____________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
Commission File Number 0-16099
Telemundo Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3348686
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2290 West 8th Avenue
Hialeah, Florida 33010
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 884-8200
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No ___
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 ___
As of August 9, 1996, 10,000,200 shares of Common Stock of
Telemundo Group, Inc. were outstanding.
_________________________________________________________________________
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
INDEX
Page
No.
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 1996 and
1995 (Unaudited)................................. 2
Consolidated Balance Sheets at June 30, 1996
(Unaudited)and December 31, 1995 ................ 3
Consolidated Statement of Changes in Common
Stockholders' Equity for the Six Months Ended
June 30, 1996 (Unaudited)........................ 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1996 and 1995 (Unaudited).. 5
Notes to Consolidated Financial Statements
(Unaudited)...................................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition ................................ 9
PART II. OTHER INFORMATION, AS APPLICABLE ............ 15
SIGNATURES............................................. 16
<TABLE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------ --------------------------
1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenue.................................. $54,311,000 $43,540,000 $92,578,000 $78,435,000
----------- ----------- ----------- -----------
Costs and expenses:
Direct operating costs..................... 22,657,000 19,957,000 43,249,000 39,892,000
Selling, general and administrative
expenses other than network and
corporate................................ 10,757,000 8,763,000 20,183,000 17,262,000
Network expenses........................... 7,915,000 7,429,000 15,374,000 15,153,000
Corporate expenses......................... 1,184,000 1,115,000 2,239,000 2,217,000
Depreciation and amortization.............. 3,324,000 2,771,000 6,305,000 5,592,000
---------- ---------- ---------- ----------
45,837,000 40,035,000 87,350,000 80,116,000
---------- ---------- ---------- ----------
Operating income (loss)...................... 8,474,000 3,505,000 5,228,000 (1,681,000)
Interest expense - net ...................... (5,065,000) (3,561,000) (8,885,000) (7,109,000)
Loss from investment in TeleNoticias ........ (1,621,000) (1,543,000) (3,120,000) (3,088,000)
Loss on disposal of TeleNoticias ............ (2,441,000) - (2,441,000) -
--------- --------- --------- ---------
Loss before income taxes, minority interest
and extraordinary item..................... (653,000) (1,599,000) (9,218,000) (11,878,000)
Income tax provision......................... (911,000) (845,000) (1,815,000) (1,690,000)
Minority interest............................ (626,000) - (848,000) -
--------- --------- ---------- ----------
Loss before extraordinary item............... (2,190,000) (2,444,000) (11,881,000) (13,568,000)
Extraordinary item-loss on extinguishment
of debt.................................... - - (17,243,000) -
---------- --------- ---------- ----------
Net loss .................................... $(2,190,000) $(2,444,000) $(29,124,000) $(13,568,000)
========== =========== =========== ===========
Loss per share:
Loss before extraordinary item ............ (.22) $(.24) $(1.19) $(1.36)
Extraordinary item ........................ - - (1.72) -
---- ----- ------ ------
Net loss .................................. $(.22) $(.24) $(2.91) $(1.36)
===== ===== ====== ======
Average number of shares outstanding ........ 10,000,200 10,000,000 10,000,200 10,000,000
=========== =========== =========== ===========
See notes to consolidated financial statements
</TABLE>
<TABLE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Assets June 30 December 31
1996 1995
- -----------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents...................... $3,110,000 $ 3,199,000
Accounts receivable, less allowance for
doubtful accounts of $3,268,000 and
$2,650,000 .................................. 48,767,000 45,801,000
Television programming ........................ 15,288,000 13,063,000
Prepaid expenses and other .................... 5,905,000 4,537,000
------------ ----------
Total current assets ..................... 73,070,000 66,600,000
Property and equipment - net .................... 64,107,000 60,538,000
Television programming .......................... 3,647,000 3,195,000
Other assets .................................... 7,188,000 2,175,000
Investment in and receivable from TeleNoticias .. - 1,751,000
Broadcast licenses and reorganization value in
excess of amounts allocable to identifiable
assets-net .................................... 135,098,000 90,200,000
------------ -
$283,110,000 $224,459,000
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------
Current liabilities:
Accounts payable............................... $ 10,096,000 $ 7,318,000
Accrued expenses and other .................... 25,176,000 19,371,000
Television programming obligations ............ 5,605,000 4,370,000
------------ ------------
Total current liabilities ..................... 40,877,000 31,059,000
Long-term debt .................................. 180,905,000 108,032,000
