================================================================================
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 Quarter Ended September 30, 2000
Commission File Number 333-64709
Telemundo Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3993031
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2290 West 8th Avenue
Hialeah, Florida 33010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 884-8200
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 [ ]
As of November 14, 2000 there were 10,000 shares of common stock of the
registrant outstanding, all of which were owned by affiliates. There is no
established public trading market for the registrant's common stock.
================================================================================
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION: No.
----
Item 1. Financial Statements
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2000 and September 30, 1999 (Unaudited).......... 2
Consolidated Balance Sheets at September 30, 2000 (Unaudited)
and December 31, 1999............................................... 3
Consolidated Statement of Changes in Common Stockholders' Equity
for the Nine Months Ended September 30, 2000 (Unaudited)............ 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and September 30, 1999 (Unaudited)......... 5
Notes to Consolidated Financial Statement (Unaudited).................... 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition....................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk........12
PART II. OTHER INFORMATION, AS APPLICABLE
Item 5. Other Information.................................................12
Item 6. Exhibits and Reports on Form 8-K..................................12
SIGNATURE....................................................................13
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue ........................... $ 45,091 $ 38,619 $ 140,098 $ 116,082
--------- --------- --------- ---------
Costs and expenses:
Direct operating costs ............ 17,887 15,653 51,464 46,354
Selling, general and administrative
expenses other than corporate .. 13,581 11,298 40,996 36,224
Corporate expenses ................ 1,201 1,290 4,134 4,091
Depreciation and amortization ..... 7,840 7,063 22,973 20,953
--------- --------- --------- ---------
40,509 35,304 119,567 107,622
--------- --------- --------- ---------
Operating income ...................... 4,582 3,315 20,531 8,460
Interest expense - net ................ (9,431) (9,200) (28,127) (26,966)
Other expense ......................... -- (465) -- (465)
--------- --------- --------- ---------
Loss before income taxes and minority
interest .......................... (4,849) (6,350) (7,596) (18,971)
Income tax benefit .................... 1,090 853 759 5,425
Minority interest ..................... (442) (361) (1,326) (1,083)
--------- --------- --------- ---------
Net loss .............................. $ (4,201) $ (5,858) $ (8,163) $ (14,629)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
Assets 2000 1999
-------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash and cash equivalents .............. $ 3,892 $ 7,204
Accounts receivable, less allowance
for doubtful accounts of $8,411
and $7,992 ......................... 35,309 30,487
Television programming ................. 5,696 4,442
Prepaid expenses and other ............. 3,389 3,292
Due from Network Company, net .......... 1,111 7,491
--------- ---------
Total current assets .......... 49,397 52,916
Property and equipment, net ................ 60,525 57,642
Television programming ..................... 867 1,270
Other assets ............................... 11,203 13,473
Broadcast licenses and other
intangible assets, net ................. 605,252 621,585
--------- ---------
$ 727,244 $ 746,886
========= =========
Liabilities and Stockholders' Equity
-----------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses .. $ 33,182 $ 38,657
Television programming obligations ..... 2,096 1,928
Current portion of long-term debt ...... 4,874 5,469
--------- ---------
Total current liabilities ...... 40,152 46,054
Long-term debt ............................. 397,075 396,962
Deferred taxes, net ........................ 67,111 69,980
Other liabilities .......................... 24,537 27,445
--------- ---------
528,875 540,441
--------- ---------
Minority interest .......................... 5,598 5,511
--------- ---------
Contingencies and commitments
Common stockholders' equity:
Common stock, $.01 par value,
10,000 shares issued and
outstanding ........................ -- --
Additional paid-in capital ............. 214,013 214,013
Accumulated deficit .................... (21,242) (13,079)
--------- ---------
192,771 200,934
--------- ---------
$ 727,244 $ 746,886
========= =========
See notes to consolidated financial statements
3
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (Unaudited)
(In thousands, except share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Additional Common
Shares Common Paid-In Accumulated Stockholders'
Outstanding Stock Capital Deficit Equity
----------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999....... 10,000 $ -- $214,013 $(13,079) $200,934
Net loss......................... -- -- -- (8,163) (8,163)
------ ---- -------- -------- --------
Balance, September 30, 2000...... 10,000 $ -- $214,013 $(21,242) $192,771
====== ==== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended September 30 2000 1999
