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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 SEPTEMBER 30, 1997
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 November 12, 1997, 10,165,656 shares of Common Stock of Telemundo
Group, Inc. were outstanding.
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<PAGE>
<TABLE>
<CAPTION>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
INDEX
PAGE
NO.
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Statements of Operations for
the Three and Nine Months Ended September 30, 1997 and 1996 (Unaudited) 2
Consolidated Balance Sheets at September 30, 1997 (Unaudited)
and December 31, 1996.................................................. 3
Consolidated Statement of Changes in Common Stockholders' Equity
for the Nine Months Ended September 30, 1997 (Unaudited)............... 4
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996 (Unaudited).......................... 5
Notes to Consolidated Financial Statements
(Unaudited)............................................................ 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition.......................... 8
PART II. OTHER INFORMATION, AS APPLICABLE...................................... 13
SIGNATURES...................................................................... 14
</TABLE>
1
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------- -------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenue ............................ $ 48,646,000 $ 51,002,000 $ 139,427,000 $ 143,580,000
------------- ------------- ------------- -------------
Costs and expenses:
Direct operating costs ............. 24,571,000 23,257,000 74,148,000 69,425,000
Selling, general and administrative
expenses other than network and
corporate ....................... 9,023,000 9,272,000 28,886,000 29,501,000
Network expenses ................... 6,720,000 5,772,000 18,783,000 18,181,000
Corporate expenses ................. 1,262,000 1,343,000 3,588,000 3,582,000
Depreciation and amortization ...... 3,396,000 3,259,000 10,439,000 9,564,000
------------- ------------- ------------- -------------
44,972,000 42,903,000 135,844,000 130,253,000
------------- ------------- ------------- -------------
Operating income ....................... 3,674,000 8,099,000 3,583,000 13,327,000
Interest expense - net ................. (5,307,000) (5,029,000) (15,517,000) (13,914,000)
Loss from investment in TeleNoticias ... -- -- -- (3,120,000)
Loss on disposal of TeleNoticias ....... -- -- -- (2,441,000)
------------- ------------- ------------- -------------
Income (loss) before income taxes,
minority interest and extraordinary item (1,633,000) 3,070,000 (11,934,000) (6,148,000)
Income tax provision ................... (1,050,000) (1,006,000) (3,133,000) (2,821,000)
Minority interest ...................... (702,000) (636,000) (2,106,000) (1,484,000)
------------- ------------- ------------- -------------
Income (loss) before extraordinary
item ................................ (3,385,000) 1,428,000 (17,173,000) (10,453,000)
Extraordinary item-loss on
extinguishment of debt .............. -- -- -- (17,243,000)
------------- ------------- ------------- -------------
Net income (loss) ...................... $ (3,385,000) $ 1,428,000 $ (17,173,000) $ (27,696,000)
============= ============= ============= =============
Income (loss) per share:
Income (loss) before extraordinary
item ............................. $ (.33) $ .13 $ (1.69) $ (1.04)
Extraordinary item ................. -- -- -- (1.72)
------------- ------------- ------------- -------------
Net income (loss) .................. $ (.33) $ .13 $ (1.69) $ (2.76)
============= ============= ============= =============
Weighted average number of shares
outstanding ........................ 10,166,000 11,217,000 10,163,000 10,021,000
============= ============= ============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
------------ -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ....................... $ 2,197,000 $ 12,587,000
Accounts receivable, less allowance for doubtful
accounts of $6,787,000 and $5,943,000 ........ 44,722,000 51,824,000
Television programming .......................... 16,470,000 14,062,000
Prepaid expenses and other ...................... 9,124,000 7,685,000
------------- -------------
Total current assets ................... 72,513,000 86,158,000
Property and equipment, net ......................... 65,904,000 64,532,000
Television programming .............................. 6,375,000 4,588,000
Other assets ........................................ 7,173,000 7,451,000
Broadcast licenses and reorganization value in excess
of amounts allocable to identifiable assets, net. 129,482,000 132,831,000
------------- -------------
$ 281,447,000 $ 295,560,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 7,352,000 $ 8,831,000
Accrued expenses and other ...................... 18,494,000 27,484,000
Television programming obligations .............. 4,253,000 5,074,000
------------- -------------
Total current liabilities ............... 30,099,000 41,389,000
Long-term debt ...................................... 191,316,000 179,695,000
