<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 MARCH 31, 1994 COMMISSION FILE NUMBER 1-5706
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THE ACTAVA GROUP INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 58-0971455
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4900 Georgia-Pacific Center, Atlanta, Georgia 30303
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(Address of principal executive office) (ZIP Code)
Registrant's telephone number, including area code 404/658-9000
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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 sharesoutstanding of each of the
issuer's classes of common stock as of March 31, 1994 - 17,635,186
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>
MARCH 31, DECEMBER 31,
ASSETS 1994 1993
------------ -----------
<S> <C> <C>
CURRENT ASSETS (UNAUDITED)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,684 $ 18,770
Short-term investments . . . . . . . . . . . . . . . . . 30,418 29,635
Receivables (less allowances for doubtful accounts of
$9,937 in 1994 and $10,227 in 1993). . . . . . . . . . 277,872 276,018
Current portion of notes receivable. . . . . . . . . . . 5,000 --
Inventories . . . . . . . . . . . . . . . . . . . . . . 99,188 108,439
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 43,361 43,809
Future income tax benefits . . . . . . . . . . . . . . . 35,371 32,434
---------- ----------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . 502,894 509,105
PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . 462,725 474,235
Less allowances for depreciation . . . . . . . . . . . . (191,679) (198,881)
---------- ----------
271,046 275,354
NOTES RECEIVABLE FROM TRITON GROUP LTD . . . . . . . . . . 20,476 26,726
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . 60,721 50,702
LONG-TERM INVESTMENTS . . . . . . . . . . . . . . . . . . 27,456 26,611
INTANGIBLES . . . . . . . . . . . . . . . . . . . . . . . 390,243 386,626
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TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $1,272,836 $1,275,124
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and
other current liabilities . . . . . . . . . . . . . . $ 251,289 $ 263,883
Notes Payable . . . . . . . . . . . . . . . . . . . . . 147,742 135,114
Current portion of long-term debt . . . . . . . . . . . 6,453 6,665
---------- ----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . 405,484 405,662
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . 56,564 56,715
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . 248,336 220,887
SUBORDINATED DEBT . . . . . . . . . . . . . . . . . . . . 187,671 190,551
MINORITY INTEREST IN PHOTOFINISHING SUBSIDIARY . . . . . . 190,586 205,395
STOCKHOLDERS' EQUITY
Common Stock (22,767,744 shares in 1994 and 1993) . . . 22,768 22,768
Additional capital . . . . . . . . . . . . . . . . . . . 37,056 37,056
Retained earnings . . . . . . . . . . . . . . . . . . . 224,615 236,334
Less treasury stock - at cost (5,132,558 shares in
1994 and 1993) . . . . . . . . . . . . . . . . . . . . (100,244) (100,244)
---------- ----------
184,195 195,914
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . $1,272,836 $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
MARCH 31,
1994 1993
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<S> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . $303,678 $263,887
Operating costs and expenses
Cost of products sold . . . . . . . . . . . . . . . . . . . 256,713 202,485
Selling, general and administrative expenses . . . . . . . 60,613 63,046
Provision for doubtful accounts . . . . . . . . . . . . . . 824 859
-------- --------
OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . (14,472) (2,503)
Interest (expense) . . . . . . . . . . . . . . . . . . . . . (11,308) (10,129)
Other (expense) - net . . . . . . . . . . . . . . . . . . . . (457) (1,733)
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LOSS BEFORE INCOME TAXES, MINORITY
INTEREST AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . . . . . (26,237) (10,899)
Income taxes (benefit) . . . . . . . . . . . . . . . . . . . (8,980) (5,839)
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LOSS BEFORE MINORITY
INTEREST . . . . . . . . . . . . . . . . . . . . . . . . (17,257) (5,060)
Minority interest . . . . . . . . . . . . . . . . . . . . . . 4,584 1,860
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LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE . . . . . . . . . . . . . $(12,673) (3,200)
Cumulative effect of change in accounting principle . . . . . -- (4,404)
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NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . $(12,673) $ (7,604)
======== ========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Before cumulative effect of change in accounting principle $ (.72) $ (.19)
Cumulative effect of change in accounting principle . . . . . $ -- $ (.27)
-------- --------
Primary and fully diluted . . . . . . . . . . . . . . . . . . $ (.72) $ (.46)
======== ========
CASH DIVIDENDS PER COMMON SHARE . . . . . . . . . . . . . -- $ .09
