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
March 31, 1995
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 .
<PAGE>
ML MEDIA PARTNERS, L.P.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TABLE OF CONTENTS
Consolidated Balance Sheets as of March 31, 1995
(Unaudited) and December 30, 1994 (Unaudited)
Consolidated Statements of Operations for the Thirteen
Week Periods Ended March 31, 1995 (Unaudited) and April 1,
1994 (Unaudited)
Consolidated Statements of Cash Flows for the Thirteen
Week Periods Ended March 31, 1995 (Unaudited) and April 1,
1994 (Unaudited)
Notes to the Consolidated Financial Statements for the
Thirteen Week Period Ended March 31, 1995 (Unaudited)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1995 (UNAUDITED) AND DECEMBER 30, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 30,
Notes 1995 1994
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents 2 $ 31,435,826 $ 26,682,289
Short-term investments held
by agent - 6,000,000
Accounts receivable (net
of allowance for doubtful
accounts of $886,095 at
March 31, 1995 and $808,919
at December 30, 1994) 10,613,899 11,751,637
Prepaid expenses and
deferred charges (net of
accumulated amortization of
$7,918,921 at March 31,
1995, and $7,782,985 at
December 30, 1994) 3,425,886 3,640,813
Property, plant and
equipment(net of accumulated
depreciation of $125,024,848
at March 31, 1995 and
$120,556,173 at December 30,
1994) 82,068,874 85,053,152
Intangible assets (net
of accumulated amortization
of $125,209,776 at March 31,
1995 and $122,438,628 at
December 30, 1994) 99,888,106 102,344,420
Other assets 2 4,080,051 2,858,047
TOTAL ASSETS 2 $231,512,642 $238,330,358
</TABLE>
(Continued on the following page)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1995 (UNAUDITED) AND DECEMBER 30, 1994 (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
March 31, December 30,
Notes 1995 1994
<S> <C> <C> <C>
LIABILITIES AND PARTNERS'
DEFICIT:
Liabilities:
Borrowings 2 $215,997,315 $218,170,968
Accounts payable and
accrued liabilities 31,568,967 34,522,652
Subscriber advance payments 2,007,232 1,895,400
Total Liabilities 249,573,514 254,589,020
Commitments and
Contingencies 2
Partners' Deficit:
General Partner:
Capital contributions, net of
offering expenses 1 1,708,299 1,708,299
Cumulative loss (1,825,990) (1,807,968)
(117,691) (99,669)
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 (180,772,872) (178,988,684)
(17,943,181) (16,158,993)
Total Partners' Deficit (18,060,872) (16,258,662)
TOTAL LIABILITIES AND
PARTNERS' DEFICIT $ 231,512,642 $ 238,330,358
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 1995 (UNAUDITED) AND
APRIL 1, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
March 31, April 1,
Notes 1995 1994
<S> <C> <C> <C>
REVENUES:
Operating revenue $ 26,273,942 $ 25,100,444
Interest 69,006 37,134
Gain on sale of assets - 123,636
Total revenues 26,342,948 25,261,214
COSTS AND EXPENSES:
Property operating 9,991,191 9,197,218
General and administrative 5,515,831 5,146,010
Depreciation and amortization 7,466,423 7,601,535
Interest expense 4,773,755 3,421,401
Management fees 397,958 397,958
Total costs and expenses 28,145,158 25,764,122
NET LOSS $ (1,802,210) $ (502,908)
Per Unit of Limited Partnership
Interest:
NET LOSS $ (9.49) $ (2.65)
Number of Units 187,994 187,994
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 1995 (UNAUDITED) AND
APRIL 1, 1994 (UNAUDITED)
<TABLE>
<CAPTION>
March 31, April 1,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,802,210) $ (502,908)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 7,466,423 7,601,535
Bad debt expense 352,202 281,611
Gain on sale of assets - (123,636)
Change in operating assets and
liabilities:
Decrease in accounts receivable 785,537 406,775
Decrease in short-term investments
held by agent 6,000,000 -
Decrease in prepaid expenses
and deferred charges 78,991 899,263
(Increase)/decrease in other assets (1,222,004) 1,025,415
Decrease in accounts payable and
accrued liabilities (2,780,018) (417,550)
Increase in subscriber advance payments 111,832 25,839
Net cash provided by operating
activities 8,990,753 9,196,344
</TABLE>
(Continued on the following page)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 1995 (UNAUDITED)
AND APRIL 1, 1994 (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
March 31, April 1,
1995 1994
<S> <C> <C>
Cash flows from investing activities:
Proceeds from sale of assets - 62,969
Purchase of property, plant and
equipment (1,799,712) (2,148,036)
Additions to intangible assets (263,851) (372,034)
Net cash used in investing activities (2,063,563) (2,457,101)
Cash flows from financing activities:
Principal payments on bank loans (2,173,653) (3,450,000)
Net cash used in financing activities (2,173,653) (3,450,000)
Net increase in cash and cash
equivalents 4,753,537 3,289,243
Cash and cash equivalents at
beginning of year 26,682,289 26,916,477
Cash and cash equivalents at end of
period $31,435,826 $30,205,720
Cash paid for interest $ 5,197,436 $ 2,554,077
</TABLE>
(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).
