- --------------------------------------------------------------------------------
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 MARCH 31, 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 May 8, 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
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION: No.
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 (Unaudited)........................................................ 2
Consolidated Balance Sheets at March 31, 2000 (Unaudited)
and December 31, 1999............................................................................ 3
Consolidated Statement of Changes in Common Stockholders' Equity
for the Three Months Ended March 31, 2000 (Unaudited)............................................ 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited)........................................................ 5
Notes to Consolidated Financial Statements (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 6. Exhibits and Reports on Form 8-K............................................................... 12
SIGNATURE................................................................................................. 13
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands)
Three Months Ended March 31 2000 1999
- -------------------------------------------------------------------------
Net revenue ..................................... $ 44,244 $ 35,202
-------- --------
Costs and expenses:
Direct operating costs ...................... 16,061 15,247
Selling, general and administrative expenses
other than corporate ..................... 13,324 12,420
Corporate expenses .......................... 1,490 1,452
Depreciation and amortization ............... 7,427 6,913
-------- --------
38,302 36,032
-------- --------
Operating income (loss) ......................... 5,942 (830)
Interest expense - net .......................... (9,355) (8,805)
-------- --------
Loss before income taxes and minority interest .. (3,413) (9,635)
Income tax benefit .............................. 620 1,330
Minority interest ............................... (442) (361)
-------- --------
Net loss ........................................ $ (3,235) $ (8,666)
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
Assets 2000 1999
- -----------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................. $ 2,038 $ 7,204
Accounts receivable, less allowance for doubtful accounts of $8,189
and $7,992 ............................................................. 26,638 30,487
Television programming ..................................................... 5,544 4,442
Prepaid expenses and other ................................................. 3,019 3,292
Due from Network Company, net .............................................. 5,836 7,491
--------- ---------
Total current assets .............................................. 43,075 52,916
Property and equipment, net .................................................... 57,141 57,642
Television programming ......................................................... 1,584 1,270
Other assets ................................................................... 13,073 13,473
Broadcast licenses and other intangible assets, net ............................ 616,141 621,585
--------- ---------
$ 731,014 $ 746,886
========= =========
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable and accrued expenses ...................................... $ 30,120 $ 38,657
Television programming obligations ......................................... 2,479 1,928
Current portion of long-term debt .......................................... 4,562 5,469
--------- ---------
Total current liabilities .......................................... 37,161 46,054
Long-term debt ................................................................. 395,882 396,962
Deferred taxes, net ............................................................ 68,634 69,980
Other liabilities .............................................................. 26,098 27,445
--------- ---------
527,775 540,441
--------- ---------
Minority interest .............................................................. 5,540 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 ........................................................ (16,314) (13,079)
--------- ---------
197,699 200,934
--------- ---------
$ 731,014 $ 746,886
========= =========
</TABLE>
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 ................. - - - (3,235) (3,235)
--------- ----------- --------- --------- ---------
Balance, March 31, 2000 .. 10,000 $ - $ 214,013 $ (16,314) $ 197,699
========= =========== ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31 2000 1999
- ------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ...................................................... $ (3,235) $ (8,666)
Charges not affecting cash:
Depreciation and amortization ............................. 7,427 6,913
Interest accretion ........................................ 4,138 3,546
Provision for losses on accounts receivable ............... 271 329
Minority interest ......................................... 442 361
Deferred taxes ............................................ (1,346) (2,591)
Changes in assets and liabilities:
Accounts receivable ....................................... 3,652 6,400
Television programming .................................... (1,416) 809
Television programming obligations ........................ 551 (262)
Due from Network Company, net ............................. 1,655 (817)
Accounts payable and accrued expenses and other ........... (8,764) 2,548
-------- --------
Cash flows provided from operating activities 3,375 8,570
-------- --------
CASH FLOWS FROM INVESTING ACTIVITY:
Additions to property and equipment ........................... (1,511) (4,784)
-------- --------
Cash flows used in investing activity ....... (1,511) (4,784)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under credit facilities .............................. (6,125) -
Merger costs .................................................. - (584)
Payments to minority interest partner ......................... (905) (823)
-------- --------
Cash flows used in financing activities ..... (7,030) (1,407)
-------- --------
Increase (decrease) in cash and cash equivalents .............. (5,166) 2,379
Cash and cash equivalents, beginning of period ................ 7,204 8,680
-------- --------
Cash and cash equivalents, end of period ...................... $ 2,038 $ 11,059
======== ========
Supplemental cash flow information:
Interest paid ............................................. $ 7,319 $ 5,249
======== ========
Income taxes paid ......................................... $ 953 $ 29
======== ========
</TABLE>
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.
Holdings is owned 50.1% by Station Partners, LLC, 24.95% by Sony Pictures
Entertainment Inc. ("Sony Pictures") and 24.95% by Liberty Media Corporation
("Liberty") (collectively, the "Purchaser"). Station Partners, LLC is owned 68%
by Apollo Investment Fund III, L.P. ("Apollo Investment") and 32% by Bastion
Capital Fund, L.P. ("Bastion").
Telemundo Network Group LLC (the "Network Company"), a company formed in
connection with the Merger which is equally owned by a subsidiary of Sony
Pictures and a subsidiary of Liberty, 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. All 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 March 31, 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 and Liberty, through their subsidiaries, own the Network Company
and are significant shareholders of the Company. Pursuant to the Affiliation
Agreement, the Company recorded $7.4 million and $6.7 million in incremental net
revenue for the three months ended March 31, 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 revenues. 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 revenues 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 revenues.
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"). Holdings is
owned 50.1% by Station Partners, LLC, 24.95% by Sony Pictures Entertainment Inc.
