SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2000
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 10281-6114
(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 31, 2000 (Unaudited) and December
31, 1999 (Unaudited)
Consolidated Income Statements for the Thirteen Week Periods Ended March
31, 2000 (Unaudited) and March 26, 1999 (Unaudited)
Consolidated Statements of Cash Flows for the Thirteen Week Periods Ended
March 31, 2000 (Unaudited) and March 26, 1999 (Unaudited)
Notes to Consolidated Financial Statements for the Thirteen Week Period
Ended March 31, 2000 (Unaudited)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
2000 1999
---------------- -----------------
ASSETS:
Cash and cash equivalents $ 132,096,406 $ 125,574,620
Investments held by escrow agents 4,499,919 6,975,972
Accounts receivable (net of allowance for doubtful
accounts of $469,677 and $605,910, respectively) 1,753,474 1,924,269
Prepaid expenses and deferred charges (net of
accumulated amortization of $43,405 and
$585,969, respectively) 563,840 620,792
Property, plant and equipment (net of accumulated
depreciation of $16,380,070 and $15,373,234,
respectively) 28,789,598 27,663,870
Intangible assets (net of accumulated amortization
of $33,195,580 and $33,149,500, respectively) 5,059,956 5,101,394
Other assets 966,089 705,377
--------------- ----------------
TOTAL ASSETS $ 173,729,282 $ 168,566,294
=============== ================
</TABLE>
(Continued on the following page.)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999 (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ----------------
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Borrowings $ 30,000,000 $ 30,000,000
Accounts payable and accrued liabilities 29,504,781 27,280,587
Distribution payable 1,500,154 -
Subscriber advance payments 2,501,218 2,486,731
------------- ----------------
Total Liabilities 63,506,153 59,767,318
------------- ----------------
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 (2,373,471) (2,358,470)
Cumulative income 1,830,321 1,801,078
------------- ----------------
1,165,149 1,150,907
------------- ----------------
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 (234,973,701) (233,488,548)
Cumulative income 181,201,990 178,306,926
------------- ---------------
109,057,980 107,648,069
------------- ---------------
Total Partners' Capital 110,223,129 108,798,976
------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 173,729,282 $ 168,566,294
============= ===============
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED INCOME STATEMENTS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 2000 (UNAUDITED) AND
MARCH 26, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 26,
2000 1999
------------- -------------
<S> <C> <C>
Partnership Operating Revenues and Expenses:
REVENUES:
Operating revenues $ 8,632,471 $ 8,012,106
Interest 1,260,971 1,195,846
------------- ------------
Total revenues 9,893,442 9,207,952
------------- ------------
COSTS AND EXPENSES:
Property operating 1,479,263 2,289,314
General and administrative 3,445,608 2,500,432
Depreciation and amortization 1,074,920 1,678,065
Interest expense 710,250 947,000
Management fees 266,052 280,787
------------- ------------
Total costs and expenses 6,976,093 7,695,598
------------- ------------
Income from continuing operations 2,917,349 1,512,354
------------- ------------
DISCONTINUED OPERATIONS
Income from discontinued operations - Radio Station Segment 6,958 1,000,804
Gain on sale - Radio Station Segment - 61,222,358
------------- ------------
Total discontinued operations 6,958 62,223,162
------------- ------------
NET INCOME $ 2,924,307 $ 63,735,516
============= ============
(Continued on the following page.)
