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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File Number: 0-16099
TELEMUNDO GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3348686
(State or other jurisdiction (I.R.S. Employer
of 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
SERIES A COMMON STOCK, $.01 PAR VALUE
SERIES A COMMON STOCK PURCHASE WARRANTS
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
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As of March 22, 1996, 10,000,200 shares of the Common Stock of Telemundo
Group, Inc. were outstanding, and the aggregate market value of the voting
stock held by nonaffiliates was approximately $121,249,224. Directors,
officers and 10% or greater stockholders are considered affiliates for
purposes of this calculation but should not be deemed affiliates for any other
purpose.
Documents Incorporated by Reference:
(1) Portions of Telemundo Group, Inc. 1995 Annual Report to Stockholders ---
Parts II and IV.
(2) Portions of Telemundo Group, Inc. Proxy Statement for the 1996 Annual
Meeting of Stockholders ---- Part III.
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TABLE OF CONTENTS
Page
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PART I
Item 1. BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 15
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . 15
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . 15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION . . . . . . . . . . . 15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . 15
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . 15
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . . . 15
Item 11. EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . 16
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . . . 16
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
PART I
ITEM 1. BUSINESS
Telemundo Group, Inc., together with its subsidiaries (collectively,
"Telemundo" or the "Company"), is one of two Spanish-language television
broadcast networks in the United States. The network provides programming
24-hours per day to its owned and operated stations and affiliates, which serve
56 markets in the U.S., including the 32 largest Hispanic markets, and reaches
approximately 85% of all U.S. Hispanic households. Hispanics currently
constitute approximately 10% of the U.S. population, or 27 million people,
according to the U.S. Census Bureau, which also projects Hispanics to be the
largest minority group in the United States by the year 2010. The Company also
owns and operates the leading full-power television station and related
production facilities in Puerto Rico. References to the U.S. exclude Puerto
Rico unless otherwise noted.
Telemundo completed the acquisition of a 74.5% interest in its Chicago
affiliate, WSNS-TV ("WSNS"), on February 26, 1996 and now owns and operates full
power Spanish-language television stations in the seven largest Hispanic Market
Areas in the United States. "Market Area" or "DMA" refers to Designated Market
Area, a term developed by A.C. Nielsen Company ("Nielsen") and used by the
television industry to describe a geographically distinct television market.
The Company also distributes its programming through 13 owned and operated
low-power television stations, 36 affiliated broadcast stations and 88 satellite
direct cable affiliates. The Company's programming is carried on an additional
515 cable systems in markets served by broadcast stations in the Company's
network. In addition, the Company has a 42% interest in TeleNoticias del Mundo,
L.P. ("TeleNoticias"), a 24-hour per day Spanish-language international news
service.
GENERAL DEVELOPMENT OF BUSINESS
The Company was organized in May 1986 under the laws of Delaware and is the
successor to John Blair & Company, formerly a diversified communications company
("Blair"). The Company began its United States network with three television
stations in January 1987, providing approximately 18 hours per week of network
programming. The Company now transmits Spanish-language programming 24-hours
per day to its network of owned and operated stations and affiliates in the
United States. The Company increased its coverage from 65% of all U.S. Hispanic
households at the beginning of 1989 to approximately 85% of all U.S. Hispanic
households in March 1996. In July 1993 the Company consented to the entry of an
order for relief under chapter 11 of the United States Code (the "Bankruptcy
Code") and on December 30, 1994 consummated a plan of reorganization under the
Bankruptcy Code.
NARRATIVE DESCRIPTION OF BUSINESS
The Company's principal source of revenue is the sale of network
advertising time on its network and the sale of local and national spot
advertising time on the Company's owned and operated television stations.
Additionally, the Company sells blocks of air time during non-network
programming hours to independent programmers ("block time programmers").
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THE TELEMUNDO NETWORK AND BROADCAST OPERATIONS
The Company's television network covers 56 markets in the United States,
including the 32 largest Hispanic markets, and reaches approximately 85% of all
U.S. Hispanic households. Coverage is achieved through seven full-power and 13
low-power owned and operated television stations, 36 affiliated broadcast
stations and 88 satellite direct cable systems affiliated with the Company. The
signal from the Company's owned and operated stations and broadcast affiliates
also is carried on an additional 515 cable systems throughout the United States.
THE COMPANY'S TELEVISION STATIONS
Since the acquisition of a majority interest in its full-power Chicago
affiliate, the Company owns and operates eight full-power and 13 low-power
Spanish-language television stations in the United States and Puerto Rico.
FULL-POWER STATIONS
The Company's U.S. owned and operated full-power stations, broadcast
network programming and produce and broadcast local news and other limited
programming focused on the audience in each of their respective local markets.
Each full-power station also sells blocks of broadcast time during non-network
programming hours to block time programmers. The following table sets forth
certain information about the Company's owned and operated full-power
Spanish-language television stations.
<TABLE>
<CAPTION>
APPROXIMATE RANKING OF
HISPANIC MARKET AREA BY NUMBER OF OTHER RANKING OF
TELEVISION HISPANICS NUMBER OF SPANISH LANGUAGE MARKET AREA BY
MARKET AREA HOUSEHOLDS IN AS A PERCENTAGE HISPANIC TELEVISION NUMBER OF TOTAL
SERVED AND MARKET OF TOTAL TELEVISION STATIONS OPERATING TELEVISION
STATION AREA (1) POPULATION (2) HOUSEHOLDS (1) IN MARKET AREA (3) HOUSEHOLDS (1)
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<S> <C> <C> <C> <C> <C>
Los Angeles, Ca 1,306,000 36% 1 2 2
KVEA, Channel 52
New York, NY 913,000 16% 2 1 1
WNJU, Channel 47
Miami, FL 434,000 37% 3 3 16
WSCV, Channel 51
Houston, TX 278,000 24% 4 2 11
KTMD, Channel 48
San Antonio, TX 274,000 50% 5 2 37
KVDA, Channel 60
San Francisco, CA 272,000 17% 6 2 5
KSTS, Channel 48
Chicago, IL 270,000 13% 7 1 3
WSNS, Channel 44
San Juan, PR 1,064,000 - - 6 -
WKAQ, Channel 2
(4)
</TABLE>
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(1) Estimated by Nielsen for January 1, 1996.
(2) Claritas, Inc., 1995, derived from U.S. Census Bureau data and other
government statistics.
(3) The Company and each of its Spanish-language competitors broadcast
over UHF, except in Puerto Rico, where WKAQ and its three major
competitors broadcast over VHF. The Company's principal competitor,
Univision, owns a Spanish-language station in each of the U.S. markets
that are served by the Company's owned and operated full-power
stations. Independent Spanish-language stations also broadcast in the
Los Angeles, Miami, Houston, San Antonio and San Francisco broadcast
markets. The independent stations in Los Angeles and Houston and one
of the independent stations in Miami are full-power stations.
(4) Source: Mediafax, TELEVISION AUDIENCE MEASUREMENTS PUERTO RICO,
December 1995.
The information below regarding population growth and country of origin is
from Claritas, Inc.:
LOS ANGELES: The Company owns and operates KVEA, Channel 52, licensed to
Corona, California and serving the Los Angeles market. KVEA began operating as a
Spanish-language station in 1985. Los Angeles is the largest U.S. Hispanic
market, representing approximately 18% of the Hispanic television households in
the United States. An estimated 5.5 million Hispanics reside in the Los Angeles
DMA, constituting approximately 36% of the Los Angeles DMA population. The
Hispanic population in Los Angeles doubled between 1980 and 1995, and
immigration trends indicate that the Hispanic population will continue to grow
rapidly. As a reflection of the significance of Spanish-language television, a
Spanish-language television news program periodically draws a higher overall
audience than any other news program in the Los Angeles Market Area. The
Hispanic population in Los Angeles is predominantly Mexican in origin. In
addition to a Univision station, Los Angeles has a local, independently-owned
Spanish-language television station.
NEW YORK: The Company owns and operates WNJU, Channel 47, licensed to Linden,
New Jersey and serving the New York market. WNJU began operating as a
Spanish-language station in 1965. New York is the second largest U.S. Hispanic
market, representing approximately 13% of the Hispanic television households in
the United States. An estimated 3.0 million Hispanics reside in the New York
DMA, constituting approximately 16% of the New York DMA population. The Hispanic
population in New York increased by approximately 45% between 1980 and 1995.
Although almost half of this market is of Puerto Rican origin, the New York
Hispanic community is relatively diverse.
MIAMI: The Company owns and operates WSCV, Channel 51, licensed to Ft.
Lauderdale, Florida and serving the Miami-Ft. Lauderdale market. WSCV began
operating as a Spanish-language station in 1985. Miami is the third largest U.S.
Hispanic market, representing approximately 6% of the Hispanic television
households in the United States. An estimated 1.3 million Hispanics reside in
the Miami DMA, constituting approximately 37% of the Miami DMA population. It
has been estimated that more than half of the population of Dade County is
comprised of Hispanics. The Hispanic population in Miami more than doubled
between 1980 and 1995. Approximately 54% of Hispanics in Miami are of Cuban
origin.
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HOUSTON: The Company owns and operates KTMD, Channel 48, licensed to
Galveston, Texas and serving the Houston-Galveston market. KTMD began operating
as a Spanish-language station in 1987. The Houston-Galveston market is the
fourth largest U.S. Hispanic market, representing approximately 4% of the
Hispanic television households in the United States. An estimated 1.1 million
Hispanics reside in the Houston DMA (which includes Galveston), constituting
approximately 24% of the Houston DMA population. The Hispanic population in
Houston increased by approximately 120% between 1980 and 1995 and is principally
of Mexican origin.
SAN ANTONIO: The Company owns and operates KVDA, Channel 60, licensed to and
serving the San Antonio, Texas market. KVDA began operating as a
Spanish-language station in 1989. The San Antonio market is the fifth largest
U.S. Hispanic market, representing approximately 4% of the Hispanic television
households in the United States. An estimated 931,000 Hispanics reside in the
San Antonio DMA, constituting approximately 50% of the San Antonio DMA
population. The Hispanic population in San Antonio, which is principally of
Mexican origin, increased by approximately 45% between 1980 and 1995.
SAN FRANCISCO: The Company owns and operates KSTS, Channel 48, licensed to San
Jose, California and serving the San Francisco-San Jose market. KSTS began
operating as a Spanish-language station in 1987. The San Francisco-San Jose
Hispanic market is the sixth largest U.S. Hispanic market, representing
approximately 4% of the Hispanic television households in the U.S. An estimated
1.1 million Hispanics reside in the San Francisco DMA (which includes San Jose),
constituting approximately 17% of the San Francisco DMA population. The Hispanic
population in this market grew by approximately 69% from 1980 to 1995 and is
over 68% of Mexican origin.
CHICAGO: On February 26, 1996, the Company acquired a 74.5% interest in and
now operates WSNS, Channel 44, serving the Chicago market. WSNS began operating
as a Spanish-language station in 1985. The Chicago market is the seventh largest
Hispanic market in the United States, representing approximately 4% of the
Hispanic television households in the U.S. An estimated 1.1 million Hispanics
reside in the Chicago DMA, constituting approximately 13% of the Chicago DMA
population. The Hispanic population grew by approximately 72% from 1980 to 1995
and approximates the overall ethnic mix of the U.S. Hispanic population base.
SAN JUAN, PUERTO RICO: The Company owns and operates television station WKAQ,
Channel 2, in San Juan, which together with its affiliate, WOLE (Channel 12 in
Mayaguez), and its translator facilities, cover virtually all of Puerto Rico.
WKAQ began operating as a Spanish-language television station in 1954. The
current population of Puerto Rico is approximately 3.3 million.
LOW-POWER STATIONS
The Company owns and operates 13 low-power television stations ("LPTVs")
and has received permission from the FCC to build two additional LPTVs. LPTVs
and "translator stations" generally operate at significantly lower levels of
power than full-power stations. In addition, their signals generally cover
smaller areas than those covered by full-power stations and may not cover the
full Market Area. LPTV's extend the network's coverage in areas where a
full-power television station was not available for the network. Under FCC
rules, LPTVs operate on a secondary basis and are subject to displacement. Under
the 1992 Cable Act (described below), LPTVs have very limited cable carriage
rights. See "FCC Regulation". The Company's low-power television stations
operate with minimal staff and generally do not originate programming or have
their own sales forces.
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<TABLE>
<CAPTION>
APPROXIMATE
HISPANIC
TELEVISION
AREA SERVED AND STATION(S) HOUSEHOLDS
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<S> <C>
Santa Fe, NM: K52BS 185,000
Sacramento, CA (1): K47DQ, K52CK,K61FI 136,000
Boston, MA: W32AY 81,000
Austin, TX: K11SF (1) 71,000
Salinas-Monterey, CA: K15CU 46,000
Odessa/Midland, TX (1) :K60EE, K49CD 40,000
Colorado Springs, CO: K49CJ 39,000
Santa Maria, CA: K27EI 36,000
Salt Lake City, UT: K48EJ 32,000
Abilene, TX: K40DX 14,000
</TABLE>
(1) These areas are served by more than one LPTV, including affiliated LPTVs.
AFFILIATES
The Company currently provides programming to 124 affiliates serving 38
Hispanic markets in the United States. The Company's affiliates in these
markets, which consist of 36 affiliated broadcast stations and 88 satellite
direct cable affiliates that take the network's signal directly from the
satellite, represent approximately 38% of the network's total coverage of the
U.S. Hispanic market.
The Company provides its affiliates with programming and retains the right
to sell generally 50% to 60% of the commercial advertising time available during
such programming. Affiliates generally carry the full network schedule. The
Company also acts as the exclusive representative of the affiliates for national
and regional spot advertising sales, and receives a commission on such sales.
The Company is able to provide advertising sales representation services to
affiliated stations by reason of a waiver of applicable regulations granted by
the FCC. Revenue from the Company's representation services represented less
than 1% of the total revenue of the Company in 1995.
The Company's current contracts with its affiliates generally have two to
five year terms and some provide for compensation to the affiliate. As of
February 1996, no single affiliated station accounted for more than 3.2% of
total network coverage.
PROGRAMMING
The Company currently makes available Spanish-language programming 24-hours
per day to its network, including movies, novelas, talk and entertainment shows,
variety shows, national and international news, music and sporting events.
Approximately 44% of such programming is produced by the Company at its
production facilities near Miami and in Los Angeles. The remainder of the
Company's programming is purchased from various program suppliers primarily in
Mexico and other Latin American countries.
The Company's programming schedule includes OCURRIO ASI, the first news
magazine format program in Spanish-language television. Produced by the Company
since 1990 in its Miami facilities, this show has consistently been one of
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Telemundo's highest rated programs. Other Telemundo produced programming with
consistently strong market shares include two talk shows, SEVCEC and EL Y
ELLA, and a musical variety program, PADRISIMO.
The programming lineup of WKAQ in Puerto Rico differs from that of the
Company's network, but includes approximately 15 hours per week of Telemundo
network programming. Through its production studios, WKAQ produces approximately
26 hours of programming weekly, including mini-series, news, public affairs,
music variety and comedy shows primarily directed toward the Puerto Rico market.
In addition, WKAQ has the right of first refusal to purchase novelas in the
Puerto Rico market produced by Grupo Televisa, S.A. de C.V. ("Televisa")
pursuant to a programming agreement with approximately four years remaining.
WKAQ also broadcasts programming from other Latin American countries and
broadcasts United States syndicated programming dubbed in Spanish.
The Company also sells the rights to broadcast its original programming in
the international markets. Revenue from the syndication of the Company's
programming represented less than 1% of the Company's total revenue in 1995.
TELENOTICIAS
In July 1994, a subsidiary of the Company, Telemundo News Network, Inc.
("TNNI"), entered into a partnership agreement with three international news
and/or media companies to launch TeleNoticias, a 24-hour per day international
Spanish-language news service. The service, which commenced transmitting in
December 1994, originates from the Company's network operations center in
Hialeah, Florida. The service is distributed in 17 countries, including the
United States, Mexico, Spain, Argentina, Venezuela and Chile.
The Company through TNNI holds a 42% interest in TeleNoticias. The Company
provides certain services to TeleNoticias, including the use of a news studio
and satellite uplink facilities at the Company's network operations center.
Pursuant to a license agreement, TeleNoticias produces the Company's network
news programs and provides certain other news services. "See Legal Proceedings".
SALES AND MARKETING
The Company's principal source of revenue is the sale of network
advertising time on its network and the sale of local and national spot
advertising time on the Company's owned and operated television stations.
The Company has a network and national spot sales and marketing force,
including account executives and sales managers with backgrounds in both
Spanish-language and English-language media, to sell advertising time broadcast
over the Company's entire network (network sales) and to sell advertising time
in markets covered by the Company's owned and operated stations and affiliates
(national spot sales). The Company has national sales offices in New York, Los
Angeles, Miami, Chicago, San Francisco, San Antonio, Dallas and Orange County,
California.
Each owned and operated full-power station also has a sales and marketing
force to sell local and national spot advertising on its own behalf.
The Company sells advertising time to a broad and diverse group of
advertisers. No single advertiser accounted for 10% or more of the Company's
1995 total revenue. According to HISPANIC BUSINESS MAGAZINE, the top ten
advertisers in Spanish-language media in 1995, all of which are major
advertisers on the Telemundo network, were The Procter & Gamble Co., AT&T Corp.,
McDonald's Corp., Anheuser-Busch Companies Inc.,
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Sears, Roebuck & Co., Philip Morris Companies, Inc., Colgate-Palmolive Co.,
J.C. Penney Co. Inc, Ford Motor Co. and The Quaker Oats Co.
Additionally, the network and each of the Company's stations sell blocks of
air time during non-network programming hours to block time programmers.
COMPETITION
The broadcasting industry has become increasingly competitive in recent
years. Competitive success of a television network or station depends primarily
on public response to the programs broadcast, which affects the revenue earned
by the network or station from the sale of advertising time. In addition to
programming, factors determining competitive position include management's
ability and experience, marketing, research and promotional efforts.
In each of the markets in which the Company owns and operates full-power
stations, except Puerto Rico, the Company's station competes directly with a
full-power Univision station. The Univision stations and the Univision network
affiliates together reach a larger percentage of Hispanic viewers in the U.S.
than the Company's stations and affiliates and have attracted at times as much
as 80% of the Spanish-language network television viewing audience. Generally,
the competing Univision stations have been operating in their markets longer
than have the Company's stations. In addition, Univision entered into an
agreement with Televisa to manage the Galavision cable network ("Galavision")
and has also obtained an option to acquire Galavision in 1996. Galavision, which
has operated primarily as a Spanish-language cable television network since 1980
and serves approximately 1.6 million subscribers, also competes with the
Company. Both Televisa and Corporacion Venezolana de Television, C.A.
("Venevision") have entered into long-term contracts to supply Spanish-language
programming to the Univision and Galavision networks. Televisa is the largest
supplier of Spanish-language programs in the world. Through these program
license agreements, Univision has the right of first refusal for 25 years to air
in the U.S. all Spanish-language programming produced by Televisa and
Venevision. These supply contracts currently provide Univision with a
competitive advantage in obtaining programming originating from Mexico and in
targeting Hispanics of Mexican origin, which account for approximately 64% of
the U.S. Hispanic market.
There are also several independent Spanish-language television stations
that broadcast, on a full-time or part-time basis, in markets in which the
Company owns and operates stations. Independent Spanish-language television
stations compete with Company-owned stations in the Los Angeles, Miami, Houston,
San Antonio and San Francisco Market Areas. The independent station in Los
Angeles also has a program supply agreement with Televisa. The independent
stations in Los Angeles and Houston and one of the independent stations in Miami
are full-power stations.
The Company's owned and operated television stations and affiliates also
face competition for advertising revenue from other sources serving the same
markets and competing for the same target audience, such as other
Spanish-language and English-language media, including television stations,
cable channels, radio stations, magazines, newspapers, movies and other forms
of entertainment. The English-language media are generally better developed
and better capitalized than the Spanish-language media in the United States.
Several English-language networks and stations are broadcasting
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Spanish-language translations of their general market programs using the second
audio programs ("SAP"). The Company believes these SAP transmissions have not
attracted a significant number of Hispanic viewers.
In Puerto Rico, WKAQ has three significant Spanish-language television
station competitors. In addition, three other Spanish-language television
stations operate in that market. Although the general market programming of the
three major English-language U.S. networks is available in Puerto Rico through
cable carriage, none of such programming has attracted a significant share of
the Puerto Rico audience to date.
Further advances in technology such as video compression, programming
through direct broadcast satellites and programming delivered through fiber
optic telephone lines could lower entry barriers for new channels and encourage
the development of increasingly specialized "niche" programming.
FCC REGULATION
LICENSING
The ownership of the Company's television stations and certain of its
television broadcasting operations are subject to the jurisdiction of the
Federal Communications Commission (the "FCC") under the Communications Act of
1934, as amended (the "Communications Act"). The Communications Act prohibits
the operation of television broadcasting stations except under a license issued
by the FCC and empowers the FCC, among other matters, to issue, renew, revoke
and modify broadcast licenses, to determine the location of stations, to
establish areas to be served and to regulate certain aspects of broadcast
programming. The Communications Act prohibits the assignment of a broadcast
license or the transfer of control of a licensee without the prior approval of
the FCC. If the FCC determines that violations of the Communications Act or the
FCC's own regulations have occurred, it may impose sanctions ranging from
admonition of a licensee to license revocation.
The Communications Act provides that a license may be granted to any
applicant if the public interest, convenience and necessity will be served
thereby, subject to certain limitations. Television broadcast licenses have in
the past usually been issued initially for terms of five years. Upon
application, and in the absence of an objection to the renewal application, or
an adverse finding as to the licensee's qualifications, broadcast licenses
usually have been renewed for additional terms of up to five years without a
hearing by the FCC. Under the terms the Telecommunications Act of 1996 (the
"Telcom Act"), such licenses may be renewed in the future for terms up to 8
years. FCC licenses of full-power stations held by the Company have the
following expiration dates: WKAQ and WSCV - February 1, 1997; WSNS - December 1,
1997; KTMD and KVDA - August 1, 1998; KSTS and KVEA - December 1, 1998; and WNJU
- - June 1, 1999.
ATTRIBUTABLE INTERESTS
Under existing FCC regulations governing multiple ownership of broadcast
stations, a license to operate a television station will not be granted (unless
established waiver standards are met) to any party (or parties under common
control) that has an "attributable interest" in another broadcast station with
an overlapping service area. The regulations also prohibit (with certain
qualifications) any person or entity from having an "attributable interest" in
television stations, located in
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markets which, in the aggregate, include more than 35% of total U.S.
television households. For purposes of this rule, UHF stations are attributed
with one-half of the television households in their respective markets.
Additionally, the rules prohibit (with certain qualifications) anyone with an
"attributable interest" in a television station from also having an
"attributable interest" in a radio station, daily newspaper or cable
television system serving a community located within the relevant coverage
area of that station, and vice versa. The Telcom Act, among other measures,
directs the FCC (i) to expand a waiver policy for allowing common ownership of
a television station and one or more overlapping radio stations to include the
top 50 television markets and (ii) to consider modification of its rule
prohibiting common ownership of two overlapping television stations. The
Company is unable to predict the effect of any changes resulting from the
Telcom Act.
Under existing FCC regulations, the officers, directors and certain of the
equity owners of a broadcasting company are deemed to have an "attributable
interest" in the broadcasting company. In the case of a corporation controlling
or operating television stations, there is attribution only to directors and
officers and to stockholders who own 5% or more of the outstanding voting stock.
Institutional investors, including mutual funds, insurance companies and banks
acting in a fiduciary capacity, may own up to 10% of the outstanding voting
stock without being subject to such attribution, provided that such stockholders
exercise no control over the management or policies of the broadcasting company.
In the case of the Company, there are presently four attributable stockholders:
TLMD Partners II, L.L.C., Bastion Capital Fund, L.P. ("Bastion"), Reliance Group
Holdings, Inc., its affiliates and subsidiaries ("Reliance") and Odyssey
Partners, L.P. The FCC is currently reviewing its attribution guidelines and has
proposed modifying or eliminating certain provisions. The Company is unable to
predict the nature, timing or effect of the proposed changes.
FOREIGN OWNERSHIP RESTRICTIONS
The Communications Act limits the amount of capital stock that aliens may
own in a broadcast station licensee and in the parent company of a licensee.
No broadcast license may be held by a corporation of which more than one-fifth
of its capital stock is owned or voted by non-citizens or their
representatives, by foreign governments or their representatives, or by
non-U.S. corporations. The Company's broadcast licenses are held by subsidiary
companies that are controlled directly or indirectly by the Company. A
broadcast license may not be granted to or held by any corporation that is
controlled, directly or indirectly, by any other corporation more than
one-fourth of whose capital stock is owned or voted by non-citizens or their
representatives, by foreign governments or their representatives, or by
non-U.S. corporations, if the FCC finds that the public interest will be
served by the refusal or revocation of such license. The Company's Restated
Certificate of Incorporation provides that the transfer of the Company's
capital stock, whether voluntary or involuntary, will not be permitted and
will be ineffective if such transfer would violate (or would result in a
violation of) the Communications Act or any of the rules or regulations
promulgated thereunder.
