-30-
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
July 1, 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 .
ML MEDIA PARTNERS, L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TABLE OF CONTENTS
Page
Consolidated Balance Sheets as of July 1, 1994 (Unaudited)
and December 31, 1993 (Unaudited) 3-4
Consolidated Statements of Operations for the Thirteen and
Twenty-Six Week Periods Ended July 1, 1994 (Unaudited) and
June 25, 1993 (Unaudited) 5
Consolidated Statements of Cash Flows for the Twenty-Six
Week Periods Ended July 1, 1994 (Unaudited) and June 25,
1993 (Unaudited) 6-8
Notes to the Consolidated Financial Statements for the
Twenty-Six Week Period Ended July 1, 1994 (Unaudited) 9-16
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF JULY 1, 1994 (UNAUDITED) AND DECEMBER 31, 1993 (UNAUDITED)
July 1, December 31,
Notes 1994 1993
ASSETS:
Cash and cash equivalents 2 $31,987,160 $26,916,477
Accounts receivable (net
of allowance for doubtful
accounts of $762,121 at July
1, 1994 and $677,188 at
December 31, 1993) 10,668,123 9,286,116
Prepaid expenses and
deferred charges (net of
accumulated amortization of
$8,211,658 at July 1, 1994,
and $7,241,088 at December
31, 1993) 3,256,943 4,399,276
Property, plant and
equipment(net of accumulated
depreciation of $114,011,410
at July 1, 1994 and
$104,955,637 at December 31,
1993) 2 88,585,311 92,400,494
Intangible assets (net
of accumulated amortization
of $116,963,740 at July 1,
1994 and $111,069,407 at
December 31, 1993)
2 107,715,091 111,146,204
Other assets 1,676,575 5,703,370
TOTAL ASSETS $243,889,203 $249,851,937
LIABILITIES AND PARTNERS'
DEFICIT:
Liabilities:
Borrowings 2 $226,393,349 $232,568,349
Accounts payable and
accrued liabilities 30,373,017 29,989,412
Subscriber advance payments 2,133,624 2,102,082
Total Liabilities 258,899,990 264,659,843
(Continued on the following page)
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF JULY 1, 1994 (UNAUDITED) AND DECEMBER 31, 1993 (UNAUDITED)
(continued)
July 1, December 31,
Notes 1994 1993
Partners' Deficit:
General Partner:
Capital contributions,
net of offering
expenses 1 1,708,299 1,708,299
Cumulative loss (1,795,489) (1,793,460)
(87,190) (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 (177,753,288) (177,552,436)
(14,923,597) (14,722,745)
Total Partners' Deficit (15,010,787) (14,807,906)
TOTAL LIABILITIES AND
PARTNERS' DEFICIT $ 243,889,203 $ 249,851,937
See Notes to Consolidated Financial Statements (Unaudited).
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED JULY 1, 1994
(UNAUDITED) AND JUNE 25, 1993 (UNAUDITED)
Thirteen Weeks Twenty-Six Weeks
July 1, 1994 June 25, 1993 July 1, 1994 June 25, 1993
REVENUES:
Operating
revenue $26,770,024 $25,394,415 $51,738,671 $48,810,499
Interest 214,201 157,793 383,132 257,864
Gains on
sales of
asset 2,600 -- 126,236 --
Total
revenues 26,986,825 25,552,208 52,248,039 49,068,363
COSTS AND
EXPENSES:
Property
operating 9,741,828 8,681,211 18,939,046 17,465,426
General and
adminis-
trative 5,269,637 5,429,224 10,415,647 10,745,115
Depreciation
and amorti-
zation 7,542,525 7,404,051 15,144,060 15,010,136
Interest
expense 3,734,850 4,830,500 7,156,251 10,127,740
Management
fees 397,958 397,958 795,916 795,916
Total costs
and
expenses $26,686,798 $26,742,944 $52,450,920 $54,144,333
NET INCOME/-
(LOSS) $ 300,027 $(1,190,736) $ (202,881) $(5,075,970)
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
NET INCOME/-
(LOSS) $ 1.58 $ (6.27) $ (1.07) $ (26.73)
Number of 187,994 187,994 187,994 187,994
Units
See Notes to Consolidated Financial Statements (Unaudited).
