-5-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended
September 30, 1994
0-14871
(Commission File Number)
ML MEDIA PARTNERS, L.P.
(Exact name of registrant as specified in its
governing instruments)
Delaware
(State or other jurisdiction of organization)
13-3321085
(IRS Employer Identification No.)
World Financial Center
South Tower - 14th Floor
New York, New York 10080-6114 (Address of
principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 236-
6472
N/A
Former name, former address and
former fiscal year if changed since
last report
Indicate by check mark whether the Registrant (1) has 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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No .
WORD\LIZ\MEDIA\MED3Q.94
ML MEDIA PARTNERS, L.P.
PART I - FINANCIAL
INFORMATION
Item 1. Financial Statements
TABLE OF CONTENTS
Page
Consolidated Balance Sheets as of September 30, 1994
(Unaudited) and December 31, 1993 (Unaudited) 3-
4
Consolidated Statements of Operations for the Thirteen and
Thirty-Nine Week Periods Ended September 30, 1994
(Unaudited) and September 24, 1993 (Unaudited) 5-
6
Consolidated Statements of Cash Flows for the Thirty-Nine
Week Periods Ended September 30, 1994 (Unaudited) and
September 24, 1993 (Unaudited) 7-
9
Notes to the Consolidated Financial Statements for the
Thirty-Nine Week Period Ended September 30, 1994
(Unaudited) 10-
18
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1994 (UNAUDITED) AND DECEMBER 31, 1993
(UNAUDITED)
September 30, December 31,
Notes 1994 1993
ASSETS:
Cash and cash equivalents 2 $35,337,897 $26,916,477
Accounts receivable (net
of allowance for doubtful
accounts of $841,791 at
September 30, 1994 and
$677,188 at December 31,
1993) 9,652,688 9,286,116
Prepaid expenses and
deferred charges (net of
accumulated amortization of
$8,324,349 at September 30,
1994, and $7,241,088 at
December 31, 1993) 3,467,181
4,399,276
Property, plant and
equipment(net of accumulated
depreciation of $118,606,948
at September 30, 1994 and
$104,955,637 at December 31,
1993)
2 86,438,934
92,400,494
Intangible assets (net
of accumulated amortization
of $119,685,376 at September
30, 1994 and $111,069,407 at
December 31, 1993)
2 105,039,672
111,146,204
Other assets 2,213,143
5,703,370
TOTAL ASSETS $242,149,515
$249,851,937
(Continued on the following page)
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1994 (UNAUDITED) AND DECEMBER 31, 1993
(UNAUDITED)
(continued)
September 30, December 31,
Notes 1994 1993
LIABILITIES AND PARTNERS'
DEFICIT:
Liabilities:
Borrowings 2 $223,668,349
$232,568,349
Accounts payable and
accrued liabilities 32,159,188
29,989,412
Subscriber advance payments 2,063,750
2,102,082
Total Liabilities 257,891,287
264,659,843
Partners' Deficit:
General Partner:
Capital contributions,
net of offering
expenses 1 1,708,299
1,708,299
Cumulative loss (1,802,799)
(1,793,460)
(94,500)
(85,161)
Limited Partners:
Capital contributions,
net of offering
expenses (187,994
Units of Limited
Partnership Interest) 1 169,121,150
169,121,150
Tax allowance cash
distribution (6,291,459)
(6,291,459)
Cumulative loss (178,476,963)
(177,552,436)
(15,647,272)
(14,722,745) Total Partners' Deficit (15,741,772)
(14,807,906)
TOTAL LIABILITIES AND
PARTNERS' DEFICIT $ 242,149,515 $
249,851,937
See Notes to Consolidated Financial Statements (Unaudited).
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30,
1994 (UNAUDITED) AND SEPTEMBER 24, 1993 (UNAUDITED)
Thirteen Weeks Thirty-Nine Weeks
September 30, September 24, September 30, September
24, 1994 1993 1994 1993
REVENUES:
Operating
revenue $26,268,330 $25,462,532 $78,307,869
$74,467,138
Interest 51,431 32,706 133,695
96,463
(Loss)/Gain
on sales of
asset (4,082) 39,848 122,154 125,019
Total
revenues 26,315,679 25,535,086 78,563,718 74,688,620
COSTS AND
EXPENSES:
Property
operating 9,686,898 8,687,019 28,625,944
26,152,445
General and
adminis-
trative 5,275,016 6,168,996 15,690,663
16,999,282
Depreciation
and amorti-
zation 7,507,082 7,641,798 22,651,142
22,651,934
Interest
expense 4,179,711 3,581,448 11,335,962
13,709,188
Management
fees 397,957 397,957 1,193,873 1,193,873
Total costs
and
expenses $27,046,664 $26,477,218 $79,497,584
$80,706,722
NET LOSS $ (730,985) $ (942,132) $ (933,866)
$(6,018,102)
(Continued on the following page)
ML MEDIA PARTNERS, L.P. CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30,
1994 (UNAUDITED) AND SEPTEMBER 24, 1993 (UNAUDITED)
(continued)
Thirteen Weeks Thirty-Nine Weeks
September 30, September 24, September 30, September
24, 1994 1993 1994 1993
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
NET LOSS $ (3.85) $ (4.96) $ (4.92) $
(31.69)
Number of
Units 187,994 187,994 187,994
187,994
See Notes to Consolidated Financial Statements (Unaudited).
