<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to _________________________
Commission file number 0-17507
Kagan Media Partners, L.P.
(Exact name of registrant as specified in its charter)
Delaware 22-2931567
(State of organization) (IRS Employer
Identification No.)
126 Clock Tower Place
Carmel, California 93923
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (408) 624-1536
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> 2
Kagan Media Partners, LP
Quarterly Report on Form 10-Q for the
Quarter Ended June 30, 1996
Table of Contents
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<TABLE>
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Page
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements 2
Schedule of Investments -
June 30, 1996 (unaudited) 3
Statements of Assets and Liabilities -
June 30, 1996 and December 31, 1995
(unaudited) 5
Statements of Operations for the three
months ended June 30, 1996 and 1995
(unaudited) 6
Statements of Operations for the six
months ended June 30, 1996 and 1995
(unaudited) 7
Statements of Cash Flows for the six
months ended June 30, 1996 and 1995
(unaudited) 8
Statements of Changes in Net Assets for the six
months ended June 30, 1996 and for the year ended
December 31, 1995
(unaudited) 9
Selected Per Unit Data and Ratios (unaudited) 10
Notes to Financial Statements (unaudited) 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 15
Part II. OTHER INFORMATION
Item 1 Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
<PAGE> 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
KAGAN MEDIA PARTNERS, L.P.
SCHEDULE OF INVESTMENTS
June 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Principal
Amount/
Total Investment Amortized % of
Shares Investment Date Cost Value Investments
- ------ ---------- ---------- --------- ----- -----------
<S> <C> <C> <C> <C>
PARTICIPATING DEBT INVESTMENT
IN MANAGED COMPANY:
$6,000,000 Tele-Media Company
of Mid-America, L.P.,
14.0% Senior Subordinated
Notes due 9/30/01(1)*
October 1989 $6,028,280 $3,400,000 62.0%
---------- ---------- ----
TOTAL PARTICIPATING DEBT
INVESTMENT IN MANAGED
COMPANY (51.0% of net assets) 6,028,280 3,400,000 62.0%
---------- ---------- ----
</TABLE>
The accompanying notes are an integral part
of these financial statements
- ----------
1 The notes also bear contingent and/or participating interest to be computed
under specifiec formulas. The accrual of interest on these notes was
discontinued by the Partnership effective October 1, 1993.
* Non-interest bearing security.
3
<PAGE> 4
KAGAN MEDIA PARTNERS, L.P.
SCHEDULE OF INVESTMENTS (CONTINUED)
JUNE 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Principal
Amount/ Investment Amortized % of Total
Shares Investment Date Cost Value Investments
- ------ ---------- ---------- --------- ----- -----------
<S> <C> <C> <C> <C>
HIGH-YIELD DEBT INVESTMENTS
IN NON-MANAGED COMPANIES:
$1,000,000 Comcast Corporation,
10.25% Senior
Subordinated Debentures
due 10/15/01 April 1992 1,003,351 1,045,000 19.1%
$ 790,000 Century Communications
Corporation, 11.875%
Senior Subordinated
Debentures Due 10/15/03 March 1993 889,601 841,350 15.3%
---------- ---------- -----
TOTAL HIGH-YIELD DEBT
INVESTMENTS IN NON-MANAGED
COMPANIES (28.3% of net assets) 1,892,952 1,886,350 34.4%
---------- ---------- -----
EQUITY INVESTMENTS
IN NON-MANAGED COMPANIES:
8,000 sh. Tele-Communications, Inc.,
Class A Common Stock* August 1993 145,733 144,000 2.6%
2,000 sh. Tele-Communications, Inc.,
New Liberty Media Group Series A
Class A Common Stock* August 1995 45,017 53,000 1.0%
---------- ---------- -----
TOTAL EQUITY INVESTMENTS
IN NON-MANAGED COMPANIES
(2.9% of net assets) 190,750 197,000 3.6%
---------- ---------- -----
TOTAL INVESTMENTS (82.2%
of net assets) $8,111,982 $5,483,350 100.0%
========== ========== =====
</TABLE>
- ----------
* Non-income producing security.
