AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1996
REGISTRATION NO. 333-3353
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
METROMEDIA INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-0971455
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
-------------------
945 EAST PACES FERRY ROAD
SUITE 2210
ATLANTA, GEORGIA 30326
(404) 261-6190
(Address and telephone number of registrant's principal executive offices)
-------------------
ARNOLD L. WADLER
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
METROMEDIA INTERNATIONAL GROUP, INC.
C/O METROMEDIA COMPANY
ONE MEADOWLANDS PLAZA
EAST RUTHERFORD, NEW JERSEY 07073
(201) 531-8000
(Name, address and telephone number of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
JAMES M. DUBIN, ESQ. JEFFREY H. COHEN, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON NICHOLAS P. SAGGESE, ESQ.
1285 AVENUE OF THE AMERICAS SKADDEN, ARPS, SLATE, MEAGHER & FLOM
NEW YORK, NEW YORK 10019-6064 300 SOUTH GRAND AVENUE, 34TH FLOOR
LOS ANGELES, CALIFORNIA 90071
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable following the effectiveness of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement is being filed with respect to the offering by
Metromedia International Group, Inc., a Delaware corporation of 15,000,000
shares of its common stock, $1.00 par value (the "Common Stock") (assuming no
exercise of the U.S. Underwriters' over-allotment option), in an underwritten
public offering.
The Registration Statement contains two separate prospectuses. The first
prospectus relates to a public offering in the U.S. and Canada of an aggregate
of 12,000,000 shares of Common Stock (the "U.S. Offering"). The second
prospectus relates to a concurrent offering outside the U.S. and Canada of an
aggregate of 3,000,000 shares of Common Stock (the "International Offering").
The prospectuses for the U.S. Offering and the International Offering will be
identical except for alternate front and back cover pages for the International
Offering, which alternate pages appear immediately after the prospectus for the
U.S. Offering.
<PAGE>
SUBJECT TO COMPLETION, DATED JUNE 6, 1996
PROSPECTUS
, 1996
[LOGO]
15,000,000 SHARES
METROMEDIA INTERNATIONAL GROUP, INC.
COMMON STOCK
All of the shares of Common Stock, par value $1.00 per share (the "Common
Stock"), offered hereby are being sold by Metromedia International Group, Inc.
(the "Company" or "MIG").
The Company is offering 15,000,000 shares (assuming no exercise of the
Underwriters' overallotment option) of its Common Stock in the Offering (as
defined below). Of the 15,000,000 shares of Common Stock being offered by the
Company, 12,000,000 shares are being offered for sale in the United States and
Canada by the U.S. Underwriters (the "U.S. Offering") and 3,000,000 shares are
being offered for sale outside the United States and Canada in a concurrent
offering by the International Managers (the "International Offering" and,
together with the U.S. Offering, the "Offering"), subject to transfers between
the U.S. Underwriters and the International Managers. See "Underwriting." The
Company intends to consummate the Offering simultaneously with the consummation
of the proposed acquisition (the "Goldwyn Acquisition") of The Samuel Goldwyn
Company ("Goldwyn"), which acquisition is contingent upon certain conditions,
including the refinancing of certain of Goldwyn's indebtedness. See "The
Acquisitions."
The Company's Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "MMG." The closing price of the Company's Common Stock as
reported on the AMEX on June 5, 1996 was $14 1/4 per share.
SEE "RISK FACTORS" STARTING ON P. 10 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total(3)......................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the U.S. Underwriters and the
International Managers (collectively, the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters a 30-day option to purchase
up to 2,250,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including the rights of
the Underwriters to reject any order in whole or in part. It is expected that
delivery of the shares will be made in New York, New York on or about
, 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
SCHRODER WERTHEIM & CO.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
{GRAPHIC OMITTED}
This page contains the logo of the Company.
"Our vision is to create a new global media, entertainment and communications
company"
- John Kluge
August 31, 1994
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT
OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF
THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMEX OR OTHERWISE
AND SUCH STABILIZING, IF COMMENCED MAY BE DISCONTINUED AT ANY TIME.
2000+ TITLE ENTERTAINMENT LIBRARY
{GRAPHIC OMITTED}
This page contains a graphic recreation of six movie posters of titles in the
Company's film library.
NEW HIGHLY SUCCESSFUL PRODUCTION GROUP
{GRAPHIC OMITTED}
This page contains a graphic recreation of four movie posters of titles
produced by the Company's production group.
LEADING PROVIDER OF COMMUNICATIONS SERVICES IN EASTERN
EUROPE AND THE FORMER SOVIET REPUBLICS
{GRAPHIC OMITTED}
This page contains a graphic recreation of a map depicting the markets in which
the Company offers services and what services it offers.
LEADING SPECIALTY THEATRE CIRCUIT IN THE UNITED STATES
{GRAPHIC OMITTED}
This page contains pictures of four of the Company's theatres.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this prospectus. All
references to "$" or "dollars" are to U.S. dollars. Unless otherwise indicated,
the information in this prospectus assumes the consummation of the Goldwyn
Acquisition in accordance with the assumptions described herein, including
exercise of the Goldwyn Put (as defined herein), the MPCA Acquisition (as
defined herein), the Offering and the Entertainment Group Credit Facility (as
defined herein) and does not assume the exercise of the Underwriters'
over-allotment option. Unless the context otherwise requires, the terms "MIG"
and the "Company" refer to Metromedia International Group, Inc. and its wholly
owned subsidiaries. Special Note: Certain statements set forth below under this
caption constitute "forward-looking statements" within the meaning of the Reform
Act. See "Special Note Regarding Forward-Looking Statements" on page 86 for
additional factors relating to such statements.
THE COMPANY
MIG is a global entertainment, media and communications company engaged in a
combination of businesses which the Company believes are well positioned to
capitalize on the convergence of entertainment, media and communications
businesses worldwide. MIG is engaged in two businesses: (i) the production and
distribution in all media of motion pictures, television programming and other
filmed entertainment product and the exploitation of its library of over 2,000
film and television titles, through its Entertainment Group (the "Entertainment
Group") and (ii) the development and operation of communications businesses,
including wireless cable television services, radio stations, paging systems, an
international toll calling service and trunked mobile radio services, in Eastern
Europe, the former Soviet Republics and other emerging markets, through its
Communications Group (the "Communications Group").
Through these individual operating businesses, MIG has established a
significant presence in many aspects of the rapidly evolving entertainment,
media and communications industries. Each of these businesses currently operates
on a stand-alone basis, pursuing distinct business plans designed to capitalize
on the growth opportunities within their individual industries. In addition, as
these industries continue to converge worldwide, MIG expects to be able to
capitalize on synergies resulting from its position as a diversified company
with significant operations in the development and distribution of
entertainment, media and communications services. The acquisition of Goldwyn is
an important step in MIG's plan to continue to build a leading global
entertainment, media and communications company. See "The Acquisitions."
Pro forma for the Offering and the Acquisitions (as defined herein), John W.
Kluge and Stuart Subotnick, the general partners of Metromedia Company, will
collectively remain the Company's largest stockholders, and will beneficially
own approximately 24.1% of the outstanding shares of the Common Stock.
THE ENTERTAINMENT GROUP
Through the Entertainment Group, MIG is engaged in the development,
production, acquisition, exploitation and worldwide distribution in all media of
motion pictures, video products and made-for-television products. MIG also holds
a valuable library of over 2,000 film and television titles, including Academy
Award winning films such as Dances with Wolves and Silence of the Lambs, action
films such as the three-film Robocop series and classic motion pictures such as
Wuthering Heights, The Pride of the Yankees, Guys and Dolls and The Best Years
of Our Lives. This library provides MIG with a stable stream of revenues and
cash flow to support its various production operations. MIG has adopted a
conservative theatrical production, acquisition and distribution strategy
consisting primarily of commercial and specialized films, with well-defined
target audiences and with MIG's portion of the production cost generally ranging
from $5.0 million to $10.0 million per picture. The Entertainment Group's
management has significant experience in the production of motion picture and
television entertainment of this type and was responsible for producing the
recent box-office success Dumb and
3
<PAGE>
Dumber and the Academy Award-winning The Madness of King George. MIG also owns
what management believes is the leading specialty theatre circuit with 52 motion
picture theatres with a total of 140 screens located in the United States.
The Company intends to further enhance the value of the Entertainment
Group's assets by pursuing the following strategies:
. Exploiting the Existing Library: MIG expects its library to generate
significant cash flow due to existing, long-term distribution contracts
and from further exploitation of its film and television library in
traditional domestic and international media, such as free and pay
television and home video. MIG expects to benefit from the emergence of
new technologies such as digital compression, video-on-demand,
direct-to-home-broadcasting and digital variable disc (video compact
discs or "DVD"), which are expected to increase the worldwide demand
for programming. MIG is also marketing its film and television library
in new international markets in which the multi-channel television
industry has recently emerged or is in the early stages of development.
In addition, as MIG expands its production business, it expects the
cash flows from and value of its existing library to increase as it
will be able to market new films together with its existing library.
. Motion Picture Production: MIG has adopted a conservative theatrical
production, acquisition and distribution strategy which it believes
will generate more stable cash flows than the approach of the major
motion picture studios. MIG intends to produce or acquire and release
10 to 14 theatrical features per year, consisting primarily of
commercial and specialized films with a well-defined target audience
and marketing campaign and with MIG's portion of the production cost
generally ranging from $5.0 million to $10.0 million per picture. MIG
also expects to spend between $4.0 million and $8.0 million in domestic
print and advertising costs for each film it produces or acquires. This
production strategy has been used by and is based on the prior success
of Motion Picture Corporation of America ("MPCA"), including the
performance of its commercially successful films such as Dumb and
Dumber and Threesome. MIG also plans to continue to be a leader in the
production, acquisition and distribution of specialized motion pictures
and art films, including those films management believes may have
crossover commercial potential. This strategy has been followed by
Goldwyn and is based on its success with films such as Much Ado About
Nothing, The Madness of King George, Eat Drink Man Woman and Angels and
Insects. In order to expand its production capabilities and reduce its
exposure to the performance of any particular film, MIG intends to
finance a significant portion of each film's budget by pre-licensing
foreign distribution rights.
. Motion Picture Exhibition: MIG believes it is the largest exhibitor of
specialized motion pictures and art films in the United States. The
Company's theatre circuit currently consists of 52 theatres with a
total of 140 screens. MIG's strategy is to: (i) expand in existing and
new major markets through internal growth and acquisitions, (ii)
upgrade and multiplex existing locations where there is demand for
additional screens and (iii) continue to reduce operating and overhead
costs as a percentage of revenue.
THE COMMUNICATIONS GROUP
Through the Communications Group, MIG intends to capitalize on the demand,
which developed in the late 1980s and early 1990s, for modern communications
systems in Eastern Europe and other emerging markets. MIG owns interests in and
participates along with local business and governmental partners in the
management of joint ventures which operate a variety of communications services
in certain countries in Eastern Europe and certain of the former Soviet
Republics. MIG's joint ventures typically cover markets which have large
populations and strong economic potential, but lack reliable and efficient
communications services. The Company also targets markets where systems can be
constructed with relatively low capital investments and where multiple
communications services can be offered to the population.
4
<PAGE>
MIG owns interests in and participates in the management of joint ventures
which operate and/or are constructing: (i) 10 wireless cable television systems
with combined target households of approximately 9.0 million; (ii) 8 paging
systems with combined target populations of approximately 79.5 million; (iii) an
international toll calling service in the Republic of Georgia covering a
population of approximately 5.5 million; (iv) 4 trunked mobile radio systems
with a combined target population of approximately 88.0 million; and (v) 5 radio
stations in 7 cities reaching combined target households of approximately 8.6
million in Hungary, Russia and Latvia. MIG is also pursuing licenses for similar
services in other emerging markets, including the Pacific Rim, where the
economies are expanding.
MIG believes that the performance of its existing joint ventures has
demonstrated that there is significant demand for its services in developing
regions in its target markets. Many of the joint ventures are in the early
stages of constructing and/or marketing their services, and MIG expects to
significantly increase its subscriber and customer bases as these businesses
mature. In addition, as one of the first entrants into these markets, MIG
believes that it has developed a reputation for providing quality service and
has formed important relationships with local entities. As a result, MIG
believes it is well positioned to capitalize on opportunities to provide
additional communications services in its markets as licenses are awarded.
MIG's strategy is to grow its subscriber and customer bases, as well as its
revenues and cash flows. Key elements of the strategy include:
. Completing Build Out and Marketing in Existing License Areas: MIG is
currently aggressively marketing its services in areas where
construction of its systems has been completed and is also continuing
the build out in recently acquired license areas. Because many of the
Company's operations are in their early stages of development, MIG
expects these businesses to grow rapidly as construction and marketing
are accelerated.
. Providing Additional Services in Existing License Areas: MIG is
pursuing opportunities to provide additional communications services in
certain regions in which it currently operates. This will enable MIG to
more efficiently utilize its existing infrastructure and to capitalize
on marketing opportunities by bundling its services. MIG expects to
benefit from its knowledge and experience with local governments, laws
and customs in pursuing such opportunities.
. Obtaining New Licenses in Attractive Markets: MIG is pursuing new
licenses to provide its services in several attractive markets in
Eastern Europe, the Pacific Rim and other emerging markets. In
evaluating a new market, MIG assesses, among other factors, the (i)
potential demand for its services and the availability of competitive
services; (ii) strength of local partners; and (iii) political, social
and economic environment.
GROWTH STRATEGY
MIG intends to pursue a strategy of making selective acquisitions of
attractive entertainment, media and communications assets that complement its
existing business groups. In particular, the Company is interested in expanding
its library of proprietary motion picture rights and in expanding the network
through which it distributes various entertainment, media and communications
products and services.
5
<PAGE>
THE ACQUISITIONS
THE SAMUEL GOLDWYN COMPANY
On January 31, 1996, the Company and Goldwyn entered into an Agreement and
Plan of Merger (as amended, the "Goldwyn Merger Agreement") providing for the
Goldwyn Acquisition, pursuant to which a newly-formed, wholly-owned subsidiary
of the Company ("SGC Mergerco") will merge with and into Goldwyn. The
acquisition of Goldwyn will expand the Entertainment Group by adding a valuable
library of over 850 film and television titles, including numerous Hollywood
classics and more recent critically acclaimed films, and what MIG believes is
the leading specialized theatre circuit in the United States with 140 screens.
The Goldwyn Merger Agreement provides that upon consummation of the Goldwyn
Acquisition, Goldwyn's stockholders (the "Goldwyn Stockholders") will receive
$5.00 worth of Common Stock for each share of Goldwyn common stock, provided
that the average closing price of the Common Stock over the 20 consecutive
trading days ending five days prior to the meeting (the "Meeting") of the
Goldwyn Stockholders held to vote upon the Goldwyn Acquisition (the "Average
Closing Price") is between $12.50 and $16.50. If the Average Closing Price over
such period is less than $12.50 such Average Closing Price will be deemed to be
$12.50 and Goldwyn Stockholders will receive .4 shares of Common Stock for each
share of Goldwyn common stock, and if the Average Closing Price over such period
is greater than $16.50, such Average Closing Price will be deemed to be $16.50
and Goldwyn Stockholders will receive .3030 shares of Common Stock for each
share of Goldwyn common stock. Assuming the Goldwyn Acquisition and the exercise
of the Goldwyn Put (as defined herein) occurred on May 28, 1996 and an Average
Closing Price of $13.12, the Company would have issued approximately .3811
shares of Common Stock for each share of Goldwyn common stock and would have
issued an aggregate of 3,568,990 shares of Common Stock to the Goldwyn
Stockholders. Consummation of the Goldwyn Acquisition is subject to certain
conditions. See "The Acquisitions."
It is contemplated that the Goldwyn Acquisition and the Offering will be
consummated simultaneously. The date and time when the Goldwyn Acquisition is
consummated is referred to herein as the "Effective Time."
MOTION PICTURE CORPORATION OF AMERICA
On May 17, 1996, the Company and MPCA entered into an Agreement and Plan of
Merger (the "MPCA Merger Agreement") to acquire MPCA (the "MPCA Acquisition"
and, together with the Goldwyn Acquisition, the "Acquisitions"). MPCA is an
independent film production company which focuses on producing and acquiring
commercially marketable films featuring popular actors at substantially less
than average industry cost. MPCA is headed by Bradley Krevoy and Steven Stabler,
who have produced low budget, profitable movies like the film Dumb and Dumber,
which cost a reported $16 million to produce and grossed a reported total of
approximately $250 million, and Threesome, which cost a reported $3.5 million to
produce and grossed a reported total of $60 million. The acquisition price for
the MPCA Acquisition is approximately $27.5 million of Common Stock
(approximately 2,135,922 shares assuming a closing price of $12 7/8 as reported
by the AMEX on May 28, 1996), up to $5.0 million of cash and the assumption of
certain indebtedness (approximately $10.0 million at March 31, 1996). The
stockholders of MPCA will receive certain demand and "piggyback" registration
rights with respect to the shares of Common Stock to be issued in the MPCA
Acquisition. Consummation of the MPCA Acquisition remains subject to certain
conditions. See "The Acquisitions." Messrs. Krevoy and Stabler will be employed
by the Entertainment Group following consummation of the MPCA Acquisition.
6
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered.................. 15,000,000 shares
Pro Forma Common Shares
Outstanding(1)........................ 63,340,312 shares
American Stock Exchange Symbol........ MMG
Use of Proceeds....................... The Company will use the estimated net proceeds of the
Offering of approximately $206.0 million (assuming a June
5, 1996 closing price of $14 1/4) to repay approximately
$29 million of the Company's existing bank debt(2) and
provide MIG with approximately $177.0 million of
additional cash to finance the build-out of the
Communications Group's systems in Eastern Europe and other
emerging markets and for general corporate purposes,
including the working capital needs of MIG and its
subsidiaries and for potential future acquisitions.
In addition, concurrently with the consummation of the
Offering, the Entertainment Group will repay approximately
$215.0 million of indebtedness of Orion, Goldwyn and MPCA
with borrowings under the Entertainment Group Credit
Facility (as defined herein). Following such borrowings,
the Entertainment Group will have approximately $85.0
million available under the Entertainment Group Credit
Facility to finance the Entertainment Group's production,
acquisition and distribution of entertainment product and
for its general corporate purposes. See "Use of Proceeds."
</TABLE>
- ------------
(1) As of May 28, 1996. Assumes consummation of the (i) Offering, (ii) the
Goldwyn Acquisition as of such date and an Average Closing Price of $13.12,
including exercise of the Goldwyn Put (as defined herein), and (iii) the
MPCA Acquisition, but does not include 3,698,129 shares of Common Stock
issuable upon the exercise or conversion of options, warrants or convertible
securities exercisable for or convertible into shares of Common Stock.
(2) As of March 31, 1996.
THE ENTERTAINMENT GROUP CREDIT FACILITY
Concurrently with the Offering, MIG's Entertainment Group will enter into a
$300.0 million secured credit facility (the "Entertainment Group Credit
Facility") consisting of a $200.0 million five-year term loan and a $100.0
million revolving credit facility secured by substantially all of the
Entertainment Group's assets including its film and television library and the
stock of its operating companies, to refinance the indebtedness of MIG's Orion
Pictures Corporation ("Orion") subsidiary and Goldwyn's existing indebtedness,
to finance the production, acquisition and distribution of entertainment product
and for its general corporate purposes. See "Description of Certain
Indebtedness--Entertainment Group Credit Facility."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables present selected historical financial data of MIG and
Goldwyn, which are derived from the audited financial statements of MIG and
Goldwyn and from the unaudited historical financial data for the three month
periods of MIG ended March 31, 1996 and 1995, and selected unaudited pro forma
financial data after giving effect to the consummation of the Offering, the
Goldwyn Acquisition and the Entertainment Group Credit Facility as if they had
occurred at the beginning of the periods presented and without giving effect to
the consummation of the MPCA Acquisition. The unaudited financial data is
derived from MIG's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, which is incorporated by reference herein. In the opinion of management of
the Company, the unaudited financial data reflects all adjustments consisting of
normal recurring adjustments, necessary to present fairly the financial data for
such periods. The results for the three month period ended March 31, 1996 and
1995 of MIG are not necessarily indicative of results to be expected for the
full year.
The pro forma data is not necessarily indicative of the results of
operations or the financial condition that would have been reported if the
Offering, the Goldwyn Acquisition and the Entertainment Group Credit Facility
had occurred during those periods, or as of those dates, or that may be reported
in the future. The pro forma combined per share data gives effect to the
exchange of each share of Goldwyn common stock for approximately .3811 shares of
Common Stock (assuming an Average Closing Price of $13.12).
This data is qualified by reference to and should be read in conjunction
with (i) the consolidated financial statements and the related notes thereto of
the Company and "Management's Discussion and Analysis of Financial Condition"
relating to the Company incorporated by reference and included elsewhere in this
prospectus and (ii) the consolidated financial statements and related notes
thereto of Goldwyn and the unaudited pro forma financial information and the
related notes thereto included elsewhere in this prospectus. (In thousands,
except per share data)
MIG--HISTORICAL
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED YEARS ENDED FEBRUARY 28/29,
------------------- DECEMBER 31, ---------------------------------------------
1996 1995 1995(1) 1995 1994 1993 1992
-------- -------- ------------ -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 30,808 $ 37,678 $138,871 $194,789 $ 175,713 $222,318 $ 491,117
Equity in losses of joint
ventures.................... 1,783 588 (7,981) (2,257) (777) -- --
Loss from continuing
operations before
extraordinary item.......... (19,141) (20,366) (87,024) (69,411) (132,530) (72,973) (280,832)
Per common share:
Primary.................... $ (0.45) $ (0.97) $ (3.54) $ (3.43) $ (7.71) $ (19.75) $ (3,052.52)
</TABLE>
GOLDWYN--HISTORICAL
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues........................................... $107,784 $ 91,348 $108,791 $107,820 $ 61,260
Net income (loss) before extraordinary item........ (32,869) (20,083) 1,486 1,063 (3,383)
Net income (loss) per share before extraordinary
item............................................... $ (3.78) $ (2.37) $ 0.20 $ 0.18 $ (0.62)
</TABLE>
PRO FORMA--COMBINED
<TABLE>
<CAPTION>
PRO FORMA--COMBINED
-----------------------------------------
THREE MONTHS YEAR ENDED
ENDED MARCH 31, 1996 DECEMBER 31, 1995
-------------------- -----------------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues................................................ $ 66,301 $ 252,934
Loss from continuing operations......................... (27,075) (120,608)
Per common share:
Primary................................................ $ (0.44) $ (1.97)
Dividends per common share.............................. -- --
</TABLE>
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(1) The consolidated financial statements for the twelve months ended December
31, 1995 include two months for Orion (January and February 1995) that were
included in the February 28, 1995 consolidated financial statements. The
revenues and net loss for the two month duplicate period are $22.5 million
and $11.4 million, respectively.
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OTHER INFORMATION
The Company also owns two non-strategic assets: its Snapper Power Equipment
Company subsidiary ("Snapper") and its investment in Roadmaster Industries, Inc.
("Roadmaster"). Snapper manufactures and sells lawn and garden equipment.
Roadmaster, a NYSE-listed company, is a leading sporting goods manufacturer of
which MIG owns approximately 38% of the outstanding shares. For accounting
purposes, Snapper and the Company's investment in Roadmaster have been
classified as assets held for disposition. The Company is actively exploring a
sale of Snapper. As the Company has disclosed in Amendment No. 1 to its Schedule
13D relating to Roadmaster filed with the Commission on March 1, 1996, the
Company intends to dispose of its investment in Roadmaster during 1996.
In addition, on December 20, 1995, the Company entered into an Agreement and
Plan of Merger (the "Alliance Merger Agreement") to acquire Alliance
Entertainment Corp. ("Alliance"), the largest full service distributor of
pre-recorded music and music-related products in the United States. As disclosed
in the Company's Current Report on Form 8-K dated April 29, 1996, the Boards of
Directors of the Company and Alliance mutually agreed that, due to changing
conditions, the proposed acquisition of Alliance by MIG would not be in the best
interests of their respective stockholders and, accordingly, agreed to terminate
the Alliance Merger Agreement on April 29, 1996.
The Company was organized in 1929 under Pennsylvania law and reincorporated
in 1968 under Delaware law. On November 1, 1995, as a result of the mergers of
Orion and Metromedia International Telecommunications, Inc. ("MITI") with and
into wholly-owned subsidiaries of the Company and the merger of MCEG Sterling
Incorporated ("Sterling") with and into the Company (the "November 1 Mergers"),
the Company changed its name from The Actava Group Inc. to Metromedia
International Group, Inc. The Company's principal executive offices are located
at 945 East Paces Ferry Road, Suite 2210, Atlanta, Georgia 30326, telephone:
(404) 261-6190.
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RISK FACTORS
Stockholders should consider carefully the following risk factors, in
addition to the other information set forth herein, before purchasing the shares
of Common Stock offered hereby. Special Note: Certain statements set forth below
under this caption constitute "forward-looking statements" within the meaning of
the Reform Act. See "Special Note Regarding Forward-Looking Statements" on page
86 for additional factors relating to such statements.
MIG AND GOLDWYN HAVE EACH INCURRED OPERATING LOSSES
For the fiscal year ended December 31, 1995 and the quarter ended March 31,
1996, MIG reported a net loss from continuing operations of approximately $(87.0
million) and $(19.1 million), respectively, and a net loss of $(413.0 million)
and $(19.1 million), respectively. In addition, for the fiscal years ended March
31, 1996 and 1995, Goldwyn reported a net loss of $(32.9 million) and $(20.1
million), respectively. In addition to reporting operating losses, Goldwyn's
existing bank credit facility matures on June 28, 1996. Goldwyn has disclosed
that it will not have the liquidity to repay the outstanding indebtedness under
such facility when it becomes due. As a result, Goldwyn's independent
accountants' report on the consolidated financial statements for the year ended
March 31, 1996 states that this condition raises substantial doubt about
Goldwyn's ability to continue as a going concern. It is a condition to the
consummation of the Goldwyn Acquisition that such bank debt be refinanced,
repaid or extended.
NO ASSURANCE OF PROFITABILITY OF MIG
MIG believes that it will report significant losses for the fiscal year
ended December 31, 1996. In addition, because MIG's Communications Group is in
the early stages of development, MIG expects this group to continue to generate
significant losses as it continues to build out and market its services.
Accordingly, MIG expects to generate consolidated losses for the foreseeable
future.
LEVERAGE, HOLDING COMPANY STRUCTURE AND DEBT SERVICE PAYMENTS OF MIG
MIG and certain of its subsidiaries are highly leveraged companies. Assuming
consummation of the Offering, the Goldwyn Acquisition and the Entertainment
Group Credit Facility and the uses of proceeds described in "Use of Proceeds" as
if they had occurred at March 31, 1996, MIG would have had a pro forma
consolidated debt to net tangible equity ratio of 3.6 times.
In addition, following consummation of the Offering, the Goldwyn Acquisition
and the Entertainment Group Credit Facility, MIG will continue to operate as a
holding company that conducts operations solely through its subsidiaries. As a
result, MIG will continue to rely on dividends from certain of its subsidiaries
and cash on hand to satisfy its obligations, including funding the debt service
payments on its subordinated debt (approximately $15 million of principal in
1997 and approximately $59 million of principal in 1998) and the operations of
its other subsidiaries, which will be substantial. It is anticipated that the
Entertainment Group Credit Facility will contain substantial restrictions on
dividend payments to MIG by such subsidiaries. Accordingly, in order to be able
to meet its cash requirements, MIG may in the future have to (i) dispose of
non-strategic assets or (ii) obtain additional financing through a public or
private sale of debt or equity securities of MIG. There can be no assurance that
any of the foregoing can be accomplished on reasonably acceptable terms, if at
all. Management of MIG periodically reviews market conditions for the possible
sale of the Company's equity or debt securities. In light of this review and
subject to satisfactory market conditions, in addition to the Offering and the
Entertainment Group Credit Facility, MIG may seek additional equity or debt
financing during 1996.
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<PAGE>
FUTURE FINANCING NEEDS
Each of MIG's operating businesses is engaged in an industry which requires
significant cash and capital expenditures prior to the receipt of revenue.
Generally, producers of motion picture product are required to spend significant
capital in order to fund the development, production and distribution costs
associated with such motion picture product prior to its theatrical release or
other distribution and the receipt of any revenues. MIG is attempting to reduce
the risks associated with substantial up-front production costs by obtaining
financing from third party production partners and/or by "pre-selling" certain
rights in films prior to production. There can be no assurance, however, that
MIG will be successful in either pre-selling rights or obtaining production
partners on commercially reasonable terms. The Communications Group's businesses
are similarly capital intensive and require the investment of significant
amounts of capital in order to construct and develop operational systems and to
attract a significant number of subscribers. As a result, MIG may require
additional financing in order to satisfy its on-going working capital and debt
service requirements and to achieve its long-term business strategies. No
assurance can be given that additional financing will be available to MIG on
acceptable terms, if at all. If MIG raises additional funds by issuing
additional equity securities, further dilution to existing equity holders
(including those purchasing shares of Common Stock in the Offering) will result.
If adequate additional funds are not available, MIG may be required to curtail
significantly its long term business objectives and MIG's results from
operations may be materially and adversely affected.
NO ASSURANCE OF SUCCESSFUL INTEGRATION OF BUSINESSES/FUTURE ACQUISITIONS
As a result of the November 1 Mergers and the contemplated Acquisitions, MIG
has significantly transformed its business. There can be no assurance that MIG
will be able to establish, maintain or increase the profitability of its
acquired businesses or that such businesses will be successfully integrated into
MIG's operations. In addition, in the future, MIG intends to pursue a strategy
of making attractive acquisitions on a selective basis. There can be no
assurance that MIG will be able to identify and acquire suitable acquisition
candidates or that it will be able to finance significant acquisitions in the
future. Furthermore, any acquisition may initially have an adverse effect on
MIG's operating results while the acquired business is being integrated into
MIG's operations.
COMPETITIVE INDUSTRIES
MIG operates in businesses which are highly competitive and such businesses
compete with many other entertainment and communications companies which are
well-known global entertainment, media and communications companies with
substantially greater financial, management and other resources than MIG. The
Entertainment Group competes with many motion pictures companies, including the
"major" motion picture studios, many of which are larger, diversified
entertainment companies and, accordingly, which have other operations to offset
the performance of their motion picture operations. See "Business--Entertainment
Group--Competition and Seasonality." Similarly, the Communications Group
operates in industries that are highly competitive worldwide. MIG recognizes
that in the future the Communications Group is likely to encounter significant
competition from other entities which may be led by successful and experienced
members of the communications industry and which may have established operating
infrastructures and superior access to financial resources. The Communications
Group also faces potential competition from competing technologies such as
coaxial cable television systems and satellite master television systems which
could emerge over time in Eastern Europe, the former Soviet Republics and other
emerging markets and compete directly with the Communications Group's cable
television operations. Competitive alternatives to the Communication Group's
wireless telephony systems could also stem from other wireless communications
systems, including cellular telephone. In addition, MIG does not expect to
maintain or to be granted exclusive licenses to operate its communications
businesses in any of the markets where it currently provides or plans to provide
its services. See "Business--Communications Group--Competition."
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<PAGE>
MOTION PICTURE INDUSTRY INVOLVES A SUBSTANTIAL DEGREE OF RISK
MIG is engaged in the exploitation of its film libraries and other assets
and the distribution and production of theatrical motion pictures. The motion
picture industry is unpredictable and involves a substantial degree of risk. The
success of MIG's motion picture product is heavily dependent on public taste,
which is both unpredictable and susceptible to change. Accordingly, there can be
no assurance as to the financial success of any motion picture.
SUBSTANTIAL COSTS OF MOTION PICTURES
The motion picture business in which MIG is engaged requires substantial
outlays of capital. The costs of producing and marketing motion pictures have
only increased in recent years, and may continue to increase in the future,
thereby increasing the costs to MIG of the motion pictures it produces or with
respect to which it acquires distribution rights. Consequently, MIG may be
subject to substantial financial risks relating to the production, completion
and release of motion pictures. Moreover, there can be no assurance that MIG
will be able to obtain additional financing if it is required. See "Risk
Factors--Future Financing Needs."
POLITICAL, SOCIAL AND ECONOMIC RISKS FOR THE COMMUNICATIONS GROUP
MIG's operations may be materially and adversely affected by significant
political, social and economic uncertainties in Eastern Europe, the former
Soviet Republics and in other emerging markets where it conducts or may in the
future conduct business. Political stability in many of the Communications
Group's markets has been affected by political tensions between different
branches of government. The impending presidential elections in the Russian
Federation could result in a change in the policies of such government with
respect to the Communications Group's operations. In addition, internal military
conflicts have occurred in certain regions of some of the countries in which the
Communications Group has made investments. There are also concerns about
potential civil unrest fueled by, among other things, economic and social crises
in certain of the Communications Group's markets. Moreover, political tensions
between national and local governments in certain of the Communications Group's
markets could have a material adverse effect on the Communications Group's
operations in such areas. The Communications Group's operations may also be
materially and adversely affected by bureaucratic infighting between government
agencies with unclear and overlapping jurisdictions.
The governments in the Communications Group's markets exercise substantial
influence over many aspects of the private sector. The governments in these
areas have been attempting to a varying degree to implement economic reform
policies and encourage private economic activity. However, these reforms have
been only partially successful to date. The economies in many of the
Communications Group's markets are still characterized by high unemployment,
high inflation, high foreign debt, weak currencies and the possibility of
widespread bankruptcies. Moreover, in some of the Communications Group's
markets, the governments have continued to reserve large sectors of the economy
for state ownership and have not dismantled all portions of the command economy
system. Important infrastructure and utility sectors, such as certain sectors of
the telecommunications industry, of some of the economies in which the
Communications Group conducts or plans to conduct business are still primarily
state-owned and operated and are subject to pervasive regulatory control.
Despite some success in implementing reform policies and developing the private
sector, there can be no assurance that the pursuit of economic reforms by any of
these governments will continue or prove to be ultimately effective, especially
in the event of a change in leadership, social or political disruption or other
circumstances affecting economic, political or social conditions.
GENERAL OPERATING RISKS FOR THE COMMUNICATIONS GROUP
The Communications Group's operating results are dependent upon the sale of
commercial advertising time, the ability to attract subscribers to its cable,
paging and telephony systems and its ability to control operating expenses. The
sale of commercial advertising time and the ability to attract
12
<PAGE>
subscribers are dependent on the general economic conditions in the market where
each radio station, cable system, paging system and telephony system is located,
the relative popularity of the programming of the Communications Group's radio
stations and cable systems, the demographic characteristics of the audience of
the Communications Group's radio stations and cable systems, the technical
attractiveness of the equipment and service of the Communications Group's
existing and proposed telephony systems to customers, the activities of
competitors and other factors which may be outside of the Communications Group's
control.
The Communications Group relies heavily in many of the countries in which it
operates upon the availability and accessibility of government owned broadcast
and transmission facilities for distribution of its signal throughout its
license areas. Most of the joint ventures in which the Communications Group
makes investments often require substantial construction of new systems and
additions to the physical plant of existing systems. Construction projects are
adversely affected by cost overruns and delays not within the control of the
Communications Group or its subcontractors, such as those caused by governmental
action or inaction. Delays also can occur as a result of design changes and
material or equipment shortages or delays in delivery of material or equipment.
The failure to complete construction of a communications system on a timely
basis could jeopardize the franchise or license for such system or provide
opportunities to the Communications Group's competitors.
RISKS TO THE COMMUNICATIONS GROUP INHERENT IN FOREIGN INVESTMENT
The Communications Group has invested substantial resources in operations
outside of the United States and, in the ordinary course of its business, plans
to make additional international investments in the near future. Risks inherent
in foreign operations include loss of revenue, property and equipment from
expropriation, nationalization, war, insurrection, terrorism and other political
risks, risks of increases in taxes and governmental royalties and involuntary
modifications of contracts with or licenses issued by foreign governments or
their affiliated commercial enterprises. While the Communications Group has
obtained political risk insurance from the Overseas Private Investment
Corporation ("OPIC") for some of its projects, such insurance does not cover
many of these risks. In addition, there can be no assurance that MIG will elect
to obtain or be able to obtain OPIC insurance for any of its additional systems
or renew existing policies. See "Business--Communications Group--Communications
Group Overview--Markets."
The Communications Group is also vulnerable to the risk of changes in
foreign and domestic laws and policies that govern operations of overseas-based
companies. Exchange control regulations currently in place or which could be
enacted in many of the Communication Group's markets could create substantial
barriers to the conversion or repatriation of funds, and such restrictions could
adversely affect the Communications Group's and MIG's ability to pay overhead
expenses, meet any of their respective debt obligations and to continue and
expand its communications businesses. Tax laws and regulations may also be
amended or differently interpreted and implemented, thereby adversely affecting
the profitability after tax of the Communications Group's ventures. In addition,
criminal organizations in certain of the countries in which the Communications
Group operates threaten and intimidate businesses. While the Communications
Group has thus far not experienced widespread difficulties with criminal
organizations in these countries, there can be no assurance that such pressures
from criminal organizations will not increase in the future and have a material
adverse effect on MIG and its operations.
There is significant uncertainty as to the extent to which local parties and
entities, particularly government authorities, in the Communications Group's
markets will respect the contractual and other rights of foreign parties, such
as the Communications Group, and also the extent to which the "rule of law" has
taken hold and will be upheld in each of these countries. Although the general
legal framework and the governments' strategy in some of the Communications
Group's markets currently encourage foreign trade and investments, relevant laws
of the countries in which the Communications Group has invested may not be
enforced in accordance with their terms or implemented in countries in which
they do not now exist. Laws in the Communications Group's markets affecting
foreign investment, trade and
13
<PAGE>
communications activities often change and create uncertainty and confusion.
Additionally, foreign investment and sales may be materially and adversely
affected by conflicting and restrictive administrative regulations in many of
the Communications Group's markets.
MIG may also be materially and adversely affected by laws restricting
foreign investment in the field of communications. Certain countries have
extensive restrictions on foreign investment in the communications field and the
Communications Group is attempting to structure its prospective projects in
order to comply with such laws. However, there can be no assurance that such
legal and regulatory restrictions will not increase in the future or, as
currently promulgated, will not be interpreted in a manner giving rise to
tighter restrictions, and thus have a material adverse effect on MIG's
prospective projects in that country. Legislation passed in the Republic of
Latvia in September 1995 will limit to 20% the interest which a foreign person
is permitted to own in entities engaged in certain communication businesses,
such as radio, cable television and other systems of broadcasting. The
legislation could require the Communications Group to reduce to 20% or otherwise
restructure its existing ownership interests in joint ventures which operate a
wireless cable television system and an FM radio station in Riga, Latvia by
September 1996. In 1995, the Russian Federation legislature proposed legislation
that would limit to 35% the interest which a foreign person is permitted to own
in entities holding broadcasting licenses. While such proposed legislation was
not made into law, it is possible that such legislation could be reintroduced
and enacted in Russia and/or that other countries in Eastern Europe and the
former Soviet Republics may enact similar legislation which could have a
material adverse effect on the business, operations, financial condition or
prospects of MIG. Such legislation could be similar to United States federal law
which limits the foreign ownership in entities owning broadcasting licenses.
There is no way of predicting whether foreign ownership limitations will be
enacted in any of the Communications Group's markets, or whether any such law,
if enacted, will force the Communications Group to reduce or restructure its
ownership interest in any of the ventures in which the Communications Group
currently has an ownership interest. If foreign ownership limitations are
enacted in any of the Communications Group's markets and the Communications
Group is required to reduce or restructure its ownership interests in any
ventures, it is unclear how such reduction or restructuring would be
implemented, or what impact such reduction or restructuring would have on the
Communications Group.
DEVELOPING LEGAL STRUCTURES IN THE COMMUNICATIONS GROUP'S TARGET MARKETS
As a result of recent political, economic and social changes in Eastern
Europe, the countries of the former Soviet Union and in other emerging markets,
the bodies of commercial and corporate laws in the Communications Group's
markets are, in most cases, in their formative stages. Despite the fact that
many of these areas have undergone radical changes in recent years, commercial
and corporate laws in these markets are still significantly less developed or
clear than comparable laws in the United States and countries of Western Europe
and are subject to frequent changes, preemption and reinterpretation by local or
administrative regulations, by administrative officials and, in the case of
Eastern Europe and countries of the former Soviet Union, by new governments.
Such lack of development or clarity makes it difficult for the Communications
Group's businesses to plan operations and maintain compliance with
administrative interpretations of the law. No assurance can be given that the
uncertainties associated with the existing and future laws and regulations in
the Communications Group's markets will not have a material adverse effect on
MIG's ability to conduct its business and to generate profits.
In addition, the courts in many of the Communications Group's markets often
do not have the experience, resources or authority to resolve significant
economic disputes and enforce their decisions. In some cases courts are not
insulated from political considerations and other outside pressures and
sometimes do not function in an independent manner. Enforcement of legal rights
in these areas is also affected in some cases by political discretion and
lobbying. This creates particular concerns for the Communications Group because
the licenses held by the Communications Group's businesses or the contracts
providing such businesses access to the airwaves or other rights essential for
operations may be significantly modified, revoked or canceled without
justification, and legal redress may be substantially delayed or even
unavailable in such cases.
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<PAGE>
RISK INHERENT IN THE COMMUNICATIONS GROUP'S GROWTH STRATEGY
The Communications Group has grown rapidly since its inception. Many of the
Communications Group's ventures are either in developmental stages or have only
recently commenced operations. The Communications Group has incurred significant
operating losses to date. The Communications Group is pursuing additional
investments in a variety of communications businesses in both its existing
markets and additional markets. This growth strategy entails the risks inherent
in assessing the strength and weaknesses of development opportunities, in
evaluating the costs and uncertain returns of developing and constructing the
facilities for operating systems and in integrating and managing the operations
of existing and additional systems. MIG's growth strategy requires MIG to expend
significant capital in order to enable the Communications Group to continue to
develop its existing operations and to invest in additional ventures. There can
be no assurance that MIG will have the funds necessary to support the capital
needs of the Communications Group's current investments or any of the
Communications Group's additional investment opportunities or that the
Communications Group will be able to obtain financing from third parties. If
such financing is unavailable, the Communications Group may not be able to
further develop its existing ventures and the number of additional ventures in
which it invests may be significantly curtailed.
APPROVALS AND UNCERTAINTY OF LICENSE RENEWALS FOR THE COMMUNICATIONS GROUP
The Communications Group's operations are subject to governmental regulation
in its markets and its operations require certain governmental approvals. There
can be no assurance that the Communications Group will obtain necessary
approvals to operate additional wireless cable television, wireless telephony or
paging systems or radio broadcast stations in any of the markets in which it is
seeking to establish its businesses.
The licenses pursuant to which the Communications Group's businesses operate
are issued for limited periods. Certain of these licenses expire over the next
several years. Specifically, during 1996 and 1997, licenses utilized by seven of
MIG's 19 operating joint ventures will expire or require reissuance. No
statutory or regulatory presumption exists for renewal by the current license
holder, and there can be no assurance that such licenses will be renewed upon
the expiration of their current terms. The Communications Group's partners in
these ventures have not advised the Communications Group of any reason such
licenses would not be renewed. The failure of such licenses to be renewed may
have a material adverse effect on MIG.
Additionally, certain of the licenses pursuant to which the Communications
Group's businesses operate contain network build-out milestones. The failure to
satisfy such milestones could result in the loss of such licenses which may have
a material adverse effect on MIG.
EXCHANGE RATE FLUCTUATIONS AND INFLATION RISKS IN THE COMMUNICATIONS GROUP'S
TARGET MARKETS
In most cases, the Communications Group's local joint ventures set the
prices for their services in U.S. dollars but receive some payments from their
customers in local currencies. Accordingly, a change in the value of these
currencies against the U.S. dollar will result in corresponding changes in the
price and affordability of the services provided to such customers which could
have a material adverse impact on MIG's business, financial condition and
results of operations. Moreover, if the exchange rate relative to the U.S.
dollar of a currency in which a local joint venture receives income declines
between the time of a joint venture's receipt of such income and the time it
distributes earnings in U.S. dollars to the Communications Group, the amount of
such earnings in U.S. dollars would decrease and MIG's results of operations
would be adversely impacted. The Communications Group currently does not hedge
against foreign currency exchange risks. In addition, the economies of certain
of the Communications Group's target markets have experienced significant and in
some periods extremely high rates of inflation over the past few years.
Inflation and rapid fluctuation in exchange rates have had and may continue to
have negative effect on these economies and may have a material adverse impact
on MIG's business, financial condition and results of operations.
15
<PAGE>
POSSIBLE INABILITY TO CONTROL CERTAIN OF THE COMMUNICATIONS GROUP'S JOINT
VENTURES
The Communications Group has invested in virtually all of its joint ventures
with local partners. Although the Communications Group exercises significant
influence in the management and operations of the joint ventures in which it has
an ownership interest and intends to invest in the future only in joint ventures
in which it can exercise significant influence in management, the degree of its
voting power and the voting power and veto rights of its joint venture partners
may limit the Communications Group from effectively controlling the operations,
strategies and financial decisions of the joint ventures in which it has an
ownership interest. In certain markets where the Communications Group conducts
or may in the future conduct business, increases in the capitalization of a
joint venture require not only the consent of all joint venture partners, but
also government approval, thereby creating a risk that a venture may not be able
to obtain additional capital without cooperation of the joint venture partner
and government approval. The Communications Group is dependent on the continuing
cooperation of its partners in the joint ventures and any significant
disagreements among the participants could have a material adverse effect on any
such venture. In addition, in most instances, the Communications Group's
partners in a joint venture include a governmental entity or an affiliate of a
governmental entity. The presence of a governmental entity or affiliate thereof
as a partner poses a number of risks, including the possibility of decreased
governmental support or enthusiasm for the venture as a result of a change of
government or government officials, a change of policy by the government and
perhaps most significantly the ability of the governmental entities to exert
undue control or influence over the project in the event of a dispute or
otherwise. In addition, if the joint ventures become profitable and generate
sufficient cash flows in the future, there can be no assurance that the joint
ventures will pay dividends or return capital at any time. Moreover, the equity
interests of the Communications Group in these investments generally are not
freely transferable. Therefore, there can be no assurance of MIG's ability to
realize economic benefits through the sale of the Communications Group's
interests in its joint ventures.
TECHNICAL APPROVAL OF THE COMMUNICATIONS GROUP'S TELEPHONY EQUIPMENT
Many of the Communications Group's proposed wireless telephony operations
are dependent upon approval of the Communications Group's wireless telephony
equipment by the communications authorities in the markets where MITI and its
ventures plan to operate. While the Communications Group believes that such
equipment will be type approved, there is no assurance that this will occur and
the failure to obtain such type approvals could have a materially adverse effect
on many of the Communications Group's proposed telephony operations. In
addition, while the Communications Group believes that it will be able to
acquire sufficient amounts of wireless telephony equipment from its supplier on
a timely basis, there can be no assurance that this will be the case or that the
Communications Group would be able to procure alternative equipment.
TECHNOLOGICAL AND PRODUCT OBSOLESCENCE FOR THE COMMUNICATIONS GROUP
The communications industry has been characterized in recent years by rapid
and significant technological changes and frequent new product introductions.
New market entrants could introduce new or enhanced products with features which
would render the Communications Group's technology obsolete or significantly
less marketable. The ability of the Communications Group to compete successfully
will depend to a large extent on its ability to respond quickly and adapt to
technological changes and advances in its industry. There can be no assurance
that the Communications Group will be able to keep pace, or will have the
financial resources to keep pace, with the technological demands of the
marketplace.
CONTROL OF MIG BY METROMEDIA COMPANY DUE TO CONCENTRATION OF SHARE OWNERSHIP AND
VOTING CONTROL
On a pro forma basis after giving effect to the Offering and the
Acquisitions (and (i) assuming an Average Closing Price of $13.12, (ii) the
exercise of the Goldwyn Put and (iii) without giving effect to the exercise or
conversion of any options, warrants or convertible securities exercisable for or
convertible into Common Stock), Metromedia Company and its affiliates will
collectively own approximately 24.1%
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of the outstanding shares of Common Stock and will be MIG's largest stockholder.
In addition, Metromedia Company has nominated or designated a majority of the
members of MIG's Board of Directors. In accordance with the Restated Certificate
of Incorporation and By-laws of MIG and Delaware law, in the future the majority
of the members of MIG's Board of Directors will nominate the directors for
election to MIG's Board of Directors. Accordingly, it is likely that directors
designated or nominated by Metromedia Company will continue to constitute a
majority of the members of MIG's Board of Directors. As such, Metromedia Company
will likely control the direction of future operations of MIG, including
decisions regarding acquisitions and other business opportunities, the
declaration of dividends and the issuance of additional shares of MIG's capital
stock and other securities. Such concentration of ownership may also have the
effect of delaying, deferring or preventing a change of control of MIG pursuant
to a transaction which might otherwise be beneficial to stockholders.
ANTI-TAKEOVER PROVISIONS IN MIG'S CHARTER AND BY-LAWS
MIG's Restated Certificate of Incorporation and By-laws contain provisions
that could delay, defer or prevent a change in control without the approval of
its incumbent Board of Directors. These provisions, among other things, (i)
divide the Board of Directors into three classes, with members of each class to
be elected in staggered three-year terms, (ii) prohibit stockholder action by
written consent in lieu of a meeting, (iii) limit the right to call special
meetings of stockholders to the Chairman or Vice Chairman of MIG's Board of
Directors and (iv) authorize the Board of Directors to issue preferred stock in
one or more classes or series without any action on the part of stockholders.
Such provisions could limit the price that investors might be willing to pay in
the future for shares of Common Stock and significantly impede the ability of
the holders of Common Stock to replace management. In addition, the MIG Board of
Directors intends during 1996 to adopt a stockholder rights plan which will have
certain anti-takeover effects. MIG does not intend to solicit stockholder
approval with respect to its stockholder rights plan. Although the exact terms
of such rights plan have not been determined, it is anticipated that such rights
plan will cause substantial dilution to a person or group that attempts to
acquire MIG on terms not approved by MIG's Board of Directors. Provisions and
agreements that inhibit or discourage takeover attempts could reduce the market
value of the Common Stock.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous substances (together,
"Environmental Laws"). The Company, through its predecessors, has been in
operation since 1929 and, over the years, has operated in diverse industries,
including, various equipment, sporting goods and furniture manufacturing, sheet
metal processing, and trucking. With the exception of Snapper and the Company's
interest in Roadmaster, the Company has divested itself of all
non-entertainment, media and communications-related operations. However, in the
course of certain such divestitures, the Company has retained certain
indemnification obligations for environmental cleanup matters, and in one case a
contaminated parcel at which the Company has undertaken cleanup activities. See
"Business--Environmental Matters." In other cases, particularly for operations
that were divested in the past, the Company could incur unanticipated
environmental cleanup obligations, to the extent they may exist or arise in the
future, as a result, at least in part, of changes in legal requirements that
have occurred since such divestitures. At the present time, the Company is not
aware of any environmental liabilities related to any such divestitures that the
Company believes would have a material adverse effect on its results of
operations or financial condition. However, because some divestitures may have
occurred many years ago, there can be no assurance that environmental matters
will not arise in the future that could have such an effect.
17
<PAGE>
VOLATILITY OF STOCK PRICE
Since November 2, 1995, the Common Stock has been listed and traded on the
American Stock Exchange and the Pacific Stock Exchange ("PSE"). Prior thereto,
the Common Stock was traded on the New York Stock Exchange ("NYSE") and the PSE.
The market price of the Common Stock has been, and could in the future be,
subject to significant fluctuations. Future announcements concerning the Company
or its competitors, including operating results and earnings estimates and other
developments, as well as general economic and market conditions, could cause the
market price of the Common Stock to fluctuate substantially. See "Price Range of
Common Stock and Dividend Policy."
DILUTION
On a pro forma basis as described herein, purchasers of Common Stock in this
Offering will incur immediate and substantial dilution in net tangible book
value of $11.28 per share. See "Dilution."
18
<PAGE>
USE OF PROCEEDS
Special Note: Certain statements set forth below under this caption
constitute "forward-looking statements" within the meaning of the Reform Act.
See "Special Note Regarding Forward-Looking Statements" on page 86 for
additional factors relating to such statements.
The net proceeds to the Company from the Offering are estimated to be a
total of approximately $206.0 million (assuming a closing price on AMEX on June
5, 1996 of the Company's Common Stock of $14 1/4 and assuming no exercise of the
Underwriters' over-allotment option). The Company will use the estimated net
proceeds of the Offering to repay approximately $29.0 million of the Company's
existing bank debt(1) and to provide MIG with approximately $177.0 million of
cash (i) to finance the build-out of the Communications Group's systems in
Eastern Europe and other emerging markets and (ii) for general corporate
purposes, including the working capital needs of MIG and its subsidiaries and
for potential future acquisitions. In addition, concurrently with the
consummation of the Offering, the Entertainment Group will repay approximately
$215.0 million of indebtedness of Orion, Goldwyn and MPCA with borrowings under
the Entertainment Group Credit Facility.
The following summarizes the anticipated sources and uses of funds obtained
from the Offering and the Entertainment Group Credit Facility (assuming the
Offering, the Entertainment Group Credit Facility and the Acquisitions occurred
on March 31, 1996): (in millions)
<TABLE>
<CAPTION>
SOURCES OF FUNDS USES OF FUNDS
- -------------------------------------------- --------------------------------------------
<S> <C> <C> <C>
The Offering(2).................... $213.0 Refinance Existing MIG Credit
Entertainment Group Credit 215.0 Facility...........................
Facility........................... $ 29.0
------
Refinance Orion Bank Debt.......... 126.0
Refinance Existing Goldwyn Debt.... 73.0
Working Capital.................... 168.0(3)
Refinance Existing MPCA Debt and
Other Miscellaneous Expenses....... 15.0(4)
Transaction Expenses............... 17.0(5)
------
Total Sources.................. $428.0 Total Uses......................... $428.0
------ ------
------ ------
</TABLE>
- ------------
(1) MIG entered into its existing credit facility with Chemical Bank on November
1, 1995. Such facility matures on November 1, 1996 and bears interest at
MIG's option at a rate of LIBOR plus 2% or Chemical Bank's alternative base
rate plus 1%. The proceeds of such facility were used to repay a portion of
Orion's Plan Debt (as defined herein) in connection with the consummation of
the November 1 Mergers.
