SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 26, 1997
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) 236-6575
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 September 26, 1997
(Unaudited) and December 27, 1996 (Unaudited)
Consolidated Income Statements for the Thirteen and Thirty-
Nine Week Periods Ended September 26, 1997 (Unaudited) and
September 27, 1996 (Unaudited)
Consolidated Statements of Cash Flows for the Thirty-Nine
Week Periods Ended September 26, 1997 (Unaudited) and
September 27, 1996 (Unaudited)
Notes to Consolidated Financial Statements for the Thirty-
Nine Week Period Ended September 26, 1997 (Unaudited)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 26, 1997 (UNAUDITED) AND DECEMBER 27, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
September 26, December 27,
1997 1996
<S> <C> <C>
ASSETS:
Cash and cash equivalents $105,601,795 $ 91,591,280
Investments held by escrow
agents - 6,244,252
Accounts receivable (net of
allowance for doubtful
accounts of $432,780 and
$798,773, respectively) 7,094,813 6,768,307
Prepaid expenses and deferred
charges (net of
accumulated amortization of
$3,600,629 and $3,481,529,
respectively) 694,455 984,574
Property, plant and equipment
(net of accumulated
depreciation of $17,770,490
and $15,246,042,
respectively) 23,698,382 20,582,046
Intangible assets (net of
accumulated amortization of
$56,948,214 and $54,346,121,
respectively) 30,985,787 33,587,880
Other assets 4,385,962 1,236,485
TOTAL ASSETS $172,461,194 $160,994,824
</TABLE>
(Continued on the following page.)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 26, 1997 (UNAUDITED) AND DECEMBER 27, 1996
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
September 26, December 27,
1997 1996
<S> <C> <C>
LIABILITIES AND PARTNERS'
CAPITAL:
Liabilities:
Borrowings $ 57,269,038 $ 60,348,428
Accounts payable and
accrued liabilities 21,856,821 20,941,830
Distribution payable 18,989,293 -
Subscriber advance payments 1,517,672 1,545,835
Total Liabilities 99,632,824 82,836,093
Commitments and Contingencies
(Note 3)
Partners' Capital:
General Partner:
Capital contributions, net of
offering expenses 1,708,299 1,708,299
Cash distributions (1,357,734) (1,167,841)
Cumulative income 440,636 304,047
791,201 844,505
Limited Partners:
Capital contributions, net of
offering expenses (187,994
Units of Limited
Partnership Interest) 169,121,150 169,121,150
Tax allowance cash
distribution (6,291,459) (6,291,459)
Cash distributions (134,415,710) (115,616,310)
Cumulative income 43,623,188 30,100,845
72,037,169 77,314,226
Total Partners' Capital 72,828,370 78,158,731
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $ 172,461,194 $ 160,994,824
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED INCOME STATEMENTS
FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 26, 1997
(UNAUDITED) AND SEPTEMBER 27, 1996 (UNAUDITED)
<TABLE>
<CAPTION> Thirteen Weeks Thirty-Nine Weeks
September 26, September 27, September 26, September 27,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Operating
revenues $ 13,736,202 $ 12,523,930 $ 39,536,466 $ 59,611,376
Interest 853,477 1,424,687 2,511,836 2,314,918
Gain on sale
of the
California
Cable Systems - - - 186,020,511
Gain on sale
of WREX 1,844,358 - 1,844,358 -
Gain on sale
of KATC 1,479,522 - 1,479,522 -
Total revenues 17,913,559 13,948,617 45,372,182 247,946,805
COSTS AND
EXPENSES:
Property
operating 4,917,882 4,158,461 14,430,095 20,765,428
General and
adminis-
trative 2,718,120 2,130,461 7,273,477 11,780,127
Depreciation
and amorti-
zation 1,771,150 3,276,773 5,334,222 16,950,957
Interest
expense 1,277,438 1,392,380 3,766,703 8,903,200
Management
fees 302,918 302,917 908,753 1,034,116
Total costs
and expenses 10,987,508 11,260,992 31,713,250 59,433,828
NET INCOME $ 6,926,051 $ 2,687,625 $ 13,658,932 $188,512,977
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
NET INCOME $ 36.47 $ 14.15 $ 71.93 $ 992.73
Number of
Units 187,994 187,994 187,994 187,994
See Notes to Consolidated Financial Statements (Unaudited).
