SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 26, 1999
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 March 26, 1999 (Unaudited) and December
25, 1998 (Unaudited)
Consolidated Income Statements for the Thirteen Week Periods Ended March
26, 1999 (Unaudited) and March 27, 1998 (Unaudited)
Consolidated Statements of Cash Flows for the Thirteen Week Periods Ended
March 26, 1999 (Unaudited) and March 27, 1998 (Unaudited)
Notes to Consolidated Financial Statements for the Thirteen Week Period
Ended March 26, 1999 (Unaudited)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 26, 1999 (UNAUDITED) AND DECEMBER 25, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
March 26, December 25,
1999 1998
--------------- --------------
ASSETS:
Cash and cash equivalents $ 168,897,606 $ 101,394,305
Investments held by escrow agents 3,822,268 321,023
Accounts receivable (net of allowance for doubtful
accounts of $658,424 and $540,407, respectively) 4,181,701 4,211,614
Prepaid expenses and deferred charges (net of
accumulated amortization of $801,978 and
$1,681,486, respectively) 461,113 478,957
Property, plant and equipment (net of accumulated
depreciation of $15,892,716 and $14,917,781,
respectively) 26,103,040 26,286,171
Intangible assets (net of accumulated amortization
of $38,118,162 and $37,333,741, respectively) 15,660,829 16,445,250
Assets held for sale - 9,459,781
Other assets 2,642,468 3,195,518
--------------- --------------
TOTAL ASSETS $ 221,769,025 $ 161,792,619
=============== ==============
</TABLE>
(Continued on the following page.)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 26, 1999 (UNAUDITED) AND DECEMBER 25, 1998 (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
<S> <C> <C>
March 26, December 25,
1999 1998
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Borrowings $ 40,000,000 $ 41,993,137
Accounts payable and accrued liabilities
23,718,107 25,407,464
Distributions payable 63,993,917 -
Subscriber advance payments 1,508,832 1,585,448
------------- -------------
Total Liabilities 129,220,856 68,986,049
------------- -------------
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 (1,997,673) (1,357,734)
Cumulative income 1,277,773 640,418
------------- -------------
988,399 990,983
------------- -------------
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 (197,769,688) (134,415,710)
Cumulative income 126,499,767 63,401,606
------------- -------------
91,559,770 91,815,587
------------- -------------
Total Partners' Capital 92,548,169 92,806,570
------------- -------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 221,769,025 $ 161,792,619
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
<TABLE>
<CAPTION>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED INCOME STATEMENTS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 26, 1999 (UNAUDITED) AND
MARCH 27, 1998 (UNAUDITED)
<S> <C> <C>
March 26, March 27,
1999 1998
------------- --------------
REVENUES:
Operating revenues $ 10,596,446 $ 12,829,089
Interest 1,195,846 641,776
Gain on sale of the Cleveland Station 41,786,100 -
Gain on sale of the Anaheim Stations 19,436,258 -
------------- --------------
Total revenues 73,014,650 13,470,865
------------- --------------
COSTS AND EXPENSES:
Property operating 3,290,896 4,349,032
General and administrative 2,979,393 2,872,931
Depreciation and amortization 1,781,058 1,777,465
Interest expense 947,000 1,310,680
Management fees 280,787 302,918
------------- --------------
Total costs and expenses 9,279,134 10,613,026
------------- --------------
NET INCOME $ 63,735,516 $ 2,857,839
============= ==============
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
NET INCOME $ 335.64 $ 15.05
============= ==============
Number of Units 187,994 187,994
============= ==============
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
<TABLE>
<CAPTION>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIODS ENDED
MARCH 26, 1999 (UNAUDITED) AND MARCH 27, 1998 (UNAUDITED)
<S> <C> <C>
March 26, March 27,
1999 1998
------------ -----------
Cash flows from operating activities:
Net income $ 63,735,516 $ 2,857,839
Adjustments to reconcile net
income to net cash (used in)/provided
by operating activities:
Depreciation and amortization 1,781,058 1,777,465
Bad debt expense/(recovery), net 204,383 (93,484)
Gain on sale of the Cleveland Station (41,786,100) -
Gain on sale of the Anaheim Stations (19,436,258) -
Changes in operating assets and liabilities:
(Increase)/Decrease:
Accounts receivable (172,736) (88,860)
Investments held by escrow agents (3,501,245) -
Prepaid expenses and deferred charges 33,408 582,970
Other assets 665,583 709,270
(Decrease)/Increase:
Accounts payable and accrued
liabilities (2,183,789) 2,379,127
Subscriber advance payments (76,616) 31,488
------------ -----------
Net cash (used in)/provided by
operating activities (736,796) 8,155,815
------------ -----------
</TABLE>
(Continued on the following page.)
