<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------- ----------
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 AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
(404) 658-9000
(Registrant's telephone number, including area code)
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT
Not Applicable
-------------------
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 March 31, 1995 -- 17,327,158 shares of Common
Stock.
================================================================================
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ---------
<S> <C> <C>
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 29,752 $ 47,916
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 14,522 14,321
Receivables (less allowances for doubtful accounts
of $7,002 in 1995 and $6,851 in 1994) . . . . . . . . . . . . . . . . . 139,791 132,948
Note receivable from Eastman Kodak Company (less
allowance for unearned discount of $1,832 in 1995
and $3,635 in 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . 48,168 96,365
Note receivable from Metromedia Company . . . . . . . . . . . . . . . . . 44,895 32,395
Current portion of note receivable from Triton Group Ltd. . . . . . . . . 5,000 6,250
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,015 13,403
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,549 7,384
Future income tax benefits . . . . . . . . . . . . . . . . . . . . . . . 6,911 6,911
--------- ---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . 326,603 357,893
Investment in Roadmaster Industries, Inc. . . . . . . . . . . . . . . . . . 67,889 68,617
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . 71,729 74,902
Less allowances for depreciation . . . . . . . . . . . . . . . . . . . . (38,212) (40,005)
--------- ---------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,517 34,897
Notes receivable from Triton Group Ltd, (less current portion) . . . . . . 15,476 16,726
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,339 15,013
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633 633
--------- ---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 459,457 $ 493,779
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities . . . . $ 89,176 $ 91,653
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82,287 64,573
Current portion of long-term and subordinated debt . . . . . . . . . . . 4,092 34,244
Redeemable common stock . . . . . . . . . . . . . . . . . . . . . . . . . -- 12,000
--------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . 175,555 202,470
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 6,911 6,911
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,518 2,547
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,308 157,193
STOCKHOLDERS' EQUITY
Common stock (22,767,485 shares in 1995 and 1994) . . . . . . . . . . . . 22,768 22,768
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,903 35,482
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,749 173,639
Less treasury stock--at cost (5,440,327 shares in 1995
and 5,490,327 shares in 1994) . . . . . . . . . . . . . . . . . . . . . (106,255) (107,231)
--------- --------
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,165 124,658
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . $ 459,457 $ 493,779
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE> 3
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1995 1994(A)
-------- --------
(UNAUDITED)
<S> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 57,062 $155,271
Operating costs and expenses
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . 44,304 128,071
Selling, general and administrative expenses . . . . . . . . . . . . . . 15,454 27,437
Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . 284 250
-------- --------
OPERATING LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . (2,980) (487)
Interest (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,556) (7,359)
Other income (expense) -- net . . . . . . . . . . . . . . . . . . . . . . . 2,228 (56)
-------- --------
LOSS BEFORE INCOME TAXES, INCOME FROM EQUITY INVESTMENT
AND DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . (6,308) (7,902)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 188
-------- --------
LOSS BEFORE INCOME FROM EQUITY INVESTMENT
AND DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . (6,308) (8,090)
Loss from equity investment in Roadmaster Industries, Inc. . . . . . . . . (727) --
-------- --------
LOSS FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . . . . . . . . (7,035) (8,090)
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . . -- (4,583)
-------- --------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (7,035) $(12,673)
======== ========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . $ (.39) $ (.46)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ (.26)
-------- --------
Primary and fully diluted . . . . . . . . . . . . . . . . . . . . . . . . $ (.39) $ (.72)
======== ========
AVERAGE COMMON AND COMMON EQUIVALENT SHARES . . . . . . . . . . . . . . . . 17,858 17,635
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
_______________
(a) Restated for discontinued operations.
2
<PAGE> 4
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
INCREASE (DECREASE) IN CASH
-----------------------------
THREE MONTHS ENDED
-----------------------------
MARCH 31,
-----------------------------
1995 1994(A)
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations . . . . . . . . . . . . . . . . . . . $ (7,035) $ (8,090)
Less items using cash from continuing operating activities . . . . . . . (17,634) (5,633)
-------- --------
Net cash used in continuing operations . . . . . . . . . . . . . . . . (24,669) (13,723)
-------- --------
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . -- (4,583)
Less items using cash from discontinued operations . . . . . . . . . . . -- (7,893)
-------- --------
Net cash used in discontinued operations . . . . . . . . . . . . . . . -- (12,476)
-------- --------
Net cash used in all operations . . . . . . . . . . . . . . . . . . . . (24,669) (26,199)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments (maturities over 90 days) . . . . . . . . . . . -- (29,572)
Sales of investments (maturities over 90 days) . . . . . . . . . . . . . -- 21,546
Net sales of other investments . . . . . . . . . . . . . . . . . . . . . 124 7,243
Purchase of long-term investments . . . . . . . . . . . . . . . . . . . . -- --
Payments for property, plant and equipment . . . . . . . . . . . . . . . (1,017) (7,344)
Proceeds from disposals of property, plant and equipment . . . . . . . . -- 376
Collections on notes receivable . . . . . . . . . . . . . . . . . . . . . -- 1,473
Collections from Triton Group Ltd. . . . . . . . . . . . . . . . . . . . 2,500 1,250
Collection from Eastman Kodak Company . . . . . . . . . . . . . . . . . . 50,000 --
Loans to Metromedia Company . . . . . . . . . . . . . . . . . . . . . . . (12,500) --
Other investing activities -- net . . . . . . . . . . . . . . . . . . . . (5,550) (2,499)
-------- --------
Net cash provided by (used in) investing activities . . . . . . . . . . 33,557 (7,527)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under short-term bank agreements . . . . . . . . . . . . . 17,714 12,628
Borrowings under long-term debt agreements . . . . . . . . . . . . . . . -- 48,000
Payments on long-term debt agreements . . . . . . . . . . . . . . . . . . (29) (20,763)
Payments of subordinated debt . . . . . . . . . . . . . . . . . . . . . . (33,152) (3,000)
Proceeds from issuance of Actava common stock . . . . . . . . . . . . . . 415 --
Payment on redeemable common stock . . . . . . . . . . . . . . . . . . . (12,000) --
Cash dividends paid by Qualex to minority interest . . . . . . . . . . . -- (10,225)
-------- --------
Net cash used in financing activities . . . . . . . . . . . . . . . . . (27,052) 26,640
-------- --------
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . (18,164) (7,086)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . 47,916 18,770
-------- --------
Cash and cash equivalents at March 31 . . . . . . . . . . . . . . . . . $ 29,752 $ 11,684
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
_______________
(a) Restated for discontinued operations.