========= ========
AVERAGE COMMON AND
COMMON EQUIVALENT SHARES . . . . . . . . . . . . . . . . 17,635 16,544
======== ========
</TABLE>
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
---------------------------
THREE MONTHS ENDED
MARCH 31,
1994 1993
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . . $(12,673) $ (7,604)
Cumulative effect of change in accounting principle . . . -- 4,404
-------- ----------
Loss before cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . . . (12,673) (3,200)
Items not providing cash from operations . . . . . . . . . (13,450) (20,724)
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Net Cash Used by Operating Activities . . . . . . . (26,123) (23,924)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (maturities over 90 days) . . . . (29,572) (33,452)
Sales of investments (maturities over 90 days) . . . . . . 21,546 51,881
Net sales of other investments (maturities
less than 90 days) . . . . . . . . . . . . . . . . . . . 7,243 2,891
Payments for property, plant & equipment . . . . . . . . . (7,344) (6,523)
Proceeds from disposals of property, plant & equipment . . 376 241
Collections on notes receivable . . . . . . . . . . . . . 1,473 332
Payments for purchases of businesses . . . . . . . . . . . -- (8,842)
Payments from Triton Group Ltd . . . . . . . . . . . . . . 1,250 --
Other investing activities - net . . . . . . . . . . . . . (2,575) (4,425)
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Net Cash Provided (Used) by Investing Activities . . (7,603) 2,103
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under short-term bank agreements . . . . . 12,628 30,837
Borrowings under other long-term debt agreements . . . . . 48,000 986
Payments on long-term debt agreements . . . . . . . . . . (20,763) (2,817)
Payments of subordinated debt . . . . . . . . . . . . . . (3,000) (1,536)
Cash dividends paid by Qualex to minority interest . . . . (10,225) (7,714)
Cash dividends paid by The Actava Group . . . . . . . . -- (1,489)
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Net Cash Provided by Financing Activities . . . . . 26,640 18,267
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DECREASE IN CASH . . . . . . . . . . . . . . . (7,086) (3,554)
Cash at beginning of year . . . . . . . . . . . . . . . . . 18,770 20,792
-------- ---------
CASH AT MARCH 31 . . . . . . . . . . . . . . . $ 11,684 $ 17,238
======== =========
</TABLE>
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 three months ended March 31, 1994 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1994.
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 from continuing operations, net income,
and the effective tax rate 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 $38,000 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
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
CHANGES IN ACCOUNTING PRINCIPLES - (Continued)
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 accumulated 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 the Statement, 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.
PHOTOFINISHING TRANSACTION
Photofinishing operations are conducted by Qualex Inc., which was formed in
March, 1988 by the combination of Actava's photofinishing operations with the
domestic photofinishing operations of Eastman Kodak Company. While the Company
and Kodak currently share Qualex's equity, income and dividends equally, the
Company has 51% voting control by virtue of its ownership of 50% of Qualex's
common stock and 100% of Qualex's voting preferred stock. The Company also has
majority representation on the Qualex Board of Directors, although certain
decisions, not including the declaration of dividends, require the concurrence
of Kodak's board representatives.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
PHOTOFINISHING TRANSACTION - (Continued)
The Company consolidates the accounts of Qualex and presents Kodak's portion
of ownership and equity in the income of Qualex as minority interest.
The Qualex Shareholders' Agreement between the Company and Eastman Kodak
Company stipulates that upon a change of control at the Company certain Qualex
preferred stock, including the voting preferred owned by the Company, will be
redeemed. On March 28, 1991, the Qualex Shareholders' Agreement between the
Company and Kodak was amended to stipulate that a change of control of the
Company, as defined in the Shareholders' Agreement, occurred on February 6,
1991. However, in the amendment Kodak waived its change of control rights
under the Shareholders' Agreement with respect to the February 6, 1991 change
of control. Kodak may withdraw its waiver, and enforce its rights under the
Agreement beginning March 1, 1992 and each subsequent March 1, by providing the
Company with 30 days written notice. At March 1, 1994, Kodak had not provided
notice to the Company of an election to withdraw its waiver. The amendment
also provided that the Board of Directors of Qualex be increased from seven to
nine members, comprised of five representatives of the Company, three
representatives of Kodak and the chief executive officer of Qualex.