<PAGE>
<TABLE>
<CAPTION>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIODS ENDED
MARCH 26, 1999 (UNAUDITED) AND MARCH 27, 1998 (UNAUDITED)
(continued)
<S> <C> <C>
March 26, March 27,
1999 1998
------------ -------------
Cash flows from investing activities:
Proceeds from the sale of the Cleveland Station $ 42,432,595 $ -
Proceeds from the sale of the Anaheim Stations 28,599,712 -
Payment of costs incurred related to
sale of the California Cable Systems (4,377) (255,620)
Payment of costs incurred related to the sale of C-ML Radio (2,892) -
Purchase of property, plant and equipment (791,804) (1,256,858)
------------ -------------
Net cash provided by/(used in) investing activities 70,233,234 (1,512,478)
------------ -------------
Cash flows from financing activities:
Principal payments on borrowings (1,993,137) (750,901)
General Partner cash distribution - (189,893)
------------ -------------
Net cash used in financing activities (1,993,137) (940,794)
------------ -------------
Net increase in cash and cash equivalents 67,503,301 5,702,543
Cash and cash equivalents at beginning of year 101,394,305 92,872,891
------------ -------------
Cash and cash equivalents at end of period $168,897,606 $ 98,575,434
============ =============
Cash paid for interest $ 14,727 $ 104,467
============ =============
</TABLE>
Supplemental Disclosure:
During the first quarter of 1999, the Partnership declared distributions of
$63,993,917 which was paid to partners in the second quarter of 1999.
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
ML MEDIA PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEK PERIOD ENDED MARCH 26, 1999 (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 March 26, 1999 and the results of operations and cash flows of the
Partnership for the interim periods presented. The results of operations for the
thirteen week period ended March 26, 1999 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 1998
Annual Report on Form 10-K filed with the SEC on March 26, 1999.
Certain reclassifications were made to the 1998 financial statements to conform
with the current period's presentation.
2. WEBE-FM and WICC-AM, KEZY-FM and KORG-AM, Wincom, 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 WEBE-FM and WICC-AM, KEZY-FM and
KORG-AM, Wincom, Puerto Rico Radio and California Cable Systems is hereby
incorporated herein 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 & SmithIncorporated
("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 believe that they have good and meritorious
defenses to the action, and vigorously deny any wrongdoing with respect to the
alleged claims. Accordingly, defendants moved to dismiss the complaint and each
claim for relief therein. On March 3, 1999, the New York Supreme Court issued an
order granting defendants' motion and dismissing plaintiffs' complaint in its
entirety, principally on the grounds that the claims are derivative and
plaintiffs lack standing to bring suit because they failed to make a
pre-litigation demand on the General Partner. Plaintiffs have both appealed this
order and moved, inter alia, for leave to amend their complaint in order to
re-assert certain of their claims as derivative claims on behalf of the
Partnership. The appeal and the motion for leave to amend are pending.
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, the 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 week periods ended March
26, 1999 and March 27, 1998, the Partnership incurred approximately $18,000 and
$60,000, respectively, for legal costs relating to such indemnification.
Cumulatively, such costs amount to approximately $521,000 through March 26,
1999.
<PAGE>
4. Segment Information
The Partnership's operations have been aggregated into its main industries
(Cable Television Systems and Radio Stations) in which the Partnership operates.
The Cable Television Systems segment consists of the Partnership's 50% share of
C-ML Cable. The Radio Stations segment consists of WEBE-FM and WICC-AM, as well
as the Partnership's 50% share of C-ML Radio until its sale on June 3, 1998, the
Anaheim Stations until their sale on January 4, 1999 and Wincom until its sale
on January 28, 1999.
The Partnership evaluates the performance of its operating segments based on
profit or loss from operations not including non-recurring gains and losses and
interest income and expense. Inter-segment sales and transfers are not
significant.
Summarized financial information concerning the Partnership's reportable
segments for the thirteen week periods ended March 26, 1999 and March 27, 1998
are shown in the following table. The "Other" column includes parent-related
items.
<TABLE>
<S> <C> <C> <C> <C>
Cable
Television Radio
Systems Stations Other Total
------------ ------------ ----------- -------------
Thirteen week period ended March 26, 1999
Operating revenues $ 8,012,106 $ 2,761,840 $ - $ 10,773,946
Gain on sale of the Cleveland Station - 41,786,100 - 41,786,100
Gain on sale of the Anaheim Stations - 19,436,258 - 19,436,258
Segment net income (loss) 2,554,428 1,136,167 (1,177,437) 2,513,158
Segment assets 108,929,020 44,582,955 68,257,050 221,769,025
Thirteen week period ended March 27, 1998
Operating revenues 7,656,269 5,387,988 - 13,044,257
Segment net income (loss) 2,978,490 1,610,436 (1,731,087) 2,857,839
Segment assets 106,397,739 40,601,004 13,719,475 160,718,218
</TABLE>
The following tables represent the reconciliation of reportable segment revenues
and segment net income to the consolidated income statements for the thirteen
week periods ended March 26, 1999 and March 27, 1998.
