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
June 26, 1998
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) 236-6577
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 June 26, 1998
(Unaudited) and December 26, 1997 (Unaudited)
Consolidated Income Statements for the Thirteen and Twenty-
Six Week Periods Ended June 26, 1998 (Unaudited) and June
27, 1997 (Unaudited)
Consolidated Statements of Cash Flows for the Twenty-Six
Week Periods Ended June 26, 1998 (Unaudited) and June 27,
1997 (Unaudited)
Notes to Consolidated Financial Statements for the Twenty-
Six Week Period Ended June 26, 1998 (Unaudited)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 26, 1998 (UNAUDITED) AND DECEMBER 26, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
June 26, December 26,
1998 1997
<S> <C> <C>
ASSETS:
Cash and cash equivalents $106,301,913 $ 92,872,891
Investments held by escrow
agents 593,125 -
Accounts receivable (net of
allowance for doubtful
accounts of $453,140 and
$328,702, respectively) 6,243,614 5,550,419
Prepaid expenses and deferred
charges (net of
accumulated amortization of
$3,683,735 and $3,640,331,
respectively) 527,991 1,355,810
Property, plant and equipment
(net of accumulated
depreciation of $16,832,649
and $14,952,837,
respectively) 24,414,813 23,564,815
Intangible assets (net of
accumulated amortization of
$59,059,724 and $57,351,125,
respectively) 26,783,892 28,492,491
Assets held for sale - 2,906,500
Other assets 436,496 1,903,252
TOTAL ASSETS $165,301,844 $156,646,178
</TABLE>
(Continued on the following page.)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 26, 1998 (UNAUDITED) AND DECEMBER 26, 1997 (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
June 26, December 26,
1998 1997
<S> <C> <C>
LIABILITIES AND PARTNERS'
CAPITAL:
Liabilities:
Borrowings $ 52,993,137 $ 54,244,038
Accounts payable and
accrued liabilities 23,461,496 22,252,266
Subscriber advance payments 1,534,774 1,512,748
Total Liabilities 77,989,407 78,009,052
Commitments and Contingencies
(Notes 2 and 3)
Partners' Capital:
General Partner:
Capital contributions, net of
offering expenses 1,708,299 1,708,299
Cumulative cash distributions (1,357,734) (1,357,734)
Cumulative income 585,477 498,724
936,042 849,289
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)
Cumulative cash distributions (134,415,710) (134,415,710)
Cumulative income 57,962,414 49,373,856
86,376,395 77,787,837
Total Partners' Capital 87,312,437 78,637,126
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $165,301,844 $ 156,646,178
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED INCOME STATEMENTS
FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED JUNE 26, 1998
(UNAUDITED) AND JUNE 27, 1997 (UNAUDITED)
<TABLE>
<CAPTION> Thirteen Weeks Twenty-Six Weeks
June 26, 1998 June 27, 1997 June 26, 1998 June 27, 1997
<S> <C> <C> <C> <C>
REVENUES:
Operating
revenues $ 14,311,981 $ 13,705,775 $ 27,141,070 $ 25,800,264
Interest 872,210 874,625 1,513,986 1,658,359
Gain on sale
of C-ML Radio 2,842,178 - 2,842,178 -
Total revenues 18,026,369 14,580,400 31,497,234 27,458,623
COSTS AND
EXPENSES:
Property
operating 4,916,557 4,922,350 9,265,589 9,512,213
General and
adminis-
trative 3,795,161 2,363,029 6,668,092 4,555,357
Depreciation
and amorti-
zation 1,941,843 1,391,832 3,719,308 3,563,072
Interest
expense 1,252,419 1,172,020 2,563,099 2,489,265
Management
fees 302,917 302,917 605,835 605,835
Total costs
and expenses 12,208,897 10,152,148 22,821,923 20,725,742
NET INCOME $ 5,817,472 $ 4,428,252 $ 8,675,311 $ 6,732,881
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
NET INCOME $ 30.64 $ 23.32 $ 45.69 $ 35.46
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 TWENTY-SIX WEEK PERIODS ENDED JUNE 26, 1998 (UNAUDITED) AND
JUNE 27, 1997(UNAUDITED)
<TABLE>
<CAPTION>
June 26, June 27,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,675,311 $ 6,732,881
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 3,719,308 3,563,072
Gain on sale of C-ML Radio (2,842,178) -
Bad debt expense/(recovery), net 151,361 (128,612)
Changes in operating assets and
liabilities:
Decrease/(Increase):
Accounts receivable (292,127) (86,871)
Investments held by escrow agents (593,125) 6,244,252
