<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997
REGISTRATION NO. 333-24601
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 1 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
ONE MEADOWLANDS PLAZA
EAST RUTHERFORD, NEW JERSEY 07073-2137
(201) 531-8000
(Address, including zip code and telephone number, including area code, of
Registrant's principal executive offices)
ARNOLD L. WADLER, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
METROMEDIA INTERNATIONAL GROUP, INC.
ONE MEADOWLANDS PLAZA
EAST RUTHERFORD, NEW JERSEY 07073-2137
(201) 531-8000
(Name, address, including zip code, and telephone number, including area code of
agent for service)
------------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
JAMES M. DUBIN, ESQ. NICHOLAS P. SAGGESE, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1285 AVENUE OF THE AMERICAS 300 SOUTH GRAND AVENUE, 34TH FLOOR
NEW YORK, NEW YORK 10019-6064 LOS ANGELES, CALIFORNIA 90071
(212) 373-3000 (213) 687-5000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the Registration Statement becomes effective.
------------------------------
If the securities registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. / /
If any of the securities 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. /X/
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
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 the delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF SHARES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SHARE PRICE FEE
<S> <C> <C> <C> <C>
% Cumulative Convertible Preferred Stock,
$1.00 par value per share................. 3,450,000(1) $50.00 $172,500,000 $52,273(2)(3)
Common Stock, $1.00 par value per share..... (1)(4) -- -- --(5)
</TABLE>
(1) Includes shares to cover exercise of the Underwriters' over-allotment
option, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933, as amended (the
"Securities Act"), based upon the $50.00 price per share at which the
Preferred Stock was initially sold.
(3) $43,561 was wired on April 4, 1997 to the Securities and Exchange
Commission's (the "Commission") account at Mellon Bank and an additional
$8,712 is being wired to the Commission's account with this Amendment No. 1,
in full payment of the required registration fee due in connection with this
Registration Statement.
(4) The shares of Common Stock being registered hereunder include the number of
shares of Common Stock initially issuable upon conversion of the Preferred
Stock ( shares) plus such indeterminate number of additional shares as
may become issuable upon conversion of the Preferred Stock as a result of
adjustments in the conversion price thereof or upon redemption and dividend
payments made on the Preferred Stock by the delivery of Common Stock in
accordance with the terms of the Preferred Stock.
(5) Pursuant to Rule 457(i) under the Securities Act, no registration fee is
required for the Common Stock issuable upon conversion of the Preferred
Stock because no additional consideration will be required in connection
with the issuance of such shares.
------------------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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>
SUBJECT TO COMPLETION DATED AUGUST 6, 1997
PROSPECTUS
, 1997
3,000,000 SHARES
METROMEDIA INTERNATIONAL GROUP, INC.
% CUMULATIVE CONVERTIBLE PREFERRED STOCK
Metromedia International Group, Inc., a Delaware corporation (the
"Company"), is offering 3,000,000 shares of % Cumulative Convertible Preferred
Stock (the "Preferred Stock"), with a liquidation preference of $50 per share.
Dividends on the Preferred Stock are cumulative from the date of issuance
and payable quarterly, in arrears, commencing on , 1997. The Company may
make any payments due on the Preferred Stock, including dividend payments and
redemptions, (i) in cash or (ii) by delivery of fully paid and nonassessable
shares of common stock, par value $1.00 per share, of the Company (the "Common
Stock") or (iii) through a combination thereof. The Preferred Stock is
convertible at the option of the holder at any time, unless previously redeemed,
into fully paid and nonassessable shares of Common Stock, at a conversion price
of $ per share (equivalent to the conversion rate of approximately
shares of Common Stock for each share of Preferred Stock), subject to
adjustment under certain conditions. On August 1, 1997, the closing price of the
Common Stock (symbol "MMG") as reported on the American Stock Exchange (the
"AMEX") was $11 1/4 per share. Prior to this offering, there has been no trading
market for the Preferred Stock.
The Preferred Stock is redeemable at any time on or after , 2000, in
whole or in part, at the option of the Company, initially at a price of
$ and thereafter at prices declining to $50 per share on or after ,
2007, plus in each case all accrued and unpaid dividends to the redemption date.
Upon any Change of Control (as defined herein), each holder of Preferred Stock
shall, in the event that the Market Value at such time is less than the
Conversion Price, have a one-time option to convert such holder's shares of
Preferred Stock into fully paid and nonassessable shares of Common Stock, at a
conversion price equal to the greater of (x) the Market Value (as defined
herein) as of the Change of Control Date (as defined herein) and (y) 66.67% of
the Market Value as of the date of this Prospectus. In lieu of issuing the
shares of Common Stock issuable upon conversion in the event of a Change of
Control, the Company may, at its option, make a cash payment equal to the Market
Value of such Common Stock otherwise issuable.
Simultaneously with the offering of the Preferred Stock, the Company is
registering with the Commission (as defined herein) shares of Common Stock,
initially issuable upon conversion of the Preferred Stock plus such
indeterminate number of additional shares as may become issuable upon conversion
of the Preferred Stock as a result of adjustments in the conversion price
thereof or upon redemption payments and dividend payments made on the Preferred
Stock by delivery of Common Stock in accordance with the terms of the Preferred
Stock. Application is being made to list the Preferred Stock on the AMEX and the
Pacific Stock Exchange (the "PSE").
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
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(1) COMMISSIONS(2) COMPANY(3)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total (4)..................................... $ $ $
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</TABLE>
(1) PLUS ACCRUED DIVIDENDS, IF ANY, FROM THE DATE OF ISSUANCE.
(2) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS (AS DEFINED BELOW)
AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT").
(3) BEFORE DEDUCTING ESTIMATED EXPENSES OF THE OFFERING PAYABLE BY THE COMPANY,
ESTIMATED TO BE $ .
(4) THE COMPANY HAS GRANTED THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN 30
DAYS OF THE DATE HEREOF, TO PURCHASE UP TO 450,000 ADDITIONAL SHARES OF
PREFERRED STOCK, SOLELY FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF ANY.
TO THE EXTENT THE OPTION IS EXERCISED, THE UNDERWRITERS WILL OFFER THE
ADDITIONAL SHARES OF PREFERRED STOCK AT THE PRICE TO THE PUBLIC SHOWN ABOVE.
IF THE 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 Preferred Stock is offered by Donaldson, Lufkin & Jenrette Securities
Corporation, Goldman, Sachs & Co. and Chase Securities Inc., as the underwriters
(the "Underwriters"), subject to prior sale, when, as and if issued to and
accepted by the Underwriters and subject to certain conditions, including the
right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the Preferred Stock will be made against payment
therefor in immediately available funds in New York, New York on or about
, 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
<PAGE>
[Artwork](1)
[LOGO]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE PREFERRED STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE PREFERRED STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
- ------------------------
(1)To be filed by Amendment.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS INCORPORATED INTO OR APPEARING ELSEWHERE IN
THIS PROSPECTUS. ALL REFERENCES TO "$" OR "DOLLARS" ARE TO U.S. DOLLARS. UNLESS
OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTION. TERMS NOT DEFINED IN THIS SUMMARY ARE
DEFINED ELSEWHERE HEREIN. THE COMMUNICATIONS GROUP REPORTS THE RESULTS OF
OPERATIONS OF ITS CONSOLIDATED AND UNCONSOLIDATED JOINT VENTURES ON A
THREE-MONTH LAG AND CONSEQUENTLY, THE COMMUNICATIONS GROUP'S RESULTS OF
OPERATIONS REPORTED AS OF MARCH 31, 1997 REFLECT ITS OPERATING RESULTS AS OF
DECEMBER 31, 1996. SEE NOTE 1 TO THE "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS" OF THE COMPANY FOR THE YEAR ENDED DECEMBER 31, 1996 INCLUDED
ELSEWHERE IN THIS PROSPECTUS. HOWEVER, THE NUMBER OF JOINT VENTURES AND
SUBSCRIBERS AT JUNE 30, 1997 AND 1996 CONTAINED IN THIS PROSPECTUS REFLECT THE
ACTUAL NUMBER OF JOINT VENTURES AND SUBSCRIBERS AT SUCH DATES. SPECIAL NOTE:
CERTAIN STATEMENTS BELOW THIS CAPTION AND ELSEWHERE IN THE PROSPECTUS CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (THE "REFORM ACT"). SEE "SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS" ON PAGES 85-86 FOR ADDITIONAL FACTORS RELATING TO
SUCH STATEMENTS.