<TABLE>
<S> <C> <C>
For the thirteen week
periods ended
March 26, 1999 March 27, 1998
-------------- --------------
Operating revenues
- ------------------
Total operating revenues for reportable segments $ 10,773,946 $ 13,044,257
Elimination of intersegment operating revenues (177,500) (215,168)
------------- -------------
$ 10,596,446 $ 12,829,089
============= =============
Segment net income
- ------------------
Total net income for reportable segments $ 2,513,158 $ 2,857,839
Gain on sale of the Cleveland Station 41,786,100 -
Gain on sale of the Anaheim Stations 19,436,258 -
------------- -------------
$ 63,735,516 $ 2,857,839
============= =============
</TABLE>
The Partnership did not derive 10% or more of its operating revenue from any
single customer for each of the thirteen week periods ended March 26, 1999 and
March 27, 1998.
<PAGE>
5. Recent Accounting Statement Adopted
The Partnership adopted Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities" during the
first quarter of 1999. SFAS No. 133 established accounting and reporting
standards for derivative instruments and for hedging activities, requiring the
recognition of all derivatives as either assets or liabilities and to measure
those instruments at fair value, as well as to identify the conditions for which
a derivative may be specifically designed as a hedge. The Partnership currently
does not have any derivative instruments and is not engaged in hedging
activities.
6. Subsequent Event
On March 1, 1999, the Partnership declared a cash distribution that was made to
partners on March 30 and 31, 1999. Distributable proceeds from the sales of the
Anaheim Stations and the Cleveland Station, and the release of approximately
$6.1 million of the reserve established at the time of the California Cable
Systems sale, after accounting for certain expenses of the Partnership, were
included in the total cash distribution of approximately $64.0 million.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources.
As of March 26, 1999, Registrant had $168,897,606 in cash and cash equivalents.
Of this amount, approximately $40.1 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) and approximately $17.1 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, as
of March 26, 1999, approximately $42.7 million was being held for use at the
operating level of Registrant's other remaining media properties, and all
remaining cash and cash equivalents were available to Registrant for uses as
provided in the Partnership Agreement; of such remaining cash, approximately
$64.0 million was distributed to partners on March 30 and 31, 1999 (see below).
As of March 26, 1999, the amount payable for accrued management fees and
expenses owed to the General Partner amounted to approximately $1.0 million.
Registrant's ongoing cash needs will be to fund debt service, capital and
operating expenditures and required working capital as well as to provide for
costs and expenses related to the purported class action lawsuit (see below).
During the thirteen week period ended March 26, 1999, principal repayments of
$1,993,137 and interest payments of $14,727 were made from a portion of the
sales proceeds of Wincom to pay in full the remaining balance under the
Wincom-WEBE-WICC Loan. During the remainder of 1999, Registrant is required to
make scheduled principal repayments of $10.0 million under its C-ML Cable
Notes/Credit Agreement.
On March 1, 1999, Registrant declared a $337 per $1,000 unit of limited
partnership interest ("Unit") cash distribution (less applicable state and
federal withholding taxes) totaling $63,353,978 that was made to limited
partners on March 30 and 31, 1999. In addition, a cash distribution of $639,939
was paid to the General Partner representing its 1% share. In accordance with
the terms of the Partnership Agreement, 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 as of the date of such sale. Accordingly, the limited
partners' portion of such distribution was composed of the following: (a) $119
per Unit (totaling $22,371,286) from distributable sales proceeds from the
January 4, 1999 sale of the Anaheim Stations, which was paid to partners of
record as of January 4, 1999; (b) $186 per Unit (totaling $34,966,884) from
distributable sales proceeds from the January 28, 1999 sale of the Cleveland
Station, which was paid to partners of record as of January 28, 1999; and (c)
$32 per Unit (totaling $6,015,810) from amounts released from certain reserves
previously established upon the 1996 sale of the California Cable Systems, which
was paid to partners of record on March 1, 1999.
As of March 26, 1999, 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; and an FM (WEBE-FM) and AM
(WICC-AM) radio station combination in Bridgeport, Connecticut. However, on
April 22, 1999, Registrant entered into an agreement to sell WEBE-FM and WICC-AM
(see further discussion under WEBE-FM and WICC-AM below).
On January 4, 1999, Registrant consummated the sale of substantially all of the
assets used in the operations of the KEZY-FM and KORG-AM radio station
combination (see further discussion under KEZY-FM and KORG-AM below). On January
28, 1999, Registrant consummated the sale of the stock of the WQAL-FM radio
station (see further discussion under Wincom below).
Registrant continues to evaluate the operations and assets of C-ML Cable.
Registrant will continue to monitor the cable industry market and proceed with
its efforts to secure a timely sale of its investment in C-ML Cable in a manner
consistent with the overall goal of maximizing the property's value to
Registrant. On March 5, 1999, Century announced its pending acquisition by
Adelphia Communications Corporation. This agreement does not include
Registrant's 50% interest of C-ML Cable. Registrant anticipates that the
resolution of contingencies and required escrows related to the sales of its
properties may occur over a period of up to two years from the dates of such
sales.