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIODS ENDED JULY 1, 1994 (UNAUDITED) AND
JUNE 25, 1993 (UNAUDITED)
July 1, June 25,
1994 1993
Increase (Decrease) in Cash and
Cash Equivalents:
Cash flows from operating
activities:
Net loss $ (202,881) $ (5,075,970)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation and amortization 15,038,237 15,010,136
Bad debt expense 198,578 253,917
Equity in earnings of joint
venture -- (39,797)
Gain on sale of assets (126,236) --
Change in operating assets and
liabilities:
Increase in accounts receivable (1,000,566) (1,867,581)
Decrease/(increase)in prepaid
expenses and deferred charges (140,449) (103,358)
Decrease in other assets 4,201 304,859
Increase in accounts payable and
accrued liabilities 383,605 226,335
Increase in subscriber advance
payments 31,542 120,921
Net cash provided by operating
activities 14,186,031 8,829,462
(Continued on the following page)
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIODS ENDED JULY 1, 1994 (UNAUDITED)
AND JUNE 25, 1993 (UNAUDITED)
(continued)
July 1, June 25,
1994 1993
Cash flows from investing
activities:
Proceeds from sale of assets 247,223 --
Purchase of property, plant
and equipment (4,263,341) (4,480,370)
Changes to intangible assets 1,075,770 (300,988)
Net cash used in investing
activities (2,940,348) (4,781,358)
Cash flows from financing
activities:
Principal payments on bank
loans (6,175,000) (3,000,000)
Proceeds from borrowings -- 1,448,505
Net cash used in financing
activities (6,175,000) (1,551,495)
Net increase in cash and cash
equivalents 5,070,683 2,496,609
Cash and cash equivalents at
the beginning of year 26,916,477 19,930,098
Cash and cash equivalents at
end of year $31,987,160 $22,426,707
Cash paid for interest $ 7,370,893 $ 9,403,832
(Continued on the following page)
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 TWENTY-SIX WEEK PERIOD ENDED JULY 1, 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.
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 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 was made pursuant to a Transfer of Assets and
Assumption of Liabilities Agreement, which 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 July 1, 1994, the Partnership had $31,987,160 in cash and
cash equivalents, of which $27,439,295 was limited for use at the
operating level and the remaining $4,547,865 was the
Partnership's working capital.
The Partnership engaged Merrill Lynch & Co. and Daniels &
Associates to assist it in marketing California Cable. 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.
Impact of Cable Legislation
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 governing
the cable industry. The potential impact of such legislation 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 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 is
already charging rates that are at a so-called "competitive"
benchmark level or it can justify a higher rate based on a cost-
of-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 full text of these further measures was,
however, not released until March 30, 1994.) 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; (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 two-
year 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-of-
service 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 is in the
process of receiving comments on these interim rules and proposes
to adopt them as final rules.
The Partnership is currently unable to assess the full impact of
the FCC's further rate regulation decisions released on March 30,
1994, 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 have had, and will
most likely continue to have, a detrimental impact on the
revenues and profits of the Partnership's cable television
operations. In addition, the rate reductions and limits on the
pricing of a-la-carte cable services announced on February 22,
1994 (and released March 30, 1994) are likely to have a further
detrimental impact on those revenues and profits. Although the
impact of the 1992 Cable Act and certain recent FCC actions
cannot yet be ascertained precisely, once fully implemented,
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 February 22, 1994 FCC action and previous 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.
California Cable
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. 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 rate regulations enacted
pursuant to the 1992 Cable Act had a detrimental impact on the
revenues and profits of the California Cable Systems. The
further rate reduction mandated by the February 22, 1994 FCC
action and any limits imposed by such action on a-la-carte
pricing will have a further detrimental impact on those revenues
and profits.
In December 1993, the California Systems received a favorable
decision with respect to a property tax appeal filed with one
county served by the California 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 Systems reached a
favorable agreement in principle with a second county served by
the California Systems where an appeal relating to property taxes
had also been filed. During 1994, the California Systems
executed a settlement agreement and finalized assessed property
values with this second county. In part as a result of these
developments, the California Systems continue to expect to
ultimately receive tax refunds in an amount approximately equal
to the previously reported approximately $2.2 million December
31, 1993 reduction in the California Systems' general and
administrative expense.
As of July 1, 1994, the Partnership was in compliance with all
covenants under the revised ML California Credit Agreement (the
"Revised ML California Credit Agreement"). However, particularly
in light of the February 22, 1994 FCC action, it is likely that
the Partnership will experience covenant defaults under the
Revised ML California Credit Agreement during 1994.