THE COMPANY
The Company is a global communications and media company engaged in the
development and operation of a variety of communications businesses, including
wireless cable television, AM/FM radio, paging, cellular telecommunications,
international toll calling and trunked mobile radio, in Eastern Europe, the
republics of the former Soviet Union, the People's Republic of China (the "PRC")
and other selected emerging markets, through its Communications Group.
The Communications Group, which was founded in 1990 to take advantage of the
rapidly growing demand for modern communications services in Eastern Europe, the
republics of the former Soviet Union and other selected emerging markets,
launched its first operating system in 1992. At June 30, 1997, the
Communications Group owned interests in and participated with partners in the
management of joint ventures that had 35 operational systems, consisting of 9
wireless cable television systems, 7 AM/FM radio stations, 11 paging systems, 1
international toll calling service, 5 trunked mobile radio systems, 1 GSM
cellular telephone system and 1 joint venture that is building-out an
operational GSM system and providing financing, technical assistance and
consulting services to the local system operator. In addition, the
Communications Group has interests in and participates with partners in the
management of joint ventures that, as of June 30, 1997, had 4 pre-operational
systems, consisting of 1 wireless cable television system, 1 cellular
telecommunications system, 1 company providing sales, financing and service for
wireless local loop telecommunications equipment and 1 company participating in
the construction and development of a local telephone network in the PRC for up
to 1 million lines, each of which the Communications Group believes will be
launched during 1997. The Company generally owns 50% or more of the joint
ventures in which it invests. The Company believes that the Communications Group
is poised for significant growth, as it continues to expand its existing
systems' subscriber base, construct and launch new systems in areas where it is
currently licensed and obtain new licenses in additional attractive markets. The
Company's objective is to establish the Communications Group as a major
multiple-market provider of modern communications services in Eastern Europe,
the republics of the former Soviet Union, the PRC and other selected emerging
markets.
The Communications Group's joint ventures have recently experienced rapid
growth with aggregate subscribers to their various services at June 30, 1997 of
246,773, a growth of 132.1% over aggregate subscribers at June 30, 1996 of
106,308. Total combined revenues reported by the Communications Group's
consolidated and unconsolidated joint ventures for the quarter ended March 31,
1997 and the year ended December 31, 1996 were $18.9 million and $56.2 million,
respectively, as compared to $11.9 million and $23.9 million, respectively, for
the quarter ended March 31, 1996 and the year ended December 31, 1995. The
Communications Group invested approximately $26.7 million during the first
quarter of 1997
3
<PAGE>
and approximately $49.9 million during the year ended December 31, 1996 in the
construction and development of its consolidated and unconsolidated joint
ventures' communications networks and broadcasting stations.
The following chart summarizes operating statistics by service type of both
the licensed but pre-operational and operational systems of the Communications
Group's joint ventures:
<TABLE>
<CAPTION>
TARGET POPULATION/
PRE- MARKETS AGGREGATE
OPERATIONAL OPERATIONAL AT HOUSEHOLDS (MM)(A) SUBSCRIBERS
MARKETS AT AT
JUNE 30, JUNE 30, AT JUNE 30, JUNE 30,
COMMUNICATIONS ------------- ------------- -------------------- ---------
SERVICE 1997 1997 1996 1997 1996 1997
- ------------------------------------------------ ------------- ----- ----- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Wireless Cable Television....................... 1(b) 9 9 9.5 9.5 169,033
AM/FM Radio..................................... --(c) 7 5 8.0 7.0 n/a
Paging (d)...................................... -- 11 8 89.5 81.5 53,321
Cellular Telecommunications..................... 1(e) 2(f) -- 13.4 -- 12,365
International Toll Calling (g).................. -- 1 1 5.5 5.5 n/a
Trunked Mobile Radio (h)........................ -- 5 3 56.2 35.6 12,054
Fixed Telephony (i)............................. 2 -- -- 97.0(j) -- --
-- --
--- ---------
Total....................................... 4 35 26 246,773
-- --
-- --
--- ---------
--- ---------
<CAPTION>
COMMUNICATIONS
SERVICE 1996
- ------------------------------------------------ ---------
<S> <C>
Wireless Cable Television....................... 62,568
AM/FM Radio..................................... n/a
Paging (d)...................................... 37,636
Cellular Telecommunications..................... --
International Toll Calling (g).................. n/a
Trunked Mobile Radio (h)........................ 6,104
Fixed Telephony (i)............................. --
---------
Total....................................... 106,308
---------
---------
</TABLE>
- ------------------------
(a) Covers both pre-operational markets and operational markets. Target
population is provided for paging, telephony and trunked mobile radio
systems, and target households are provided for wireless cable television
systems and radio stations.
(b) The Communications Group owns 45% of a pre-operational wireless cable joint
venture in St. Petersburg, Russia.
(c) The Communications Group has signed definitive agreements to purchase 70% of
a joint venture operating a radio station in Berlin, Germany and 85% of a
joint venture operating a radio station in Prague, Czech Republic.
(d) Target population for the Communications Group's paging joint ventures
includes the total population in the jurisdictions where such joint ventures
are licensed to provide services. In many markets, however, the
Communications Group's paging system currently only covers the capital city
and is expanding into additional cities.
(e) The Communications Group owns 34.3% of a joint venture that holds a license
and is constructing a nationwide cellular telecommunications system in
Georgia. See "BUSINESS--The Communications Group."
(f) The Communications Group's operational systems include its joint venture
operating a GSM system in Latvia and its joint venture in Ningbo City, PRC,
which is participating in the build-out of an operational GSM system and
providing financing, technical assistance and consulting services to the
systems operator.
(g) Provides international toll calling services between Georgia and the rest of
the world and is the only Intelstat-designated representative in Georgia to
provide such services.
(h) Target population for the Communications Group's trunked mobile radio
systems includes total population in the jurisdictions where such joint
ventures are licensed to provide services. In many markets, the
Communications Group's systems are currently only operational in major
cities.
(i) The Communications Group owns a 34% interest in a pre-operational joint
venture in the PRC that provides wired/wireless local loop
telecommunications equipment, financing, network planning, installation and
maintenance services to telecommunications operators and a 52% interest in a
pre-operational joint venture in the PRC that is participating in the
construction and development of a local telephone network for up to 1
million lines.
(j) Indicates population of the Hebei and Tianjin Provinces in the PRC in which
the Communications Group's joint venture has tested its equipment and
population of the Sichuan Province, where it is participating in the
construction of a local network.
The Communications Group's markets generally have large populations, with
high density and strong economic potential, but lack reliable and efficient
communications services. The Company believes that most of these markets have a
growing number of persons who desire and can afford high quality
4
<PAGE>
communications services. The Communications Group has assembled a management
team consisting of executives who have significant experience in the
communications services industry and in operating businesses in developing
markets. This management team believes that the Communications Group's systems
can be constructed with relatively low capital investments and focuses on
markets where the Company can provide multiple communications services. The
Communications Group believes that the establishment of a far-reaching
communications infrastructure is important to the development of the economies
of these countries, and that such development will, in turn, supplement the
growth of the Communications Group.
The Communications Group believes that the performance of its communications
joint ventures has demonstrated that there is significant demand for its
services in its license areas. While certain of the Communications Group's
operating systems have experienced rapid growth to date, many of the systems are
still in the early stages of rolling out their services and, therefore, the
Communications Group believes its subscriber and customer bases will continue to
increase significantly as these systems mature. In addition, as an early entrant
in many markets, the Communications Group believes that it has developed a
reputation for providing quality service and has formed important relationships
with local entities. As a result, the Communications Group believes it is
well-positioned to capitalize on opportunities to provide additional
communications services in its markets as new licenses are awarded.
In addition to its existing projects and licenses, the Communications Group
is exploring a number of investment opportunities in wireless telephony systems
in certain markets in Eastern Europe, including Romania, certain republics of
the former Soviet Union, including Kazakstan, the PRC and other selected
emerging markets, and has installed test systems in certain of these markets.