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 (i) the timing of the
termination of Registrant, (ii) the amount of proceeds which may be available
for distribution, and (iii) the timing of the distribution to the limited
partners of the net proceeds from the liquidation of Registrant's assets.
<PAGE>
In September 1998, much of Puerto Rico was devastated by Hurricane Georges.
Although the final assessment of damage suffered at C-ML Cable is not complete,
Registrant's share of damage to the distribution plant was approximately
$859,000. Since such repairs were not covered by insurance policies, such amount
of net plant and equipment was written-off during the year ended December 25,
1998. During the thirteen week period ended March 26, 1999 and year ended
December 25, 1998, Registrant recorded, as revenue, approximately $300,000 and
$1.9 million, respectively, related to its share of anticipated insurance
recoveries related to subscriber refunds. Although C-ML Cable is in the process
of finalizing an insurance claim related to such hurricane damage, the ultimate
resolution of these claims is subject to further negotiations with the insurance
carrier.
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 believe that they have good and meritorious
defenses to the action, and vigorously deny any wrongdoing with respect to the
alleged claims. Accordingly, defendants moved to dismiss the complaint and each
claim for relief therein. On March 3, 1999, the New York Supreme Court issued an
order granting defendants' motion and dismissing plaintiffs' complaint in its
entirety, principally on the grounds that the claims are derivative and
plaintiffs lack standing to bring suit because they failed to make a
pre-litigation demand on the General Partner. Plaintiffs have both appealed this
order and moved, inter alia, for leave to amend their complaint in order to
re-assert certain of their claims as derivative claims on behalf of Registrant.
The appeal and the motion for leave to amend are pending.
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 week periods ended March
26, 1999 and March 27, 1998, Registrant incurred approximately $18,000 and
$60,000, respectively, for legal costs relating to such indemnification.
Cumulatively, such costs amount to approximately $521,000 through March 26,
1999.
WEBE-FM and WICC-AM
On April 22, 1999, Registrant entered into a sales agreement (the "Connecticut
Agreement") with Shadow Communications, LLC ("Shadow") pursuant to which, among
other things, Registrant agreed to sell and Shadow agreed to buy substantially
all of the assets used in Registrant's radio stations WICC-AM and WEBE-FM (the
"Connecticut Stations") serving, respectively, Bridgeport, Connecticut and
Westport, Connecticut. The base purchase price specified in the Connecticut
Agreement is $66 million, subject to certain adjustments for the apportionment
of certain items of income and expense, as provided in the Connecticut
Agreement. Consummation of the purchase and sale of the Connecticut Stations
(the "Closing") is subject to the satisfaction of certain enumerated conditions
precedent set forth in the Connecticut Agreement, including obtaining the
approval of the Federal Communications Commission ("Commission" or "FCC") and
the expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976. Under the terms of the Connecticut Agreement, at the
Closing an escrow account in the amount of $3,300,000 will be established from
which Shadow may make indemnification claims until December 31, 2000.
<PAGE>
Wincom
On January 28, 1999, Registrant consummated a sale to Chancellor Media
Corporation of Los Angeles ("Chancellor") of the stock of Wincom, pursuant to a
stock purchase agreement (the "Cleveland Agreement") dated August 11, 1998.
Wincom owns all of the outstanding stock of Win Communications, Inc., which owns
and operates the radio station WQAL-FM, serving Cleveland, Ohio (the "Cleveland
Station").
The base sales price for the Cleveland Station was $51,250,000, subject to
certain adjustments for the apportionment of current assets and liabilities as
of the closing date, as provided for in the Cleveland Agreement, resulting in a
reduction of the base sales price of approximately $1.6 million.
Pursuant to the Cleveland Agreement, Registrant deposited $2.5 million into an
indemnity escrow account against which Chancellor may make indemnification
claims for a period of up to two years after the closing; $1.5 million, less any
claims previously asserted, will be released from such escrow on December 31,
1999. Approximately $2.0 million was used to repay in full the remaining
outstanding balance of the Wincom-WEBE-WICC Loan and pursuant to the terms of
the Wincom-WEBE-WICC Loan, an initial amount of approximately $7.3 million was
paid to the Wincom Bank, pursuant to its 15% residual interest in the net sales
proceeds from the sale of Wincom. In addition, Registrant held approximately
$2.6 million of the sales proceeds to pay (or to reserve for payment of)
wind-down expenses and sale-related expenses. The remaining sales proceeds of
$35.3 million were included in the cash distribution made to partners on March
30, 1999 in accordance with the terms of the Partnership Agreement. To the
extent any amounts reserved or paid into escrow as described above are
subsequently released, such amounts will be distributed to partners of record as
of the date of such release from such escrow or reserves. Registrant recognized
a gain of approximately $41.8 million on the sale of the Cleveland Station. As
of March 26, 1999, Registrant had approximately $2.4 million remaining in cash
reserves from the sale of the Cleveland Station.