------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................ $ (8,163) $(14,629)
Charges not affecting cash:
Depreciation and amortization ................... 22,973 20,953
Interest accretion .............................. 12,768 11,283
Provision for losses on accounts receivable ..... 883 1,001
Minority interest ............................... 1,326 1,083
Deferred taxes .................................. (2,869) (6,941)
Changes in assets and liabilities:
Accounts receivable ............................. (5,241) 4,953
Television programming .......................... (851) 2,711
Television programming obligations .............. 168 (17)
Due from Network Company, net ................... 6,380 (22)
Accounts payable and accrued expenses
and other ..................................... (4,508) 145
-------- --------
Cash flows provided from operating
activities ................................ 22,866 20,520
-------- --------
CASH FLOWS FROM INVESTING ACTIVITY:
Additions to property and equipment ................. (9,508) (10,501)
-------- --------
Cash flows used in investing activity ....... (9,508) (10,501)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities .................. -- 2,000
Payments under credit facilities .................... (13,250) (12,000)
Payments to minority interest partner ............... (2,715) (2,470)
Merger costs ........................................ (705) (1,264)
-------- --------
Cash flows used in financing activities ..... (16,670) (13,734)
-------- --------
Decrease in cash and cash equivalents ............... (3,312) (3,715)
Cash and cash equivalents, beginning of period ...... 7,204 8,680
-------- --------
Cash and cash equivalents, end of period ............ $ 3,892 $ 4,965
======== ========
Supplemental cash flow information:
Interest paid ................................... $ 18,147 $ 14,905
======== ========
Income taxes paid, including
Puerto Rico withholding taxes ................. $ 2,569 $ 4,065
======== ========
See notes to consolidated financial statements
5
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
--------------------------------------------------------------------------------
1. BUSINESS
Telemundo Holdings, Inc. ("Holdings", and collectively with its subsidiaries,
the "Company") is one of two national Spanish-language television broadcast
companies currently operating in the United States. The Company owns and
operates seven full-power UHF stations serving the seven largest Hispanic Market
Areas (a term developed by Nielsen Media Research, Inc. and used by the
television industry to describe a geographically distinct television market) in
the United States--Los Angeles, New York, Miami, San Francisco, Chicago, Houston
and San Antonio. The Company also owns and operates the leading full-power
television station and related production facilities in Puerto Rico. The
Company's stations broadcast a wide variety of network programming, including
telenovelas (soap operas), talk shows, movies, entertainment programs, national
and international news, sporting events, children's programming, music, sitcoms
and dramatic series. In addition, the Company supplements its network
programming with local programming focused on local news and community events.
2. MERGER AND RELATED TRANSACTIONS
On August 12, 1998 TLMD Acquisition Co., a wholly-owned subsidiary of Holdings,
acquired all the equity interests of Telemundo Group, Inc. ("Telemundo") and was
merged with and into Telemundo, with Telemundo being the surviving corporation
and becoming a wholly-owned subsidiary of Holdings (the "Merger"). The purchase
method of accounting was used to record assets acquired and liabilities assumed.
Telemundo Network Group LLC (the "Network Company"), a company formed in
connection with the Merger, provides programming to Telemundo's stations. The
Network Company entered into an affiliation agreement with the Company and
related affiliation agreements with the Company's stations (collectively, the
"Affiliation Agreement"), pursuant to which the Network Company provides network
programming to the Company, and the Company and the Network Company pool and
share advertising revenues pursuant to a revenue sharing arrangement.
Pursuant to the Affiliation Agreement, the Company receives a formula-based
share of pooled advertising revenue generated by the Company and the Network
Company. The following revenue sources (collectively, the "Aggregate Net
Advertising Receipts") are included in the pooled revenue: (i) 61% of the net
advertising revenue received by the Network Company pursuant to the sale of
network advertising and block time (time made available for paid programming)
and (ii) 100% of the net advertising revenue received by the Company (excluding
WKAQ - Puerto Rico) from the sale of local and national spot advertising time
and local and national block time. The pooled revenue is shared between the
Company and the Network Company, with the Company's share based on the following
formula for the first year of the agreement (August 13, 1998 - August 12, 1999):
(i) 80% of the first $130 million of Aggregate Net Advertising Receipts; plus
(ii) 55% of the incremental Aggregate Net Advertising Receipts above $130
million up to $230 million; plus (iii) 45% of the incremental Aggregate Net
Advertising Receipts above $230 million. After the first year, the threshold
levels (i.e., $130 million and $230 million) increase 3% annually.