3
<PAGE> 5
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 principals. 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, 1995 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1995. These condensed consolidated financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1994.
PHOTOFINISHING TRANSACTION AND DISCONTINUED OPERATION
Qualex Inc. is a photofinishing business 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 and
presented Kodak's portion of ownership and equity in the income of Qualex as
minority interest.
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 are reported in the accompanying
reclassified statements of operations under discontinued operations. On August
12, 1994, Kodak purchased all of 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 $50,000,000
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. Approximately
$3,500,000 of imputed interest income was recorded during 1994. 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
4
<PAGE> 6
of Qualex. The Company received $50,000,000 under the promissory note on
February 13, 1995.
No assets and liabilities for Qualex are included in the Company's
balance sheet at December 31, 1994 due to the sale of the Company's interest in
Qualex on August 12, 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. The Company's
statement of operations for the quarter ended March 31, 1994 has been restated
to reflect Qualex as a discontinued operation. The results of Qualex for this
period are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1994
--------------------
<S> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $148,407
Operating expenses . . . . . . . . . . . . . . . . . . . . . 162,392
Operating loss . . . . . . . . . . . . . . . . . . . . . . . (13,985)
Interest expense . . . . . . . . . . . . . . . . . . . . . . (3,949)
Other expense . . . . . . . . . . . . . . . . . . . . . . . (401)
Loss before taxes . . . . . . . . . . . . . . . . . . . . . (18,335)
Income taxes (benefit) . . . . . . . . . . . . . . . . . . . (9,168)
Net loss from discontinued operations
before minority interest . . . . . . . . . . . . . . . . . (9,167)
Minority interest . . . . . . . . . . . . . . . . . . . . . 4,584
Net loss from discontinued operations . . . . . . . . . . . $ (4,583)
</TABLE>
ACCOUNTS AND NOTES RECEIVABLE
Receivables from sales of Actava's lawn and garden products amounted
to $144,557,000 at March 31, 1995 and $137,815,000 at December 31, 1994. The
receivables are primarily due from independent distributors located throughout
the United States. Amounts due from distributors are supported by a security
interest in the inventory or accounts receivable of the distributors. The
receivables generally have extended due dates which correspond to the seasonal
nature of the products' retail selling season. Concentrations of credit risk
due to the common business of the customers are limited due to the number of
customers comprising the customer base and their geographic location. Ongoing
credit evaluations of customers' financial condition are performed and reserves
for potential credit losses are maintained. Such losses, in the aggregate,
have not exceeded management's expectations.
TRITON GROUP LTD. LOAN
At March 31, 1995 and December 31, 1994, the Company had a $20,476,000
and a $22,976,000 note receivable, respectively, from Triton Group Ltd. secured
by 3,690,998 shares of Actava Common Stock.
Effective June 25, 1993, the Company and Triton, as part of a plan of
reorganization filed by Triton under Chapter 11
5
<PAGE> 7
of the U.S. Bankruptcy Code, modified the terms of the loan previously made by
the Company to Triton. The modifications included: extending the due
date of the loan to April 1, 1997; reducing the interest rate to prime plus
1 1/2% for the first six months following June 25, 1993, to prime plus 2% for
the next six months, and to prime plus 2 1/2% for the remainder of the term of
the loan; revising collateral maintenance (margin call) requirements; and
providing for release of collateral under certain circumstances. Under the
modified agreements, Actava's right of first refusal with respect to any sale
by Triton of its Actava Common Stock will continue in effect until the loan is
paid off and Triton is entitled to designate two directors (who are not
officers or employees of Triton) on an expanded nine-member Board of Directors
so long as Triton continues to own 20% or more of Actava's outstanding Common
Stock.
Triton filed a motion on July 30, 1993, with the United States
Bankruptcy Court for the Southern District of California seeking to modify
Triton's recently approved Plan of Reorganization. The modifications sought by
Triton would have amended or eliminated the collateral maintenance (margin
call) provisions that are an integral part of the Amended and Restated Loan
Agreement. On August 2, 1993, the Bankruptcy Court entered a temporary
restraining order suspending the effectiveness of the margin call provisions
until the Court had an opportunity to hear Triton's motion seeking preliminary
injunction. The motion seeking a preliminary injunction was heard on August
10, 1993, and was denied. Triton then withdrew its motion to modify its Plan
of Reorganization. Therefore, the provisions of the Amended and Restated Loan
Agreement continue to remain in effect. On August 19, 1993, the Amended and
Restated Loan agreement was amended to allow Triton to satisfy certain margin
call requirements by making deposits to a Collateral Deposit Account in lieu of
delivering certificates of deposit. The margin call provisions for principal
repayments and transfers of shares of Company Common Stock were not amended.
On December 7, 1993, the Amended and Restated Loan Agreement was amended, in
connection with a $5,000,000 prepayment of principal received on December 7,
1993, to provide for quarterly principal payment installments of $1,250,000 due
on the last day of each quarter of each year beginning March 31, 1994, with any
unpaid principal and accrued interest due on April 1, 1997. The Agreement was
also amended to require 75,000 additional shares of Actava Common Stock to be
pledged as collateral and to modify the margin call provisions of the Agreement
to provide a $7.50 minimum per share value of Actava Common Stock for purposes
of determining the amount of any margin call mandatory payments. These
modifications limit the circumstances under which Triton must pledge additional
collateral for the loan; however, the 3,690,998 shares of Actava Common Stock
owned by Triton will continue to be pledged to secure the loan until the loan
is paid in full. At May 10, 1995, the pledged shares had a market value of
$33,219,000 as compared to the loan balance of $20,476,000. In the opinion of
management, the shares held as collateral are, and will continue to be,
sufficient to provide for realization of the loan.