Should Kodak withdraw its waiver or if an additional change in control of the
Company were to occur and if the Qualex preferred stock were redeemed, the
Company would own 50% of the voting securities of Qualex. While the Company's
voting stock would be reduced from 51% to 50%, this change would not alter the
Company's and Kodak's current equal interest in the equity, earnings and cash
dividends of Qualex. In addition, the Board of Directors of Qualex would be
composed of 11 members, comprised of five representatives of the Company, five
representatives of Kodak and the chief executive officer of Qualex, and all
actions of the board would require the affirmative vote of at least seven board
members. In the event these changes were to occur, the Company may possibly be
deemed to no longer control Qualex and the Company would no longer be in a
position unilaterally to control, among other things, the declaration of
dividends to the Company and Kodak by Qualex.
If the Company were deemed in the future to no longer be in control of
Qualex, the Company would cease to consolidate the accounts of Qualex. In that
event, the Company would account for its ownership of Qualex by using the
equity method of accounting. Such a development would not affect the net
income or shareholders' equity of the Company. However, the Company's
consolidated total assets, liabilities, sales and costs and expenses would be
reduced as they would no longer include the specific accounts of Qualex. If
the Company had accounted for Qualex using the equity method for the first
quarter of 1994, the Company's total assets and liabilities would have been
$692,415,000 and $508,220,000, respectively, and sales and total costs and
expenses would have been $155,271,000 and $163,173,000, respectively.
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 also
entered into an agreement which may provide the seller the right to additional
payments approximately one year after the purchase date, depending upon the
value of the issued shares at that time. The payment of cash or the issuance
of additional shares will not increase the cost of DP; any subsequent
issuance will only affect the manner in which the total purchase price is
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
recorded for Actava. 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 $11,417,000. The results of operations of the acquired business
have been included in the consolidated financial statements since the date of
acquisition.
INVENTORIES
Inventory balances are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1994 1993
--------- -----------
<S> <C> <C>
Finished goods and goods purchased for resale . . $ 75,993 $ 82,559
Raw materials and supplies . . . . . . . . . . . . 43,768 46,018
--------- --------
119,761 128,577
Reserve for LIFO cost valuation . . . . . . . . . (20,573) (20,138)
--------- --------
$ 99,188 $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 ENDED
MARCH 31,
1994 1993
------- -------
<S> <C> <C>
Interest and investment income . . . . . . . . . . $ 1,353 $ 2,906
Miscellaneous (expense) - net . . . . . . . . . . (1,810) (1,173)
------- -------
$ (457) $ 1,733
======= =======
</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 $1,163,000 and $1,140,000 for the three month periods ended
March 31, 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. In
accordance with Federal tax regulations, the Company cannot file a consolidated
income tax return with Qualex. Qualex generally has an annual book effective
tax rate which exceeds statutory rates primarily due to the amortization of
goodwill which is not deductible for tax purposes. The Company's other
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. As the Company does not file a
consolidated tax return with Qualex, the percentage of the Company's
consolidated income composed of Qualex's income, as opposed to the Company's
other businesses, can cause the Company's consolidated book tax provision to be
above or below statutory rates and vary from
8
<PAGE> 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
quarter to quarter and year to year. The Company's effective tax rate is
affected since Qualex's income tax expense and the Company's consolidated
income tax expense are calculated independently while income before taxes is
consolidated for financial reporting and the Company, excluding Qualex, is not
able to recognize a tax benefit for its losses due to limitations from prior
period recognition. For the three month period ended March 31, 1994, the
Company's consolidated effective tax rate has decreased as compared to the same
prior period because Qualex, with its higher effective tax rate, contributed
approximately 5% less loss before taxes then in the previous comparable
quarter.
During the year, the Company provides for income taxes using anticipated
effective annual tax rates for Qualex and for all other Company operations.
The rates are based on expected operating results for the year and estimated
permanent differences between book and tax income.
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.
LITIGATION
On February 18, 1994, Photographic Concepts Inc. ("PCI"), a Florida
corporation, sued Qualex in the United States District Court for the Middle
District of North Carolina, in a lawsuit captioned Photographic Concepts, Inc.
v. Qualex, Inc. Civil Action No. 1:94-CV-00081. PCI's claims arise out of
allegations that Qualex entered into and then breached an agreement with PCI
relating to the marketing of on-site "microlab" photofinishing services.
