<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1994 COMMISSION FILE NUMBER 1-5706
------------------ ------
================================================================================
THE ACTAVA GROUP INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 58-0971455
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 Georgia-Pacific Center, Atlanta, Georgia 30303
--------------------------------------------- ----------
(Address of principal executive office) (ZIP Code)
Registrant's telephone number, including area code 404/658-9000
------------
Not Applicable
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Former name, former address and former fiscal year, if changed since last
report
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of October 31, 1994
- 18,368,067 shares of Common Stock.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1994 1993
------------- ------------
CURRENT ASSETS (UNAUDITED)
<S> <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,858 $ 18,770
Short-term investments . . . . . . . . . . . . . . . . . 63,858 29,635
Receivables (less allowances for doubtful accounts of
$9,357 in 1994 and $10,227 in 1993). . . . . . . . . . 167,997 276,018
Current portion of notes receivable. . . . . . . . . . . 98,132 --
Inventories . . . . . . . . . . . . . . . . . . . . . . 71,838 108,439
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 7,981 43,809
Future income tax benefits . . . . . . . . . . . . . . . 25,099 32,434
---------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . 455,763 509,105
PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . 116,466 474,235
Less allowances for depreciation . . . . . . . . . . . . (46,468) (198,881)
---------- ----------
69,998 275,354
NOTES RECEIVABLE FROM TRITON GROUP LTD . . . . . . . . . . 17,976 26,726
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . 20,696 50,702
LONG-TERM INVESTMENTS . . . . . . . . . . . . . . . . . . -- 26,611
INTANGIBLES . . . . . . . . . . . . . . . . . . . . . . . 18,804 386,626
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $ 583,237 $1,275,124
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and
other current liabilities . . . . . . . . . . . . . . $ 126,911 $ 263,883
Notes payable . . . . . . . . . . . . . . . . . . . . . 90,982 135,114
Current portion of long-term debt . . . . . . . . . . . 4,087 6,665
---------- ----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . 221,980 405,662
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . 33,444 56,715
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . 2,579 220,887
SUBORDINATED DEBT . . . . . . . . . . . . . . . . . . . . 187,227 190,551
MINORITY INTEREST IN PHOTOFINISHING SUBSIDIARY . . . . . . -- 205,395
REDEEMABLE COMMON STOCK . . . . . . . . . . . . . . . . . 12,000 12,000
STOCKHOLDERS' EQUITY
Common Stock (22,767,744 shares in 1994 and 1993) . . . 22,768 22,768
Additional capital . . . . . . . . . . . . . . . . . . . 35,491 46,362
Retained earnings. . . . . . . . . . . . . . . . . . . . 174,979 236,333
Less treasury stock - at cost (5,490,327 shares in
1994 and 6,223,467 in 1993). . . . . . . . . . . . . . (107,231) (121,549)
---------- ----------
126,007 183,914
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . $ 583,237 $1,275,124
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
CONSOLIDATED STATEMENTS OF OPERATIONS
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993(A) 1994 1993(A)
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . $124,497 $113,746 $403,711 $326,200
Operating Costs and Expenses
Cost of products sold . . . . . . . . . 105,711 100,791 339,199 271,265
Selling, general and administrative
expenses . . . . . . . . . . . . . . . 18,815 22,362 67,995 59,956
Provision for doubtful accounts . . . . 966 1,070 1,694 2,791
-------- -------- -------- --------
OPERATING LOSS . . . . . . . . . . . . (995) (10,477) (5,177) (7,812)
Interest (expense). . . . . . . . . . . . (6,404) (6,803) (21,226) (19,371)
Other income - net. . . . . . . . . . . . 2,133 582 2,874 4,337
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES, DISCONTINUED
OPERATIONS AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE. . . . (5,266) (16,698) (23,529) (22,846)
Income taxes benefit. . . . . . . . . . . -- (415) -- (1,554)
-------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS. . . . (5,266) (16,283) (23,529) (21,292)
DISCONTINUED OPERATIONS
Income (loss) from operations . . . . . -- 7,236 (2,835) 9,088
Loss on disposal of business. . . . . . -- -- (37,858) --
-------- -------- -------- --------
Income (loss) from
discontinued operations . . . . . . -- 7,236 (40,693) 9,088
LOSS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE . . (5,266) (9,047) (64,222) (12,204)
Cumulative effect of change in
accounting principle . . . . . . . . . . -- -- -- (4,404)
-------- -------- -------- --------
NET LOSS . . . . . . . . . . . . . . . $ (5,266) $ (9,047) $(64,222) $(16,608)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Continuing operations . . . . . . . . . $ (.29) $ (.92) $ (1.30) $ (1.25)
Discontinued operations . . . . . . . . -- .41 (2.26) .53
Cumulative effect of change in
accounting principle . . . . . . . . . -- -- -- (.26)
-------- -------- -------- --------
Primary and fully diluted . . . . . . . $ (.29) $ (.51) $ (3.56) $ (.98)
======== ======== ======== ========
CASH DIVIDENDS PER COMMON SHARE . . . . $ -- $ .09 $ -- $ .27
======== ======== ======== ========
AVERAGE COMMON AND
COMMON EQUIVALENT SHARES . . . . . . . 18,339 17,635 18,059 17,003
======== ======== ======== ========
</TABLE>
(A) Restated for discontinued operations.
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
---------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993(A)
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations . . . . . . . . . . . . $(23,529) $ (21,292)
Cumulative effect of change in accounting principle. . . -- 4,404
-------- ----------
Loss before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . (23,529) (16,888)
Items providing cash from operations . . . . . . . . . . 48,244 9,213
-------- ---------
Net cash provided by continuing operations . . . . . 24,715 (7,675)
-------- ---------
Income (loss) from discontinued operations . . . . . . . . (40,693) 9,088
Items providing cash from discontinued operations . . . 37,862 18,119
-------- ---------
Net cash provided (used) by discontinued
operations . . . . . . . . . . . . . . . . . . . . (2,831) 27,207
-------- ---------
Net Cash Provided by Operating Activities . . . . . 21,884 19,532
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (maturities over 90 days) . . . (52,584) (54,280)
Sales of investments (maturities over 90 days) . . . . . 56,168 73,289
Net sales (purchase) of other investments
(maturities less than 90 days) . . . . . . . . . . . . (37,807) 3,479
Payments for property, plant & equipment . . . . . . . . (23,071) (49,710)
Proceeds from disposals of property, plant & equipment . 4,375 17,573
Collections on notes receivable . . . . . . . . . . . . 483 1,760
Proceeds from sale of business . . . . . . . . . . . . . 50,000 --
Payments for purchases of businesses . . . . . . . . . . -- (28,311)
Payments from Triton Group Ltd . . . . . . . . . . . . . 3,750 --
Payments for other intangibles . . . . . . . . . . . . . -- (872)
Other investing activities - net . . . . . . . . . . . . (8,164) (6,159)
-------- ---------
Net Cash (Used) by Investing Activities . . . . . . (6,850) (43,231)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under short-term
bank agreements. . . . . . . . . . . . . . . . . . . . (37,082) 34,900
Borrowings under other long-term debt agreements . . . . 228,575 958
Payments on long-term debt agreements . . . . . . . . . (195,015) (10,349)
Payments of subordinated debt . . . . . . . . . . . . . (3,750) (1,847)
Proceeds from issuance of Actava common stock . . . . . 4,776 --
Cash dividends paid by Qualex to minority interest . . . (10,450) (7,714)
Cash dividends paid by The Actava Group . . . . . . . . -- 11,285
-------- ---------
Net Cash (Used) by Financing Activities . . . . . . (12,946) (12,414)
-------- ---------
DECREASE IN CASH . . . . . . . . . . . . . . (2,088) 22,792
Cash at beginning of year . . . . . . . . . . . . . . . . 18,770 20,792
-------- ---------
CASH AT SEPTEMBER 30. . . . . . . . . . . . . $ 20,858 $ 8,378
======== =========
</TABLE>
(A) Restated for discontinued operations.
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair statement of
the results of operations and financial position for the interim periods
presented. All such adjustments are of a normal recurring nature. Operating
results for the nine months ended September 30, 1994 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1994. These condensed consolidated financial statements should be read in
conjunction with the Company's audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1993.
CHANGES IN ACCOUNTING PRINCIPLES
Change in Method of Accounting for Income Taxes
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes". Under Statement 109, the liability method is
used in accounting for income taxes: deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior to
the adoption of Statement 109, income tax expense was determined using the
deferred method: deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and tax
returns and were measured at the tax rate in effect in the year the difference
originated.
As permitted by Statement 109, the Company has elected not to restate
the financial statements of any prior years. The presentation of some items,
such as depreciation, has changed; however, the cumulative effect of the change
in accounting principle on pre-tax income, net income, and the effective tax
rate for continuing and discontinued operations was not material.
Change in Method of Accounting for Postretirement Benefits
Effective January 1, 1993, the Company adopted FASB Statement No. 106,
"Accounting for Postretirement Benefits Other Than Pensions". The Company and
its subsidiaries provide group medical plans and life insurance coverage for
certain employees subsequent to retirement. The plans have been funded on a
pay-as-you-go (cash) basis. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing features such
as deductibles, coinsurance and life-time maximums. The plan accounting
anticipates future cost-sharing changes that are consistent with the Company's
expressed intent to increase the retiree contribution rate annually for the
expected medical trend rate for that year. The coordination of benefits with
medicare uses a supplemental, or exclusion of benefits, approach.