COVERAGE AND MUST-CARRY RIGHTS
The FCC has adopted regulations implementing the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"). These regulations
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required television broadcasters to elect, at three-year intervals beginning
June 17, 1993, whether to exercise either certain "must carry" or
"retransmission consent" rights in connection with their carriage by local cable
television systems. Those stations that elected to exercise must carry rights
could demand carriage on a specified channel on cable systems within their
market area. However, these must carry rights are not absolute, but are
dependent on variables such as the number of activated channels on, and location
and size of, the cable system, the amount of duplicative programming on a
broadcast station, the channel positioning demands of other broadcast stations
and the signal quality of the stations at the cable system's principal headend.
LPTVs have very limited must carry rights, although cable systems cannot
retransmit LPTV stations' signals without their consent. The Company's owned and
operated full-power stations in the United States have elected must carry
rights. The constitutionality of the must carry provisions have been challenged
and a special three-judge panel of the U.S. District Court for the District of
Columbia recently upheld the constitutionality of the must carry rules. This
determination has been appealed to the Supreme Court of the United States which
has agreed to hear the case. In the meantime, however, the FCC's must carry
regulations implementing the Cable Act remain in effect.
The Company's stations serving several markets and many of the Company's
affiliates are classified by the FCC as "low-power" stations. Certain of the
Company's owned and operated stations and affiliates increase their coverage
through use of "translators" that rebroadcast the station's signal. Both
low-power and translator stations are referred to as "LPTV" stations and
generally operate at significantly lower levels of power than full-power
stations. Under FCC rules, such LPTV stations operate on a secondary basis; that
is, they are subject to displacement by a full-power station or other facility
if one is licensed and they must tolerate defined levels of electromagnetic
interference from full-power stations.
PROPOSED RULEMAKING; RECENT AND PROPOSED LEGISLATION
The FCC has undertaken several initiatives to change aspects of television
and radio regulation, particularly with respect to broadcast programming,
station ownership restrictions and attribution rules.
The Commission is conducting a rulemaking proceeding to devise a table of
channel allotments in connection with the introduction of advanced (or "high
definition") television service ("ATV"). The FCC has preliminarily decided to
allot a second broadcast channel to each full-power commercial television
station for ATV operation. According to this preliminary decision, stations
would be permitted to phase in their ATV operations over an approximately
15-year period following adoption of a final table of allotments, at the end
of which they would be required to surrender their non-ATV channel.
Alternatively, Congress is now considering proposals to require incumbent
broadcasters to bid at auctions for the additional spectrum required to effect
a transition to ATV and to phase-in ATV operations over a shorter period of
time. Under certain circumstances, conversion to ATV operations may reduce a
station's geographical coverage area. In addition, the FCC will maintain the
secondary status of LPTV stations in connection with its implementation of a
channel allotment plan for ATV. The Commission has acknowledged that ATV
channel allotment may involve displacement of existing LPTV stations,
particularly in major television markets. A number of the Company's owned and
operated and affiliated low-power stations may be affected.
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The Commission has issued a notice of proposed rulemaking to consider
changes to its attribution rules. The FCC also is conducting a rulemaking
proceeding to relax the local joint co-ownership prohibition and review the
radio-television ownership restriction. The FCC currently is examining or
recently has completed review of several rules governing the relationship
between broadcast television networks and their affiliated stations. The FCC in
1995 eliminated its former rule prohibiting ownership by a broadcast television
network of television stations in markets where the existing stations are so few
or of such unequal desirability that competition would be substantially
restrained by such ownership. Meanwhile, the FCC is conducting a rulemaking
proceeding to examine its rules prohibiting broadcast television networks from
representing their affiliated stations for the sale of non-network advertising
time and from influencing or controlling the rates set by its affiliates for the
sale of non-network advertising time (the Company acts as the exclusive
representative of its affiliates pursuant to a waiver of such restriction).
Separately, the FCC is conducting a rulemaking proceeding to consider the
relaxation or elimination of its rules prohibiting broadcast television networks
from (a) restricting their affiliates' right to reject network programming;
(b) reserving an option to use specified amounts of their affiliates' broadcast
time; and (c) forbidding their affiliates from broadcasting programming of
another network; and to consider the relaxation of its rule prohibiting network
affiliated stations from preventing other stations from broadcasting the
programming of their network. As required by the Telcom Act, the FCC recently
deleted another of its existing rules which prohibits one party from maintaining
more than one broadcast television network.
Significant areas of regulation remain, however, and the FCC continues to
enforce strictly its regulations in several such areas, including equal
employment obligations, children's programming, "indecent" programming
restrictions, the "character qualifications" of licensees, political
advertising, environmental concerns, technical operating matters and antenna
tower maintenance. For example, the Telecom Act directs the FCC to conduct a
rule making proceeding to require that television sets include a feature
(commonly referred to as the V-chip) designed to enable viewers to block
display of programs carrying a common rating; and authorizes the FCC to
recommend a system for rating video programming that contains sexual, violent
or other indecent material about which parents should be informed before it is
displayed to children, if the industry does not establish a satisfactory
voluntary rating system of its own. Industry leaders have announced their
intention to establish a voluntary rating system by the end of 1996. There are
additional FCC regulations and policies, and regulations and policies of other
federal agencies governing network-affiliate relations, political broadcasts,
public affairs programming, equal employment opportunity, taxation and other
areas affecting the business and operations of broadcast stations. Proposals
for additional or revised rules are considered by federal regulatory agencies
and Congress from time to time. The Company cannot predict the resolution of
these issues or other issues discussed above, although their outcome could,
over a period of time, affect, either adversely or favorably, the broadcasting
industry.
The foregoing does not purport to be a complete summary of all the
provisions of the Communications Act or other Congressional acts or of the
regulations and policies of the FCC thereunder. Reference is made to the
Communications Act, the Telcom Act, other Congressional acts, such regulations
and policies, and the public notices promulgated by the FCC for further
information. The laws, rules, regulations and interpretations governing the
Company's business are revised from time to time and it is not possible to
predict the effect that future regulatory changes will have on the Company's
business.
SEASONALITY OF BUSINESS
Seasonal revenue fluctuations are common in the television broadcasting
industry and the Company's revenue reflects seasonal patterns with respect to
advertiser expenditures. Increased advertising during the holiday season
results in increases in revenue for the fourth quarter. The seasonality is more
pronounced in Puerto Rico and as a result, the Company experiences seasonal
fluctuations to a
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greater degree than the U.S. broadcasting industry in general. Because costs
are more ratably spread throughout the year, the impact of this seasonality
on operating income is more pronounced.
EMPLOYEES
As of December 31, 1995, the Company and its subsidiaries had approximately
1,034 full-time employees, approximately 200 of whom were employees of WKAQ in
Puerto Rico. Approximately 60 employees at WNJU's studio facility in New Jersey,
approximately 25 employees of KSTS and approximately 120 employees of WKAQ are
covered by union contracts. WSNS, in which the Company recently acquired a
majority interest, has approximately 80 employees, of which approximately
one-half are unionized. The unionized employees at WSNS have been operating
without an executed collective bargaining agreement for approximately two years.
However, the Company does not believe this to be a significant operating risk.
The Company believes its relations with its employees and unions are
satisfactory.
ITEM 1b. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Except for the historical information contained in this Annual Report on
Form 10-K, certain matters discussed herein, including (without limitation)
under Part I, Item 1, "Business", Item 3, "Legal Proceedings" and under Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations", are forward looking disclosures that involve risks
and uncertainties, including (without limitation) those risks associated with
the availability of programming, the impact of competition, the effect of
economic and market conditions, litigation, the impact of current or
pending legislation and regulation and other risks detailed from time to time
in the Company's Securities and Exchange Commission reports.
ITEM 2. PROPERTIES
In 1994, the Company moved its executive offices from New York City to a
location near Miami, Florida where it has production studios, its network
operations center and its Miami station, WSCV. These facilities are located in
approximately 120,000 square feet of space under a lease which expires in
December 1996, with options to renew through December 2004.
The Company's New York network and national spot sales and marketing
offices and WNJU's sales and business offices are located in New York City in
approximately 38,000 square feet of leased space. The term of the lease runs
through February 1998.
The offices and studios of KVEA are located in approximately 32,000
square feet of leased premises in Glendale, California. The two leases expire
on January 31, 1997 and on February 1, 1997, respectively, and each may be
renewed for one five-year term. KVEA also leases its transmitter and broadcast
tower site on Mount Wilson in the Los Angeles area under a month-to-month
lease. A new lease is being negotiated.
The offices and studios of WNJU are located in approximately 15,000
square feet of leased premises in Hasbrouck Heights, New Jersey under a lease
that expires in 1999, with options to renew through 2004, and WNJU's sales
force and business office occupies office space in the Company's New York
sales office. The transmitter and antenna of WNJU are located on top of One
World Trade Center in New York City under a lease that expires in April 1999
with an option to renew through April 2004.
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The offices and studios of WSCV are located in the same leased premises
occupied by the Company's network operations center in Hialeah, Florida. In
addition, WSCV leases space for its antenna and transmitter in Miami, Florida
under a lease that expires in 2003, with options to renew through 2010.
The offices and studio of KTMD are located in approximately 17,000 square
feet of leased premises in Houston, Texas. The lease covering these premises
expires on December 31, 1997. KTMD's tower and transmitter are located on
property owned by KTMD between Houston and Galveston.
The offices and studio of KVDA are located in owned premises of
approximately 20,000 square feet in San Antonio, Texas. The transmitter and
broadcast tower of KVDA are located on approximately 80 acres of owned land
outside of San Antonio.
The offices and studios of KSTS are located in approximately 16,000
square feet of leased premises in San Jose, California under leases that
expire in 1998. The transmitter and antenna of KSTS are located on leased
property on Monument Peak, outside of San Jose, under a lease that expires in
1998.
The offices and studios of WSNS are located in owned premises consisting of
approximately 20,600 square feet in Chicago, Illinois. The transmitter and
antenna of WSNS are located on top of the Hancock Tower in Chicago under a lease
which expires in 1999 with an option to renew through 2009.
The offices and studios of WKAQ and its related production facilities are
located in owned premises consisting of approximately 180,000 square feet in San
Juan, Puerto Rico. The transmitter and broadcast tower of WKAQ are located on
property owned by the Department of Natural Resources of the Commonwealth of
Puerto Rico, which has granted WKAQ a use permit expiring in 1998. WKAQ also
operates several translator facilities to cover small towns in the mountainous
regions of Puerto Rico.
In addition, the Company leases various properties throughout the country
for production facilities, LPTVs, and sales offices. None of these lease
commitments are material to the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in certain litigation arising
in the normal course of their businesses. In addition, the Company believes that
none of the following proceedings in which it is involved will have a material
adverse effect on the Company or its business.
TELENOTICIAS PROCEEDING
On October 16, 1995, TNNI filed an action in New York Supreme Court, New
York County against its partners to address certain corporate governance
issues affecting TeleNoticias. In its complaint, TNNI asserts a cause of
action for breach of a stockholders agreement, a cause of action for a
declaration that TNNI has the right to nominate the President of
TeleNoticias, a cause of action for a declaration that certain "board"
resolutions are invalid, and a cause of action for breach of fiduciary duty.
Certain of the defendants have asserted counterclaims against TNNI for
injunctive and declaratory relief as well as for damages in an unliquidated
amount. In an order issued January 11, 1996, the Court, among other things,
denied the cross motions seeking injunctive relief.
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The partners are engaged in discussions in connection with seeking a
resolution of their disagreements regarding TeleNoticias. Such discussions have
included a number of possible alternatives, including a resolution of the
dispute regarding management of TeleNoticias, a winding up of the partnership,
and a purchase by one or more of the partners of the interests of the other
partners. In connection with these discussions, the Company has had
conversations with a number of organizations with respect to replacing some or
all of the other TeleNoticias partners. The Company does not contemplate
entering into any transaction relating to the replacement of any of the partners
of TeleNoticias if, as a result, the Company would have materially greater
financial commitments to TeleNoticias than it presently has with respect
thereto. The Company believes, but there can be no assurance, that the outcome
of the litigation, or the impact of any restructuring or winding up of
TeleNoticias, will not result in a material adverse effect on the Company or its
ability to acquire quality news programming.
CHAPTER 11 REORGANIZATION
On June 8, 1993, certain holders of the outstanding public debt of the
Predecessor and the indenture trustee for such debt filed an involuntary
petition against the Predecessor under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court"). The petition was filed solely against the Predecessor and
did not include its subsidiaries. At the time of the involuntary filing, the
Predecessor was in default on all of its public debt, aggregating approximately
$309 million (including unpaid interest). On July 30, 1993, the Predecessor
consented to the entry of an order for relief under Chapter 11 of the Bankruptcy
Code.
On December 30, 1994 (the "Consummation Date"), the Predecessor consummated
a plan of reorganization (the "Plan"). Pursuant to the Plan, holders of
allowed claims against the Predecessor received on the Consummation Date one or
more of the following forms of consideration: cash; 10.25% Senior Notes; new
common stock, $.01 par value ("Common Stock"), divided into two series, Series A
("Series A Common Stock") and Series B ("Series B Common Stock"); and/or
five-year warrants ("Creditor Warrants") to purchase Series A Common Stock at an
exercise price of $7.00 per share. Pursuant to the Plan, as of the Consummation
Date, all of the Predecessor's then-outstanding common stock and all other
equity interests in the Predecessor were canceled. The existing stockholders
were given the right to purchase 1,450,000 shares of Series A Common Stock.
Reliance agreed to acquire Series A Common Stock not acquired by other
stockholders, for which Reliance received warrants ("Reliance Warrants,"
together with the Creditor Warrants, the "Warrants") to purchase an additional
416,667 shares of Series A Common Stock at an exercise price of $7.19 per share.
A total of approximately $36,000,000 in cash; $116,889,000 principal amount of
10.25% Senior Notes; 4,388,394 shares of Series A Common Stock; 5,611,606 shares
of Series B Common Stock (for a total of 10,000,000 shares of Common Stock); and
1,056,417 Warrants (639,750 Creditor Warrants and 416,667 Reliance Warrants)
were distributed in accordance with the Plan.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter
of the fiscal year covered by this Annual Report on Form 10-K.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
See the information in Note 14 to the Notes to Consolidated Financial
Statements appearing on page 25 of the Telemundo Group, Inc. 1995 Annual Report
to Stockholders, which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
See the information under the caption "Selected Financial Data" on page 3
of the Telemundo Group, Inc. 1995 Annual Report to Stockholders, which
information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
See the information under the caption "Management's Discussion and Analysis
of Results of Operations and Financial Condition" on pages 4 through 8 of the
Telemundo Group, Inc. 1995 Annual Report to Stockholders, which information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and Subsidiaries,
including the independent auditor's report thereon, included on pages 9 through
27 of the Telemundo Group, Inc. 1995 Annual Report to Stockholders, which
information is incorporated herein by reference, are listed in Item 14 below.
The Financial Statements of the Company's unconsolidated investee,
TeleNoticias, accounted for by the equity method, including the independent
auditor's report thereon, which information is incorporated herein by reference,
are listed in Item 14 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors and executive officers of the Company
is incorporated herein by reference from the Company's Proxy Statement for the
1996 Annual Meeting of Stockholders under the captions "Election of Directors"
and "Executive Officers of the Company."
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ITEM 11. EXECUTIVE COMPENSATION
See the information in the Company's Proxy Statement for the 1996 Annual
Meeting of Stockholders under the caption "Executive Compensation," which
information is incorporated herein by reference, except for the information
under the subcaptions "Compensation Committee Report" and "Performance Graph."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the information in the Company's Proxy Statement for the 1996 Annual
Meeting of Stockholders under the caption "Security Ownership of Certain
Beneficial Owners and Management," which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the information in the Company's Proxy Statement for the 1996 Annual
Meeting of Stockholders under the caption "Related Party Transactions," which
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The Consolidated Financial Statements of Telemundo Group, Inc. and
Subsidiaries, including the independent auditor's report thereon, which appear
on pages 9 through 27 of the Telemundo Group, Inc. 1995 Annual Report to
Stockholders, are incorporated herein by reference.
1995 Annual
Report Page No.
---------------------
TELEMUNDO GROUP, INC. AND SUBSIDIARIES:
Consolidated Statements of Operations 9
Consolidated Balance Sheets 10
Consolidated Statements of Changes in
Common Stockholders' Equity (Deficiency) 11
Consolidated Statements of Cash Flows 12
Notes to Consolidated Financial
Statements (1- 14) 13
Independent Auditors' Report 27
2.(i) Financial Statement Schedules.
VIII. Valuation and Qualifying Accounts
All other schedules have been omitted because they are inapplicable,
not required, or the information is included elsewhere in the
consolidated financial statements or notes thereto.
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2.(ii) TeleNoticias del Mundo, L.P.:
The Financial Statements of TeleNoticias del Mundo, L.P. including the
independent auditor's report thereon, which appear in the Telenoticas del
Mundo, L.P. Financial Statements as of December 31, 1995 and for the Period
from Inception (July 20, 1994) to December 31, 1994 together with Report of
Independent Certified Public Accountants, are incorporated herein by reference.
Independent Auditors' Report
Balance Sheets
Statements of Operations
Statements of Partners' Captial
Statements of Cash Flows
Notes to Financial Statements (1-8)
3. Exhibits.
EXHIBIT INDEX
Exhibit
Number
- -------
2.1 Chapter 11 Plan of Reorganization filed with the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy
Court") on November 19, 1993, filed as Exhibit 2.1 to the Company's
Current Report on Form 8-K dated November 22, 1993 and incorporated
herein by reference.
2.2 Second Amended Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code dated April 29, 1994, filed as Exhibit 28.1 to the
Company's Current Report on Form 8-K dated July 20, 1994 and
incorporated herein by reference.
2.3 Second Amended Plan of Reorganization filed with the Bankruptcy Court on
April 29, 1994, filed as Exhibit 2.2 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994 (the "March 31, 1994
10-Q") and incorporated herein by reference.
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2.4 Order Pursuant to Section 1129 of the Bankruptcy Code confirming the
Debtor's Second Amended Chapter 11 Plan of Reorganization dated July 20,
1994, filed as Exhibit 2.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994 (the "September 30, 1994
10-Q") and incorporated herein by reference.
3.1 The Company Restated Certificate of Incorporation, filed as Exhibit 4.1
to the Company's Current Report on Form 8-K dated December 30, 1994 (the
"December 30, 1994 8-K") and incorporated herein by reference.
3.2 The Company's Restated Bylaws, filed as Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994
("1994 10-K") and incorporated herein by reference.
4.1 Indenture dated as of December 30, 1994 between the Company and Bankers
Trust Company, trustee, with respect to the 10.25% Senior Notes due
December 30, 2001 filed as Exhibit 4.2 to the December 30, 1994 8-K and
incorporated herein by reference.
4.2 Warrant Agreement dated as of December 30, 1994 between the Company and
Shawmut Bank Connecticut, National Association, filed as Exhibit 4.3 to
the December 30, 1994 8-K and incorporated herein by reference.
4.3 Warrant Agreement dated as of December 30, 1994 between the Company and
Reliance Insurance Company, filed as Exhibit 4.4 to the December 30,
1994 8-K and incorporated herein by reference.
4.4 Registration Rights Agreement dated as of December 30, 1994 between the
Company, Apollo Advisors, L.P. and Reliance Insurance Company, filed as
Exhibit 4.5 to the December 30, 1994 8-K and incorporated herein by
reference.
10.1 Employment Agreements between the Company and each of Joaquin F. Blaya,
Jose C. Cancela, Filiberto Fernandez, and Jose Del Cueto, filed as
Exhibit 10.19 to the Company's Quarterly Report of Form 10-Q for the
quarter ended June 30, 1992, and incorporated herein by reference.*
10.2 Employment Agreement between the Company and Gustavo Pupo-Mayo dated as
of September 16, 1994 filed as Exhibit 10.9 to the 1994 10-K and
incorporated herein by reference.*
10.3 Continuation Agreement between the Company and Bernard S. Carrey dated
October 15, 1993 filed as Exhibit 10.18 to the Annual Report on Form
10-K for the year ended December 31, 1993 ("1993 10-K") and
incorporated herein by reference.*
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10.4 Continuation Agreement between the Company and Kevin M. Sheehan dated
October 15, 1993 filed as Exhibit 10.19 to the 1993 10-K and
incorporated herein by reference.*
10.5 Amendment No. 1 dated as of May 15, 1994 to Employment Agreement between
the Company and Joaquin F. Blaya dated as of May 26, 1992, filed as
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30,
1994 (the "June 30, 1994 10-Q") and incorporated herein by reference.*
10.6 Employment Agreement between the Company and Joaquin F. Blaya dated as
of May 15, 1994, filed as Exhibit 10.2 to the June 30, 1994 10-Q and
incorporated herein by reference.*
10.7 Employment Agreement dated as of May 15, 1994 between the Company and
Peter J. Housman II, filed as Exhibit 10.3 to the June 30, 1994 10-Q and
incorporated herein by reference.*
10.8 Amendment No. 1 dated as of May 15, 1994 to Employment Agreement between
the Company and Jose C. Cancela dated as of May 27, 1992, filed as
Exhibit 10.4 to the June 30, 1994 10-Q and incorporated herein by
reference.*
10.9 Employment Agreement dated as of May 15, 1994 between the Company and
Jose C. Cancela, filed as Exhibit 10.5 to the June 30, 1994 10-Q and
incorporated herein by reference.*
10.10 Settlement Agreement dated May 16, 1994 between John Blair
Communications, Inc., John Blair & Company, Inc., Blair Entertainment
Corporation, JHR Acquisition Corp., Telemundo Group, Inc., Reliance
Capital Group, L.P. Reliance Associates, L.P. Reliance Capital Group,
Inc., Reliance Group Holdings, Inc., Deloitte & Touche, Henry R.
Silverman, Donald G. Raider, Peter J. Housman II, and the Official
Committee of Unsecured Creditors in Telemundo Group, Inc.'s Chapter 11
case, filed as Exhibit 10.6 to the June 30, 1994 10-Q and incorporated
herein by reference.
10.11 Limited Partnership Agreement dated July 20, 1994 between Telemundo News
Network, Inc., TeleNoticias del Mundo, Inc., Reuter Latam News, Inc.,
Antena 3 International, Inc. and Artear Argentina Corporation, filed as
Exhibit 10.8 to the June 30, 1994 8-K and incorporated herein by
reference.
10.12 Loan and Security Agreement dated as of December 31, 1994 between the
Company and Foothill Capital Corporation, filed as Exhibit 10.1 to the
December 30, 1994 8-K and incorporated herein by reference.
10.13 Agreement to Purchase NST Venture Interest and Capital Stock by and
among The Stockholders of Harriscope of Chicago, Inc. and National
Subscription Television of Chicago, Inc. and Telemundo of Chicago, Inc.
dated as of November 8, 1995, and filed as Exhibit 10.1 to the Form 10-
Q/A filed November 27, 1995 and incorporated herein by reference.
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10.14 Form of Partnership Agreement, dated November 8, 1995, by and among
Essaness Theatres Corporation ("Essanesss"), Telemundo of Chicago, Inc.
and Harriscope of Chicago, Inc., filed as Exhibit 10.2 to the Form 10-
Q/A filed November 27, 1995 and incorporated herein by reference.
10.15 Stock Option Agreements dated as of December 31, 1994 between the
Company and each of Joaquin F. Blaya, Jose C. Cancela, and Peter J.
Housman II filed as Exhibit 10.21 to the 1994 10-K and incorporated
herein by reference.*
10.16 Employment Agreement dated as of March 9, 1995 between the Company and
Roland A. Hernandez, filed as Exhibit 10.1 to the Company's Form 10-Q
for the quarter ended March 31, 1995 (the "March 31, 1995 10-Q") and
incorporated herein by reference.*
10.17 Non Qualified Stock Option Agreement dated as of March 9, 1995 between
the Company and Roland A. Hernandez, filed as Exhibit 10.2 to the
March 31, 1995 10-Q and incorporated herein by reference.*
10.18 Employment Agreement dated as of February 27, 1995 between the Company
and Stuart Livingston.*
10.19 Employment Agreement dated as of February 27, 1995 between the Company
and Stephen J. Levin and Amendment to Employment Agreement dated May
30, 1995.*
10.20 Non Qualified Stock Option Agreement dated as of March 9, 1995 between
the Company and Stuart Livingston.*
10.21 Non Qualified Stock Option Agreements dated as of March 9, 1995 and
May 30, 1995 between the Company and Stephen J. Levin.*
10.22 Non Qualified Stock Option Agreement dated as of June 30, 1995 between
the Company and Jose C. Cancela, filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended June 30, 1995 (the
"June 30, 1995 10-Q") and incorporated herein by reference.*
10.23 Non Qualified Stock Option Agreement dated as of June 30, 1995 between
the Company and Peter J. Housman II, filed as Exhibit 10.2 to the June
30, 1995 10-Q and incorporated herein by reference.*
10.24 Agreement and Release dated as of March 17, 1995 between the
Company and Joaquin F. Blaya filed as Exhibit 10.3 to the
Company's March 31, 1995 10-Q and incorporated herein by reference.*
10.25 The Company's 1994 Stock Plan filed as Exhibit 10.1 to the 1994 10-K
and incorporated herein by reference.
13.1 Portions of Telemundo Group, Inc. 1995 Annual Report to Stockholders.
13.2 TeleNoticias del Mundo, L.P. 1995 Financial Statements.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included on signature page of this Annual Report on
Form 10-K).
27.1 Financial Data Schedule.
- --------------------------------
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this form.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended December
31, 1995.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
Hialeah, Florida, on the 26th day of March, 1996.
