SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment Number 1)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 24, 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 September 24, 1999 (Unaudited) and December
25, 1998 (Unaudited)
Consolidated Income Statements for the Thirteen and Thirty-Nine Week Periods
Ended September 24, 1999 (Unaudited) and September 25, 1998 (Unaudited)
Consolidated Statements of Cash Flows for the Thirty-Nine Week Periods Ended
September 24, 1999 (Unaudited) and September 25, 1998 (Unaudited)
Notes to Consolidated Financial Statements for the Thirty-Nine Week Periods
Ended September 24, 1999 (Unaudited) and September 25, 1998 (Unaudited)
<PAGE>
<TABLE>
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ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 24, 1999 (UNAUDITED) AND DECEMBER 25, 1998 (UNAUDITED)
September 24, December 25,
1999 1998
------------- --------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 166,366,492 $ 101,394,305
Investments held by escrow agents 6,900,542 321,023
Accounts receivable (net of allowance for doubtful
accounts of $470,832 and $540,407, respectively) 3,745,633 4,211,614
Prepaid expenses and deferred charges (net of
accumulated amortization of $585,969 and
$1,422,072, respectively) 446,644 450,748
Property, plant and equipment (net of accumulated
depreciation of $14,393,974 and $12,396,742,
respectively) 26,397,291 26,184,747
Intangible assets (net of accumulated amortization
of $35,043,287 and $32,977,332, respectively) 3,207,306 5,262,658
Other assets 405,985 2,147,421
Net assets of discontinued operations - Radio
Station Segment - 18,656,569
------------- --------------
TOTAL ASSETS $ 207,469,893 $ 158,629,085
============= ==============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Borrowings $ 40,000,000 $ 40,000,000
Accounts payable and accrued liabilities 25,018,812 24,237,067
Subscriber advance payments 1,535,234 1,585,448
------------- --------------
Total Liabilities 66,554,046 65,822,515
------------- --------------
Commitments and Contingencies (Notes 2 and 4)
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 1,761,450 640,418
------------- --------------
1,472,076 990,983
------------- --------------
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 174,383,768 63,401,606
------------- --------------
139,443,771 91,815,587
------------- --------------
Total Partners' Capital 140,915,847 92,806,570
------------- --------------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL $ 207,469,893 $ 158,629,085
============= ==============
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
<TABLE>
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ML MEDIA PARTNERS, L.P.
CONSOLIDATED INCOME STATEMENTS
FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 24, 1999
(UNAUDITED) AND SEPTEMBER 25, 1998 (UNAUDITED)
Thirteen Weeks Thirty-Nine Weeks
------------------ ---------------------
September 24, 1999 September 25, 1998 September 24, 1999 September 25, 1998
------------------ ------------------ ------------------ ------------------
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Partnership Operating
Revenues and Expenses:
REVENUES:
Operating revenues $ 9,331,407 $ 8,242,599 $ 25,796,061 $ 24,269,599
Interest 1,175,783 653,126 3,201,932 2,167,112
------------- ------------- -------------- --------------
Total revenues 10,507,190 8,895,725 28,997,993 26,436,711
------------- ------------- -------------- --------------
COSTS AND EXPENSES:
Property operating 769,245 2,097,587 5,317,682 6,426,643
General and administrative 3,135,131 2,549,145 7,708,972 6,298,015
Depreciation and
amortization 1,749,116 1,627,340 5,223,890 4,802,823
Interest expense 947,000 1,170,979 2,841,000 3,414,499
Management fees 274,158 302,918 829,102 908,753
------------- ------------- -------------- --------------
Total costs and expenses 6,874,650 7,747,969 21,920,646 21,850,733
------------- ------------- -------------- --------------
Income from continuing
operations 3,632,540 1,147,756 7,077,347 4,585,978
------------- ------------- -------------- --------------
DISCONTINUED OPERATIONS:
Income from discontinued
operations -Radio
Station Segment 625,647 2,225,677 3,009,583 4,620,588
Gain on sale - Radio
Station Segment 40,793,906 (76,571) 102,016,264 2,765,607
------------- ------------- -------------- --------------
Total discontinued
operations 41,419,553 2,149,106 105,025,847 7,386,195
------------- ------------- -------------- --------------
NET INCOME $ 45,052,093 $ 3,296,862 $ 112,103,194 $ 11,972,173
============= ============= ============== ==============
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Income from continuing
operations $ 19.13 $ 6.04 $ 37.27 $ 24.15
------------- ------------- -------------- --------------
Income from discontinued