As permitted by Statement 106, the Company elected to immediately recognize
the effect in the statement of operations for the first quarter of 1993 as a
$4,404,000 charge to net income as the cumulative effect of a change in
accounting principle. The annual net periodic postretirement benefit expense
for 1993 decreased by
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
CHANGES IN ACCOUNTING PRINCIPLES - (Continued)
as a result of adopting the new rules. The annual net periodic
postretirement benefit expense for 1994 will be $240,000. The assumed health
care cost trend rate used to measure the expected cost of benefits by the plan
for 1993 was 14%, with 1% decrements to 6% in 2001 and years thereafter. A 7%
discount rate per year, compounded annually, was assumed to measure the
accumulated postretirement benefit obligation as of December 31, 1993. A 1%
increase in the assumed health care cost trend rate would increase the net
postretirement benefit obligation as of December 31, 1993, by 16% and the net
periodic postretirement benefit cost by 18%.
Change in Method of Accounting for Postemployment Benefits
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." The Company and its subsidiaries provide benefits to former or
inactive employees after employment but before retirement such as severance
benefits, disability-related benefits (including workers' compensation), and
continuation of health care benefits and life insurance coverage. The
cumulative effect as of January 1, 1994, of this change in accounting was not
material. Prior to January 1, 1994, the Company recognized the cost of
providing some postemployment benefits on a cash basis while substantially all
other postemployment benefits were accounted for in the Company's
self-insurance program. Under the new method of accounting, the Company will
accrue benefits when it becomes probable that such benefits will be paid and
when sufficient information exists to make reasonable estimates of the amounts
to be paid. As required by Statement 112, prior year financial statements have
not been restated to reflect the change in accounting method.
Change in Method of Accounting for Certain Investments in Debt and Equity
Securities
The Company and its subsidiaries invest in various debt and equity
securities. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities", which requires certain debt securities to be
reported at amortized cost, certain debt and equity securities to be reported
at market with current recognition of unrealized gains and losses, and certain
debt and equity securities to be reported at market with unrealized gains and
losses as a separate component of shareholders' equity. The Company adopted
the provisions of the new standard for investments held as of or acquired after
January 1, 1994. In accordance with the Statement, prior period financial
statements have not been restated to reflect the change in accounting
principle. The cumulative effect as of January 1, 1994, of adopting Statement
115 was not material.
REDEEMABLE COMMON STOCK
Redeemable common stock represents 1,090,909 shares of common stock
issued in connection with the acquisition of substantially all the assets and
liabilities of Diversified Products Corporation. These shares are subject to a
right of redemption at the option of the holder with an exercise date of
February 3, 1995 and therefore are not included in stockholders' equity. On
August 3, 1994 the original exercise date of August 7, 1994, was extended by the
holder to February 7, 1994 in exchange for a $435,000 fee and the initiation of
a $12,000,000 irrevocable letter of credit.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
SALE OF SPORTS GROUP
On July 20, 1994, the Company entered into a definitive agreement with
Roadmaster Industries, Inc. ("Roadmaster") to combine the Company's four sports
companies with Roadmaster in exchange for 19,169,000 shares of common stock of
Roadmaster.
QUALEX INC. - DISCONTINUED OPERATIONS
Qualex Inc. is a photofinishing business which was formed in March 1988 by
the combination of Actava's photofinishing operations with the domestic
photofinishing operations of Eastman Kodak Company. Prior to June 30, 1994,
Actava owned 51% of the voting stock of Qualex, was entitled to and elected a
majority of the members of the Board of Directors of Qualex, and had the
ability through its control of the Board of Directors to declare dividends,
remove the executive officers of Qualex and otherwise direct the management and
policies of Qualex, except for policies relating to certain designated actions
requiring the consent of at least one member of the Board of Directors of
Qualex designated by Kodak. Because of these rights, the Company believes that
it had effective unilateral control of Qualex which was not temporary during
the period from 1988 until the second quarter of 1994. As a result, the
Company consolidated the results of operations of Qualex with the results of
operations of the Company for periods ending prior to June 30, 1994.
Upon the formation of Qualex in 1988, the Company and Kodak entered into a
Shareholders Agreement (the "Qualex Shareholders Agreement") that provided,
among other things, for a reduction in the Company's voting control of Qualex
from 51% to 50% and for changes in the composition of the Board of Directors of
Qualex in the event of a "change in control" of the Company. The Qualex
Shareholders Agreement defined the term "change in control" to include a
"transaction or occurrence the effect of which is to give a person or group of
affiliated persons or entities the power to direct the management and policies"
of the Company.
In 1991, Charles R. Scott was elected President and Chief Executive Officer
of the Company. At the time of his election, Mr. Scott was also serving as
Chairman and Chief Executive Officer of a company that owned approximately 25%
of the Company's voting stock and was the Company's single largest stockholder.
Because Mr. Scott was serving at the same time as the chief executive officer
of both the Company and the Company's single largest stockholder, the Company
and Kodak agreed that a "change in control" had occurred for purposes of Qualex
Shareholders Agreement. Despite this "change in control" of the Company, Kodak
agreed that the Company would continue to own 51% of the voting control of
Qualex and to elect a majority of the directors of Qualex. The Qualex
Shareholders Agreement, however, was amended to provide that Kodak had the
right to change the Company's control of Qualex on March 1, 1992 or on any
subsequent March 1. During the period from 1991 until the second quarter of
1994, the Company did not believe that Kodak would exercise the right to change
the Company's control of Qualex, and Kodak, in fact, did not exercise this
right on March 1, 1992, 1993 or 1994.
John D. Phillips was elected as President and Chief Executive Officer of the
Company on April 19, 1994. In late April 1994, the Company's management became
aware of Kodak's position that the election of Mr. Phillips as President and
Chief Executive Officer of the Company resulted in a "change in control" of the
Company under the Qualex Shareholders Agreement. The Company, however, did not
believe that the election of Mr. Phillips constituted a "change in control" of
the Company as defined in the Qualex Shareholders Agreement. This belief was
based in part on the fact that (i) Mr. Phillips beneficially owned less than 4%
of the Company's voting stock at the time of his election, (ii) Delaware
corporate law, under which the Company is governed,
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
provides that the business and affairs of a corporation shall be managed by and
under the direction of the board of directors - not the president, and (iii)
eight of the nine members of the Board of Directors of the Company after the
election of Mr. Phillips were serving as directors before the election of Mr.
Phillips. Although Kodak had informed the Company of its position that a
"change in control" of the Company had occurred, the Company believed that the
issue would be resolved without a change in control of Qualex. At a meeting
held on June 8, 1994, Kodak restated its position that the election of Mr.
Phillips constituted a "change in control" of the Company under the Qualex
Shareholders Agreement and requested that changes be made in the Company's
voting control of Qualex and in the composition of the Board of Directors of
Qualex. The disagreement between the Company and Kodak as to whether or not a
"change in control" had occurred was resolved at this meeting when the Company
agreed that it would not contest Kodak's interpretation of the Qualex
Shareholders Agreement. As a result, on June 30, 1994, the Company's
ownership of the voting stock of Qualex was reduced to 50% and the Company and
Kodak each became entitled to elect an equal number of members of the Board of
Directors of Qualex. Because of these changes affecting the Company's control
of Qualex, the Company discontinued its practice of consolidating the accounts
of Qualex and began accounting for its ownership in Qualex under the equity
method effective as of June 30, 1994.
FINANCIAL POSITION OF QUALEX
($000'S)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Cash and short-term investments . . . . . . $ -- $ 4,060
Net accounts receivable. . . . . . . . . . . 82,272 69,015
Inventories. . . . . . . . . . . . . . . . . 28,078 29,381
Other assets . . . . . . . . . . . . . . . . 30,745 38,153
-------- --------
Total current assets . . . . . . . . . 141,095 140,609
Net property, plant and equipment. . . . . . 198,642 202,150
Other assets . . . . . . . . . . . . . . . . 40,632 30,413
Long-term investments. . . . . . . . . . . . 26,868 26,611
Intangibles. . . . . . . . . . . . . . . . . 367,188 371,106
-------- --------
Total assets . . . . . . . . . . . . . $774,425 $770,889
======== ========
Current liabilities. . . . . . . . . . . . . $119,928 $130,845
Deferred income taxes. . . . . . . . . . . . 22,402 22,446
Long-term debt . . . . . . . . . . . . . . . 260,167 217,987
Stockholders' equity . . . . . . . . . . . . 371,928 399,611
-------- --------
Total liabilities &
stockholders' equity . . . . . . . . $774,425 $770,889
======== ========
</TABLE>
In June 1994, the Company decided to sell its interest in Qualex and engaged
in negotiations with Kodak regarding the sale of such interest. Accordingly,
the results of Qualex for all years presented are reported in the accompanying
statements of operations under discontinued operations. In the second quarter
of 1994, the Company provided for an anticipated loss of $37,858,000 on the
sale of its interest in Qualex and a related covenant not to compete and
release. No income tax expenses or benefits were recognized due to the
Company's net operating loss carryforwards and recognition of tax benefits in
prior periods.