Prepaid expenses and deferred 790,133 240,092
charges
Other assets 1,466,756 (3,059,925)
(Decrease)/Increase:
Accounts payable and accrued
liabilities 1,007,097 3,933,234
Subscriber advance payments 22,026 (4,546)
Net cash provided by operating
activities 12,104,562 17,433,577
</TABLE>
(Continued on the following page.)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEK PERIODS ENDED JUNE 26, 1998 (UNAUDITED)
AND JUNE 27, 1997 (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
June 26, June 27,
1998 1997
<S> <C> <C>
Cash flows from investing activities:
Payment of costs incurred related to
sale of the California Cable Systems $ (273,686) $ (2,075,621)
Purchase of property, plant and
equipment (2,729,810) (3,312,380)
Proceeds from sale of C-ML Radio
5,768,750 -
Net cash provided by/(used in)
investing activities 2,765,254 (5,388,001)
Cash flows from financing activities:
Principal payments on borrowings (1,250,901) (1,999,390)
General Partner cash distribution (189,893) -
Net cash used in financing activities (1,440,794) (1,999,390)
Net increase in cash and cash
equivalents 13,429,022 10,046,186
Cash and cash equivalents at
beginning of year 92,872,891 91,591,280
Cash and cash equivalents at end of
period $ 106,301,913 $ 101,637,466
Cash paid for interest $ 2,562,474 $ 2,849,052
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
ML MEDIA PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEK PERIOD ENDED JUNE 26, 1998 (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 June 26, 1998
and the results of operations and cash flows of the Partnership
for the interim periods presented. The results of operations for
the twenty-six week period ended June 26, 1998 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
("SEC"). These unaudited consolidated financial statements
should be read in conjunction with the audited consolidated
financial statements and notes thereto, included in the
Partnership's 1997 Annual Report on Form 10-K filed with the SEC
on March 26, 1998.
Certain reclassifications were made to the 1997 and prior 1998
period financial statements to conform with the current periods'
presentation.
2. Wincom-WEBE-WICC, Puerto Rico Radio and California Cable
Systems
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 Wincom-WEBE-WICC, Puerto Rico Radio and California Cable
Systems is hereby incorporated by reference and made a part
hereof.
3. Contingencies
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 Amended and
Restated Agreement of Limited Partnership (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 proceeds from sales of
Partnership assets, and (3) improperly paid MultiVision Cable TV
Corp., 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 claim that these defendants aided and
abetted the General Partner in the alleged breach of the
Partnership Agreement and in the alleged 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 fees and expenses, and compensatory and punitive
damages. Defendants have moved to dismiss the complaint and each
claim for relief therein; the court has not yet ruled on the
motion. Defendants believe that they have good and meritorious
defenses to the action, and vigorously deny any wrongdoing with
respect to the alleged claims.
The Partnership Agreement provides for indemnification, to the
fullest extent provided by law, for any person or entity named as
a party to any threatened, pending or completed lawsuit by reason
of any alleged act or omission arising out of such person's
activities as a General Partner or as an officer, director or
affiliate of either RPMM, MLMM or the General Partner, subject to
specified conditions. In connection with the purported class
action filed on August 29, 1997, Partnership has received notices
of requests for indemnification from the following defendants
named therein: the General Partner, RPMM, MLMM, Merrill Lynch &
Co., Inc. and Merrill Lynch. For the thirteen and twenty-six
week periods ended June 26, 1998, the Partnership incurred
approximately $132,000 and $192,000, respectively, for legal
costs relating to such indemnification. Such cumulative costs
amount to approximately $472,000 through June 26, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Liquidity and Capital Resources.