Capital lease obligations ....................... 6,310,000 6,662,000
Television programming obligations .............. 326,000 552,000
Other liabilities ............................... 18,359,000 17,903,000
------------ -----------
246,777,000 164,208,000
------------ -----------
Minority interest ............................... 5,206,000 -
------------ -----------
Contingencies and commitments
Common stockholders' equity:
Series A Common Stock,$.01 par value,
14,388,394 shares authorized,6,414,864 and
5,933,865 shares outstanding at June 30, 1996
and December 31, 1995........................ 64,000 59,000
Series B Common Stock, $.01 par value,
5,611,606 shares authorized, 3,585,336 and
4,066,335 shares outstanding at
June 30, 1996 and December 31, 1995 ........ 36,000 41,000
Additional paid-in capital ...................... 70,239,000 70,239,000
Retained earnings (deficit) ..................... (39,212,000) (10,088,000)
---------- -----------
31,127,000 60,251,000
---------- -
$283,110,000 $224,459,000
============ ============
See notes to consolidated financial statements
</TABLE>
<TABLE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (Unaudited)
<CAPTION>
Number of Common
Shares Stock
Outstanding --------------------
-----------
Series A Series B Series A Series B Additional Retained Common
Common Common Common Common Paid-In Earnings Stockholders'
Stock Stock Stock Stock Capital (Deficit) Equity
--------- --------- --------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,12/31/95... 5,933,865 4,066,335 $ 59,000 $ 41,000 $70,239,000 $(10,088,000) $ 60,251,000
Net loss........... - - - - - (29,124,000) (29,124,000)
Stock conversions.. 480,999 (480,999) 5,000 (5,000) - - -
--------- --------- -------- --------- ----------- ------------ ------------
Balance,6/30/96.... 6,414,864 3,585,336 $ 64,000 $ 36,000 $70,239,000 $(39,212,000) $ 31,127,000
========= ========== ======== ========= =========== ============ =============
See notes to consolidated financial statements
</TABLE>
<TABLE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
Six Months Ended June 30 1996 1995
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ................................ $(29,124,000) $(13,568,000)
Charges not affecting cash:
Depreciation and amortization ......... 6,305,000 5,592,000
Interest accretion on New Senior Notes
and 10.25% Notes....................... 1,981,000 742,000
Loss from investment in TeleNoticias .. 3,120,000 3,088,000
Loss on disposal of TeleNoticias ...... 2,441,000 -
Extraordinary item-loss on
extinguishment of debt .............. 17,243,000 -
Changes in assets and liabilities:
Accounts receivable.................... (2,966,000) 7,187,000
Television programming ................ (2,677,000) (828,000)
Television programming obligations..... 1,009,000 1,222,000
Accounts payable and accrued expenses
and other ............................ 6,260,000 (593,000)
------------ -----------
3,592,000 2,842,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Video 44, net of cash
acquired .............................. (43,973,000) -
Additions to property and equipment...... (3,540,000) (1,868,000)
Investment in TeleNoticias............... (1,704,000) (1,000,000)
Disposal of TeleNoticias, net............ (2,278,000) ----------- --
(51,495,000) (2,868,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of New
Senior Notes .......................... 169,981,000 -
Repurchase of 10.25% Notes, consent fee
and related costs...................... (118,993,000) -
Payments of obligations under capital
leases ................................ (352,000) (286,000)
Borrowings under revolving credit
facility .............................. 7,759,000 4,500,000
Payments under revolving credit
facility .............................. (10,000,000) (216,000)
Payments of reorganization items,
liabilities subject to settlement under
under Chapter 11 proceedings and other
settlement payments ................... (581,000) (4,734,000)
------------ -----------
47,814,000 (736,000)
------------ -----------
Increase (decrease) in cash and cash
equivalents ........................... (89,000) (762,000)
Cash and cash equivalents, beginning of
period ................................ 3,199,000 1,850,000
------------ -----------
Cash and cash equivalents, end of
period ................................ $ 3,110,000 $ 1,088,000
============ ===========
Supplemental cash flow information:
Interest paid ......................... $ 2,132,000 $ 5,991,000
============ ===========
Income taxes paid, including
Puerto Rico withholding taxes ....... $ 1,872,000 $ 1,509,000
============ ===========
Non-cash investing activities:
Note receivable and escrow deposit
associated with disposal of
TeleNoticias, net of accrued
liabilities ......................... $ 118,000 -
============ ============
See notes to consolidated financial statements
</TABLE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated financial
statements of Telemundo Group, Inc. and subsidiaries (collectively "Telemundo"
or the "Company") include all adjustments (consisting of normal recurring
accruals only) necessary to present fairly the Company's financial position at
June 30, 1996, and the results of operations and cash flows for all periods
presented. The results of operations for interim periods are not necessarily
indicative of the results to be obtained for the entire year.