operations -Radio
Station Segment 3.30 11.72 15.85 24.33
Gain on sale - Radio
Station Segment 214.82 (.40) 537.23 14.57
------------- ------------- -------------- --------------
218.12 11.32 553.08 38.90
------------- ------------- -------------- --------------
NET INCOME $ 237.25 $ 17.36 $ 590.35 $ 63.05
============= ============= ============== ==============
Number of Units 187,994 187,994 187,994 187,994
============= ============= ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
<TABLE>
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ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 24, 1999 (UNAUDITED)
AND SEPTEMBER 25, 1998 (UNAUDITED)
September 24, 1999 September 25, 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 112,103,194 $ 11,972,173
Adjustments to reconcile net
income to net cash provided
by operating activities:
Income from discontinued operations
- Radio Station Segment (3,009,583) (4,620,588)
Depreciation and amortization 5,223,890 4,802,823
Bad debt expense/(recovery) (815) 160,291
Gain on sale of discontinued operations
- Radio Station Segment (102,016,264) (2,765,607)
Changes in operating assets and
liabilities:
(Increase)/Decrease:
Accounts receivable 876,592 (42,681)
Investments held by escrow agents (6,579,519) (362,520)
Prepaid expenses and deferred charges 4,472 818,778
Other assets 2,902,065 1,558,516
(Decrease)/Increase:
Accounts payable and accrued liabilities (3,148,266) 3,385,916
Subscriber advance payments (50,214) 48,748
--------------- ---------------
Net cash provided by continuing operations 6,305,552 14,955,849
Net cash provided by discontinued operations - Radio Station Segment 3,289,939 3,300,338
--------------- ---------------
Net cash provided by operating activities 9,595,491 18,256,187
--------------- ---------------
Cash flows from investing activities:
Proceeds from sale of discontinued operations - Radio Station Segment $ 125,051,858 $ 5,768,750
Payment of costs incurred related to sale of discontinued operations -
Radio Station Segment (321,023) -
Payment of costs incurred related to
sale of the California Cable Systems (45,823) (289,594)
Purchase of property, plant and
equipment (3,305,372) (5,008,286)
Purchase of property, plant and equipment of discontinued operations -
Radio Station Segment (5,287) (8,161)
Payment for intangible assets (10,603) -
--------------- ---------------
Net cash provided by
investing activities 121,363,750 462,709
--------------- ---------------
Cash flows from financing activities:
Principal payments on borrowings of discontinued
operations - Radio Station Segment (1,993,137) (1,750,901)
Limited partners cash distribution (63,353,978) -
General Partner cash distributions (639,939) (189,893)
--------------- ---------------
Net cash used in financing activities (65,987,054) (1,940,794)
--------------- ---------------
Net increase in cash and cash
equivalents 64,972,187 16,778,102
Cash and cash equivalents at
beginning of year 101,394,305 92,872,891
--------------- ---------------
Cash and cash equivalents at end of period $ 166,366,492 $ 109,650,993
=============== ===============
Cash paid for interest $ 1,908,727 $ 2,640,876
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
ML MEDIA PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEK PERIODS ENDED SEPTEMBER 24, 1999 (UNAUDITED)
AND SEPTEMBER 25, 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 September 24, 1999 and the results of operations and cash flows of the
Partnership for the interim periods presented. The results of operations for the
thirty-nine week period ended September 24, 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.
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 by reference and made a part hereof.
3. Discontinued Operations
Due to the recent dispositions (see Note 2) of C-ML Radio, KEZY-FM and KORG-AM,
Wincom, and WEBE-FM and WICC-AM on June 3, 1998, January 4, 1999, January 28,
1999, and August 31, 1999, respectively, the Partnership has presented its Radio
Station Segment as discontinued operations.
The December 25, 1998 Consolidated Balance Sheet and the September 25, 1998
Consolidated Income Statements and Consolidated Statement of Cash Flows have
been restated to present such discontinued operations. Accordingly, the
revenues, costs and expenses, assets and liabilities, and cash flows of these
discontinued operations have been excluded from the respective captions in the
Consolidated Balance Sheets, Consolidated Income Statements and Consolidated
Statements of Cash Flows, and have been reported through the dates of
disposition as "Net assets of discontinued operations - Radio Station Segment,"
"Income from discontinued operations - Radio Station Segment" and "Net cash
provided by discontinued operations - Radio Station Segment" for all periods
presented.
