed to stations in the VHF band, which covers
channels 2 - 13. Subject to certain exceptions, FCC rules generally allow the
holder of an attributable interest in a television station to have an
attributable interest in:
- up to six radio stations in a market with 20 independent media
voices;
- up to four radio stations in a market with 10 independent media
voices; and
- at least one radio station in any market.
At the same time, FCC rules and policies generally prohibit a party with
an attributable interest in a television station from owning a daily newspaper
or cable television system serving a community located within the relevant
coverage area of that television station.
Some of the rules and policies described in the foregoing paragraph were
incorporated in amendments recently adopted by the FCC with respect to its
ownership rules. Other new rules encompassed additional changes:
- determine whether stations are in the same market by reference
to a Nielsen designated market area rather than through a signal
overlap among stations;
- attribute the ownership of a station to parties whose debt
and/or equity holdings in the company exceed 33% of the
station's total assets if certain other factors are present; and
- treat some local marketing agreements or time brokerage
agreements with television stations as an attributable interest.
Restrictions on Foreign Ownership. The Communications Act prohibits the
issuance of broadcast licenses to, or the holding of a broadcast license by
foreign citizens or any corporation of which more than 20% of the capital stock
is owned of record or voted by non-U.S. citizens or their representatives or by
a foreign government or a representative thereof, or by any corporation
organized under the laws of a foreign country. The Communications Act also
authorizes the FCC to prohibit the issuance of a broadcast license to, or the
holding of a broadcast license by, any corporation controlled by any other
corporation of which more than 25% of the capital stock is owned of record or
voted by aliens. The FCC has interpreted these restrictions to apply to other
forms of business organizations, including partnerships. As a result of these
provisions, the licenses granted to our subsidiaries that hold FCC licenses
could be revoked if more than 25% of our stock were directly or indirectly owned
or voted by aliens. Our certificate of incorporation contains limitations on
alien ownership and control substantially similar to those contained in the
Communications Act. Pursuant to our certificate of incorporation, we have the
right to refuse to sell shares to aliens or to repurchase alien-owned shares at
their fair market value to the extent necessary, in the judgment of our board of
directors, to comply with the alien ownership restrictions.
Programming and Operation. The Communications Act requires broadcasters
to serve the public interest, convenience and necessity. The FCC has gradually
restricted or eliminated many of the more formalized procedures it had developed
to promote the broadcast of programming responsive to the needs of the station's
community of license. Licensees continue to be required, however, to present
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programming that is responsive to community problems, needs and interests and to
maintain certain records demonstrating such responsiveness. Complaints from
listeners concerning a station's programming will be considered by the FCC when
it evaluates the licensee's renewal application, but these complaints may be
filed and considered at any time.
Stations must also pay regulatory and application fees and follow
various FCC rules that regulate, among other things:
- political advertising;
- children's programming;
- the broadcast of obscene or indecent programming;
- sponsorship identification; and
- technical operations and equal employment opportunity
requirements.
Failure to observe these or other rules and policies can result in the
imposition of various sanctions, including monetary forfeitures, the grant of
short, less than the maximum, renewal terms, or for particularly egregious
violations, the denial of a license renewal application or the revocation of a
license.
Review of Must Carry Rules. FCC regulations implementing the Cable
Television Consumer Protection and Competition Act of 1992 require each
television broadcaster to elect, at three-year intervals beginning October 1,
1993, to either:
- require carriage of its signal by cable systems in the station's
market which is referred to as must carry rules; or
- negotiate the terms on which such broadcast station would permit
transmission of its signal by the cable systems within its
market which is referred to as retransmission consent.
The United States Supreme Court upheld the must-carry rules in a 1997
decision. These must carry rights are not absolute, and their exercise is
dependent on a variety of factors such as:
- the number of active channels on the cable system;
- the location and size of the cable system; and
- the amount of programming on a broadcast station that duplicates
the programming of another broadcast station carried by the
cable system.
Therefore, under certain circumstances, a cable system may choose to
decline to carry a given station. We have elected must carry with respect to
each of our stations which are each carried on the related cable system.
Local Marketing Agreements. Under recently adopted FCC rules, the
licensee of a television station providing more than 15% of another television
station's programming under a local marketing agreement is considered to have an
attributable interest in the other station for purposes of the FCC's national
and local multiple ownership rules. The FCC also adopted a grandfathering policy
providing that local marketing agreements that are in compliance with the
previous FCC rules and policies and were entered into before November 5, 1996,
would be permitted to continue in force until the FCC conducts its biennial
review of regulations in 2004. Local marketing agreements entered into after
November 5, 1996 but prior to the recently adopted FCC rules will be
grandfathered until August 2001.
Prior to the adoption of the FCC's new rules, we did, from time to time,
enter into local marketing agreements, generally in connection with pending
station acquisitions. By using local marketing agreements, we can provide
programming and other services to a station that we have agreed to acquire
before we receive all applicable FCC and other governmental approvals.
Subject to ownership restrictions in the new FCC rules and policies, FCC
rules and policies generally permit local marketing agreements if the station
licensee retains ultimate responsibility for and control of the applicable
station, including finances, personnel, programming and compliance with the
FCC's rules and policies. We cannot be sure that we will be able to air all of
our scheduled programming on a station with which we may have a local marketing
agreement with, or that we would receive the revenue from the sale of
advertising for such programming.
Digital Television Services. The FCC has adopted rules for implementing
digital television service in the United States. Implementation of digital
television will improve the technical quality of television signals and provide
broadcasters the flexibility to offer new services, including high-definition
television and data broadcasting.
The FCC has established service rules and adopted a table of allotments
for digital television. Under the table, all eligible broadcasters with a
full-power television station are allocated a separate channel for digital
television operation. Stations will be permitted to phase in
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their digital television operations over a period of years following the
adoption of a final table of allotments, after which they will be required to
surrender their license to broadcast the analog, or non-digital television,
signal. Affiliates of the top four networks in the top thirty markets are
already required to be on the air with a digital signal. Our stations must be on
the air with a digital signal by May 1, 2002. Under applicable law and
regulation, television broadcasters must return their analog license to the
government by 2006 unless specified conditions exist, that in effect, affect the
public's limited access to digital television transmissions in a particular
market.
The Communications Act and the FCC's rules impose certain conditions on
the FCC's implementation of digital television service. Among other
requirements, the FCC must:
- limit the initial eligibility for licenses to existing
television broadcast licensees or permittees;
- allow digital television licensees to offer ancillary and
supplementary services; and
- charge appropriate fees to broadcasters that supply ancillary
and supplementary services for which such broadcasters derive
certain non-advertising revenues.
Equipment and other costs associated with the digital television
transition, including the necessity of temporary dual-mode operations, will
impose some near-term financial costs on television stations providing the
services. The potential also exists for new sources of revenue to be derived
from digital television. We cannot predict the overall effect the transition to
digital television might have on our business.
Children's Television Act. FCC rules limit the amount of commercial
matter that a television station may broadcast during programming directed
primarily at children 12 years old and younger. FCC rules further require
television stations to serve the educational and informational needs of children
16 years old and younger through the stations' own programming as well as
through other means. Television broadcasters must file periodic reports with the
FCC to document their compliance with foregoing obligations.
Other Pending FCC and Legislative Proceedings. In 1995, the FCC issued
notices of proposed rulemaking proposing to modify or eliminate most of its
remaining rules governing the broadcast network-affiliate relationship. The
network-affiliate rules were originally intended to limit networks' ability to
control programming aired by affiliates or to set station advertising rates and
to reduce barriers to entry by networks. The dual network rule, which generally
prevents a single entity from owning more than one broadcast television network,
is among the rules under consideration in these proceedings. Although the
Telecommunications Act substantially relaxed the dual network rule by providing
that an entity may own more than one television network, none of the four major
national television networks may merge with each other or acquire certain other
networks in existence on February 8, 1996. We cannot predict how or when the FCC
proceeding will be resolved or how those proceedings or the relaxation of the
dual network rule may affect our business.
The Satellite Home Viewer Act allows satellite carriers to deliver
broadcast programming to subscribers who are unable to obtain television network
programming over the air from local television stations. Congress recently
amended the act to facilitate the ability of satellite carriers to provide
subscribers with programming from both local and non-local television station.
The FCC is conducting rulemaking proceedings to implement those legislative
changes.
On February 2, 2000, the FCC released a Report and Order in a proceeding
that reexamined rules that previously required broadcast licensees to provide
equal employment opportunities. The new rules generally require broadcast
licensees to widely disseminate information on employment vacancies and to
promote diversification in their employment. However, in contrast to prior
practice, a station's employment profile will no longer be screened in
conjunction with a station's license renewal application. The new rules
supplement a broadcaster's obligation to refrain from racial or other prohibited
discrimination in its employment practices under other applicable federal as
well as state and local laws and regulations.
Federal regulatory agencies and Congress from time to time consider
proposals for additional or revised rules. We cannot predict the resolution of
these issues or other issues discussed above, although their outcome could, over
a period of time, affect, either adversely or favorable, the broadcasting
industry generally or us specifically.
The foregoing summary of FCC and other governmental regulations is not
intended to be comprehensive. For further information concerning the nature and
extent of federal regulation of broadcast stations, you should refer to the
Communications Act, the Telecommunications Act, other Congressional acts, FCC
rules and the public notices and rulings of the FCC.
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EMPLOYEES
At December 31, 1999, we had 331 employees, including 41 who were
subject to collective bargaining agreements. We believe that our relationships
with our employees and the unions representing our unionized employees are good.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements. We
have based these forward-looking statements on our current expectations and
projections about future events. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "intend," "should," "expect,"
"plan," "anticipate," "believe," "estimate," "predict," "potential" or
"continue" or the negative of such terms or other comparable terminology.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our and the television broadcast industry's actual
results, levels of activity, performance, achievements and prospects to be
materially different from those expressed or implied by such forward-looking
statements.
We are under no duty to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
after the date of this Annual Report on Form 10-K. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
Annual Report on Form 10-K might not occur.
ITEM 2. PROPERTIES
All of our leased studio, office and tower facilities are leased
pursuant to long-term leases. We believe that all facilities and equipment are
adequate, with minor changes and additions, for conducting operations as
presently contemplated. Set forth below is information with respect to our
studios and other facilities for our current stations. Information as to tower
size reflects the height above average terrain of the antenna radiation center.
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APPROXIMATE
MARKET SIZE OWNERSHIP
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St. Louis, Missouri
Corporate office facilities....................................... 1,500 sq. ft. Leased
Studio and office facilities (1).................................. 36,000 sq. ft. Owned
Tower............................................................. 1,011 ft. Leased
Portland, Oregon
Studio and office facilities...................................... 15,255 sq. ft. Owned
Tower............................................................. 1,785 ft. Leased
Digital Tower (3)................................................. 159 ft. Owned
Knoxville, Tennessee
Studio and office facilities...................................... 8,000 sq. ft. Leased
Tower (2)......................................................... 2,399 ft. Owned
Salt Lake City, Utah
Studio and office facilities...................................... 9,500 sq. ft. Leased
Tower............................................................. 3,839 ft. Leased
Digital Tower (3)................................................. 386 ft. Owned
Ft. Myers -- Naples, Florida
Studio and office facilities...................................... 5,000 sq. ft. Leased
Tower............................................................. 1,000 ft. Leased
Albuquerque -- Santa Fe, New Mexico
Studio and office facilities (joint for KWBQ and KASY)............ 9,000 sq. ft. Owned
Tower (KWBQ) ..................................................... 1,234 ft. Leased
Tower (KASY)...................................................... 4,187 ft. Leased
Dayton, Ohio
Studio and office facilities...................................... 14,150 sq. ft Owned
Tower............................................................. 485 ft. Owned
Green Bay -- Appleton, Wisconsin
Studio and office facilities...................................... 2,640 sq. ft. Leased
Tower (2)......................................................... 660 ft. Leased
Champaign -- Springfield -- Decatur, Illinois
Studio and office facilities...................................... 9,600 sq. ft. Owned
Tower............................................................. 1,030 ft. Owned
Santa Ana, California
Corporate office facilities....................................... 3,000 sq. ft. Leased
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(1) Excludes 30,000 square feet of apartment space located above the studio
and office facilities.
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(2) Tower owned on leased property.
(3) Represents partnership interests in digital television towers in the
Salt Lake City and Portland markets.
ITEM 3. LEGAL PROCEEDINGS
We are currently, and from time to time, involved in litigation
incidental to the conduct of our business. We maintain comprehensive general
liability and other insurance that we believe to be adequate for the purpose. We
are not currently a party to any lawsuit or proceeding that we believe could
have a material adverse effect on our financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Omitted under the reduced disclosure format pursuant to General
Instruction I (2) (c) of Form 10-K.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the membership units of ACME Intermediate are directly or
indirectly owned by ACME Communications, Inc. All of the membership units of
ACME Television are directly or indirectly owned by ACME Intermediate.
No Distributions on ACME Intermediate or ACME Television membership
units have ever been declared or paid. The right of ACME Television to make any
distributions in the future is subject to restrictions imposed by both the
revolving credit facility loan agreement and the indenture governing ACME
Television's 10 7/8% senior discount notes. The right of ACME Intermediate to
make any distributions is subject to restrictions contained in the indenture
governing its 12% senior secured notes.
ITEM 6. SELECTED FINANCIAL DATA
Omitted under the reduced disclosure format pursuant to General
Instruction I (2) (a) of Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (ABBREVIATED PURSUANT TO GENERAL INSTRUCTION I (2) (a) OF FORM
10-K).
Results of Operations
Years Ended December 31, 1999 compared to Year Ended December 31, 1998
Net revenues for the year ended December 31,1999, increased $16.1
million (37%) to $60.0 million as compared to $43.9 million for the year ended
December 31, 1998. This increase is due primarily to increases in revenues at
each operating station, and to a lesser extent, to stations acquired or launched
during 1999. Increases in revenue were driven primarily by increased ratings,
distribution and higher unit prices.
Station operating expenses increased to $45.7 million compared to the
prior year's operating expenses of $33.0 million. This increase of 38% was due
to increased programming expenses at many of our stations coupled with the
impact of newly acquired or launched stations during 1999.