METROMEDIA COMPANY LOAN
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 ("Sterling"), and Metromedia
International Telecommunications Inc. ("MITI") (the "Proposed Metromedia
Transaction"). Metromedia Company ("Metromedia") and its affiliates control in
excess of 50% of the voting power of both Orion and MITI. Pursuant to the
letters of intent, the Company and Metromedia entered into a Credit Agreement
dated as of October 11,
6
<PAGE> 8
1994 (the "Credit Agreement") under which the Company agreed to make loans to
Metromedia in an amount not to exceed an aggregate of $55 million. Under the
terms of the Credit Agreement, Metromedia agreed to use the proceeds of the
loans to make advances to or to pay obligations on behalf of Orion, Sterling
and MITI. All loans made by the Company to Metromedia under the Credit
Agreement are secured by shares of stock of Orion and MITI owned by Metromedia
and its affiliates. In addition, a general partner of Metromedia has
personally guaranteed the loans. The Credit Agreement provides that interest
will be due on the principal amount of all loans 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 the
Company terminates discussions relating to the Proposed Metromedia Transaction.
All loans were originally scheduled to be due and payable on April 12, 1995.
On April 12, 1995, the Company and the other parties to the Proposed Metromedia
Transaction entered into an Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger of each of Orion, Sterling and MITI into
and with the Company. After approving the Merger Agreement, the Board of
Directors of the Company, at the request of Metromedia, agreed to extend the
maturity date of the loans until the earlier of (i) the date of consummation
of the Proposed Metromedia Transaction, (ii) three months following the
abandonment or termination of the Merger Agreement by any party thereto
pursuant to Article 14 thereof, or (iii) December 31, 1995. The outstanding
balance under the Credit Agreement as of March 31, 1995 was $44,895,000.
INVENTORIES
Inventory balances are summarized as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1995 1994
-------- --------
<S> <C> <C>
Finished goods and goods purchased for resale . . . . . . . . . . . $ 27,263 $ 12,618
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . 17,776 15,395
-------- --------
45,039 28,013
Reserve for LIFO cost valuation . . . . . . . . . . . . . . . . . . (15,024) (14,610)
-------- --------
$ 30,015 $ 13,403
======== ========
</TABLE>
Work in process is not considered significant.
During 1994, certain inventory quantities were reduced resulting in a
liquidation of LIFO inventory quantities which were carried at lower costs
prevailing in prior years as compared with the cost of current year purchases.
The utilization of this lower cost inventory decreased net loss by
approximately $1,200,000 and decreased loss per share of common stock by $.07.
INVESTMENT IN ROADMASTER INDUSTRIES, INC.
On December 6, 1994, the Company transferred ownership of its four
sporting goods subsidiaries to Roadmaster Industries, Inc. ("Roadmaster") in
exchange for 19,169,000 shares of Roadmaster's Common Stock. As of December
31, 1994, the Company owned 39% of the issued and outstanding shares of
Roadmaster's Common Stock based on approximately 48,600,000 shares of
Roadmaster's Common Stock outstanding. The four Actava subsidiaries
transferred to Roadmaster were Diversified Products Corporation, Hutch Sports
USA Inc., Nelson/Weather-Rite, Inc. and Willow Hosiery Company, Inc. No gain
or loss was recognized
7
<PAGE> 9
for this nonmonetary transaction. The Company's initial investment in
Roadmaster was recorded at approximately $68,300,000 and is accounted for by
the equity method.
The excess of the Company's investment in Roadmaster over its share in
the related underlying equity in net assets is being amortized on a
straight-line basis over a period of 40 years. The remaining unamortized
balance at March 31, 1995 and December 31, 1994 was $28,674,000 and
$28,855,000, respectively.
The quoted market value of the Company's investment in Roadmaster
common stock as of December 31, 1994, was $3.625 per share or a total value of
$69,488,000 and as of March 31, 1995, was $3.00 per share or a total value of
$57,507,000.
Summarized financial information for Roadmaster is shown below (in
thousands):
<TABLE>
<CAPTION>
ROADMASTER INDUSTRIES, INC.
THREE MONTHS ENDED
-------------------------------
APRIL 1, 1995 APRIL 2, 1994
------------- -------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . $175,546 $98,288
Gross profit . . . . . . . . . . . . . . . . . . . . . 23,957 13,153
Net income (loss) . . . . . . . . . . . . . . . . . . (1,477) 782
</TABLE>
RETIREMENT OF 6% SENIOR SUBORDINATED SWISS FRANC BONDS
In 1986 Actava issued 6% Senior Subordinated Swiss Franc Bonds due in
1996 for 100,000,000 Swiss francs. Simultaneously, in order to eliminate
exposure to fluctuations in the currency exchange rate over the life of the
bonds, Actava entered into a currency swap agreement with a financial
institution whereby Actava received approximately $48,000,000 in exchange for
the Swiss Franc Bond proceeds. As a result of the swap agreement, Actava, in
effect, made its interest and principal bond repayments in U.S. dollars without
regard to changes in the currency exchange rate. A default by the counterparty
to the swap agreement would have exposed Actava to potential currency exchange
risk on the remaining bond interest and principal payments in that Actava would
have been required to purchase Swiss francs at current exchange rates rather
than at the swap agreement exchange rate. After considering the stated
interest rate, the cost of the currency swap agreement, taxes and underwriting
commissions, the effective cost of the bonds was approximately 11.3%.
In December 1994, Actava entered into an agreement to redeem the
outstanding Swiss Franc Bonds at par plus accrued interest and to terminate the
currency swap agreement on February 17, 1995. The Company recorded an
extraordinary loss of $1,601,000 in 1994 related to this early extinguishment
of debt. The Company paid $34,900,000 due under the agreement on February 17,
1995.
REDEEMABLE COMMON STOCK
Redeemable Common Stock represents 1,090,909 shares of the Company's
Common Stock which were issued in connection with the acquisition of
substantially all the assets and
8
<PAGE> 10
liabilities of Diversified Products Corporation ("DP") on June 8, 1993. The
Company acquired substantially all the assets of 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 providing the seller of DP with the
right to additional payments depending upon the value of the issued shares
over a period of not longer than one year from the purchase date. The
issuance of additional payments of cash or additional shares would not
increase the cost of DP; any subsequent issuance would only affect the manner
in which the total purchase price was recorded by Actava. The shares of the
Company's Common Stock issued in connection with the acquisition of DP were
redeemed on February 17, 1995 for $12,000,000.