</TABLE>
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 26, 1997 (UNAUDITED)
AND SEPTEMBER 27, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
September September 27,
26, 1996
1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,658,93 $188,512,97
2 7
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 5,334,222 16,950,957
Bad debt expense/(recovery, net) (58,034) 335,111
Gain on sale of California Cable
Systems - (186,020,51
1)
Gain on sale of KATC (1,479,522) -
Gain on sale of WREX (1,844,358) -
Changes in operating assets and
liabilities:
Decrease/(Increase):
Accounts receivable (268,472) 3,992,842
Investments held by escrow agents 6,244,252 (5,000,000)
Prepaid expenses and deferred 171,019 416,839
charges
Other assets (3,149,477) (41,947)
(Decrease)/Increase:
Accounts payable and accrued
liabilities 6,488,383 (10,044,443
)
Subscriber advance payments (28,163 (42,106
) )
Net cash provided by
operating activities 25,068,782 9,059,719
</TABLE>
(Continued on the following page.)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 26, 1997
(UNAUDITED) AND SEPTEMBER 27, 1996 (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
September September
26, 27,
1997 1996
<S> <C> <C>
Cash flows from investing activities:
Proceeds from sale of the California
Cable Systems $ - $ 286,000,00
0
Payment of costs incurred related to
sale of the California Cable Systems (2,249,512 (8,196,272)
)
Purchase of property, plant and
equipment (5,729,365 (6,445,263)
)
Intangible assets - (10,000)
Net cash (used in)/provided by
investing (7,978,877 271,348,465
activities )
Cash flows from financing activities:
Principal payments on borrowings (3,079,390) (120,823,500
)
Cash distribution - (109,188,434
)
Net cash used in financing activities (3,079,390 (230,011,934
) )
Net increase in cash and cash
equivalents 14,010,515 50,396,250
Cash and cash equivalents at
beginning of year 91,591,280 40,124,366
Cash and cash equivalents at end of
period $ 105,601,79 $ 90,520,61
5 6
Cash paid for interest $ 3,061,08 $ 8,098,69
6 0
</TABLE>
Supplemental Disclosure:
During the third quarter of 1997, the Partnership declared a
distribution of $18,989,293 which will be paid to partners in the
fourth quarter.
See Notes to Consolidated Financial Statements (Unaudited).
ML MEDIA PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEK PERIOD ENDED SEPTEMBER 26, 1997
(UNAUDITED)
1. Basis of Presentation
The unaudited consolidated financial statements included herein
reflect all normal recurring adjustments which are, in the
opinion of the General Partner, necessary for a fair presentation
of the financial position of the Partnership as of September 26,
1997 and the results of operations and cash flows of the
Partnership for the interim periods presented. The results of
operations for the thirty-nine week period ended September 26,
1997 are not necessarily indicative of the results of operations
that may be expected for the entire year. Certain information
and note disclosures normally included in the financial
statements provided herein and prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to the rules of the Securities and Exchange
Commission ("Commission"). These unaudited consolidated
financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto,
included in the Partnership's 1996 Annual Report on Form 10-K
filed with the Commission on April 11, 1997.
Certain reclassifications were made to the 1996 financial
statements to conform with the current periods' presentation.
2. California Cable Systems, KATC/WREX, Puerto Rico Radio and
Wincom-WEBE-WICC
The information set forth in the Liquidity and Capital Resources
section of Part I, Item 2; Management's Discussion and Analysis
of Financial Condition and Results of Operations under the
headings California Cable Systems, KATC/WREX, Puerto Rico Radio
and Wincom-WEBE-WICC is hereby incorporated herein by reference
and made a part hereof.
3. Contingencies
On May 1, 1996, a purported class action lawsuit was filed in
Orange County Superior Court against the Partnership on behalf of
subscribers of the Partnership's California Cable Systems serving
Anaheim, Villa Park and adjacent areas of unincorporated Orange
County, California. This purported class action lawsuit alleges
that excessive late fee payments have been charged to such
subscribers since April, 1992 and seeks refunds of late fee
payments to subscribers and related interest, damages and legal
costs. On September 5, 1997, the Order of the court was signed
and filed to give tentative approval to the late fee class action
settlement in the amount of $57,500. The Court is requiring that
public notice of the settlement be given and objections must be
filed by November 19, 1997, after which date a final approval
hearing will be held on December 3, 1997 in Orange County
Superior Court.
On August 29, 1997, a purported class action was commenced in New
York Supreme Court, New York County, on behalf of the limited
partners of the Partnership, against the Partnership, the
Partnership's general partner, Media Management Partners (the
"General Partner"), the General Partner's two partners, RP Media
Management ("RPMM") and ML Media Management Inc. ("MLMM"),
Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch"). The action concerns the
Partnership's payment of certain management fees and expenses to
the General Partner and the payment of certain purported fees to
an affiliate of RPMM.
Specifically, the plaintiffs allege breach of the Partnership
Agreement, breach of fiduciary duties, and unjust enrichment by
the General Partner in that the General Partner allegedly: (1)
improperly deferred and accrued certain management fees and
expenses in an amount in excess of $14.0 million, (2) improperly
paid itself such fees and expenses out of the sale of Partnership
assets, and (3) improperly paid Multivision, an affiliate of
RPMM, supposedly duplicative fees in an amount in excess of $14.4
million.
With respect to Merrill Lynch & Co., Inc., Merrill Lynch, MLMM
and RPMM, plaintiffs allege that these defendants aided and
abetted the General Partner in the breach of the Partnership
Agreement and in the breach of the General Partner's fiduciary
duties. Plaintiffs seek, among other things, an injunction
barring defendants from paying themselves management fees or
expenses not expressly authorized by the Partnership Agreement,
an accounting, disgorgement of the alleged improperly paid
management fees and expenses, and compensatory and punitive
damages. A response to the Complaint is due on December 5, 1997.
The defendants intend to vigorously defend this action.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources.