During 1993, Qualex's microlab business resulted in $33,300,000 in revenues and
$7,300,000 in gross profits, and Qualex expects such business to increase in
the future. PCI alleges, among other things, that Qualex breached an agreement
with PCI, and misappropriated trade property and other information from PCI.
PCI is seeking an injunction against Qualex's alleged use and misappropriation
of PCI's allegedly confidential and proprietary trade methods and techniques,
an accounting for and payment over to PCI of Qualex's profits from such alleged
use and misappropriate, unspecified consequential and punitive damages and
attorneys' fees and other costs of litigation. Qualex intends to defend the
case vigorously, but the Company is unable to determine the probable impact of
the suit at this early stage in the proceeding.
In 1991, three lawsuits were filed against the Company, certain of the
Company's current and former directors and Intermark, Inc., which 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,
ordering 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. While these actions
9
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
THE ACTAVA GROUP INC. AND SUBSIDIARIES
(UNAUDITED)
LITIGATION - (Continued)
are in their preliminary stages, management currently believes the actions will
not materially affect the operations or financial position of the Company.
Actava is a defendant in various other legal proceedings. However, the
Company is not aware of any action which, in the opinion of management, would
materially affect the financial position or results of operations 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. However, the
distributor is obligated to repurchase any equipment recovered from the dealer
and Snapper is 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.
Actava is contingently liable under various guarantees of debt totaling
approximately $8,600,000. 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 or bank letters of credit to support Actava's contingent
obligations. There are no material defaults on the debt agreements.
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 $9,100,000. The leased
properties generally have financially sound subleases.
In January 1992, Qualex entered into an agreement whereby it sells an
undivided interest in a designated pool of trade accounts receivable on an
ongoing basis. The maximum allowable amount of receivables to be sold,
initially set at $50,000,000, was increased to $75,000,000 in August 1992. As
collections reduce the pool of sold accounts receivable, Qualex sells
participating interests in new receivables to bring the amount sold up to the
desired level. At December 31, 1993 and 1992, the uncollected balance of
receivables sold amounted to $60,000,000 and $30,000,000, respectively. The
proceeds are reported as operating cash flows in the statement of cash flows
and a reduction of receivables in Qualex's balance sheet. Total proceeds
received by Qualex were $519,000,000 for 1993 and $220,000,000
for 1992. There has been no adjustment to the allowance for doubtful accounts
because Qualex has retained substantially the same risk of credit loss as if
the receivables had not been sold. Qualex pays fees based on the purchaser's
level of investment and borrowing costs. During 1993 and 1992, Qualex recorded
$2,200,000 and $1,100,000, respectively, of these fees as other expenses.
Qualex has a supply contract with Kodak for the purchase of sensitized
photographic paper and purchases substantially all of the chemicals used in
photoprocessing from Kodak. Qualex also purchases various other production
materials and equipment from Kodak.
Qualex and DP handle and store various materials in the normal course
of business that have been classified as hazardous by various federal, state
and local regulatory agencies. Qualex and DP are continuing to conduct tests
at various 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.
In January 1993, Qualex signed a ten year agreement to purchase its
information systems services from an outside agency. Annual service charges
under this agreement are approximately $13,000,000.
At March 31, 1994, approximately $5,000,000 of Actava's cash and
short-term investments were pledged to secure a Snapper credit line and
approximately $16,230,000 of cash and short-term investments were pledged to
support outstanding letters of credit.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Actava provides high-quality, brand-name products through distribution
channels to retail markets across the United States. The Company's businesses
encompass the broad leisure industry, including photofinishing, fitness
equipment and sporting goods, as well as lawn and garden equipment.
Actava owns 51% of the voting stock of Qualex, the largest photofinisher in
the United States, processing approximately 20% of all color print rolls of
film. Qualex also processes black and white and movie film. Qualex is a
wholesale photofinisher, obtaining substantially all of its sales from
independent retailers in 1993. Qualex's business also includes a limited
amount of direct sales to consumers through owned and operated retail
photographic stores and mail-order operations.
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.