On December 31, 1997, the Wincom-WEBE-WICC Loan matured and became due and
payable in accordance with its terms. Registrant remained in default on the
Wincom-WEBE-WICC Loan during 1998, and as of December 25, 1998 a principal
balance of $1,993,137 was outstanding. Although in 1999, Registrant repaid the
remaining outstanding principal balance of the Wincom-WEBE-WICC Loan in full
plus accrued interest, the default has not been waived by the Wincom Bank.
KEZY-FM and KORG-AM
On January 4, 1999, Registrant consummated a sale to Citicasters Co., a
subsidiary of Jacor Communications, Inc. ("Citicasters") of substantially all of
the assets, other than cash and accounts receivable, used in the operations of
Registrant's radio stations, KORG-AM and KEZY-FM, serving Anaheim, California
(the "Anaheim Stations"), pursuant to the asset purchase agreement (the "Anaheim
Agreement") dated September 14, 1998, as amended.
The base sales price for the Anaheim Stations was $30,100,000, subject to
certain adjustments for the apportionment of income and liabilities as of the
closing date, as provided for in the Anaheim Agreement, resulting in a reduction
of the base sales price of approximately $20,000.
Pursuant to the Anaheim Agreement, Registrant deposited $1.0 million into an
indemnity escrow account against which Citicasters may make indemnification
claims for a period of one year after the closing. In addition, Registrant held
approximately $5.2 million of the sales proceeds to pay (or to reserve for
payment of) expenses and liabilities relating to the operations of the Anaheim
Stations prior to the sale as well as wind-down expenses, sale-related expenses
and contingent obligations of the Anaheim Stations. The remaining sales proceeds
of approximately $23.9 million were included in the cash distribution made to
partners on March 30, 1999, after accounting for certain expenses of Registrant,
in accordance with the terms of the Partnership Agreement. To the extent any
amounts reserved or paid into escrow as described above are subsequently
released, such amounts will be distributed to partners of record as of the date
of such release from such escrow or reserves. Registrant recognized a gain of
approximately $19.4 million on the sale of the Anaheim Stations. As of March 26,
1999, Registrant had approximately $4.9 million remaining in cash reserves from
the sale of the Anaheim Stations.
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,
approximately $5.8 million of which is Registrant's share, subject to closing
adjustments. At the closing, the Venture and Madifide, Inc. entered into escrow
agreements pursuant to which the Venture deposited, in aggregate, $725,040,
$362,520 of which is Registrant's share, into three separate escrow accounts
with respect to which indemnification, benefit, and chattel mortgage claims may
be made by Madifide, Inc. for a period of one year. The balance of these
escrows, which is being classified on the accompanying Consolidated Balance
Sheet as Investments held by escrow agents, was $318,131 as of March 26, 1999.
Pursuant to the terms of the outstanding senior indebtedness that jointly
financed C-ML Radio and C-ML Cable, the net proceeds, and escrow amounts when
released from the sale of C-ML Radio must be retained by the Venture and cannot
be distributed to Registrant or its partners.
<PAGE>
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. On
March 1, 1999, reserves in the amount of approximately $6.1 million were
released and, in accordance with the terms of the Partnership Agreement, have
been included in the cash distribution, after accounting for certain expenses of
Registrant that was made on March 31, 1999. As of March 26, 1999, Registrant had
approximately $17.1 million remaining in such cash reserves.
Year 2000 Compliance Initiative
The year 2000 ("Y2K") problem is the result of a widespread programming
technique that causes computer systems to identify a date based on the last two
numbers of a year, with the assumption that the first two numbers of the year
are "19". As a result, the year 2000 would be stored as "00", causing computers
to incorrectly interpret the year as 1900. Left uncorrected, the Y2K problem may
cause information technology systems (e.g., computer databases) and
non-information technology systems (e.g., elevators) to produce incorrect data
or cease operating completely.
Overall, Registrant believes that it has identified and evaluated its internal
Y2K problem and that it is devoting sufficient resources to renovating
technology systems that are not already Y2K compliant. Registrant has been
working with third-party software vendors to ensure that computer programs
utilized by Registrant are Y2K compliant. In addition, Registrant has contacted
third parties to ascertain whether these entities are addressing the Y2K issue
within their own operation.
The Y2K compliance is required at both Registrant's parent level, as well as at
Registrant's operating investments in media properties, which currently includes
a cable television system and two radio stations (the "Media Properties").
Parent level
The General Partner, through MLMM, is responsible for providing administrative
and accounting services necessary to support Registrant's operations, including
maintenance of the books and records, maintenance of the partner database,
issuance of financial reports and tax information to partners and processing
distribution payments to partners. In 1995, Merrill Lynch & Co., Inc.
established the Year 2000 Compliance Initiative, which is an enterprisewide
effort (of which MLMM is a part) to address the risks associated with the Y2K
problem, both internal and external. The integration testing phase, which will
occur throughout 1999, validates that a system can successfully interface with
both internal and external systems. Merrill Lynch continues to survey and
communicate with third parties whose Year 2000 readiness is important to the
company. Based on the nature of the response and the importance of the product
or service involved, Merrill Lynch determines if additional testing is needed.