C-ML Cable
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, it is likely that the February 22, 1994
FCC action will have a detrimental impact on the revenues and
profits of the Puerto Rico Systems. The Partnership does not
expect that this likely detrimental impact will result in any
defaults under the C-ML Notes or the C-ML Revolving Credit
Agreement during 1994.
WREX-KATC
During the first half of 1994 and during 1993 and 1992, the
Partnership defaulted on the quarterly principal payments due
with respect to its WREX-KATC Loan. As of July 1, 1994, WREX-
KATC was in default of $4,342,873 in principal, after giving
effect to $782,127 in principal payments made during 1993 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 July 1, 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, and is seeking to
restructure the WREX-KATC Loan. The Partnership has engaged The
Blackstone Group as its restructuring advisor, to be utilized
when deemed necessary, in the Partnership's efforts to
restructure the WREX-KATC Loan with the lender. The outcome of
these restructuring efforts cannot be predicted at this time, but
the Partnership does not intend to, nor is it obligated to,
advance any further working capital to WREX and KATC, although it
may possibly choose to in the context of a successful
restructuring of the WREX-KATC Loan. The lender 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.
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
advance any of its unrestricted working capital to WREX and KATC,
although it may possibly choose to in the context of a successful
restructuring.
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 July 1, 1994, Registrant had $31,987,160 in cash and cash
equivalents, of which $27,439,295 was limited for use at the
operating level and the remaining $4,547,865 was Registrant's
working capital.
During the first half of 1994, Registrant continued its
negotiations with the lender to KATC and WREX, although no
agreement was concluded (see below for further information
regarding the WREX-KATC Loan).
Registrant engaged Merrill Lynch & Co. and Daniels & Associates
to assist it in marketing California Cable. 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.
Impact of Cable Legislation
Refer to discussion in Item 1. Financial Statements (Note 2)
California Cable
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,
Registrant's California Cable properties, 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. 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,
Registrant 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 rate regulations enacted pursuant to the 1992 Cable Act
have had a detrimental impact on the revenues and profits of the
California Cable Systems. The further rate reduction mandated by
the February 22, 1994 FCC action and any limits imposed by such
action on a-la-carte pricing will have a further detrimental
impact on those revenues and profits.
In December 1993, the California Systems received a favorable
decision with respect to a property tax appeal filed with one
county served by the California 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 Systems reached a
favorable agreement in principle with a second county served by
the California Systems where an appeal relating to property taxes
had also been filed. During 1994, the California Systems
executed a settlement agreement and finalized assessed property
values with this second county. In part, as a result of these
developments, the California Systems continue to expect to
ultimately receive tax refunds in an amount approximately equal
to the previously reported approximately $2.2 million December
31, 1993 reduction in the California Systems' general and
administrative expense.
Registrant's May 15, 1990 loan agreement for California Cable
(the "Revised ML California Credit Agreement") was structured as
a revolving credit facility through September 30, 1992, at which
time all outstanding borrowings under the facility converted to a
term loan that is scheduled to fully amortize by September 30,
1999, with additional borrowing ability under the revolving
credit facility being terminated on September 30, 1992. As of
July 1, 1994, $136,125,000 was outstanding under the Revised ML
California Credit Agreement. As of July 1, 1994, Registrant was
in compliance with all covenants under the Revised ML California
Credit Agreement. However, particularly in light of the February
22, 1994 FCC action, it is likely that Registrant will experience
covenant defaults under the Revised ML California Credit
Agreement during 1994. Proceeds from the Revised ML California
Credit Agreement are restricted to the use of the California
Media operations and are generally not available for the working
capital needs of Registrant.
C-ML Cable
Registrant is currently unable to ascertain fully the 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, it is likely that the February 22, 1994
FCC action will have a detrimental impact on the revenues and
profits of the Puerto Rico Systems. Registrant does not expect
that this detrimental impact will result in any defaults under
the C-ML Notes or the C-ML Revolving Credit Agreement during
1994.
Effective January 1, 1994, all 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 Registrant of new certificates evidencing a
partnership interest of 50% and 50%, respectively, in the
Venture. The transfer was made pursuant to a Transfer of Assets
and Assumption of Liabilities Agreement. At the time of this
transfer, Registrant and Century entered into an amended and
restated management agreement and joint venture agreement (the
"Revised Joint Venture Agreement") governing the affairs of the
revised Venture (herein referred to as the "Revised Venture").