Actava's long-range strategy is to maximize stockholder wealth by
concentrating its capital resources on its companies which offer the highest
potential returns. As a result, the Company continues to analyze its
businesses with a view toward enhancing their value through marketing
alliances, licensing arrangements and joint ventures, with particular emphasis
on cost efficiencies through plant consolidations or product-line expansions or
improvements.
The following is a discussion of the operating results of each of these
business segments and the operating results and financial position of Actava on
a consolidated basis.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - (CONTINUED)
Photofinishing: In 1988 the Company combined its photofinishing operations
with the domestic photofinishing operations of Eastman Kodak Company in a
transaction accounted for as a purchase, forming a jointly-owned company,
Qualex Inc. SEE "PHOTOFINISHING TRANSACTION" IN NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
Actava, which owns 51% of the voting shares of Qualex, consolidates the
accounts of Qualex with its accounts. Kodak's interest in the earnings and
equity of Qualex are reflected as minority interest.
Photofinishing sales decreased $15.8 million or 9.6% in the first quarter of
1994 as compared to the same period in 1993 due primarily to the effect of
extreme weather conditions, particularly in the Northeast, on print volume
during January and February. As sales decreased and per print price declines
continued, gross profit as a percent of sales decreased to 13.3% in 1994 in
comparison to 24.7% in 1993 and gross profit dollars decreased by $20.9
million, or 51.4%. Per print price decreases occurred due to price reductions
offered by competitors and the associated demand for similar prices from the
customers of Qualex. The decrease in gross profit, however, was partially
offset by decreases in selling, general and administrative expenses as a result
of decreases associated with sales related expenses such as advertising.
Selling, general and administrative expenses decreased from $44.2 million in
1993 to $33.3 million in 1994, a $10.9 million decrease. The photofinishing
industry is very seasonal, with the first quarter of each year being the lowest
volume quarter, which in some cases results in a loss. As a result of these
factors, Qualex incurred an operating loss of $14.0 million in the first
quarter of 1994 compared to a loss of $4.0 million experienced in the first
quarter of 1993.
Management anticipates that additional business volume and price reductions
from major suppliers will continue to offset pricing pressures in the wholesale
photofinishing industry. However, the relative effect of these items will
continue to be impacted by market changes.
Lawn and Garden: Snapper's sales to distributors and gross profit increased
$6.0 million and $2.6 million or 8.8% and 18.4%, respectively, for the first
quarter of 1994 in comparison to the same period last year. This sales
increase is primarily due to increased orders from distributors in anticipation
of increased sales to consumers during the 1994 selling season. The gross
profit increase is also primarily due to the lack of new product introductions
in 1994, as the start-up costs and low per unit price margins for the 1993 new
products were not experienced in 1994. Snapper also improved its gross profit
by achieving greater manufacturing efficiencies on its traditional product
lines during the first quarter of 1994 as compared to the same 1993 quarter.
Selling, general and administrative expenses increased by $2.5 million, or
21.2%, to $14.0 million for the first quarter of 1994 from $11.5 million for
the comparable 1993 quarter, due to special promotions and the effect of higher
first quarter 1994 sales on sales volume related expenses such as advertising.
The $2.6 million increase in gross profit was offset by a $2.5 million
increase in selling, general and administrative expenses which resulted in a
$142,000 increase in Snapper's operating profit for the first quarter of 1994
over the same 1993 quarter. Operating profit experienced in the 1994 quarter
was $2.7 million, a 5.5% increase over the 1993 quarter operating profit of
$2.6 million.
Sporting Goods: Sales at Actava Sports increased $49.5 million or 159.5% in
the first quarter of 1994 as compared to the same period in 1993. This
increase is primarily due to sales of $48.2 million recorded by DP, which was
acquired by the Company in June 1993. Actava Sports, excluding DP, experienced
an increase in first quarter sales of $1.3 million, a 4.2% increase, from $31.0
million for 1993 to $32.3 million for 1994.
Gross profit increased by $3.8 million, or 56.7% from $6.7 million for the
1993 first quarter to $10.5 million for the first quarter of 1994, primarily
due to the gross profit of $4.1 million experienced by DP. The gross profit of
Actava Sports, excluding DP, remained stable from the first quarter of 1993 to
the comparable 1994 quarter as it decreased by $248,000. Selling, general and
administrative expenses increased from $5.3 million
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
to $9.7 million for the first quarter of 1993 and 1994, respectively. This
$4.4 million increase is primarily due to $4.0 million of selling, general and
administrative expenses experienced by DP. The Actava Sports operating profit
for the first quarters of 1994 and 1993 was $863,000 and $1.4 million,
respectively. The 1994 first quarter operating profit for DP was $118,000;
therefore, Actava Sports, excluding DP, experienced a decrease in operating
profit of $745,000 from the comparable 1993 period.