Capital lease obligations ........................... 5,362,000 5,945,000
Television programming obligations .................. 640,000 442,000
Other liabilities ................................... 22,904,000 19,950,000
------------- -------------
250,321,000 247,421,000
------------- -------------
Minority interest ................................... 5,312,000 5,246,000
------------- -------------
Contingencies and commitments
Common stockholders' equity:
Series A Common Stock, $.01 par value, 14,388,394
shares authorized, 7,062,544 and 6,621,983
shares outstanding at September 30,
1997 and December 31, 1996 .................. 71,000 66,000
Series B Common Stock, $.01 par value, 5,611,606
shares authorized, 3,103,112 and 3,530,232
shares outstanding at September 30, 1997 and
December 31, 1996 ........................... 31,000 36,000
Additional paid-in capital .......................... 71,395,000 71,301,000
Retained earnings (deficit) ......................... (45,683,000) (28,510,000)
------------- -------------
25,814,000 42,893,000
------------- -------------
$ 281,447,000 $ 295,560,000
============= =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
SHARES COMMON
OUTSTANDING STOCK
--------------------- -------------------
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, December 31, 1996 6,621,983 3,530,232 $66,000 $ 36,000 $71,301,000 $(28,510,000) $ 42,893,000
Net loss .................. -- -- -- -- -- (17,173,000) (17,173,000)
Warrant conversions ....... 13,441 -- -- -- 94,000 -- 94,000
Stock conversions ......... 427,120 (427,120) 5,000 (5,000) -- -- --
--------- ---------- ------- -------- ----------- ------------ ------------
Balance, September 30, 1997 7,062,544 3,103,112 $71,000 $ 31,000 $71,395,000 $(45,683,000) $ 25,814,000
========= ========== ======= ======== =========== ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30 1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ............................................ $(17,173,000) $ (27,696,000)
Charges not affecting cash:
Depreciation and amortization ................... 10,439,000 9,564,000
Interest accretion .............................. 4,097,000 3,240,000
Loss from investment in TeleNoticias ............ -- 3,120,000
Loss on disposal of TeleNoticias ................ -- 2,441,000
Minority interest ............................... 2,106,000 1,484,000
Extraordinary item - extinguishment of debt ..... -- 17,243,000
Changes in assets and liabilities:
Accounts receivable ............................. 7,102,000 (1,114,000)
Prepaid expenses and other ...................... (1,439,000) (2,058,000)
Television programming .......................... (4,195,000) (2,810,000)
Television programming obligations .............. (623,000) 473,000
Accounts payable and accrued expenses and other . (7,162,000) 7,803,000
------------ -------------
(6,848,000) 11,690,000
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Video 44, net of cash acquired ....... -- (43,973,000)
Additions to property and equipment ................. (8,199,000) (5,003,000)
Investment in TeleNoticias .......................... -- (1,704,000)
Disposal of TeleNoticias, net ....................... -- (2,519,000)
------------ -------------
(8,199,000) (53,199,000)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of 10.5% Senior Notes .... -- 169,981,000
Repurchase of 10.25% Notes and consent fee .......... -- (118,993,000)
Proceeds from exercise of stock options and warrants 94,000 1,050,000
Payments of obligations under capital leases ........ (540,000) (470,000)
Borrowings under credit facility .................... 9,549,000 7,900,000
Payments under credit facility ...................... (2,025,000) (13,897,000)
Payments to minority interest partner ............... (2,040,000) (1,443,000)
Payments of reorganization items, liabilities subject
to settlement under Chapter 11 proceedings
and other ....................................... (381,000) (795,000)
------------ -------------
4,657,000 43,333,000
------------ -------------
Increase (decrease) in cash and cash equivalents .... (10,390,000) 1,824,000
Cash and cash equivalents, beginning of period ...... 12,587,000 3,199,000
------------ -------------
Cash and cash equivalents, end of period ............ $ 2,197,000 $ 5,023,000
============ =============
Supplemental cash flow information:
Interest paid ................................... $ 13,474,000 $ 8,585,000
============ =============
Income taxes paid, including Puerto Rico
withholding taxes ............................ $ 933,000 $ 2,250,000
============ =============
Non-cash investing activities:
Note receivable and escrow deposit
associated with disposal of TeleNoticias,
net of accrued liabilities ................... $ -- $ 596,000
============ =============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
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 its 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 September 30, 1997, 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, 1996, and additional financial information, see the Company's
Annual Report on Form 10-K for the year ended December 31, 1996.