The net assets of discontinued operations of the Radio Station Segment on the
Consolidated Balance Sheet as of December 25, 1998 are comprised of the
following:
Property, plant and
equipment, net $ 781,361
Intangible assets, net 19,812,637
Other assets including prepaid
expenses and deferred
charges, net 1,226,105
Borrowings (1,993,137)
Accounts payable and accrued
liabilities (1,170,397)
------------
Net assets of discontinued
operations - Radio Station
Segment $ 18,656,569
============
Accounts payable and accrued liabilities in the accompanying balance sheet as of
September 24, 1999 include approximately $3.4 million in liabilities related to
the discontinued Radio Station Segment, which were assumed by the Partnership.
<PAGE>
Summarized results of discontinued operations of the Radio Station Segment on
the Consolidated Income Statements are as follows:
<TABLE>
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Thirteen Weeks Thirty-Nine Weeks
------------------ ---------------------
September 24, 1999 September 25, 1998 September 24, 1999 September 25, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Operating revenues $ 2,153,920 $ 5,656,890 $ 8,131,424 $ 16,770,960
-------------- -------------- -------------- --------------
Less:
Operating expenses 1,528,273 3,352,811 5,107,114 11,752,391
Interest expense - 78,402 14,727 397,981
-------------- -------------- -------------- --------------
1,528,273 3,431,213 5,121,841 12,150,372
-------------- -------------- -------------- --------------
Income from
discontinued
operations - Radio
Station Segment 625,647 2,225,677 3,009,583 4,620,588
Gain on sale
- Radio Station Segment 40,793,906 (76,571) 102,016,264 2,765,607
-------------- -------------- -------------- --------------
Total
discontinued
operations $ 41,419,553 $ 2,149,106 $ 105,025,847 $ 7,386,195
============== ============== ============== ==============
</TABLE>
4. 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 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.
Defendants have not yet responded to the appeal, which has been adjourned until
February 2000, and have served papers in opposition to the plaintiffs' motion
for leave to amend their complaint.
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 thirty-nine week
periods ended September 24, 1999, the Partnership incurred approximately $39,000
and $160,000, respectively, for legal costs relating to such indemnification.
For the thirteen and thirty-nine week periods ended September 25, 1998, the
Partnership incurred approximately $2,000 and $194,000, respectively, for legal
costs relating to such indemnification. Cumulatively, such costs amount to
approximately $663,000 through September 24, 1999.
5. Segment Information
The Partnership's continuing operations are presented as one segment, the Cable
Television Systems segment, which operates in one geographical location and
consists of the Partnership's 50% share of C-ML Cable. The Partnership currently
presents the Radio Station Segment as discontinued operations (see Note 3).
6. 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.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources.
As of September 24, 1999, Registrant had $166,366,492 in cash and cash
equivalents. Of this amount, approximately $46.9 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); approximately $15.8 million is held in cash to cover
operating liabilities, current litigation, and litigation contingencies relating
to the California Cable Systems prior to and resulting from their sale; and
approximately $14.5 million is held in cash to cover operating liabilities and
contingencies relating to the Anaheim Station, Cleveland Stations and
Connecticut Stations prior to and resulting from their sale. All remaining cash
and cash equivalents were available to Registrant for uses as provided in the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"); of such remaining cash, approximately $36.1 million was distributed
to partners on October 28, 1999 (see below). As of September 24, 1999, the
amount payable for accrued management fees and expenses owed to the General
Partner amounted to approximately $1.5 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 thirty-nine week period ended September 24, 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. In addition, during the thirty-nine week period
ended September 24, 1999, interest payments of $1,894,000 were made in
connection with Registrant's C-ML Notes/Credit Agreement. During the remainder
of 1999, Registrant is required to make scheduled principal repayments of $10.0
million under its C-ML Notes/Credit Agreement.