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 three month
periods ended March 31, 1995 and 1994, 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.
LITIGATION
In 1991, three lawsuits were filed against Actava, certain of Actava's
current and former directors and Intermark, Inc. (predecessor of Triton Group
Ltd.), which owned approximately 26% of Actava'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
Actava by manipulating the affairs of Actava to the detriment of Actava's past
and present stockholders. The complaint sought monetary damages from the
director defendants, injunctive relief against Actava, Intermark and its then
current directors, and costs of suit and attorney's fees. The other two
complaints alleged, among other things that members of the Actava Board of
Directors contemplate either a sale, a merger, or other business combination
involving Intermark, Inc. and Actava or one or more of its subsidiaries or
affiliates. The complaints sought costs of suit and attorney's 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 Actava's value as
a merger or acquisition candidate. These three suits were consolidated on May
1, 1991 into a lawsuit captioned In re Fuqua Industries, Inc. Shareholders
Litigation, Civil Action No. 11974. These lawsuits continue to be in the
discovery stage. No significant events occurred with respect to these lawsuits
during 1994 or the first quarter of 1995.
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
9
<PAGE> 11
States District Court for the Western District of Michigan. The lawsuit was
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 15, 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
alleged 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 sought recovery of unspecified single and
treble damages, penalties, costs and prejudgment and post-judgment interest
which could have exceeded $10,000,000 in total. This case was dismissed with
prejudice on May 3, 1995 after the Company paid $800,000 on behalf of American
Seating. The amount of the payment was agreed to by the Company based on a
mediation panel's recommendation.
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 and that the transaction would result in a
change of voting control without giving stockholders an opportunity to maximize
their investment and that the current stockholders of the Company would suffer
a dramatic dilution of their voting rights. The Company and its directors have
filed a motion to dismiss this lawsuit. The stockholder who filed the lawsuit
has not responded to the motion to dismiss.
Actava is a defendant in various other legal proceedings. Except as
noted above, however, Actava is not aware of any action which, in the opinion
of management, would materially affect the financial position or results of
operations of Actava.
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 March 31, 1995 and December 31, 1994, there were
approximately $43,467,000 and $29,449,000, respectively, outstanding under
these floor plan financing arrangements.
Actava is contingently liable under various guarantees of debt
totaling approximately $6,000,000. The debt is primarily Industrial Revenue
Bonds which were issued to finance the
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<PAGE> 12
manufacturing facilities and equipment of subsidiaries disposed of in earlier
years, 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
subsidiaries which were sold in prior years. The total future payments under
these leases, including real estate taxes, is estimated to be approximately
$3,300,000. The leased properties generally have financially sound subleases.
Former subsidiaries of the Company handled and stored various
materials in the normal course of business that have been classified as
hazardous by various Federal, state and local regulatory agencies and for which
the Company may be liable. The Company is continuing to participate in
conducting tests at these 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. 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 March 31, 1995, approximately $5,000,000 of the Company's cash was
pledged to secure a Snapper credit line.
Snapper has entered into various long-term manufacturing and purchase
agreements with certain vendors for the purchase of manufactured products and
raw materials. At March 31, 1995, non-cancelable commitments under these
agreements amounted to approximately $5,314,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
During 1994, Actava's management took several steps to redirect the
Company's focus in order to improve its operating results and financial
condition and to enable it to pursue new business opportunities. These steps
included the sale of four sporting goods companies to Roadmaster in exchange
for Roadmaster's publicly traded stock and the sale of the Company's 50%
ownership interest in Qualex to Kodak for cash and short-term notes totaling
$150 million. On April 12, 1995, the Company entered into the Merger Agreement
relating to the Proposed Metromedia Transaction.
The Company's Snapper Division currently provides lawn and garden
products through distribution channels to domestic and foreign retail markets.
In addition, the Company is indirectly involved in the sporting goods business
through its ownership interest in Roadmaster.
The following is a discussion of the operating results and financial
condition of the continuing operations of Actava on a consolidated basis and
the operating results of the Company's lawn and garden segment and the
Company's sporting goods segment. Financial information summarizing the
results of operations for Qualex, which is classified in discontinued
operations, is presented in "Qualex Inc. - Discontinued Operations" in Notes to
Consolidated
11
<PAGE> 13
Financial Statements. Summary financial information for the Company's equity
investment in Roadmaster is presented in "Investment in Roadmaster Industries,
Inc." in Notes to Consolidated Financial Statements.
The following table presents a summary of the consolidated results of
continuing operations of the Company for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------
1995 1994
------ ------ INCREASE
(IN THOUSANDS) (DECREASE)
-------------- ----------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $57,062 $155,271 $(98,209)
Gross profit . . . . . . . . . . . . . . 12,758 27,200 (14,442)
Gross profit % . . . . . . . . . . . . . 22.4% 17.5%
S, G & A . . . . . . . . . . . . . . . . $15,738 $ 27,687 (11,949)
Operating loss . . . . . . . . . . . . . (2,980) (487) (2,493)
Interest expense . . . . . . . . . . . . 5,556 7,359 (1,803)
Other income (expenses) . . . . . . . . . 2,228 (56) 2,284
Income taxes . . . . . . . . . . . . . . 0 188 (188)
Loss from equity investment . . . . . . . (727) -- (727)
Loss from continuing operations . . . . . $(7,035) $ (8,090) $ 1,055
</TABLE>
CONSOLIDATED CONTINUING OPERATIONS
The Company's consolidated sales decrease of 63.3% is primarily
attributable to the sale of the Company's four sporting goods companies to
Roadmaster in December 1994. Sales of $80.6 million for those companies are
reflected in the 1994 first quarter sales while the 1995 first quarter includes
only sales for the Company's remaining operations. In addition, the Company's
Snapper Division experienced a $17.6 million decrease in sales during the first
quarter of 1995 compared to the first quarter of 1994. This decrease resulted
primarily from the fact that Snapper's distributors accelerated their purchases
of Snapper products during December 1994 in order to build their inventories
prior to the implementation by Snapper of price increases in 1995. The
implementation by Snapper of a dealer direct sales program also contributed to
the decrease in sales.