Certain reclassifications have been made in the prior period's financial
statements to conform with the current period's presentation.
2. EARNINGS (LOSS) PER SHARE
Net loss per share for the three and nine months ended September 30, 1997 and
for the nine months ended September 30, 1996 is calculated by dividing the net
loss by the weighted 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.
Primary and fully diluted earnings per share for the three months ended
September 30, 1996 is calculated by dividing net income by the weighted average
number of shares, including the dilutive effect of outstanding stock options and
warrants as common stock equivalents calculated under the treasury stock method.
Primary and fully diluted net income (loss) per share are the same for each
period presented.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("FASB 128"). This
Statement requires dual presentation of basic and diluted income per share.
Basic income per share is computed by dividing net income by the weighted
average common shares outstanding for the period. Diluted income per share
reflects the potential dilution that could occur if securities, such as stock
options and warrants, were exercised or otherwise converted into common stock.
This Statement will be effective for financial statements for periods ending
after December 15, 1997 and early application is not permitted. The Company's
basic and fully diluted income (loss) per share would be the same for all
periods presented under FASB 128, with the exception that basic income per share
for the three months ended September 30, 1996 would be $.14.
6
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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
had 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
operations of Video 44 are consolidated with those of the Company effective
February 26, 1996 and the partnership 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 "10.5% 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").
From July 1994 through June 1996, Telemundo had held a 42% interest in
Telenoticias del Mundo, L.P. ("TeleNoticias"), an international Spanish-language
news service. On June 26, 1996, the Company acquired the remaining 58% interest
in TeleNoticias from its former partners for approximately $5.1 million and sold
substantially all of the assets and certain liabilities of TeleNoticias to CBS
Inc. for approximately $5.75 million, which resulted in a loss on disposal of
$2.4 million in 1996.
The following summarized unaudited pro forma results of operations for the nine
months ended September 30, 1996 assume the Acquisition and refinancing occurred
as of the beginning of the year. Additionally, items associated with
TeleNoticias are excluded from the pro-forma amounts.
NINE MONTHS ENDED SEPTEMBER 30 1996
- ------------------------------ ------------
Net revenue........................ $146,082,000
Loss before extraordinary item..... (5,452,000)
Net loss........................... (22,695,000)
Per Share:
Loss before extraordinary item. $(.54)
Net loss....................... $(2.24)
7
<PAGE>
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 60 markets in the
continental United States, 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 other
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 had been the Company's largest affiliated station.
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.