(2) Based on a closing price of $14 1/4 on the AMEX on June 5, 1996. Assumes no
exercise of the underwriters' overallotment option.
(3) Approximately $6.2 million of indebtedness outstanding as of May 28, 1996
under a bridge loan agreement between the Communications Group and
Metromedia Company will be repaid with proceeds of the Offering thereby
resulting in a reduction of working capital of $6.2 million. Such bridge
loan bears interest at a rate of prime plus 2% and matures upon consummation
of the Goldwyn Acquisition. In addition, the Entertainment Group would have
$85.0 million available under the Entertainment Group Credit Facility.
(4) Includes approximately $10.0 million of MPCA indebtedness at March 31, 1996.
(5) Represents estimated aggregate expenses incurred in connection with the
Goldwyn Acquisition, the Offering and the Entertainment Group Credit
Facility, including underwriting fees and expenses.
19
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Since November 2, 1995, the Company's Common Stock has been listed and
traded on the AMEX and the PSE under the symbol "MMG." Prior to November 2,
1995, the Common Stock was listed and traded on both the NYSE and the PSE under
the symbol "ACT." The following table sets forth the quarterly high and low
closing sales prices per share for the Company's Common Stock according to the
New York Stock Exchange Composite Tape for the period from January 1, 1994
through November 1, 1995 and the quarterly high and low closing sales prices per
share for the Company's Common Stock as reported by the AMEX from November 2,
1995 through the present.
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
FISCAL QUARTER ENDED HIGH LOW
- ----------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
1994
March 31............................................................... $ 9 1/4 $ 5 7/8
June 30................................................................ 9 3/8 5 3/4
September 30........................................................... 13 3/4 8 1/4
December 31............................................................ 10 3/8 8 3/8
1995
March 31............................................................... $11 $ 8 3/4
June 30................................................................ 13 3/8 8 5/8
September 30........................................................... 19 1/8 13 1/4
December 31............................................................ 18 7/8 13 3/4
1996
March 31............................................................... $14 1/8 $11 1/2
June 30 (through June 5, 1996)......................................... 14 1/4 12 1/2
</TABLE>
MIG has not paid a dividend to its stockholders since the dividend declared
in the fourth quarter of 1993, and has no plans to pay cash dividends in the
foreseeable future. Any future dividends will depend upon MIG's earnings,
capital requirements, financial condition and other relevant factors, including
the existence or absence of any contractual limitations on the payment of
dividends.
20
<PAGE>
DILUTION
After giving effect to the Goldwyn Acquisition and the Entertainment Group
Credit Facility, the pro forma net tangible book value (deficit) of the Company
at March 31, 1996 would have been approximately $(89) million, or $(1.92) per
share of Common Stock. Pro forma net tangible book value (deficit) per share is
equal to the Company's total assets less intangible assets and deferred
financing costs of approximately $195 million, less its total liabilities,
divided by the total pro forma number of outstanding shares of Common Stock at
March 31, 1996 (assuming consummation of the Goldwyn Acquisition as of such date
and an Average Closing Price of $13.12, including exercise of the Goldwyn Put,
but not including 5,834,051 shares of Common Stock issuable upon the exercise or
conversion of options or convertible securities exercisable for or convertible
into shares of Common Stock or shares issuable in the MPCA Acquisition). After
also giving effect to the sale by the Company of 15,000,000 shares of Common
Stock offered by the Company hereby at the assumed offering price of $12 7/8 per
share reflected in the Company's Pro Forma Consolidated Condensed Financial
Statements included elsewhere in this prospectus (assuming the U.S.
Underwriters' over-allotment option is not exercised) and the application of a
portion of the estimated net proceeds from the Offering as described under the
heading "Use of Proceeds," the pro forma net tangible book value of the Company
at March 31, 1996 would have been approximately $98 million or $1.60 per share.
This represents an immediate increase in net tangible book value of $3.52 per
share to existing stockholders and an immediate dilution of $11.28 per share to
stockholders purchasing shares in the Offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Public offering price per share(1)........................ $12.88
Pro forma net tangible book value (deficit) per share
before the Offering....................................... $(1.92)
Increase per share attributable to new stockholders... 3.52
------
Pro forma net tangible book value per share after the
Offering.................................................. 1.60
------
Dilution in net tangible book value per share to new
stockholders.............................................. $11.28
------
------
</TABLE>
- ------------
(1) Before deducting the underwriting discounts and commissions and Offering
expenses to be paid by the Company.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of MIG at March 31, 1996
and the capitalization of MIG at such date on a pro forma basis to reflect the
consummation of the Offering, the Goldwyn Acquisition and the Entertainment
Group Credit Facility and the application of proceeds as described in "Use of
Proceeds." The table should be read in conjunction with (i) the unaudited
consolidated financial statements of the Company and the related notes thereto
and "Management's Discussion and Analysis of Financial Condition" relating to
the Company incorporated by reference and included elsewhere in this prospectus
and (ii) the unaudited pro forma financial information and related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------
ACTUAL PRO FORMA
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Cash and cash equivalents............................................ $ 17,180 $ 170,506
--------- ---------
--------- ---------
Debt:
Existing bank credit facility...................................... $ 28,754 --
Entertainment Group Credit Facility................................ 125,700 200,000(1)
6 1/2% Convertible Debentures due 2002............................. 57,689 $ 57,689
Other long-term debt, including current portion.................... 92,789 96,207
--------- ---------
Total debt..................................................... 304,932 353,896
--------- ---------
Stockholders' equity:
Preferred Stock.................................................... -- --
Common Stock....................................................... 42,635 61,204
Additional paid-in capital......................................... 728,964 943,678
Retained earnings (accumulated deficit)............................ (707,247) (712,228)
--------- ---------
Total stockholders' equity..................................... 64,352 292,654
--------- ---------
Total capitalization........................................... $ 369,284 $ 646,550(1)
--------- ---------
--------- ---------
</TABLE>
- ------------
(1) Does not reflect the consummation of the MPCA Acquisition including an
additional $10.0 million of indebtedness that would have been incurred in
connection therewith at March 31, 1996 (which amount is expected to be $15.0
million at the consummation of the Offering), 2,135,922 shares of Common
Stock to be issued in connection with the MPCA Acquisition and the payment
of $5.0 million in the MPCA Acquisition.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
THE COMPANY
The following selected consolidated financial data presented below as of and
for the year ended December 31, 1995 and as of and for each of the years in the
four year period ended February 28, 1995 have been derived from financial
statements audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated financial statements as of December 31, 1995 and
February 28, 1995, and for the year ended December 31, 1995 and each of the
years for the two year period ended February 28, 1995 together with the report
of KPMG Peat Marwick LLP, are contained in MIG's Annual Report on Form 10-K for
the year ended December 31, 1995, as amended. The selected unaudited data
presented below for the three month periods ended March 31, 1996 and 1995 and as
of March 31, 1996, are derived from the unaudited consolidated financial
statements of MIG contained in MIG's Form 10-Q which are incorporated herein by
reference. In the opinion of management of the Company, the unaudited financial
data reflect all adjustments, consisting of normal recurring adjustments,
necessary to present fairly the financial data for such periods and as of such
date. The results for the three month periods ended March 31, 1996 and 1995 are
not necessarily indicative of results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED YEARS ENDED FEBRUARY 28/29,
---------------------- DECEMBER 31, ----------------------------------------------
1996 1995 1995(1) 1995 1994 1993 1992
--------- --------- ------------ -------- --------- -------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $ 30,808 $ 37,678 $ 138,871 $194,789 $ 175,713 $222,318 $ 491,117
Equity in losses of joint
ventures................. 1,783 588 (7,981) (2,257) (777) -- --
Loss from continuing
operations before
extraordinary item....... (19,141) (20,366) (87,024) (69,411) (132,530) (72,973) (280,832)
Loss from continuing
operations before
extraordinary item per
common share............. (0.45) (0.97) (3.54) (3.43) (7.71) (19.75) (3,052.52)
Common and common
equivalent shares
entering into
computation of per share
amounts.................. 42,615 20,935 24,541 20,246 17,188 3,694 92
Dividends per common
share.................... -- -- -- -- -- -- --
BALANCE SHEET DATA (END
OF PERIOD):
Total assets............. 567,133 --(2) 599,638 391,870 520,651 704,356 856,950
Notes and subordinated
debt..................... 304,932 --(2) 304,643 237,027 274,500 325,158 521,968
</TABLE>
- ------------
(1) The consolidated financial statements for the twelve months ended December
31, 1995 include two months for Orion (January and February 1995) that were
included in the February 28, 1995 consolidated financial statements. The
revenues and net loss for the two month duplicate period are $22.5 million
and $11.4 million, respectively.
(2) The accounting survivor of the November 1 Mergers (as defined herein) was
Orion, whose fiscal year prior to the consummation of the November 1 Mergers
ended on February 28. As a result, the balance sheet data as of March 31,
1995 are not available.
23
<PAGE>
GOLDWYN
The following table sets forth selected consolidated financial information
of Goldwyn. The selected consolidated financial data set forth below have been
derived from Goldwyn's consolidated financial statements which have been audited
by Price Waterhouse LLP, independent public accountants, whose report for the
fiscal year ended March 31, 1996 includes an explanatory paragraph regarding
Goldwyn's ability to continue as a going concern in the absence of alternative
capital with which to restructure its bank debt. The data set forth below are
qualified by reference to and should be read in conjunction with the
consolidated financial statements and notes thereto of Goldwyn included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------------------
INCOME STATEMENT DATA: 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues......................................... $107,784 $ 91,348 $108,791 $107,820 $ 61,260
Cost of revenues................................. 108,301 91,461 81,117 80,276 46,579
Selling, general and administrative expenses..... 19,891 17,999 15,515 16,405 11,908
Depreciation and amortization.................... 3,770 3,508 3,129 3,198 873
Operating income (loss).......................... (24,178) (21,620) 9,030 7,941 1,900
Interest expense................................. 8,490 5,626 5,632 6,497 6,177
Income (loss) before income taxes................ (32,668) (27,246) 3,398 1,444 (4,277)
Income tax provision (benefit)................... (541) (7,163) 1,912 381 (894)
Extraordinary gain (loss), net................... (742) -- 759 -- --
Net income (loss)................................ (32,869) (20,083) 2,245 1,063 (3,383)
Net income (loss) per share...................... (3.87) (2.37) 0.30 0.18 (0.62)
Weighted average shares outstanding.............. 8,489 8,488 7,386 5,902 5,484
BALANCE SHEET DATA (END OF PERIOD):
Cash............................................. $ 1,849 $ 6,322 $ 1,391 $ 1,595 $ 423
Accounts receivable, net......................... 9,021 11,205 19,703 22,249 21,424
Film costs, net.................................. 63,899 74,080 70,755 75,879 72,911
Total assets..................................... 111,850 125,947 123,875 131,307 128,378
Notes payable.................................... 82,029 67,610 59,819 94,252 91,377
Total liabilities................................ 132,159 113,387 91,137 124,123 122,791
Shareholders' equity (deficit)................... (20,309) 12,560 32,738 7,184 5,587
</TABLE>
24
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
OF THE COMPANY
The following unaudited Pro Forma Combining Balance Sheet of MIG as of March
31, 1996 and unaudited Pro Forma Combining Statements of Operations for the
three months ended March 31, 1996 and the year ended December 31, 1995
illustrates the effect of the Offering, the Goldwyn Acquisition and the
Entertainment Group Credit Facility and the use of proceeds therefrom. The
unaudited Pro Forma Combining Balance Sheet assumes that the Offering, the
Goldwyn Acquisition and the Entertainment Group Credit Facility occurred on
March 31, 1996 and the Unaudited Pro Forma Combining Statements of Operations
assumes that the Offering, the Goldwyn Acquisition and the Entertainment Group
Credit Facility occurred at the beginning of the period presented. The following
information does not give effect to the consummation of the MPCA Acquisition.
In addition, separate pro formas have been presented to illustrate the
effect of prior acquisitions and refinancings of MIG, as discussed in the
respective footnotes to such pro formas.
Pursuant to the terms of the Goldwyn Merger Agreement, each share of Goldwyn
common stock will be converted into and exchangeable for a number of shares of
Common Stock (the "Goldwyn Exchange Ratio") determined by dividing $5.00 by the
Average Closing Price on the day which is five business days prior to the day of
the Meeting (the "Goldwyn Determination Date"); provided, that, if the Average
Closing Price is below $12.50, the Average Closing Price shall be deemed to be
$12.50 and if the Average Closing Price is greater than $16.50, the Average
Closing Price shall be deemed to be $16.50.
These unaudited Pro Forma Combining Financial Statements have been prepared
assuming a Goldwyn Exchange Ratio of .3811 (which assumes an Average Closing
Price of $13.12) and the exercise of the Goldwyn Put, i.e., the issuance of
shares of Goldwyn common stock to a trust affiliated with Samuel Goldwyn, Jr.
(the "Goldwyn Family Trust") in exchange for a reduction of accrued but unpaid
participations owed to the Goldwyn Family Trust by Goldwyn. The actual Goldwyn
Exchange Ratio will be determined on the Goldwyn Determination Date in
accordance with the formulas set forth in the Goldwyn Acquisition Agreement. See
"The Acquisitions."
ACCOUNTING TREATMENT OF THE GOLDWYN ACQUISITION
The Goldwyn Acquisition will be accounted for as a purchase transaction. For
accounting purposes, MIG will be deemed to be the surviving corporation of the
Goldwyn Acquisition.
The pro forma adjustments are based upon currently available information and
upon certain assumptions that management of each of MIG and Goldwyn
(collectively "Management") believes are reasonable. The Goldwyn Acquisition
will be recorded based upon the estimated fair market value of the net tangible
and intangible assets acquired at the date of acquisition. The adjustments
included in the unaudited Pro Forma Combining Financial Statements represent
Management's preliminary determination of these adjustments based upon available
information. There can be no assurance that the actual adjustments will not
differ significantly from the pro forma adjustments reflected in the pro forma
financial information.
The unaudited Pro Forma Combining Financial Statements are not necessarily
indicative of either future results of operations or results that might have
been achieved if the foregoing transactions had been consummated as of the
indicated dates. The unaudited Pro Forma Combining Financial Statements should
be read in conjunction with the (i) the consolidated financial statements and
the related notes thereto of the Company and "Management's Discussion and
Analysis of Financial Condition" relating to the Company incorporated by
reference and included elsewhere in this prospectus and (ii) the consolidated
financial statements and related notes thereto of Goldwyn included elsewhere in
this prospectus.
25
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA COMBINING BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------------------------------------------------------------------------
PRO FORMA MIG PRO FORMA
MERGER AND PRO FORMA WITH EQUITY MIG
MIG GOLDWYN DEBT REFINANCING DEBT REFINANCING REFINANCING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ---------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Cash and marketable
securities............. $ 17,180 $ 1,849 $ (6,100)(1) $ 12,929 $ 157,577(7) $ 170,506
Accounts receivable...... 26,991 8,266 -- 35,257 -- 35,257
Notes receivable......... -- -- -- -- -- --
Inventories.............. -- -- -- -- -- --
Film inventories......... 56,892 8,905 -- 65,797 -- 65,797
Other current assets..... 4,975 426 -- 5,401 -- 5,401
---------- ---------- ---------------- ---------------- ----------- ---------
Current assets........... 106,038 19,446 (6,100) 119,384 157,577 276,961
Film inventories......... 126,396 54,994 -- 181,390 -- 181,390
Property and equipment,
net.................... 9,181 32,206 -- 41,387 -- 41,387
Intangibles.............. 118,818 3,619 68,722(2) 187,540 -- 187,540
(3,619)(3)
Other assets............ 206,700 1,585 (830)(4) 206,571 -- 206,571
(3,403)(5)
(4,981)(1)
7,500(1)
---------- ---------- ---------------- ---------------- ----------- ---------
Total assets.......... $ 567,133 $ 111,850 $ 57,959 $ 736,272 $ 157,577 $ 893,849
---------- ---------- ---------------- ---------------- ----------- ---------
---------- ---------- ---------------- ---------------- ----------- ---------
Accounts payable and
accrued expenses....... $ 97,301 $ 9,138 $ 2,700(2) $ 109,139 $ -- $ 109,139
Short-term debt.......... 55,327 73,633 (78,450)(1) 90,510 (28,754)(7) 61,756
40,000(1)
Other current
liabilities............ 31,431 12,236 (800)(6) 39,464 -- 39,464
(3,403)(5)
---------- ---------- ---------------- ---------------- ----------- ---------
Current liabilities...... 184,059 95,007 (39,953) 239,113 (28,754) 210,359
Deferred revenues....... 40,839 18,583 -- 59,422 -- 59,422
Long-term debt.......... 249,605 2,685 160,000(1) 292,140 -- 292,140
(120,150)(1)
Other liabilities....... 28,278 15,884 (4,888)(6) 39,275 -- 39,275
Stockholders' equity:
Common stock............ 42,635 1,706 175(6) 46,204 15,000(7) 61,204
3,569(2)
(1,881)(2)
Additional paid-in
capital................ 728,964 24,654 5,513(6) 772,347 178,125(7) 943,678
42,381(2) (6,794)(7)
1,002(2)
(30,167)(2)
Retained earnings
(accumulated deficit).. (707,247) (46,137) 50,586(2) (712,228) -- (712,228)
(3,619)(3)
(830)(4)
(4,981)(1)
Treasury stock.......... -- (532) 532(2) -- -- --
---------- ---------- ---------------- ---------------- ----------- ---------
Total
stockholders'equity
(deficiency)........ 64,352 (20,309) 62,280 106,323 186,331 292,654
---------- ---------- ---------------- ---------------- ----------- ---------
Total liabilities and
stockholders' equity
(deficiency)........ $ 567,133 $ 111,850 $ 57,289 $ 736,272 $ 157,577 $ 893,849
---------- ---------- ---------------- ---------------- ----------- ---------
---------- ---------- ---------------- ---------------- ----------- ---------
</TABLE>
26
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996,
------------------------------------------------------------------------------------------
PRO FORMA MIG PRO FORMA
MERGER AND PRO FORMA WITH EQUITY MIG
MIG GOLDWYN DEBT REFINANCING DEBT REFINANCING REFINANCING PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---------- ---------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 30,808 $ 35,493 -$- $ 66,301 $-- $ 66,301
Cost of revenues................ 25,089 34,526 -- 59,615 -- 59,615
Operating expenses.............. 14,066 6,788 -- 20,854 -- 20,854
Depreciation and amortization... 1,723 1,028 (57)(8) 3,381 -- 3,381
687(9) --
---------- ---------- ------ ------- ----- ---------
Operating income (loss)......... (10,070) (6,849) (630) (17,549) -- (17,549 )
Other income (expense):
Interest expense............... (7,034) (3,143) 3,143(10) (7,489) -- (7,489 )
(3,750)(11)
(675)(12)
3,970(15)
Other.......................... (54) -- -- (54) -- (54 )
---------- ---------- ------ ------- ----- ---------
Income (loss) before tax........ (17,158) (9,992) 2,058 (25,092) -- (25,092 )
Provision for income taxes...... 200 779 (779)(14) 200 -- 200
Equity in losses of
subsidiaries.................. 1,783 -- -- 1,783 -- 1,783
---------- ---------- ------ ------- ----- ---------
Net income (loss) from
continuing operations.......... $ (19,141) $ (10,771) $2,837 $(27,075) $-- $(27,075 )
---------- ---------- ------ ------- ----- ---------
---------- ---------- ------ ------- ----- ---------
Number of shares issued and
outstanding................... 42,635 8,489 46,204 15,000 61,204
---------- ---------- ------- ----- ---------
---------- ---------- ------- ----- ---------
Loss per share.................. $ (0.45) $ (1.27) $ (0.59) $ (0.44 )
---------- ---------- ------- ---------
---------- ---------- ------- ---------
</TABLE>
27
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED,
----------------------------------------------------------------------------------------------------
PRO FORMA MIG PRO FORMA
DECEMBER 31, 1995 MARCH 31, 1996 MERGER AND PRO FORMA WITH EQUITY MIG
MIG GOLDWYN DEBT REFINANCING DEBT REFINANCING REFINANCING PRO FORMA
PRO FORMA HISTORICAL ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
----------------- -------------- ---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues............. $ 145,150 $107,784 $-- $ 252,934 $-- $ 252,934
Cost of revenues..... 132,762 108,301 -- 241,063 -- 241,063
Operating expenses... 67,972 19,891 -- 87,863 -- 87,863
Depreciation and
amortization....... 6,442 3,770 (229)(8) 12,732 -- 12,732
2,749(9) --
-------- -------------- ------ -------- ----------- ---------
Operating income
(loss)............. (62,026) (24,178) (2,520) (88,724) -- (88,724)
Other income
(expense):
Interest expense.... (25,489) (8,490) 8,490(10) (29,453) -- (29,453)
(15,000)(11)
(2,700)(12)
13,736(13)
Other............... 10,360 -- -- 10,360 -- 10,360
-------- -------------- ------ -------- ----------- ---------
Income (loss) before
tax................ (77,155) (32,668) 2,006 (107,817) -- (107,817)
Provision for income
taxes.............. 973 (541) 541(14) 973 -- 973
Equity in losses of
subsidiaries....... 11,818 -- -- 11,818 -- 11,818
-------- -------------- ------ -------- ----------- ---------
Net income (loss)
from continuing
operations.......... $ (89,946) $(32,127) $ 1,465 $ (120,608) $-- $(120,608)
-------- -------------- ------ -------- ----------- ---------
-------- -------------- ------ -------- ----------- ---------
Number of shares
issued and
outstanding......... 42,635 8,489 46,204 15,000 61,204
-------- -------------- -------- ----------- ---------
Loss per share....... $ (2.11) $ (3.78) $ (2.61) $ (1.97)
-------- -------------- -------- ---------
-------- -------------- -------- ---------
</TABLE>
28
<PAGE>
(1) Reflects refinancing of Goldwyn's bank debt and Orion's bank debt and
payment of refinancing fees with (a) $200 million from the Entertainment
Group Credit Facility and (b) cash on hand. Deferred financing fees
associated with Orion's bank debt in the amount of $5.0 million have been
written off and are accounted for as an extraordinary loss in the pro forma
combining balance sheet as a charge to retained earnings (accumulated
deficit).
(2) Reflects the excess of cost over the estimated fair value of net
liabilities assumed in the Goldwyn Acquisition, the elimination of
Goldwyn's historical common stock and historical additional paid-in
capital, adjusted for the shares issued pursuant to the shareholder
participation rights, retained earnings (accumulated deficit), retirement
of Goldwyn's treasury stock, and the value of the Common Stock and options
issued to the Goldwyn Stockholders in the Goldwyn Acquisition.
<TABLE>
<S> <C>
Shares to be issued in exchange for accrued stockholder
participation rights........................................... 875
Goldwyn shares outstanding at March 31, 1996..................... 8,489
--------
Goldwyn shares outstanding at March 31, 1996 adjusted............ 9,364
Number of shares issued to acquire Goldwyn....................... 3,569
Per share price at closing (assumed for illustrative purposes)... $ 12.875
--------
Value of shares issued........................................... $ 45,950
Value of Goldwyn options (using Black-Scholes method)............ 1,002
Transaction costs................................................ 2,700
--------
Purchase price................................................... 49,652
Less--Estimated fair value of net liabilities assumed.......... (19,070)
--------
Excess of cost over fair value of the net liabilities assumed.... $ 68,722
--------
--------
</TABLE>
These adjustments reflect an assumed closing price for the Common Stock of
$12.875. As a result, each share of Goldwyn common stock would be converted
into 0.3811 shares of Common Stock based on the assumed Average Closing
Price of $13.12.
The Company has made a preliminary allocation of excess cost over estimated
fair value of net liabilities assumed to goodwill as Goldwyn's assets and
liabilities are estimated to approximate fair value. However there can be
no assurance that the actual adjustment will not differ significantly from
the pro forma adjustment.
(3) Reflects write-off of Goldwyn's historical goodwill.
(4) Reflects write-off of Goldwyn deferred financing fees.
(5) Reflects elimination of interim financing between Orion and Goldwyn.
(6) Reflects a reduction of $5,700 of an historical accrued participation right
of a Goldwyn Stockholder in exchange for the issuance of 875,000 Goldwyn
shares.
(7) Reflects the issuance of 15.0 million shares of Common Stock at an assumed
price of $12.875 per share, net of estimated Common Stock issuance costs of
$6,794, and the refinancing of MIG's credit facility.
(8) Reflects elimination of historical Goldwyn goodwill amortization.
(9) Reflects amortization expense of the excess of cost over the fair value of
net tangible assets acquired in the Goldwyn Acquisition by use of the
straight-line method over 25 years.
(10) Reflects elimination of interest expense attributable to Goldwyn's bank
debt as a result of the Entertainment Group Credit Facility.
(11) Reflects additional interest expense on the Entertainment Group Credit
Facility (assumed rate 7.50%). A 1/8% change in the assumed rate would
result in a change of $250 in annual interest expense.
29
<PAGE>
(12) Reflects amortization of deferred financing fees arising from the
Entertainment Group Credit Facility. This amount is being amortized using
the effective interest method over a period of five years.
(13) Reflects elimination of interest expense attributable to MIG's credit
facility and Orion's bank debt amounting to $2,325 and $11,031,
respectively, as well as elimination of amortization on Orion's deferred
financing fees of $380 as a result of the Entertainment Group Credit
Facility.
(14) Reflects elimination of Goldwyn provision for taxes.
(15) Reflects elimination of interest expense attributable to MIG's credit
facility and Orion's bank debt amounting to $805 and $2,683, respectively,
as well as elimination of amortization on Orion's deferred financing fees
of $482 as a result of the Entertainment Group Credit Facility.
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<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1995,
--------------------------------------------------------------------------------------------
MIG
MIG ACTAVA STERLING REFINANCING PRO FORMA MIG
HISTORICAL(A) ADJUSTMENTS(B) ADJUSTMENTS(B) ADJUSTMENTS(C) ADJUSTMENTS PRO FORMA
------------- -------------- -------------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues.................... $ 138,871 $ -- $ 6,279 $ -- $ -- $145,150
Cost of revenues............ 132,762 -- 4,336 -- -- 137,098
Operating expenses.......... 50,771 8,126 3,489 -- 1,250(d) 63,636
Depreciation and
amortization................ 2,795 -- -- -- 3,647(e) 6,442
------------- ------- ------ ------- ----------- ---------
Operating income (loss)..... (47,457) (8,126) (1,546) -- (4,897) (62,026 )
Other income (expense)
Interest expense........... (29,539) (11,717) -- 15,767 -- (25,489 )
Other...................... (1,280) 11,640 -- -- -- 10,360
------------- ------- ------ ------- ----------- ---------
Income (loss) before tax.... (78,276) (8,203) (1,546) 15,767 (4,897) (77,155 )
Provision for income tax.... 767 -- 206 -- -- 973
Equity in losses of
subsidiaries................ 7,936 3,882 -- -- -- 11,818
------------- ------- ------ ------- ----------- ---------
Income (loss) from cont.
operations.................. $ (86,979) $(12,085) $ (1,752) $ 15,767 $(4,897) $(89,946 )
------------- ------- ------ ------- ----------- ---------
------------- ------- ------ ------- ----------- ---------
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Reflects 12 months of operations of Orion and MITI, 2 months of operations of Actava and
Sterling, and 2 months of MITI minority interest step-up.
(b) Reflects additional 10 months of activity for Actava and Sterling prior to the November
1 Mergers.
(c) Reflects interest expense on the term loan portion of the Orion's bank debt (assumed
interest rate of 9.1%), the revolving credit portion of the Orion's bank debt (assumed
interest rate of 7.6%), MIG's credit facility (assumed interest rate of 8.1%),
commitment fee of 1% on unused portion of the revolving credit portion of Orion's bank
debt, net of $27.1 million reduction in interest expense related to refinanced Orion
debt and $2.4 million reduction in interest expense related to refinanced MITI debt.
(d) Reflects additional 10 month Metromedia Company management fee.
(e) Reflects additional 10 months of goodwill amortization for MITI, additional 10 months of
goodwill amortization for Sterling, and removal of 10 months of pre-merger goodwill
amortization for MITI. All goodwill is assumed to be amortized over a 25-year period.
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The section below includes portions of "Management's Discussion and Analysis
of Financial Condition and Results of Operations" relating to the Company which
have been incorporated by reference in this prospectus, as updated in certain
places to reflect the consummation of the Offering, the Goldwyn Acquisition and
the Entertainment Group Credit Facility. A detailed "Management's Discussion and
Analysis of Financial Condition and Results of Operations" relating to the
Company including an analysis of the Company's consolidated financial statements
is incorporated by reference from the Company's Form 10-K for the year ended
December 31, 1995, as amended, and the Company's Form 10-Q for the quarter ended
March 31, 1996. Special Note: Certain statements set forth below under this
caption constitute "forward-looking statements" within the meaning of the Reform
Act. See "Special Note Regarding Forward-Looking Statements" on page 86 for
additional information relating to such statements.
GENERAL
On November 1, 1995, Orion, MITI, the Company and Sterling consummated the
November 1 Mergers. In connection with the November 1 Mergers, the Company
changed its name from "The Actava Group Inc." to "Metromedia International
Group, Inc."
For accounting purposes only, Orion and MITI have been deemed to be the
joint acquirors of Actava and Sterling. The acquisitions of Actava and Sterling
were accounted for as reverse acquisitions. As a result of the reverse
acquisitions, the historical financial statements of the Company for periods
prior to the November 1 Mergers are the combined financial statements of Orion
and MITI, rather than Actava's.
The operations of Actava and Sterling have been included in the accompanying
consolidated financial statements from November 1, 1995, the date of
acquisition. During December 1995, the Company adopted a formal plan to dispose
of Snapper. In addition, the Company's investment in Roadmaster has been deemed
to be a non-strategic asset. The Company intends to dispose of Snapper and its
investment in Roadmaster during 1996. Snapper and Roadmaster are included in the
consolidated financial statements of the Company as assets held for sale.
The Company, in the ordinary course of its business, evaluates new
opportunities and strategies for enhancing stockholder value. As discussed
above, the Company entered into a definitive agreement to acquire Goldwyn and on
May 17, 1996 entered into the MPCA Merger Agreement to acquire MPCA. See "The
Acquisitions." The acquisition of Goldwyn will provide MIG with a valuable
library of over 850 film and television titles, including numerous Hollywood
classics and critically acclaimed recent films. Goldwyn also owns the leading
specialized theatre circuit of 52 theatres with 140 screens. The MPCA
Acquisition will enhance the Entertainment Group's ability to produce and
acquire new film product. Consummation of the MPCA Acquisition remains subject
to certain conditions, including the expiration or early termination of the
waiting period under the Hart Scott Act, the execution of certain ancillary
agreements, the satisfaction by MIG of its due diligence review of MPCA and
other customary closing conditions. The acquisitions of Goldwyn and MPCA are
important steps in MIG's plan to enhance its role as a leading global
entertainment, media and communications company.
The Company intends to pursue a strategy of making selective acquisitions of
attractive entertainment and communications assets that complement its existing
business groups. In particular, the Company is interested in expanding its
library of proprietary motion picture rights and in expanding the network
through which it distributes various entertainment and communications products
and services.
The business activities of the Company consist of two business segments: (i)
the Entertainment Group, which includes the development, production,
acquisition, exploitation and worldwide distribution in all media of motion
pictures, television programming and other filmed entertainment product, and
(ii) the Communications Group, which includes wireless cable television, paging
services, radio broadcasting, and various types of telephony services.
32
<PAGE>
THE ENTERTAINMENT GROUP
The Company's Entertainment Group consists of Orion, Goldwyn and MPCA. Until
November 1, 1995, Orion operated under the terms of its Modified Third Amended
Joint Consolidated Plan of Reorganization (the "Plan") which severely limited
Orion's ability to finance and produce additional theatrical motion pictures.
See Notes 2 and 3 to the "Notes to the Consolidated Financial Statements" of the
Company for the year ended December 31, 1995 included elsewhere in this
prospectus. Therefore, Orion's primary activity prior to the November 1 Mergers
was the ongoing distribution of its library of theatrical motion pictures and
television programming. Orion believes the lack of a continuing flow of newly
produced theatrical product while operating under the Plan adversely affected
its results of operations. As a result of the removal of the restrictions on the
Entertainment Group to finance, produce and acquire entertainment product in
connection with the November 1 Mergers, the Entertainment Group intends to
acquire and produce new theatrical product. See "Business--Entertainment Group."
Theatrical motion pictures are produced initially for exhibition in
theatres. Initial theatrical release generally occurs in the United States and
Canada. Foreign theatrical exhibition generally begins within the first year
after initial release. Home video distribution in all territories usually begins
six to twelve months after theatrical release in that territory, with pay
television exploitation beginning generally six months after initial home video
release. Exhibition of the Company's product on network and on other free
television outlets begins generally three to five years from the initial
theatrical release date in each territory.
THE COMMUNICATIONS GROUP
The Company's Communications Group, through MITI and its subsidiaries, is
the owner of various interests in joint ventures that are currently in operation
or planning to commence operations in certain of the former Soviet Republics and
in certain other Eastern European countries. During 1995, the Company began to
pursue opportunities to extend its communications businesses into emerging
markets in the Pacific Rim.
The Joint Ventures currently offer wireless cable television, paging
services, radio broadcasting, trunked mobile radio services and various types of
telephony services. Joint Ventures are principally entered into with
governmental agencies or ministries under the existing laws of the respective
countries.
The consolidated financial statements include the accounts and results of
operations of MITI, its majority owned and controlled joint ventures, CNM Paging
and Radio Juventas, and their subsidiaries. Investments in other companies and
joint ventures which are not majority owned, or which the Company does not
control, but exercises significant influence, have been accounted for using the
equity method.
PRO FORMA LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, on a pro forma basis assuming the consummation of the
Offering, the Goldwyn Acquisition and the Entertainment Group Credit Facility
and the estimated use of proceeds therefrom, MIG would have had approximately
$170 million of cash on hand and the Entertainment Group would have had
borrowing availability of approximately $100.0 million (or approximately $85.0
million after the MPCA Acquisition) under the Entertainment Group Credit
Facility. See "Use of Proceeds." The Company intends to use these available
funds together with cash flow from operations to fund its businesses, including
(i) the Communications Group's further expansion in Eastern Europe, the former
Soviet Republics and the Pacific Rim and (ii) the Entertainment Group's
production and acquisition of entertainment product. MIG believes that these
resources will enable it to realize the value of its assets, by providing
capital necessary for such businesses.
MIG is a holding company which operates through its subsidiaries and,
therefore, does not generate cash flow on its own. In addition to providing
funds to its operating subsidiaries, MIG is
33
<PAGE>
obligated to make principal and interest payments under its various debt
agreements in addition to funding its working capital needs, which consist
principally of corporate overhead and payments on self insurance claims. In the
years ended December 31, 1996, 1997 and 1998, MIG will be required to make
principal payments of approximately $0.6 million, $15 million and $59 million,
respectively, to meet the scheduled maturities of its outstanding long-term
debt. MIG does not currently anticipate receiving dividends from its
subsidiaries but intends to use its cash on hand and proceeds from asset sales
described below to meet these cash requirements.
During December 1995, the Company adopted a formal plan to dispose of
Snapper. At March 31, 1996 the carrying value of Snapper was $73.8 million. The
carrying value of Snapper represents the Company's estimated proceeds from the
sale of Snapper and the cash flows from the operations of Snapper, principally
repayment of intercompany loans, through the date of sale. Management believes
that Snapper will be disposed of by the end of 1996. In addition, the Company
anticipates disposing of its investment in Roadmaster by the end of 1996. The
carrying value of the Company's investment in Roadmaster at March 31, 1996 was
$47.5 million. There can be no assurance that MIG will dispose of these assets
during the time period anticipated or that it will realize proceeds upon such
sales equal to the carrying value of its investments.
The Company's Entertainment Group requires capital to fund the production of
its filmed entertainment and to meet its general working capital needs,
including interest and principal payments required under the Entertainment Group
Credit Facility. At March 31, 1996, on a pro forma basis assuming the
consummation of the Offering, the Goldwyn Acquisition and the Entertainment
Group Credit Facility and the estimated use of proceeds therefrom, the
Entertainment Group would have had approximately $200.0 million outstanding
indebtedness under the Entertainment Group Credit Facility and borrowing
capacity of approximately $100.0 million on a revolving basis to fund its
production needs. See "Use of Proceeds." MIG believes that the amounts available
under the Entertainment Group Credit Facility together with cash generated from
operations will provide the Entertainment Group with sufficient working capital
to implement its production and distribution activities and to meet debt
obligations during 1996 and 1997. The Entertainment Group Credit Facility will
restrict the Entertainment Group's ability to pay dividends to MIG.
The Communications Group is in the early stages of constructing and
developing its communications businesses. As a result, the Communications Group
does not generate operating cash flow and is dependent upon MIG for the capital
required to fund its businesses. MIG estimates that the Communications Group's
funding requirements are currently approximately $40 million for 1996. MIG
believes that the remaining proceeds of the Offering after satisfying its own
working capital needs and its debt service obligations will enable MIG to
provide the Communications Group with the capital it requires for the
anticipated funding needs for its existing and planned projects during 1996 and
1997. However, the Communication Group's capital needs could vary substantially
depending upon the stage of development of its existing projects and its
acquisition of new licenses or businesses.
The Company believes that it will report significant operating losses for
the fiscal year ended December 31, 1996. In addition, because its Communications
business is in the early stages of development, the Company expects this group
to continue to generate significant net losses as it continues to build out and
market its services. Accordingly, the Company expects to generate consolidated
net losses for the foreseeable future.
HISTORICAL LIQUIDITY AND CAPITAL RESOURCES
The Entertainment Group. The financing, production and distribution of
motion pictures requires the expenditure of significant amounts of capital.
Prior to the consummation of the November 1 Mergers, Orion's ability to produce
or acquire new theatrical product was severely limited by the agreements entered
into in connection with the Plan. During December 1991, all new motion picture
production was halted, leaving Orion with only 12 largely completed but
unreleased motion pictures. Accordingly, Orion released five, four and three
theatrical motion pictures in the domestic marketplace
34
<PAGE>
in fiscal 1995, 1994, and 1993, respectively. In calendar 1995, there were no
theatrical releases that were fully or substantially financed by Orion. This
reduced release schedule has had and will continue to have an adverse impact on
results of operations for the foreseeable future. Furthermore, as described in
Note 2 to the "Notes to the Consolidated Financial Statements" of the Company
for the year ended December 31, 1995 included elsewhere in this prospectus,
approximately two-thirds of Orion's film inventories at December 31, 1995 are
stated at amounts approximating their estimated net realizable value and
accordingly should not result in the recording of gross profit upon the
recognition of related revenues in future periods. Accordingly, selling, general
and administrative costs and interest expense in future periods are likely to
exceed gross profit recognized in each period, which will result in the
reporting of net losses by Orion for financial reporting purposes for the
foreseeable future.
In connection with the consummation of the November 1 Mergers, the
restrictions imposed by the agreements entered into in connection with the Plan
on Orion's ability to produce and acquire new motion picture product were
eliminated. As a result, Orion has begun the process of producing, acquiring and
financing theatrical films, consistent with the covenants set forth in the
existing Entertainment Group's credit agreement. The principal sources of funds
for Orion's motion picture production, acquisition and distribution activities
will be cash generated from operations, proceeds from the presale of
subdistribution and exhibition rights, primarily in foreign markets, and
borrowings under the Entertainment Group's existing revolving credit facility.
The cost of producing a theatrical film varies depending on the type of film
produced, casting of stars or established actors, and many other factors. The
industry-wide trend over recent years has been an increase in the average cost
of producing and releasing films. The revenues derived from the production and
distribution of a motion picture depend primarily upon its acceptance by the
public, which cannot be predicted and does not necessarily bear a direct
correlation to the production or distribution costs incurred. The Company will
attempt to reduce the risks inherent in its motion picture production activities
by closely monitoring the production and distribution costs of individual films
and limiting the Entertainment Group's investment in any single film.
The Communications Group. MITI has invested significantly (in cash, through
capital contributions and loans, and in management assistance and training) in
its joint ventures. MITI has also incurred significant expenses in identifying,
negotiating and pursuing new wireless telecommunications opportunities in
emerging markets. MITI and primarily all of its joint ventures are experiencing
continuing losses and negative operating cash flow since the businesses are in
the development and start-up phase of operations.
The wireless cable television, paging, fixed wireless loop telephony, and
international toll calling businesses can be capital intensive. MITI generally
is the primary source of funding for its joint ventures, both for working
capital and capital expenditures. MITI's joint venture agreements generally
provide for an initial contribution of assets and/or cash by the joint venture
partners, and for the provision of a line of credit from MITI to the joint
venture. Under a typical arrangement, MITI's joint venture partner contributes
the necessary licenses or permits under which the joint venture will conduct its
business, studio or office space, transmitting tower rights and other equipment.
MITI's contribution is generally cash and equipment, but may consist of other
specific assets as required by the joint venture agreement.
MITI's credit agreements with the joint ventures are intended to provide the
joint ventures with sufficient funds for operations and equipment purchases. The
credit agreements generally provide for interest to be accrued at MITI's current
cost of borrowing in the United States and for payment of principal and interest
from 90% of the joint venture's available cash flow, as defined in the credit
agreement, prior to any distributions of dividends to MITI or its partners. The
credit agreements also often give MITI the right to appoint the general director
of the joint venture and the right to approve the annual business plan of the
joint venture. Advances under the credit agreements are made to the joint
ventures in the form of cash, for working capital purposes, as direct payment of
expenses or expenditures, or in the form of equipment, at the cost of the
equipment plus cost of shipping. As of
35
<PAGE>
March 31, 1996 and December 31, 1995, MITI was committed to provide funding
under the various credit lines in an aggregate amount of approximately $47.1
million and $46.8 million, respectively, of which $12.3 million and $16.9
million, respectively, remains unfunded. MITI's funding commitments under a
credit agreement are contingent upon its approval of the joint venture's
business plan and the attainment of certain benchmarks set forth in such
business plans. MITI reviews the actual results compared to the approved
business plan on a periodic basis. If the review indicates a material variance
from the approved business plan, MITI may terminate or revise its commitment to
fund the joint venture under its credit agreement.
MITI's consolidated and unconsolidated joint ventures' ability to generate
positive operating results is dependent upon the sale of commercial advertising
time, the ability to attract subscribers to their systems and their ability to
control operating expenses. Management's current plans with respect to the joint
ventures are to increase subscribers and advertiser bases and thereby their
operating revenues by developing a broader band of programming packages for
wireless cable and radio broadcasting and offering additional services and
options for paging and telephony services. By offering the large local
populations of the countries in which the joint ventures operate desired
services at attractive prices, management believes that the joint ventures can
increase their subscriber and advertiser bases and generate positive operating
cash flow, reducing their dependence on MITI for funding of working capital.
Additionally, advances in wireless subscriber equipment technology are expected
to reduce capital requirements per subscriber. Further initiatives to develop
and establish profitable operations include reducing operating costs as a
percentage of revenue and developing management information systems and
automated customer care and service systems.
MITI's investments in the joint ventures are not expected to become
profitable or generate significant cash inflow in the near future. Even if the
joint ventures do become profitable and generate sufficient cash inflows in the
future, there can be no assurances that the joint ventures will pay dividends or
return capital and repay advances under credit agreements at any time.
The ability of MITI and its consolidated and unconsolidated joint ventures
to establish profitable operations is also subject to political, economic and
social risks inherent in doing business in emerging markets such as Eastern
Europe, the former Soviet Republics and the Pacific Rim. These include matters
arising out of government policies, economic conditions, imposition of, or
changes to, taxes or other similar charges by governmental bodies, foreign
exchange fluctuations and controls, civil disturbances, deprivation or
unenforceability of contractual rights, and taking of property without fair
compensation.
Prior to the November 1 Mergers, MITI had relied on certain shareholders for
capital, in the form of both debt and equity, to fund its operating and capital
requirements. During 1995 and 1994, MITI's primary sources of funds were from
the issuance of notes payable and from equity contributions. Notes payable were
due within one year from the issuance of the note and carried interest rates
ranging from the prime rate to the prime rate plus 2%. During the first quarter
of 1996, MITI's primary sources of funds were intercompany loans from MIG.
During 1994, MITI received equity contributions of approximately $24.2
million. Approximately $22.8 million of this amount was a result of common stock
issued to certain related parties, affiliates and others in a private offering.
As part of this issuance, $6.5 million of notes payable were converted to common
stock. The remaining $1.4 million of equity contributions was the result of the
issuance of common stock to an affiliate. During 1994, MITI received financing
of $20.1 million through the issuance of notes payable.
During 1995, MITI received equity contributions of approximately $62.0
million from MIG or its affiliates, representing notes payable to a Metromedia
Company affiliate that were converted into equity of MIG at the time of the
November 1 Mergers. In connection with the November 1 Mergers, MITI became a
wholly-owned subsidiary of MIG.
36
<PAGE>
MITI's capital commitments for calendar year 1995 were comprised of four
primary categories: (i) subscriber equipment, (ii) working capital advances,
(iii) expansion of existing facilities and (iv) new construction. Most of MITI's
joint ventures, once operational, require subscriber equipment and working
capital infusions for a significant period until funds generated by operations
are sufficient to cover operating expenses and capital expenditure requirements.
In some cases, the joint venture and MITI agree to expand the existing
facilities to increase or enhance existing services. In those cases, when the
joint venture cannot provide these funds from operations, MITI provides the
funding. During the construction phase of the joint venture, MITI normally
provides the funds required to build out the project.
During 1995, MITI expended $13.5 million for capital expenditures on behalf
of its joint ventures, including $9.5 million for cable TV, $2.1 million for
paging, $38,000 for radio and $1.9 million for all others. MITI also provided
$2.4 million of initial capital contributions to its joint ventures, consisting
of $53,000 for cable TV, $630,000 for paging operations, $432,000 for radio,
$893,000 for telephony and $438,000 for all others. In addition, MITI supported
certain joint ventures with working capital funds against the joint venture's
credit lines totaling $2,504,000, of which $798,000 was for cable TV operations,
$303,000 for paging, $1.3 million for radio operations and $7,000 for all
others.
During 1996, MITI will continue to fund its joint ventures in a similar
manner. MITI anticipates funding $20.8 million in capital requirements for its
joint ventures, consisting of $14.7 million for cable TV, $4.8 million for
paging joint ventures, $883,000 for telephony and $325,000 for radio. In
addition, MITI anticipates approximately $2.3 million in working capital funding
requirements for joint ventures, consisting of $836,000 for cable TV, $598,000
for paging, $323,000 for telephony operations and $536,000 for radio operations.
In addition to the foregoing, MITI anticipates that it will require
approximately an additional $18.0 million in financing to fund its corporate
operations during 1996.
For the three months ended March 31, 1996, MITI expended $2.5 million on
behalf of its ventures, consisting of $1.7 million for capital equipment
requirements and approximately $800,000 for working capital funding
requirements. The capital requirements consists of approximately $1.0 million
for cable TV and approximately $700,000 for paging ventures. In addition, the
working capital funding requirements consisted of approximately $130,000 for
cable TV, approximately $80,000 for paging, approximately $320,000 for telephony
operations and approximately $270,000 for radio operations.
For the three months ended March 31, 1996, MITI's primary source of funds
were non-interest bearing intercompany loans from MIG. MITI anticipates that it
will continue to rely on the Company for its funds for the remainder of 1996.
In addition, there is available to MITI a bridge loan pursuant to an
agreement, dated February 29, 1996, between MITI and Metromedia Company. The
bridge loan provides for up to $15 million of funding at an interest rate of
prime plus 2%. The agreement is in place for the period between the date of the
agreement and the earlier of January 15, 1997, or the date upon which the
refinancing of MIG is completed. As of May 28, 1996 there was approximately $6.2
million outstanding under this facility, all of which will be repaid with
proceeds of the Offering.
COMPARISON OF STATEMENT OF CASH FLOWS--THREE MONTHS ENDED MARCH 31, 1996
COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Cash Flows from Operating Activities
Cash provided by operating activities decreased from $11.8 million for the
three month period ended March 31, 1995 to cash used in operations of $9.6
million for the three month period ended March 31, 1996.
Losses from operations include significant non-cash items of depreciation,
amortization, and equity in loss of Joint Ventures. Non-cash items decreased
$11.0 million or 36% from $30.7 million in the first quarter of 1995 to $19.7
million in the first quarter of 1996. The decrease in non-cash items principally
37
<PAGE>
relates to amortization of film costs. Net changes in assets and liabilities
decreased cash flows from operations in the first quarter of 1996 by $10.1
million and increased cash provided by operations by $1.5 million in the first
quarter of 1995. After adjusting net losses for non-cash items and net changes
in assets and liabilities, the Company's cash flow from (used in) operating
activities was ($9.6) million and $11.8 million in the first quarter of 1996 and
1995, respectively.
As discussed below, the decrease in cash flows in the first quarter of 1996
generally resulted from the reduction in revenues caused by Orion's reduced
release schedule and increases in selling, general and administrative expenses
at MITI, Orion and corporate headquarters. Net interest expense has remained
relatively constant for the first quarter 1996 and 1995. However, Orion's
interest expense has decreased due to the refinancing of its debt in November,
1995 offset by interest expense relating to debt acquired in the November 1
Mergers. The Orion reduced release schedule, which is the result of the
restrictions imposed upon Orion while operating under the Plan, has negatively
impacted and will continue to negatively impact cash provided from operations.
As a result of the removal of the restrictions on the Entertainment Group to
finance, produce and acquire entertainment product in connection with the
November 1 Mergers, the Entertainment Group intends to acquire and produce new
theatrical product. During the first quarter of 1996, Orion made a $5.0 million
payment to a subdistributor under an agreement entered into in connection with
the Plan. In addition, Orion made payments of $3.2 million for deferred
financing costs during the first quarter of 1996.
Cash Flows from Investing Activities
Cash used in investing activities was $5.4 million and $5.0 million for the
first quarters 1996 and 1995, respectively.
During the first quarter 1995, the principal use of cash in investing
activities was $4.3 million invested or advanced to joint ventures. During the
first quarter 1996, the Company collected $5.4 million from Snapper as repayment
of outstanding advances and paid $2.5 million, $1.6 million and $3.6 million for
investments in joint ventures, film inventories and property, plant and
equipment, respectively.
Cash Flows from Financing Activities
Cash used in financing activities was $100,000 and $5.5 million for the
first quarters of 1996 and 1995, respectively.
Proceeds from issuance of long-term debt decreased from $12.5 million to
$11.8 million from the first quarter of 1995 to 1996.
Payments on notes and subordinated debt decreased from $18.1 million to
$12.3 million from the first quarter of 1995 to 1996.
COMPARISON OF STATEMENT OF CASH FLOWS--CALENDAR YEAR ENDED DECEMBER 31, 1995
COMPARED TO FISCAL YEAR ENDED FEBRUARY 28, 1995
Cash Flows from Operating Activities
Cash provided by operating activities decreased $54.6 million or 71% from
fiscal 1995 to calendar 1995.
The calendar 1995 net loss of $413.0 million includes a loss on discontinued
operations of $293.6 million and a loss on early extinguishment of debt of $32.4
million. The calendar 1995 net loss, exclusive of the losses on discontinued
operations and extraordinary items was $87.0 million compared to a $69.4 million
net loss in fiscal 1995.
Losses from operations include significant non-cash items of depreciation,
amortization and equity in loss of joint ventures. Non-cash items decreased $46
million or 28% from $161.6 million in fiscal 1995
38
<PAGE>
to $115.6 million in calendar 1995. The decrease in non-cash items principally
relates to amortization of film costs. Net changes in assets and liabilities
decreased cash flows from operations in calendar 1995 and fiscal 1995 by $6.3
million and $15.2 million, respectively. After adjusting net losses for
discontinued operations, extraordinary items, non-cash items and net changes in
assets and liabilities, the Company's cash flow from operating activities was
$22.3 million and $76.9 million in calendar 1995 and fiscal 1995, respectively.
As discussed below, the decrease in cash flows in calendar 1995 generally
resulted from the reduction in revenues caused by Orion's reduced release
schedule and increases in selling, general and administrative expenses at MITI
and Orion. Net interest expense remained relatively constant from fiscal 1995 to
calendar 1995. The Orion reduced release schedule, which is the result of the
restrictions imposed upon Orion while operating under the Plan, has negatively
impacted and will continue to negatively impact cash provided from operations.
Cash Flows from Investing Activities
Cash flows from investing activities increased $131.2 million from a use of
funds in fiscal 1995 of $49.9 million to cash provided in calendar 1995 of
$81.3.
The principal reasons for this increase in cash from investing activities
was the collection of notes receivable from Metromedia Company of $45.3 million
and net cash acquired in the November 1 Mergers of $72.1 million net of advances
to Snapper of $4.2 million in calendar 1995.
Investments in film inventories decreased $18.1 million or 79% from $22.8
million in fiscal 1995 to $4.7 million in calendar 1995. Such decrease reflects
the releasing costs of the last five pictures fully or substantially financed by
Orion in fiscal 1995 compared to minimal investments in films since the removal
of the restrictions of the Plan in connection with the November 1 Mergers for
calendar 1995.
Investments in MITI joint ventures increased $4.8 million or 29% from $16.4
million in fiscal 1995 to $21.2 million in calendar 1995. The increase
represents an increase in the number of MITI joint ventures as well as
additional funding of existing ventures. In addition, fiscal 1995 included net
cash paid for East News Channel Trading and Services, Kft ("East News Channel
Trading") of $7.0 million.
Cash flows from Financing Activities
Cash used in financing activities increased $48.3 million or 131% from $36.9
million in fiscal 1995 to $85.2 million in calendar 1995.