Under the terms of the Revised Joint Venture Agreement, Century
is responsible for the day-to-day operations of the Puerto Rico
Systems and Registrant is responsible for the day-to-day
operations of the Venture's radio properties. For providing
services of this kind, Century is entitled to receive annual
compensation of 5% of the Puerto Rico Systems' net gross revenues
(defined as gross revenues from all sources less monies paid to
suppliers of pay TV product, e.g., HBO, Cinemax, Disney and
Showtime) and Registrant is entitled to receive annual
compensation of 5% of the gross revenues of the Venture's radio
properties (after agency commissions, rebates or discounts and
excluding revenues from barter transactions). All significant
policy decisions relating to the Revised Venture, the operation
of the Puerto Rico Systems and the operation of the Revised
Venture's radio properties, however, will only be made upon the
concurrence of both Registrant and Century.
Registrant may require at any time that Century purchase
Registrant's interest in the Revised Venture or that the Revised
Venture sell the assets and business of the Puerto Rico Systems
and/or the Revised Venture's radio properties. If Registrant
makes such a request, Century has the right to purchase
Registrant's 50% interest in the Revised Venture or the assets
and business of the Puerto Rico Systems and/or the Revised
Venture's radio properties at 50% of their fair market value as
then determined by independent appraisal. If Century elects to
sell its interests, Registrant may elect to purchase Century's
interests on similar terms.
WREX-KATC
During 1989, Registrant entered into the $27.1 million WREX-KATC
Loan with Manufacturers Hanover Trust Company. As of July 1,
1994, the outstanding principal balance under the WREX-KATC Loan
amounted to approximately $23.5 million.
During the first half of 1994 and during 1994 and 1993,
Registrant defaulted on the quarterly principal payments due in
respect of its WREX-KATC Loan. As of July 1, 1994, WREX-KATC was
in default of $4,342,873 in principal, after giving effect to
$782,127 in principal payments made during 1993 from cash
generated by the operations of WREX and KATC. Registrant is not
in default of any interest payments under the WREX-KATC Loan. In
addition, as of December 28, 1990 and continuing through July 1,
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, and is seeking to restructure
the WREX-KATC Loan. Registrant has engaged The Blackstone Group
as its restructuring advisor, to be utilized when deemed
necessary, in Registrant's efforts to restructure the WREX-KATC
Loan with the lender. The outcome of Registrant's restructuring
efforts cannot be predicted at this time, but Registrant does not
intend to, nor is it obligated to, advance any further working
capital to WREX and KATC, although it may possibly choose to in
the context of a successful restructuring of the WREX-KATC Loan.
The lender 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 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
Registrant). Borrowings under the WREX-KATC Loan are nonrecourse
to Registrant.
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 advance any of its
unrestricted working capital to WREX and KATC, although it may
possibly choose to in the context of a successful restructuring.
Results of Operations
For the thirteen week periods ended July 1, 1994 and June 25,
1993:
During the thirteen week periods ended July 1, 1994 and June 25,
1993, Registrant had total operating revenues of approximately
$26.8 million and $25.4 million, respectively. The approximate
$1.4 million increase was due in part to the consolidation of the
operating results (approximately $0.7 million in second 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). Registrant experienced increased revenues at all of its
other media properties, with the exception of the Wincom-WEBE-
WICC radio group, where revenues were flat in the second quarter
of 1994 compared to the second quarter of 1993 due to the sale of
Registrant's Indianapolis radio stations in the fourth quarter of
1993.