<PAGE>
ML MEDIA PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEK PERIOD ENDED MARCH 31, 1995 (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 1994 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.
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"). This
pronouncement establishes accounting standards for employers who
provide benefits to former or inactive employees after
employment, but before retirement. These benefits include, but
are not limited to, salary-continuation, disability related
benefits including workers' compensation, and continuation of
health care and life insurance benefits. The statement requires
employers to accrue the obligations associated with service
rendered to date for employee benefits accumulated or vested
where payment is probable and can be reasonably estimated. The
effect of the adoption of SFAS No. 112 was not material to the
Partnership's financial position or results of operations.
<PAGE>
2. LIQUIDITY
As of March 31, 1995, the Partnership had $31,435,826 in cash and
cash equivalents, of which $26,779,261 was limited for use at the
operating level and the remaining $4,656,565 was the
Partnership's working capital.
On November 28, 1994, the Partnership entered into an agreement
to sell substantially all of the assets used in the operations of
the Partnership's California Cable Systems subject to numerous
conditions to closing (see below).
On February 23, 1995 and March 6, 1995, the Partnership entered
into non-binding letters of intent to sell WREX and KATC,
respectively (see below).
California Cable
On November 28, 1994, the Partnership entered into an agreement
(the "Asset Purchase Agreement") with Century Communications
Corp. ("Century") to sell to Century substantially all of the
assets used in the operations of the Partnership's California
Cable Systems serving the Anaheim, Hermosa Beach/Manhattan Beach,
Rohnert Park/Yountville and Fairfield communities. The base
purchase price for the systems will be $286 million, subject to
reduction by an amount equal to 11 times the amount by which the
operating cash flow of the systems (as adjusted in accordance
with the Asset Purchase Agreement) is less than $26 million for
the 12-month period prior to the closing, and subject to further
adjustment as provided in the Asset Purchase Agreement. In
addition, the Partnership has the right to terminate the Asset
Purchase Agreement if the purchase price would be less than $260
million based on the formula described above. Consummation of
the transactions provided for in the Asset Purchase Agreement is
subject to the satisfaction of certain conditions, including
obtaining approvals from the Federal Communications Commission
and the municipal authorities issuing the franchises for the
systems.
The Partnership is currently unable to determine the impact of
the February 22, 1994 FCC action and previous FCC actions (see
below) on its ability to consummate the sale of the California
Cable systems or the potential timing and ultimate value of such
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 of September 30, 1994 and December 30, 1994, due in part to
the negative impact of rate re-regulation on the operations of
the California Cable Systems, the Partnership was in default of
certain financial covenants contained in the revised ML
California Credit Agreement. In addition, as of December 30,
1994, the Partnership expected to be unable to meet during 1995
the principal payment requirements then contained in the revised
ML California Credit Agreement. These defaults were cured during
the first quarter of 1995.