Corporate expenses for 1999 increased to $6.4 million from $2.6 million
in 1998. This increase reflects a $3.0 million charge relating to bonuses paid
primarily to the Company's senior management founders in conjunction with ACME
Parent's initial public offering of its stock ("IPO") and to increased staffing
to support the additional stations launched or acquired in 1999.
Equity-based compensation of $39.7 million in 1999 relates to a charge
reflecting the fully-vested common stock of ACME Parent that was issued in
exchange for the management carry units that were issued to our senior
management members by ACME Parent in June 1997. There was no such expense in
1998.
Depreciation and amortization expense for the year was $17.1 million
compared to $11.4 million for 1998. This $5.7 million increase reflects the
amortization of intangible assets relating to newly acquired or launched
stations in 1999 along with increased depreciation relating to newly built
stations and ongoing upgrades of existing facilities.
Interest expense for the current year was $25.5 and $19.5 million for
ACME Intermediate and ACME Television, respectively, as compared to $21.4 and
$16.2 million, respectively, for 1998. This increase in interest expense relates
to increasing balances under the company's 10-7/8% Senior Discount Notes due
2004 and 12% Senior Secured Discount Notes due 2005 and increased borrowings on
the revolving credit facility. The increased borrowings under the revolving
credit facility were obtained to help finance the purchase of WBDT, WBUI and
WIWB, and were repaid with proceeds from the IPO in October 1999.
9
<PAGE> 10
In 1998, the Company sold its interest in a construction permit for a
station in the Springfield, Missouri market at a gain of $1.1 million.
Prior to the Reorganization ACME Parent completed in October of 1999,
the Company was a non-taxable entity and therefore no federal income taxes were
provided for its operations prior to that date other than at its 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 prior to the Reorganization is the
responsibility of, or benefit to, the individual members.
Upon the closing of the Reorganization, the Company became a member of a
consolidated taxable group. The Company recorded deferred tax assets and
liabilities at the Reorganization date for the difference between the financial
statement carrying value of the Company's assets and liabilities and their
corresponding tax basis.
The tax benefit for 1999 was $4.6 and $4.0 million for ACME Intermediate
and ACME Television, respectively, including the impact of the inclusion in a
taxable group, compared to a tax benefit of $2.4 million for each of ACME
Intermediate and ACME Television in 1998. The increase relates primarily to the
effect of the Company's taxable status in the fourth quarter of 1999.
Our net loss for the current year of $69.6 and $64.3 million, for ACME
Intermediate and ACME Television, respectively, as compared with losses of $21.1
and $15.9 million, respectively, that were incurred in 1998, represent increases
of $48.5 and $48.4 million, respectively. These increased losses are primarily
the result of the equity-based compensation charge incurred in conjunction with
ACME Parent's IPO, along with increased interest, depreciation and amortization
expenses, net of improved operating performance.
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 will be required to adopt for our year ending December 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 is not expected to impact the Company's
financial statements since the Company currently has no derivative instruments.
ITEM 7A. 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. The Company had no
borrowings outstanding as of December 31, 1999.
10
<PAGE> 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEPENDENT AUDITORS' REPORT
The Members
ACME Intermediate Holdings, LLC
ACME Television, LLC:
We have audited the accompanying consolidated balance sheets of ACME
Intermediate Holdings, LLC and Subsidiaries and ACME Television, LLC (a
wholly-owned subsidiary of ACME Intermediate Holdings, LLC) and Subsidiaries as
of December 31, 1999 and 1998, and the related consolidated statements of
operations, member's capital and cash flows for each of the years in the
three-year period ended December 31, 1999. In connection with our audit of the
consolidated financial statements, we have also audited the financial statement
schedules listed in the index of Item 14. These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ACME
Intermediate Holdings, LLC and Subsidiaries and ACME Television, LLC and
Subsidiaries as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the consolidated financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
/s/ KPMG LLP
Los Angeles, California
February 17, 2000
11
<PAGE> 12
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1999
----------------------------- -----------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------- --------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 953 $ 953 $ 4,012 $ 4,012
Accounts receivable, net 10,609 10,609 13,978 13,978
Due from affiliates 4 131 -- 128
Current portion of programming rights 6,357 6,357 11,331 11,331
Prepaid expenses and other current assets 414 414 2,026 2,026
Deferred income taxes 2,556 2,556 2,448 2,448
--------- --------- --------- ---------
Total current assets 20,893 21,020 33,795 33,923
Property and equipment, net 16,441 16,441 25,116 25,116
Programming rights, net of current portion 8,046 8,046 14,704 14,704
Intangible assets, net 222,987 222,987 282,972 282,972
Other assets 17,187 15,592 10,201 8,666
Deposits 36 36 133 133
--------- --------- --------- ---------
Total assets $ 285,590 $ 284,122 $ 366,921 $ 365,514
========= ========= ========= =========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable $ 4,425 $ 4,425 $ 5,330 $ 5,330
Accrued liabilities 4,210 4,210 8,142 8,142
Due to affiliates -- -- 1,188 1,188
Current portion of programming rights
payable 7,649 7,649 10,727 10,727
Current portion of obligations under
lease 1,273 1,273 1,617 1,617
--------- --------- --------- ---------
Total current liabilities 17,557 17,557 27,004 27,004
Bank borrowings 8,000 8,000 -- --
Programming rights payable, net of
current portion 6,512 6,512 13,605 13,605
Obligations under lease, net of
current portion 4,199 4,199 5,796 5,796
Other liabilities 1,125 1,125 259 259
Deferred income taxes 29,986 29,986 25,187 25,799
10 7/8% senior discount notes 145,448 145,448 161,695 161,695
12% senior secured notes 42,051 -- 47,970 --
--------- --------- --------- ---------
Total liabilities 254,878 212,827 281,516 234,158
--------- --------- --------- ---------
Members' capital 58,402 92,563 182,728 216,889
Accumulated deficit (27,690) (21,268) (97,323) (85,533)
--------- --------- --------- ---------
Total members' capital 30,712 71,295 85,405 131,356
--------- --------- --------- ---------
Total liabilities and members' capital $ 285,590 $ 284,122 $ 366,921 $ 365,514
========= ========= ========= =========
</TABLE>
See the notes to the consolidated financial statements
12
<PAGE> 13
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1997 1998 1999
------------------------------ ------------------------------ ------------------------------
ACME ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------- --------------- ------------- --------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 11,347 $ 11,347 $ 43,928 $ 43,928 $ 60,008 $ 60,008
Operating expenses:
Station operating expenses 10,158 10,158 32,973 32,973 45,675 45,675
Depreciation and amortization 1,215 1,215 11,355 11,355 17,061 17,061
Corporate 1,415 1,415 2,627 2,627 6,382 6,382
Equity-based compensation (1) -- -- -- -- 39,688 39,688
-------- -------- -------- -------- -------- --------
Operating loss (1,441) (1,441) (3,027) (3,027) (48,798) (48,798)
Other income (expenses):
Interest income 273 273 224 224 81 81
Interest expense (5,466) (4,250) (21,378) (16,172) (25,502) (19,522)
Gain (loss) on sale of asset -- -- 1,112 1,112 (11) (11)
Other -- -- (380) (380) -- --
-------- -------- -------- -------- -------- --------
Net loss before income taxes (6,634) (5,418) (23,449) (18,243) (74,230) (68,250)
Income tax benefit -- -- 2,393 2,393 4,597 3,985
-------- -------- -------- -------- -------- --------
Net loss $ (6,634) $ (5,418) $(21,056) $(15,850) $(69,633) $(64,265)
======== ======== ======== ======== ======== ========
</TABLE>
(1) Equity-based compensation is comprised of station operating expenses and
corporate expenses of $132,000 and $39.6 million, respectively, for 1999.
See the notes to the consolidated financial statements
13
<PAGE> 14
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' CAPITAL
ACME INTERMEDIATE HOLDINGS, LLC
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON TOTAL
MEMBERS' ACCUMULATED MEMBERS'
CAPITAL DEFICIT CAPITAL
--------- --------- ---------
<S> <C> <C> <C>
Contribution of Parent $ 47,201 $ -- $ 47,201
Unit offering 4,154 -- 4,154
Net loss -- (6,634) (6,634)
--------- --------- ---------
Balance at December 31, 1997 51,355 (6,634) 44,721
Contribution of Parent 7,047 -- 7,047
Net loss -- (21,056) (21,056)
--------- --------- ---------
Balance at December 31, 1998 58,402 (27,690) 30,712
Equity-based compensation 39,688 -- 39,688
Issuance of Parent company stock options in
exchange for long-term incentive compensation plan 738 -- 738
Redeemable preferred dividend (1,262) -- (1,262)
Contribution of Parent 85,162 -- 85,162
Net loss -- (69,633) (69,633)
--------- --------- ---------
Balance at December 31, 1999 $ 182,728 $ (97,323) $ 85,405
========= ========= =========
</TABLE>
ACME TELEVISION, LLC
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOTAL
MEMBERS' ACCUMULATED MEMBERS'
CAPITAL DEFICIT CAPITAL
--------- --------- ---------
<S> <C> <C> <C>
Contribution of Parent $ 85,516 $ -- $ 85,516
Net loss -- (5,418) (5,418)
--------- --------- ---------
Balance at December 31, 1997 85,516 (5,418) 80,098
Contribution of Parent 7,047 -- 7,047
Net loss -- (15,850) (15,850)
--------- --------- ---------
Balance at December 31, 1998 92,563 (21,268) 71,295
Equity-based compensation 39,688 -- 39,688
Issuance of Parent company stock options in
exchange for long-term incentive compensation plan 738 -- 738
Contribution of Parent 83,900 -- 83,900
Net loss -- (64,265) (64,265)
--------- --------- ---------
Balance at December 31, 1999 $ 216,889 $ (85,533) $ 131,356
========= ========= =========
</TABLE>
See the notes to the consolidated financial statements
14
<PAGE> 15
ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------- --------------------------
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 $ (6,634) $ (5,418) $ (21,056) $ (15,850)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,215 1,215 11,355 11,355
Amortization of program rights 1,433 1,433 5,321 5,321
Amortization of debt issuance costs 445 445 867 867
Amortization of discount on 10 7/8% senior
discount notes 3,463 3,463 14,170 14,170
Amortization of discount on 12% senior
secured notes 1,213 -- 5,189 --
(Gain) loss on sale of assets -- -- (1,112) (1,112)
Equity-based compensation -- -- -- --
Long-term incentive plan -- -- -- --
Deferred income taxes -- -- (2,393) (2,393)
Changes in assets and liabilities:
Increase in accounts receivables, net (722) (722) (5,459) (5,459)
(Increase) decrease in due from affiliates (7) (7) -- --
(Increase) decrease in prepaid expenses (3,060) (3,164) 334 317
Increase in due to affiliates -- -- -- --
Increase in other assets -- -- (576) (576)
Increase in accounts payable 3,363 3,361 59 59
Increase in accrued expenses 651 651 2,639 2,639
Payments on programming rights payable (1,758) (1,758) (6,588) (6,588)
Decrease in other liabilities -- -- (2,475) (2,475)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities (398) (501) 275 275
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (6,077) (6,077) (8,320) (8,320)
Purchase of and deposits for station interests (166,924) (166,924) (16,675) (16,675)
Cash acquired in acquisition - St. Louis -- -- 779 779
Proceeds from sale of station interest -- -- 3,337 3,337
Purchase of digital tower interests -- -- -- --
Other -- -- -- --
--------- --------- --------- ---------
Net cash used in investing activities (173,001) (173,001) (20,879) (20,879)
--------- --------- --------- ---------
Cash flows from financing activities:
Increase in revolving credit facility -- -- 11,000 11,000
Payments on revolving credit facility -- -- (3,000) (3,000)
Proceeds from capital lease facilities -- -- 5,375 5,375
Payments on capital lease facilities (97) (97) (638) (638)
Issuance of redeemable preferred
membership units -- -- -- --
Redemption of redeemable preferred units -- -- -- --
Issuance of membership units 4,154 -- -- --
Issuance of 10 7/8% senior discount notes 127,370 127,370 -- --
Issuance of 12% senior secured notes 35,650 -- -- --
Debt issuance costs (8,984) (7,392) -- --
Contribution from Parent 24,126 62,441 -- --
--------- --------- --------- ---------
Net cash provided by financing activities 182,219 182,322 12,737 12,737
--------- --------- --------- ---------
Net increase (decrease) in cash 8,820 8,820 (7,867) (7,867)
Cash at beginning of period -- -- 8,820 8,820
--------- --------- --------- ---------
Cash at end of period $ 8,820 $ 8,820 $ 953 $ 953
========= ========= ========= =========
Cash Payments for:
Interest $ 514 $ 514 $ 864 $ 864
Taxes $ -- $ -- $ 70 $ 70
========= ========= ========= =========
Non-Cash Transactions:
Program rights in exchange for program
rights payable 5,195 5,195 24,066 24,066
Exchange of note receivable and option
deposit as purchase consideration for
station interest -- -- -- --
Contribution of Parent for equity-based
compensation expense -- -- -- --
Contribution of Parent for membership
units $ 23,075 $ 23,075 $ 7,047 $ 7,047
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------
DECEMBER 31, 1999
--------------------------
ACME ACME
INTERMEDIATE TELEVISION,
HOLDINGS, LLC LLC
------------- ---
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (69,633) $ (64,265)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 17,061 17,061
Amortization of program rights 8,475 8,475
Amortization of debt issuance costs 1,044 1,044
Amortization of discount on 10 7/8% senior
discount notes 16,247 16,247
Amortization of discount on 12% senior
secured notes 5,918 --
(Gain) loss on sale of assets 11 11
Equity-based compensation 39,688 39,688
Long-term incentive plan 738 738
Deferred income taxes (4,597) (3,985)
Changes in assets and liabilities:
Increase in accounts receivables, net (3,369) (3,369)
(Increase) decrease in due from affiliates (4) 3
(Increase) decrease in prepaid expenses (622) (622)
Increase in due to affiliates 1,188 1,188
Increase in other assets (180) (249)
Increase in accounts payable 905 905
Increase in accrued expenses 3,932 3,932
Payments on programming rights payable (9,936) (9,936)
Decrease in other liabilities (960) (960)
--------- ---------
Net cash provided by (used in)
operating activities 5,906 5,906
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (8,587) (8,587)
Purchase of and deposits for station interests (68,630) (68,630)
Cash acquired in acquisition - St. Louis -- --
Proceeds from sale of station interest -- --
Purchase of digital tower interests (3,471) (3,471)
Other -- --
--------- ---------
Net cash used in investing activities (80,688) (80,688)
--------- ---------
Cash flows from financing activities:
Increase in revolving credit facility 32,000 32,000
Payments on revolving credit facility (40,000) (40,000)
Proceeds from capital lease facilities 3,173 3,173
Payments on capital lease facilities (1,232) (1,232)
Issuance of redeemable preferred
membership units 15,000 --
Redemption of redeemable preferred units (16,262) --
Issuance of membership units -- --
Issuance of 10 7/8% senior discount notes -- --
Issuance of 12% senior secured notes -- --
Debt issuance costs -- --
Contribution from Parent 85,162 83,900
--------- ---------
Net cash provided by financing activities 77,841 77,841
--------- ---------
Net increase (decrease) in cash 3,059 3,059
Cash at beginning of period 953 953
--------- ---------
Cash at end of period $ 4,012 $ 4,012
========= =========
Cash Payments for:
Interest $ 2,591 $ 2,591
Taxes $ 80 $ 80
========= =========
Non-Cash Transactions:
Program rights in exchange for program
rights payable 20,107 20,107
Exchange of note receivable and option
deposit as purchase consideration for
station interest 7,000 7,000
Contribution of Parent for equity-based
compensation expense 39,556 39,556
Contribution of Parent for membership
units $ -- $ --
========= =========
</TABLE>
See the notes to the consolidated financial statements
15
<PAGE> 16
(1) DESCRIPTION OF THE BUSINESS AND FORMATION
PRESENTATION
Financial statements are presented for each of ACME Intermediate
Holdings, LLC ("ACME Intermediate") and its wholly-owned subsidiary, ACME
Television, LLC ("ACME Television"). Unless the context states 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.
