<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 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 May 10, 1996, 10,000,200 shares of Common Stock of Telemundo Group,
Inc. were outstanding.
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION: No.
Item 1. Financial Statements
Consolidated Statements of Operations for
the Three Months Ended March 31, 1996 and 1995 (Unaudited).....2
Consolidated Balance Sheets at March 31, 1996
(Unaudited) and December 31, 1995..............................3
Consolidated Statement of Changes in Common
Stockholders' Equity for the Three Months Ended
March 31, 1996 (Unaudited).....................................4
Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 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
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TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31 1996 1995
- --------------------------------------------------------------------------------
Net revenue....................................... $38,267,000 $34,895,000
----------- -----------
Costs and expenses:
Direct operating costs........................ 20,592,000 19,935,000
Selling, general and administrative expenses
other than network and corporate............. 9,426,000 8,499,000
Network expenses.............................. 7,459,000 7,724,000
Corporate expenses............................ 1,055,000 1,102,000
Depreciation and amortization................. 2,981,000 2,821,000
----------- -----------
41,513,000 40,081,000
----------- -----------
Operating loss.................................... (3,246,000) (5,186,000)
Interest expense - net............................ (3,820,000) (3,548,000)
Net loss from investment in TeleNoticias.......... (1,499,000) (1,545,000)
----------- -----------
Loss before income taxes, minority interest and
extraordinary item............................... (8,565,000) (10,279,000)
Income tax provision.............................. (904,000) (845,000)
Minority interest................................. (222,000) -
----------- -----------
Loss before extraordinary item..................... (9,691,000) (11,124,000)
Extraordinary item-loss on extinguishment of debt.. (17,243,000) -
----------- -----------
Net loss.......................................... $(26,934,000) $ (11,124,000)
----------- -----------
----------- -----------
Loss per share:
Loss before extraordinary item................ $ (.97) $ (1.11)
Extraordinary item............................ (1.72) -
----------- -----------
Net loss...................................... $(2.69) $ (1.11)
----------- -----------
----------- -----------
Average number of shares outstanding.............. 10,000,200 10,000,000
----------- -----------
----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31 December 31
Assets 1996 1995
- --------------------------------------------------------------------------------
(Unaudited)
Current assets:
Cash and cash equivalents..................... $ 6,502,000 $ 3,199,000
Accounts receivable, less allowance for
doubtful accounts of $3,093,000
and $2,650,000............................... 38,240,000 45,801,000
Television programming........................ 12,751,000 13,063,000
Prepaid expenses and other.................... 5,137,000 4,537,000
------------ ------------
Total current assets................. 62,630,000 66,600,000
Property and equipment - net...................... 65,038,000 60,538,000
Television programming............................ 2,983,000 3,195,000
Other assets...................................... 7,212,000 2,175,000
Investment in and receivable from TeleNoticias.... 1,123,000 1,751,000
Broadcast licenses and reorganization value in
excess of amounts allocable to identifiable
assets - net..................................... 135,261,000 90,200,000
------------ ------------
$274,247,000 $224,459,000
============ ============
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable.............................. $ 8,518,000 $ 7,318,000
Accrued expenses and other.................... 20,829,000 19,371,000
Television programming obligations............ 4,485,000 4,370,000
----------- -----------
Total current liabilities............. 33,832,000 31,059,000
Long-term debt.................................... 177,028,000 108,032,000
Capital lease obligations......................... 6,488,000 6,662,000
Television programming obligations................ 512,000 552,000
Other liabilities................................. 17,882,000 17,903,000
----------- -----------
235,742,000 164,208,000
----------- -----------
Minority interest................................. 5,188,000 -
----------- -----------
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 March 31,
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 March 31, 1996 and December 31, 1995...... 36,000 41,000
Additional paid-in capital........................ 70,239,000 70,239,000
Retained earnings (deficit)....................... (37,022,000) (10,088,000)
------------ ------------
33,317,000 60,251,000
------------ ------------
$274,247,000 $224,459,000
============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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<TABLE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (UNAUDITED)