Effective February 23, 1995, the Partnership and the banks
entered into a first amendment (the "First Amendment") to the
revised ML California Credit Agreement that provided for reduced
principal payments and less restrictive covenants during the
first three quarters of 1995. In exchange, the Partnership paid
an amendment fee of $322,969 to the banks and agreed to allow the
banks to charge a higher interest rate on outstanding borrowings
under the revised ML California Credit Agreement. (A further fee
will be due to the lenders if the sale of the California Cable
Systems is not consummated prior to December 29, 1995.) Certain
other terms of the revised ML California Credit Agreement were
also affected by the First Amendment.
The Partnership currently expects that it will be able to remain
in compliance with the terms of the revised ML California Credit
Agreement, as amended by the First Amendment, until December 29,
1995, during which period the Partnership would seek to
consummate the sale of the California Cable Systems to Century.
The Partnership currently expects that if the sale of the
California Cable Systems is not consummated prior to December 29,
1995, the Partnership will be unable to meet the scheduled
December 29, 1995 principal payment due to the banks pursuant to
the revised ML California Credit Agreement, as amended by the
First Amendment. As of March 31, 1995 the Partnership was in
compliance under the revised ML California Credit Agreement.
At March 31, 1995, the Partnership had funds in an escrow account
totalling $790,731, which funds were included in other assets on
the accompanying consolidated balance sheets. The funds were
deposited in such account during 1994 in accordance with the
Partnership's agreement with Cable Telecommunications Joint
Powers Agency ("CTJPA") to be held for the benefit of CTJPA's
subscribers pending determination of the Partnership's potential
need to make refunds to the subscribers in connection with rate
re-regulation.
In the first quarter of 1995, the Partnership was required to
deposit $680,000 in another escrow account pursuant to an
agreement with the City of Fairfield, California to be held for
the benefit of the City of Fairfield's subscribers pending
determination of the Partnership's potential need to make refunds
to the subscribers in connection with rate re-regulation. The
General Partner currently believes that under the FCC's existing
decisions, the most material issues in the Partnership's rate
cases should ultimately be decided in a manner predominantly
favorable to the Partnership.
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.
On February 23, 1995 and March 6, 1995, the Partnership entered
into non-binding letters of intent to sell WREX and KATC,
respectively. The sales of WREX and KATC are subject to
negotiation of definitive purchase and sale agreements and
numerous other conditions. The ultimate transfers of the
licenses of WREX and KATC to potential buyers will also be
subject to the prior approval of the FCC.
During the first quarter of 1995 and during 1994, 1993 and 1992,
the Partnership defaulted on the majority of its quarterly
principal payments due under its WREX-KATC Loan. As of March 31,
1995, WREX-KATC was in default of $6,507,993 in principal, after
giving effect to $867,007 in payments made during 1993 and 1994
from cash generated by the operations of WREX and KATC. On April
21, 1995 the Partnership made a $482,993 principal payment under
the WREX-KATC Loan using cash generated by the operations of WREX
and KATC. The Partnership is not in default of any regularly
scheduled interest payments under the WREX-KATC Loan. In
addition, as of December 28, 1990 and continuing through March
31, 1995, 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 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 intend to, nor is it obligated to, advance any further
working capital to WREX and KATC. The lender to WREX-KATC 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.
WINCOM-WEBE-WICC
The Partnership was in compliance with all terms of its Wincom-
WEBE-WICC Loan and the Restructuring Agreement at March 31, 1995.
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 imposed 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.
Rate Regulation
The 1992 Cable Act completely supplanted the rate regulation
provisions of the 1984 Cable Act. The 1992 Act establishes that
rate regulation applies to rates charged for the basic tier of
service by any cable system not subject to "effective
competition," which is, in turn, deemed to exist if (1) fewer
than 30 percent of the households in the service area subscribe
to the system, (2) at least 50 percent of the households in the
franchise area are served by two multichannel video programming
distributors and at least 15 percent of the households in the
franchise area subscribe to the additional operator, or (3) a
franchising authority for that franchise area itself serves as a
multichannel video programming distributor offering service to at
least 50 percent of the households in the franchise area. Under
this new statutory definition, the Partnership's systems, like
most cable systems in most areas, are not presently subject to
effective competition. The basic tier must include all signals
required to be carried under the 1992 Cable Act's mandatory
carriage provisions, all PEG channels required by the franchise,
and all broadcast signals other than "superstations."