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 1994
(UNAUDITED) AND SEPTEMBER 24, 1993 (UNAUDITED)
September 30, September 24,
1994 1993
Increase (Decrease) in Cash and
Cash Equivalents:
Cash flows from operating
activities:
Net loss $ (933,866 $ (6,018,102
) )
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 22,651,142
22,651,934
Change in bad debt reserve 164,603
235,492
Equity in earnings of joint
venture --
(29,991)
Gain on sale of assets (122,154)
(125,019)
Change in operating assets and
liabilities:
Increase in accounts receivable (297,047)
(3,636,315)
Increase in prepaid expenses
and deferred charges (37,570)
(716,144)
Decrease/(Increase) in other
assets 3,480,822
(53,361)
(Continued on the following page)
ML MEDIA PARTNERS, L.P. CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 1994
(UNAUDITED) AND SEPTEMBER 24, 1993 (UNAUDITED)
(continued)
September 30, September
24, 1994
1993
Increase in accounts payable and
accrued liabilities 1,358,344
3,032,184
Decrease/(Increase) in subscriber
advance payments (38,332)
111,077
Net cash provided by operating
activities 26,225,942
15,451,755
Cash flows from investing
activities:
Proceeds from sale of assets 248,389
189,891
Purchase of property, plant
and equipment (5,572,278)
(7,621,227)
Changes to intangible assets (3,580,633)
(322,723)
Net cash used in investing
activities (8,904,522)
(7,754,059)
Cash flows from financing
activities:
Principal payments on bank loans (8,900,000)
(5,203,026)
Proceeds from borrowings -0-
1,448,505
Net cash used in financing
activities (8,900,000)
(3,754,521)
(Continued on the following page)
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 30, 1994
(UNAUDITED) AND SEPTEMBER 24, 1993 (UNAUDITED)
(continued)
September 30, September
24, 1994
1993
Net increase in cash and cash
equivalents 8,421,420
3,943,175
Cash and cash equivalents at
the beginning of period 26,916,477
19,930,098
Cash and cash equivalents at
end of period $35,337,897
$23,873,273
Cash paid for interest $10,203,421
$14,448,275
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
The Partnership continues to consolidate its pro rata 50%
interest in the Venture which, effective January 1, 1994,
also includes the operations of C-ML Radio.
See Notes to Consolidated Financial Statements (Unaudited).
ML MEDIA PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 30, 1994
(UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ML Media Partners, L.P. (the "Partnership") was formed and the
Certificate of Limited Partnership was filed under the Delaware
Revised Uniform Limited Partnership Act on February 1, 1985.
Operations commenced on May 14, 1986 with the first closing of
the sale of units of limited partnership interest ("Units").
Subscriptions for an aggregate of 187,994 Units were accepted
and are now outstanding.
Media Management Partners (the "General Partner") is a joint
venture, organized as a general partnership under the laws of
the State of New York, between RP Media Management (a joint
venture organized as a general partnership under the laws of the
State of New York, consisting of The Elton H. Rule Company and
IMP Media Management, Inc.), and ML Media Management Inc., a
Delaware corporation and an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. The General Partner was formed for
the purpose of acting as general partner of the Partnership.
The General Partner's total capital contribution was $1,898,934
which represents 1% of the total Partnership capital
contributions.
Pursuant to the terms of the Amended and Restated Agreement of
Limited Partnership (the "Partnership Agreement"), the General
Partner is liable for all general obligations of the Partnership
to the extent not paid by the Partnership. The limited partners
are not liable for the obligations of the Partnership in excess
of the amount of their contributed capital.
The purpose of the Partnership is to acquire, finance, hold,
develop, improve, maintain, operate, lease, sell, exchange,
dispose of and otherwise invest in and deal with media
businesses and direct and indirect interests therein.
Certain reclassifications were made to the 1993 financial
statements to conform with the current period's presentation.
In the opinion of the General Partner, the financial statements
include all adjustments necessary to reflect fairly the results
of the interim periods presented. All adjustments are of a
normal recurring nature.
Basis of Accounting
Effective January 1, 1994, all of the assets of C-ML Radio were
transferred to the Venture, in exchange for the assumption by
the
Venture of all the obligations of C-ML Radio and the issuance to
Century and the Partnership of new certificates evidencing a
partnership interest of 50% and 50%, respectively, in the
Venture. Simultaneously, Century and the Partnership entered
into an amended and restated management agreement and joint
venture agreement governing the affairs of the revised Venture.
The transfer, which was made pursuant to a Transfer of Assets
and Assumption of Liabilities Agreement, was required under the
terms of the C-ML Notes. The Partnership continues to
consolidate its pro-rata 50% interest in the Venture which,
effective January 1, 1994, also includes the operations of C-ML
Radio. Prior to the inclusion of C-ML Radio in the Venture, the
Partnership accounted for its 49.999% interest in C-ML Radio
under the equity method.
Statement of Financial Accounting Standards No. 112
Effective January 1, 1994, the Partnership adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (SFAS No. 112"). The effect of the
adoption of SFAS No. 112 was not material to the Partnership's
financial position or results of operations.
2. LIQUIDITY
The Partnership's ongoing cash needs will be to fund debt
service, capital expenditures and working capital needs.
As of September 30, 1994, the Partnership had $35,337,897 in
cash and cash equivalents, of which $30,852,983 was limited for
use at the operating level and the remaining $4,484,914 was the
Partnership's working capital.
California Cable
The Partnership engaged Merrill Lynch & Co. and Daniels &
Associates to assist it in marketing California Cable for sale.
In June 1994, California Cable invited potential purchasers to
bid for all or part of California Cable. Several bids were
received and analyzed by the Partnership, Merrill Lynch & Co.
and Daniels & Associates, and the Partnership is currently
involved in negotiations regarding the sale. The Partnership
may not be able to reach a final agreement with potential
purchasers on terms acceptable to the Partnership. If agreement
cannot be reached, the Partnership will attempt to refinance the
debt of the California Cable Systems and to hold them until an
acceptable opportunity arises to sell the properties. As
another alternative to a sale, the Partnership may consider
other strategic transactions to maximize the value of the
California Cable Systems, such as a joint venture or an
affiliation agreement with a larger multiple system operator.