8
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
RESULTS OF OPERATIONS
Net revenue for the three and nine months ended September 30, 1997, as compared
to the corresponding periods of 1996, was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------- -----------------------------
1997 1996 CHANGE 1997 1996 CHANGE
------------- ------------- ------ -------------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Net Commercial Air Time:
Continental U.S.:
Network and
National Spot ... $ 20,171,000 $ 20,152,000 -- % $ 57,831,000 $ 59,176,000 (2)%
Local .............. 9,761,000 12,287,000 (21)% 30,282,000 34,515,000 (12)%
------------- ------------- ------------- -------------
29,932,000 32,439,000 (8)% 88,113,000 93,691,000 (6)%
Puerto Rico .......... 11,686,000 11,151,000 5 % 29,835,000 28,611,000 4 %
------------- ------------- ------------- -------------
41,618,000 43,590,000 (5)% 117,948,000 122,302,000 (4)%
Other .................. 7,028,000 7,412,000 (5)% 21,479,000 21,278,000 1 %
------------- ------------- ------------- -------------
$ 48,646,000 $ 51,002,000 (5)% $ 139,427,000 $ 143,580,000 (3)%
============= ============= ============= =============
</TABLE>
The slight increase in network and national spot revenue for the three months
ended September 30, 1997 is the result of the growth in the overall
Spanish-language television market, offset in part by a decline in audience
shares. The decrease in network and national spot revenue for the nine months
ended September 30, 1997 is the result of the decline in audience shares for the
periods impacting the current year's results, offset in part by the growth in
the overall Spanish-language television market. In addition, the comparability
of the results for the nine month period is impacted by the addition of
WSNS-Chicago on February 26, 1996. Excluding the impact of WSNS, network and
national spot revenue would have decreased by 3% for the nine months ended
September 30, 1997.
The decrease in local revenue is primarily the result of the ratings decline
which most significantly impacted KVEA-Los Angeles and WSCV-Miami. The nine
month period ended September 30, 1997 was also impacted by the operations of
WSNS being reflected for the entire period. Excluding the impact of WSNS, local
revenue would have decreased by 15% for the nine months ended September 30,
1997.
The Company's average share of the weekday Spanish-language television network
audience from the fourth quarter of 1996 through the third quarter of 1997 was
21%, 18%, 18% and 18%, respectively, compared to 26%, 26%, 23% and 23%,
respectively, for the comparable periods of the prior years. A change in
audience share typically has a delayed effect on revenue.
9
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
To address the decline in audience share, the Company launched a new prime time
program schedule in August 1997 designed to increase its share of the U.S.
Spanish-language television market. In addition, as the Company has previously
announced, it has hired the investment banking firm of Lazard Freres & Co. LLC
to assist it in discussions with potential strategic partners. In connection
with this process, the Company has been approached by a number of entertainment
concerns. Further, the Company has conducted, on a preliminary basis,
substantive discussions regarding strategic transactions with a number of these
parties. While there can be no assurance that any transaction will in fact be
consummated, the Company is hopeful that within the near future it will be in a
position to make an announcement regarding such a transaction.
The increase in commercial air time revenue in Puerto Rico for both the three
and nine month periods ended September 30, 1997 is the result of WKAQ
maintaining its dominant audience share in an advertising market which grew
slightly. In addition, WKAQ lost certain revenue in September 1996 as a result
of Hurricane Hortense, as advertisers reduced their spending when businesses and
services, including electricity, were disrupted. The Company recovered lost
revenue during the fourth quarter of 1996 as advertisers re-scheduled their
advertising campaigns.
Other revenue decreased for the three months ended September 30, 1997 primarily
due to a decline in block time revenue. Other revenue increased for the nine
months ended September 30, 1997 as a result of an increase in international
program sales, which was partially offset by the decline in block time revenue.
Direct operating costs increased by 6% and 7% for the three and nine month
periods ended September 30, 1997, respectively, from the corresponding periods
of the prior year. This was primarily the result of an increase in investment in
programming and production expenses, including those at WKAQ. In addition, the
nine months ended September 30, 1997 includes the costs of WSNS for the full
period. Excluding the impact of WSNS, direct operating costs would have
increased by 6% for the nine months ended September 30, 1997.
Selling, general and administrative expenses other than network and corporate
decreased by 3% and 2% for the three and nine months ended September 30, 1997,
respectively. This was primarily the result of cost reductions, particularly at
the station group.