As of September 26, 1997, Registrant had $105,601,795 in cash and
cash equivalents. Of this amount, approximately $34.2 million is
restricted for use at the operating level of the Puerto Rico
Systems (as defined below), to fund capital expenditure programs
and satisfy future debt service requirements (including annual
principal payments of $20 million which will commence November
30, 1998), approximately $32.0 million is held in cash to cover
operating liabilities, current litigation, and litigation
contingencies relating to the California Cable Systems prior to
and resulting from their sale, and approximately $464,000 is
dedicated to fund both actual and contingent liabilities
resulting from the sale of WREX-TV and KATC-TV. In addition,
approximately $6.8 million is being held for use at the operating
level of Registrant's other remaining media properties,
approximately $19.0 million is being reserved for the pending
cash distribution (see below), and all remaining cash and cash
equivalents are available to Registrant for uses as provided in
the Partnership Agreement. As of September 26, 1997, the amount
payable for accrued management fees and expenses owed to the
General Partner amounted to approximately $3.9 million.
During the third quarter, Registrant declared a $100 per $1,000
limited partnership unit ("Unit") cash distribution totaling
$18,799,400. In addition, $189,893 will be remitted to the
General Partner representing its 1% share. The funds for this
distribution were derived from the release of (i) certain
proceeds that were deposited into escrow upon the sale of KATC-
TV; (ii) certain proceeds that were deposited into escrow upon
the sale of the California Cable Systems; and (iii) certain
reserves previously established upon the sales of KATC-TV, WREX-
TV and the California Cable Systems. In accordance with the
terms of the Partnership Agreement, funds received from the
release of an indemnity escrow account, after accounting for
certain expenses of Registrant, including certain expenses
incurred after the original sale, are distributed to partners of
record as of the date such unused amounts are released from
escrow, rather than to the partners of record as of the date of
the sale. In addition, funds from sales reserves are distributed
to partners of record as of the date of their release (the date
when Registrant determines such reserves are no longer
necessary), rather than to partners of record on the date of the
sale. Accordingly, the Limited Partners' portion of the declared
distribution is composed of the following: $10.09 per Unit
(totaling $1,896,860) from the release of the California Cable
Systems escrow account will be paid to partners of record on June
3, 1997; $5.26 per Unit (totaling $988,848) from the release of
the KATC-TV escrow account will be paid to partners of record on
June 24, 1997; and, $84.65 per Unit (totaling $15,913,692) from
the release of KATC-TV, WREX-TV and the California Cable Systems
various reserve accounts will be paid to partners of record on
August 14, 1997. Registrant anticipates making the $100.00 per
Unit cash distribution, less applicable state and federal
withholding taxes, in the fourth quarter.
As of September 26, 1997, Registrant's operating investments in
media properties consisted of a 50% interest in a joint venture
(the "Venture"), which owns an FM (WFID-FM) and AM (WUNO-AM)
radio station combination and a background music service in San
Juan, Puerto Rico ("C-ML Radio"), and 100% of the stock of
Century-ML Cable Corporation ("C-ML Cable"; jointly with C-ML
Radio, the "Puerto Rico Systems"), which owns and operates two
cable television systems in Puerto Rico; an FM (WEBE-FM) and AM
(WICC-AM) radio station combination in Bridgeport, Connecticut;
an FM (KEZY-FM) and AM (KORG-AM) radio station combination in
Anaheim, California, and Wincom Broadcasting Corporation
("Wincom"), a corporation that owns an FM radio station (WQAL-FM)
in Cleveland, Ohio. In early October, the Venture entered into
an agreement to sell C-ML Radio (see below).
Registrant's ongoing cash needs will be to fund debt service,
capital expenditures and working capital requirements. During
the thirty-nine week period ended September 26, 1997, cash
interest paid was $3,061,086 and principal repayments of
$3,079,390 were made. During the remainder of 1997, Registrant is
required by its various debt agreements to make scheduled
principal repayments in the aggregate, of $7,269,038 under all of
its debt agreements.
Registrant does not have sufficient unrestricted cash to meet all
of the contractual debt obligations of all of its operating
investments; however, such debt obligations are recourse only to
specified assets.
Although no assurance can be made concerning the precise timing
of the ultimate disposition of Registrant's remaining media
properties, Registrant currently anticipates that selling its
remaining investments in media properties will run through 1998.
On May 1, 1996, a purported class action lawsuit was filed in
Orange County Superior Court against Registrant on behalf of
subscribers of the California Cable Systems serving Anaheim,
Villa Park and adjacent areas of unincorporated Orange County,
California. This purported class action lawsuit alleges that
excessive late fee payments have been charged to such subscribers
since April, 1992 and seeks refunds of late fee payments to
subscribers and related interest, damages and legal costs. On
September 5, 1997, the Order of the court was signed and filed to
give tentative approval to the late fee class action settlement
in the amount of $57,500. The Court is requiring that public
notice of the settlement be given and objections must be filed by
November 19, 1997, after which date a final approval hearing will
be held on December 3, 1997 in Orange County Superior Court.
On August 29, 1997, a purported class action was commenced in New
York Supreme Court, New York County, on behalf of the limited
partners of Registrant, against Registrant, Registrant's general
partner, Media Management Partners (the "General Partner"), the
General Partner's two partners, RP Media Management ("RPMM") and
ML Media Management Inc. ("MLMM"), Merrill Lynch & Co., Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"). The action concerns Registrant's payment of certain
management fees and expenses to the General Partner and the
payment of certain purported fees to an affiliate of RPMM.