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) 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, 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 the Company.
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
membership units of ACME Intermediate. ACME Intermediate owns, directly or
indirectly, 100% of the outstanding membership units of ACME Television.
NATURE OF BUSINESS
ACME Intermediate is a holding company with no assets or independent
operations other than its 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:
16
<PAGE> 17
<TABLE>
<CAPTION>
NETWORK
STATION - CHANNEL MARKET AFFILIATION
----------------- ------ -----------
<S> <C> <C>
KPLR - 11 St. Louis.................................... WB
KWBP - 32 Portland, OR................................. WB
KUWB - 30 Salt Lake City............................... WB
KWBQ - 19 Albuquerque - Santa Fe....................... WB
KASY - 50 Albuquerque - Santa Fe....................... UPN
WBXX - 20 Knoxville.................................... WB
WTVK - 46 Ft. Myers - Naples........................... WB
WBDT - 26 Dayton....................................... WB
WIWB - 14 Green Bay - Appleton......................... WB
WBUI - 23 Champaign - Springfield - Decatur............ WB
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of the
Company and its subsidiaries. All significant inter-company transactions have
been eliminated.
REVENUE RECOGNITION
Revenue from the sale of airtime related to advertising and contracted
time is recognized at the time of broadcast. The Company generally receives such
revenues net of commissions deducted by advertising agencies and national sales
representatives.
CASH AND CASH EQUIVALENTS
For purposes of reporting the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with an original maturity
of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of the related allowance for
doubtful accounts which totaled $555,000 and $716,000 at December 31, 1998 and
1999, respectively.
CONCENTRATION OF CREDIT RISK AND FAIR VALUE OF FINANCIAL STATEMENTS
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of accounts receivable and cash.
Due to the short-term nature of these instruments, the carrying value
approximates the fair market value. The Company believes that concentrations of
credit risk with respect to accounts receivable, which are unsecured, are
limited due to the Company's ongoing relationship with its clients. The Company
provides its estimate of uncollectible accounts. The Company has not experienced
significant losses relating to accounts receivable. The estimated fair market of
the 12% senior discount notes and the 10 7/8% senior secured notes was
approximately $50 million and $158 million, respectively, at December 31, 1999.
PROGRAM RIGHTS
Program rights represent costs incurred for the right to broadcast
certain features and syndicated television programs. Program rights are stated,
on a gross basis, at the lower of amortized cost or estimated realizable value.
The cost of such program rights and the corresponding liability are recorded
when the initial program becomes available for broadcast under the contract.
Generally, program rights are amortized over the life of the contract on a
straight-line basis related to the usage of the program. The portion of the cost
estimated to be amortized within one year and after one year are reflected in
the balance sheets as current and non-current assets, respectively. The gross
payments under these contracts that are due within one year and after one year
are similarly classified as current and non-current liabilities.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The cost of maintenance is
expensed when incurred. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the respective assets.
When property is retired or
17
<PAGE> 18
otherwise disposed of, the cost and accumulated depreciation are removed from
the appropriate accounts and any gain or loss is included in the results of
current operations. The principal lives used in determining depreciation rates
of various assets are as follows:
<TABLE>
<S> <C>
Buildings and Improvements......................... 20 - 30 years
Broadcast and other equipment...................... 3 - 20 years
Furniture and fixtures............................. 5 - 7 years
Vehicles........................................... 5 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of broadcast licenses and goodwill, both of
which are amortized on a straight-line basis over a 20-year life.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
1998 1999
--------- ---------
<S> <C> <C>
Broadcast licenses $ 154,351 $ 199,731
Goodwill 78,808 106,816
--------- ---------
Total intangible assets 233,159 306,547
Less: accumulated amortization (10,172) (23,575)
--------- ---------
Net intangible assets $ 222,987 $ 282,972
========= =========
</TABLE>
BARTER AND TRADE TRANSACTIONS
Revenue and expenses associated with barter agreements in which
broadcast time is exchanged for programming rights are recorded at the estimated
average rate of the airtime exchanged. Trade transactions, which represent the
exchange of advertising time for goods or services, are recorded at the
estimated fair value of the products or services received. Barter and trade
revenue is recognized when advertisements are broadcast. Merchandise or services
received from airtime trade sales are charged to expense or capitalized when
used or received.
LOCAL MARKETING AGREEMENTS
In connection with station acquisitions, and pending FCC approval of the
transfer of license assets, the Company generally enters into local marketing
agreements with the sellers. Under the terms of these agreements, we obtain the
right to program and sell advertising time on 100% of the station's inventory of
broadcast time, incur certain operating expenses and may make payments to the
sellers. As the holder of the FCC license, the seller/licensee retains ultimate
control and responsibility for all programming broadcast on the station. We, in
turn, record revenues from the sale of advertising time and operating expenses
for costs incurred. Included in the accompanying consolidated statements of
operations for the years ended December 31, 1997, 1998, and 1999 are net
revenues of $9.5 million, $6.8 million and $125,000, respectively, that relate
to local marketing agreements. Payments to the sellers for the years ended
December 31, 1997,1998 and 1999 were $0, $228,000, $27,500, respectively. At
December 31, 1999, the Company was not obligated for any future payments to
sellers.
CARRYING VALUE OF LONG-LIVED ASSETS
The Company follows Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." The carrying value of long-lived assets (tangible, identifiable
intangible, and goodwill) is reviewed if the facts and circumstances suggest
that they may be impaired. For purposes of this review, assets are grouped at
the operating company level, which is the lowest level for which there are
identifiable cash flows. If this review indicates that an asset's carrying value
will not be recoverable, as determined based on future expected, undiscounted
cash flows, the carrying value is reduced to fair market value.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." In
accordance with SFAS No. 109, income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
18
<PAGE> 19
Prior to the Reorganization, the Company was a non-taxable entity,
therefore, no income taxes have been provided for its operations other than at
its 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 prior to the
Reorganization is the responsibility of, or benefit to, the individual members.
In conjunction with the Reorganization, the Company became part of a
consolidated taxable group. As of the Reorganization date, the Company recorded
deferred tax assets and liabilities for the difference between the financial
statement carrying value of the Company's assets and liabilities and their
associated tax basis.
ACCOUNTING FOR STOCK OPTIONS
ACME Parent has issued stock options to the executives of ACME Parent
and the Company and to certain Company employees. The Company has adopted
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which permits entities to recognize (over the vesting
period) the expense of all stock-based awards. The expense is calculated based
on the fair value at the date of grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of APB Opinion No. 25 and provide
pro forma net income disclosure for employee stock option grants made, as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123 (see Note 13).
REPORTING COMPREHENSIVE INCOME
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement, which establishes standards for reporting and
disclosure of comprehensive income, is effective for interim and annual periods
beginning after December 15, 1997. The Company adopted SFAS No. 130 effective
January 1, 1998. Adoption had no impact on the Company's consolidated financial
position or results of operations.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates include the allowance for doubtful accounts
net of the realizable value of programming rights and the evaluation of the
recoverability of intangible assets. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts previously reported for 1997 and 1998 have been
reclassified to conform to the 1999 financial statement presentation.
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
-------- --------
<S> <C> <C>
Land ................................... $ 553 $ 1,097
Buildings and improvements ............. 2,529 5,555
Broadcast and other equipment .......... 13,163 22,678
Furniture and fixtures ................. 287 776
Vehicles ............................... 185 290
Construction in process ................ 1,935 427
-------- --------
Total ............................. $ 18,652 30,823
Less: accumulated depreciation ......... (2,211) (5,707)
-------- --------
Net property and equipment ............. $ 16,441 $ 25,116
======== ========
</TABLE>
Included in property and equipment are assets acquired under capital
leases with a total cost of $6,207,000 and $9,512,641 and the associated
accumulated depreciation of $767,000 and $2,045,668 at December 31, 1998 and
1999, respectively.
(4) ACQUISITIONS
19
<PAGE> 20
On June 17, 1997, the Company acquired substantially all of the assets
and assumed certain liabilities of Channel 32, Incorporated, relating to the
operations of KWBP, in exchange for $18.7 million in cash and $4.4 million of
membership units in the Company. The acquisition was accounted for using the
purchase method. The excess of the purchase price plus the fair value of net
liabilities assumed of approximately $23.5 million has been recorded as an
intangible broadcast license and is being amortized over a period of 20 years.
In addition, the results of operations (excluding depreciation and amortization)
of KWBP were recorded by the Company beginning January 1, 1997 pursuant to a
local marketing agreement whereby ACME Oregon effectively operated the station
and funded the station's losses during the period from January 1, 1997 to June
17 1997 (the acquisition date).
On July 29, 1997, the Company entered into a stock purchase agreement to
acquire Koplar Communications, Inc. ("KCI") the owner of station KPLR. On
September 30, 1997, the Company placed $143.0 million in to an escrow account
(classified as a deposit on the December 31, 1997 consolidated balance sheet).
In connection with this acquisition, the Company entered into a long-term local
marketing agreement with KPLR and filed the requisite applications with the FCC
for the transfer of the Station's license to the Company.
Pursuant to the local marketing agreement, the Company retained all
revenues generated by the station, bore substantially all operating expenses
(excluding depreciation and amortization) of the station and was obligated to
pay a local marketing agreement fee. These revenues and expenses for the period
October 1 through December 31, 1997 are included in the Company's operating
results for the year ended December 31, 1997.
On March 13, 1998, the Company completed its acquisition of KCI by
acquiring all of the outstanding stock of KCI for a total consideration of
approximately $146.3 million. The acquisition was accounted for using the
purchase method. Pursuant to the local marketing agreement referred to above,
all revenues and operating expenses of the station (excluding depreciation and
amortization) for the period from September 30, 1997 to March 31, 1998 (the
effective date of the purchase transaction) are included in the Company's
operating results. The purchase transaction was recorded on the consolidated
balance sheet of the Company effective March 31, 1998 and the Company's results
of operations includes revenues and expenses (including amortization of
intangible assets) beginning April 1, 1998.
The fair value of the assets acquired and liabilities assumed relating
to the acquisition of KPLR (in thousands):
<TABLE>
<S> <C>
Assets acquired:
Cash and cash equivalents ........................ $ 779
Accounts receivables, net ...................... 1,703
Program broadcast rights ....................... 8,490
Property and equipment ......................... 2,233
Prepaid expenses and other current assets ...... 416
FCC license .................................... 82,563
Goodwill ....................................... 93,775
Other assets ................................... 395
---------
Total assets acquired ....................... $ 190,354
=========
Liabilities assumed:
Accounts payable ............................... $ (1,005)
Accrued liabilities ............................ (1,332)
Program broadcast rights payable ............... (8,258)
Deferred income taxes .......................... (29,889)
Other liabilities .............................. (3,531)
---------
Total liabilities assumed ................... $ (44,015)
---------
Total purchase price ........................ $ 146,339
=========
</TABLE>
On October 7, 1997, the Company acquired Crossville Limited Partnership,
the owner of WINT, in exchange for $13.2 million in cash. Subsequent to the
acquisition, the Company changed the call letters of the station to WBXX. The
acquisition was accounted for using the purchase method. The excess of the
purchase price over the fair value of net assets acquired of approximately $13.3
million has been recorded as an intangible broadcast license and is being
amortized over a period of 20 years.
During 1997, the Company entered into an agreement that provided it with
the right to: (i) acquire 49% of the licensee of KUPX (formerly KZAR) in
exchange for membership units valued at $6.0 million, and (ii) pay $3.0 million
for an option to acquire the remaining 51% interest in the licensee of KUPX for
$5.0 million, exercisable immediately after the station commences on-air
operations. On December 15, 1997, the Company acquired the 49% interest in the
licensee of KUPX, paid $3.0 million to acquire the option and loaned the sellers
$4.0 million (to be applied to the subsequent majority interest purchase price).
On January 22, 1998, the Company issued $6.0 million of its member units to the
sellers for the 49% interest in the license of KUPX in connection with the above
transaction. The amount of the issuance was based upon a fixed dollar amount of
consideration. The Company accounted for the 49% investment using the equity
method of accounting. On February 16, 1999,
20
<PAGE> 21
the Company acquired the remaining 51% interest in KUPX. The $4.0 million loan
was applied against the remaining purchase price of $5.0 million.