As more fully described below, the increase in cash used in financing
activities principally resulted from the repayment of approximately $210 million
of Plan debt of Orion in connection with the November 1 Mergers. Orion repaid
its outstanding Plan debt with $135 million of proceeds from the Orion Term Loan
and amounts advanced from the Company.
The remaining payments on notes and subordinated debt in calendar 1995 and
the fiscal 1995 payments principally represent Orion's repayments of Plan debt
under the requirements of the Plan.
In addition to the Orion Term Loan, proceeds from issuance of long-term debt
in calendar 1995 includes the Company and Orion borrowings under revolving
credit agreements of $28.8 million and $11.9 million, respectively. Proceeds
from issuance of long term debt in fiscal 1995 represent MITI and Orion
borrowings from Metromedia Company.
Proceeds from issuance of stock decreased $15.4 million from $17.7 million
in fiscal 1995 to $2.3 million in calendar 1995.
39
<PAGE>
COMPARISON OF STATEMENT OF CASH FLOWS--FISCAL YEAR ENDED FEBRUARY 28, 1995
COMPARED TO FISCAL YEAR ENDED FEBRUARY 28, 1994
Cash Flows from Operating Activities
Cash provided by operating activities decreased $6 million or 7% from fiscal
1994 to fiscal 1995.
Net loss decreased from $132.5 million in fiscal 1994 to $69.4 million in
fiscal 1995. After adjusting net losses for non-cash items of $161.6 million and
$218.8 million and changes in assets and liabilities that decreased cash flows
of $15.2 million and $3.4 million, cash flows from operating activities were
$76.9 million and $82.9 million in fiscal 1995 and fiscal 1994, respectively.
Operating cash flows decreased in fiscal 1995 principally due to an increase
in selling, general and administrative expenses at MITI as the Company continued
to expand its communications segment. Operating cash flows at Orion were
essentially the same for fiscal 1995 and fiscal 1994, reflecting comparable
activity from year to year. The decrease in operating losses at the filmed
entertainment segment in fiscal 1995 resulted from significant non-cash
adjustments to film inventory in fiscal 1994.
Cash Flows from Investing Activities
Cash flows used in investing activities decreased $21.3 million or 30% from
$71.2 million in fiscal 1994 to $49.9 million in fiscal 1995.
The decrease in cash used in investing activities resulted from the decrease
in investments in film inventories of $44.6 million offset by increases in
investments in joint ventures of $11.7 million and cash acquisitions of
subsidiaries of $6.0 million.
Cash Flows from Financing Activities
Cash used in financing activities decreased $15.5 million or 30% from $52.4
million in fiscal 1994 to $36.9 million in fiscal 1995.
The decrease in cash used in financing activities resulted from an increase
in proceeds from the issuance of long-term debt of $35.6 million and an increase
in proceeds from issuance of stock of $10.1 million offset by an increase in
payments on notes and subordinated debt of $30.3 million from fiscal 1994 to
fiscal 1995.
The repayments of debt in fiscal 1995 and 1994 represent Orion repayments of
Plan debt under the requirements of the Plan. Proceeds from issuance of long
term debt principally represent borrowings from Metromedia Company in fiscal
1995 and 1994.
RESULTS OF OPERATION--SEGMENT INFORMATION
The following tables sets forth the operating results and financial
condition of the Company's Entertainment Group and Communications Group for the
quarters ended March 31, 1996 and 1995 and for the Calendar Year ended December
31, 1995 and Fiscal Years 1995 and 1994. Financial information summarizing the
results of operations of Snapper, which is classified as an asset held for sale,
is presented in Note 2 to the "Notes to the Consolidated Financial Statements"
of the Company for the year ended December 31, 1995 included elsewhere in this
prospectus.
40
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
(IN THOUSANDS)
Revenues
Entertainment...................................................... $ 27,641 $ 36,567
Communications..................................................... 3,164 1,111
Other.............................................................. 3 --
-------- --------
Total.......................................................... 30,808 37,678
Cost of Rentals and Operating Expenses
Entertainment...................................................... (25,102) (36,868)
Communications..................................................... 13 --
Other.............................................................. -- --
-------- --------
Total.......................................................... (25,089) (36,868)
Selling, General & Administrative
Entertainment...................................................... (4,912) (5,372)
Communications..................................................... (7,400) (5,458)
Other.............................................................. (1,379) --
-------- --------
Total.......................................................... (13,691) (10,830)
Management Fees
Entertainment...................................................... -- --
Communications..................................................... (125) (144)
Other.............................................................. (250) --
-------- --------
Total.......................................................... (375) (144)
Depreciation & Amortization
Entertainment...................................................... (267) (142)
Communications..................................................... (1,449) (386)
Other.............................................................. (7) --
-------- --------
Total.......................................................... (1,723) (528)
Operating Loss
Entertainment...................................................... (2,640) (5,815)
Communications..................................................... (5,797) (4,877)
Other.............................................................. (1,633) --
-------- --------
Total.......................................................... (10,070) (10,692)
Interest Expense
Entertainment...................................................... (3,455) (8,005)
Communications..................................................... -- (931)
Other.............................................................. (4,824) --
-------- --------
Total.......................................................... (8,279) (8,936)
Interest Income
Entertainment...................................................... 31 325
Communications..................................................... 1,090 492
Other.............................................................. 124 --
-------- --------
Total.......................................................... 1,245 817
Chapter 11 Losses.................................................... (54) (767)
Provision for Income Taxes........................................... (200) (200)
Equity in Joint Ventures............................................. (1,783) (588)
-------- --------
Net Loss....................................................... $(19,141) $(20,366)
-------- --------
-------- --------
</TABLE>
41
<PAGE>
SEGMENT INFORMATION
<TABLE>
<CAPTION>
CALENDAR YEAR FISCAL YEAR FISCAL YEAR
1995(1) 1995 1994
------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Entertainment.............................................. $ 133,812 $ 191,244 $ 175,662
Communications............................................. 5,158 3,545 51
Other...................................................... (99) -- --
------------- ----------- -----------
Total.................................................. 138,871 194,789 175,713
Cost of Rentals and Operating Expenses
Entertainment.............................................. (132,950) (187,477) (243,030)
Other...................................................... 188 221 34
------------- ----------- -----------
Total.................................................. (132,762) (187,256) (242,996)
Selling, General & Administrative
Entertainment.............................................. (22,695) (21,278) (20,931)
Communications............................................. (26,422) (18,892) (6,011)
Other...................................................... (912) (221) (34)
------------- ----------- -----------
Total.................................................. (50,029) (40,391) (26,976)
Management Fees.............................................. (742) (175) (75)
Depreciation & Amortization
Entertainment.............................................. (694) (767) (708)
Communications............................................. (2,101) (1,149) (174)
Other...................................................... -- -- --
------------- ----------- -----------
Total.................................................. (2,795) (1,916) (882)
Operating Loss
Entertainment.............................................. (22,602) (18,278) (89,007)
Communications............................................. (23,880) (16,671) (6,209)
Other...................................................... (975) -- --
------------- ----------- -----------
Total.................................................. (47,457) (34,949) (95,216)
Interest Expense
Entertainment.............................................. (27,179) (31,280) (33,067)
Communications............................................. (3,727) (1,109) (348)
Other...................................................... (2,208) -- --
------------- ----------- -----------
Total.................................................. (33,114) (32,389) (33,415)
------------- ----------- -----------
Interest Income
Entertainment.............................................. 1,069 2,198 771
Communications............................................. 2,506 896 --
------------- ----------- -----------
Total.................................................. 3,575 3,094 771
Chapter 11 Reorganization Items.............................. (1,280) (1,610) (1,793)
Provision for Income Taxes................................... (767) (1,300) (2,100)
Equity in Joint Ventures..................................... (7,981) (2,257) (777)
Discontinued Operations...................................... (293,570) -- --
Early Extinguishment of Debt................................. (32,382) -- --
------------- ----------- -----------
Net Loss............................................... $(412,976) $ (69,411) $ (132,530)
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
- ------------
(1) See Note 1 to the "Notes to the Consolidated Financial Statements" of the
Company for the year ended December 31, 1995 included elsewhere in this
prospectus.
42
<PAGE>
MIG CONSOLIDATED--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Net loss decreased to $19.1 million in the three month period ended March
31, 1996 from $20.4 million for the three months ended March 31, 1995.
The decrease in the Company's consolidated loss of $1.3 million for the
three month period ended March 31, 1996 versus March 31, 1995 is primarily
attributable to decreases in operating losses at the Company's Entertainment
Group, partially offset by increases in operating losses at the Communications
Group, corporate overhead and equity in net losses of joint ventures.
The improvement in filmed entertainment's operations was a result of
writedowns of film inventory totaling approximately $5.4 million in the first
quarter of 1995 compared to nominal writedowns for 1996.
The Communications Group experienced increases in selling, general and
administrative expenses as it continues to expand its business. Corporate
overhead increased to $1.4 million in 1996 from zero in 1995 as a result of the
addition of Actava's corporate headquarters after the November 1 Mergers.
CALENDAR YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
1995
During calendar 1995, the Company reported a loss from continuing operations
of $87,024,000, a loss from discontinued operations of $293,570,000 and a loss
on extinguishment of debt of $32,382,000, resulting in a net loss of
$412,976,000. This compares to a net loss of $69,411,000 for fiscal 1995, all of
which came from continuing operations. The loss from continuing operations
increased by $17,613,000 from calendar 1995 as compared to fiscal 1995,
primarily a result of an increase in MITI's operating loss in calendar 1995. See
"The Communications Group--Results of Operations." The fiscal 1994 net loss of
$132,530,000 was from continuing operations.
The effect of the acquisitions of Actava and Sterling on calendar 1995
results of operations was to increase revenues by $198,000, increase selling,
general and administrative expenses by $1,551,000, and increase interest expense
by $2,208,000.
The calendar 1995 loss from discontinued operations represents the writedown
of the portion of the purchase price of the Company allocated to Snapper on
November 1, 1995 to its net realizable value.
The extraordinary loss on early extinguishment of debt in calendar 1995 was
due to the repayment and termination of the Orion Plan Debt, which was
refinanced with funds provided under the Existing Entertainment Group Credit
Facility and a noninterest bearing promissory note from MIG, and to the
charge-off of the unamortized discount associated with such obligations.
THE ENTERTAINMENT GROUP--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Revenues. Total revenues for the three months ended March 31, 1996 were
$27.6 million, a decrease of $8.9 million or 24% from the three months ended
March 31, 1995.
Theatrical revenues for the current quarter were $222,000, a decrease of
$289,000 or 57% from the previous year's first quarter. While operating under
the Plan, Orion's ability to produce or acquire additional theatrical product
was limited. This lack of product has negatively impacted theatrical revenues
and will continue to do so until Orion produces or acquires significant new
product for theatrical distribution.
Domestic home video revenues for the current quarter were $5.6 million, a
decrease of $3.6 million or 39% from the previous year's first quarter. The
decrease in domestic home video revenue was due primarily to Orion's reduced
theatrical release schedule in 1995 and 1994. Orion's reduced theatrical release
schedule in 1995 has had and will continue to have an adverse effect on home
video annual revenues until new product is available for distribution.
43
<PAGE>
Home video subdistribution revenues for the current quarter were $2.3
million, an increase of $2.2 million from the previous year's first quarter.
These revenues are primarily generated in the foreign marketplace through a
subdistribution agreement with Sony Pictures Entertainment, Inc. The increase
was primarily due to the release of the last titles under this agreement in some
major territories. All 23 pictures covered by this agreement have been released
theatrically. Orion's reduced theatrical schedule in 1995 has negatively
impacted home video subdistribution revenues and will continue to do so in the
future until Orion produces or acquires significant new product for
distribution.
Pay television revenues were $7.2 million in the current quarter, a decrease
of $2.6 million or 27% from the previous year's first quarter. The decrease in
pay television revenues which was primarily due to the availability of no titles
during 1996 in the domestic pay cable market compared to two titles during 1995
which was partially offset by an increase in the number of titles that became
available under the British Sky Broadcasting, Ltd. pay cable agreement in the
U.K. Orion's reduced theatrical release schedule in 1995 will continue to have
an adverse effect on future pay television revenues.
Free television revenues for the current quarter were $12.3 million, a
decrease of $4.6 million or 27% from the previous year's first quarter. In both
the domestic and international marketplaces, Orion derives significant revenue
from the licensing of free television rights. Orion's reduced theatrical release
schedule while operating under the Plan has had and will continue to have an
adverse effect on free television revenues.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses decreased $500,000 to $4.9 million during the first
quarter of 1996 from $5.4 million during the first quarter of 1995. The decrease
resulted from a reduction in insurance costs and outside computer consulting
costs.
Operating Loss. Operating loss decreased by $3.2 million in the current
quarter to ($2.6) million from an operating loss of ($5.8) million in the
previous year's first quarter. The 1995 results were adversely affected by
writedowns to estimated net realizable value of the carrying amounts on certain
film product totaling approximately $5.4 million for 1995 compared to nominal
writedowns for 1996. In addition, approximately two-thirds of Orion's film
inventories are stated at estimated realizable value and do not generate gross
profit upon recognition of revenues.
Interest Expense. Interest expense for the three months ended March 31, 1996
decreased by $4.6 million or 57% to $3.5 million, primarily due to the
refinancing of Orion's debt in connection with the November 1 Mergers including
the repayment and termination of the debt associated with the Plan. The average
debt outstanding and related average interest rates were $137.2 million at 8.3%
and $210.8 million at 12.2% for the three month periods ended March 31, 1996 and
1995, respectively.
CALENDAR YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
1995
Revenues. Total revenues for the calendar year ended December 31, 1995
("calendar 1995") were $133,812,000, a decrease of $57,432,000 or 30% from the
fiscal year ended February 28, 1995 ("fiscal 1995").
Theatrical revenues for calendar 1995 were $4,710,000, a decrease of
$4,259,000 or 47% from the previous year. While operating under the Plan,
Orion's ability to produce or acquire additional theatrical product was limited.
This lack of product has negatively impacted theatrical revenues and will
continue to do so until Orion produces or acquires significant new product for
theatrical distribution.
Domestic home video revenues for calendar 1995 were $39,982,000, a decrease
of $11,923,000 or 23% from the previous year. The decrease in domestic home
video revenue was due primarily to Orion's reduced theatrical release schedule
in calendar 1995. Orion had available only one of its theatrical releases for
sale to the domestic home video rental market in calendar 1995 compared to six
such titles in fiscal 1995. Orion's reduced theatrical release schedule in both
calendar 1995 and fiscal 1995 have had and will continue to have an adverse
effect on home video annual revenues until new product is available for
distribution.
44
<PAGE>
Home video subdistribution revenues for calendar 1995 were $3,935,000, a
decrease of $2,814,000 or 42% from fiscal 1995. These revenues are primarily
generated in the foreign marketplace through a subdistribution agreement with
Sony Pictures Entertainment, Inc. All 23 pictures covered by this agreement have
been released theatrically. Orion's reduced theatrical release schedule in
calendar 1995 and fiscal 1995 has negatively impacted home video subdistribution
revenues and will continue to do so in the future until Orion produces or
acquires significant new product for theatrical distribution.
Pay television revenues were $31,567,000 in calendar 1995, a decrease of
$29,333,000 or 48% from the previous year. The decrease in pay television
revenues was due to the availability of six titles during calendar 1995 in the
pay cable market compared to eleven titles during fiscal 1995. Orion's reduced
theatrical release schedule in calendar 1995 and fiscal 1995 will continue to
have an adverse effect on future pay television revenues.
Free television revenues for calendar 1995 were $53,618,000, a decrease of
$9,103,000 or 15% from the previous year. In both the domestic and international
marketplaces, Orion derives significant revenue from the licensing of free
television rights. Major international contracts in calendar 1995 that
contributed to revenues were with TV de Catalunya for rights in Spain, RTL Plus
for rights in Germany and Principal Network for rights in Italy. In fiscal 1995,
the most significant licensees were TV de Catalunya, Principal Network and
Mitsubishi for rights in Japan. Orion's reduced theatrical release schedule
while operating under the Plan has had and will continue to have an adverse
effect on free television revenues.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses increased $1,417,000 to $22,695,000 during calendar 1995
from $21,278,000 during fiscal 1995.
Operating Loss. Operating loss increased $4,324,000 in calendar 1995 to
($22,602,000) from an operating loss of ($18,278,000) in fiscal 1995. The most
significant contributions to Orion's fiscal 1995 operating results, which was
absent in calendar 1995, came from the recognition of significant domestic pay
television license fees pursuant to a settlement of certain litigation with
Orion's pay television licensee, Showtime Networks, Inc. (the "Showtime
Settlement"). The calendar 1995 and fiscal 1995 results were adversely affected
by writedowns to estimated net realizable value of the carrying amounts on
certain film product totaling approximately $13,400,000 for calendar 1995
compared to writedowns for fiscal 1995 totaling approximately $17,100,000. In
addition, approximately two-thirds of Orion's film inventories are stated at
estimated realizable value and do not generate gross profit upon recognition of
revenues.
Interest Expense. Interest expense decreased by $4,101,000 or 13% to
$27,179,000 for calendar 1995, primarily due to a decrease in the average amount
of debt outstanding. The average interest rates on average debt outstanding of
$189,349,000 and $233,376,000 in calendar 1995 and fiscal 1995 were 12.3% and
10.9%, respectively.
Extraordinary Loss. The extraordinary loss on early extinguishment of debt
in calendar 1995 resulted from the repayment and termination of substantially
all of Orion's indebtedness outstanding prior to the November 1 Mergers (the
"Plan Debt"), which indebtedness was refinanced with the proceeds of the
Existing Entertainment Group Credit Facility (as defined herein) and with a non-
interest bearing promissory note from MIG, together with the charge off of the
unamortized discount associated with such obligations.
FISCAL YEAR ENDED FEBRUARY 28, 1995 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28,
1994
Revenues. Total revenues for fiscal 1995 were $191,244,000, an increase of
$15,582,000 or 9% from the fiscal year ended February 28, 1994 ("fiscal 1994").
Theatrical revenues for fiscal 1995 were $8,969,000, a decrease of
$24,350,000 or 73% from the previous year. The decrease was due to the poor
performance of the five theatrical feature films released in the domestic
marketplace in fiscal 1995. While operating under the Plan, Orion's ability to
produce or acquire additional theatrical product was limited. Therefore, Orion
released in the domestic theatrical marketplace only those pictures that were
fully or substantially financed by Orion prior to the
45
<PAGE>
Filing Date. This lack of product has negatively impacted theatrical revenues
and will continue to do so until Orion produces or acquires new product for
theatrical distribution.
Domestic home video revenues for fiscal 1995 were $51,905,000, an increase
of $14,487,000 or 39% over the previous year. The increase in domestic home
video revenue was due primarily to the availability of six of Orion's theatrical
releases in the domestic home video rental market in fiscal 1995 compared to
only three releases in fiscal 1994. The Company's reduced theatrical release
schedule in fiscal 1995 and fiscal 1994 is likely to have an adverse effect on
future home video annual revenues.
Home video subdistribution revenues for fiscal 1995 were $6,749,000, a
decrease of $5,496,000 or 45% from the previous year. These revenues were
primarily generated in the foreign marketplace through a subdistribution
agreement with Sony Pictures Entertainment, Inc. All 23 pictures covered by this
agreement have been released theatrically. The Company's reduced theatrical
release schedule in fiscal 1995 and 1994 have begun to have and will continue to
have an adverse effect on future home video subdistribution revenues.
Pay television revenues were $60,900,000 in fiscal 1995, an increase of
$58,570,000 from the previous year due to the availability of eleven titles in
the pay cable market pursuant to the Showtime Settlement during fiscal 1995. Pay
television revenues for fiscal 1995 included approximately $46,000,000 from the
recognition of revenues relating to these eleven titles, including license fees
on seven titles that had been deferred from prior years. Revenues expected to be
recognized in future periods for the last five released titles under the
Showtime Settlement approximate $13,500,000.
Free television revenues for fiscal 1995 were $62,721,000, a decrease of
$27,629,000 or 31% from the previous year. The decrease was primarily due to
significant license fees from major networks in the United States that were
recognized in fiscal 1994 upon the availability of Dances With Wolves and
Silence of the Lambs and, to a lesser extent, two other pictures. No network
license fees were recognized in fiscal 1995 and it is anticipated that little or
no additional network license fees will be generated until new product is
produced or acquired.
In both the domestic and international marketplaces Orion derives
significant revenues from the licensing of free television rights. Major
international contracts in fiscal 1995 that contributed to revenues were with TV
de Catalunya for rights in Spain, Mitsubishi for rights in Japan and Principal
Network for rights in Italy. In fiscal 1994, the most significant licensees were
TV de Catalunya, Principal Network and TRL Plus for rights in Germany.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $21,278,000 during fiscal 1995, an increase of
$347,000 from fiscal 1994.
Operating Loss. Operating loss decreased $70,729,000 in fiscal 1995 to
$(18,278,000) from an operating loss of ($89,007,000) in fiscal 1994. The most
significant contributions to Orion's fiscal 1995 operating results came from the
recognition of significant domestic pay television license fees pursuant to the
Showtime Settlement. Orion's fiscal 1995 and fiscal 1994 results were both
adversely affected by writedowns to estimated net realizable value of the
carrying amounts on certain film product. Such writedowns totaled approximately
$17,100,000 for fiscal 1995 compared to approximately $94,600,000 for fiscal
1994. For fiscal 1994, the writedowns included an aggregate $76,000,000
attributed to reduced license fees as a result of the Showtime Settlement,
disappointing results of four pictures released that year, and additional
provisions on the five then unreleased pictures. In addition, approximately
two-thirds of Orion's film inventories are stated at estimated realizable value
and do not generate gross profit upon recognition of revenues.
Interest Expense. Interest expense fell by $1,787,000 or 5% to $31,280,000
for fiscal 1995, primarily due to a decrease in the average amount of debt
outstanding, though this decrease was partially offset by increased interest
rates. The average interest rate increased to 10.9% in fiscal 1995 from 9.4% in
fiscal 1994 on average debt outstanding of $233,376,000 and $279,506,000 in
fiscal 1995 and 1994, respectively.
46
<PAGE>
THE COMMUNICATIONS GROUP--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
Revenues. Revenues increased to $3.2 million in the three months ended March
31, 1996 from $1.1 million for the three months ended March 31, 1995. This
growth in revenues resulted primarily from an increase in radio operations in
Hungary and paging service operations in Romania. Revenue from radio operations
for the first three months of 1996 was $2.4 million as compared to $807,000 in
the first three months of 1995. Radio paging services generated revenues of
$576,000 for the first three months of 1996 as compared to $179,000 in the first
three months of 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $1.9 million or 36% for the three months
ended March 31, 1996 as compared to the three months ended March 31, 1995. The
increase from 1995 to 1996 relates principally to the hiring of additional staff
and additional expenses associated with the increase in the number of joint
ventures and the need for MITI to support and assist the operations of the joint
ventures as well as additional staffing at the radio station and radio paging
operations.
Interest Income. In 1994, MITI began to charge interest to the joint
ventures for credit facilities granted to the ventures by MITI. The interest was
charged at rates ranging from the prime rate to the prime rate plus two percent.
As a result of increasing advances to the joint ventures for their operating and
investing cash requirements, interest income earned under credit lines increased
to $1.1 million for the three months ended March 31, 1996 as compared to
$492,000 for the three months ended March 31, 1995.
Interest Expense. MITI incurred no interest expense for the three months
ended March 31, 1996 as compared to $931,000 for the three months ended March
31, 1995. There was no interest expense for the three months ended March 31,
1996 because all of MITI's borrowings were from its parent, MIG. The average
debt outstanding and related average interest rates was $30.9 million at 11.5%
for the three month period ended March 31, 1995.
Equity in Losses of Affiliated Joint Ventures. MITI accounts for the
majority of its joint venture investees under the equity method of accounting
since it generally does not exercise control of these ventures. Under the equity
method of accounting, MITI reflects the cost of its investments , adjusted for
its share of income or losses of the joint ventures, on its balance sheet and
reflects only its proportionate share of income or losses of the joint ventures
as a separate caption in its statement of operations.
MITI recognized equity in losses of joint venture investees of approximately
$1.8 million for the three months ended March 31, 1996 as compared to $588,000
for the three months ended March 31, 1995. The losses recorded for the three
months ended March 31, 1996 and 1995 represent MITI's equity in losses of the
venture operations for the three months ended December 31, 1995 and 1994,
respectively.
Equity in the losses of the joint ventures are generally reflected according
to the level of ownership of the joint venture by MITI until each joint
venture's contributed capital has been fully depleted. Subsequently, MITI
recognizes the full amount of losses generated by the joint venture since MITI
is generally the sole funding source for the joint ventures. MITI recognized
equity in losses of Joint Venture Investees of approximately $8.0 million in
1995, and $2.3 million in 1994.
The increase in losses of the Joint Venture Investees of $5.7 million from
1994 to 1995 is primarily attributable to increased losses incurred of $4.0
million as part of the expansion of cable TV operations, and a radio station in
Moscow with an increased loss of $1.3 million. As of September 30, 1995 there
were six cable TV ventures in operation as compared to four the prior year.
Within the cable TV operations, two ventures, in Moscow and Riga, incurred $2.1
million and $1.3 million, respectively of this increased loss. This was due to
one-time write downs of older equipment and additional expenses incurred for
programming and marketing related to expanding the services provided and
ultimately increasing the number of subscribers. All other cable TV operations,
including two new ventures and the expansion of two others that were in their
second year of operations contributed an increase of
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<PAGE>
$669,000 in losses. The increased loss experienced by the radio station was
attributable to a substantial revision in its programming format and the
creation of sales and related support staff needed to effectively compete in the
Moscow market. All other operations, including five paging entities, of which
three were started up in 1995, and one telephony operation, incurred increased
losses of $388,000.
As a result of the start up nature of many of the joint ventures, additional
losses are expected.
The losses recorded for 1995 represent MITI's equity in the losses of the
ventures for the twelve months ended September 30, 1995. On January 1, 1994,
MITI changed its policy of accounting for the joint ventures by recording its
equity in their losses based upon a three-month lag. Accordingly, results of
operations for the year ended December 31, 1995 reflect equity in losses of the
joint ventures for the period from October 1, 1994 to September 30, 1995.
Results of operations for the year ended December 31, 1994 reflect equity in
losses of the joint ventures for the period from January 1, 1994 to September
30, 1994. Had MITI applied this method from October 1, 1993, the effect on
reported operating results for the years ended December 31, 1994 would not have
been material.
Foreign Currency. MITI presently has limited foreign currency exposure as
virtually all revenues are billed and collected in United States dollars or an
equivalent local currency amount adjusted on a monthly basis for currency
fluctuation. MITI's joint ventures are generally permitted to maintain US dollar
accounts to service their dollar denominated credit lines, thereby significantly
reducing foreign currency exposure. As MITI and its joint venture investees grow
and become more dependent on local currency based transactions, MITI expects its
foreign currency risk and exposure to increase. MITI currently does not hedge
against foreign currency exchange rate risks.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 AND TO
YEAR ENDED DECEMBER 31, 1993
Separate comparisons of the results of operations of the Communications
segment (i) for the year ended December 31, 1995 compared to the year ended
December 31, 1994 and (ii) for the year ended December 31, 1994 compared to the
year ended December 31, 1993 are not included as MITI's results of operations
during the year ended December 31, 1993 were not material.
Revenues. Revenues increased to $5,158,000 in 1995 from $3,545,000 in 1994
and $51,000 in 1993. This growth in revenue from 1994 to 1995 resulted primarily
from an increase in radio operations in Hungary and paging operations in
Romania. However, in 1995 MITI changed its policy of consolidating these
operations by recording the related accounts and results of operations based on
a three month lag. As a result, the December 31, 1995 Consolidated Balance Sheet
includes the accounts for these operations at September 30, 1995 as compared to
the December 31, 1994 balances included in 1994, and the 1995 Statement of
Operations reflects nine months of these operations as compared to twelve months
for 1994. Had MITI applied this method from October 1, 1994, revenues would have
increased over the revenues reported but the net effect on the results of
operations would not have been material. Future years will reflect twelve months
of operations based upon a September 30th year end for operations that are
consolidated.
The increase in revenues from 1993 to 1994 was generated primarily from the
acquisition of MITI's radio operations in Hungary and the commencement of
operations of radio paging services in Romania in 1994. Revenue from radio
operations during 1995 was $3,878,000 as compared to $2,862,000 in 1994. Radio
paging services during 1995 generated revenues amounting to $690,000 as compared
to $266,000 in 1994. MITI did not generate significant revenue during 1993 since
none of the Joint Ventures or subsidiaries which are consolidated had then
commenced operations.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $7,530,000 or 40% in fiscal 1995 as
compared to fiscal 1994 and by $12,881,000 or 214% in fiscal 1994 as compared to
fiscal 1993. The increases relate principally to the hiring of additional staff
and expenses associated with the increase in the number of Joint Ventures and
the need for MITI to support and assist the operations of the Joint Ventures.
During 1995, MITI completed the staffing of its Vienna office and opened an
office in Hong Kong. During 1994, MITI completed the staffing of its
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Moscow office and opened its Vienna office. Furthermore, the commencement of
radio paging services in Romania and the acquisition of radio station operations
in Hungary accounted for $3,800,000 of the 1994 increase. In addition, included
in selling, general and administrative expenses for 1994 is $3,600,000 of
non-cash compensation expense relating to the granting of stock options to
MITI's Chief Executive Officer.
Interest Income. In 1994, MITI began to charge interest to the Joint
Ventures for credit facilities granted by MITI. The interest was charged at
rates ranging from the prime rate to the prime rate plus two percent in 1994 and
from the prime rate to the prime rate plus four percent in 1995. As a result of
increasing advances to the Joint Ventures for their operating and investing cash
requirements, interest income earned under credit lines increased to $2,506,000
for 1995 as compared to $896,000 for 1994. No interest was charged to the Joint
Ventures in 1993.
Interest Expense. Interest expense increased to $3,727,000 in 1995 from
$1,109,000 in 1994 and $348,000 in 1993, largely due to increased borrowings
from affiliates and others in order to finance the operations and investment
activities of MITI during these periods. The average interest rates on average
debt outstanding of $36,002,000, $11,846,000 and $9,043,000 in 1995, 1994 and
1993 were 9.9%, 9.4% and 3.6%, respectively.
Equity in Losses of Affiliated Joint Ventures. MITI accounts for the
majority of its Joint Ventures under the equity method of accounting since it
generally does not exercise control of these ventures. Under the equity method
of accounting, MITI reflects the cost of its investments, adjusted for its share
of the income or losses of the Joint Ventures, on its balance sheet and reflects
only its proportionate share of income or losses of the Joint Ventures in its
statement of operations. Additionally, MITI changed its policy of accounting for
the Joint Ventures in 1994 by recording the results of operations based on a
three month lag. As a result, the 1994 Consolidated Statement of Operations
reflects nine months of operations for the Joint Ventures compared to twelve
months for 1993. The 1995 statement of operations for the Joint Ventures
includes a full twelve months of activity based on a September 30 reporting
period, as will all future years.
MITI recognized equity in losses of its Joint Ventures of approximately
$7,981,000 in 1995, $2,257,000 in 1994 and $777,000 for 1993. Equity in the
losses of the Joint Ventures are generally reflected according to the level of
ownership of the Joint Venture by MITI until such Joint Venture's contributed
capital has been fully depleted. Subsequently, MITI recognizes the full amount
of losses generated by the Joint Venture since MITI is generally the sole
funding source of the Joint Ventures.
The increase in losses of the Joint Ventures of $5,724,000 from 1994 to 1995
is primarily attributable to losses of $4,047,000 incurred as part of the
expansion of its cable TV operations, and the opening of a radio station in
Moscow which resulted in a loss of $1,289,000. As of September 30, 1995 there
were six cable TV Joint Ventures in operation as compared to four in the prior
year. MITI's cable TV Joint Ventures in Moscow and Riga were responsible for
$2,075,000 and $1,303,000, respectively, of this increased loss. These losses
were due to one-time writedowns of older equipment and additional expenses
incurred for programming and marketing related to expanding the services
provided and ultimately increasing the number of subscribers. All other cable TV
operations, including two new ventures and the expansion of two others that were
in their second year of operations, increased losses by $669,000. The increased
loss experienced by the radio station in Moscow was attributable to a
substantial revision in its programming format and the establishment of sales
and related support staff needed to effectively compete in the Moscow market.
Losses from MITI's other operations, including five paging entities, three
of which were started up in 1995, and one telephony operation, increased by
$388,000 in 1995.
The increase in losses of its Joint Ventures of $1,480,000 from 1993 to 1994
was principally due to increased losses from cable TV operations of $1,086,000
and of $394,000 from all other operations. The cable TV losses were primarily
attributable to $884,000 in additional losses in Moscow, and $202,000 as a
result of the first full year of operations of two other Joint Ventures. The
remainder of $394,000 from
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all other entities is related to the first year of operations for new entities,
including the start up of one paging entity, one telephony operation and the
Moscow radio station.
As a result of the start up nature of many of the Joint Ventures, additional
losses are expected.
The losses recorded for 1995 represent MITI's equity in the losses of the
Joint Ventures for the twelve months ended September 30, 1995. On January 1,
1994, MITI changed its policy of accounting for the Joint Ventures by recording
its equity in their losses based upon a three month lag. Accordingly, results of
operations for the year ended December 31, 1995 reflect equity in losses of the
joint ventures for the period from October 1, 1994 to September 30, 1995.
Results of operations for the year ended December 31, 1994 reflect equity in
losses of the Joint Ventures for the period from January 1, 1994 to September
30, 1994. Had MITI applied this method from October 1, 1993, the effect on
reported operating results for the year ended December 31, 1994 would not have
been material.
Foreign Currency. MITI presently has limited foreign currency exposure as
virtually all revenues are billed and collected in United States dollars or an
equivalent local currency amount adjusted on a monthly basis for currency
fluctuation. MITI's Joint Ventures are generally permitted to maintain US dollar
accounts to service their dollar denominated credit lines, thereby significantly
reducing foreign currency exposure. As MITI and its Joint Ventures grow and
become more dependent on transactions based in local currencies, MITI expects
its foreign currency risk and exposure to increase. MITI currently does not
hedge against foreign currency exchange rate risks.
50
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BUSINESS
Special Note: Certain statements set forth below under this caption
constitute "forward-looking statements" within the meaning of the Reform Act.
See "Special Note Regarding Forward-Looking Statements" on page 86 for
additional factors relating to such statements.
ENTERTAINMENT GROUP
Through the Entertainment Group, MIG is engaged primarily in the
development, production, acquisition, exploitation and worldwide distribution in
all media of motion pictures, television programming and other filmed
entertainment product. MIG also holds a valuable library of over 2,000 film and
television titles, including Academy Award winning films such as Dances with
Wolves and Silence of the Lambs, action films such as the three-film RoboCop
series and classic motion pictures such as Wuthering Heights, The Pride of the
Yankees, Guys and Dolls and The Best Years of Our Lives. This library provides
MIG with a stable stream of cash flow to support its various production
operations. MIG has adopted a conservative theatrical production, acquisition
and distribution strategy consisting primarily of commercial and specialized
films, with well-defined target audiences in which MIG's portion of the
production cost generally ranges from $5 million to $10 million per picture. The
Entertainment Group's management has significant experience in the production of
motion picture and television entertainment and was responsible for producing
the recent box-office success Dumb and Dumber and the Academy Award winning The
Madness of King George. MIG also owns what management believes is the leading
specialty theatre circuit with 52 motion picture theatres with a total of 140
screens located in the United States.
Strategies
MIG intends to further enhance the value of the Entertainment Group's assets
by (i) exploiting its valuable film and television library, (ii) expanding its
production of feature films and (iii) enhancing the value of its theatre
circuit.
Exploiting the Existing Library
MIG expects its film and television library to generate significant cash
flow from its existing, long-term distribution contracts and further
exploitation of its library in traditional domestic and international media,
such as free and pay television and home video. In addition, MIG will also
benefit from several factors which are expected to contribute to an increase in
the demand for MIG's programming. These factors include: (i) the emergence of
technological advances; (ii) the marketing of MIG's titles in new geographic
markets; and (iii) the impact of MIG's expanded feature film production.
MIG has historically been successful in selling its library titles to the
free and pay television and home video markets. These markets are expected to
continue to experience significant growth, primarily as a result of
technological advances and the expansion of the multi-channel television
industry worldwide. The emergence of digital compression, video-on-demand,
direct-to-home-broadcasting, DVD and other new technologies is expected to
increase the worldwide demand for entertainment programming largely by
increasing existing transmission capabilities and by increasing the percentage
of the population which can access multi-channel television systems. With an
extensive library which contains a variety of film and television titles, MIG
believes it is well-positioned to benefit from this anticipated increase in
demand for programming.
In addition to continuing to market its library in countries with
established multi-channel television industries such as the United Kingdom and
France, MIG intends to aggressively market its library in new international
markets in which the multi-channel television industry has recently emerged or
is in the early stages of development.
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MIG also expects that the marketability and value of its existing library
will increase as MIG expands its new feature film production operations, which
will enable MIG to market these films together with titles already in its
library.
Expanding Motion Picture Production
MIG has adopted a conservative theatrical production, acquisition and
distribution strategy which it believes will generate more stable cash flows
than the approach of the major motion picture studios. MIG intends to produce or
acquire and release 10 to 14 theatrical features per year, consisting primarily
of commercial and specialized films with a well-defined target audience and
marketing campaign and generally with MIG's portion of the production cost
generally ranging from $5.0 million to $10.0 million each. MIG also expects to
spend between $4.0 million and $8.0 million in domestic print and advertising
costs for each film it produces or acquires. This production strategy has been
followed and is based on MPCA's prior success, including the performance of its
commercially successful films such as Dumb and Dumber and Threesome. MIG also
plans to continue to be a leader in the production, acquisition and distribution
of specialized motion pictures and art films, including those films management
believes may have crossover commercial potential. This strategy has been
followed by Goldwyn and is based on its success with such films as Much Ado
About Nothing, The Madness of King George, Eat Drink Man Woman and Angels and
Insects. In addition, the Entertainment Group intends to continue to co-produce
(with limited financial exposure to the Entertainment Group) larger budget
movies with major studios. For example, Goldwyn is currently producing, in
conjunction with Walt Disney Pictures, The Preacher's Wife, starring Denzel
Washington and Whitney Houston and directed by Penny Marshall. Goldwyn has a
gross profit participation in this film. In order to expand its production
capabilities and minimize its exposure to the performance of any particular
film, MIG intends to finance a significant portion of each film's budget by
pre-licensing foreign distribution rights. Furthermore, certain MIG executives
will, on behalf of MIG, enter into "producer-for-hire" agreements with other
studios for which MIG and such executives will receive a fee.
As of April 30, 1996, MIG has scheduled for domestic theatrical release the
following motion pictures during the year ending December 31, 1996.
<TABLE>
<CAPTION>
TITLE DIRECTOR CAST DESCRIPTION
- ------------------- ------------------ ------------------ -------------------------------
<S> <C> <C> <C>
American Buffalo Michael Corrente Dustin Hoffman Based on the popular and
Dennis Franz influential David Mamet play, a
Sean Nelson powerfully emotional and funny
story of a planned and botched
coin theft.
August Anthony Hopkins Anthony Hopkins Oscar-winning actor Anthony
Kate Burton Hopkins makes his directorial
Hugh Lloyd debut with this film which
Rhoda Lewis transposes Anton Chekov's stage
Leslie Phillips classic Uncle Vanya, to a
northern Welsh village.
I Shot Andy Warhol Mary Harron Stephen Dorff A riveting portrait of the
Martha Plimpton lesbian revolutionary who
Jared Harris almost
Lili Taylor killed Andy Warhol, and a
Lothaire Bluteau tribute to the true King of Pop
Anna Thompson and the world surrounding him.
Lucky Break Ben Lewis Gia Cerides A sophisticated and bawdy tale
Anthony LaPaglia of a passionate affair with
Rebecca Gibney physical mishaps, set in a
world where everybody is
slightly impaired and with an
unforgettable photo finish.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
TITLE DIRECTOR CAST DESCRIPTION
- ------------------- ------------------ ------------------ -------------------------------
<S> <C> <C> <C>
Maybe . . . Maybe Sonke Wortmann Til Schweiger A hilarious look at infidelity
Not Katja Reimann and mistaken sexual identity as
Joachim Krol an achingly handsome but skirt
Rufus Beck chasing boyfriend gets
entangled in a web of
miscommunications and
misinterpreted situations.
Napoleon Mario Andrecchio In this live action adventure,
an adorable puppy gets lost in
the wild Australian outback.
Befriended by exotic animals,
Napoleon overcomes his fears
and discovers the magic of
nature.
Oh Mary This London Suri Krishnamurna Jason Barry A poignant and dramatic tale
Uba Seagrave from the author of My Left
Foot. Based on actual
incidents, this sometimes
comical, sometimes tragic film
has a powerful emotional
charge.
Original Gangstas Larry Cohen Jim Brown A contemporary action- adventure
Fred Williamson set in Gary, Indiana with a
Pam Grier soundtrack to include music
Richard Roundtree from a number of popular rap
Ron O'Neal groups.
Paul Winfield
Isabelle Sanford
Palookaville Alan Taylor William Forsythe Three young men embrace crime
Adam Trese as a temporary change of
Vincent Gallo lifestyle and the solution to
unemployment.
Phat Beach Doug Ellin Jermaine Hopkins The unprecedented hip hop beach
Brian Hooks comedy involving the comedic
Claudia Kalcem misadventures of two friends
during their summer break.
The Substitute Robert Mandel Tom Berenger A mercenary goes undercover as
Ernie Hudson a substitute teacher after his
Diane Venora girlfriend is brutally attacked
Glenn Plummer by a gang of students. In an
Marc Anthony effort to uncover her
attackers, he soon discovers a
city wide drug ring that has
infiltrated the school and put
the entire student body in
jeopardy and in a war with the
criminals.
The Arrival David Twohy Charlie Sheen A sci-fi thriller that revolves
Ron Silver around an unassuming scientist
Lindsay Crouse who becomes the only thing that
Teri Polo stands between our civilization
and certain destruction when he
investigates an unusual
shockwave from outer space and
discovers a team of
extraterrestrials poised to
take over the world.
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
TITLE DIRECTOR CAST DESCRIPTION
- ------------------- ------------------ ------------------ -------------------------------
<S> <C> <C> <C>
Trees Lounge Steve Buscemi Anthony LaPaglia Revolves around Tommy Basilio,
Chloe Sevigny who loses his job and his
Mimi Rogers girlfriend to his best friend.
Daniel Baldwin But he manages to stumble
Carol Kane across friendship, inspiration,
and a strange kind of truth in
the last place he expected, the
local bar.
</TABLE>
- ------------
Enhance the Value of its Theatrical Exhibition Assets
MIG believes it is the largest exhibitor of specialized motion pictures and
art films in the United States. The Entertainment Group's theatre circuit
currently consists of 52 theatres with a total of 140 screens. MIG's strategy is
to: (i) expand in existing and new major markets through internal growth and
acquisitions, (ii) upgrade and multiplex existing locations where there is
demand for additional screens and (iii) continue to reduce operating and
overhead costs as a percentage of revenue.
Entertainment Group Overview
The Entertainment Group derives its revenue from the distribution of its
product theatrically and in ancillary markets such as home video, pay and free
television throughout the world and from the exhibition of feature films in
MIG's theatres.
Production, Acquisition and Distribution
Theatrical Production, Acquisition and Distribution. MIG intends to
emphasize the production and acquisition of commercial films at significantly
lower than average industry costs. MIG believes that it can successfully control
costs and increase returns by carefully selecting projects that: (i) are based
on exploitable concepts, such as action-adventure and specialized motion
pictures; (ii) are aimed at and cost-effectively marketed to specific niche
audiences; (iii) employ affordable, well-recognized or emerging talent; and (iv)
fit within pre-established cost/performance criteria. MIG also currently plans
to avoid peak seasonal release periods such as early summer, Christmas and other
holidays, when competition for screens is most intense and marketing costs are
highest. MIG plans to continue acquiring product from independent producers for
distribution on a fee basis with no investment other than recoupable
distribution costs. MIG's acquisition program contemplates output arrangements
with producers and the acquisition of existing catalogs, as well as film-by-film
acquisitions.
Home Video Distribution. In addition to releasing its new product, MIG will
continue to exploit titles from its existing library, including previously
released rental titles, re-issued titles and initially released titles, in the
expanding sell-through and premium market sectors and through arrangements with
mail-order and other selected licensees. In addition to distribution in the
traditional videocassette sector, MIG also intends to pursue opportunities to
distribute its library in video discs (see "--The United States Motion Picture
Industry Overview--Emerging Technologies" below) and other emerging multimedia
formats. MIG will continue to act as exclusive U.S. distributor for Streamline
Pictures, a leading supplier of the increasingly popular Japanese anime genre,
and to provide exclusive distribution services for Major League Baseball home
video product and the Fox-Lorber catalog of foreign language and specialty
films.
Television Production and Distribution. MIG's television distribution
involves licensing its film and television library to both pay television
services as well as the free television market. MIG is currently negotiating
services and is in the process of nationwide sales of various syndication
packages to independent television stations and the non-traditional networks.
Such syndication packages will be offered with unpackaged library titles, on a
market-by-market basis. MIG also plans to expand its exploration of
opportunities to produce original programming, including talk and game shows,
for pay television, basic cable, first-run syndication and the non-traditional
networks. MIG has historically engaged in the production and licensing of
television series for first run syndication. MIG has produced
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and syndicated seven seasons of the athletic competition series American
Gladiators and has produced and syndicated one season of the series The New
Adventures of Flipper, a remake of its classic series Flipper. MIG intends to
continue to produce television product for the first run syndication market, for
cable networks and for foreign broadcasts. MIG does not intend to produce
deficit-financed television programming for the domestic networks.
Distribution in Foreign Markets. MIG distributes its existing library in
traditional media and established markets outside of the United States and
Canada, while actively pursuing new areas of exploitation. MIG intends to
aggressively market its library in (i) new international markets in which the
multi-channel television industry has recently emerged or is in the early stages
of development, and (ii) territories which have not been reached by privatized
free television, cable television, home video and other traditional media, but
where the industry is expected to develop in the future. MIG will also explore
opportunities to acquire and distribute new product in overseas markets, adding
freshness and value to the library. Other strategies include the acquisition of
foreign language programming for foreign distribution in combination with the
English language library product.
Exhibition
MIG believes that its theatre circuit, with 140 screens in 52 theatres, is
the largest exhibitor of specialized motion pictures and art films in the United
States. The operation of these theatres provides MIG with relatively stable cash
flows and allows MIG to participate in revenues from the exhibition of its films
as well as films produced and distributed by others. MIG intends, on an
opportunistic basis, to acquire additional screens in its existing markets and
to expand into new markets that the Company considers to be among the primary
markets for the exhibition of specialized and art films.
MIG currently operates theatres in 19 cities in California, Colorado,
Louisiana, Massachusetts, Minnesota, Ohio, Texas, Washington and Wisconsin. MIG
emphasizes the exhibition of specialized motion pictures and art films and
commercial films with literary and artistic components which appeal to the
specialized film audience. The seating capacity for all theaters operated by MIG
is approximately 40,000, of which 52% is in theatres located in California. The
following table summarizes the location and number of theatres and screens
operated by MIG:
<TABLE>
<CAPTION>
LOCATION THEATERS SCREENS
- -------------------------------------------------------- -------- -------
<S> <C> <C>
Belmont, California..................................... 1 3
Berkeley, California.................................... 5 16
Los Angeles, California................................. 3 7
Newport Beach, California............................... 1 1
Oakland, California..................................... 1 3
Palo Alto, California................................... 4 6
Pasadena, California.................................... 1 1
Sacramento, California.................................. 2 6
San Diego, California................................... 5 9
San Francisco, California............................... 6 15
Denver, Colorado........................................ 3 8
New Orleans, Louisiana.................................. 2 5
Cambridge, Massachusetts................................ 1 9
Minneapolis, Minnesota.................................. 2 6
Cleveland, Ohio......................................... 1 3
Dallas, Texas........................................... 1 3
Houston, Texas.......................................... 2 6
Seattle, Washington..................................... 9 28
Milwaukee, Wisconsin.................................... 2 5
-- -------
52 140
-- -------
-- -------
</TABLE>
55
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The exhibition of first-run specialized motion pictures and art films is a
niche in the film exhibition business that is distinct from the exhibition of
higher budget, wide-release films. For the most part, specialized motion
pictures and art films are marketed by different distributors and exhibited in
different theatres than commercial films produced by the major studios.
Exhibitors of wide-release films typically must commit a substantial percentage
of their screens to a small number of films. In contrast, exhibitors such as MIG
typically show approximately 30 to 40 different films on their screens at any
given time.
In the normal course of its business, MIG opens new theatres in promising
locations and closes theatres that are not performing well or for which it may
not be feasible to renew the lease. During the twelve months ended March 31,
1996, MIG added 3 theatres with a total of 17 screens and closed one theatre
with a total of two screens.
Competition and Seasonality
All aspects of the Entertainment Group's operations are conducted in a
highly competitive environment. To the extent that MIG seeks to distribute the
films contained in its library or acquire or produce product, MIG will need to
compete with many other motion picture distributors, including the "majors,"
most of which are larger and have substantially greater resources, film
libraries and histories of obtaining film properties, as well as production
capabilities and significantly broader access to distribution and exhibition
opportunities. Many of MIG's competitors have substantially greater assets and
resources. By reason of their resources, these competitors may have access to
programming that would not generally be available to MIG and may also have the
ability to market programming more extensively than MIG.
Distributors of theatrical motion pictures compete with one another for
access to desirable motion picture screens, especially during the summer,
holiday and other peak movie-going seasons, and several of MIG's competitors in
the theatrical motion picture distribution business have become affiliated with
owners of chains of motion picture theatres. In addition, program suppliers of
home video product compete for the open to buy dollars of video specialty stores
and mass merchant retailers. A larger portion of these dollars are designated
for megahit theatrically based sell-thru titles, video games and other
entertainment media. The success of all the Entertainment Group's product is
heavily dependent upon public taste, which is both unpredictable and susceptible
to change.
Although there are no other nationwide exhibitors of specialty motion
pictures, MIG faces direct competition in each market from local or regional
exhibitors of specialized motion pictures and art films. To a lesser degree, MIG
also competes with other types of motion picture exhibitors. Other
organizations, including the national and regional circuits, major studios,
production companies, television networks and cable companies are or may become
involved in the exhibition of films comparable to the type of films exhibited by
MIG. Many of these companies have greater financial and other resources than
MIG. As a result of new theater development and conversion of single-screen
theatres to multiplexes, there is an increasing number of motion picture screens
in the geographic areas in which MIG operates. At the same time, many motion
picture exhibitors have been merging or consolidating their operations,
resulting in fewer competitors with an increased number of motion picture
screens competing for the available pictures. This combination of factors may
tend to increase competition for films that are popular with the general public.
MIG also competes with national and regional circuits and independent exhibitors
with respect to attracting patrons and acquiring new theatres.
The United States Motion Picture Industry Overview
The United States motion picture industry encompasses the production and
theatrical exhibition of feature-length motion pictures and the subsequent
distribution of such pictures in home video, television and other ancillary
markets. The industry is dominated by the major studios, including Universal
Pictures, Warner Bros., Twentieth Century Fox, Sony Pictures Entertainment
(including Columbia
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Pictures, Tri-Star Pictures and Sony Classics), Paramount Pictures and The Walt
Disney Company (including Buena Vista, Touchstone Pictures, Hollywood Pictures
and Miramax), which historically have produced and distributed the majority of
theatrical motion pictures released annually in the United States. The major
studios generally own their production studios and have national or worldwide
distribution organizations. Major studios typically release films with
production costs ranging from $20,000,000 to $50,000,000 or more and provide a
continual source of motion pictures to the nation's theatre exhibitors.
In recent years, "independent" motion picture production companies played an
important role in the production of motion pictures for the worldwide feature
film market. The independents do not own production studios and have more
limited distribution capabilities than the major studios, often distributing
their product through "majors." Independents typically produce fewer motion
pictures at substantially lower average production costs than major studios.
Several of the more prominent independents, including Miramax and New Line, were
acquired by large entertainment companies, giving them access to greater
financial resources.
Motion Picture Production and Financing
The production of a motion picture begins with the screenplay adaptation of
a popular novel or other literary work acquired by the producer or the
development of an original screenplay having its genesis in a story line or
scenario conceived of or acquired by the producer. In the development phase, the
producer typically seeks production financing and tentative commitments from a
director, the principal cast members and other creative personnel. A proposed
production schedule and budget also are prepared during this phase.
Upon completing the screenplay and arranging financial commitments,
pre-production of the motion picture begins. In this phase, the producer (i)
engages creative personnel to the extent not previously committed; (ii)
finalizes the filming schedule and production budget; (iii) obtains insurance
and secures completion guarantees; (iv) if necessary, establishes filming
locations and secures any necessary studio facilities and stages; and (v)
prepares for the start of actual filming. Principal photography, the actual
filming of the screenplay, may extend from six to twelve weeks or more,
depending upon such factors as budget, location, weather and complications
inherent in the screenplay.
Following completion of principal photography, the motion picture is edited,
optical, dialogue, music and any special effects are added, and voice, effects
and music sound tracks and picture are synchronized during post-production. This
results in the production of the negative from which the release prints of the
motion picture are made.
The cost of a theatrical motion picture produced by an independent
production company for limited distribution ranges from approximately $4,000,000
to $10,000,000 as compared with an average of approximately $30,000,000 for
commercial films produced by major studios for wide release. Production costs
consist of acquiring or developing the screenplay, film studio rental,
cinematography, post-production costs and the compensation of creative and other
production personnel. Distribution expenses, which consist primarily of the
costs of advertising and release prints, are not included in direct production
costs and vary widely depending on the extent of the release and nature of the
promotional activities.
