UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


[X]		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Numbers:


ACME Intermediate Holdings, LLC		333-40277
ACME Television, LLC		333-40281

ACME INTERMEDIATE HOLDINGS, LLC
AND
ACME TELEVISION, LLC
(Exact name of registrants as specified in their charters)


Delaware	ACME INTERMEDIATE HOLDINGS, LLC	52-2050589
Delaware	ACME TELEVISION, LLC	52-2050588
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		identifications no.)

2101 E. Fourth Street, Suite 202A
Santa Ana, California, 92705
(714) 245-9499
(Address and telephone number of principal executive offices)

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

100% of the membership units of ACME Intermediate Holdings, LLC are owned directly or indirectly by ACME Communications, Inc. 100% of the membership units of ACME Television, LLC are owned directly or indirectly by ACME Intermediate Holdings, LLC. Such membership units are not publicly traded and, therefore, have no separate, quantifiable market value.

As of August 14, 2002, ACME Intermediate Holdings, LLC and ACME Television, LLC had 910,986 and 200, respectively, common membership units outstanding; all such units are owned, directly or indirectly, by ACME Communications, Inc.

TABLE OF CONTENTS


		Consolidated Balance Sheets
		Consolidated Statements of Operations and Members’ Capital
		Consolidated Statements of Cash Flows
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
SIGNATURES

ACME INTERMEDIATE HOLDINGS, LLC
AND
ACME TELEVISION, LLC

FORM 10-Q

TABLE OF CONTENTS


ITEM
NUMBER		PAGE

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001	3
	Consolidated Statements of Operations and Members’ Capital for the Three Months Ended June 30, 2002 and June 30, 2001	4
	Consolidated Statements of Operations and Members’ Capital for the Six Months Ended June 30, 2002 and June 30, 2001	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and June 30, 2001	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results Of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 6.	Exhibits and Reports on Form 8-K	15

ACME Intermediate Holdings, LLC and Subsidiaries
ACME Television, LLC and Subsidiaries
Consolidated Balance Sheets
(In thousands)


				As of June 30, 2002						As of December 31, 2001

				ACME						ACME
				Intermediate			ACME			Intermediate			ACME
				Holdings, LLC			Television, LLC			Holdings, LLC			Television, LLC

				(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents			$	1,967		$	1,967		$	4,280		$	4,280
	Restricted cash				2,869			2,869			1,741			1,741
	Accounts receivable, net				16,062			16,062			13,563			13,563
	Current portion of programming rights				12,458			12,458			14,539			14,539
	Prepaid expenses and other current assets				1,943			1,943			1,286			1,286
	Deferred income taxes				—			—			746			746

		Total current assets			35,299			35,299			36,155			36,155
Property and equipment, net					40,358			40,358			36,493			36,493
Programming rights, net of current portion					23,502			23,502			20,490			20,490
Intangible assets, net					252,595			252,595			252,595			252,595
Other assets					8,565			7,422			8,369			7,113
Deposits					1,991			1,991			848			848

		Total assets		$	362,310		$	361,167		$	354,950		$	353,694

LIABILITIES AND MEMBERS’ CAPITAL
Current liabilities:
	Accounts payable			$	8,847		$	8,847			8,620			8,620
	Accrued liabilities				9,850			9,850			13,269			13,269
	Due to affiliates				1,500			1,371			1,161			1,033
	Current portion of programming rights payable				12,425			12,425			14,121			14,121
	Current portion of obligations under lease				4,035			4,035			3,290			3,290

			Total current liabilities		36,657			36,528			40,461			40,333
Programming rights payable, net of current portion					22,537			22,537			19,931			19,931
Obligations under lease, net of current portion					10,110			10,110			9,436			9,436
Other liabilities					251			251			328			328
Deferred income taxes					31,422			31,089			1,635			7,878
Notes payable under revolving credit facility					5,446			5,446			—			—
10 7/8% senior discount notes					175,000			175,000			175,000			175,000
12% senior secured notes					66,672			—			62,424			—

			Total liabilities		348,095			280,961			309,215			252,906

Members’ capital					203,866			238,027			191,386			225,547
Accumulated deficit					(189,651	)		(157,821	)		(145,651	)		(124,759	)

			Total members’ capital		14,215			80,206			45,735			100,788

			Total liabilities and members’ capital	$	362,310		$	361,167		$	354,950		$	353,694

See the notes to the consolidated financial statements

ACME Intermediate Holdings, LLC and Subsidiaries
ACME Television, LLC and Subsidiaries
Consolidated Statements of Operations and Members’ Capital
(Unaudited)
(In thousands)


			For the Three Months Ended June 30,

			2002						2001

			ACME						ACME
			Intermediate			ACME			Intermediate			ACME
			Holdings, LLC			Television, LLC			Holdings, LLC			Television, LLC

Net revenues			$	20,899		$	20,899		$	18,895		$	18,895
Operating expenses:
	Station operating expenses			16,240			16,240			14,431			14,431
	Depreciation and amortization			1,281			1,281			4,910			4,910
	Corporate expenses			1,028			1,028			906			906
	Equity-based compensation			116			116			133			133
	LMA fees			4			4			—			—