TELEMUNDO GROUP, INC.
(Registrant)
By /s/ Roland A. Hernandez
-------------------------------
Roland A. Hernandez
President and Chief
Executive Officer
The undersigned directors and officers of Telemundo Group, Inc. hereby
constitute and appoint Peter J. Housman II and Roland A. Hernandez, and each of
them, with full power to act without the other and with full power of
substitution and resubstitution, our true and lawful attorneys-in-fact with full
power to execute in our name and behalf in the capacities indicated below this
Annual Report on Form 10-K and any and all amendments thereto and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission and hereby ratify and confirm all
that such attorneys-in-fact, or any of them, or their substitutes shall lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities indicated on
March 26, 1996.
SIGNATURE TITLE
- --------- -----
/s/ Leon D. Black Chairman of the Board and Director
- -----------------------
Leon D. Black
/s/ Roland A. Hernandez President, Principal Executive Officer
- ----------------------- and Director
Roland A. Hernandez
/s/ Peter J. Housman II Principal Financial Officer
- -----------------------
Peter J. Housman II
/s/ Steven E. Dawson Principal Accounting Officer
- -----------------------
Steven E. Dawson
- 21 -
<PAGE>
/s/ Guillermo Bron Director
- -----------------------
Guillermo Bron
/s/ Alan Kolod Director
- -----------------------
Alan Kolod
/s/ Barry W. Ridings Director
- -----------------------
Barry W. Ridings
/s/ Bruce H. Spector Director
- -----------------------
Bruce H. Spector
/s/ Edward M. Yorke Director
- -----------------------
Edward M. Yorke
/s/ David E. Yurkerwich Director
- -----------------------
David E. Yurkerwich
- 22 -
<PAGE>
<TABLE>
<CAPTION>
TELEMUNDO GROUP,INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
- -----------------------------------------------------------------------------------------------------------
COLUMN B COLUMN C COLUMN D COLUMN E
- -----------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTED BALANCE
BEGINNING PROFIT AND LOSS OTHER ACCOUNTS FROM RESERVES AT END
DESCRIPTION OF PERIOD OR INCOME --DESCRIBE --DESCRIBE(a) OF PERIOD
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Allowance for doubtful accounts $2,845 $2,020 $ -- $2,215 $2,650
------ ------ ----- ------ ------
------ ------ ----- ------ ------
Year Ended December 31, 1994:
Allowance for doubtful accounts $2,501 $2,392 $ -- $2,048 $2,845
------ ------ ----- ------ ------
------ ------ ----- ------ ------
Year Ended December 31, 1993:
Allowance for doubtful accounts $2,007 $2,052 $ -- $1,558 $2,501
------ ------ ----- ------ ------
------ ------ ----- ------ ------
________________________________
Year Ended December 31, 1995:
Reserve for TV Program
Exhibition Rights $1,249 $ 835 $ -- $ 833 $1,251
------ ------ ----- ------ ------
------ ------ ----- ------ ------
Year Ended December 31, 1994:
Reserve for TV Program
Exhibition Rights $2,137 $3,705 $ -- $4,593 $1,249
------ ------ ----- ------ ------
------ ------ ----- ------ ------
Year Ended December 31, 1993:
Reserve for TV Program
Exhibition Rights $2,172 $1,666 $ -- $1,701 $2,137
------ ------ ----- ------ ------
------ ------ ----- ------ ------
</TABLE>
- --------------------------------
(a) Amounts written off, net
of recoveries
S-1
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Predecessor
--------------------------------------------------------
Year Ended December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net revenue. . . . . . . . . . . . . . . . . . . . . . $169,148 $183,894 $177,809 $153,572 $ 134,258
EBITDA (a) . . . . . . . . . . . . . . . . . . . . . . 26,021 23,980 28,066 21,338 13,211
Operating income (loss). . . . . . . . . . . . . . . . 14,379 13,176 16,597 10,823 (241,447)
Reorganization items . . . . . . . . . . . . . . . . . - 76,255 (2,543) - -
Interest expense - net of interest income. . . . . . . (14,489) (645) (24,411) (35,739) (31,534)
Net loss from investment in TeleNoticias . . . . . . . (6,355) (1,314) - - -
Income (loss) before extraordinary items . . . . . . . (10,088) 84,049 (14,059) (26,743) (276,046)
Extraordinary gain - extinguishment of debt. . . . . . - 130,482 - - 1,045
Net income (loss) (b). . . . . . . . . . . . . . . . . $(10,088) $214,531 $(14,059) $(26,743) $(275,001)
-------- -------- -------- -------- ---------
-------- -------- -------- -------- ---------
Net income (loss) per share. . . . . . . . . . . . . . $(1.01) $ * $ * $ * $ *
------ ------ ------ ------ -------
------ ------ ------ ------ -------
Dividends declared on common shares. . . . . . . . . . - - - - -
------ ------ ------ ------ -------
------ ------ ------ ------ -------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Predecessor
--------------------------------------
December 31 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital. . . . . . . . . . . . . . . . . . . . $36,395 $32,325 $65,691 $51,657 $38,795
Broadcast licenses and reorganization value
in excess of amounts allocable to identifiable
assets, net . . . . . . . . . . . . . . . . . . . . . 90,200 92,792 - - -
Total assets . . . . . . . . . . . . . . . . . . . . . 224,459 232,024 169,657 148,564 149,044
Long-term debt (liabilities subject to settlement
prior to 1994) . . . . . . . . . . . . . . . . . . . . 108,032 100,724 326,784 304,183 267,827
Common stockholders' equity (deficiency) . . . . . . . 60,251 70,000 (214,816) (200,757) (174,014)
</TABLE>
(a) EBITDA (earnings before interest, taxes, depreciation and amortization)
is operating income (loss) before depreciation and amortization.
Although EBITDA is not intended to represent cash flow or any other
measure of financial performance under generally accepted accounting
principles, the Company believes it is helpful in understanding cash flow
generated from operations that is available for debt service, taxes and
capital expenditures.
(b) Prior to 1995, net income (loss) was significantly impacted in certain
years by nonrecurring income and expense items related
to the Company's financial restructuring (see Note 9).
* Net income (loss) per share is not applicable as the Company has been
recapitalized and adopted fresh start reporting as of December 31, 1994
(see Note 9).
3
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
TRANSACTIONS AFFECTING COMPARABILITY OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
On December 30, 1994, Telemundo Group, Inc. ("Telemundo"), together with its
subsidiaries (collectively, the "Company"), consummated a financial
restructuring pursuant to a plan of reorganization under chapter 11 of the
Bankruptcy Code (the "Plan"). The period prior to the consummation of the Plan
is presented on a historical cost basis without giving effect to the
reorganization and is separated by a line. For purposes of these financial
statements, the term "Predecessor" refers to the Company prior to emergence from
chapter 11 reorganization.
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's consolidated
financial statements and related notes, to which note references relate. Except
for historical information contained herein, certain matters discussed herein
are forward looking disclosures that involve risks and uncertainties, including
(without limitation) those risks associated with the availability of
programming, the impact of competition, the effect of economic and market
conditions, litigation, the impact of current or pending legislation and
regulation, and other risks detailed from time to time in the Company's
Securities and Exchange Commission reports.
RESULTS OF OPERATIONS
Net revenue for each of the three years in the period ended December 31, 1995
was as follows:
<TABLE>
<CAPTION>
Predecessor
-----------------------------------------
Year Ended Year Ended Year Ended
December 31 December 31 December 31
1995 Change 1994 Change 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Commercial Air Time:
Continental U.S.:
Network and
National Spot. . . . $ 67,938,000 (16)% $ 81,313,000 4 % $ 78,264,000
Local. . . . . . . . . 38,888,000 (11)% 43,600,000 (5)% 45,779,000
------------ ------------ ------------
106,826,000 (14)% 124,913,000 1 % 124,043,000
Puerto Rico. . . . . . . . 37,830,000 2 % 37,232,000 (4)% 38,711,000
------------ ------------ ------------
144,656,000 (11)% 162,145,000 - % 162,754,000
Other Revenue. . . . . . . . 24,492,000 13 % 21,749,000 44 % 15,055,000
------------ ------------ ------------
$169,148,000 (8)% $183,894,000 3 % $177,809,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The decrease in network and national spot revenue in 1995 is the result of the
impact of an overall decline in audience share throughout 1994, which continued
through February 1995. A change in audience share typically has a delayed
impact on revenue. The impact of the decline in audience share was in part
offset by the growth in the overall Spanish-language television advertising
market. The increase in network and national spot revenue in 1994 was the
result of an increase in advertising expenditures in the overall marketplace,
offset by the Company receiving a smaller share of such expenditures as a result
of the decline in audience share.
The decline in local revenue for 1995 is the result of the ratings decline,
which most significantly impacted KVEA (Los Angeles). The decline in 1994 was
due primarily to a decrease at KVEA, which was related to the ratings decline,
partially offset by an increase at WSCV (Miami).
4
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
In March 1995, the Company's President and Chief Executive Officer resigned and
a new President and Chief Executive Officer was elected. In addition, the
network hired a new Executive Vice President for Programming and Production. To
counteract the audience share decline, the Company's new management implemented
several measures, including re-arranging the Company's network program schedule,
introducing new programs, and forming a Los Angeles-based production unit that
began producing certain new network programs in late April 1995. Reflective of
these programming initiatives, the Company's share of the Spanish-language
network television audience increased from 20% in February 1995 to 27% in
December 1995. The share of the Spanish-language network television audience
was 23% in December 1994. As a result of the delayed impact on revenue noted
above, the full impact of the increase in audience share since March 1995 was
not reflected in revenue in 1995. The Company anticipates the ratings
improvement achieved in 1995 will result in an increase in commercial air time
revenue in the first half of 1996 as compared to the first half of 1995.
The increase in commercial air time revenue in Puerto Rico is the result of
WKAQ's dominant audience share in a market which grew slightly. The decrease
in 1994 was a result of a small decline in audience share.
Other revenue increased in 1995 primarily due to increased sales of blocks of
broadcast time to independent programmers in both the continental United States
and Puerto Rico, offset in part by a decrease in international program sales.
Other revenue increased during 1994 due to increased sales of blocks of
broadcast time in both the continental U.S. and Puerto Rico.
Direct operating costs decreased $12.3 million or 14% in 1995, which primarily
reflects reductions in the cost of programming in certain time periods. The
$7.7 million or 9% increase in 1994 primarily resulted from increases in
programming costs in similar time periods.
Network expenses, which represent costs associated with the network operations
center as well as sales, marketing and network costs not allocated to specific
television stations, decreased by $2.7 million or 9% in 1995. The decrease
primarily reflects the implementation of certain cost saving measures in
response to the decline in revenue, including staff reductions, offset in part
by the contracted increase in the cost of the Nielsen national Hispanic
television ratings service. Network expenses increased by $2.3 million or 9%
in 1994, which primarily reflected the operating costs associated with the
expanded levels of production and the contracted increase in the cost of the
Nielsen national Hispanic television ratings service.
Corporate expenses decreased by $411,000 or 9% in 1995, which reflects cost
saving measures. Corporate expenses decreased by $1.4 million or 23% in 1994,
primarily due to rent and other savings associated with the relocation of the
Company's headquarters.
Operating income before depreciation and amortization ("EBITDA") increased $2.0
million or 9% in 1995 as the decline in revenue was more than offset by the 11%
decline in operating expenses before depreciation and amortization. EBITDA
declined by $4.1 million or 15% in 1994, as the increase in revenue was more
than offset by the 7% increase in operating expenses before depreciation and
amortization.
Other expenses for the year ended December 31, 1993 represents $1.1 million of
financial advisory and legal costs associated with the Company's financial
restructuring prior to July 30, 1993, the date the Company consented to the
entry of an order for relief under Chapter 11 of the Bankruptcy Code, partially
offset by the reversal of a $750,000 liability which was no longer required.
All costs associated with the financial restructuring incurred subsequent to
July 29, 1993 are included in the caption "reorganization items" on the
consolidated statements of operations. As of December 31, 1994, the Company
completed its reorganization to which the following nonrecurring income and
expense items relate:
5
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
(i) As a result of the application of "fresh start" reporting upon
emergence from bankruptcy, the Company adjusted its assets and
liabilities to their estimated fair value as of December 30, 1994
pursuant to the provisions of the American Institute of Certified Public
Accountants Statement of Position 90-7 entitled, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). The
resulting increase in the Company's net assets of $86.9 million is
included in reorganization items in the consolidated statement of
operations for the year ended December 31, 1994.
(ii) In accordance with SOP 90-7, the legal, professional and other
costs and expenses related to the reorganization totalling $11.6 million
are included in reorganization items in the consolidated statement of
operations for the year ended December 31, 1994.
(iii) Also pursuant to SOP 90-7, included in reorganization items in the
consolidated statement of operations for the year ended December 31,
1994 is interest income of $967,000 earned on cash balances that would
have otherwise been used to make scheduled principal and interest
payments on debt in default and to pay prepetition liabilities.
(iv) An extraordinary gain from debt forgiveness of $130.5 million is
reported in the consolidated statement of operations for the year ended
December 31, 1994, which represents the total amount of liabilities
discharged in the reorganization, including accrued interest and
unamortized discount, reduced by the amount of distributions to holders
of such liabilities. The distributions, which are described in Note 9
to the consolidated financial statements, included cash, new debt,
shares of common stock and warrants to purchase common stock.
Reorganization items of $2.5 million for 1993 are items associated with the
chapter 11 proceedings incurred from July 30, 1993 and include $1.8 million for
financial advisory and legal fees, an accrual of $1.0 million for relocation,
severance and other costs associated with the reorganization, a $90,000 benefit
related to the write-off of various assets and liabilities in conjunction with
the renegotiation of certain leases, offset by $235,000 of interest income.
Interest expense for 1995 totalled $14.8 million as compared to $645,000 and
$25.0 million for 1994 and 1993, respectively. Interest expense for 1995
primarily represents interest on the Company's 10.25% Senior Notes (the "10.25%
Notes"), and is offset by $268,000 of interest income. Until consummation of
the Plan, no interest expense had been accrued after June 8, 1993 (the date an
involuntary petition under chapter 11 was filed). Additional interest expense of
$39.4 million and $21.3 million would have been recorded for 1994 and 1993,
respectively, if an involuntary petition had not been filed.
Interest income of $967,000 for 1994 and interest income from the period July
30, 1993 to December 31, 1993 totalling $235,000 is included in reorganization
items in the consolidated statements of operations.
Net loss from investment in TeleNoticias of $6.4 million and $1.3 million for
1995 and 1994, respectively, represents the Company's 42% share of TeleNoticias'
net loss, and related costs (see further discussion in Liquidity and Sources of
Capital).
The income tax provision recorded in all periods relates to WKAQ, which is taxed
separately under Puerto Rico income tax regulations, withholding taxes related
to intercompany interest, and certain federal and state income and franchise
taxes. The Company incurred $140,000 and $110,000 in U.S. federal and state
income and franchise taxes for 1995 and 1994, respectively. The Company's use
of its net operating and capital loss carryforwards incurred prior to December
31, 1994 are subject to certain limitations imposed by Section 382 of the
Internal Revenue Code and their use will be significantly limited each year
subsequent to December 31, 1994.
6
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
LIQUIDITY AND SOURCES OF CAPITAL
The Company's cash flows from operating activities were $11.6 million for 1995
as compared to $8.1 million and $17.0 million in 1994 and 1993, respectively.
The increase in 1995 is the result of an increase in operating income and the
net effect of changes in certain asset and liability accounts, including a
greater decrease of accounts receivable. The decrease in 1994 was the result of
a decline in operating income and an increase in advisory and other fees in
connection with the chapter 11 proceedings, offset in part by the net effect of
changes in certain asset and liability accounts.
The Company had working capital of $36.4 million at December 31, 1995. The
Company secured a $20 million revolving credit facility on December 31, 1994, of
which $6.0 million was outstanding at December 31, 1995.
On February 26, 1996, Telemundo completed the acquisition of a 74.5% interest in
a joint venture ("Video 44"), which owns WSNS-TV, Channel 44 in Chicago, which
has been the Company's largest affiliated station (the "Acquisition"). The
purchase price for the Acquisition was approximately $45 million. On February
26, 1996, the Company also completed the sale of $192 million in aggregate
principal amount of 10.5% Senior Notes due 2006 (the "New Senior Notes"), the
proceeds of which were used primarily for the Acquisition and to repurchase
approximately $116.7 million principal amount of its 10.25% Notes, representing
approximately 99.8% of the aggregate outstanding principal amount of the 10.25%
Notes, tendered in a repurchase offer which commenced on November 27, 1995 (the
"Repurchase"). A Supplemental Indenture covering the 10.25% Notes also became
operative on February 26, 1996. The Supplemental Indenture contains amendments
to the indenture governing the 10.25% Notes which had been consented to by
holders of a majority of the outstanding principal amount of the 10.25% Notes
pursuant to a consent solicitation.
The repurchase of the 10.25% Notes, the issuance of the New Senior Notes and the
amendment of the 10.25% Notes indenture (collectively, the "Refinancing") were
designed to enhance the Company's operating and financial flexibility by, among
other things, (i) removing the near-term amortization requirements of the 10.25%
Notes, and (ii) amending certain covenants relating to the 10.25% Notes to
conform generally to the covenants relating to the New Senior Notes.
The New Senior Notes were issued at a discount and were structured to produce a
yield to maturity of 10.5% per annum. The New Senior Notes require semi-annual
interest payments at the rate of 7% per annum on their principal amount at
maturity through and including February 15, 1999, and after such date will bear
interest at a rate of 10.5% per annum on their principal amount at maturity.
The approximately $175 million of gross proceeds were used for the Acquisition,
the Repurchase, the consent solicitation, related fees and expenses, and for
general corporate purposes, including reducing the amount outstanding under the
Company's credit facility by $5.0 million.
Capital expenditures of approximately $6.7 million were made during 1995,
including the replacement of the transmitter and antenna at KVEA. The Company
anticipates that capital expenditures of approximately $6.4 million will be made
during 1996 for the general replacement or upgrading of equipment at all
stations and upgrading of facilities, and an additional $1.5 million will be
expended for modifications to the WKAQ facility.
7
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
- --------------------------------------------------------------------------------
The Company, through one of its wholly-owned subsidiaries, Telemundo News
Network, Inc. ("TNNI"), holds a 42% interest in TeleNoticias del Mundo, L.P.
("TeleNoticias"), a 24-hour Spanish-language news service distributed in Latin
America, the United States and Spain, and accounts for its interest in the
partnership using the equity method. Commencing December 1994, TeleNoticias
assumed production of the Company's network news programs for a six year
period at an initial cost of $5.0 million per year, increasing by $500,000
each year. In addition, the Company provides certain services to the
partnership including the use of a news studio in the Company's network
operations center. The Company is required to make cash contributions of up
to $10 million through TeleNoticias' sixth year of operations, which ends in
2000. The Company has made cash contributions totalling $8.2 million through
December 31, 1995 (which includes $5.4 million contributed in 1994), and
anticipates the remaining $1.8 million will be required during 1996. Losses
of $6.4 and $1.3 million in 1995 and 1994 were realized on the Company's
investment in TeleNoticias and it is expected that losses will continue.
There can be no assurance that once the Company and its partners have made all
required capital contributions to TeleNoticias, that TeleNoticias will have
sufficient capital or operating income to continue its business in its present
form. The auditors' report accompanying the 1995 audited financial statements
of TeleNoticias was accompanied by additional comments concerning substantial
doubt about TeleNoticias' ability to continue as a going concern.
On October 16, 1995, TNNI filed an action in New York Supreme Court, New York
County against its partners to address certain corporate governance issues
affecting TeleNoticias. In its complaint, TNNI asserts a cause of action for
breach of a stockholders agreement, a cause of action for a declaration that
TNNI has the right to nominate the President of TeleNoticias, a cause of action
for a declaration that certain "board" resolutions are invalid, and a cause of
action for breach of fiduciary duty. Certain of the defendants have asserted
counterclaims against TNNI for injunctive and declaratory relief as well as for
damages in an unliquidated amount. In an order issued January 11, 1996, the
Court, among other things, denied the cross motions seeking injunctive relief.
The partners are engaged in discussions in connection with seeking a resolution
of their disagreements regarding TeleNoticias. Such discussions have included a
number of possible alternatives, including a resolution of the dispute regarding
management of TeleNoticias, a winding up of the partnership, and a purchase by
one or more of the partners of the interests of the other partners. In
connection with these discussions, the Company has had conversations with a
number of organizations with respect to replacing some or all of the other
TeleNoticias partners. The Company does not contemplate entering into any
transaction relating to the replacement of any of the partners of TeleNoticias
if, as a result, the Company would have materially greater financial commitments
to TeleNoticias than it presently has with respect thereto. The Company
believes, but there can be no assurance, that the outcome of the litigation, or
the impact of any restructuring or winding up of TeleNoticias, will not result
in a material adverse effect on the Company or its ability to acquire quality
news programming.
The Company plans on financing interim cash needs through cash generated from
operations and the revolving credit facility. The Company does not anticipate
the need to obtain any additional financing to fund operations.
8
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Predecessor
--------------------------------
Year Ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 169,148,000 $ 183,894,000 $ 177,809,000
------------ ------------ ------------
Costs and expenses:
Direct operating costs . . . . . . . . . . . . . . . . . . . . . . . 78,609,000 90,914,000 83,166,000
Selling, general and administrative expenses other than. . . . . . .
network and corporate . . . . . . . . . . . . . . . . . . . . . . 34,270,000 35,688,000 34,191,000
Network expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 25,848,000 28,501,000 26,167,000
Corporate expenses . . . . . . . . . . . . . . . . . . . . . . . . . 4,400,000 4,811,000 6,219,000
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . 11,642,000 10,804,000 11,469,000
------------ ------------ ------------
154,769,000 170,718,000 161,212,000
------------ ------------ ------------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . 14,379,000 13,176,000 16,597,000
Other expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . (104,000) (34,000) (351,000)
Reorganization items . . . . . . . . . . . . . . . . . . . . . . . . - 76,255,000 (2,543,000)
Interest expense - net of interest income of $268,000 in 1995 and. .
$554,000 in 1993 . . . . . . . . . . . . . . . . . . . . . . . . (14,489,000) (645,000) (24,411,000)
Net loss from investment in TeleNoticias . . . . . . . . . . . . . . (6,355,000) (1,314,000) -
------------ ------------ ------------
Income (loss) before income taxes. . . . . . . . . . . . . . . . . . (6,569,000) 87,438,000 (10,708,000)
Income tax provision . . . . . . . . . . . . . . . . . . . . . . . . (3,519,000) (3,389,000) (3,351,000)
------------ ------------ ------------
Income (loss) before extraordinary item. . . . . . . . . . . . . . . (10,088,000) 84,049,000 (14,059,000)
Extraordinary gain - extinguishment of debt. . . . . . . . . . . . . - 130,482,000 -
------------ ------------ ------------
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . $(10,088,000) $214,531,000 $(14,059,000)
------------ ------------ ------------
------------ ------------ ------------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share. . . . . . . . . . . . . . . . . . . . . $(1.01) $ * $ *
------ ----- ------
------ ----- ------
Weighted average shares outstanding. . . . . . . . . . . . . . . . . 10,000,035 * *
---------- ----- ------
---------- ----- ------
</TABLE>
* Net income (loss) per share is not applicable as the Company has been
recapitalized and adopted fresh start reporting as of December 31, 1994 (see
Note 9).