In May 1998 the Company and the majority owners of KUPX entered into an
agreement with another broadcaster in Salt Lake City to (i) swap KUPX for KUWB,
subject to FCC approval (ii) enable the Company to operate KUWB under a local
marketing agreement and (iii) enable the owner of KUWB to operate KUPX under a
local marketing agreement. Pursuant to the LMA's, the Company retains all
operating revenues and expenses (excluding depreciation and amortization) of
KUWB and the owner of KUWB retains all operating revenues and expenses
(excluding depreciation and amortization) of KUPX. In March 1999, the FCC
approved the swap of KUPX for KUWB and the transaction closed during the third
quarter of 1999. The Company has accounted for the swap as a business
combination and has recorded KUPX at its fair value. There was no significant
difference between the fair value of KUPX and the historical cost of KUWB.
On August 22, 1997, the Company entered into an agreement with
affiliates of the sellers of KZAR to acquire 100% of the interests in the
construction permit for KAUO for a consideration of $10,000. This agreement was
consummated on January 22, 1998. Subsequently, the call letters of KAUO were
changed to KWBQ. Construction of KWBQ was completed and the station commenced
broadcasting in March 1999.
On June 30, 1998, the Company acquired substantially all the assets and
assumed certain liabilities of WTVK-Channel 46 serving the Fort Myers-Naples,
Florida marketplace for approximately $14.5 million in cash and 1,047 membership
units (valued at approximately $1.0 million). The acquisition was accounted for
using the purchase method. The excess of the purchase price over the fair value
of the net assets assumed of approximately $15.5 million has been recorded as an
intangible broadcast license and goodwill, both of which are being amortized
over a period of 20 years. The Company had entered into a local marketing
agreement with WTVK wherein the Company, effective March 3, 1998, retained all
revenues generated by the station, bore all operating expenses of the station
(excluding depreciation and amortization) and had the right to program the
station (subject to WTVK's ultimate authority for programming) and the station's
existing programming commitments. The local marketing agreement terminated upon
the consummation of the acquisition. Consequently, under the local marketing
agreement the revenues and operating expenses (excluding depreciation and
amortization) of the station are included in the Company's results of operations
from March 3, 1998 to June 30, 1998. The purchase transaction was recorded on
the consolidated balance sheet of the Company on June 30, 1998 and the Company's
results of operations includes revenues and expenses (including amortization of
intangible assets) beginning July 1, 1998.
On April 23, 1999, the Company acquired the non-FCC license assets of
three Paxson Communication Corporation ("PCC") stations serving the Dayton, OH,
Green Bay, WI and Champaign-Decatur, IL markets for $32.0 million. On June 23,
1999, following FCC approval of the transfer of the FCC licenses, the
Company acquired the licenses and completed the acquisition of the three
stations by making a final payment to PCC of $8.0 million. The Company entered
into local marketing agreements with the seller wherein the Company, effective
June 2, 1999, retained all revenues generated by the stations, bore all
operating expenses of the stations (excluding amortization) and had the right to
program the stations (subject to the seller's ultimate authority for
programming) and the stations' existing programming commitments. The local
marketing agreement terminated upon the consummation of the acquisition.
Consequently, under the local marketing agreement the revenues and operating
expenses (excluding amortization) of the station are included in the Company's
results of operations from June 2, 1999 to June 23, 1999. The purchase of the
FCC licenses was recorded on the consolidated balance sheet of the Company on
June 23, 1999 and the Company's results of operations includes revenues and
expenses (including amortization of intangible assets) beginning June 24, 1999.
The Company financed this $40.0 million transaction by a $25.0 million borrowing
under its revolving credit agreement and the issuance of $15.0 million in
redeemable preferred units by ACME Intermediate (see Notes 7 and 11). The
acquisition was accounted for using the purchase method. The excess of the
purchase price over the fair market value of the assets acquired of
approximately $35.6 million has been recorded as intangible broadcast licenses
and goodwill, all of which are being amortized over a period of 20 years.
On December 3, 1999, the Company acquired substantially all of the
assets and assumed certain liabilities of station KASY TV-50, serving the
Albuquerque - Santa Fe, New Mexico market, from Ramar Communications ("Ramar")
for approximately $27 million. The Company entered into an interim LMA
arrangement with Ramar to begin operating the station effective November 1,
1999. The interim LMA terminated upon the completion of the acquisition. Under
the local marketing agreement, all of the revenues and operating expenses
(excluding depreciation and amortization) of the station are included in the
Company's results of operations from November 1, 1999 to December 3, 1999. The
purchase transaction was recorded on December 3, 1999 and the Company's results
of operations (including depreciation and amortization) beginning December 3,
1999.
The unaudited pro forma financial information for the years ended
December 31, 1998 and 1999, set forth below reflects the net revenues and net
loss assuming the KWBP, WBXX, KPLR, KUWB, WTVK, KWBQ, KASY, WBDT, WBUI and WIWB
transactions had taken place at the beginning of each respective year. This
unaudited pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the acquisitions occurred on
January 1, 1998 and 1999.
21
<PAGE> 22
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1998 YEARS ENDED DECEMBER 31, 1999
-------------------------------- --------------------------------
ACME ACME ACME ACME
INTERMEDIATE TELEVISION INTERMEDIATE TELEVISION
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net revenues $ 49,905 $ 49,905 $ 63,109 $ 63,109
Net loss $(25,104) $(19,898) $(73,430) $(68,062)
</TABLE>
(5) UNIT OFFERING AND 12% SENIOR SECURED DISCOUNT NOTES
On September 30, 1997, ACME Intermediate issued 71,634 Units (the Unit
Offering) consisting of 71,634 membership units (representing 8% of the ACME
Intermediate's outstanding membership equity) and $71,634,000 (par value at
maturity) in 12% senior secured discount notes due 2005 (Intermediate Notes).
Cash interest on the Intermediate Notes is payable semi-annually in arrears,
commencing with the six-month period ending March 31, 2003. The Notes mature on
September 30, 2005 and may not be prepaid prior to September 30, 2000 and
subsequently, may not be prepaid without penalty prior to October 1, 2003. The
net proceeds from the Unit Offering, after the deduction of underwriter fees and
other related offering costs, were $38.3 million and were received by the
Company on September 30, 1997. The Company has allocated approximately $4.2
million of such net proceeds to minority interest, $35.6 million to the
Intermediate notes and $1.5 million to prepaid financing costs -- the latter
which is being amortized over the eight-year term of the notes. The Intermediate
Notes contain certain covenants and restrictions including restrictions on
future indebtedness and restricted payments, as defined, and limitations on
liens, investments, transactions with affiliates and certain asset sales. The
Company was in compliance with all such covenants and restrictions at December
31, 1999. In connection with the Reorganization the membership units issued in
the Unit Offering (representing a minority interest) were acquired by ACME
Parent for shares of its common stock. The acquisition of minority interest was
recorded based upon the fair market value of the stock issued.
The Intermediate Notes are secured by a first priority lien on the
limited liability company interests in ACME Television and ACME Subsidiary
Holdings II, LLC, both of which are direct wholly-owned subsidiaries of ACME
Intermediate. ACME Subsidiary Holdings II, LLC was formed solely to own a 0.5%
interest in ACME Television, has no other assets or operations and does not
constitute a substantial portion of the collateral for the Intermediate Notes.
(6) 10 7/8% SENIOR DISCOUNT NOTES
On September 30, 1997, ACME Television issued 10.875% senior discount
notes due 2004 ("Notes") with a face value of $175,000,000 and received
$127,370,000 in gross proceeds from such issuance. These Notes provide for
semi-annual cash interest payments commencing with the six-month period ending
on March 31, 2001. The Notes are subordinated to ACME Television's bank revolver
(see Note 8) and to the ACME Television's capital equipment finance facilities.
The Notes mature on September 30, 2004. Subject to certain restrictions, up to
35% of the aggregate principal amount can be prepaid with the net proceeds of
any public equity offerings prior to September 30, 2000. Other than prepayment
with the proceeds of a public equity offering, the notes may not be prepaid
prior to September 30, 2001 and may not be prepaid without penalty prior to
October 1, 2003.
The Notes contain certain covenants and restrictions including
restrictions on future indebtedness and limitations on investments, and
transactions with affiliates. ACME Television was in compliance with all such
covenants and restrictions at December 31, 1997, 1998 and 1999.
Costs associated with the issuance of these notes, including the
underwriters fees and related professional fees are included in long-term other
assets and will be amortized over the seven year term of the notes.
ACME Television's subsidiaries (hereinafter referred to in this section
collectively as "Subsidiary Guarantors") are fully, unconditionally, and jointly
and severally liable for ACME Television's notes. The Subsidiary Guarantors are
wholly-owned and constitute all of ACME Television's direct and indirect
subsidiaries except for ACME Finance Corporation, a wholly-owned finance
subsidiary of ACME Television with essentially no independent operations that is
jointly and severally liable with the ACME Television on the Notes. ACME
Television has not included separate financial statements of the aforementioned
subsidiaries because (i) ACME Television is a holding company with no
significant assets or independent operations other than its investments in its
subsidiaries and (ii) the separate financial statements and other disclosures
concerning such subsidiaries are not deemed material to investors.
22
<PAGE> 23
ACME Television and / or the Subsidiary Guarantors are parties to
various agreements which restrict their ability to pay dividends or make
distributions to ACME Intermediate or ACME Parent. These agreements include, but
are not limited to, the Indenture governing the Notes and ACME Television's
revolving credit facility (see Note 7).
(7) ISSUANCE OF REDEEMABLE PREFERRED MEMBERSHIP UNITS
On April 23, 1999, in connection with the acquisition of the non-FCC
assets of the three Paxson Communications Corporation stations, ACME
Intermediate issued 7,000 units of a newly created class of mandatory redeemable
preferred membership units to ACME Parent in exchange for a $7 million cash
contribution. On June 23, 1999, an additional $8 million contribution was
received by ACME Intermediate from ACME Parent in exchange for an additional
8,000 redeemable preferred units. ACME Intermediate, on the same days of receipt
from ACME Parent, contributed to ACME Television the aggregate $15 million.
The terms of the ACME Intermediate preferred units provided for dividend
accruals at the rate of 22.5% per annum for the first six months following
issuance and were mandatorily redeemable to ACME Parent on the earlier of (a)
the completion of new permanent financing, including an initial public offering
or a debt offering or (b) October 1, 2005. ACME Intermediate redeemed all of the
preferred units at the close of ACME Parent's initial public offering on October
5, 1999.
(8) BANK REVOLVER
On August 15, 1997, ACME Television entered into a $22.5 million
revolving credit facility (the "Loan Agreement") with Canadian Imperial Bank
Corporation (CIBC), as agent and lead lender. Under the terms of the Loan
Agreement, advances bear interest at a base rate, that at our option, is either
the bank's prime rate or LIBOR, plus a spread. Commitment fees are charged at a
rate of .5% per annum, paid quarterly, on the unused portion of the facility. On
December 2, 1997, the Loan Agreement was amended to provide ACME Television with
an increased credit line to $40 million, more favorable interest rates and a
lengthened term. There was no outstanding balance under the Loan Agreement at
December 31, 1997. At December 31, 1998 there was an outstanding balance of $8.0
million under the Loan Agreement. As of December 31, 1999 there was no
outstanding balance under the Loan Agreement.
The Loan Agreement contains certain covenants and restrictions including
restrictions on future indebtedness and limitations on investments and
transactions with affiliates. ACME Television was in compliance with all such
covenants and restrictions at December 31, 1997, 1998 and 1999.
Costs associated with the procuring of bank credit facilities, including
loan fees and related professional fees, are included in long-term other assets
and are amortized over the term of the Loan Agreement.
(9) COMMITMENTS AND CONTINGENCIES
OBLIGATIONS UNDER OPERATING LEASES
The Company is obligated under non-cancelable operating leases for
office space and transmission sites. Future minimum lease payments as of the
year ended December 31, 1999, under non-cancelable operating leases with initial
or remaining terms of one year or more are:
<TABLE>
<S> <C>
2000 ........................ $ 794,000
2001 ........................ 751,000
2002 ........................ 598,000
2003 ........................ 642,000
2004 ........................ 428,000
Thereafter .................. 946,000
----------
Total .................. $4,159,000
==========
</TABLE>
Total rental expense under operating leases for the twelve months ended
December 31, 1997, 1998 and 1999 was approximately $166,000, $967,463 and
$850,383, respectively.
OBLIGATIONS UNDER CAPITAL LEASES
As of December 31, 1999, approximately $9,513,000 million of equipment
was leased under capital equipment facilities. These obligations are reflected
as current obligations under capital leases of $1,273,000 and $1,617,000, and as
non-current
23
<PAGE> 24
liabilities under capital lease of $4,199,000 and $5,796,000 at December 31,
1998 and 1999, respectively. These capital lease obligations expire over the
next five years. Future minimum lease payments as of December 31, 1999 under
capital leases are:
<TABLE>
<S> <C>
2000........................................ $ 2,206,000
2001........................................ 2,123,000
2002........................................ 2,103,000
2003........................................ 1,673,000
2004........................................ 833,000
-----------
Total..................................... 8,938,000
Less: Interest............................. (1,525,000
-----------
Present value of minimum lease payments... $ 7,413,000
===========
</TABLE>
PROGRAM RIGHTS PAYABLE
Commitments for program rights that have been executed, but which have
not been recorded in the accompanying financial statements, as the underlying
programming is not yet available for broadcast, were approximately $7,101,000,
$28,265,000 and $7,862,000 as of December 31, 1997, 1998 and 1999, respectively.
Maturities on the Company's program rights payables (including
commitments not recognized in the accompanying financial statements due to the
lack of current availability for broadcast) for each of the next five years are:
<TABLE>
<S> <C>
2000 ......................... $12,143,000
2001 ......................... 11,282,000
2002 ......................... 6,690,000
2003 ......................... 1,816,000
2004 ......................... 263,000
Thereafter ................... --
-----------
Total ................... $32,194,000
===========
</TABLE>
CERTAIN COMPENSATION ARRANGEMENTS
In June 1997, ACME Parent issued an aggregate of 100 management carry
units to certain executives. These units entitled holders to certain
distribution rights upon achievement of certain returns by non-management
investors and were subject to forfeiture or repurchase by ACME Parent in the
event of termination of each individual's employment by the Company under
certain specified circumstances. These management carry units were accounted for
as a variable plan resulting in an expense when it is probable that any such
distributions will be made. The Company determined the value of these at the
issuance date to be immaterial. Upon the closing of ACME Parent's IPO these
management carry units were exchanged for fully vested shares of ACME Parent's
common stock. The issuance of the management carry units related to management
services provided to the Company by the executives and therefore all expense
recognized in connection with these awards were charged to the Company by ACME
Parent and have been treated as a capital contribution by ACME Parent to the
Company. During 1999, the Company recorded an expense of $39.6 million relating
to the units. No expense was recorded relating to these units in 1998 or 1997.