As of September 30, 1994, due principally to the negative impact
of re-regulation on the operations of the California Cable
Systems, the Partnership was in default of a financial covenant
contained in the Revised ML California Cable Credit Agreement.
In addition, the Partnership presently estimates that it will be
unable to fully satisfy its currently scheduled principal
payments in 1995 under the revised ML California Cable Credit
Agreement due to the combined impact of the negative effect of
rate re-regulation and increasing scheduled principal payments.
The Partnership has requested that the lenders under the Revised
ML California Cable Credit Agreement waive the September 30,
1994 defaults and further amend the Revised ML California Cable
Credit Agreement to allow the Partnership, based on current
projections, to be in compliance under the proposed amended
agreement through December 31, 1996, during which period the
Partnership will
continue its efforts to sell the California Cable Systems.
There can be no assurance that the lenders will grant the
requested waiver and amendment. The Partnership is unable to
determine the impact of the loan defaults on its efforts to sell
the California Cable Systems, but does not expect such defaults
to have any impact on the sale. As a result of the defaults,
the lenders have the right to accelerate the maturity of the
indebtedness under the Revised ML California Cable Credit
Agreement and to foreclose on, or otherwise force a sale of, the
assets of the California Media Operations (but not the other
assets of the Partnership). The principal amount outstanding
under the Revised ML California Cable Credit Agreement is
$133,500,000 as of September 30, 1994.
In December 1993, the California Cable Systems received a
favorable decision with respect to a property tax appeal filed
with one county served by the California Cable Systems. The
county had the right to appeal the decision for a period of six
months. This period expired without appeal during the second
quarter of 1994. Also in December of 1993, the California Cable
Systems reached a favorable agreement in principle with a second
county served by the California Cable Systems where an appeal
relating to property taxes had also been filed. During 1994,
the California Cable Systems executed a settlement agreement and
finalized assessed property values with, and received a refund
of approximately $700,000 from, this second county. In part as
a result of these developments, the California Cable Systems
continue to expect to ultimately receive tax refunds, including
the amount already received, in a total amount approximately
equal to the previously reported December 31, 1993 reduction of
approximately $2.2 million in the California Cable Systems'
general and administrative expense.
WREX-KATC
On October 31, 1994, the Partnership retained The Ted Hepburn
Company to assist it in marketing WREX and KATC for sale.
Although it intends to sell one or both television stations, the
Partnership may not be able to reach final agreement(s) with
potential purchasers of one or both stations on terms acceptable
to the Partnership. If acceptable agreement(s) cannot be
reached, the Partnership will attempt to refinance the WREX-KATC
loan with a new lender.
During the first three quarters of 1994 and during 1993 and
1992, the Partnership defaulted on the majority of its quarterly
principal payments due under its WREX-KATC Loan. As of
September 30, 1994, WREX-KATC was in default of $5,030,373 in
principal, after giving effect to $782,127 in principal payments
made during 1993 and 1994, respectively, from cash generated by
the operations of WREX and KATC. WREX-KATC made an additional
principal payment of $125,000 at the beginning of the fourth
quarter of 1994 from cash generated by the operations of WREX
and KATC. The Partnership is not in default of any interest
payments under the WREX-KATC Loan. In addition, as of December
28, 1990 and continuing through September 30, 1994, the
Partnership was in default of financial covenants under its WREX-
KATC Loan. The lender granted waivers for the defaults as of
December 28, 1990. However, the lender has not granted waivers
for any subsequent defaults. As required by the terms of the
WREX-KATC Loan, subsequent to entering into the WREX-KATC Loan
in 1989, the Partnership advanced a total of $1.0 million to
WREX-KATC, including $10,000 in 1993.
The Partnership expects to experience future principal payment
and covenant defaults under the WREX-KATC Loan. The Partnership
sought unsuccessfully to restructure the WREX-KATC Loan and, as
discussed above, decided to sell WREX and KATC. The Partnership
does not currently intend to, nor is it obligated to, advance
any further working capital to WREX and KATC. The lender to
WREXKATC has informed the Partnership that it reserves all of
its rights and remedies under the WREX-KATC Loan agreement,
including the right to accelerate the maturity of the
indebtedness under the WREX-KATC Loan and to foreclose on, or
otherwise force a sale of, the assets of WREX and KATC (but not
the other assets of the Partnership.) Borrowings under the WREX-
KATC Loan are nonrecourse to the Partnership. The principal
amount outstanding under the WREX-KATC Loan is $23,467,873 as of
September 30, 1994.
Impact of Cable Legislation and Regulation
The future liquidity of the Partnership's cable operations,
California Cable and C-ML Cable, is likely to be negatively
affected by recent and ongoing changes in legislation and
regulation governing the cable industry. The potential impact of
such legislation and regulation on the Partnership is described
below.
On October 5, 1992, Congress overrode the President's veto of
the Cable Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act") which imposes significant new regulations on
the cable television industry. The 1992 Cable Act required the
development of detailed regulations and other guidelines by the
Federal Communications Commission ("FCC"), most of which have
now been adopted but remain subject to petitions for
reconsideration before the FCC and/or court of appeals.
In the area of rate regulation, the 1992 Cable Act established
an entirely new regulatory scheme. As an initial effort to
implement this scheme, the FCC, on May 3, 1993, released a
Report and Order ("Rate Order") containing new rules and
regulations governing the rates for certain cable television
services and equipment. The new rules, among other things, set
certain benchmarks which will enable local franchise authorities
to require rates for "basic service" (minimally, local broadcast
and access channels) and the FCC (upon receipt of individual
complaints) to require rates for certain satellite program
services (excluding premium channels) to fall approximately 10%
from September 30, 1992 levels, unless the cable operator was
already charging rates that were at a so-called "competitive"
benchmark level or it could justify a higher rate based on a
costof-service showing. Rates of all regulated cable systems
will then be subject to a price cap that will govern the extent
to which rates can be raised in the future without a cost-of-
service showing. The rules announced in May, 1993, became
effective on September 1, 1993, but remained subject to
considerable debate and uncertainty as several major issues and
FCC proceedings awaited resolution.