		Operating Income (loss)		2,230			2,230			(1,485	)		(1,485	)
Other income (expenses):
	Interest income			8			8			40			40
	Interest expense			(7,757	)		(5,500	)		(7,314	)		(5,348	)
	Loss on sale of assets, net			(16	)		(16	)		(10	)		(10	)
	Other expense			(105	)		(105	)		(50	)		(50	)

Net loss before income taxes				(5,640	)		(3,383	)		(8,819	)		(6,853	)
Income tax benefit (expense)				(725	)		(892	)		2,875			2,128

		Net loss	$	(6,365	)	$	(4,275	)	$	(5,944	)	$	(4,725	)
Parent’s contributions				379			379			133			133
Members’ Capital at the beginning of the period				20,201			84,102			57,884			109,211

Members’ Capital at the end of the period			$	14,215		$	80,206		$	52,073		$	104,619

See the notes to the consolidated financial statements

ACME Intermediate Holdings, LLC and Subsidiaries
ACME Television, LLC and Subsidiaries
Consolidated Statements of Operations and Members’ Capital
(Unaudited)
(In thousands)


				For the Six Months Ended June 30,

				2002						2001

				ACME						ACME
				Intermediate			ACME			Intermediate			ACME
				Holdings, LLC			Television, LLC			Holdings, LLC			Television, LLC

Net revenues				$	37,747		$	37,747		$	35,376		$	35,376
Operating expenses:
		Station operating expenses			30,901			30,901			28,016			28,016
		Depreciation and amortization			2,452			2,452			9,869			9,869
		Corporate expenses			1,845			1,845			1,820			1,820
		Equity-based compensation			231			231			265			265
		LMA fees			4			4			—			—

			Operating Income (loss)		2,314			2,314			(4,594	)		(4,594	)
Other income (expenses):
		Interest income			21			21			173			173
		Interest expense			(15,505	)		(11,143	)		(14,458	)		(10,657	)
		Loss on sale of assets, net			(16	)		(16	)		(10	)		(10	)
		Other expense			(154	)		(154	)		(95	)		(95	)

Net loss before income taxes					(13,340	)		(8,978	)		(18,984	)		(15,183	)
Income tax benefit (expense)					(30,660	)		(24,084	)		6,263			4,819

			Net loss	$	(44,000	)	$	(33,062	)	$	(12,721	)	$	(10,364	)
Parent’s contributions					12,480			12,480			265			265
	Members’ Capital at the beginning of the period				45,735			100,788			64,529			114,718

Members’ Capital at the end of the period				$	14,215		$	80,206		$	52,073		$	104,619

ACME Intermediate Holdings, LLC and Subsidiaries
ACME Television, LLC and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)


					For the Six Months Ended

					June 30, 2002						June 30, 2001

					ACME			ACME			ACME			ACME
					Intermediate			Television,			Intermediate			Television,
					Holdings, LLC			LLC			Holdings, LLC			LLC

								(In thousands)
Cash flows from operating activities:
		Net loss			$	(44,000	)	$	(33,062	)	$	(12,721	)	$	(10,364	)
		Adjustments to reconcile net loss to net cash provided by operating activities:
			Depreciation and amortization			2,452			2,452			9,869			9,869
			Amortization of program rights			8,017			8,017			7,076			7,076
			Amortization of debt issuance costs			1,069			1,069			796			796
			Amortization of discount on 12% senior secured notes			4,248			—			3,724			—
			Loss on sale of assets, net			16			16			10			10
			Equity-based compensation			231			231			265			265
			Deferred taxes			30,533			23,957			(6,263	)		(4,819	)
Changes in assets and liabilities:
			(Increase) decrease in accounts receivables, net			(2,499	)		(2,499	)		72			72
			Increase in prepaid expenses			(657	)		(657	)		(259	)		(336	)
			Increase in other assets			(53	)		(166	)		(200	)		(200	)
			Increase (decrease) in accounts payable			3,094			3,094			(438	)		(438	)
			Increase (decrease) in accrued liabilities			(3,485	)		(3,485	)		427			427
			Payments on programming rights payable			(8,084	)		(8,084	)		(7,060	)		(7,060	)
			Increase in due to affiliates			338			338			128			128
			Decrease in other liabilities			(8	)		(9	)		—			—

				Net cash used in operating activities		(8,788	)		(8,788	)		(4,574	)		(4,574	)

Cash flows from investing activities:
			Purchase of property and equipment			(9,200	)		(9,200	)		(3,082	)		(3,082	)
			Proceeds from the sale of assets			—			—			230			230
			Purchases of and deposits for station interests			(278	)		(278	)		(51	)		(51	)
			Purchase of minority interest in automobile website			(871	)		(871	)		—			—

				Net cash used in investing activities		(10,349	)		(10,349	)		(2,903	)		(2,903	)

Cash flows from financing activities:
			Increase in revolving credit facility			5,446			5,446			—			—
			Payment of financing costs on credit facility			(1,162	)		(1,162	)		—			—
			Cash restricted as collateral under capital lease facilities			(1,128	)		(1,128	)		—			—
			Capital lease obligations			3,334			3,334			2,966			2,966
			Payments of capital lease obligations			(1,915	)		(1,915	)		(1,049	)		(1,049	)
			Capital contribution from parent			12,249			12,249			—			—

				Net cash provided by financing activities		16,824			16,824			1,917			1,917

			Net increase (decrease) in cash			(2,313	)		(2,313	)		(5,560	)		(5,560	)
			Cash at beginning of period			4,280			4,280			10,347			10,347

			Cash at end of period		$	1,967		$	1,967		$	4,787		$	4,787

Cash payments for:
				Interest	$	11,003		$	11,003		$	10,021		$	10,021
				Taxes	$	127		$	127		$	23		$	23

	Non-cash transactions:
				Program rights in exchange for program rights payable	$	8,950		$	8,950		$	1,914		$	1,914

See the notes to the consolidated financial statements.