4
<PAGE> 5
KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996 AND DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS:
Investments -
Participating debt investment in managed
company, at value (amortized cost -
$6,028,280 and $6,030,073, respectively) $ 3,400,000 $ 3,400,000
High-yield debt investments in non-managed
companies, at value (amortized cost -
$1,892,952 and $1,897,840, respectively) 1,886,350 1,927,275
Equity investments in non-managed companies,
at market value (cost - $190,750) 197,000 212,500
----------- -----------
Total investments 5,483,350 5,539,775
Cash and cash equivalents 1,227,429 6,144,423
Accrued interest receivable 45,292 46,709
Prepaid insurance 3,229 39,795
----------- -----------
Total assets $ 6,759,300 $11,770,702
=========== ===========
LIABILITIES:
Accounts payable and accrued expenses $ 35,808 $ 45,698
Investment advisory fees payable 26,383 25,126
Independent General Partners' fees payable 14,375 14,375
Distributions payable to partners 14,726 4,908,743
----------- -----------
Total liabilities 91,292 4,993,942
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 4, 5 and 6)
NET ASSETS:
Operating General Partners 581,215 582,303
Limited Partners (equivalent to $4.38
and $4.46, respectively, per limited
partnership unit based on 1,388,473
units outstanding) 6,086,793 6,194,457
----------- -----------
Net assets 6,668,008 6,776,760
----------- -----------
Total liabilities and net assets $ 6,759,300 $11,770,702
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements
5
<PAGE> 6
KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest, net $ 58,865 $ 166,652
--------- ---------
Total investment income 58,865 166,652
--------- ---------
Expenses:
Investment advisory fees (Note 2) 26,383 25,127
Independent General Partner fees (Note 3) 18,750 18,750
Insurance expense 18,283 20,712
Professional fees 15,365 10,000
General and administrative expenses 22,260 19,797
--------- ---------
Total expenses 101,041 94,386
--------- ---------
NET INVESTMENT (LOSS) INCOME (42,176) 72,266
--------- ---------
REALIZED AND UNREALIZED (LOSS) GAIN
ON INVESTMENTS:
Net (decrease) increase in unrealized
appreciation of investments (19,755) 260,966
--------- ---------
Net (loss) gain on investments (19,755) 260,966
--------- ---------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($ 61,931) $ 333,232
========= =========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
6
<PAGE> 7
KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
INVESTMENT INCOME:
Income:
Interest, net $ 150,357 $ 338,534
--------- ----------
Total investment income 150,357 338,534
--------- ----------
Expenses:
Investment advisory fees (Note 2) 52,766 50,254
Independent General Partner fees (Note 3) 37,500 37,500
Insurance expense 36,566 41,424
Professional fees 39,365 36,000
General and administrative expenses 43,168 36,210
--------- ----------
Total expenses 209,365 201,388
--------- ----------
NET INVESTMENT (LOSS) INCOME (59,008) 137,146
--------- ----------
REALIZED AND UNREALIZED (LOSS) GAIN
ON INVESTMENTS:
Net (decrease) increase in unrealized
appreciation of investments (49,744) 1,082,976
--------- ----------
Net (loss) gain on investments (49,744) 1,082,976
--------- ----------
NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS ($108,752) $1,220,113
========= ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
7
<PAGE> 8
KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (decrease) increase in net assets resulting from operations $ (108,752) $1,220,113
---------- ----------
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
Amortization of discounts and premiums on investments 6,681 (199,108)
Decrease (increase) in accrued interest receivable 1,417 3,619
Decrease in prepaid insurance 36,566 41,425
Increase in accounts payable and accrued expenses (9,890) 315
Increase in investment advisory fees payable 1,257 1,197
Net decrease (increase) in unrealized appreciation of investments 49,744 (1,082,967)
---------- ----------
Total adjustments 85,775 (1,235,519)
---------- ----------
Net cash used in operating activities (22,977) (15,406)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to partners (4,894,017) (957,256)
---------- ----------
Net cash used in financing activities (4,894,017) (957,256)
---------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (4,916,994) (972,662)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 6,144,423 2,325,407
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,227,429 $1,352,745
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements
8
<PAGE> 9
KAGAN MEDIA PARTNERS, L.P.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
(Decrease) increase in net assets resulting from operations:
Net investment (loss) income $ (59,008) $ 68,818
Net realized loss on investments -- (3,236,259)
Net (increase) decrease in unrealized depreciation of investments (49,744) 3,623,448
------------ ------------
Net (decrease) increase in net assets resulting from
operations (108,752) 456,007
Distributions to partners from:
Net cash from operations -- (899,961)
Net cash from capital transactions -- (4,008,782)
------------ ------------
Total decrease in net assets (108,752) (4,452,736)
Net assets:
Beginning of period 6,776,760 11,229,496
------------ ------------
End of period, including undistributed net investment
income of $177,925 and $236,933, respectively $ 6,668,008 $ 6,776,760
============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
9
<PAGE> 10
KAGAN MEDIA PARTNERS, L.P.