The Company believes that wireless local loop telephony is a high quality and
cost effective alternative to the existing often antiquated and overloaded
telephone systems in these markets. The Communications Group also believes that
its wireless system has a competitive advantage in these markets because its
equipment can be installed quickly, at a competitive price, as compared to
alternative wireline providers which often take several years to provide
telephone service. In addition, unlike many other existing wireless telephony
systems in the Communications Group's target markets, the Communications Group's
equipment utilizes digital, high-speed technology, which can be used for
high-speed facsimile and data transmission, including Internet access.
BUSINESS STRATEGY
The Communications Group's objective is to become the leading multiple
market provider of communications services in Eastern Europe, the republics of
the former Soviet Union, the PRC and other selected emerging markets. The
Communications Group intends to achieve its objective and expand its subscriber
and customer bases, as well as its revenues and cash flow, by pursuing the
following strategies:
- UTILIZE LOW COST WIRELESS TECHNOLOGIES THAT ALLOW FOR RAPID BUILD-OUT. The
use of wireless technologies has allowed and will continue to allow the
Communications Group to build-out its existing and future license areas
faster and at a lower cost than the construction of comparable wired
networks. Many of the cities where the Communications Group has or is
pursuing wireless licenses have limitations on wireline construction above
ground and/or underground.
- COMPLETE BUILD-OUT OF EXISTING LICENSE AREAS. Since its formation in 1990,
the Communications Group has been investing in joint ventures to obtain
communications licenses in emerging markets. During the first quarter of
1997 and in the calendar year ended December 31, 1996, the Communications
Group invested approximately $26.7 million and $49.9 million,
respectively, in the construction and development of its consolidated and
unconsolidated joint ventures' communications networks and broadcast
stations in existing license areas. For example, in 1996, the
Communications Group expanded the build-out of its paging operations in
Uzbekistan by adding several additional cities as part of its long-term
plan to provide nationwide paging service.
5
<PAGE>
- AGGRESSIVELY GROW THE SUBSCRIBER AND ADVERTISER BASE IN EXISTING LICENSE
AREAS. The Communications Group's existing license areas, in the
aggregate, represent a large potential revenue base. The Communications
Group is aggressively marketing its services in these areas and is
experiencing significant increases in its subscriber count and advertising
base. The Communications Group believes it will continue to rapidly add
subscribers by (i) targeting each demographic in its markets with
customized communications services, (ii) cross-marketing and bundling
communications services to existing customers, (iii) providing
technologically-advanced services and a high level of customer service,
(iv) providing new and targeted programming on its radio stations to
increase advertising revenue, and (v) opportunistically acquiring
additional existing systems in its service areas and in other strategic
areas to increase its subscriber base.
- PURSUE ADDITIONAL LICENSES IN EXISTING MARKETS. The Communications Group
is pursuing opportunities to provide additional communications services in
regions in which it currently operates. For example, in March, 1997, the
Communications Group launched commercial cellular telecommunications
services in Latvia where it already provides wireless cable television,
paging and radio broadcasting services. This strategy enables the
Communications Group to leverage its existing infrastructure and brand
loyalty and to capitalize on marketing opportunities afforded by bundling
its services. The Communications Group believes that it has several
competitive advantages that will enable it to obtain additional licenses
in these markets, including (i) established relationships with local
strategic joint venture partners and local governments, (ii) a proven
track record of building and operating quality systems, and (iii) a
fundamental understanding of the regions' political, economic and cultural
climate.
- INVEST IN NEW MARKETS. The Communications Group is actively pursuing
investments in joint ventures to obtain new licenses for wireless
communications services in markets in which it presently does not have any
licenses. The Company is targeting emerging markets with strong economic
potential which lack adequate communications services. In evaluating
whether to enter a new market, the Communications Group assesses, among
other factors, the (i) potential demand for the Communications Group's
services and the availability of competitive services, (ii) strength of
local partners, and (iii) political, social and economic climate. The
Communications Group has identified several attractive opportunities in
Eastern Europe and the Pacific Rim. For example, two of the Communications
Group's joint ventures recently began to provide paging services in
Austria and radio broadcasting in Prague, Czech Republic, both of which
are new markets. In addition, in February, 1997, through Metromedia Asia
Corporation ("MAC"), a majority-owned subsidiary of the Company, the
Communications Group acquired Asian American Telecommunications
Corporation ("AAT"), a company that owns interests and participates in the
management of two joint ventures with agreements to provide wired/wireless
telephony equipment and services in certain provinces in the PRC. Also,
the Communications Group has recently signed definitive agreements to
purchase 70% and 85%, respectively, of joint ventures operating radio
stations in Berlin, Germany and Prague, Czech Republic.
RECENT DEVELOPMENTS -- THE ENTERTAINMENT GROUP SALE
On July 10, 1997, the Company sold substantially all of the assets of its
entertainment group (the "Entertainment Group"), consisting of Orion Pictures
Corporation ("Orion"), Goldwyn Entertainment Company ("Goldwyn") and Motion
Picture Corporation of America ("MPCA") (and their respective subsidiaries) and
a feature film and television library of over 2,200 titles to P&F Acquisition
Corp. ("P&F"), the parent company of Metro-Goldwyn-Mayer Inc. ("MGM") for a
gross consideration of $573.0 million (such transaction hereinafter referred to
as the "Entertainment Group Sale"). The Company used $296.4 million of the
proceeds from the Entertainment Group Sale to repay all amounts outstanding
under the Entertainment Group's credit facilities and certain other indebtedness
of the Entertainment Group and $140.0 million of such proceeds to repay all of
its outstanding debentures. See
6
<PAGE>
"BUSINESS--Recent Developments--The Entertainment Group Sale." As a result of
the Entertainment Group Sale, the Company has narrowed its strategic focus from
operating two core businesses through the Communications Group and the
Entertainment Group to focusing primarily on the global communications and media
businesses of the Communications Group. The Entertainment Group's Landmark
Theatre Group ("Landmark"), which the Company believes is the largest exhibitor
of specialized motion pictures and art-house films in the United States with, at
March 31, 1997, 50 theaters and 138 screens, was not included in the
Entertainment Group Sale and the Company continues to own and operate Landmark
in order to maximize its value.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ 3,000,000 shares of % Cumulative Convertible
Preferred Stock (3,450,000 shares if the over-allotment
option is exercised in full).
Dividends......................... Cumulative annual dividends of $ per share, payable
quarterly out of assets legally available therefor on
February 28(29), May 31, August 31, and November 30, of
each year, commencing , 1997 (with respect to
the period from the Issue Date (as defined below) to
, 1997), when, as and if declared by the Board
of Directors. Dividends will accrue from the original
date of issuance of the Preferred Stock (the "Issue
Date"). Dividends may, at the option of the Company, be
paid in cash or by delivery of fully paid and
nonassessable shares of Common Stock or a combination
thereof.
Liquidation Preference............ $50 per share.
Conversion Rights................. Each share of Preferred Stock may be converted at any
time at the option of the holder, unless previously
redeemed, into fully paid and nonassessable shares of
Common Stock, at an initial conversion price of
$ per share of Common Stock (equivalent to a
conversion rate of approximately shares of Common
Stock for each share of Preferred Stock). The conversion
price is subject to adjustment upon the occurrence of
certain events.
Optional Redemption............... The Preferred Stock may not be redeemed prior to ,
2000. On or after , 2000, the Preferred Stock may
be redeemed, in whole or in part, at the option of the
Company, in cash, by delivery of fully paid and
nonassessable shares of Common Stock or a combination
thereof, initially at a price of $ and
thereafter at prices declining to $50 per share on or
after , 2007, plus in each case all accrued and
unpaid dividends to the redemption date.
Change of Control................. Upon any Change of Control, each holder of Preferred
Stock shall, in the event that the Market Value at such
time is less than the Conversion Price, have a one-time
option to convert such holder's shares of Preferred
Stock into shares of Common Stock at a conversion price
equal to the greater of (x) the average closing price of
the Common Stock on the AMEX (or such other national
securities exchange or automated quotation system on
which the Common Stock is then listed) for the five
trading day period (the "Market Value") ending on the
date on which a Change of Control event occurs (the
"Change of Control Date") and (y) 66.67% of the Market
Value as of the date of this Prospectus. In lieu of
issuing the shares of Common Stock issuable upon
conversion in the event of a Change of Control, the
Company may, at its option, make a cash payment equal to
the Market Value of the shares of Common Stock otherwise
issuable.