LEGAL PROCEEDINGS
We are currently, and from time to time, involved in litigation
incidental to the conduct of our business. We are not currently a party to any
lawsuit or proceeding that we believe would have a material adverse effect on
our financial condition, results of operations or liquidity.
(10) INCOME TAXES
The income tax benefit consists of the following:
24
<PAGE> 25
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1999
------------------------------- -------------------------------
ACME ACME ACME ACME
INTERMEDIATE TELEVISION INTERMEDIATE TELEVISION
------------ ---------- ------------ ----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Current:
Federal income taxes ......... $ -- $ -- $ -- $ --
State income taxes ........... -- -- -- --
------- ------- ------- -------
Total current tax expense $ -- $ -- $ -- $ --
Deferred:
Federal income taxes ......... $(2,393) $(2,393) $(4,597) $(3,985)
State income taxes ........... -- -- -- --
------- ------- ------- -------
Total income tax benefit $(2,393) $(2,393) $(4,597) $(3,985)
======= ======= ======= =======
</TABLE>
The differences between the income tax benefit and income taxes computed
using the U.S. Federal statutory income tax rates (34%) consist of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1998
-------------------------------- ---------------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
------------ ---------- ------------ ----------
EXPENSE/(BENEFIT) EXPENSE/(BENEFIT)
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Tax benefit at U.S. Federal rate................ $ (8,273) $ (8,273) $(25,238) $(23,205)
State income taxes, net of Federal tax benefit.. (261) (261) (489) (489)
Termination of non-taxable status............... -- -- (953) (953)
Losses allocated to LLC members................. 4,802 4,802 7,193 5,772
Nondeductible expenses.......................... 1,430 1,430 15,202 15,202
Other........................................... (91) (91) (312) (312)
-------- -------- -------- --------
Income tax benefit............................ $ (2,393) $ (2,393) $ (4,597) $ (3,985)
======== ======== ======== ========
</TABLE>
DEFERRED INCOME TAXES
Prior to the Reorganization, the Company was a non-taxable entity,
therefore no income taxes have been provided for its operations other than at
its 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 prior to the
Reorganization is the responsibility of, or benefit to, the individual members.
The 1999 data listed below take into consideration the tax effect to the Company
after its Reorganization.
25
<PAGE> 26
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1998
----------------------------------- -----------------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------- --------------- ------------- ---------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Current:
Accrued vacation $ 56 $ 56 $ 170 $ 170
State income taxes -- -- 49 49
Bad debt and other reserves 2,155 2,155 2,126 2,126
Deferred revenue -- -- 86 86
Other 345 345 17 17
-------- -------- -------- --------
Total current 2,556 2,556 2,448 2,448
-------- -------- -------- --------
Non-current:
Fixed asset depreciation -- -- (500) (500)
Intangible amortization (30,297) (30,297) (28,700) (28,700)
Deferred compensation -- -- 332 332
Net operating loss carryforward 1,255 1,255 5,148 4,536
Program amortization (944) (944) (1,533) (1,533)
Charitable contributions -- -- 66 66
-------- -------- -------- --------
Total non-current (29,986) (29,986) (25,187) (25,799)
-------- -------- -------- --------
Total deferred income taxes $(27,430) $(27,430) $(22,739) $(23,351)
======== ======== ======== ========
</TABLE>
(11) RELATED PARTY TRANSACTIONS
The Company's stations have entered into affiliation agreements and,
from time to time, related marketing arrangements with The WB Network. Jamie
Kellner, Chief Executive Officer, is an owner and the chief executive officer of
The WB Network.
Pursuant to June 1995 agreements among Koplar Communications, Inc.,
Roberts Broadcasting, Michael Roberts and Steven C. Roberts, Roberts
Broadcasting cannot (i) transfer its license for WHSL, East St. Louis, Illinois,
(ii) commit any programming time of the station for commercial programming or
advertising or (iii) enter into a local marketing agreement with respect to such
station until June 1, 2000. In the event that the current affiliation agreement
for WHSL is terminated, the substitute format must be substantially similar to
the current home shopping network format or, in the alternative, an infomercial
format. The annual payment from KPLR for these agreements was $200,000 during
the first three years. The Company paid $300,000 in both 1998 and 1999 under
this agreement.
In connection with our Salt Lake City and New Mexico stations, the
Company has entered into long-term agreements to lease studio facilities and/or
transmission tower space for KUWB, KUPX and KWBQ from an affiliate of Michael
Roberts. Michael Roberts serves on ACME Parent's Board of Directors. These
leases have terms of approximately fifteen years and provide for monthly
payments aggregating approximately $25,000, subject to adjustment based on the
Consumer Price Index.
On October 1, 1997, in connection with our acquisition of KWBP, we paid
CEA, Inc., an affiliate of one of ACME Parent's stockholders, CEA Capital
Partners, a broker's fee of approximately $176,000. On the same day, we paid
CEA, Inc., $132,000 in connection with the purchase of WBXX, $25,000 in
connection with the purchase of the construction permit for KWBQ (formerly
KAUO), $45,000 in connection with the purchase of the construction permit for
KUPX (formerly KZAR) and $889,000 in connection with the purchase of KPLR, as
broker's fees in each of the transactions. Additionally, in connection with the
recent acquisition of WBUI, WIWB and WBDT, we paid CEA, Inc. a broker's fee of
$125,000. CEA, Inc. also received compensation from the seller in connection
with the purchase of WBUI, WIWB and WBDT. One of ACME Parent's directors, Mr.
Collis, is an officer of an affiliate of CEA Capital Partners.
(12) DEFINED CONTRIBUTION PLAN
In 1998, the Company established a 401(k) defined contribution plan (the
Plan) which covers all eligible employees (as defined in the Plan). Participants
are allowed to make non-forfeitable contributions up to 15% of their annual
salary, but may not exceed the annual maximum contribution limitations
established by the Internal Revenue Service. The Company currently matches 50%
of the amounts contributed by each participant but does not match participants'
contributions in excess of 6% of
26
<PAGE> 27
their contribution per pay period. The Company contributed and expensed $200,000
to the Plan for the year ended December 31, 1998, and $173,000 for the year
ended December 31, 1999.
(13) STOCK OPTION COMPENSATION
ACME Parents' 1999 Stock Incentive Plan provides additional means to
attract, motivate, reward and retain key personnel. All of the options granted
to date under the Plan have been to Company employees or to executives of ACME
Parent who render services to the Company. The administrator has the authority
to grant different types of stock and cash incentive awards and to select
participants. While only stock options and restricted stock awards are
contemplated at this time, other forms of awards may be granted to give us
flexibility to structure future incentives. Our employees, officers, directors,
and consultants may be selected to receive awards under the plan.
A maximum of 4,200,000 shares of ACME Parent's common stock may be
issued under the plan, (approximately 25.08% of our outstanding shares). The
number of shares subject to stock options and stock appreciation rights granted
under the plan to any one person in a calendar year cannot exceed 1,000,000
shares. The number of shares subject to all awards granted under the plan to any
one person in a calendar year cannot exceed 1,000,000 shares. Performance-based
awards payable solely in cash that are granted under the plan to any one person
in a calendar year cannot provide for payment of more than $1,000,000.
Each share limit and award under the plan is subject to adjustment for
certain changes in our capital structure, reorganizations and other
extraordinary events. Shares subject to awards that are not paid or exercised
before they expire or are terminated are available for future grants under the
plan.
Stock option activity during the year consisted of the following:
<TABLE>
<CAPTION>
1999
---------------------------
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
--------- ------
<S> <C> <C>
Stock options outstanding,
beginning of year -- --
Options granted
(per share: $15.00 to $23.00) 2,834,091 $22.56
Options forfeited 2,500 23.00
Options exercised -- --
--------- ------
Stock options outstanding, end of year 2,831,591 $22.56
========= ======
Stock options exercisable, end of year -- --
========= ======
Options available for grant, end of year 1,368,409 --
========= ======
</TABLE>
The following table summarizes information concerning currently
outstanding and exercisable options:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE OPTIONS REMAINING EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
----- ----------- ---------------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 15.00 283,500 10.0 $ 15.00 -- $ 15.00
$ 18.00 58,500 10.0 $ 18.00 -- $ 18.00
$ 23.00 2,489,591 10.0 $ 23.00 -- $ 23.00
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and related
interpretations, in accounting for stock options. Accordingly, no compensation
cost has been recognized for options granted at or above fair market value at
the time of grant. For the grants that were made at an option price lower than
fair market value at the time of grant, compensation expense of $132,000 was
recognized in the fourth quarter of 1999 (the first quarter of the vesting
period). The options granted at below fair market value at the date of grant
were granted upon conversion of the Company's Long Term Incentive Plan (LTIP).
The
27
<PAGE> 28
Company recognized compensation expense under the LTIP of $338,000 during the
year ended December 31, 1999 and $400,000 during the year ended December 31,
1998. All amounts expensed prior to the conversion of the LTIP ($738,000) are
netted against the total of the below market option compensation expense to
arrive at the expense to be recognized over the vesting period of such options.
Had the Company chosen to adopt the provisions of Statement of Financial
Accounting Standards No. 123, and recognized compensation cost based upon the
fair value of all options granted (including those granted at or above fair
market value) at the date of grant, the Company's net loss for the year ended
December 31, 1999 would have been as follows:
<TABLE>
<CAPTION>
1999 NET
LOSS
-----------------------------
ACME
INTERMEDIATE ACME
-------- --------
<S> <C> <C>
As reported $(69,633) $(64,265)
Pro forma $(71,257) $(65,889)
</TABLE>
The fair value of the options granted were used to calculate the pro
forma net income and net income per common share above, on the date of grant,
using a binomial option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999
------
<S> <C>
Dividend yield --
Expected volatility 50.00%
Risk free interest rate 6.11%
Expected life (in months) 60
Weighted average fair value of grants $12.03
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Omitted under the reduced disclosure format pursuant to General
Instruction I (2) (c) of Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Omitted under the reduced disclosure format pursuant to General
Instruction I (2) (c) of Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Omitted under the reduced disclosure format pursuant to General
Instruction I (2) (c) of Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Omitted under the reduced disclosure format pursuant to General
Instruction I (2) (c) of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements are included in Item 8:
ACME Intermediate Holdings, LLC and Subsidiaries and
ACME Television, LLC and Subsidiaries:
28
<PAGE> 29
-- Consolidated Balance Sheets as of December 31, 1998 and 1999.
-- Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.
-- Consolidated Statements of Members' Capital for the years ended
December 31, 1997, 1998 and 1999.
-- Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.
-- Notes to the Consolidated Financial Statements.
(a) 2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules are included in Item 14 (d):
Schedule I - Condensed Financial Information of ACME Intermediate
Holdings, LLC and ACME Television, LLC (Parent Companies):
- Balance Sheet as of December 31, 1998 and 1999.
- Statements of Operations for the years ended
December 31, 1997, 1998 and 1999.
- Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999.
- Notes to the Condensed Financial Information
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted since the required information is
not present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the consolidated
financial statements or the notes thereto, included in Item 8 herewith.
(a) 3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
3.1(1) Certificate of Formation of ACME Intermediate Holdings, LLC.
3.2(1) Limited Liability Company Agreement of ACME Intermediate Holdings,
LLC.
3.3(2) Certificate of Formation of ACME Television, LLC.
3.4(2) Limited Liability Company Agreement of ACME Television, LLC.
4.1(1) Indenture, dated September 30, 1997, by and among ACME Intermediate
Holdings, LLC and ACME Intermediate Finance, Inc., as Issuers, and
Wilmington Trust Company.
4.2(1) Indenture, dated September 30, 1997, by and among ACME Television,
LLC and ACME Finance Corporation, as issuers, the Guarantors named
therein, and Wilmington Trust Company.
4.3(4) First Supplemental Indenture, dated February 11, 1998, by and among
ACME Television, LLC and ACME Finance Corporation, the Guarantors
named therein, and Wilmington Trust Company.
4.4(4) Second Supplemental Indenture, dated March 13, 1998, by and among
ACME Television, LLC and ACME Finance Corporation, the Guarantors
named therein, and Wilmington Trust Company.
4.5(6) Third Supplemental Indenture, dated August 21, 1998, by and among
ACME Television, LLC and ACME Finance Corporation, as issuers, the
Guarantors named therein, and Wilmington Trust Company.
10.1(9) Asset Purchase Agreement, dated April 23, 1999, by and among Paxson
Communications Corporation, Paxson Communications
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
License Company, LLC, Paxson Communications of Green Bay-14, Inc.,
Paxson Communications of Dayton-26, Inc., Paxson Dayton License,
Inc., Paxson Communications of Decatur-23, Inc., Paxson Decatur
License, Inc., ACME Television of Ohio, LLC, ACME Television Licenses
of Ohio, LLC, ACME Television of Wisconsin, LLC, ACME Television
Licenses of Wisconsin, LLC, ACME Television of Illinois, LLC and ACME
Television Licenses of Illinois, LLC for WDPX(TV), Springfield, Ohio,
WPXG(TV), Suring, WI and WPXU(TV), Decatur, IL.
10.2(9) Time Brokerage Agreement, dated April 23, 1999, by and among Paxson
Communications License Company, LLC, Paxson Communications of Green
Bay-14, Inc., and ACME Television of Wisconsin, LLC for Station
WPXG-TV, Suring, Wisconsin.
10.3(9) Time Brokerage Agreement, dated April 23, 1999, by and among Paxson
Decatur License, Inc., Paxson Communications of Decatur-23, Inc., and
ACME Television of Illinois, LLC for Station WPXU-TV, Decatur,
Illinois.