As of June 26, 1998, Registrant had $106,301,913 in cash and cash
equivalents. Of this amount, approximately $49.5 million is
restricted for use at the operating level of the Venture (as
defined below) to fund capital expenditure programs and satisfy
future non-recourse debt service requirements (including annual
principal payments of $20 million, $10 million of which is
Registrant's share, commencing November 30, 1998) and
approximately $23.0 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. In addition, approximately $21.7 million is
being held for use at the operating level of Registrant's other
remaining media properties, and all remaining cash and cash
equivalents are available to Registrant for uses as provided in
the Partnership Agreement. As of June 26, 1998, the amount
payable for accrued management fees and expenses owed to the
General Partner amounted to approximately $3.4 million.
Registrant's ongoing cash needs will be to fund debt service,
capital and operating expenditures and required working capital
as well as providing for costs and expenses related to the
purported class action lawsuit (see below). During the twenty-
six week period ended June 26, 1998, interest paid was $2,562,474
and principal repayments of $1,250,901 were made. During the
remainder of 1998, Registrant is required by its various debt
agreements to make scheduled principal repayments of $12,993,137
under all of its debt agreements.
As of June 26, 1998, Registrant's operating investments in media
properties consisted of a 50% interest in a joint venture (the
"Venture"), which owns 100% of the stock of Century-ML Cable
Corporation ("C-ML Cable"), 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 June 1998, the Venture consummated the sale of an FM
(WFID-FM) and AM (WUNO-AM) radio station combination and a
background music service in San Juan, Puerto Rico ("C-ML Radio")
(see below).
Although no assurance can be made concerning the precise timing
of the ultimate disposition of Registrant's remaining properties,
Registrant currently anticipates entering into agreements to sell
its remaining investments in media properties in 1998.
Registrant also anticipates that the resolution of contingencies
and required escrows related to property sales will likely occur
over a two year period.
The General Partner currently anticipates that the pendency of
certain litigation, as discussed below, the related claims
against Registrant for indemnification, other costs and expenses
related to such litigation, and the involvement of management,
will adversely affect (a) the timing of the termination of
Registrant, (b) the amount of proceeds which may be available for
distribution, and (c) the timing of the distribution to the
limited partners of the net proceeds from the liquidation of
Registrant's assets.
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 Amended and
Restated Agreement of Limited Partnership (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 proceeds from sales of
Registrant assets, and (3) improperly paid MultiVision Cable TV
Corp., 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 claim that these defendants aided and
abetted the General Partner in the alleged breach of the
Partnership Agreement and in the alleged 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 fees and expenses, and compensatory and punitive
damages. Defendants have moved to dismiss the complaint and each
claim for relief therein; the court has not yet ruled on the
motion. Defendants believe that they have good and meritorious
defenses to the action, and vigorously deny any wrongdoing with
respect to the alleged claims.
The Partnership Agreement provides for indemnification, to the
fullest extent provided by law, for any person or entity named as
a party to any threatened, pending or completed lawsuit by reason
of any alleged act or omission arising out of such person's
activities as a General Partner or as an officer, director or
affiliate of either RPMM, MLMM or the General Partner, subject to
specified conditions. In connection with the purported class
action filed on August 29, 1997, Registrant has received notices
of requests for indemnification from the following defendants
named therein: the General Partner, RPMM, MLMM, Merrill Lynch &
Co., Inc. and Merrill Lynch. For the thirteen and twenty-six
week periods ended June 26, 1998, the Partnership incurred
approximately $132,000 and $192,000, respectively, for legal
costs relating to such indemnification. Such cumulative costs
amount to approximately $472,000 through June 26, 1998.