Revenues increased by approximately $0.1 million at California
Cable and $0.4 million at C-ML Cable. The increase in revenue at
California Cable resulted generally from higher advertising
revenues. The increase in total revenues at California Cable
occurred despite a decrease in basic revenues from year to year
due primarily to a decline in basic rates following re-
regulation, partially offset by an increase in average basic
subscribers due to increased marketing efforts. The number of
basic subscribers at California Cable increased from 132,622 at
the end of the first quarter of 1994 to 133,700 at the end of the
second quarter of 1994 due to increased marketing efforts,
particularly in Southern California. California Cable
experienced continued erosion in premium subscriber levels due to
negative customer reaction to higher premium rates but was able
to partially compensate for this decline by sustaining moderately
higher premium rates among its remaining premium customer:
California Cable reported a decrease in premium subscriptions,
from 75,562 at the end of the first quarter of 1994 to 72,583 at
the end of the second quarter of 1994. The increase in revenues
at California Cable would have been higher in the absence of the
rate reductions mandated by the FCC. Revenues at C-ML Cable
increased 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 restructuring to comply with re-
regulation). Although the average level of basic subscribers at C-
ML Cable decreased from the second quarter of 1993 to the second
quarter of 1994, the number of basic subscribers increased from
105,676 at the end of the first quarter of 1994 to 109,976 at the
end of the second quarter of 1994 due to successful marketing
efforts. The number of premium subscribers decreased from 68,396
at the end of the first quarter of 1994 to 66,896 at the end of
the second quarter of 1994 at C-ML Cable, due to weakness in the
local economy (which has been exacerbated by an ongoing drought)
as well as continuing industry-wide softness in subscriber demand
for premium services.
Television stations KATC and WREX reported a combined increase of
approximately $0.3 million in revenue primarily as a result of
stronger national revenues at KATC. The Wincom-WEBE-WICC radio
group reported flat revenue as increased advertising revenues at
WICC, WEBE and WQAL were offset by approximately $0.3 million in
revenues lost due to the sale of the Indianapolis radio stations
at the beginning of the fourth quarter of 1993.
During the second 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 $0.6 million at the combined cable and radio
operations of the Revised Venture, due primarily to the
consolidation of the second quarter operating results of the
Revised Venture's radio properties; and an increase of
approximately $0.6 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 decrease of approximately $0.1 million at Wincom due primarily
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 second quarter of 1994 and 1993, Registrant incurred
general and administrative expenses of approximately $5.3 million
and $5.4 million, respectively. Registrant's total general and
administrative expenses decreased by approximately $0.1 million
from year to year as a result of a decrease of approximately $0.1
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 $0.3 million primarily due to lower group health
and general insurance costs and franchise fee expenses. These
decreases were partially offset by an approximately $0.1 million
increase at the combined cable and radio operations of the
Revised Venture, due primarily to the consolidation of the second
quarter operating results of the radio properties. The remaining
increases or decreases in general and administrative expenses at
Registrant's other properties were immaterial, either
individually or in the aggregate.
Registrant earned interest income of approximately $0.2 million
during the second quarter of 1994 and 1993.
Interest expense of approximately $3.7 million and $4.8 million
in the second quarter of 1994 and 1993, respectively, represents
the cost incurred for borrowed funds utilized to acquire various
media properties. The approximately $1.1 million decrease in
interest expense is due primarily 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, ($0.9 million) and (2) lower average
outstanding borrowings, reduced interest rates and amortization
of a portion of the Series C Term Loan forgiveness under the
Wincom-WEBE-WICC Restructuring Agreement ($0.3 million).
Registrant's depreciation and amortization expense totaled
approximately $7.5 million and $7.4 million in the second quarter
of 1994 and 1993, respectively. Registrant's total depreciation
and amortization expense increased by approximately $0.1 million
from year to year, due to increases of approximately $0.3 million
at California Cable, primarily as a result of capital
expenditures, and $0.2 million at the combined cable and radio
operations of the Revised Venture, due primarily to the
consolidation in 1994 of the radio operations, partially offset
by a decrease of approximately $0.4 million at KATC due to
certain equipment becoming fully depreciated during the first
quarter of 1994. 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 twenty-six week periods ended July 1, 1994 and June 25,
1993:
During the twenty-six week periods ended July 1, 1994 and June
25, 1993, Registrant had total operating revenues of
approximately $51.7 million and $48.8 million, respectively. The
approximate $2.9 million increase was partially due to the
consolidation of the first half operating results (approximately
$1.3 million in 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). Registrant experienced increased
revenues at all of its other media properties, with the exception
of the Wincom-WEBE-WICC radio group, where revenues declined
slightly from the first half of 1993 to the first half of 1994
due to the sale of Registrant's Indianapolis radio stations in
the fourth quarter of 1993.