</TABLE>
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<TABLE>
<S> <C>
Ranking........................... The Preferred Stock will rank prior to the Common Stock
and senior or PARI PASSU with other existing and future
offerings of preferred stock in right of payment.
Voting Rights..................... Except as required by law, the holders of Preferred
Stock will have no voting rights unless dividends
payable on the Preferred Stock are in arrears for six
quarterly periods, in which case the holders of the
Preferred Stock voting separately as a class with the
shares of any other preferred stock or preference
securities having similar voting rights, will be
entitled at the next regular or special meeting of
stockholders of the Company to elect two directors of
the Company (such voting rights will continue until such
time as the dividend arrearage on the Preferred Stock
has been paid in full). The affirmative consent of
holders of at least 66 2/3% of the outstanding Preferred
Stock will be required for the issuance of any class or
series of stock (or security convertible into stock) of
the Company ranking PARI PASSU or senior to the
Preferred Stock as to dividends, liquidation rights or
voting rights and for amendments to the Company's
Restated Certificate of Incorporation that would affect
adversely the rights of holders of the Preferred Stock.
See "Description of the Preferred Stock--Voting Rights."
Use of Proceeds................... The Company intends to use the net proceeds of the
Offering to finance the continued build-out of the
Communications Group's systems and to fund potential
acquisitions in Eastern Europe, the republics of the
former Soviet Union, the PRC and other selected emerging
markets and for general corporate purposes, including,
but not limited to, the working capital needs of the
Company and its subsidiaries, the repayment of certain
indebtedness of the Company's subsidiaries and other
potential future acquisitions.
Common Stock...................... The Common Stock is traded on the AMEX and the PSE under
the symbol "MMG." On , 1997, the Company had
shares of Common Stock issued and outstanding and
approximately shares of Common Stock issuable upon
the exercise of outstanding options. See "Description of
the Common Stock."
Listing........................... Application will be made to list the Preferred Stock on
the AMEX and the PSE.
</TABLE>
9
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<TABLE>
<S> <C>
Tax Consequences.................. The Federal income tax consequences of acquiring and
holding the Preferred Stock and the shares of Common
Stock issuable upon conversion of such Preferred Stock
or in redemption therefor or as a dividend thereon are
described in "Certain Federal Tax Consequences."
Prospective investors are urged to consult their own tax
advisors regarding the tax consequences of acquiring,
holding or disposing of the Preferred Stock or the
shares of Common Stock issuable upon conversion of such
Preferred Stock or in redemption therefor or as a
dividend thereon in light of their personal investment
circumstances, including consequences resulting from the
possibility that distributions on the Preferred Stock
may exceed the Company's current and accumulated
earnings and profits in which case they would not be
treated as dividends for tax purposes.
</TABLE>
10
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OTHER INFORMATION
In addition to the Communications Group, the Company also owns Landmark,
Snapper and an investment in RDM Sports Group, Inc. (formerly known as
Roadmaster Industries, Inc.) ("RDM"). Snapper and the investment in RDM were
owned by the Company prior to the November 1 Merger (as defined below). Snapper
manufactures Snapper-Registered Trademark- brand premium-priced power
lawnmowers, lawn tractors, garden tillers, snow throwers and related parts and
accessories. RDM, a New York Stock Exchange ("NYSE")-listed company, is a
leading sporting goods manufacturer of which the Company owns approximately 19.2
million shares (approximately 39% of the outstanding shares of RDM common stock)
and warrants to acquire an additional 3.0 million shares (approximately 5%).
Following the consummation of the November 1 Merger, the Company publicly
announced that it was actively exploring a sale of both Snapper and its
investment in RDM, and, as a result, for accounting purposes, both assets were
classified as assets held for sale for financial statement purposes. The results
of operations for Snapper were not consolidated with the Company's consolidated
results of operations for the period from November 1, 1995 through October 31,
1996. The Company has decided not to continue to pursue its previously adopted
plan to dispose of Snapper and to actively manage Snapper to maximize its
long-term value. Since November 1, 1996, the Company has included Snapper's
operating results in the consolidated results of operations of the Company for
the two-month period ended December 31, 1996. The equity in earnings and losses
of RDM have been excluded from the Company's results of operations since the
November 1 Merger. See "BUSINESS--Snapper." The Company is continuing to pursue
opportunities for a sale of its investment in RDM.
Messrs. John W. Kluge and Stuart Subotnick, the general partners of
Metromedia Company, a Delaware partnership ("Metromedia"), are collectively the
Company's largest stockholders, and beneficially own approximately 26% of the
outstanding shares of Common Stock. Mr. Kluge serves as Chairman of the Board of
the Company and Mr. Subotnick serves as Vice Chairman of the Board and President
and Chief Executive Officer of the Company.
The Company was organized in 1929 under Pennsylvania law and reincorporated
in 1968 under Delaware law. On November 1, 1995, as a result of several mergers
(collectively, the "November 1 Merger"), the Company changed its name from "The
Actava Group Inc." to "Metromedia International Group, Inc." The Company's
principal executive offices are located at One Meadowlands Plaza, East
Rutherford, New Jersey 07073-2137, telephone: (201) 531-8000.
RISK FACTORS
The Preferred Stock offered hereby involves a high degree of risk. See "Risk
Factors."
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SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents selected historical financial data of the
Company, which is derived from the audited and unaudited financial statements of
the Company (i) as reported and restated to reflect the classification of
substantially all of the assets of the Entertainment Group as a discontinued
business segment (see footnote 3 below) and (ii) on a pro forma basis to reflect
the Entertainment Group Sale, the repayment of substantially all of the
Entertainment Group's indebtedness, the redemption of all of the Company's
debentures and the Offering. In addition, the pro forma financial data set forth
below reflects the consolidation of Snapper for the full periods presented and
the acquisitions of AAT and Landmark as if they occurred at the beginning of the
periods presented. See "PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION."
The data is qualified by reference to and should be read in conjunction with the
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.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------- YEARS ENDED YEAR ENDED
DECEMBER 31, FEBRUARY 28,
(UNAUDITED) ---------------------- ------------
1997 1996 1996(1) 1995(2) 1995
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
HISTORICAL (3):
Revenues........................................... $ 75,998 $ 3,164 $ 66,172 $ 5,158 $ 3,545
Equity in losses of joint ventures................. (1,598) (1,783) (11,079) (7,981) (2,257)
Loss from continuing operations.................... (12,155) (12,823) (70,988) (36,265) (19,141)
Loss per common share from continuing operations
................................................. (0.19) (0.30) (1.31) (1.48) (0.95)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
(UNAUDITED) (UNAUDITED)
------------------- -----------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA:
Revenues................................................................. $ 75,998 $ 223,715
Equity in losses of joint ventures....................................... (1,598) (11,101)
Loss from continuing operations.......................................... (9,395) (107,341)
Loss per common share from continuing operations.........................
</TABLE>
- ------------------------
(1) The consolidated financial statements for the twelve months ended December
31, 1996 include two months (November and December 1996) of the results of
operations of Snapper and the results of operations of Landmark since July
2, 1996, the date on which Landmark was acquired. Such consolidated
financial statements do not include Snapper's results of operations for the
ten months ended October 31, 1996, as Snapper was classifed as an asset held
for sale for financial statement purposes.
(2) The consolidated financial statements for the twelve months ended December
31, 1995 include operations for The Actava Group Inc. ("Actava") (an
acquired company for accounting purposes) from November 1, 1995.
(3) On July 10, 1997, the Company consummated the Entertainment Group Sale. The
transaction has been recorded as a discontinuance of a business segment and,
accordingly, the consolidated financial statements reflect the results of
operations of the Entertainment Group as a discontinued segment.
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RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCORPORATED BY REFERENCE AND CONTAINED
IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE PREFERRED STOCK.
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 PAGES 85-86 FOR ADDITIONAL FACTORS
RELATING TO SUCH STATEMENTS.