Specifically, the plaintiffs allege breach of the Partnership
Agreement, breach of fiduciary duties, and unjust enrichment by
the General Partner in that the General Partner allegedly: (1)
improperly deferred and accrued certain management fees and
expenses in an amount in excess of $14.0 million, (2) improperly
paid itself such fees and expenses out of the sale of Registrant
assets, and (3) improperly paid Multivision, an affiliate of
RPMM, supposedly duplicative fees in an amount in excess of $14.4
million.
With respect to Merrill Lynch & Co., Inc., Merrill Lynch, MLMM
and RPMM, plaintiffs allege that these defendants aided and
abetted the General Partner in the breach of the Partnership
Agreement and in the breach of the General Partner's fiduciary
duties. Plaintiffs seek, among other things, an injunction
barring defendants from paying themselves management fees or
expenses not expressly authorized by the Partnership Agreement,
an accounting, disgorgement of the alleged improperly paid
management fees and expenses, and compensatory and punitive
damages. A response to the Complaint is due on December 5, 1997.
The defendants intend to vigorously defend this action.
California Cable Systems
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 Registrant's California Cable Systems. On May 31, 1996,
Registrant consummated such sale pursuant to the terms of the
Asset Purchase Agreement. The base purchase price for the
California Cable Systems was $286 million, subject to certain
adjustments including an operating cash flow, as well as a
working capital adjustment, as provided in the Asset Purchase
Agreement.
Pursuant to the Asset Purchase Agreement and a letter agreement,
entered into by Registrant and Century at closing, Registrant
deposited $5 million into an indemnity escrow account. On June
3, 1997, Registrant received the release of such escrowed
proceeds of $5 million (and approximately $300,000 of interest
earned thereon) generated from the sale of the California Cable
Systems. This release of escrowed proceeds is included in the
cash distribution, after accounting for certain expenses of
Registrant, that will be distributed in the fourth quarter in
accordance with the terms of the Partnership Agreement.
Upon closing, Registrant set aside approximately $40.7 million in
a cash reserve to cover operating liabilities, current
litigation, and litigation contingencies relating to the
California Cable Systems' operations prior to and resulting from
their sale, as well as a potential purchase price adjustment. In
accordance with the Partnership Agreement, any amounts which may
be available for distribution from any unused cash reserves,
after accounting for certain other expenses of Registrant
including certain expenses incurred after May 31, 1996, will be
distributed to partners of record as of the date such unused
reserves are released, when Registrant determines such reserves
are no longer necessary, rather than to the partners of record on
May 31, 1996, the date of the sale. Effective August 14, 1997,
reserves in the amount of approximately $13.2 million were
released and, after accounting for certain expenses of
Registrant, in accordance with the terms of the Partnership
Agreement, are included in the cash distribution that will be
distributed in the fourth quarter. As of September 26, 1997,
Registrant has approximately $23.5 million remaining in cash
reserves to cover operating liabilities, current litigation, and
litigation contingencies relating to the California Cable Systems
prior to and resulting from their sale.
Upon closing, a portion of the sales proceeds of the California
Cable Systems were allocated to pay approximately $9.2 million to
the General Partner for accrued management fees and expenses as
of the date of sale; of this amount, approximately $7.6 million
was paid through September 26, 1997. In addition, upon the
August 14, 1997 release of reserves, a portion of the reserve was
allocated to pay approximately $2.3 million to the General
Partner for accrued management fees and expenses as of such date.
KATC/WREX
On June 24, 1997, Registrant received the release of escrowed
proceeds of $1.0 million (and approximately $100,000 of interest
earned thereon) generated from the sale of KATC-TV. In addition,
a portion of the reserve established at the time of the KATC-TV
and WREX-TV sales of approximately $3.4 million in aggregate was
released effective August 14, 1997. Both the release of reserves
and escrowed proceeds are included in the cash distribution that
will be distributed in the fourth quarter, after accounting for
certain expenses of Registrant, in accordance with the terms of
the Partnership Agreement. During the thirteen week period ended
September 26, 1997, Registrant recognized a gain on sale of KATC-
TV and WREX-TV of approximately $1.5 million and $1.8 million,
respectively, resulting from the reversal of previous accruals.
Puerto Rico Radio
In October, 1997, the Venture entered into a sales agreement to
sell C-ML Radio for approximately $11.5 million, subject to
closing adjustments, as well as a Local Marketing Agreement,
effective as of October 1, 1997, which, subject to compliance
with the rules of the Federal Communications Commission
("Commission" or "FCC"), allows the buyer to program the station
from that date forward. Although Registrant will attempt to
close the sale of C-ML Radio, there are numerous conditions to
closing, including FCC approval. Therefore, there can be no
assurance that the sale will be consummated as contemplated.
Registrant anticipates receiving no proceeds from any resulting
sale since any sale proceeds received from the sale of C-ML Radio
are required to be applied against the aggregate outstanding
senior indebtedness, which jointly finances C-ML Radio and C-ML
Cable.