ACME INTERMEDIATE HOLDINGS, LLC AND SUBSIDIARIES
ACME TELEVISION, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001

(1) FORMATION AND DESCRIPTION OF THE BUSINESS

Reorganization of Parent

ACME Communications, Inc. was formed on July 23, 1999, in preparation for and in conjunction with an initial public offering of its stock.

On September 27, 1999, the Board of Advisors of ACME Television Holdings, LLC the parent company of ACME Intermediate Holdings, LLC (“ACME Intermediate”) and its wholly-owned subsidiary ACME Television, LLC (“ACME Television”) and its members and the Board of Directors of ACME Communications, Inc. and its stockholder approved a merger and reorganization (the “Reorganization”), whereby ACME Communications, Inc., became the direct parent of ACME Television Holdings, LLC. As a result of the Reorganization, ACME Communications, Inc. is the ultimate parent of ACME Intermediate and its wholly owned subsidiary ACME Television. All transactions contemplated as part of the Reorganization closed on October 5, 1999. References to “ACME Parent” herein refer to ACME Communications, Inc.

Formation

ACME Intermediate was formed on August 8, 1997. Upon formation, ACME Intermediate received a contribution from ACME Parent, of ACME Parent’s wholly-owned subsidiaries — ACME Television of Oregon, LLC (“ACME Oregon”) and ACME Television of Tennessee, LLC (“ACME Tennessee”) and certain other net assets. This Contribution of $25,455,000 (including cash of $2,380,000) was made in exchange for membership units in ACME Intermediate and was treated as a transaction between entities under common control, similar to a pooling of interests. Accordingly, the transaction was recorded at historical cost and ACME Intermediate has reflected the results of operations of the contributed entities for the year ended December 31, 1997. In addition, on September 30, 1997, ACME Parent made an additional contribution of $21,746,000 in exchange for membership units in ACME Intermediate.

ACME Television was formed on August 8, 1997. Upon formation, ACME Television received a contribution from ACME Parent through ACME Intermediate of ACME Parent’s wholly owned subsidiaries — ACME Oregon and ACME Tennessee and certain other net assets. This Contribution of $25,455,000 (including cash of $2,380,000) was made in exchange for membership units in the Company and was treated as a transaction between entities under common control, similar to a pooling of interests. Accordingly, the transaction was recorded at historical cost and ACME Television has reflected the results of operations of the contributed entities for the year ended December 31, 1997. In addition, on September 30, 1997, ACME Intermediate made an additional contribution of $60,061,000 in exchange for membership units in ACME Television.

ACME Parent owns directly or indirectly, 100% of the outstanding member units of ACME Intermediate. ACME Intermediate owns, directly or indirectly, 100% of the outstanding member units of ACME Television.

Description of the Business

ACME Intermediate is a holding company with no independent operations other than through 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:

U.S.

Market

Network

Station

Channel

Market

Rank*

Affiliation

KPLR

St. Louis, MO

KWBP

Portland, OR

KUWB

Salt Lake City, UT

KWBQ

Albuquerque-Santa Fe, NM

KASY

Albuquerque-Santa Fe, NM

UPN

WBDT

Dayton, OH

WBXX

Knoxville, TN

WIWB

Green Bay-Appleton, WI

WTVK

Ft. Myers-Naples, FL

WBUI

Champaign-Springfield-Decatur, IL

* Based on television households

In March 2002, ACME Parent entered into, and subsequently assigned to ACME Television, a court-approved asset purchase agreement to buy substantially all of the broadcast assets of station WHPN, the UPN affiliate serving the Madison, Wisconsin marketplace, for a cash purchase price of $5.6 million. We began operating the station under an interim local marketing agreement (“LMA”) on April 1, 2002 and expect to switch the affiliation to the WB Television Network (“The WB”) by the end of August 2002 and to close the transaction during the fourth quarter of 2002.

We also own the rights to acquire construction permits to build four other stations — three to be new WB Network affiliates in Lexington, KY, Richmond, VA and Flint-Saginaw-Bay Cities, MI and the fourth to be a second station, operated as an independent, in Portland, OR. The acquisition of these construction permits is dependent on the Federal Communications Commission approving the underlying applications. The aggregate purchase price for these four construction permits is approximately $18.4 million.

(2) Presentation of Interim Financial Statements

Financial statements are presented for each of ACME Intermediate Holdings, LLC and its wholly-owned subsidiary, ACME Television, LLC. Unless the context requires otherwise, references to the “Company” refers to both ACME Intermediate and ACME Television. Segment information is not presented since all of our revenue is attributed to a single reportable segment — television broadcasting.