OPERATING LOSSES; NO ASSURANCE OF PROFITABILITY
For the three-months ended March 31, 1997 and 1996 and the years ended
December 31, 1996 and 1995, the Company reported a loss from continuing
operations of approximately $12.2 million and $12.8 million and $71.0 million
and $36.3 million, respectively, and a net loss of $22.3 million and $19.1
million and $115.2 million and $413.0 million, respectively. The Company expects
that it will report significant operating losses for the fiscal year ended
December 31, 1997, including losses attributable to Snapper, whose results of
operations have been included in the Company's consolidated results of
operations since November 1, 1996. See "BUSINESS--Snapper." In addition, the
Communications Group is in the early stages of development and the Company
expects this group to continue to generate significant losses as it continues to
build-out and market its services. Accordingly, the Company expects to generate
consolidated losses for the foreseeable future.
HOLDING COMPANY STRUCTURE
The Company is a holding company that conducts operations solely through its
subsidiaries. The Company's ability to pay dividends on the Preferred Stock is
dependent primarily upon the earnings of its subsidiaries, and the distribution
or other payment of such earnings to the Company. Snapper's credit facility
contains substantial restrictions on dividend or other payments by Snapper to
the Company. In addition, the Communications Group is in its early stages of
development and will require cash contributions from the Company in order to
fund its operations. Accordingly, in order to be able to meet its cash
requirements (including paying cash dividends on the Preferred Stock), the
Company may rely upon (i) cash on hand and a portion of the net proceeds
generated from this Offering, (ii) proceeds from the disposition of
non-strategic assets, or (iii) net proceeds obtained from additional financings
through a public or private sale of debt or equity securities of the Company.
There can be no assurance that the matters specified in (ii) or (iii) can be
accomplished on reasonably acceptable terms, if at all. Management of the
Company periodically reviews market conditions for the possible sale of the
Company's equity or debt securities. In addition, because of the Company's
status as a holding company, the Company's rights and the rights of its
stockholders and creditors, including holders of the Preferred Stock, to
participate in the distribution of assets of any person in which the Company
owns an equity interest upon such person's liquidation or reorganization will be
subject to prior claims of such person's creditors, including trade creditors,
except to the extent that the Company may itself be a creditor with recognized
claims against such person (in which case the claims of the Company would still
be subject to the prior claims of any secured creditor of such person and of any
holder of indebtedness of such person that is senior to that held by the
Company). Accordingly, the rights of holders of the Preferred Stock will be
effectively subordinated to such claims.
RESTRICTIONS ON THE COMPANY'S ABILITY TO PAY DIVIDENDS ON OR REDEEM SHARES OF
CAPITAL STOCK
Under Delaware law, dividends on capital stock may only be paid from
"surplus" or if there is no surplus, from the corporation's net profits for the
then-current or the preceding fiscal year. In addition, a corporation may
repurchase or redeem shares of capital stock only if it has sufficient funds
legally available to effect such repurchase or redemption, so that the
corporation's capital is not "impaired" by such repurchase or redemption. Any
repurchase or redemption of capital stock requiring more than the amount of
"surplus" would result in an impairment of capital under Delaware law. The
Company does not
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<PAGE>
anticipate having net profits for the foreseeable future and its ability to pay
dividends on and to redeem shares of Preferred Stock will require the
availability of adequate "surplus," which is defined as the excess, if any, of
the Company's net assets (total assets less total liabilities) over its capital
(generally the par value of its issued capital stock). As a result, there can be
no assurance that adequate surplus will be available to pay dividends on or to
acquire shares of Preferred Stock, including upon a Change of Control.
FUTURE FINANCING NEEDS
Each of the Communications Group's joint ventures operates businesses, such
as wireless cable television, wireless local loop, paging and cellular
telecommuncations, that are capital intensive and require the investment of
significant amounts of capital in order to construct and develop operational
systems and market its services. See "BUSINESS--The Communications Group". As a
result, the Company will require additional financing in order to satisfy its
on-going working capital requirements and to achieve its long-term business
strategies. Such additional capital may be provided through the public or
private sale of debt or equity securities. No assurance can be given that
additional financing will be available to the Company on acceptable terms, if at
all. If adequate additional funds are not available, the Company may be required
to curtail significantly its long term business objectives and the Company's
results from operations may be materially and adversely affected.
COMPETITIVE INDUSTRIES
The Company operates in businesses which are highly competitive and such
businesses compete with many other communications and media companies, many of
which are well-known global communications and media companies with
substantially greater financial, management and other resources than the
Company. The Communications Group operates in industries that are highly
competitive worldwide. The Company 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 which could emerge over time
in Eastern Europe, the republics of the former Soviet Union, the PRC and other
selected emerging markets and compete directly with the Communications Group's
operations. In addition, the Company 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--The Communications Group."
CONTROL OF THE COMPANY BY METROMEDIA DUE TO CONCENTRATION OF SHARE OWNERSHIP AND
VOTING CONTROL
Metromedia and its affiliates collectively own approximately 26% of the
outstanding shares of Common Stock and are the Company's largest stockholders.
Metromedia has nominated or designated a majority of the members of the
Company's Board of Directors. However, in accordance with the Restated
Certificate of Incorporation and By-laws of the Company and Delaware law, in the
future, the majority of the members of the Company's Board of Directors will
nominate the directors for election to the Company's Board of Directors. For the
foreseeable future, it is likely that directors designated or nominated by
Metromedia will continue to constitute a majority of the members of the
Company's Board of Directors. As such, Metromedia will likely control the
direction of future operations of the Company, including decisions regarding
acquisitions and other business opportunities, the declaration of dividends and
the issuance of additional shares of the Company'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 the Company pursuant to
a transaction which might otherwise be beneficial to stockholders.
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ANTI-TAKEOVER PROVISIONS IN THE COMPANY'S CHARTER AND BY-LAWS
The Company'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 the Company'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 Company's Board of Directors intends to adopt a
stockholders' rights plan which will have certain anti-takeover effects. The
Company does not intend to solicit stockholder approval with respect to its
stockholders' 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 the Company on terms not
approved by the Company'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 (collectively,
"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 Landmark, Snapper and the
Company's interest in RDM, the Company has divested itself of all
non-communications- and non-media-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.
POLITICAL, SOCIAL AND ECONOMIC RISKS
The Communications Group's operations may be materially and adversely
affected by significant political, social and economic uncertainties in Eastern
Europe, the republics of the former Soviet Union, the PRC and in other selected
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. 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
15
<PAGE>
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
The Communications Group's operating results are dependent upon the ability
to attract and maintain subscribers to its cable, paging and telephony systems,
the sale of commercial advertising time on its radio stations and its ability to
control overall operating expenses. The ability to attract and maintain
subscribers is dependent on, among other things, the general economic conditions
in the market where each cable, paging and telephony system is located, the
relative popularity of such systems, the demographic characteristics of the
potential subscribers to such systems, the technical attractiveness to customers
of the equipment and service of such systems, the activities of competitors, the
use of incentives to attract customers and other factors which may be outside of
the Communications Group's control. In addition, the sale of commercial
advertising time on the Communications Group's AM/FM radio stations is similarly
dependent on economic conditions in the market in which such stations are
located, the relative popularity of such stations, the demographic
characteristics of the audience of such stations, the activities of competitors
and other factors beyond the control of the Communications Group.
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 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. In addition, 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 INHERENT IN FOREIGN INVESTMENT
The Communications Group has invested substantially all of its 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 or terminations of contracts with or licenses
issued by foreign governments or their affiliated commercial enterprises.
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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 the Company'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 may threaten and intimidate businesses. While the Communications
Group has thus far not experienced significant 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 the Company 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 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.
The Communications Group 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 may have a material adverse effect on the
Company's prospective projects in that country. The Russian Federation has
periodically proposed legislation that would limit the ownership percentage that
foreign companies can have in communications businesses. While such proposed
legislation has not been made into law, it is possible that such legislation
could be enacted in Russia and/or that other countries in Eastern Europe, the
republics of the former Soviet Union and elsewhere may enact similar legislation
which could have a material adverse effect on the business, operations,
financial condition or prospects of the Communications Group. Such legislation
could be similar to United States Federal law which limits the foreign ownership
in entities owning broadcasting licenses. Similarly, PRC law and regulation
restrict and prohibit foreign companies or joint ventures in which they
participate from providing telephony service to customers in the PRC and
generally limit the role that foreign companies or their joint ventures may play
in the telecommunications industry. As a result, AAT, unlike the Communications
Group's joint ventures in Eastern Europe and in the republics of the former
Soviet Union, must structure its transactions as a provider of telephony
equipment and technical and support services as opposed to a direct provider of
such services. These legal restrictions in the PRC may limit the ability of AAT
to control the management and direction of the telecommunications systems in
which it invests in the PRC. In addition, there is no way of predicting whether
other 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
17
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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 TARGET MARKETS
As a result of political, economic and social changes in Eastern Europe, the
republics of the former Soviet Union, the PRC and in other selected 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 republics 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 the Communications Group's ability to conduct its business and
to generate profits.