Number of
Shares Common
Outstanding Stock
--------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
--------- --------- ------- ------- ----------- ------------- -------------
Balance, December 31, 1995.... 5,933,865 4,066,335 $59,000 $41,000 $70,239,000 $(10,088,000) $ 60,251,000
Net loss...................... - - - - - (26,934,000) (26,934,000)
Stock conversions............. 480,999 (480,999) 5,000 (5,000) - - -
--------- ---------- ------- -------- ----------- ------------- ------------
Balance, March 31, 1996....... 6,414,864 3,585,336 $64,000 $36,000 $70,239,000 $(37,022,000) $ 33,317,000
--------- ---------- ------- -------- ----------- ------------- ------------
--------- ---------- ------- -------- ----------- ------------- ------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
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<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(26,934,000) $(11,124,000)
Charges not affecting cash:
Depreciation and amortization.................. 2,981,000 2,821,000
Interest accretion on New Senior Notes and
10.25% Notes.................................. 728,000 371,000
Net loss from investment in TeleNoticias....... 1,499,000 1,545,000
Extraordinary item-loss on extinguishment of
debt.......................................... 17,243,000 -
Changes in assets and liabilities:
Accounts receivable............................ 7,561,000 13,617,000
Television programming......................... 524,000 (1,206,000)
Television programming obligations............. 75,000 1,874,000
Accounts payable and accrued expenses
and other..................................... (2,093,000) (3,240,000)
---------- ---------
1,584,000 4,658,000
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Video 44, net of cash acquired....... (43,793,000) -
Additions to property and equipment................. (1,592,000) (785,000)
----------- --------
(45,385,000) (785,000)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of New Senior Notes...... 169,981,000 -
Repurchase of 10.25% Notes and consent fee.......... (117,865,000) -
Payments of obligations under capital leases........ (147,000) (133,000)
Borrowings under revolving credit facility.......... 135,000 -
Payments under revolving credit facility............ (5,000,000) (200,000)
----------- ---------
47,104,000 (333,000)
----------- ---------
Increase in cash and cash equivalents............... 3,303,000 3,540,000
Cash and cash equivalents, beginning of period...... 3,199,000 1,850,000
----------- ---------
Cash and cash equivalents, end of period............ $ 6,502,000 $ 5,390,000
============ ===========
Supplemental cash flow information:
Interest paid.................................. $ 1,828,000 $ 52,000
============ ===========
Income taxes paid, including Puerto Rico
withholding taxes............................. $ 1,821,000 $ 1,553,000
============ ============
Non-cash financing activities:
Accrued liabilities for fees incurred in
connection with issuance of New Senior Notes
and Repurchase of 10.25% Notes................ $ 1,217,000 $ -
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 March 31, 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 months ended March 31, 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.
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<PAGE>
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% 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 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 following summarized, unaudited pro forma results of operations for the
quarters ended March 31, 1996 and 1995, assume the acquisition occurred as of
the beginning of the respective periods:
Three Months Ended March 31 1996 1995
- -------------------------------------------------------------------------------
Net revenue......................................... $ 40,729,000 $ 39,267,000
Loss before extraordinary item...................... (10,410,000) (11,327,000)
Net loss............................................ (27,691,000) (30,119,000)
Per share:
Loss before extraordinary item.................... $(1.04) $(1.13)
Net loss.......................................... (2.77) (3.01)
4. INVESTMENT IN AND RECEIVABLE FROM 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
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 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 totaling $8.2 million through March 31, 1996, and
anticipates the remaining $1.8 million will be required during 1996. Losses
of $6.4 million in 1995 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 various
alternatives, including replacing some or all of the 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.
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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.
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
("WSNS"), which has been the Company's largest affiliated station. The
Company now owns and operates full-power television stations in the seven
largest Hispanic markets in the United States.
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. Because costs are more ratably spread throughout the year,
the impact of this seasonality on operating income is more pronounced during
the first quarter.