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
On August 12, 1994, Kodak purchased all the Company's interest in Qualex and
obtained a covenant not to compete and related releases from the Company in
exchange for $50,000,000 in cash and a promissory note in the principal amount
of $100,000,000. The promissory note is payable in installments of $50,000,00
each, without interest, on February 13, 1995 and August 11, 1995. Because the
principal amount due under the note does not bear interest, the Company
discounted the value of the note to $92,832,000 and will record imputed
interest income of $7,168,000 over the term of the note. All amounts received
in exchange for the covenant not to compete and release were included in the
computation of the anticipated loss on the sale of Qualex.
Effective with the second quarter of 1994, the results of operations of
Qualex have been reclassified from income from continuing operations to income
from discontinued operations and are as follows:
RESULTS OF OPERATIONS OF QUALEX
Reported by Actava
($000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales . . . . . . . . . . $ - $230,733 $333,970 $595,427
Operating expenses. . . . . . - 199,645 342,134 548,796
-------- -------- -------- --------
Operating profit (loss) . . . - 31,088 (8,164) 46,631
Interest (expense). . . . . . - (3,945) (8,582) (12,517)
Other income (expense). . . . - (784) (439) (883)
-------- -------- -------- --------
Income before tax . . . . . . - 26,359 (17,185) 33,231
Income taxes (benefit). . . . - 11,887 (11,514) 15,055
-------- -------- -------- --------
Net income (loss) from
discontinued operations
before minority interest . . - 14,472 (5,671) 18,176
Minority interest . . . . . . - (7,236) 2,836 (9,088)
-------- -------- -------- --------
Net income (loss) from
discontinued operations. . . $ - $ 7,236 $ (2,835) $ 9,088
======== ======== ======== ========
</TABLE>
ACQUISITIONS
On June 8, 1993, the Company acquired substantially all the assets of
Diversified Products Corporation ("DP") for a net purchase price consisting of
$11,629,500, the issuance of 1,090,909 shares of the Company's Common Stock
valued at $12,000,000, and the assumption or payment of certain liabilities
including trade payables and a revolving credit facility. The Company recorded
redeemable common stock, which is not presented as a component of stockholders'
equity, in the amount of $12,000,000 for the issuance of the stock. The
Company also entered into an agreement which obligated the Company under
certain conditions, all of which have been satisfied, to repurchase the shares
of Common Stock issued in the acquisition for $12,000,000 at the option of the
holder of such shares. SEE "REDEEMABLE COMMON STOCK" IN NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS. The repurchase of such shares will not increase the
Company's investment in DP since the cost of DP will be increased by the amount
of the cash payment and simultaneously reduced by the same amount due to a
corresponding adjustment in the redeemable common stock account. This
transaction was accounted for using the purchase method of accounting;
accordingly, the purchased assets and liabilities have been recorded at their
estimated fair value at the date of the acquisition. The purchase price
resulted in an excess of costs over net assets acquired of approximately
$15,472,000. The results of operations of the acquired business have been
included in the consolidated financial statements since the date of
acquisition.
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
INVENTORIES
Inventory balances are summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------ -------------
<S> <C> <C>
Finished goods and goods purchased for resale . . $ 64,545 $ 82,559
Raw materials and supplies . . . . . . . . . . . . 28,723 46,018
-------- --------
93,268 128,577
Reserve for LIFO cost valuation . . . . . . . . . (21,430) (20,138)
-------- --------
$ 71,838 $108,439
======== ========
</TABLE>
Work in process is not considered significant.
OTHER INCOME (EXPENSE) - NET
Other income (expense) is summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
------- ------- ------- --------
<S> <C> <C> <C> <C>
Interest and investment income . . $ 2,643 $ 1,161 $ 4,542 $ 4,918
Miscellaneous income . . . . . . . 147 -- 418 817
Miscellaneous (expense). . . . . . (657) (579) (2,086) (1,398)
------- ------- ------- -------
$ 2,133 $ 582 $ 2,874 $ 4,337
======= ======= ======= =======
</TABLE>
Early payment interest credit expense results from cash payments received by
Snapper from distributors prior to receivable due dates which reduce accrued
interest and increase miscellaneous (expense)-net. The early payment interest
credit expense was $965,000 and $357,000 for the three month periods ended
September 30, 1994 and 1993, respectively, and $3,075,000 and $2,101,000 for
the nine month periods ended September 30, 1994 and 1993, respectively.
INCOME TAXES
Income tax expense is based upon statutory tax rates and book income or loss
adjusted for permanent differences between book and taxable income or loss.
The Company's businesses may have an annual effective tax rate which is above
or below statutory rates depending upon the amount of earnings from any
short-term tax advantaged investments and other items. For the nine month
periods ended September 30, 1994 and 1993, the Company has not recognized a tax
benefit for its losses due to limitations from prior period recognition.
During the year, the Company provides for income taxes using anticipated
effective annual tax rates for all Company operations. The rates are based on
expected operating results for the year, estimated permanent differences
between book and tax income, and estimated utilization of any net operating
loss carryovers.
Effective January 1, 1993, the Company changed its method of accounting for
income taxes as required by FASB Statement No. 109, "Accounting for Income
Taxes" (See "Changes in Accounting Principles - Change in Method of Accounting
for Income Taxes"). The adoption of Statement No. 109 did not have a material
effect on net income and the Company's effective tax rate.
10
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
LITIGATION
In 1991, three lawsuits were filed against the Company, certain of the
Company's current and former directors and Intermark, Inc., which then owned
approximately 26% of the Company's Common Stock. One complaint alleged, among
other things, a long-standing pattern and practice by the defendants of
misusing and abusing their power as directors and insiders of the Company by
manipulating the affairs of the Company to the detriment of the Company's past
and present stockholders. The complaint sought monetary damages from the
director defendants, injunctive relief against the Company, Intermark and its
current directors, and costs of suit and attorneys' fees. The other two
complaints alleged, among other things, that members of the Company's Board of
Directors contemplate either a sale, a merger, or other business combination
involving Intermark and the Company or one or more of its subsidiaries or
affiliates. The complaints sought costs of suit and attorneys' fees and
preliminary and permanent injunctive relief and other equitable remedies,
including an order requiring the director defendants to carry out their
fiduciary duties and to take all appropriate steps to enhance the Company's
value as a merger/acquisition candidate. These three suits were consolidated
on May 1, 1991 and are still in their preliminary stages. Management does not
believe that these actions will materially affect the operations or financial
position of the Company.
On November 30, 1993, a lawsuit was filed by the Department of Justice
("DOJ") against American Seating Company ("American Seating"), a former
subsidiary of Actava, in the United States District Court for the Western
District of Michigan. The lawsuit is captioned United States v. American
Seating Co., Civil Action No. 1:93-CV-956. Pursuant to an asset purchase
agreement between Actava and Amseco Acquisition, Inc., dated July 5, 1987,
Actava assumed the obligation for certain liabilities incurred by American
Seating arising out of litigation or other disputes involving events occurring
on or before June 22, 1987. The DOJ alleges among other things that American
Seating failed to disclose certain information relating to its price discount
practices that it contends was required in an offer submitted by American
Seating to the General Services Administration for possible contracts for sales
of systems furniture and related services. The complaint seeks recovery of
unspecified single and treble damages, penalties, costs and prejudgment and
post-judgment interest. The parties have engaged in settlement discussions but
have not agreed on a disposition of the case. A trial, if necessary, has been
scheduled for June 1995. The DOJ has asserted damages of approximately
$3,500,000. If such damages were awarded and then trebled, the total damages,
excluding penalties, costs and interest, could exceed $10,000,000. In
addition, penalties, if assessed, could range from several thousand dollars to
several million dollars. As a result, the lawsuit could have a material effect
on the results of operations and financial condition of the Company.
Management, however, believes that American Seating has meritorious defenses to
the allegations made by the DOJ and does not expect the Company to incur any
material liability as a result of this suit.
Actava is a defendant in various other legal proceedings. SEE PART II, ITEM
2. LEGAL PROCEEDINGS. The Company is not aware, however, of any action which,
in the opinion of management, will materially affect the financial position,
results of operations or liquidity of the Company.
CONTINGENT LIABILITIES AND COMMITMENTS
Actava, on behalf of its Snapper division, has an agreement with a financial
institution which makes available to dealers floor plan financing for Snapper
products. This agreement provides financing for dealer inventories and
accelerates cash flow to Snapper's distributors and to Snapper. Under the
terms of the agreement, a default in payment by one of the dealers on the
program is non-recourse to both the distributor and to Snapper. The
distributor, however, is obligated to repurchase any equipment recovered from
the dealer and Snapper is
11
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
obligated to repurchase the recovered equipment if the distributor defaults.
At December 31, 1993 and 1992, there was approximately $23,000,000 and
$20,000,000, respectively, outstanding under these floor plan financing
arrangements. At September 30, 1994 and 1993, there was approximately
$27,000,000 and $19,000,000, respectively, outstanding under these floor plan
financing arrangements.