The Company incurs non-network marketing/promotional expenditures, programming
expenditures and capital expenditures for its stations. Network programming
costs are borne by the Network Company. As part of the Affiliation Agreement,
each of the Network Company and the Company agreed, subject to various
conditions, to incur certain programming, marketing/promotional and capital
expenditures. These expenditures may be reduced or eliminated based on financial
tests, which assume such expenditures produce positive financial results (i.e.,
incremental revenue). The Company can also elect to incur a portion of such
expenditures in a subsequent year.
6
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
--------------------------------------------------------------------------------
3. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated financial
statements of the Company include all adjustments (consisting of normal
recurring accruals only) necessary to present fairly the Company's financial
position at September 30, 2000, and the results of operations and cash flows for
all periods presented. The results of operations for interim periods are not
necessarily indicative of the results to be obtained for the entire year.
For a summary of significant accounting policies, which have not changed from
December 31, 1999, and additional financial information, see the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
Certain reclassifications have been made in the prior year's financial
statements to conform with the current year's presentation.
4. TRANSACTIONS WITH AFFILIATES
Sony Pictures Entertainment Inc. and Liberty Media Corporation, through their
subsidiaries, own the Network Company and are significant shareholders of the
Company. Pursuant to the Affiliation Agreement, the Company recorded $14.4
million and $17.1 million in incremental net revenue for the nine months ended
September 30, 2000 and 1999, respectively, the outstanding portion of which is
included in Due from Network Company, net. In addition, the Network Company pays
certain costs on behalf of the Company and the Company pays certain costs on
behalf of the Network Company, which are fully reimbursed. The Company believes
these costs to be at fair value and the outstanding balances are included in Due
from Network Company, net.
As a result of the Affiliation Agreement, the Company relies solely on the
Network Company for all of its network programming and is dependent, to a
significant extent, on the ability of the Network Company to generate
advertising revenue. The Spanish-language television market shares for the
Company's stations are dependent upon the Network Company's ability to produce
or acquire and distribute programming which attracts significant viewer levels.
If the programming provided by the Network Company fails to attract viewers,
each of the Company's and the Network Company's ability to attract advertisers
and generate revenue and profits will be impaired. There can be no assurance
that the programming provided by the Network Company will achieve or maintain
satisfactory viewership levels or that the Company or the Network Company will
be able to generate significant advertising revenue.
7
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
--------------------------------------------------------------------------------
Introduction
Telemundo Holdings, Inc. ("Holdings", collectively with its subsidiaries, the
"Company") is one of two national Spanish-language television broadcast
companies currently operating in the United States. The Company owns and
operates seven full-power UHF stations serving the seven largest Hispanic Market
Areas in the United States--Los Angeles, New York, Miami, San Francisco,
Chicago, Houston and San Antonio. Four of these markets are among the five
largest general Market Areas in the United States ("Market Area" refers to
Designated Market Area, a term developed by Nielsen Media Research, Inc. and
used by the television industry to describe a geographically distinct television
market). The Company also owns and operates the leading full-power television
station and related production facilities in Puerto Rico.
On August 12, 1998, TLMD Acquisition Co., a wholly-owned subsidiary of Holdings,
acquired all the equity interests of Telemundo Group, Inc. ("Telemundo") and was
merged with and into Telemundo, with Telemundo being the surviving corporation
and becoming a wholly-owned subsidiary of Holdings (the "Merger").