On February 22, 1994, the FCC adopted a series of additional
measures that expand and substantially alter its cable rate
regulations. The major additional actions taken by the FCC
include the following: (1) a modification of its benchmark
methodology in a way which will effectively require cable rates
to be reduced, on average, and with certain possible exceptions,
an additional 7% (i.e., beyond the 10% reduction previously
ordered in 1993) from their September 30, 1992 level or, for a
transitional period, to newly derived "benchmark" levels if that
results in less of a reduction; (2) the issuance of new
standards and requirements to be used in making cost-of-service
showings by cable operators who seek to justify rates above the
levels determined by the benchmark approach; and (3) the
clarification
and/or reaffirmation of a number of "going forward" issues that
had been the subject of various petitions for reconsideration of
its May 3, 1993 Rate Order. Several weeks earlier, and partly
in anticipation of these actions, the FCC extended its industry-
wide freeze on rates for regulated cable services until May 15,
1994. The new benchmark standards and certain interim cost-of-
service rules became effective May 15, 1994.
In deciding to substantially revise its benchmark methodology
for regulated cable rates, the FCC has actually created two
benchmark systems. Thus, whereas the modified rate regulations
adopted on February 22, 1994 became effective as of May 15,
1994, regulated rates in effect before that date will continue
to be governed by the old benchmark system.
In its May 1993 Rate Order the FCC exempted from rate regulation
the price of packages of "a la carte" channels if certain
conditions were met. Upon reconsideration, however, the FCC on
February 22, 1994 effectively tightened its regulatory treatment
of "a la carte" packages by establishing more elaborate criteria
designed to ensure that such practices are not employed so as to
unduly evade rate regulation. Now, when assessing the
appropriate regulatory treatment of "a la carte" packages, the
FCC will consider, inter alia, the following factors as possibly
suggesting that such packages do not qualify for non-regulated
treatment: whether the introduction of the package avoids a
rate reduction that otherwise would have been required under the
FCC's rules; whether an entire regulated tier has been
eliminated and turned into an "a la carte" package; whether a
significant number or percentage of the "a la carte" channels
were removed from a regulated service tier; whether the package
price is deeply discounted when compared to the price of an
individual channel; and whether the subscriber must pay
significant equipment or other charges to purchase an individual
channel in the package. In addition, the FCC will consider
factors that will reflect in favor of non-regulated treatment
such as whether the channels in the package have traditionally
been offered on an "a la carte" basis or whether the subscriber
is able to select the channels that comprise the "a la carte"
package. "A la carte" packages which are found to evade rate
regulation rather than enhance subscriber choice will be treated
as regulated tiers, and operators engaging in such practices may
be subject to forfeitures or other sanctions by the FCC. Local
franchising authorities may make the initial determination as to
whether such offerings should be treated as regulated or
unregulated.
In a separate action on February 22, 1994, the FCC adopted
interim rules to govern cost-of-service proceedings initiated by
cable operators. Operators who elect to pursue cost-of-service
proceedings will have their rates based on their allowable
costs, in a proceeding based on principles similar to those that
govern cost-based rate regulation of telephone companies. Under
this methodology, cable operators may recover, through the rates
they charge for regulated cable service, their normal operating
expenses and a reasonable return on investment. The FCC has,
for these purposes, established an interim industry-wide rate of
return of 11.25%. It has also determined that acquisition costs
above book value are presumptively excluded from the rate base.
At the same time, certain intangible, above-book costs, such as
start-up losses (limited to losses actually incurred during a
twoyear start-up period) and the costs of obtaining franchise
rights and some start-up organizational costs such as customer
lists, may be allowed. There are no threshold requirements
limiting the cable systems eligible for a cost-of-service
showing, except that, once rates have been set pursuant to a
cost-of-service approach, cable operators may not file a new
cost-of-service
showing to justify new rates for a period of two years.
Finally, the FCC notes that it will, in certain individual
cases, consider a special hardship showing (or the need for
special rate relief) where an operator demonstrates that the
rates set by a cost-ofservice proceeding would constitute
confiscation of investment and that some higher rate would not
represent exploitation of customers. In considering whether to
grant such a request, the FCC emphasizes that, among other
things it would examine the overall financial condition of the
operator and whether there is a realistic threat of termination
of service. The FCC has received comments on these interim
rules and its proposal to adopt them as final rules.
On November 10, 1994, the FCC adopted new "going forward" rules
and further tightened its regulation of a la carte packages.
The full text of this decision has not yet been released.
Based on the official FCC News Release, these new rules allow
operators to pass through the costs, plus a 20 cent per channel
mark-up, for channels newly added to regulated tiers. Through
1996, however, operators will be subject to an aggregate $1.50
cap on the amount they may increase cable program service tier
rates due to channel additions. The FCC also established a
"new products tier" intended to provide operators unregulated
pricing and packaging flexibility, particularly for newer
services, so long as they preserve the fundamental nature of
their preexisting regulated tiers. Outside of the "new
products" approach, however, the Commission reversed its
approach to a la carte packages and ruled that all (non-
premium) packages of services -- even if also available on an a
la carte basis -- would be treated as a regulated tier.
The Partnership is currently unable to assess the full impact
of the FCC's further rate regulation decisions and the 1992
Cable Act generally upon its business prospects or future
financial results. However, the rate reductions mandated by the
FCC in May of 1993 and February of 1994 have had, and will most
likely continue to have, a detrimental impact on the revenues
and profits of the Partnership's cable television operations.