Wincom-WEBE-WICC
On July 30, 1993, Registrant and Chemical Bank (now known as the
Chase Manhattan Bank; the "Wincom Bank") executed an amendment to
the Wincom-WEBE-WICC Loan (the "Restructuring Agreement"),
effective January 1, 1993. Pursuant to the final maturity date
set forth in the Restructuring Agreement, all amounts outstanding
under the Series A Term Loan and the Series B Term Loan will
become due and payable on December 31, 1997. As a result of an
ambiguity in the covenant provisions in the Restructuring
Agreement, the Wincom Bank may take the position that Registrant
is in default of a negative loan covenant. If the Wincom Bank
was successful in asserting this position, Registrant would be in
default and the Wincom Bank could exercise its contractual
remedies which include its right to accelerate the December 31,
1997 due date of the entire amount of the loan. However, based
upon Registrant's conversations with a representative of the
Wincom Bank, Registrant does not believe that it is in default.
The Wincom-WEBE-WICC group currently does not, nor does it expect
to in the future, have sufficient cash to pay all outstanding
amounts on such final maturity date. Accordingly, the Wincom-
WEBE-WICC group anticipates obtaining a refinancing of such loan,
although there can be no assurances that it will be able to do so
on economically satisfactory terms.
Cable Industry Regulation
The cable industry is subject to significant regulation at both
the federal and local level, particularly as a result of the
Cable Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"), which imposed significant new regulations on the
industry. The 1992 Cable Act required the development of detailed
regulations and other guidelines by the FCC, most of which have
now been adopted but some of which remain subject to petitions
for reconsideration before the FCC and/or court of appeals.
Rate Regulation
Under the 1992 Cable Act, cable systems that are not subject to
"effective competition" are subject to regulation by the FCC and
local franchising authorities regarding the rates that may be
charged to subscribers. Under these regulations, Registrant's
systems, like most cable systems in most areas, are not currently
subject to effective competition. Consequently, the rates
charged by Registrant's systems are subject to rate regulation
under certain circumstances.
Under the 1992 Cable Act, a local franchising authority may
certify with the FCC to regulate the basic service tier ("BST")
and associated subscriber equipment of a cable system within its
jurisdiction. By law, the BST must include all broadcast signals
(with the exception of national "superstations"), including those
required to be carried under the mandatory carriage provisions of
the 1992 Cable Act, as well as public, educational, and
governmental access channels required by the franchise. The FCC
has jurisdiction over the cable programming service tier
("CPST"), which generally includes programming other than that
carried on the BST or offered on a per-channel or per-program
basis. The Telecommunications Act of 1996 (the "1996 Act"),
however, confines rate regulation to the BST after three years:
on March 31, 1999, the CPST will be exempted from rate
regulation. Under procedures mandated by the 1996 Act, only a
local franchising authority may file an FCC complaint regarding
CPST rates, and then only if the franchising authority receives
"subscriber complaints" within 90 days of the effective date of a
rate increase. The FCC must issue a final order within 90 days
after receiving a franchising authority's complaint.
Under regulations promulgated by the FCC to implement the 1992
Cable Act, cable operators were required to set an "initial
permitted" rate for regulated service using either (i) a
"benchmark" approach which, essentially involved a reduction in
rates of 17% from those existing on September 30, 1992; or (ii) a
cost of service approach, which, much like the method
historically used to regulate the rates of local exchange
carriers, allows cable system operators to recover through
regulated rates their normal operating expenses, and a reasonable
return on investment. Once set, cable systems were allowed to
adjust their initial permitted rate on a going forward basis,
either quarterly or annually under the FCC's "price cap"
mechanism, which accounts for inflation, changes in "external
costs," and changes in the number of regulated channels.
External costs include state and local taxes applicable to the
provision of cable television service, franchise fees, the costs
of complying with certain franchise requirements, annual FCC
regulatory fees and retransmission consent fees and copyright
fees incurred for the carriage of broadcast signals. In
addition, a cable system may treat as external (and thus pass
through to its subscribers) the costs, plus a 20 cent per channel
mark-up, for channels newly added to a CPST. Through 1996, each
cable system was subject to an aggregate cap of $1.50 on the
amount it may increase CPST rates due to channel additions. The
FCC has also adopted "tier flexibility" rules that allow cable
operators to reduce BST rates and take a corresponding revenue
neutral, increase in CPST rates. The FCC's rate regulations will
continue to govern the price Registrant's cable systems may
charge.
Beginning in late 1995, the FCC demonstrated an increased
willingness to settle some or all of the rate cases pending
against a multiple system operator ("MSO") by entering into a
"social contract" or rate settlement (collectively "social
contract/settlement"). While the terms of each social
contract/settlement vary according to the underlying facts unique
to the relevant cable systems, the common elements include an
agreement by an MSO to make a specified subscriber refund
(generally in the form of in-kind service or a billing credit) in
exchange for the dismissal, with prejudice, of pending complaints
and rate proceedings. In addition, the FCC has adopted or
proposed measures that may mitigate the negative effect of the
Commission's rate regulations on cable systems' revenues and
profits, and allow systems to more efficiently market cable
service. The FCC implemented an abbreviated cost-of-service
mechanism for cable systems of all sizes that permits systems to
recover the costs of "significant" upgrades (e.g., expansion of
system bandwidth capacity) that provide benefits to subscribers
to regulated cable service. This mechanism could make it easier
for cable systems to raise rates to cover the costs of an
upgrade. The Commission also has proposed an optional rate-
setting methodology under which a cable operator serving multiple
franchise areas could establish uniform rates for uniform cable
service tiers offered in multiple franchise areas.