</TABLE>
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED INCOME STATEMENTS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 2000 (UNAUDITED) AND
MARCH 26, 1999 (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
March 31, March 26,
2000 1999
-------------- -------------
<S> <C> <C>
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
Income from continuing operations 15.36 7.96
-------------- -------------
Income from discontinued operations - Radio Station Segment 0.04 5.28
Gain on sale - Radio Station Segment - 322.40
-------------- -------------
0.04 327.68
-------------- -------------
NET INCOME $ 15.40 $ 335.64
============== =============
Number of Units 187,994 187,994
============== =============
</TABLE>
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 2000 (UNAUDITED)
AND MARCH 26, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 26,
2000 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,924,307 $ 63,735,516
Adjustments to reconcile net income
to net cash provided by/(used in) operating activities:
Income from discontinued
operations - Radio Station Segment (6,958) (1,000,804)
Depreciation and amortization 1,074,920 1,678,065
Bad debt expense 198,146 204,383
Gain on sale of discontinued operations - Radio Station Segment - (61,222,358)
Changes in operating assets and
liabilities:
(Increase)/Decrease:
Accounts receivable 170,795 (172,736)
Investments held by escrow agents 2,476,053 (3,501,245)
Prepaid expenses and deferred charges 56,952 33,408
Other assets (260,712) 665,583
(Decrease)/Increase:
Accounts payable and accrued
liabilities 2,098,410 (2,183,789)
Subscriber advance payments 14,487 (76,616)
Net cash provided by /(used in) ------------ ------------
continuing operations 8,746,400 (1,840,593)
Net cash provided by discontinued operations - Radio Station Segment 6,958 1,103,797
------------ ------------
Net cash provided by /(used in)
operating activities 8,753,358 (736,796)
------------ ------------
</TABLE>
(Continued on the following page.)
<PAGE>
ML MEDIA PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEK PERIODS ENDED MARCH 31, 2000 (UNAUDITED)
AND MARCH 26, 1999 (UNAUDITED)
(continued)
<TABLE>
<CAPTION>
March 31, March 26,
2000 1999
<S> <C> <C>
------------ ------------
Cash flows from investing activities:
Proceeds from the sale of discontinued operations - Radio Station
Segment $ - $ 71,032,307
Payment of costs incurred related to
sale of discontinued operations - Radio Station Segment - (2,892)
Payment of costs incurred related to the sale of the California Cable
Systems (1,678) (4,377)
Purchase of property, plant and equipment (2,225,252) (791,804)
Payment for intangible assets (4,642) -
------------ ------------
Net cash (used in)/provided by investing activities (2,231,572) 70,233,234
------------ ------------
Cash flows from financing activities:
Principal payments on borrowings of discontinued operations
- Radio Station Segment - (1,993,137)
------------ ------------
Net cash used in financing activities - (1,993,137)
------------ ------------
Net increase in cash and cash equivalents 6,521,786 67,503,301
Cash and cash equivalents at beginning of year 125,574,620 101,394,305
------------ ------------
Cash and cash equivalents at end of period $132,096,406 $168,897,606
============ ============
Cash paid for interest $ - $ 14,727
============ ============
</TABLE>
Supplemental Disclosure:
During the first quarter of 2000, the Partnership declared a distribution
of $1,500,154, which will be paid to partners in the second quarter of 2000.
See Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
ML MEDIA PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEK PERIOD ENDED MARCH 31, 2000 (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 31, 2000 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 31, 2000 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 1999
Annual Report on Form 10-K filed with the SEC on May 3, 2000.
Certain reclassifications were made to the 1999 financial statements to
conform with the current period's presentation.
2. WEBE-FM and WICC-AM, KEZY-FM and KORG-AM, Wincom 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 and California Cable Systems is hereby incorporated by reference
and made a part hereof.
3. Discontinued Operations
Due to the dispositions of the Partnership's radio properties (see Note 2),
the Partnership has presented its Radio Station Segment as discontinued
operations. The March 26, 1999 Consolidated Income Statement and Consolidated
Statement of Cash Flows have been restated to present such discontinued
operations. Accordingly, the revenues, costs and expenses, and cash flows of
these discontinued operations have been excluded from the respective captions in
the Consolidated Income Statements and Consolidated Statements of Cash Flows,
and have been reported through the dates of disposition as "Income from
discontinued operations - Radio Station Segment" and "Net cash provided by
discontinued operations - Radio Station Segment" for all periods presented.