The 53.1% decrease in consolidated gross profit dollars is principally
the result of the December 1994 sale of the sporting goods companies because
$10.5 million of gross profit from these companies was included in the 1994
first quarter while the 1995 first quarter reflects the post-sale results for
the Company. Consolidated gross profit dollars also decreased as Snapper's
gross profit dollars declined by $3.9 million due to its sales decrease. The
change in the consolidated gross profit percentage is primarily due to the sale
of the sporting goods companies. Snapper's gross profit percentage remained
substantially constant for the 1995 and 1994 first quarters.
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<PAGE> 14
The decrease in consolidated selling, general and administrative
expenses, which include provisions for doubtful accounts and employee
termination costs, is primarily attributable to the December 1994 sale of the
Company's four sporting goods companies. Approximately $9.7 million of such
expenses were included for those companies in the 1994 first quarter.
Additionally, a non-recurring provision of $1.3 million for employee
termination costs was included in the 1994 first quarter selling, general and
administrative expense.
For the first quarter of 1995, the Company's consolidated operating
loss of $2.9 million exceeds the 1994 first quarter operating loss of $487,000
due in part to the effect of a 1994 first quarter operating profit of $863,000
reported for the sporting goods companies which were sold in December 1994.
The decrease in Snapper's 1995 first quarter gross profit resulting from
Snapper's reduced sales, as partially offset by improvements in consolidated
selling, general and administrative expenses, also contributed to the operating
loss.
The 24.5% decrease in consolidated interest expense for the 1995 first
quarter is principally due to $1.2 million of interest expense which was
reflected in the 1994 first quarter for the four sporting goods companies sold
in December 1994. The 1995 first quarter interest expense for the remaining
operations was substantially equivalent to the same 1994 quarter.
The increase in other income for the 1995 first quarter as compared to
the 1994 first quarter is primarily attributable to additional investment
income resulting from higher investment levels in 1995 and the interest income
on the Kodak and Metromedia notes reported by the Company during 1994. See
"Photofinishing Transaction and Discontinued Operations" and "Metromedia
Company Loan" in Notes to Consolidated Financial Statements.
During the year, the Company provides for income taxes using
anticipated effective annual tax rates based on expected operating results for
the year and estimated permanent differences between book and taxable income.
Due to the recognition of net operating loss benefits to the extent possible
through a reduction in deferred income tax liabilities in a prior year, Actava
recognizes the benefit of current net operating losses only to the extent of
potential refunds from carrybacks. Any income tax effect relating to Qualex
was recognized in the loss from discontinued operations. Income taxes for the
four sporting goods companies sold to Roadmaster were included in Actava's
operations for the period for which they were consolidated. The Company has a
net deferred tax balance of zero, which is composed of deferred tax liabilities
of approximately $16.4 million and deferred tax assets of approximately $59
million subject to a $42.6 million valuation allowance to reflect limitations
on the Company's ability to utilize net operating losses and other tax
benefits. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. See
"Income Taxes" in Notes to Consolidated Financial Statements.
Loss from equity investment of $727,000 is reported for the Company's
investment in Roadmaster for the first quarter of 1995. This represents the
Company's approximate 39% share of Roadmaster's net loss for the quarter ended
March 31, 1995. In December 1994, the Company received shares of Roadmaster
common stock in exchange for the Company's investment in four sporting goods
companies. See "Investment in Roadmaster Industries, Inc." in Notes to
Consolidated Financial Statements.
13
<PAGE> 15
As a result of the items described above, the Company reported a net
loss of $7 million for the first quarter of 1995. The Company reported a loss
from continuing operations of $8.1 million and a loss from discontinued
operations of $4.6 million, resulting in a net loss of $12.7 million for the
first quarter of 1994.
LAWN AND GARDEN
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------
1995 1994
------ ------ INCREASE
(IN THOUSANDS) (DECREASE)
-------------- ----------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $57,062 $74,709 $(17,647)
Gross profit . . . . . . . . . . . . . . 12,758 16,687 (3,929)
Gross profit % . . . . . . . . . . . . . 22.4% 22.3%
S, G & A . . . . . . . . . . . . . . . . $13,290 $13,984 (694)
Operating profit (loss) . . . . . . . . . $ (532) $ 2,703 $ (3,235)
</TABLE>
The 23.6% decrease in Snapper's 1995 first quarter sales as compared
to the same 1994 quarter is primarily attributable to the acceleration of
purchases by Snapper distributors in December of 1994 in anticipation of 1995
price increases. Snapper's 1995 first quarter sales were also adversely
impacted by the implementation of Snapper's dealer direct program in certain
geographic areas. The dealer direct program will replace sales to some
independent distributors with sales directly to the Snapper dealers formerly
serviced by the distributors. In order to begin dealer direct sales, Snapper
repurchased certain distributor finished goods inventory which resulted in
reduced sales for the quarter. The repurchased products will be sold to
dealers during 1995.
The 23.5% decrease in 1995 first quarter gross profit dollars as
compared to the 1994 first quarter is directly attributable to the $17.6
million sales decrease experienced for the quarter. Snapper's gross profit
percentage remained substantially constant.
Selling, general and administrative expenses decreased by 5% from the
first quarter of 1994 as sales volume related expenses such as marketing and
advertising expenses decreased because sales were down for the first quarter of
1995.
Snapper experienced an operating profit decrease of $3.2 million for
the 1995 first quarter as compared to the 1994 first quarter as a result of the
$3.9 million decrease in gross profit dollars which was partially offset by the
$694,000 decrease in selling, general and administrative expenses.