SELECTED PER UNIT DATA AND RATIOS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
<TABLE>
<CAPTION>
For the Three months For the Six Months
Ended June 30 Ended June 30
------------------- ---------------------
1996 1995 1996 1995
------------------- ---------------------
<S> <C> <C> <C> <C>
Per Unit Data:
Investment income $ .04 $ .12 $ .11 $ .24
Expenses .07 .07 .15 .15
----- ----- ----- -----
Net investment (loss) income (.03) .19 (.04) .09
Net (decrease) increase in unrealized
appreciation of investments (.02) (.24) (.04) .78
----- ----- ----- -----
Net (decrease) increase in net asset value (.05) .02 (.08) .87
Net asset value:
Beginning of period 4.43 8.27 4.46 7.64
----- ----- ----- -----
End of period $4.38 $8.51 $4.38 $8.51
===== ===== ===== =====
Ratios (annualized):
Ratio of expenses to average net assets 6.03% 3.07% 6.23% 3.38%
Ratio of net investment income to
average net assets (1) 2.35% (1) 2.30%
Number of limited partnership units at
end of period 1,388,473 1,388,473 1,388,473 1,388,473
</TABLE>
(1) Investment loss generated in the period.
The accompanying notes are an integral part
of these financial statements.
10
<PAGE> 11
KAGAN MEDIA PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(unaudited)
1. GENERAL
The accompanying unaudited interim financial statements include all adjustments
(including normal recurring adjustments) which are, in the opinion of the
General Partners, necessary to fairly present the financial position of the
Partnership as of June 30, 1996 and the results of its operations, changes in
net assets and its cash flows for the six months then ended.
These financial statements should be read in conjunction with the Significant
Accounting Policies and other Notes to Financial Statements included in the
Partnership's annual audited financial statements for the year ended December
31, 1995.
2. INVESTMENT ADVISORY AND ANALYSIS FEES
As the Partnership's principal Investment Adviser, the Managing General Partner
is responsible for the identification of investments and all other investment
advisory services necessary for the operation of the Partnership in carrying out
its investment objectives and policies. As compensation for its services, the
Investment Adviser receives an annual investment advisory fee which initially
was $75,000, escalating by an amount equal to 5% of the prior year's annual fee
in each calendar year. The investment advisory fee to be paid for the year ended
December 31, 1996 will be $105,532. The investment advisory fee attributable to
the six months ended June 30, 1996 of $52,766 has been charged to operations.
The Investment Adviser also received an investment analysis fee equal to 0.75%
of the amount invested by the Partnership in senior-participation instruments,
as consideration for structuring, due diligence and financial analysis in
connection with an investment. There were no investment analysis fees paid
during the six months ended June 30, 1996.
3. INDEPENDENT GENERAL PARTNER FEES
As compensation for services rendered to the Partnership, each of the three
Independent General Partners receives a fee of $6,250 per quarter, plus
out-of-pocket expenses. Fees for the six months ended June 30, 1996 totaled
$37,500.
11
<PAGE> 12
4. VISTA/NARRAGANSETT SALE
In January 1990, the Partnership acquired $6,800,000, 15.5% Senior
Subordinated Notes (the "Notes") of Vista/Narragansett Cable, L.P.