Must-Carry
On March 31, 1997, the United States Supreme Court, in a 5-4
decision, upheld the constitutionality of the must-carry
provisions of the 1992 Cable Act. As a result, the regulations
promulgated by the FCC to implement the must-carry provisions
will remain in effect. Under those rules, cable operators
generally are required to devote up to one-third of their
activated channel capacity to the carriage of local commercial
television stations.
Radio Industry Regulation
The 1996 Act completely revised the radio ownership rules by,
among other things, eliminating the national radio ownership
restriction. As a result, any number of AM or FM broadcast
stations may be owned or controlled by one entity nationally.
The 1996 Act also greatly eased local radio ownership
restrictions. As with the old rules, the maximum varies
depending on the number of radio stations within the market. In
markets with more than 45 stations, one company may own, operate,
or control eight stations, with no more than five in any one
service (AM or FM). In markets of 30-44 stations, one company
may own seven stations, with no more than four in any one
service. In markets with 15-29 stations, one entity may own six
stations, with no more than four in any one service. In markets
with 14 commercial stations or less, one company may own up to
five stations or 50% of all of the stations, whichever is less,
with no more than three in any one service.
In 1992, the FCC placed limitations on local marketing agreements
("LMAs") through which the licensee of one radio station provides
the programming for another licensee's station in the same
market. Stations operating in the same service (e.g., where both
stations are AM) and in the same market are prohibited from
simulcasting more than 25% of their programming. Moreover, in
determining the number of stations that a single entity may
control in a local market, an entity programming a station
pursuant to an LMA is required, under certain circumstances, to
count that station toward its maximum even though it does not own
the station.
In addition, in January 1995, the FCC adopted rules to allocate
spectrum for satellite digital audio radio service ("DARS").
Satellite DARS systems potentially could provide for regional or
nationwide distribution of radio programming with fidelity
comparable to compact disks. An auction for DARS spectrum was
held on April 1, 1997 for two licenses to provide nationwide DARS
services. In addition, the FCC has undertaken an inquiry into
the terrestrial broadcast of DARS signals, addressing, among
other things, the need for spectrum outside the existing FM band
and the role of existing broadcasters in providing such a
service. Further, in 1995, the laboratory testing of a number of
competing in-band on-channel terrestrial DARS technologies was
completed, with many of the systems progressing to the next stage
of field testing. Registrant cannot predict the outcome of these
proceedings or the ultimate impact of DARS on its stations.
The foregoing does not purport to be a complete summary of the
Communications Act of 1934 as amended, the 1992 Cable Act, and
the 1996 Act or of the regulations and policies of the FCC
thereunder. Moreover, proposals for additional or revised
statutory or regulatory requirement are considered by Congress
and the FCC from time to time. It is not possible to predict
what legislative, regulatory or judicial changes, if any, may
occur or their impact on the Company's business or operations.
Forward Looking Information
In addition to historical information contained or incorporated
by reference in this report on Form 10-Q, Registrant may make or
publish forward-looking statements about management expectations,
strategic objectives, business prospects, anticipated financial
performance, and other similar matters. In order to comply with
the terms of the safe harbor for such statements provided by the
Private Securities Litigation Reform Act of 1995, Registrant
notes that a variety of factors, many of which are beyond its
control, affect its operations, performance, business strategy,
and results and could cause actual results and experience to
differ materially from the expectations expressed in these
statements. These factors include, but are not limited to, the
effect of changing economic and market conditions, trends in
business and finance and in investor sentiment, the level of
volatility of interest rates, the actions undertaken by both
current and potential new competitors, the impact of current,
pending, and future legislation and regulation both in the United
States and throughout the world, and the other risks and
uncertainties detailed in this Form 10-Q, and as more fully
detailed in Form 10-K incorporated by reference herein.
Registrant undertakes no responsibility to update publicly or
revise any forward-looking statements.
Results of Operations.
For the thirteen week periods ended September 26, 1997 and
September 27, 1996:
Net Income.
Registrant's net income for the thirteen week period ended
September 26, 1997 was approximately $6.9 million, as compared to
net income of approximately $2.7 million for the 1996 period.
The increase in net income for the 1997 period primarily resulted
from the recognition in 1997 of a book gain from the sale of KATC-
TV and WREX-TV resulting from the reversal of previous accruals
and other factors described below.
Operating Revenues.
During the thirteen week periods ended September 26, 1997 and
September 27, 1996, Registrant had total operating revenues of
approximately $13.7 million and $12.5 million, respectively. The
approximate $1.2 million increase in operating revenues was
primarily due to an increase of approximately $644,000 in
operating revenues at C-ML Cable as well as a combined increase
of approximately $941,000 at the Wincom-WEBE-WICC Group. The
increase in operating revenues at C-ML Cable reflects an increase
in basic subscriber rates and advertising revenues as well as an
increase in the number of basic subscribers due to successful
marketing efforts. The combined increase in operating revenues
at the Wincom-WEBE-WICC Group is due to stronger market
conditions at all three stations, including higher advertising
rates arising from increased ratings. The remaining increases or
decreases in operating revenues were immaterial, either
individually or in the aggregate.