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets December 31 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,199,000 $ 1,850,000
Accounts receivable, less allowance for doubtful accounts of $2,650,000
and $2,845,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,801,000 47,673,000
Television programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,063,000 12,410,000
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,391,000 6,296,000
------------ ------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,454,000 68,229,000
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,538,000 62,774,000
Television programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,195,000 3,172,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,175,000 909,000
Investment in TeleNoticias . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 897,000 4,148,000
Broadcast licenses and reorganization value in excess of amounts allocable
to identifiable assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,200,000 92,792,000
------------ ------------
$224,459,000 $232,024,000
------------ ------------
------------ ------------
Liabilities and Stockholders' Equity
- ---------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,318,000 $ 7,308,000
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,371,000 23,304,000
Television programming obligations . . . . . . . . . . . . . . . . . . . . . . . . . 4,370,000 5,292,000
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,059,000 35,904,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,032,000 100,724,000
Capital lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,662,000 7,263,000
Television programming obligations . . . . . . . . . . . . . . . . . . . . . . . . . . 552,000 763,000
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,903,000 17,370,000
------------ ------------
164,208,000 162,024,000
------------ ------------
Contingencies and commitments
Common stockholders' equity:
Series A common stock, $.01 par value, 14,388,394 shares authorized,
5,933,865 and 4,388,394 shares outstanding at December 31, 1995 and 1994. . . . . . 59,000 44,000
Series B common stock, $.01 par value, 5,611,606 shares authorized,
4,066,335 and 5,611,606 shares outstanding at December 31, 1995 and 1994. . . . . . 41,000 56,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,239,000 69,900,000
Retained earnings (deficit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,088,000) -
------------ ------------
60,251,000 70,000,000
------------ ------------
$224,459,000 $232,024,000
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIENCY)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Shares Common
Outstanding Stock
---------------------------------- -----------------------------
Common
Series A Series B Series A Series B Additional Retained Stockholders'
Common Common Common Common Common Common Paid-In Earnings Equity
Stock Stock Stock Stock Stock Stock Capital (Deficit) (Deficiency)
----------- --------- ---------- --------- -------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992 37,042,924 - - $ 370,000 $ - $- $ 245,768,000 $(446,895,000) $(200,757,000)
Net loss - - - - - - - (14,059,000) (14,059,000)
------------ --------- ----------- ---------- -------- --------- -------------- -------------- -------------
Balance, December 31,
1993 37,042,924 - - 370,000 - - 245,768,000 (460,954,000) (214,816,000)
Net income - - - - - - - 214,531,000 214,531,000
Elimination of former
equity interests (37,042,924) - - (370,000) - - (245,768,000) 246,423,000 285,000
Common stock issued
in the restructuring
and application of
fresh start
reporting - 4,388,394 5,611,606 - 44,000 56,000 69,900,000 - 70,000,000
------------ --------- ----------- ---------- -------- --------- -------------- -------------- -------------
Balance, December 31,
1994 - 4,388,394 5,611,606 - 44,000 56,000 69,900,000 - 70,000,000
Net loss - - - - - - - (10,088,000) (10,088,000)
Stock option trans-
actions (a) - - - - - - 338,000 - 338,000
Warrants exercised - 200 - - - - 1,000 - 1,000
Stock conversions - 1,545,271 (1,545,271) - 15,000 (15,000) - - -
------------ --------- ----------- ---------- -------- --------- -------------- -------------- -------------
Balance, December 31,
1995 - 5,933,865 4,066,335 $ - $59,000 $41,000 $70,239,000 $(10,088,000) $60,251,000
------------ --------- ----------- ---------- -------- --------- -------------- -------------- -------------
------------ --------- ----------- ---------- -------- --------- -------------- -------------- -------------
</TABLE>
(a) Effect of the cancellation and issuance of options to a former officer.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Predecessor
---------------------------------
Year Ended December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(10,088,000) $ 214,531,000 $(14,059,000)
Charges not affecting cash:. . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 11,642,000 10,804,000 11,469,000
Fresh start revaluation. . . . . . . . . . . . . . . . . . . . . . . . . . . - (86,901,000) -
Interest accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,511,000 - 12,900,000
Net loss from investment in TeleNoticias . . . . . . . . . . . . . . . . . . 6,355,000 1,314,000 -
Extraordinary gain - extinguishment of debt. . . . . . . . . . . . . . . . . - (130,482,000) -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - 735,000
Changes in assets and liabilities: . . . . . . . . . . . . . . . . . . . . . .
Accrued interest on debt in default. . . . . . . . . . . . . . . . . . . . . - - 10,998,000
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,872,000 (4,532,000) (5,283,000)
Television programming . . . . . . . . . . . . . . . . . . . . . . . . . . . (676,000) (250,000) (3,794,000)
Television programming obligations . . . . . . . . . . . . . . . . . . . . . (1,133,000) (866,000) 931,000
Accounts payable and accrued expenses and other. . . . . . . . . . . . . . . 2,112,000 4,465,000 3,067,000
------------ ------------- ------------
11,595,000 8,083,000 16,964,000
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment. . . . . . . . . . . . . . . . . . . . . . (6,719,000) (12,550,000) (8,485,000)
Investment in TeleNoticias . . . . . . . . . . . . . . . . . . . . . . . . . . (3,104,000) (5,462,000) -
Payments relating to acquisitions and divestitures . . . . . . . . . . . . . . - - (1,907,000)
(9,823,000) (18,012,000) (10,392,000)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of obligations under capital leases . . . . . . . . . . . . . . . . . (517,000) (594,000) (614,000)
Borrowings under credit facility . . . . . . . . . . . . . . . . . . . . . . . 6,013,000 200,000 -
Payments under credit facility . . . . . . . . . . . . . . . . . . . . . . . . (216,000) - -
Payments of liabilities for settlements relating to consummation
of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,703,000) (35,928,000)
Proceeds from common stock issued pursuant to the Plan . . . . . . . . . . . . - 10,426,000 -
------------ ------------- ------------
(423,000) (25,896,000) (614,000)
------------ ------------- ------------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . 1,349,000 (35,825,000) 5,958,000
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . 1,850,000 37,675,000 31,717,000
------------ ------------- ------------
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . $ 3,199,000 $ 1,850,000 $ 37,675,000
------------ ------------- ------------
------------ ------------- ------------
</TABLE>
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITY:
In 1993, capital lease obligations of $9,037,000 were incurred primarily to
finance the acquisition of a satellite transponder.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Telemundo Group, Inc. ("Telemundo"), together with its subsidiaries
(collectively, the "Company"), is one of two Spanish-language television
broadcast networks in the United States. The network provides programming 24-
hours per day to its owned and operated stations and affiliates, which serve 56
markets in the United States, including the 32 largest Hispanic markets, and
reaches approximately 85% of all U.S. Hispanic households. The Company also
owns and operates a full-power television station and related production
facilities in Puerto Rico. The Company produces Spanish-language programming for
use on its network and for sale in foreign countries and sells advertising time
on behalf of its owned and operated television stations and affiliates. The
Company also holds a 42% interest in TeleNoticias del Mundo, L.P.
("TeleNoticias"), a 24-hour Spanish language news service distributed in Latin
America, the United States and Europe (see Note 4).
BASIS OF PRESENTATION
On December 30, 1994 (the "Consummation Date"), Telemundo consummated a
financial restructuring pursuant to a plan of reorganization under chapter 11 of
the Bankruptcy Code (the "Plan"). Pursuant to the provisions of the American
Institute of Certified Public Accountants Statement of Position 90-7 entitled
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"), the Company adjusted its assets and liabilities to their estimated
fair values upon consummation of the reorganization. The period prior to the
Consummation Date is presented on a historical cost basis without giving effect
to the reorganization and is separated by a line. For purposes of these
financial statements, the term "Predecessor" refers to the Company prior to
emergence from chapter 11 reorganization (see Note 9).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Telemundo and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. The Company's 42% owned investee, TeleNoticias, is
accounted for by the equity method (see Note 4).
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain amounts reported in the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
The Company considers short-term investments with a maturity of three months or
less to be cash equivalents. Such short-term investments are carried at cost
which approximates fair value.
TELEVISION PROGRAMMING
Television programming rights and the related obligations are recorded at gross
contract prices. The costs of the rights are amortized on varying bases related
to the license and distribution periods, usage of the programs and management's
estimate of revenue to be realized from each airing of the programs.
13
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
_______________________________________________________________________________
DEPRECIATION AND AMORTIZATION
Property and equipment is depreciated by the straight-line method over estimated
useful lives as follows:
Buildings 40 Years
Antennas and Transmitters 20 Years
Other Broadcast Equipment 3 to 7 Years
Furniture and Fixtures 5 to 7 Years
Automobiles and Trucks 4 Years
Leasehold Improvements
and Satellite Transponder Life of Lease
BROADCAST LICENSES AND REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO
IDENTIFIABLE ASSETS
Broadcast licenses and reorganization value in excess of amounts allocable to
identifiable assets represents the portion of reorganization value not
attributable to specific tangible assets of the Company at the time of the
reorganization and are being amortized on a straight-line basis over periods
ranging from 10 to 40 years. Accumulated amortization was $2,592,000 at
December 31, 1995. Broadcast licenses and reorganization value in excess of
amounts allocable to identifiable assets is attributable primarily to FCC
broadcast licenses ($81,994,000 at December 31, 1995, net of accumulated
amortization). On an ongoing basis, the Company will continue to review the
carrying value of broadcast licenses and reorganization value in excess of
amounts allocable to identifiable assets and if such review indicates that
the value may not be fully recoverable, the carrying value will be reduced to
its estimated fair value.
REVENUE RECOGNITION
Revenue is derived primarily from the sale of advertising time on a network,
national spot and local basis. In addition, the Company earns revenue from the
sale of blocks of broadcast time during non-network programming hours. Revenue
is recognized when earned, i.e., when the advertisement is aired or the block of
broadcast time is utilized. During 1995, 1994 and 1993, no customer accounted
for more than 10 percent of the Company's commercial air time revenue.
PER COMMON SHARE INFORMATION
Net loss per share for the year ended December 31, 1995 is calculated by
dividing the net loss by the weighted average number of shares outstanding
during the period. Conversion of stock options and warrants are not included in
the computation to the extent that stock options and warrants are antidilutive.
As a result of the effects of the reorganization, per share information and
weighted average number of shares outstanding for 1994 and 1993 are not
applicable and therefore have been omitted from the accompanying consolidated
financial statements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued Statement 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF ("FAS 121"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. FAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company will adopt
FAS 121 in the first quarter of 1996 and, based on current circumstances, does
not believe the adoption will have a material effect on the consolidated
financial statements.
14
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years' financial
statements to conform with the current year's presentation.
2. ACQUISITION AND REFINANCING
On February 26, 1996, Telemundo completed the acquisition of a 74.5% interest in
a joint venture ("Video 44"), which owns WSNS-TV, Channel 44 in Chicago, which
has been the Company's largest affiliated station (the "Acquisition"). The
purchase price for the Acquisition was approximately $45 million. On February
26, 1996, the Company also completed the sale of $192 million in aggregate
principal amount of 10.5% Senior Notes due 2006 (the "New Senior Notes"), the
proceeds of which were used primarily for the Acquisition and to repurchase
$116,705,500 principal amount of its 10.25% Senior Notes (the "10.25% Notes"),
representing approximately 99.8% of the aggregate outstanding principal amount
of the 10.25% Notes, tendered in a repurchase offer which commenced on November
27, 1995 (the "Repurchase"). A Supplemental Indenture covering the 10.25% Notes
also became operative on February 26, 1996. The Supplemental Indenture contains
amendments to the indenture governing the 10.25% Notes which had been consented
to by holders of a majority of the outstanding principal amount of the 10.25%
Notes pursuant to a consent solicitation. For its latest fiscal year ended
December 31, 1995, Video 44 had net revenue of $17.6 million, operating income
of $5.4 million (after depreciation and amortization of $2.0 million), and net
income of $5.3 million (no income taxes were provided as Video 44 is a
partnership).
The New Senior Notes were issued at a discount and were structured to produce
a yield to maturity of 10.5% per annum. The New Senior Notes require
semi-annual interest payments at the rate of 7% per annum on their principal
amount at maturity through and including February 15, 1999, and after such
date will bear interest at a rate of 10.5% per annum on their principal amount
at maturity. The approximately $175 million of gross proceeds were used for
the Acquisition, the Repurchase, the consent solicitation, related fees and
expenses, and for general corporate purposes, including reducing the amount
outstanding under the Company's credit facility by $5.0 million. The loss on
extinguishment of the 10.25% Notes was approximately $16 million and will be
reflected in the Company's consolidated financial statements for the three
months ended March 31, 1996.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31 1995 1994
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . $ 4,161,000 $ 4,161,000
Buildings. . . . . . . . . . . . . . . . . . . . 15,975,000 15,975,000
Broadcast equipment, antennas and transmitters . 34,319,000 29,046,000
Satellite transponder. . . . . . . . . . . . . . 6,999,000 6,999,000
Leasehold improvements . . . . . . . . . . . . . 8,026,000 6,593,000
----------- -----------
69,480,000 62,774,000
Less accumulated depreciation and amortization . (8,942,000) -
----------- -----------
$60,538,000 $62,774,000
----------- -----------
----------- -----------
</TABLE>
15
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
4. INVESTMENT IN TELENOTICIAS
The Company, through one of its wholly-owned subsidiaries, Telemundo News
Network, Inc. ("TNNI"), holds a 42% interest in TeleNoticias del Mundo, L.P.
("TeleNoticias"), a 24-hour Spanish-language news service distributed in Latin
America, the United States and Spain, and accounts for its interest in the
partnership using the equity method. Commencing December 1994, TeleNoticias
assumed production of the Company's network news programs for a six year
period at an initial cost of $5.0 million per year, increasing by $500,000
each year. In addition, the Company provides certain services to the
partnership including the use of a news studio in the Company's network
operations center. The Company is required to make cash contributions of up
to $10 million through TeleNoticias' sixth year of operations, which ends in
2000. The Company has made cash contributions totalling $8.2 million through
December 31, 1995 (which includes $5.4 million contributed in 1994), and
anticipates the remaining $1.8 million will be required during 1996. Losses of
$6.4 and $1.3 million in 1995 and 1994 were realized on the Company's
investment in TeleNoticias and it is expected that losses will continue.
There can be no assurance that once the Company and its partners have made all
required capital contributions to TeleNoticias, that TeleNoticias will have
sufficient capital or operating income to continue its business in its present
form. The auditors' report accompanying the 1995 audited financial statements
of TeleNoticias was accompanied by additional comments concerning substantial
doubt about TeleNoticias' ability to continue as a going concern.
On October 16, 1995, TNNI filed an action in New York Supreme Court, New York
County against its partners to address certain corporate governance issues
affecting TeleNoticias. In its complaint, TNNI asserts a cause of action for
breach of a stockholders agreement, a cause of action for a declaration that
TNNI has the right to nominate the President of TeleNoticias, a cause of action
for a declaration that certain "board" resolutions are invalid, and a cause of
action for breach of fiduciary duty. Certain of the defendants have asserted
counterclaims against TNNI for injunctive and declaratory relief as well as for
damages in an unliquidated amount. In an order issued January 11, 1996, the
Court, among other things, denied the cross motions seeking injunctive relief.
The partners are engaged in discussions in connection with seeking a resolution
of their disagreements regarding TeleNoticias. Such discussions have included a
number of possible alternatives, including a resolution of the dispute regarding
management of TeleNoticias, a winding up of the partnership, and a purchase by
one or more of the partners of the interests of the other partners. In
connection with these discussions, the Company has had conversations with a
number of organizations with respect to replacing some or all of the other
TeleNoticias partners. The Company does not contemplate entering into any
transaction relating to the replacement of any of the partners of TeleNoticias
if, as a result, the Company would have materially greater financial commitments
to TeleNoticias than it presently has with respect thereto. The Company
believes, but there can be no assurance, that the outcome of the litigation, or
the impact of any restructuring or winding up of TeleNoticias, will not result
in a material adverse effect on the Company or its ability to acquire quality
news programming.
Condensed financial information for TeleNoticias is as follows:
<TABLE>
<CAPTION>
1995 1994
------------ -----------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . $ 3,295,000 $ 1,873,000
Property and equipment, net and other assets . . 6,799,000 7,241,000
Current liabilities. . . . . . . . . . . . . . . 2,945,000 1,994,000
Partners' capital. . . . . . . . . . . . . . . . 7,149,000 7,120,000
Net revenue. . . . . . . . . . . . . . . . . . . 8,706,000 522,000
Operating loss . . . . . . . . . . . . . . . . . (14,832,000) (3,188,000)
Net loss . . . . . . . . . . . . . . . . . . . . (14,272,000) (3,154,000)
</TABLE>
16
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
5. ACCRUED EXPENSES AND OTHER
<TABLE>
<CAPTION>
December 31 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Accrued compensation and commissions . . . . . . $ 3,980,000 $ 3,865,000
Accrued agency commissions . . . . . . . . . . . 5,004,000 4,334,000
Accrued reorganization costs . . . . . . . . . . 1,722,000 5,677,000
Other accrued expenses . . . . . . . . . . . . . 8,665,000 9,428,000
----------- -----------
$19,371,000 $23,304,000
----------- -----------
----------- -----------
</TABLE>
6. LONG-TERM DEBT
Subsequent to the date of these financial statements the Company's debt was
refinanced (see Note 2).
<TABLE>
<CAPTION>
December 31 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
10.25% Notes . . . . . . . . . . . . . . . . . . $102,035,000 $100,524,000
Revolving credit facility. . . . . . . . . . . . 5,997,000 200,000
------------ ------------
108,032,000 100,724,000
Less: current portion. . . . . . . . . . . . . . - -
------------ ------------
$108,032,000 $100,724,000
------------ ------------
------------ ------------
</TABLE>
As described in Note 9, the Predecessor debt was exchanged for cash, debt and
securities pursuant to the Plan. Significant terms of the reorganized Company's
debt agreements are as follows:
10.25% NOTES: The 10.25% Notes were recorded at their fair value of
$100,524,000 at December 31, 1994, reflecting an effective interest
rate of 13.34%, based upon market trading activity at the time of
consummation. The 10.25% Notes are unsecured obligations of the
Company with an outstanding aggregate principal amount of $116,889,000
bearing interest from December 31, 1994, payable semi-annually, and
maturing December 30, 2001. On February 26, 1996, the Company completed
the sale of $192 million in aggregate principal amount of New Senior
Notes, the proceeds of which were used primarily for the Acquisition
and to repurchase $116,705,500 principal amount of the 10.25% Notes
tendered in the Repurchase, representing approximately 99.8% of the
aggregate outstanding principal amount of the 10.25% Notes. A
Supplemental Indenture covering the 10.25% Notes also became operative
on February 26, 1996. The Supplemental Indenture contains amendments
to the indenture governing the 10.25% Notes which had been consented to
by holders of a majority of the outstanding principal amount of the
10.25% Notes pursuant to a consent solicitation, which conform
certain covenants generally to those relating to the New Senior Notes.
17
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
REVOLVING CREDIT FACILITY: The Revolving Credit Facility ("Credit
Facility") allows for borrowings up to $20 million, subject to the
Company's maintenance of an adequate accounts receivable borrowing
base, which was maintained at December 31, 1995. Interest accrues at a
rate of prime plus 1.75% (10.25% at December 31, 1995 and 1994 and
averaged 10.58% for all of 1995). Minimum annual interest during 1995
and 1996 is $360,000. The agreement expires December 30, 1999 and is
cancelable at the Company's option prior to expiration upon payment of
an early termination fee, except during the first 60 days of 1998 or
1999 when the agreement may be terminated without incurring an early
termination fee. The Company is required to pay a fee of 0.5% per
annum based on the average unborrowed portion of the Credit Facility.
The Company is also required to pay other annual fees and expenses in
connection with the borrowing agreement. The Credit Facility is
secured by substantially all assets of the Company, excluding those
of Video 44, and does not require compensating balances.
The 10.25% Notes, the New Senior Notes, and Credit Facility agreements contain
certain covenants which, among other things, require the Company to maintain
certain financial ratios and impose on Telemundo and its subsidiaries certain
limitations or prohibitions on: (i) the incurrence of indebtedness or the
guarantee or assumption of indebtedness of another; (ii) the creation or
incurrence of mortgages, pledges or security interests on the property or assets
of the Company or any of its subsidiaries in order to secure debt; (iii) the
sale of assets of the Company or any of its subsidiaries; (iv) the merger or
consolidation of the Company with any person or other entity; (v) the payment of
dividends or the redemption or repurchase of any capital stock of the Company;
and (vi) investments and acquisitions.
Interest paid was $12,810,000, $645,000 and $428,000 for the years ended 1995,
1994 and 1993, respectively. As a result of the reorganization, only cash
interest payments for capital leases were made during 1994 and 1993.
7. INCOME TAXES
The Company and its domestic subsidiaries file a consolidated federal income tax
return. The Company files a separate Puerto Rico income tax return for its
operations in Puerto Rico. The income tax provision consisted of:
<TABLE>
<CAPTION>
Predecessor
----------------------------
Year Ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Puerto Rico (a). . . . . . . . . . . . . . . . . . . $3,379,000 $3,279,000 $3,195,000
Federal and state income and franchise . . . . . . . 140,000 110,000 156,000
---------- ---------- ----------
$3,519,000 $3,389,000 $3,351,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
(a) Represents a provision for withholding tax related to intercompany
interest.
The Company paid $1,534,000, $1,260,000 and $1,025,000 for withholding taxes
related to its operations in Puerto Rico in 1995, 1994 and 1993, respectively.
In addition, the Company paid federal and state income and franchise taxes of
$190,000, $173,000 and $153,000 in 1995, 1994 and 1993, respectively.
18
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The tax effects comprising the Company's net deferred taxes as of December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Net operating loss carryforwards ("NOLs"). . . . . . $ 76,514,000 $ 71,445,000
Capital loss carryforward. . . . . . . . . . . . . . 8,827,000 8,827,000
Amortization of FCC broadcast licenses-Predecessor . 30,886,000 32,824,000
Other. . . . . . . . . . . . . . . . . . . . . . . . 2,744,000 3,211,000
------------ ------------
118,971,000 116,307,000
------------ ------------
Deferred Tax Liabilities:
Amortization of FCC broadcast licenses and other . . (35,178,000) (36,189,000)
Accelerated depreciation . . . . . . . . . . . . . . (1,773,000) (1,647,000)
------------ ------------
(36,951,000) (37,836,000)
------------ ------------
Net deferred tax asset . . . . . . . . . . . . . . . . . 82,020,000 78,471,000
Valuation allowance. . . . . . . . . . . . . . . . . . . (82,020,000) (78,471,000)
------------ ------------
Net deferred tax . . . . . . . . . . . . . . . . . . . . $ - $ -
------------ ------------
------------ ------------
</TABLE>
Limitations imposed by Section 382 of the Internal Revenue Code will limit the
amount of NOLs and capital loss carryforwards which will be available to offset
future U.S. taxable income to approximately $6,600,000 annually, or a total of
$92,400,000 during the permitted carryover period, except in certain
circumstances. The limitations only apply to the Company's U.S. NOLs and
capital loss carryforwards incurred before December 31, 1994.
As there is no assurance that the Company will generate sufficient earnings to
utilize its available tax assets, including its NOLs (which are limited in any
given year), a valuation allowance has been established to offset the existing
net deferred tax asset.
The Company has NOLs expiring as follows:
<TABLE>
<CAPTION>
Commonwealth of
U.S. Puerto Rico
--------------------------------- ---------------------------------
<S> <C>
2002 . . . . . . . $ 19,472,000 1996 . . . . . . . $ 5,550,000
2003 . . . . . . . 43,317,000 1997 . . . . . . . 4,958,000
2004 . . . . . . . 31,103,000 1998 . . . . . . . 5,973,000
2005 . . . . . . . 6,262,000 1999 . . . . . . . 5,657,000
2006 . . . . . . . 31,799,000 2000 . . . . . . . 3,402,000
2007 . . . . . . . 26,942,000 2001 . . . . . . . 1,931,000
2008 . . . . . . . 8,676,000 -----------
2010 . . . . . . . 13,121,000(a) $27,471,000
------------ ------------
$180,692,000 ------------
------------
------------
</TABLE>
(a) Not limited by Section 382 of the Internal Revenue Code.
The Company also has state tax NOLs in various jurisdictions.
19
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
8. WARRANTS
Pursuant to the Plan, 639,750 warrants were issued and outstanding at December
31, 1994, entitling the holders of each warrant to purchase one share of Series
A common stock at $7 per share. These warrants are exercisable from December
30, 1994 and expire on December 30, 1999. There were 639,550 warrants
outstanding at December 31, 1995.
Also pursuant to the Plan, 416,667 warrants were issued to Reliance Group
Holdings, Inc. ("RGH") and its affiliates. Each warrant entitles the holder to
purchase one share of Series A common stock at $7.19 per share and the warrants
are exercisable in three equal annual installments commencing December 30, 1995,
expiring five years from the date they become exercisable.
The warrants contain certain antidilutive provisions in the event of a change in
the Company's capitalization.
9. CHAPTER 11 REORGANIZATION
On June 8, 1993 (the "Petition Date"), certain holders of the outstanding 13
5/8% subordinated debentures and the indenture trustee for such debentures filed
an involuntary petition for reorganization under chapter 11 of title 11 of the
United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Court"). The involuntary
petition was filed against Telemundo and did not include its subsidiaries. On
July 30, 1993, the Company consented to the entry of an order for relief under
the Bankruptcy Code. On July 20, 1994, the Bankruptcy Court entered an order
confirming the Company's second amended plan of reorganization (the "Plan").
The reorganization was consummated on December 30, 1994 (the "Consummation
Date") and is reflected in the accompanying consolidated financial statements as
if the consummation occurred on December 31, 1994, which is not significantly
different than operations through December 30, 1994.
Under the terms of the Plan, the following occurred: (a) an aggregate of
$31,348,000 in cash, $88,668,000 in principal amount of 10.25% Notes, 8,550,000
shares of Series A and B common stock of reorganized Telemundo and 639,750
warrants to purchase Series A common stock were issued in satisfaction of
bondholder and general unsecured creditor claims; (b) $7.0 million was paid to
settle all claims relating to an unfavorable long-term lease; and (c) $219,000
in cash and $28,220,000 in 10.25% Notes were issued and the Company received
$2,639,000 from a co-defendant as part of a settlement of litigation. Under the
Plan, pre-existing equity interests were canceled. The existing stockholders
were given rights to purchase 1,450,000 shares of Series A common stock.
Reliance Group Holdings, Inc. and its affiliates agreed to acquire Series A
common stock not acquired by other stockholders for which commitment they
received 416,667 warrants to purchase Series A common stock.