On October 28, 1999, Registrant made a $190 per $1,000 unit of limited
partnership interest ("Unit") cash distribution (less applicable federal
withholding taxes) totaling $35,718,860. In addition, a cash distribution of
$360,797 was paid to the General Partner representing its 1% share. The limited
partners' portion of such distribution was from distributable sales proceeds
from the August 31, 1999 sale of the Connecticut Stations, and was paid to
partners of record as of August 31, 1999.
On March 30 and 31, 1999, Registrant made a $337 per Unit cash distribution
(less applicable state and federal withholding taxes) totaling $63,353,978. 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 September 24, 1999 Registrant's only remaining operating investment 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.
On October 1, 1999, Adelphia Communications Corporation ("Adelphia") consummated
its acquisition of Century Communications Corp. ("Century"). While Adelphia's
purchase included Century's 50% interest in C-ML Cable, it did not include a
purchase of Registrant's 50% interest in C-ML Cable. Registrant continues 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 its value to Registrant; to that end, Registrant has
entered into discussions with Adelphia regarding the sale of Registrant's
interest in C-ML Cable.
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). On August 31, 1999,
Registrant consummated the sale of substantially all of the assets used in the
operations of the WEBE-FM and WICC-AM radio station combination (see further
discussion under WEBE-FM and WICC-AM below).
Registrant cannot presently determine when contingencies and required escrows
related to the sales of its properties will be resolved. In addition, 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.
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 damaged assets were not covered by insurance policies nor
salvageable via repairs, such amount of net plant and equipment was written-off
during the year ended December 25, 1998. The Hurricane damage was determined to
have caused total loss of these assets. The write-off of net plant and equipment
of approximately $859,000 represented the net book value of distribution plant
destroyed by the Hurricane. During the thirty-nine week period ended September
24, 1999 and year ended December 25, 1998, Registrant recorded, as revenue,
approximately $335,000 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. Defendants have not
yet responded to the appeal, which has been adjourned until February 2000, and
have served papers in opposition to the plaintiffs' motion for leave to amend
their complaint.
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 thirty-nine week
periods ended September 24, 1999, Registrant incurred approximately $39,000 and
$160,000, respectively, for legal costs relating to such indemnification.
Cumulatively, such costs amount to approximately $663,000 through September 24,
1999.
WEBE-FM and WICC-AM
On August 31, 1999, Registrant consummated a sale to Aurora Communications, LLC
("Aurora") (formerly known as Shadow Communications, LLC) of substantially all
of the assets used in the operations of Registrant's radio stations, WEBE-FM and
WICC-AM (the "Connecticut Stations"), pursuant to a sales agreement dated April
22, 1999 (the "Connecticut Agreement").
The base sales price for the Connecticut Stations was $66 million, subject to
the apportionment of income and liabilities as of the closing date, as provided
in the Connecticut Agreement.
Pursuant to the Connecticut Agreement, Registrant deposited $3.3 million into an
indemnity escrow account against which Aurora may make indemnification claims
until December 31, 2000. At the closing, pursuant to the terms of the
Wincom-WEBE-WICC Loan, an initial amount of approximately $8.2 million was paid
to the Wincom Bank, pursuant to its 15% residual interest in the net sales
proceeds from the sale of the Connecticut Stations. In addition, approximately
$6.6 million was applied to repay certain amounts owed to Registrant by the
Connecticut Stations. The General Partner has determined to add this amount to
Registrant's working capital to meet potential Registrant expenses and
contingencies. If working capital is not utilized by Registrant, in accordance
with the terms of the Partnership Agreement, it will ultimately be distributed
to the partners. In addition, Registrant held approximately $11.5 million of the
sales proceeds to pay (or to reserve for payment of) expenses and liabilities
relating to the operations of the Connecticut Stations prior to the sale, as
well as wind-down expenses, sale-related expenses, contingent obligations of the
Connecticut Stations, and the balance of the 15% residual interest in the net
sales proceeds payable to the lender under the Wincom-WEBE-WICC Loan.
The remaining sales proceeds of approximately $36.4 million were included in the
cash distribution made to partners on October 28, 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 $40.6 million on the sale of the Connecticut
Stations. As of September 24, 1999, Registrant had approximately $7.7 million
remaining in cash reserves, including interest income earned since the closing,
from the sale of the Connecticut Stations.