The accompanying consolidated financial statements for the three and six month periods ended June 30, 2001 and 2002 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America, the instructions to this Form 10-Q and Article 10 of Regulation S-X. In our opinion, such financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for the fair presentation of the financial position and the results of operations, and cash flows for these periods. As permitted under the applicable rules and regulations of the Securities and Exchange Commission (“SEC”), these financials statements do not include all disclosures and footnotes normally included with annual consolidated financial statements, and accordingly, should be read in conjunction with the consolidated financial statements and the notes thereto, included in the our Annual Report on Form 10-K for the year ended December 31, 2001, filed with the SEC on April 1, 2002. The results of operations presented in the accompanying consolidated financial statements are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.

(3) Intangible Assets — Adoption of Statements 142 and 144

We adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” effective January 1, 2002. Under SFAS No. 142, we will no longer amortize goodwill or intangible assets. As of December 31, 2001 and June 30, 2002, we had $87.6 million is unamortized goodwill and $165 million in unamortized broadcast licenses.

In connection with the transitional goodwill impairment evaluation, SFAS 142 required us to perform an assessment of whether there was any indication that goodwill was impaired at the date of adoption. We performed the assessment on a consolidated basis and determined that there was not an indication of impairment. In addition, we determined that our intangible assets, comprised of FCC licenses, represented intangible assets with an indefinite life. We evaluated each asset for impairment in accordance with SFAS No. 142, based on the fair value of the intangibles. Based on this evaluation, we did not record any impairment of FCC licenses. The evaluation of impairment of goodwill and FCC licenses must be done at least annually and more frequently if events or circumstances indicate that the assets may be impaired.

Following is a reconciliation of the June 30, 2001 reported net loss to the net loss as it would have been if SFAS No. 142 had been effective on January 1, 2001:


			ACME Intermediate, LLC

			For the Three Months Ended						For the Six Months Ended
			June 30,						June 30,

(In thousands)			2002			2001			2002			2001

			(Unaudited)						(Unaudited)

Reported net loss			$	(6,365	)	$	(5,944	)	$	(44,000	)	$	(12,721	)
Add back:
	Goodwill amortization			—			1,351			—			2,686
	Broadcast licenses amortization			—			2,489			—			4,994
	Income tax expense						(898	)					(1,909	)

		Adjusted net loss	$	(6,365	)	$	(3,002	)	$	(44,000	)	$	(6,950	)


			ACME Television, LLC

			For the Three Months Ended						For the Six Months Ended
			June 30,						June 30,

(In thousands)			2002			2001			2002			2001

			(Unaudited)						(Unaudited)

Reported net loss			$	(4,275	)	$	(4,725	)	$	(33,062	)	$	(10,364	)
Add back:
	Goodwill amortization			—			1,351			—			2,686
	Broadcast licenses amortization			—			2,489			—			4,994
	Income tax expense						(898	)					(1,909	)

		Adjusted net loss	$	(4,275	)	$	(1,783	)	$	(33,062	)	$	(4,593	)

Prior to January 1, 2002, we recorded deferred tax liabilities relating to the difference in the book basis and tax basis of goodwill and intangibles. The reversals of those deferred tax liabilities were utilized to support the realization of deferred tax assets (primarily consisting of net operating loss carryforwards) and the corresponding deferred tax benefits recorded. As a result of the adoption of SFAS No. 142, those deferred tax liabilities will no longer reverse on a scheduled basis and can no longer be utilized to support the realization of deferred tax assets. Accordingly, we recorded a one-time, non-cash charge totaling $29.2 and 22.3 million for ACME Intermediate and ACME Television, respectively, to deferred income tax expense in the quarter ended March 31, 2002 to establish a valuation allowance against its deferred tax assets.

We also adopted the provisions of SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” effective January 1, 2002. SFAS No. 144 requires us to evaluate long-lived assets for impairment when certain conditions exist, including a current period operating loss combined with a history of operating losses. In evaluating whether there is an impairment, the carrying value of the asset is compared to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. We evaluate long-lived assets at the station level. As of June 30, 2002, we have not recorded any impairment related to long-lived assets. Future adverse changes in market conditions, changes in technology and other factors could reduce the expected future cash flows and result in an impairment charge.

(4) Revolving Credit Facility

In February 2002, we completed our new revolving credit facility with Foothill Capital Corporation, as both agent and lender. In June 2002, GE Capital became a co-lender under the agreement and maximum borrowings under the facility were increased to $40 million. The new facility is secured by all of our television station assets and expires May 31, 2004. Under this agreement, we have the option to borrow at an interest rate determined by either a base rate (Wells Fargo Bank’s prime rate) plus 3 percentage points, or at the LIBOR rate plus 4.25 percentage points. The financial covenants, which are quarterly tests beginning March 31, 2002, included in the new facility are (a) minimum EBITDA, (b) maximum total leverage, (c) minimum net tangible worth and (d) maximum capital expenditures (annual basis only). In addition to the financial covenants, the facility contains negative covenants, which, among other restrictions, require the lenders’ approval for certain station acquisitions and dispositions. At June 30, 2002 we had borrowings under the facility of $5.4 million and had $36.4 million available under the facility. We were in compliance with all covenants at June 30, 2002.