Puerto Rico Radio
On June 3, 1998, the Venture consummated the sale of C-ML Radio
pursuant to a sales agreement entered into in October 1997
between the Venture and Madifide, Inc. The base sales price for
C-ML Radio was approximately $11.5 million, subject to closing
adjustments. Pursuant to a local marketing agreement ("LMA")
entered into, effective as of October 1, 1997, the buyer was
allowed to program the station through the consummation date of
the sale. Registrant collected a monthly LMA fee from the buyer
which was equal to the operating income for that month, provided
however, that it not be less than $50,000 nor more than $105,000.
The monthly fee was recognized as revenue during the LMA period
and Registrant did not recognize any operating revenues nor incur
any net operating expenses of C-ML Radio during the LMA period.
At the closing, the Venture and Madifide, Inc. entered into an
escrow agreement pursuant to which the Venture deposited
approximately $593,000 into an escrow account for which
indemnification claims may be made by Madifide, Inc. for a period
of one year. This escrow is being classified on the accompanying
Consolidated Balance Sheet as Investments held by escrow agents
as of June 26, 1998.
Pursuant to the terms of the outstanding senior indebtedness that
jointly finances C-ML Radio and C-ML Cable, the net proceeds from
the resulting sale of C-ML Radio must be retained by the Venture
and cannot be distributed to Registrant or its partners.
Wincom-WEBE-WICC
On December 31, 1997, the Wincom-WEBE-WICC Loan matured and
became due and payable in accordance with its terms. As of that
date, $4,244,038 of such amount remained due and payable to the
Wincom Bank. During the twenty-six week period ended June 26,
1998, $1,250,901 of principal was paid resulting in an
outstanding balance of $2,993,137 as of June 26, 1998. As a
result of such default, the Wincom Bank has the right to take
actions to enforce its right under the Wincom-WEBE-WICC Loan
including the right to foreclose on the properties of the Wincom-
WEBE-WICC group. The Wincom-WEBE-WICC Loan is non-recourse to
the other assets of Registrant. Registrant and the Wincom Bank
are negotiating the terms of a waiver of the default and an
amendment to the Wincom-WEBE-WICC Loan that would, among other
things, extend the maturity date of the loan to June 30, 1999.
Registrant expects to either enter into such amendment or to
repay the full amount of principal and interest due under the
loan during 1998.
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 Operation serving the
Anaheim, Hermosa Beach/Manhattan Beach, Rohnert Park/Yountville
and Fairfield communities (the "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.
In addition, upon closing of the sale of the California Cable
Systems, 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 terms of 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. As of June 26, 1998,
Registrant had approximately $23.0 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.
Year 2000 Compliance Issue
The inability of computers, software and other equipment
utilizing microprocessors to recognize and properly process data
fields containing a two digit year is commonly referred to as the
Year 2000 Compliance issue. As the year 2000 approaches, such
systems may be unable to accurately process certain data-based
information. Many businesses may need to upgrade existing
systems or purchase new ones to correct the Year 2000 issue.
The total costs to Registrant of the Year 2000 Compliance is not
anticipated to be material to its financial position or results
of operations in any given year. However, there can be no
guarantee that the systems of other companies on which
Registrant's systems rely will be timely converted, or that a
failure to convert by another company or a conversion that is
incompatible with Registrant's systems, would not have a material
adverse effect on Registrant.
Recent Accounting Statements
Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997 and is effective for
financial statements for periods beginning after December 15,
1997. This statement establishes standards for the way public
companies report information about operating segments in annual
and interim financial statements. Although currently effective,
SFAS No. 131 does not require application to interim financial
statements in the initial year of application. Registrant
believes its current reporting systems will enable it to comply
with the implementation of SFAS No. 131 in the annual financial
statements.