Accounts payable and accrued liabilities in the accompanying Consolidated
Balance Sheet as of March 31, 2000 include approximately $2.6 million in
liabilities related to the discontinued Radio Station Segment, which were
assumed by the Partnership.
Summarized results of discontinued operations of the Radio Station Segment
on the Consolidated Income Statements are as follows:
<TABLE>
<S> <C>
Thirteen Weeks
-------------------------------------
March 31, March 26,
2000 1999
---------- -----------
Operating revenues $ - $ 2,584,340
Less:
Operating expenses (6,958) 1,583,536
---------- -----------
Income from discontinued operations - Radio Station Segment 6,958 1,000,804
Gain on sale - Radio Station Segment - 61,222,358
---------- -----------
Total discontinued operations $ 6,958 $62,223,162
========== ===========
</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, and
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 served their brief in opposition to the appeal, arguing that the
court should affirm the Supreme Court's order dismissing plaintiffs' complaint;
oral argument of this appeal has been heard and the parties are awaiting a
decision. Defendants have also served papers in opposition to the plaintiffs'
motion for leave to amend their complaint; oral argument on this matter has been
heard and the parties are awaiting a decision.
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 31, 2000 and March 26, 1999, the Partnership
incurred approximately $17,000 and $18,000, respectively, for legal costs
relating to such indemnification. Cumulatively, such costs amount to
approximately $725,000 through March 31, 2000.
On March 24, 2000, the Partnership commenced suit in New York Supreme
Court, New York County against Century Communications Corp. ("Century"),
Adelphia Communications Corporation ("Adelphia") and Arahova Communications Inc.
seeking a dissolution of the Venture and the appointment of a receiver for the
sale of the Venture's assets (primarily the stock of the subsidiary of the
Venture that owns the cable systems). The complaint alleges that, as successor
to Century's position as the Partnership's joint venture partner, Adelphia
breached its fiduciary and contractual obligations to the Partnership with
respect to the operations of the Venture and by proposing to take action that
would interfere with the sale of the cable systems to a third party through an
auction process conducted in accordance with the terms of the joint venture
agreement. In addition to dissolution and the appointment of a receiver, the
Partnership seeks in the suit an order directing Adelphia and its affiliates to
comply with the terms of the joint venture agreement and seeks other equitable
relief. The Partnership also seeks in the suit compensatory and punitive
damages. The complaint states that, if the court should determine not to appoint
a receiver for the sale of the Venture's assets, it should enter an order
authorizing the Partnership to conduct an auction for the sale of the Venture's
assets to an unrelated third party or, in the alternative, directing that the
Partnership and the defendants diligently proceed to locate a buyer for the
cable systems for the highest possible price and that the defendants be enjoined
from interfering in any manner in the sale process, including by participating
in that process as a bidder.
On or about April 24, 2000, the Adelphia parties served their verified
answer, affirmative defenses and counterclaims. The Adelphia parties denied the
material allegations of the verified complaint. In addition, Century asserted
counterclaims for breach of contract, breach of fiduciary duty, breach of
implied duty of good faith and fair dealing, and declaratory relief based on its
claim that it is entitled to act as both seller and purchaser under the terms of
the "buy-sell" provision of the joint venture agreement and that it has been
injured by reason of the Partnership's position to the contrary. Century seeks
compensatory and punitive damages in an unspecified amount and a declaration
that nothing in the joint venture agreement limits the right of Century, or any
of its affiliates, from participating as an actual or potential purchaser in a
sale of the system pursuant to the "buy-sell" provision of the joint venture
agreement. A trial has been scheduled by the court to commence on June 27, 2000.
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. Subsequent Event
The Partnership declared a cash distribution of $1,500,154 that will be
made to partners in the second quarter of 2000, relating to the discharge of
escrowed proceeds of $1.5 million from the 1999 sale of the Cleveland Station,
after accounting for certain expenses of the Partnership. This cash distribution
to limited partners will be paid to limited partners of record as of February 4,
2000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources.