10.4(9) Time Brokerage Agreement, dated April 23, 1999, by and among Paxson
Dayton License, Inc., Paxson Communications of Dayton-26, Inc., and
ACME Television of Ohio, LLC for Station WDPX-TV, Springfield, Ohio.
10.5(8) Asset Purchase Agreement, dated February 19, 1999, by and between
ACME Television of New Mexico, LLC and ACME Television Licenses of
New Mexico, LLC and Ramar Communications II, Ltd., with respect to
television station KWBQ-TV, Santa Fe, New Mexico.
10.6(10) Amendment to Asset Purchase Agreement, dated July 30, 1999, by and
between ACME Television of New Mexico, LLC and ACME Television
Licenses of New Mexico, LLC and Ramar Communications II, Ltd., with
respect to television station KASY-TV, Santa Fe, New Mexico.
10.7(8) Asset Purchase Agreement, dated February 19, 1999, by and between
ACME Television of New Mexico, LLC and ACME Television Licenses of
New Mexico, LLC and Ramar Communications II, Ltd., with respect to
television station KASY-TV, Albuquerque, New Mexico.
10.8(7) Purchase Agreement, dated October 30, 1998, by and between Roberts
Broadcasting of New Mexico, LLC and ACME Television of New Mexico,
LLC.
10.9(7) Option Agreement, dated November 5, 1998, by and between Roberts
Broadcasting of New Mexico, LLC and ACME Television of New Mexico,
LLC.
10.10(1) Asset Purchase Agreement, dated August 22, 1997, by and between ACME
Television Licenses of New Mexico, LLC and Minority Broadcasters of
Santa Fe, Inc.
10.11(1) Management Agreement, dated August 22, 1997, by and between Minority
Broadcasters of Santa Fe, Inc. and ACME Television of New Mexico,
LLC.
10.12(1) Membership Contribution Agreement, dated August 22, 1997, by and
among ACME Television Holdings, LLC, Roberts Broadcasting of Salt
Lake City, LLC, Michael V. Roberts and Steven C. Roberts.
10.13(8) Membership Purchase Agreement, dated July 10, 1998, by and between
Roberts Broadcasting of Salt Lake City, L.L.C., Michael V. Roberts
and Steven C. Roberts and ACME Television Holdings, LLC for a
majority interest in Roberts
</TABLE>
30
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
Broadcasting of Salt Lake City, L.L.C.
10.14(8) Asset Exchange Agreement, dated April 20, 1998 by and among Paxson
Salt Lake City License, Inc., Paxson Communications of Salt Lake
City-30, Inc. and Roberts Broadcasting of Salt Lake City, L.L.C.
10.15(5) Time Brokerage Agreement, dated April 20, 1998, for KUPX-TV, by and
among Paxson Salt Lake City License, Inc., Paxson Communications of
Salt Lake City-30, Inc. and ACME Television of Utah, LLC.
10.16(1) Management Agreement, dated August 22, 1997, by and between Roberts
Broadcasting of Salt Lake City, LLC and ACME Television of Utah, LLC.
10.17(4) Asset Purchase Agreement, dated March 2, 1998, by and between ACME
Television, LLC and Second Generation of Florida, Ltd.
10.18(4) Time Brokerage Agreement, dated March 2, 1998, by and between ACME
Television, LLC and Second Generation of Florida, Ltd.
10.19(10) Station Affiliation Agreement, dated March 15, 1998, by and between
ACME Television Holdings, LLC and The WB Television Network Partners,
L.P.
10.20(4) Agreement, dated January 30, 1998, by and between ACME Television
Licenses of Tennessee, LLC, Ruth Payne Carman (dba E&R
Communications) and the Carman-Holly Partnership.
10.21(5) Assignment Agreement, dated June 16, 1998, by and between ACME
Television Licenses of Tennessee, LLC, Ruth Payne Carman (dba E&R
Communications), Carman-Harrison, LLC and Donald E. Holley.
10.22(1) Stock Purchase Agreement, dated July 29, 1997, by and among ACME
Television Holdings, LLC, Koplar Communications, Inc. and the
shareholders named therein.
10.23(1) Escrow Agreement, dated September 8, 1997, by and among ACME
Television Holdings, LLC, ACME Television Licenses of Missouri, Inc.,
Koplar Communications, Inc. the shareholders of Koplar
Communications, Inc. and NationsBank, N.A.
10.24(1) Time Brokerage Agreement for KPLR-TV, dated September 8, 1997, by and
among ACME Television Licenses of Missouri, Inc., ACME Television
Holdings, LLC, Koplar Communications Television, LLC and Koplar
Communications, Inc.
10.25(1) Station Affiliation Agreement, dated September 24, 1997, by and
between ACME Holdings of St. Louis, LLC and The WB Television Network
Partners, L.P.
10.26(3) Management Agreement between Edward J. Koplar and ACME Television
Licenses of Missouri, Inc.
10.27(1) Escrow Agreement, dated May 28, 1997, by and among ACME Television
Licenses of Tennessee, LLC, ACME Television of Tennessee, LLC,
Crossville TV Limited Partnership, the Sellers names therein and
NationsBank, N.A., as escrow agent.
10.28(3) Station Affiliation Agreement, dated August 18, 1997, by and between
ACME Holdings of Knoxville, LLC and The WB Television Network
Partners, L.P.
10.29(3) Station Affiliation Agreement, dated June 10, 1997, by and between
ACME Holdings of Oregon, LLC and The WB Television Network Partners,
L.P.
10.30(10) Joint Sales Agreement by and between ACME Television
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
Holdings, LLC and DP Media, Inc., dated April 23, 1999.
10.31(10) Option Agreement, dated April 23, 1999, by and between ACME
Television Holdings, LLC and DP Media, Inc.
10.32(1) Programming Agreement, dated June 1, 1995, by and among Koplar
Communications, Inc., Roberts Broadcasting Company, Michael V.
Roberts and Steven C. Roberts.
10.33(5) Master Lease Agreement, dated June 30, 1998, by and between General
Electric Capital Corporation and ACME Television, LLC.
10.34(1) Station Affiliation Commitment Letter dated August 21, 1997, to ACME
Communications, Inc. from The WB Television Network.
10.35(10) ACME Communications, Inc. 1999 Stock Incentive Plan.
10.36(10) Form of Employment Agreement, as amended, by and between ACME
Communications, Inc. and Doug Gealy.
10.37(10) Form of Employment Agreement, as amended, by and between ACME
Communications, Inc. and Tom Allen.
10.38(10) Consulting Agreement, as amended, by and between ACME Communications,
Inc. and Jamie Kellner.
10.39(1) First Amended and Restated Credit Agreement, dated as of December 2,
1997, by and among ACME Television, LLC, the Lenders named therein
and Canadian Imperial Bank of Commerce, New York Agency, as agent for
the Lenders.
10.40(3) Securities and Pledge Agreement, dated December 2, 1997, by and
between ACME Subsidiary Holdings III, LLC and Canadian Imperial Bank
of Commerce, as agent for the benefit of CIBC, Inc. and other
financial institutions.
10.41(10) Amendment No. 1 to First Amended and Restated Credit Agreement, dated
June 30, 1998.
10.42(10) Amendment No. 2 to First Amended and Restated Credit Agreement, dated
June 30, 1998.
10.43(10) Third Amendment to First Amended and Restated Credit Agreement, dated
March 1, 1999.
10.44(10) Fourth Amendment to First Amended and Restated Credit Agreement,
dated April 23, 1999.
10.45(10) Fifth Amendment to Credit Agreement, dated September 1999.
10.46(3) Form of Guaranty by and among ACME subsidiaries, Canadian Imperial
Bank of Commerce, as agent, and the Lenders under the First Amended
and Restated Credit Agreement.
10.47(3) Form of Security and Pledge Agreement by and among ACME subsidiaries,
Canadian Imperial Bank of Commerce, as agent, and the Lenders under
the First Amended and Restated Credit Agreement.
10.48(1) Note Purchase Agreement, dated September 24, 1997, by and among ACME
Intermediate Holdings, LLC, ACME Intermediate Finance, Inc. and CIBC
Wood Gundy Securities Corp., as Initial Purchaser.
10.49(2) Note Purchase Agreement, dated September 24, 1997, by and among ACME
Television, LLC, ACME Finance Corporation, CIBC Wood Gundy Securities
Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
10.50(1) Securities Pledge Agreement, dated September 30, 1997, by and between
ACME Intermediate Holdings, LLC and ACME Intermediate Finance, Inc.,
as Pledgers, and Wilmington Trust Company, as Trustee.
10.51(3) Limited Liability Company Agreement of ACME Television Holdings, LLC.
10.52(3) First Amendment to Limited Liability Company Agreement of ACME
Television Holdings, LLC.
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
10.53(10) Employment Agreement, dated September 27, 1999 by and between ACME
Communications, Inc. and Ed Danduran.
10.54(10) Amended and Restated Investment and Loan Agreement, dated as of June
17, 1999, by and among ACME Television Holdings, LLC and Jamie
Kellner, Douglas Gealy, Thomas Allen, CEA Capital Partners USA, L.P.
CEA ACME, Inc., Alta Communications VI, L.P., Alta Subordinated Debt
Partners III, L.P., Alta-Comm S by S, LLC, Alta ACME, Inc.,
BancBoston Ventures, Inc., CEA Inc. and Alta Inc.
10.55(8) Agreement of Lease, dated May 16, 1986, by and between CBS, Inc. and
Koplar Communications Inc.
10.56(8) Amendment to Agreement of Lease, dated September 2, 1986, by and
between Viacom Broadcasting of Missouri Inc. and Koplar
Communications Inc.
10.57(1) Amended and Restated Lease Agreement, dated July 1, 1986, by and
between KKSN, Inc. and Channel 32 Incorporated.
10.58(8) Tower Lease Agreement, dated August 22, 1997, by and between Roberts
Broadcasting Company of Utah, Inc. and Roberts Broadcasting Company
of Salt Lake City, LLC.
10.59(3) Amendment to Tower Lease Agreement, dated December 9, 1997, by and
between Roberts Broadcasting Company of Utah, Inc. and Roberts
Broadcasting Company of Salt Lake City LLC.
10.60(10) Lease Agreement, dated January 1, 1997, by and between Mr. Tom Winter
and VCY/America, Inc.
10.61(10) Assignment and Assumption of Lease and Estoppel Certificate, dated
October 6, 1997.
10.62(10) Assignment and Assumption of Lease, dated April 23, 1999.
10.63(7) Tower Lease Agreement, dated December 30, 1998, by and between
Roberts Broadcasting Company of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.64(10) Tower License Agreement, dated May 21, 1992, by and between Caloosa
Television Corporation and Southwest Florida Telecommunications, Inc.
10.65(10) Station Affiliation Agreement, dated April 9, 1998, by and between
ACME Television Licenses of Utah LLC and The WB Television Network.
10.66(10) Station Affiliation Agreement, dated March 4, 1999, by and between
ACME Television Licenses of New Mexico LLC and The WB Television
Network.
10.67(10) Station Affiliation Agreement, dated May 1, 1999, by and between ACME
Television Licenses of Wisconsin LLC and The WB Television Network.
10.68(10) Station Affiliation Agreement, dated May 1, 1999, by and between ACME
Television Licenses of Illinois LLC and The WB Television Network.
10.69(10) Station Affiliation Agreement, dated May 1, 1999, by and between ACME
Television Licenses of Ohio LLC and The WB Television Network.
</TABLE>
33
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
10.70(11) Master Lease Agreement by and between Bankers Commercial Corporation
and ACME Television, LLC dated October 25, 1999.
10.71(11) Second Amendment to Asset Purchase Agreement, dated November 1, 1999,
by and between ACME Television of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station KASY-TV,
Santa Fe, New Mexico.
10.72(11) Tower space and site Lease Agreement dated November 1, 1999, by and
between Lee Enterprises, Incorporated, Sandia Television Corporation
and ACME Television of New Mexico, LLC.
10.73(11) Time Brokerage Agreement dated November 1, 1999, by and between Ramar
Communications, II, Ltd. and ACME Television of New Mexico, LLC.
10.74(11) Assignment and Assumption of Tower Lease by and between Ramar
Communications II, Ltd. and ACME Television of New Mexico, LLC, dated
December 3, 1999.
10.75(11) Standstill Agreement, dated October 4, 1999, by and between ACME
Television Holdings, LLC and DP Media of Battle Creek, Inc.
27.1* Financial Data Schedule of ACME Intermediate Holdings, LLC.
27.2* Financial Data Schedule of ACME Television, LLC.
</TABLE>
- ----------
* Filed herewith.
(1) Incorporated by reference to the Registration Statement for ACME
Intermediate Holdings, LLC on Form S-4, File No. 333-4027, filed on
November 14, 1997.
(2) Incorporated by reference to the Registration Statement for ACME
Television, LLC on Form S-4, File No. 333-40281, filed on November 14,
1997.
(3) Incorporated by reference to the Registration Statement for ACME
Television, LLC on Form S-4/A, File No. 333-40281, filed on January 16,
1998.
(4) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1998.
(5) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending June 30, 1998.
(6) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending September 30, 1998.
(7) Incorporated by reference to ACME Intermediate Holdings LLC's Annual
Report on Form 10-K for the year ended December 31, 1998.
(8) Incorporated by reference to ACME Television Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1999.
(9) Incorporated by reference to ACME Intermediate Holdings LLC's Report on
Form 8-K filed May 7, 1999.
(10) Incorporated by reference to the Registration Statement for ACME
Communications, Inc. on Form S-1, File No. 333-84191, filed on September
29, 1999.
(11) Incorporated by reference to ACME Communications, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1999, filed March 28, 2000.
(b) REPORTS ON FORM 8-K.
The Company filed no reports on Form 8-K during the three months ended December
31, 1999.