Cable Industry Regulation
The cable television industry is subject to significant
regulation at both the federal and local level. Federal
regulation of cable television systems is conducted primarily
through the FCC, although the Copyright Office also regulates
certain aspects of cable television system operation pursuant to
the Copyright Act of 1976. The Copyright Act imposes copyright
liability on all cable television systems for their primary and
secondary transmissions of copyrighted programming. Among other
things, FCC regulations currently contain detailed provisions
concerning non-duplication of network programming, sports program
blackouts, program origination, ownership of cable television
systems and equal employment opportunities. There are also
comprehensive registration and reporting requirements and various
technical standards. Moreover, pursuant to the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"), the FCC has, among other things, established regulations
concerning mandatory signal carriage and retransmission consent,
consumer service standards, the rates for service, equipment, and
installation that may be charged to subscribers, and the rates
and conditions for commercial channel leasing. The FCC also
issues permits, licenses or registrations for microwave
facilities, mobile radios and receive-only satellite earth
stations, all of which are commonly used in the operation of
cable systems.
Rate Regulation
Under the Communications 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 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. Pursuant
to FCC rules, the Telecommunications Regulatory Board of Puerto
Rico (the "Board") filed for certification to regulate the rates
of the cable system operated by the Venture. The cable system
operator contested the certification, claiming that it was
subject to effective competition, and therefore exempt from rate
regulation, because fewer than 30 percent of the households in
the system's franchise area subscribe to the system. The
Commission denied the operator's petition and the cable operator
has filed an application for review of the decision, as well as a
request for stay. Under FCC rules, a cable system remains
subject to rate regulation until the FCC finds that effective
competition exists. The franchising authority for the San Juan
Cable System in Puerto Rico has been authorized by the FCC to
regulate the basic cable service and equipment rates and charges
of the system. The franchising authority has not yet sent a
notice to the system to initiate rate regulation. Regulation may
result in reduced revenues going forward and in refunds to
customers for charges above those allowed by the FCC's rate
regulations for up to 12 months retroactively from when the new
rates are initiated or the franchising authority issues a
potential refund accounting order. Registrant is currently
assessing the impact of this regulation.
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 approximately 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 was allowed to treat as external (and
thus pass through to its subscribers) the costs, plus a 20 cent
per channel mark-up, for certain channels added to a CPST.
Through 1997, each cable system was subject to an aggregate cap
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.
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.
Pending before the FCC is a petition calling for a freeze on
cable rates and increased rate regulation. Congress has also
expressed some interest in cable rates and programming costs. In
addition, the Chairman of the FCC has expressed concern that the
March 31, 1999 sunset for regulation of CPST rates may be
unrealistic given that competition to cable has not developed as
rapidly as expected following enactment of the 1996 Act.
Registrant cannot predict the outcome of FCC or congressional
action on these issues.
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.
Concentration of Ownership
The 1992 Cable Act directed the FCC to establish reasonable
limits on the number of cable subscribers a single company may
reach through cable systems it owns (horizontal concentration)
and the number of system channels that a cable operator could use
to carry programming services in which it holds an ownership
interest (vertical concentration). The horizontal ownership
restrictions of the 1992 Cable Act were struck down by a federal
district court as an unconstitutional restriction on speech.
Pending final judicial resolution of this issue, the FCC
voluntarily stayed the effective date of its horizontal ownership
limitations, which would place a 30 percent nationwide limit on
subscribers served by any one entity. Thereafter, a Motion to
lift the Stay and Petitions for Reconsideration were filed. A
challenge was also brought against the rules in federal court.
In August 1996, the United States Court of Appeals for the
District of Columbia Circuit decided to hold court proceedings in
abeyance pending the Commission's reconsideration of the rules.
The FCC recently sought further comment on the issue. The FCC's
vertical ownership restriction consists of a "channel occupancy"
standard which places a 40 percent limit on the number of
channels (up to 75 channels) that may be occupied by services
from programmers in which the cable operator has an attributable
ownership interest. Further, the 1992 Cable Act and FCC rules
restrict the ability of programmers in which cable operators hold
an attributable interest to enter into exclusive contracts with
cable operators.