As of March 31, 2000, Registrant had $132,096,406 in cash and cash
equivalents. Of this amount, approximately $44.5 million is restricted for use
at the operating level of the Venture (as defined below) to fund capital
expenditure programs and satisfy future non-recourse debt service requirements
(including annual principal payments of $20 million, $10 million of which is
Registrant's share); approximately $15.2 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 $13.0 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"). As of March 31, 2000, the amount payable for accrued management
fees and expenses owed to the General Partner amounted to approximately $1.1
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 and the
Adelphia Communications Corporation ("Adelphia") lawsuit (see below).
During 2000, Registrant is required to make scheduled principal repayments
of $10.0 million under its C-ML Cable Notes/Credit Agreement.
On January 31, 2000, $1.0 million plus interest was released from the
escrow account relating to the sale of the Anaheim Stations (see further
discussion under KEZY-FM and KORG-AM below). On February 4, 2000, $1.5 million
was released from the escrow account relating to the sale of the Cleveland
Station (see further discussion under Wincom below). In accordance with the
terms of the Partnership Agreement, the entire amount of such discharged
escrowed proceeds from the sale of the Anaheim Stations was used to account for
certain expenses of Registrant. In addition, in accordance with the terms of the
Partnership Agreement, the amount of such discharged escrowed proceeds from the
sale of the Cleveland Station, after accounting for certain expenses of
Registrant, will be included in the cash distribution to limited partners of
$1,485,153 ($7.90 per Unit) and $15,001 to Media Management Partners (the
"General Partner"), representing its 1% share. This cash distribution to limited
partners will be paid to limited partners of record as of February 4, 2000 and
will be distributed to partners by the end of the second quarter of 2000.
As of March 31, 2000, Registrant's sole remaining operating investment in
media properties is its 50% interest in a joint venture (the "Venture"), which
owns 100% of the stock of Century-ML Cable Corporation ("C-ML Cable Corp."),
which owns and operates two cable television systems in Puerto Rico.
On October 1, 1999, Adelphia consummated its acquisition of 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
negotiated with Adelphia regarding the sale to Adelphia of Registrant's interest
in the Venture, but no definitive arrangement was concluded.
On February 18, 2000, Registrant triggered the "buy-sell" provision in the
joint venture agreement (the "Joint Venture Agreement"), and Adelphia elected to
cause the Venture to sell C-ML Cable. A dispute arose between Registrant and
Adelphia over, among other things, the terms of the sale pursuant to the Joint
Venture Agreement.
On March 24, 2000, Registrant commenced suit in New York Supreme Court, New
York County against Century, Adelphia and Arahova Communications Inc. seeking a
dissolution of the Venture and the appointment of a receiver for the sale of the
Venture's assets (primarily the stock of the subsidiary of the Venture that owns
the cable systems). The complaint alleges that, as successor to Century's
position as Registrant's joint venture partner, Adelphia breached its fiduciary
and contractual obligations to Registrant with respect to the operations of the
Venture and by proposing to take action that would interfere with the sale of
the cable systems to a third party through an auction process conducted in
accordance with the terms of the joint venture agreement. Registrant also seeks
in the suit an order directing Adelphia and its affiliates to comply with the
terms of the joint venture agreement and seeks other equitable relief.
Registrant also seeks in the suit compensatory and punitive damages. The
complaint states that, if the court should determine not to appoint a receiver
for the sale of the Venture's assets, it should enter an order authorizing the
Registrant to conduct an auction for the sale of the Venture's assets to an
unrelated third party or, in the alternative, directing that the Registrant and
the defendants diligently proceed to locate a buyer for the cable systems for
the highest possible price and that the defendants be enjoined from interfering
in any manner in the sale process, including by participating in that process as
a bidder.