Merrill Lynch & Co., Inc. participated in further industrywide testing during
March and April 1999 sponsored by the Securities Industry Association. These
tests involved an expanded number of firms, transactions, and conditions
compared with those previously conducted.
Media Properties level
During 1998, the Media Properties began a review of their computer systems and
related software to identify systems and software which might malfunction due to
a misidentification of the year 2000. The Media Properties are utilizing both
internal and external resources to identify, correct or reprogram, and test
systems for Y2K compliance. Most of the Media Properties' customer-related
computer systems and databases, including its billing systems, are managed by
third parties under contractual arrangements. Those third parties have been
requested to advise the Media Properties as to whether they anticipate
difficulties in addressing Y2K problems and if so, the nature of such
difficulties. The Media Properties are currently undertaking an inventory of all
local equipment used in the transmission and reception of all signals to
identify items that need to be upgraded or replaced. After evaluating its
internal compliance efforts as well as the compliance of third parties, the
Media Properties will develop, during 1999, appropriate contingency plans to
address situations in which various systems of third parties are not Y2K
compliant.
<PAGE>
The Media Properties are also participating in an industry wide effort to
address Y2K issues with similarly situated companies in order to monitor
industry wide efforts and determine appropriate steps to address the anticipated
difficulties and potential solutions; the ultimate goal of which is to develop
contingency plans which address not only issues of the Media Properties, but
also the industry as a whole.
Although Registrant has not finally determined the cost associated with its Year
2000 readiness efforts, Registrant does not anticipate the cost of the Y2K
problem to be material to its business, financial condition 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's business, financial condition or results of operations.
Cable Television 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 of 1976 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 of 1934, as amended (the "Communications Act"),
cable systems that are not subject to "effective competition" are subject to
regulation by 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 FCC's Cable Services Bureau, however, upheld the
Board's certification and in November 1998, the FCC denied the cable operator's
application for review of the decision, as well as a request for stay. The cable
operator filed a petition for reconsideration of the FCC's denial of the
application for review, which remains pending. 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 new rates are initiated or the franchising authority
issues a potential refund accounting order. Registrant is currently assessing
the impact of this regulation.
Pursuant to the Telecommunications Act of 1996 (the "1996 Act"), the FCC's
jurisdiction to regulate the rates of 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, expired on March 31, 1999.
The CPST is now exempt from rate regulation. The FCC has announced, however that
it will continue to process and rule upon rate complaints relating to the CPST
for periods prior to April 1, 1999. 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.
<PAGE>
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.
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 continues to
express concern that the March 31, 1999 sunset for regulation of CPST rates may
have been unrealistic given his belief that competition to cable has not
developed as rapidly as expected following enactment of the 1996 Act. Registrant
cannot predict the likelihood or potential outcome of any 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. The FCC currently is
considering whether cable operators are, or should be, obligated to carry the
digital signals of broadcast stations. Registrant cannot predict the effect of
any requirement that cable operators carry digital broadcast signals in addition
to existing analog signals, nor the outcome of this proceeding on its
operations.
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 with the
Commission. 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. In June 1998, the Commission affirmed its rule
that no person or entity can own or have an attributable interest in cable
systems reaching more than 30% of homes passed nationwide, with an exception
permitting ownership of cable systems reaching up to 35% of all homes passed
nationwide (as long as the additional homes passed beyond 30% are served by
minority-controlled cable systems). The Commission also lifted its voluntary
stay on enforcement of that portion of the horizontal ownership rules that
applies to information reporting requirements, which compel entities owning
cable systems passing more than 20% of homes nationwide to inform the agency how
many homes that entity will pass both before and after a proposed acquisition
prior to acquiring an attributable interest in any additional cable systems. The
FCC also declined to revise the factors used to calculate a cable system's
compliance with the 30% limit. The Commission, however, has not yet determined
whether the horizontal ownership rules should consider the presence of all MVPDs
in the market rather than cable operators alone; whether the rules should be
based on actual subscribers rather than on homes passed; whether 30% remains the
appropriate limit given evolving market conditions; and whether the
minority-controlled allowance remains an effective way to promote minority
participation in the cable industry. Registrant is unable to predict the
ultimate outcome of these proceedings or the impact upon its operations of
various FCC regulations still being formulated and/or interpreted.
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.
<PAGE>
Renewal and Transfer
The Cable Communications and Policy Act of 1984 (the "1984 Cable Act")
established procedures for the renewal of cable television franchises. The
procedures were designed to provide incumbent franchisees with a fair hearing on
past performances, an opportunity to present a renewal proposal and to have it
fairly and carefully considered, and a right of appeal if the franchising
authority either fails to follow the procedures or denies renewal unfairly.