The Company's stations broadcast a wide variety of network programming,
including telenovelas (soap operas), talk shows, movies, entertainment programs,
national and international news, sporting events, children's programming, music,
sitcoms and dramatic series. In addition, the Company's stations supplement
network programming with local programming focused on local news and community
events. Network programming is provided 24-hours a day to the Company's U.S.
stations by Telemundo Network Group LLC (the "Network Company"), a company
formed in connection with the Merger. Including the Company's stations, the
Network Company currently serves 64 markets in the United States, including 45
of the 46 largest Hispanic markets, and reaches approximately 85% of all U.S.
Hispanic households. The Company's Puerto Rico station broadcasts a similar
variety of programs, however a substantial amount of its programming is
developed and produced or acquired directly by the station.
The Network Company entered into an affiliation agreement with the Company and
related affiliation agreements with the Company's stations (collectively, the
"Affiliation Agreement"), pursuant to which the Network Company provides network
programming to the Company, and the Company and the Network Company pool and
share advertising revenue pursuant to a revenue sharing arrangement. Pursuant to
the Affiliation Agreement, the Company receives a formula-based share of pooled
advertising revenue generated by the Company and the Network Company. The
following revenue sources (collectively, the "Aggregate Net Advertising
Receipts") are included in the pooled revenue: (i) 61% of the net advertising
revenue received by the Network Company pursuant to the sale of network
advertising and block time (time made available for paid programming) and (ii)
100% of the net advertising revenue received by the Company (excluding WKAQ in
Puerto Rico) from the sale of local and national spot advertising time and local
and national block time. The pooled revenue is shared between the Company and
the Network Company, with the Company's share based on the following formula for
the first year of the agreement (August 13, 1998 - August 12, 1999): (i) 80% of
the first $130 million of Aggregate Net Advertising Receipts; plus (ii) 55% of
the incremental Aggregate Net Advertising Receipts above $130 million up to $230
million; plus (iii) 45% of the incremental Aggregate Net Advertising Receipts
above $230 million. After the first year, the threshold levels (i.e., $130
million and $230 million) increase 3% annually.
The Company incurs non-network marketing/promotional expenditures, programming
expenditures and capital expenditures for its stations. Network programming
costs are borne by the Network Company. As part of the Affiliation Agreement,
each of the Network Company and the Company agreed, subject to various
conditions, to incur certain programming, marketing/promotional and capital
expenditures. These expenditures may be reduced or eliminated based on financial
tests, which assume such expenditures produce positive financial results (i.e.,
incremental revenue). The Company can also elect to incur a portion of such
expenditures in a subsequent year.
8
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (Continued)
--------------------------------------------------------------------------------
The following discussion and analysis of results of operations and financial
condition should be read in conjunction with the Company's consolidated
financial statements and related notes. Except for historical information
contained herein, certain matters discussed are forward-looking disclosures that
involve risks and uncertainties, including (without limitation) those risks
associated with the effect of economic conditions; the Company's outstanding
indebtedness and leverage; restrictions imposed by the terms of the Company's
indebtedness; changes in advertising revenue which are caused by changes in
national and local economic conditions, the relative popularity of the Network
Company's and the Company's programming, the demographic characteristics of the
Company's markets and other factors outside the Company's control; future
capital requirements; the impact of competition, including its impact on market
share and advertising revenue in each of the Company's markets; the cost of
programming; changes in technology; the loss of key employees; the modification
or termination of the Affiliation Agreement; the impact of litigation; the
impact of current or pending legislation and regulations, including Federal
Communications Commission ("FCC") rulemaking proceedings; and other factors
which may be described from time to time in filings of the Company with the
Securities and Exchange Commission.
All statements, other than statements of historical facts, included in
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" ("MD&A") and located elsewhere herein regarding the Company's
operations, financial position and business strategy, may constitute
forward-looking statements. Forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intend," "estimate," "anticipate," "believe" or "continue" or the
negative thereof or variations thereon or similar terminology. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable at this time, it can give no assurance that such
expectations will prove to have been correct.