20
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Reorganization items are items associated with chapter 11 proceedings that were
incurred subsequent to July 29, 1993 and consisted of the following:
<TABLE>
<CAPTION>
Predecessor
------------------------------
Year ended December 31 1994 1993
------------------------------------------------------------------------------------------
<S> <C> <C>
Professional fees. . . . . . . . . . . . . . . . . . . . $ (6,365,000) $ (1,850,000)
Contract cancellation costs. . . . . . . . . . . . . . . (3,479,000) -
Other costs. . . . . . . . . . . . . . . . . . . . . . . (1,101,000) (928,000)
Litigation settlement. . . . . . . . . . . . . . . . . . (668,000) -
Interest income. . . . . . . . . . . . . . . . . . . . . 967,000 235,000
------------ ------------
(10,646,000) (2,543,000)
Revaluation of Assets and Liabilities. . . . . . . . . . 86,901,000 -
------------ ------------
$ 76,255,000 $ (2,543,000)
------------ ------------
------------ ------------
</TABLE>
On the Consummation Date, Telemundo adopted fresh start reporting in accordance
with SOP 90-7. The fresh start reporting equity value of $70 million was
determined by the Company with the assistance of its financial advisors using
certain financial analyses, including discounted future cash flows. The
significant factors considered were analyses of publicly available information
of other companies believed to be comparable to the Company, industry, economic
and overall market conditions, and historical and projected performance of the
Company.
Under fresh start reporting, the reorganization value of the entity has been
allocated to the reorganized company's assets and liabilities on a basis
substantially consistent with the purchase method of accounting. The portion of
reorganization value not attributable to specific tangible or identifiable
intangible assets were included in "Broadcast Licenses and Reorganization Value
in Excess of Amounts Allocable to Identifiable Assets" in the accompanying
consolidated balance sheet as of December 31, 1994.
21
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The effects of the Plan and fresh start reporting on the Company's consolidated
balance sheet as of December 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
Adjustments to Record
Consummation of Plan
------------------------------------------------
Discharge of
Predecessor Liabilities Reorganized
Balance Sheet Subject to Equity Fresh Balance Sheet
Dec. 31, 1994 Settlement Infusion Start Dec. 31, 1994
------------- ------------ -------- ----- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents. . . . . . . . . $ 20,352 $ (28,928) (a) $10,426 (b) $ - $ 1,850
Accounts receivable, less allowance
for doubtful accounts. . . . . . . . . . 47,673 - - - 47,673
Television programming . . . . . . . . . . 12,410 - - - 12,410
Prepaid expenses and other . . . . . . . . 6,296 - - - 6,296
--------- ---------- ------- ------- --------
Total current assets . . . . . . . . . . 86,731 (28,928) 10,426 - 68,229
Property and equipment - net . . . . . . . . 68,665 - - (5,891) (c) 62,774
Television programming . . . . . . . . . . . 3,172 - - - 3,172
Other assets . . . . . . . . . . . . . . . . 909 - - - 909
Investment in TeleNoticias . . . . . . . . . 4,148 - - - 4,148
Broadcast licenses and reorganization
value in excess of identifiable assets . . - - - 92,792 (d) 92,792
--------- ---------- ------- ------- --------
$ 163,625 $ (28,928) $10,426 $86,901 $232,024
--------- ---------- ------- ------- --------
--------- ---------- ------- ------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY):
Current liabilities:
Accounts payable . . . . . . . . . . . . . $ 7,308 $ - $ - $ - $ 7,308
Accrued expenses and other . . . . . . . . 20,567 - - 2,737 (d) 23,304
Television programming obligations . . . . 5,292 - - - 5,292
--------- ---------- ------- ------- --------
Total current liabilities. . . . . . . . . . 33,167 - - 2,737 35,904
Long-term debt . . . . . . . . . . . . . . 200 100,524 (a) - - 100,724
Capital lease obligations. . . . . . . . . . 7,263 - - - 7,263
Television programming obligations . . . . . 763 - - - 763
Other liabilities. . . . . . . . . . . . . 15,960 - - 1,410 (d) 17,370
Liabilities subject to settlement under
chapter 11 proceedings (including
debt in default) . . . . . . . . . . . . 319,784 (319,784) (a)
Common stockholders' equity
(deficiency) . . . . . . . . . . . . . . . . (213,512) 190,332 (a) 10,426 (b) 82,754 (e) 70,000
--------- ---------- ------- ------- --------
$ 163,625 $ (28,928) $10,426 $86,901 $232,024
--------- ---------- ------- ------- --------
--------- ---------- ------- ------- --------
</TABLE>
(a) To record discharge of liabilities subject to settlement pursuant to the
Plan: (i) cash distribution of $31,348,000, issuance of $88,668,000 in
10.25% Notes and issuance of 8,550,000 shares of Series A and B common
stock valued at $7 per share ($59,850,000) in satisfaction of bondholder
and general unsecured creditor claims, (ii) cash distribution of $219,000,
issuance of $28,220,000 in 10.25% Notes and receipt of $2,639,000 from a
co-defendant as part of a settlement of litigation, and (iii) $130,482,000
gain from the discharge of liabilities subject to settlement. Pursuant to
the provisions of SOP 90-7, the $88,668,000 in 10.25% Notes issued to
bondholders and general unsecured creditors and the $28,220,000 in 10.25%
Notes issued as part of a settlement of litigation were recorded at their
fair values of $76,254,000 and $24,270,000, respectively, based upon market
trading activity at the time of consummation, reflecting an effective
interest rate of 13.34%.
22
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
Cash of $907,000 and 10.25% Notes of $9,211,000 distributed represented
interest accretion from January 31, 1994 through December 30, 1994,
pursuant to the Plan.
The Plan also provided for the payment of $7.0 million to settle all claims
relating to an unfavorable long-term lease, which payment was made in
June 1994.
(b) To record cash received from existing stockholders for Series A common
stock as part of the consummation of the Plan (1,450,000 shares at $7.19
per share).
(c) To record the effect of adjusting carrying value to fair market value in
accordance with fresh start reporting.
(d) To record broadcast licenses and reorganization value in excess of amounts
allocable to identifiable net assets in accordance with fresh start
reporting and accrue for additional reorganization costs.
(e) To record the fresh start reorganization equity value at $70,000,000.
10. EMPLOYEE RETIREMENT AND INCENTIVE PLANS
The Company maintains a qualified defined contribution retirement and savings
plan for its U.S. employees. The contributions for this plan totalled $520,000,
$499,000 and $1,406,000 in 1995, 1994 and 1993, respectively.
Pursuant to the Plan, the Company adopted the 1994 Stock Plan (the "Stock Plan")
whereby key employees may be granted restricted stock or options to acquire up
to 1,000,000 shares of Series A common stock. Options to acquire 600,000 of
these shares were granted on the Consummation Date with an exercise price of $7
per share which become exercisable upon the attainment of certain earnings
targets, exercisable for a maximum term of 10 years. 500,000 of these options
issued to a former officer were canceled in 1995 and the remaining 100,000
options have not become exercisable as the earnings targets were not met. The
former officer was issued separate options to purchase 150,000 shares of Series
A common stock with an exercise price of $7 per share, exercisable from January
1, 1996 through December 31, 1998.
During 1995, pursuant to the Stock Plan, the Company issued options to
purchase 572,500 shares of Series A common stock to officers of the Company.
The exercise price of these options range from $10 per share to $13 per share
and one-quarter of the options vest annually upon the Company attaining
certain earnings targets. Any of these options that have not vested at the
end of nine years from the grant date will vest at that time if the officer is
still employed by the Company. An additional 100,000 options were issued in
1995 to officers at an exercise price of $14.625 per share, one-third of which
vest annually from 1998 to 2000 and are not subject to the Company attaining
earnings targets. The Stock Plan is administered by a committee of the
Company's board of directors.
Stock option information is as follows:
<TABLE>
<CAPTION>
Number of Shares Option Price Range
---------------- ------------------
<S> <C> <C>
Shares under option at December 31, 1994 600,000 $7
Granted 822,500 $7 - $14.625
Became exercisable - -
Canceled (500,000) $7
-------
Shares under option at December 31, 1995 922,500 $7 - $14.625
-------
-------
</TABLE>
23
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
11. CONTINGENCIES AND COMMITMENTS
The Company is involved in a number of actions and are contesting the
allegations of the complaints in each pending action and believe, based on
current knowledge, that the outcome of all such actions will not have a material
adverse effect on the Company's consolidated financial position or results of
operations (see Note 4).
The Company is obligated under various leases, some of which contain renewal
options and provide for cost escalation payments. At December 31, 1995, future
minimum rental payments under such leases are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
----------- -----------
<S> <C> <C>
1996 . . . . . . . . . . . . . . . . . . . $ 2,803,000 $ 1,203,000
1997 . . . . . . . . . . . . . . . . . . . 2,371,000 1,234,000
1998 . . . . . . . . . . . . . . . . . . . 1,917,000 1,271,000
1999 . . . . . . . . . . . . . . . . . . . 1,328,000 1,380,000
2000 . . . . . . . . . . . . . . . . . . . 895,000 1,380,000
2001 and later . . . . . . . . . . . . . . 1,009,000 3,335,000
----------- -----------
Total minimum lease payments . . . . . . . $10,323,000 9,803,000
Less amount representing interest. . . . . ----------- (2,491,000)
----------- -----------
Present value of minimum lease payments. .
(includes current portion of $650,000) . . $ 7,312,000
-----------
-----------
</TABLE>
Rent expense was $4,440,000, $2,711,000 and $3,600,000 in 1995, 1994 and 1993,
respectively.
Certain of the Company's affiliation agreements, which typically last two to
five years, provide for compensation to affiliates.
The Company has employment agreements with certain officers pursuant to which
the Company has commitments for compensation aggregating $2,105,000,
$1,559,000 and $175,000 for 1996, 1997 and 1998, respectively. These agreements
provide for additional compensation based upon the achievement of certain
performance targets and certain agreements may be terminated in 1997 if
certain performance targets are not met.
12. TRANSACTIONS WITH AFFILIATES
The Company paid approximately $1,225,000, $1,125,000 and $1,053,000 in 1995,
1994 and 1993, respectively, to a broadcast television station affiliate, in
which the President and Chief Executive Officer of the Company has a financial
interest.
Reliance Insurance Company, a subsidiary of RGH, provided the Company with
certain insurance coverage for 1994 and 1993, at an aggregate cost to the
Company of approximately $910,000 which was paid in 1993.
In connection with the reorganization, the Company paid approximately $204,000
and $150,000 in 1994 and 1993, respectively, to a law firm in which a director
of the Company is a partner. The payments were for services rendered prior to
the director becoming a member of the board.
Management believes that the transactions described above were on terms no less
favorable to the Company than could be obtained from unaffiliated parties.
24
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
13. FINANCIAL INSTRUMENTS
Pursuant to the Financial Accounting Standard Board Statement 107, DISCLOSURES
ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS, the estimated fair values of the
Company's financial instruments are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995
------------------------------
Carrying Amount Fair Value
--------------- ------------
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . $ 3,199,000 $ 3,199,000
Long-term debt:
10.25% Notes . . . . . . . . . . . . . . . 102,035,000 118,047,000
Credit facility. . . . . . . . . . . . . . 5,997,000 5,997,000
</TABLE>
The carrying amount reported in the consolidated balance sheet for cash and cash
equivalents approximates fair value because of the immediate maturity of these
financial instruments. The Credit Facility approximates fair value as it
is a variable rate instrument. Estimated fair value for the 10.25% Notes is
based upon the amount of 10.25% Notes tendered in the Repurchase and the actual
consideration paid to the holders in the Repurchase, which includes amounts paid
pursuant to the consent solicitation (see Note 2).
14. SELECTED QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 Quarter
------------------------------------------------------------
First Second Third Fourth Year
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenue. . . . . . . . . . . . . . . . . $ 34,895 $43,540 $41,413 $49,300 $169,148
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Operating income (loss). . . . . . . . . . . $ (5,189) $ 3,505 $ 3,475 $12,588 $ 14,379
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Net income (loss). . . . . . . . . . . . . . $(11,124) $(2,444) $(2,540) $ 6,020 $(10,088)
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Net income (loss) per share (a). . . . . . . $(1.11) $(0.24) $(0.25) $.55 $(1.01)
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
Common stock price range (b):
High . . . . . . . . . . . . . . . . . . . . $9.625 $15.875 $16.75 $17.75
Low. . . . . . . . . . . . . . . . . . . . . $7.375 $ 8.50 $13.75 $13.75
</TABLE>
(a) Weighted average shares outstanding for the fourth quarter is adjusted for
the incremental shares attributed to dilutive outstanding options and
warrants to purchase common stock.
(b) Commencing January 3, 1995, the Company's Series A common stock trades on
the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol
TLMD. The Company's warrants trade on the Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol TLMDW.
25
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 Quarter
------------------------------------------------------------
First Second Third Fourth Year
-------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenue. . . . . . . . . . . . . . . . . $ 37,974 $ 49,094 $ 44,739 $ 52,087 $183,894
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Operating income (loss). . . . . . . . . . . $ (4,998) $ 5,354 $ 2,004 $ 10,816 $ 13,176
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Income (loss) before extraordinary
items. . . . . . . . . . . . . . . . . . . $ (7,330) $ 2,908 $ (551) $ 89,022 $ 84,049
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income (loss)**. . . . . . . . . . . . . $ (7,330) $ 2,908 $ (551) $219,504 $214,531
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income (loss) per share. . . . . . . . . $ * $ * $ * $ * $ *
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Common stock price range (a):
High . . . . . . . . . . . . . . . . . . . .
Low . . . . . . . . . . . . . . . . . . . .
</TABLE>
* Net income (loss) per share is not applicable as the Company has been
recapitalized and adopted fresh start reporting as of December 31, 1994
(see Note 9).
** Prior to 1995, net income for the year and for the fourth quarter was
significantly impacted by certain nonrecurring income and expense items
related to the Company's emergence from Chapter 11 bankruptcy proceedings
(see Note 9).
(a) Commencing January 3, 1995, the Company's Series A common stock trades on
the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol
TLMD. The Company's warrants trade on the Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol TLMDW. During 1994 the Company's
then existing common stock was traded in the over-the-counter market and
was quoted in the National Association of Securities Dealers Electronic
Bulletin Board. The common stock price range is not applicable as the
Company has been recapitalized as of December 31, 1994 (see Note 9).
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Telemundo Group, Inc.:
We have audited the accompanying consolidated balance sheets of Telemundo
Group, Inc. (the "Company") and its subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, changes in
common stockholders' equity (deficiency) and of cash flows for the year ended
December 31, 1995 (Successor Company operations) and for each of the two
years in the period ended December 31, 1994 (Predecessor Company operations).
Our audit also included the consolidated financial statement schedule listed
in Item 14. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits. We did not
audit the financial statements of TeleNoticias del Mundo, L.P. ("TeleNoticias"),
the Company's investment in which is accounted for by use of the equity method.
The Company's investment of $897,000 and $4,148,000 in TeleNoticias' net assets
at December 31, 1995 and 1994, respectively, and net loss of $6,355,000 and
$1,314,000 from its investment in TeleNoticias for the respective years then
ended are included in the accompanying consolidated financial statements. The
financial statements of TeleNoticias were audited by other auditors whose report
(which as to 1995 was accompanied by additional comments concerning substantial
doubt about TeleNoticias' ability to continue as a going concern, the effect of
which, in our opinion, is not material in relation to the consolidated financial
statements) has been furnished to us, and our opinion, insofar as it relates
to the amounts included for TeleNoticias, is based solely on the report of
such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
As discussed in Notes 1 and 9 to the consolidated financial statements, on July
20, 1994, the Bankruptcy Court entered an order confirming the plan of
reorganization which became effective after the close of business on December
30, 1994. Accordingly, the accompanying consolidated financial statements have
been prepared in conformity with AICPA Statement of Position 90-7, "FINANCIAL
REPORTING FOR ENTITIES IN REORGANIZATION UNDER THE BANKRUPTCY CODE," for the
Successor Company as a new entity with assets, liabilities, and a capital
structure having carrying values not comparable with prior periods as described
in Notes 1 and 9.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 1995 and 1994, and the
results of its operations and its cash flows for the year ended December 31,
1995 (Successor Company operations) and for each of the two years in the period
ended December 31, 1994 (Predecessor Company operations) in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Miami, Florida
March 22, 1996
27
<PAGE>
TELENOTICIAS DEL MUNDO, L.P.
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND
FOR THE PERIOD FROM INCEPTION (JULY 20, 1994) TO
DECEMBER 31, 1994
TOGETHER WITH
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors of
Telenoticias del Mundo, L.P.:
We have audited the accompanying balance sheets of Telenoticias del Mundo, L.P.
(a Delaware limited partnership) as of December 31, 1995 and 1994 and the
related statements of operations, partners' capital and cash flows for the year
ended December 31, 1995 and the period from inception (July 20, 1994) to
December 31, 1994. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Telenoticias del Mundo, L.P. as
of December 31, 1995 and 1994 and the results of its operations and its cash
flows for the year ended December 31, 1995 and for the period from inception
(July 20, 1994) to December 31, 1994, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 8 to the
financial statements, the Partnership has incurred significant losses since
inception. Additionally, the Partners have postponed their required capital
contributions, which raises substantial doubt as to the Partnership's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Arthur Andersen LLP
Miami, Florida,
February 23, 1996.
<PAGE>
TELENOTICIAS DEL MUNDO, L.P.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 911,151 $ 1,175,324
Accounts receivable, net of
allowance for doubtful accounts
of $148,693 in 1995 and $26,000
in 1994 1,567,280 153,899
Inventories 194,820 235,805
Due from affiliates 202,346 14,664
Other current assets 419,248 293,473
----------- -----------
Total current assets 3,294,845 1,873,165
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,702,956 in 1995 and
$188,922 in 1994 6,254,129 6,558,192
CONSTRUCTION IN PROGRESS - 227,392
OTHER ASSETS 545,213 455,685
----------- -----------
Total assets $10,094,187 $ 9,114,434
----------- -----------
----------- -----------
</TABLE>
(Continued)
<PAGE>
TELENOTICIAS DEL MUNDO, L.P.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Continued)
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,271,661 $ 1,177,887
Due to affiliates 441,541 642,740
Customer deposits 72,244 29,041
Deferred revenues 159,997 144,367
------------ ------------
Total current liabilities 2,945,443 1,994,035
------------ ------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL (ACCUMULATED DEFICIT):
General Partner's Capital-
Telenoticias del Mundo, Inc. 71,486 71,203
Limited Partners' Capital
(Accumulated Deficit)-
Reuter LATAM News, Inc. 847,728 (1,311,368)
Telemundo News Network, Inc. 847,728 4,084,132
Antena 3 International, Inc. 2,690,901 2,138,216
Artear Argentina Corporation 2,690,901 2,138,216
------------ ------------
Total partners' capital 7,148,744 7,120,399
------------ ------------
Total liabilities
and partners' capital $ 10,094,187 $ 9,114,434
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
TELENOTICIAS DEL MUNDO, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
FOR THE PERIOD FROM INCEPTION (JULY 20, 1994) TO
DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
REVENUES:
Production revenues $ 5,501,590 $ 455,917
Cable subscriber revenues 1,944,301 66,133
Advertising revenues 1,138,614 -
Barter Syndication revenues 121,250 -
------------ ------------
8,705,755 522,050
------------ ------------
COSTS AND EXPENSES:
Personnel and freelancers 10,646,983 2,086,962
Breaking news and series 733,737 210,944
Services 961,175 46,106
Satellite 3,753,655 249,437
Marketing and sales 732,323 358,267
News bureaus (includes personnel
and freelancers expenses) 2,721,939 200,833
Other operating expenses 2,288,898 355,454
Depreciation and amortization 1,698,817 202,079
------------ ------------
23,537,527 3,710,082
------------ ------------
Loss from operations (14,831,772) (3,188,032)
OTHER INCOME 560,117 34,189
------------ ------------
Net loss $(14,271,655) $ (3,153,843)
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
TELENOTICIAS DEL MUNDO, L.P.
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
FOR THE PERIOD FROM INCEPTION (JULY 20, 1994) TO
DECEMBER 31, 1994
<TABLE>
<CAPTION>
General
Partner Limited Partners
---------------- ----------------------------------
Telenoticias Telemundo
del Mundo, Reuter LATAM News Network,
Inc. News, Inc. Inc.
---------------- --------------- --------------
<S> <C> <C> <C>
BALANCE at July 20, 1994 (inception) $ - $ - $ -
Capital contributions 102,742 - 5,395,500
Net loss (31,539) (1,311,368) (1,311,368)
---------- --------- ---------
BALANCE at December 31, 1994 71,203 (1,311,368) 4,084,132
Capital contributions 143,000 8,093,250 2,697,750
Net loss (142,717) (5,934,154) (5,934,154)
---------- --------- ---------
BALANCE at December 31, 1995 $ 71,486 $ 847,728 $ 847,728
---------- --------- ---------
---------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Limited Partners
---------------------------------------
Antena 3 Artear
International, Argentina
Inc. Corporation Total
------------------- ------------------ ------------
<S> <C> <C> <C>
BALANCE at July 20,1994 (inception) $ - $ - $ -
Capital contributions 2,388,000 2,388,000 10,274,242
Net loss (249,784) (249,784) (3,153,843)
---------- --------- ----------
BALANCE at December 31, 1995 2,138,216 2,138,216 7,120,399
Capital contributions 1,683,000 1,683,000 14,300,000
Net loss (1,130,315) (1,130,315) (14,271,655)
---------- --------- ----------
BALANCE at December 31, 1995 $2,690,901 $2,690,901 $ 7,148,744
---------- --------- ----------
---------- --------- ----------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
TELENOTICIAS DEL MUNDO, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND
FOR THE PERIOD FROM INCEPTION (JULY 20, 1994) TO
DECEMBER 31, 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(14,271,655) $ (3,153,843)
Adjustments to reconcile net loss to
cash used in operating activities-
Depreciation 1,514,070 188,922
Amortization of other assets 184,747 13,157
Provision for doubtful accounts 122,693 26,000
Increase in accounts receivable (1,536,074) (179,899)
Decrease (increase) in inventories 40,985 (235,805)
Increase in other current assets (125,775) (293,473)
Increase in other assets (6,797) (693)
Increase in accounts payable 1,093,774 1,177,888
and accrued expenses
Increase in customer deposits 43,203 29,042
Increase in deferred revenues 15,630 144,367
----------- -----------
Net cash used in operating
activities (12,925,199) (2,284,337)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (982,615) (6,974,506)
Deferred cost (267,478) (468,151)
----------- -----------
Net cash used in investing
activities (1,250,093) (7,442,657)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions 14,300,000 10,274,242
(Decrease) increase in due to
affiliates, net (388,881) 628,076
----------- -----------
Net cash provided by
financing activities 13,911,119 10,902,318
----------- -----------
Net (decrease) increase in
cash and cash equivalents (264,173) 1,175,324
CASH AND CASH EQUIVALENTS, beginning of period 1,175,324 -
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 911,151 $ 1,175,324
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
<PAGE>
TELENOTICIAS DEL MUNDO, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) BACKGROUND AND ORGANIZATION:
Telenoticias del Mundo, L.P. ("Telenoticias" or the "Partnership") is organized
as a limited partnership between Telemundo News Network, Inc. ("Telemundo"),
Reuter LATAM News, Inc. ("Reuters"), Antena 3 International, Inc. ("Antena 3"),
Artear Argentina Corporation ("Artear") as limited partners (the "Partners",
collectively) and Telenoticias del Mundo, Inc. ("Telenoticias, Inc."), the
general partner.
Telenoticias was established on July 20, 1994 as a limited partnership under
the laws of the State of Delaware. Telenoticias produces 24-hour network news
from studios in Hialeah, Florida. The Partnership broadcasts 24-hour network
news, consisting of continuous news, business, sports and international
weather segments, which are presented in half-hour wheel format segments.
Telenoticias broadcasts extensive live coverage of breaking world news events.
Allocations of profit and loss are based on percentage interests in the
Partnership, which is owned by the Partners in percentages equal to their
limited partnership percentages, as follows: Telemundo, 41.58%; Reuters,
41.58%; Antena 3, 7.92%; Artear, 7.92%; and Telenoticias Inc., 1%.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) CASH AND CASH EQUIVALENTS-
For the purpose of the statement of cash flows, the Partnership considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
(b) INVENTORIES-
Inventories mainly consist of decoders used by affiliates to receive and
unscramble Telenoticias' broadcast signal. Inventories are recorded at cost
using the specific identification method, which results in values not materially
different from the net realizable value of such inventories.
<PAGE>
- 2 -
(c) OTHER CURRENT ASSETS-
Other current assets mainly consist of prepaid expenses, employee accounts
receivable and short-term deposits. Blank tapes are recorded at cost and are
amortized on a straight-line basis over five months. Employee accounts
receivable represent advances made to employees to facilitate the coverage of
news events. During coverage of an event, the advance is charged to the
appropriate expense accounts.
(d) PROPERTY AND EQUIPMENT-
Property and equipment is recorded at cost. Depreciation and amortization are
recorded using the straight-line method over the useful lives of the assets.
Improvements and significant repairs that extend the useful life of the asset
are capitalized; other repairs and maintenance are expensed as incurred.
(e) CONSTRUCTION IN PROGRESS-
Construction in progress consists of equipment for the Main Control Room, not
placed in service at December 31, 1994, since the Main Control Room was still
under construction. When the assets were placed in service, they were
classified as property and equipment, at which point depreciation and
amortization commenced.
(f) OTHER ASSETS-
Other assets consist mainly of organizational costs, software costs, shared cost
of Telemundo computer equipment and the cost of certain music and graphics
packages. Amortization is recorded using the straight-line method over the
assets' useful lives which range from 24 to 60 months.
(g) INCOME TAXES-
Under the provisions of the Internal Revenue Code and applicable state tax laws,
the Partnership is not subject to taxation. The tax consequences of
Telenoticias' operations accrue to the Partners. Certain items, principally
depreciation and start-up costs, may be treated differently on the Partnership's
informational income tax return than for financial statement purposes.