Independent and smaller production companies generally avoid incurring
substantial overhead costs by hiring creative and other production personnel and
retaining the other elements required for pre-production, principal photography
and post-production activities on a project-by-project basis. Unlike the major
studios, the independents and smaller production companies also typically
finance their production activities from discrete sources. Such sources include
bank loans, pre-sales, co-productions, equity offerings and joint ventures.
Independents generally attempt to complete their financing of a motion picture
production prior to commencement of principal photography, at which point
substantial production costs begin to be incurred and must be paid.
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<PAGE>
Pre-sales are used by independent film companies and smaller production
companies to finance all or a portion of the direct production costs of a motion
picture. Pre-sales consist of fees paid to the producer by third parties in
return for the right to exhibit the motion picture when completed in theaters or
to distribute it in home video, television, foreign or other ancillary markets.
Producers with distribution capabilities may retain the right to distribute the
completed motion picture either domestically or in one or more foreign markets.
Other producers may separately license theatrical, home video, television,
foreign and all other distribution rights among several licensees.
Both major studios and independent film companies often acquire motion
pictures for distribution through a customary industry arrangement known as a
negative pickup, under which the studio or independent film company agrees to
acquire from an independent production company all rights to a film upon
completion of production. The independent production company normally finances
production of the motion picture pursuant to financing arrangements with banks
or other lenders in which the lender is granted a security interest in the film
and the independent production company's rights under its arrangement with the
studio or independent. When the studio or independent picks up the completed
motion picture, it assumes the production financing indebtedness incurred by the
production company in connection with the film. In addition, the independent
production company is paid a production fee and generally is granted a
participation in the net profits from distribution of the motion pictures.
Motion Picture Distribution
Motion picture distribution encompasses the distribution of motion pictures
in theaters and in ancillary markets such as home video, pay-per-view, pay
television, broadcast television, foreign and other markets. The distributor
typically acquires rights from the producer to distribute a motion picture in
one or more markets. For its distribution rights, the distributor typically
agrees to advance the producer a certain minimum royalty or guarantee, which is
to be recouped by the distributor out of revenues generated from the
distribution of the motion picture and is generally nonrefundable. The producer
also is entitled to receive a royalty equal to an agreed-upon percentage of all
revenues received from distribution of the motion picture in excess of revenues
covered by the royalty advance.
Theatrical Distribution
The theatrical distribution of a motion picture involves the manufacture of
release prints, the promotion of the picture through advertising and publicity
campaigns and the licensing of the motion picture to theatrical exhibitors. The
size and success of the promotional advertising campaign can materially affect
the revenues realized from the theatrical release of a motion picture. The costs
incurred in connection with the distribution of a motion picture can vary
significantly, depending on the number of screens on which the motion picture is
to be exhibited and the ability to exhibit motion pictures during peak
exhibition seasons. Competition among distributors for theaters during such peak
seasons is great. Similarly, the ability to exhibit motion pictures in the most
popular theaters in each area can affect theatrical revenues.
The distributor and theatrical exhibitor generally enter into a license
agreement providing for the exhibitor's payment to the distributor of a
percentage of the box office receipts for the exhibition period, in some cases
after deduction of the theater's overhead, or a flat negotiated weekly amount.
The distributor's percentage of box office receipts generally ranges from an
effective rate of 35% to over 50%, depending upon the success of the motion
picture at the box office and other factors. Distributors carefully monitor the
theaters which have licensed the picture to ensure that the exhibitor promptly
pays all amounts due the distributor. Substantial delays in collections are not
unusual.
Motion pictures may continue to play in theaters for up to six months
following their initial release. Concurrently with their release in the United
States, motion pictures generally are released in Canada
58
<PAGE>
and may also be released in one or more other foreign markets. Typically, the
motion picture then becomes available for distribution in other markets as
follows:
<TABLE>
<CAPTION>
MONTHS AFTER APPROXIMATE
INITIAL RELEASE RELEASE PERIOD
-------------------- -------------------
<S> <C> <C>
Domestic home video.............. 4-6 months --
Domestic pay-per-view............ 6-9 months 3 months
Domestic pay television.......... 10-18 months 12-21 months
Domestic network or basic
cable.......................... 30-36 months 18-36 months
Domestic syndication............. 30-36 months 3-15 years
Foreign home video............... 6-12 months --
Foreign television............... 18-24 months 3-12 years
</TABLE>
Home Video
Home video distribution consists of the promotion and sale of videocassettes
and videodiscs to local, regional and national video retailers which rent or
sell such products to consumers primarily for home viewing.
Pay-Per-View
Pay-per-view television allows cable television subscribers to purchase
individual programs, including recently released motion pictures and live
sporting, music or other events, on a "per use" basis. The subscriber fees are
typically divided among the program distributor, the pay-per-view operator and
the cable system operator.
Pay Television
Pay television allows cable television subscribers to view HBO, Cinemax,
Showtime, The Movie Channel, Encore and other pay television network programming
offered by cable system operators for a monthly subscription fee. The pay
television networks acquire a substantial portion of their programming from
motion picture distributors.
Broadcast and Basic Cable Television
Broadcast television allows viewers to receive, without charge, programming
broadcast over the air by affiliates of the major networks (ABC, CBS, NBC and
Fox), independent television stations and cable and satellite networks and
stations. In certain areas, viewers may receive the same programming via cable
transmission for which subscribers pay a basic cable television fee.
Broadcasters or cable systems operators pay fees to distributors for the right
to air programming a specified number of times.
Foreign Markets
In addition to their domestic distribution activities, some motion picture
distributors generate revenues from distribution of motion pictures in foreign
theaters, home video, television and other foreign markets. There has been a
dramatic increase in recent years in the worldwide demand for filmed
entertainment. This growth is largely due to the privatization of television
stations, introduction of direct broadcast satellite services, growth of home
video and increased cable penetration.
Other Markets
Revenues also may be derived from the distribution of motion pictures to
airlines, schools, libraries, hospitals and the military, licensing of rights to
perform musical works and sound recordings embodied in a motion picture, and
rights to manufacture and distribute games, dolls, clothing and similar
commercial articles derived from characters or other elements of a motion
picture.
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<PAGE>
Emerging Technologies
Video-On-Demand. Perhaps the most important advance in the last five years
has been the development of the video-on-demand technology through the creation
of digital video compression. Digital compression involves the conversion of the
analog television signal into digital form and the compression of more than one
video signal into one standard channel for delivery to customers. Compression
technology will be applied not only to cable but to satellite and over-the-air
broadcast transmission systems. This offers the opportunity to dramatically
expand the capacity of current transmission systems. Several telecommunications
companies are currently testing trial video-on-demand systems. These include
Bell Atlantic, Time Warner, Telecommunications, Inc. and Pacific Telesis.
DVD. Another new technology that has emerged is the video CD or "digital
variable disc." Just as compact discs have become the dominant medium for
prerecorded music, DVD is expected to become a widely-accepted format for home
video programming.
DBS. Direct Broadcast Satellite (DBS) technology also offers a new
transmission technology. As the major delivery system for premium television
services in Europe, particularly in the U.K., DBS is expected to expand the pay
television market in the United States.
COMMUNICATIONS GROUP
Through the Communications Group, MIG intends to capitalize on the demand,
which developed in the late 1980s and early 1990s, for modern communications
systems in Eastern Europe and other emerging markets. MIG owns interests in and
participates along with local business and governmental partners in the
management of joint ventures which operate a variety of communications services
in certain countries in Eastern Europe and certain of the former Soviet
Republics. MIG's joint ventures typically cover markets which have large
populations and strong economic potential, but lack reliable and efficient
communications services. MIG also targets markets where systems can be
constructed with relatively low capital investments and where multiple
communications services can be offered to the population.
MIG owns interests in and participates along with local entities in the
management of joint ventures which operate and/or are constructing: (i) 10
wireless cable television systems with combined households of approximately 9.0
million; (ii) 8 paging systems with combined target populations of approximately
79.5 million; (iii) an international toll calling service in the Republic of
Georgia covering a population of approximately 5.5 million; (iv) 4 trunked
mobile radio systems with an aggregate target population of approximately 88.0
million; and (v) 5 radio stations in 7 cities reaching combined target
households of approximately 8.6 million in Hungary, Russia and Latvia. The
Communications Group recently purchased for $2.6 million (plus rights to acquire
up to a maximum of $500,000 worth of common stock) 56% of a U.K. company that
has ownership interests in 9 companies providing trunked mobile radio services
in certain cities in Portugal, Spain, Belgium and Germany. The Company is also
pursuing licenses for similar services in other emerging markets, where the
economies are expanding, including the Pacific Rim. In addition, the
Communications Group has entered into a definitive agreement to acquire 80% of a
Company operating a radio station in Prague, Czech Republic.
MIG believes that the performance of its existing joint ventures has
demonstrated that there is significant demand for these services in its license
areas. Many of the joint ventures are in the early stages of constructing and/or
marketing their services, and MIG expects to significantly increase its
subscriber and customer bases as these businesses mature. In addition, as one of
the first entrants into these markets, MIG believes that it has developed a
reputation for providing quality service and has formed important relationships
with local entities. As a result, MIG believes it is well positioned to
capitalize on opportunities to provide additional communications services in its
markets as licenses are awarded.
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<PAGE>
For a summary of the joint ventures' markets and existing projects, their
status, MIG's direct or indirect ownership interest, the year such projects
became operational, the population or number of households in the ventures'
market and the amounts loaned to such venture by MIG and contributed to such
projects by MIG, see "- Communications Group Overview - Markets" below.
Strategies
MIG's strategy is to grow its subscriber and customer bases, as well as its
revenues and cash flows by (i) completing the build out of existing license
areas; (ii) pursuing additional licenses in existing markets and (iii) obtaining
new licenses in attractive markets.
Completing Build Out of Existing License Areas
The Communications Group was formed to capitalize on the demand, which
developed in the late 1980s and early 1990s, for modern communications systems
in Eastern Europe. Since its formation in 1990, the Communications Group has
been aggressively investing in joint ventures to obtain communications licenses
in underserved markets. Many of the Communications Group's operating companies
are currently in various stages of constructing their systems. MIG intends to
accelerate the build out of those areas requiring additional construction and
believes that, as a result of the Company's use of wireless technology, a
significant portion of this build out can be completed at a significantly lower
cost than wired technology.
Pursuing Additional Licenses in Existing Markets
MIG is pursuing opportunities to provide additional communications services
in regions in which it currently operates. This strategy will enable MIG to more
efficiently utilize its existing infrastructure and to capitalize on marketing
opportunities by bundling its services. MIG expects to benefit from its
knowledge of and experience with local governments, laws and customs in pursuing
such opportunities. MIG believes that in the markets in which it currently
provides certain of its services, the Company typically has several significant
competitive advantages that will enable it to obtain licenses for and
successfully operate additional services in these markets. These competitive
advantages include (i) established relationships with local joint venture
partners; (ii) established relationships with consumers; and (iii) a fundamental
understanding of the region's political, economic and cultural issues.
Obtaining New Licenses in Attractive Markets
MIG is actively pursuing investments in joint ventures to obtain new
licenses for wireless cable television, paging, wireless telephony and radio
broadcast projects in markets in which it presently does not have any licenses.
MIG intends to target emerging markets with strong economic potential which lack
adequate communications services. MIG has identified several attractive
opportunities in Eastern Europe and the Pacific Rim, and recently began to
provide cable services in Bucharest, Romania and paging services in St.
Petersburg, Russia. In evaluating whether to enter a new market, MIG assesses,
among other factors, the (i) potential demand for MIG's services and the
availability of competitive services; (ii) strength of local partners; and (iii)
political, social and economic environment.
Communications Group Overview
Markets
A summary, as of May 1, 1996, of the Communications Group's markets and
existing projects, their status, MIG's direct or indirect ownership interest in
each such project, the year such projects became operational, the population or
number of households in the project's market, the amount of capital loaned to
such projects by MIG and contributed to such projects by MIG is detailed in the
chart below:
61
<PAGE>
<TABLE>
<CAPTION>
DIRECT
OR INDIRECT HOUSEHOLD/ AMOUNT LOANED
OWNERSHIP YEAR POPULATION TO PROJECT
MARKET AND PROJECTS(15) STATUS INTEREST OPERATIONAL (IN MILLIONS)(1) (IN THOUSANDS)(2)
-------------------------------------- ------------------- -------------- ----------- ---------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
. MOSCOW, RUSSIA
Wireless Cable Television............. Operational 50.0% 1992 3.5 $ 8,881
FM Radio (2 Frequencies).............. Operational 51.0 1994(3) 3.5 1,838
. TBILISI, GEORGIA
Wireless Cable Television............. Operational 49.0 1993 0.5 3,520
International Toll Calling Operational 30.0 1994 5.5 --
(Nationwide) (4)......................
Paging................................ Operational 45.0 1994 5.0(5) 475
. RIGA, LATVIA
Wireless Cable Television............. Operational 50.0 1992 0.4 8,184
Paging (Nationwide)................... Operational 50.0 1995(6) 2.7 1,268
FM Radio.............................. Operational 55.0 1995(7) 0.4 35
Cellular Telephony (Nationwide)....... Licensed 24.5 -- 2.8 --
. TASHKENT, UZBEKISTAN
Wireless Cable Television............. Operational 50.0 1993 1.2 3,360(12)
Paging................................ Operational 50.0 1994 23.1(5) --
Wireless Local Loop Telephony......... License pending 50.0 -- 2.1 --
. ESTONIA
Paging................................ Operational 39.1 1993 1.5 2,535
. BUCHAREST, ROMANIA
Wireless Cable Television............. Operational 99.0 1996 0.9 786
Paging................................ Operational 54.1 1993 23.0(5) 2,324
Trunked Mobile Radio.................. Operational 54.1 1995 2.1 448
. KISHINEV, MOLDOVA
Wireless Cable Television............. Operational 50.0 1994 0.3 1,346
. ALMATY, KAZAKHSTAN
Wireless Cable Television............. Operational 50.0 1995 0.8 1,016
Paging................................ Operational 50.0 1995 17.4(5) 245
. ST. PETERSBURG, RUSSIA
Wireless Cable Television............. Under contract 45.0 -- 9.0 --
AM Radio.............................. Operational 50.0 1995(8) 0.9 --
FM Radio.............................. Operational 50.0 1995(8) 0.9 429
Paging................................ Operational 40.0 1995(9) 5.5 --
. NIZHNY NOVGOROD, RUSSIA
Paging................................ Operational 45.0 1994 2.8 52
. MINSK, REPUBLIC OF BELARUS
Wireless Cable Television............. Under construction 50.0 -- 0.3 518
. BUDAPEST, SIOFOK, AND KHEBEGY,
HUNGARY
AM Radio.............................. Operational 100.0 1994(10) 3.5(11) 948(13)
FM Radio (2 Frequencies).............. Operational 100.0 1994(10)
. SOCHI, RUSSIA
FM Radio.............................. Operational 51.0 1995 0.3 85
. VILNIUS, LITHUANIA
Wireless Cable Television............. Under construction 55.0 -- 0.2 --
. BATUMI, GEORGIA
Paging................................ Licensed, under 35.0 -- 0.5 --
construction
<CAPTION>
AMOUNT
CONTRIBUTED
TO PROJECT
(IN THOUSANDS)(2)
-----------------
<S> <C>
.
$ 1,093
823
.
779
2,556
250
.
819
250
140
--
.
580(12)
--
--
.
396
.
682
490
--
.
400
.
222
2
.
--
--
133
527
.
330
.
400
.
8,107(13)
.
185
.
81
.
-- (14)
</TABLE>
- ------------
(1) Covered population is provided for paging, telephony and trunk mobile radio
systems and covered households for wireless cable television and radio
systems.
(2) Represents amounts loaned and contributed as of December 31, 1995.
(3) Purchased equity of existing operational company in 1994; the company was
formed in 1991.
(4) Provides international toll calling services between the entire Republic of
Georgia and the rest of the world and is the only Intelsat designated
representative in Georgia to provide such services.
(5) Indicates population the Communications Group intends to cover in the
foreseeable future. In each of the foregoing markets, the Communications
Group covers the capital city and is currently expanding the services of
such operations to cover additional cities.
(6) Purchased equity of existing company in 1995; the company was formed in
1994.
(7) Purchased equity of existing operational company in 1995; the company was
formed in 1993.
(8) Purchased equity of existing operational company in 1995; the company was
formed in 1993.
(9) Purchased equity of existing company in 1995; the company was formed in
1994.
(10) Purchased equity of existing operational company in 1994; the company was
formed in 1989.
(11) Total household coverage of AM and FM radio.
(12) Reflects amounts loaned and contributed to all projects in Tashkent,
Uzbekistan.
(13) Reflects amounts loaned and contributed to all projects in Hungary.
(14) The Communications Group contributed $63,450 to the equity of this project
after December 31, 1995.
(15) Does not give effect to the consummation on May 17, 1996 of an acquisition
of 56% of a United Kingdom company holding interests in 9 companies
providing trunked mobile radio services in certain cities in Portugal,
Spain, Belgium and Germany or the purchase of 80% of a company operating a
radio station in Prague, Czech Republic in which the Communications Group
has not yet competed the acquisition of its ownership interest.
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The markets which MIG targets for its services typically (i) have large
populations; (ii) have strong economic potential; (iii) are usually the capital
city of a country, republic or province; and (iv) are easily accessible to the
Communications Group's central offices. MIG believes that most of its markets
have a concentration of educated people who desire quality entertainment, sports
and news as well as reliable and efficient communications services. As principal
cities of their respective countries, republics or provinces, these markets are
in many cases home to a significant number of foreign diplomats, businessmen and
advisors who MIG anticipates will often become premium service customers.
MIG believes that the vast majority of the political, social and economic
leaders of these markets recognize the importance of communications as a means
to modernizing their societies. In the Communications Group's markets, the
breadth of television programming is somewhat limited and there exists a demand
for quality entertainment and news programming. Additionally, the antiquated
telephone systems in many of these markets do not have the capacity to
adequately serve residents. MIG believes that its systems can provide a solution
to these problems because: (i) MIG's wireless cable television and AM and FM
broadcast services will provide a wide selection of quality entertainment,
sports broadcasting, educational programming, and international news at an
affordable rate to both local and foreign residents; (ii) MIG's wireless
telephony services will be a comparatively low-cost means of quickly providing
intra-country communications as well as telephone access to the rest of the
world using international satellite links; and (iii) MIG's alphanumeric and
digital display paging services will be a dependable and efficient means to
communicate one-way without the need for a recipient to access a telephone
network, which is often overloaded or unavailable. MIG is not aware of any
significant governmental restrictions with respect to broadcasting time or
program content in its existing cable television and radio broadcasting markets
which may have a material adverse effect on MIG and its operations in these
markets.
In most cities where MIG provides or expects to provide service, a
substantial percentage of the population (approximately 90% in Moscow) lives in
large apartment buildings. This characteristic lowers the cost of installation
and eases penetration of wireless cable television and wireless telephony
services into a city, because a single microwave receiving location can bring
service to a large number of people. MIG currently is licensed to provide
wireless cable television to markets which have in the aggregate approximately
9.0 million households, and paging services in markets with a population
totaling approximately 79.5 million. MIG believes that the cost of constructing
a coaxial cable television system covering the same number of households as are
covered by each of MIG's systems would be significantly more expensive than the
costs incurred by MIG in constructing a wireless system.
MIG has obtained political risk insurance from OPIC for its operating cable
television systems in Moscow, Riga, Tbilisi and Tashkent and for its
international toll calling joint venture which operates in the Republic of
Georgia and may endeavor to obtain OPIC insurance for additional systems which
are eligible for such insurance. OPIC is a United States governmental agency
which provides United States investors with insurance against expropriation,
political violence and loss of business income in more than 130 developing
nations. Subject to the exclusions provided for in the contract of insurance,
OPIC insurance provides coverage up to certain policy limits for loss of
investment in a joint venture due to expropriation by foreign governments or
political violence. In some ventures, the policy also covers loss of business
income resulting from political violence. Risks not related to expropriation or
political violence are not covered by OPIC insurance. OPIC insurance does not
cover loss of investment related to non-payment of principal and/or interest on
any loan extended to any joint venture and/or joint venture project unless such
non-payment was caused by an expropriation by a foreign government or political
violence. The Communications Group currently has outstanding a significant
amount of loans to its joint ventures. MIG currently has expropriation and
political violence insurance coverage with OPIC in the amount of (i) $2,800,000
with respect to its Moscow cable television system; (ii) $2,200,000 with respect
to its Riga cable television system; (iii) $3,000,000 with respect to its
Tbilisi cable television system; (iv) $2,000,000 with respect to its Tashkent
cable television system and (v) $2,858,000 with respect to its international
toll calling joint venture in the Republic of Georgia. MIG currently has loss of
business income insurance with OPIC in the amount of (i) $1,500,000 with respect
to its Moscow cable television system; (ii) $1,000,000 with respect to its Riga
cable television system; and (iii) $550,000 with respect to its Tbilisi cable
television system. MIG is also currently
63
<PAGE>
eligible to purchase additional expropriation and political violence insurance
and loss of business income insurance from OPIC with respect to these systems.
There can be no assurance that any insurance obtained by MIG from OPIC will
adequately compensate MIG for any losses it may incur or that MIG will elect to
obtain or be able to obtain OPIC insurance for any of its additional systems or
renew existing policies. See "RISK FACTORS - Risk to the Communications Group
Inherent in Foreign Investment."
Joint Ventures
After deciding to obtain an interest in a particular communication business,
MIG generally enters into discussions with the appropriate Ministry of
Communications or local parties which have interests in communications
properties in a particular market. If the negotiations are successful, a joint
venture agreement is entered into and is registered, and the right to use
frequency licenses is contributed to the joint venture by MIG's local partner or
is allocated by the appropriate governmental authority to the joint venture. In
the case of MIG's radio station operations, MIG has, in many cases, directly
purchased companies with an operating radio station or an ownership interest in
a joint venture which operates a radio station.
Generally, MIG owns approximately 50% of the equity in a joint venture with
the balance of such equity being owned by a local entity, often a
government-owned enterprise. In 1995, the Russian Federation Legislature
proposed, but did not enact legislation, which would limit the interest which a
foreign person is permitted to own in entities holding broadcasting licenses. If
legislation is enacted in Russia or any of MIG's other markets limiting foreign
ownership of broadcasting licenses and MIG is required to reduce its interests
in any of the ventures in which it owns an interest, it is unclear how such
reduction would be effected. See "RISK FACTORS--Risks to the Communications
Group Inherent in Foreign Investment."
Each joint venture's day-to-day activities are managed by a local management
team selected by its board of directors or its shareholders. The operating
objectives, business plans, and capital expenditures of a joint venture are
approved by the joint venture's board of directors, or in certain cases, by its
shareholders. In most cases, an equal number of directors or managers of the
joint venture are selected by MIG and its local partner. In other cases, a
differing number of directors or managers of the joint venture may be selected
by MIG on the basis of the percentage ownership interest of MIG in the joint
venture.
In many cases, the credit agreement pursuant to which MIG loans funds to a
joint venture provides MIG with the right to appoint the general manager of the
joint venture and to approve unilaterally the annual business plan of the
venture. These rights continue so long as amounts are outstanding under the
credit agreement. In other cases, such rights may also exist by reason of MIG's
percentage ownership interest in the joint venture or under the terms of the
joint venture's governing instruments.
MIG's joint ventures are limited liability entities which are permitted to
enter into contracts, acquire property and assume and undertake obligations in
their own names. Because the joint ventures are limited liability companies, the
joint ventures' equityholders have limited liability to the extent of their
investment. Under the joint venture agreements, each of MIG and the local joint
venture partner is obligated to make initial capital contributions to the joint
venture. In general, a local joint venture partner does not have the resources
to make cash contributions to the joint venture. In such cases, MIG has
established or plans to establish an agreement with the joint venture whereby,
in addition to cash contributions by MIG, each of MIG and the local partner
makes in-kind contributions (usually communications equipment in the case of MIG
and frequencies, space on transmitting towers and office space in the case of
the local partner), and the joint venture signs a credit agreement with MIG
pursuant to which MIG loans the venture certain funds. Typically, such credit
agreements provide for interest payments to MIG at MIG's current cost of
borrowing in the United States and for payment of principal and interest from
90% of the joint venture's available cash flow prior to any pro rata
distributions to MIG and the local partner. As of March 31, 1996, MIG had
obligations to fund (i) an additional $0.3 million to the equity of its joint
ventures (or to complete the payment of shares purchased by MIG) and (ii) up to
an additional $12.3 million to fund the various credit lines MIG has extended to
its joint ventures. MIG's funding commitments under such credit lines are
contingent upon
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<PAGE>
its approval of the joint ventures' business plans. To the extent that MIG does
not approve a joint venture's business plan, MIG is not required to provide
funds to such joint venture under the credit line. After the full repayment of
the loan owed by the joint venture to MIG, the distributions (including profits)
from the joint venture to MIG and the local partner are made on a pro rata basis
in accordance with their respective ownership interests.
Services to and Payments from Joint Ventures
In addition to loaning funds to the joint ventures, MIG often provides
certain services to many of the joint ventures. MIG currently charges certain
ventures for services provided by it. MIG often does not require start-up joint
ventures to reimburse it for certain services that MIG provides such as
engineering advice, assistance in locating programming, and assistance in
ordering equipment. As each joint venture grows, MIG institutes various payment
mechanisms to have the joint venture reimburse it for such services where they
are provided. The failure of MIG to obtain reimbursement of such services will
not have a material impact on MIG.
Under existing legislation in certain of MIG's markets, distributions from a
joint venture to its partners will be subject to taxation. The laws in MIG's
markets vary markedly with respect to the tax treatment of distributions to
joint venture partners and such laws have also recently been revised
significantly in many of MIG's markets. There can be no assurance that such laws
will not continue to undergo major changes in the future which could have a
significant negative impact on MIG and its operations.
Marketing
MIG targets its wireless cable television service toward foreign national
households, embassies, foreign commercial establishments, international and
local hotels, local households and local commercial establishments. Paging
services are targeted toward people who spend a significant amount of time
outside of offices, have a need for mobility, or are business people without
ready access to telephones. Paging market segments include the local police, the
military, foreign and local business people and embassy personnel.
Radio station programming is targeted toward 25 to 55 year old consumers,
who are believed by management of MIG to be the most affluent in the emerging
societies of Eastern Europe and the former Soviet Republics. Each station's
format is intended to appeal to the particular listening interests of this
consumer group in its market. This is intended to enable the commercial sales
departments of each joint venture to present to advertisers the most desirable
market for their products and services, thereby heightening the value of the
station's commercial advertising time. Advertising on these stations is sold to
local and international advertisers.
Development of Communications Systems
Wireless Cable Television. Wireless cable television is a technology
experiencing rapid growth worldwide. In the United States, wireless cable
television, also referred to as MMDS (multichannel, multi-point distribution
service), is gaining acceptance as a competitor to coaxial cable service. In
addition, the service has low installation and maintenance costs relative to
coaxial cable services.
Each of MIG's wireless cable television systems is expected to operate in a
similar manner. Various programs, transmitted to satellite transponders, will be
received by the joint venture's satellite dishes located in a central facility.
The signal will then be transmitted to a video switching system located in the
joint venture's facilities, generally near the city's main transmission tower.
Other programs, such as movies, will be combined into a predetermined set of
channels and fed to solid state, self-diagnostic transmitters and antennae
located on the transmission tower. Encrypted multichannel signals will then be
broadcast as far as 50 kilometers in all directions.
The specialized compact receiving antenna systems, installed on building
rooftops as part of the system, will receive the multiple channel signals
transmitted by the transmission tower antennae and convert and route the signals
to a set-top converter and a television receiver via a coaxial cabling system
within the building. The set-top converter descrambles the signal and is also
used as a channel selector to augment televisions having a limited number of
channels.
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Wireless Cable Television Programming. MIG currently offers English, French,
German and Russian language programming, with plans to expand into other
languages as demand increases. Some of MIG's channels are dubbed and others are
subtitled into the local language. Generally, MIG's "basic" service provides
programming of local off-air channels and an additional five to six channels
with a varied mixture of European or American sports, music, international news
or general entertainment. MIG's "premium" service generally includes the
channels which make up its basic service as well as an additional number of
satellite channels and a movie channel that offers recent and classic movies,
which feature such actors as Robert De Niro, Candice Bergen, Charles Bronson and
Sean Connery.
MIG's programming options currently include news channels such as BBC World,
CNN International, Sky News and Euronews, music, sports and entertainment
channels such as BBC Prime, MTV Europe, Eurosport, TNT/Cartoon Network, NBC
Super Channel and Discovery Channel Europe and a movie channel.
MIG currently offers "Pay Per View" movies on its Baltcom cable television
system which operates in Riga, Latvia and is planning in the future to add such
service to its program lineups in certain of its other markets. The subscriber
pays for "Pay Per View" services in advance, and the intelligent decoders that
MIG uses automatically deduct the purchase of a particular service from the
amount paid in advance.
Paging. MIG's paging systems represent a moderately priced service which is
complementary to telephony. Alphanumeric and digital display paging systems are
useful in Eastern European countries, the former Soviet Republics and other
emerging markets for sending information one-way without the need for a
recipient to access a telephone network, which in many of these markets are
often overloaded or unavailable.
MIG offers service with three types of pagers: (i) tone only, which upon
encoded signaling produces several different tones depending on the code
transmitted; (ii) digital display, which emits a variety of tones and permits
the display of up to 16 digits; and (iii) alphanumeric, which emits a variety of
tones and displays as many as 63 characters. Subscribers may also purchase
additional services, such as paging priority, group calls and other options.
As an adjunct to paging services, the joint ventures operate 24-hour service
bureaus to receive calls and record and transmit messages. In addition,
automatic paging messages are accepted from personal computers, telex machines
and cellular telephones.
AM and FM Radio. Programming in each of MIG's AM and FM markets is designed
to appeal to the particular interests of a specific demographic group in such
markets. Although MIG's radio programming formats are constantly changing,
programming generally consists of popular music from the United States, Western
Europe, and the local area. News is delivered by local announcers in the
language appropriate to the region, and announcements and commercials are
locally produced. By developing a strong listenership base comprised of a
specific demographic group in each of its markets, MIG believes it will be able
to attract advertisers seeking to reach these listeners. MIG believes that the
technical programming and marketing expertise that it provides to its joint
ventures enhances the performance of the joint ventures' radio stations.
International Toll Calling. MIG owns approximately 30% of Telecom Georgia.
Telecom Georgia handles all international calls inbound to and outbound from the
Republic of Georgia to the rest of the world. Telecom Georgia is currently
making interconnect arrangements with several international long distance
carriers such as Sprint and Telespazio of Italy. For every international call
made to the Republic of Georgia, a payment will be due to Telecom Georgia by the
interconnect carrier and for every call made from the Republic of Georgia to
another country, Telecom Georgia will bill its subscribers and pay a destination
fee to the interconnect carrier.
Trunked Mobile Radio. MIG's Romanian joint venture provides trunked mobile
radio services in certain areas in Romania. MIG also recently purchased a 56%
interest in Protocall Ventures, Ltd., a U.K. company with ownership interests in
trunked mobile radio systems operating in Portugal, Spain, Belgium and Germany.
Trunked mobile radio systems are primarily designed to provide mobile voice
communications among members of user groups and interconnection to the public
switched telephone
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network. Trunked mobile radio systems are commonly used by taxi companies,
construction teams, security services and other groups with need for significant
internal communications.
Wireless Telephony. MIG is currently exploring a number of investment
opportunities in wireless telephony systems in a number of countries in Eastern
Europe, the former Soviet Republics, including Uzbekistan and Georgia, and the
emerging markets in the Pacific Rim and has installed test systems in certain of
these markets. MIG believes that its proposed wireless telephony systems are a
time and cost effective means of improving the communications infrastructure in
Eastern Europe, the former Soviet Republics and emerging markets in the Pacific
Rim. The current telephone systems in these markets are antiquated and
overloaded, and consumers in these markets typically must wait several years to
obtain telephone service.
MIG's proposed fixed wireless local loop telephony offers the current
telephone service provider a rapid and cost effective method to expand their
service base. The system eliminates the need to build additional fixed wire line
infrastructure by utilizing a microwave connection directly to the subscriber.
Competition
Wireless Cable
Most of MIG's current cable television competitors in its markets are
undercapitalized, small, local companies that are providing limited programming
to their subscribers. MIG does not, however, have or expect to have exclusive
franchises with respect to its cable television operations and may therefore
face more significant competition in the future from highly capitalized entities
seeking to provide services similar to MIG's in its markets. MIG also encounters
competition in some markets from unlicensed competitors which may have lower
operating expenses and may be able to provide cable television service at lower
prices than MIG. MIG currently competes in all of its markets with over-the-air
broadcast television stations. MIG is also aware that equipment is being
manufactured for the purpose of unlawfully receiving and decoding encrypted
signals transmitted by wireless cable television ventures. MIG believes that it
has thus far only experienced unlawful receipt of its signal on a limited basis
with respect to certain of its wireless cable television services. In addition,
another possible source of competition for MIG are videotape cassettes. MIG's
wireless cable also competes with individual satellite dishes.
Paging
In some of MIG's paging markets, MIG has experienced and can expect to
continue to experience competition from existing small, local, paging operators
who have limited areas of coverage and from, in some cases, paging operators
established by Western European and United States investors with substantial
experience in paging. MIG also faces competition from a segment of radio paging
operations utilizing FM Subcarrier Frequency transmissions. The local phone
systems are also considered to be a significant competitor to MIG's paging
operations. MIG does not have or expect to have exclusive franchises with
respect to its paging operations and may therefore face more significant
competition in the future from highly capitalized entities seeking to provide
services similar to MIG's in its markets.
Wireless Telephony
While the existing wireline telephone systems in Eastern Europe and the
former Soviet Republics are often antiquated, the fact that these systems are
already well-established and operated by governmental authorities means that
they are a source of competition for MIG's proposed wireless telephony
operations. In addition, one-way paging service may be a competitive alternative
which is adequate for those who do not need a two-way service, or it may be a
service that reduces wireless telephony usage among wireless telephony
subscribers. MIG does not have or expect to have exclusive franchises with
respect to its wireless telephony operations and may therefore face more
significant competition in the future from highly capitalized entities seeking
to provide services similar to or competitive with MIG's in its markets. In
certain markets, cellular telephone operators exist and represent a competitive
alternative to MIG's proposed wireless telephony and cellular systems. A
cellular telephone can be operated in the same manner as a wireless loop
telephone in that either type of service can simulate the conventional telephone
service by providing local and international calling from a fixed position in
its
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service area. Both services are connected directly to a telephony switch
operated by the local telephone company and therefore can initiate calls to or
receive calls from anywhere in the world currently served by the international
telephone network. Cellular telephony and wireless loop telephony eliminate the
need for trenching and laying of wires for telephone services and thus deploy
telephone service quickly and cost effectively. Wireless loop technology
utilizes radio frequencies, instead of copper or fiber optic cable, to transmit
between a central telephone switch and a subscriber's building. Cellular
telephony enables a subscriber to move from one place in a city to another while
using the service while wireless loop telephony is intended to provide fixed
telephone services which can be deployed as rapidly as cellular telephony and at
a lower cost.
FM and AM Radio
In each of MIG's existing markets, there are either a number of stations in
operation already or plans for competitive stations to be in service shortly. As
additional stations are constructed and commence operations, MIG expects to face
significantly increased competition for listeners and advertising revenues from
parties with programming, engineering and marketing expertise comparable to
MIG's. Other media businesses, including broadcast television, cable television,
newspapers, magazines and billboard advertising also compete with MIG's radio
stations for advertising revenues.
ENVIRONMENTAL MATTERS
Certain of the Company's former operations have used or generated, and
Snapper continues to use or generate, substances or wastes that are regulated or
may be deemed hazardous under applicable Environmental Laws. From time to time,
the Company's operations have resulted or may result in certain noncompliance
with applicable requirements under Environmental Laws. See "Risk Factors--
Environmental Matters." The Company also may incur liability pursuant to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA" or "Superfund"), for contamination at or from sites to
which it may have sent hazardous wastes. Courts have interpreted CERCLA to
impose strict, joint and several liability upon all persons liable for response
costs at a hazardous waste disposal site if the harm at the site is indivisible.
This generally means that each responsible party could be held liable for the
entire costs of the necessary response actions at a Superfund site. As a
practical matter, however, at sites where there are multiple responsible parties
for a cleanup, the costs of cleanup typically are allocated, according to a
volumetric or other standard, among the parties. CERCLA also provides that
responsible parties generally may seek contribution for the costs of cleaning up
a site from other responsible parties. Thus, if one party is required to clean
up an entire site, that party can seek reimbursement or recovery of such costs
from other responsible parties.
In that regard, certain predecessors or former subsidiaries of the Company
have been identified as potentially responsible parties ("PRPs") pursuant to
CERCLA at seven sites to which such entities, among others, sent hazardous
wastes. In divesting one such subsidiary, the Company provided indemnification
to the purchaser pursuant to which the Company has undertaken the defense or
payment of cleanup costs, as appropriate, for five such Superfund matters. The
Company believes that its obligations with respect to three of the seven sites
have been completed. Furthermore, the costs incurred by the Company with respect
to all such matters have not been significant, and the Company has established
reserves (which are currently at $1.3 million), that, together with certain
anticipated offsets from the purchaser for other matters relating to the
purchase, it believes will be sufficient to cover the remaining, as well as any
future, such environmental obligations. As a result, the Company does not
believe that such matters will have a material adverse effect upon the Company's
results of operations or financial condition. However, because neither the final
total cleanup costs at the four remaining Superfund sites have been ascertained
nor the former subsidiary's final proportionate share determined, there can be
no assurance that such matters, or any similar liabilities that arise in the
future, will not ultimately have such an effect.
In addition, a wholly-owned subsidiary of the Company is undertaking a
cleanup at a contaminated site, which was formerly used for the storage of
manufacturing wastes. In anticipation of site cleanup, the Company established
reserves of $1.8 million for the cleanup of this site. In early 1996, the site
was targeted by the State of Alabama Department of Environmental Management
("ADEM") for cleanup.
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Since that time, the Company has undertaken site investigations, submitted a
remediation plan to ADEM, and has engaged in ongoing discussions with ADEM for
the cleanup and closure of the site. The Company believes that it has reached
agreement with ADEM regarding remediation at the site. Based on cost estimates
for the anticipated remediation, the Company believes that the previously-
established reserves for this site will be adequate to cover the costs of
remediating the property. However, because the agreement between the Company and
ADEM and the remediation plan for the site are not yet final, and because it is
possible that the remediation costs could be higher than estimated, there can be
no assurance that the reserves in fact will be adequate to cover the remediation
at the site. Nonetheless, the Company does not believe that the final cleanup
costs for the site will have a material adverse effect upon the Company's
results of operations or financial condition.
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MANAGEMENT
The executive officers of the Company and certain executive officers of the
Company's subsidiaries and their respective ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---- --- ------
<S> <C> <C>
John W. Kluge............................. 81 Chairman
Stuart Subotnick.......................... 54 Vice Chairman
John D. Phillips.......................... 53 President and Chief Executive Officer
Silvia Kessel............................. 45 Senior Vice President, Chief Financial
Officer and Treasurer
Arnold L. Wadler.......................... 52 Senior Vice President, General Counsel and
Secretary
W. Tod Chmar.............................. 42 Senior Vice President
Robert A. Maresca......................... 61 Senior Vice President (Chief Accounting
Officer)
Communications Group:
Carl C. Brazell........................... 55 Co-President of MITI
Richard J. Sherwin........................ 52 Co-President of MITI
Entertainment Group:
Samuel Goldwyn, Jr........................ 69 Chairman of Goldwyn
Meyer Gottlieb............................ 56 President and C.O.O. of Goldwyn
Bradley R. Krevoy......................... 39 Co-President of MPCA
Steven Stabler............................ 41 Co-President of MPCA
Leonard White............................. 56 President and Chief Executive Officer of
Orion
</TABLE>
The following is a biographical summary of the experience of the executive
officers of the Company and certain executive officers of the Company's
subsidiaries.
MR. KLUGE has served as Chairman of the Board of Directors of MIG since the
consummation of the November 1 Mergers and as Chairman of the Board of Orion
since 1992. In addition, Mr. Kluge
has served as Chairman and President of Metromedia Company and its
predecessor-in-interest, Metromedia, Inc. for over five years. Mr. Kluge is also
a director of The Bear Stearns Companies, Inc., WorldCom, Inc. (formerly LDDS
Communications, Inc.), Occidental Petroleum Corporation and Conair Corporation.
Mr. Kluge is Chairman of MIG's Executive Committee.
MR. SUBOTNICK has served as Vice Chairman of the Board of Directors of MIG
since the consummation of the November 1 Mergers and as Vice Chairman of the
Board of Orion since November 1992. In addition, Mr. Subotnick has served as
Executive Vice President of Metromedia Company and its predecessor-in-interest,
Metromedia, Inc., for over five years. Mr. Subotnick is also a director of
Carnival Cruise Lines, Inc. and WorldCom, Inc. Mr. Subotnick is Chairman of the
Audit Committee and a member of the Executive and Nominating Committees of MIG.
MR. PHILLIPS has served as President and Chief Executive Officer of MIG
since April 19, 1994 and was elected to the Board of Directors of MIG and to the
Executive Committee on the same date. Mr. Phillips served as Chief Executive
Officer of Resurgens Communications Group, Inc. from May 1989 until Resurgens
was merged with Metromedia Communications Corporation and WorldCom, Inc. in
September 1993. Mr. Phillips also serves as a director of Restor Industries,
Inc. and Roadmaster Industries, Inc.
MS. KESSEL has served as Senior Vice President, Chief Financial Officer and
Treasurer of MIG since the consummation of the November 1 Mergers, as Executive
Vice President of Orion since January 1993, Senior Vice President of Metromedia
since 1994 and President of Kluge & Company since January 1994. Prior to that
time, Ms. Kessel served as Senior Vice President and a Director of
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Orion from June 1991 to November 1992 and Managing Director of Kluge & Company
(and its predecessor) from April 1990 to January 1994. Ms. Kessel also serves as
a director of WorldCom, Inc. Ms. Kessel is a member of the Nominating Committee
of MIG.
MR. WADLER has served as Senior Vice President, General Counsel and
Secretary of MIG since the consummation of the November 1 Mergers, as a Director
of Orion since 1991 and as Senior Vice President, Secretary and General Counsel
of Metromedia Company for over five years. Mr. Wadler is Chairman of the
Nominating Committee of MIG.
MR. CHMAR was elected to the position of Senior Vice President of the
Company on June 10, 1994. Mr. Chmar served as a partner in the law firm of Long,
Aldridge & Norman from January 1985 until September 1993.
MR. MARESCA has served as a Senior Vice President of MIG since November 1,
1995. Mr. Maresca has served as a Senior Vice President--Finance of Metromedia
Company for the prior five years.
MR. BRAZELL has served as Co-President and Director of MITI and a
predecessor company since 1993. Prior to that, Mr. Brazell served as President
and Chief Executive Officer of Command Communications, Inc., an owner of radio
properties, and prior to that served in various capacities in the radio
broadcasting industry, including serving as President of the radio division of
Metromedia, Inc., the predecessor-in-interest to Metromedia Company.
MR. SHERWIN has served as Co-President and Director of MITI and a
predecessor company since October 1990. Prior to that, Mr. Sherwin served as the
Chief Operating Officer of Graphic Scanning Corp., a paging and wireless
telecommunications company.
MR. GOLDWYN founded Goldwyn in 1979 and has been its Chairman of the Board
of Directors and Chief Executive Officer since that time. Mr. Goldwyn has been
involved in the filmed entertainment business his entire adult life and has
produced a number of feature films. Mr. Goldwyn is also a prize-winning
documentary producer, an Emmy Award-winning television producer, a writer for
theatrical motion pictures and television, and a director. Mr. Goldwyn has
served as a member of the Board of Governors of the Academy of Motion Picture
Arts and Sciences.
MR. GOTTLIEB, Chief Operating Officer and a Director of Goldwyn since 1979
and President of Goldwyn since 1987 assisted Mr. Goldwyn in creating the
business plan which resulted in the founding of Goldwyn. From 1975 to 1979, Mr.
Gottlieb was associated with Mr. Goldwyn in various executive positions in the
motion picture production and distribution organization that was the predecessor
to Goldwyn. Mr. Gottlieb is a member of the Academy of Motion Picture Arts and
Sciences.
MR. KREVOY is the Co-Chairman of Motion Picture Corporation of America. From
the inception of Motion Picture Corporation of America in 1985 until the
present, Mr. Krevoy has presided over all aspects of MPCA's film production and
corporate management, sharing duties with Steven Stabler. Mr. Krevoy's recent
production credits include Dumb and Dumber, If Lucy Fell, Bio-dome and
Threesome. Prior to MPCA, Mr. Krevoy served as Executive Vice President of
Concorde Pictures, and President of Concorde Pictures International, overseeing
the completion of more than 200 motion pictures. Mr. Krevoy is a member of the
executive branch of the Academy of Motion Picture Arts and Sciences.
MR. STABLER is the Co-Chairman of Motion Picture Corporation of America.
From the inception of Motion Picture Corporation of America in 1985 until the
present, Mr. Stabler has presided over all aspects of MPCA's film production and
corporate management, sharing duties with Bradley R. Krevoy, Mr. Stabler's
production credits include Dumb and Dumber, If Lucy Fell, Bio-dome and
Threesome. Prior to that, Mr. Stabler spent two years working in both the News
and Network Operations Departments of ABC Television. Mr. Stabler is currently a
member of the Directors' Guild of America and the Academy of Motion Picture Arts
and Sciences.
MR. WHITE has served as President and Chief Executive Officer of Orion from
March 1992 through November 1, 1995. He served as interim president and Chief
Executive Officer of Orion from March 1992 until November 1992. Prior to that,
Mr. White was the Chairman of the Board and the Chief Executive Officer of Orion
Home Entertainment Corporation, a subsidiary of Orion ("OHEC"), from March 1991
until March 1992 and President and Chief Operating Officer of Orion Home Video
Division of OHEC from March 1987 until March 1991.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the pro forma beneficial ownership of Common
Stock assuming (i) consummation of the Offering (assuming no exercise of the
Underwriters' over-allotment option), (ii) consummation of the Goldwyn
Acquisition (assuming an Average Closing Price of $13.12), (iii) the exercise of
the Goldwyn Put and (iv) consummation of the MPCA Acquisition, with respect to
(i) each director of the Company, (ii) certain executive officers of the Company
and the Company's subsidiaries and (iii) all of such persons as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE
BENEFICIALLY OF COMMON
NAME OF BENEFICIAL OWNER OWNED(1) STOCK
- ------------------------------------------------------- ------------------- ---------
<S> <C> <C>
Carl C. Brazell........................................ 96,303(9) *
W. Tod Chmar........................................... 753,042(2)(6)(7) 1.2%
Samuel Goldwyn Jr...................................... 2,281,364(11) 3.6
Meyer Gottlieb......................................... 117,045(12) *
John P. Imlay, Jr...................................... 20,000(9) *
Clark A. Johnson....................................... 28,000(2)(9) *
Bradley R. Krevoy...................................... 1,079,460(13) 1.7
John W. Kluge.......................................... 15,030,903(3)(9) 23.7
Silvia Kessel.......................................... 53,085(9) *
John D. Phillips....................................... 1,010,000(4)(9) 1.6
Carl E. Sanders........................................ 32,097(2)(8)(9) *
Richard J. Sherwin..................................... 912,605(10) 1.4
Steven Stabler......................................... 745,783(14) 1.2
Stuart Subotnick....................................... 12,656,680(5)(9) 20.0
Arnold L. Wadler....................................... 65,416(9) *
Leonard White.......................................... 50,000(9) *
All Directors and Officers as a group (16 persons)..... 21,817,328 33.8%
</TABLE>
- ------------
<TABLE>
<C> <S>
* Holdings do not exceed one percent of the total outstanding shares of Common Stock.
(1) Unless otherwise indicated by footnote, the named individuals have sole voting and
investment power with respect to the shares of Common Stock beneficially owned.
(2) Includes shares subject to purchase within the next 60 days under the Company's 1989
Stock Option Plan and under the Company's 1991 Non-Employee Director Stock Option Plan.
(3) Represents 12,415,455 shares beneficially owned through Metromedia Company and Met
Telcell, Inc. ("Met Telcell"), a corporation owned and controlled by Messrs. Kluge and
Subotnick, and 2,605,448 shares of Common Stock owned directly by a trust affiliated
with Mr. Kluge.
(4) Includes 1,000 shares owned by Mr. Phillips directly, 699,000 shares owned by
Renaissance Partners, a Georgia general partnership in which Mr. Phillips is a general
partner, and 300,000 shares subject to purchase by Mr. Phillips within the next 60 days
pursuant to the exercise of a stock option. Mr. Phillips disclaims beneficial ownership
of the shares owned by Renaissance Partners except to the extent of his interest in
Renaissance Partners.
(5) Represents 12,415,455 shares beneficially owned through Metromedia Company and Met
Telcell and 231,225 shares owned directly by Mr. Subotnick.
(6) Includes shares allocated to the named officer's account under MIG's Employee Stock
Purchase Plan as of the date hereof.
</TABLE>
(Footnotes continued on following page)
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<PAGE>
(Footnotes continued from preceding page)
<TABLE>
<C> <S>
(7) Includes 699,000 shares owned by Renaissance Partners, a Georgia general partnership in
which a corporation owned by Mr. Chmar serves as general partner. Mr. Chmar disclaims
beneficial ownership of the shares owned by Renaissance Partners except to extent of his
interest in Renaissance Partners.
(8) Includes 600 shares subject to purchase by Mr. Sanders within the next 60 days pursuant
to the conversion of the $25,000 face amount (less than 1%) of the Company's 6 1/2%
Convertible Subordinated Debentures due 2002 beneficially owned by Mr. Sanders, which
are convertible into Common Stock at a conversion price of $41 5/8 per share.
(9) Includes options issued under the Metromedia International Group, Inc. 1996 Incentive
Stock Plan (the "MIG 1996 Stock Plan") exercisable within 60 days of the date hereof.
The MIG 1996 Stock Plan has not been approved by MIG's stockholders and the options
issued thereunder are subject to forfeiture in the event the MIG 1996 Stock Plan is not
approved by stockholders.
(10) Includes options to purchase 657,916 shares of Common Stock exercisable within 60 days
of the date hereof.
(11) Represents 5,986,261 shares of Goldwyn's common stock, each share of which is
exchangeable for approximately .3811 shares of Common Stock pursuant to the Goldwyn
Merger Agreement (assuming an Average Closing Price of $13.12).
(12) Represents 307,125 (including 35,875 shares issuable upon exercise of options
exercisable within 60 days of the date hereof) shares of Goldwyn's common stock, each
share of which is exchangeable for approximately .3811 shares of Common Stock pursuant
to the Goldwyn Merger Agreement (assuming an Average Closing Price of $13.12).
(13) Represents 322,858 shares of MPCA's common stock exchangeable into Common Stock pursuant
to the MPCA Merger Agreement.
(14) Represents 223,058 shares of MPCA's common stock exchangeable into Common Stock pursuant
to the MPCA Merger Agreement.
</TABLE>
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following table summarizes the indebtedness of the Company and its
consolidated subsidiaries (assuming the Goldwyn Acquisition, the Offering and
the Entertainment Group Credit Facility occurred as of March 31, 1996):
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-----------------
(IN THOUSANDS)
<S> <C>
Entertainment Group Credit Facility....................... $ 200,000(1)
6 1/2% Convertible Debentures due 2002.................... 57,689
9 7/8% Senior Debentures due 1997......................... 15,172
9 1/2% Subordinated Debentures due 1998................... 59,358
10% Subordinated Debentures due 1999...................... 6,075
Other Long-Term Debt...................................... 15,602
-----------------
Total Debt............................................ $ 353,896
-----------------
-----------------
</TABLE>
- ------------
(1) Does not reflect the consummation of the MPCA Acquisition including an
additional $10.0 million of indebtedness that would have been incurred in
connection therewith at March 31, 1996 (which amount is expected to be $15.0
million at the consummation of the Offering).
Entertainment Group Credit Facility
The Entertainment Group has entered into a commitment letter with Chemical
Bank ("Chemical") which provides that Chemical is committed, subject to the
satisfaction of certain conditions, to provide the $300 million of financing to
the Entertainment Group described below. Chemical has committed to fund the
entire amount of the facility, but a portion of the commitment may be syndicated
to other financial institutions either before or after the Goldwyn Effective
Time. Pursuant to the commitment letter with Chemical, at the Goldwyn Effective
Time, the Entertainment Group, Chemical and the other bank parties thereto will
enter into the Entertainment Group Credit Facility which will provide for an
aggregate of $300 million of financing consisting of a secured term loan of $200
million (the "Term Loan") and a revolving credit facility of $100 million,
including a $10 million letter of credit subfacility (the "Revolving Credit
Facility"). At the Goldwyn Effective Time, approximately $85.0 million will be
available under the Revolving Credit Facility. The Term Loan will be used solely
to refinance up to $200.0 million of Orion's, Goldwyn's and MPCA's existing
indebtedness and the Revolving Credit Facility will be used to finance the
Entertainment Group's production, acquisition and distribution of motion
pictures, for its domestic theatrical exhibition business and for general
working capital purposes.
Borrowings under the Entertainment Group Credit Facility which do not exceed
the "borrowing base" described below will bear interest at the Entertainment
Group's option at a rate of LIBOR plus 2 1/2% or Chemical's alternative base
rate plus 1 1/2%, and borrowings in excess of the borrowing base, which have the
benefit of the guarantee referred to below, will bear interest at the
Entertainment Group's option at a rate of LIBOR plus 1% or Chemical's
alternative base rate. The Term Loan will have a final maturity date of June 30,
2001 and will amortize in 20 equal quarterly installments of $7.5 million
commencing on September 30, 1996, with the remaining principal amount due at the
final maturity date. The amount of the Term Loan at the Goldwyn Effective Time
will be the amount, up to a maximum of $200.0 million, based upon a "borrowing
base" for the Entertainment Group calculated using a percentage of its eligible
outstanding accounts receivable (including cash flow from the Entertainment
Group's domestic theatrical exhibition business) and a credit for the
Entertainment Group's film and television library. Such borrowing base would
currently provide for $200 million of availability under the Term Loan. In
addition to the amortization schedule described above, the Entertainment Group
Credit Facility will provide that in the event that the amount outstanding under
the Term Loan exceeds the borrowing base, the Entertainment Group must pay down
the excess outstandings. The Term Loan and the Revolving Credit Facility will be
secured by a first priority lien on all of the stock of Orion and its
subsidiaries and on substantially all of the Entertainment Group's
74
<PAGE>
assets, including its accounts receivable and film and television library.