For a summary of significant accounting policies, which have not changed from
December 31, 1995, and additional financial information, see the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net Loss Per Share
Net loss per share for the three and six months ended June 30, 1996 and 1995 is
calculated by dividing the net loss by the average number of shares outstanding
during the period. Outstanding stock options and warrants are not considered
common stock equivalents in the computation as all stock options and warrants
are antidilutive.
Reclassifications
Certain reclassifications have been made in the prior period's financial
statements to conform with the current period's presentation.
3. 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 $44.6 million of cash and
$1.3 million of costs and other liabilities associated with the Acquisition. The
allocation of the $45.9 million purchase price among property and equipment and
broadcast licenses and reorganization value in excess of amounts allocable to
identifiable assets is an estimate. An independent appraisal firm contracted by
the Company is currently in the process of assisting with the allocation of the
purchase price between the assets acquired. The operations of Video 44 are
consolidated with those of the Company and the interest, subject to a minimum
annual preferred distribution, attributable to the partner which owns the
remaining 25.5% of the venture, is reflected in the accompanying financial
statements as minority interest.
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 $116.7 million principal amount of its 10.25% 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.
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 $175.2 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.
4. INVESTMENT IN AND DISPOSAL OF TELENOTICIAS
Since July 1994, Telemundo, through Telemundo News Network, Inc. ("TNNI"), a
wholly-owned subsidiary of the Company, had held a 42% interest in Telenoticias
del Mundo, L.P. ("TeleNoticias"), an international Spanish-language news
service. On June 26, 1996, TNNI acquired the remaining 58% interest in
TeleNoticias from its former partners for approximately $5.1 million (the
"Purchase"). Contemporaneous with the Purchase, the Company sold substantially
all of the assets and certain liabilities of TeleNoticias to CBS Inc. ("CBS")
(the "Sale"). The total consideration for the Sale was $5.0 million in cash and
a $1.25 million note from CBS, which bears no interest and is payable five years
after the closing date, which has been recorded at its present value of
$750,000. The consideration for the Sale is subject to certain post-closing
adjustments, and $1.0 million of the cash consideration paid by CBS is being
held in escrow as a reserve for such post-closing adjustments. These
transactions, when combined with the Company's net investment in TeleNoticias,
comprising capital contributions and advances made and losses recognized in the
operations of TeleNoticias through the date of Sale, resulted in a loss on
disposal of TeleNoticias of $2.4 million.
In addition, Telemundo (and certain of its subsidiaries) and CBS entered into a
number of agreements relating to news activities, including an agreement under
which CBS will produce the Company's nightly national and international
newscasts for a period of five years. The Company also entered into other
agreements including the rental of the TeleNoticias studio facility in the
Company's network operations center to CBS, the provision of certain technical
and other services by the Company to CBS, and the provision of certain other
news services by CBS to the Company.
In connection with the Purchase, all outstanding disputes among TNNI and its
former partners were resolved, including the dismissal of the October 16, 1995
legal action commenced by TNNI in New York State Court relating to certain
corporate governance and other issues.
The following summarized, unaudited pro forma results of operations for the six
months ended June 30, 1996 and 1995 assume the Acquisition, the Repurchase and
the issuance of the New Senior Notes occurred as of the beginning of the
respective periods. Items associated with TeleNoticias are excluded from the
pro forma amounts, including the "Loss on investment in TeleNoticias" and the
"Loss from disposal of TeleNoticias" amounts which are on the Company's
Consolidated Statement of Operations.