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 16% for the three months ended
September 30, 1997, due primarily to the timing of certain expenses, but
increased by only 3% for the nine months ended September 30, 1997.
Corporate expenses decreased by 6% for the three months ended September 30,
1997, from the comparable period of the prior year, and approximated the
comparable period of the prior year for the nine months ended September 30,
1997.
10
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
As a result of the above, operating income before depreciation and amortization
decreased by $4.3 million and $8.9 million for the three and nine month periods
ended September 30, 1997, respectively, from the comparable periods of the prior
year.
Interest expense for the three and nine months ended September 30, 1997 totaled
$5.3 million and $15.5 million, respectively, as compared to $5.0 million and
$13.9 million for the corresponding periods of the prior year. Interest expense
for all 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 "10.5% 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, (iii)
amortization of deferred issuance costs for the 10.5% Notes, and (iv) interest
and fees on the Company's revolving credit facility. Interest expense was offset
by $26,000 and $93,000 of interest income for the three months ended September
30, 1997 and 1996, respectively, and by $188,000 and $215,000 for the nine
months ended September 30, 1997 and 1996, respectively.
Loss from investment in TeleNoticias of $3.1 million for the nine months ended
September 30, 1996 represents the Company's 42% share of Telenoticias del Mundo,
L.P.'s ("TeleNoticias") net loss, and related costs. From July 1994 through June
1996, Telemundo had held a 42% interest in TeleNoticias, an international
Spanish-language news service. On June 26, 1996, the Company acquired the
remaining 58% interest in TeleNoticias from its former partners for
approximately $5.1 million and sold substantially all of the assets and certain
liabilities of TeleNoticias to CBS Inc. for approximately $5.75 million, which
resulted in a loss on disposal of $2.4 million in 1996.
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 in 1996 is related to the
repurchase of the 10.25% Notes.
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 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'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.
11
<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 provided from (used in) operating activities were
$(6.8) million and $11.7 million for the nine months ended September 30, 1997
and 1996, respectively. The decrease was primarily the result of the decline in
operating income before depreciation and amortization coupled with increases in
certain asset accounts and decreases in certain liability accounts in the nine
months ended September 30, 1997, including accrued interest on the 10.5% Notes
and accounts payable.
The Company had working capital of $42.4 million at September 30, 1997.
The Company anticipates that capital expenditures of approximately $2.5 million
will be made during the remainder of 1997 for the general replacement or
upgrading of equipment and upgrading of facilities.
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 September 30, 1997. Approximately $6.6 million was outstanding under the
credit facility at October 31, 1997. During the quarter ended September 30,
1997, the Company had a $1.2 million letter of credit issued to secure an office
lease, which reduces the availability under the revolving credit facility by the
same amount. 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.
12
<PAGE>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
During the nine months ended September 30, 1997, the Company did not
file any reports on Form 8-K.
13
<PAGE>
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: November 14, 1997 Peter J. Housman II
(Chief Financial Officer and Treasurer)
14
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
27 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 2,197
<SECURITIES> 0
<RECEIVABLES> 51,509
<ALLOWANCES> 6,787
<INVENTORY> 0
<CURRENT-ASSETS> 72,513
<PP&E> 92,076
<DEPRECIATION> 26,172
<TOTAL-ASSETS> 281,447
<CURRENT-LIABILITIES> 30,099
<BONDS> 191,316
0
0
<COMMON> 102
<OTHER-SE> 25,712
<TOTAL-LIABILITY-AND-EQUITY> 281,447
<SALES> 139,427
<TOTAL-REVENUES> 139,427
<CGS> 0
<TOTAL-COSTS> 125,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,517
<INCOME-PRETAX> (11,934)
<INCOME-TAX> (3,133)
<INCOME-CONTINUING> (17,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,173)
<EPS-PRIMARY> (1.69)
<EPS-DILUTED> (1.69)
</TABLE>