Although the impact of the 1992 Cable Act and certain recent
FCC actions cannot yet be ascertained precisely, certain
aspects of the new law may have a material negative impact on
the financial condition, liquidity, and value of the
Partnership.
In addition, the Partnership is currently unable to determine
the impact of the FCC actions on its ability to sell the
California Cable Systems or the potential timing and value of
such a sale. However, as discussed below, the FCC actions have
had, and will have, a detrimental impact on the revenues and
profits of the California Cable Systems.
As an example of the effects of the 1992 Cable Act, in
complying with the benchmark regulatory scheme without
considering the effect of any future potential cost-of-service
showing, the Partnership's California Cable Systems, on a
franchise by franchise basis, were required to reduce present
combined basic service rates (broadcast tier and satellite
service tier) effective September 1, 1993, and again effective
July 14, 1994. In addition, pursuant to the 1992 Cable Act,
revenue from secondary outlets and from remote control units
was eliminated or reduced significantly. At that time, the
Partnership began instituting charges for converters, as
permitted by the 1992 Cable Act, offering programming services
on an a-la-carte basis, which services are not subject to rate
regulation, and aggressively marketing unregulated premium
services to those subscribers benefiting from decreased basic
rates. Despite the institution of these actions by the
California Cable Systems, the
May, 1993 and February, 1994 rate regulations enacted pursuant
to the 1992 Cable Act had a detrimental impact on the revenues
and profits of the California Cable Systems. For example, for
the first nine months of 1994, the revenues of the California
Cable Systems were flat compared to the same period in 1993
after having increased in every previous year. Any limits
imposed by the FCC on a-la-carte pricing will have a further
detrimental impact on those revenues and profits.
The Partnership is currently unable to ascertain the full
impact of the February 22, 1994 FCC action and previous FCC
actions on the Puerto Rico Systems. While the impact of a
September 1, 1993 rate and tier restructuring to comply with
the 1992 Cable Act did not have a significant negative impact
on the revenues and profits of C-ML Cable, the February 22,
1994 FCC action had a detrimental impact on the revenues and
profits of C-ML Cable. For example, while the revenues of the C-
ML Cable systems increased in the first nine months of 1994
compared to the same period in 1993, revenues of the C-ML Cable
Systems were flat in the third quarter of 1994 compared to the
third quarter of 1993. However, the Partnership does not
presently anticipate that this reduced rate of revenue growth
will result in any defaults under the C-ML Notes or the C-ML
Revolving Credit Agreement during 1994 and 1995. There were no
defaults under the C-ML Notes or the CML Revolving Credit
Agreement at September 30, 1994.
WINCOM-WEBE-WICC
The Partnership was in compliance with all terms of its WINCOM
WEBE-WICC loan at September 30, 1994.
Summary
Based upon a review of the current financial performance of the
Partnership's investments, the Partnership continues to monitor
its working capital level. The Partnership does not have
sufficient cash to meet all of the contractual debt obligations
of all of its investments, nor is it obligated to do so. As
discussed above, the Partnership does not currently expect to,
nor is it obligated to, advance any of its unrestricted working
capital to WREX and KATC.
3. ADDITIONAL INFORMATION
Additional information, including the audited year end 1993
Financial Statements and the Summary of Significant Accounting
Policies, is included in the Partnership's filing on Form 10-K
for the year ended December 31, 1993 on file with the
Securities and Exchange Commission.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
As of September 30, 1994, Registrant had $35,337,897 in cash
and cash equivalents, of which $30,852,983 was limited for use
at the operating level and the remaining $4,484,914 was
Registrant's working capital.
California Cable
Registrant engaged Merrill Lynch & Co. and Daniels & Associates
to assist it in marketing California Cable for sale. In June
1994, California Cable invited potential purchasers to bid for
all or part of California Cable. Several bids were received
and
analyzed by Registrant, Merrill Lynch & Co. and Daniels &
Associates, and Registrant is currently involved in
negotiations regarding the sale. Registrant may not be able to
reach a final agreement with potential purchasers on terms
acceptable to Registrant. If agreement cannot be reached,
Registrant will attempt to refinance the debt of the California
Cable Systems and to hold them until an acceptable opportunity
arises to sell the properties. As another alternative to a
sale, Registrant may consider other strategic transactions to
maximize the value of the California Cable systems, such as a
joint venture or an affiliation agreement with a larger
multiple system operator.
As of September 30, 1994, due primarily to the negative impact
of rate re-regulation on the operations of the California Cable
Systems, Registrant was in default of a financial covenant
contained in the Revised California Cable Credit Agreement. In
addition, Registrant presently estimates that it will be unable
to fully satisfy its currently scheduled principal payments in
1995 under the Revised California Cable Credit Agreement, due
to the combined impact of the negative effects of rate
regulation and increasing scheduled principal payments.
Registrant has requested that the lenders under the Revised ML
California Cable Credit Agreement waive the September 30, 1994
default and further amend the Revised ML California Cable
Credit Agreement to allow Registrant, based on current
projections, to be in compliance under the proposed amended
agreement through December 31, 1996, during which period
Registrant will continue its efforts to sell the California
Cable Systems. There can be no assurance that the lenders will
grant the requested waiver and amendment. The Partnership is
unable to determine the impact of the loan defaults on its
efforts to sell the California Cable Systems, but does not
expect such defaults to have any impact on the sale. As a
result of the defaults, the lenders have the right to
accelerate the maturity of the indebtedness under the Revised
ML California Cable Credit Agreement and to foreclose on, or
otherwise force a sale of, the assets of the California Media
Operations (but not the other assets of the Registrant). The
principal amount outstanding under the Revised ML California
Credit Agreement is $133,500,000 at September 30, 1994.