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 facilities. Approximately $292,000 in capitalized costs that related to the prior facility were expensed in the first quarter of 2002.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward -Looking Statements:

This Quarterly Report on Form 10-Q 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 “anticipate,” “may,” “will,” “could,” “expect,” “believe,” “potential,” or “might” 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. These risks, uncertainties and other factors include those identified in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 1, 2002.

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 Quarterly Report on Form 10-Q. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Quarterly Report on Form 10-Q might not occur.

The following discussion should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report on Form 10-Q.

OVERVIEW

Our ten owned and operated television stations are regionally diverse and range in size (based on television households) from the 22nd through the 82nd largest markets in the nation. All but one of our stations are affiliates of The WB. Our second station in the Albuquerque-Santa Fe marketplace is a UPN affiliate. KPLR — St. Louis, our only VHF station, has been broadcasting in that market for over 40 years and is considered a mature television station. Our other nine stations (our “Developing Stations”) have only been on the air, or achieving measurable ratings, for 2-5 years. In addition, we currently operate under an LMA the UPN affiliate in Madison, WI. We expect to both complete our acquisition of this station and switch it affiliation to The WB during the second half of 2002.

We derive revenues primarily from the sale of advertising time to local, regional and national advertisers. Our revenues depend on popular programming that attracts audiences in the demographic groups targeted by advertisers, allowing us to sell advertising time at satisfactory rates. Our revenues also depend significantly on factors such as the national and local economy and the level of local competition.

Our revenues are generally highest during the fourth quarter of each year, primarily due to increased expenditures by advertisers in anticipation of holiday season consumer spending and an increase in viewership during this period. We generally pay commissions to advertising agencies on local, regional and national advertising and to national sales representatives on national advertising. Our revenues reflect deductions from gross revenues for commissions payable to advertising agencies and national sales representatives.

Our primary ongoing operating expenses are programming costs, employee compensation, advertising and promotion expenditures and depreciation. Programming expense consists primarily of amortization of broadcast rights relating to syndicated programs as well as news production costs and music licensing fees. Changes in employee compensation expense result primarily from increases in total staffing levels, from adjustments to fixed salaries based on individual performance and inflation and from changes in sales commissions paid to our sales staff based on levels of advertising revenues. Advertising and promotion expenses consist primarily of media and related production costs resulting from the promotion of our stations and programs. This amount is net of any reimbursement received or due to us for such advertisement and promotion from The WB, UPN or from other program suppliers.

RESULTS OF OPERATIONS

The following table sets forth our calculation of broadcast cash flow and EBITDA along with a summary of our statement of cash flow data for the periods indicated:

Other Operating Data:


					Three Months ended June 30,						Six Months ended June 30,

Broadcast cash flow and EBITDA(1):					2002			2001			2002			2001

					(Unaudited)						(Unaudited)

	Operating Income (loss)				$	2,230		$	(1,485	)	$	2,314		$	(4,594	)
	Add back:
			Equity-based compensation			116			133			231			265
			Depreciation and amortization			1,281			4,910			2,452			9,869
			LMA Fees			4			—			4			—
			Amortization of program rights			3,953			3,561			8,017			7,076
			Corporate expenses			1,028			906			1,845			1,820
			Adjusted program payments (1)			(3,952	)		(3,538	)		(8,084	)		(7,060	)

				Broadcast cash flow		4,660			4,487			6,779			7,376
	Less:
			Corporate expenses			1,028			906			1,845			1,820

				EBITDA	$	3,632		$	3,581		$	4,934		$	5,556
Broadcast cash flow margin (1)						22.3	%		23.7	%		18.0	%		20.9	%
EBITDA margin (1)						17.4	%		19.0	%		13.1	%		15.7	%
Cash flows provided by (used in):
		Operating activities									$	(8,788	)	$	(4,574	)
		Investing activities									$	(10,349	)	$	(2,903	)
		Financing activities									$	16,824		$	1,917

(1)

We define:

	•		broadcast cash flow as operating income, plus equity-based compensation, depreciation and amortization, LMA fees, amortization of program rights, and corporate expenses, less program payments — the latter as adjusted to reflect reductions for liabilities relating to expired rights or rights that have been written-off in connection with acquisitions;

	•		EBITDA as broadcast cash flow less corporate expenses;

	•		broadcast cash flow margin as broadcast cash flow as a percentage of net revenues; and

	•		EBITDA margin as EBITDA as a percentage of net revenues.

We have included broadcast cash flow, broadcast cash flow margin, EBITDA and EBITDA margin data because management believes that these measures are useful to an investor to evaluate our ability to service debt and to assess the earning ability of our stations’ operations. However, you should not consider these items in isolation or as substitutes for net income, cash flows from operating activities and other statement of operations or cash flows data prepared in accordance with accounting principles generally accepted in the United States of America. These measures are not necessarily comparable to similarly titled measures employed by other companies.