Acting pursuant to the foregoing statutory mandate, the FCC, on
May 3, 1993, released a Report and Order ("Rate Order")
establishing a new regulatory scheme 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"
(as noted, essentially, 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.
On February 22, 1994, the FCC adopted a series of additional
measures that expanded and substantially altered its cable rate
regulations. The FCC's major actions included the following:
(1) a modification of its benchmark methodology in a way which
effectively required cable rates to be reduced, on average, an
additional 7% (i.e., beyond the 10% reduction previously ordered
in 1993) from their September 30, 1992 level, or to the new
benchmark, whichever is less; (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.
In deciding to substantially revise its benchmark methodology for
regulated cable rates, the FCC 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 continue to be governed by the
old benchmark system.
Under the FCC's revised benchmark regulations, systems not facing
"effective competition" that have become subject to regulation
will be required to set their rates at a level equal to their
September 30, 1992 rates minus a revised "competitive
differential" of 17 percent (a "differential" which, as noted,
was set at 10 percent in the FCC's May 1993 Rate Order). Cable
operators who seek to charge rates higher than those produced by
applying the competitive differential may elect to invoke new
cost-of-service procedures (discussed below).
In addition to revising the benchmark formula and the competitive
differential used in setting initial regulated cable rates, the
FCC adopted rules to simplify the calculations used to adjust
those rates for inflation and external costs in the future. The
FCC also concluded that it will treat increases in compulsory
copyright fees incurred by carrying distant broadcast signals as
external costs in a fashion parallel to increases in the
contractual costs for nonbroadcast programming. It will not,
however, accord external cost treatment to pole attachment fees.
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. When assessing the appropriate
regulatory treatment of "a la carte" packages, the FCC stated it
would 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 would 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 would be treated as regulated tiers, and
operators engaging in such practices may be subject to
forfeitures or other sanctions by the FCC.
In another action, the FCC adopted a methodology for determining
rates when channels are added to or deleted from regulated tiers
and announced that it will treat programming costs as external
costs and that operators may recover the full amount of
programming expenses associated with added channels. Operators
may also recover a mark-up on their programming expenses. These
adjustments and calculations are to be made on a new FCC form.
On November 10, 1994, the FCC adopted new "going forward" rules
and further tightened its regulation of a la carte packages.
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 cap of $1.50 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.
Several cable industry interests have challenged or announced
that they will challenge these and other rate regulation
decisions of the FCC in a federal court of appeals. The
Partnership is unable to predict the timing or outcome of any
such appeals.
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. These interim
rules remain the subject of both a further FCC rulemaking and a
pending appeal in the U.S. Court of Appeals for the D.C. Circuit.
In 1995, the FCC has adopted and Congress has proposed measures
that may mitigate the effect of the FCC's rate regulations. In
May, the FCC announced a decision (the full text of which was not
yet available) expanding the number of small cable systems and
small companies that qualify for special rate relief. Systems
serving 15,000 or fewer subscribers owned by small companies of
400,000 or fewer subscribers may elect a new simplified and
possibly more permissive rate mechanism. The FCC has yet to
release the details of the new rate mechanism. In addition,
bills have been introduced in both the House and Senate that
would, if ultimately enacted into law, provide cable operators
with substantial relief from rate regulations, at least for the
satellite programming 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 on the Partnership's cable television operations.
Although the impact of the 1992 Cable Act and the recent FCC
actions cannot yet be ascertained precisely, once fully
implemented, certain aspects of the new law may have an
additional negative impact on the financial condition, liquidity,
and value of the Partnership. The rate reductions and limits on
the pricing of a-la-carte tiers are principally responsible for
the occurrence of since-cured and possible future defaults under
the revised ML California Credit Agreement.
In addition, the Partnership is currently unable to determine the
impact of the February 22, 1994 and the November 10, 1994 FCC
actions and previous FCC actions on its ability to consummate the
sale of the California Cable Systems or the potential timing and
ultimate value of such 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, in the
first quarter of 1995 the revenues of the California Cable
Systems were flat compared to the first quarter of 1994 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 the revenues and profits of the California Cable
Systems.