Actava is contingently liable under various guarantees of debt totaling
approximately $6,100,000. The debt is primarily Industrial Revenue Bonds which
were issued by former subsidiaries to finance their manufacturing facilities
and equipment, and is secured by the facilities and equipment. In addition,
upon the sale of the subsidiaries, Actava received lending institution
guarantees under bank letters of credit to secure indemnification undertakings
provided to Actava by the purchaser of the subsidiaries. There are no material
defaults on the debt agreements guaranteed by Actava.
Actava is contingently liable under various real estate leases of former
subsidiaries. The total future payments under these leases, including real
estate taxes, is estimated to be approximately $3,500,000. The leased
properties generally have financially sound subleases.
DP handles and stores various materials in the normal course of business that
have been classified as hazardous by various federal, state and local
regulatory agencies. DP is continuing to conduct tests at its sites and will
perform any necessary cleanup where and to the extent legally required. At
those sites where tests have been completed, cleanup costs have been
immaterial. The Company may also be liable for remediation of environmental
damage relating to businesses previously sold in excess of amounts accrued. At
the sites currently being tested, it is management's opinion that cleanup costs
will not have a material effect on Actava's financial position or results of
operations.
At September 30, 1994, approximately $5,000,000 of Actava's cash and
short-term investments were pledged to secure a Snapper credit line,
$12,000,000 was pledged to secure a letter of credit issued with regard to the
Company's redeemable stock, and $1,000,000 was pledged to secure certain
advances under an Actava Sports company credit facility.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Actava currently provides high-quality, brand-name consumer products through
distribution channels to retail markets across the United States. As a result
of the sale of its interest in Qualex, Actava presently operates in two
distinct businesses: lawn and garden equipment and sporting goods. Actava has
announced plans to combine its four sporting goods companies with Roadmaster.
The Company consolidated the results of operations of Qualex with the results
of operations of the Company for periods ending prior to June 30, 1994. During
the second quarter of 1994, the Company began accounting for its investment in
Qualex under the equity method. Also during the second quarter of 1994, the
Company made a decision to dispose of its interest in Qualex and began
accounting for Qualex as a discontinued operation. On August 12, 1994, Actava
sold its investment in Qualex to Kodak. Accordingly, the results of Qualex for
all periods presented are reported in the accompanying consolidated statements
of operations as discontinued operations. SEE "QUALEX INC. - DISCONTINUED
OPERATIONS" IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
Actava's Snapper Division manufactures Snapper(R) brand power lawnmowers,
lawn tractors, garden tillers, snow throwers, and related products, parts and
accessories and distributes blowers, string trimmers and edgers. The
lawnmowers include rear engine riding mowers, front engine riding mowers or
lawn tractors, and walk-behind mowers. Snapper also manufactures a line of
commercial lawn and turf equipment and markets a fertilizer line under the
Snapper(R) brand.
Actava Sports companies manufacture, import and distribute products for a
broad cross-section of the sporting goods, fitness and leisure markets.
Products are sold under a variety of Actava companies' own brand names, as well
as under licenses from the National Football League, National Basketball
Association, Major League Baseball, The Walt Disney Company, Inc., Remington
Arms Company, Inc., The Keds Corporation (Keds(R) and Pro-Keds(R)), Body by
Jake Licensing Corporation (Body by Jake(R)), and numerous colleges and
universities.
On July 20, 1994, Actava entered into a definitive agreement with Roadmaster
under which the four companies within the Actava Sports group will be combined
with Roadmaster. Under the terms of the agreement, and upon consummation of
the transaction, Actava would transfer its sporting goods companies to
Roadmaster in exchange for approximately 19.2 million shares of Roadmaster
common stock, which will represent approximately 39% of Roadmaster's
outstanding stock. The value of Actava's investment in Roadmaster would be
approximately $71.9 million based on the $3.75 closing price for Roadmaster
common stock on September 30, 1994 and approximately $64.7 million based on the
$3.375 closing price for Roadmaster common stock on November 9, 1994. The
accounting treatment of the transaction for Actava will depend upon the value
of Roadmaster common stock (the "Stock Value") as of the consummation of the
transaction ("Closing Date") and Actava's book value for the four companies
within the Actava Sports group as of the Closing Date (the "Book Value"). If
the Stock Value exceeds the Book Value as of the Closing Date, no gain will be
realized by Actava for accounting purposes, and Actava will record its
investment in Roadmaster on its books at an amount equal to the Book Value. On
the other hand, if the Book Value exceeds the Stock Value as of the Closing
Date, then Actava will record a loss upon consummation of the transaction in an
amount equal to the difference between the Book Value and the Stock Value. The
value of the Roadmaster common stock received in the combination will be
determined by its market price on the closing date of the transaction. The
book value of the Actava sporting goods companies, as adjusted by certain debt
which will be repaid to Actava as a result of the transaction, was $71.5
million as of September 30, 1994. Actava will not classify the sporting goods
companies as a discontinued operation due to the interest retained by Actava as
represented by its approximately 39% equity investment in Roadmaster. On
October 31, 1994, the proposed Roadmaster transaction was approved by the
shareholders of Roadmaster. Actava has scheduled a special meeting of its
shareholders to be held on December 6, 1994 for the purpose of considering and
voting upon the proposed Roadmaster transaction. The Company anticipates that
this transaction will be closed in December of 1994.
The Company is presently evaluating new opportunities and strategies for
enhancing stockholder value. On August 31, 1994, the Company entered into
letters of intent providing for a proposed combination of the Company with
Orion Pictures Corporation ("Orion"), MCEG Sterling Incorporated ("MCEG
Sterling"), and Metromedia International Telecommunications Inc. ("MITI") (the
"Proposed Metromedia Transaction"). It is contemplated that the surviving
entity of the Proposed Metromedia Transaction would be a global media,
entertainment and communications company named Metromedia International Group,
Inc. Consummation of the Proposed Metromedia Transaction is subject to a
number of conditions, including completion of due diligence investigations by
each of the parties, negotiation and execution of definitive agreements, the
successful refinancing of the currently outstanding indebtedness of Orion, and
approval of the transaction by Actava's Board of Directors and stockholders.
There can be no assurance that the parties will negotiate and enter into
definitive agreements or, even if definitive agreements are executed, that the
various conditions to the trans-action will be satisfied and that the Proposed
Metromedia Transaction will be consummated. Accordingly, the Company does not
believe that consummation of the Proposed Metromedia Transaction is probable
for reporting purposes under the rules of the Securities and Exchange
Commission.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
The following is a discussion of the operating results of each of the
continuing operations of the Company and the operating results and financial
position of the Company on a consolidated basis. Financial information
summarizing the operating performance of Qualex, which is classified in
discontinued operations, is presented in "QUALEX INC. - DISCONTINUED
OPERATIONS" IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Lawn and Garden: Snapper's sales to distributors increased by $6.7 million, or
19.6%, to $40.8 million in the third quarter of 1994 from $34.1 million in the
same 1993 period. This sales increase was primarily due to 1994 third quarter
snowthrower sales increases of $17.1 million over 1993 third quarter sales.
The snowthrower sale increase was offset by lower sales of walk mowers, riders
and tractors in the amount of $9.9 million due to utilization of the factory in
the third quarter for snowthrower production and shipment. Snapper's third
quarter gross profit increased by $3.9 million, or 111.7%, to $7.3 million in
1994 from $3.4 million in 1993. Although snowthrowers have a lower average
gross profit margin than walk mowers, riders and tractors, snowthrower volume
and lower labor costs contributed to the third quarter increase in gross profit
dollars.
Sales for the nine-month period ended September 30, 1994 decreased to $171
million from $177 million, a $6 million or 3.4% decrease, from the same 1993
period. The year-to-date decrease in sales represents the effect of the trend
by Snapper's distributors and dealers to order products only as needed to
replenish retail inventories as required by actual consumer demand. The 1994
third quarter increase in snowthrower sales is consistent with this trend
because many of the snowthrower units have already been sold at retail.
Snapper's gross profit for the nine-month period ended September 30, 1994
increased by $2.9 million, or 9.3%, to $33.9 million from $31 million for the
same period in the prior year. The increase in gross profit reflects a 1994
third quarter gross profit increase of $3.9 million offset by a $986,000
decrease in gross profit experienced in the first two quarters of 1994.
Although the third quarter is generally its lowest sales quarter, Snapper
experienced a $17.1 million third quarter increase in sales compared to the
third quarter of 1993 due to snowthrower volume. This increase was sufficient
to partially offset the sales decrease of $12.7 million experienced during the
first two quarters of 1994 as compared to the same 1993 period. Snapper
experienced a sales decrease of $6 million for the nine-month period ended
September 30, 1994 as compared to the same period in 1993.
Selling, general and administrative expenses decreased by $2.5 million,
or 22.4%, to $8.6 million for the third quarter of 1994 from $11.1 million for
the comparable 1993 quarter, primarily due to the effect of lower third quarter
1994 sales on sales related expenses such as advertising. Selling, general and
administrative expenses decreased by $1.8 million, or 5.2%, to $32.8 million
from $34.6 million for the nine month period ended September 30, 1994. This
decrease is primarily attributable to lower sales volume related expenses such
as advertising and because special promotions implemented in the first half of
1994 to encourage distributors to sell aged inventory items to dealers were not
continued in the third quarter.