Laws relating to telecommunications are also in their developmental stage in
most of the markets in which the Communications Group operates and are often
modified. The Hungarian government has begun to charge license fees for use of
newly and previously issued licenses. At this time, the Communications Group
does not yet know the amount its joint venture will be charged for the use of
its existing license in this market. In the event that the Communications Group
is successful in its bid for one or both nationwide franchises in Hungary,
however, Radio Juventus, the Communications Group's Hungarian radio broadcasting
joint venture, would surrender its existing regional license and no additional
fee would be required for its existing license.
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.
RISK INHERENT IN 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. The Company's growth strategy requires the
Company to expend significant capital in order to enable it to continue to
develop its existing operations and to invest in additional ventures. There can
be no assurance that the Company 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
develop further its existing ventures and the number of additional ventures in
which it invests may be significantly curtailed.
18
<PAGE>
APPROVALS AND UNCERTAINTY OF LICENSE RENEWALS
The Communications Group's joint ventures' operations are subject to
governmental regulation in its markets and its operations require certain
governmental approvals. The licenses pursuant to which the Communications
Group's joint ventures operate are issued for limited periods, including certain
licenses which are renewable annually. Certain of these licenses expire over the
next several years. In addition, licenses held by two of the Communications
Group's joint ventures have expired, although these joint ventures have been
permitted to continue operations while the reissuance is pending. Such joint
ventures applied for renewals and expects new licenses to be issued. Four other
licenses held or used by Communications Group joint ventures will expire during
1997. While there can be no assurance on the matter, the Communications Group
expects that all of these licenses will be renewed. For most of the licenses
held or used by the Communications Group's joint ventures, 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 the Company. There can also be no assurance that the
Communications Group's joint ventures 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.
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 the Company.
EXCHANGE RATE FLUCTUATIONS AND INFLATION RISKS IN TARGET MARKETS
The Communications Group's strategy is to minimize its foreign currency
exposure risk. To the extent possible, in countries that have experienced high
rates of inflation, the Communications Group bills and collects all revenues in
U.S. dollars or an equivalent local currency amount adjusted on a monthly basis
for exchange rate fluctuations. The Communications Group's joint ventures are
generally permitted to maintain U.S. dollar accounts to service their U.S.
dollar-denominated credit lines, thereby reducing foreign currency risk. As the
Communications Group and its joint venture investees expand their operations and
become more dependent on local currency-based transactions, the Communications
Group expects that its foreign currency exposure will increase. The
Communications Group does not hedge against foreign exchange rate risks at the
current time and therefore could be subject in the future to any declines in
exchange rates between the time a joint venture receives its funds in local
currencies and the time it distributes such funds in U.S. dollars to the
Company. In addition, the economies of many of the Communications Group's target
markets, including but not limited to Russia, Romania, Hungary, Lithuania,
Belarus, Georgia, the PRC and Kazakstan, 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 a negative effect on these economies and may have a negative impact on the
Company's business, financial condition and results of operations.
POSSIBLE INABILITY TO CONTROL CERTAIN 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
19
<PAGE>
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 many 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, to the extent 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 the Company's ability to realize economic benefits through the sale
of the Communications Group's interests in its joint ventures.
TECHNICAL APPROVAL OF TELEPHONY EQUIPMENT
Many of the Communications Group's proposed wireless local loop telephony
operations are dependent upon type approval of the Communications Group's
proposed wireless local loop telephony equipment by the communications
authorities in the markets where the Communications Group 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 local loop 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 OBSOLESCENCE
The communications industry has been characterized in recent years by rapid
and significant technological changes. New market entrants could introduce new
or enhanced technologies 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.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Preferred Stock offered
hereby, after deducting underwriting discounts and commissions and the estimated
expenses of the Offering, are estimated to be $ million ($ million
if the Underwriters' over-allotment option is exercised in full). The Company
intends to use the estimated net proceeds to finance the continued build-out of
the Communications Group's systems and to fund potential acquisitions in Eastern
Europe, the republics of the former Soviet Union, the PRC and other selected
emerging markets and for general corporate purposes, including the working
capital needs of the Company and its subsidiaries, the repayment of certain
indebtedness of the Company's subsidiaries and other potential future
acquisitions.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Since November 2, 1995, the 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 Common Stock according to the NYSE Composite Tape for the
period from January 1, 1995 through November 1, 1995 and the quarterly high and
low closing sales prices per share for the Common Stock as reported by the AMEX
from November 2, 1995 through the present. The reported last sale price of the
Common Stock on the AMEX on August 1, 1997 was $11 1/4.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
--------------------
FISCAL QUARTER ENDED HIGH LOW
- ---------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
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 1/4
1996:
March 31.................................................................... $ 14 1/4 $ 11 1/2
June 30..................................................................... 16 5/8 12 1/4
September 30................................................................ 12 1/2 9 1/2
December 31................................................................. 12 1/8 8 7/8
1997:
March 31.................................................................... $ 12 1/4 $ 8 11/16
June 30..................................................................... 13 1/16 7 1/16
September 30 (through August 1, 1997)....................................... 13 10 3/4
</TABLE>
The Company 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
on the Common Stock in the foreseeable future. Any future dividends will depend
upon the Company's earnings, capital requirements, financial condition and other
relevant factors, including the existence or absence of any contractual
limitations on the payment of dividends. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION."
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1997 (i) as reported, including the Entertainment Group's long-term debt,
(ii) on a pro forma basis, as adjusted to reflect the Entertainment Group Sale,
the repayment of all of the Entertainment Group's indebtedness and the
redemption of all of the Company's outstanding debentures, and (iii) as further
adjusted to reflect the sale of the Preferred Stock offered hereby (without
giving effect to the exercise of the Underwriters' over-allottment option). The
table should be read in conjunction with the audited consolidated financial
statements of the Company and the related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
relating to the Company incorporated by reference and included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------------------------
<S> <C> <C> <C>
PRO PRO FORMA
ACTUAL FORMA(1) AS ADJUSTED(2)
----------- ----------- ---------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and short-term investments..................... $ 32,522 $ 189,881 $ 334,506
----------- ----------- ---------------
----------- ----------- ---------------
Debt:
Entertainment Group Credit Facility................................. $ 263,500 $ -- $ --
6 1/2% Convertible Debentures due August 1, 2002.................... 60,422 -- --
9 1/2% Debentures due August 1, 1998................................ 59,412 -- --
10% Debentures due October 1, 1999.................................. 5,467 -- --
Snapper Revolver.................................................... 52,427 52,427 52,427
Other long-term debt, including capital leases...................... 21,301 10,332 10,332
----------- ----------- ---------------
Total debt...................................................... 462,529 62,759 62,759
Stockholders' equity:
Preferred stock..................................................... -- -- 150,000
Common stock........................................................ 66,159 66,159 66,159
Paid-in surplus..................................................... 994,665 994,665 989,290
Other............................................................... (6,403) (4,022) (4,022)
Accumulated deficit................................................. (825,607) (549,241) (549,241)
----------- ----------- ---------------
Total stockholders' equity...................................... 228,814 507,561 652,186
----------- ----------- ---------------
Total capitalization................................................ $ 691,343 $ 570,320 $ 714,945
----------- ----------- ---------------
----------- ----------- ---------------
</TABLE>
- ------------------------
(1) Reflects the Entertainment Group Sale, the repayment of all of the
indebtedness of the Entertainment Group and the redemption of all of the
Company's outstanding debentures.
(2) As adjusted further to reflect the sale of the Preferred Stock offered
hereby.