The Partnership is currently unable to ascertain the full impact
of the February 22, 1994 and the November 10, 1994 actions and
previous FCC actions on the C-ML Cable 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 on C-
ML Cable. 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 1995. There were no defaults under the C-ML
Notes or the C-ML Revolving Credit Agreement at March 31, 1995.
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. 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 1994
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 30, 1994 on file with the Securities
and Exchange Commission.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
As of March 31, 1995, Registrant had $31,435,826 in cash and cash
equivalents, of which $26,779,261 was limited for use at the
operating level and the remaining $4,656,565 was Registrant's
working capital.
On November 28, 1994, Registrant entered into an agreement to
sell substantially all of the assets used in the operations of
Registrant's California Cable Systems subject to numerous
conditions to closing (see below).
On February 23, 1995 and March 6, 1995, Registrant entered into
non-binding letters of intent to sell WREX and KATC, respectively
(see below).
California Cable
On November 28, 1994, Registrant entered into an agreement (the
"Asset Purchase Agreement") with Century Communications Corp.
("Century") to sell to Century substantially all of the assets
used in the operations of Registrant's California Cable Systems
serving the Anaheim, Hermosa Beach/Manhattan Beach, Rohnert
Park/Yountville and Fairfield communities. The base purchase
price for the systems will be $286 million, subject to reduction
by an amount equal to 11 times the amount by which the operating
cash flow of the systems (as adjusted in accordance with the
Asset Purchase Agreement) is less than $26 million for the 12-
month period prior to the closing, and subject to further
adjustment as provided in the Asset Purchase Agreement. In
addition, Registrant has the right to terminate the Asset
Purchase Agreement if the purchase price would be less than $260
million based on the formula described above. Consummation of
the transactions provided for in the Asset Purchase Agreement is
subject to the satisfaction of certain conditions, including
obtaining approvals from the Federal Communications Commission
and the municipal authorities issuing the franchises for the
systems.
Registrant is currently unable to determine the impact of the
February 22, 1994 FCC action and previous FCC actions (see below)
on its ability to consummate the sale of the California Cable
systems or the potential timing and ultimate value of such 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 of September 30, 1994 and December 30, 1994, due in part to
the negative impact of rate re-regulation on the operations of
the California Cable Systems, Registrant was in default of
certain financial covenants contained in the revised ML
California Credit Agreement. In addition, as of December 30,
1994, Registrant expected to be unable to meet during 1995 the
principal payment requirements then contained in the revised ML
California Credit Agreement. These defaults were cured during
the first quarter of 1995.
Effective February 23, 1995, Registrant and the banks entered
into a first amendment (the "First Amendment") to the revised ML
California Credit Agreement that provided for reduced principal
payments and less restrictive covenants during the first three
quarters of 1995. In exchange, Registrant paid an amendment fee
of $322,969 to the banks and agreed to allow the banks to charge
a higher interest rate on outstanding borrowings under the
revised ML California Credit Agreement. (A further fee will be
due to the lenders if the sale of the California Cable Systems is
not consummated prior to December 29, 1995.) Certain other terms
of the revised ML California Credit Agreement were also affected
by the First Amendment.
Registrant currently expects that it will be able to remain in
compliance with the terms of the revised ML California Credit
Agreement, as amended by the First Amendment, until December 29,
1995, during which period Registrant would seek to consummate the
sale of the California Cable Systems to Century. Registrant
currently expects that if the sale of the California Cable
Systems is not consummated prior to December 29, 1995, Registrant
will be unable to meet the scheduled December 29, 1995 principal
payment due to the banks pursuant to the revised ML California
Credit Agreement, as amended by the First Amendment. As of March
31, 1995 Registrant was in compliance under the revised ML
California Credit Agreement.
At March 31, 1995, Registrant had funds in an escrow account
totalling $790,731, which funds were included in other assets on
the accompanying consolidated balance sheets. The funds were
deposited in such account in accordance with Registrant's
agreement with Cable Telecommunications Joint Powers Agency
("CTJPA") to be held for the benefit of CTJPA's subscribers
pending determination of Registrant's potential need to make
refunds to the subscribers in connection with rate re-regulation.