Revenues increased by approximately $0.2 million at California
Cable and approximately $1.0 million at C-ML Cable. The increase
in revenue at California Cable resulted generally from higher
installation and advertising revenues. The number of basic
subscribers at California Cable increased from 131,830 at the end
of 1993 to 133,700 at the end of the second quarter of 1994 due
to increased marketing efforts, particularly in Southern
California. The increase in revenues at California Cable
occurred despite a decrease in average premium subscribers from
year to year. The decline in average premium subscribers was
attributable to negative customer reaction to increased premium
rates: California Cable reported a decrease in premium
subscriptions, from 73,625 at the end of 1993 to 72,583 at the
end of the second quarter of 1994. The increase in revenues at
California Cable would have been higher in the absence of the
rate reductions mandated by the FCC. Revenues at C-ML Cable
increased 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 restructuring to comply with re-
regulation). Although the average level of basic subscribers at
C-ML Cable decreased from the second quarter of 1993 to the
second quarter of 1994, the number of basic subscribers increased
from 104,677 at the end of 1993 to 109,976 at the end of the
second quarter of 1994 due to successful marketing efforts. The
number of premium subscribers decreased from 69,319 at the end of
1993 to 66,896 at the end of the second quarter of 1994 at C-ML
Cable, due to weakness in the local economy as well as continuing
industry-wide softness in subscriber demand for premium services.
Television stations KATC and WREX reported a combined increase of
approximately $0.6 million in revenue, primarily as a result of
stronger regional/national 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 $0.7 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 twenty-six weeks of 1994 and 1993, Registrant
incurred property operating expenses of approximately $18.9
million and $17.5 million, respectively, in connection with the
operation of its cable, radio and television properties.
Registrant's total property operating expenses increased by
approximately $1.4 million from year to year as a result of: an
increase of approximately $1.1 million at the combined cable and
radio operations of the Revised Venture, due primarily to the
consolidation of the first half operating results of the Revised
Venture's radio properties; and an increase of approximately $1.1
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 decrease of approximately $0.5
million at Wincom 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 twenty-six weeks of 1994 and 1993, Registrant
incurred general and administrative expenses of approximately
$10.4 million and $10.7 million, respectively. Registrant's
total general and administrative expenses decreased by
approximately $0.3 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,
primarily due to lower group health and general insurance costs
and franchise fee expenses. These decreases were partially
offset by a $0.2 million increase at the combined cable and radio
operations of the Revised Venture, due to the consolidation of
the first half operating results of the Revised Venture's radio
properties; and an increase of approximately $0.1 million at WREX
due to an increase in health insurance costs. The remaining
increases or decreases in general and administrative expenses at
Registrant's other properties were immaterial, either
individually or in the aggregate.
Registrant earned interest income of approximately $0.4 million
and $0.3 million during the first twenty-six weeks of 1994 and
1993, respectively. The increase in interest income is due to a
generally higher level of working capital at Registrant's media
properties during 1994 as compared to 1993.
Interest expense of approximately $7.2 million and $10.1 million
in the first twenty-six weeks of 1994 and 1993, respectively,
represents the cost incurred for borrowed funds utilized to
acquire various media properties. The approximately $2.9 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, ($2.5 million) and (2) lower average
outstanding borrowings, reduced interest rates and amortization
of a portion of the Series C Term Loan forgiveness under the
Wincom-WEBE-WICC Restructuring Agreement (approximately $0.6
million).
Registrant's depreciation and amortization expense totaled
approximately $15.1 million and $15.0 million in the first twenty-
six weeks of 1994 and 1993, respectively. The approximately $0.1
million increase in Registrant's total depreciation and
amortization expense from year to year was the result of
increases of approximately $0.7 million at California Cable,
primarily as a result of capital expenditures, and approximately
$0.2 million at the combined cable and radio operations due to
the Revised Venture, due primarily to the consolidation of the
first half operating results of the Revised Venture's radio
properties, partially offset by and decreases of approximately
$0.6 million at KATC due to certain equipment becoming fully
depreciated during the first quarter of 1994 and approximately
$0.1 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: August 22, 1994 /s/ Kevin K. Albert
Kevin K. Albert
Director and President
Dated: August 22, 1994 /s/ Robert F. Aufenanger
Robert F. Aufenanger
Director and Executive Vice
President
Dated: August 22, 1994 /s/ David G. Cohen
David G. Cohen
Treasurer
(principal financial officer
and principal accounting
officer)
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.
RP MEDIA MANAGEMENT
ML MEDIA PARTNERS, L.P.
By: Media Management Partners
General Partner
By: RP Media Management
Dated: August 22, 1994 /s/ I. Martin Pompadur
I. Martin Pompadur
President, Secretary and
Director
(principal executive officer)