An operating loss of $1.3 million was experienced by Snapper for the
third quarter of 1994, a $6.4 million improvement from the $7.6 million
operating loss of the third quarter of 1993. The operating profit for the
nine-month period ended September 30, 1994, of $1.1 million represents a $3.9
million improvement from the $2.8 million operating loss for the same 1993
period.
Sporting Goods: Sales for Actava Sports increased $4 million, or 5.1%, to
$83.7 million from $79.6 million in the third quarter of 1994 and to $232.7
million from $149.1 million, an increase of $83.6 million, or 56.0%, for the
nine-month period ended September 30, 1994, compared to the same period in
1993. The increase for the nine-month period is primarily due to sales
recorded by DP, which was acquired by the Company in June 1993.
Gross profit increased $1.9 million, or 20.6%, from $9.5 million for the 1993
third quarter to $11.4 million for the third quarter of 1994. The gross profit
for the 1994 year-to-date period, when compared to the same 1993 period,
increased by $6.6 million from $24 million to $30.6 million primarily due to a
gross profit increase of $5.2 million attributable to the inclusion of DP for
the full nine month period for 1994 compared to slightly more than one quarter
in 1993.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Selling, general and administrative expenses for the third quarter of 1994
decreased by $1.6 million to $8.1 million from $9.7 million for the 1993
period. Selling, general and administrative expenses increased from $21.3
million to $27 million for the first nine months 1993 and 1994, respectively.
This $5.7 million increase is primarily due to a $4.4 million increase in
selling, general and administrative expenses due to the inclusion of DP's
expenses for the full nine month 1994 period compared to only slightly more
than one quarter for the 1993 nine-month period.
Actava Sports experienced a $3.3 million operating profit for the third
quarter of 1994 compared to a $222,000 operating loss for the 1993 third
quarter. The Actava Sports operating profit for the 1994 year-to-date period
of $3.6 million represents a $947,000, or 35%, increase from the $2.7 million
operating profit reported for the same 1993 period. The year-to-date increase
in operating profit reflects the inclusion of DP's operations for the entire
1994 period as compared to slightly more than one quarter for the 1993 period.
Consolidated Continuing Operations: Actava's consolidated sales from
continuing operations increased by $10.8 million, or 9.5%, for the third
quarter of 1994 as compared to the third quarter of 1993, reflecting a $3.4
million sales increase for DP, a $2.0 million increase in Nelson/Weather-Rite's
sales and a $6.7 million increase in Snapper's sales. Actava's year-to-date
consolidated sales increase of $77.5 million, or 23.8%, from $326.2 million for
1993 to $403.7 million for 1994 is primarily due to a $77.1 million increase
attributable to DP, which was acquired in June 1993, and a $6.5 million
increase from all other Actava Sports companies, partially offset by a $6.1
million decrease at Snapper.
The 1994 third quarter consolidated gross profit percentage of 15.1%
represents gross profit dollars of $18.8 million, a $5.8 million increase in
gross profit dollars as compared to the same 1993 quarter. This increase is
primarily attributable to the additional gross dollars generated by snowthrower
sales by Snapper. The 1994 year-to-date gross profit increase of $9.6 million
to $64.5 million from $55.0 million for 1993 reflects a decrease in gross
profit percentage from 16.8% for 1993 to 16% for 1994.
The 1994 third quarter $3.7 million decrease in consolidated selling, general
and administrative expenses to $19.8 million from $23.4 million for 1993 is
primarily attributable to the cost reductions achieved by Snapper. The 1994
year-to-date increase in selling, general and administrative expenses of $4.9
million to $68.4 million from $63.5 million for 1993 is primarily due to the
inclusion of DP, which was acquired in June 1993, and a 1994 first quarter
provision of $1.3 million for the settlement of employment agreements.
Actava's consolidated 1994 operating loss from continuing operations for the
third quarter of $995,000 represents a $9.5 million improvement from the $10.5
million 1993 third quarter operating loss. The 1994 year-to-date consolidated
operating loss of $5.2 million represents an improvement of $2.6 million
compared to the $7.8 million 1993 year-to-date operating loss.
Interest expense for the third quarter of 1994 of $6.4 million is an increase
of $399,000 from the third quarter of 1993. Interest expense for the nine
months ended September 30, 1994 of $21.2 million is an increase of $1.9 million
from the $19.4 million of interest expense for the same 1993 period. The
year-to-date increase is primarily due to the inclusion of interest expense for
DP for the entire 1994 year-to-date period and for only a part of the 1993
year-to-date period beginning with its acquisition on June 8, 1993. The
increase for the nine-month period reflects $2.1 million of interest expense
attributable to DP offset by a slight decrease in interest expense for the
other companies.
Other income (net of other deductions) increased by $1.6 million in the third
quarter of 1994 due primarily to investment income from greater investment
amounts. Other income decreased by $1.5 million for the 1994 year-to-date
period when compared to 1993. This decrease is composed of lower investment
income from
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
reduced investment levels due to liquidations of short-term investments to fund
corporate purposes such as the purchase of DP and DP's initial working capital
needs during the first half of 1994 and lower early payment interest credits
experienced at Snapper.
During the year Actava provides for income taxes using anticipated effective
annual tax rates. The rates are based on expected operating results for the
year and estimated permanent differences between book and taxable income. As a
result of the sale of Qualex, the Company will no longer include any income tax
expense related to Qualex in continuing operations because Qualex is now
reported as a discontinued operation rather than as a consolidated subsidiary
for financial reporting purposes and is still not included in the Company's
consolidated federal income tax return. SEE "INCOME TAXES" IN NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
Discontinued Operations: In 1988 the Company combined its photofinishing
operations with the domestic photofinishing operations of Kodak in a
transaction accounted for as a purchase, forming a jointly-owned company,
Qualex. The Company consolidated the results of operations of Qualex with the
results of operations of the company for periods ending perior to June 30,
1994. During the second quarter of 1994, the Company began accounting for its
investment in Qualex under the equity method. Also during the second quarter,
the Company made a decision to dispose of its interest in Qualex and began
accounting for Qualex as a discontinued operation. On August 12, 1994, Actava
sold its investment in Qualex to Kodak. Accordingly, the results of Qualex for
all periods presented are reported in the accompanying consolidated statements
of operations as discontinued operations. A loss of $37.8 million on the
disposal of Qualex and a loss of $2.8 million from the operations of Qualex are
reflected in Actava's year-to-date net loss under discontinued operations. SEE
"QUALEX, INC. - DISCONTINUED OPERATIONS" IN NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
Net Income (Loss): Actava reported a loss from continuing operations of $5.3
million for the third quarter of 1994, compared to a loss from continuing
operations of $16.3 million for the third quarter of 1993. Due to seasonal
factors in Actava's businesses, the third quarter is generally a low
performance quarter. For the first nine months of 1994, Actava had a loss from
continuing operations of $23.5 million, compared to a loss from continuing
operations of $21.3 million for the comparable 1993 period. Actava also
experienced a $40.7 million loss from discontinued operations in the 1994
year-to-date period, resulting in a net loss for the period of $64.2 million.
Actava's $16.6 million net loss for the first nine months of 1993 included
income from discontinued operations of $9.1 million, and a loss from the
cumulative effect of a change in accounting principles of $4.4 million.
Changes in Accounting Principles: The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Actava adopted the new method of accounting for income taxes on
January 1, 1993. Statement No. 109 affects the manner and rates at which
deferred income taxes are reflected on the balance sheet and the amount of
taxes reflected in the statement of operations. The adoption of Statement No.
109 did not result in a material effect on net income for the first quarter of
1993. SEE "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CHANGES IN ACCOUNTING
PRINCIPLES" IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". Statement No. 106 requires the cost of
postretirement benefits to be recognized in the financial statements over an
employee's active working career. Actava adopted the new method of accounting
for these benefits as of January 1, 1993. The adoption of Statement No. 106
resulted in a charge to net income of $4.4 million and was reported as the
cumulative effect of a change in accounting principle in the first quarter of
1993. SEE "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CHANGES IN ACCOUNTING
PRINCIPLES" - IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits". Statement No. 112 requires the recognition of the cost of benefits
to be provided after employment, but before retirement, in the financial
statements over an employee's active working career. Actava adopted the new
method of accounting for these benefits as of January 1, 1994. The adoption of
Statement No. 112 will not result in a material impact on the Company's
financial statements when reported. SEE "POSTEMPLOYMENT BENEFITS" IN NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
The Company and its subsidiaries invest in various debt and equity
securities. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires certain debt securities to be
reported at amortized cost, certain debt and equity securities to be reported
at market with current recognition of unrealized gains and losses, and certain
debt and equity securities to be reported at market with unrealized gains and
losses as a separate component of shareholders' equity. The Company adopted
the provisions of the new standard for investments held as of or acquired after
January 1, 1994. In accordance with the Statement, prior period financial
statements have not been restated to reflect the change in accounting
principle. The cumulative effect as of January 1, 1994, of adopting Statement
115 was not material, SEE "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CHANGES
IN ACCOUNTING PRINCIPLES" IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Financial Position: Actava's working capital, excluding Qualex, was $233.8
million at September 30, 1994 as compared to $93.7 million at December 31,
1993. The increase is primarily due to the receipt of cash and current notes
receivable in the amount of $142.8 million from the sale of the Company's
interest in Qualex. Cash and short-term investments at Actava, excluding
Qualex, increased by $40.4 million in the first nine months of 1994 from $44.3
million to $84.7 million. Current notes receivable increased from 1.0 million
to $98.1 million in the first nine months of 1994 due to the sale of the
Company's interest in Qualex. At September 30, 1994, approximately $5.0
million of the Company's cash and short-term investments were pledged to
secure a Snapper credit line, $12.0 million was pledged to secure a letter of
credit issued on August 12, 1994 relating to the Company's redeemable common
stock and $1 million was pledged to secure a working capital facility.