Quarter and Six Months ended June 30, 2002 vs June 30, 2001

Net revenues increased 11% to $20.9 million for the second quarter of 2002 compared to $18.9 million for the same period a year ago while year-to-date net revenues were up 7% to $37.7 million for 2002 compared to $35.4 million for the first six months of 2001. Our double digit second quarter revenue growth reflects increased market share performance at our Developing Stations, driven by sustained ratings growth, coupled with a return to moderate growth of television spending in almost all of our markets.

Station operating expenses increased 13% to $16.2 million for the second quarter of 2002 compared to $14.4 million for the same period a year ago and increased 10% to $30.9 million for the six-month period ended June 30, 2002 compared with $28.0 million for the corresponding period in 2001. These increases are primarily due to increased programming expense which was up 17% for both the quarter and six-month periods compared to 2001 due to our continued investment in, and upgrade to, our program schedule. Sales and related expenses were up 15% for the quarter and 23% for the six month period as compared to the same periods in 2001, principally due to increased Nielsen’s rating service charges. Engineering expenses increased 21% for the quarter and 10% for the six-month period due to new costs associated with our new digital facilities.

Depreciation and amortization decreased 74% to $1.3 million in the second quarter of 2002 compared to $4.9 million in the same period a year ago and for the six month period, depreciation and amortization decreased 75% to $2.5 million, compared to $9.9 million for the same period in 2001, due to our adoption of SFAS No. 142. Under SFAS No. 142, our goodwill and other intangible assets are no longer amortized, and therefore, the $1.3 million in the second quarter of 2002 consists only of depreciation expense relating to fixed assets. This represents a 12% increase compared to our second quarter 2001 depreciation expense because of our capital expenditures to convert to digital broadcasting and to upgrade existing equipment.

Corporate expenses increased 13% to $1.0 million for the second quarter of 2002 as compared to $906,000 for the same period a year ago. On a year to date basis, corporate expenses increased 1% to $1.845 million in 2002 compared to $1.820 million in 2001. Both the increase in the second quarter and the increase for the six-month period are due primarily to increased insurance expenses and increased investor relations expenses offset by a reduction in professional fees and incentive compensation provisions.

Equity-based compensation of $116,000 in the second quarter of 2002 and $133,000 in the second quarter of 2001 and $231,000 and $265,000 for the six-months ended June 30, 2002 and 2001, respectively, relates to stock options issued upon the conversion of our long-term incentive plan awards during ACME Parent’s IPO in September of 1999. These options were issued at a price below market value at the date of grant and therefore generate compensation expense over the life of the option. The decrease of $17,000 for the quarter and $34,000 year to date in 2002 is due to stock options that were forfeited by former employees.

ACME Television’s interest expense for the second quarter of 2002 was $5.5 million and was $5.3 million in the second quarter of 2001 and for the six month period was $11.1 million in 2002 and $10.7 million in 2001. This second quarter 2002 increase was primarily due to increased interest expense on new borrowings under our senior credit facility and increased interest expense on our capital lease facilities. Interest expense for the six-month period also includes the accelerated amortization of prepaid financing costs associated with our former credit facility that was terminated in February 2002 (see “Liquidity and Capital Resources” below).

ACME Intermediate’s interest expense for the second quarter of 2002 was $7.8 million and was $7.3 million for the previous year and for the six month period was $15.5 million in 2002 and $14.5 million in 2001. In addition to the higher interest expense at ACME Television, interest expense also increased relating to the higher accreted principal balance for ACME Intermediate’s 12% senior secured notes compared to a year ago.

ACME Intermediate and ACME Television’s income tax expense for the second quarter of 2002 were $725,000 and $892,000, respectively, compared to income tax benefits of $2.9 and $2.1 million, respectively, in the corresponding quarter of 2001. For the six month period ACME Intermediate’s income tax expense was $30.7 for 2002 and the benefit was $6.3 million for 2001. ACME Television’s income tax expense was $24.1 for the six month period ended June 30, 2002 and the benefit was $4.8 million for the same period in 2001. These increases are due to the implementation of SFAS No. 142 on January 1, 2002. Prior to January 1, 2002, we recorded deferred tax liabilities relating to the difference in the book basis and tax basis of goodwill and intangibles. The reversals of those deferred tax liabilities were utilized to support the realization of deferred tax assets (primarily consisting of net operating loss carryforwards) and the corresponding deferred tax benefits recorded. As a result of the adoption of SFAS 142, those deferred tax liabilities will no longer reverse on a scheduled basis and can no longer be utilized to support the realization of deferred tax assets. Accordingly, we recorded a one-time, non-cash charge totaling $29.2 million and $22.3 million for ACME Intermediate and ACME Television, respectively, to deferred income tax expense to establish a valuation allowance against its deferred tax assets.

Broadcast cash flow (as defined) for the second quarter increased 4% to $4.7 million compared to $4.5 million in the same period a year ago due to our revenue growth beginning to overcome our growth in expenses.

On a year-to-date basis, broadcast cash flow decreased 8% to $6.8 million compared to $7.4 million in the same period a year ago. This decrease is the result of our expense growth in excess of our revenue growth during the six-month period due to continued investment in programming, staffing and sales related costs.