34
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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 30, 1999 /s/ Thomas Allen
------------------------------------
Thomas Allen
Executive Vice President and Chief
Financial Officer and Director
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Jamie Kellner Chairman of the Board Chief Executive March 30, 2000
---------------------- Officer and Member of ACME Parent's Board
Jamie Kellner of Advisors (Principal Executive Officer)
/s/ Douglas Gealy President and Member of ACME Parent's March 30, 2000
---------------------- Board of Advisors
Douglas Gealy
/s/ Thomas Allen Executive Vice President and Chief March 30, 2000
---------------------- Financial Officer
Thomas Allen and Member of the Board of Advisors
(Principal Financial Officer)
/s/ Edward Danduran Vice President and Controller March 30, 2000
---------------------- (Principal Accounting Officer)
Edward Danduran
/s/ Thomas Allen Majority Member March 30, 2000
----------------------
ACME Television Holdings, LLC
By: Thomas Allen
Title: Executive Vice President
and Chief Financial
Officer
</TABLE>
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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 30, 1999 /s/ Thomas Allen
------------------------------------
Thomas Allen
Executive Vice President and Chief
Financial Officer and Director
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Jamie Kellner Chairman of the Board Chief Executive March 30, 2000
---------------------- Officer and Member of ACME Parent's Board
Jamie Kellner of Advisors (Principal Executive Officer)
/s/ Douglas Gealy President and Member of ACME Parent's March 30, 2000
---------------------- Board of Advisors
Douglas Gealy
/s/ Thomas Allen Executive Vice President and Chief March 30, 2000
---------------------- Financial Officer
Thomas Allen and Member of the Board of Advisors
(Principal Financial Officer)
/s/ Edward Danduran Vice President and Controller March 30, 2000
---------------------- (Principal Accounting Officer)
Edward Danduran
/s/ Thomas Allen Majority Member March 30, 2000
----------------------
ACME Television Holdings, LLC
By: Thomas Allen
Title: Executive Vice President
and Chief Financial
Officer
</TABLE>
36
<PAGE> 37
SCHEDULE I.
ACME INTERMEDIATE HOLDINGS, LLC
ACME TELEVISION, LLC
(Parent Companies)
CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998 AS OF DECEMBER 31, 1999
--------------------------------- ----------------------------------
ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------- --------------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 872 $ -- $ 3,108
Accounts receivable -- 12 -- 15
Due from affiliates 4 131 -- --
Prepaid expenses and other current assets -- 127 -- 444
--------- --------- --------- ---------
Total current assets 4 1,142 -- 3,567
Property and equipment, net -- 200 -- 248
Investment in and advances to subsidiaries 71,295 220,542 131,356 290,181
Acquisition related deposits -- 36 -- 133
Deferred taxes -- -- 612 --
Prepaid financing costs, less current portion 1,596 6,657 1,535 5,943
--------- --------- --------- ---------
Total assets 72,895 228,577 133,503 300,072
========= ========= ========= =========
LIABILITIES AND MEMBERS' CAPITAL
Current liabilities:
Accounts payable -- 1,793 -- 2,018
Accrued liabilities -- 1,831 -- 3,447
Deferred income taxes -- -- -- 1,385
Capital leases payable -- 40 -- 44
--------- --------- --------- ---------
Total current liabilities -- 3,664 -- 6,894
Capital leases payable, less current portion -- 170 -- 127
Bank borrowings -- 8,000 -- --
Due to affiliates 131 -- 128 --
10 7/8% senior discount notes -- 145,448 -- 161,695
12% senior secured notes 42,052 -- 47,970
--------- --------- --------- ---------
Total liabilities 42,183 157,282 48,098 168,716
--------- --------- --------- ---------
Members' capital
Members' capital 58,402 92,563 182,728 216,889
Accumulated deficit (27,690) (21,268) (97,323) (85,533)
--------- --------- --------- ---------
Total members' capital 30,712 71,295 85,405 131,356
--------- --------- --------- ---------
Total liabilities and members' capital 72,895 228,577 133,503 300,072
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed financial information.
37
<PAGE> 38
ACME INTERMEDIATE, LLC
ACME TELEVISION, LLC
(Parent Companies)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1997 1998 1999
------------------------------ ------------------------------ ------------------------------
ACME ACME ACME
INTERMEDIATE ACME INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLC
------------- --------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ -- $ -- $ -- $ 181 $ -- $ --
-------- -------- -------- -------- -------- --------
Corporate -- 1,415 -- 2,923 -- 6,615
Equity-based compensation -- -- -- -- -- 39,688
Depreciation and amortization -- 9 -- 67 -- 84
-------- -------- -------- -------- -------- --------
Operating loss -- (1,424) -- (2,809) -- (46,387)
Interest income from subsidiaries -- 5,631 -- 24,978 -- 31,360
Other income -- 273 1 1,112 -- --
Interst expense (1,216) (3,712) (5,207) (16,091) (5,980) (19,000)
-------- -------- -------- -------- -------- --------
Income before taxes and
equity in net loss of
subsidiaries (1,216) 768 (5,206) 7,190 (5,980) (34,027)
Income tax expense (benefit) -- -- -- -- 612 (1,385)
-------- -------- -------- -------- -------- --------
Income before equity in
net loss of subsidiaries (1,216) 768 (5,206) 7,190 (5,368) (35,412)
Equity in net loss of subsidiaries (5,418) (6,186) (15,850) (23,040) (64,265) (28,853)
-------- -------- -------- -------- -------- --------
Net loss (6,634) (5,418) (21,056) (15,850) (69,633) (64,265)
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes to condensed financial information.
38
<PAGE> 39
ACME TELEVISION, LLC
(Parent Company)
CONDENSED FINANCIAL INFORMATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1997 1998
------------------------------- --------------------------------
ACME ACME
(Dollars in thousands) INTERMEDIATE ACME INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC HOLDINGS, LLC TELEVISION, LLCC
------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (6,634) $ (5,418) $ (21,056) $ (15,850)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization -- 9 -- 67
Amortization of discount on 10 7/8%
senior discount notes -- 3,463 -- 14,615
Amoritzation of discount on 12%
senior secured notes 1,213 -- 5,207 --
Amortization of debt issuance costs -- -- -- --
Equity-based compensation -- -- -- --
Equity in net loss of subsidiaries 5,418 6,186 15,850 23,040
Deferred income tax -- -- -- --
Changes in assets and liabilities:
Increase in accounts receivable -- -- -- (12)
(Increase) decrease in other assets -- -- -- 386
(Increase) decrease in prepaid expenses -- (177) -- 50
Increase (decrease) in accounts payable -- 2,774 -- (981)
(Increase) decrease in due from
affiliates -- (162) 19 31
(Increase) decrease in accrued expenses -- 433 -- 1,398
Increase in income taxes -- -- -- --
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities (3) 7,108 20 22,744
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment -- (148) -- --
Investments in and advances to affiliates (62,335) (180,999) -- (38,544)
--------- --------- --------- ---------
Net cash used in investing activities (62,335) (181,147) -- (38,544)
--------- --------- --------- ---------
Cash flows from financing activities:
Increase in revolving credit facility -- -- -- 11,000
Payments on revolving credit facility -- -- -- (3,000)
Proceeds from capital lease facilities -- -- -- --
Payments on capital lease facilities -- -- -- (21)
Contribution from Parent 24,126 62,441 -- --
Issuance of redeemable preferred units -- -- -- --
Redemption of redeemable preferred units -- -- -- --
Issuance of units 4,154 -- -- --
Issuance of 10 7/8% senior discount notes -- 127,370 -- --
Issuance of 12% senior secured notes 35,650 -- -- --
Payment of prepaid financing costs (1,592) (7,079) (20) --
--------- --------- --------- ---------
Net cash provided by financing activities 62,338 182,732 (20) 7,979
--------- --------- --------- ---------
Net increase (decrease) in cash -- 8,693 -- (7,821)
Cash at beginning of period -- -- -- 8,693
--------- --------- --------- ---------
Cash at end of period $ -- $ 8,693 $ -- $ 872
========= ========= ========= =========
Cash Payments for:
Interest $ -- $ 71 $ -- $ --
Taxes $ -- $ -- $ -- $ --
Non-Cash Transactions:
Contribution of Parent $ 23,075 $ 23,075 $ 7,047 $ 7,047
Property and equipment contributed
to affiliates $ -- $ -- $ -- $ 103
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------
1999
-------------------------------
ACME
(Dollars in thousands) INTERMEDIATE ACME
HOLDINGS, LLC TELEVISION, LLC
------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (69,633) $ (64,265)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization -- 84
Amortization of discount on 10 7/8%
senior discount notes -- 16,247
Amortization of discount on 12%
senior secured notes 5,918 --
Amortization of debt issuance costs 61 713
Equity-based compensation -- 39,688
Equity in net loss of subsidiaries 64,265 28,853
Deferred income tax (612) --
Changes in assets and liabilities:
Increase in accounts receivable -- (3)
(Increase) decrease in other assets -- (97)
(Increase) decrease in prepaid expenses -- (317)
Increase (decrease) in accounts payable -- 225
Increase (decrease) in due from affiliates 1 131
Increase in accrued expenses -- 1,616
Increase in income taxes -- 1,385
--------- ---------
Net cash provided by (used in)
operating activities -- 24,260
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment -- (132)
Investments in and advances to affiliates (83,900) (97,753)
--------- ---------
Net cash used in investing activities (83,900) (97,885)
--------- ---------
Cash flows from financing activities:
Increase in revolving credit facility -- 32,000
Payments on revolving credit facility -- (40,000)
Proceeds from capital lease facilities -- --
Payments on capital lease facilities -- (39)
Contribution from Parent 85,162 83,900
Issuance of redeemable preferred units 15,000 --
Redemption of redeemable preferred units (16,262) --
Issuance of units -- --
Issuance of 10 7/8% senior discount notes -- --
Issuance of 12% senior secured notes -- --
Payment of prepaid financing costs -- --
--------- ---------
Net cash provided by financing activities 83,900 75,861
--------- ---------
Net increase (decrease) in cash -- 2,236
Cash at beginning of period -- 872
--------- ---------
Cash at end of period $ -- $ 3,108
========= =========
Cash Payments for:
Interest $ -- $ --
Taxes $ -- $ --
Non-Cash Transactions:
Contribution of Parent $ 40,426 $ 738
Property and equipment contributed
to affiliates $ -- $ --
========= =========
</TABLE>
See accompanying notes to condensed financial information.
39
<PAGE> 40
ACME INTERMEDIATE HOLDINGS, LLC
AND
ACME TELEVISION, LLC
(PARENT COMPANIES)
NOTES TO CONDENSED FINANCIAL INFORMATION
1. FORMATION AND BASIS OF PRESENTATION
Pursuant to the rules and regulations of the Securities and
Exchange Commission, the Condensed Financial Statements of ACME
Intermediate Holdings, LLC and ACME Television, LLC, do not include all
of the information and notes normally included with financial statements
prepared in accordance with generally accepted accounting principles. It
is therefore suggested that these Condensed Financial Statements be read
in conjunction with the Consolidated Financial Statements and Notes
thereto included at Item 8 of this filing.
The accompanying condensed financial statements are presented
for ACME Intermediate Holdings, LLC and ACME Television, LLC.
2. CASH DIVIDENDS
There have been no cash dividends declared by either ACME
Intermediate Holdings, LLC or ACME Television, LLC.
3. LONG-TERM DEBT
There are no cash interest payments due on ACME Intermediate
Holdings, LLC's Senior Secured Discount Notes until March 31, 2003.
There are no cash interest payments due on ACME Television, LLC's Senior
Discount Notes until March 31, 2001.
40
<PAGE> 41
SCHEDULE II.
ACME INTERMEDIATE HOLDINGS, LLC
AND
ACME TELEVISION, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998 AND
DECEMBER 31, 1999
(In thousands)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ADDITIONS ACQUIRED IN BALANCE AT
ALLOWANCE FOR DOUBTFUL BEGINNING CHARGED TO PURCHASE END OF
ACCOUNTS OF PERIOD EXPENSE TRANSACTIONS (1) DEDUCTIONS PERIOD
-------- --------- ------- ---------------- ---------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997 0 51,000 -- 51,000
Year ended December 31, 1998 51,000 223,776 280,224 -- 555,000
Year ended December 31, 1999 555,000 485,000 -- 324,000 716,000
</TABLE>
41
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
3.1(1) Certificate of Formation of ACME Intermediate Holdings, LLC.
3.2(1) Limited Liability Company Agreement of ACME Intermediate Holdings,
LLC.
3.3(2) Certificate of Formation of ACME Television, LLC.
3.4(2) Limited Liability Company Agreement of ACME Television, LLC.
4.1(1) Indenture, dated September 30, 1997, by and among ACME Intermediate
Holdings, LLC and ACME Intermediate Finance, Inc., as Issuers, and
Wilmington Trust Company.
4.2(1) Indenture, dated September 30, 1997, by and among ACME Television,
LLC and ACME Finance Corporation, as issuers, the Guarantors named
therein, and Wilmington Trust Company.
4.3(4) First Supplemental Indenture, dated February 11, 1998, by and among
ACME Television, LLC and ACME Finance Corporation, the Guarantors
named therein, and Wilmington Trust Company.
4.4(4) Second Supplemental Indenture, dated March 13, 1998, by and among
ACME Television, LLC and ACME Finance Corporation, the Guarantors
named therein, and Wilmington Trust Company.
4.5(6) Third Supplemental Indenture, dated August 21, 1998, by and among
ACME Television, LLC and ACME Finance Corporation, as issuers, the
Guarantors named therein, and Wilmington Trust Company.
10.1(9) Asset Purchase Agreement, dated April 23, 1999, by and among Paxson
Communications Corporation, Paxson Communications
License Company, LLC, Paxson Communications of Green Bay-14, Inc.,
Paxson Communications of Dayton-26, Inc., Paxson Dayton License,
Inc., Paxson Communications of Decatur-23, Inc., Paxson Decatur
License, Inc., ACME Television of Ohio, LLC, ACME Television Licenses
of Ohio, LLC, ACME Television of Wisconsin, LLC, ACME Television
Licenses of Wisconsin, LLC, ACME Television of Illinois, LLC and ACME
Television Licenses of Illinois, LLC for WDPX(TV), Springfield, Ohio,
WPXG(TV), Suring, WI and WPXU(TV), Decatur, IL.
10.2(9) Time Brokerage Agreement, dated April 23, 1999, by and among Paxson
Communications License Company, LLC, Paxson Communications of Green
Bay-14, Inc., and ACME Television of Wisconsin, LLC for Station
WPXG-TV, Suring, Wisconsin.