<TABLE>
<CAPTION>
Six Months Ended June 30 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C>
Net revenue ......................... $ 95,081,000 $ 87,327,000
Loss before extraordinary item ...... (7,473,000) (11,420,000)
Net loss ............................ (24,716,000) (29,808,000)
Per share:
Loss before extraordinary item .... $ (.75) $ (1.14)
Net loss........................... (2.47) (2.98)
</TABLE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
- ------------------------------------------------------------------------------
Introduction
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
continental United States, including the 32 largest Hispanic markets, and
reaches approximately 85% of all U.S. Hispanic households. The Company also owns
and operates the leading 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.
Seasonal revenue fluctuations are common in the television broadcasting industry
and the Company's revenue, particularly in Puerto Rico, reflects seasonal
patterns with respect to advertiser expenditures. The first quarter generally
produces the lowest level of revenue due to the reduced demand for advertising
time, while the fourth quarter generally produces the highest. Because costs
are more ratably spread throughout the year, the impact of this seasonality on
operating income is more pronounced.
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's unaudited
consolidated financial statements and related notes. Except for the 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 the three and six month periods ended June 30, 1996 as compared
to the corresponding periods of 1995 were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ----------------------------
1996 1995 Change 1996 1995 Change
----------- ----------- ------ ------------ -------------- ------
<S>
Net Commercial Air Time:
Continental U.S.:
Network and National <C> <C> <C> <C> <C> <C>
Spot .............. $23,064,000 $18,014,000 28% $39,025,000 $32,546,000 20%
Local ............... 13,159,000 9,839,000 34% 22,587,000 18,522,000 22%
----------- ----------- ----------- -----------
36,223,000 27,853,000 30% 61,612,000 51,068,000 21%
Puerto Rico.......... 10,579,000 9,577,000 10% 17,460,000 15,644,000 12%
----------- ----------- ----------- ----------
46,802,000 37,430,000 25% 79,072,000 66,712,000 19%
Other................ 7,509,000 6,110,000 23% 13,506,000 11,723,000 15%
----------- ----------- ----------- ----------
$54,311,000 $43,540,000 25% $92,578,000 $78,435,000 18%
=========== =========== =========== ===========
</TABLE>
The increase in network and national spot revenue for both
the three and six month periods ended June 30, 1996 as
compared to the corresponding periods of 1995 is the result
of the higher average audience share achieved in the fourth
quarter of 1995 and the first quarter of 1996 relative to the
comparable periods of the prior years, the growth in the
overall Spanish-language television market and the
acquisition of WSNS-TV in Chicago. The Company's average
share of the weekday Spanish-language television network
audience was 26% in the first quarter of 1996 compared to 22%
in the first quarter of 1995 and 26% during the fourth
quarter of 1995 compared to 24% during the fourth quarter of
1994. A change in audience share typically has a delayed
effect on revenue. Although the Company's average share of the
weekday Spanish-language television network audience was 23% in
the second quarter 1996 compared to 24% in the second quarter of
1995, the Company expects revenue for the third quarter of 1996
(excluding the impact of the addition of WSNS) to increase
from the prior year as a result of the growth in the overall
Spanish-language television market and enhanced sales
efforts. In mid-August 1996, the Company introduced broad new
programming initiatives, including the launch of the first
telenovela from its co-production alliance in Mexico, which are
expected to improve its audience share.
Excluding the impact of WSNS, which is reflected in the
financial statements effective February 27, 1996, network and
national spot revenue would have increased by 18% and 13% for
the three and six month periods ended June 30, 1996,
respectively.
The increase in local revenue for the three and six month
periods is the result of an increase in local revenue at all
major stations and the acquisition of WSNS. Excluding the
impact of WSNS, local revenue would have increased by 14% and
7% for the three and six month periods ended June 30, 1996,
respectively.
The increase in commercial air time revenue in Puerto Rico is
the result of WKAQ obtaining a larger share of the overall
advertising market, due primarily to an increase in its prime
time audience share. In addition, WKAQ continued to leverage
its dominant audience share through enhanced marketing
efforts.
Other revenue increased for the three and six month periods
primarily due to sales of blocks of broadcast time and the
acquisition of WSNS. Excluding the impact of WSNS, other
revenue would have increased by 8% and 7% for the three and
six month periods ended June 30, 1996, respectively.