EBITDA (as defined) increased 1% to $3.63 million for the second quarter of 2002 compared to $3.58 million EBITDA for the second quarter of 2001 on the strength of increased broadcast cash flow. On a year-to-date basis, EBITDA decreased 11% to $4.9 million compared to $5.6 million in the same period a year ago. This six-month decrease reflects our decreased six month broadcast cash flow.

ACME Television’s net loss for the second quarter of 2002 was $4.3 million compared to a net loss for the second quarter of 2001 of $4.7. For the six month period, ACME Television’s net loss was $33.1 million in 2002 and $10.4 million in 2001 . The $421,000 decrease in net loss for the quarter as compared to the same period in 2001 is primarily attributable to our increased broadcast cash flow and the reduction in the amortization of intangibles of $3.8 million. The $22.7 million increase in ACME Television’s net loss for the six month period is primarily attributable to the one-time tax charge of $22.3 million incurred due to the adoption of SFAS No. 142, lower adjusted EBITDA and increased interest expense, net of a reduction in the amortization of intangibles of $7.7 million. ACME Intermediate’s higher net loss for the quarter and six-month periods ended June 30, 2002, compared to ACME Television’s, reflect the interest and income tax expense related to ACME Intermediate’s 12% senior secured notes.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow used in operating activities was $8.8 million for the six months ended June 30, 2002 compared to cash flow used in operating activities of $4.6 million for the second six months of 2001. This increase in the use of cash relates primarily to our lower EBITDA compounded by reduced collections of net revenues as most of our increase in sales in the 2002 period occurred late in the second quarter and, therefore, will be collected in the following quarter. Interest expense was also higher for the six months ended June 30, 2002 compared to the prior year due to higher debt on our revolving credit and capital lease facilities.

Cash flow used in investing activities during the second six months of 2002 was $10.3 million compared to $2.9 million used during the second six months of 2001. The $7.4 million increase is attributable to the purchases of broadcast and other equipment while we continue to improve technical facilities at our stations, a minority investment in an automobile-related website and the deposit made in connection with our pending purchase of WHPN, Madison, Wisconsin.

Cash flow provided by financing activities was $16.8 million for the second six months of 2002 compared to $1.9 million used in financing activities in 2001. This $14.9 million increase is primarily attributable to the $12 million contribution from ACME Parent. The remainder relates to our borrowings on our credit facility offset by payment of financing costs and decreased net borrowings on our capital lease facilities (net of repayments and cash placed on deposit to secure such borrowings).

In February 2002, we completed our new revolving credit facility with Foothill Capital Corporation, as both agent and lender. In June 2002, GE Capital became a co-lender under the agreement and maximum borrowings under the facility were increased to $40 million. The new revolving facility is secured by all of our television assets and expires May 31, 2004. Under this agreement, we have the option to borrow at an interest rate determined by either a base rate (Wells Fargo Bank’s prime rate) plus 3 percentage points, or at the LIBOR rate plus 4.25 percentage points. The financial covenants, which are quarterly tests beginning March 31, 2002, included in the new facility are (a) minimum EBITDA, (b) maximum total leverage, (c) minimum net tangible worth and (d) maximum capital expenditures (annual basis only). In addition to the financial covenants, the facility contains negative covenants, which, among other restrictions, require the lenders’ approval for certain, station acquisitions and dispositions. At June 30, 2002 we had borrowings under the facility totaling $5.4 million and had $34.6 million available under the facility outstanding under the facility. We were in compliance with all covenants at June 30, 2002.

In March 2002, upon posting an additional $1.1 million of restricted cash as collateral, we borrowed the final $3.3 million of our most recent capital lease facility. Borrowings under our various capital lease facilities are generally paid over four to five years. At June 30, 2002, amounts due under all capital lease facilities totaled $14.1 million bearing an implicit average interest rate of 8.4% per annum.

We expect to incur approximately $6 million in additional capital expenditures in 2002 as we conclude our transition to digital broadcasting,

upgrade the Madison, WI station we anticipate purchasing and purchase the capital equipment for our new morning news show “The Daily Buzz” that we expect to launch this fall. We expect that our capital expenditures after 2002, apart from those related to any pending and future acquisitions, will approximate $3.5 million per year.

Effective October 1, 2000, ACME Television’s $175 million 10 7/8% Senior Discount Notes due September 30, 2004 began accruing cash interest. The interest payment on these notes amounts to approximately $9.5 million every six months and the payments are due on March 31st and September 30th. ACME Intermediate’s $71.6 million 12% Senior Secured Notes begin accruing cash interest on October 1, 2002, with the first semi-annual payment of approximately $4.2 million due on March 31, 2003.

At June 30, 2002, the Company had $4.8 million of cash, $2.9 million of which is restricted to collateralize capital lease obligations, and working deficits of $1.4 million and $1.2 million for ACME Intermediate and ACME Television, respectively.

We believes that existing unrestricted cash balances, funds generated from operations and borrowings under our credit facility will be sufficient to satisfy our cash requirements for our existing operations for at least the next twelve months. We expect that any future acquisitions of television stations, including the completion of our WHPN — Madison, Wisconsin acquisition and any of the four construction permits, would be financed through these same sources or, if necessary, through additional debt and equity financings. There is no guarantee that such other means of raising capital will be available at all or on terms that are acceptable to us. Accordingly, current members could be adversely affected should such financings become necessary.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to broadcast rights, bad debts, intangible assets, income taxes, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the more significant judgements and estimates used in the preparation of our consolidated financial statements.