Interest Income.
Registrant earned interest income of approximately $853,000 and
$1.4 million during the third quarters of 1997 and 1996,
respectively. The decrease is due primarily to interest earned
on the higher cash balances that existed during the third quarter
of 1996 related to the sale of the California Cable Systems.
Property Operating Expense.
During the third quarters of 1997 and 1996, Registrant incurred
property operating expenses of approximately $4.9 million and
$4.2 million, respectively. Registrant's total property
operating expenses increased by approximately $759,000 from year
to year primarily due to an increase of approximately $419,000 at
C-ML Cable due to expenses directly related to the increase in
operating revenues, as well as increased marketing costs. The
remaining increases or decreases in property operating expenses
at Registrant's other properties were immaterial, either
individually or in the aggregate.
General and Administrative Expense.
During the third quarters of 1997 and 1996, Registrant incurred
general and administrative expenses of approximately $2.7 million
and $2.1 million, respectively. Registrant's total general and
administrative expenses increased by approximately $588,000 from
year to year primarily due to an increase of approximately
$247,000 at C-ML Cable due to expenses directly related to the
increase in operating revenues. The remaining increases or
decreases in general and administrative expenses at Registrant's
other properties were immaterial, either individually or in the
aggregate.
Depreciation and Amortization Expense.
Registrant's depreciation and amortization expense totaled
approximately $1.8 million and $3.3 million during the third
quarters of 1997 and 1996, respectively. Registrant's total
depreciation and amortization expense decreased by approximately
$1.5 million from year to year due to a decrease of approximately
$1.5 million at C-ML Cable which resulted from the write-off of
certain fixed assets during the third quarter of 1996. The
remaining increases or decreases in depreciation and amortization
expense at Registrant's other properties were immaterial, either
individually or in the aggregate.
Interest Expense.
Interest expense of approximately $1.3 million and $1.4 million
in the third quarters of 1997 and 1996, respectively, represents
the cost incurred for borrowed funds utilized to acquire various
media properties. The approximate $115,000 decrease in interest
expense is to due to the repayment of a portion of the
outstanding borrowings.
For the thirty-nine week periods ended September 26, 1997 and
September 27, 1996:
Net Income.
Registrant's net income for the thirty-nine week period ended
September 26, 1997 was approximately $13.7 million, as compared to
net income of approximately $188.5 million for the 1996 period.
The decrease in net income for the 1997 period primarily resulted
from the sale of the California Cable Systems during the second
quarter of 1996, partially offset by the sales of KATC-TV and WREX-
TV during the third quarter of 1997, the recognition of a book
gain from the sale of KATC-TV and WREX-TV resulting from the
reversals of previous accruals and other factors described below.
Operating Revenues.
During the thirty-nine week periods ended September 26, 1997 and
September 27, 1996, Registrant had total operating revenues of
approximately $39.5 million and $59.6 million, respectively. The
approximate $20.1 million decrease in operating revenues was
primarily due to a decrease of approximately $24.5 million in
operating revenues resulting from the sale of the California
Cable Systems during the second quarter of 1996, partially offset
by an increase of approximately $1.7 million in operating
revenues at C-ML Cable as well as a combined increase of
approximately $2.6 million in the Wincom-WEBE-WICC Group. The
increase in operating revenues at C-ML Cable reflects an increase
in basic subscriber rates and advertising revenues as well as an
increase in the number of basic subscribers due to successful
marketing efforts. The combined increase in operating revenues
at the Wincom-WEBE-WICC Group is due to stronger market
conditions at all three stations, including higher advertising
rates arising from increased ratings. The remaining increases or
decreases in operating revenues were immaterial either
individually or in the aggregate.
Interest Income.
Registrant earned interest income of approximately $2.5 million
and $2.3 million during the first thirty-nine weeks of 1997 and
1996, respectively. The increase is due primarily to interest
earned on the higher average cash balances that existed during
the first thirty-nine weeks of 1997 related to the sale of the
California Cable Systems.
Property Operating Expense.
During the first thirty-nine weeks of 1997 and 1996, Registrant
incurred property operating expenses of approximately $14.4
million and $20.8 million, respectively. Registrant's total
property operating expenses decreased by approximately $6.3
million from year to year due primarily to a decrease of
approximately $8.6 million resulting from the sale of the
California Cable Systems during the second quarter of 1996,
partially offset by an increase of approximately $1.3 million at
C-ML Cable due to expenses directly related to the increase in
operating revenues, as well as increased marketing costs, and a
combined increase of approximately $848,000 at the Wincom-WEBE-
WICC Group due to increased selling expenses as a result of
higher revenues and increased advertising and marketing expenses
due to heightened market competition. The remaining increases or
decreases in property operating expenses at Registrant's other
properties were immaterial, either individually or in the
aggregate.
General and Administrative Expense.