Amounts outstanding under the Revolving Credit Facility will also be guaranteed
jointly and severally by Metromedia Company and by John W. Kluge. To the extent
the borrowing base exceeds the amount outstanding under the Term Loan, such
excess will be used to support the Revolving Credit Facility so as to reduce the
exposure of the guarantors under such facility.
The Entertainment Group Credit Facility will contain customary covenants
including maintenance of corporate existence, compliance with ERISA, maintenance
of properties, delivery of certain monthly, quarterly and annual financial
information, delivery of budgets and other information regarding new motion
picture productions, limitations on the issuance of additional indebtedness and
guarantees, limitations on the creation of new liens, limitations on the
development costs and budgets for such films, limitations on the aggregate
amount of unrecouped print and advertising costs the Entertainment Group may
incur, limitations on the amount of the Entertainment Group's leases, capital
and overhead expenses (including specific limitations on the Entertainment
Group's theatrical exhibition subsidiary's capital expenditures), prohibitions
on the declaration of dividends or distributions by the Entertainment Group
(other than up to $15 million of subordinated loans made by the Company to the
Entertainment Group which may be repaid to the Company), limitations on the
merger or consolidation of the Entertainment Group or the sale by the
Entertainment Group of any substantial portion of its assets or stock and
restrictions on the Entertainment Group's line of business, other than
activities relating to the production, distribution and exhibition of
entertainment product. The Entertainment Group Credit Facility will also contain
financial covenants, including requiring maintenance by the Entertainment Group
of the ratio of the Entertainment Group's Free Cash Flow (as defined in the
Entertainment Group Credit Facility) to the Entertainment Group's cumulative
investment in film product above certain specified levels at the end of each
fiscal quarter, and requiring that the Entertainment Group's cumulative
investment in film product not exceed Free Cash Flow by more than certain
specified levels. In addition, the Entertainment Group Credit Facility will
contain a minimum ratio of (a)(i) Theater Group EBITDA (as defined in the
Entertainment Group Credit Facility) plus (ii) Theater Group Occupancy Charges
(as defined in the Entertainment Group Credit Facility) to (b) Theater Group
Occupancy Charges for each rolling four quarter period.
The Revolving Credit Facility will contain the following events of default:
nonpayment of principal or interest on the facility, the occurrence of a "change
of control" (as defined below) and an assertion by the guarantors of such
facility that the guarantee of such facility is unenforceable. A "change of
control" is defined to mean (i) a change in ownership of Orion which results in
it not being wholly owned by MIG or (ii)(a) if Metromedia Company and its
affiliates do not control at least 20% of the outstanding Common Stock or (b) if
a third party controls more Common Stock than Metromedia Company and its
affiliates or is entitled to designate a majority of the members of MIG's Board
of Directors. The Term Loan portion of the Entertainment Group Credit Facility
will also contain a number of customary events of default including non-payment
of principal and interest and the occurrence of a "change of management" (as
defined below), violation of covenants, falsity of representations and
warranties in any material respect, certain cross-default and cross-acceleration
provisions, and bankruptcy or insolvency of Orion or its material subsidiaries.
A "change of management" is defined to mean a termination of employment of
Existing Management (as defined in the Entertainment Group Credit Facility) and
the objection to such person's replacement by the required lenders within a
designated period.
The commitment letter with Chemical for the Entertainment Group Credit
Facility provides for a number of customary conditions precedent to the making
of loans to the Entertainment Group, including the receipt of certain legal
opinions and certificates, absence of any material adverse change in the
Entertainment Group's business and satisfaction by Chemical of the results of
its investigation of the Entertainment Group to confirm certain assumptions.
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<PAGE>
MIG's 6 1/2% Convertible Debentures
MIG's $75 million face value 6 1/2% Convertible Debentures are due in 2002.
Such debentures are convertible into the Company's Common Stock at a conversion
price of $41 5/8 per share at the holder's option and do not require annual
principal payments. At the Company's option, the 6 1/2% Convertible Debentures
may be redeemed at any time at a price equal to 100% of the principal amount
plus accrued interest to such date.
MIG's 9 7/8% Senior Subordinated Debentures
The 9 7/8% Senior Subordinated Debentures are due in 1997 and are redeemable
at the option of the Company, in whole or in part, at 100% of the principal
amount plus accrued interest. Mandatory sinking fund payments of $3.0 million
(which the Company may increase to $6.0 million annually) began in 1982 and are
intended to retire, at par plus accrued interest, 75% of the issue prior to
maturity.
MIG's 9 1/2% Subordinated Debentures
MIG 9 1/2% Subordinated Debentures are due in 1998. These debentures do not
require annual principal payments.
MIG's 10% Subordinated Debentures
The 10% Subordinated Debentures are due in 1999 and are redeemable at the
option of the Company, in whole or in part, at 100% of the principal amount plus
accrued interest. Sinking fund payments of 10% of the outstanding principal
amount commenced in 1989, however, the Company receives credit for debentures
redeemed or otherwise acquired in excess of sinking fund payments.
THE ACQUISITIONS
THE SAMUEL GOLDWYN COMPANY
On January 31, 1996, the Company and Goldwyn entered into the Goldwyn Merger
Agreement providing for the Goldwyn Acquisition, pursuant to which SGC Mergerco,
a newly formed, wholly-owned subsidiary of the Company will merge with and into
Goldwyn. The acquisition of Goldwyn will expand the Entertainment Group by
adding a valuable library of over 850 film and television titles, including
numerous Hollywood classics and more recent critically acclaimed films, and what
management believes is the leading specialized theatre circuit with 140 screens
in the United States.
The Goldwyn Merger Agreement provides that upon consummation of the Goldwyn
Acquisition, Goldwyn Stockholders will receive $5.00 worth of Common Stock for
each share of Goldwyn common stock , provided that the Average Closing Price
ending on the day which is five days prior to the Meeting of Goldwyn
Stockholders held to vote upon the Goldwyn Acquisition is between $12.50 and
$16.50. If the Average Closing Price is less than $12.50 it will be deemed to be
$12.50 and Goldwyn Stockholders will receive .4 shares of Common Stock for each
share of Goldwyn common stock, and if the Average Closing Price is greater than
$16.50, it will be deemed to be $16.50 and Goldwyn Stockholders will receive
.3030 shares of Common Stock for each share of Goldwyn common stock. Assuming
the Goldwyn Acquisition occurred on May 28, 1996 and an Average Closing Price of
$13.12, the Company would have issued approximately .3811 shares of Common Stock
for each share of Goldwyn Common Stock and would have issued an aggregate of
3,568,902 shares of Common Stock to the Goldwyn Stockholders.
Consummation of the Goldwyn Acquisition is subject to various conditions,
including: (i) the receipt of approval of the Goldwyn Stockholders; (ii) the
receipt of certain opinions of counsel with respect to certain legal matters and
as to the qualification of the Goldwyn Acquisition as a reorganization within
the meaning of Section 368(a) of the Code; (iii) that since December 31, 1995,
no change or event shall have occurred which has had or could reasonably be
expected to have a material adverse
76
<PAGE>
effect with respect to the Company or Goldwyn; (iv) the receipt of certain
fairness opinions by the Board of Directors of each of the Company and Goldwyn;
(v) that the Goldwyn Family Trust, of which Samuel Goldwyn, Jr., Chairman and
Chief Executive Officer of Goldwyn, is trustee, and the surviving corporation of
the Goldwyn Acquisition shall have entered into a distribution agreement
pursuant to which such corporation will acquire distribution rights to a library
of 75 classic films held by the Goldwyn Family Trust for a term which extends
until the year 2020; (vi) that Samuel Goldwyn, Jr. and Meyer Gottlieb, President
of Goldwyn, shall each have entered into employment agreements with the
surviving corporation of the Goldwyn Acquisition on terms satisfactory to the
parties; (vii) that Goldwyn's bank and production indebtedness shall have been
refinanced or repaid in full or extended beyond the effective time of the
Goldwyn Acquisition; (viii) that Orion shall have provided to Goldwyn up to $5.5
million of interim funding as an advance for certain distribution rights in six
feature films; (ix) that a Form S-3 Registration Statement registering for
resale pursuant to Rule 415 under the Securities Act the shares of Common Stock
to be received in the Goldwyn Acquisition by Samuel Goldwyn, Jr. and the Goldwyn
Family Trust be declared effective by the Commission prior to the Effective
Time, (x) that a Registration Statement on Form S-8 permitting resale of the
shares of Common Stock to be issued to MIG Stockholders, who are former Goldwyn
Stockholders who held options to acquire shares of Goldwyn Common Stock which,
by virtue of the Goldwyn Acquisition, were converted into options to acquire
shares of Common Stock upon the exercise of such options, be declared effective
by the Commission prior to the Effective Time; (xi) that the surviving
corporation of the Goldwyn Acquisition and Samuel Goldwyn, Jr. shall have
entered into an agreement pursuant to which such corporation will acquire a
license to use the trademark "Samuel Goldwyn" in perpetuity royalty-free with
regard to existing product and a license to use the name "Goldwyn" in perpetuity
royalty-free in connection with its film and television business; (xii) that a
certain Option Agreement among Goldwyn, Samuel Goldwyn, Jr. and the Goldwyn
Family Trust shall be amended and restated on terms satisfactory to the Company;
and (xiii) that the shares of Common Stock to be issued in the Goldwyn
Acquisition shall have been authorized for listing on the AMEX or any other
national securities exchange or automated quotation system approved by the
Company and Goldwyn, in each case, subject to official notice of issuance. With
respect to the condition set forth in clause (vii) above, the proceeds from the
Entertainment Group Credit Facility will be used to satisfy such condition. See
"Use of Proceeds."
The Goldwyn Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval thereof by the Goldwyn
Stockholders: (i) by the mutual written consent of MIG and Goldwyn, (ii)
unilaterally, by the Board of Directors of MIG or Goldwyn if the Goldwyn
Acquisition has not been consummated on or before September 30, 1996, (iii) by
the non-breaching party in case of certain material breaches by the other party,
(iv) by either MIG or Goldwyn if the Goldwyn Stockholders fail to approve and
adopt, by the requisite vote, the Goldwyn Merger Agreement, or (v) by the Board
of Directors of MIG or Goldwyn if a court of competent jurisdiction or any other
governmental entity shall have issued an order, decree or ruling or taken any
other action restraining, enjoining or otherwise prohibiting the consummation of
the Goldwyn Acquisition and such order, decree, ruling or other action shall
have become final and non-appealable. The Goldwyn Merger Agreement may also be
terminated by MIG or Goldwyn if the Goldwyn Board of Directors recommends a
competing offer or otherwise modifies or changes, in a manner adverse to MIG,
its recommendation that its stockholders approve the Goldwyn Merger Agreement.
Upon any termination resulting from circumstances contemplated by the preceding
sentence and under certain other circumstances, the Goldwyn Merger Agreement
provides that Goldwyn will pay MIG a termination fee of $3 million and reimburse
MIG for certain of its expenses.
Pursuant to the terms of a voting agreement entered into simultaneously with
the execution of the Goldwyn Merger Agreement, the Goldwyn Family Trust,
beneficial owner of approximately 60.2% of the outstanding common stock of
Goldwyn, has agreed to vote its shares in favor of the Goldwyn Acquisition.
Accordingly, the affirmative vote of the Goldwyn Family Trust in favor of the
Goldwyn Acquisition in accordance with such voting agreement will be sufficient
to approve the Goldwyn Merger Agreement without any action on the part of any
other Goldwyn Stockholders. It is contemplated that
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<PAGE>
the Goldwyn Acquisition, the Offering and the Entertainment Group Credit
Facility will be consummated simultaneously.
On May 20, 1996, a purported class action lawsuit against Goldwyn and its
directors was filed in the Superior Court of the State of California for the
County of Los Angeles Michael Shores v. Samuel Goldwyn Company, et. al., BC
150360. In the complaint, plaintiff alleged that Goldwyn's Board of Directors
breached its fiduciary duties to Goldwyn Stockholders by agreeing to sell
Goldwyn to MIG at no premium yet providing Mr. Goldwyn, the Goldwyn Family Trust
and Mr. Gottlieb with benefits, and sought to enjoin consummation of the Goldwyn
Merger. Based upon a review of the complaints, management of the Company and
Goldwyn do not believe that this litigation will have a material adverse effect
on the Goldwyn Acquisition. The time to answer the complaint has not yet
expired. Goldwyn intends to vigorously defend such action.
MOTION PICTURE CORPORATION OF AMERICA
On May 17, 1996, the Company and MPCA entered into the MPCA Merger Agreement
providing for the MPCA Acquisition, pursuant to which a newly-formed,
wholly-owned subsidiary of the Company will merge with and into MPCA. MPCA is an
independent film production company which focuses on producing and acquiring
commercially marketable films featuring popular actors at substantially less
than average industry cost. MPCA is headed by Bradley Krevoy and Steven Stabler,
who have produced low budget, profitable movies like Dumb and Dumber, which cost
a reported $16 million to produce and grossed a reported total of approximately
$250 million and Threesome, which cost a reported $3.5 million to produce and
grossed a reported total of $60 million. The acquisition price for the MPCA
Acquisition is approximately $27.5 million of Common Stock (approximately
2,135,922 shares assuming a closing price of $12.875 as reported on the AMEX on
May 28, 1996), up to $5.0 million of cash in repayment of loans from MPCA's
stockholders and the assumption of certain indebtedness (approximately $10.0
million at March 31, 1996). Messrs. Krevoy and Stabler will be employed by MIG's
Entertainment Group following the MPCA Acquisition. The shares of Common Stock
issued to the stockholders of MPCA pursuant to the MPCA Merger Agreement have
not been registered for resale under the Securities Act. It is anticipated,
however, that MIG and MPCA will enter into a registration rights agreement
pursuant to which MIG will grant to the stockholders of MPCA two demand
registration rights and unlimited "piggyback" registration rights (subject to
customary cutbacks). Pursuant to such registration rights agreement, MIG and the
stockholders of MPCA have agreed to indemnify each other against certain
liabilities, including liabilities under the Securities Act. Consummation of the
MPCA Acquisition remains subject to certain conditions, including the expiration
or early termination of the waiting period under the Hart Scott Act, the
execution of certain ancillary agreements, the satisfaction by MIG of its due
diligence review of MPCA and other customary closing conditions.
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<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of Common Stock by a
holder that, for United States Federal income tax purposes is not a "United
States person" (a "Non-United States Holder"). This discussion is based upon the
United States Federal tax law now in effect, which is subject to changes,
possibly retroactively. For purposes of this discussion, a "United States
person" means a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in the United States or under
the laws of the United States or any political subdivision thereof; or an estate
or trust whose income is includible to gross income for United States Federal
income tax purposes regardless of its source.
This discussion does not consider any specific facts or circumstances that
may apply to a particular Non-United States Holder. Prospective investors are
urged to consult their tax advisors regarding the United States Federal tax
consequences of acquiring, holding, and disposing of Common Stock, as well as
any tax consequences that may arise under the laws of any foreign, state, local,
or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a Non-United States Holder will generally be subject to
withholding of United States Federal income tax at the rate of 30% unless the
dividend is effectively connected with the conduct of a trade or business within
the United States by the Non-United States Holder, in which case the dividend
will be subject to the United States Federal income tax on net income that
applies to United States persons generally (and, with respect to corporate
holders and under certain circumstances, the branch profits tax). Non-United
States Holders should consult any applicable income tax treaties, which may
provide for a lower rate of withholding or other rules different from those
described above. A Non-United States Holder may be required to satisfy certain
certification requirements in order to claim treaty benefits or otherwise claim
a reduction of or exemption from withholding under the foregoing rules.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale or other disposition of Common
Stock unless (i) the gain is effectively connected with the conduct of a trade
or business within the United States by the Non-United States Holder, (ii) in
the case of a Non-United States Holder who is a nonresident alien individual and
holds the Common Stock as a capital asset, such holder is present in the United
States for 183 or more days in the taxable year and certain other requirements
are met, or (iii) the Company is or has been a United States real property
holding company for the United States Federal income tax purposes which the
Company does not believe it is or is likely to become. Gain that is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder will be subject to the United States Federal income
tax on net income that applies to United States persons generally (and, with
respect to corporate holders and under certain circumstances, the branch profits
tax) but will not be subject to withholding. Non-United States Holders should
consult applicable treaties, which may provide for different rules.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specially defined for United States Federal estate tax purposes)
of the United States at the date of death will be included in such individual's
estate for United States Federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.
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<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to dividends paid on the Common Stock to a Non-United States Holder at an
address outside the United States. Payments by a United States office of a
broker of the proceeds of a sale of the Common Stock is subject to both backup
withholding at a rate of 31% and information reporting unless the holder
certifies its Non-United States Holder status under penalties of perjury or
otherwise establishes an exemption. Information reporting requirement (but not
backup withholding) will also apply to payments of the proceeds of sales of the
Common Stock by foreign offices of United States brokers, or foreign brokers
with certain types of relationships to the United States, unless the broker has
documentary evidence in its records that the holder is a Non-United States
Holder and certain other conditions are met, or the holder otherwise establishes
an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
These information reporting and backup withholding rules are under review by
the United States Treasury and their application to the Common Stock could be
changed by future regulations. The Internal Revenue Service has recently issued
proposed Treasury Regulations concerning the withholding of tax and reporting
for certain amounts paid to non-resident individuals and foreign corporations.
The proposed Treasury Regulations, if adopted in their present form, would be
effective for payments made after December 31, 1997. Prospective investors
should consult their tax advisors concerning the potential adoption of such
proposed Treasury Regulations and the potential effect on their ownership of the
Common Stock.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
a syndicate of U.S. underwriters named below (the "U.S. Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Furman Selz LLC
("Furman Selz") and Schroder Wertheim & Co. Incorporated are acting as
representatives (the "U.S. Representatives"), and the international managers
named below (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters"), for whom DLJ, Furman Selz and J. Henry
Schroder & Co. Limited are acting as representatives (the "International
Representatives" and, together with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase from the Company an
aggregate of 15,000,000 shares of Common Stock. The number of shares of Common
Stock that each Underwriter has agreed to purchase is set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- ----------------- ----------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............................
Furman Selz LLC................................................................
Schroder Wertheim & Co. Incorporated...........................................
----------
U.S. Offering subtotal................................................... 12,000,000
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL MANAGERS
- ----------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............................
Furman Selz LLC................................................................
J. Henry Schroder & Co. Limited................................................
----------
International Offering subtotal.......................................... 3,000,000
----------
Total.................................................................. 15,000,000
----------
----------
</TABLE>
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<PAGE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all the shares of Common Stock offered hereby (other than in connection with the
over-allotment option described below) if any are taken. The offering price and
underwriting discount and commissions per share for the U.S. Offering and the
International Offering are identical.
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public initially at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per share.
Any Underwriter may allow, and such dealers may reallow, a discount not in
excess of $ per share to any other Underwriter and to certain other dealers.
After the initial public offering of the shares of Common Stock, the public
offering price and other selling terms may be changed by the Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to an additional 2,250,000 shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page hereof. The U.S. Underwriters may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
made in connection with the sale of the shares of Common Stock offered hereby.
To the extent such over-allotment option is exercised, each Underwriter will
become obligated, subject to certain conditions, to purchase the same percentage
of such additional shares as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares
set forth on the cover page hereof.
The Company, certain stockholders and the directors and executive officers
of the Company will agree with the Underwriters not to offer, sell, grant any
other option to purchase or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for, or warrants, rights or options to acquire, Common Stock or
enter into any agreement to do any of the foregoing for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ.
The Company and its direct and indirect subsidiaries have agreed to
indemnify the Underwriters against certain liabilities, including liabilities
under the Securities Act, or to contribute to payments the Underwriters may be
required to make in respect thereof.
Pursuant to an Agreement Between U.S. Underwriters and International
Managers (the "Agreement Between U.S. Underwriters and International Managers"),
each U.S. Underwriter has represented and agreed that, with respect to the
Common Stock included in the U.S. Offering and with certain exceptions, (a) it
is not purchasing any Common Stock for the account of anyone other than a United
States or Canadian Person (as defined below) and (b) it has not offered or sold,
and will not offer or sell, directly or indirectly, any Common Stock or
distribute this Prospectus outside of the United States or Canada, or to anyone
other than a United States or Canadian Person. Pursuant to the Agreement Between
U.S. Underwriters and International Managers, each International Manager has
represented and agreed that, with respect to the Common Stock included in the
International Offering and with certain exceptions, (a) it is not purchasing any
Common Stock for the account of any United States or Canadian Person and (b) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Common Stock or distribute this Prospectus within the United States or Canada or
to any United States or Canadian Person. The foregoing limitations do not apply
to stabilization transactions and to certain other transactions among the
International Managers and the U.S. Underwriters. As used herein, "United States
or Canadian Person" means any national or resident of the United States or
Canada or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States or Canada of any United States or Canadian Person) and includes any
United States or Canadian branch of a person who is not otherwise a United
States or
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Canadian Person, and "United States" means the United States of America, its
territories, its possessions and all areas subject to its jurisdiction.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, sales may be made between U.S. Underwriters and the International
Managers of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price and
currency of settlement of any shares of Common Stock so sold shall be the public
offering price set forth on the cover page hereof, in United States dollars,
less an amount not greater than the per share amount of the concession to
dealers set forth above.
Pursuant to the Agreement Between U.S. Underwriters and International
Mangers, each U.S. Underwriter has represented that it has not offered or sold,
and has agreed not to offer or sell, any Common Stock, directly or indirectly,
in Canada in contravention of the securities laws of Canada or any province or
territory thereof and has represented that any offer of Common Stock in Canada
will be made only pursuant to an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such offer is made.
Each U.S. Underwriter has further agreed to send any dealer who purchases from
it any Common Stock a notice stating in substance that, by purchasing such
Common Stock, such dealer represents and agrees that it has not offered or sold,
and will not offer or sell, directly or indirectly, any of such Common Stock in
Canada in contravention of the securities laws of Canada or any province or
territory thereof and that any offer of Common Stock in Canada will be made only
pursuant to an exemption from the requirements to file a prospectus in the
province or territory of Canada in which such offer is made, and that such
dealer will deliver to any other dealer to whom it sells any of such Common
Stock a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. Underwriters and International
Managers, each International Manager has represented and agreed that (i) it has
not offered or sold and during the period of six months from the date of this
Prospectus will not offer or sell any Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom for the purposes of the
Public Offers of Securities Regulations 1995 of Great Britain (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act of 1986 of Great Britain and the
Regulations with respect to anything done by it in relation to the Common Stock
in, from or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the Common Stock to a person who
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995 of Great Britain or its a
person to whom the document may otherwise lawfully be issued or passed on.
No action has been taken in any jurisdiction by the Company or the
Underwriters that would permit a public offering of Common Stock offered
pursuant to the Offering in any jurisdiction where action for that purpose is
required, other than the United States. The distribution of this Prospectus and
the offering or sale of the Common Stock offered hereby in certain jurisdictions
may be restricted by law. Accordingly, the Common Stock offered hereby may not
be offered or sold, directly or indirectly, and neither this Prospectus nor any
other offering material or advertisements in connection with such Common Stock
may be distributed or published, in or from any jurisdiction, except under
circumstances that will result in compliance with applicable rules and
regulations of any such jurisdiction. Such restrictions may be set out in
applicable Prospectus supplements. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any applicable restrictions. None of the Company or any of
the Underwriters accepts any legal responsibility for any violation by any
person, whether or not a prospective purchaser of Common Stock, of any such
restrictions. This Prospectus does not constitute an offer of, or an invitation
to subscribe for purchase of, any shares of Common Stock and may not be used for
the purpose of an offer to, or solicitation by, anyone in any jurisdiction or in
any circumstances in which such offer or solicitation is not authorized or is
unlawful.
83
<PAGE>
DLJ from time to time performs investment banking and other financial
services for the Company and its affiliates for which it receives advisory or
transaction fees, as applicable, of the nature and in amounts customary in the
industry for such services plus reimbursement for out-of-pocket expenses. DLJ
has acted as the Company's financial advisor in connection with the Goldwyn
Acquisition, for which services the Company has agreed to pay DLJ a customary
fee for rendering a fairness opinion and a fee upon consummation of the Goldwyn
Acquisition. DLJ owns approximately 135,000 shares of Common Stock. Furman Selz
has acted as Goldwyn's financial advisor in connection with the Goldwyn
Acquisition, for which Goldwyn has agreed to pay Furman Selz a customary fee for
rendering a fairness opinion and a fee upon consummation of the Goldwyn
Acquisition.
LEGAL MATTERS
The validity of the Common Stock and certain other legal matters in
connection with this Offering will be passed upon for the Company by Paul,
Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain legal matters
relating to this Offering will be passed upon for the Underwriters by Skadden,
Arps, Slate, Meagher & Flom, Los Angeles, California.
EXPERTS
The consolidated financial statements and related schedules for Metromedia
International Group, Inc. as of December 31, 1995 and February 28, 1995 and for
the year ended December 31, 1995, and for each of the years in the two-year
period ended February 28, 1995 have been included and/or incorporated by
reference herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants included and incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements and related schedules of The Actava
Group Inc. appearing in The Actava Group Inc. Annual Report on Form 10-K for the
year ended December 31, 1994 as amended, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements and
related schedules are incorporated by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and related schedules of The Samuel
Goldwyn Company as of March 31, 1996 and 1995 and for the three years ended
March 31, 1996, appearing in The Samuel Goldwyn Company Annual Report on Form
10-K for the year ended March 31, 1996 have been incorporated herein in reliance
upon the report of Price Waterhouse LLP, independent public accountants,
included therein and upon the authority of such firm as experts in accounting
and auditing.
The report of Price Waterhouse LLP on the consolidated financial statements
of The Samuel Goldwyn Company as at March 31, 1996 and 1995 and for the three
years ended March 31, 1996 contains an explanatory paragraph stating that the
possibility that The Samuel Goldwyn Company's credit facility and loan terms may
not be extended beyond the June 28, 1996 maturity date raises substantial doubt
about its ability to continue as a going concern.
84
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected without charge at, and copies
thereof may be obtained at prescribed rates from, the public reference
facilities of the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. The Company's Common Stock is traded on
the AMEX, and copies of reports, proxy statements and other information can be
inspected at the offices of the AMEX, 86 Trinity Place, New York, New York
10006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby (the "Registration Statement"). This
prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement, including the exhibits and schedules thereto, which
may be inspected at, and copies thereof may be obtained at prescribed rates
from, the public reference facilities of the Commission at the addresses set
forth above.
-------------------
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed with the Commission (File No.
1-5706) and are incorporated in this prospectus by reference and made a part
hereof:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1995, Form 10-K/A Amendment No. 1 filed on April 29, 1996 amending the
Company's Form 10-K for the year ended December 31, 1995 and Form 10-K/A
Amendment No. 2 filed on May 30, 1996 amending the Company's Form 10-K for
the fiscal year ended December 31, 1995.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996.
3. The Company's Current Report on Form 8-K dated January 31, 1996.
4. The Company's Current Report on Form 8-K dated April 29, 1996.
5. The Consolidated Financial Statements and related schedules of The
Actava Group, Inc. (now known as the Company) included in the Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 of The Actava Group
Inc. (now known as the Company), as amended by Form 10-K/A Amendment No. 1
filed on April 20, 1995 and Form 10-K/A Amendment No. 2 filed on July 13,
1995.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and
prior to the termination of the Offering shall be deemed to be incorporated by
reference in this prospectus and to be a part hereof from the dates of filing of
such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference in this prospectus modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
85
<PAGE>
The Company will provide without charge to each person to whom this
prospectus is delivered, upon such person's written or oral request, a copy of
any and all of the information that has been incorporated by reference in this
prospectus (not including exhibits to such information unless such exhibits are
specifically incorporated by reference into such information). Any such request
should be directed to Secretary, Metromedia International Group, Inc., c/o
Metromedia Company, One Meadowlands Plaza, East Rutherford, New Jersey 07073,
telephone (201) 531-8000.
-------------------
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Prospectus Summary and under the captions "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
Prospectus constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance, or achievements expressed or implied by such forward-
looking statements. Such factors include, among others, the following: general
economic and business conditions, which will, among other things, impact demand
for the Company's products and services; industry capacity, which tends to
increase during strong years of the business cycle; changes in public taste,
industry trends and demographic changes, which may influence the exhibition of
films in certain areas; competition from other entertainment and communications
companies, which may affect the Company's ability to generate revenues;
political, social and economic conditions and laws, rules and regulations,
particularly in Eastern Europe, the former Soviet Republics and other emerging
markets, which may affect the Company's results of operations; timely completion
of construction projects for new systems for the joint ventures in which the
Company has invested, which may impact the costs of such projects; developing
legal structures in Eastern Europe, the former Soviet Republics and other
emerging markets which may affect the Company's results of operations;
cooperation of local partners for the Company's communications investments in
Eastern Europe and the former Soviet Republics; exchange rate fluctuations;
license renewals for the Company's investments in Eastern Europe and the former
Soviet Republics; the loss of any significant customers; changes in business
strategy or development plans, which may, among other things, prolong the time
it takes to achieve the performance results included herein; the significant
indebtedness of the Company, including the Company's ability to service its
indebtedness and to comply with certain restrictive covenants; quality of
management; availability of qualified personnel; changes in, or the failure to
comply with, government regulations; and other factors referenced in this
Prospectus. See "Risk Factors."
86
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
METROMEDIA INTERNATIONAL GROUP, INC.
Report of Independent Auditors..................................................... F-3
Consolidated Statements of Operations for the years ended December 31, 1995,
February 28, 1995 and February 28, 1994.............................................. F-4
Consolidated Balance Sheets as of December 31, 1995 and February 28, 1995.......... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995,
February 28, 1995 and February 28, 1994.............................................. F-6
Consolidated Statements of Common Stock, Paid-in Surplus and Accumulated Deficit
for the years ended December 31, 1995, February 28, 1995 and February 28, 1994... F-7
Notes to Consolidated Financial Statements......................................... F-8
Consolidated Condensed Statement of Operations for the Three Months Ended March 31,
1996 and March 31, 1995 (unaudited).................................................. F-43
Consolidated Condensed Balance Sheets as of March 31, 1996 and December 31, 1995
(unaudited)....................................................................... F-44
Consolidated Condensed Statements of Cash Flows for the Three Months Ended March
31, 1996 and March 31, 1995 (unaudited)........................................... F-45
Consolidated Condensed Statements of Common Stock, Paid-in Surplus and Accumulated
Deficit for the Three Months Ended March 31, 1996 (unaudited)........................ F-46
Notes to Consolidated Condensed Financial Statements............................... F-47
THE SAMUEL GOLDWYN COMPANY
Report of Independent Accountants.................................................. F-58
Consolidated Balance Sheet as of March 31, 1996 and 1995........................... F-59
Consolidated Statements of Operations for the Years ended March 31, 1996, 1995 and
1994.............................................................................. F-60
Consolidated Statement of Stockholders' Equity for the years ended March 31, 1996,
1995 and 1994..................................................................... F-61
Consolidated Statement of Cash Flows for the years ended March 31, 1996, 1995 and
1994.............................................................................. F-62
Notes to Consolidated Financial Statements......................................... F-63
</TABLE>
F-1
<PAGE>
[This Page Intentionally Left Blank]
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Metromedia International Group, Inc.:
We have audited the accompanying consolidated balance sheets of Metromedia
International Group, Inc. and subsidiaries as of December 31, 1995 and February
28, 1995 and the related consolidated statements of operations, common stock,
paid-in surplus and accumulated deficit and cash flows for the year ended
December 31, 1995, and for each of the years in the two-year period ended
February 28, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also incudes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Metromedia
International Group, Inc. and its subsidiaries as of December 31, 1995 and
February 28, 1995, and the results of their operations and their cash flows for
the year ended December 31, 1995 and for each of the years in the two year
period ended February 28, 1995, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
New York, New York
February 29, 1996
except as to Note 15 which is
as of April 29, 1996
F-3
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, FEBRUARY 28, FEBRUARY 28,
1995 1995 1994
------------ ------------ ------------
(NOTE 1)
<S> <C> <C> <C>
Revenues................................................ $ 138,871 $194,789 $ 175,713
Costs and expenses:
Cost of rentals and operating expenses................ 132,762 187,256 242,996
Selling, general and administrative................... 50,029 40,391 26,976
Management fee........................................ 742 175 75
Depreciation and amortization......................... 2,795 1,916 882
------------ ------------ ------------
Operating loss.......................................... (47,457) (34,949) (95,216)
Interest expense, including amortization of debt
discount of $10,436 at December 31, 1995, $12,153 at
February 28, 1995, and $12,314 at February 28, 1994... 33,114 32,389 33,415
Interest income......................................... 3,575 3,094 771
------------ ------------ ------------
Interest expense, net................................. 29,539 29,295 32,644
Chapter 11 reorganization items......................... 1,280 1,610 1,793
------------ ------------ ------------
Loss before provision for income taxes, equity in losses
of joint ventures, discontinued operations, and
extraordinary item.................................... (78,276) (65,854) (129,653)
Provision for income taxes.............................. 767 1,300 2,100
Equity in losses of Joint Ventures...................... 7,981 2,257 777
------------ ------------ ------------
Loss from continuing operations and before extraordinary
item.................................................... (87,024) (69,411) (132,530)
Discontinued operations:
Loss on disposal...................................... (293,570) -- --
------------ ------------ ------------
Loss before extraordinary item.......................... (380,594) (69,411) (132,530)
Extraordinary item:
Early extinguishment of debt, net of tax.............. (32,382) -- --
------------ ------------ ------------
Net loss................................................ $ (412,976) $(69,411) $ (132,530)
------------ ------------ ------------
------------ ------------ ------------
Loss per common share:
Primary:
Continuing Operations............................... $ (3.54) $ (3.43) $ (7.71)
------------ ------------ ------------
------------ ------------ ------------
Discontinued Operation.............................. $ (11.97) $ -- $ --
------------ ------------ ------------
------------ ------------ ------------
Extraordinary Item.................................. $ (1.32) $ -- $ --
------------ ------------ ------------
------------ ------------ ------------
Net loss............................................ $ (16.83) $ (3.43) $ (7.71)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................................... $ 26,889 $ 27,422
Short-term investments............................................ 5,366 --
Accounts receivable, net:
Film, net of allowance for doubtful accounts of $11,600 and
$14,000 at December 31, 1995 and February 28, 1995,
respectively.................................................. 27,306 35,402
Other, net of allowance for doubtful accounts of $313 and $223
at December 31, 1995 and February 28, 1995, respectively...... 2,146 1,073
Film inventories.................................................. 59,430 69,867
Other assets...................................................... 6,314 4,763
------------ ------------
Total current assets.............................................. 127,451 138,527
Investments in and advances to joint ventures....................... 36,934 24,311
Asset held for sale--Roadmaster Industries, Inc. ................... 47,455 --
Asset held for sale--Snapper Inc.................................... 79,200 --
Property, plant and equipment, net of accumulated depreciation...... 6,021 4,577
Film inventories.................................................... 137,233 179,807
Long term film accounts receivable.................................. 31,308 24,308
Intangible assets, net of accumulated amortization.................. 119,485 9,697
Other assets........................................................ 14,551 10,643
------------ ------------
Total assets...................................................... $599,638 $391,870
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable.................................................. $ 4,695 $ 3,633
Accrued expenses.................................................. 96,696 36,385
Participation and residuals....................................... 19,143 21,902
Current portion of long-term debt................................. 40,597 96,177
Due to Metromedia Company......................................... -- 37,738
Deferred revenues................................................. 15,097 36,026
------------ ------------
Total current liabilities......................................... 176,228 231,861
Long-term debt...................................................... 264,046 103,112
Participations and residuals........................................ 28,465 24,025
Deferred revenues................................................... 47,249 32,461
Other long-term liabilities......................................... 395 201
------------ ------------
Total liabilities................................................. 516,383 391,660
------------ ------------
Commitments and contingencies
Stockholders' equity
Preferred Stock, authorized 70,000,000 shares, none issued...... -- --
Common Stock, $1.00 par value, authorized 110,000,000 shares
issued and outstanding 42,613,738 shares at
December 31, 1995........................................... 42,614 20,935
Paid-in surplus................................................. 728,747 289,413
Accumulated deficit............................................. (688,106) (310,138)
------------ ------------
Total stockholders' equity.................................. 83,255 210
------------ ------------
Total liabilities and stockholders' equity.......................... $599,638 $391,870
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------
DECEMBER 31, FEBRUARY 28, FEBRUARY 28,
1995 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operations:
Net loss.............................................. $ (412,976) $(69,411) $ (132,530)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss on discontinued operations................... 293,570 -- --
Equity in losses of joint ventures................ 7,981 2,257 777
Amortization of film costs........................ 91,466 140,318 199,219
Amortization of bank guarantee.................... 2,956 4,951 5,625
Amortization of debt discounts.................... 10,436 12,153 12,314
Depreciation and amortization..................... 2,795 1,916 882
Loss on early extinguishment of debt.............. 32,382 -- --
Decrease in accounts receivable................... 15,114 21,575 15,647
Decrease in accounts payable and accrued
expenses........................................ (4,723) (3,160) (6,579)
Accruals of participation and residuals........... 18,464 25,628 17,392
Payments of participation and residuals........... (20,737) (32,353) (27,306)
Decrease in deferred revenues..................... (12,269) (30,041) (2,476)
Other operating activities, net................... (2,125) 3,112 (47)
------------ ------------ ------------
Cash provided by operations..................... 22,334 76,945 82,918
------------ ------------ ------------
Investing activities:
Proceeds from Metromedia Company notes receivable..... 45,320 -- --
Investments in and advances to Joint Ventures......... (21,165) (16,409) (4,715)
Advances to Snapper................................... (4,230) -- --
Investment in film inventories........................ (4,684) (22,840) (67,481)
Cash paid for East News Channel Trading and Services,
Kft................................................. -- (7,033) (1,055)
Cash acquired, net in Merger.......................... 72,068 -- --
Additions to property, plant and equipment............ (3,699) (4,808) (2,208)
Other investing activities, net....................... (2,291) 1,233 4,263
------------ ------------ ------------
Cash provided by (used in) investment
activities.................................... 81,319 (49,857) (71,196)
------------ ------------ ------------
Financing Activities:
Proceeds from issuance of long-term debt.............. 176,938 40,278 4,732
Proceeds from issuance of stock....................... 2,282 17,690 7,604
Payments on notes and subordinated debt............... (264,856) (95,037) (64,711)
Other financing activities, net....................... 399 184 --
------------ ------------ ------------
Cash used in financing activities............... (85,237) (36,885) (52,375)
------------ ------------ ------------
Net increase (decrease) in cash....................... 18,416 (9,797) (40,653)
Effect of change in fiscal year....................... (13,583) -- --
Cash and cash equivalents at beginning of year........ 27,422 37,219 77,872
------------ ------------ ------------
Cash and cash equivalents at end of year.............. $ 32,255 $ 27,422 $ 37,219
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCK,
PAID-IN SURPLUS AND ACCUMULATED DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1995
-------------------------------------------------------------
COMMON STOCK
----------------------
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SURPLUS DEFICIT TOTAL
----------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances, February 28, 1993......... 17,188,408 $17,189 $265,156 $(108,197) $174,148
Net Loss............................ -- -- -- (132,530) (132,530)
----------- ------- -------- ----------- --------
Balances, February 28, 1994......... 17,188,408 17,189 265,156 (240,727) 41,618
Shares issued....................... 3,746,490 3,746 24,257 -- 28,003
Net Loss............................ -- -- -- (69,411) (69,411)
----------- ------- -------- ----------- --------
Balances, February 28, 1995......... 20,934,898 20,935 289,413 (310,138) 210
Shares issued to acquire Actava and
Sterling............................ 17,974,155 17,974 316,791 -- 334,765
Shares issued--MetProductions and
Met International................. 3,530,314 3,530 33,538 -- 37,068
Valuation of Actava and
MITI options in Mergers........... -- -- 25,677 -- 25,677
Revaluation of MITI minority
interest.......................... -- -- 60,923 23,608 84,531
Adjustment for change in fiscal
year.............................. -- -- -- 11,400 11,400
Common stock issued--other.......... 174,371 175 2,405 -- 2,580
Net Loss............................ -- -- -- (412,976) (412,976)
----------- ------- -------- ----------- --------
Balances, December 31, 1995......... 42,613,738 $42,614 $728,747 $(688,106) $ 83,255
----------- ------- -------- ----------- --------
----------- ------- -------- ----------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
BASIS OF PRESENTATION (SEE NOTE 2)
The accompanying consolidated financial statements include the accounts of
Metromedia International Group, Inc. ("MIG" or the "Company") and its
wholly-owned subsidiaries, Orion Pictures Corporation ("Orion") and Metromedia
International Telecommunications, Inc. ("MITI"). MITI was formed in August 1994
as part of a corporate reorganization and common control merger of International
Telcell, Inc. and Metromedia International, Inc. Snapper, Inc. ("Snapper"), also
a wholly-owned subsidiary, is included in the accompanying consolidated
financial statements as a discontinued operation and asset held for sale. All
significant intercompany transactions and accounts have been eliminated.
Investments in other companies and Joint Ventures ("Joint Ventures") which
are not majority owned, or in which the Company does not control but exercises
significant influence are accounted for using the equity method. The Company
reflects its net investments in Joint Ventures under the caption "Investments in
and advances to Joint Ventures". Generally, under the equity method of
accounting, original investments are recorded at cost and adjusted by the
Company's share of undistributed earnings or losses of the investee company.
Equity in the losses of the Joint Ventures are recognized according to the
percentage ownership in each Joint Venture until the Company's Joint Venture
partner's contributed capital has been fully depleted. Subsequently, the Company
recognizes the full amount of losses generated by the Joint Venture if it is the
principal funding source for the Joint Ventures.
During the year ended February 28, 1995 ("fiscal 1995"), the Company changed
its policy of accounting for the Joint Ventures by recording its equity in their
earnings and losses based upon a three month lag from MITI's calendar year end
(December 31) which resulted in a five-month lag from fiscal year end. As a
result, the December 31, 1995 Consolidated Statement of Operations reflects
twelve months of operations through September 30, 1995 for the Joint Ventures,
the February 28, 1995 Consolidated Statement of Operations reflects nine months
of operations through September 30, 1994 for the Joint Ventures, and the
February 28, 1994 Consolidated Statement of Operations reflects twelve months of
operations through December 31, 1993 for the Joint Ventures. The effect of this
change in accounting policy in fiscal 1995 is not material to the consolidated
financial statements.
During the year ended December 31, 1995 ("calendar 1995"), the Company
changed its policy of consolidating two indirectly owned subsidiaries by
recording the related assets and liabilities and results of operations based on
a three-month lag. As a result, the December 31, 1995 balance sheet includes the
accounts of these subsidiaries at September 30, 1995, and the calendar 1995
Statement of Operations reflects the results of operations of these subsidiaries
for the nine months ended September 30, 1995. Had the Company applied this
method from October 1, 1994, the effect on reported December 31, 1995 results
would not have been material. Future years will reflect twelve months of
activity based upon a September 30 fiscal year end for these subsidiaries.
LIQUIDITY
MIG is a holding company and, accordingly, does not generate cash flows.
Orion, the Company's filmed entertainment subsidiary, is restricted under
covenants contained in the Orion Credit Agreement from making dividend payments
or advances to MIG. MITI, the Company's communications subsidiary, is dependent
on MIG for significant capital infusions to fund its operations, as well as its
commitments to make capital contributions and loans to its Joint Ventures. MIG
anticipates that
F-8
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
MITI's funding requirements for 1996 will be approximately $40.0 million based
in part on the anticipated funding needs of the Joint Ventures. Future capital
requirements of MITI will depend on the ability of MITI's Joint Ventures to
generate positive cash flows.
MIG is obligated to make principal and interest payments under its own
various debt agreements (see note 8), in addition to funding its working capital
needs, which consist principally of corporate overhead and payments on self
insurance claims (see note 1).
In the short term, MIG intends to satisfy its current obligations and
commitments with available cash on hand and the proceeds from the sale of
certain assets. At December 31, 1995, MIG had approximately $21.8 million of
available cash on hand. During December 1995, the Company adopted a formal plan
to dispose of Snapper. At December 31, 1995 the carrying value of Snapper was
$79.2 million. The Snapper carrying value represents the Company's estimated
proceeds from the sale of Snapper and repayment of intercompany loans, through
the date of sale. Management believes that Snapper will be disposed of by 1996.
In addition, the Company anticipates disposing of its investment in Roadmaster
during 1996. The carrying value of the Company's investment in Roadmaster at
December 31, 1995 was $47.5 million.
Management believes that its available cash on hand, proceeds from the
disposition of Snapper and its investment in Roadmaster, borrowings under the
MITI Bridge Loan and collections of intercompany receivables from Snapper will
provide sufficient funds for the Company to meet its obligations, including
MITI's funding requirements, in the short term. However, no assurances can be
given that the Company will be able to dispose of such assets in a timely
fashion and on favorable terms. Any delay in the sale of assets or reductions in
the proceeds anticipated to be received upon this disposition of assets may
result in the Company's inability to satisfy its obligations during the year
ended December 31, 1996. Delays in funding the Company's MITI capital
requirements may have a materially adverse impact on the results of operations
of MITI's Joint Ventures.
In connection with the consummation of the Goldwyn Merger, the Company
intends to refinance the MIG Credit Facility, the Orion Term Loan, the Orion
Revolver and existing Goldwyn Debt. The Company intends to use the proceeds of
an equity offer and a new Entertainment Group credit facility (the
"Entertainment Group Credit Facility") to repay substantially all of such
indebtedness and to provide itself and MITI with liquidity to finance its
existing commitments and current business strategies. In addition to the
refinancing, management believes that its long term liquidity needs will be
satisfied through a combination of (i) the Company's successful implementation
and execution of its growth strategy to become a global entertainment, media and
communications company, (ii) MITI's Joint Ventures achieving positive operating
results and cash flows through revenue and subscriber growth and control of
operating expenses, and (iii) Orion's ability to continue to generate positive
cash flows sufficient to meet its planned film production release schedule and
service the Entertainment Group Credit Facility. There can be no assurance that
the Company will be successful in consummating the equity offering and
refinancing its indebtedness or that such refinancing can be accomplished on
favorable terms. In the event the Company is unable to successfully complete
such a refinancing, the Company, in addition to disposing of Snapper and its
investment in Roadmaster, may be required to (i) attempt to obtain additional
financing through public or private sale of debt or equity securities of the
Company or one of its subsidiaries, (ii) otherwise restructure its
capitalization or (iii) seek a waiver or waivers under one or more of its
subsidiaries' credit facilities to permit the payment of dividends to the
Company.
F-9
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
DIFFERENT FISCAL YEAR ENDS
The Company reports on the basis of a December 31 year end. In connection
with the mergers discussed in Note 2, Orion and MITI, for accounting purposes
only, were deemed to be the joint acquirors of the Actava Group Inc. ("Actava")
in a reverse acquisition. As a result, the historical financial statements of
the Company for periods prior to the merger are the combined financial
statements of Orion and MITI. Orion historically reported on the basis of a
February 28 year end.
The consolidated financial statements for the twelve months ended December
31, 1995 include two months for Orion (January and February 1995) that were
included in the February 28, 1995 consolidated financial statements. The
revenues and net loss for the two month duplicate period are $22.5 and $11.4
million, respectively. The December 31, 1995 accumulated deficit has been
adjusted to eliminate the duplication of the January and February 1995 net
losses. The consolidated financial statements for the years ended February 28,
1995 and February 28, 1994 ("fiscal 1994"), contain certain reclassifications to
conform to the presentation for the year ended December 31, 1995 ("calendar
1995").
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
The Company invests in various debt and equity securities. In May 1993, the
Financial Accounting Standards Board 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.
Management determines the appropriate classification of investments as
held-to-maturity or available-for-sale at the time of purchase and reevaluates
such designation as of each balance sheet date. The Company has classified all
investments as available-for-sale. Available-for-sale securities are carried at
fair value, with the unrealized gains and losses, net of tax, reported in
shareholders' equity. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in investment income. Realized gains and losses,
and declines in value judged to be other-than-temporary on available-for-sale
securities, are included in investment income. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in investment income.
REVENUE RECOGNITION
Revenue from the theatrical distribution of films is recognized as the films
are exhibited. Distribution of the Company's films to the home video market in
the United States and Canada is effected through Orion Home Video ("OHV"), a
division of Orion Home Entertainment Corporation, a wholly-owned subsidiary of
Orion. OHV's home video revenue, less a provision for returns, is recognized
when the video cassettes are shipped. Distribution of the Company's films to the
home video markets in foreign countries is generally effected through
subdistributors who control various aspects of distribution. When the terms of
sale to such subdistributors include the receipt of nonrefundable guaranteed
amounts by the Company, revenue is recognized when the film is available to the
subdistributors for exhibition or exploitation and other conditions of sale are
met. When the arrangements with such subdistributors call for distribution of
the Company's product without a minimum amount guaranteed
F-10
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
to the Company, such sales are recognized when the Company's share of the income
from exhibition or exploitation is earned.
Revenue from the licensing of the Company's film product to networks, basic
and pay cable companies and television stations or groups of stations in the
United States and Canada, as well as in foreign territories, is recognized when
the license period begins and when certain other conditions are met. Such
conditions include the availability of such product for exhibition by the
licensee.
The Company's and its Joint Ventures' cable, paging and telephony operations
recognize revenues in the period the service is provided. Installation fees are
recognized as revenues upon subscriber hook-up to the extent installation costs
are incurred. Installation fees in excess of installation costs are deferred and
recognized over the length of the related individual contract. The Company's and
its Joint Ventures' radio operations recognize advertising revenue when
commercials are broadcast.
FILM INVENTORIES AND COST OF RENTALS
Theatrical and television program inventories consist of direct production
costs, production overhead and capitalized interest, print and exploitation
costs, less accumulated amortization. Film inventories are stated at the lower
of unamortized cost or estimated net realizable value. Selling costs and other
distribution costs are charged to expense as incurred.
Film inventories and estimated total costs of participations and residuals
are charged to cost of rentals under the individual film forecast method in the
ratio that current period revenue recognized bears to management's estimate of
total gross revenue to be realized. Such estimates are re-evaluated quarterly in
connection with a comprehensive review of the Company's inventory of film
product, and estimated losses, if any, are provided for in full. Such losses
include provisions for estimated future distribution costs and fees, as well as
participation and residual costs expected to be incurred.
PROPERTY PLANT AND EQUIPMENT
Property, plant and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
Office furniture and equipment........................ $7,855 $5,338
Automobile............................................ 133 95
Leasehold improvements................................ 419 173
------ ------
8,407 5,606
Less: Accumulated depreciation and amortization....... (2,386) (1,029)
------ ------
$6,021 $4,577
------ ------
------ ------
</TABLE>
Property, plant and equipment are recorded at cost and are depreciated over
their expected useful lives. Generally, depreciation is provided on the
straight-line method for financial reporting purposes. Leasehold improvements
are amortized using the straight-line method over the life of the improvements
or the life of the lease, whichever is shorter.
F-11
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
INTANGIBLE ASSETS
Intangible assets are stated at historical cost, net of accumulated
amortization. Intangibles such as broadcasting licenses and frequency rights are
amortized over periods of 20-25 years. Goodwill has been recognized for the
excess of the purchase price over the value of the identifiable net assets
acquired. Such amount is amortized over 25 years using the straight-line method.
Until the Merger Date (see Note 2), a guarantee of Orion's bank borrowings was
stated at its estimated fair value at the Effective Date (see Note 3), less
accumulated amortization. Amortization of the guarantee was being calculated
utilizing the effective interest method over certain related cash flows
estimated in the Plan.
Management regularly monitors and evaluates the realizability of recorded
intangibles to determine whether their carrying values have been impaired. In
evaluating the value and future benefits of the intangible assets, their
carrying value would be reduced by the excess, if any, of their carrying value
over management's best estimate of undiscounted future cash flows over the
remaining amortization period. The Company believes that the carrying value of
recorded intangibles is not impaired.
EARNINGS PER SHARE OF COMMON STOCK
Primary earnings per share are computed by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding
during the year. Common equivalent shares include shares issuable upon the
assumed exercise of stock options using the treasury stock method when dilutive.
Computations of common equivalent shares are based upon average prices during
each period.
Fully diluted earnings per share are computed using such average shares
adjusted for any additional shares which would result from using end-of-year
prices in the above computations, plus the additional shares that would result
from the conversion of the 6 1/2% Convertible Subordinated Debentures (see Note
8). Net income (loss) is adjusted by interest (net of income taxes) on the 6
1/2% Convertible Subordinated Debentures. The computation of fully diluted
earnings per share is used only when it results in an earnings per share number
which is lower than primary earnings per share.
The loss per share amounts for fiscal 1995 and fiscal 1994 represent
combined Orion and MITI's common shares converted at the exchange ratios used in
the Merger (see Note 2).
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 ("SFAS 107"),
"Disclosures about Fair Value of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
settlements using present value or other valuation techniques. These techniques
are significantly affected by the assumptions used, including discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instruments. SFAS 107
excludes certain financial instruments and all non-financial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value to the Company.
F-12
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
The following methods and assumptions were used in estimating the fair value
disclosures for financial instruments:
Cash and Cash Equivalents, Receivables, Notes Receivable and Accounts Payable
The carrying amounts reported in the consolidated balance sheets for cash
and cash equivalents, current receivables, notes receivable and accounts payable
approximate fair values. The carrying value of receivables with maturities
greater than one year have been discounted, and if such receivables were
discounted based on current market rates, the fair value of these receivables
would not be materially different than their carrying values.