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, sale-related expenses and the balance, if any, of the Wincom
Bank's residual interest. 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 $42.0 million on the sale of the Cleveland Station. As of
September 24, 1999, Registrant had approximately $2.6 million remaining in cash
reserves, including interest income earned since the closing, 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 September
24, 1999, Registrant had approximately $4.2 million remaining in cash reserves,
including interest income earned since the closing, 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. As of December 25, 1998, the
balance of these escrows was classified on the accompanying Consolidated Balance
Sheet as Investments held by escrow agents. During the thirteen week period
ended June 25, 1999 the remaining escrow of $324,999 was released.
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 released
from the sale of C-ML Radio must be retained by the Venture and cannot be
distributed to Registrant or its partners.
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 September 24, 1999, Registrant
had approximately $15.8 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 only remaining operating investment, C-ML Cable.
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. Merrill Lynch & Co., Inc. has
participated in and continues to participate in numerous industry tests
throughout the world.
C-ML Cable
C-ML Cable is using a multi-step approach in conducting its Year 2000 Project.
These steps are: inventory, assessment, remediation and testing, and contingency
planning. The first step, an inventory of all systems and devices with potential
Year 2000 problems, was completed in December 1998. The next step, completed in
December 1998, was to conduct an initial assessment of the inventory to
determine the state of its Year 2000 readiness. As part of the assessment phase,
remediation strategies were identified and remediation cost estimates were
developed. C-ML Cable will utilize primarily internal resources to remediate and
test for Year 2000 readiness. C-ML Cable has initiated formal communications
with the suppliers with which it has active contracts to determine the extent to
which C-ML Cable is vulnerable to those third parties' failure to remediate
their own Year 2000 issue. C-ML Cable is reliant on outside suppliers for signal
delivery, customer billing, payroll and utility service. C-ML Cable is also
consulting with other cable television multiple system operators which utilize
similar technology to assess the nature of any risks and possible remediation.
Since August 1998, periodic reports have been submitted to and discussed with
senior executives and in October 1998 a progress report was discussed. C-ML
Cable has been and plans to continue such periodic reporting.
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.
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. 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.
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.
Rates for basic services are set pursuant to a benchmark formula. In the
alternative, operators may use a cost-of-service methodology to show that its
basic service rates are reasonable. The Commission has reserved the right to
alter its established benchmarks. The FCC's rate regulations also limit
increases in regulated rates to an inflation indexed amount plus increases in
certain costs, such as taxes, franchise fees, increased programming costs, and
the costs of complying with certain franchise requirements. Rate adjustments can
also be made if an operator adds or deletes channels or completes a significant
system rebuild or upgrade.
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. The Chairman of the FCC has expressed 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
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, as well as Congress and the Administration, are currently
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. Pending final judicial resolution of this issue, the
FCC voluntarily has stayed the effective date of its horizontal ownership
limitations (with the exception of certain reporting requirements) since 1993.
In an October, 1999 decision, the Commission announced revisions to its
horizontal ownership rules, but retained its stay of these rules. The FCC set a
30% nationwide cap based on the percentage of multichannel video programming
subscribers served nationwide. In addition, the decision changed the attribution
rules with respect to the attribution of limited partners in the context of the
cable horizontal ownership and vertical ownership (or "channel occupancy")
rules. The new rules allow a limited partnership interest to be treated as
non-attributable for purposes of those rules so long as the general partner is
able to certify that the limited partner is not materially involved in the video
programming activities of the partnership.
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.
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. 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 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.
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 regulation 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.
Thirteen week period ended September 24, 1999
Registrant generated net income of approximately $45.1 million in the thirteen
week period ended September 24, 1999, which was comprised of the following
components: (i) a gain of approximately $40.8 million on the sales of the
Connecticut Stations and the Cleveland Station, (ii) net income from the
operations of C-ML Cable of approximately $3.2 million, (iii) net income from
the discontinued radio station segment of approximately $626,000 and (iv)
interest income of approximately $1.2 million, partially offset by (v)
management fees of approximately $274,000 and (vi) general and administrative
expenses of approximately $493,000.
Thirteen week period ended September 25, 1998
Registrant generated net income of approximately $3.3 million in the thirteen
week period ended September 25, 1998, which was primarily comprised of the
following components: (i) net income from the operations of C-ML Cable of
approximately $1.0 million, (ii) net income from the discontinued radio station
segment of approximately $2.2 million and (iii) interest income of approximately
$653,000, partially offset by (iv) management fees of approximately $303,000 and
(v) general and administrative expenses of approximately $244,000.