Programming Rights

Our programming rights are stated, on a gross basis, at the lower of amortized cost or estimated realizable value. We regularly evaluate estimated realizable value of programming rights based on current usage and revenue performance and projected future revenue and usage of such programs. Changes in our programming schedule could impact the estimated realizable value of programming. For the quarter and six-month periods ended June 30, 2001 programming rights impairment charges totaled $32,000 and $46,000, respectively. There was no impairment of programming rights during the quarter and six-month periods ended June 30, 2002.

Long-Lived Assets, Goodwill and Intangible Assets

We evaluate long-lived assets in accordance with SFAS No. 144. SFAS 144 requires us to evaluate long-lived assets for impairment when certain conditions exist, including a current period operating loss combined with a history of operating losses. In evaluating whether there is an impairment, the carrying value of the assets is compared to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. We evaluate long-lived assets at the station level. As of June 30, 2002, we have not recorded any impairment related to long-lived assets. Future adverse changes in market condition, changes in technology and other factors could reduce the expected future cash flows and result in an impairment charge.

We evaluate goodwill and intangibles in accordance with SFAS No. 142. In connection with the transitional goodwill impairment evaluation, SFAS 142 required us to perform an assessment of whether there was any indication that goodwill was impaired at the date of adoption (January 1, 2002). We performed the assessment on a consolidated basis and determined that there was not an indication of impairment. In addition, we determined that our intangible assets, comprised of FCC licenses, represented intangible assets with an indefinite life. We evaluated each asset for impairment in accordance with SFAS No. 142, based on the fair value of the intangibles. Based on this evaluation, we did not record any impairment of FCC licenses. The evaluation of impairment of goodwill and FCC licenses must be done at least annually and more frequently if events or circumstances indicate that the assets may be impaired.

Revenue Recognition

We record revenue from the sale of airtime related to advertising and contracted time at the time of broadcast and maintain an allowance for doubtful accounts for the estimated losses that may result from the inability of our customers to make required payments. We utilizes information available to us, including the timing of payments and the financial condition of our customers, to estimate the allowance for doubtful accounts. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. We do not have a significant concentration of accounts receivable from any single customer or industry segment.

Accounting for Income Taxes

Prior to January 1, 2002, we recorded deferred tax liabilities relating to the difference in the book basis and tax basis of goodwill and intangibles. The reversals of those deferred tax liabilities were utilized to support the realization of deferred tax assets (primarily consisting of net operating loss carryforwards) and the corresponding deferred tax benefits recorded. As a result of the adoption of SFAS No. 142, those deferred tax liabilities will no longer reverse on a scheduled basis and can no longer be utilized to support the realization of deferred tax assets. Accordingly, we recorded a one-time, non-cash charge totaling $28.4 million to deferred income tax expense in the quarter ended March 31, 2002 to establish a valuation allowance against our deferred tax assets. If we were to determine that we would be able to realize a deferred tax asset in the future that is in excess of the net recorded amount, we would record an adjustment to the valuation allowance and a tax benefit.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our credit facility has a variable interest rate. Accordingly, our interest expense could be materially affected by future fluctuations in the applicable interest rate. At June 30, 2002, we had borrowings of $5.4 million and $34.6 million available under the credit facility.

We are also exposed to risk from a change in interest rates to the extent we are required to refinance existing fixed rate indebtedness at rates higher than those prevailing at the time the existing indebtedness was incurred. We have senior discount notes totaling $175 million and senior secured discount notes totaling $71.6 million due in the years 2004 and 2005, respectively. Effective October 1, 2000, the senior discount notes began accruing cash interest. The interest payment on these notes amounts to approximately $9.5 million every six months. Effective October 1, 2002, the senior secured notes will being accruing cash interest and the first semi-annual interest payment of approximately $4.2 million will be due on March 31, 2003. Based upon the quoted market price, the fair value of the senior discount notes and senior secured discount notes was $178.1 and $65.9 million, respectively, as of June 30, 2002.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We currently and from time to time are involved in litigation incidental to the conduct of our business. We maintain comprehensive general liability and other insurance, which we believe to be adequate for the purpose. We are not currently a party to any lawsuit or proceeding that management believes would have a material adverse affect on its financial condition or results of operations.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBITS

None.

REPORTS ON FORM 8-K

ACME Parent filed a Current Report on Form 8-K on April 11, 2002 to report that its Board of Directors had decided to consider the sale of one of our largest stations, contingent upon receiving an appropriate offer.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.


	ACME INTERMEDIATE HOLDINGS, LLC.

Date: August 14, 2002	By: /s/ THOMAS D. ALLEN
		Thomas D. Allen Executive Vice President/CFO (Principal accounting officer)


	ACME TELEVISION, LLC.

Date: August 14, 2002	By: /s/ THOMAS D. ALLEN
		Thomas D. Allen Executive Vice President/CFO (Principal accounting officer)

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ACME INTERMEDIATE HOLDINGS LLC 10-Q