Short-term Investments
For short-term investments, fair values are based on quoted market prices.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities or dealer quotes. See Note 4 for fair
values on investment securities.
Long-term Debt
For long-term and subordinated debt, fair values are based on quoted market
prices, if available. If the debt is not traded, fair value is estimated based
on the present value of expected cash flows. See Note 8 for fair values of
long-term debt.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). SFAS 109
requires the use of the liability method of accounting for deferred taxes. Under
the liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
rates expected to be in effect when those assets and liabilities are recovered
or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the
enactment date.
BARTER TRANSACTIONS
The Company trades commercial air time for goods and services used
principally for promotional, sales and other business activities. An asset and a
liability are recorded at the fair market value of the goods or services
received. Barter revenue is recorded and the liability is relieved when
commercials are broadcast, and barter expense is recorded and the assets are
relieved when the goods or services are received or used.
FOREIGN CURRENCY TRANSLATION
The statutory accounts of the Company's consolidated foreign subsidiaries
and Joint Ventures are maintained in accordance with local accounting
regulations and are stated in local currencies. Local statements are translated
into U.S. generally accepted accounting principles and U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52 ("SFAS 52"),
"Accounting for Foreign Currency Translation".
F-13
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
Under SFAS 52, foreign currency assets and liabilities are generally
translated using the exchange rates in effect at the balance sheet date. Results
of operations are generally translated using the average exchange rates
prevailing throughout the year. The effects of exchange rate fluctuations on
translating foreign currency assets and liabilities into U.S. dollars are
accumulated as part of the foreign currency translation adjustment in
shareholders' equity. The cumulative effect of translation ($600,000 at December
31, 1995) is immaterial to the consolidated financial statements and
consequently is not reflected as a separate component of stockholders' equity.
Gains and losses from foreign currency transactions are included in net income
in the period in which they occur.
Under SFAS 52, the financial statements of foreign entities in highly
inflationary economies are remeasured, in all cases using the U.S. dollar as the
functional currency. U.S. dollar transactions are shown at their historical
value. Monetary assets and liabilities denominated in local currencies are
translated into U.S. dollars at the prevailing period-end exchange rate. All
other assets and liabilities are translated at historical exchange rates.
Results of operations have been translated using the monthly average exchange
rates. Translation differences resulting from the use of these different rates
are included in the accompanying consolidated statements of operations. Such
differences, $54,000, $69,000 and $12,000 for calendar 1995, fiscal 1995 and
fiscal 1994, respectively were immaterial to the Company's results of operations
for each of the periods presented.
ACCRUED EXPENSES
Accrued expenses consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
Accrued salaries and wages......................... $ 9,627 $ 10,850
Accrued taxes...................................... 11,000 --
Accrued interest................................... 9,822 3,104
Self-insurance claims payable...................... 31,549 --
Other.............................................. 34,698 22,431
------------ ------------
$ 96,696 $ 36,385
------------ ------------
------------ ------------
</TABLE>
SELF-INSURANCE
The Company is self-insured for workers' compensation, health, automobile,
product and general liability costs of certain discontinued businesses. The
self-insurance claim liability is determined based on claims filed and an
estimate of claims incurred but not yet reported. The Company is not
self-insured in connection with any continuing operations.
CASH AND CASH EQUIVALENTS
Cash equivalents consists of highly liquid instruments with maturities of
three months or less at the time of purchase. Included in cash at December 31,
1995, is approximately $10 million of restricted cash which represents amounts
required to be held in the Company's captive insurance company (the "Captive").
The Company expects to liquidate the Captive during 1996 and free up the cash
held by the Captive for general corporate purposes.
F-14
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. BASIS OF PRESENTATION, LIQUIDITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES--(CONTINUED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash flow information (in thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................... $ 12,270 $13,108 $14,907
-------- ------- -------
-------- ------- -------
Taxes...................................... $ 996 $ 1,804 $ 2,934
-------- ------- -------
-------- ------- -------
</TABLE>
Supplemental schedule of non-cash investing and financing activities (in
thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Acquisition of business:
Fair value of assets acquired.............. $290,456 $ -- $ --
Fair value of liabilities assumed............ 239,109 -- --
-------- ------- -------
Net value.................................... $ 51,347 $ -- $ --
-------- ------- -------
-------- ------- -------
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. THE MERGERS
On November 1, 1995, (the "Merger Date") Orion, MITI, the Company and MCEG
Sterling Incorporated ("Sterling"), consummated the mergers contemplated by the
Amended and Restated Agreement and Plan of Merger (the "Merger Agreement") dated
as of September 27, 1995 among Orion, the Company, MITI and Sterling. The Merger
Agreement provided for, among other things, the simultaneous mergers of each of
Orion and MITI with and into the Company's recently-formed subsidiaries, OPC
Mergerco and MITI Mergerco, and the merger of Sterling with and into the Company
(the "Mergers"). In connection with the Mergers, the Company changed its name
from The Actava Group Inc. to Metromedia International Group, Inc.
Upon consummation of the Mergers, all of the outstanding shares of the
common stock, par value $.25 per share of Orion (the "Orion Common Stock"), the
common stock, par value $.001 per share, of MITI (the "MITI Common Stock") and
the common stock, par value $.001 per share, of Sterling (the "Sterling Common
Stock") were exchanged for shares of the Company's common stock, par value $1.00
per share, pursuant to exchange ratios contained in the Merger Agreement.
Pursuant to such ratios, holders of Orion Common Stock received .57143 shares of
the Company's common stock for each share of Orion Common Stock (resulting in
the issuance of 11,428,600 shares of common stock to the holders of Orion Common
Stock), holders of MITI Common Stock received 5.54937 shares of the Company's
common stock for each share of MITI Common Stock (resulting in the issuance of
9,523,817 shares of the Company's common stock to the holders of MITI Common
Stock) and holders
F-15
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE MERGERS--(CONTINUED)
of Sterling Common Stock received .04309 shares of the Company's common stock
for each share of Sterling Common Stock (resulting in the issuance of 483,254
shares of the Company's common stock to the holders of Sterling Common Stock).
In addition, pursuant to the terms of a contribution agreement dated as of
November 1, 1995 among the Company and two affiliates of Metromedia Company
("Metromedia"), MetProductions, Inc. ("MetProductions") and Met International,
Inc. ("Met International"), MetProductions and Met International contributed to
the Company an aggregate of $37,068,303 of interests in a partnership and
principal amount of indebtedness of Orion and its affiliate, and indebtedness of
an affiliate of MITI, owed to MetProductions and Met International respectively,
in exchange for an aggregate of 3,530,314 shares of the Company's common stock.
Immediately prior to the consummation of the Mergers, there were 17,490,901
shares of the Company's common stock outstanding. As a result of the
consummation of the Mergers and the transactions contemplated by the
contribution agreement, the Company issued an aggregate of 24,965,985 shares of
common stock. Following consummation of the Mergers and the transactions
contemplated by the contribution agreement, Metromedia Company (an affiliate of
the Company) and its affiliates (the "Metromedia Holders") collectively received
an aggregate of 15,252,128 shares of common stock (or 35.9% of the issued and
outstanding shares of common stock).
Due to the existence of Metromedia Holders' common control of Orion and MITI
prior to consummation of the Mergers, their combination pursuant to the Mergers
was accounted for as a combination of entities under common control. Orion was
deemed to be the acquiror in the common control Merger. As a result, the
combination of Orion and MITI was effected utilizing historical costs for the
ownership interests of the Metromedia Holders in MITI. The remaining ownership
interests of MITI, were accounted for in accordance with the purchase method of
accounting based on the fair value of such ownership interests, as determined by
the value of the shares received by the holders of such interests at the
effective time of the Mergers.
For accounting purposes only, Orion and MITI have been deemed to be the
joint acquirors of Actava and Sterling. The acquisition of Actava and Sterling
has been accounted for as a reverse
acquisition. As a result of the reverse acquisition, the historical financial
statements of the Company for periods prior to the Mergers are those of Orion
and MITI, rather than Actava. The operations of Actava and Sterling have been
included in the accompanying consolidated financial statements from November 1,
1995, the date of acquisition. During December 1995, the Company adopted a
formal plan to dispose of Snapper, a wholly-owned subsidiary of Actava. In
addition, the Company's investment in Roadmaster was deemed to be a
non-strategic asset and the Company plans to dispose of its investment during
1996. (see Note 4B. below).
Snapper is included in the accompanying consolidated balance sheet in an
amount equal to the sum of the estimated cash flows from the operations of
Snapper from November 1, 1995 to October 15, 1996, the expected date of sale
(the "Holding Period") plus the anticipated proceeds from the sale of Snapper.
At December 31, 1995, such estimated cash flows and proceeds from sale are
expected to amount to $79.2 million. The earnings and losses of Snapper during
the Holding Period will be excluded from the results of operations of the
Company. The excess of the allocated purchase price to Snapper in the Actava
acquisition over the estimated cash flows from the operations and sale of
Snapper in the amount of $294 million has been reflected in the accompanying
consolidated statement of operations as a loss on disposal of a discontinued
operation. No income tax benefits were recognized in connection with this loss
on disposal because of the Company's losses from continuing operations and net
operating loss carryforwards.
F-16
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE MERGERS--(CONTINUED)
The results of Snapper for the period November 1, 1995 through December 31,
1995, which are excluded from the accompanying consolidated statement of
operations, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net Sales........................................................ $ 14,385
Operating expenses............................................... 34,646
--------
Operating loss................................................... (20,261)
Interest expense................................................. (1,213)
Other expenses................................................... (259)
--------
Loss before taxes................................................ (21,733)
Income taxes..................................................... --
--------
Net loss......................................................... $(21,733)
--------
--------
</TABLE>
Included in operating expenses above is a loss of approximately $5.7 million
related to the sale of Snapper's European division.
The Company has advanced $4.2 million to Snapper during the period from
November 1, 1995 to December 31, 1995 and has not received any repayments of
cash. Accordingly, $4.2 million has been added to the carrying value of Snapper
at November 1, 1995.
The purchase price of Actava, Sterling and MITI minority interests,
exclusive of transaction costs, amounted to $438.9 million at November 1, 1995
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Actava shares outstanding....................................... 17,491
Common stock to MITI minority shareholders...................... 4,211
Common stock to Sterling stockholders........................... 483
--------
Number of shares issued to acquire Actava, MITI minority and
Sterling........................................................ 22,185
Merger Date stock price......................................... 18.625
--------
Value of stock.................................................. $413,207
Value of Actava options......................................... 8,780
Value of MITI options........................................... 16,897
--------
Total purchase price.......................................... $438,884
--------
--------
</TABLE>
The excess purchase price over the net fair value of assets acquired
amounted to $404 million at November 1, 1995 before writeoff of Snapper goodwill
of $294 million. The following unaudited proforma consolidated results of
operations illustrate the effect of the Mergers, the deconsolidation of Snapper
and the associated refinancing of Orion's indebtedness (see Note 8) and assumes
that the transactions occurred at the beginning of each of the periods presented
(in thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL
1995 1995
-------- --------
<S> <C> <C>
Revenues.............................................. $145,150 $203,232
Loss from continuing operations and before loss on
early extinguishment of debt and extraordinary
item................................................ (89,946) (88,717)
Loss per share........................................ (2.11) (2.18)
</TABLE>
F-17
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE MERGERS--(CONTINUED)
Orion, MITI and Sterling were parties to a number of material contracts and
other arrangements under which Metromedia Company and certain of its affiliates
had, among other things, made loans or provided financing to, or paid
obligations on behalf of, each of Orion, MITI and Sterling. On November 1, 1995
such indebtedness, financing and other obligations of Orion, MITI and Sterling
to Metromedia and its affiliates were refinanced, repaid or converted into
equity of MIG.
Certain of the amounts owed by Orion ($20.4 million), MITI ($34.1 million)
and Sterling ($524,000) to Metromedia were financed by Metromedia through
borrowings under a $55 million credit agreement between the Company and
Metromedia (the "Actava-Metromedia Credit Agreement"). Orion, MITI and Sterling
repaid such amounts to Metromedia, and Metromedia repaid the Company the amounts
owed by Metromedia to the Company under the Actava-Metromedia Credit Agreement.
In addition, certain amounts owed by Orion to Metromedia under the Reimbursement
Agreement (see Note 8) were repaid on November 1, 1995.
3. CHAPTER 11 REORGANIZATION COSTS
On December 11 and 12, 1991, Orion Pictures Corporation and substantially
all of its subsidiaries filed petitions for relief under chapter 11 of Title 11
of the United States Code in the United States Bankruptcy Court for the Southern
District of New York (the "Court"). In this regard, the Court confirmed the
"Debtors' Joint Consolidated Plan of Reorganization" (the "Plan") on October 20,
1992, which became effective on November 5, 1992 (the "Effective Date").
Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code", issued by the American Institute of
Certified Public Accountants requires direct costs of administering the chapter
11 filing, particularly professional fees, to be expensed as incurred.
Accordingly, Chapter 11 reorganization items presented on the Consolidated
Statements of Operations for calendar 1995, fiscal 1995 and 1994 are comprised
primarily of legal fees incurred during those periods.
4. INVESTMENTS
A. Short-Term Investments
All of the Company's short-term investments are classified as
available-for-sale and are summarized as follows (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<CAPTION>
<S> <C> <C> <C> <C>
U.S. securities.................... $ 5,319 $ 47 -$- $ 5,366
</TABLE>
The net adjustment to unrealized holding gains on available-for-sale
securities is immaterial in 1995. The amortized cost and estimated fair value of
debt and marketable equity securities at December 31, 1995, are shown below (in
thousands), by contractual maturity. Expected maturities will
F-18
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INVESTMENTS--(CONTINUED)
differ from contractual maturities because the issuers of the securities may
have the right to prepay obligations without prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
AVAILABLE-FOR-SALE COST VALUE
- ------------------------------------------------------- --------- ---------
<S> <C> <C>
Due in one year or less................................ $ 2,001 $ 2,008
Due after one year through three years................. 2,008 2,034
Due after three years.................................. 1,310 1,324
--------- ---------
Total................................................ $ 5,319 $ 5,366
--------- ---------
--------- ---------
</TABLE>
All available-for-sale securities are classified as current since they are
available for use in the Company's current operations.
B. Roadmaster Industries, Inc.
On December 6, 1994, Actava 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. The Company intends to dispose
of its Roadmaster stock during 1996. The equity in earnings and losses of
Roadmaster will be excluded from the Company's results of operations through the
date of sale.
As of November 1, 1995, the Company's investment in Roadmaster was adjusted
to the anticipated proceeds from its sale under the purchase method of
accounting and included in the accompanying consolidated balance sheet as an
asset held for sale. As of December 31, 1995, the Company owned 38% of the
issued and outstanding shares of Roadmaster Common Stock based on approximately
48,600,000 shares of Roadmaster Common Stock outstanding. Summarized financial
information for Roadmaster is shown below (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
----------------- ------------
(UNAUDITED)
<S> <C> <C>
Net sales..................................... $ 523,480 $455,661
Gross profit.................................. 68,111 66,790
Net income (loss)............................. (9,259) 5,000
Current assets................................ 391,003 358,169
Non-current assets............................ 188,954 158,478
Current liabilities........................... 250,673 181,778
Non-current liabilities....................... 233,062 231,772
Minority interest............................. -- --
Redeemable common stock....................... 2,000 2,000
Total shareholders' equity.................... 94,222 101,097
</TABLE>
5. FILM ACCOUNTS RECEIVABLE AND DEFERRED REVENUES
Film accounts receivable consists primarily of trade receivables due from
film distribution, including theatrical, home video, basic cable and pay
television, network, television syndication, and other licensing sources which
have payment terms generally covered under contractual arrangements.
F-19
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. FILM ACCOUNTS RECEIVABLE AND DEFERRED REVENUES--(CONTINUED)
Film accounts receivable is stated net of an allowance for doubtful accounts of
$11.6 million at December 31, 1995 and of $14.0 million at February 28, 1995.
The Company has entered into contracts for licensing of theatrical and
television product to the pay cable, home video and free television markets, for
which the revenue and the related accounts receivable will be recorded in future
periods when the films are available for broadcast or exploitation. These
contracts, net of advance payments received and recorded in deferred revenues as
described below, aggregated approximately $157.0 million at December 31, 1995.
Included in this amount is $62.0 million of license fees for which the revenue
and the related accounts receivable will be recorded only when the Company
produces or acquires new products.
Deferred revenues consist principally of advance payments received on pay
cable, home video and other television contracts for which the films are not yet
available for broadcast or exploitation.
6. FILM INVENTORIES
The following is an analysis of film inventories (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
Current:
Theatrical films released, less amortization...................... $ 53,813 $ 67,051
Television programs released, less amortization................... 5,617 2,816
------------ ------------
59,430 69,867
------------ ------------
Non current:
Theatrical films released, less amortization...................... 132,870 173,279
Television programs released, less amortization................... 4,363 6,528
------------ ------------
137,233 179,807
------------ ------------
$196,663 $249,674
------------ ------------
------------ ------------
</TABLE>
Orion had in prior years made substantial writeoffs to its released and
unreleased product. As a result, approximately two-thirds of the film
inventories are stated at estimated net realizable value and will not result in
the recording of gross profit upon the recognition of related revenues in future
periods.
Since the date of Orion's quasi-reorganization (February 28, 1982), when the
Company's inventories were restated to reflect their then current market value,
the Company has amortized 94% of the gross cost of its film inventories,
including those produced or acquired subsequent to the quasi-reorganization.
Approximately 98% of such gross film inventory costs will have been amortized by
December 31, 1998. As of December 31, 1995, approximately 61% of the unamortized
balance of film inventories will be amortized within the next three-year period
based upon the Company's revenue estimates at year end.
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
MITI has recorded its investments in Joint Ventures at cost, net of its
share of losses. Advances to the Joint Ventures under line of credit agreements
are reflected based on amounts recoverable under the credit agreements, plus
accrued interest.
F-20
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
Advances are made to Joint Ventures in the form of cash for working capital
purposes and capital expenditures, or in the form of equipment purchased or
payment of expenses on behalf of the Joint Venture. Interest rates charged to
the Joint Ventures range from prime rate to prime rate plus 4%. The credit
agreements generally provide for the payment of principal and interest from 90%
of the Joint Ventures' available cash flow, as defined, prior to any substantial
distributions of dividends to the Joint Venture partners. As of December 31,
1995, MITI has entered into credit agreements with its Joint Ventures to provide
up to $46.8 million in funding, of which $16.9 million remains available. MITI
funding commitments are contingent on its approval of the Joint Ventures'
business plans.
As of December 31, 1995 and 1994, MITI's investments in and advances to
Joint Ventures were as follows (in thousands):
<TABLE>
<CAPTION>
INVESTMENTS IN AND
ADVANCES TO
JOINT VENTURES YEAR
------------------ OWNERSHIP VENTURE DATE OPERATIONS
NAME 1995 1994 % FORMED COMMENCED
- ------------------------------------- ------- ------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Kosmos TV, Moscow, Russia............ $ 4,317 $ 5,822 50% 1991 May, 1992
Baltcom TV, Riga Latvia.............. 6,983 4,741 50% 1991 June, 1992
Ayety TV, Tbilisi, Georgia........... 3,630 1,935 49% 1991 September, 1993
Kamalak, Tashkent, Uzbekistan........ 3,731 1,535 50% 1992 September, 1993
Baltcom Paging, Tallin, Estonia...... 2,585 1,829 39% 1992 December, 1993
SAC-Radio 7, Moscow, Russia.......... 1,174 1,256 51% 1991 January, 1994
Sun TV, Kishinev, Moldova............ 1,613 690 50% 1993 October, 1994
Raduga Paging, Nizhny Novgorod....... 364 450 45% 1993 October, 1994
Alma-TV, Almaty, Kazakhstan.......... 1,318 774 50% 1994 June, 1995
Telecom Georgia, Tbilisi, Georgia.... 2,078 1,485 30% 1994 September, 1994
Raduga TV, Nizhny Novgorod........... 254 222 50% 1994 Pre-Operational
Baltcom Plus, Riga, Latvia........... 1,412 331 50% 1994 April, 1995
Minsk Cable, Minsk, Belarus.......... 918 733 50% 1993 Pre-Operational
Tbilisi Paging, Tbilisi, Georgia..... 619 342 45% 1993 November, 1994
St. Petersburg Paging, St.
Petersburg, Russia................. 527 -- 40% 1994 October, 1995
Other................................ 5,411 2,166
------- -------
$36,934 $24,311
------- -------
------- -------
</TABLE>
The ability of MITI and its Joint Ventures to establish profitable
operations is subject to (among other things) special political, economic and
social risks inherent in doing business in Eastern Europe and the former Soviet
Republics. These include matters arising out of government policies, economic
conditions, imposition of or changes to taxes or other similar charges by
governmental bodies, foreign exchange fluctuations and controls, civil
disturbances, deprivation or unenforceability of contractual rights, and taking
of property without fair compensation.
MITI has obtained political risk insurance policies from the Overseas
Private Investment Corporation ("OPIC") for certain of its Joint Ventures. The
policies cover loss of investment and losses due to business interruption caused
by political violence or expropriation.
Summarized combined financial information of Joint Ventures accounted for
under the equity method, that have commenced operations as of the dates
indicated above is as follows (in thousands):
F-21
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Assets
Current assets........................................ $ 6,937 $ 1,588 $ 841
Investments in wireless systems and equipment, net.... 31,349 17,040 10,758
Other assets.......................................... 2,940 895 28
------------- ------------- ------------
Total Assets.......................................... $41,226 $19,523 $ 11,627
------------- ------------- ------------
------------- ------------- ------------
Liabilities and Joint Ventures' Equity (Deficit)
Current liabilities................................... $10,954 $ 2,637 $ 1,022
Amount payable under MITI credit facility............. 33,699 11,327 6,635
Other long-term liabilities........................... -- 1,513 74
------------- ------------- ------------
Total Liabilities..................................... 44,653 15,477 7,731
------------- ------------- ------------
Joint Ventures' Equity (Deficit)...................... (3,427) 4,046 3,896
------------- ------------- ------------
Total Liabilities and Joint Ventures' Equity
(Deficit)........................................... $41,226 $19,523 $ 11,627
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1995 1994 1993
------------- ------------- ------------
<S> <C> <C> <C>
Revenues.............................................. $ 19,344 $ 3,280 $ 1,452
------------- ------------- ------------
Expenses:
Cost of service..................................... 9,993 2,026 969
Selling, general and administrative................. 11,746 2,411 973
Depreciation and amortization....................... 3,917 1,684 911
Other............................................... -- 203 67
------------- ------------- ------------
Total Expenses........................................ 25,656 6,324 2,920
------------- ------------- ------------
Operating Loss........................................ (6,312) (3,044) (1,468)
Interest Expense...................................... (1,960) (632) (64)
Other Income (Expense)................................ (1,920) 47 2
Foreign Currency Translation Gain (Loss).............. (203) 15 (91)
------------- ------------- ------------
Net Loss.............................................. $ (10,395) $(3,614) $ (1,621)
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
Financial information for Joint Ventures which are not yet operational as of
September 30, 1995 is not included in the above summary. MITI's investment in
and advances to those Joint Ventures at December 31, 1995, 1994 and 1993
amounted to approximately $7.1 million, $5.7 million and $89,000, respectively.
The Company and its consolidated and unconsolidated Joint Ventures operate
four types of services in their communications segment: wireless cable
television, paging, radio broadcasting and telephony.
F-22
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
The following tables represent summary financial information for
consolidated subsidiaries and Joint Ventures, unconsolidated equity method joint
ventures and combined consolidated and unconsolidated subsidiaries and joint
ventures by type of service for all operations in the Company's Communications
segment (excluding MITI's headquarter's operations--see Note 12), as of and for
the years ended December 31, 1995, February 28, 1995 and February 28, 1994 (in
thousands):
<TABLE>
<CAPTION>
WIRELESS RADIO
CALENDAR 1995 CABLE TV PAGING BROADCASTING TELEPHONY TOTAL
- -------------------------------------------------- -------- ------ ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Subsidiaries and Joint Ventures
Revenues........................................ $ -- $ 690 $ 3,879 $ -- $ 4,569
Depreciation and amortization................... -- 132 366 -- 498
Operating income (loss) before taxes............ -- (23) (237) -- (260)
Assets.......................................... -- 2,398 7,999 -- 10,397
Capital expenditures............................ -- 40 172 -- 212
-------- ------ ------------ --------- -------
-------- ------ ------------ --------- -------
Unconsolidated Equity Joint Ventures
Revenues........................................ $ 8,809 $2,427 $ 918 $ 7,190 $19,344
Depreciation and amortization................... 3,071 345 36 465 3,917
Operating income (loss) before taxes............ (4,152) (613) (1,255) (292) (6,312)
Assets.......................................... 22,727 3,495 247 14,757 41,226
Capital expenditures............................ 9,727 1,933 46 9,740 21,446
-------- ------ ------------ --------- -------
-------- ------ ------------ --------- -------
Net investment in Joint Ventures................ $21,592 $4,980 $ 1,174 $ 2,078 $29,824
MITI equity in losses of unconsolidated
investees......................................... (5,885) (403) (1,388) (305) (7,981)
-------- ------ ------------ --------- -------
-------- ------ ------------ --------- -------
Combined
Revenues........................................ $ 8,809 $3,117 $ 4,797 $ 7,190 $23,913
Depreciation and amortization................... 3,071 477 402 465 4,415
Operating income (loss) before taxes............ (4,152) (636) (1,492) (292) (6,572)
Assets.......................................... 22,727 5,893 8,246 14,757 51,623
Capital expenditures............................ 9,727 1,973 218 9,740 21,658
-------- ------ ------------ --------- -------
-------- ------ ------------ --------- -------
</TABLE>
F-23
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
<TABLE>
<CAPTION>
WIRELESS RADIO
FISCAL 1995 CABLE TV PAGING BROADCASTING TELEPHONY TOTAL
- ------------------------------------------------- -------- ------ ------------ --------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Subsidiaries and Joint Ventures
Revenues....................................... $ 416 $ 266 $ 2,863 $ -- $ 3,545
Depreciation and amortization.................. 320 101 214 -- 635
Operating income (loss) before taxes........... (359) (331) (795) -- (1,485)
Assets......................................... 704 1,956 10,135 -- 12,795
Capital expenditures........................... -- 49 97 -- 146
-------- ------ ------------ --------- --------
-------- ------ ------------ --------- --------
Unconsolidated Equity Joint Ventures
Revenues....................................... $ 2,672 $ 180 $ 373 $ 55 $ 3,280
Depreciation and amortization.................. 1,655 -- 20 9 1,684
Operating income (loss) before taxes........... (2,026) (425) (15) (578) (3,044)
Assets......................................... 15,090 1,030 856 2,547 19,523
Capital expenditures........................... 5,072 766 8 2,487 8,333
-------- ------ ------------ --------- --------
-------- ------ ------------ --------- --------
Net investment in Joint Ventures............... $14,033 $1,829 $ 1,256 $ 1,485 $ 18,603
MITI equity in losses of unconsolidated
investees........................................ (1,838) (147) (99) (173) (2,257)
-------- ------ ------------ --------- --------
-------- ------ ------------ --------- --------
Combined
Revenues....................................... $ 3,088 $ 446 $ 3,236 $ 55 $ 6,825
Depreciation and amortization.................. 1,975 101 234 9 2,319
Operating income (loss) before taxes........... (2,385) (756) (810) (578) (4,529)
Assets......................................... 15,794 2,986 10,991 2,547 32,318
Capital expenditures........................... 5,072 815 105 2,487 8,479
-------- ------ ------------ --------- --------
-------- ------ ------------ --------- --------
</TABLE>
F-24
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
<TABLE>
<CAPTION>
WIRELESS RADIO
FISCAL 1994 CABLE TV PAGING BROADCASTING TELEPHONY TOTAL
- -------------------------------------------------- -------- ------ ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Subsidiaries and Joint Ventures
Revenues........................................ $ 51 $ -- $-- $ -- $ 51
Depreciation and amortization................... 110 -- -- -- 110
Operating income (loss) before taxes............ (303 ) (55) -- -- (358)
Assets.......................................... 256 1,069 -- -- 1,325
Capital expenditures............................ -- 34 -- -- 34
-------- ------ ------ --------- -------
-------- ------ ------ --------- -------
Unconsolidated Equity Joint Ventures
Revenues........................................ $ 1,452 $ -- $-- $ -- $ 1,452
Depreciation and amortization................... 909 2 -- -- 911
Operating income (loss) before taxes............ (1,400 ) (68) -- -- (1,468)
Assets.......................................... 10,520 1,107 -- -- 11,627
Capital expenditures............................ 3,411 764 -- -- 4,175
-------- ------ ------ --------- -------
-------- ------ ------ --------- -------
Net investment in Joint Ventures................ $ 7,123 $1,445 $1,055 $ -- $ 9,623
MITI equity in losses of unconsolidated
investees...................................... (752 ) (25) -- -- (777)
-------- ------ ------ --------- -------
-------- ------ ------ --------- -------
Combined
Revenues........................................ $ 1,503 $ -- $-- $ -- $ 1,503
Depreciation and amortization................... 1,019 2 -- -- 1,021
Operating income (loss) before taxes............ (1,703 ) (123) -- -- (1,826)
Assets.......................................... 10,776 2,176 -- -- 12,952
Capital expenditures............................ 3,411 798 -- -- 4,209
-------- ------ ------ --------- -------
-------- ------ ------ --------- -------
</TABLE>
More than 90% of the Company's assets are located in, and substantially all
of the Company's operations are derived from, Republics in the Commonwealth of
Independent States or Eastern Europe.
F-25
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT
Long-term debt at December 31, 1995 and February 28, 1995 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
MIG (EXCLUDING ORION AND MITI)
MIG Revolver........................................................... $ 28,754 $ --
6 1/2% Convertible Debentures due 2002, net of unamortized discount of
$17,994................................................................ 57,006 --
9 1/2% Debentures due 1998, net of unamortized discount of $140........ 59,344 --
9 7/8% Senior Debentures due 1997, net of unamortized premium of
$217................................................................... 18,217 --
10% Debentures due 1999................................................ 6,075 --
Other long-term debt:
Secured 6.25% due 1998............................................... 1,020 --
------------ ------------
170,416 --
------------ ------------
ORION
Notes payable to banks under Credit, Security & Guaranty Agreements.... 123,700 --
Notes payable to banks under the Third Restated Credit Agreement....... -- 58,619
Obligation to Metromedia Company under Reimbursement Agreement......... -- 19,544
Talent Notes due 1999, net of unamortized discount of $8,488........... -- 26,057
Creditor Notes due 1999, net of unamortized discount of $21,745........ -- 40,630
Non-interest bearing payment obligation to Sony, net of unamortized
discount of $1,191................................................... -- 16,756
Other guarantees and contracts payable, net of unamortized discounts of
$2,402 and $2,943.................................................... 9,939 8,124
10% Subordinated Debentures due 2001, net of unamortized discount of
$8,097............................................................... -- 42,349
------------ ------------
133,639 212,079
------------ ------------
MITI
Hungarian Foreign Trade Bank........................................... 588 1,057
Other.................................................................. -- 168
Demand Notes payable................................................... -- 5,529
Notes payable to Metromedia Company.................................... -- 18,194
------------ ------------
588 24,948
------------ ------------
Less: current portion--Metromedia Company........................ -- 37,738
--Other.............................................. 40,597 96,177
------------ ------------
Long-term debt, net of current portion................................. $264,046 $103,112
------------ ------------
------------ ------------
</TABLE>
Aggregate annual repayments of long-term debt over the next five years and
thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1996............................................................. $40,597
1997............................................................. 44,548
1998............................................................. 88,714
1999............................................................. 31,923
2000............................................................. 39,453
Thereafter....................................................... 77,325
</TABLE>
F-26
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
MIG (EXCLUDING ORION AND MITI)
On November 1, 1995, the Company entered into a $35 million revolving credit
agreement ("MIG Revolver") with Chemical Bank. On December 31, 1995, the Company
had utilized $28.8 million. At the borrower's option, the MIG Revolver bears
interest at a rate of LIBOR plus 2%, or Chemical Bank's alternative base rate
plus 1%. The MIG Revolver terminates October 30, 1996.
Under terms of the MIG Revolver, the aggregate amount of all outstanding
loans cannot exceed 65% of the market value of Roadmaster stock (see Note 4).
Borrowings under the MIG Revolver are secured by all of the stock of Roadmaster
owned by the Company, and a subordinated lien of the assets of Snapper, Inc. The
loan is guaranteed by MITI. It is assumed that the carrying value of the MIG
Revolver approximates its fair value because of its floating interest rate
feature.
In 1987 the Company issued $75.0 million of 6 1/2% Convertible Subordinated
Debentures due in 2002 in the Euro-dollar market. The Debentures are convertible
into common stock at a conversion price of $41 5/8 per share. At the Company's
option, the Debentures may be redeemed at 100% plus accrued interest until
maturity.
The 9 7/8% Senior Subordinated Debentures are redeemable at the option of
the Company, in whole or in part, at 100% of the principal amount plus accrued
interest. Mandatory sinking fund payments of $3.0 million (which the Company may
increase to $6.0 million annually) began in 1982 and are intended to retire, at
par plus accrued interest, 75% of the issue prior to maturity.
At the option of the Company, the 10% Subordinated Debentures are
redeemable, in whole or in part, at the principal amount plus accrued interest.
Sinking fund payments of 10% of the outstanding principal amount commenced in
1989, however, the Company receives credit for Debentures redeemed or otherwise
acquired in excess of sinking fund payments.
The carrying value of the Company's long-term and subordinated debt,
including the current portion at December 31, 1995, approximates fair value. The
estimate is based on a discounted cash flow analysis using current incremental
borrowing rates for similar types of agreements and quoted market prices for
issues which are traded.
ORION DEBT
On November 1, 1995 Orion entered into a credit agreement with Chemical
Bank, as agent, and a syndicate of lenders (the "Orion Credit Agreement"). The
Orion Credit Agreement consists of a $135 million term loan ("Orion Term Loan")
with quarterly repayments of $6.75 million commencing March 1996 with a final
payment due December 31, 2000; and a $50 million revolver ("Orion Revolver")
with a final maturity of December 31, 2000. The amount available under the Orion
Revolver as of December 31, 1995 was $38 million (of which $9 million is
reserved for an outstanding letter of credit).
Interest is charged on the Orion Term Loan at the agent bank's prime rate
plus 2% or at 3% above the LIBOR rate, at Orion's option; and for the Orion
Revolver at the agent bank's prime rate plus 1/2% or at 1 1/2% above the LIBOR
rate, also at Orion's option. At December 31, 1995, the effective interest rates
for the Orion Term Loan and the Orion Revolver were 8.9% and 7.3%, respectively.
Indebtedness under the Orion Credit Agreement is secured by all of Orion's
assets, including the common stock of Orion and its subsidiaries. In addition to
the quarterly amortization schedule, the Orion Credit Agreement provides that in
the event that the ratio of the value of the eligible accounts receivable in
Orion's borrowing base to the amount outstanding under the Orion Term Loan (the
"Borrowing Base
F-27
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
Ratio") does not exceed a designated threshold, all cash received by Orion must
be used to prepay principal and interest on the Orion Term Loan until such
Borrowing Base Ratio exceeds such designated threshold. All prepayments may be
applied against scheduled quarterly repayments.
As a result of prepayments, Orion has satisfied its scheduled amortization
payments through December 31, 1996. To the extent the Borrowing Base Ratio
exceeds the threshold set forth in the Orion Credit Agreement, and is not needed
to amortize the Orion Term Loan, Orion may use excess cash to pay its operating
expenses, including the costs of acquiring new film product or new production.
The Borrowing Base Ratio currently exceeds the designated threshold. In
addition, Orion has established a system of lockbox accounts and collection
accounts to maintain Chemical's security interest in the cash proceeds of
Orion's accounts receivable. Amounts outstanding under the Orion Revolver are
guaranteed jointly and severally by Metromedia and by John W. Kluge.
The Orion Credit Agreement also contains customary covenants, including
limitations on the incurrence of additional indebtedness and guarantees, the
creation of new liens and on the number of films Orion may produce, restrictions
on the development costs and budgets for such films, limitations on the
aggregate amount of unrecouped print and advertising costs Orion may incur,
limitations on the amount of Orion's leases, capital and overhead expenses,
prohibitions on the declaration of dividends or distributions by Orion to MIG,
limitations on the merger or consolidation of Orion or the sale by Orion of any
substantial portion of its assets or stock and restrictions on Orion's line of
business, other than activities relating to the production and distribution of
entertainment product. The Orion Credit Agreement also contains several
financial covenants, including the requirement that Orion maintain the ratio of
Orion's Free Cash Flow (as defined in the Orion Credit Agreement) to its
cumulative investment in film product above certain specified levels at the end
of each fiscal quarter, and that Orion's cumulative investment in film product
not exceed Free Cash Flow by more than $50,000,000. In addition, the Orion
Credit Agreement contains a covenant which would be triggered if the amount of
Orion's net losses exceeds certain levels for each fiscal year beginning with
the fiscal year ended December 31, 1996 or in the event of a change in control
of MIG.
It is assumed that the carrying value of Orion's bank debt approximates its
face value because it is a floating rate instrument.
As a result of the Plan (see Note 3), Orion had certain obligations
outstanding, including: Notes payable to the banks under the Third Restated
Credit Agreement, obligations to Metromedia and its affiliate under a
Reimbursement Agreement, Talent Notes, Creditor Notes, obligations to Sony
Entertainment Inc. ("Sony") and 10% Subordinated Debentures ("Plan Debt").
Notwithstanding mandatory minimum payments and maturity dates, while operating
under the Plan, and to the extent Orion generated positive net cash flow,
interest and principal payments were made to the individual obligations included
in Plan Debt based upon certain formulas. At August 31, 1995 Orion had not
generated sufficient net cash flow to satisfy certain mandatory minimum payments
and an event of default could have been asserted by the Trustees or holders of
certain obligations of the Plan Debt. However, at the Merger Date (see Note 2),
proceeds from the Orion Term Loan, as well as amounts advanced from MIG under a
subordinated promissory note, were used directly or indirectly to repay and
terminate all outstanding Plan Debt obligations ($210.7 million) and to pay
certain transaction costs. To record the repayment and termination of the Plan
Debt, Orion removed certain unamortized discounts associated with such
obligations from its accounts and recognized an extraordinary loss of $32.4
million on the extinguishment of debt.
F-28
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. LONG-TERM DEBT--(CONTINUED)
MITI DEBT
A loan from a Hungarian Foreign Trade Bank is due on September 14, 1997 and
is repayable in three annual installments with an interest rate of 34.5%. The
loan is a Hungarian Forint based loan and is secured by a letter of credit
issued by Metromedia International, Inc. in the amount of $1.2 million.
On November 1, 1995, MIG issued 2,537,309 shares of common stock in
repayment of $26.6 million of MITI notes payable.
Included in interest expense for calendar 1995 and fiscal 1995 are $3.8
million and $430,000, respectively, of interest on amounts due to Metromedia
Company, an affiliate of MIG. No such amounts were included in fiscal 1994
interest expense.
9. STOCKHOLDERS' EQUITY
PREFERRED STOCK
There are 70,000,000 shares of Preferred Stock authorized, none of which
were outstanding or designated as to a particular series at December 31, 1995.
COMMON STOCK
There are 110,000,000 authorized shares of Common Stock, $1 par value. At
December 31, 1995, February 28, 1995 and February 28, 1994 there were
42,613,738, 20,934,898 and 17,188,408 shares issued and outstanding,
respectively.
After giving effect to the Merger, the Company has reserved the shares of
Common Stock listed below for possible future issuance:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Stock options.................................................. 2,014,258
6 1/2% Convertible Subordinated Debentures (see Note 8) 1,801,802
Restricted stock plan.......................................... 132,800
------------
3,948,860
------------
------------
</TABLE>
STOCK PLANS
The Company's stock option plans provide for the issuance of incentive stock
options and nonqualified stock options. Incentive stock options may be issued at
a per share price not less than the market value at the date of grant.
Nonqualified options may be issued generally at prices and on terms determined
in the case of each stock option.
Following the Merger (see Note 2), options granted pursuant to the MITI
stock option plan and the Actava stock option plans, became exercisable for
stock of MIG in accordance with the respective exchange ratios.
F-29
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY--(CONTINUED)
After giving effect to the Merger, the following table reflects changes in
the stock options issued under these plans:
<TABLE>
<CAPTION>
SHARES AVERAGE
SUBJECT TO OPTION PRICE
OPTION PER SHARE
---------- -------------
<S> <C> <C>
INCENTIVE STOCK OPTIONS
Balance at December 31, 1993................................. --
----------
Options granted.............................................. --
Options exercised............................................ --
Options canceled --
----------
Balance at December 31, 1994................................. --
----------
----------
Transfer of Actava options in Merger......................... 203,000 $8.00--$12.00
Options granted --
----------
Options exercised............................................ (19,000) $8.00--$9.00
Options canceled............................................. --
----------
Balance at December 31, 1995................................. 184,000 $8.00--$9.00
----------
----------
Options exercisable at end of year........................... 78,000 $8.00--$12.00
----------
----------
NONQUALIFIED STOCK OPTIONS
Balance at December 31, 1993................................. --
----------
Options granted.............................................. 283,000 $5.41
Options exercised --
Options canceled --
----------
Balance at December 31, 1994................................. 283,000 $5.41
----------
Transfer of Actava options in Merger......................... 234,000 $8.00--$14.50
Options granted.............................................. 366,000 $5.41
Options exercised............................................ (74,000) $8.00--$14.50
Options canceled............................................. (89,000) $5.41
----------
Balance at December 31, 1995................................. 720,000 $5.41--$14.50
----------
----------
Options exercisable at end of year........................... 178,000 $5.41--$14.50
----------
----------
</TABLE>
There were 153,000 shares under the stock option plans at December 31, 1995
which were available for the granting of additional stock options.
During 1994, an officer of MITI was granted an option, not pursuant to any
plan, to purchase 657,908 shares of common stock (the "MITI Options") at a
purchase price of $1.08 per share. The MITI Options expire on September 30,
2004, or earlier if the officer's employment is terminated. Included in 1994
expenses is $3.6 million of compensation expense in connection with these
options. Prior to the Merger, an officer of Actava was granted an option, not
pursuant to any plan, to purchase 300,000 shares of common stock (the "Actava
Options") at a purchase price of $6.375 per share. The Actava Options expire on
April 18, 2001.
F-30
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY--(CONTINUED)
On December 13, 1995, the Board of Directors of the Company terminated the
Actava 1991 Non-Employee Director Stock Option Plan. The Company had previously
reserved 150,000 shares for issuance upon the exercise of options granted under
this plan and had granted 20,000 options thereunder. Also on January 31, 1996,
the Board of Directors adopted the 1996 Incentive Stock Option Plan, subject to
shareholder approval. Assuming adoption of the 1996 Incentive Stock Option Plan
by shareholders, it is the intention of the Board of Directors not to grant any
additional options under the MITI and Actava stock option plans.
No shares have been granted under the Company's restricted stock plan during
1995 and 102,800 shares of common stock remain available under this plan.
10. INCOME TAXES
The provision for income taxes for calendar 1995, fiscal 1995 and 1994, all
of which is current, consists of the following (in thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Federal.......................................... $-- $ -- $ --
State and local.................................. 167 100 100
Foreign.......................................... 600 1,200 2,000
-------- ------ ------
Current.......................................... 767 1,300 2,100
Deferred......................................... -- -- --
-------- ------ ------
Total............................................ $767 $1,300 $2,100
-------- ------ ------
-------- ------ ------
</TABLE>
Such provision has been allocated to continuing operations before
extraordinary items, discontinued operations and extraordinary items as follows
(in thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------ ------
<S> <C> <C> <C>
Operations before extraordinary items............ $767 $1,300 $2,100
Discontinued operations.......................... -- -- --
Extraordinary items.............................. -- -- --
-------- ------ ------
$767 $1,300 $2,100
-------- ------ ------
-------- ------ ------
</TABLE>
The federal income tax portion of the provision for income taxes includes
the benefit of state income taxes provided. The Company recognizes investment
tax credits on the flow-through method.
The Company had pre-tax losses from foreign operations of $3.4 million, $9.5
million and $100,000 in calendar 1995, fiscal 1995 and fiscal 1994,
respectively. Pre-tax losses from domestic operations were $74.9 million, $56.4
million and $129.6 million in calendar 1995, fiscal 1995 and fiscal 1994,
respectively.
State and local income tax expense in calendar 1995, fiscal 1995 and 1994
includes an estimate for franchise and other state tax levies required in
jurisdictions which do not permit the utilization of the Company's calendar
1995, fiscal 1995 and 1994 operating losses to mitigate such taxes. Foreign tax
expense in calendar 1995, fiscal 1995 and 1994 reflects estimates of withholding
and remittance taxes.
F-31
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES--(CONTINUED)
Cash utilized for the payment of income taxes during calendar 1995, fiscal 1995
and 1994 was $1.0 million, $1.8 million and $2.9 million, respectively.
The temporary differences and carryforwards which give rise to deferred tax
assets and (liabilities) for calendar 1995 and fiscal 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31, FEBRUARY 28,
1995 1995
------------ ------------
<S> <C> <C>
Net Operating loss carryforward.................... $241,877 $177,846
Deferred income.................................... 22,196 24,245
Investment credit carryforward..................... 28,000 28,000
Allowance for doubtful accounts.................... 4,395 5,346
Capital loss carryforward.......................... 3,850 --
Film costs......................................... (1,832) (15,077)
Shares payable..................................... 15,670 14,986
Reserves for self-insurance........................ 10,970 --
State tax accruals................................. 3,811 --
Investment in equity investee...................... 22,146 --
Purchase of safe harbor lease investment........... (9,115) --
Minimum tax credit (ATM) carryforward.............. 8,805 --
Other reserves..................................... 6,331 6,958
Other.............................................. 3,843 (1,285)
------------ ------------
Subtotal before valuation allowance................ 360,947 241,019
Valuation allowance................................ (360,947) (241,019)
------------ ------------
Deferred taxes..................................... $ -- $ --
------------ ------------
------------ ------------
</TABLE>
The net change in the total valuation allowance for calendar 1995, fiscal
1995 and fiscal 1994 was an increase of $119.9 million, $51.3 million and $3.4
million, respectively.
The Company's provision for income taxes for calendar 1995, fiscal 1995 and
1994, differs from the provision that would have resulted from applying the
federal statutory rates during those periods to income (loss) before provision
for income taxes. The reasons for these differences are explained in the
following table (in thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Provision (benefit) based upon federal statutory rate of
35%......................................................... $(132,138) $(23,839) $(43,084)
State taxes, net of federal benefit......................... 109 65 65
Foreign taxes in excess of federal credit................... 600 1,200 2,000
Non-deductible direct expenses of chapter 11 filing......... 448 214 596
Current year operating loss not benefitted.................. 26,943 22,832 42,201
Equity in losses of Joint Ventures.......................... 2,778 790 272
Extraordinary loss on early extinguishment of debt.......... (11,344) -- --
Reduction of extraordinary loss not benefitted.............. 11,344 -- --
Discontinued operations, not tax benefitted................. 101,999 -- --
Other, net.................................................. 28 38 50
--------- -------- --------
Provision for income taxes.................................. $ 767 $ 1,300 $ 2,100
--------- -------- --------
--------- -------- --------
</TABLE>
F-32
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES--(CONTINUED)
At December 31, 1995, the Company had available net operating loss
carryforwards, capital loss carryforwards, unused alternative tax credits and
unused investment tax credits of approximately $631 million, $11 million, $9
million and $28 million, respectively, which can reduce future federal income
taxes. If not utilized, these carryforwards and credits will begin to expire in
1996. The alternative tax credit may be carried forward indefinitely, to offset
regular tax in certain circumstances.
The use by the Company of any net operating loss carryforwards reported or
which will be reported by Orion, Actava, MITI and Sterling and the subsidiaries
included in their respective affiliated groups of corporations which filed
consolidated Federal income tax returns with Orion, Actava, MITI and Sterling as
the parent corporations (such Orion, Actava, MITI and Sterling affiliated groups
hereinafter being referred to as the "Orion Group," the "Actava Group," the
"MITI Group" and the "Sterling Group," respectively, and individually as a
"Former Group" and collectively as the "Former Groups") for taxable years ending
on or before November 1, 1995 (such Pre-November 1, 1995 net operating loss
carryforwards hereinafter referred to collectively as the "Pre-November 1
Losses") will be subject to certain limitations as a result of the Mergers.
Under Section 382 of the Internal Revenue Code, annual limitations will
generally apply to the use of the Pre-November 1 Losses of the Former Groups by
the Company. The amount of the annual limitation with respect to a Former Group
will depend upon the application of certain principles contained in Section 382
of the Internal Revenue Code relating to the valuation of such Former Group
immediately prior to the November 1 Mergers and an interest factor published by
the Internal Revenue Service on a monthly basis. Based on the market price of
the Company's stock at the effective time of the Mergers, the exchange ratios
with respect to the shares of Orion, MITI and Sterling, and the published
interest factor of 5.75 percent (applicable to transactions that occurred in
November 1995), the annual limitations on the use of the Pre-November 1 Losses
of the Orion Group, Actava Group, the MITI Group and the Sterling Group,
respectively, by the MIG Group would currently be approximately $11.9 million,
$18.3 million, $10.0 million and $510,000 per year, respectively. To the extent
Pre-November 1 Losses equal to the annual limitation with respect to any of the
Former Groups are not used in any year, the unused amount would generally be
available to be carried forward and used to increase the limitation with respect
to such Former Group in the succeeding year.
The use of Pre-November 1 Losses of the Orion Group, the MITI Group and the
Sterling Group will also be separately limited by the income and gains
recognized by the corporations that were members of each of the Orion Group, the
MITI Group and the Sterling Group, respectively, including corporations such as
the Company (in the case of Sterling) that are successors by merger to any of
such members. Under proposed Treasury regulations, such Pre-November 1 Losses of
any such former members of any such Former Group, or successors thereof, would
be usable on an aggregate basis to the extent of the income and gains of such
former members of such Former Group, or successors thereof on an aggregate
basis.
As a result of the Merger, the Company succeeded to approximately $92.2
million of Pre-November 1 Losses of the Actava Group. SFAS 109 requires assets
acquired and liabilities assumed to be recorded at their "gross" fair value.
Differences between the assigned values and tax bases of assets acquired and
liabilities assumed in purchase business combinations are temporary differences
under the provisions of SFAS 109. However, since all of the Actava intangibles
have been eliminated, when the Pre-November 1 Losses are utilized they will
reduce income tax expense.
F-33
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. EMPLOYEE BENEFIT PLANS
Actava had a noncontributory defined benefit plan which is "qualified" under
Federal tax law and covered substantially all Actava's employees. In addition,
Actava had a "nonqualified" supplemental retirement plan which provided for the
payment of benefits to certain employees in excess of those payable by the
qualified plans. Following the Mergers (see Note 2), the Company froze the
Actava noncontributory defined benefit plan and "nonqualified" supplemental
retirement plan effective as of December 31, 1995. Employees will no longer
accumulate benefits under these plans.
In connection with the Merger, the projected benefit obligation and fair
value of plan assets were remeasured considering the Company's freezing of the
plan. The excess of the projected benefit obligations over the fair value of
plan assets in the amount of $4.9 million was recorded in the allocation of
purchase price. The recognition of the net pension liability in the allocation
of the purchase price eliminated any previously existing unrecognized gain or
loss, prior service cost, and transition asset or obligation related to the
acquired enterprise's pension plan.
Some of the Company's subsidiaries also have defined contribution plans
which provide for discretionary annual contributions covering substantially all
of their employees. Effective January 1, 1993, MITI established a 401(k) Salary
Deferral Plan ("401(k) Plan") on behalf of its employees. Under the 401(k) Plan
participating employees can defer receipt of up to 15% of their compensation,
subject to certain limitations. MITI has the discretion to match amounts
contributed by the employee up to 3% of their compensation. The Company
contributed $60,000 for the year ended December 31, 1995.
Orion has a 401(k) defined contribution retirement and savings plan covering
all eligible employees who prior to March 1 or September 1, have completed 1,000
hours of service, as defined in the plan. Participants may make pretax
contributions to the plan of up to 15% of their compensation, as defined,
subject to certain limitations as prescribed by the Internal Revenue Code. Orion
matches 50% of amounts contributed up to $500 per participant per plan year.
Orion may make discretionary contributions on an annual basis to the plan. The
exact amount of discretionary contributions is decided each year by the Board of
Directors. There have been no discretionary contributions since the inception of
the plan. Total employer contribution expense for calendar 1995, fiscal 1995 and
fiscal 1994 was approximately $64,000 each year.
12. BUSINESS SEGMENT DATA
The business activities of the Company constitute two business segments, (i)
filmed entertainment, which includes the financing and production of theatrical
motion pictures as well as the distribution of theatrical motion pictures and
television programming, and (ii) communications, which includes wireless cable
television, paging services, radio broadcasting, and telephony.
FILMED ENTERTAINMENT
The Company operates its filmed entertainment operations through Orion.
Until the Merger Date (see Note 2), Orion operated under the terms of the Plan
(see Note 3) which severely limited Orion's ability to finance and produce
additional theatrical motion pictures. Therefore, Orion's primary activity prior
to the Merger was the ongoing distribution of its present library of theatrical
motion pictures and television programming. Orion believes the lack of a
continuing flow of newly produced theatrical product while operating under the
Plan adversely affected the marketability of its library.
F-34
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. BUSINESS SEGMENT DATA--(CONTINUED)
Theatrical motion pictures are produced initially for exhibition in
theaters. Initial theatrical release generally occurs in the United States and
Canada. Foreign theatrical exhibition generally begins within the first year
after initial release. Home video distribution in all territories usually begins
six to twelve months after theatrical release in that territory, with pay
television exploitation beginning generally six months after initial home video
release. Exhibition of the Company's product on network and on other free
television outlets begins generally three to five years from the initial
theatrical release date in each territory.