Consolidated Operations: Actava's consolidated sales increased $39.8 million
or 15.1% in the first quarter of 1994 as compared to the first quarter of 1993,
principally because of the sales of DP, which was acquired in June 1993. Gross
profit as a percentage of sales for the first quarter of 1994 of 15.5% is a
decrease of 7.8% from the comparable 1993 quarter while gross profit dollars
decreased by $14.4 million. Selling, general and administrative expenses also
decreased by $3.9 million for these periods and included a provision of $1.3
million for the settlement of employee severance agreements. The decline in
gross profit was principally due to the performance at Qualex.
Interest expense for the first quarter of 1994 of $11.3 million is an
increase of $1.2 million from the first quarter of 1993. This increase is
primarily attributable to higher average borrowing at Snapper and DP under the
revolving credit facilities established to provide working capital. At March
31, 1994, Qualex, Snapper and all of the Actava Sports companies had separate
credit lines in place, which has substantially reduced their reliance on Actava
for working capital needs.
Other income (net of other deductions) decreased $2.2 million in the first
quarter of 1994 when compared to the first quarter of 1993. This decrease is
primarily the result of a decrease in investment income because of lower
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 year Actava provides for income taxes using anticipated effective
annual tax rates for Qualex and for all other Actava operations. The rates are
based on expected operating results for the year and estimated permanent
differences between book and taxable income. SEE "INCOME TAXES" IN NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
The minority interest shown on the Company's Consolidated Statements of
Operations represents Kodak's portion of the earnings of Qualex. In accordance
with the Shareholders' Agreement, the Company and Kodak are each entitled to
50% of Qualex's net income for income reporting purposes. Although Qualex
accounted for 49% of Actava's 1994 first quarter revenues and had a pre-tax
loss of $18.3 million, only approximately 25% of its pre-tax loss ($4.6
million) is reported in Actava's consolidated net loss due to Qualex's income
tax provision at an effective rate of 50% and the 50% minority interest effect.
SEE "PHOTOFINISHING TRANSACTION" IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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 therefore, possibly 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
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
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.
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 "SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES - CHANGES IN ACCOUNTING PRINCIPLES" 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.
As a result of the items described above, Actava reported a net loss for the
first quarter of 1994 of $12.7 million in comparison to a net loss of $7.6 for
the comparable 1993 period.
Financial Position: Actava's working capital was $97.4 million at
March 31, 1994 as compared to $103.4 million at December 31, 1993. The
decrease reflects the loss incurred by Actava in the first quarter of 1994 and
the payment of certain sinking fund requirements. The seasonal increase in
accounts receivable at Snapper was principally financed by borrowing from
working capital lines of credit. In addition, due to amendments in the Triton
loan agreement regarding quarterly principal payments, $5 million was
classified as a current note receivable at March 31, 1994. Cash and short-term
investments at Actava, excluding Qualex, decreased by $2.2 million in the first
quarter of 1994 to $42.1 million. At March 31, 1994, approximately $5.0
million of the Company's cash and short-term investments were pledged to secure
a Snapper credit line and approximately $16.2 million of cash and short-term
investments were pledged to support outstanding letters of credit.
For the three month period ended March 31, 1994, cash flows of $26.1 and $7.6
million were used by operating and investing activities, respectively, while
financing activities provided $26.6 million of cash. For operations, accounts
receivable increased by $1.9 million, inventories decreased by $9.3 million,
prepaid expenses decreased by $.4 million, and accounts payable and other
similar items decreased by $7.9 million. Depreciation of $12.6 million and
amortization of $5.9 million are included in determining cash flow used by
operations.
Investing activities used $7.6 million of cash, including payments for
property, plant and equipment (net of disposals) of $7.0 million.
Financing activities provided $26.6 million during the quarter with borrowings
under short-term bank agreements of $12.6 million, net borrowings of $27.2
million under long-term debt agreements, payments of $3.0 million for
subordinated debt and payments of dividends by Qualex to minority interest of
$10.2 million.
