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, 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 May 13, 1997, 10,165,656 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 Months
Ended March 31, 1997 and 1996 (Unaudited)..................... 2
Consolidated Balance Sheets at March 31, 1997 (Unaudited)
and December 31, 1996......................................... 3
Consolidated Statement of Changes in Common Stockholders'
Equity for the Three Months Ended March 31, 1997 (Unaudited)... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 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............................ 12
SIGNATURES............................................................ 13
<TABLE>
<CAPTION>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended March 31 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Net revenue........................................ $ 39,100,000 $ 38,267,000
------------ ------------
Costs and expenses:
Direct operating costs........................... 24,078,000 22,086,000
Selling, general and administrative expenses
other than network and corporate............... 9,788,000 9,426,000
Network expenses................................. 5,936,000 5,965,000
Corporate expenses............................... 1,062,000 1,055,000
Depreciation and amortization.................... 3,490,000 2,981,000
------------ ------------
$ 44,354,000 41,513,000
------------ ------------
Operating loss................................... (5,254,000) (3,246,000)
Interest expense - net........................... (5,004,000) (3,820,000)
Loss from investment in TeleNoticias............. - (1,499,000)
------------ -------------
Loss before income taxes, minority interest and
extraordinary item............................... (10,258,000) (8,565,000)
Income tax provision............................... (1,097,000) (904,000)
Minority interest.................................. (702,000) (222,000)
Loss before extraordinary item (12,057,000) (9,691,000)
Extraordinary item - loss on extinguishment
of debt.......................................... - (17,243,000)
------------ ------------
Net loss........................................... $(12,057,000) $(26,934,000)
============ ============
Loss per share:
Loss before extraordinary item................... $(1.19) $ (.97)
Extraordinary item............................... - (1.72)
------ ------
Net loss......................................... $(1.19) $(2.69)
====== ======
Weighted average number of shares outstanding...... 10,156,000 10,000,000
========== ==========
See notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Assets March 31 December 31
1997 1996
- -------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................ $ 2,038,000 $ 12,587,000
Accounts receivable, less allowance for
doubtful accounts of $6,273,000 and
$5,943,000..................................... 39,401,000 51,824,000
Television programming........................... 13,218,000 14,062,000
Prepaid expenses and other....................... 7,730,000 7,685,000
----------- ------------
Total current assets 62,387,000 86,158,000
Property and equipment, net........................ 65,989,000 64,532,000
Television programming............................. 5,273,000 4,588,000
Other assets....................................... 7,312,000 7,451,000
Broadcast licenses and reorganization value in
excess of amounts allocable to
identifiable assets, net......................... 131,715,000 132,831,000
------------ ------------
$272,676,000 $295,560,000
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------
Current liabilities:
Accounts payable................................. $ 6,542,000 $ 8,831,000
Accrued expenses and other....................... 17,024,000 27,484,000
Television programming obligations............... 4,270,000 5,074,000
------------ ------------
Total current liabilities...................... 27,836,000 41,389,000
Long-term debt................................. 181,117,000 179,695,000
Capital lease obligations...................... 5,774,000 5,945,000
Television programming obligations................. 689,000 442,000
Other liabilities.................................. 21,062,000 19,950,000
------------ ------------
236,478,000 247,421,000
------------ ------------
Minority interest.................................. 5,268,000 5,246,000
------------ ------------
Contingencies and commitments
Common stockholders' equity:
Series A Common Stock, $.01 par value,
14,388,394 shares authorized,
6,966,895 and 6,621,983 shares outstanding
at March 31, 1997 and December 31, 1996........ 69,000 66,000
Series B Common Stock, $.01 par value, 5,611,606
shares authorized, 3,198,761 and 3,530,232
shares outstanding at March 31, 1997 and
December 31, 1996.............................. 33,000 36,000
Additional paid-in capital......................... 71,395,000 71,301,000
Retained earnings (deficit)........................ (40,567,000) (28,510,000)
------------ ------------
30,930,000 42,893,000
------------ ------------
$272,676,000 $295,560,000
============ ============
See notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (Unaudited)
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.................... - - - - - (12,057,000) (12,057,000)
Warrant conversions......... 13,441 - - - 94,000 - 94,000
Stock conversions........... 331,471 (331,471) 3,000 (3,000) - - -
--------- --------- ------- ------- ----------- ------------ ------------
Balance, March 31, 1997..... 6,966,895 3,198,761 $69,000 $33,000 $71,395,000 $(40,567,000) $30,930,000
========= ========= ======== ======= =========== ============
See notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
TELEMUNDO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $ (12,057,000) $(26,934,000)
Charges not affecting cash:
Depreciation and amortization................ 3,490,000 2,981,000
Interest accretion........................... 1,323,000 728,000
Loss from investment in TeleNoticias......... - 1,499,000
Minority interest......................... 702,000 222,000
Extraordinary item-extinguishment of
debt.................................... - 17,243,000
Changes in assets and liabilities:
Accounts receivable.......................... 12,423,000 7,561,000
Television programming....................... 159,000 524,000
Television programming obligations (557,000) 75,000
Accounts payable and accrued expenses
and other.................................. (11,416,000) (1,787,000)
-------------- ------------
(5,933,000) 2,112,000
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Video 44, net of cash
acquired..................................... - (43,793,000)
Additions to property and equipment............ (3,733,000) (1,592,000)
-------------- ------------
(3,733,000) (45,385,000)
-------------- ------------
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..... - (117,865,000)
Proceeds from exercise of warrants............. 94,000
Payments of obligations under capital leases... (177,000) (147,000)
Borrowings under credit facility............... 125,000 135,000
Payments under credit facility................. (25,000) (5,000,000)
Payments to minority partner................... (680,000) (206,000)
Other.......................................... (220,000) (322,000)
-------------- ------------
(883,000) 46,576,000
-------------- ------------
Increase (decrease) in cash and cash
equivalents.................................. (10,549,000) 3,303,000
Cash and cash equivalents, beginning of
period....................................... 12,587,000 3,199,000
-------------- ------------
Cash and cash equivalents, end of period....... $ 2,038,000 $ 6,502,000
============== ============
Supplemental cash flow information:
Interest paid................................ $ 6,745,000 $ 1,828,000
============== ============
Income taxes paid, including Puerto Rico
withholding taxes.......................... $ 796,000 $ 1,821,000
============== ============
Accrued liabilities for fees incurred in
connection with issuance of 10.5%
Senior Notes and Repurchase of
10.25% Notes.............................. - 1,217,000
============== ============
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 March 31, 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. NET LOSS PER SHARE
Net loss per share for the three months ended March 31, 1997
and 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 net loss per share are the same for each of these
periods.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share." 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 does not
believe the adoption will have a material effect.