During the first thirty-nine weeks of 1997 and 1996, Registrant
incurred general and administrative expenses of approximately
$7.3 million and $11.8 million, respectively. Registrant's total
general and administrative expenses decreased by approximately
$4.5 million from year to year due primarily to a decrease of
approximately $5.4 million resulting from the sale of the
California Cable Systems during the second quarter of 1996. The
remaining increases or decreases in general and administrative
expenses at Registrant's other properties were immaterial, either
individually or in the aggregate.
Depreciation and Amortization Expense.
Registrant's depreciation and amortization expense totaled
approximately $5.3 million and $16.9 million in the first thirty-
nine weeks of 1997 and 1996, respectively. The approximately
$11.6 million decrease in Registrant's total depreciation and
amortization expense from year to year was primarily due to a
decrease of approximately $7.0 million resulting from the sale of
the California Cable Systems during the second quarter of 1996
and approximately a $4.6 million decrease at C-ML Cable which
resulted from the write-off of certain fixed assets during the
first nine months of 1996. The remaining increases or decreases
in depreciation and amortization expense at Registrant's other
properties were immaterial, either individually or in the
aggregate.
Interest Expense.
Interest expense of approximately $3.8 million and $8.9 million
in the first thirty-nine weeks of 1997 and 1996, respectively,
represents the cost incurred for borrowed funds utilized to
acquire various media properties. The approximately $5.1 million
decrease in interest expense is due to the repayment of the
outstanding borrowings.
<PAGE>
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
On May 1, 1996, a purported class action lawsuit was
filed in Orange County Superior Court against Registrant
on behalf of subscribers of the California Cable Systems
serving Anaheim, Villa Park and adjacent areas of
unincorporated Orange County, California. This
purported class action lawsuit alleges that excessive
late fee payments have been charged to such subscribers
since April, 1992 and seeks refunds of late fee payments
to subscribers and related interest, damages and legal
costs. On September 5, 1997, the Order of the court was
signed and filed to give tentative approval to the late
fee class action settlement in the amount of $57,500.
The Court is requiring that public notice of the
settlement be given and objections must be filed by
November 19, 1997, after which date a final approval
hearing will be held on December 3, 1997 in Orange
County Superior Court.
On August 29, 1997, a purported class action was
commenced in New York Supreme Court, New York County, on
behalf of the limited partners of Registrant, against
Registrant, Registrant's General Partner, Media
Management Partners (the "General Partner"), the General
Partner's two partners, RP Media Management ("RPMM") and
ML Media Management Inc. ("MLMM"), Merrill Lynch & Co.,
Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"). The action concerns
Registrant's payment of certain management fees and
expenses to the General Partner and the payment of
certain purported fees to an affiliate of RPMM.
Specifically, the plaintiffs allege breach of the
Partnership Agreement, breach of fiduciary duties, and
unjust enrichment by the General Partner in that the
General Partner allegedly: (1) improperly deferred and
accrued certain management fees and expenses in an
amount in excess of $14.0 million, (2) improperly paid
itself such fees and expenses out of the sale of
Registrant assets, and (3) improperly paid Multivision,
an affiliate of RPMM, supposedly duplicative fees in an
amount in excess of $14.4 million.
With respect to Merrill Lynch & Co., Inc., Merrill
Lynch, MLMM and RPMM, plaintiffs allege that these
defendants aided and abetted the General Partner in the
breach of the Partnership Agreement and in the breach of
the General Partner's fiduciary duties. Plaintiffs
seek, among other things, an injunction barring
defendants from paying themselves management fees or
expenses not expressly authorized by the Partnership
Agreement, an accounting, disgorgement of the alleged
improperly paid management fees and expenses, and
compensatory and punitive damages. A response to the
Complaint is due on December 5, 1997. The defendants
intend to vigorously defend this action.
Registrant is not aware of any other material legal
proceedings.
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: November 10, 1997 /s/ Kevin K. Albert
Kevin K. Albert
Director and President
Dated: November 10, 1997 /s/ Robert F. Aufenanger
Robert F. Aufenanger
Director and Executive Vice
President
Dated: November 10, 1997 /s/ Diane T. Herte
Diane T. Herte
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: November 10, 1997 /s/I. Martin Pompadur
I. Martin Pompadur
President, Secretary and
Director
(principal executive officer of
the Registrant)
Dated: November 10, 1997 /s/Elizabeth McNey Yates
Elizabeth McNey Yates
Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the quarter September 26, 1997
Form 10Q Consolidated Balance Sheets and Consolidated
Statements of Operations as of September 26, 1997, and is
qualified in its entirety by reference to such financial
statements.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> SEP-26-1997
<CASH> 105,602
<SECURITIES> 0
<RECEIVABLES> 7,528
<ALLOWANCES> 433
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 41,469
<DEPRECIATION> 17,770
<TOTAL-ASSETS> 172,461
<CURRENT-LIABILITIES> 0
<BONDS> 57,269
<COMMON> 0
0
0
<OTHER-SE> 72,828
<TOTAL-LIABILITY-AND-EQUITY> 172,461
<SALES> 0
<TOTAL-REVENUES> 39,536
<CGS> 0
<TOTAL-COSTS> 14,430
<OTHER-EXPENSES> 13,516
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,767
<INCOME-PRETAX> 13,659
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,659
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,659
<EPS-PRIMARY> 71.93
<EPS-DILUTED> 0
</TABLE>