Therefore, net income or loss as shown on the financial statements may not be
the same as that reported on the informational tax return.
(h) REVENUE RECOGNITION-
The Partnership's main sources of revenues are production, cable subscriber and
advertising revenues. Production revenue is recognized in equal monthly
installments based on contract terms. Cable subscriber revenues are recognized
in equal monthly installments based on contract terms with the cable operators.
Advertising revenues are recognized when spots are aired.
<PAGE>
- 3 -
(i) BARTER TRANSACTIONS-
Telenoticias has barter transactions with an unrelated party in which
advertising time is exchanged for magazine advertisement. Amounts are recorded
at the estimated fair value of the product or service received. Barter revenue
is recorded when commercials are broadcast, and expenses are recorded when the
magazine issues the advertisement. If the advertisement is received prior to
the broadcast of the commercial, a liability is recorded. Likewise, if the
commercial is broadcast first, a receivable is recorded.
(j) RECLASSIFICATIONS-
Certain 1994 balances have been reclassified to conform with the 1995 financial
statement presentation.
(3) PROPERTY AND EQUIPMENT:
Property and equipment as of December 31 consists of the following:
<TABLE>
<CAPTION>
Estimated
Useful Life 1995 1994
----------- ---- ----
<S> <C> <C> <C>
Broadcasting equipment 5 years $ 7,412,525 $ 6,651,706
Computer equipment 5 years 300,751 63,895
Furniture and fixtures 5 years 175,226 8,445
Automobiles 4 years 68,583 86,963
----------- -----------
7,957,085 6,747,114
Less- Accumulated
depreciation (1,702,956) (188,922)
----------- -----------
$ 6,254,129 $ 6,558,192
----------- -----------
----------- -----------
</TABLE>
(4) PARTNERSHIP CAPITAL:
The Partnership's profits and losses accrue to the Partners based on the
percentages established in the Agreement of Limited Partnership of
Telenoticias del Mundo, L.P. (the "Agreement"). Deficits in the Partners'
equity accounts are to be funded pursuant to the Agreement. Reuters and
Telemundo each shall contribute up to an aggregate amount of $10,000,000
during the first six years of the Partnership. Artear and Antena 3 each
shall contribute up to $8,000,000 during the first six years of the
Partnership. As of December 31, 1995, Reuters and Telemundo each have
contributed, $8,093,250 and Artear and Antena 3 each have contributed
$4,071,000.
(5) CONCENTRATION OF CREDIT RISK:
Telenoticias entered into a program license agreement with Telemundo on
September 16, 1994. The revenues provided by this agreement were $5,291,667 and
$437,500, in 1995 and 1994, respectively. This represents approximately 58% and
84% of total operating revenues, in 1995 and 1994, respectively.
<PAGE>
- 4 -
(6) RELATED PARTY TRANSACTIONS:
As part of the Agreement, the Partners provide certain services and facilities
to the Partnership at no cost. The value of these services is not reflected in
the accompanying financial statements. These services and facilities include
the use of the Hialeah studio; satellite transponder time; field equipment;
uplink facilities; the license to use certain material belonging to the
Partners; and the use of office facilities.
During September 1994, the Partnership purchased from Telemundo certain
equipment at a cost of $3,262,502. The terms and conditions of the sale were
disclosed in the Agreement and approved by the Partners.
The Partnership has entered into the following major distribution, marketing and
service agreements with the Partners:
PROGRAM LICENSE AGREEMENT - The Partnership entered into a Program
Licensing Agreement with Telemundo. Under this Agreement, Telemundo
has the right to broadcast Telenoticias programs to Telemundo Stations
and to viewers directly in private dwellings by means of television
broadcast transmissions for six years. Telemundo will pay a base fee
of $5,000,000 in the first year, increasing by $500,000 in each
subsequent year. Production revenues recorded by the Partnership
under this agreement were $5,291,667 and $437,500, in 1995 and 1994,
respectively.
DISTRIBUTION AGREEMENT - The Partnership entered into two-year
distribution agreements with both Artear and Antena 3. Under these
agreements, Artear and Antena 3 were appointed as the sole and
exclusive agents of Telenoticias for the marketing of the 24-hour news
service to over-the-air broadcast, closed circuit, cable and
satellite-delivered television systems in Argentina and Spain,
respectively. Under the terms of these agreements, Telenoticias will
pay each party $50,000 a year as a marketing fee, and commission on
aggregate gross sales revenue, based on a sliding scale between 7%-13%.
Telenoticias is guaranteed minimum aggregate gross sales
revenues from each agreement of $500,000 for the first broadcast year
and $900,000 for the second broadcast year. Antena 3 had no sales
during the year ended 1995, due to the Telecommunication laws in
Spain. Antena 3 is obligated to pay, net of commissions, a guaranteed
sales amount of $472,063. Artear met its guaranteed sales amount for
the first broadcast year.
SERVICES AGREEMENT - Telenoticias entered into a Service Agreement
with Antena 3, wherein the Partnership agreed to purchase certain
services for a period of six years. The minimum monthly price for
these services will be $12,850, during the first year of the
Agreement, plus a 5% increase every year thereafter. The Partnership
will also pay for certain specialty services as costs are incurred.
SATELLITE USE ARRANGEMENT - Commencing in December 1994, the Partnership
entered into an arrangement with Reuters for the sale of a satellite
transponder at a monthly rate of $50,000.
<PAGE>
- 4 -
Financial statement accounts with related-party balances as of December 31, were
as follows:
<TABLE>
<CAPTION>
Telenoticias,
1995 Reuters Telemundo Artear Antena 3 Inc.
- -------------------- --------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Accounts receivable $ - $ 24,184 $ 347,871 $ - $ -
Due from affiliates - - - 201,346 1,000
Due to affiliates 129,245 210,364 101,932 - -
Accrued expenses and
accounts payable 20,000 155,000 61,638 34,738 -
Sales - 5,291,667 632,470 - -
Expense 1,023,031 1,243,472 396,969 212,997 -
Other income - - - 472,063 -
1994
- --------------------
Due from affiliates $ 13,664 $ - $ - $ - $ 1,000
Due to affiliates - 642,740 - - -
Accounts receivable - 20,833 - - -
Accrued expenses and
accounts payable - 266,619 - - -
Sales - 455,917 43,300 - -
Expense 50,000 1,304,280 - - -
</TABLE>
(7) COMMITMENTS:
The Partnership has entered into four lease agreements. The terms of the
agreements are as follows:
DEDICATED LINE - Monthly lease agreement with an unrelated party for the use
of two dedicated lines at a monthly rate of $62,306. The Partnership has
guaranteed minimum usage of 51 hours of nondedicated lines at an hourly rate
of approximately $440.
NEWS VIDEO SERVICE - A one-year lease expiring November 14, 1996 with an
unrelated party for $453,000.
WIRE SERVICE - A one-year lease expiring December 1, 1996 with an unrelated
party for $216,424.
VIDEO FASHION SERVICE - A one-year lease ending July 1, 1996 for $80,080.
<PAGE>
- 6 -
(8) SUBSEQUENT EVENTS:
On January 8, 1996, as a result of the dispute between the Partner's over the
Presidency of the Partnership, the Partners entered into an agreement whereby
the Partners agreed to postpone any required additional capital contributions
due from the respective Partners until the third business day after the date
on which any Partner provides written notice terminating such postponement.
Due to significant losses incurred from operations, the Partnership is
dependent upon the Partner's capital support to continue as a viable entity.
Therefore, postponement of capital support from the partners raises questions
as to the Partnership's ability to continue as a going concern.
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of February 27, 1995, between TELEMUNDO
GROUP, INC., a Delaware corporation (the "Company"), and STUART LIVINGSTON (the
"Executive").
Section 1. EMPLOYMENT AND TERM. The Company agrees to employ the
Executive and the Executive agrees to serve as an employee of the Company
with the duties set forth in Section 2 for a term (the "Term") beginning as
of February 27, 1995 (the "Commencement Date") and ending at the close of
business on February 27, 1996, or any earlier date of termination under
Section 6 or any later date of termination after extension under Section 7
(the "Termination Date").
Section 2. DUTIES. The Executive agrees during the Term to serve as
Senior Vice President-Administration of the Company. The Executive agrees to
use his best efforts to promote the interest of the Company, subject at all
times to the direction of the President and Chief Executive Officer of the
Company (the "President"), to whom the Executive shall report. The Executive
agrees to devote his entire business time and attention, with undivided
loyalty, to the performance of such duties.
Section 3. CONSIDERATION; SALARY AND BONUS DURING TERM.
(a) CONSIDERATION. The consideration for entering into this
Agreement shall be the performance of services by the Executive
pursuant to this Agreement and the employment of the Executive by the
Company as well as the payments and benefits provided under this
Agreement.
(b) SALARY. The Company shall pay salary to the Executive at the
annual rate of $225,000 during the Term, to be paid
(subject to required withholdings) in accordance with the Company's
regular payroll practices.
(c) BONUS. During the Term, the Executive will be eligible for
a bonus each year in an amount computed in accordance with Exhibit A
hereto. Bonuses hereunder shall be paid at the times bonuses are
customarily paid to the Company's executives. The Executive must be
employed by the Company on the last day of the calendar year to
receive a bonus for such year.
Section 4. VACATIONS. The Executive shall be entitled during the Term
to vacations in accordance with the policies of the Company, except that he
shall be entitled to three weeks of vacation per calendar year during the
first year of employment hereunder and four weeks of vacation per calendar
year during the second year of employment (pro rata for partial years). The
Company shall not pay the Executive any additional compensation for any
vacation time not used by the Executive. To the extent that the Executive
cannot take his vacation as a result of the request of the President of the
Company, he may carry such unused vacation over to the following calendar
year.
-1-
<PAGE>
Section 5. FRINGE BENEFITS. During the Term, the Executive shall enjoy
the benefits, including, without limitation, participation in medical
insurance, group term life insurance and retirement and savings plans, and
salary continuation benefits, customarily afforded to executives of the
Company in positions comparable to the Executive's. Nothing in this
Agreement shall restrict the right of the Company generally to amend, modify
or terminate any such benefits for executives in positions comparable to the
Executive's, but at no time shall they be less favorable to the Executive
than those generally afforded to executives with lower level positions than
the Executive.
Section 6. TERMINATION.
(a) The Company may terminate this Agreement for Cause as
determined by the President. "Cause" means the Executive's causing
material injury to the Company; the Executive's willful misconduct in
the performance of (or failure to perform) his duties hereunder; the
Executive's dishonest, fraudulent or unlawful behavior whether or not
in connection with his employment; or the Executive's unsatisfactory
performance of his duties hereunder after 60 days' prior written
notice, including reasons of such unsatisfactory performance and
failure to remedy such performance to the satisfaction of the
President within such 60 day period. Upon the effective date of
termination under this Section 6(a), the obligations of the parties
under this Agreement shall cease, except for the obligations of the
Executive contained in Sections 8 and 9.
(b) This Agreement shall terminate immediately upon the death or
other event rendering the Executive unable to perform his duties and
obligations under this agreement for a period in excess of 90 days,
whether or not consecutive, during the Term as determined by the
President. Upon the effective date of termination under this Section
6(b), the obligations of the parties under this Agreement shall cease,
except for the obligations of the Executive contained in Sections 8
and 9.
(c) If the Company terminates this Agreement other than pursuant
to Section 6(a) or 6(b) or if the Executive terminates this Agreement
pursuant to Section 6(d), then, except as provided in Section 7, the
Company's sole obligation to the Executive shall be to continue to pay
salary in accordance with Section 3(b) and maintain benefits in
accordance with Section 5 until the Termination Date. Upon the
effective date of termination under this Section 6(c), the obligations
of the parties under this Agreement shall cease, except for the
obligations of the Company under the preceding sentence and under
Section 7 and the obligations of the Executive contained in Sections 8
and 9.
(d) The Executive shall have the right to terminate his
employment under this Agreement in the event that he suffers a
Diminution of Duty (as defined below) within sixty days' of a Change
of Control (as such term is defined in the Company's 1994 Stock Plan).
A "Diminution in Duty" means a change in the
-2-
<PAGE>
Executive's responsibilities which represents a material
demotion or material diminution from his responsibilities as in effect
on the date hereof. A Diminution in Duty shall not be deemed to have
occurred prior to the giving of written notice by the Executive to the
Company specifically describing the alleged diminution or demotion,
and the actions the Executive believes are necessary to cure such
alleged Diminution in Duty, and the Company's failure to so cure
within 15 days of receipt of such notice. The giving of such notice
and the action or failure to take action by the Company shall be
irrelevant in determining whether a material demotion or material
diminution constituting a Diminution in Duty has in fact occurred.
Section 7. EXTENSION OF THE TERM.
(a) The Company shall have an option, exercisable in its sole
discretion by written notice to the Executive on or before January 13,
1996, to extend the Term for an additional one year period. The terms
of such additional one year period shall be the same as those for the
first year, except that the bonus schedule shall be as set forth on
Exhibit A hereto. The Executive shall have the right to reject such
proposed extension by written notice to the Company on or before
January 18, 1996.
(b) If the first year budget is achieved, as set forth on
Exhibit A, and the Company does not exercise its option to extend the
Term pursuant to Section 7(a) above, the Employee shall be entitled to
severance pay for a one year period following the Termination Date at
the rate of $90,000 per annum, to be paid (subject to required
withholding) in bi-weekly installments.
Section 8. CONFIDENTIALITY. Except as required in his duties
hereunder, the Executive will not, directly or indirectly, use, disseminate
or disclose any Confidential Information. Upon expiration or termination of
the Term, all documents, records and similar repositories of or containing
Confidential Information, including copies thereof, then in the Executive's
possession, whether prepared by the Executive or others, will be left with
the Company. "Confidential Information" means nonpublic information relating
to the Company or any affiliate of the Company. Following the expiration or
termination of the Term, the Executive agrees to reasonably cooperate with
the Company and its affiliates with respect to matters with which the
Executive was involved during the Term. This Section 8 shall survive the
expiration or termination of the Term. If in connection with Executive's
cooperation with respect to legal matters, it is necessary for Executive to
be represented by separate counsel, the Company will pay the reasonable fees
of such counsel, provided that if Executive is named as a defendant in an
action or proceeding by reason of fact that he was an officer of the Company,
any fees or expenses paid by the Company will be subject to procedures and
rights of indemnification of officers and directors of the Company under the
Company's By-Laws and the laws of the State of Delaware.
Section 9. COVENANT NOT TO INTERFERE. The Executive agrees and
covenants that, for a period of one year following the expiration or
termination of the Term, he will not interfere directly or
-3-
<PAGE>
indirectly in any way with the Company. "Interfere" means to influence or
attempt to influence, directly or indirectly, customers, program suppliers,
employees, performers or independent contractors of the Company, its
subsidiaries or any of its network affiliates to restrict, reduce, sever or
otherwise alter their relationship with the Company, its subsidiaries or any
of its network affiliates. In the event any court having jurisdiction shall
reduce the duration or scope of the covenant not to interfere set forth in
this Section 9, such covenant, in its reduced form, shall be enforceable.
This Section 9 shall survive the expiration or termination of the Term.
Section 10. ASSIGNABILITY, ETC. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and shall be
binding upon the successors and assigns of the Company. The Executive
acknowledges that the services to be rendered by him are unique and personal
and accordingly that he may not assign any of his rights or delegate any of
his duties or obligations under this Agreement.
Section 11. NOTICES. All notices given hereunder shall be in writing
and shall be sent by registered or certified mail or delivered by hand and
shall be deemed to be given on the date received. Any notice by the Company
to the Executive shall be mailed or delivered to:
Stuart Livingston
47 South Prospect Drive
Coral Gables, FL 33133
or such other address as may from time to time be provided by the Executive
to the Company for such purposes.
Any notice by the Executive to the Company shall be mailed or delivered to:
Telemundo Group, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Attn.: President and Chief Executive Officer
and
Telemundo Group, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Attn.: Assistant General Counsel
or such address or addresses as may from time to time be provided by the
Company to the Executive for such purpose.
Section 12. CAPTIONS. The captions in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
-4-
<PAGE>
Section 13. AMENDMENTS. ETC. This Agreement may be amended, modified
or terminated only by an instrument in writing signed by the parties hereto.
Section 14. GOVERNING LAW. This Agreement is made in an shall be
governed by and construed in accordance with the laws of the State of New
York, without giving effect to conflict of law principles. The Executive
hereby consents to the jurisdiction of the courts of the State of New York.
Section 15. REMEDIES. Each of the parties to this Agreement will be
entitled to enforce its rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in its favor. The parties hereto agree
and acknowledge that money damages may not be an adequate remedy for any
breach of the provisions of this Agreement and that any party may in its sole
discretion apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive relief in order to enforce or prevent
any violations of the provisions of this Agreement. Such specific
performance and/or injunctive relief shall be available without the posting
of any bond or other security.
Section 16. ENTIRE AGREEMENT: SEVERABILITY. This Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof. Wherever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
Section 17. NO CONFLICTS. The Executive represents and warrants to the
Company that the execution and performance of this Agreement by the Executive
does not violate or conflict with any agreement, arrangement, understanding
or restriction, written or oral, between the Executive and any other firm or
person. The Executive shall indemnify and hold harmless the Company and its
subsidiaries, shareholders, directors and officers from any all loss, damage
or expense, including attorneys' fees, arising out of any breach of the
foregoing representation and warranty by the Executive.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
TELEMUNDO GROUP, INC.
By: /s/ Roland A. Hernandez
---------------------------------------------
President and Chief Executive Officer
/s/ G. S. Livingston
---------------------------------------------
Stuart Livingston
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<PAGE>
EXHIBIT A
TO AGREEMENT DATED AS OF FEBRUARY 27, 1995
BETWEEN TELEMUNDO GROUP, INC. AND
STUART LIVINGSTON
(dollars in thousands)
ADJUSTED NET CONTRIBUTION(1)
Bonus Payment if
Target Achieved(2) 1995 Targets 1996 Target(3)
-------------------- ----------------- ---------------
$100 $33,187 (Goal) $39,824
$50 $28,858 (Budget) $34,630
(1) "Adjusted Net Contribution" means operating income plus depreciation and
amortization determined in accordance with generally accepted accounting
principles, without giving effect to any income, gain or loss associated with
TeleNoticias del Mundo, L.P., but determined consistent with the accounting
method for determining "Net Contribution before TeleNoticias" on the
Company's internal financial statements in prior periods and adjusted to
eliminate the impact of changes in accounting principles after the date of
this Agreement and of acquisitions or divestitures of operating units after
the date of this Agreement if taking such operating units into account would
either increase or decrease the actual Net Contribution by at least 5% of the
Adjusted Net Contribution target in the year of acquisition or divestiture on
an annualized basis and also adjusted to eliminate: (i) all monetary
compensation paid to executive officers who are terminated during calendar
year 1995 (but only such compensation paid after such termination); (ii) any
legal fees and costs paid by the Company with respect to item (i); (iii)
$95,000 of expenses in 1995; (iv) the expense associated with the exercise of
options to acquire common stock held on March 7, 1995 by the executive
officers of the Company, to the extent not in the Company's budget; (v) the
expense associated with the exercise of options issued to those persons who
are executive officers of the Company on March 7, 1995 in connection with
their termination prior to July 1995, to the extent not in the Company's
budget; (vi) direct costs incurred in the Company's bankruptcy
reorganization, to the extent not included in the Company's budget; (vii)
direct costs incurred in settling the Blair litigation, to the extent not
include in the Company's budget; and (viii) certain contingent expenses
relating to Puerto Rico as discussed between the parties, to the extent not
included in the Company's budget. The adjustments set forth in clauses (i) -
(viii) (other than clause (iii)) shall occur only when and to the extent
actually expensed by the Company and to the extent considered in the
calculation of Adjusted Net Contribution.
(2) Each bonus payment shall be subject to required withholdings. Bonuses
shall not be prorated for partial years. However, the Executive must be
employed on the last day of a calendar year to earn a bonus for such year.
Calculations hereunder shall be made by the Company's Chief Financial
Officer, whose decision shall be final.
(3) 1996 Targets apply only if the Term of the Agreement is extended pursuant
to Section 7(a).
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<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of February 27, 1995, between TELEMUNDO
GROUP, INC., a Delaware corporation (the "Company"), and STEPHEN J. LEVIN (the
"Executive").
Section 1. EMPLOYMENT AND TERM. The Company agrees to employ the
Executive and the Executive agrees to serve as an employee of the Company with
the duties set forth in Section 2 for a term (the "Term") beginning as of
February 27, 1995 (the "Commencement Date") and ending at the close of business
on February 27, 1996, any earlier date of termination under Section 6 or any
later date of termination after extension under Section 7 (the "Termination
Date").
Section 2. DUTIES. The Executive agrees during the Term to serve as
Executive Vice President of the Company. The Executive agrees to use his best
efforts to promote the interest of the Company, subject at all times to the
direction of the President and Chief Executive Officer of the Company (the
"President"), to whom the Executive shall report. The Executive agrees to
devote his entire business time and attention, with undivided loyalty, to the
performance of such duties.
Section 3. CONSIDERATION; SALARY AND BONUS DURING TERM.
(a) CONSIDERATION. The consideration for entering
into this Agreement shall be the performance of services by the
Executive pursuant to this Agreement and the employment of the
Executive by the Company as well as the payments and benefits provided
under this Agreement.
(b) SALARY. The Company shall pay salary to the
Executive at the annual rate of $290,000 during the first year of the
Term, and, if the term is extended for a second year, at the rate of
$320,000 during such year, and if the Term is extended for a third
year, at the rate of $350,000 during such year, to be paid (subject to
required withholdings) in accordance with the Company's regular
payroll practices.
(c) BONUS. During the Term, the Executive will be
eligible for a bonus each year in an amount computed in accordance
with Exhibit A hereto. Bonuses hereunder shall be paid at the times
bonuses are customarily paid to the Company's executives. Except as
set forth in the last sentences of Sections 6(b) and 6(c), the
Executive must be employed by the Company on the last day of the
calendar year to receive a bonus for such year.
Section 4. VACATIONS. The Executive shall be entitled during the Term to
vacations in accordance with the policies of the Company, except that he shall
be entitled to three weeks of vacation per calendar year during the first year
of employment hereunder and four weeks of vacation per calendar year during the
second and third years of employment (pro rata for partial
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<PAGE>
years). The Company shall not pay the Executive any additional compensation for
any vacation time not used by the Executive. To the extent that the Executive
cannot take his vacation as a result of the request of the President of the
Company, he may carry such unused vacation over to the following calendar year.
Section 5. FRINGE BENEFITS. During the Term, the Executive shall enjoy
the benefits, including, without limitation, participation in medical insurance,
group term life insurance and retirement and savings plans, and salary
continuation benefits, customarily afforded to executives of the Company in
positions comparable to the Executive's. Nothing in this Agreement shall
restrict the right of the Company generally to amend, modify or terminate any
such benefits for executives in positions comparable to the Executive's, but at
no time shall they be less favorable to the Executive than those generally
afforded to executives with lower level positions than the Executive.
Section 6. TERMINATION.
(a) The Company may terminate this Agreement for Cause as determined
by the President. "Cause" means the Executive's willful
misconduct in the performance of (or failure to perform) his
duties hereunder; the Executive's fraudulent or unlawful behavior
whether or not in connection with his employment; or the
Executive's grossly negligent performance of his duties
hereunder. Upon the effective date of termination under this
Section 6(a), the obligations of the parties under this Agreement
shall cease, except for the obligations of the Executive
contained in Sections 8 and 9.
(b) This Agreement shall terminate immediately upon the death or
other event rendering the Executive unable to perform his duties
and obligations under this agreement for a period in excess of 90
days, whether or not consecutive, during the Term as determined
by the President. Upon the effective date of termination under
this Section 6(b), the obligations of the parties under this
Agreement shall cease, except (i) the obligations of the
Executive contained in Sections 8 and 9, and (ii) if the
Executive would otherwise have been entitled to a bonus under
Section 2(c), the Executive (or Executive's heirs, in the event
of death), shall be entitled to a proportionate amount of such
bonus based upon the amount of the year worked prior to
termination.
(c) If the Company terminates this Agreement other than pursuant to
Section 6(a) or 6(b) or if the Executive terminates this
Agreement pursuant to Section 6(d), then, except as provided in
Section 7, the Company's sole obligation to the Executive shall
be to continue to pay salary in accordance with Section 3(b) and
maintain benefits in accordance with Section 5 until the
Termination Date. Upon the effective date of termination under
this Section 6(c), the obligations of the parties under this
Agreement shall cease, except (i) the obligations of the Company
under the preceding sentence and under Section 7; (ii) the
obligations of the Executive contained in Sections 8 and 9, and
(iii) if the Executive would otherwise have been
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<PAGE>
entitled to a bonus under Section 2(c), the Executive (or
Executive's heirs, in the event of death), shall be entitled to a
proportionate amount of such bonus based upon the amount of the
year worked prior to termination.
(d) The Executive shall have the right to terminate his employment
under this Agreement in the event that he suffers a Diminution of
Duty (as defined below) within sixty days' of a Change of Control
(as such term is defined in the Company's 1994 Stock Plan). A
"Diminution in Duty" means a change in the Executive's
responsibilities which represents a material demotion or material
diminution from his responsibilities as in effect on the date
hereof. A Diminution in Duty shall not be deemed to have
occurred prior to the giving of written notice by the Executive
to the Company specifically describing the alleged diminution or
demotion, and the actions the Executive believes are necessary to
cure such alleged Diminution in Duty, and the Company's failure
to so cure within 15 days of receipt of such notice. The giving
of such notice and the action or failure to take action by the
Company shall be irrelevant in determining whether a material
demotion or material diminution constituting a Diminution in Duty
has in fact occurred.