On or about April 24, 2000, the Adelphia parties served their verified
answer, affirmative defenses and counterclaims. The Adelphia parties denied the
material allegations of the verified complaint. In addition, Century asserted
counterclaims for breach of contract, breach of fiduciary duty, breach of
implied duty of good faith and fair dealing, and declaratory relief based on its
claim that it is entitled to act as both seller and purchaser under the terms of
the "buy-sell" provision of the joint venture agreement and that it has been
injured by reason of Registrant's position to the contrary. Century seeks
compensatory and punitive damages in an unspecified amount and a declaration
that nothing in the joint venture agreement limits the right of Century, or any
of its affiliates, from participating as an actual or potential purchaser in a
sale of the system pursuant to the "buy-sell" provision of the joint venture
agreement. A trial has been scheduled by the court to commence on June 27, 2000.
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 above and below, the related claims against Registrant
for indemnification, other costs and expenses related to such litigations, 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.
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 by 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. Through March 31,2000, Registrant recorded, as
revenue, approximately $2.2 million 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, 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 served
their brief in opposition to the appeal, arguing that the court should affirm
the Supreme Court's order dismissing plaintiffs' complaint; oral argument of
this appeal has been heard and the parties are awaiting a decision. Defendants
have also served papers in opposition to the plaintiffs' motion for leave to
amend their complaint; oral argument on this matter has been heard and the
parties are awaiting a decision.
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 31, 2000 and March 26, 1999, Registrant
incurred approximately $17,000 and $18,000, respectively, for legal costs
relating to such indemnification. Cumulatively, such costs amount to
approximately $725,000 through March 31, 2000.
<PAGE>
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 certain adjustments, including a working capital adjustment, 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, as partial payment of the lender's 15% residual interest in
the net 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 accordance with the terms of the Partnership
Agreement. 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.
On October 29, 1999, the remaining sales proceeds of approximately $36.4
million, after accounting for certain expenses of Registrant, were distributed
to partners of record as of August 31, 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 dates when such escrow or reserves are released.
Registrant recognized a gain of approximately $39.7 million on the sale of the
Connecticut Stations during the quarter ended September 24, 1999. As of March
31, 2000, Registrant had approximately $6.7 million remaining in cash reserves
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. 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.
On February 4, 2000, Registrant received the discharge of escrowed proceeds
of $1.5 million, plus interest earned thereon, generated from the sale of the
Cleveland Station. In accordance with the terms of the Partnership Agreement,
the amount of such discharged escrowed proceeds, after accounting for certain
expenses of Registrant, will be included in the cash distribution to limited
partners of $1,485,153 ($7.90 per Unit) and $15,001 to its General Partner,
representing its 1% share. This cash distribution to limited partners will be
paid to limited partners of record as of February 4, 2000 and will be
distributed to partners by the end of the second quarter of 2000.
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 $41.5 million on the sale of the Cleveland
Station during the first quarter of 1999. As of March 31, 2000, Registrant had
approximately $2.3 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.
On January 31, 2000, Registrant received the discharge of escrowed proceeds
of $1.0 million, plus interest earned thereon, generated from the sale of the
Anaheim Stations. In accordance with the terms of the Partnership Agreement, the
entire amount of such discharged escrowed proceeds was used to account for
certain expenses of Registrant. As of March 31, 2000, Registrant had
approximately $4.0 million remaining in cash reserves from the sale of the
Anaheim Stations.
To the extent any amounts reserved as described above are subsequently
released, such amounts will be distributed to partners of record as of the date
of such release from reserves. Registrant recognized a gain of approximately
$19.8 million on the sale of the Anaheim Stations during the first quarter of
1999.