Broadcast/Cable Cross-Ownership
The 1996 Act eliminated the statutory ban on broadcast
station/cable cross-ownership. This cleared the way for the
Commission to reconsider its rules which prohibit the common
ownership of a broadcast television station and a cable system in
the same local community. The Commission is now reviewing these
rules.
Radio Industry Regulation
The 1996 Act completely revised the radio ownership rules by,
among other things, eliminating the national radio ownership
restriction. 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.
This new regulatory flexibility has engendered aggressive local,
regional, and/or national acquisition campaigns. Removal of
previous station ownership limitations on leading major station
groups has increased the competition for and the prices of
attractive stations. In 1992, the FCC placed limitations on 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.
The 1996 Act did not alter the FCC's newspaper/broadcast cross-
ownership restrictions. However, the FCC is considering whether
to change the policy pursuant to which it considers waivers of
the radio/newspaper cross-ownership rule and, as part of a
biennial review of its regulations required by the 1996 Act, has
sought comment on whether to revise or eliminate the rule.
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 and the Commission has issued two authorizations to launch
and operate satellite DARS services. The FCC also 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
provisions of the Communications Act, the 1992 Cable Act, or the
1996 Act or of the regulations and policies of the FCC
thereunder. Moreover, proposals for additional or revised
statutory or regulatory requirements 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 Registrant'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 June 26, 1998 and June 27,
1997:
Net Income.
Registrant's net income for the thirteen week period ended June
26, 1998 was approximately $5.8 million, as compared to net
income of approximately $4.4 million for the 1997 period. The
increase in net income for the 1998 period resulted primarily
from the approximate $2.8 million gain from the sale of C-ML
Radio as well as the effect of the factors described below.
Operating Revenues.
During the thirteen week periods ended June 26, 1998 and June 27,
1997, Registrant had total operating revenues of approximately
$14.3 million and $13.7 million, respectively. The approximate
$606,000 increase in operating revenues was primarily due to an
increase of approximately $957,000 in operating revenues at C-ML
Cable as well as a combined increase of approximately $459,000 at
the Wincom-WEBE-WICC Group, partially offset by a decrease of
approximately $727,000 in operating revenues at C-ML Radio. The
increase in operating revenues at C-ML Cable reflects an increase
in basic subscriber rates, an increase in the number of basic
subscribers from 118,728 at the end of the second quarter of 1997
to 126,848 at the end of the second quarter of 1998, as well as
an increase in advertising sales. The combined increase in
operating revenues at the Wincom-WEBE-WICC Group is due to an
increase in advertising revenues resulting from the use of sales
incentive programs. The decrease in operating revenues at C-ML
Radio is due to the recognition of a monthly fee in the 1998
period, instead of actual operating revenues and expenses, in
accordance with the LMA entered into during the fourth quarter of
1997. The remaining increases or decreases in operating revenues
at Registrant's other properties were immaterial, either
individually or in the aggregate.
Property Operating Expense.
During the second quarters of 1998 and 1997, Registrant incurred
property operating expenses of approximately $4.9 million.
Registrant's total property operating expenses remained flat from
year to year primarily due to a decrease of approximately
$407,000 at C-ML Radio which was due to the recognition of a
monthly fee instead of actual operating revenues and expenses, in
accordance with the LMA entered into during the fourth quarter of
1997. This decrease was partially offset by an increase of
approximately $312,000 at C-ML Cable primarily due to expenses
directly related to the increase in operating revenues, as well
as increased maintenance costs. In addition, there was an
increase of approximately $167,000 in operating expenses at the
combined Wincom-WEBE-WICC Group as a result of increased selling
expenses due to the implementation of sales incentive programs.