14
<PAGE> 16
SPORTING GOODS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------
1995 1994
------ ------ INCREASE
(IN THOUSANDS) (DECREASE)
-------------- ----------
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . $ -- $80,562 $(80,562)
Gross profit . . . . . . . . . . . . . . -- 10,513 (10,513)
Gross profit % . . . . . . . . . . . . . 0% 13.0%
S, G & A . . . . . . . . . . . . . . . . $ -- $ 9,650 (9,650)
Operating profit . . . . . . . . . . . . -- 863 (863)
Loss from equity investment . . . . . . . $(727) $ -- $ (727)
</TABLE>
The four sports companies which formerly comprised the Company's
sporting goods segment were combined with Roadmaster on December 6, 1994. See
"Equity Investment in Roadmaster Industries, Inc." in Notes to Consolidated
Financial Statements. Roadmaster, through its operating subsidiaries, is a
manufacturer of bicycles, fitness equipment and toy products in the United
States. The Company consolidated the results of operations of its four
sporting goods companies with the results of operations of Actava for periods
ending prior to December 6, 1994. Income or loss from the Company's equity
investment in Roadmaster is reported for periods ending after December 6, 1994.
For the 1995 first quarter, a loss of $727,000 is reflected in net income
results from the Company's approximate 39% investment in Roadmaster and is
based on information received from Roadmaster. Additional information
regarding Roadmaster's results of operations is contained in Roadmaster's
Current Report on Form 10-Q for the quarter ended April 1, 1995.
DISCONTINUED OPERATIONS
In 1988, Actava combined its photofinishing operations with the
domestic photofinishing operations of Kodak in a transaction accounted for as a
purchase. This combination created a new company, Qualex, which was jointly
owned by Actava and Kodak. Actava consolidated the results of operations of
Qualex with the results of operations of Actava for periods ending prior to
June 30, 1994. During the second quarter of 1994, Actava began accounting for
its investment in Qualex under the equity method. Also during the second
quarter of 1994, Actava 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
$4.6 million from the operations of Qualex is reflected in Actava's net loss
under discontinued operations for the first quarter of 1994. See "Qualex, Inc.
- - Discontinued Operations" in Notes to Consolidated Financial Statements.
15
<PAGE> 17
FINANCIAL POSITION
Actava's working capital was $151.1 million at March 31, 1995 as
compared to $155.4 million at December 31, 1994. This $4.3 million decrease
reflects the loss incurred by Actava in the first quarter of 1995 and the
payment of certain sinking fund requirements. Cash and short-term investments
at Actava decreased by $17.9 million to $44.3 million at March 31, 1995 from
$62.2 million at December 31, 1994. Actava had approximately $39.3 million of
available liquidity at March 31, 1995, excluding $5 million of cash pledged to
secure a Snapper credit line, as compared to $45.2 million at December 31,
1994. While cash and short-term investments decreased by $17.9 million,
available liquidity decreased by only $5.9 million because $12 million of cash
and short-term investments had previously been excluded from available
liquidity due to a pledge to secure a letter of credit relating to Actava's
redeemable common stock. The cash and short-term investments were used to
consummate the redemption in February 1995.
For the first quarter of 1995, operating activities used $24.7 million
of cash and financing activities used $27.1 million of cash. Cash flows of
$33.6 million were provided by investing activities. For operating activities,
accounts receivable increased by $6.5 million, inventories increased by $16.6
million due in part to seasonal demand factors while accounts payable decreased
by $2.5 million. Depreciation of $2.4 million was included in determining cash
flow from operating activities.
Financing activities during the first quarter of 1995 used $27.1
million of cash, including $12 million paid for redeemable common stock, $30.2
million paid to retire the outstanding principal balance on the Company's 6%
Senior Subordinated Swiss Franc Bonds and sinking fund requirements of $3
million paid on other subordinated debt, as offset by net borrowings of $17.7
million under short-term bank agreements.
Investing activities during the first quarter of 1995 provided $33.6
million of cash, including collections of $50 million on a note receivable from
Kodak and $2.5 million on a note receivable from Triton, as offset by payments
for plant, property and equipment (net of disposals) of $1 million and by loans
to Metromedia of $12.5 million.
Actava's subordinated debt, including the current portion, decreased
from $191 million at December 31, 1994 to $158 million at March 31, 1993 due to
the retirement of the outstanding principal balance of $30.2 million on the
Company's 6% Senior Subordinated Swiss Franc Bonds and sinking fund
requirements of $3 million paid on other subordinated debt.
Actava is subject to various contingent liabilities and commitments.
These include a floor plan agreement entered into by Snapper under which
approximately $43.5 million was outstanding at March 31, 1995 and $29.5 million
at December 31, 1994, various guaranties of debt totaling approximately $6
million, various real estate leases with estimated future payments of
approximately $3.3 million, and various pledges of cash and short-term
investments. See "Contingent Liabilities and Commitments" in Notes to
Consolidated Financial Statements.
Actava's manufacturing plants are subject to federal, state and local
pollution laws and regulations. Compliance with such laws and regulations has
not, and is not expected to,
16
<PAGE> 18
materially affect Actava's competitive position. Actava's capital expenditures
for environmental control facilities and incremental operating costs in
connection therewith were not material in the first quarter of 1995 and are not
expected to be material in future years. The Company is involved in various
environmental matters including clean-up efforts at landfill or refuse sites
and groundwater contamination. The Company's participation in three existing
superfund sites has been quantified and its remaining exposure is estimated to
be less than $400,000 for all three sites. The Company is participating with
the federal and Ohio Environmental Protection Agencies in initial
investigations of a potential environmental contamination site involving a
divested subsidiary. Actava may also be liable for remediation of
environmental damage relating to businesses previously sold in excess of
amounts accrued. In connection with the sale of Actava's four sporting goods
companies to Roadmaster, the Company assumed environmental liabilities relating
to approximately 17 acres of real property formerly owned by DP and located in
Opelika, Alabama. It is management's opinion that cleanup costs will not have
a material effect on Actava's financial position or results of operations.
During 1994, the Westinghouse Executive Pension Trust Fund
("Westinghouse") acquired 1,090,909 shares of the Company's Common Stock (the
"Westinghouse Shares"), which represented approximately 5.9% of the shares then
outstanding. The Westinghouse Shares were issued by the Company on June 8,
1993 in connection with the Company's acquisition of substantially all of the
assets of DP. Simultaneously with the issuance of the Westinghouse Shares, the
Company and Westinghouse entered into a Shareholder Rights Agreement under
which Westinghouse had the right under certain circumstances to require the
Company to purchase the Westinghouse Shares at a price equal to $11 per share.