Actava's senior long-term debt, including the current portion, increased from
$223.8 million at December 31, 1993 to $251.0 million at March 31, 1994. This
is primarily attributable to additional borrowings by Qualex under long-term
borrowing agreements.
The Company is subject to various contingent liabilities and commitments.
These include a floor plan agreement entered into by Snapper under which
approximately $23.0 million is outstanding for 1993, various guaranties of
debt totaling approximately $8.6 million, various real estate leases with
estimated future payments of approximately $9.1 million, an agreement for
Qualex which involves sales of an undivided interest in certain accounts
receivable with a maximum of $75.0 million, a supply agreement between Qualex
and Kodak, various environmental matters, a ten year agreement entered into by
Qualex to purchase information systems services for annual charges of
approximately $13.0 million, and various pledges of cash and short-term
investments. SEE "CONTINGENT LIABILITIES AND COMMITMENTS" IN NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
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.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - CONTINUED
Actava's subordinated debt position, including the current portion, of $191.4
million at March 31, 1994 is a decrease of $2.9 million from year-end 1993.
Subordinated debt is 43.3% of Actava's total long-term debt, including the
current portion, with the first significant maturity due in 1996.
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 valued at $12 million, and the
assumption or payment of certain liabilities including trade payables and a
revolving credit facility. SEE "ACQUISITIONS" IN NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS. The Company also entered into an agreement which may
provide the seller with additional payments depending upon the value of the
issued shares over a period of not longer than one year from the purchase date.
The agreement gives the seller the right under certain curcumstances, to
require the Company to purchase the 1,090,909 shares issued to the seller in
connection with the acquisition (the "Acquisition Shares") at a price equal to
$11.00 per share. The payment of additional cash or the issuance of additional
shares will not increase the cost recorded by Actava for DP, but will affect
the manner in which the total purchase price is recorded by Actava. The right
of the seller to receive additional payments of cash or additional shares of
Company Common Stock becomes exercisable after June 8, 1994. In the event that
a registration statement under the Securities Act of 1933, as amended, is in
effect with respect to the Acquisition Shares, the Company may require the
seller to sell the Acquisition Shares to purchasers other than the Company and
pay to the seller the difference between the price received and $11.00 per
share. The Company has filed a Registration Statement under the Securities
Act of 1933, as amended, with respect to the Acquisition Shares. If the
Registration Statement is not declared effective on or before June 8, 1994,
the Company will be required to repurchase the Acquisition Shares for $12.0
million in cash. Any such repurchase would violate covenants in the Company's
credit and subordinated debt agreements.
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. Under the terms of Actava's 6% Senior Subordinated Swiss Franc
Bonds due 1996, Actava may not make any cash redemptions (in excess of the
aggregate net cash proceeds from the sale of Common Stock) of its Common Stock
or declare any cash dividends after September 30, 1985 in excess of $25 million
plus (or minus) the net income (or loss) of Actava subsequent to September 30,
1985. As of March 31, 1994 there were no amounts available for dividends or
redemptions pursuant to this covenant. The Qualex credit agreement and the
Shareholders' Agreement with Eastman Kodak Company also restrict the amount of
net assets of Qualex which may be transferred to the Company or Kodak by
dividend or other means. In addition, the DP credit agreement requires that
Actava maintain, at all times, an unrestricted cash and short-term investment
position of $20 million after September 30, 1994. Non-compliance with this
requirement subjects this agreement to termination by the lender upon
seventy-five days notice to Actava.
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 Triton 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. Triton has announced that it is seeking to make
arrangements to prepay the remaining balance due under the Triton Loan and has
obtained a bank commitment, subject to certain conditions, that would enable
Triton to repay its obligations in full. Triton has also announced, however,
that it may seek to impose additional requirements on Actava as a condition to
Triton's repayment of the loan. As of March 31, 1994 the outstanding balance
under the Triton Loan was $25.5 million.