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 second quarters of 1998 and 1997, Registrant incurred
general and administrative expenses of approximately $3.7 million
and $2.4 million, respectively. Registrant's total general and
administrative expenses increased by approximately $1.4 million
from year to year primarily due to an increase of approximately
$780,000 at C-ML Cable and approximately $865,000 at C-ML Radio,
both primarily due to an increase in the provision for income
taxes for the 1998 period. These increases were partially offset
by a decrease of approximately $374,000 resulting from the
receipt in 1998 of tax assessment refunds related to the
California Cable Systems. 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 $1.9 million and $1.4 million during the second
quarters of 1998 and 1997, respectively. Registrant's total
depreciation and amortization expense increased by approximately
$550,000 from year to year due to an increase of approximately
$588,000 at C-ML Cable partially due to an increase in the asset
base resulting from the plant expansion. This increase was
offset by a combined decrease of approximately $47,000 at the
Wincom-WEBE-WICC Group due to certain assets becoming fully
amortized at the end of 1997. The remaining increases or
decreases in depreciation and amortization expense at
Registrant's other properties were immaterial, either
individually or in the aggregate.
For the twenty-six week periods ended June 26, 1998 and June 27,
1997:
Net Income.
Registrant's net income for the twenty-six week period ended June
26, 1998 was approximately $8.7 million, as compared to net income
of approximately $6.7 for the 1997 period. The increase in net
income for the 1998 period resulted primarily from the approximate
$2.8 million gain from the sale of C-ML Radio as well as the
effect of the factors described below.
Operating Revenues.
During the twenty-six week periods ended June 26, 1998 and June
27, 1997, Registrant had total operating revenues of
approximately $27.1 million and $25.8 million, respectively. The
approximate $1.3 million increase in operating revenues was
primarily due to a increase of approximately $1.8 million in
operating revenues at C-ML Cable as well as a combined increase
of approximately $854,000 at the Wincom-WEBE-WICC Group,
partially offset by a decrease of approximately $1.2 million in
operating revenues at C-ML Radio. The increase in operating
revenues at C-ML Cable reflects an increase in basic subscriber
rates, an increase in the number of basic subscribers from
118,728 at the end of the second quarter of 1997 to 126,848 at
the end of the second quarter of 1998, as well as an increase in
advertising sales. The combined increase in operating revenues
at the Wincom-WEBE-WICC Group is due to an increase in
advertising revenues resulting from the use of sales incentive
programs. The decrease in operating revenues at C-ML Radio is
due to the recognition of a monthly fee in the 1998 period,
instead of actual operating revenues and expenses, in accordance
with the LMA entered into during the fourth quarter of 1997. The
remaining increases or decreases in operating revenues at
Registrant's other properties were immaterial, either
individually or in the aggregate.
Interest Income.
Registrant earned interest income of approximately $1.5 million
and $1.7 million during the first twenty-six weeks of 1998 and
1997, respectively. The decrease is due primarily to the lower
cash balances that existed during the twenty-six weeks of 1998.
Property Operating Expense.
During the first twenty-six weeks of 1998 and 1997, Registrant
incurred property operating expenses of approximately $9.3
million and $9.5 million, respectively. Registrant's total
property operating expenses decreased by approximately $247,000
from year to year primarily due to a decrease of approximately
$861,000 at C-ML Radio which was due to the recognition of a
monthly fee instead of actual operating revenues and expenses, in
accordance with the LMA entered into during the fourth quarter of
1997. This decrease was partially offset by an increase of
approximately $458,000 at C-ML Cable primarily due to expenses
directly related to the increase in operating revenues, as well
as increased maintenance costs. In addition, there was an
increase of approximately $101,000 in operating expenses at the
combined Wincom-WEBE-WICC Group as a result of increased selling
expenses due to the implementation of sales incentive programs.