In December 1993, the California Cable Systems received a
favorable decision with respect to a property tax appeal filed
with one county served by the California Cable Systems. The
county had the right to appeal the decision for a period of six
months. This period expired without appeal during the second
quarter of 1994. Also in December of 1993, the California
Cable Systems reached a favorable agreement in principle with a
second county served by the California Cable Systems where an
appeal relating to property taxes had also been filed. During
1994, the California Cable Systems executed a settlement
agreement and finalized assessed property values with, and
received a refund of approximately $700,000 from, this second
county. In part as a result of these developments, the
California Cable Systems continue to expect to ultimately
receive tax refunds, including the amount already received, in
a total amount approximately equal to the previously reported
December 31, 1993 reduction of approximately $2.2 million in
the California Cable Systems' general and administrative
expense.
WREX-KATC
On October 31, 1994, Registrant retained The Ted Hepburn
Company to assist it in marketing WREX and KATC for sale.
Although it intends to sell one or both television stations,
Registrant may not be able to reach final agreement(s) with
potential purchasers of one or both stations on terms
acceptable to Registrant. If
acceptable agreement(s) cannot be reached, Registrant will
attempt to refinance the WREX-KATC loan with a new lender.
During the first three quarters of 1994 and during 1993 and
1992, Registrant defaulted on the majority of its quarterly
principal payments due under its WREX-KATC Loan. As of
September 30, 1994, WREX-KATC was in default of $5,030,373 in
principal, after giving effect to $782,127 in principal
payments made during 1993 and 1994, respectively, from cash
generated by the operations of WREX and KATC. WREX-KATC made
an additional such principal payment of $125,000 at the
beginning of the fourth quarter of 1994. Registrant is not in
default of any interest payments under the WREX-KATC Loan. In
addition, as of December 28, 1990 and continuing through
September 30, 1994, Registrant was in default of financial
covenants under its WREX-KATC Loan. The lender granted waivers
for the defaults as of December 28, 1990. However, the lender
has not granted waivers for any subsequent defaults. As
required by the terms of the WREX-KATC Loan, subsequent to
entering into the WREX-KATC Loan in 1989, Registrant advanced a
total of $1.0 million to WREX-KATC, including $10,000 in 1993.
Registrant expects to experience future payment and covenant
defaults under the WREX-KATC Loan. Registrant sought
unsuccessfully to restructure the WREX-KATC Loan and, as
discussed above, decided to sell WREX and KATC. Registrant
does not intend to, nor is it obligated to, advance any further
working capital to WREX and KATC. The lender to WREX-KATC has
informed Registrant that it reserves all of its rights and
remedies under the WREX-KATC Loan agreement, including the
right to accelerate the maturity of the indebtedness under the
WREXKATC Loan and to foreclose on, or otherwise force a sale
of, the assets of WREX and KATC (but not the other assets of
Registrant). Borrowings under the WREX-KATC Loan are
nonrecourse to Registrant. The principal amount outstanding
under the WREX-KATC Loan is $23,467,873 as of September 30,
1994.
WINCOM-WEBE-WICC
Registrant was in compliance with all terms of its Wincom-WEBE
WICC loan at September 30, 1994.
Impact of Cable Legislation and Regulation
Refer to discussion in Item 1. Financial Statements (Note 2).
Summary
Based upon a review of the current financial performance of
Registrant's investments, Registrant continues to monitor its
working capital level. Registrant does not have sufficient
cash to meet all of the contractual debt obligations of all of
its investments, nor is it obligated to do so. As discussed
above, Registrant does not currently expect to, nor is it
obligated to, advance any of its unrestricted working capital
to WREX and KATC.
Results of Operations
For the thirteen week periods ended September 30, 1994 and
September 24, 1993:
During the thirteen week periods ended September 30, 1994 and
September 24, 1993, Registrant had total operating revenues of
approximately $26.3 million and $25.5 million, respectively.
The approximate $0.8 million increase was due in part to the
consolidation of the operating results (approximately $0.7
million in third quarter revenue) of Registrant's 50% interest
in the C-ML Radio properties following the transfer of C-ML
Radio's assets to the Revised Venture on January 1, 1994. (The
operating results of the C-ML Radio properties were not
consolidated into Registrant's operating results in 1993 as
Registrant's 49.999% interest in the C-ML Radio properties was
carried under the equity method during 1993). This increase,
combined with increases at Registrant's television properties
and its remaining radio stations (excluding the Indianapolis
radio stations, which were sold in the fourth quarter of 1993),
slightly offset declines in revenues at Registrant's California
Cable.
Revenues decreased by approximately $0.3 million at California
Cable. The decrease in revenue at California Cable resulted
primarily from a decrease in basic revenues, and secondarily
from lower pay-per-view revenues. Average basic subscribers at
California Cable increased to 134,305 during the third quarter
of 1994 from 132,296 for the same period in 1993. In addition,
total basic subscribers increased to 134,910 at the end of the
third quarter of 1994 from 133,700 at the end of the second
quarter, due to successful marketing efforts and the extension
of cable plant to pass additional homes. Although subscriber
levels increased, average basic revenues per subscriber were
lower in the third quarter of 1994 than in the third quarter of
1993 (due to the FCC-mandated rate reductions), resulting in
lower basic revenues. Reversing recent trends, California
Cable experienced growth in premium subscribers during the
third quarter of 1994 due to heavy promotional efforts and
reduced promotional rates. While average premium subscriptions
declined to 74,451 in the third quarter of 1994 from 78,271 for
the same period in 1993, California Cable reported an increase
in premium subscriptions to 76,318 at the end of the third
quarter of 1994 from 72,583 at the end of the second quarter.