COMMUNICATIONS
The Company, through MITI and subsidiaries, owns various interests in Joint
Ventures that are currently in operation or planning to commence operations in
certain republics of the Commonwealth of Independent States ("CIS") (formerly
the Union of Soviet Socialist Republics) and other Eastern European countries.
During 1995, the Company began to pursue opportunities to extend its
communications businesses into other emerging markets in the Pacific Rim.
The Joint Ventures currently offer wireless cable television, radio paging
systems, radio broadcasting, trunked mobile radio services and various types of
telephone services. Joint Ventures are principally entered into with
governmental agencies or ministries under the existing laws of the respective
countries.
The Joint Venture agreements generally provide for the initial contribution
of assets or cash, and for the creation of a line of credit agreement to be
entered into between the Joint Venture and MITI. Under a typical arrangement,
MITI's venture partner contributes the necessary license or permits under which
the Joint Venture will conduct its business, studio or office space,
transmitting tower rights and other equipment. MITI's contribution is generally
cash and equipment but may consist of other specific assets as required by the
Joint Venture agreement. The line of credit agreement generally specifies a
commitment amount, interest rates and repayment terms.
The consolidated financial statements include the accounts and results of
operations of MITI and its majority owned and controlled Joint Venture, CNM
Paging, and its subsidiaries. Investments in other companies and Joint Ventures
which are not majority owned, or in which the Company does not control but
exercises significant influence are accounted for using the equity method (see
Notes 1 and 7).
F-35
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. BUSINESS SEGMENT DATA--(CONTINUED)
BUSINESS SEGMENT DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1995
-------- -------- --------
<S> <C> <C> <C>
Filmed Entertainment:
Net revenues.............................................. $133,812 $191,244 $175,662
Direct operating costs.................................... (155,720) (208,755) (263,961)
Depreciation and amortization............................. (694) (767) (708)
-------- -------- --------
Loss from operations...................................... (22,602) (18,278) (89,007)
-------- -------- --------
-------- -------- --------
Assets at year end........................................ 283,093 351,588 508,014
Capital expenditures...................................... 1,151 1,198 (785)
-------- -------- --------
-------- -------- --------
Communications:
Net revenues.............................................. 5,158 3,545 51
Direct operating costs.................................... (26,937) (19,067) (6,086)
Depreciation and amortization............................. (2,101) (1,149) (174)
-------- -------- --------
Loss from operations...................................... (23,880) (16,671) (6,209)
-------- -------- --------
-------- -------- --------
Equity in losses of Joint Ventures........................ 7,981 2,257 777
-------- -------- --------
-------- -------- --------
Assets at year end........................................ 161,089 40,282 12,637
Capital expenditures...................................... 2,548 3,610 (1,423)
-------- -------- --------
-------- -------- --------
Headquarters and Eliminations:
Net revenues.............................................. (99) -- --
Direct operating costs.................................... (876) -- --
Depreciation and amortization............................. -- -- --
-------- -------- --------
Income from operations.................................... (975) -- --
-------- -------- --------
-------- -------- --------
Assets at year end including discounted operations and
eliminations................................................ 155,456 -- --
-------- -------- --------
-------- -------- --------
Consolidated--Continuing Operations:
Net revenues.............................................. 138,871 194,789 175,713
Direct operating costs.................................... (183,533) (227,822) (270,047)
Depreciation and amortization............................. (2,795) (1,916) (882)
-------- -------- --------
Loss from operations...................................... (47,457) (34,949) (95,216)
-------- -------- --------
-------- -------- --------
Equity in losses of joint ventures........................ 7,981 2,257 777
-------- -------- --------
-------- -------- --------
Assets at year end........................................ 599,638 391,870 520,651
Capital expenditures...................................... $ 3,699 $ 4,808 $ 2,208
-------- -------- --------
-------- -------- --------
</TABLE>
Management fees of $100,000 charged to operations are eliminated from the
business segment data.
The sources of the Company's revenues from continuing operations by market
for each of the last three fiscal years are set forth in "Management's
Discussion and Analysis of Financial Condition and Results of Operations". The
Company derives significant revenues from the foreign distribution of its
theatrical motion pictures and television programming. The following table sets
forth Orion's export
F-36
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. BUSINESS SEGMENT DATA--(CONTINUED)
sales from continuing operations by major geographic area for each of the last
three fiscal years (in thousands):
<TABLE>
<CAPTION>
CALENDAR FISCAL FISCAL
1995 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Canada........................................ $ 4,150 $ 3,862 $ 1,562
Europe........................................ 32,126 36,532 62,107
Mexico and South America...................... 2,454 4,586 5,782
Asia and Australia............................ 8,841 13,820 23,876
-------- ------- -------
$ 47,571 $58,800 $93,327
-------- ------- -------
-------- ------- -------
</TABLE>
Revenues, operating losses and assets of MITI's foreign operations are
disclosed in Note 7.
Showtime Networks, Inc. ("Showtime") and Lifetime Television ("Lifetime")
have been significant customers of the Company. During calendar 1995 and fiscal
1995, the Company recorded approximately $15.4 million and $45.5 million,
respectively, of revenues under its pay cable agreement with Showtime, and
during calendar 1995, fiscal 1995 and fiscal 1994, the Company recorded
approximately $15.0 million, $12.5 million and $15.1 million of revenues,
respectively, under its basic cable agreement with Lifetime.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Commitments The Company is obligated under various operating leases. Total
rent expense amounted to $2.6 million, $2.3 million, and $2.2 million, in
calendar 1995, fiscal 1995 and fiscal 1994, respectively.
Minimum rental commitments under noncancellable operating leases are set
forth in the following table (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
----- ------
<S> <C>
1996................................................ $1,911
1997................................................ 954
1998................................................ 832
1999................................................ 519
2000................................................ 252
Thereafter.......................................... 526
------
Total minimum rental commitments.................... $4,994
------
------
</TABLE>
The Company and certain of its subsidiaries have employment contracts with
various officers, with remaining terms of less than one year, at amounts
approximating their current levels of compensation. The Company's remaining
aggregate commitment at December 31, 1995 under such contracts is approximately
$8.1 million.
In addition, the Company and certain of its subsidiaries have postemployment
contracts with various officers. The Company's remaining aggregate commitment at
December 31, 1995 under such contracts is approximately $1.1 million.
F-37
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
ACQUISITION COMMITMENTS
During December 1995, MITI, Protocall Ventures Ltd. ("Protocall"), and the
shareholders of Protocall, executed a letter of intent together with a loan
agreement relating to the purchase of Protocall.
The letter of intent states that pending the consummation of purchase, MITI
will loan up to $1.5 million to Protocall and negotiate definitive documentation
relating to the purchase of 51% of Protocall for $2.6 million. Principal and
accrued interest under the loan will be applied to the purchase price at the
time the transactions contemplated by the purchase agreement are consummated,
which is expected to be on or before March 31, 1996.
The letter of intent provides that the shareholders of Protocall have the
right to purchase $250,000 of MIG's common stock during the five year period
after closing of the purchase agreement and further provides the right to
purchase an additional $250,000 of MIG's common stock one year after closing if
Protocall achieves certain budgeted objectives. The purchase price will be the
trading price of MIG stock at the time of the closing of the purchase agreement.
However, the entire purchase price for all the shares will be forgiven and, as
such, these amounts will be considered part of the acquisition cost.
The agreements also provide that MITI will arrange for or make direct loans
to Protocall relating to existing joint venture commitments of up to $3.4
million, plus any additional amounts agreed to by the parties.
In connection with MITI's activities directed at entering into Joint Venture
agreements in the Pacific Rim, MITI's 90% subsidiary, Metromedia Asia Limited
("MAL") has entered into certain agreements with Communications Technology
International, Inc., ("CTI"), which owns 7% of the equity of MAL. Under these
agreements, MAL has agreed, to loan up to $2.5 million to CTI, and permit CTI to
purchase up to an additional 7% of the equity of MAL, provided that CTI is
successful in obtaining rights to operate certain services, as defined, and MAL
is provided with the right to participate in the operation of such services. MAL
has also agreed to loan a portion of the funds required to purchase the equity
interests in MAL to CTI.
CONTINGENCIES
The Company is contingently liable under various guarantees of debt totaling
approximately $1.6 million. The debt is primarily Industrial Revenue Bonds which
were issued to finance manufacturing facilities and equipment of certain of the
Company's former subsidiaries which were disposed of prior to 1995. The Bonds
are secured by the facilities and equipment. In addition, upon the sale of the
subsidiaries, the Company received lending institution guarantees or bank
letters of credit to support the Company's contingent obligations. There are no
material defaults on the debt agreements.
The Company is contingently liable under various real estate leases of
certain of its former subsidiaries which were sold prior to 1995. The total
future payments under these leases, including real estate taxes, is estimated to
be approximately $2.4 million. The leased properties generally have financially
sound subleases.
In 1995, the Russian Federation legislature proposed legislation that would
limit to 35%, the interest which a foreign person is permitted to own in
entities holding broadcast licenses. While such proposed legislation was not
enacted, it is possible that such legislation could be reintroduced and enacted
in Russia. Further, even if enacted, such law may be challenged on
constitutional grounds and may be inconsistent with Russian Federation treaty
obligations. In addition, it is unclear how Russian
F-38
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
Federation regulators would interpret and apply the law to existing license
holders. However, if the legislature passes a law restricting foreign ownership
of broadcast license holding entities and such a law is found to be
constitutional and fails to contain a grandfathering clause to protect existing
companies, it could require MITI to reduce its ownership interests in its
Russian Joint Ventures. It is unclear how such reductions would be effected.
The Republic of Latvia passed legislation in September, 1995 which purports
to limit to 20% the interest which a foreign person is permitted to own in
entities engaged in certain communications businesses such as radio, cable
television and other systems of broadcasting. This legislation will require MITI
to reduce to 20% its existing ownership interest in joint ventures which operate
a wireless cable television system and an FM radio station in Riga, Latvia.
Metromedia International, Inc., a subsidiary of MITI, is contingently liable for
an outstanding letter of credit amounting to $1.2 million.
LITIGATION
Fuqua Industries, Inc. Shareholder Litigation
Between February 25, 1991 and March 4, 1991, three lawsuits were filed
against the Company (formerly named Fuqua Industries, Inc.) in the Delaware
Chancery Court. On May 1, 1991, these three lawsuits were consolidated by the
Delaware Chancery Court in In re Fuqua Industries, Inc. Shareholders Litigation,
Civil Action No. 11974. The named defendants are certain current and former
members of the Company's Board of Directors and certain former members of the
Board of Directors of Intermark, Inc. ("Intermark"). Intermark is a predecessor
to Triton Group Ltd., which formerly owned approximately 25% of the outstanding
shares of the Company's Common Stock. The Company was named as a nominal
defendant in this lawsuit. The action was brought derivatively on behalf of the
Company and purportedly was filed as a class action lawsuit on behalf of all
holders of the Company's Common Stock, other than the defendants. The complaint
alleges, 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 seeks (i) monetary
damages from the director defendants, including a joint and several judgment for
$15.7 million for alleged improper profits obtained by Mr. J.B. Fuqua in
connection with the sale of his shares in the Company to Intermark; (ii)
injunctive relief against the Company, Intermark and its former directors,
including a prohibition against approving or entering into any business
combination with Intermark without specified approval; and (iii) costs of suit
and attorneys' fees. On December 28, 1995, plaintiffs filed a consolidated
second amended derivative and class action complaint, purporting to assert
additional facts in support of their claim regarding an alleged plan, but
deleting their prior request for injunctive relief. On January 31, 1996, all
defendants moved to dismiss the second amended complaint and filed a brief in
support of that motion. The motion to dismiss is still pending. In accordance
with Section 145 of the General Corporation Law of the State of Delaware,
pursuant to the Company's Restated Certificate of Incorporation, the Company has
agreed to indemnify its officers and directors against, among other things, any
and all judgments, fines, penalties, amounts paid in settlements and expenses
paid or incurred by virtue of the fact that such officer or director was acting
in such capacity to the extent not prohibited by law.
The Company and its subsidiaries are contingently liable with respect to
various matters, including litigation in the ordinary course of business and
otherwise. Some of the pleadings in the various litigation matters contain
prayers for material awards. Based upon management's review of the underlying
facts and circumstances and consultation with counsel, management believes such
matters
F-39
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
will not result in significant additional liabilities which would have a
material adverse effect upon the consolidated financial position or results of
operations of the Company.
ENVIRONMENTAL PROTECTION
Snapper's manufacturing plant is subject to federal, state and local
environmental laws and regulations. Compliance with such laws and regulations
has not, and is not expected to, materially affect Snapper's competitive
position. Snapper's capital expenditures for environmental control facilities,
its incremental operating costs in connection therewith and Snapper's
environmental compliance costs were not material in 1995 and are not expected to
be material in future years.
The Company has agreed to indemnify the purchaser of a former subsidiary of
the Company for certain obligations, liabilities and costs incurred by such
subsidiary arising out of environmental conditions existing on or prior to the
date on which the subsidiary was sold by the Company. The Company sold the
subsidiary in 1987. Since that time, the Company has been involved in various
environmental matters involving property owned and operated by the subsidiary,
including clean-up efforts at landfill sites and the remediation of groundwater
contamination. The costs incurred by the Company with respect to these matters
have not been material during any year through and including the fiscal year
ended December 31, 1995. As of December 31, 1995, the Company had a remaining
reserve of approximately $1.3 million to cover its obligations to its former
subsidiary.
During 1995, the Company was notified by certain potentially responsible
parties at a superfund site in Michigan that the former subsidiary may be a
potentially responsible party at such site. The former subsidiary's liability,
if any, has not been determined but the Company believes that such liability
will not be material.
The Company, through a wholly-owned subsidiary, owns approximately 17 acres
of real property located in Opelika, Alabama (the "Opelika Property"). The
Opelika Property was formerly owned by Diversified Products Corporation, a
former subsidiary of the Company ("DP"), and was transferred to a wholly owned
subsidiary of the Company in connection with the Exchange Transaction. DP
previously used the Opelika Property as a storage area for stockpiling cement,
sand, and mill scale materials needed for or resulting from the manufacture of
exercise weights. In June 1994, DP discontinued the manufacture of exercise
weights and no longer needed to use the Opelika Property as a storage area. In
connection with the Exchange Transaction, Roadmaster and the Company agreed that
the Company, through a wholly-owned subsidiary, would acquire the Opelika
Property, together with any related permits, licenses, and other authorizations
under federal, state and local laws governing pollution or protection of the
environment. In connection with the closing of the Exchange Transaction, the
Company and Roadmaster entered into an Environmental Indemnity Agreement (the
"Indemnity Agreement") under which the Company agreed to indemnify Roadmaster
for costs and liabilities resulting from the presence on or migration of
regulated materials from the Opelika Property. The Company's obligations under
the Indemnity Agreement with respect to the Opelika Property are not limited.
The Indemnity Agreement does not cover environmental liabilities relating to any
property now or previously owned by DP except for the Opelika Property.
On January 22, 1996, the Alabama Department of Environmental Management
("ADEM") wrote a letter to the Company stating that the Opelika Property
contains an "unauthorized dump" in violation of Alabama environmental
regulations. The letter from ADEM requires the Company to present for ADEM's
approval a written environmental remediation plan for the Opelika Property. The
Company has retained an environmental consulting firm to develop an
environmental remediation plan for the Opelika Property. The consulting firm is
currently conducting soil samples and has performed other
F-40
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. COMMITMENTS AND CONTINGENT LIABILITIES--(CONTINUED)
tests on the Opelika Property. Based upon the preliminary results of these
tests, the Company believes that the reserves of approximately $1.8 million
previously established by the Company for the Opelika Property will be adequate
to cover the cost of the remediation plan that is currently being developed.
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected financial information for the quarterly periods in calendar 1995
and fiscal 1995 is presented below (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
FIRST QUARTER OF SECOND QUARTER OF
---------------------- --------------------
CALENDAR FISCAL CALENDAR FISCAL
1995 1995 1995 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues..................................... $ 37,678 $ 84,345(b) $ 40,755 $ 30,394
Operating loss............................... (10,692)(a) (6,750) (7,460) (11,079)(c)
Interest expense, net........................ 8,119 7,137 7,353 7,123
Equity interest in losses of Joint
Ventures..................................... (588) -- (1,633) (362)
Net loss..................................... (20,366) (14,453) (16,714) (19,087)
-------- -------- -------- --------
Loss per common share:
Primary:
Net loss................................. $ (.97) $ (.79) $ (.80) $ (.92)
</TABLE>
<TABLE>
<CAPTION>
THIRD QUARTER OF FOURTH QUARTER OF
--------------------- -----------------------
CALENDAR FISCAL CALENDAR FISCAL
1995 1995 1995 1995
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Revenues................................... $ 35,468 $45,187 $ 24,970 $ 34,863
Operating loss............................. (6,762) (3,939) (22,543)(d) (13,181)(e)
Interest expense, net...................... 7,574 6,374 6,493 8,661
Equity interest in losses of Joint
Ventures................................... (1,568) (777) (4,192) (1,118)
Net loss before discontinued operations and
extraordinary item....................... (16,146) (11,425) (33,798) (24,446)
Loss on disposal of discontinued
operations............................... -- -- (293,570)(f) --
Loss on early extinguishment of debt....... -- -- (32,382)(g) --
Net loss................................... (16,146) (11,425) (359,750) (24,446)
Loss per common share:
Primary:
Continuing operations.................. $ (.77) $ (.55) $ (.96) $ (1.17)
Discontinued operations.................... $ -- $ -- $ (8.30) $ --
Extraordinary item......................... $ -- $ -- $ (.92) $ --
Net loss................................... $ (.77) $ (.55) $ (10.18) $ (1.17)
</TABLE>
- ------------
<TABLE>
<C> <S>
(a) Operating loss for the first of calendar 1995 includes $5.4 million of writedowns to
previously released film product.
(b) As more fully described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" significant revenues ($40.0 million) were recognized in
conjunction with the Showtime Settlement in the first quarter of fiscal 1995.
(c) Operating loss for the second quarter of fiscal 1995 includes writedowns to estimated
net realizable value of an aggregate of $2.6 million of writedowns of theatrical
product unreleased at that time and $5.3 million of writedowns to previously released
product.
(d) Operating loss for the fourth quarter of calendar 1995 includes writedowns to estimated
realizable value of $3.0 million for unreleased theatrical product and $4.8 million for
writedowns to previously released product.
(e) Operating loss for the fourth quarter of fiscal 1995 includes $8.1 million of
writedowns to previously released product.
</TABLE>
F-41
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)--(CONTINUED)
<TABLE>
<C> <S>
(f) As more fully discussed in Note 2, the excess of the allocated purchase price
attributed to Snapper in the Actava acquisition, over the estimated cash flows from the
operations and the anticipated sale of Snapper, amounted to $293.6 million.
(g) As more fully discussed in Note 8, Orion removed certain unamortized discounts
associated with such obligations from the accounts and recognized an extraordinary loss
of $32.4 million on the extinguishment of debt.
</TABLE>
The quarterly financial data presented above differs from amounts previously
reported in Orion's 10 Q's due to the restatement of historical financial
statements to account for the common control merger with MITI (see Note 2). In
addition, Orion's previously filed fiscal 1996 quarters have been restated and
presented on a calendar year basis in calendar 1995.
15. SUBSEQUENT DEVELOPMENTS
Subsequent to year-end, the Company entered into an Agreement and Plan of
Merger to acquire The Samuel Goldwyn Company ("Goldwyn") and entered into a
letter of intent to acquire Motion Picture Corporation of America ("MPCA"). In
addition, the Company has entered into an Agreement and Plan of Merger to
acquire Alliance Entertainment Company ("Alliance"). In connection with the
proposed acquisition of Alliance and Goldwyn, the Company intends to refinance
substantially all of its indebtedness and that of its subsidiaries, as well as
substantially all of the indebtedness of Alliance and Goldwyn.
On December 20, 1995, the Company and Alliance entered into an Agreement and
Plan of Merger (the "Alliance Merger Agreement") pursuant to which a
newly-formed, wholly-owned subsidiary of the Company was to merge with and into
Alliance. On April 29, 1996, the Company and Alliance entered into a Termination
and Release Agreement terminating the Alliance Merger Agreement.
On January 31, 1996, the Company and Goldwyn entered into an Agreement and
Plan of Merger (the "Goldwyn Merger Agreement") pursuant to which Goldwyn will
merge with a newly-formed, wholly-owned subsidiary of the Company (the "Goldwyn
Merger") and, in connection therewith, will be re-named "Goldwyn Entertainment
Company."
The Goldwyn Merger Agreement provides that upon consummation of the Goldwyn
Merger, Goldwyn stockholders will receive $5.00 worth of Common Stock for each
share of Goldwyn common stock, provided that the average closing price of the
Common Stock over the 20 consecutive trading days ending five days prior to the
meeting of the Company's stockholders held to vote upon the Goldwyn Merger is
between $12.50 and $16.50. If the average closing price of Common Stock over
such period is less than $12.50 it will be deemed to be $12.50 and Goldwyn
stockholders will receive .4 shares of Common Stock for each share of Goldwyn
common stock, and if the average closing price of the Common Stock over such
period is greater than $16.50, it will be deemed to be $16.50 and Goldwyn
stockholders will receive .3030 shares of Common Stock for each share of Goldwyn
common stock.
F-42
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Revenues............................................................... $ 30,808 $ 37,678
Costs and expenses:
Cost of rentals and operating expenses............................... 25,089 36,868
Selling, general and administrative.................................. 14,066 10,974
Depreciation and amortization........................................ 1,723 528
--------- ---------
Operating loss......................................................... (10,070) (10,692)
Interest expense, including amortization of debt discount of $1,259
at March 31, 1996 and $4,334 at March 31, 1995....................... 8,279 8,936
Interest income........................................................ 1,245 817
--------- ---------
Interest expense, net................................................ 7,034 8,119
Chapter 11 reorganization items........................................ 54 767
--------- ---------
Loss before provision for income taxes and equity in losses of joint
ventures............................................................... (17,158) (19,578)
Provision for income taxes............................................. 200 200
Equity in losses of Joint Ventures 1,783 588
--------- ---------
Net loss............................................................... $ (19,141) $ (20,366)
--------- ---------
--------- ---------
Loss per common share:
Primary:
Net loss............................................................... $ (0.45) $ (0.97)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
F-43
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS:
Current Assets:
Cash and cash equivalents......................................... $ 12,656 $ 26,889
Short-term investments............................................ 4,524 5,366
Accounts receivable, net of allowance of $11,926 at March 31, 1996
and $11,913 at December 31, 1995 26,991 29,452
Film inventories.................................................. 56,892 59,430
Other assets...................................................... 4,975 6,314
----------- ------------
Total current assets.............................................. 106,038 127,451
Investments in and advances to joint ventures....................... 37,095 36,934
Assets held for sale--Roadmaster Industries, Inc.................... 47,455 47,455
Asset held for sale--Snapper, Inc................................... 73,800 79,200
Property, plant and equipment, net of accumulated depreciation...... 9,181 6,021
Film inventories.................................................... 126,396 137,233
Long-term film accounts receivable.................................. 30,023 31,308
Intangible assets, net of accumulated amortization.................. 118,818 119,485
Other assets........................................................ 18,327 14,551
----------- ------------
Total assets...................................................... $ 567,133 $ 599,638
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable.................................................. $ 3,957 $ 4,695
Accrued expenses.................................................. 93,344 96,696
Participations and residuals...................................... 19,494 19,143
Current portion of long-term debt................................. 55,327 40,597
Deferred revenues................................................. 11,937 15,097
----------- ------------
Total current liabilities......................................... 184,059 176,228
Long-term debt...................................................... 249,605 264,046
Participations and residuals........................................ 27,753 28,465
Deferred revenues................................................... 40,839 47,249
Other long-term liabilities......................................... 525 395
----------- ------------
Total liabilities................................................. 502,781 516,383
----------- ------------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, authorized 70,000,000 shares, none issued...... -- --
Common Stock, $1.00 par value, authorized 110,000,000 Shares,
issued and outstanding 42,635,488 shares at March 31, 1996 and
42,613,738 shares at December 31, 1995.............................. 42,635 42,614
Paid-in surplus................................................. 728,964 728,747
Accumulated deficit............................................. (707,247) (688,106)
----------- ------------
Total shareholders' equity.................................. 64,352 83,255
----------- ------------
Total liabilities and shareholders' equity.......................... $ 567,133 $ 599,638
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
F-44
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1996 1995
--------- ---------
<S> <C> <C>
Operating activities:
Net loss............................................................. $ (19,141) $ (20,366)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Equity in losses of joint ventures and investees................... 1,783 588
Amortization of film costs......................................... 14,953 25,211
Amortization of debt discounts and bank guarantee.................. 1,259 4,334
Depreciation and amortization...................................... 1,723 528
Decrease in accounts receivable.................................... 3,688 10,084
Decrease in accounts payable and accrued expenses.................. (889) (1,202)
Payments of deferred financing costs............................... (3,200) --
Accrual of participations and residuals............................ 4,316 5,342
Payments of participations and residuals........................... (4,677) (6,185)
Decrease in deferred revenues...................................... (9,570) (6,476)
Other operating activities, net.................................... 192 (79)
--------- ---------
Cash provided by (used in) operations............................ (9,563) 11,779
--------- ---------
Investing activities:
Investments in and advances to Joint Ventures........................ (2,542) (4,299)
Proceeds from repayment of advances to Snapper....................... 5,400 --
Investment in film inventories....................................... (1,578) (781)
Additions to property, plant and equipment........................... (3,616) (383)
Other investing activities, net...................................... (3,068) 482
--------- ---------
Cash used in investing activities................................ (5,404) (4,981)
--------- ---------
Financing Activities:
Proceeds from issuance of long-term debt............................. 11,800 12,477
Proceeds from issuance of stock...................................... 238 --
Payments on notes and subordinated debt.............................. (12,288) (18,141)
Other financing activities, net...................................... 142 194
--------- ---------
Cash used in financing activities................................ (108) (5,470)
--------- ---------
Net increase (decrease) in cash in cash equivalents.................... (15,075) 1,328
Effect of Change in Fiscal Year........................................ -- (13,583)
Cash and cash equivalents at beginning of period....................... 32,255 27,422
--------- ---------
Cash and cash equivalents at end of period............................. $ 17,180 $ 15,167
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
F-45
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENT OF COMMON STOCK,
PAID-IN SURPLUS AND ACCUMULATED DEFICIT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
--------------------------------------------------------
COMMON STOCK
--------------------
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SURPLUS DEFICIT TOTAL
---------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995................ 42,613,738 $42,614 $728,747 $(688,106) $ 83,255
Shares issued.............................. 21,750 21 217 238
Net Loss................................... (19,141) (19,141)
---------- ------- -------- ----------- --------
Balances, March 31, 1996................... 42,635,488 $42,635 $728,964 $(707,247) $ 64,352
---------- ------- -------- ----------- --------
---------- ------- -------- ----------- --------
</TABLE>
See accompanying notes to the consolidated condensed financial statements.
F-46
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying interim consolidated condensed financial statements include
the accounts of Metromedia International Group, Inc. ("MIG" or the "Company")
and its wholly-owned subsidiaries, Orion Pictures Corporation ("Orion") and
Metromedia International Telecommunications, Inc. ("MITI"). Snapper, Inc.
("Snapper"), also a wholly-owned subsidiary, is included in the accompanying
consolidated condensed financial statements as an asset held for sale. All
significant intercompany transactions and accounts have been eliminated.
Investments in other companies and Joint Ventures ("Joint Ventures") which
are not majority owned, or in which the Company does not have control but
exercises significant influence are accounted for using the equity method. The
Company reflects its net investments in Joint Ventures under the caption
"Investments in and advances to Joint Ventures." The Company accounts for its
equity in earnings (losses) of the Joint Ventures on a three month lag.
The accompanying interim consolidated condensed financial statements have
been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes included in the Company's latest Annual Report
on Form 10-K (the "1995 Form 10-K"). In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company as of March 31, 1996, the
results of its operations for the three-month periods ended March 31, 1996 and
1995, and its cash flows for the three-month periods ended March 31, 1996 and
1995 have been included. The results of operations for the interim period are
not necessarily indicative of the results which may be realized for the full
year.
2. LIQUIDITY
The Company is a holding company and, accordingly, does not generate cash
flows. Orion, the Company's filmed entertainment subsidiary, is restricted under
covenants contained in the Orion Credit Agreement from making dividend payments
or advances to the Company. MITI, the Company's communications subsidiary, is
dependent on the Company for significant capital infusions to fund its
operations, as well as its commitments to make capital contributions and loans
to its Joint Ventures. The Company anticipates that MITI's funding requirements
for 1996 will be approximately $40.0 million based in part on the anticipated
funding needs of the Joint Ventures. Future capital requirements of MITI will
depend on the ability of MITI's Joint Ventures to generate positive cash flows.
The Company is obligated to make principal and interest payments under its
own various debt agreements, in addition to funding its working capital needs,
which consist principally of corporate overhead and payments on self-insurance
claims.
In the short term, the Company intends to satisfy its current obligations
and commitments with available cash on hand and the proceeds from the sale of
certain assets. During December 1995, the Company adopted a formal plan to
dispose of Snapper. At March 31, 1996, the carrying value of Snapper of $73.8
million represents the Company's estimated proceeds from the sale of Snapper and
the repayment of intercompany loans, through the anticipated date of sale.
Management believes that Snapper will be disposed of by November 1996. In
addition, the Company anticipates disposing of its
F-47
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
2. LIQUIDITY--(CONTINUED)
investment in Roadmaster Industries, Inc. ("Roadmaster") during 1996. The
carrying value of the Company's investment in Roadmaster at March 31, 1996 was
approximately $47.5 million.
Management believes that its available cash on hand, proceeds from the
dispositions of Snapper and its investment in Roadmaster, borrowings under the
MITI Bridge Loan (as defined below) and collections of intercompany receivables
from Snapper will provide sufficient funds for the Company to meet its
obligations, including MITI's funding requirements, in the short term. However,
no assurances can be given that the Company will be able to dispose of such
assets in a timely fashion and on favorable terms. Any delay in the sale of
assets or reductions in the proceeds anticipated to be received upon this
disposition of assets may result in the Company's inability to satisfy its
obligations during the year ended December 31, 1996. Delays in funding the
Company's MITI capital requirements may have a materially adverse impact on the
results of operations of MITI's Joint Ventures.
In connection with the consummation of the Goldwyn Merger (as defined
below), the Company intends to refinance the MIG Credit Facility (as defined
below), the Orion Credit Agreement (as defined below), and the existing Goldwyn
Debt (as defined below). The Company intends to use the proceeds of an offering
of the Company's common stock and a new credit facility to be entered into by
its Entertainment Group (the "New Credit Facility") to repay substantially all
of such indebtedness and to provide itself and MITI with liquidity to finance
its existing commitments and current business strategies. In addition to the
refinancing, management intends to satisfy its long-term liquidity needs through
a combination of (i) the Company's successful implementation and execution of
its growth strategy to become a global entertainment, media and communications
company, including the integration of The Samuel Goldwyn Company ("Goldwyn") and
Motion Picture Corporation of America ("MPCA") (as discussed more fully below);
(ii) MITI's Joint Ventures achieving positive operating results and cash flows
through revenue and subscriber growth and control of operating expenses; and
(iii) Orion's ability to continue to generate positive cash flows sufficient to
meet its planned film production release schedule and service the New Credit
Facility. There can be no assurance that the Company will be successful in
consummating the equity offering and entering into the New Credit Facility or
that such refinancing can be accomplished on favorable terms. In the event the
Company is unable to successfully complete such a refinancing or successfully
implement its business strategies, the Company, in addition to disposing of
Snapper and its investment in Roadmaster, may be required to (i) attempt to
obtain additional financing through another public or private sale of debt or
equity securities of the Company or one of its subsidiaries, (ii) otherwise
restructure its capitalization or (iii) seek a waiver or waivers under one or
more of its subsidiaries' credit facilities to permit the payment of dividends
to the Company.
The Company believes that it will report significant operating losses for
the fiscal year ended December 31, 1996. In addition, because its Communications
Group (as defined below) is in the early stages of development, the Company
expects this group to generate significant net losses as it continues to build
out and market its services. Accordingly, the Company expects to generate
consolidated net losses for the foreseeable future.
3. EARNINGS PER SHARE OF COMMON STOCK
Primary earnings per share are computed by dividing net income (loss) by the
weighted average number of common and common equivalent shares outstanding
during the year. Common equivalent shares include shares issuable upon the
assumed exercise of stock options using the treasury stock method when dilutive.
Computations of common equivalent shares are based upon average prices during
each period.
F-48
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
3. EARNINGS PER SHARE OF COMMON STOCK--(CONTINUED)
Fully diluted earnings per share are computed using such average shares
adjusted for any additional shares which would result from using end-of-year
prices in the above computations, plus the additional shares that would result
from the conversion of the 6 1/2% Convertible Subordinated Debentures. Net
income (loss) is adjusted by interest (net of income taxes) on the 6 1/2%
Convertible Subordinated Debentures. The computation of fully diluted earnings
per share is used only when it results in an earnings per share number which is
lower than primary earnings per share.
The loss per share amount for the quarter ended March 31, 1995 has been
calculated using the combined Orion and MITI's common shares converted at the
exchange rate used in the November 1 Mergers (see Note 4).
4. THE NOVEMBER 1 MERGERS
On November 1, 1995, Orion, MITI, the Company and MCEG Sterling Incorporated
("Sterling"), consummated the mergers contemplated by the Amended and Restated
Agreement and Plan of Merger (the "Merger Agreement") dated as of September 27,
1995 among Orion, the Company, MITI and Sterling. The Merger Agreement provided
for, among other things, the simultaneous mergers of each of Orion and MITI with
and into the Company's recently-formed subsidiaries, OPC Merger Corp., and MITI
Merger Corp., and the merger of Sterling with and into the Company
(collectively, the "November 1 Mergers"). In connection with the November 1
Mergers, the Company changed its name from "The Actava Group Inc." to
"Metromedia International Group, Inc."
Due to the existence of Metromedia Holders' (as defined below) common
control of Orion and MITI prior to consummation of the November 1 Mergers, their
combination pursuant to the November 1 Mergers was accounted for as a
combination of entities under common control. Orion was deemed to be the
acquiror in the November 1 Mergers. As a result, the combination of Orion and
MITI was effected utilizing historical costs for the ownership interests of the
Metromedia Holders in MITI. The remaining ownership interests of MITI were
accounted for in accordance with the purchase method of accounting based on the
fair value of such ownership interests, as determined by the value of the shares
received by the holders of such interests at the effective time of the November
1 Mergers.
For accounting purposes only, Orion and MITI were deemed to be the joint
acquirors of Actava and Sterling. The acquisitions of Actava and Sterling were
accounted for as a reverse acquisition. As a result of the reverse acquisition,
the historical financial statements of the Company for periods prior to the
November 1 Mergers are those of Orion and MITI, rather than Actava. The
operations of Actava and Sterling have been included in the accompanying
consolidated financial statements from November 1, 1995, the date of
acquisition. During December 1995, the Company adopted a formal plan to dispose
of Snapper, a wholly-owned subsidiary of the Company. In addition, the Company's
investment in Roadmaster was deemed to be a non-strategic asset and the Company
plans to dispose of its investment during 1996. (see Note 6 below).
5. ACQUISITIONS
On January 31, 1996, the Company and Goldwyn entered into an Agreement and
Plan of Merger (the "Goldwyn Merger Agreement") pursuant to which Goldwyn will
merge with a newly-formed, wholly-owned subsidiary of the Company (the "Goldwyn
Merger") and, in connection therewith, will be re-named "Goldwyn Entertainment
Company."
F-49
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
5. ACQUISITIONS--(CONTINUED)
In connection with the Goldwyn Merger, the Company, as described in Note 2
above, intends to refinance a portion of its indebtedness and that of Orion, as
well as substantially all of the indebtedness of Goldwyn. The Company has also
entered into a letter of intent to acquire MPCA.
On December 20, 1995, the Company and Alliance Entertainment Corp.
("Alliance") entered into an Agreement and Plan of Merger (the "Alliance Merger
Agreement") pursuant to which a newly-formed, wholly-owned subsidiary of the
Company was to merge with and into Alliance. On April 29, 1996, the Company and
Alliance entered into a Termination and Release Agreement terminating the
Alliance Merger Agreement.
6. ASSETS HELD FOR SALE
Roadmaster Industries, Inc.
As of March 31, 1996, the Company owned approximately 38% of the issued and
outstanding shares of Common Stock of Roadmaster (the "Roadmaster Common Stock")
based on the approximate 48,600,000 shares of Roadmaster Common Stock
outstanding.
The Company has deemed its investment in Roadmaster to be a non-strategic
asset and it plans to dispose of its investment in Roadmaster during 1996 and
will exclude its equity in earnings and losses of Roadmaster from the Company's
results of operations through the date of sale. The carrying value of the
Company's investment in Roadmaster at December 31, 1995 and March 31, 1996 was
$47.5 million based on the anticipated proceeds from its sale.
Summarized financial information for Roadmaster is shown below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Net sales...................................................... $730,875
Gross profit................................................... 86,607
Net loss....................................................... (51,004)
Current assets................................................. 406,586
Non-current assets............................................. 170,521
Current liabilities............................................ 232,502
Non-current liabilities........................................ 289,081
Redeemable common stock........................................ 2,000
Total shareholders' equity..................................... 55,524
</TABLE>
The Company has pledged all of its shares of Roadmaster to Chase Manhattan
Bank, ("Chase") pursuant to a $35 million revolving credit agreement (the "MIG
Credit Facility"). The MIG Credit Facility provides that the aggregate amount of
outstanding loans under the MIG Credit Facility cannot exceed 65% of the market
value of Roadmaster stock. At March 31, 1996, the market value of the stock was
$38.3 million and outstanding loans under the MIG Credit Facility were $28.8
million. As a result of a market value decrease in the value of Roadmaster
stock, such loans exceeded the 65% threshold. Metromedia Company, a Delaware
general partnership ("Metromedia") and an affiliate of the Company, has
guaranteed payment to Chase of amounts which exceed the 65% threshold.
F-50
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
6. ASSETS HELD FOR SALE--(CONTINUED)
Snapper, Inc.
During December 1995, the Company adopted a formal plan to dispose of
Snapper. At March 31, 1996 and December 31, 1995, the carrying value of Snapper
was approximately $73.8 million and $79.2 million, respectively. The carrying
value of Snapper represents the Company's estimated proceeds from the sale of
Snapper and the repayment of intercompany loans, through the anticipated date of
sale. Management believes that Snapper will be disposed of by November 1996.
The results of Snapper for the period January 1, 1996 through March 31,
1996, which are excluded from the accompanying consolidated statement of
operations, are as follows (in thousands):
<TABLE>
<S> <C>
Net Sales........................................................ $62,724
Operating expenses............................................... 60,100
-------
Operating profit................................................. 2,624
Interest expense................................................. (2,152)
Other income..................................................... 9
-------
Profit before taxes.............................................. 481
Income taxes..................................................... --
-------
Net profit....................................................... $ 481
-------
-------
</TABLE>
The Company received $5.4 million of cash from Snapper during the period
from January 1, 1996 to March 31, 1996. Accordingly, this amount has been
removed from the carrying value of Snapper as of March 31, 1996.
7. STOCK OPTION PLANS
On January 31, 1996, the Board of Directors of the Company approved and
later amended, subject to the approval of the Company's stockholders, the
Metromedia International Group, Inc. 1996 Incentive Stock Plan (the "1996
Incentive Stock Plan"). The purpose of the 1996 Incentive Stock Plan is to give
the Company a significant advantage in retaining key employees, officers and
directors, and to provide an incentive to selected key employees, officers and
directors of the Company who have substantial responsibility in the direction of
the Company, and others whom the Compensation Committee of the Board of
Directors determines provide substantial and important services to the Company,
to continue as employees, officers and directors or in their other capacities,
and to increase their efforts on behalf of the Company through the provision of
a proprietary interest in the Company.
The types of awards that may be granted pursuant to the 1996 Incentive Stock
Plan include (i) incentive stock options ("ISOs"), (ii) non-qualified stock
options ("NQSOs" and together with ISOs, "Stock Options"), and (iii) tandem
stock appreciation rights ("Tandem SARs"). ISOs are intended to be treated as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986. NQSOs are, in general, options which do not have the
special income tax advantages associated with ISOs. Tandem SARs are rights
granted in conjunction with Stock Options that, upon exercise, entitle the
holder to receive an amount equal to the excess of the fair market value of a
share of Common Stock on the date of exercise over the exercise price of the
related Stock Option, in cash or in stock, as determined by the Company.
Stock Option grants will consist of the maximum number of ISOs that may be
granted to a particular grantee under applicable law with the balance of the
Stock Options being NQSOs. Tandem SARs will be granted in connection with Stock
Options. Subject to certain exceptions set forth in the
F-51
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
7. STOCK OPTION PLANS--(CONTINUED)
1996 Incentive Stock Plan, the aggregate number of shares of Common Stock that
may be the subject of Stock Options and Tandem SARs is 9,000,000.
8. FILM INVENTORIES
The following is an analysis of film inventories (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Current:
Theatrical films released, less amortization....................... $ 47,652 $ 53,813
Television programs released, less amortization.................... 9,240 5,617
--------- ------------
56,892 59,430
--------- ------------
Non-Current:
Theatrical films released, less amortization....................... 122,642 132,870
Television programs released, less amortization.................... 3,754 4,363
--------- ------------
126,396 137,233
--------- ------------
$ 183,288 $196,663
--------- ------------
--------- ------------
</TABLE>
The Company has made substantial write-offs to its released and unreleased
product. As a result, approximately two-thirds of the film inventories are
stated at estimated net realizable value and will not result in the recording of
gross profit upon the recognition of related revenues in future periods.
Since the date of the Company's quasi-reorganization (February 28, 1982),
when the Company's inventories were restated to reflect their then current
market value, the Company has amortized 94% of the gross cost of its film
inventories, including those produced or acquired subsequent to the quasi-
reorganization. Approximately 98% of such gross film inventory costs will have
been amortized by March 31, 1999. As of March 31, 1996, approximately 62% of the
unamortized balance of film inventories will be amortized within the next
three-year period based upon the Company's revenue estimates at that date.
9. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
MITI has recorded its investments in Joint Ventures at cost, net of
adjustments for its equity in earnings or losses. Advances to the Joint Ventures
under the line of credit agreements are reflected based on amounts recoverable
under the credit agreement, plus accrued interest.
Advances are made to Joint Ventures in the form of cash, for working capital
purposes and for payment of expenses or capital expenditures, or in the form of
equipment purchased on behalf of the Joint Ventures. Interest rates charged to
the Joint Ventures range from the prime rate to the prime rate plus 4%. The
credit agreements generally provide for the payment of principal and interest
from 90% of the Joint Ventures' available cash flow, as defined, prior to any
substantial distributions of dividends to the Joint Venture partners. MITI has
entered into credit agreements with its Joint Ventures to provide up to $47.1
million in funding of which $12.3 million remains available at March 31, 1996.
MITI funding commitments are contingent on its approval of the Joint Ventures'
business plans.
F-52
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
9. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
MITI investments in the Joint Ventures at a cost net of adjustments for its
equity in earnings and losses were as follows (in thousands):
<TABLE>
<CAPTION>
INVESTMENTS IN
AND ADVANCES TO
JOINT VENTURES
------------------------- YEAR DATE
MARCH 31, DECEMBER 31, OWNERSHIP VENTURE OPERATIONS
NAME 1996 1995 % FORMED COMMENCED
- ---------------------------------- --------- ------------ --------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Kosmos TV, Moscow, Russia......... $ 2,958 $ 4,317 50 1991 May, 1992
Baltcom TV, Riga Latvia........... 7,244 6,983 50 1991 June, 1992
Ayety TV, Tbilisi, Georgia........ 4,096 3,630 49 1991 September, 1993
Sun TV, Kishinev, Moldova......... 1,665 1,613 50 1993 October, 1994
Raduga TV, Nizhny Novgorod........ 180 254 50 1994 Pre-Operational
Minsk Cable, Minsk, Belarus....... 967 918 50 1993 Pre-Operational
Kamalak, Tashkent, Uzbekistan..... 4,484 3,731 50 1992 September, 1993
Alma-TV, Almaty, Kazakhstan....... 1,651 1,318 50 1994 June, 1995
Baltcom Paging, Tallin, Estonia... 2,754 2,585 39 1992 December, 1993
Raduga Paging, Nizhny Novgorod.... 387 364 45 1993 October, 1994
Baltcom Plus, Riga, Latvia........ 1,788 1,412 50 1994 April, 1995
Tbilisi Paging, Tbilisi,
Georgia........................... 748 619 45 1993 November, 1994
St. Petersburg Paging,
St. Petersburg, Russia............ 744 527 40 1994 October, 1995
SAC-Radio 7, Moscow, Russia....... 494 1,174 51 1991 January, 1994
Telecom Georgia, Tbilisi,
Georgia........................... 2,534 2,078 30 1994 September, 1994
Other............................. 4,401 5,411
--------- ------------
$37,095 $ 36,934
--------- ------------
--------- ------------
</TABLE>
The ability of MITI and its Joint Ventures to establish profitable
operations is subject to (among other things) special political, economic and
social risks inherent in doing business in Eastern Europe and the former Soviet
Republics and other emerging markets. These include matters arising out of
government policies, economic conditions, imposition of taxes or other similar
charges by governmental bodies, foreign exchange fluctuations and controls,
civil disturbances, deprivation or unenforceability of contractual rights, and
taking of property without fair compensation.
MITI has obtained political risk insurance policies from the Overseas
Private Investment Corporation ("OPIC") for certain of its Joint Ventures. The
policies cover loss of investment and losses due to business interruption caused
by political violence or expropriation.
In 1995, the Russian Federation legislature proposed legislation that would
limit to 35%, the interest which a foreign person is permitted to own in
entities holding broadcast licenses. While such proposed legislation was not
enacted, it is possible that such legislation could be reintroduced and enacted
in Russia. Further, even if enacted, such law may be challenged on
constitutional grounds and may be inconsistent with Russian Federation treaty
obligations. In addition, it is unclear how Russian Federation regulators would
interpret and apply the law to existing license holders. However, if the
legislature passes a law restricting foreign ownership of broadcast license
holding entities and such a law is found to be constitutional and fails to
contain a grandfathering clause to protect existing companies, it could require
MITI to reduce its ownership interests in its Russian Joint Ventures. It is
unclear how such reductions would be effected.
F-53
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
9. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
The Republic of Latvia passed legislation in September, 1995 which purports
to limit to 20% the interest which a foreign person is permitted to own in
entities engaged in certain communications businesses such as radio, cable
television and other systems of broadcasting. This legislation will require MITI
to reduce to 20% its existing ownership interest in joint ventures which operate
a wireless cable television system and an FM radio station in Riga, Latvia.
Management believes that the ultimate outcome of this matter will not have a
material adverse impact on the Company's financial position and results of
operations.
Summarized combined financial information of Joint Ventures accounted for
under the equity method that have commenced operations as of the dates indicated
are as follows (in thousands):
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1995
------------ -------------
<S> <C> <C>
ASSETS
Current assets.................................... $ 10,704 $ 6,937
Investments in wireless systems and equipment,
net............................................... 33,696 31,349
Other assets...................................... 2,956 2,940
------------ -------------
Total Assets................................ $ 47,356 $41,226
------------ -------------
LIABILITIES AND JOINT VENTURES' DEFICIT
Current liabilities............................... $ 21,889 $10,954
Amount payable under MITI credit facility......... 29,859 33,699
------------ -------------
$ 51,748 $44,653
Joint Ventures' Deficit........................... (4,392) (3,427)
------------ -------------
Total Liabilities and Joint Ventures'
Deficit........................................... $ 47,356 $41,226
------------ -------------
------------ -------------
</TABLE>
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
Revenues.......................................... $8,995 $ 2,961
------------ ------------
Expenses:
Cost of service................................. 4,161 1,384
Selling, general and administrative............. 4,409 986
Depreciation and amortization................... 1,322 867
Other........................................... -- 323
------------ ------------
Total Expenses.............................. 9,892 3,560
------------ ------------
Operating Loss.............................. (897) (599)
Interest Expense................................ (732) (354)
Other Loss...................................... (10) (19)
Foreign Currency Translation.................... 846 (121)
------------ ------------
Net Loss.................................... $ (793) $ (1,093)
------------ ------------
------------ ------------
</TABLE>
F-54
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
9. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--(CONTINUED)
Financial information for Joint Ventures which are not yet operational is
not included in the above summary. MITI's investment in and advances to those
Joint Ventures at March 31, 1996 amounted to approximately $6.3 million.
The following tables represent summary financial information for all
operating entities grouped as indicated as of and for the three months ended
March 31, 1996 (in thousands):
<TABLE>
<CAPTION>
WIRELESS RADIO
CABLE TV PAGING BROADCASTING TELEPHONY TOTAL
-------- ------ ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Subsidiaries and Joint
Ventures
Revenues................................... $ -- $ 576 $2,378 $ -- $ 2,954
Depreciation and amortization.............. -- 78 82 -- 160
Operating income (loss) before taxes....... -- (219) 731 -- 512
Assets..................................... -- 2,352 3,234 -- 5,586
Capital expenditures....................... -- 69 351 -- 420
Unconsolidated Equity Joint Ventures
Revenues................................... $ 3,059 $1,147 $ 298 $ 4,491 $ 8,995
Depreciation and amortization.............. 1,075 100 9 138 1,322
Operating income (loss) before taxes....... (1,465) (149) (224) 941 (897)
Assets..................................... 25,127 4,629 259 17,341 47,356
Capital expenditures....................... 1,958 253 4 256 2,471
Net investment in Joint Ventures........... $ 21,760 $6,014 $ 494 $ 2,534 $30,802
MITI equity in losses of unconsolidated
investees.................................. (1,843) (127) (269) 456 (1,783)
Combined
Revenues................................... $ 3,059 $1,723 $2,676 $ 4,491 $11,949
Depreciation and amortization.............. 1,075 178 91 138 1,482
Operating income (loss) before taxes....... (1,465) (368) 507 941 (385)
Assets..................................... 25,127 6,981 3,493 17,341 52,942
Capital expenditures....................... 1,958 322 355 256 2,891
</TABLE>
More than 90% of the Company's assets are located in, and substantially all
of the Company's operations are derived from, Republics in the Commonwealth of
Independent States and Eastern Europe.
On March 18, 1996, Metromedia Asia Limited ("MAL"), MITI's 90% owned
subsidiary, entered into a joint venture agreement with Golden Cellular
Communications, Ltd., ("GCC") a company located in the People's Republic of
China ("PRC"). The purpose of the joint venture is to provide wireless local
loop telephone equipment, network planning, technical support and training to
domestic telephone operators throughout the PRC. The total equity contribution
to be made to the venture is $8.0 million of which 60% will be contributed by
MAL and 40% by GCC.
F-55
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
10. ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 121 established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. Adoption of SFAS 121, effective January 1, 1996,
did not have a material impact on the Company's consolidated condensed financial
statements.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation". The Company has elected to retain the current approach set forth
in APB Opinion 25 "Accounting for Stock Issued
to Employees," and to provide expanded disclosures in the footnotes commencing
with its 1996 Form 10-K.
11. CONTINGENT LIABILITIES
LITIGATION
Fuqua Industries, Inc. Shareholder Litigation
Between February 25, 1991 and March 4, 1991, three lawsuits were filed
against the Company (formerly named Fuqua Industries, Inc.) in the Delaware
Chancery Court. On May 1, 1991, these three lawsuits were consolidated by the
Delaware Chancery Court in In re Fuqua Industries, Inc. Shareholders Litigation,
Civil Action No. 11974. The named defendants are certain current and former
members of the Company's Board of Directors and certain former members of the
Board of Directors of Intermark, Inc. ("Intermark"). Intermark is a predecessor
to Triton Group Ltd., which formerly owned approximately 25% of the outstanding
shares of the Company's Common Stock. The Company was named as a nominal
defendant in this lawsuit. The action was brought derivatively on behalf of the
Company and purportedly was filed as a class action lawsuit on behalf of all
holders of the Company's Common Stock, other than the defendants. The complaint
alleges, 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 seeks (i) monetary
damages from the director defendants, including a joint and several judgment for
$15.7 million for alleged improper profits obtained by Mr. J.B. Fuqua in
connection with the sale of his shares in the Company to Intermark; (ii)
injunctive relief against the Company, Intermark and its former directors,
including a prohibition against approving or entering into any business
combination with Intermark without specified approval; and (iii) costs of suit
and attorneys' fees. On December 28, 1995, plaintiffs filed a consolidated
second amended derivative and class action complaint, purporting to assert
additional facts in support of their claim regarding an alleged plan, but
deleting their prior request for injunctive relief. On January 31, 1996, all
defendants moved to dismiss the second amended complaint and filed a brief in
support of that motion. The motion to dismiss is still pending.
In accordance with Section 145 of the General Corporation Law of the State
of Delaware, pursuant to the Company's Restated Certificate of Incorporation,
the Company has agreed to indemnify its officers and directors against, among
other things, any and all judgments, fines, penalties, amounts paid in
settlements and expenses paid or incurred by virtue of the fact that such
officer or director was acting in such capacity to the extent not prohibited by
law.
The Company and its subsidiaries are contingently liable with respect to
various matters, including litigation in the ordinary course of business and
otherwise. Some of the pleadings in the various litigation matters contain
prayers for material awards. Based upon management's review of the
F-56
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
11. CONTINGENT LIABILITIES--(CONTINUED)
underlying facts and circumstances and consultation with counsel, management
believes such matters will not result in significant additional liabilities
which would have a material adverse effect upon the consolidated condensed
financial position or results of operations of the Company.