On February 17, 1995, the Company purchased the Westinghouse Shares pursuant to
the Shareholder Rights Agreement for a price equal to $11 per share or an
aggregate price of $12 million.
On October 11, 1994, Actava and Metromedia entered into the Credit
Agreement under which Actava has made and will make loans to Metromedia in an
amount not to exceed $55 million. Under the terms of the Credit Agreement,
Metromedia used or 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 are 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 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 under the Credit Agreement were originally scheduled to be due and
payable on April 12, 1995, but the Credit Agreement was amended on April 12,
1995 to extend the maturity date of the loans until the earlier of (i) the date
of consummation of the Proposed Metromedia Transaction, (ii) three months
following the abandonment or termination of the Merger Agreement by any party
thereto pursuant to Article 14 thereof, or (iii) December 31, 1995. The
outstanding balance under the Credit Agreement was $32.4 million as of December
31, 1994 and $44.9 million as of March 31, 1995.
In November 1991, Actava entered into a Loan Agreement with Triton,
its then 25% stockholder, under which Triton could borrow up to $32 million
from Actava secured by the
17
<PAGE> 19
stock in Actava owned by Triton (the "Triton Loan"). The agreement relating to
the Triton Loan was modified in June 1994, 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 certain provisions in a stockholder
agreement between Actava and Triton. As modified, the Triton Loan provided for
quarterly payments of interest only with no scheduled principal payments due
until the final maturity of the Triton Loan in April 1997. In December 1993,
Triton and Actava entered into a further amendment to the agreement relating to
the Triton Loan pursuant to which Triton made a principal payment of $5 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
March 31, 1995, the outstanding balance under the Triton Loan was $20.5
million.
Actava has not paid a dividend to its stockholders since the fourth
quarter of 1993.
Actava, excluding Snapper, had $38.5 million of unpledged cash and
short-term investments as of December 31, 1994 and $33.7 million of unpledged
cash and short-term investments as of March 31, 1995. The change in Actava's
unpledged cash and short-term investments from December 31, 1994 to March 31,
1995 is primarily due to the net effect of the collection of $50 million on the
Kodak note, collections of principal and interest of $3.7 million on the Triton
Loan, payments of $34.9 million for principal and interest in connection with
the retirement of Actava's 6% Senior Subordinated Swiss Franc Bonds, loans of
$12.5 million to Metromedia under the Credit Agreement, and other debt related
payments of $6.8 million. The amount of unpledged cash and short-term
investments referred to above excludes the amounts due to Actava from Kodak in
connection with the sale of Qualex and the amounts due to Actava from
Metromedia under the Credit Agreement. Actava's Snapper Division is restricted
by financial covenants in its credit agreement from paying Actava more than 70%
of its net income. The Company has a domestic captive insurance subsidiary
chartered by the Georgia State Insurance Department which is required to
maintain invested funds in an amount not less than certain minimum reserve and
paid-in capital stock requirements of approximately $10 million.
Actava 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. For 1995, Actava,
excluding Snapper, has debt service payments of approximately $10.3 million
scheduled after March 31, 1995.
As of March 31, 1995, Actava's Snapper Division had $9.5 million of
borrowing capacity under a credit agreement which is secured by accounts
receivable, inventory and other assets. The assets which serve as collateral
are determined by reference to the outstanding balance under the credit
agreement and the qualification of the assets as collateral are defined in the
credit agreement; the assets potentially available as collateral total, in the
aggregate, $168.3 million. Snapper's credit agreement contains financial
covenants (involving tangible net worth, book net worth and other matters) with
which Actava must comply to prevent a default. A default under Snapper's
credit agreement would have serious adverse consequences, including the
elimination of funding for the operations of Snapper, as well as the
prohibition on payments to Actava by
18
<PAGE> 20
Snapper. As a result of the loss incurred by Actava in connection with the
sale of Qualex, Actava obtained financial covenant amendments from its lenders
so that Actava would remain in compliance with these covenants. Actava was in
compliance with these covenants as of March 31, 1995, and management believes
that Actava will remain in compliance with these covenants during the term of
Snapper's credit agreement.
RECENT DEVELOPMENTS
On April 12, 1995, Actava, Orion, Sterling, and MITI entered into the
Merger Agreement providing for the merger of each of Orion, Sterling and MITI
into and with Actava (the "Mergers"). If the Mergers are consummated, Actava
will be renamed "Metromedia International Group, Inc." On April 12, 1995,
Actava also entered into a Share Exchange Agreement (the "Share Exchange
Agreement") with Metromedia and certain of its affiliates (together with
Metromedia, the "Exchanging Holders"). The Exchanging Holders are the
principal stockholders of both Orion and MITI. The Merger Agreement and the
Share Exchange Agreement were approved by the Board of Directors of Actava at
a meeting held on April 12, 1995. For additional information, see the Current
Report on Form 8-K filed by the Company on April 14, 1995, as amended by Form
8-K/A filed by the Company on April 28, 1995.
19
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this Form 10-Q for the quarter ended
March 31, 1995 to be signed on its behalf by the undersigned hereunto duly
authorized.
THE ACTAVA GROUP INC.
------------------------------
Registrant
/s/ Frederick B. Beilstein, III
-------------------------------
Frederick B. Beilstein, III
Senior Vice President and
Chief Financial Officer
Dated: May 15, 1995
20
<PAGE> 22
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings
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 was 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 15, 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 alleged 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 sought recovery of
unspecified single and treble damages, penalties, costs and prejudgment and
post-judgment interest which could have exceeded $10,000,000 in total. This
case was dismissed with prejudice on May 3, 1995 after the Company paid
$800,000 on behalf of American Seating. The amount of the payment was agreed
to by the Company based on a mediation panel's recommendation.
ITEM 6. Exhibits and Reports on Form 8-K
(c) Exhibits
<TABLE>
<CAPTION>
Document with which Designation of
Exhibit Exhibit was previously such Exhibit in
Number Description filed with Commission that Document
- ------ ------------------------------------ --------------------- -------------
<S> <C> <C> <C>
4 Amendment dated as of March 3, 1995,
to Finance and Security Agreement,
dated as of October 30, 1992, with
respect to a revolving credit facility
of up to $100 million, between Actava
and ITT Commercial Finance Corp.