22
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL INFORMATION
The following unaudited Pro Forma Balance Sheet of the Company as of March
31, 1997 and unaudited Pro Forma Statements of Operations for the three months
ended March 31, 1997 and year ended December 31, 1996 reflect the Entertainment
Group Sale, the repayment of the Entertainment Group's credit facility (the
"Entertainment Group Credit Facility") and other Entertainment Group long term
indebtedness, the redemption of the Company's 6 1/2% Convertible Debentures, the
Company's 9 1/2% Debentures and the Company's 10% Debentures and the effect of
the Offering. In addition, the Pro Forma Statement of Operations reflects the
consolidation of Snapper for the full periods presented and the acquisitions of
AAT and Landmark as if they occurred at the beginning of the periods presented.
The unaudited pro forma Balance Sheet assumes that the foregoing pro forma
transactions occurred on March 31, 1997 and the unaudited Pro Forma Statements
of Operations assume that the foregoing transactions occurred at the beginning
of the periods presented.
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 consolidated financial statements and the
related notes thereto of the Company and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" relating to the Company
included elsewhere in this Prospectus.
23
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-------------------------------------------
<S> <C> <C> <C>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
----------- ----------------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................................... $ 32,522 $ 573,000(1) $ 334,506
(273,690)(1)
(2,000)(1)
(139,951)(2)
144,625(3)
Accounts receivable............................................... 56,058 56,058
Inventories....................................................... 59,457 59,457
Other current assets.............................................. 5,193 5,193
----------- -----------
Total current assets.......................................... 153,230 455,214
Net assets of discontinued operations............................... 3,914 (3,914)(1) --
Property, plant and equipment, net.................................. 70,750 70,750
Intangible assets, net.............................................. 214,681 214,681
Other assets........................................................ 132,338 132,338
----------- -----------
Total assets.................................................. $ 574,913 $ 872,983
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses............................. $ 113,414 $ 113,414
Short-term debt................................................... 2,962 (547)(2) 2,415
----------- -----------
Total current liabilities..................................... 116,376 115,829
Long-term debt...................................................... 185,099 (124,755)(2) 60,344
Other long-term liabilities......................................... 3,482 3,482
----------- -----------
Total liabilities............................................. 304,957 179,655
----------- -----------
Minority interest................................................... 41,142 41,142
Stockholders' equity:
Preferred stock................................................... -- 150,000(3) 150,000
Common stock...................................................... 66,159 66,159
Paid-in surplus................................................... 994,665 (5,375)(3) 989,290
Other............................................................. (6,403) 2,381(4) (4,022)
Accumulated deficit............................................... (825,607) 293,396(1) (549,241)
(14,649)(2)
(2,381)(4)
----------- -----------
Total stockholders' equity........................................ 228,814 652,186
----------- -----------
Total liabilities and stockholders' equity...................... $ 574,913 $ 872,983
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
24
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------
<S> <C> <C> <C> <C>
AAT
HISTORICAL PRO FORMA
HISTORICAL (10) ADJUSTMENTS PRO FORMA
----------- ------------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues..................................................... $ 75,998 $ -- $ 75,998
Cost and expenses:
Cost of sales and rentals and operating expenses........... (51,065) -- (51,065)
Selling, general and administrative........................ (28,497) (246) (28,743)
Depreciation and amortization.............................. (5,036) (460) (5,496)
----------- ------------- -----------
Operating loss............................................... (8,600) (706) (9,306)
Interest expense............................................. (5,806) -- 3,466(5) (2,340)
Interest income.............................................. 2,707 -- 2,707
----------- ------------- -----------
Loss before provision for income taxes, equity in losses of
joint ventures and minority interest....................... (11,699) (706) (8,939)
Provision for income taxes................................... (98) -- (98)
Equity in losses of joint ventures........................... (1,598) -- (1,598)
Minority interest............................................ 1,240 -- 1,240
----------- ------------- -----------
Loss from continuing operations.............................. $ (12,155) $ (706) (9,395)
----------- -------------
----------- -------------
Preferred stock dividend requirements........................
Loss from continuing operations attributable to
-----------
common stockholders........................................ $
-----------
-----------
Weighted average common shares outstanding................... 66,155 66,155
----------- -----------
----------- -----------
Loss per share from continuing operations.................... $ (.19)
----------- -----------
----------- -----------
Ratio of earnings to fixed charges (11)...................... n/a n/a
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
25
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPANY AAT LANDMARK SNAPPER PRO FORMA
HISTORICAL HISTORICAL (9) HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- -------------- -------------- -------------- ----------- -----------
<CAPTION>
(UNAUDITED)(7) (UNAUDITED)(6) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $ 66,172 $ -- $ 26,920 $ 130,623 $ $ 223,715
Cost and expenses:
Cost of sales and rentals
and operating expenses.... (45,561) -- (22,107) (102,687) (170,355)
Selling, general and
administrative............ (59,863) (22,617)(8) (2,546) (38,658) (123,684)
Depreciation and
amortization.............. (9,913) (2,771) (2,345) (6,698) (21,727)
---------- -------------- -------------- -------------- -----------
Operating loss................ (49,165) (25,388) (78) (17,420) (92,051)
Interest expense.............. (19,548) (50) (566) (6,859) 13,924(5) (13,099)
Interest income............... 8,552 106 -- -- 8,658
---------- -------------- -------------- -------------- -----------
Loss before provision for
income taxes, equity in
losses of joint ventures and
minority interest........... (60,161) (25,332) (644) (24,279) (96,492)
Provision for income taxes.... (414) -- -- -- (414)
Equity in losses of joint
ventures.................... (11,079) (22) -- -- (11,101)
Minority interest............. 666 -- -- -- 666
---------- -------------- -------------- -------------- -----------
---------- -------------- -------------- -------------- -----------
Loss from continuing
operations.................. $ (70,988) (25,354) $ (644) $ (24,279) $(107,341)
---------- -------------- -------------- --------------
---------- -------------- -------------- --------------
Preferred stock dividend
requirements................
Loss from continuing
operations attributable
-----------
to common stockholders...... $
-----------
-----------
Weighted average common shares
outstanding................. 54,293 54,293
---------- -----------
---------- -----------
Loss per share from continuing
operations.................. $ (1.31) $
---------- -----------
---------- -----------
Ratio of earning to fixed
charges (11)................ n/a n/a
---------- -----------
---------- -----------
</TABLE>
See accompanying notes.
26
<PAGE>
(1) Reflects the sale of the Entertainment Group, exclusive of Landmark, the
repayment of the Entertainment Group's long term debt and transaction costs
as follows (in thousands):
<TABLE>
<S> <C>
Gross sales proceeds.................................................................... $ 573,000
Repayment of the Entertainment Group's long term debt................................... 273,690
---------
Adjusted sales proceeds................................................................. 299,310
Net assets of discontinued operations................................................... (3,914)
Transaction costs....................................................................... (2,000)
---------
Gain from sale.......................................................................... $ 293,396
---------
---------
</TABLE>
The Company has made a preliminary calculation of the estimated gain on the
sale of the Entertainment Group, exclusive of Landmark. However there can be
no assurance that the actual gain will not differ significantly from the pro
forma adjustment. The foregoing does not account for any taxes that may be
payable upon consummation of the sale. The Company does not believe that the
taxes payable as a result of the consummation of the sale will have a
material adverse effect on the Company's results of operations and financial
condition.
(2) Reflects the repayment of the Company's 6 1/2% Convertible Debentures,
9 1/2% Debentures and 10% Debentures at par value as follows (in thousands):
<TABLE>
<S> <C>
6 1/2% Convertible Debentures........................................................... $ 75,000
9 1/2% Debentures....................................................................... 59,484
10% Debentures.......................................................................... 5,467
---------
139,951
Book value of Debentures at March 31, 1997.............................................. 125,302
---------
Extraordinary loss on early extinguishment of Debentures................................ $ 14,649
---------
---------
</TABLE>
(3) Reflects issuance of 3.0 million shares of Preferred Stock at $50.00 per
share, net of estimated issuance costs of $5.4 million.
(4) Reflects vesting of restricted stock in connection with the Entertainment
Group Sale.
(5) Reflects elimination of interest expense attributable to the Company's
6 1/2% Convertible Debentures, 9 1/2% Debentures and 10% Debentures.
(6) The historical financial statements classified Snapper as an asset held for
sale and excluded the results of its operations from the consolidated
results of operations of the Company from November 1, 1995 to October 31,
1996. The pro forma adjustment reflects Snapper's results of operations for
the period January 1, 1996 through October 31, 1996, including ten months of
amortization of goodwill related to the consolidation of Snapper.