Thirteen week period ended September 24, 1999 vs. thirteen week period ended
September 25, 1998
The increase in net income of approximately $41.8 million from the thirteen week
period ended September 25, 1998 is primarily attributable to a one-time gain on
the sale of the Connecticut Stations in the 1999 period of approximately $40.6
million and an increase in net income of C-ML Cable of approximately $2.2
million, partially offset by a decrease in net income from the discontinued
radio station segment of approximately $1.6 million.
The increase in net income of C-ML Cable of approximately $2.2 million from the
thirteen week period ended September 25, 1998 was primarily due to an increase
in net operating revenues of approximately $1.1 million resulting from an
increase in pay-per-view revenues resulting from popular boxing matches, a
decrease in property taxes of approximately $1.6 million due to the settlement
with the local authorities resulting in a reversal in previously accrued
expenses and a decrease in interest expense of approximately $224,000 due to the
scheduled principal payment made in late 1998. These increases in net income
components at C-ML Cable were partially offset by increases in general and
administrative and property operating expenses of approximately $337,000 and
$272,000, respectively, generally due to increased revenues, as well as an by
increase in depreciation and amortization expense of approximately $122,000 due
to an increase in the asset base resulting from a system rebuild.
The decrease in net income from the discontinued radio station segment of
approximately $1.6 million from the thirteen week period ended September 25,
1998 was primarily due to a decrease in net income from the sale of the
Connecticut Stations in August 1999, and from the sales of the Cleveland Station
and the Anaheim Stations in January 1999.
The increase in interest income of approximately $523,000 from the thirteen week
period ended September 25, 1998 is due primarily to interest earned on the
higher average cash balances that existed during the third quarter 1999
resulting from the sale of the Connecticut Stations on August 31, 1999, prior to
its cash distribution in October 1999.
The increase in general and administrative expenses, excluding the increase at
the C-ML Cable level, of approximately $249,000 from the thirteen week period
ended September 25, 1998 is primarily due to an increase in professional fees at
the Registrant level primarily due to the unsolicited tender offer activity
during the first quarter of 1999 with respect to units of limited partnership
interest in Registrant. The remaining increases or decreases in general and
administrative expenses were immaterial, either individually or in the
aggregate.
Thirty-nine week period ended September 24, 1999
Registrant generated net income of approximately $112.1 million in the
thirty-nine week period ended September 24, 1999, which was comprised of the
following components: (i) a gain of approximately $102.0 million on the sales of
the Anaheim Stations, the Cleveland Station and the Connecticut Stations, (ii)
net income from the operations of C-ML Cable of approximately $6.2 million,
(iii) net income from the discontinued radio station segment of approximately
$3.0 million and (iv) interest income of approximately $3.2 million, partially
offset by (v) management fees of approximately $829,000 and (vi) general and
administrative expenses of approximately $1.5 million.
Thirty-nine week period ended September 25, 1998
Registrant generated net income of approximately $12.0 million in the
thirty-nine week period ended September 25, 1998, which was comprised of the
following components: (i) a gain of approximately $2.8 million on the sale of
C-ML Radio, (ii) net income from the operations of C-ML Cable of approximately
$3.8 million, (iii) net income from the discontinued radio station segment of
approximately $4.6 million and (iv) interest income of approximately $2.2
million, partially offset by (v) management fees of approximately $909,000 and
(vi) general and administrative expenses of approximately $482,000.
Thirty-nine week period ended September 24, 1999 vs. thirty-nine week period
ended September 25, 1998
The increase in net income of approximately $100.1 million from the thirty-nine
week period ended September 25, 1998 is primarily attributable to one-time gains
on the sale of the Anaheim Stations, the Cleveland Station and the Connecticut
Stations in the 1999 period of approximately $19.4 million, $42.0 million and
$40.6 million, respectively, and an increase in net income of C-ML Cable of
approximately $2.4 million, partially offset by the one-time gain on the sale of
C-ML Radio in the 1998 period of approximately $2.8 million and a decrease in
net income from the discontinued radio station segment of approximately $1.6
million.