Direct operating costs increased by 14% and 8% for the three
and six month periods ended June 30, 1996, respectively,
from the corresponding periods of the prior year. This was
the result of an increase in programming and station
operating costs, including WKAQ, as well as costs
attributable to WSNS from the date of acquisition. Excluding
WSNS, direct operating expenses would have increased by 9%
and 6% for the three and six month periods ended June 30,
1996, respectively.
Selling, general and administrative expenses other than
network and corporate increased by 23% and 17% for the three
and six month periods ended June 30, 1996, respectively, from
the corresponding periods of the prior year, which was
primarily the result of the acquisition of WSNS. Excluding
WSNS, selling, general and administrative expenses would have
increased by 4% for both the three and six month periods
ended June 30, 1996, respectively.
Network expenses, which represent costs associated with the
network operations center as well as sales, marketing and
other network costs not allocated to specific television
stations, increased by 7% and 1% for the three and six month
periods ended June 30, 1996, respectively, from the
corresponding periods of the prior year.
Corporate expenses increased by 6% and 1% for the three and
six month periods ended June 30, 1996, respectively, from the
corresponding periods of the prior year.
As a result of the revenue and expense items discussed above,
operating income before depreciation and amortization
improved by $5.5 million and $7.6 million for the three and
six month periods ended June 30, 1996, respectively, from the
comparable periods of the prior year.
Interest expense, net of interest income, for the three and
six month periods ended June 30, 1996 totaled $5.1 million
and $8.9 million, respectively, as compared to $3.6 million
and $7.1 million for the corresponding periods of the prior
year. Interest expense for the current periods includes (i)
interest accrued and accreted on the 10.25% Senior Notes (the
"10.25% Notes") which were outstanding during the period
(approximately 99.8% of which were tendered in a repurchase
offer on February 26, 1996), (ii) interest accrued and
accreted on the 10.5% Senior Notes due 2006 (the "New Senior
Notes") from February 26, 1996, which were issued at a
discount and were structured to produce a yield to maturity
of 10.5% per annum, and (iii) amortization of deferred
issuance costs for the New Senior Notes. Interest expense
during the three and six months ended June 30, 1995 primarily
represents interest accrued and accreted on the 10.25% Notes.
Interest expense was offset by $32,000 and $31,000 of
interest income for the three months ended June 30, 1996 and
1995, respectively, and by $122,000 and $110,000 for the six
months ended June 30, 1996 and 1995, respectively.
Minority interest represents distributions to the 25.5%
partner in Video 44, which is based on a minimum annual
preferred distribution to such partner.
The extraordinary loss on extinguishment of debt represents
the difference between (i) the cost of repurchasing the
10.25% Notes pursuant to the tender offer, including related
fees and expenses, together with the consent fee associated
with amending the 10.25% Note indenture, and (ii) the net
book value of the repurchased 10.25% Notes. The 10.25% Notes
were originally recorded at their fair value, which was less
than the principal amount, reflecting an effective interest
rate of 13.34%.
Loss from investment in TeleNoticias represents the Company's
42% share of TeleNoticias' net loss, and related costs
through June 25, 1996. In addition, the loss on disposal of
TeleNoticias of $2.4 million resulted from the disposal of
the Company's interests in TeleNoticias. See further
discussion in Liquidity and Sources of Capital.
The Company is in a net operating loss position for federal
income tax purposes, and therefore no federal tax benefit was
recognized for the periods. The income tax provision
recorded in each of the 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'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.
Liquidity and Sources of Capital
The Company's cash flows provided from operating activities
were $3.6 million and $2.8 million for the six months ended
June 30, 1996 and 1995, respectively. The increase was a
result of the improvement in operating income before
depreciation and amortization in the six months ended June
30, 1996 which was partially offset by changes in certain
asset and liability accounts, including those related to
WSNS.
The Company had working capital of $32.2 million at June 30,
1996.
On February 26, 1996, Telemundo completed the acquisition of
a 74.5% interest in Video 44, which owns WSNS-TV, Channel 44
in Chicago, which has been the Company's largest affiliated
station (the "Acquisition"). The purchase price was
approximately $45.9 million, including costs and liabilities
associated with the Acquisition. On February 26, 1996, the
Company also 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
approximately $116.7 million principal amount of its 10.25%
Notes, representing approximately 99.8% of the aggregate
outstanding principal amount, tendered in a repurchase offer
which commenced on November 27, 1995 (the "Repurchase").