On August 12, 1994, the Company sold its interest in Qualex to Kodak. As a
result of this sale, the Company received, on August 12, 1994, cash of $50
million and will receive two additional payments of $50 million on February 13,
1995 and August 11, 1995. Actava recorded a current note receivable of $92.8
million due to the non-interest bearing nature of Kodak's $100 million
obligation to the Company.
The Company has entered into a contract to sell a real estate investment near
Houston, Texas, which is known as Sienna Plantation. An investment group has
agreed to purchase the property from a partnership in which Actava has an
interest. The purchase is subject to several conditions. Actava would receive
approximately $9.0 million in cash upon consummation of the transaction. The
transaction price is approximately equal to Actava's book value and is expected
to close in late December of 1994.
For the nine-month period ended September 30, 1994, operating activities
provided $21.9 million of cash while cash flows of $6.9 million and $12.9
million were used by investing and financing activities, respectively. For
continuing operations, accounts receivable decreased by $37.4 million,
inventories decreased by $7.2 million, prepaid expenses increased by $2.3
million, and accounts payable and other similar items decreased by $6.2
million. Depreciation of $9.9 million and amortization of $458,000 are
included in determining cash flow used by operations.
Investing activities used $6.9 million of cash during the nine-month period,
including payments for property, plant and equipment (net of disposals) of
$18.7 million.
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Financing activities used $12.9 million during the nine-month period,
including payments under short-term bank agreements of $37.1 million, net
borrowings of $33.6 million under long-term debt agreements, payments of $3.8
million for subordinated debt and payments of dividends by Qualex to Kodak of
$10.5 million.
Long-term debt, including the current portion, for Actava, excluding Qualex,
decreased from $3.3 million at December 31, 1993 to $2.9 million at September
30, 1994 due to payments.
Actava's subordinated debt position, including the current portion, of $190.9
million at September 30, 1994 is a decrease of $3.4 million from year-end 1993.
Subordinated debt is 98.5% of Actava's total long-term debt, including the
current portion, with the first significant maturity due in 1996.
The Company has a currency swap agreement with a financial institution in
order to eliminate exposure to foreign currency exchange rates for its 6%
Senior Subordinated Swiss Franc Bonds. A default by the financial institution
that is a party to the swap agreement would expose the Company to potential
currency exchange risk on the remaining bond interest and principal payments.
The approximate fair market value of the currency swap as of September 30,
1994, was $19.0 million.
The Company is subject to various contingent liabilities and commitments.
These include a floor plan agreement entered into by Snapper under which
approximately $27 million and $19 million was outstanding at September 30, 1994
and 1993, respectively, various guaranties of debt totaling approximately $6.1
million, various real estate leases with estimated future payments of
approximately $3.5 million, and various pledges of cash and short-term
investments. SEE "CONTINGENT LIABILITIES AND COMMITMENTS" IN NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
DP handles and stores various materials in the normal course of business that
have been classified as hazardous by various federal, state and local
regulatory agencies. DP is continuing to conduct tests at its sites and will
perform any necessary cleanup where and to the extent legally required. At
those sites where tests have been completed, cleanup costs have not been
material. The Company may also be liable for remediation of environmental
damage relating to businesses previously sold in excess of amounts accrued. At
the sites currently being tested, it is management's opinion that cleanup costs
will not have a material effect on Actava's financial position or results of
operations.
On June 8, 1993, the Company acquired substantially all the assets of DP for
a net purchase price consisting of $11.6 million in cash, the issuance of
1,090,909 shares of the Company's Common Stock (the "Acquisition Shares")
valued at $12 million, and the assumption or payment of certain liabilities
including trade payables and a revolving credit facility. The Company recorded
redeemable common stock of $12 million for the issuance of the Acquisition
Shares. SEE "ACQUISITIONS" IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. The
Company also entered into an agreement providing the holder of the Acquisition
Shares (the "Holder") with the right to receive additional payments depending
upon the value of the Acquisition Shares over a period of not longer than one
year from the purchase date. The agreement gives the Holder the right under
certain circumstances, which have already occurred, to require the Company to
purchase the Acquisition Shares at a price equal to $11.00 per share. The
repurchase of the Acquisition Shares will not increase the cost recorded by
Actava for DP since the cost of DP will be increased by the amount of the cash
payment and simultaneously reduced by the same amount due to a corresponding
adjustment to the redeemable common stock. The right of the Holder to receive
additional payments of cash became exercisable after June 8, 1994 and would
have expired if not exercised on or before August 7, 1994. On August 3, 1994,
the Holder agreed to extend the exercise date to February 7, 1995 in exchange
for a $435,000 fee and an irrevocable letter of credit in the amount of $12.0
million which is available and payable to the Holder on and after February 17,
1995 upon demand and tender of the Acquisition Shares. The $435,000 fee will
be amortized over the term of the extension. Actava's debt agreements contain
18
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
covenants which, among other things, place restrictions upon the amount of
stock the Company may repurchase and dividends it may pay. The repurchase of
the Acquisition Shares may violate some of these covenants.
Actava and Metromedia Company ("Metromedia") have entered into a Credit
Agreement dated as of October 11, 1994 (the "Credit Agreement") under which
Actava will make loans to Metromedia in an amount not to exceed $55 million.
Under the terms of the Credit Agreement, Metromedia will use the proceeds of
the loans to make advances to or pay obligations on behalf of Orion, MCEG
Sterling, and MITI. All loans made by Actava to Metromedia under the Credit
Agreement will be secured by the shares of stock of Orion and MITI owned by
Metromedia and its affiliates. In addition, John W. Kluge, a general partner
of Metromedia, has personally guaranteed the loans. The Credit Agreement was
contemplated by the letters of intent relating to the Proposed Metromedia
Transaction. The Credit Agreement, however, is a separate transaction from the
Proposed Metromedia Transaction, which remains subject to a number of
conditions, including due diligence, the negotiation and execution of
definitive agreements, the successful refinancing of the currently outstanding
Orion debt, approvals by the Boards of Directors and stockholders of the
parties involved in the transaction, and other customary approvals and
conditions. The Credit Agreement provides that interest will be due on the
principal amount of all loans made under the Credit Agreement at an annual rate
equal to the prime rate announced from time to time by Chemical Bank. Interest
will be increased to prime plus three percent per annum if a party other than
Actava terminates discussions relating to the Proposed Metromedia Transaction.
All loans will be due and payable on the earlier of April 30, 1995 or six
months from the date on which the first loan was made. The first loan was made
on October 12, 1994 in the amount of $2 million. The outstanding balance under
the Credit Agreement as of November 11, 1994 was $27.7 million. If Actava
elects to terminate discussions relating to the Proposed Metromedia
Transaction, then all loans will be due and payable three months from the date
on which such discussions are terminated.
In November 1991, the Company entered into a Loan Agreement with its
then 25.0% stockholder, Triton Group Ltd. ("Triton"), whereby Triton could
borrow up to $32.0 million from the Company secured by the stock in the Company
owned by Triton (the "Triton Loan"). The Loan Agreement was modified in June
1993, pursuant to the Plan of Reorganization filed by Triton in its Chapter 11
bankruptcy proceeding. The modification reduced the interest rate on the
Triton Loan, extended the maturity date from November 1994 to April 1997 and
modified the mandatory payment (margin call) provisions and the Stockholder
Agreement between Actava and Triton, as described in the Notes to the
Consolidated Financial Statements. As modified, the Triton Loan provided for
quarterly payments of interest only with no scheduled principal payments due
until final maturity in April 1997. In December 1993, Triton and Actava
entered into a further amendment to the Loan Agreement pursuant to which
Triton made a principal payment of $5.0 million plus accrued interest on the
Triton Loan, reducing the loan balance to approximately $26.7 million. In
addition, the December 1993 amendment provided for quarterly principal payments
of $1.25 million commencing March 31, 1994 and modified the mandatory payment
(margin call) provisions of the loan. As of September 30, 1994, the outstanding
balance under the Triton Loan was $23.0 million. Triton has obtained a
commitment from a bank which would enable Triton to prepay the entire balance
under the Triton Loan, subject to the preparation of definitive documents.
Triton announced that while the terms and cost of this new financing would be
less favorable than those of the existing arrangement, Triton is willing to
consider a refinancing as part of a broader strategy to enhance the value of
Actava. Triton has notified the Company that its commitment has been extended
until December 31, 1994.
Actava's debt agreements contain covenants which, among other things, place
restrictions upon the amount of stock the Company may repurchase and dividends
it may pay. The Company has not paid a dividend to its stockholders since the
first quarter of 1994.