ENVIRONMENTAL PROTECTION
Snapper's manufacturing plant is subject to federal, state and local
environmental laws and regulations. Compliance with such laws and regulations
has not, and is not expected to, materially affect Snapper's competitive
position. Snapper's capital expenditures for environmental control facilities,
its incremental operating costs in connection therewith and Snapper's
environmental compliance costs were not material in 1995 and are not expected to
be material in future years.
The Company has agreed to indemnify the purchaser of a former subsidiary of
the Company for certain obligations, liabilities and costs incurred by such
subsidiary arising out of environmental conditions existing on or prior to the
date on which the subsidiary was sold by the Company. The Company sold the
subsidiary in 1987. Since that time, the Company has been involved in various
environmental matters involving property owned and operated by the subsidiary,
including clean-up efforts at landfill sites and the remediation of groundwater
contamination. The costs incurred by the Company with respect to these matters
have not been material during any year through and including the fiscal year
ended December 31, 1995. As of March 31, 1996, the Company had a remaining
reserve of approximately $1.3 million to cover its obligations to its former
subsidiary.
During 1995, the Company was notified by certain potentially responsible
parties at a superfund site in Michigan that the former subsidiary may be a
potentially responsible party at such site. The former subsidiary's liability,
if any, has not been determined but the Company believes that such liability
will not be material.
The Company, through a wholly-owned subsidiary, owns approximately 17 acres
of real property located in Opelika, Alabama (the "Opelika Property"). The
Opelika Property was formerly owned by Diversified Products Corporation, a
former subsidiary of the Company ("DP"), and was transferred to a wholly owned
subsidiary of the Company in connection with the Exchange Transaction. DP
previously used the Opelika Property as a storage area for stockpiling cement,
sand, and mill scale materials needed for or resulting from the manufacture of
exercise weights. In June 1994, DP discontinued the manufacture of exercise
weights and no longer needed to use the Opelika Property as a storage area. In
connection with the Exchange Transaction, Roadmaster and the Company agreed that
the Company, through a wholly-owned subsidiary, would acquire the Opelika
Property, together with any related permits, licenses, and other authorizations
under federal, state and local laws governing pollution or protection of the
environment. In connection with the closing of the Exchange Transaction, the
Company and Roadmaster entered into an Environmental Indemnity Agreement (the
"Indemnity Agreement") under which the Company agreed to indemnify Roadmaster
for costs and liabilities resulting from the presence on or migration of
regulated materials from the Opelika Property. The Company's obligations under
the Indemnity Agreement with respect to the Opelika Property are not limited.
The Indemnity Agreement does not cover environmental liabilities relating to any
property now or previously owned by DP except for the Opelika Property.
On January 22, 1996, the Alabama Department of Environmental Management
("ADEM") wrote a letter to the Company stating that the Opelika Property
contains an "unauthorized dump" in violation of Alabama environmental
regulations. The letter from ADEM requires the Company to present for ADEM's
approval a written environmental remediation plan for the Opelika Property. The
Company has retained an environmental consulting firm to develop an
environmental remediation plan for the Opelika Property. The consulting firm has
taken soil samples and has performed other tests on the Opelika Property. Based
upon the preliminary results of these tests, the Company believes that the
reserves of approximately $1.8 million previously established by the Company for
the Opelika Property will be adequate to cover the cost of the remediation plan
that is currently being developed.
F-57
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of The SAMUEL GOLDWYN COMPANY
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of The Samuel
Goldwyn Company (the "Company") and its subsidiaries at March 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended March 31, 1996 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 2 to the
financial statements, the Company's credit facility matures on June 28, 1996.
The Company's management believes that the credit facility may not be extended
beyond that date should the merger transaction with Metromedia International
Group Inc., which is also described in Note 2, not be consummated which causes
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
PRICE WATERHOUSE LLP
Century City, California
May 3, 1996
F-58
<PAGE>
THE SAMUEL GOLDWYN COMPANY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Assets
Cash and cash equivalents.................................... $ 1,849,000 $ 6,322,000
Receivables, net............................................. 9,021,000 11,205,000
Film costs, net.............................................. 63,899,000 74,080,000
Property and equipment, net.................................. 32,206,000 28,153,000
Other assets................................................. 4,875,000 6,187,000
------------ ------------
$111,850,000 $125,947,000
------------ ------------
------------ ------------
Liabilities and Shareholders' Equity
Notes payable................................................ $ 82,029,000 $ 67,610,000
Accounts payable and accrued expenses........................ 9,531,000 7,179,000
Accrued film rights payable.................................. 8,578,000 3,350,000
Participations payable to shareholder........................ 10,353,000 9,373,000
Participations payable to others............................. 2,527,000 2,347,000
Income taxes payable......................................... 558,000 259,000
Deferred revenue............................................. 18,583,000 21,717,000
Deferred income taxes........................................ -- 1,552,000
------------ ------------
132,159,000 113,387,000
------------ ------------
Shareholders' equity:
Common stock, par value $0.20; 15,000,000 shares authorized;
shares issued and outstanding: 8,489,231 and 8,488,854......... 1,706,000 1,706,000
Additional paid-in capital................................... 24,654,000 24,654,000
Treasury stock............................................... (532,000) (532,000)
Retained earnings (deficit).................................. (46,137,000) (13,268,000)
------------ ------------
(20,309,000) 12,560,000
------------ ------------
$111,850,000 $125,947,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-59
<PAGE>
THE SAMUEL GOLDWYN COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Revenues....................................... $ 107,784,000 $ 91,348,000 $108,791,000
------------- ------------- ------------
Cost of revenues............................... 108,301,000 91,461,000 81,117,000
Selling, general and administrative expenses... 19,891,000 17,999,000 15,515,000
Depreciation and amortization.................. 3,770,000 3,508,000 3,129,000
------------- ------------- ------------
131,962,000 112,968,000 99,761,000
------------- ------------- ------------
Operating income (loss)........................ (24,178,000) (21,620,000) 9,030,000
Interest expense............................... 8,490,000 5,626,000 5,632,000
------------- ------------- ------------
Income (loss) before income taxes.............. (32,668,000) (27,246,000) 3,398,000
Income tax provision (benefit)................. (541,000) (7,163,000) 1,912,000
------------- ------------- ------------
Income (loss) before extraordinary items....... (32,127,000) (20,083,000) 1,486,000
Extraordinary loss, net of applicable income
tax benefit of $40,000....................... (742,000) -- --
Extraordinary gain, net of applicable income
tax provision of $506,000.................... -- -- 759,000
------------- ------------- ------------
Net income (loss).............................. $ (32,869,000) $ (20,083,000) $ 2,245,000
------------- ------------- ------------
------------- ------------- ------------
Earnings per share:
Income (loss) before extraordinary items..... $ (3.78) $ (2.37) $ 0.20
------------- ------------- ------------
------------- ------------- ------------
Net income (loss)............................ $ (3.87) $ (2.37) $ 0.30
------------- ------------- ------------
------------- ------------- ------------
Weighted average shares outstanding............ 8,489,000 8,488,000 7,386,000
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-60
<PAGE>
THE SAMUEL GOLDWYN COMPANY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK RETAINED
---------------------- PAID-IN ----------------- EARNINGS
SHARES AMOUNT CAPITAL SHARES AMOUNT (DEFICIT)
--------- ---------- ----------- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993....... 5,950,721 $1,213,000 $ 1,675,000 34,872 $274,000 $ 4,570,000
Exchange of Heritage shares for
Goldwyn shares.................. 102,794 8,750 (8,750)
Exercise of stock options....... 1,250 250 (250)
Purchase of Heritage creditor
shares pursuant to Heritage
Plan of Reorganization........ 8,576 258,000
Issuance of common stock........ 2,472,500 472,000 23,095,000
Net income...................... 2,245,000
--------- ---------- ----------- ------ -------- ------------
Balance at March 31, 1994....... 8,527,265 1,694,000 24,761,000 43,448 532,000 6,815,000
Exchange of Heritage shares for
Goldwyn shares.................. 5,037 12,000 (12,000)
Purchase of Class A warrants
pursuant to Heritage Plan of
Reorganization.................. (95,000)
Net loss........................ (20,083,000)
--------- ---------- ----------- ------ -------- ------------
Balance at March 31, 1995....... 8,532,302 1,706,000 24,654,000 43,448 532,000 (13,268,000)
Exchange of Heritage shares for
Goldwyn shares.................. 377
Net loss........................ (32,869,000)
--------- ---------- ----------- ------ -------- ------------
Balance at March 31, 1996....... 8,532,679 $1,706,000 $24,654,000 43,448 $532,000 $(46,137,000)
--------- ---------- ----------- ------ -------- ------------
--------- ---------- ----------- ------ -------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-61
<PAGE>
THE SAMUEL GOLDWYN COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................ $(32,869,000) $(20,083,000) $ 2,245,000
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Extraordinary gain on retirement of debt......... -- (1,265,000)
Amortization of film costs....................... 50,827,000 45,886,000 38,696,000
Amortization of goodwill......................... 229,000 229,000 233,000
Depreciation of property and equipment........... 3,541,000 3,279,000 2,896,000
Increase (decrease) from changes in:
Receivables.................................... 2,184,000 8,498,000 2,546,000
Other assets, excluding goodwill............... 1,083,000 1,232,000 (464,000)
Accounts payable and accrued expenses.......... 2,352,000 243,000 (827,000)
Accrued film rights payable.................... 5,228,000 3,350,000 --
Participations payable to shareholder.......... 980,000 341,000 1,135,000
Participations payable to others............... 180,000 (951,000) (75,000)
Income taxes payable........................... 299,000 (574,000) 489,000
Deferred revenue............................... (3,134,000) 19,657,000 (605,000)
Deferred income taxes.......................... (1,552,000) (7,607,000) 1,330,000
------------ ------------ ------------
Net cash provided by operating activities........ 29,348,000 53,500,000 46,334,000
------------ ------------ ------------
Investing activities:
Additions to film costs........................ (40,646,000) (49,211,000) (33,572,000)
Additions to property and equipment............ (7,594,000) (7,054,000) (3,107,000)
Additions to treasury stock.................... -- -- (258,000)
------------ ------------ ------------
(48,240,000) (56,265,000) (36,937,000)
------------ ------------ ------------
Financing activities:
Issuance of common stock....................... -- -- 23,567,000
Purchase of warrants........................... -- (95,000) --
Retirement of bank debt........................ -- -- (10,800,000)
Additions to (repayment of) notes payable...... 14,419,000 7,791,000 (22,368,000)
------------ ------------ ------------
14,419,000 7,696,000 (9,601,000)
------------ ------------ ------------
Net increase (decrease) in cash.................. (4,473,000) 4,931,000 (204,000)
Cash at beginning of period...................... 6,322,000 1,391,000 1,595,000
------------ ------------ ------------
Cash at end of period............................ $ 1,849,000 $ 6,322,000 $ 1,391,000
------------ ------------ ------------
------------ ------------ ------------
Supplemental disclosure of cash paid for:
Interest....................................... $ 8,002,000 $ 6,136,000 $ 5,154,000
Income taxes................................... 693,000 512,000 7,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-62
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
The Samuel Goldwyn Company (the "Company") is engaged in the production and
distribution of motion picture films in the theatrical, videocassette,
television and ancillary markets, the production and licensing of television
programs, and the operation of a movie theatre circuit.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of The Samuel
Goldwyn Company and its subsidiaries. All significant intercompany accounts have
been eliminated.
USE OF ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
FILM DISTRIBUTION REVENUES
Theatrical films are distributed in the various media of exhibition
depending upon the Company's distribution rights to the films. A motion picture
is initially released (licensed) in the theatrical market. Approximately six
months thereafter it is licensed to the pay-per-view and home video markets.
Approximately one year after a film's initial theatrical release, it is licensed
to the pay television market and subsequently to the syndicated television
market two or more years after pay television. Distribution of motion pictures
in foreign territories approximates the domestic release pattern.
Revenues from theatrical distribution are recognized as the films are
exhibited. Distribution of the Company's films in foreign countries is primarily
accomplished through the licensing of various distribution rights to
subdistributors. The terms of licensing agreements with such subdistributors
generally include the receipt of non-refundable guaranteed amounts by the
Company and accordingly, revenue is recognized when the film is available for
exhibition.
FILM EXHIBITION REVENUES
Theatre admission revenues, and related film rental expenses, are recognized
as films are exhibited.
TELEVISION LICENSING REVENUES
Television licensing revenues are derived from licensing the rights to
telecast a program on either a barter basis or for a cash license fee. For
programs licensed on a barter basis, typically to independent television
stations, the Company receives rights to advertising time and hires an agent to
sell on its behalf the advertising time retained within its programs (See Note
8). Television licensing revenues are generally recognized when the program
material is available for telecast by the licensee and when certain other
conditions are met. Revenue from barter basis license agreements is recorded as
the advertising within the programs is aired based on statements received from
the agent.
CASH EQUIVALENTS
The Company's cash equivalents consist of cash on hand and highly liquid
investments purchased with maturities of three months or less.
F-63
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1-- DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:-- (CONTINUED)
FILM COSTS
Film costs include acquisition costs, production costs and exploitation
costs. Such costs are amortized, and participation expenses are accrued, in the
proportion that revenue recognized during the year for each film bears to the
estimated total revenue to be received from all sources under the individual
film forecast method. Estimated total revenues and costs are reviewed on a
quarterly basis and revisions to amortization rates are recorded as necessary.
Film costs are stated at the lower of unamortized cost or estimated net
realizable value.
PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are carried at cost and
depreciated over their estimated useful lives. Buildings (asset lives of 25
years) and equipment, furniture and fixtures (asset lives of 3 to 7 years) are
depreciated on the straight-line method. Theatre leasehold interests and
leasehold improvements are amortized on a straight-line basis over the lesser of
the estimated useful lives of the improvements or the terms of the respective
leases. Maintenance and repairs are expensed as incurred.
GOODWILL AMORTIZATION
The excess of the cost of purchased businesses over their net book value at
date of acquisition (classified as other assets in the consolidated balance
sheet) is amortized over a period of 20 years. The Company periodically reviews
the value of its goodwill to determine if an impairment has occurred. In making
such determination, the Company evaluates the performance, on a non-discounted
basis, of the underlying businesses whose acquisition gave rise to such amount.
INCOME TAXES
The provision for income taxes is computed using the asset and liability
method specified by Statement of Financial Accounting Standards No. 109,
"Accounting For Income Taxes." Under SFAS 109, deferred income taxes are
provided for the temporary differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities.
INCOME (LOSS) PER SHARE
Net income (loss) per share is computed based upon the weighted average
number of common and common equivalent shares outstanding during the year.
NOTE 2--MERGER WITH METROMEDIA INTERNATIONAL GROUP, INC.:
On December 19, 1995, a Letter Agreement (the "Letter Agreement") was
entered into among PolyGram Filmed Entertainment Distribution Inc. ("PolyGram"),
the Company and The Samuel Goldwyn Jr. Family Trust confirming the basic terms
set forth in a Deal Memo for the acquisition by PolyGram of certain assets of
the Company. The Deal Memo constituted an agreement in principle for PolyGram to
acquire distribution rights to the Company's film and television library
together with the assumption of certain related assets and liabilities for
$62,000,000 in cash consideration, subject to adjustment. The transaction was to
exclude the Company's other interests including its chain of theaters, film and
television projects in development and domestic and foreign distribution
operations. As no definitive documentation was entered into by January 22, 1996,
substantially all of the provisions
F-64
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--MERGER WITH METROMEDIA INTERNATIONAL GROUP, INC.:--(CONTINUED)
of the Letter Agreement are of no further force and effect, except for the
Company's obligation to pay PolyGram a break up fee of $2,000,000 plus
PolyGram's costs and expenses associated with the transaction.
On January 31, 1996 the Company and Metromedia International Group, Inc.
("MIG") entered into a definitive merger agreement providing for the merger of
the Company into a wholly owned subsidiary of MIG. The terms of the merger
agreement provide for the Company's shareholders to receive $5.00 worth of MIG
stock for each Company share, provided that the average closing price per share
of MIG stock over the 20 consecutive-day trading period ending five business
days prior to the Company's stockholder meeting to approve the merger is between
$12.50 and $16.50. If the average closing price is lower than $12.50,
shareholders of the Company will receive for each Company share 0.4 shares of
MIG common stock; if the average price is higher than $16.50 shareholders will
receive for each Company share 0.303 shares of MIG common stock.
The Boards of Directors of MIG and the Company have approved the merger. The
consummation of the merger is subject to customary closing conditions, including
approval of the transaction by the stockholders of the Company, and the receipt
of all regulatory approvals including the lapse or early termination of the
applicable waiting period under the Hart-Scott-Rodino Act (which has lapsed),
and other customary conditions. In connection with the transaction, The Samuel
Goldwyn Jr. Family Trust, which owns 60% of the outstanding common stock of the
Company, has agreed to vote in favor of the merger pursuant to the terms of a
Voting Agreement with MIG dated as of January 31, 1996. In addition, MIG has
caused Orion Pictures Corporation ("Orion") to provide the Company up to
$5,500,000 of interim financing, and in connection therewith, the Company and
Orion have entered into a six-picture distribution agreement.
Pursuant to the definitive merger agreement, it is the intention of the
parties to refinance (or extend the maturity date of) the entire outstanding
balance of the Company's bank indebtedness and it is a condition of closing that
such amounts shall have been repaid or refinanced in full.
MIG is a worldwide communications, media and entertainment company. Its core
businesses are Metromedia International Telecommunications, Inc., a company
which operates wireless cable, communications and media businesses in Eastern
Europe and former Soviet Republics; and Orion, a motion picture production and
distribution company with a film library of more than 1,000 titles.
The Company incurred a net loss of approximately $20 million in fiscal 1995
and approximately $32.8 million in fiscal 1996 and experienced a decrease in
working capital during both years. As a result, the Company has been unable to
refinance its bank debt for a period extending beyond June 28, 1996. In the
absence of alternative financing or consummation of the merger, the Company will
have insufficient liquidity to repay the loan upon maturity and may experience
liquidity shortfalls in meeting on-going obligations. Management believes that
one or more members of the Company's current bank syndicate may be unwilling to
further extend or restructure the agreement beyond the maturity date.
NOTE 3--ISSUANCE OF STOCK:
In October 1993, the Company completed a public offering of 2,472,500 shares
of common stock. The proceeds to the Company from this stock offering, net of
underwriter's discount, commissions and offering expenses were $23,567,000 and
were applied to reduce bank indebtedness.
F-65
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--FILM COSTS:
Film costs, net of amortization, consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
<S> <C> <C>
1996 1995
----------- -----------
Theatrical Film Costs
Released...................................... $43,415,000 $54,600,000
Completed, not released....................... 1,661,000 891,000
In process.................................... 2,713,000 2,075,000
----------- -----------
47,789,000 57,566,000
----------- -----------
Television Film Costs
Released...................................... 16,049,000 14,508,000
In process.................................... 61,000 2,006,000
----------- -----------
16,110,000 16,514,000
----------- -----------
$63,899,000 $74,080,000
----------- -----------
----------- -----------
</TABLE>
The Company did not capitalize any interest in connection with the
production of films and television series during the year ended March 31, 1996.
The Company capitalized approximately $736,000 of interest incurred in
connection with the production of films and television series during the year
ended March 31, 1995. The Company currently anticipates that approximately 75%
of the unamortized costs related to released films will be amortized under the
individual film forecast method during the three years ending March 31, 1999.
F-66
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
<S> <C> <C>
1996 1995
----------- -----------
Receivables:
Accounts receivable........................... $10,019,000 $12,311,000
Allowance for doubtful accounts............... (998,000) (880,000)
Unamortized discount.......................... -- (226,000)
----------- -----------
$ 9,021,000 $11,205,000
----------- -----------
----------- -----------
Property and equipment:
Land and buildings............................ $ 4,190,000 $ 4,190,000
Theatre leasehold interests................... 25,214,000 20,908,000
Leasehold improvements........................ 8,322,000 6,018,000
Equipment, furniture and fixtures............. 7,696,000 6,832,000
Construction in progress...................... 84,000 898,000
----------- -----------
45,506,000 38,846,000
Accumulated depreciation...................... (13,300,000) (10,693,000)
----------- -----------
$32,206,000 $28,153,000
----------- -----------
----------- -----------
Other assets:
Goodwill, net of amortization of $974,000 and
$745,000........................................ $ 3,619,000 $ 3,848,000
Deferred charges.............................. -- 782,000
Other miscellaneous........................... 1,256,000 1,557,000
----------- -----------
$ 4,875,000 $ 6,187,000
----------- -----------
----------- -----------
Accounts payable and accrued expenses
Accounts payable.............................. $ 5,020,000 $ 5,305,000
Accrued expenses.............................. 4,511,000 1,874,000
----------- -----------
$ 9,531,000 $ 7,179,000
----------- -----------
----------- -----------
Deferred Revenue
Home video deposit............................ $17,115,000 $20,000,000
Other deposits................................ 1,468,000 1,717,000
----------- -----------
$18,583,000 $21,717,000
----------- -----------
----------- -----------
</TABLE>
Deferred charges at March 31, 1995 consisted of costs incurred in connection
with obtaining the Company's credit facilities. Such costs were amortized on a
straight-line basis over the applicable term of the credit agreements.
In December 1994 the Company entered into a servicing agreement with a video
distributor, Hallmark Home Entertainment ("Hallmark"), and received a deposit
against the delivery of future titles. The deposit has been classified as
deferred revenue and is being recognized as revenue upon the release of titles
by Hallmark.
F-67
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--NOTES PAYABLE:
Notes payable consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Notes payable to banks.......................... $72,900,000 $62,400,000
Capital lease obligations....................... 5,950,000 1,355,000
Other notes payable............................. 3,179,000 3,855,000
----------- -----------
$82,029,000 $67,610,000
----------- -----------
----------- -----------
</TABLE>
On April 28, 1995, the Company entered into a $77,400,000 credit facility
with its bank lenders. This facility was comprised of a $62,400,000 term loan
and a $15,000,000 revolving credit facility. The entire facility was converted
to a term loan in February 1996. The maturity date of the credit facility was
April 30, 1996. The maturity date of the credit facility has been extended to
June 28, 1996 as a result of a recent amendment to the credit agreement. The
revolving credit facility bore interest at either the bank's reference (prime)
rate plus 1% or LIBOR plus 2%. The term loan bore interest at LIBOR plus 2%.
Pursuant to an amendment to the loan agreement dated as of November 30, 1995,
the outstanding loan amount subsequent to such date bears interest at the bank's
prime rate plus 1.50% or LIBOR plus 2.5%, at the Company's option, both rates
increasing by one-half percent each month for months subsequent thereto until
maturity. At March 31, 1996, the Bank's prime rate was 8.25%. The Company's
effective interest rate for the year ended March 31, 1996 was 10.47%, including
interest related to its interest rate swap. The credit facility contains
covenants which, among other things, require adherence to certain financial
ratios and balances and impose limitations on film acquisition and production
costs and general and administrative costs. The credit facility is secured by
substantially all of the Company's assets and the films owned by The Samuel
Goldwyn Jr. Family Trust.
The Company is currently not in default under its credit agreement and on
April 26, 1996, entered into an amendment to such agreement with its bank
lenders to extend the maturity date of the credit facility to June 28, 1996 and
to continue the waiver of certain financial ratio covenants to the maturity date
of the credit agreement.
The Company has an interest rate swap agreement with its bank which had a
total notional principal amount of $15,000,000 and $35,000,000 at March 31, 1996
and 1995, respectively. The weighted average receipt and payment rates
associated with the swap agreements at March 31, 1996 and 1995 were 6.35% and
9.50%, respectively. The incremental interest expense related to the swap
agreement was $197,000, $511,000, and $630,000 for the years ended March 31,
1996, 1995 and 1994, respectively. The swap terminates on December 31, 1996 and
its fair value as of March 31, 1996 was $116,000. The Company has exposure to
credit risk but does not anticipate nonperformance by the counterparties to the
agreement.
Other notes payable at March 31, 1996 are comprised of various obligations
of the Theatre Goup. Interest and principal payments under these notes are due
monthly through October 2003. The notes accrue interest at rates ranging from 9%
to 10.5% per annum and are collateralized by various theatres and equipment.
NOTE 7--INCOME TAXES:
Effective April 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109) "Accounting for Income Taxes." This
statement superseded SFAS 96 which the
F-68
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES:--(CONTINUED)
Company had previously adopted. The cumulative effect of adopting SFAS 109 was
immaterial and was recorded in the first quarter of fiscal 1994.
Income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1996 1995 1994
------------ ------------ ----------
<S> <C> <C> <C>
Income (loss) before income taxes.................. $(32,668,000) $(27,246,000) $3,398,000
------------ ------------ ----------
------------ ------------ ----------
Provision (benefit) for income taxes:
Current--
Federal........................................ $ -- $ (161,000) $ 256,000
State.......................................... 20 000 162,000 63,000
Foreign........................................ 951,000 443,000 750,000
------------ ------------ ----------
971,000 444,000 1,069,000
------------ ------------ ----------
Deferred--
Federal........................................ -- (5,582,000) 802,000
State.......................................... (1,512,000) (2,025,000) 41,000
------------ ------------ ----------
(1,512,000) (7,607,000) 843,000
------------ ------------ ----------
Provision (benefit) on income before extraordinary
items.............................................. (541,000) (7,163,000) 1,912,000
Provision on extraordinary item.................... (40,000) -- 506,000
------------ ------------ ----------
Total tax provision (benefit)...................... $ (581,000) $ (7,163,000) $2,418,000
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
At March 31, 1996, the major tax effected components of the deferred tax
liability are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards................................ $16,560,000
Foreign tax credits......................................... 910,000
Investment tax credits...................................... 203,000
Participations accrued...................................... 5,577,000
Deferred revenue............................................ 5,806,000
Receivables................................................. 1,645,000
Accruals, reserves and other................................ 75,000
-----------
30,776,000
Valuation allowance......................................... (13,710,000)
-----------
17,066,000
-----------
-----------
Deferred tax liabilities:
Film costs.................................................. 12,859,000
Depreciation and amortization............................... 4,007,000
Other....................................................... 200,000
-----------
17,066,000
-----------
Net deferred tax liability.................................. $ 0
-----------
-----------
</TABLE>
Deferred taxes reflect timing differences in the recognition of certain
income and expense items for financial reporting and income tax purposes. The
valuation allowance which has been provided against a portion of deferred tax
assets increased by $11,668,000 during fiscal 1996.
F-69
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--INCOME TAXES:--(CONTINUED)
The components of the deferred income tax provision (benefit) are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1995 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Film cost, net....................................... $ 29,000 $(3,218,000) $ 333,000
Revenue recognition.................................. (1,404,000) (6,631,000) 580,000
State taxes.......................................... 119,000 1,361,000 46,000
Fixed assets......................................... (77,000) (601,000) 215,000
Other................................................ (179,000) 1,482,000 156,000
----------- ----------- ----------
$(1,512,000) $(7,607,000) $1,330,000
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
A reconciliation of the federal statutory tax rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Federal statutory tax (benefit) rate................................ (34.0)% (34.0)% 34.0%
State taxes, net of federal benefit................................. (3.1) (4.9) 5.1
Foreign taxes, net of federal benefit............................... 1.9 1.1 14.6
Non-deductible expenses............................................. 2.8 0.3 2.4
Deferred tax valuation allowance.................................... 33.9 7.5 --
Other............................................................... (3.2) 3.7 0.2
----- ----- ----
Effective tax (benefit) rate........................................ (1.7)% (26.3)% 56.3%
----- ----- ----
----- ----- ----
</TABLE>
At March 31, 1996, the Company had consolidated net operating loss ("NOL")
carryovers of approximately $47,798,000 for federal tax return purposes expiring
through 2010. The Company also has investment tax credit carryovers for tax
purposes totaling approximately $200,000 expiring through 2001. However, because
of the prospective change in ownership that will result upon the completion of
the pending merger with MIG, the Company's utilization of its NOL and other tax
credits may be subject to annual limitations in periods subsequent to the
merger.
F-70
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8--SEGMENT INFORMATION:
The Company operates principally in two business segments: film and
television distribution and theatrical exhibition. Financial information
relative to these business segments is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Film and television distribution................ $ 56,886,000 $ 45,919,000 $ 68,465,000
------------ ------------ ------------
Theatrical exhibition........................... 50,898,000 45,429,000 40,326,000
------------ ------------ ------------
$107,784,000 $ 91,348,000 $108,791,000
------------ ------------ ------------
------------ ------------ ------------
OPERATING INCOME (LOSS)
Film and television distribution $(25,751,000) $(23,492,000) $ 6,668,000
Theatrical exhibition........................... 1,573,000 1,872,000 2,362,000
------------ ------------ ------------
$(24,178,000) $(21,620,000) $ 9,030,000
------------ ------------ ------------
------------ ------------ ------------
DEPRECIATION AND AMORTIZATION
Film and television distribution................ $ 201,000 $ 267,000 $ 146,000
Theatrical exhibition........................... 3,569,000 3,241,000 2,983,000
------------ ------------ ------------
$ 3,770,000 $ 3,508,000 $ 3,129,000
------------ ------------ ------------
------------ ------------ ------------
IDENTIFIABLE ASSETS
Film and television distribution................ $ 74,916,000 $ 92,580,000 $ 94,138,000
Theatrical exhibition........................... 36,934,000 33,367,000 29,737,000
------------ ------------ ------------
$111,850,000 $125,947,000 $123,875,000
------------ ------------ ------------
------------ ------------ ------------
CAPITAL EXPENDITURES
Film and television distribution................ $ 7,000 $ 291,000 $ 171,000
Theatrical exhibition........................... 7,607,000 6,763,000 2,936,000
------------ ------------ ------------
$ 7,614,000 $ 7,054,000 $ 3,107,000
------------ ------------ ------------
------------ ------------ ------------
DOMESTIC AND EXPORT REVENUES
United States................................... $ 86,971,000 $ 79,542,000 $ 84,572,000
Export revenues (including Canada).............. 20,813,000 11,806,000 24,219,000
------------ ------------ ------------
$107,784,000 $ 91,348,000 $108,791,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Certain of the Company's television programming is distributed under barter
basis agreements, primarily through one barter sales agent. Barter revenue is
determined based on actual sales of advertising time as reported by the barter
sales agent, and is recognized when the advertising within the programming is
aired. Barter revenue recognized during the years ended March 31, 1996, 1995 and
1994 was $5,002,000, $10,414,000 and $10,929,000, respectively, which
constituted approximately 5%, 10% and 10%, respectively, of the Company's total
revenues for such years.
There is no country outside of the United States in which the Company does
business that individually contributed significantly to total revenues.
F-71
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--RELATED PARTY TRANSACTIONS:
LICENSES TO FILMS BENEFICIALLY OWNED BY SAMUEL GOLDWYN JR.
The Company entered into a distribution agreement dated March 1, 1991 with
The Samuel Goldwyn Jr. Family Trust (the "Goldwyn Trust") for the worldwide
distribution in all media of the over 70 theatrical motion pictures which were
produced by Samuel Goldwyn Sr. and which are owned by the Goldwyn Trust. The
term of the agreement expires December 31, 2003, subject to automatic renewal
for an additional two year period, and thereafter for additional one-year
periods upon expiration of the initial term. The agreement provided that from
March 1, 1991 through December 31, 1993, the Goldwyn Trust received 50% of the
proceeds derived from the distribution of such films after the payment of all
costs relating to such distribution, with the Company retaining the remaining
50% of such net proceeds as its distribution fee. From January 1, 1994 until
December 31, 1996, the Goldwyn Trust will receive all gross receipts derived
from the distribution of such films, after the payment to the Company of a
distribution fee equal to 35% of gross receipts and after the Company recoups
all costs incurred in connection with such distribution. From January 1, 1997
until December 31, 2003 and during any renewal periods after December 31, 2003,
the distribution fee payable to the Company will be 30%.
The films owned by the Goldwyn Trust partially secure the Company's notes
under its credit facility. Such credit facility further provides that the amount
of participations that may be paid to the Goldwyn Trust and its beneficiaries in
any one year may not exceed $800,000 and that no distributions may be made that
will result in the aggregate participation payable being less than $8,500,000.
For the fiscal years ended March 31, 1996, 1995 and 1994, the Company accrued
obligations of $1,445,000, $1,141,000 and $1,836,000, respectively, as a result
of revenues being recognized by the Company from such films during such periods.
The Goldwyn Trust, however, received payments of $465,000, $800,000 and
$700,000, respectively from the Company during such years. As of March 31, 1996,
a profit participation in the amount of $10,353,000 remained payable by the
Company. This participation payable does not bear interest.
SAMUEL GOLDWYN PRODUCTIONS AND NIGHTLIFE, INC.
Samuel Goldwyn Productions ("Productions") is a California corporation which
is wholly owned by Samuel Goldwyn Jr. and is involved in the acquisition and
development of literary properties for production as motion pictures. Under a
non-exclusive agreement between the Company and Productions, the Company
reimburses Productions for all accountable out-of-pocket costs incurred by
Productions in connection with the development of properties undertaken at the
request and on behalf of the Company, regardless of whether such properties are
then acquired by the Company. For the years ended March 31, 1996, 1995 and 1994,
the Company reimbursed Productions $205,000, $418,000 and $446,000,
respectively, for development costs associated with properties acquired or to be
acquired by the Company.
Nightlife, Inc. is a California corporation which is wholly owned by the
President of the Company, and is involved in the production of motion pictures
and television programs. The Company reimburses Nightlife, Inc. for all
accountable out-of-pocket costs incurred in connection with any motion picture
or television program which it produces for the Company. In addition to
reimbursement for these actual costs, the Company pays Nightlife, Inc. an annual
fee of $10,000 plus a 2.5% net profit participation in the films and television
programs it produces. To date, the Company has neither paid, nor is it required
to accrue, any profit participations to Nightlife, Inc. For the years ended
March 31, 1996, 1995 and 1994, the Company made payments to Nightlife, Inc. of
$375,000, $99,000 and $249,000, respectively. These amounts include $10,000 in
fees each year.
F-72
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--STOCK AWARDS PLANS:
The Company has a stock awards plan under which 1,000,000 shares of the
Company's common stock are available for nonqualified or incentive stock options
or other stock awards. The plan provides that awards may be granted to
consultants and key employees, including officers and directors, of the Company
upon such terms as the Stock Awards Committee of the Board of Directors may
determine. The options that are outstanding have been granted at an exercise
price at least equal to the fair market value at the date of grant and are
generally exercisable in installments over one to five years. Options generally
expire ten years after date of grant. Activity under the stock awards plan was
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Outstanding at beginning of year.............................. 485,400 185,525 167,800
Awards cancelled.............................................. (198,983) (25,125) (32,000)
Awards granted................................................ 375,250 325,000 50,975
Awards exercised.............................................. -- -- (1,250)
-------- ------- -------
Outstanding at March 31....................................... 661,667 485,400 185,525
-------- ------- -------
-------- ------- -------
</TABLE>
Options outstanding at March 31, 1996 and 1995 ranged in price from $6.00 to
$32.50 per share. Options exercised in 1994 were at $8.00 per share. At March
31, 1996, options for 97,467 shares had vested and were exercisable. There are
337,083 shares available for future awards.
The Company has a Directors' Stock Option Plan under which 25,000 shares of
the Company's common stock are available for nonqualified stock options to
nonemployee members of the Board of Directors to be awarded at the rate of 500
options per year for each Director. At March 31, 1996 and 1995, a total of 7,500
and 4,500 ten year options exercisable from $4.69 to $18.75 per share were
outstanding to the three nonemployee Directors.
Effective April 13, 1993, the Company, Samuel Goldwyn Jr., and the Goldwyn
Trust entered into an Option Agreement (the "Option Agreement") pursuant to
which the Company and Mr. Goldwyn each have unilateral six-year options
entitling (i) Mr. Goldwyn to acquire any part or all of 875,000 shares of Common
Stock at a cash exercise price of $8.00 per share (the market value of the
Common Stock on the date of the Option Agreement), and (ii) the Company to issue
up to 875,000 shares of Common Stock to the Goldwyn Trust in exchange for a
dollar-for-dollar reduction of participations payable, at an exchange price
equal to the then market price of the Common Stock, if such market price is not
greater than $9.00 per share or less than $6.50 per share and if greater or
lesser than such amounts, at $9.00 and $6.50, respectively. If the options were
exercised in their entirety by the Company, or Mr. Goldwyn, and the market price
of the Common Stock at the time of exercise were $8.00 per share, the Company
would issue 875,000 shares in exchange for $7,000,000 in cash or reduction of
participations payable by the Company, as applicable, The 875,000 shares are
considered common stock equivalents and, to the extent that they are dilutive,
have been included in the determination of weighted average number of
outstanding shares used to calculate net income (loss) per share, using the
treasury stock method.
NOTE 12--LEASES:
At March 31, 1996, the Company has long-term operating and capital leases,
primarily involving office and theatre facilities. The leases have varying terms
and contain renewal options. Future
F-73
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--LEASES:--(CONTINUED)
minimum lease payments under non-cancelable operating leases consist of the
following at March 31, 1996:
<TABLE>
<S> <C>
1997.......................................................... $ 5,212,000
1998.......................................................... 4,698,000
1999.......................................................... 3,525,000
2000.......................................................... 3,060,000
2001.......................................................... 2,715,000
Thereafter.................................................... 21,997,000
-----------
Total future minimum lease commitments........................ $41,207,000
-----------
-----------
</TABLE>
At March 31, 1996, future minimum lease payments under capital leases,
including interest, consist of the following:
<TABLE>
<S> <C>
1997.......................................................... $ 868,000
1998.......................................................... 867,000
1999.......................................................... 866,000
2000.......................................................... 1,364,000
2001.......................................................... 769,000
Thereafter.................................................... 9,166,000
-----------
13,900,000
Less amount representing interest............................. (7,950,000)
-----------
Present value of future minimum lease payments................ $ 5,950,000
-----------
-----------
</TABLE>
Total rent expense was $5,660,000, $5,284,000 and $4,717,000 for the years
ending March 31, 1996, 1995 and 1994, respectively.
NOTE 13--COMMITMENTS AND CONTINGENCIES:
As of March 31, 1996, the Company had outstanding guarantees of indebtedness
of approximately $4.7 million related to the production financing of one
theatrical motion picture.
The Company is involved in various lawsuits, claims and inquiries.
Management and its legal counsel believe that the resolution of these matters
will not have a material adverse effect on the financial position of the Company
or the results of its operations.
In December 1994, a decision was entered in the Los Angeles Superior Court
in the case entitled Virgin Vision, Ltd. vs. The Samuel Goldwyn Company
assessing damages against the Company of approximately $3,500,000 plus costs and
legal fees arising out of a complaint filed by Virgin Vision on October 26,
1990, alleging failure by the Company to provide a presentation credit in
certain territories on the foreign distribution by the Company of the motion
picture, sex, lies and videotape. The court assessed such damages after finding
on June 25, 1993 that the Company had committed unfair competition under
California law, violated the federal Lanham Act, breached its contract with
Virgin Vision and breached its fiduciary duty to Virgin Vision as its agent. The
Company has appealed the decision. In the opinion of management, the ultimate
outcome will not have a material adverse effect on the Company's financial
position or results of operations because damages are expected to be covered by
insurance.
F-74
<PAGE>
THE SAMUEL GOLDWYN COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--COMMITMENTS AND CONTINGENCIES:--(CONTINUED)
On December 28, 1995 a shareholder derivative suit against the Company and
its directors was filed in the Delaware Court of Chancery, Kinder v. The Samuel
Goldwyn Company, et al., C.A. No. 14751. On January 2, 1996, the Company was
served with legal process in connection therewith. In the Complaint, plaintiffs
allege that the Company's deal memorandum with PolyGram Filmed Entertainment
Distribution Inc. was not in the best interests of the shareholders and thus
constituted, among other things, a breach of the director's fiduciary duties to
the Company's shareholders. Plaintiffs seek various forms of relief, including
declaratory, injunctive and compensatory damages. The Company believes the
complaint is without merit and based on consultations with counsel, the Company
believes that the resolution of this matter will not have a material adverse
effect on the Company.
F-75
{GRAPHIC OMITTED}
This page contains the logo of the Company.
ENTERTAINMENT GROUP
{GRAPHIC OMITTED}
This page contains the logos of the operating companies in the Company's
Entertainment Group: Orion Prictures Corporation, Motion Picture Corporation
of America, The Samuel Goldwyn Company and Landmark Theatre Corporation.
COMMUNICATIONS GROUP
{GRAPHIC OMITTED}
This page contains the logo of the operating company in the Company's
Communications Group: Metromedia International Telecommunications, Inc.
<PAGE>
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS 15,000,000 SHARES
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR SOLICITATION OF AN OFFER TO [LOGO OF METROMEDIA
BUY, TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION INTERNATIONAL GROUP, INC.]
WOULD BE UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROMETROMEDIA SPECTUS NOR ANY ---------------------
SALE MADE HEREUNDER SHALL, UNDER ANY PROSPECTUS
CIRCUMSTANCES, CREATE ANY IMPLICATION ---------------------
THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
---------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 3
Risk Factors.......................... 10
Use of Proceeds....................... 19
Price Range of Common Stock and
Dividend Policy....................... 20
Dilution.............................. 21
Capitalization........................ 22
Selected Consolidated Financial
Data.................................. 23
Pro Forma Consolidated Condensed
Financial Information of the
Company............................... 25
Management's Discussion and Analysis
of Financial Condition................ 32
Business.............................. 51
Management............................ 70 DONALDSON, LUFKIN & JENRETTE
Principal Stockholders................ 72
Description of Certain Indebtedness... 74 SECURITIES CORPORATION
The Acquisitions...................... 76
Certain United States Federal Tax FURMAN SELZ
Consequences to Non-United States
Holders............................... 79 SCHRODER WERTHEIM & CO.
Underwriting.......................... 81
Legal Matters......................... 84 , 1996
Experts............................... 84
Available Information................. 85
Information Incorporated by
Reference............................. 85
Special Note Regarding Forward-Looking
Statements............................ 86
Index to Financial Statements.........F-1
- ----------------------------------------- ---------------------------------
- ----------------------------------------- ---------------------------------
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION, DATED JUNE 6, 1996
PROSPECTUS
, 1996
[LOGO]
15,000,000 SHARES
METROMEDIA INTERNATIONAL GROUP, INC.
COMMON STOCK
All of the shares of Common Stock, par value $1.00 per share (the "Common
Stock"), offered hereby are being sold by Metromedia International Group, Inc.
(the "Company" or "MIG").
The Company is offering 15,000,000 shares (assuming no exercise of the
Underwriters' overallotment option) of its Common Stock in the Offering (as
defined below). Of the 15,000,000 shares of Common Stock being offered by the
Company, 3,000,000 shares are being offered for sale outside the United States
and Canada by the International Managers (the "International Offering") and
12,000,000 shares are being offered for sale in the United States and Canada in
a concurrent offering by the U.S. Underwriters (the "U.S. Offering" and,
together with the International Offering, the "Offering"), subject to transfers
between the International Managers and the U.S. Underwriters. See
"Underwriting". The Company intends to consummate the Offering simultaneously
with the consummation of the proposed acquisition (the "Goldwyn Acquisition") of
The Samuel Goldwyn Company ("Goldwyn"), which acquisition is contingent upon
certain conditions, including the refinancing of certain of Goldwyn's
indebtedness. See "The Acquisitions."
The Company's Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "MMG." The closing price of the Company's Common Stock as
reported on the AMEX on June 5, 1996 was $14 1/4 per share.
SEE "RISK FACTORS" STARTING ON P. 10 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................ $ $ $
Total(3)......................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the International Managers and the U.S.
Underwriters (collectively, the "Underwriters") against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the U.S. Underwriters a 30-day option to purchase
up to 2,250,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including the rights of
the Underwriters to reject any order in whole or in part. It is expected that
delivery of the shares will be made in New York, New York on or about
, 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FURMAN SELZ
SCHRODERS
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS]
- ------------------------------------- -------------------------------------
- ------------------------------------- -------------------------------------
NO DEALER, SALESPERSON OR OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS 15,000,000 SHARES
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR SOLICITATION OF AN OFFER TO [LOGO OF METROMEDIA
BUY, TO ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION INTERNATIONAL GROUP, INC.]
WOULD BE UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROMETROMEDIA SPECTUS NOR ANY ---------------------
SALE MADE HEREUNDER SHALL, UNDER ANY PROSPECTUS
CIRCUMSTANCES, CREATE ANY IMPLICATION ---------------------
THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
THERE ARE RESTRICTIONS ON THE OFFER
AND SALE OF THE COMMON STOCK OFFERED
HEREBY IN THE UNITED KINGDOM. ALL
APPLICABLE PROVISIONS OF THE FINANCIAL
SERVICES ACT 1986 AND THE COMPANIES ACT
1985 WITH RESPECT TO ANYTHING DONE BY
ANY PERSONS IN RELATION TO THE COMMON
STOCK COMMON STOCK IN, FROM OR OTHERWISE
INVOLVING THE UNITED KINGDOM MUST BE
COMPLIED WITH. SEE "UNDERWRITING."
IN THIS PROSPECTUS, REFERENCE TO
"DOLLARS" AND "$" ARE TO UNITED STATES
DOLLARS UNLESS STATED OTHERWISE.
---------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 3
Risk Factors.......................... 10
Use of Proceeds....................... 19
Price Range of Common Stock and
Dividend Policy....................... 20
Dilution.............................. 21
Capitalization........................ 22
Selected Consolidated Financial
Data.................................. 23
Pro Forma Consolidated Condensed
Financial Information of the
Company............................... 25
Management's Discussion and Analysis
of Financial Condition................ 32
Business.............................. 51
Management............................ 70 DONALDSON, LUFKIN & JENRETTE
Principal Stockholders................ 72
Description of Certain Indebtedness... 74 SECURITIES CORPORATION
The Acquisitions...................... 76
Certain United States Federal Tax FURMAN SELZ
Consequences to Non-United States SCHRODER WERTHEIM & CO.
Holders............................... 79
Underwriting.......................... 81
Legal Matters......................... 84 , 1996
Experts............................... 84
Available Information................. 85
Information Incorporated by
Reference............................. 85
Special Note Regarding Forward-Looking
Statements............................ 86
Index to Financial Statements.........F-1
- ----------------------------------------- ---------------------------------
- ----------------------------------------- ---------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
discounts and commissions) expected to be incurred in connection with the
issuance and distribution of the securities registered hereby, all of which
expenses, except for the SEC registration fee and the NASD filing fee, are
estimated:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 81,046
--------
National Association of Securities Dealers, Inc. filing fee..... 24,004
--------
AMEX listing fee................................................ *
Printing expenses............................................... *
Legal fees and expenses (other than Blue Sky)................... *
Accounting fees and expenses.................................... *
Blue Sky fees and expenses (including legal fees)............... *
Miscellaneous................................................... *
Total....................................................... $
--------
--------
</TABLE>
- ------------
* To be completed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include judgments, fines, amounts
paid in settlement and expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, and, with respect to criminal proceedings, had no reasonable cause to
believe his conduct was illegal. A Delaware corporation may indemnify its
officers and directors against expenses actually and reasonably incurred by them
in connection with an action by or in the right of the corporation under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation
in the performance of his duty. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred in connection therewith.
Section 102(b)(7) of the Delaware Law further provides that a corporation in
its certificate of incorporation may eliminate or limit the personal liability
of its directors to the corporation or its stockholders for breach of their
fiduciary duties in certain circumstances.
In accordance with Section 145 of the Delaware Law, the Company's Restated
Certificate of Incorporation provides that the Company shall indemnify its
officers and directors against, among other things, any and all judgments,
fines, penalties, amounts paid in settlements and expenses paid or incurred by
virtue of the fact that such officer or director was acting in such capacity to
the extent not prohibited by law.
In addition, as permitted by Section 102(b)(7) of the Delaware Law, the
Company's Restated Certificate of Incorporation contains a provision limiting
the personal liability of the Company's
II-1
<PAGE>
directors for violations of their fiduciary duties to the fullest extent
permitted by the Delaware Law. This provision eliminates each director's
liability to the Company or its stockholders for monetary damages except (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware Law, or (iv) for any transaction from which a director derived an
improper personal benefit. The general effect of this provision is to eliminate
a director's personal liability for monetary damages for actions involving a
breach of his or her fiduciary duty of care, including any such actions
involving gross negligence.
Also, in accordance with the Delaware Law and pursuant to the Company's
Restated Certificate of Incorporation, the Company is authorized to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Company, is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Company would
have the power to indemnify such person against liability under the Delaware
Law.
The Company has entered into agreements (the "Indemnification Agreements")
with certain directors and officers of the Company (the "Indemnified Parties")
which require the Company to indemnify each Indemnified Party against, and to
advance expenses incurred by each Indemnified Party in the defense of, any claim
arising out of his or her employment to the fullest extent permitted under law.
The Indemnification Agreements also provide, among other things, for (i)
advancement by the Company of expenses incurred by the director or officer in
defending certain litigation, (ii) the appointment of an independent legal
counsel to determine whether the director or officer is entitled to indemnity
and (iii) the continued maintenance by the Company of directors' and officers'
liability insurance providing each director or officer who is a party to any
such agreement with $5 million of primary coverage and an excess policy
providing $5 million of additional coverage. These Indemnification Agreements
were approved by the stockholders at the Company's 1993 Annual Meeting of
Stockholders.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
The exhibits listed below are filed as part of or incorporated by reference
in this Registration Statement. Where such filing is made by incorporation by
reference to a previously filed report, such report is identified in
parentheses. See the Index of Exhibits included with the exhibits filed as part
of this Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<S> <C>
1.1** Form of Underwriting Agreement
2.2 Agreement and Plan of Merger dated as of January 31, 1996 by and among the
Registrant, The Samuel Goldwyn Company and SGC Merger Corp., without disclosure
schedules (Exhibit 99.1 to the Current Report on Form 8-K dated January 31, 1996).
The Registrant agrees to furnish a copy of any omitted schedule supplementally to
the Commission upon request.
2.3 Agreement and Plan of Merger dated as of December 20, 1995 by and among the
Registrant, Alliance Merger Corp. and Alliance Entertainment Corp., without
disclosure schedules (Exhibit 99.1 to the Current Report on Form 8-K dated December
20, 1995). The Registrant agrees to furnish a copy of any omitted schedule
supplementally to the Commission upon request.
2.4 Termination and Release Agreement dated April 29, 1996 by and among the Registrant,
Alliance Merger Corp., and Alliance Entertainment Corp. (Exhibit 99.2 to the Current
Report on Form 8-K dated April 29, 1996).
5** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality of the
Securities being registered.
23.1* Consent of KPMG Peat Marwick LLP regarding the Registrant.
23.2 Consent of Ernst & Young LLP regarding the Registrant.
23.3 Consent of Price Waterhouse LLP regarding Goldwyn.
23.4** Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the opinion filed
as Exhibit 5 hereto).
24 Power of Attorney (included on page II-5 of the Registration Statement on Form S-3
filed on May 8, 1996 (File No. 333-3353)).
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
B. FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules have been omitted because they are not
applicable or not required or because the information has been incorporated by
reference.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and
II-3
<PAGE>
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Atlanta, State of Georgia:
METROMEDIA INTERNATIONAL GROUP, INC.
By: /s/ JOHN D. PHILLIPS
..................................
John D. Phillips
President and Chief Executive
Officer
Date: June 6, 1996
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on the 6th day of June, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* Chairman of the Board
.............................................
John W. Kluge
* Vice Chairman of the Board
.............................................
Stuart Subotnick
* President and Chief Executive Officer and
............................................. Director (Principal Executive Officer)
John D. Phillips
* Senior Vice President, Chief Financial
............................................. Officer and Director (Principal Financial
Silvia Kessel Officer)
* Senior Vice President, General Counsel and
............................................. Director
Arnold L. Wadler
* Senior Vice President (Principal Accounting
............................................. Officer)
Robert A. Maresca
* Director
.............................................
John P. Imlay, Jr.
* Director
.............................................
Clark A. Johnson
* Director
.............................................
Richard J. Sherwin
* Director
.............................................
Leonard White
* Director
.............................................
Carl E. Sanders
</TABLE>
By /s/ SILVIA KESSEL
.............................................................................
Silvia Kessel
Attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------- --------
<S> <C> <C>
1.1** Form of Underwriting Agreement............................................
2.2 Agreement and Plan of Merger dated as of January 31, 1996 by and among the
Registrant, The Samuel Goldwyn Company and SGC Merger Corp., without
disclosure schedules (Exhibit 99.1 to the Current Report on Form 8-K dated
January 31, 1996). The Registrant agrees to furnish a copy of any omitted
schedule supplementally to the Commission upon request....................
2.3 Agreement and Plan of Merger dated as of December 20, 1995 by and among
the Registrant, Alliance Merger Corp. and Alliance Entertainment Corp.,
without disclosure schedules (Exhibit 99.1 to the Current Report on Form
8-K dated December 20, 1995). The Registrant agrees to furnish a copy of
any omitted schedule supplementally to the Commission upon request........
2.4 Termination and Release Agreement dated April 29, 1996 by and among the
Registrant, Alliance Merger Corp., and Alliance Entertainment Corp.
(Exhibit 99.2 to the Current Report on Form 8-K dated April 29, 1996).....
5** Opinion of Paul, Weiss, Rifkind, Wharton & Garrison regarding the legality
of the Securities being registered........................................
23.1* Consent of KPMG Peat Marwick LLP regarding the Registrant.................
23.2 Consent of Ernst & Young LLP regarding the Registrant.....................
23.3 Consent of Price Waterhouse LLP regarding Goldwyn.........................
23.4** Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in the
opinion filed as Exhibit 5 hereto)........................................
24 Power of Attorney (included on page II-5 of the Registration Statement on
Form S-3 filed May 8, 1996 (File No. 333-3353))...........................
</TABLE>
- ------------
* Filed herewith.
** To be filed by amendment.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Metromedia International Group, Inc.:
We consent to the use of our reports included herein and incorporated herein by
reference and to the references to our firm under the headings "Selected
Consolidated Financial Data" and "Experts" in the prospectus.
KPMG Peat Marwick LLP
New York, New York
June 6, 1996