("Vista/Narragansett") due January 8, 1995. Under the terms of the Notes,
interest at the rate of 12.75% per annum was payable currently with the balance
of interest (2.75% per annum) added to the principal balance of the Notes. On
May 1, 1991, Vista/Narragansett ceased making interest payments. A restructuring
agreement of Vista/Narragansett's capital structure was reached during 1992 and
was executed in March 1993.
Under the restructuring, the Partnership agreed to defer interest accrued
but uncollected as of September 30, 1992 in the amount of $2,247,786 and agreed
to cease accruing interest on the Notes subsequent to September 30, 1992.
The Partnership restated the Notes in the form of a non-interest bearing
note in the principal amount of $9,047,786, which represented the original
principal plus the interest accrued through September 30, 1992. In 1994, the
Partnership received $50,000 which was treated as a reduction in principal. The
Notes were to be paid only out of proceeds of the sale of Vista/Narragansett's
cable systems. Any sale by Vista/Narragansett required the approval of the
Partnership.
In late March 1995 the Partnership was advised by the management of
Vista/Narragansett that a third party offer for purchase of the assets of
Vista/Narragansett had been received on March 22, 1995. The Partnership agreed
to allow management of Vista/Narragansett to pursue the offer. On June 14, 1995,
management of Vista/Narragansett signed a letter of intent to accept the offer,
and on August 8, 1995, entered into a purchase and sale agreement. On December
29, 1995, the sale of the assets of Vista/Narragansett was consummated. The
Partnership received proceeds of $4,778,499 as its share of the distributed
proceeds from the sale. In addition, the Partnership will receive a portion of
any amounts remaining in a $400,000 escrow account established by
Vista/Narragansett at closing to provide collateral to the buyer in respect of
Vista/Narragansett's compliance with its representations and warranties. This
escrow account will not be terminated until December 1996. The Partnership has
released Vista/Narragansett from all of its financial obligations under the
Notes. The Notes, which had an amortized cost of $7,837,257, were valued at
$4,700,000 at September 30, 1995, which represented approximately 46% of the
investments held by the Partnership based upon the valuation at such date.
The proceeds received from the Vista/Narragansett sale represented
substantially all of the distributions declared to partners at December 31, 1995
which was paid in February, 1996.
12
<PAGE> 13
5. TM-MA INVESTMENT
The Partnership holds a senior-participation instrument from Tele-Media
Company of Mid-America, L.P. ("TM-MA") that is in the form of a participating
debt investment and consists of $6 million in principal amount of senior
subordinated debt of TM-MA due September 30, 2001. The debt, which is subject to
certain prepayment provisions, bears current interest at a rate of 14% and
contingent interest to be computed under a specified formula.
As of December 31, 1993, TM-MA was in default under its senior debt
instruments. As a result of this default, the senior lenders to TM-MA blocked
payment to the Partnership of the interest due on the Partnership's
participating debt investment at December 31, 1993. Consequently, the
Partnership stopped accruing interest on the notes, effective October 1, 1993. A
balance of $210,000 remained outstanding at such date.
In the fourth quarter of 1995, negotiations for the sale of the assets of
TM-MA to an unaffiliated joint venture were completed in principle (TM-MA Sale
Agreement). Under the terms of the TM-MA Sale Agreement, the Partnership would
be entitled receive approximately $3,400,000 for its senior participation
instrument, which is significantly less than the principal amount of such
instrument. As of February 29, 1996, the TM-MA Sale Agreement was amended. TM-MA
has advised the Partnership that TM-MA has entered into consent and (where
applicable) settlement agreements with each of the creditor groups and equity
owner groups in TM-MA and its affiliates that are necessary in order for TM-MA
to consummate the TM-MA Sale Agreement, and that the closing under the TM-MA
Sale Agreement may occur as early as August 30, 1996. However, the TM-MA Sale
Agreement is subject to numerous conditions many of which are not within the
control of TM-MA (including the condition that the buyer under the TM-MA Sale
Agreement simultaneously close certain otherwise unrelated acquisitions).
Therefore, it is impossible to predict with certainty whether or when the
closing under the TM-MA Sale Agreement will take place. During 1995, the
Partnership recorded unrealized depreciation of its investment in TM-MA of
$641,754, which represented the difference between the sum of the carrying value
of the investment ($4,045,000), adjusted for amortization and the estimated
value of the Partnership's interest based upon the TM-MA Sale Agreement. In
addition, the Partnership realized a loss of $210,000 to recognize the write-off
of the interest receivable previously accrued.