During the first quarter of 1994 the Company received from its subsidiaries
$12.0 million in cash dividends. The dividends received from subsidiaries
during the first quarter of 1994 constitute substantially all of the dividends
the company expects to receive from its subsidiaries in 1994, due to the
restrictive covenants in the subsidiaries credit agreements. The Company,
excluding its subsidiaries and division, had $14.2 million of unpledged cash and
short-term investments. 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. Qualex is subject to similar
restrictions under its credit agreements. In addition, Qualex is subject to
the Change of Control provisions in the Shareholders Agreement between the
Company and Kodak. These Change of Control provisions could have the effect of
eliminating the Company's ability to control the payment of dividends by
Qualex. 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, and the Company anticipates that its total
cash needs in 1994 will exceed the anticipated amount of additional cash to be
received by the Company, including dividends from its subsidiaries. As a
result, if the Company does not receive additional cash through either a
refinancing, the repayment of the Triton Loan or the realization of value from
the sale or partial sale of one of its operating entities, the Company will end
1994 with less unrestricted cash and short-term investments than it held at the
end of the first quarter of 1994.
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 sporting goods company, as well as the prohibition on payment
of any dividends to the Company by these businesses. Management expects the
Company to remain in compliance with these covenants, as amended, for the
second quarter of 1994 and thereafter if certain events take place, including
increased earnings. Management expects that the Company would continue to be
in compliance after the second quarter of 1994 without regard to increased
earnings if the Triton Loan is repaid because the Triton Loan is excluded for
purposes of determining compliance with certain covenants in the credit
agreements. If existing cash, dividends from subsidiaries and payments on the
Triton Loan are not sufficient to meet its cash requirements, the Company will
seek to generate additional cash by selling or pledging certain assets, and
will consider additional options to reduce its cash expenditures.
The Company's subsidiaries and division, excluding Qualex, had unused
borrowing capacity of approximately $31.3 million at March 31, 1994, under
credit agreements which are secured by assets such as accounts receivable or
inventory. 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; however, the
assets potentially available as collateral are, in the aggregate, $350.2
million.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
4.1. Amendment, dated as of March 31, 1994, to Finance and
Security Agreement, dated as of December 15, 1993,
with respect to a revolving credit facility of up to
$50 million, between Diversified Products Corporation
and ITT Commercial Finance Corp. and the Provident
Bank. A copy of this amendment is not filed as the
debt does not exceed 10% of the total assets of the
registered; however, registrant hereby agrees to
furnish a copy of such agreement to the commission
upon request.
11. Computation of Earnings Per Share.
(b) No reports have been filed on Form 8-K during the quarter for
which this report is filed.
15
<PAGE> 16
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: MAY 16, 1994
16
<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
MARCH 31,
1994 1993
------- -------
<S> <C> <C>
(LOSS) PER SHARE - PRIMARY
Net (loss) available for Common
Stock and Common Stock equivalents . . . . . . . . . . . . . . . . $(12,673) $(7,604)
======== =======
COMMON STOCK AND COMMON STOCK EQUIVALENTS
Weighted average Fuqua common shares
outstanding during the period, less
stock in treasury . . . . . . . . . . . . . . . . . . . . . . . . 17,635 16,544
======== =======
(Loss) Per Share - Primary . . . . . . . . . . . . . . . . . . . . $ (.72) $ (.46)
======== =======
(LOSS) PER SHARE - ASSUMING FULL DILUTION (A)
Net (loss) available for Common
Stock and Common Stock equivalents . . . . . . . . . . . . . . . . $(12,673) $(7,604)
Interest savings on assumed conversion of 6 1/2%
Convertible Debentures, net of income tax . . . . . . . . . . . . 827 827
-------- -------
Net (loss) available for Common
Stock and Common Stock equivalents
assuming full dilution . . . . . . . . . . . . . . . . . . . . $(11,846) $(6,777)
======== =======
Common Stock and Common Stock equivalents . . . . . . . . . . . . . 17,635 16,544
Shares issuable upon assumed conversion of
6 1/2% Convertible Debentures . . . . . . . . . . . . . . . . . . . 1,802 1,802
-------- -------
Common Stock and Common Stock equivalents
assuming full dilution . . . . . . . . . . . . . . . . . . . . . . 19,437 18,346
======== =======
(Loss) Per Share -
Assuming Full Dilution . . . . . . . . . . . . . . . . . . . . . . $ (.61) $ (.37)
======== =======
</TABLE>
(a) Fully diluted (loss) per share is not used in 1994 and 1993 because it
results in less loss than primary (loss) per share.