("Sony Pictures") and 24.95% by Liberty Media Corporation ("Liberty")
(collectively, the "Purchaser"). Station Partners, LLC is owned 68% by Apollo
Investment Fund III, L.P. ("Apollo Investment") and 32% by Bastion Capital Fund,
L.P. ("Bastion").
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 which is equally owned by a subsidiary of
Sony Pictures and a subsidiary of Liberty. Including the Company's stations, the
Network Company currently serves 63 markets in the United States, including 44
of the 45 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.
8
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
The Company incurs non-network marketing/promotional expenditures, programming
expenditures and capital expenditures for its stations. All 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.
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 months ended March 31, 2000 as compared to the
corresponding period of 1999 was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999 CHANGE
------- ------- -------
<S> <C> <C> <C>
Local .................. $22,370 $19,432 15%
National Spot .......... 9,542 4,983 91%
Incremental revenue from
Affiliation Agreement 7,369 6,666 11%
Other revenue .......... 4,963 4,121 20%
------- ------- -------
Net revenue ............ $44,244 $35,202 26%
======= ======= =======
</TABLE>
9
<PAGE>
TELEMUNDO HOLDINGS, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
Local revenue at the Company's domestic television stations increased by 29%
from the corresponding period of the prior year, which was primarily the result
of increases in audience shares at the Company's major stations and continued
growth in the local Spanish-language television markets. Local revenue at
WKAQ-Puerto Rico approximated the prior year.
The increase in national spot revenue is primarily the result of increases in
audience shares at the Company's major stations and strong growth in the
Spanish-language national spot market, including significant internet related
advertising.
The Telemundo network's average share of the Spanish-language television network
audience was 17% during the fourth quarter of 1999 and 18% during the first
quarter of 2000 compared to 14% during the fourth quarter of 1998 and 13% during
the first quarter of 1999.
Audience shares decreased during the second half of 1998 and first half of 1999.
To address this decline, the Network Company launched a new programming schedule
in August 1999. The new schedule includes replacing several Monday through
Friday prime time variety shows with telenovelas, creating original and
acquiring talk shows and improving sports programming. These initiatives are
reflected in the improvement in the Telemundo network's audience share during
the second half of 1999 and the first quarter of 2000.
Incremental revenue from the Affiliation Agreement represents the sharing of
Company and Network Company revenue pursuant to the Affiliation Agreement 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 Company expects to drop 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.
Other revenue increased primarily due to an increase in rates for blocks of
broadcast time sold to independent programmers. The Company expects to replace
time available for such programmers with network programming in the future.
Direct operating costs increased by 5% for the three months ended March 31, 2000
from the corresponding period of the prior year. This was primarily the result
of a $667,000 increase in station programming and production expenses related to
costs incurred to produce and acquire station programming at WKAQ and produce
local news in the U.S.
Selling, general and administrative expenses other than corporate increased by
7% for the three months ended March 31, 2000 from the corresponding period of
the prior year. This was primarily the result of greater sales commissions
related to the increase in local revenue and an increase in research service
fees.
Corporate expenses increased by $38,000 from the comparable period of the prior
year.
As a result of the above, the operating income (loss) before depreciation and
amortization improved by $7.3 million from the comparable period of the prior
year.
Depreciation and amortization increased by $514,000 for the three months ended
March 31, 2000 from the corresponding period of the prior year. This was
primarily a result of the additions to property and equipment incurred during
1999, including those relating to upgrading stations to a digital technology
platform.
Interest expense, net increased by $550,000 for the three months ended March 31,
2000 from the corresponding period of the prior year. 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 in both periods results primarily from the tax effect of
changes in federal and state deferred temporary differences and the generation
of Puerto Rico net operating losses, offset in part by a current provision for
federal and state income and franchise 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 Video 44, which is based on a minimum preferred distribution to such
partner.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flows provided from operating activities were $3.4 million and $8.6 million
for the three months ended March 31, 2000 and 1999, respectively. The decrease
is primarily the result of changes in certain assets and liability accounts,
primarily the timing of the payments of accounts payable, taxes and interest,
offset in part by the increase in operating income before depreciation and
amortization.
The Company had working capital of $5.9 million at March 31, 2000.
Capital expenditures of approximately $1.5 million were made during the three
months ended March 31, 2000 for the replacement and upgrading of equipment,
including the ongoing conversion to digital television technology. 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 $17 million in 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 $52 million outstanding at March 31, 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 had entered into two fixed
rate for London Interbank Offered Rates ("LIBOR") swap transactions in late
1998. 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 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 March 31, 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/ PETER J. HOUSMAN II
-----------------------------------------
Dated: May 9, 2000 Peter J. Housman II
Chief Financial Officer and Treasurer
13
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial data schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 1069901
<NAME> Telemundo Holdings, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,038
<SECURITIES> 0
<RECEIVABLES> 34,827
<ALLOWANCES> 8,189
<INVENTORY> 0
<CURRENT-ASSETS> 43,075
<PP&E> 67,759
<DEPRECIATION> 10,618
<TOTAL-ASSETS> 731,014
<CURRENT-LIABILITIES> 37,161
<BONDS> 400,444
0
0
<COMMON> 0
<OTHER-SE> 197,699
<TOTAL-LIABILITY-AND-EQUITY> 731,014
<SALES> 44,244
<TOTAL-REVENUES> 44,244
<CGS> 0
<TOTAL-COSTS> 38,302
<OTHER-EXPENSES> 442
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,355
<INCOME-PRETAX> (3,855)
<INCOME-TAX> (620)
<INCOME-CONTINUING> (3,235)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,235)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