19
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
The Company, excluding its subsidiaries and Snapper, had $36.3 million
of unpledged cash and short-term investments as of November 8, 1994. During
1994 the Company has received cash dividends from its subsidiaries of $13.0
million, including $2.5 million from the Actava Sports companies. Such
subsidiaries, however, are restricted by financial covenants in their credit
agreements from paying the Company more than 70% of their net income as
dividends. The Company uses its existing cash and short-term investments, as
well as dividends from its subsidiaries and payments on the Triton Loan, to
provide for items such as operating expense payments and debt service. The
Company, excluding its subsidiaries and Snapper, has debt service payments
scheduled in 1994 of approximately $21.3 million.
The Company will no longer receive dividends directly from the Actava Sports
companies after the consummation of the Roadmaster transaction. One of the
Actava Sports companies, however, will be required to repay an indebetedness to
Actava in the amount of $10 million over the period ending on March 31, 1996.
In addition, the 19.2 million shares of Roadmaster common stock to be received
in the transaction are publicly traded and will represent a readily marketable
security upon registration.
The Company's subsidiaries and Snapper had unused borrowing capacity of
approximately $38.0 million at September 30, 1994, under credit agreements
which are secured by assets such as accounts receivable or inventory. Unused
borrowing capacity of $17.8 million is attributable to the Actava Sports
companies. The assets which serve as collateral are determined by reference
to the outstanding balance under the credit agreements and the qualification
of the assets as collateral as defined in the credit agreements. The assets
potentially available as collateral total, in the aggregate, $343.3 million.
The credit agreements with Snapper and one of the Company's sporting goods
subsidiaries contain financial covenants (involving tangible net worth, book
net worth and other matters) which the Company must comply with to prevent a
default. A default under these credit agreements would have serious adverse
consequences, including the elimination of funding for the operations of
Snapper and the Actava Sports companies, as well as the prohibition on payment
of any dividends to the Company by these businesses. As a result of the loss
incurred by the Company in connection with the sale of Qualex, the Company
obtained financial covenant amendments from its lenders so that the Company
would remain in compliance with these covenants. The Company was in compliance
with these covenants as of September 30, 1994 and as of October 31, 1994.
Management believes that the Company will remain in compliance with these
covenants during the terms of the various agreements.
On September 27, 1994, the Company announced that it had entered into an
agreement with NationsBank of Georgia, N.A. under which NationsBank would
provide up to $200 million in acquisition financing to Actava. If the Proposed
Metromedia Transaction is consummated, the agreement will extend to the
surviving corporation in the transaction. Advances for specific acquisitions
will be conditioned upon NationsBank's satisfaction with the general credit
worthiness of the borrower at that time, the structure and collateral being
proposed, and such other then existing matters as NationsBank deems
appropriate. NationsBank will have the right to include other financial
institutions in any specific financing. The specific terms of each financing
will be subject to future negotiation between Actava and NationsBank.
On April 19, 1994, John D. Phillips was elected president and chief executive
officer of the Company. He was also elected to the Board of Directors of the
Company. Mr. Phillips succeeds Charles R. Scott, who had served as the
Company's president and chief executive officer since 1991. In connection with
the election of Mr. Phillips, Renaissance Partners, an investment partnership
in which Mr. Phillips serves as a general partner, purchased from the Company
700,000 shares of the Company's Common Stock for $4,462,500, representing a
price of $6.375 per share. Mr. Phillips also received an immediately vested
option to purchase 300,000 shares of the Company's Common Stock at a price of
$6.375 per share. This price represents the last sale price of the Company's
Common Stock on the New York Stock Exchange on April 11, 1994, the day before
the Company announced that it had received the investment and employment
proposals from Mr. Phillips. The Company has entered into a Registration
Rights Agreement with Renaissance Partners pursuant to which the Company has
agreed to register with the Securities and Exchange Commission the 700,000
shares of Common Stock purchased by Renaissance Partners.
20
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 2. LEGAL PROCEEDINGS
On September 23, 1994, a stockholder of the Company filed a class action
lawsuit against the Company and each of its directors seeking to block the
Proposed Metromedia Transaction. The lawsuit was filed in the Chancery Court
for New Castle County, Delaware and is styled James F. Sweeney, Trustee of
Frank Sweeney Defined Benefit Pension Plan Trust v. John D. Phillips, et. al,
Civil Action No. 13765. The Company and its directors were served with this
lawsuit on September 28, 1994. The Complaint alleges that the terms of the
Proposed Metromedia Transaction constitute an overpayment for the assets being
acquired and as a result would result in a waste of the Company's assets. The
Complaint further alleges that the directors of the Company would be breaching
their fiduciary duties to the Company's stockholders by approving the Proposed
Metromedia Transaction. The Company and its directors have obtained an
extension of time to answer the Complaint in this lawsuit. The answer is
presently due on November 17, 1994, but the Company anticipates that it will
request and receive additional extensions of time to answer the Complaint at
least until the Proposed Metromedia Transaction has been approved by the
Company's Board of Directors. Management believes that the allegations
contained in the Complaint are without merit for a variety of reasons,
including the fact that the Company has not entered into a definitive agreement
with respect to the Proposed Metromedia Transaction and the Proposed Metromedia
Transaction has not been approved by the Board of Directors of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits:
<TABLE>
<CAPTION>
Exhibits Incorporated by Reference
--------------------------------------------
Designation of
Previously Filed Such Exhibit in
Exhibit No. Description Document Filed Document
- ----------- ----------------------------------------------------------- ------------------- --------------------
<S> <C> <C> <C>
2(a) Stock Purchase Agreement by and among JCJ, Inc. Current Report on 2(a)
Eastman Kodak Company and The Actava Group Inc. Form 8-K filed on
dated August 12, 1994. Also filed as exhibits thereto August 25, 1994.
are: Exhibit A - Promissory Note; Exhibit B - Seller
Release; and, Exhibit C - Noncompetition Agreement.
The following is a list of omitted scheduled (or
similar attachments) which the Company as registrant
agrees to furnish supplementally to the Commission
upon request; Exhibit D - Certificate of Incorpor-
ation of Qualex Inc.; Exhibit E - By-Laws of Qualex
Inc.; Exhibit F - Buyer Release; Schedule 1 - Shares
Owned by Seller, Schedule 2.02--Capitalization of
Qualex Inc.; and, Schedule 2.06 - Agreements
between The Actava Group Inc. and Qualex Inc.
4.1 Agreement between NationsBank and The Actava
Group Inc. dated as of September 26, 1994, with
respect to a $200 million line of credit for the
financing of future acquisitions by the Company.
</TABLE>
21
<PAGE> 22
(a). Exhibits (Continued):
<TABLE>
<CAPTION>
Exhibits Incorporated by Reference
--------------------------------------------
Designation of
Previously Filed Such Exhibit in
Exhibit No. Description Document Filed Document
- ----------- ----------------------------------------------------------- ------------------- --------------------
<S> <C> <C> <C>
10(a) Credit Agreement dated as of October 11, 1994 by Current Report on 10(a)
and between The Actava Group Inc. and Metromedia Form 8-K filed on
Company with respect to a revolving credit facility October 21, 1994.
of up to $55 million. The following exhibits are
omitted: Exhibit A - Form of Note; Exhibit B - Form
of Pledge Agreement; Exhibit C - Form of Guaranty;
and Exhibit D - Form of Opinion of Paul, Weiss,
Rifkind, Wharton and Garrison. Registrant agrees
to furnish copies of such exhibits upon request.
10(b) Revolving Credit Note dated as of October 11, 1994 Current Report on 10(b)
with respect to a revolving credit facility of up Form 8-K filed on
to $55 million between The Actava Group Inc. October 21, 1994.
and Metromedia Company.
10(c) Pledge Agreement dated as of October 11, 1994 by Current Report on 10(c)
and between Metromedia Company; Met Telcell, Inc.; Form 8-K filed on
Met International, Inc.; John W. Kluge; Anita H. October 21, 1994.
Subotnick and Stuart Subotnick, as joint tenants,
and The Actava Group Inc. with respect to a
revolving credit facility of up to $55 million.
</TABLE>
22
<PAGE> 23
(a). Exhibits (Continued):
<TABLE>
<CAPTION>
Exhibits Incorporated by Reference
--------------------------------------------
Designation of
Previously Filed Such Exhibit in
Exhibit No. Description Document Filed Document
- ----------- ----------------------------------------------------------- ------------------- --------------------
<S> <C> <C> <C>
10(d) Guaranty dated as of October 11, 1994 by John W. Current Report on 10(d)
Kluge in favor of The Actava Group Inc. with respect Form 8-K filed on
to a revolving credit facility of up to $55 million. October 21, 1994.
10(e) Amendment dated August 17, 1994 to Shareholder Current Report on 99
Rights Agreement between the Company and Form 8-K filed on
Westinghouse Electric Corporation dated August 25, 1994.
June 8, 1993.
11 Computation of Earnings Per Share.
27 Financial Data Schedule (for the SEC use only).
99(a) Letter of intent regarding a contemplated business Current Report on 99(a)
combination by and among The Actava Group Inc., Form 8-K filed on
Metromedia International, Inc., and International September 2, 1994.