California Cable Systems
On May 31, 1996, Registrant consummated a sale to Century Communications
Corp. ("Century") of 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"). Upon closing of the sale of the California Cable Systems, Registrant
set aside approximately $40.7 million in a cash reserve to cover operating
liabilities, current litigation, and litigation contingencies relating to the
California Cable Systems' operations prior to and resulting from their sale, as
well as a potential purchase price adjustment. In accordance with the terms of
the Partnership Agreement, any amounts which may be available for distribution
from any unused cash reserves, after accounting for certain other expenses of
Registrant, including certain expenses incurred after May 31, 1996, will be
distributed to partners of record as of the date such unused reserves are
released, when Registrant determines such reserves are no longer necessary,
rather than to the partners of record on May 31, 1996, the date of the sale. As
of March 31, 2000, Registrant had approximately $15.2 million remaining in such
cash reserves.
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, an operator 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.
Parties periodically have called upon the FCC to freeze cable rates and to
increase rate regulation. Congress also has continued to express 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. This issue is particularly contentious
with respect to the digital television transition period, when broadcasters'
analog and digital signals will be operating simultaneously. 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 can 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 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 retained its 30% nationwide cap, but relaxed it somewhat by
basing the cap on the percentage of multichannel video programming subscribers
served nationwide. (The cap previously was calculated according to the number of
cable homes passed.) In addition, the decision changed the rules regulating the
attribution of limited partners with respect to both the 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.
Vertically integrated programmers also are generally prohibited from favoring
cable operators over other multi-channel video programming distributors.
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 of 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
prohibiting 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 March 31, 2000
Registrant generated net income of approximately $2.9 million in the
thirteen week period ended March 31, 2000, which was comprised of the following
components: (i) net income from the operations of C-ML Cable of approximately
$2.6 million, (ii) net income from the discontinued radio station segment of
approximately $7,000 and (iii) interest income of approximately $1.3 million,
partially offset by (iv) management fees of approximately $266,000 and (v)
general and administrative expenses of approximately $675,000.
Thirteen week period ended March 26, 1999
Registrant generated net income of approximately $63.7 million in the
thirteen week period ended March 26, 1999, which was comprised of the following
components: (i) a gain of approximately $61.2 million on the sales of the
Anaheim Stations and the Cleveland Station, (ii) net income from the operations
of C-ML Cable of approximately $1.2 million, (iii) net income from the
discontinued radio station segment of approximately $1.0 million and (iv)
interest income of approximately $1.2 million, partially offset by (v)
management fees of approximately $281,000 and (vi) general and administrative
expenses of approximately $651,000.
Thirteen week period ended March 31, 2000 vs. thirteen week period ended
March 26, 1999
The decrease in net income of approximately $60.8 million from the thirteen
week period ended March 26, 1999 is primarily attributable to a one-time gain on
the sales of the Anaheim Stations and the Cleveland Station in the 1999 period
of approximately $61.2 million, in the aggregate and a decrease in net income
from the discontinued radio station segment of approximately $994,000, partially
offset by an increase in net income of C-ML Cable of approximately $1.4 million.
The increase in net income of C-ML Cable of approximately $1.4 million from
the thirteen week period ended March 26, 1999 was due to an increase in net
operating revenues of approximately $665,000 resulting from an increase in
subscriber rates and basic subscribers from 132,919 at the first quarter of 1999
to 135,569 at the end of the first quarter of 2000, as well as an increase in
pay-per-view revenues; a decrease in property operating expense of approximately
$810,000 due primarily to an increase in the labor capitalization rates; a
decrease in depreciation and amortization expense of approximately $603,000 due
primarily to a change in the accounting estimate for useful lives of intangible
assets; and a decrease in interest expense of approximately $237,000 due to the
scheduled principal payment in late 1999. These increases in net income
components at C-ML Cable were partially offset by increases in general and
administrative expenses of approximately $888,000 primarily due to an increase
in income taxes.
The net income from the discontinued radio station segment decreased by
approximately $994,000 from the thirteen week period ended March 26, 1999
primarily due to the sales of the Cleveland Station and the Anaheim Stations in
January 1999 and the Connecticut Stations in August 1999.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As of March 31, 2000, 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 31, 2000, 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. Defendants have served
their brief in opposition to the appeal, arguing that the court should affirm
the Supreme Court's order dismissing plaintiffs' complaint; oral argument of
this appeal has been heard and the parties are awaiting a decision. Defendants
have also served papers in opposition to the plaintiffs' motion for leave to
amend their complaint; oral argument on this matter has been heard and the
parties are awaiting a decision.