These procedures were intended to provide an incumbent franchisee with
substantially greater protection than previously available against the denial of
its franchise renewal application.
The 1992 Cable Act sought to address some of the issues left unresolved by the
1984 Cable Act. It established a more definite timetable in which the
franchising authority is to act on a renewal request. It also narrowed the range
of circumstances in which a franchised operator might contend that the
franchising authority had constructively waived non-compliance with its
franchise.
Cable system operators are sometimes confronted by challenges in the form of
proposals for competing cable franchises in the same geographic area; challenges
which may arise in the context of renewal proceedings. In Rolla Cable Systems v.
City of Rolla, a federal district court in Missouri in 1991 upheld a city's
denial of franchise renewal to an operator whose level of technical services was
found deficient under the renewal standards of the 1984 Cable Act. Local
franchising authorities also have, in some circumstances, proposed to construct
their own cable systems or decided to invite other private interests to compete
with the incumbent cable operator. Judicial challenges to such actions by
incumbent system operators have, to date, generally been unsuccessful.
Registrant cannot predict the outcome or ultimate impact of these or similar
franchising and judicial actions.
Pursuant to the 1992 Cable Act, where local consent to a transfer is required,
the franchise authority must act within 120 days of submission of a transfer
request or the transfer is deemed approved. The 120-day period commences upon
the submission to local franchising authorities of information required on a
standardized FCC transfer form. The franchise authority may request additional
information beyond that required under FCC rules. Further, the 1992 Cable Act
gave local franchising officials the authority to prohibit the sale of a cable
system if the proposed buyer operates another cable system in the jurisdiction
or if such sale would reduce competition in cable service.
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
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.
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.
<PAGE>
The FCC has authorized the introduction of satellite digital audio radio service
("DARS"). Satellite DARS systems are designed to provide for regional or
nationwide distribution of radio programming with fidelity comparable to compact
disks. The Commission has issued two authorizations to launch and operate
satellite DARS services. Recently, a third company has applied to the FCC to
provide satellite DARS service. 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. 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, trends
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 March 26, 1999 and March 27, 1998:
Net Income.
Registrant's net income for the thirteen week period ended March 26, 1999 was
approximately $63.7 million, as compared to net income of approximately $2.9
million for the 1998 period. The increase in net income for the 1999 period
resulted primarily from the approximate $41.8 million and $19.4 million gains in
connection with the sales of the Cleveland Station and the Anaheim Stations,
respectively, as well as other factors described below.
Operating Revenues.
During the first quarters of 1999 and 1998, Registrant had total operating
revenues of approximately $10.6 million and $12.8 million, respectively. The
approximate $2.2 million decrease in operating revenues was primarily due to a
decrease of approximately $1.6 million in operating revenues at the Cleveland
Station and a decrease of approximately $1.0 million at the Anaheim Stations,
both resulting from the sale of such stations in January 1999. These decreases
were partially offset by an increase of approximately $311,000 at C-ML Cable
resulting from an increase in basic subscribers from 125,384 at the end of the
first quarter of 1998 to 132,919 at the end of the first quarter of 1999. The
remaining increases or decreases in operating revenues were immaterial, either
individually or in the aggregate.
Interest Income.
Registrant earned interest income of approximately $1.2 million and $642,000
during the first quarters of 1999 and 1998, respectively. The increase is due
primarily to interest earned on the higher cash balances that existed during the
first quarter of 1999 resulting from the sales of the Cleveland Station and the
Anaheim Stations, prior to the March 1999 cash distribution.
Property Operating Expense.
During the first quarters of 1999 and 1998, Registrant incurred property
operating expenses of approximately $3.3 million and $4.3 million, respectively.
Registrant's total property operating expenses decreased by approximately $1.0
million primarily due to a decrease of approximately $915,000 at the Cleveland
Station and a decrease of approximately $581,000 at the Anaheim Stations, both
resulting from the sale of such stations in January 1999. These decreases were
primarily offset by an increase of approximately $346,000 at C-ML Cable due to
an increase in property taxes, as well as expenses directly related to the
increase in operating revenues. The remaining increases or decreases in property
operating expenses at Registrant's other properties were immaterial, either
individually or in the aggregate.
<PAGE>
General and Administrative Expense.