Telcell, Inc. dated as of August 31, 1994.
99(b) Letter of intent regarding a contemplated business Current Report on 99(b)
combination by and among The Actava Group Inc. and Form 8-K filed on
Orion Pictures Corporation dated as of August 31, September 2, 1994.
1994.
99(c) Letter of intent regarding a contemplated business Current Report on 99(c)
combination by and among Orion Pictures Corporation, Form 8-K filed on
MCEG Sterling Incorporated and The Actava Group Inc. September 2, 1994.
dated as of August 31, 1994.
99(d) Amendment dated August 17, 1994 to Shareholder Current Report on 99(d)
Rights Agreement between the Company and Form 8-K filed on
Westinghouse Electric Corporation dated June 8, 1993. September 2, 1994.
(b). Three Forms 8-K have been filed during the quarter for which this report is filed:
</TABLE>
(i). On August 25, 1994, a Form 8-K was filed to report the
sale of the Company's interest in Qualex Inc. to Eastman Kodak Company on
August 12, 1994. The following pro forma financial statements were provided
for The Actava Group Inc.:
o Pro Forma Balance Sheet as of June 30, 1994;
o Pro Forma Consolidated Statement of Continuing
Operations for the years ending December 31, 1991,
1992, and 1993 and for the six months ended June 30,
1994.
23
<PAGE> 24
The Company also reported an amendment to the Shareholders Rights Agreement
dated June 8, 1993 between the Company and Westinghouse Electric Corporation to
confirm an August 3, 1994 agreement wherein the exercise date of certain rights
under the agreement were extended to February 7, 1994. Additionally, the
Company reported a proposed change in its fiscal year-end from December 31 to
August 31.
(ii). On September 2, 1994, a Form 8-K was filed to report that
on August 31, 1994, the Company entered into letters of intent with Orion
Pictures Corporation, MCEG Sterling Incorporated, International Telcell, Inc.,
and Metromedia International Inc. providing for a combination of the foregoing
companies into one new company to be named Metromedia International Group, Inc.
(iii). On September 14, 1994, the Company reported that on
September 9, 1994, the Company's Board of Directors rescinded the change in the
Company's fiscal year-end from December 31 to August 31 and that the Company
would continue to use the calendar year as its fiscal year.
24
<PAGE> 25
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 thereto duly authorized.
THE ACTAVA GROUP INC.
---------------------
REGISTRANT
/s/ FREDERICK B. BEILSTEIN, III
-------------------------------
FREDERICK B. BEILSTEIN, III
SENIOR VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER
DATE: NOVEMBER 14, 1994
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ----------------------------------------------------
<S> <C>
4.1 Agreement between NationsBank and The Actava
Group Inc. dated as of September 26, 1994, with
respect to a $200 million line of credit for the
financing of future acquisitions by the Company.
11 Computation of Earnings Per Share.
27 Financial Data Schedule (for the SEC use only).
</TABLE>
<PAGE> 1
Exhibit 4.1
NationsBank
600 Peachtree Street, N.E.
21st Floor
Atlanta, GA 30308-2213
NationsBank
September 26, 1994
The Actava Group Inc.
2210 Resurgens Plaza
945 East Paces Ferry Road
Atlanta, Georgia 30326
Attention: Mr. John D. Phillips
President and Chief Executive Officer
Dear Jack:
This letter is to set forth our agreement to establish a $200,000,000 line of
credit on behalf of The Actava Group Inc. ("Actava") for the financing of
future acquisitions by Actava upon the following terms and conditions:
Borrower: Actava, or any successor thereto resulting from
the merger or business combination of Actava,
Orion Pictures Corporation, MCEG Sterling
Incorporated and Metromedia International
Telecommunications, Inc.
Amount: Up to $200,000,000. NationsBank has obtained
general credit approval of this amount; however,
all specific draws under the line of credit are
subject to conditions listed below.
Maturity: The line of credit will be in place for 364 days
from the date of signing.
Up Front Fee: 6.25 basis points, or $125,000. This fee is
payable upon your execution and return of this
agreement.
Conditions to Advances: Any advance under the facility is conditioned upon
NationsBank's satisfaction, in its sole and
absolute discretion, with the general credit
worthiness of the Borrower at that time, the
structure and collateral being proposed by
Borrower, and such other matters then existing as
NationsBank deems appropriate.
<PAGE> 2
Mr. Phillips
Page 2
September 26, 1994
Terms and Conditions All terms and conditions of specific advances
of Advances: shall be negotiated in reference to a specific
financing.
Disclosure: NationsBank agrees that Borrower may disclose the
existence of the line of credit to potential
acquisition targets or to the public-at-large;
however, the form and content of any public
disclosure of the line of credit must be approved
by NationsBank.
Documentation: The documentation for any financing must be
satisfactory to NationsBank and its counsel.
NationsBank contemplates that separate
documentation would be prepared for each
transaction.
Syndication/Agency: NationsBank shall be the original and sole
signatory to this agreement. However, in
connection with any proposed acquisition financing
that may be approved by NationsBank, NationsBank
reserves the right to assemble a syndicate of
financial institutions to participate in any such
financing. The Borrower would agree to pay all
out-of-pocket costs and expense incurred by
NationsBank in connection with any such
syndication effort. NationsBank would serve as
agent bank in any such financing and the Borrower
would agree to pay all customary agency fees
charged by NationsBank.
Indemnification: Actava hereby indemnifies and holds NationsBank
harmless from and against all losses, costs and
expenses (including legal fees) in connection with
all claims, proceedings and investigations
(whether or not NationsBank is a party) arising by
reason of this letter agreement and the fact that
NationsBank may be a creditor of Borrower and has
information regarding Borrower's financial
condition, acquisition plans or business
operations. All out-of-pocket fees and expenses,
and amounts paid to third persons by NationsBank,
shall be advanced by Borrower, notwithstanding an
assertion that NationsBank is not entitled to
indemnification. However, NationsBank will
immediately reimburse Borrower if a court
determines that NationsBank was not entitled to
indemnification hereunder.
<PAGE> 3
Mr. Phillips
Page 2
September 26, 1994
If the foregoing correctly set forth our agreement, please sign both copies of
this letter and return one to us for our records.
NationsBank of Georgia, N.A.
By: /s/ Diane Rhea
--------------
Agreed to this 26th
day of September, 1994.
The Actava Group Inc.
By: /s/ John D. Phillips
--------------------
<PAGE> 1
Exhibit 11
THE ACTAVA GROUP INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME (LOSS) PER SHARE - PRIMARY
Net (loss) available for Common
Stock and Common Stock equivalents . . . $ (5,266) $ (9,047) $(64,222) $(16,608)
======== ======== ======== ========
COMMON STOCK AND COMMON STOCK EQUIVALENTS
Weighted average Actava common shares
outstanding during the period, less
stock in treasury . . . . . . . . . . . 18,339 17,635 18,059 17,003
======== ======== ======== ========
(Loss) Per Share - Primary . . . . . . . $ (.29) $ (.51) $ (3.56) $ (.98)
======== ======== ======== ========
INCOME (LOSS) PER SHARE - ASSUMING FULL DILUTION (A)
Net (loss) available for Common
Stock and Common Stock equivalents . . . $ (5,266) $ (9,047) $(64,222) $(16,608)
Interest savings on assumed conversion
of 6 1/2% Convertible Debentures,
net of income tax . . . . . . . . . . . 827 827 2,481 2,481
-------- -------- -------- --------
Net income (loss) available for Common
Stock and Common Stock equivalents
assuming full dilution . . . . . . $ (4,439) $ (8,220) $(61,741) $(14,127)
======== ======== ======== ========
Common Stock & Common Stock equivalents . 18,339 17,635 18,059 17,003
Shares issuable upon assumed conversion
of 6 1/2% Convertible Debentures . . . . 1,802 1,802 1,802 1,802
-------- -------- -------- --------
Common Stock and Common Stock equivalents
assuming full dilution . . . . . . . . . 20,141 19,437 19,861 18,805
======== ======== ======== ========
Income (Loss) Per Share -
Assuming Full Dilution . . . . . . . . . $ (.22) $ (.42) $ (3.11) $ (.75)
======== ======== ======== ========
</TABLE>
(a) Fully diluted income (loss) per share is not used in 1994 and 1993 because
it exceeds primary earnings (loss) per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 20,858
<SECURITIES> 63,858
<RECEIVABLES> 293,462
<ALLOWANCES> 9,357
<INVENTORY> 71,838
<CURRENT-ASSETS> 455,763
<PP&E> 116,466
<DEPRECIATION> 46,468
<TOTAL-ASSETS> 583,237
<CURRENT-LIABILITIES> 221,980
<BONDS> 189,806
<COMMON> 22,768
12,000
0
<OTHER-SE> 103,239
<TOTAL-LIABILITY-AND-EQUITY> 583,237
<SALES> 403,711
<TOTAL-REVENUES> 403,711
<CGS> 339,199
<TOTAL-COSTS> 408,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,694
<INTEREST-EXPENSE> 21,226
<INCOME-PRETAX> (23,529)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,529)
<DISCONTINUED> (40,493)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,222
<EPS-PRIMARY> (3.56)
<EPS-DILUTED> (3.56)
</TABLE>