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 period ended March 31, 2000, the Partnership incurred
approximately $17,000 for legal costs relating to such indemnification.
Cumulatively, such costs amount to approximately $725,000 through March 31,
2000.
On March 24, 2000, Registrant commenced suit in New York Supreme Court, New
York County against Century, Adelphia Communications Corporation ("Adelphia")
and Arahova Communications Inc. seeking a dissolution of the Venture and the
appointment of a receiver for the sale of the Venture's assets (primarily the
stock of the subsidiary of the Venture that owns the cable systems). The
complaint alleges that, as successor to Century's position as Registrant's joint
venture partner, Adelphia breached its fiduciary and contractual obligations to
Registrant with respect to the operations of the Venture and by proposing to
take action that would interfere with the sale of the cable systems to a third
party through an auction process conducted in accordance with the terms of the
joint venture agreement. In addition to dissolution and the appointment of a
receiver, Registrant seeks in the suit an order directing Adelphia and its
affiliates to comply with the terms of the joint venture agreement and seeks
other equitable relief. Registrant also seeks in the suit compensatory and
punitive damages. The complaint states that, if the court should determine not
to appoint a receiver for the sale of the Venture's assets, it should enter an
order authorizing the Registrant to conduct an auction for the sale of the
Venture's assets to an unrelated third party or, in the alternative, directing
that the Registrant and the defendants diligently proceed to locate a buyer for
the cable systems for the highest possible price and that the defendants be
enjoined from interfering in any manner in the sale process, including by
participating in that process as a bidder.
On or about April 24, 2000, the Adelphia parties served their verified
answer, affirmative defenses and counterclaims. The Adelphia parties denied the
material allegations of the verified complaint. In addition, Century asserted
counterclaims for breach of contract, breach of fiduciary duty, breach of
implied duty of good faith and fair dealing, and declaratory relief based on its
claim that it is entitled to act as both seller and purchaser under the terms of
the "buy-sell" provision of the joint venture agreement and that it has been
injured by reason of Registrant's position to the contrary. Century seeks
compensatory and punitive damages in an unspecified amount and a declaration
that nothing in the joint venture agreement limits the right of Century, or any
of its affiliates, from participating as an actual or potential purchaser in a
sale of the system pursuant to the "buy-sell" provision of the joint venture
agreement. A trial has been scheduled by the court to commence on June 27, 2000.
Registrant is not aware of any other material legal proceedings.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
A). Exhibits:
Exhibit # Description
27. Financial Data Schedule
B). Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML MEDIA PARTNERS, L.P.
By: Media Management Partners
General Partner
By: ML Media Management Inc.
Dated: June 2, 2000 /s/ Kevin K. Albert
---------------------------------------
Kevin K. Albert
Director and President
Dated: June 2, 2000 /s/ James V. Caruso
---------------------------------------
James V. Caruso
Director and Executive Vice
President
Dated: June 2, 2000 /s/ Michael A. Giobbe
---------------------------------------
Michael A. Giobbe
Director and Vice President
Dated: June 2, 2000 /s/ Sandhya Rana
---------------------------------------
Sandhya Rana
Vice President and Treasurer
(principal accounting officer
and principal financial
officer of the Registrant)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ML MEDIA PARTNERS, L.P.
By: Media Management Partners
General Partner
By: RP Media Management
By: IMP Media Management, Inc.
Dated: June 2, 2000 /s/ I. Martin Pompadur
--------------------------------------
I. Martin Pompadur
President, Secretary and
Director
(principal executive officer of
the Registrant)
Dated: June 2, 2000 /s/ Elizabeth McNey Yates
--------------------------------------
Elizabeth McNey Yates
Executive Vice President