In the first quarter of 1995, Registrant was required to deposit
$680,000 in another escrow account pursuant to an agreement with
the City of Fairfield, California to be held for the benefit of
the City of Fairfield's subscribers pending determination of
Registrant's potential need to make refunds to the subscribers in
connection with rate re-regulation. The General Partner
currently believes that under the FCC's existing decisions, the
most material issues in Registrant's rate cases should ultimately
be decided in a manner predominantly favorable to Registrant.
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.
On February 23, 1995 and March 6, 1995, Registrant entered into
non-binding letters of intent to sell WREX and KATC,
respectively. The sales of WREX and KATC are subject to
negotiation of definitive purchase and sale agreements and
numerous other conditions. The ultimate transfers of the
licenses of WREX and KATC to potential buyers will also be
subject to the prior approval of the FCC.
During the first quarter of 1995 and during 1994, 1993 and 1992,
Registrant defaulted on the majority of its quarterly principal
payments due under its WREX-KATC Loan. As of March 31, 1995,
WREX-KATC was in default of $6,507,993 in principal, after giving
effect to $867,007 in payments made during 1993 and 1994 from
cash generated by the operations of WREX and KATC. On April 21,
1995 Registrant made a $482,993 principal payment under the WREX-
KATC Loan using cash generated by the operations of WREX and
KATC. Registrant is not in default of any regularly scheduled
interest payments under the WREX-KATC Loan. In addition, as of
December 28, 1990 and continuing through March 31, 1995,
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 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.
WINCOM-WEBE-WICC
Registrant was in compliance with all terms of its Wincom-WEBE-
WICC Loan and the Restructuring Agreement at March 31, 1995.
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. 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
1995 vs. 1994
During the thirteen week periods ended March 31, 1995 and April
1, 1994, Registrant had total operating revenues of approximately
$26.3 million and $25.1 million, respectively. The approximate
$1.2 million increase was due to increased revenues at all of its
media properties, with the exception of television station WREX,
where revenues declined slightly from the first quarter of 1994
to the first quarter of 1995.
Revenues for the first quarter of 1995 increased over the same
period in 1994 by approximately $0.1 million at California Cable
and $0.3 million at C-ML Cable. The relatively small increase in
revenue at California Cable resulted primarily from the impact of
the second round of rate regulation imposed by the FCC in July
1994. Revenues generated from the increase in the number of
basic subscribers from 132,622 at the end of the first quarter
1994, to 136,082 at the end of the first quarter of 1995, were
mostly offset by decreases in revenues due to a decline in the
number of premium subscriptions from 75,562 to 74,806, over the
same period. The increase in the number of basic subscribers
from year to year was a result of increased marketing efforts.
The number of basic subscribers at March 31, 1995 increased only
slightly since the beginning of the year. Pay-per-view revenue
in the first quarter of 1995 decreased from the first quarter of
1994 due primarily to a significantly lower number of special
events.
The increase in revenues at C-ML reflects an increase in the
number of basic subscribers, from 105,676 at the end of the first
quarter of 1994 to 113,579 at the end of the first quarter of
1995 due primarily to successful marketing efforts. Despite the
increase in basic subscriptions, the number of premium
subscriptions remained steady with 68,396 at the end of the first
quarter of 1994, and 69,794 at the end of the first quarter of
1995, primarily due to weakness in the local economy and an
ongoing softness of subscriber demand.
Revenues at Registrant's Wincom-WEBE-WICC radio group increased
by approximately $0.6 million in the first quarter of 1995
compared to the same period in 1994 due, in part, to increased
local and national advertising resulting from improved market
conditions.
Television stations KATC and WREX reported a combined increase of
approximately $0.2 million in revenue as a result of stronger
local and national revenues, particularly at KATC, partially
offset by lower political revenues, particularly at WREX.
During the first thirteen weeks of 1995 and 1994, Registrant
incurred property operating expenses of approximately $10.0
million and $9.2 million, respectively, in connection with the
operation of its cable, radio and television properties.