The Repurchase, the issuance of the New Senior Notes and the
amendment of the 10.25% Notes indenture pursuant to a consent
solicitation 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 $175.2 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.
Since July 1994, Telemundo, through Telemundo News Network,
Inc. ("TNNI"), a wholly-owned subsidiary of the Company, had
held a 42% interest in Telenoticias del Mundo, L.P.
("TeleNoticias"), an international Spanish-language news
service. On June 26, 1996, TNNI acquired the remaining 58%
interest in TeleNoticias from its former partners for
approximately $5.1 million (the "Purchase"). Contemporaneous
with the Purchase, the Company sold substantially all of the
assets and certain liabilities of TeleNoticias to CBS Inc.
("CBS") (the "Sale"). The total consideration for the Sale
was $5.0 million in cash and a $1.25 million note from CBS,
which bears no interest and is payable five years after the
closing date, which has been recorded at its present value of
$750,000. The consideration for the Sale is subject to
certain post-closing adjustments, and $1.0 million of the
cash consideration paid by CBS is being held in escrow as a
reserve for such post-closing adjustments. These
transactions, when combined with the Company's net investment
in TeleNoticias, comprising capital contributions and
advances made and losses recognized in the operations of
TeleNoticias through the date of Sale, resulted in a loss on
disposal of TeleNoticias of $2.4 million.
In addition, Telemundo (and certain of its subsidiaries) and
CBS entered into a number of agreements relating to news
activities, including an agreement under which CBS will
produce the Company's nightly national and international
newscasts for a period of five years at a cost which is less
than the license fee which the Company had paid to
TeleNoticias for such newscasts. The Company also entered
into other agreements including the rental of the
TeleNoticias studio facility to CBS, the provision of certain
technical and other services by the Company to CBS, and the
provision of certain other news services by CBS to the
Company. These agreements will generate net expense savings
and additional sources of income for the Company, some of
which will be reinvested in ongoing operations, including
programming and promotion initiatives. As a result of such
reinvestment, the net impact from the agreements on the
Company's 1996 operating results is not expected to be
material.
In connection with the Purchase, all outstanding disputes
among TNNI and its former partners were resolved, including
the dismissal of the October 16, 1995 legal action commenced
by TNNI in New York State Court relating to certain corporate
governance and other issues.
The Company anticipates that capital expenditures of
approximately $4.3 million will be made during the second
half of 1996 for the general replacement or upgrading of
equipment at all stations and upgrading of facilities, and an
additional $1.2 million will be expended for modifications to the
WKAQ facility.
The Company's principal sources of liquidity are cash from
operations and a revolving credit facility. The facility
provides for borrowings of up to $20 million, subject to an
accounts receivable borrowing base, which was maintained at
June 30, 1996. Approximately $3.8 million was outstanding
under the credit facility at June 30, 1996. 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.
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
- -----------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On June 12, 1996, the registrant held its 1996 Annual
Meeting of Stockholders. At the meeting, the stockholders
elected a board of directors of nine members.
The votes cast at the meeting were as follows:
Director Nominees
Series A Directors
For Withheld
Alan Kolod 4,705,084 112,065
Barry W. Ridings 4,705,084 112,065
Daniel D. Villanueva 4,705,084 112,065
David E. Yurkerwich 4,705,084 112,065
Series B Directors For Withheld
Leon D. Black 3,292,544 0
Guillermo Bron 3,292,544 0
Roland A. Hernandez 3,292,544 0
Bruce H. Spector 3,292,544 0
Edward M. Yorke 3,292,544 0
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
During the three months ended June 30, 1996, the
Company filed the following reports on Form 8-K:
(1) Report dated February 26, 1996 on Form 8-K/A
which amended the Form 8-K regarding the
purchase of Video 44 and the Indenture for
the 10.5% Senior Notes due 2006.
(2) Report dated June 26, 1996 regarding the
sale of the Company's interest in, and
settlement of certain litigation relating
to, Telenoticias del Mundo, L.P.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
TELEMUNDO GROUP, INC.
(Registrant)
/s/ Peter J. Housman II
-----------------------------
Date: August 13, 1996. Peter J. Housman II
(Authorized Officer and Chief
Financial Officer)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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