10.3(9) Time Brokerage Agreement, dated April 23, 1999, by and among Paxson
Decatur License, Inc., Paxson Communications of Decatur-23, Inc., and
ACME Television of Illinois, LLC for Station WPXU-TV, Decatur,
Illinois.
10.4(9) Time Brokerage Agreement, dated April 23, 1999, by and among Paxson
Dayton License, Inc., Paxson Communications of Dayton-26, Inc., and
ACME Television of Ohio, LLC for Station WDPX-TV, Springfield, Ohio.
10.5(8) Asset Purchase Agreement, dated February 19, 1999, by and between
ACME Television of New Mexico, LLC and ACME Television Licenses of
New Mexico, LLC and Ramar Communications II, Ltd., with respect to
television station KWBQ-TV, Santa Fe, New Mexico.
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
10.6(10) Amendment to Asset Purchase Agreement, dated July 30, 1999, by and
between ACME Television of New Mexico, LLC and ACME Television
Licenses of New Mexico, LLC and Ramar Communications II, Ltd., with
respect to television station KASY-TV, Santa Fe, New Mexico.
10.7(8) Asset Purchase Agreement, dated February 19, 1999, by and between
ACME Television of New Mexico, LLC and ACME Television Licenses of
New Mexico, LLC and Ramar Communications II, Ltd., with respect to
television station KASY-TV, Albuquerque, New Mexico.
10.8(7) Purchase Agreement, dated October 30, 1998, by and between Roberts
Broadcasting of New Mexico, LLC and ACME Television of New Mexico,
LLC.
10.9(7) Option Agreement, dated November 5, 1998, by and between Roberts
Broadcasting of New Mexico, LLC and ACME Television of New Mexico,
LLC.
10.10(1) Asset Purchase Agreement, dated August 22, 1997, by and between ACME
Television Licenses of New Mexico, LLC and Minority Broadcasters of
Santa Fe, Inc.
10.11(1) Management Agreement, dated August 22, 1997, by and between Minority
Broadcasters of Santa Fe, Inc. and ACME Television of New Mexico,
LLC.
10.12(1) Membership Contribution Agreement, dated August 22, 1997, by and
among ACME Television Holdings, LLC, Roberts Broadcasting of Salt
Lake City, LLC, Michael V. Roberts and Steven C. Roberts.
10.13(8) Membership Purchase Agreement, dated July 10, 1998, by and between
Roberts Broadcasting of Salt Lake City, L.L.C., Michael V. Roberts
and Steven C. Roberts and ACME Television Holdings, LLC for a
majority interest in Roberts Broadcasting of Salt Lake City, L.L.C.
10.14(8) Asset Exchange Agreement, dated April 20, 1998 by and among Paxson
Salt Lake City License, Inc., Paxson Communications of Salt Lake
City-30, Inc. and Roberts Broadcasting of Salt Lake City, L.L.C.
10.15(5) Time Brokerage Agreement, dated April 20, 1998, for KUPX-TV, by and
among Paxson Salt Lake City License, Inc., Paxson Communications of
Salt Lake City-30, Inc. and ACME Television of Utah, LLC.
10.16(1) Management Agreement, dated August 22, 1997, by and between Roberts
Broadcasting of Salt Lake City, LLC and ACME Television of Utah, LLC.
10.17(4) Asset Purchase Agreement, dated March 2, 1998, by and between ACME
Television, LLC and Second Generation of Florida, Ltd.
10.18(4) Time Brokerage Agreement, dated March 2, 1998, by and between ACME
Television, LLC and Second Generation of Florida, Ltd.
10.19(10) Station Affiliation Agreement, dated March 15, 1998, by and between
ACME Television Holdings, LLC and The WB Television Network Partners,
L.P.
10.20(4) Agreement, dated January 30, 1998, by and between ACME Television
Licenses of Tennessee, LLC, Ruth Payne Carman (dba E&R
Communications) and the Carman-Holly Partnership.
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
10.21(5) Assignment Agreement, dated June 16, 1998, by and between ACME
Television Licenses of Tennessee, LLC, Ruth Payne Carman (dba E&R
Communications), Carman-Harrison, LLC and Donald E. Holley.
10.22(1) Stock Purchase Agreement, dated July 29, 1997, by and among ACME
Television Holdings, LLC, Koplar Communications, Inc. and the
shareholders named therein.
10.23(1) Escrow Agreement, dated September 8, 1997, by and among ACME
Television Holdings, LLC, ACME Television Licenses of Missouri, Inc.,
Koplar Communications, Inc. the shareholders of Koplar
Communications, Inc. and NationsBank, N.A.
10.24(1) Time Brokerage Agreement for KPLR-TV, dated September 8, 1997, by and
among ACME Television Licenses of Missouri, Inc., ACME Television
Holdings, LLC, Koplar Communications Television, LLC and Koplar
Communications, Inc.
10.25(1) Station Affiliation Agreement, dated September 24, 1997, by and
between ACME Holdings of St. Louis, LLC and The WB Television Network
Partners, L.P.
10.26(3) Management Agreement between Edward J. Koplar and ACME Television
Licenses of Missouri, Inc.
10.27(1) Escrow Agreement, dated May 28, 1997, by and among ACME Television
Licenses of Tennessee, LLC, ACME Television of Tennessee, LLC,
Crossville TV Limited Partnership, the Sellers names therein and
NationsBank, N.A., as escrow agent.
10.28(3) Station Affiliation Agreement, dated August 18, 1997, by and between
ACME Holdings of Knoxville, LLC and The WB Television Network
Partners, L.P.
10.29(3) Station Affiliation Agreement, dated June 10, 1997, by and between
ACME Holdings of Oregon, LLC and The WB Television Network Partners,
L.P.
10.30(10) Joint Sales Agreement by and between ACME Television
Holdings, LLC and DP Media, Inc., dated April 23, 1999.
10.31(10) Option Agreement, dated April 23, 1999, by and between ACME
Television Holdings, LLC and DP Media, Inc.
10.32(1) Programming Agreement, dated June 1, 1995, by and among Koplar
Communications, Inc., Roberts Broadcasting Company, Michael V.
Roberts and Steven C. Roberts.
10.33(5) Master Lease Agreement, dated June 30, 1998, by and between General
Electric Capital Corporation and ACME Television, LLC.
10.34(1) Station Affiliation Commitment Letter dated August 21, 1997, to ACME
Communications, Inc. from The WB Television Network.
10.35(10) ACME Communications, Inc. 1999 Stock Incentive Plan.
10.36(10) Form of Employment Agreement, as amended, by and between ACME
Communications, Inc. and Doug Gealy.
10.37(10) Form of Employment Agreement, as amended, by and between ACME
Communications, Inc. and Tom Allen.
10.38(10) Consulting Agreement, as amended, by and between ACME Communications,
Inc. and Jamie Kellner.
10.39(1) First Amended and Restated Credit Agreement, dated as of December 2,
1997, by and among ACME Television, LLC, the Lenders named therein
and Canadian Imperial Bank of Commerce, New York Agency, as agent for
the Lenders.
10.40(3) Securities and Pledge Agreement, dated December 2, 1997, by and
between ACME Subsidiary Holdings III, LLC and Canadian Imperial Bank
of Commerce, as agent for the benefit of CIBC, Inc. and other
financial institutions.
</TABLE>
44
<PAGE> 45
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
10.41(10) Amendment No. 1 to First Amended and Restated Credit Agreement, dated
June 30, 1998.
10.42(10) Amendment No. 2 to First Amended and Restated Credit Agreement, dated
June 30, 1998.
10.43(10) Third Amendment to First Amended and Restated Credit Agreement, dated
March 1, 1999.
10.44(10) Fourth Amendment to First Amended and Restated Credit Agreement,
dated April 23, 1999.
10.45(10) Fifth Amendment to Credit Agreement, dated September 1999.
10.46(3) Form of Guaranty by and among ACME subsidiaries, Canadian Imperial
Bank of Commerce, as agent, and the Lenders under the First Amended
and Restated Credit Agreement.
10.47(3) Form of Security and Pledge Agreement by and among ACME subsidiaries,
Canadian Imperial Bank of Commerce, as agent, and the Lenders under
the First Amended and Restated Credit Agreement.
10.48(1) Note Purchase Agreement, dated September 24, 1997, by and among ACME
Intermediate Holdings, LLC, ACME Intermediate Finance, Inc. and CIBC
Wood Gundy Securities Corp., as Initial Purchaser.
10.49(2) Note Purchase Agreement, dated September 24, 1997, by and among ACME
Television, LLC, ACME Finance Corporation, CIBC Wood Gundy Securities
Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
10.50(1) Securities Pledge Agreement, dated September 30, 1997, by and between
ACME Intermediate Holdings, LLC and ACME Intermediate Finance, Inc.,
as Pledgers, and Wilmington Trust Company, as Trustee.
10.51(3) Limited Liability Company Agreement of ACME Television Holdings, LLC.
10.52(3) First Amendment to Limited Liability Company Agreement of ACME
Television Holdings, LLC.
10.53(10) Employment Agreement, dated September 27, 1999 by and between ACME
Communications, Inc. and Ed Danduran.
10.54(10) Amended and Restated Investment and Loan Agreement, dated as of June
17, 1999, by and among ACME Television Holdings, LLC and Jamie
Kellner, Douglas Gealy, Thomas Allen, CEA Capital Partners USA, L.P.
CEA ACME, Inc., Alta Communications VI, L.P., Alta Subordinated Debt
Partners III, L.P., Alta-Comm S by S, LLC, Alta ACME, Inc.,
BancBoston Ventures, Inc., CEA Inc. and Alta Inc.
10.55(8) Agreement of Lease, dated May 16, 1986, by and between CBS, Inc. and
Koplar Communications Inc.
10.56(8) Amendment to Agreement of Lease, dated September 2, 1986, by and
between Viacom Broadcasting of Missouri Inc. and Koplar
Communications Inc.
10.57(1) Amended and Restated Lease Agreement, dated July 1, 1986, by and
between KKSN, Inc. and Channel 32 Incorporated.
10.58(8) Tower Lease Agreement, dated August 22, 1997, by and between Roberts
Broadcasting Company of Utah, Inc. and Roberts Broadcasting Company
of Salt Lake City, LLC.
10.59(3) Amendment to Tower Lease Agreement, dated December 9, 1997, by and
between Roberts Broadcasting Company of Utah, Inc. and Roberts
Broadcasting Company of Salt Lake City LLC.
</TABLE>
45
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
10.60(10) Lease Agreement, dated January 1, 1997, by and between Mr. Tom Winter
and VCY/America, Inc.
10.61(10) Assignment and Assumption of Lease and Estoppel Certificate, dated
October 6, 1997.
10.62(10) Assignment and Assumption of Lease, dated April 23, 1999.
10.63(7) Tower Lease Agreement, dated December 30, 1998, by and between
Roberts Broadcasting Company of New Mexico, LLC and ACME Television
of New Mexico, LLC.
10.64(10) Tower License Agreement, dated May 21, 1992, by and between Caloosa
Television Corporation and Southwest Florida Telecommunications, Inc.
10.65(10) Station Affiliation Agreement, dated April 9, 1998, by and between
ACME Television Licenses of Utah LLC and The WB Television Network.
10.66(10) Station Affiliation Agreement, dated March 4, 1999, by and between
ACME Television Licenses of New Mexico LLC and The WB Television
Network.
10.67(10) Station Affiliation Agreement, dated May 1, 1999, by and between ACME
Television Licenses of Wisconsin LLC and The WB Television Network.
10.68(10) Station Affiliation Agreement, dated May 1, 1999, by and between ACME
Television Licenses of Illinois LLC and The WB Television Network.
10.69(10) Station Affiliation Agreement, dated May 1, 1999, by and between ACME
Television Licenses of Ohio LLC and The WB Television Network.
10.70(11) Master Lease Agreement by and between Bankers Commercial Corporation
and ACME Television, LLC dated October 25, 1999.
10.71(11) Second Amendment to Asset Purchase Agreement, dated November 1, 1999,
by and between ACME Television of New Mexico, LLC and Ramar
Communications II, Ltd., with respect to television station KASY-TV,
Santa Fe, New Mexico.
10.72(11) Tower space and site Lease Agreement dated November 1, 1999, by and
between Lee Enterprises, Incorporated, Sandia Television Corporation
and ACME Television of New Mexico, LLC.
10.73(11) Time Brokerage Agreement dated November 1, 1999, by and between Ramar
Communications, II, Ltd. and ACME Television of New Mexico, LLC.
10.74(11) Assignment and Assumption of Tower Lease by and between Ramar
Communications II, Ltd. and ACME Television of New Mexico, LLC, dated
December 3, 1999.
10.75(11) Standstill Agreement, dated October 4, 1999, by and between ACME
Television Holdings, LLC and DP Media of Battle Creek, Inc.
27.1* Financial Data Schedule of ACME Intermediate Holdings, LLC.
27.2* Financial Data Schedule of ACME Television, LLC.
</TABLE>
- ----------
* Filed herewith.
46
<PAGE> 47
(1) Incorporated by reference to the Registration Statement for ACME
Intermediate Holdings, LLC on Form S-4, File No. 333-4027, filed on
November 14, 1997.
(2) Incorporated by reference to the Registration Statement for ACME
Television, LLC on Form S-4, File No. 333-40281, filed on November 14,
1997.
(3) Incorporated by reference to the Registration Statement for ACME
Television, LLC on Form S-4/A, File No. 333-40281, filed on January 16,
1998.
(4) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1998.
(5) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending June 30, 1998.
(6) Incorporated by reference to ACME Intermediate Holdings LLC's Quarterly
Report on Form 10-Q for the period ending September 30, 1998.
(7) Incorporated by reference to ACME Intermediate Holdings LLC's Annual
Report on Form 10-K for the year ended December 31, 1998.
(8) Incorporated by reference to ACME Television Holdings LLC's Quarterly
Report on Form 10-Q for the period ending March 31, 1999.
(9) Incorporated by reference to ACME Intermediate Holdings LLC's Report on
Form 8-K filed May 7, 1999.
(10) Incorporated by reference to the Registration Statement for ACME
Communications, Inc. on Form S-1, File No. 333-84191, filed on September
29, 1999.
(11) Incorporated by reference to ACME Communications, Inc.'s Annual Report
on Form 10-K for the year ended December 31, 1999, filed March 28, 2000.
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