Section 7. EXTENSION OF THE TERM.
(a) The Company shall have the right, exercisable in its sole
discretion by written notice to the Executive on or before
January 13, 1996, to extend the Term for an additional one year
period, and the right to extend the Term for a second additional
one year period upon written notice to the Executive on or before
January 13, 1997. The terms of such additional one year periods
shall be those set forth herein. The Executive shall have the
right to reject each of the proposed extensions by written notice
to the Company on or before January 18, 1996 and January 18,
1997, respectively.
(b) If the 1995 budget is achieved, as set forth on Exhibit A, and
the Company does not exercise its option to extend the Term
pursuant to Section 7(a) above for the initial additional one
year period, the Employee shall be entitled to severance pay for
a one year period following the Termination Date at the rate of
$145,000 per annum, to be paid (subject to required withholding)
in bi-weekly installments.
Section 8. CONFIDENTIALITY. Except as required in his duties hereunder,
the Executive will not, directly or indirectly, use, disseminate or disclose any
Confidential Information. Upon expiration or termination of the Term, all
documents, records and similar repositories of or containing Confidential
Information, including copies thereof, then in the Executive's possession,
whether prepared by the Executive or others, will be left with the Company.
"Confidential Information" means nonpublic information relating to the Company
or any affiliate of the Company. Following the expiration or termination of the
Term, the Executive agrees to reasonably cooperate with the Company and its
affiliates with respect to matters with which the Executive was involved during
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<PAGE>
the Term. This Section 8 shall survive the expiration or termination of the
Term. If in connection with Executive's cooperation with respect to legal
matters, it is necessary for Executive to be represented by separate counsel,
the Company will pay the reasonable fees of such counsel, provided that if
Executive is named as a defendant in an action or proceeding by reason of fact
that he was an officer of the Company, any fees or expenses paid by the Company
will be subject to procedures and rights of indemnification of officers and
directors of the Company under the Company's By-Laws and the laws of the State
of Delaware.
Section 9. COVENANT NOT TO INTERFERE. The Executive agrees and covenants
that, for a period of one year following the expiration or termination of the
Term, he will not interfere directly or indirectly in any way with the Company.
"Interfere" means to influence or attempt to influence, directly or indirectly,
customers, program suppliers, employees, performers or independent contractors
of the Company, its subsidiaries or any of its network affiliates to restrict,
reduce, sever or otherwise alter their relationship with the Company, its
subsidiaries or any of its network affiliates. In the event any court having
jurisdiction shall reduce the duration or scope of the covenant not to interfere
set forth in this Section 9, such covenant, in its reduced form, shall be
enforceable. This Section 9 shall survive the expiration or termination of the
Term.
Section 10. ASSIGNABILITY, ETC. The rights and obligations of the Company
under this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of the Company. The Executive acknowledges that the
services to be rendered by him are unique and personal and accordingly that he
may not assign any of his rights or delegate any of his duties or obligations
under this Agreement.
Section 11. NOTICES. All notices given hereunder shall be in writing and
shall be sent by registered or certified mail or delivered by hand and shall be
deemed to be given on the date received. Any notice by the Company to the
Executive shall be mailed or delivered to:
Stephen J. Levin
517 Ridgewood Avenue
Glen Ridge, NJ 07028
or such other address as may from time to time be provided by the Executive to
the Company for such purposes. Any notice by the Executive to the Company shall
be mailed or delivered to:
Telemundo Group, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Attn.: President and Chief Executive Officer
and
Telemundo Group, Inc.
2290 West 8th Avenue
Hialeah, Florida 33010
Attn.: General Counsel
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<PAGE>
or such address or addresses as may from time to time be provided by the Company
to the Executive for such purpose.
Section 12. CAPTIONS. The captions in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
Section 13. AMENDMENTS. ETC. This Agreement may be amended, modified or
terminated only by an instrument in writing signed by the parties hereto.
Section 14. GOVERNING LAW. This Agreement is made in and shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to conflict of law principles. The Executive hereby
consents to the jurisdiction of the courts of the State of New York.
Section 15. REMEDIES. Each of the parties to this Agreement will be
entitled to enforce its rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party may in its sole discretion
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive relief in order to enforce or prevent any
violations of the provisions of this Agreement. Such specific performance
and/or injunctive relief shall be available without the posting of any bond or
other security.
Section 16. ENTIRE AGREEMENT: SEVERABILITY. This Agreement constitutes
the entire agreement between the parties with respect to the subject matter
hereof. Wherever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or any other jurisdiction, but this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
Section 17. NO CONFLICTS. The Executive represents and warrants to the
Company that the execution and performance of this Agreement by the Executive
does not violate or conflict with any agreement, arrangement, understanding or
restriction, written or oral, between the Executive and any other firm or
person. The Executive shall indemnify and hold harmless the Company and its
subsidiaries, shareholders, directors and officers from any all loss, damage or
expense, including attorneys' fees, arising out of any breach of the foregoing
representation and warranty by the Executive.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
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<PAGE>
TELEMUNDO GROUP, INC.
By: /s/ Roland A. Hernandez
---------------------------
President and Chief Executive Officer
/s/ Stephen J. Levin
----------------------------
Stephen J. Levin
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<PAGE>
EXHIBIT A
TO AGREEMENT DATED AS OF FEBRUARY 27, 1995
BETWEEN TELEMUNDO GROUP, INC. AND
STEPHEN J. LEVIN
(dollars in thousands)
% of Salary if
Target Achieved (2) 1995 Targets 1996 Target (3) 1997 Targets (3)
- ----------------- ------------ --------------- ----------------
100% $33,187 $39,824 $47,789
75% $28,858 (Budget) $34,630 $41,556
50% $24,529 $29,435 $35,322
ADJUSTED NET CONTRIBUTION (1)
(1) "Adjusted Net Contribution" means operating income plus depreciation and
amortization determined in accordance with generally accepted accounting
principles, without giving effect to any income, gain or loss associated
with TeleNoticias del Mundo, L.P., but determined consistent with the
accounting method for determining "Net Contribution before TeleNoticias" on
the Company's internal financial statements in prior periods and adjusted
to eliminate the impact of changes in accounting principles after the date
of this Agreement and of acquisitions or divestitures of operating units
after the date of this Agreement if taking such operating units into
account would either increase or decrease the actual Net Contribution by at
least 5% of the Adjusted Net Contribution target in the year of acquisition
or divestiture on an annualized basis and also adjusted to eliminate: (i)
all monetary compensation paid to executive officers who are terminated
during calendar year 1995 (but only such compensation paid after such
termination); (ii) any legal fees and costs paid by the Company with
respect to item (i); (iii) $95,000 of expenses in 1995; (iv) the expense
associated with the exercise of options to acquire common stock held on
March 7, 1995 by the executive officers of the Company, to the extent not
in the Company's budget; (v) the expense associated with the exercise of
options issued to those persons who are executive officers of the Company
on March 7, 1995 in connection with their termination prior to July 1995,
to the extent not in the Company's budget; (vi) direct costs incurred in
the Company's bankruptcy reorganization, to the extent not included in the
Company's budget; (vii) direct costs incurred in settling the Blair
litigation, to the extent not include in the Company's budget; and (viii)
certain contingent expenses relating to Puerto Rico as discussed between
the parties, to the extent not included in the Company's budget. The
adjustments set forth in clauses (i) - (viii) (other than clause (iii))
shall occur only when and to the extent actually expensed by the Company
and to the extent considered in the calculation of Adjusted Net
Contribution.
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<PAGE>
(2) Each bonus payment shall be subject to required withholdings. For purposes
of computing the bonus in 1995, the salary shall be deemed to be $290,000
for the entire year. For subsequent years, the bonus shall be based on the
actual annualized salary for that calendar year. Calculations hereunder
shall be based upon data provided by the Company's Chief Financial Officer
to the Chief Executive Officer, whose decision shall be final.
(3) 1996 and 1997 Targets apply only if the Term of the Agreement is extended
pursuant to Section 7(a).
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<PAGE>
EXHIBIT B
TO AGREEMENT DATED FEBRUARY 27, 1995
(AS AMENDED, MAY 30, 1995)
BETWEEN TELEMUNDO GROUP, INC.
AND STEPHEN J. LEVIN
For the calendar year 1995, Executive shall be eligible for bonuses based on the
attainment of certain Gross Revenue (1) by KVEA, Los Angeles as follows:
Bonus Payment if
Target Achieved (3) 1995 Targets
------------------- ------------
$50,000 $26,000,000
$50,000 (additional) $29,000,000
For the calendar years 1996 and 1997, Executive shall be eligible for bonuses
based on the attainment of certain Broadcast Cash Flow (2) by KVEA, Los Angeles
as follows:
Bonus Payment if Target Achieved (3)
------------------------------------
Target 1996 1997
------ ---- ----
85% of Budget $56,667 $76,667
Budget (4) $85,000 $115,000
115% of Budget $113,333 $153,333
(1) Gross Revenue includes local and national spot commercial air time sales
and sales of broker and block air time before agency commissions. Gross
Revenue excludes trade, barter and other revenue and is determined in
accordance with generally accepted accounting principles and is determined
consistent with the accounting method for determining gross commercial
airtime and block air time on the Company's internal financial statements
in prior periods and the 1995 budget and forecast.
(2) "Broadcast Cash Flow" is KVEA's operating income plus depreciation and
amortization determined in accordance with generally accepted accounting
principles and those used in preparing the Budget.
<PAGE>
EXHIBIT B
PAGE 2
(3) Each bonus payment shall be subject to required withholdings. Bonus
payments shall be made on a calendar year basis, with such bonus paid at
the time bonuses are customarily paid to the Company's executives. Each
target is a threshold which must be achieved in order to earn the
respective bonus payment. Amounts between target levels for 1995 are not
prorated. Amounts between target levels for 1996 and 1997 are prorated. For
1996 and 1997, bonus amounts set out at different target levels are not
cumulative. Calculations hereunder shall be based upon data provided by
the Company's Chief Financial Officer to the Chief Executive Officer, whose
decision shall be final.
(4) 1996 and 1997 "Budget" is the amount of Broadcast Cash Flow set forth on
the final approved budget for such year.
<PAGE>
STEPHEN J. LEVIN
May 30, 1995
May 30, 1995
Mr. Stephen J. Levin
517 Ridgewood Avenue
Glenridge, NJ 07028
RE: AMENDMENT TO EMPLOYMENT AGREEMENT
Dear Mr. Levin:
Reference is made to that certain employment agreement, dated as of February 27,
1995 between Telemundo Group, Inc. , a Delaware Corporation ("the Company") and
Stephen J. Levin ("you" or "Executive") (the "Original Agreement"). When signed
by the parties, this letter ("Amendment") shall be deemed part of the agreement
between Company and Executive and together with the Original Agreement shall
constitute the "Employment Agreement" between Company and Executive.
For the consideration set forth below, you and the Company desire to amend the
terms of the Original Agreement as stated herein. Accordingly, the terms of the
Original Agreement are hereby amended as follows:
1) In Section 1, the reference to "February 27, 1996" is changed to "February
27, 1998."
2) Section 3(b) of the Original Agreement is amended to read in its entirety as
follows:
"(b) SALARY. The Company shall pay salary to the Executive at
the annual rate of $290,000 during the first year of the Term,
$320,000 during the second year of the Term, and $350,000 during the
third year of the Term, to be paid (subject to required withholdings)
in accordance with the Company's regular payroll practices."
3) A new subsection (d) is added to Section 3 which reads as follows:
"(d) KVEA BONUS. For the calendar year 1995 and any other calendar
year during the Term in which Executive is based in Los Angeles and a
material portion of Executive's duties include management of KVEA,
Executive shall be eligible for bonuses based
<PAGE>
STEPHEN J. LEVIN
May 30, 1995
on the attainment of certain performance levels by KVEA as set forth
on Exhibit B attached hereto. Any bonuses earned under this
subsection (d) shall be paid at the times bonuses are customarily paid
to the Company's executives, and shall be subject to all required
withholdings. Except as set forth in the last sentences of Sections
6(b) and 6(c), Executive must be employed on the last day of the
calendar year to receive any bonus under this subsection (d).
4) A new subsection (e) is added to Section 6 which reads as follows:
"(e) FAILURE OF COMPANY TO ACHIEVE ADJUSTED NET CONTRIBUTION. The
Company may terminate Executive's employment for failure of the
Company and its consolidated subsidiaries to achieve 80% of the
"Adjusted Net Contribution" of at least $34,630,000 for the fiscal
year ended December 31, 1996 by giving Executive notice of termination
no later than April 30, 1997 which states a date of termination no
later than 30 days following such notice. Upon the effective date of
termination of the Agreement under this Section 6(e), the obligations
of the parties shall cease except for Executive's obligations under
Sections 8 and 9. "Adjusted Net Contribution" shall be defined as on
Exhibit A to that certain "NONQUALIFIED STOCK OPTION AGREEMENT"
between Company and Executive dated May 30, 1995."
5) Section 7 of the Original Agreement is deleted in its entirety and replaced
with the following:
"Section 7. Intentionally Omitted."
6) Footnote 3 on Exhibit A to the Original Agreement is deleted.
7) A new Exhibit B, in the form of Exhibit B attached to this Amendment, is
deemed attached to, and part of, the Employment Agreement.
Except as specifically amended herein, all terms and conditions of the Original
Agreement remain in full force in effect and part of the Employment Agreement.
This Amendment is entered into and effective as of May 30, 1995.
<PAGE>
STEPHEN J. LEVIN
May 30, 1995
Telemundo Group, Inc.
/s/ Roland A. Hernandez
------------------------------
Roland A. Hernandez
President and Chief Executive Officer
AGREED AND ACCEPTED
/s/ Stephen J. Levin
- -----------------------------
Stephen J. Levin
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
FOR CORPORATE OFFICERS
AGREEMENT made as of the 9th day of March, 1995 (the "Grant Date"),
between Telemundo Group, Inc., a Delaware corporation (the "Company"), and
Stuart Livingston (the "Optionee").
WHEREAS, the Company has adopted the 1994 Stock Plan (the "Plan") in order
to provide additional incentive to certain officers and employees of the Company
and its Subsidiaries; and
WHEREAS, the Committee responsible for administration of the Plan has
determined to grant an option to the Optionee as provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. GRANT OF OPTION.
1.1 The Company hereby grants to the Optionee the right and option
(the "Option") to purchase all or any part of an aggregate of 10,000 whole
shares of Stock subject to, and in accordance with, the terms and conditions set
forth in this Agreement.
1.2 The Option is not intended to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.
1.3 This Agreement shall be construed in accordance and consistent
with, and subject to, the provisions of the Plan (the provisions of which are
incorporated herein by reference) and, except as otherwise expressly set forth
herein, the capitalized terms used in this Agreement shall have the same
definitions as set forth in the Plan.
2. PURCHASE PRICE.
The price at which the Optionee shall be entitled to purchase shares of
Stock upon the exercise of the Option shall be $10.00 per share.
3. DURATION OF OPTION.
The Option shall be exercisable to the extent and in the manner provided
herein for a period of ten years from the Grant Date (the "Exercise Term");
PROVIDED, HOWEVER, that the Option may be earlier terminated as provided in
Section 7 hereof.
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4. EARNINGS TARGET.
Set forth on Exhibit A attached hereto are the earnings targets for
Adjusted Net Contribution established by the Committee for the Company, for the
fiscal years ended December 31, 1995, 1996, 1997 and 1998 (the "Earnings
Targets").
5. EXERCISABILITY OF OPTION.
Unless otherwise provided in this Agreement or the Plan, the Option shall
entitle the Optionee to purchase, in whole at any time or in part from time to
time, shares of Stock covered by the Option to the extent the Option has become
"vested." Except as provided in Section 7, the Option shall "vest" as to the
following shares of Stock upon the later of (i) certification by the Committee
that the Company has attained 90% of the Earnings Target set for each fiscal
year set forth below, and (ii) the respective anniversary date of this Agreement
immediately following the end of such fiscal year (such date of vesting referred
to as the "Vesting Date"):
Upon certification
Option vests as to the that Earnings Target
following number of Shares met for fiscal year end:
-------------------------- -----------------------
2,500 1995
2,500 1996
2,500 1997
2,500 1998
To the extent the Company has failed to attain 90% of the Earnings Target
for any fiscal year end, the Option shall not vest as to the number of shares of
Stock related to such fiscal year end ("Lost Shares") and the Optionee shall not
be entitled under any circumstances to exercise the Option in respect of such
Lost Shares, except as provided in the second following sentence. Within 30
days after the date the Company's independent auditors certify the Company's
financial statements for fiscal year, the Committee shall meet to certify
whether or not 90% of the Earnings Target for such fiscal year has been met.
Notwithstanding the foregoing, any shares of Stock which have not vested as set
forth above shall "vest" nine years from the Grant Date if, but only if,
Optionee has been employed with the Company from the Grant Date until such time.
Each right of purchase shall be cumulative and shall continue, unless sooner
exercised or terminated as herein provided, during the remaining period of the
Exercise Term.
6. MANNER OF EXERCISE AND PAYMENT.
6.1 Subject to the terms and conditions of this Agreement and the
Plan, the Option may be exercised by delivery of written notice to the Company,
at its principal executive office. Such notice shall state that the Optionee is
electing to exercise the Option and the number of shares of Stock in
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respect of which the Option is being exercised and shall be signed by the person
or persons exercising the Option. If requested by the Committee, such person or
persons shall (i) deliver this Agreement to the Secretary of the Company who
shall endorse thereon a notation of such exercise and (ii) provide satisfactory
proof as to the right of such person or persons to exercise the Option.
6.2 The notice of exercise described in Section 6.1 shall be
accompanied by the full purchase price for the shares of Stock in respect of
which the Option is being exercised and by the Withholding Taxes, in cash, by
check or, in the discretion of the Committee, by transferring shares of Stock to
the Company held by the Optionee for more than six months and having a Fair
Market Value on the day preceding the date of exercise equal to the cash amount
for which such shares of Stock are substituted.
6.3 Upon receipt of notice of exercise and full payment for the
shares of Stock in respect of which the Option is being exercised and of the
Withholding Taxes, the Company shall, subject to Section 14 of the Plan,
promptly take such action as may be necessary to effect the transfer to the
Optionee of the number of shares of Stock as to which such exercise was
effective, including issuing and delivering such shares of Stock and entering
the Optionee's name as a stockholder of record on the books of the Company.
6.4 The Optionee shall not be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares of Stock subject to
the Option until (i) the Option shall have been exercised pursuant to the terms
of this Agreement and the Optionee shall have paid the full purchase price for
the number of shares of Stock in respect of which the Option was exercised, (ii)
the Company shall have issued and delivered the shares of Stock to the Optionee,
and (iii) the Optionee's name shall have been entered as a stockholder of record
on the books of the Company, whereupon the Optionee shall have full voting and
other ownership rights with respect to such shares.
7. TERMINATION OF EMPLOYMENT.
7.1 TERMINATION OTHER THAN FOR CAUSE OR FOLLOWING CHANGE OF CONTROL.
If the employment of the Optionee is terminated by the Company or by the
Optionee for any reason other than for Cause or following a Change of Control,
the Optionee may at any time within one year after such termination of
employment (but in no event after the expiration of the Exercise Term) exercise
the Option to the extent, but only to the extent, that the Option or portion
thereof was exercisable on the date of such termination of employment, provided,
however, that (a) if the Optionee and Company enter into or have entered into
a written employment agreement providing for a guaranteed term of employment,
and if Optionee is
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terminated by the Company, for any reason other than for Cause (as defined in
the Plan or in such written employment agreement) or following a Change of
Control prior to the expiration of such guaranteed employment period, then the
portion of the Option that would have been exercisable had employment continued
until the next Vesting Date and had the relevant Earnings Target been met,
shall, regardless of whether such Earnings Target is met, be deemed to have been
exercisable on the date of such termination of employment; and (b) if the
Optionee's employment is terminated by the Company or by the Optionee for any
reason other than for Cause or following a Change of Control after the fiscal
year end but before the Committee certifies that the Earnings Target has been
met, the portion of the Option that would have been exercisable as a result of
meeting the Earnings Targets shall, if the Earnings Targets are met and if the
termination occurred after the relevant anniversary date, be deemed to have been
exercisable on the date of such termination of employment (and in such case the
one year period referred to in the first sentence of this section 7.1 shall be
deemed to commence upon the date of certification of the Earnings Targets being
met). For purposes of this Agreement, an Optionee's employment will be
considered terminated upon (i) an actual termination, (ii) a change in the
Optionee's status, title, position or responsibilities (including reporting
responsibilities) which, in the Committee's reasonable judgment, represents a
demotion from his status, title, position or responsibilities as in effect
immediately prior thereto, or (iii) the assignment to the Optionee of any duties
or responsibilities which, in the Committee's reasonable judgment, are
inconsistent with such status, title, position or responsibilities. In the
event of the Optionee's death, the Option shall be exercisable, to the extent
provided in the Plan and this Agreement, by the legatee or legatees under his
will, or by his personal representatives or distributees, and such person or
persons shall be substituted for the Optionee each time the Optionee is referred
to herein.
7.2 CHANGE OF CONTROL. If the Optionee's employment is terminated by
the Company or by the Optionee following a Change in Control, the provisions of
Section 8 shall apply.
7.3 TERMINATION FOR CAUSE. Notwithstanding anything to the contrary
contained herein, if the employment of the Optionee is terminated for Cause, the
Option shall terminate on the date of the Optionee's termination of employment
whether or not exercisable.
8. EFFECT OF CHANGE IN CONTROL.
Notwithstanding anything contained in the Plan or this Agreement to the
contrary other than the last sentence of this Section 8, in the event of a
Change in Control (A) all Options outstanding on the date of such Change in
Control (other than the Lost Shares) shall become immediately and fully
exercisable and (B) upon termination of an Optionee's employment with the
Company following a Change in Control, Options held by such Optionee shall
remain exercisable until the later of (x) one year after termination and (y)
sixty (60) days following the expiration of the Pooling Period (in the event the
Change in Control constitutes a Pooling Transaction), but in no event beyond the
stated term of the Option. In the case of a Change in Control which also
constitutes a Pooling Transaction, the Board may take such
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actions which it determines, after consultation with its advisors, are
reasonably necessary in order to assure that the Pooling Transaction will
qualify as such, including, but not limited to, providing that all Options
specifically identified by the Committee shall not become immediately and fully
exercisable on the date of the Change in Control but rather shall become
immediately and fully exercisable on the date following the last day of the
Pooling Period (whether or not the Optionee is then an employee of the Company).
9. NONTRANSFERABILITY.
The Option shall not be transferable other than by will or by the laws
of descent and distribution. During the lifetime of the Optionee, the Option
shall be exercisable only by the Optionee.
10. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing in this Agreement (as opposed to the Employee's employment
agreement, if any, or the Plan shall be interpreted or construed to confer upon
the Optionee any right with respect to continuance of employment by the Company,
nor shall this Agreement or the Plan interfere in any way with the right of the
Company to terminate the Optionee's employment at any time.
11. ADJUSTMENTS.
In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments to the number and class of
shares of Stock subject to the Option and the purchase price for such shares of
Stock. The Committee's adjustment shall be made in accordance with the
provisions of Section 4.5 of the Plan and shall be effective and final, binding
and conclusive for all purposes of the Plan and this Agreement.
12. CERTAIN EVENTS.
Subject to Section 8 hereof, upon the effective date of (i) the
liquidation or dissolution of the Company or (ii) a merger or consolidation of
the Company (a "Transaction"), the Option shall continue in effect in accordance
with its terms and the Optionee shall be entitled to receive in respect of all
shares of Stock subject to the Option, upon exercise of the Option, the same
number and kind of stock, securities, cash, property or other consideration that
each holder of shares of Stock was entitled to receive in the Transaction.
13. WITHHOLDING OF TAXES.
At such times as an Optionee recognizes taxable income in connection
with the receipt of shares of Stock, securities, cash or property hereunder (a
"Taxable Event"), the Optionee shall pay to the Company an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance, or release from escrow, of such
shares of Stock or securities or the payment of such cash or such property. The
Company shall have the right to deduct from any payment of cash to an Optionee
or Grantee an amount equal to the Withholding Taxes in satisfaction of the
obligation to pay Withholding Taxes. In satisfaction of the obligation to pay
Withholding Taxes to the Company, the Optionee may make a written election (the
"Tax Election"), which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the shares then issuable to him having
an aggregate Fair Market Value, on the date preceding the date of such issuance,
equal to the Withholding Taxes, provided that in respect of an Optionee who may
be subject to liability under Section 16(b) of the Exchange Act either: (i) the
Tax Election is made at least six (6) months prior to the date of the Taxable
Event and the Tax Election is irrevocable with
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respect to all Taxable Events of a similar nature occurring prior to the
expiration of six (6) months following a revocation of the Tax Election; or
(ii) in the case of the exercise of an Option (A) the Optionee makes the Tax
Election at least six (6) months after the date the Option was granted, (B) the
Option is exercised during the ten (10) day period beginning on the third
business day and ending on the twelfth business day following the release for
publication of the Company's quarterly or annual statement of sales and earnings
(a "Window Period") and (C) the Tax Election is made during the Window Period in
which the related Option is exercised or prior to such Window Period and
subsequent to the immediately preceding Window Period. Notwithstanding the
foregoing, the Committee may, by the adoption of rules or otherwise, (i) modify
the provisions of this Section 13 or impose such other restrictions or
limitations on Tax Elections as may be necessary to ensure that the Tax
Elections will be exempt transactions under Section 16(b) of the Exchange Act,
and (ii) permit Tax Elections to be made at such other times and subject to such
other conditions as the Committee determines will constitute exempt transactions
under Section 16(b) of the Exchange Act.