6. LITIGATION
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including Mezzanine Capital Corp., an affiliate of
PaineWebber and the Administrative General Partner in the Partnership
("Administrative General Partner").
13
<PAGE> 14
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in the Partnership, PaineWebber
and the Administrative General Partners (1) failed to provide adequate
disclosure of the risks involved with each partnership; (2) made false and
misleading representations about the safety of the investments and the
partnership's anticipated performance; and (3) marketed the partnerships to
investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the partnership investments PaineWebber and
the Administrative General Partner misrepresented financial information about
the partnership's value and performance. The amended complaint alleged that
PaineWebber and the Administrative General Partner violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs sought unspecified damages, including reimbursement for all
sums invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment of
the plaintiffs' claims in the class action entitled, In re: PaineWebber Limited
Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties have
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As part of the class action settlement, PaineWebber
agreed to pay $125 million and additional consideration to class members. The
order entered by the District Court provides for notice to be mailed to class
members and schedules a final hearing on the proposed settlement for October 25,
1996.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership interests. The complaint
alleges, among other things, that PaineWebber and its related entities committed
fraud and misrepresentation and breached fiduciary duties allegedly owed to the
plaintiffs by selling or promoting limited partnership investments that were
unsuitable for the plaintiffs and by overstating the benefits, understating the
risks and failing to state material facts concerning the investments. The
complaint seeks compensatory damages of $15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber and its affiliates, including the
Administrative General Partner, could be entitled to indemnification from the
Partnership for expenses and liabilities in connection with the Abbate
litigation. The General Partners are unable to determine the impact of these
actions on the Partnership's financial statements, taken as a whole.
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Partnership held one subordinated debt investment
in a managed company with an amortized cost of approximately $6 million, two
high-yield debt investments in non-managed companies with amortized cost of
approximately $1.9 million, and equity investments in two non-managed companies
with a cost of approximately $0.2 million.
Of these investments remaining, only the high yield debt investments in
non-managed companies (Comcast Corporation and Century Communications
Corporation), which represent approximately 23% of the remaining investment
portfolio on an amortized cost basis (approximately 34% of the remaining
portfolio based upon the June 30, 1996 valuation), generate current investment
income. On an annualized basis, this income is less than the Partnership's
current level of operating costs.
At June 30, 1996, the Partnership's cash of $1,227,429 was primarily
invested in short-term US Government Securities. Accrued interest receivable
decreased $1,417 from $46,709 at December 31, 1995 to $45,292 at June 30, 1996.
This decrease is due to the timing of the semi-annual interest payments due
(both paid in April 1996) relating to the Comcast Corp. and Century
Communication high yield debt investments held by the Partnership.
The Partnership will not make any additional investments other than
temporary investments of its working capital in short term US government
securities. The General Partners believe that the working capital reserves,
together with the interest income currently being generated, are sufficient to
fund operating expenses for the foreseeable future.
While the Partnership must be terminated no later than July 21, 2001
(subject to the approval of a majority of the Limited Partners' interests, if
such approval is required under the Investment Company Act of 1940), it was
originally anticipated that the Partnership would be liquidated in 1998 or 1999.
In December 1995, the Partnership liquidated its investments in
Vista/Narragansett Cable, L.P. and Multimedia, Inc. The amounts received
composed substantially all of the distribution declared at December 31, 1995,
which was paid in February 1996. Additionally, Tele-Media Company of Mid
America, L.P. entered into an agreement for the sale of its assets to a third
party discussed more fully below, which if consummated, would accelerate the
liquidation of the Partnership's interests.
The Partnership holds a senior-participation instrument from Tele-Media
Company of Mid-America, L.P. ("TM-MA") that is in the form of a participating
debt investment and consists of $6 million in principal amount of senior
subordinated debt of TM-MA due September 30, 2001. The debt, which is subject to
certain prepayment provisions, bears current interest at a rate of 14% and
contingent interest to be computed under a specified formula.