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 twenty-six weeks of 1998 and 1997, Registrant
incurred general and administrative expenses of approximately
$6.7 million and $4.6 million, respectively. Registrant's total
general and administrative expenses increased by approximately
$2.1 million from year to year primarily due to an increase of
approximately $1.6 million at C-ML Cable and approximately
$759,000 at C-ML Radio, both primarily due to an increase in the
provision for income taxes for the 1998 period. These increases
were partially offset by a decrease of approximately $380,000
resulting from the receipt in 1998 of tax assessment refunds
related to the California Cable Systems. 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 $3.7 million and $3.6 million in the first twenty-
six weeks of 1998 and 1997, respectively. Registrant's total
depreciation and amortization expense increased by approximately
$156,000 from year to year due to an increase of approximately
$251,000 at C-ML Cable due to an increase in the asset base
resulting from the plant expansion. This increase was offset by
a combined decrease of approximately $88,000 at the Wincom-WEBE-
WICC Group due to certain assets becoming fully amortized at the
end of 1997. The remaining increases or decreases in depreciation
and amortization expense at Registrant's other properties were
immaterial, either individually or in the aggregate.
<PAGE>
PART II - OTHER INFORMATION.
Item 1. Legal Proceedings.
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 proceeds from sales of
Registrant assets, and (3) improperly paid MultiVision Cable TV
Corp., 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 claim that these defendants aided and
abetted the General Partner in the alleged breach of the
Partnership Agreement and in the alleged 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 fees and expenses, and compensatory and punitive
damages. Defendants have moved to dismiss the complaint and each
claim for relief therein; the court has not yet ruled on the
motion. Defendants believe that they have good and meritorious
defenses to the action, and vigorously deny any wrongdoing with
respect to the alleged claims.
The Partnership Agreement provides for indemnification, to the
fullest extent provided by law, for any person or entity named as
a party to any threatened, pending or completed lawsuit by reason
of any alleged act or omission arising out of such person's
activities as a General Partner or as an officer, director or
affiliate of either RPMM, MLMM or the General Partner, subject to
specified conditions. In connection with the purported class
action filed on August 29, 1997, Registrant has received notices
of requests for indemnification from the following defendants
named therein: the General Partner, RPMM, MLMM, Merrill Lynch &
Co., Inc. and Merrill Lynch. For the thirteen and twenty-six
week periods ended June 26, 1998, Registrant incurred
approximately $132,000 and $192,000, respectively, for legal
costs relating to such indemnification. Such cumulative costs
amount to approximately $472,000 through June 26, 1998.
Registrant is not aware of any other material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
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: August 11, 1998 /s/ Kevin K. Albert
Kevin K. Albert
Director and President
Dated: August 11, 1998 /s/ Robert F. Aufenanger
Robert F. Aufenanger
Director and Executive Vice
President
Dated: August 11, 1998 /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
By: IMP Media Management, Inc.
Dated: August 11, 1998 /s/I. Martin Pompadur
I. Martin Pompadur
President, Secretary and
Director
(principal executive officer of
the Registrant)
Dated: August 11, 1998 /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 June 26, 1998 Form
10Q Consolidated Balance Sheets and Consolidated Statements
of Operations as of June 26, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S>
<C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1998
<PERIOD-END> JUN-26-1998
<CASH> 106,302
<SECURITIES> 0
<RECEIVABLES> 6,235
<ALLOWANCES> 453
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 41,247
<DEPRECIATION> 16,833
<TOTAL-ASSETS> 165,302
<CURRENT-LIABILITIES> 0
<BONDS> 52,993
<COMMON> 0
0
0
<OTHER-SE> 87,312
<TOTAL-LIABILITY-AND-EQUITY> 165,302
<SALES> 0
<TOTAL-REVENUES> 31,497
<CGS> 0
<TOTAL-COSTS> 22,822
<OTHER-EXPENSES> 4,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,563
<INCOME-PRETAX> 8,675
<INCOME-TAX> 0
<INCOME-CONTINUING> 8,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,675
<EPS-PRIMARY> 45.68
<EPS-DILUTED> 0
</TABLE>