Revenues at C-ML Cable were flat from year to year as higher
average revenues per subscriber (following a 1993 rate
restructuring to comply with rate re-regulation) were offset by
the impact of lower average levels of basic and premium
subscribers (due in part to negative customer reaction to a
restructuring of C-ML Cable's rates and services in the second
half of 1993). Although the average level of basic subscribers
at C-ML Cable decreased from the third quarter of 1993 to the
third quarter of 1994, the number of basic subscribers
increased from 106,979 at the end of the second quarter of 1994
to 108,200 at the end of the third quarter of 1994 due to
successful marketing efforts. The number of premium
subscribers at C-ML Cable decreased from 66,896 at the end of
the second quarter of 1994 to 66,642 at the end of the third
quarter of 1994 due to weakness in the local economy, (which
was exacerbated by a severe drought, which has since ended), as
well as to continuing industry-wide softness in subscriber
demand for premium services.
Television stations KATC and WREX reported a combined increase
of approximately $0.4 million in revenue primarily as a result
of stronger local and political revenues at both stations as
well as higher national revenue at KATC. The Wincom-WEBE-WICC
radio group reported flat revenue as increased advertising
revenues at WICC, WEBE and WQAL were offset by revenues lost
due to the sale (at the beginning of the fourth quarter of
1993) of the Indianapolis radio stations.
During the third quarter of 1994 and 1993, Registrant incurred
property operating expenses of approximately $9.7 million and
$8.7 million, respectively, in connection with the operation of
its cable, radio and television properties. Registrant's total
property operating expenses increased by approximately $1.0
million from year to year as a result of: an increase of
approximately $0.5 million at the combined cable and radio
operations of the Revised Venture, due primarily to the
consolidation of the 1994 third quarter operating results of
the Revised Venture's radio properties; an increase of
approximately $0.5 million at California Cable due in part to
higher copyright fees associated with rate and service
restructurings in response to re-regulation, and an increase of
approximately $0.2 million at the Wincom-WEBE-WICC group due
primarily to higher costs on WEBE and WICC resulting from
increased sales commissions and bad debt expense associated
with higher revenues. Other increases or decreases in property
operating expenses at Registrant's other properties were
immaterial, either individually or in the aggregate.
During the third quarter of 1994 and 1993, Registrant incurred
general and administrative expenses of approximately $5.3
million and $6.2 million, respectively. Registrant's total
general and administrative expenses decreased by approximately
$0.9 million from year to year as a result of a decrease of
approximately $0.4 million at the Wincom-WEBE-WICC radio group
due primarily to the sale of the Indianapolis Stations at the
beginning of the fourth quarter of 1993 and a decrease at
California Cable of approximately $0.4 million due in part to
lower insurance expense. The remaining increases or decreases
in general and administrative expenses at Registrant's other
properties were immaterial, either individually or in the
aggregate.
Interest expense of approximately $4.2 million and $3.6 million
in the third quarter of 1994 and 1993, respectively, represents
the cost incurred for borrowed funds utilized to acquire
various media properties. The approximately $0.6 million
increase in interest expense is due primarily to the effect of
higher floating interest rates on outstanding borrowings under
the Revised ML California Cable Credit Agreement.
Registrant's depreciation and amortization expense totaled
approximately $7.5 million and $7.6 million in the third
quarter of 1994 and 1993, respectively. Registrant's total
depreciation and amortization expense decreased by
approximately $0.1 million from year to year, due to a decrease
of approximately $0.4 million at KATC due to certain equipment
becoming fully depreciated during the first quarter of 1994,
partially offset by an increase of approximately $0.3 million
at California Cable, primarily as a result of capital
expenditures. The remaining increases or decreases in
depreciation and amortization expense at Registrant's other
properties were immaterial, either individually or in the
aggregate.
For the thirty-nine week periods ended September 30, 1994 and
September 24, 1993:
During the thirty-nine week periods ended September 30, 1994
and September 24, 1993, Registrant had total operating revenues
of approximately $78.3 million and $74.5 million, respectively.
The approximate $3.8 million increase was partially due to the
consolidation of the first three quarters operating results
(approximately $2.0 million in revenue) of Registrant's 50%
interest in the C-ML Radio properties following the transfer of
CML Radio's assets to the Revised Venture on January 1, 1994.
(The operating results of the C-ML Radio properties were not
consolidated into Registrant's operating results in 1993 as
Registrant's 49.999% interest in the C-ML Radio properties was
carried under the equity method during 1993). This increase,
combined with increases at Registrant's C-ML Cable cable
systems, its television properties and its remaining radio
stations
(excluding the Indianapolis radio stations, which were sold in
the fourth quarter of 1993), outweighed slight declines in
revenues at Registrant's California Cable Systems.
Revenues decreased slightly at California Cable. The decrease
in revenue at California Cable resulted primarily from lower
basic and pay-per-view revenues and secondarily from lower
premium revenues. Average basic subscribers at California
Cable increased to 133,370 during the first nine months of 1994
from 132,502 for the same period in 1993. In addition, total
basic subscribers increased to 134,910 at the end of the third
quarter of 1994, from 131,830 at the end of 1993, due to
successful marketing efforts and the extension of cable plant
to pass additional homes. Although subscriber levels
increased, average basic revenues per subscriber were lower in
the first nine months of 1994 than in the first nine months of
1993 (due to the FCCmandated rate reductions), causing basic
revenues to decline. Reversing recent trends, California Cable
experienced growth in premium subscriber levels during the
first nine months of 1994 due to heavy promotional efforts and
reduced promotional rates, especially during the third quarter.
Premium subscriptions increased to 76,318 at the end of the
third quarter of 1994 from 73,625 at the end of 1993. However,
average premium subscriptions declined to 74,972 in the first
nine months of 1994 from 78,871 for the same period in 1993,
causing premium revenues to decline.