15
<PAGE> 16
As of year-end 1993, TM-MA was in default under its senior debt
instruments. As a result of this default, the senior lenders to TM-MA blocked
payment to the Partnership of the interest due on the Partnership's
participating debt investment at December 31, 1993. Consequently, the
Partnership stopped accruing interest on the notes, effective October 1, 1993.
In the fourth quarter of 1995, negotiations for the sale of the assets of
TM-MA to an unaffiliated joint venture were completed in principle (TM-MA Sale
Agreement). Under the terms of the TM-MA Sale Agreement, the Partnership would
be entitled to receive approximately $3,400,000 for its senior participation
instrument, which is significantly less than the principal amount of such
instrument. As of February 29, 1996, the TM-MA Sale Agreement was amended. TM-MA
has advised the Partnership that TM-MA has entered into consent and (where
applicable) settlement agreements with each of the creditor groups and equity
owner groups in TM-MA and its affiliates that are necessary in order for TM-MA
to consummate the TM-MA Sale Agreement, and that the closing under the TM-MA
Sale Agreement may occur as early as August 30, 1996. However, the TM-MA Sale
Agreement is subject to numerous conditions many of which are not within the
control of TM-MA (including the condition that the buyer under the TM-MA Sale
Agreement simultaneously close certain otherwise unrelated acquisitions).
Therefore, it is impossible to predict with certainty whether or when the
closing under the TM-MA Sale Agreement will take place. During 1995, the
Partnership recorded unrealized depreciation of its investment in TM-MA of
$641,754, which represented the difference between the sum of the carrying value
of the investment ($4,045,000), adjusted for amortization and the estimated
value of the Partnership's interest based upon the TM-MA Sale Agreement. In
addition, the Partnership realized a loss of $210,000 to recognize the write-off
of the interest receivable previously accrued.
RESULTS OF OPERATIONS
Investment Income and Expenses
The Partnership's investment income consists primarily of interest income
earned from the various debt investments which are held by the Partnership.
Major expenses consist of professional fees, the amortization of the deferred
organization expenses (which is a non-cash expense), the investment advisory fee
and Independent General Partners' fees. Professional fees consist of custodial,
legal and audit fees.
16
<PAGE> 17
1996 Compared to 1995
The Partnership's net investment (loss)was ($42,176) and ($59,008) for the
quarter and six months ended June 30, 1996 (the "1996 Quarter" and 1996 Period)
as compared to net investment income of $72,266 and $137,146 for the quarter and
six months period ended June 30, 1995 (the "1995 Quarter" and 1995 Period).
Interest income was $58,865 and $150,357 in the 1996 Quarter and 1996 Period as
compared to $166,652 and $338,534 in the 1995 Quarter and 1995 Period. The
principal reason for the decrease in interest income and net investment income
in 1996 as compared to 1995 was the accretion of interest income relating to the
Vista/Narragansett investment in the 1995 Period. The investment was liquidated
in December 1995 and thus no accretion was recognized in the 1996 Quarter and
1996 Period. The reduction in interest income in the 1996 Quarter as compared to
the first quarter of 1996 was due to the interest earned during the first
quarter of 1996 on the cash held prior to the distribution to partners in
February 1996.
Net Unrealized Appreciation of Investments
The Kagan Executive Committee values the Partnership's investments on a
quarterly basis utilizing a variety of methods. Securities that are publicly
traded and for which market quotations are readily available, are valued based
on the highest bid price for such securities as of the last trading day of the
fiscal quarter.
In accordance with portfolio valuation guidelines ("Guidelines") adopted by
the General Partners, investments for which market quotations are not readily
available are valued at cost (the "Cost Method") unless the Kagan Executive
Committee determines that significant events have occurred with respect to such
investments which necessitate the use of an alternate valuation methodology. The
Managing General Partner is responsible for applying the Guidelines and
performing the due diligence necessary to determine whether such significant
events have occurred and for presenting to the Kagan Executive Committee its
conclusion as to whether the use of the Cost Method is appropriate with respect
to any particular investment. The Kagan Executive Committee then determines
whether to continue to use the Cost Method for each investment or whether to use
an alternate valuation methodology. If the Kagan Executive Committee determines
that the use of the Cost Method is not appropriate for a particular investment,
then the Managing General Partner is required to propose an alternate valuation
methodology and, based upon its analysis, is required to determine the market
value of the investment. The Managing General Partner is required to present to
the General Partners its conclusions as to the fair market value for the
investment in question and the General Partners are then responsible for
determining the fair market value for that investment in good faith.