14. EMPLOYEE BOUND BY THE PLAN.
The Optionee hereby acknowledges receipt of a copy of the Plan and
agrees to be bound by all the terms and provisions thereof.
15. MODIFICATION OF AGREEMENT.
This Agreement may be modified, amended, suspended or terminated, and
any terms or conditions may be waived, but only by a written instrument executed
by the parties hereto.
16. SEVERABILITY.
Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
17. GOVERNING LAW.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of New York without giving
effect to the conflicts of laws principles thereof.
18. SUCCESSORS IN INTEREST.
This Agreement shall inure to the benefit of and be binding upon any
successor to the Company. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee and
all rights granted to the Company under this Agreement shall be final, binding
and conclusive upon the Optionee's heirs, executors, administrators and
successors.
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19. RESOLUTION OF DISPUTES.
Any dispute or disagreement which may arise under, or as a result of,
or in any way relate to, the interpretation, construction or application of this
Agreement shall be determined by binding arbitration. The parties may agree to
submit the matter to a single arbitrator or to several arbitrators, may require
that arbitrators possess special qualifications or expertise or may agree to
submit a matter to a mutually acceptable firm of experts for decision. In the
event the parties shall fail to thus agree upon terms of arbitration within
twenty (20) days from the first written demand for arbitration, then such
disputed matter shall be settled by arbitration under the Rules of the American
Arbitration Association, by three arbitrators appointed in accordance with such
Rules. Such arbitration shall be held in Miami, Florida. Once a matter has
been submitted to arbitration pursuant to this section, the decision of the
arbitrators reached and promulgated as a result thereof shall be final and
binding upon all parties. The cost of arbitration shall be shared equally by
the parties and each party shall pay the expenses of his/its attorneys, except
that the arbitrators shall be entitled to award the costs of arbitration,
attorneys and accountants' fees, as well as costs, to the party that they
determine to be the prevailing party in any such arbitration.
20. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
TELEMUNDO GROUP, INC.
By: /s/ Roland A. Hernandez
--------------------------
Name: Roland A. Hernandez
Title: President and Chief
Executive Officer
/s/ G.S. Livingston
--------------------------
Stuart Livingston
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EXHIBIT A
Telemundo Group, Inc.
Option Schedule
(dollars in thousands)
ADJUSTED NET CONTRIBUTION (1)
AS OF DECEMBER 31
Earnings
Targets 1995 1996 1997 1998
- ------- ---- ---- ---- ----
Target $28,858 $34,630 $41,556 $49,867
- ----------------------------
(1) "Adjusted Net Contribution" means operating income plus depreciation and
amortization determined in accordance with generally accepted accounting
principles, without giving effect to any income, gain or loss associated
with TeleNoticias del Mundo, L.P., but determined consistent with the
accounting method for determining "Net Contribution before TeleNoticias" on
the Company's internal financial statements in prior periods and adjusted
to eliminate the impact of changes in accounting principles after the date
of this Agreement and of acquisitions or divestitures of operating units
after the date of this Agreement if taking such operating units into
account would either increase or decrease the actual Net Contribution by at
least 5% of the Adjusted Net Contribution target in the year of acquisition
or divestiture on an annualized basis and also adjusted to eliminate: (i)
all monetary compensation paid to executive officers who are terminated
during calendar year 1995 (but only such compensation paid after such
termination); (ii) any legal fees and costs paid by the Company with
respect to item (i); (iii) $95,000 of expenses in 1995; (iv) the expense
associated with the exercise of options to acquire common stock held on
March 7, 1995 by the executive officers of the Company, to the extent not
in the Company's budget; (v) the expense associated with the exercise of
options issued to those persons who are executive officers of the Company
on March 7, 1995 in connection with their termination prior to July 1995,
to the extent not in the Company's budget; (vi) direct costs incurred in
the Company's bankruptcy reorganization, to the extent not included in the
Company's budget; (vii) direct costs incurred in settling the Blair
litigation, to the extent not include in the Company's budget; and (viii)
certain contingent expenses relating to Puerto Rico as discussed between
the parties, to the extent not included in the Company's budget. The
adjustments set forth in clauses (i) - (viii) (other than clause (iii))
shall occur only when and to the extent actually expensed by the Company
and to the extent considered in the calculation of Adjusted Net
Contribution.
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NONQUALIFIED STOCK OPTION AGREEMENT
FOR CORPORATE OFFICERS
----------------------
AGREEMENT made as of the 9th day of March, 1995 (the "Grant Date"),
between Telemundo Group, Inc., a Delaware corporation (the "Company"), and
Stephen J. Levin (the "Optionee").
WHEREAS, the Company has adopted the 1994 Stock Plan (the "Plan") in
order to provide additional incentive to certain officers and employees of
the Company and its Subsidiaries; and
WHEREAS, the Committee responsible for administration of the Plan has
determined to grant an option to the Optionee as provided herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. GRANT OF OPTION.
1.1 The Company hereby grants to the Optionee the right and option
(the "Option") to purchase all or any part of an aggregate of 30,000 whole
shares of Stock subject to, and in accordance with, the terms and conditions
set forth in this Agreement.
1.2 The Option is not intended to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code.
1.3 This Agreement shall be construed in accordance and consistent
with, and subject to, the provisions of the Plan (the provisions of which are
incorporated herein by reference) and, except as otherwise expressly set forth
herein, the capitalized terms used in this Agreement shall have the same
definitions as set forth in the Plan.
2. PURCHASE PRICE.
The price at which the Optionee shall be entitled to purchase shares of
Stock upon the exercise of the Option shall be $10.00 per share.
3. DURATION OF OPTION.
The Option shall be exercisable to the extent and in the manner provided
herein for a period of ten years from the Grant Date (the "Exercise Term");
provided, however, that the Option may be earlier terminated as provided in
Section 7 hereof.
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4. EARNINGS TARGET.
Set forth on Exhibit A attached hereto are the earnings targets for
Adjusted Net Contribution established by the Committee for the Company,
for the fiscal years ended December 31, 1995, 1996, 1997 and 1998 (the
"Earnings Targets").
5. EXERCISABILITY OF OPTION.
Unless otherwise provided in this Agreement or the Plan, the Option shall
entitle the Optionee to purchase, in whole at any time or in part from time to
time, shares of Stock covered by the Option to the extent the Option has become
"vested." Except as provided in Section 7, the Option shall "vest" as to the
following shares of Stock upon the later of (i) certification by the Committee
that the Company has attained 90% of the Earnings Target set for each fiscal
year set forth below, and (ii) the respective anniversary date of this Agreement
immediately following the end of such fiscal year (such date of vesting referred
to as the "Vesting Date"):
Upon certification
Option vests as to the that Earnings Target
following number of Shares met for fiscal year end:
--------------------------- ------------------------
7,500 1995
7,500 1996
7,500 1997
7,500 1998
To the extent the Company has failed to attain 90% of the Earnings Target
for any fiscal year end, the Option shall not vest as to the number of shares
of Stock related to such fiscal year end ("Lost Shares") and the Optionee shall
not be entitled under any circumstances to exercise the Option in respect of
such Lost Shares, except as provided in the second following sentence. Within
30 days after the date the Company's independent auditors certify the Company's
financial statements for fiscal year, the Committee shall meet to certify
whether or not 90% of the Earnings Target for such fiscal year has been met.
Notwithstanding the foregoing, any shares of Stock which have not vested as set
forth above shall "vest" nine years from the Grant Date if, but only if,
Optionee has been employed with the Company from the Grant Date until such
time. Each right of purchase shall be cumulative and shall continue, unless
sooner exercised or terminated as herein provided, during the remaining period
of the Exercise Term.
6. MANNER OF EXERCISE AND PAYMENT.
6.1 Subject to the terms and conditions of this Agreement and the
Plan, the Option may be exercised by delivery of written notice to the Company,
at its principal executive office. Such notice shall state that the Optionee is
electing to exercise the Option and the number of shares of Stock in
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respect of which the Option is being exercised and shall be signed by the
person or persons exercising the Option. If requested by the Committee,
such person or persons shall (i) deliver this Agreement to the Secretary of
the Company who shall endorse thereon a notation of such exercise and (ii)
provide satisfactory proof as to the right of such person or persons to
exercise the Option.
6.2 The notice of exercise described in Section 6.1 shall be
accompanied by the full purchase price for the shares of Stock in respect of
which the Option is being exercised and by the Withholding Taxes, in cash, by
check or, in the discretion of the Committee, by transferring shares of Stock to
the Company held by the Optionee for more than six months and having a
Fair Market Value on the day preceding the date of exercise equal to the cash
amount for which such shares of Stock are substituted.
6.3 Upon receipt of notice of exercise and full payment for the shares
of Stock in respect of which the Option is being exercised and of the
Withholding Taxes, the Company shall, subject to Section 14 of the Plan,
promptly take such action as may be necessary to effect the transfer to the
Optionee of the number of shares of Stock as to which such exercise was
effective, including issuing and delivering such shares of Stock and entering
the Optionee's name as a stockholder of record on the books of the Company.
6.4 The Optionee shall not be deemed to be the holder of, or to have
any of the rights of a holder with respect to, any shares of Stock subject to
the Option until (i) the Option shall have been exercised pursuant to the terms
of this Agreement and the Optionee shall have paid the full purchase price for
the number of shares of Stock in respect of which the Option was exercised,
(ii) the Company shall have issued and delivered the shares of Stock to the
Optionee, and (iii) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company, whereupon the Optionee shall
have full voting and other ownership rights with respect to such shares.
7. TERMINATION OF EMPLOYMENT.
7.1 TERMINATION OTHER THAN FOR CAUSE OR FOLLOWING CHANGE OF
CONTROL. If the employment of the Optionee is terminated by the Company or by
the Optionee for any reason other than for Cause or following a Change of
Control, the Optionee may at any time within one year after such termination of
employment (but in no event after the expiration of the Exercise Term) exercise
the Option to the extent, but only to the extent, that the Option or portion
thereof was exercisable on the date of such termination of employment, provided,
however, that (a) if the Optionee and Company enter into or have entered into
a written employment agreement providing for a guaranteed term of employment,
and if Optionee is
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terminated by the Company, for any reason other than for Cause (as defined
in the Plan or in such written employment agreement) or following a Change of
Control prior to the expiration of such guaranteed employment period, then the
portion of the Option that would have been exercisable had employment continued
until the next Vesting Date and had the relevant Earnings Target been met,
shall, regardless of whether such Earnings Target is met, be deemed to have
been exercisable on the date of such termination of employment; and (b) if the
Optionee's employment is terminated by the Company or by the Optionee for any
reason other than for Cause or following a Change of Control after the fiscal
year end but before the Committee certifies that the Earnings Target has been
met, the portion of the Option that would have been exercisable as a result of
meeting the Earnings Targets shall, if the Earnings Targets are met and if the
termination occurred after the relevant anniversary date, be deemed to have
been exercisable on the date of such termination of employment (and in such
case the one year period referred to in the first sentence of this section 7.1
shall be deemed to commence upon the date of certification of the Earnings
Targets being met). For purposes of this Agreement, an Optionee's employment
will be considered terminated upon (i) an actual termination, (ii) a change
in the Optionee's status, title, position or responsibilities (including
reporting responsibilities) which, in the Committee's reasonable judgment,
represents a demotion from his status, title, position or responsibilities
as in effect immediately prior thereto, or (iii) the assignment to the
Optionee of any duties or responsibilities which, in the Committee's
reasonable judgment, are inconsistent with such status, title,
position or responsibilities. In the event of the Optionee's death, the Option
shall be exercisable, to the extent provided in the Plan and this Agreement,
by the legatee or legatees under his will, or by his personal representatives
or distributees, and such person or persons shall be substituted for the
Optionee each time the Optionee is referred to herein.
7.2 CHANGE OF CONTROL. If the Optionee's employment is terminated by
the Company or by the Optionee following a Change in Control, the provisions of
Section 8 shall apply.
7.3 TERMINATION FOR CAUSE. Notwithstanding anything to the contrary
contained herein, if the employment of the Optionee is terminated for Cause,
the Option shall terminate on the date of the Optionee's termination of
employment whether or not exercisable.
8. EFFECT OF CHANGE IN CONTROL.
Notwithstanding anything contained in the Plan or this Agreement to the
contrary other than the last sentence of this Section 8, in the event of a
Change in Control (A) all Options outstanding on the date of such Change in
Control (other than the Lost Shares) shall become immediately and fully
exercisable and (B) upon termination of an Optionee's employment with the
Company following a Change in Control, Options held by such Optionee shall
remain exercisable until the later of (x) one year after termination and (y)
sixty (60) days following the expiration of the Pooling Period (in the event
the Change in Control constitutes a Pooling Transaction), but in no event
beyond the stated term of the Option. In the case of a Change in Control
which also constitutes a Pooling Transaction, the Board may take such actions
which it determines, after consultation with its advisors, are reasonably
necessary in order to assure that the Pooling Transaction will qualify as
such, including, but not limited to, providing that all Options specifically
identified by the Committee shall not become immediately and fully exercisable
on the date of the Change in Control but rather shall become immediately and
fully exercisable on the date following the last day of the Pooling Period
(whether or not the Optionee is then an employee of the Company).
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9. NONTRANSFERABILITY.
The Option shall not be transferable other than by will or by the laws of
descent and distribution. During the lifetime of the Optionee, the Option shall
be exercisable only by the Optionee.
10. NO RIGHT TO CONTINUED EMPLOYMENT.
Nothing in this Agreement (as opposed to the Employee's employment
agreement, if any) or the Plan shall be interpreted or construed to confer upon
the Optionee any right with respect to continuance of employment by the Company,
nor shall this Agreement or the Plan interfere in any way with the right of the
Company to terminate the Optionee's employment at any time.
11. ADJUSTMENTS.
In the event of a Change in Capitalization, the Committee shall
conclusively determine the appropriate adjustments to the number and class of
shares of Stock subject to the Option and the purchase price for such shares
of Stock. The Committee's adjustment shall be made in accordance with the
provisions of Section 4.5 of the Plan and shall be effective and final,
binding and conclusive for all purposes of the Plan and this Agreement.
12. CERTAIN EVENTS.
Subject to Section 8 hereof, upon the effective date of (i) the
liquidation or dissolution of the Company or (ii) a merger or
consolidation of the Company (a "Transaction"), the Option shall continue in
effect in accordance with its terms and the Optionee shall be entitled to
receive in respect of all shares of Stock subject to the Option, upon exercise
of the Option, the same number and kind of stock, securities, cash, property or
other consideration that each holder of shares of Stock was entitled to receive
in the Transaction.
13. WITHHOLDING OF TAXES.
At such times as an Optionee recognizes taxable income in connection
with the receipt of shares of Stock, securities, cash or property hereunder (a
"Taxable Event"), the Optionee shall pay to the Company an amount equal to the
federal, state and local income taxes and other amounts as may be required by
law to be withheld by the Company in connection with the Taxable Event (the
"Withholding Taxes") prior to the issuance, or release from escrow, of such
shares of Stock or securities or the payment of such cash or such property.
The Company shall have the right to deduct from any payment of cash to an
Optionee or Grantee an amount equal to the Withholding Taxes in satisfaction of
the obligation to pay Withholding Taxes. In satisfaction of the obligation to
pay Withholding Taxes to the Company, the Optionee may make a written election
(the "Tax Election"), which may be accepted or rejected in the discretion of the
Committee, to have withheld a portion of the shares then issuable to him having
an aggregate Fair Market Value, on the date preceding the date of such issuance,
equal to the Withholding Taxes, provided that in respect of an Optionee who may
be subject to liability under Section 16(b) of the Exchange Act either: (i) the
Tax Election is made at least six (6) months prior to the date of the Taxable
Event and the Tax Election is irrevocable with
-5-
<PAGE>
respect to all Taxable Events of a similar nature occurring prior to the
expiration of six (6) months following a revocation of the Tax Election;
or (ii) in the case of the exercise of an Option (A) the Optionee makes
the Tax Election at least six (6) months after the date the Option was
granted, (B) the Option is exercised during the ten (10) day period
beginning on the third business day and ending on the twelfth business
day following the release for publication of the Company's quarterly or
annual statement of sales and earnings (a "Window Period") and (C) the Tax
Election is made during the Window Period in which the related Option is
exercised or prior to such Window Period and subsequent to the immediately
preceding Window Period. Notwithstanding the foregoing, the Committee may, by
the adoption of rules or otherwise, (i) modify the provisions of this Section 13
or impose such other restrictions or limitations on Tax Elections as may be
necessary to ensure that the Tax Elections will be exempt transactions under
Section 16(b) of the Exchange Act, and (ii) permit Tax Elections to be made at
such other times and subject to such other conditions as the Committee
determines will constitute exempt transactions under Section 16(b)
of the Exchange Act.
14. EMPLOYEE BOUND BY THE PLAN.
The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be
bound by all the terms and provisions thereof.
15. MODIFICATION OF AGREEMENT.
This Agreement may be modified, amended, suspended or terminated, and any terms
or conditions may be waived, but only by a written instrument executed by the
parties hereto.
16. SEVERABILITY.
Should any provision of this Agreement be held by a court of competent
jurisdiction to be unenforceable or invalid for any reason, the remaining
provisions of this Agreement shall not be affected by such holding and shall
continue in full force in accordance with their terms.
17. GOVERNING LAW.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of New York without giving effect
to the conflicts of laws principles thereof.
18. SUCCESSORS IN INTEREST.
This Agreement shall inure to the benefit of and be binding upon any
successor to the Company. This Agreement shall inure to the benefit of the
Optionee's legal representatives. All obligations imposed upon the Optionee
and all rights granted to the Company under this Agreement shall be final,
binding and conclusive upon the Optionee's heirs, executors, administrators
and successors.
-6-
<PAGE>
19. RESOLUTION OF DISPUTES.
Any dispute or disagreement which may arise under, or as a result of, or in
any way relate to, the interpretation, construction or application of this
Agreement shall be determined by binding arbitration. The parties may agree to
submit the matter to a single arbitrator or to several arbitrators, may require
that arbitrators possess special qualifications or expertise or may agree to
submit a matter to a mutually acceptable firm of experts for decision. In
the event the parties shall fail to thus agree upon terms of arbitration within
twenty (20) days from the first written demand for arbitration, then such
disputed matter shall be settled by arbitration under the Rules of the American
Arbitration Association, by three arbitrators appointed in accordance with such
Rules. Such arbitration shall be held in Miami, Florida. Once a matter
has been submitted to arbitration pursuant to this section, the decision of the
arbitrators reached and promulgated as a result thereof shall be final and
binding upon all parties. The cost of arbitration shall be shared equally by
the parties and each party shall pay the expenses of his/its attorneys, except
that the arbitrators shall be entitled to award the costs of arbitration,
attorneys and accountants' fees, as well as costs, to the party that they
determine to be the prevailing party in any such arbitration.
20. COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
TELEMUNDO GROUP, INC.
By: /s/ Roland A. Hernandez
--------------------------
Name: Roland A. Hernandez
Title: President and Chief
Executive Officer
/s/ Stephen J. Levin
--------------------------
Stephen J. Levin
-7-
<PAGE>
EXHIBIT A
---------
Telemundo Group, Inc.
Option Schedule
(dollars in thousands)
Adjusted Net Contribution1
--------------------------
As of December 31
-----------------
Earnings
Targets 1995 1996 1997 1998
-------- ------- ------- ------- -------
Target $28,858 $34,630 $41,556 $49,867
- ----------------------------
1 "Adjusted Net Contribution" means operating income plus depreciation and
amortization determined in accordance with generally accepted accounting
principles, without giving effect to any income, gain or loss associated
with TeleNoticias del Mundo, L.P., but determined consistent with the
accounting method for determining "Net Contribution before TeleNoticias"
on the Company's internal financial statements in prior periods and
adjusted to eliminate the impact of changes in accounting principles after
the date of this Agreement and of acquisitions or divestitures of operating
units after the date of this Agreement if taking such operating units into
account would either increase or decrease the actual Net Contribution by at
least 5% of the Adjusted Net Contribution target in the year of acquisition
or divestiture on an annualized basis and also adjusted to eliminate:
(i) all monetary compensation paid to executive officers who are terminated
during calendar year 1995 (but only such compensation paid after such
termination); (ii) any legal fees and costs paid by the Company with
respect to item (i); (iii) $95,000 of expenses in 1995; (iv) the expense
associated with the exercise of options to acquire common stock held on
March 7, 1995 by the executive officers of the Company, to the extent not
in the Company's budget; (v) the expense associated with the exercise
of options issued to those persons who are executive officers of the
Company on March 7, 1995 in connection with their termination prior to
July 1995, to the extent not in the Company's budget; (vi) direct costs
incurred in the Company's bankruptcy reorganization, to the extent not
included in the Company's budget; (vii) direct costs incurred in settling
the Blair litigation, to the extent not include in the Company's budget;
and (viii) certain contingent expenses relating to Puerto Rico as discussed
between the parties, to the extent not included in the Company's budget.
The adjustments set forth in clauses (i) - (viii) (other than clause (iii))
shall occur only when and to the extent actually expensed by the Company
and to the extent considered in the calculation of Adjusted
Net Contribution.
-8-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21.1
JURISDICTION OF
SUBSIDIARY DOING BUSINESS AS INCORPORATION
- ---------- ----------------- ---------------
<S> <C> <C>
Estrella Communications, Inc. KVEA/Channel 52 Delaware
Estrella License Corporation Delaware
Harriscope of Chicago, Inc. (1) Illinios
New Jersey Television Broadcasting Corporation New York
SACC Acquisition Corporation Delaware
SAT Corporation Delaware
Spanish American Communications Corp. Delaware
Telemundo Network, Inc. Delaware
Telemundo News Network, Inc. Delaware
Telemundo of Austin, Inc. K11SF/Channel 11 Delaware
Telemundo of Chicago, Inc. Delaware
Telemundo of Colorado Springs, Inc. K49CJ/Channel 49 Delaware
Telemundo of Florida License Corporation Delaware
Telemundo of Florida, Inc. WSCV/Channel 51 Delaware
Telemundo of Galveston-Houston License Delaware
Corporation
Telemundo of Galveston-Houston, Inc. KTMD/Channel 48 Delaware
Telemundo of Mexico, Inc. Delaware
Telemundo of Northern California License Delaware
Corporation
Telemundo of Northern California, Inc. KSTS/Channel 48 California
Telemundo of Puerto Rico License Corporation Delaware
Telemundo of Puerto Rico, Inc. WKAQ-TV/Channel 2 Puerto Rico
Telemundo of San Antonio License Corporation Delaware
Telemundo of San Antonio, Inc. KVDA/Channel 60 Texas
Telemundo of Santa Fe, Inc. K52BS/Channel 52 Delaware
Tu Mundo Music, Inc. Delaware
WNJU License Corporation Delaware
WNJU-TV Broadcasting Corporation WNJU-TV/Channel 47 New Jersey
</TABLE>
(1) Acquired on February 26, 1996.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
inclusion in this Form 10-K of our report on the Financial Statements of
Telenoticias del Mundo, L.P. for the year ended December 31, 1995 dated
February 23, 1996 included in Registration Statement File No. 0-16099. It
should be noted that we have not audited any financial statements of the
company subsequent to December 31, 1995 or performed any audit procedures
subsequent to the date of our report.
/s/ Arthur Andersen LLP
Miami, Florida,
March 26, 1996
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 1 to
Registration Statement No. 33-64599, and in Registration Statement No.
333-00603 of TELEMUNDO GROUP, INC., and subsidiaries on Form S-3 of our report
dated March 22, 1996, appearing in this Annual Report on Form 10-K of TELEMUNDO
GROUP, INC. for the year ended December 31, 1995.
/s/ Deloitte & Touche LLP
Miami, Florida
March 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000806083
<NAME> TELEMUNDO GROUP, INC. AND SUBSIDIARIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,199,000
<SECURITIES> 0
<RECEIVABLES> 48,451,000
<ALLOWANCES> 2,650,000
<INVENTORY> 0
<CURRENT-ASSETS> 67,454,000
<PP&E> 69,480,000
<DEPRECIATION> 8,942,000
<TOTAL-ASSETS> 224,459,000
<CURRENT-LIABILITIES> 31,059,000
<BONDS> 102,035,000
100,000
0
<COMMON> 100,000
<OTHER-SE> 60,151,000
<TOTAL-LIABILITY-AND-EQUITY> 224,459,000
<SALES> 0
<TOTAL-REVENUES> 169,148,000
<CGS> 0
<TOTAL-COSTS> 143,138,642
<OTHER-EXPENSES> 6,459,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,489,000
<INCOME-PRETAX> (6,569,000)
<INCOME-TAX> 3,519,000
<INCOME-CONTINUING> (10,088,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,088,000)
<EPS-PRIMARY> (1.01)
<EPS-DILUTED> (1.01)
</TABLE>