Registrant's total property operating expenses increased by
approximately $0.8 million from year to year due to: an increase
in operating expenses at California Cable of approximately $0.3
million due primarily to higher programming costs; increases at
the Wincom-WEBE-WICC group of approximately $0.2 million due
mostly to increases in commissions and other revenue-related
expenses; and increases at television stations WREX and KATC of
approximately $0.2 million due to increased sales promotions and
the expansion of the news departments at both stations.
Other increases or decreases in property operating expenses at
Registrant's other properties were immaterial, either
individually or in the aggregate.
During the first thirteen weeks of 1995 and 1994, Registrant
incurred general and administrative expenses of approximately
$5.5 million and $5.1 million, respectively, in connection with
the operation of its cable, radio and television properties.
Registrant's total general and administrative expenses increased
by approximately $0.4 million from year to year due to: increases
at California Cable of approximately $0.2 million due mostly to
costs related to the pending disposition of the California Cable
Systems; and increases of approximately $0.1 million at radio
station WQAL-FM due to refurbishment costs related to new office
space.
Other 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 $69,000 and
$37,000 during the first thirteen weeks of 1995 and 1994,
respectively, on its working capital balance.
Interest expense of approximately $4.8 million and $3.4 million
in the first thirteen weeks of 1995 and 1994, respectively,
represent the cost incurred for borrowed funds used to acquire
various media properties. The approximately $1.4 million
increase in interest expense is due, in part, to an increase of
approximately $1.1 million related to the Revised ML California
Cable Credit Agreement resulting both from higher floating
interest rates from year to year and the increased rate
incorporated in the First Amendment to the loan. Interest
expense also increased under the Wincom-WEBE-WICC Loan ($0.1
million) and the WREX-KATC Loan ($0.2 million) due to higher
floating interest rates.
Registrant's depreciation and amortization expense totalled
approximately $7.5 million and $7.6 million in the first thirteen
weeks of 1995 and 1994, respectively. The decrease of
approximately $0.1 million was due to a decrease of approximately
$0.3 million at WREX and KATC reflecting the full depreciation of
certain equipment in the intervening period, partially offset by
an increase of approximately $0.2 million at California Cable due
to capital expenditures in the intervening period.
Other increases or decreased in depreciation and amortization
expense at Registrant's other properties were immaterial either
individually or in the aggregate.
<PAGE>
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
A). Exhibits:
Exhibit # Description
27. Financial Data Schedule
B). Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ML MEDIA PARTNERS, L.P.
By: Media Management Partners
General Partner
By: ML Media Management Inc.
Dated: May 15, 1995 /s/ Kevin K. Albert
Kevin K. Albert
Director and President
Dated: May 15, 1995 /s/ Robert F. Aufenanger
Robert F. Aufenanger
Director and Executive Vice
President
Dated: May 15, 1995 /s/ David G. Cohen
David G. Cohen
Treasurer
(principal accounting officer
and principal financial
officer of the Registrant)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ML MEDIA PARTNERS, L.P.
By: Media Management Partners
General Partner
By: RP Media Management
Dated: May 15, 1995 /s/I. Martin Pompadur
I. Martin Pompadur
President, Secretary and
Director
(principal executive officer of
the Registrant)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the quarter March 31, 1995 Form
10Q Consolidated Balance Sheets and Consolidated Statements
of Operations as of March 31, 1995, and is qualified in its
entirety by reference to such financial statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1995
<PERIOD-END> MAR-31-1995
<CASH> 31,436
<SECURITIES> 0
<RECEIVABLES> 11,500
<ALLOWANCES> 886
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 207,094
<DEPRECIATION> 125,025
<TOTAL-ASSETS> 231,513
<CURRENT-LIABILITIES> 0
<BONDS> 215,997
<COMMON> 0
0
0
<OTHER-SE> (18,061)
<TOTAL-LIABILITY-AND-EQUITY> 231,513
<SALES> 0
<TOTAL-REVENUES> 26,343
<CGS> 0
<TOTAL-COSTS> 9,991
<OTHER-EXPENSES> 7,864
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,774
<INCOME-PRETAX> (1,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,802)
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<EXTRAORDINARY> 0
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<NET-INCOME> (1,802)
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<EPS-DILUTED> 0
</TABLE>