As of December 31, 1995, the Partnership had recorded net unrealized
depreciation of $2,578,888. During the six months ended June 30, 1996, the
Partnership recorded net additional unrealized depreciation of $49,744.
Therefore, at June 30, 1996, the Partnership had recorded aggregate net
unrealized depreciation of investments of $2,628,632.
17
<PAGE> 18
The increase in unrealized depreciation of investments during the quarter
and six months ended June 30, 1996 and the cumulative unrealized depreciation of
investments as of June 30, 1996, consisted of the following components:
<TABLE>
<CAPTION>
Unrealized Appreciation / (Depreciation) Recorded
- --------------------------------------------------------------------------------------------------
During Three During Six Cumulative
Investment Months Ended Month Ended As of
---------- JUNE 30, 1996 JUNE 30, 1996 JUNE 30, 1996
------------- ------------- -------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tele-Media Mid-America Notes $ 897 $ 1,793 $(2,628,280)
Comcast debentures (9,881) (34,766) 41,649
Century Communications
debentures (7,521) (1,271) (48,251)
Tele-Communications, Inc. stock (4,000) (15,000) (1,733)
Tele-Communication, Inc., New
Liberty Media
Group Series A common stock
750 (500) 7,983
--------- --------- -----------
$ (19,755) $ (49,744) $(2,628,632)
========= ========= ===========
</TABLE>
The significant cumulative decrease in value of the Tele-Media Mid-America
investment, (for which market quotations are not readily available) reflects the
value inherent in the Partnership's position based on the existing third party
offer embodied in the TM-MA Sale Agreement.
The Comcast, Century Communications, Tele-Communications, Inc. and
Tele-Communications, Inc. New Liberty Media Group Series A investments were
valued based on market quotations which are readily available for these
securities. These changes in value are reflective of changes in the public
markets for cable related debt and equity securities during these periods.
18
<PAGE> 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In November 1994, a series of purported class actions (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated sale and
sponsorship of various limited partnership investments, including those offered
by the Partnership. The lawsuits were brought against PaineWebber Incorporated
and Paine Webber Group, Inc. (together, "PaineWebber"), among others, by
allegedly dissatisfied partnership investors. In March 1995, after the actions
were consolidated under the title In re: PaineWebber Limited Partnerships
Litigation, the plaintiffs amended their complaint to assert claims against a
variety of other defendants, including Mezzanine Capital Corp., an affiliate of
PaineWebber and the Administrative General Partner in the Partnership
("Administrative General Partner").
The amended complaint in the New York Limited Partnership Actions alleged
that, in connection with the sale of interests in the Partnership, PaineWebber
and the Administrative General Partners (1) failed to provide adequate
disclosure of the risks involved with each partnership; (2) made false and
misleading representations about the safety of the investments and the
partnership's anticipated performance; and (3) marketed the partnerships to
investors for whom such investments were not suitable. The plaintiffs also
alleged that following the sale of the partnership investments PaineWebber and
the Administrative General Partner misrepresented financial information about
the partnership's value and performance. The amended complaint alleged that
PaineWebber and the Administrative General Partner violated the Racketeer
Influenced and Corrupt Organizations Act ("RICO") and the federal securities
laws. The plaintiffs sought unspecified damages, including reimbursement for all
sums invested by them in the partnerships, as well as disgorgement of all fees
and other income derived by PaineWebber from the limited partnerships. In
addition, the plaintiffs also sought treble damages under RICO.
On May 30, 1995, the US District Court certified class action treatment of
the plaintiffs' claims in the class action entitled, In re: PaineWebber Limited
Partnerships Litigation.