During the first quarters of 1999 and 1998, Registrant incurred general and
administrative expenses of approximately $3.0 million and $2.9 million,
respectively. Registrant's total general and administrative expenses increased
by approximately $106,000 primarily due to an increase of approximately $218,000
at C-ML Cable due primarily to increased bad debt expense and professional fees,
an increase of approximately $217,000 at the Partnership level due to an
increase in professional fees. These increases in general and administrative
expenses were offset by a decrease of approximately $335,000 at Registrant's
radio stations due primarily to the sale of the Cleveland Station and the
Anaheim Stations in January 1999. 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 during the first quarters of 1999 and 1998. Registrant's total
depreciation and amortization expense remained flat primarily due to an increase
of approximately $165,000 at C-ML Cable due to an increase in the asset base
resulting from the cable systems expansion, offset by decreases of approximately
$20,000 at the Cleveland Station and $106,000 at the Anaheim Stations, both
resulting from the sale of the such stations in January 1999 and a decrease of
approximately $34,000 at C-ML Radio resulting from its sale in June 1998. The
remaining increases or decreases in depreciation and amortization expense at
Registrant's other properties were immaterial, either individually or in the
aggregate.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As of March 26, 1999, Registrant maintains a portion of its cash equivalents in
financial instruments with original maturities of three months or less. These
financial instruments are subject to interest rate risk, and will decline in
value if interest rates increase. A significant increase or decrease in interest
rates would not have a material effect on Registrant's financial position.
Registrant's outstanding long-term debt as of March 26, 1999, bears interest at
fixed rates, therefore, changes in interest rates would have no effect on
Registrant's results of operations.
<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 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 believe that they have good and meritorious
defenses to the action, and vigorously deny any wrongdoing with respect to the
alleged claims. Accordingly, defendants moved to dismiss the complaint and each
claim for relief therein. On March 3, 1999, the New York Supreme Court issued an
order granting defendants' motion and dismissing plaintiffs' complaint in its
entirety, principally on the grounds that the claims are derivative and
plaintiffs lack standing to bring suit because they failed to make a
pre-litigation demand on the General Partner. Plaintiffs have both appealed this
order and moved, inter alia, for leave to amend their complaint in order to
re-assert certain of their claims as derivative claims on behalf of Registrant.
The appeal and the motion for leave to amend are pending.
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, the 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 week periods ended March
26, 1999 and March 27, 1998, the Partnership incurred approximately $18,000 and
$60,000, respectively, for legal costs relating to such indemnification.
Cumulatively, such costs amount to approximately $521,000 through March 26,
1999.
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
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
A). Exhibits:
Exhibit # Description
27. Financial Data Schedule
B). Reports on Form 8-K
On January 20, 1999, Registrant filed with the SEC a
Current Report on Form 8-K/A dated January 4, 1999.
This Current Report contained details regarding the
consummation of the sale of substantially all of the
assets used in the operations of the KEZY-FM and
KORG-AM radio stations.
On January 29, 1999, Registrant filed with the SEC a
Current Report on Form 8-K dated January 28, 1999.
This Current Report contained details regarding the
consummation of the sale of the stock of Wincom.
On February 12, 1999, Registrant filed with the SEC a
Current Report on Form 8-K/A dated January 28, 1999.
This Current Report contained pro forma consolidated
financial statements which give effect to the sale of
Wincom and the KEZY-FM and KORG-AM radio stations.
In addition, on April 27, 1999, Registrant filed with
the SEC a Current Report on Form 8-K dated April 22,
1999. This Current Report contained details regarding
the agreement to sell substantially all of the assets
used in the operations of the WICC-AM and WEBE-FM
radio stations.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML MEDIA PARTNERS, L.P.
By: Media Management Partners
General Partner
By: ML Media Management Inc.
Dated: May 10, 1999 /s/ Kevin K. Albert
-------------------------------------------
Kevin K. Albert
Director and President
Dated: May 10, 1999 /s/ James V. Caruso
-------------------------------------------
James V. Caruso
Director and Executive Vice
President
Dated: May 10, 1999 /s/ David G. Cohen
-------------------------------------------
David G. Cohen
Director and Vice President
Dated: May 10, 1999 /s/ Kevin T. Seltzer
-------------------------------------------
Kevin T. Seltzer
Vice President and Treasurer
(principal accounting officer
and principal financial
officer of the Registrant)
<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: RP Media Management
By: IMP Media Management, Inc.
Dated: May 10, 1999 /s/ I. Martin Pompadur
-------------------------------------------
I. Martin Pompadur
President, Secretary and
Director
(principal executive officer of
the Registrant)
Dated: May 10, 1999 /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 March 26, 1999 Form 10Q Consolidated Balance Sheets and Consolidated
Statements of Operations as of March 26, 1999, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-26-1999
<CASH> 168,898
<SECURITIES> 0
<RECEIVABLES> 4,841
<ALLOWANCES> 658
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 41,996
<DEPRECIATION> 15,893
<TOTAL-ASSETS> 221,769
<CURRENT-LIABILITIES> 0
<BONDS> 40,000
<COMMON> 0
0
0
<OTHER-SE> 92,548
<TOTAL-LIABILITY-AND-EQUITY> 221,769
<SALES> 0
<TOTAL-REVENUES> 73,015
<CGS> 0
<TOTAL-COSTS> 8,332
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 947
<INCOME-PRETAX> 63,736
<INCOME-TAX> 0
<INCOME-CONTINUING> 63,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,736
<EPS-PRIMARY> 335.64
<EPS-DILUTED> 0
</TABLE>