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 months ended March 31, 1996 as compared to the
corresponding period of 1995 was as follows:
Three Months Ended
March 31
------------------------
1996 1995 Change
---- ---- ------
Net Commercial Air Time:
Continental U.S.:
Network and National Spot...... $15,945,000 $14,533,000 10%
Local.......................... 9,436,000 8,682,000 9%
----------- -----------
25,381,000 23,215,000 9%
Puerto Rico.................... 6,881,000 6,067,000 13%
----------- -----------
32,262,000 29,282,000 10%
Other............................. 6,005,000 5,613,000 7%
----------- -----------
$38,267,000 $34,895,000 10%
=========== ===========
The increase in network and national spot revenue is the result of the higher
average audience shares achieved in the fourth quarter of 1995 relative to the
comparable periods of the prior year, 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% 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.
The increase in audience share will continue to impact the Company's revenue for
the second quarter and such revenue is expected to also increase from the prior
year. The Company's average share of the weekday Spanish-language television
audience was 26% in the first quarter of 1996 compared to 22% in the first
quarter of 1995.
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 5%.
The increase in local revenue is primarily the result of the acquisition of
WSNS.
The increase in commercial air time revenue in Puerto Rico is the result of WKAQ
obtaining a larger share of the overall advertising market, leveraging its
dominant audience share through enhanced marketing efforts.
Other revenue increased 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 4%.
Direct operating costs increased by 3% for the three months ended March 31,
1996 from the corresponding period of the prior year. This was the result of
an increase in programming and station operating costs, as well as costs
attributable to WSNS from the date of acquisition. Excluding WSNS, direct
operating expenses would have increased by 2%.
Selling, general and administrative expenses other than network and corporate
increased by 11% in 1996 which was primarily the result of the acquisition of
WSNS. Excluding WSNS, selling, general and administrative expenses would have
increased by 3%.
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, decreased by 3% in 1996. The decrease primarily
reflects certain cost saving measures implemented in the second quarter of 1995.
Corporate expenses decreased by 4% from the comparable period of the prior year,
also reflecting certain cost saving measures implemented in the second quarter
of 1995.
Operating loss before depreciation and amortization improved by $2.1 million
from the comparable period of the prior year.
Interest expense for the three months ended March 31, 1996 totaled $3.9
million as compared to $3.6 million for the corresponding period of the prior
year. Interest expense for the current period 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 months
ended March 31, 1995 primarily represents interest accrued and accreted on
the 10.25% Notes. Interest expense was offset by $90,000 and $79,000 of
interest income for the three months ended March 31, 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%.
Net loss from investment in TeleNoticias of $1.5 million in each of the three
months ended March 31, 1996 and 1995 represents the Company's 42% share of
TeleNoticias' net loss, and related costs (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 both 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 $1.6 million
and $4.7 million for the three months ended March 31, 1996 and 1995,
respectively. The increase in operating income before depreciation and
amortization in the three months ended March 31, 1996 was more than offset
by changes in certain asset and liability accounts, particularly accounts
receivable.
The Company had working capital of $30.4 million at March 31, 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 $46 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 of the 10.25% Notes, 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 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 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.
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 March 31, 1996. Approximately $1.2 million was outstanding under the credit
facility at March 31, 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.
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
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 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 totaling $8.2 million through March 31, 1996, and
anticipates the remaining $1.8 million will be required during 1996. Losses
of $6.4 million in 1995 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 various alternatives, including
replacing some or all of the 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.
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
None.
(b) REPORTS ON FORM 8-K
During the three months ended March 31, 1996, the Company filed the
following reports on Form 8-K:
(1) Dated January 30, 1996 regarding certain Item 5 Other Events.
(2) Dated February 7, 1996 regarding Amendment No. 1 to the Company's
Registration Statement on Form S-3 for 10.5% Senior Notes due 2006.
(3) Dated February 22, 1996 regarding the Prospectus filed for the
10.5% Senior Notes due 2006.
(4) Dated February 26, 1996 regarding the purchase of Video 44 and
the Indenture for the 10.5% Senior Notes due 2006.
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: May 15, 1996 Peter J. Housman II
(Authorized Officer and Chief Financial Officer)