In January 1996, PaineWebber signed a memorandum of understanding with the
plaintiffs in the class action outlining the terms under which the parties have
agreed to settle the case. Pursuant to that memorandum of understanding,
PaineWebber irrevocably deposited $125 million into an escrow fund under the
supervision of the United States District Court for the Southern District of New
York ("District Court") to be used to resolve the litigation. On July 17, 1996,
the District Court granted preliminary approval of the proposed settlement of
the class action litigation. As part of the class action settlement, PaineWebber
agreed to pay $125 million and additional consideration to class members. The
order entered by the District Court provides for notice to be mailed to class
members and schedules a final hearing on the proposed settlement for October 25,
1996.
In February 1996, approximately 150 plaintiffs filed an action entitled
Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
PaineWebber Incorporated and various affiliated entities concerning the
plaintiff's purchases of various limited partnership
19
<PAGE> 20
interests. The complaint alleges, among other things, that PaineWebber and its
related entities committed fraud and misrepresentation and breached fiduciary
duties allegedly owed to the plaintiffs by selling or promoting limited
partnership investments that were unsuitable for the plaintiffs and by
overstating the benefits, understating the risks and failing to state material
facts concerning the investments. The complaint seeks compensatory damages of
$15 million plus punitive damages.
Under certain limited circumstances, pursuant to the Partnership Agreement
and other contractual obligations, PaineWebber and its affiliates, including the
Administrative General Partner, could be entitled to indemnification from the
Partnership for expenses and liabilities in connection with the Abbate
litigation. The General Partners are unable to determine the impact of these
actions on the Partnership's financial statements, taken as a whole.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits and Reports to be filed:
Exhibit No. Description
----------- -----------
11.1 Statement of Computation of Net Investment Income
Per Limited Partnership Unit.
20.1 Report Furnished to Securities Holders.
20
<PAGE> 21
SIGNATURE
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.
Kagan Media Partners, L.P.
(Registrant)
By: Mezzanine Capital Corporation
A General Partner
Dated: August 10, 1996 By: /s/ Joseph P. Ciavarella
------------------------
Joseph P. Ciavarella
Vice President, Secretary
and Chief Financial and
Accounting Officer
21
<PAGE> 22
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11.1 Statement of Computation of Net Investment Income Per
Limited Partnership Unit.
23
<PAGE> 1
Exhibit No. 11.1
Statement of Computation
of Net Investment (Loss) Income
Per Limited Partnership Unit
24
<PAGE> 2
KAGAN MEDIA PARTNERS, L.P.
STATEMENT OF COMPUTATION OF NET INVESTMENT
(LOSS) INCOME PER LIMITED PARTNERSHIP UNIT
<TABLE>
<CAPTION>
For the Three Months For the Six months
Ended June Ended June 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Investment (Loss) Income $ (42,176) $ 72,266 $ (59,008) $ 137,146
Percentage Allocable to Limited Partners 99% 99% 99% 99%
----------- ----------- ----------- -----------
Net Investment (Loss) Income Allocable to
Limited Partners $ (41,754) $ 71,543 $ (58,418) $ 135,775
=========== =========== =========== ===========
Weighted Average Number of Limited Partnership Units
Outstanding 1,388,473 1,388,473 1,388,473 1,388,473
=========== =========== =========== ===========
Net Investment (Loss) Income Per Limited Partnership Unit $ (.03) $ .05 $ (.04) $ .09
=========== =========== =========== ===========
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) Form
10-Q for the quarter ended June 10, 1996 for Kagan Media Partners LP and is
qualified in its entirety by reference to such (b) Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,227,429
<SECURITIES> 0
<RECEIVABLES> 45,292
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,275,950
<PP&E> 0
<DEPRECIATION> 0<F3>
<TOTAL-ASSETS> 6,759,300
<CURRENT-LIABILITIES> 91,292
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 6,668,008<F2>
<TOTAL-LIABILITY-AND-EQUITY> 6,759,300
<SALES> 0
<TOTAL-REVENUES> 58,865
<CGS> 0
<TOTAL-COSTS> 101,041
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (61,931)
<INCOME-TAX> 0
<INCOME-CONTINUING> (61,931)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61,931)
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>Income per unit of limited partnership interest (.05)
<F2>Includes partners' capital and accumulated earnings and distribution to
partners.
<F3>Includes allowances for equipment impairment.
</FN>
</TABLE>