Results of Operations
Net revenue for the three and nine months ended September 30, 2000 as compared
to the corresponding periods of 1999 was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2000 1999 Change 2000 1999 Change
-------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Local ...................... $ 31,339 $ 24,436 28% $ 84,860 $ 69,236 23%
National spot .............. 9,623 5,411 78% 30,183 16,906 79%
Incremental revenue from
Affiliation Agreement ... 2,351 4,178 (44)% 14,395 17,060 (16)%
Other revenue .............. 1,778 4,594 (61)% 10,660 12,880 (17)%
-------- -------- -------- --------
Net revenue ................ $ 45,091 $ 38,619 17% $140,098 $116,082 21%
======== ======== ======== ========
</TABLE>
Local revenue at the Company's domestic television stations increased by 49% and
37% for the three and nine months ended September 30, 2000 from the
corresponding periods of the prior year, respectively. This was primarily the
result of significant increases in audience shares at the Company's stations and
continued growth in the local Spanish-language television markets. Local revenue
at WKAQ-Puerto Rico increased by 8% and 7% for the three and nine months ended
September 30, 2000 from the corresponding periods of the prior year,
respectively. This was primarily the result of WKAQ maintaining its dominant
audience share, coupled with growth in its overall market.
9
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (Continued)
--------------------------------------------------------------------------------
The increases in national spot revenue of 78% and 79% for the three and nine
months ended September 30, 2000 from the corresponding periods of the prior
year, respectively, were primarily the result of significant increases in
audience shares at the Company's stations and strong growth in the
Spanish-language national spot market, including significant internet related
advertising.
The Network Company's average share of the Spanish-language television network
audience measured on a household basis was 18% during the first quarter of 2000
and 22% during the second and third quarters of 2000, compared to 13% during the
first and second quarters of 1999 and 15% during the third quarter of 1999.
Audience share increases were achieved as a result of various programming
initiatives.
Incremental revenue from the Affiliation Agreement represents the sharing of the
pooling of Company and Network Company revenue in excess of revenue generated by
the Company's U.S. stations. The amount of incremental revenue recognized in any
period is impacted by the timing of the attainment of the Aggregate Net
Advertising Receipts thresholds discussed above. The decrease in the 2000
periods was a result of the Company dropping from the 80% to the 55% allocation
level in the second quarter of 2000, while such level was not reached until the
third quarter in 1999, due to the increased levels of revenue at both the
Company and the Network Company in the 2000 periods.
Other revenue decreased by 61% and 17% for the three and nine months ended
September 30, 2000 from the corresponding periods of the prior year,
respectively. The decrease in the 2000 periods was a result of the replacement
of blocks of broadcast time sold to independent programmers at the end of the
second quarter with network programming. The elimination of domestic block time
programming should result in lower other revenue in the future.
Direct operating costs increased by 14% and 11% for the three and nine months
ended September 30, 2000 from the corresponding periods of the prior year,
respectively. This was primarily the result of increases of $1.5 million and
$3.9 million in programming costs at WKAQ and local news costs in the U.S. for
the three and nine months ended September 30, 2000 from the corresponding
periods of the prior year, respectively.
Selling, general and administrative expenses other than corporate increased by
20% and 13% for the three and nine months ended September 30, 2000 from the
corresponding periods of the prior year, respectively. This was primarily the
result of greater sales commissions related to the increase in local revenue and
an increase in research service fees.
As a result of the above, operating income before depreciation and amortization
improved by $2.0 million and $14.1 million for the three and nine month periods
ended September 30, 2000, from the corresponding periods of the prior year,
respectively.
Depreciation and amortization increased by $777,000 and $2.0 million for the
three and nine month periods ended September 30, 2000 from the corresponding
periods of the prior year, respectively. This was primarily a result of the
additions to property and equipment incurred during 1999 and 2000, including
those relating to upgrading certain stations to a digital technology platform.
Interest expense, net increased by $231,000 and $1.2 million for the three and
nine months ended September 30, 2000 from the corresponding periods of the prior
year, respectively. This was primarily the result of an increase in interest
accreted on the $218.8 million aggregate principal amount at maturity 11.5%
Senior Discount Notes due 2008.
10
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (Continued)
--------------------------------------------------------------------------------
The income tax benefit recorded in 2000 and 1999 is comprised primarily of a
deferred benefit resulting from the tax effect of changes in federal, state and
Puerto Rico temporary differences and the utilization of federal and Puerto Rico
net operating losses, offset in part by a current provision for federal and
state and Puerto Rico income taxes and Puerto Rico withholding taxes related to
intercompany interest. The Company is in a net operating loss position for
federal income tax purposes. The Company's use of its net operating loss
carryforwards incurred prior to August 12, 1998 are subject to certain
limitations imposed by Section 382 of the Internal Revenue Code and their use
will be limited.