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 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 "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").
The following summarized, unaudited pro forma results of
operations for the quarter ended March 31, 1996, assume the
Acquisition and refinancing occurred as of the beginning of
the quarter:
Three Months Ended March 31 1996
--------------------------------------------------
Net revenue....................... $ 40,729,000
Loss before extraordinary item.... (10,410,000)
Net loss.......................... (27,691,000)
Per Share:
Loss before extraordinary item.. $(1.04)
Net loss........................ (2.77)
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
59 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 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.
RESULTS OF OPERATIONS
Net revenue for the three months ended March 31, 1997 as
compared to the corresponding period of 1996 was as follows:
Three Months Ended
March 31
-------------------------------
1997 1996 Change
---------------- -------------- ------
Net Commercial Air Time:
Continental U.S.:
Network and National
Spot................. $15,659,000 $15,943,000 (2)%
Local.................. 9,341,000 9,090,000 3 %
----------- -----------
25,000,000 25,033,000 - %
Puerto Rico.............. 7,524,000 6,881,000 9 %
32,524,000 31,914,000 2 %
Other..................... 6,576,000 6,353,000 4 %
----------- -----------
$39,100,000 $38,267,000 2 %
=========== ===========
The decrease in network and national spot revenue is the
result of the lower average audience shares for the periods
impacting the current quarter, relative to the comparable
periods of the prior year, offset in part by the growth in
the overall Spanish-language television market. In addition,
the comparability of the results 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%. The Company's average share of the weekday
Spanish-language television network audience was 21% during the
fourth quarter of 1996 and 18% during the first quarter of 1997,
compared to 26% during both the fourth quarter of 1995 and the
first quarter of 1996. A change in audience share typically has a
delayed effect on revenue. The lower average audience shares will
continue to impact the Company's revenue for the second quarter.
The increase in local revenue is primarily the result of the
operations of WSNS being reflected for the entire quarter
ended March 31, 1997, which was offset in part by the ratings
decline. Excluding the impact of WSNS, local revenue would
have decreased by 6%.
The increase in commercial air time revenue in Puerto Rico is
the result of WKAQ obtaining a larger share of the overall
advertising market which grew slightly during the quarter.
Other revenue increased primarily due to sales of blocks of
broadcast time, international program sales, and the
acquisition of WSNS. Excluding the impact of WSNS, other
revenue would have increased by less than 1%.
Direct operating costs increased by 9% for the three months
ended March 31, 1997 from the corresponding period of the
prior year. This was the result of an increase in
programming expenses, as well as costs attributable to WSNS
for the entire quarter. Excluding the impact of WSNS, direct
operating costs would have increased by 7%.
Selling, general and administrative expenses other than
network and corporate increased by 4% for the quarter ended
March 31, 1997 which was primarily the result of the
acquisition of WSNS. Excluding the impact of WSNS, such
expenses would have increased by 2%.
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 less than 1% in 1997.
Corporate expenses increased by less than 1% from the
comparable period of the prior year.
As a result of the above, the operating loss before
depreciation and amortization increased by $1.5 million from
the comparable period of the prior year.
Interest expense for the three months ended March 31, 1997
totaled $5.0 million as compared to $3.8 million for the
corresponding period of the prior year. Interest expense for
both 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 "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 Senior Notes, and (iv)
interest and fees on the Company's revolving credit facility.
Interest expense was offset by $126,000 and $90,000 of
interest income for the three months ended March 31, 1997 and
1996, respectively.
Loss from investment in TeleNoticias of $1.5 million for the
three months ended March 31, 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.
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 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.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's cash flows provided from (used in) operating
activities were $(6.6) million and $1.6 million for the three
months ended March 31, 1997 and 1996, respectively. The
decrease was primarily the result of the decrease in
operating income before depreciation and amortization and the
semi-annual interest payment on the 10.5% Senior Notes in the
three months ended March 31, 1997.
The Company had working capital of $34.6 million at March 31,
1997.
The Company anticipates that capital expenditures of
approximately $5.9 million will be made during the remainder
of 1997 for the general replacement or upgrading of equipment
at all stations 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
March 31, 1997. Approximately $2.6 million was outstanding
under the credit facility at April 30, 1997. 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 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
-------------------
During the three months ended March 31, 1997, the
Company did not file any reports on Form 8-K.
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 14, 1997 Peter J. Housman II
(Chief Financial Officer and Treasurer)