The increase in net income of C-ML Cable of approximately $2.4 million from the
thirty-nine week period ended September 25, 1998 was primarily due to an
increase in net operating revenues of approximately $1.5 million resulting from
an increase in basic subscribers from 128,752 at the end of the third quarter of
1998 to 132,823 at the end of the third quarter of 1999 and an increase in
pay-per-view revenues resulting from popular boxing matches, a decrease in
property taxes of approximately $1.6 million due to the settlement with local
authorities resulting in a reversal in previously accrued expenses and a
decrease in interest expense of approximately $573,000 due to the scheduled
principal payment in late 1998. These increases in net income components at C-ML
Cable were partially offset by increases in general and administrative and
property operating expenses of approximately $365,000 and $491,000,
respectively, generally due to increased revenues, as well as by an increase in
depreciation and amortization expense of approximately $422,000 due to an
increase in the asset base resulting from a system rebuild.
The decrease in net income from the discontinued radio station segment of $1.6
million from the thirty-nine week period ended September 25, 1998 was primarily
due to a decrease in net income at the Cleveland Station, the Anaheim Stations,
and the Connecticut Stations in 1999 and C-ML Radio in 1998, partially offset by
operational expenses incurred in the 1998 period due to the sale of C-ML Radio.
The increase in interest income of approximately $1.0 million from the
thirty-nine week period ended September 25, 1998 is due primarily to interest
earned on the higher average cash balances that existed during 1999 resulting
from the sales of the Cleveland Station, the Anaheim Stations and the
Connecticut Stations, prior to their cash distributions.
The increase in general and administrative expenses, excluding the increase at
the C-ML Cable level, of approximately $1.0 million from the period ended
September 25, 1998 is primarily due to an increase in professional fees at the
Registrant level primarily due to the unsolicited tender offer activity during
the first quarter of 1999 with respect to units of limited partnership interest
in Registrant, and an increase at California Cable resulting from the receipt in
1998 of prior year tax assessment refunds, which reduced general and
administrative expense in that year. The remaining increases or decreases in
general and administrative expenses were immaterial, either individually or in
the aggregate.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As of September 24, 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 September 24, 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 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. Defendants have not
yet responded to the appeal, which has been adjourned until February 2000, and
have served papers in opposition to the plaintiffs' motion for leave to amend
their complaint.
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 thirty-nine week
periods ended September 24, 1999, Registrant incurred approximately $39,000 and
$160,000, respectively, for legal costs relating to such indemnification.
Cumulatively, such costs amount to approximately $663,000 through September 24,
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
Item 6. Exhibits and Reports on Form 8-K.
A). Exhibits:
Exhibit # Description
27. Financial Data Schedule
B). Reports on Form 8-K
On August 31, 1999, Registrant filed with the SEC a Current
Report on Form 8-K. This Current Report contained details
regarding the sale of 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: January 31, 2000 /s/ Kevin K. Albert
---------------------------------
Kevin K. Albert
Director and President
Dated: January 31, 2000 /s/ James V. Caruso
---------------------------------
James V. Caruso
Director and Executive Vice
President
Dated: January 31, 2000 /s/ David G. Cohen
---------------------------------
David G. Cohen
Director and Vice President
Dated: January 31, 2000 /s/ Sandhya Rana
---------------------------------
Sandhya Rana
Vice President and Treasurer
(principal accounting officer
and principal financial
officer)
<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: January 31, 2000 /s/ I. Martin Pompadur
----------------------------------
I. Martin Pompadur
President, Secretary and
Director
(principal executive officer)
Dated: January 31, 2000 /s/ Elizabeth McNey Yates
----------------------------------
Elizabeth McNey Yates
Executive Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the quarter
September 24, 1999 Form 10Q Consolidated Balance Sheets and Consolidated
Statements of Operations as of September 24, 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-24-1999
<CASH> 166,366
<SECURITIES> 0
<RECEIVABLES> 4,216
<ALLOWANCES> 471
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 40,791
<DEPRECIATION> 14,394
<TOTAL-ASSETS> 207,470
<CURRENT-LIABILITIES> 0
<BONDS> 40,000
<COMMON> 0
0
0
<OTHER-SE> 140,916
<TOTAL-LIABILITY-AND-EQUITY> 207,470
<SALES> 0
<TOTAL-REVENUES> 28,998
<CGS> 0
<TOTAL-COSTS> 21,921
<OTHER-EXPENSES> 6,053
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,841
<INCOME-PRETAX> 7,077
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,077
<DISCONTINUED> 105,026
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112,103
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