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use
only)
99(a) Agreement and Plan of Merger dated Current Report On Form 99(a)
as of April 12, 1995 by and among 8-K for event occurring
The Actava Group Inc., Orion on April 12, 1995
Pictures Corporation, MCEG Sterling
Incorporated, and Metromedia
International Telecommunications, Inc.
</TABLE>
21
<PAGE> 23
ITEM 6. Exhibits and Reports on Form 8-K (continued)
(c) Exhibits
<TABLE>
<CAPTION>
Document with which Designation of
Exhibit Exhibit was previously such Exhibit in
Number Description filed with Commission that Document
- ------ ------------------------------------ --------------------- -------------
<S> <C> <C> <C>
99(b) Share Exchange Agreement dated as Current Report On Form 99(b)
of April 12, 1995 by and between The 8-K for event occurring
Actava Group Inc. and the Exchanging on April 12, 1995
Holders named therein.
99(c) Amendment No. 1 dated as of April Amendment No. 1 to Current 99(c)
12, 1995 to the Credit Agreement dated Report on Form 8-K for
as of October 11, 1994 between The event occurring on April 12,
Actava Group Inc. and Metromedia 1995
Company.
</TABLE>
22
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -------------------------------------------------------------------------
<S> <C>
4 Amendment dated as of March 3, 1995, to Finance and Security Agreement,
dated as of October 30, 1992, with respect to a revolving credit facility
of up to $100 million, between Actava and ITT Commercial Finance Corp.
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
</TABLE>
23
<PAGE> 1
EXHIBIT 4
AMENDMENT TO FINANCE AND SECURITY AGREEMENT
(Actava/Snapper)
This Amendment to Finance and Security Agreement ("Amendment") is
made by and between THE ACTAVA GROUP INC. (formerly known as Fuqua Industries,
Inc.) ("Actava") individually, and on behalf of SNAPPER, a division thereof
("Snapper") and ITT COMMERCIAL FINANCE CORP. ("ITT").
WHEREAS, ITT and Actava entered into that certain Finance and
Agreement dated October 23, 1992 ("Agreement");
WHEREAS, ITT and Actava desire to amend the Agreement as provided
herein.
NOW, THEREFORE, for and in consideration of the premises, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, ITT and Actava agree as follows:
1. Section 8.12(a) of the Agreement is deleted and is amended to
read in its entirety as follows:
"(a) within sixty (60) days of December 31, 1994, and within
forty-five (45) days of each month thereafter, the Actava
monthly financial package, consisting of financial operating
results summary, together with consolidated and consolidating
operating summaries for Actava, each of its Subsidiaries and
Snapper for the month and year to date then ended, subject to
year-end audit adjustments, and certified by the Chief
Financial Officer of Actava to have been prepared in
accordance with GAAP and to accurately reflect the financial
condition of Actava;"
2. Except as expressly modified or amended herein, all other
terms and provisions of the Agreement will remain unmodified and in full force
and effect and the Agreement, as hereby amended, is ratified, and confirmed by
ITT and Actava.
3. Except as otherwise defined herein, all capitalized terms will
have the same meanings set forth in the Agreement.
IN WITNESS WHEREOF, ITT and Actava have executed this Amendment as
of the 3rd day of March, 1995.
ITT COMMERCIAL FINANCE CORP.
By: /s/R.J. Woodruff
-----------------------------------
Print Name: R.J. Woodruff
---------------------------
Title: Regional Vice President
--------------------------------
THE ACTAVA GROUP INC.
By: /s/Frederick B. Beilstein, III
------------------------------------
Print Name: Frederick B. Beilstein, III
---------------------------
Title: Senior Vice President
--------------------------------
<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,
---------------------
1995 1994
------ ------
<S> <C> <C>
INCOME (LOSS) PER SHARE -- PRIMARY
Net (loss) available for Common
Stock and Common Stock equivalents . . . . . . . . . . . . . . . . . . . . $(7,035) $(12,673)
======= ========
COMMON STOCK AND COMMON STOCK EQUIVALENTS
Weighted average Actava common shares outstanding during
the period, less stock in treasury . . . . . . . . . . . . . . . . . . . 17,858 17,635
======= ========
(Loss) Per Share -- Primary . . . . . . . . . . . . . . . . . . . . . . . . . $ (.39) $ (.72)
------- --------
INCOME (LOSS) PER SHARE -- ASSUMING FULL DILUTION (A)
Net (loss) available for Common Stock and Common Stock
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(7,035) $(12,673)
Interest savings on assumed conversion of 6 1/2% Convertible
Debentures, net of income tax . . . . . . . . . . . . . . . . . . . . . . . 827 827
------- --------
Net income (loss) available for Common Stock and
Common Stock equivalents assuming full dilution . . . . . . . . . . . . $(6,208) $(11,846)
======= ========
Common Stock & Common Stock equivalents . . . . . . . . . . . . . . . . . . . 17,858 17,635
Shares issuable upon assumed conversion of 6 1/2% Convertible
Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,802 1,802
------- --------
Common Stock and Common stock equivalents assuming full
dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,660 19,437
======= ========
Income (Loss) Per Share -- Assuming Full Dilution . . . . . . . . . . . . . . $ (.32) $ (.61)
======= ========
</TABLE>
_______________
(a) Fully diluted income (loss) per share is not used in 1995 and 1994 because
it exceeds primary earnings (loss) per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CURRENT REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1995, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CURRENT REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 29,752
<SECURITIES> 14,522
<RECEIVABLES> 146,793
<ALLOWANCES> 7,002
<INVENTORY> 30,015
<CURRENT-ASSETS> 326,603
<PP&E> 71,729
<DEPRECIATION> 38,212
<TOTAL-ASSETS> 459,457
<CURRENT-LIABILITIES> 175,555
<BONDS> 156,826
<COMMON> 22,768
0
0
<OTHER-SE> 203,652
<TOTAL-LIABILITY-AND-EQUITY> 459,457
<SALES> 57,062
<TOTAL-REVENUES> 57,062
<CGS> 44,304
<TOTAL-COSTS> 60,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 284
<INTEREST-EXPENSE> 5,556
<INCOME-PRETAX> (6,308)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,035)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,035)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
</TABLE>