Revenues at C-ML Cable increased by approximately $1.0 million
from year to year, as lower average levels of basic and premium
subscribers (due in part to negative customer reaction to a
restructuring of C-ML Cable's services in the second half of
1993) were more than offset by higher average revenues per
subscriber (following a 1993 rate and service restructuring to
comply with re-regulation). Although the average level of
basic subscribers at C-ML Cable decreased from the first nine
months of 1993 to the first nine months of 1994, the number of
basic subscribers increased from 104,677 at the end of 1993 to
108,200 at the end of the third quarter of 1994 due to
successful marketing efforts. The number of premium
subscribers at C-ML Cable decreased from 69,319 at the end of
1993 to 66,642 at the end of the third quarter of 1994 due to
weakness in the local economy (which was exacerbated by a
severe drought, which has since ended), as well as to
continuing industry-wide softness in subscriber demand for
premium services.
Television stations KATC and WREX reported a combined increase
of approximately $1.0 million in revenue, primarily as a result
of stronger local, national and political revenues at both
stations. The Wincom-WEBE-WICC radio group reported a net
decrease in revenue of approximately $0.2 million, as increased
advertising revenues at WICC, WEBE and WQAL were offset by
approximately $0.8 million in revenues lost due to the sale of
the Indianapolis radio stations at the beginning of the fourth
quarter of 1993.
During the first thirty-nine weeks of 1994 and 1993, Registrant
incurred property operating expenses of approximately $28.6
million and $26.2 million, respectively, in connection with the
operation of its cable, radio and television properties.
Registrant's total property operating expenses increased by
approximately $2.4 million from year to year as a result of: an
increase of approximately $1.5 million at the combined cable
and radio operations of the Revised Venture, due primarily to
the consolidation of the first three quarters operating results
of the Revised Venture's radio properties; and an increase of
approximately $1.6 million at California Cable due in part to
higher copyright fees associated with rate and service
restructurings in response to re-regulation partially offset by
a combined decrease of approximately $0.5 million at the Wincom
WEBE-WICC group due to the sale of the Indianapolis Stations at
the beginning of the fourth quarter of 1993. Other increases
or decreases in property operating expenses at Registrant's
other properties were immaterial, either individually or in the
aggregate.
During the first thirty-nine weeks of 1994 and 1993, Registrant
incurred general and administrative expenses of approximately
$15.7 million and $17.0 million, respectively. Registrant's
total general and administrative expenses decreased by
approximately $1.3 million from year to year as a result of: a
decrease of approximately $0.7 million at the Wincom-WEBE-WICC
radio group, due primarily to the sale of the Indianapolis
Stations at the beginning of the fourth quarter of 1993; a
decrease at California Cable of approximately $1.0 million,
primarily due in part to lower insurance expense. These
decreases were partially offset by a $0.3 million increase at
the combined cable and radio operations of the Revised Venture,
due to the consolidation of the first three quarters' operating
results of the Revised Venture's radio properties; and a
combined increase of approximately $0.2 million at WREX and
KATC due primarily to increases in health insurance expense.
The remaining increases or decreases in general and
administrative expenses at Registrant's other properties were
immaterial, either individually or in the aggregate.
Interest expense of approximately $11.3 million and $13.7
million in the first thirty-nine weeks of 1994 and 1993,
respectively, represents the cost incurred for borrowed funds
utilized to acquire various media properties. The
approximately $2.4 million decrease in interest expense is due
to: (1) the expiration of unfavorable interest rate hedge
agreements pursuant to, and lower average outstanding
borrowings under, the Revised ML California Cable Credit
Agreement, (approximately $1.0 million) and (2) lower average
outstanding borrowings and amortization of a portion of the
Series C Term Loan forgiveness under the WincomWEBE-WICC
Restructuring Agreement (approximately $0.7 million); partially
offset by a combined increase of approximately $0.1 million at
WREX and KATC due to generally higher floating interest rates.
Registrant's depreciation and amortization expense totaled
approximately $22.7 million in the first thirty-nine weeks of
both 1994 and 1993, as increases of approximately $0.9 million
at California Cable, primarily as a result of capital
expenditures, and approximately $0.2 million at the combined
cable and radio operations of the Revised Venture, due
primarily to the consolidation of the first three quarters
operating results of the Revised Venture's radio properties,
were offset by decreases of approximately $1.0 million at KATC,
due to certain equipment becoming fully depreciated during the
first quarter of 1994, and approximately $0.2 million at
Wincom, due to the sale of the Indianapolis Stations at the
beginning of the fourth quarter of 1993. The remaining
increases or decreases in depreciation and amortization expense
at Registrant's other properties were immaterial, either
individually or in the aggregate.
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
Reference is hereby made to Part I Item 1. Financial
Statements Footnote 2. Liquidity.
Item 5. Other Information
none.
Item 6. Exhibits and Reports on Form 8-K
none.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ML MEDIA PARTNERS, L.P.
By: Media Management Partners
General Partner
By: ML Media Management Inc.
Dated: November ___, 1994 /s/ Kevin K. Albert
Kevin K. Albert
Director and President
Dated: November ___, 1994 /s/ Robert F. Aufenanger
Robert F. Aufenanger
Director and Executive
Vice President
Dated: November ___, 1994 /s/ David G. Cohen
David G. Cohen
Treasurer
(principal financial
officer and principal
accounting officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of Registrant in the capacities and on the
dates indicated.
ML MEDIA PARTNERS, L.P.
By: Media Management Partners
General Partner
By: RP Media Management
Dated: November ___, 1994 /s/ I. Martin Pompadur
I. Martin Pompadur President,
Secretary and Director
(principal executive officer)