Minority interest represents the accounting impact of distributions to the 25.5%
partner in WSNS-Chicago, which is based on a minimum preferred distribution to
such partner, as defined in its partnership agreement.
Liquidity and Sources of Capital
Cash flows provided from operating activities were $22.9 million and $20.5
million for the nine months ended September 30, 2000 and 1999, respectively.
This increase is primarily the result of the increase in operating income before
depreciation and amortization, offset in part by changes in certain asset and
liability accounts, including the growth in accounts receivable corresponding to
the growth in revenue.
The Company had working capital of $9.2 million at September 30, 2000.
Capital expenditures of approximately $9.5 million were made during the nine
months ended September 30, 2000 for the replacement and upgrading of equipment.
As a result of the continued conversion to digital television technology, as
well as regular maintenance capital spending, the Company expects to incur
capital expenditures of approximately $8 million during the remainder of 2000.
The Company's principal sources of liquidity are cash from operations and a $150
million revolving credit facility with a final maturity of September 30, 2005
(the "Revolving Credit Facility"). The Company plans on financing cash needs
through cash generated from operations and the Revolving Credit Facility, under
which there was $47 million outstanding at September 30, 2000. The Company does
not presently anticipate the need to obtain any additional financing to fund
operations.
The Company's interest income and expense are sensitive to changes in the
general level of U.S. and certain European interest rates. In this regard,
changes in these rates affect the interest earned on the Company's cash
equivalents as well as interest paid on its credit facilities. To mitigate the
impact of fluctuations in interest rates, the Company entered into two fixed
rate for London Interbank Offered Rates ("LIBOR") swap transactions in late 1998
which mature on August 13, 2003. If the Company were to have borrowings
outstanding for the maximum amount possible under the Revolving Credit Facility,
it would have $150 million principal amount subject to change in interest rates,
whereby a change of 100 basis points would have approximately a $1.5 million
impact on pre-tax earnings and pre-tax cash flows over a one-year period.
11
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is included in the "Liquidity and Capital
Resources" section of the Company's Management's Discussion and Analysis of
Results of Operations and Financial Condition contained in this document.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION
The following information is not otherwise called for by this form, however,
Holdings deems such information of importance to its security holders:
On June 30, 2000, Apollo Investment Fund III, L.P. ("Apollo") entered into an
agreement to sell to an affiliate of Council Tree Communications, L.L.C.
("Council Tree"), a private investment fund, Apollo's interest in Station
Partners, LLC ("Station Partners"), which holds a 50.1% interest in Holdings. On
August 8, 2000, an application was filed with the Federal Communications
Commission ("FCC") seeking FCC approval for this transaction.
As part of this transaction, Council Tree will contribute to Station Partners
the following television stations: KMAS-TV, Channel 24, Steamboat Springs,
Colorado; KSBS-LP, Channel 67, Denver, Colorado; KMAS-LP, Channel 63, Estes
Park, Colorado; and K34FB, Channel 34, Pueblo, Colorado (collectively, the
"Contributed Stations").
In connection with this transaction, according to filings made with the FCC,
Station Partners and the other two shareholders of Holdings, Sony Pictures
Entertainment Inc. and Liberty Media Corporation, will contribute their
ownership interests in Holdings to a newly formed entity, Telemundo
Communications Group, Inc. ("New Telemundo"). As a result, upon consummation of
this transaction New Telemundo will own all of the stock of Holdings. In
addition, Station Partners will assign the Contributed Stations to a newly
formed subsidiary of New Telemundo.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27-Financial data schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended September 30, 2000.
12
<PAGE>
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.
TELEMUNDO HOLDINGS, INC.
(Registrant)
By: /s/ Vincent L. Sadusky
-----------------------------------------
Dated: November 14, 2000 Vincent L. Sadusky
Vice President Finance
13
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTIN
----------- ------------------
27 Financial Data Schedule