(7) The Company acquired Landmark on July 2, 1996. The pro forma adjustment
reflects the results of operations of Landmark (formerly known as the Samuel
Goldwyn Theatre Group, acquired on July 2, 1996) for the six months ended
June 30, 1996 including goodwill amortization.
(8) For the year ended December 31, 1996 AAT's selling, general and
administrative expenses included the following (in thousands):
<TABLE>
<S> <C>
General and administrative expenses..................................................... $ 6,628
Legal and consulting fees............................................................... 6,069
Cancellation agreement fees............................................................. 9,920
---------
$ 22,617
---------
---------
</TABLE>
(9) The Company acquired AAT on February 28, 1997. The pro forma adjustments
reflect AAT's results of operations for the year ended December 31, 1996,
including goodwill amortization.
(10) The Company acquired AAT on February 28, 1997. The pro forma adjustments
reflect AAT's results of operations for the period January 1, 1997 through
February 28, 1997, including goodwill amortization.
(11) For purposes of this computation, earnings are defined as pre-tax earnings
or loss before discontinued operations and extraordinary items and fixed
charges. Fixed charges are the sum of (i) interest costs, (ii) amortization
of deferred financing costs, premium and debt discounts, (iii) the portion
of operating lease rental expense that is representative of the interest
factor (deemed to be one-third), and (iv) dividends on preferred stock. The
ratio of earnings to fixed charges of the Company after giving effect to the
Offering was less than 1.00 for the year ended December 31, 1996; thus,
earnings available for fixed charges were inadequate to cover fixed charges
for the period. The deficiency in earnings to fixed charges for pro forma
March 31, 1997 and December 31, 1996 after giving effect to the Offering
were $9.4 million and $107.3 million, respectively.
27
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data presented below as of and
for the quarters ended March 31, 1997 and March 31, 1996 are derived from the
unaudited consolidated financial statements of the Company and the selected
consolidated financial data presented below as of and for the years ended
December 31, 1996 and December 31, 1995 and as of and for each of the years in
the three-year period ended February 28, 1995 have been derived from financial
statements audited by KPMG Peat Marwick LLP, independent certified public
accountants. The unaudited consolidated financial statements as of March 31,
1997 and March 31, 1996 are included in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997 and the consolidated financial
statements as of December 31, 1996 and December 31, 1995 and for each of the
years in the two-year period ended December 31, 1996 and for the year ended
February 28, 1995 together with the report of KPMG Peat Marwick LLP, are
contained in the Company's Annual Report on Form 10-K, as amended, for the year
ended December 31, 1996 and are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED
(UNAUDITED) DECEMBER 31, YEARS ENDED FEBRUARY 28,
-------------------- ---------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996(1) 1995(2) 1995 1994 1993(7)
--------- --------- ---------- ---------- --------- ---------- ---------
<CAPTION>
STATEMENT OF OPERATIONS DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues(3)................................... $ 75,998 $ 3,164 $ 66,172 $ 5,158 $ 3,545 $ 51 $ --
Equity in losses of joint ventures............ (1,598) (1,783) (11,079) (7,981) (2,257) (777) --
Loss from continuing operations(3)............ (12,155) (12,823) (70,988) (36,265) (19,141) (7,334) --
Loss from discontinued operations............. (10,103) (6,318) (39,750) (344,329) (50,270) (125,196) (72,973)
Income (loss) from extraordinary items(4)..... -- -- (4,505) (32,382) -- -- 323,213
Net income (loss)............................. $ (22,258) $ (19,141) $ (115,243) $ (412,976) $ (69,411) $ (132,530) $ 250,240
Per common share:
Loss from continuing operations............. $ (0.19) $ (0.30) $ (1.31) $ (1.48) $ (0.95) $ (0.43) $ --
Loss from discontinued operations........... (0.15) (0.15) (0.73) (14.03) (2.48) (7.28) (19.75)
Income (loss) from extraordinary items...... -- -- (0.08) (1.32) -- -- 87.49
Net income (loss)........................... $ (0.34) $ (0.45) $ (2.12) $ (16.83) $ (3.43) $ (7.71) $ 67.74
Ratio of earnings to fixed charges(5)......... n/a n/a n/a n/a n/a n/a n/a
Weighted average common shares outstanding.... 66,155 42,615 54,293 24,541 20,246 17,188 3,694
Dividends per common share.................... -- -- -- -- -- -- --
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets(6)............................... $ 574,913 $ 310,022 $ 526,131 $ 328,600 $ 40,282 $ 54,440 $ 166,999
Notes and subordinated debt................... 188,061 168,627 198,232 171,004 1,225 -- --
</TABLE>
- --------------------------
(1) The consolidated financial statements for the 12 months ended December 31,
1996 include two months (November and December 1996) of the results of
operations of the Company's Snapper subsidiary and the results of operations
for Landmark since July 2, 1996.
(2) The consolidated financial statements for the 12 months ended December 31,
1995 include operations for Actava and Sterling from November 1, 1995 and
two months for Orion (January and February 1995) that were included in the
February 28, 1995 consolidated financial statements. The net loss for the
two month duplicate period is $11.4 million.
(3) On July 10, 1997, the Company completed the sale of substantially all of the
assets of the Company's Entertainment Group. The transaction has been
treated as a discontinuance of a business segment and, accordingly, the
consolidated financial statements reflect the results of operations of the
Entertainment Group as a discontinued segment.
(4) For the years ended December 31, 1996 and 1995 the extraordinary item
reflects the loss on the repayment of debt in each period. For the year
ended February 28, 1993 the extraordinary item reflects the gain associated
with the emergence from bankruptcy on December 5, 1992.
(5) For purposes of this computation, earnings are defined as pre-tax earnings
or loss before discontinued operations and extraordinary items and fixed
charges. Fixed charges are the sum of (i) interest costs, (ii) amortization
of deferred financing costs, premium and debt discounts, (iii) the portion
of operating lease rental expense that is representative of the interest
factor (deemed to be one-third) and (iv) dividends on preferred stock. The
ratio of earnings to fixed charges of the Company was less than 1.00 for the
three months ended March 31, 1997 and 1996 and for the years ended December
31, 1996 and 1995 and for the years ended February 28, 1995, 1994 and 1993;
thus, earnings available for fixed charges were inadequate to cover fixed
charges for such periods. The deficiency in earnings to fixed charges for
the quarters ended March 31, 1997 and March 31, 1996, for the years ended
December 31, 1996 and 1995 and for the years ended February 28, 1995, 1994
and 1993 were: $12,057, $12,823, $70,574, $36,265, $19,141, $7,334 and $0,
respectively.
(6) Total assets include the net assets of the Entertainment Group. The net
assets of the Entertainment Group at March 31, 1997 and March 31, 1996,
December 31, 1996 and 1995 and February 28, 1995, 1994 and 1993 were $3,914,
$5,663, $10,972, $12,057, $(8,467), $41,803 and $166,999, respectively. The
revenues of the Entertainment Group for the three months ended March 31,
1997 and March 31, 1996 were $27,420 and $27,641, respectively, and for the
years ended December 31, 1996 and 1995 and February 28, 1995, 1994 and 1993
were $135,583, $133,812, $191,244, $175,662 and $222,318, respectively.
(7) For the year ended February 28, 1993 there are no revenues and loss from
continuing operations since the operations for the Company are reflected in
discontinued operations (see note 3).
28
<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 SALE OF THE PREFERRED STOCK OFFERED
HEREBY AND THE ENTERTAINMENT GROUP SALE. 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 PAGES 85-86 FOR ADDITIONAL INFORMATION RELATING TO SUCH
STATEMENTS.
GENERAL
On July 10, 1997, the Company completed the Entertainment Group Sale (see
Note 15 of the Notes to Consolidated Financial Statements of the Company for the
year ended December 31, 1996 included elsewhere in this Prospectus). The
transaction has been recorded as a sale of a business segment and, accordingly
the consolidated balance sheets reflect the net assets of the discontinued
segment. In addition, the consolidated statements of operations reflect the
results of operations as a discontinued segment.
The continuing business activities of the Company consist of three business
segments: (i) the development and operation of communications businesses, which
include wireless cable television, paging services, radio broadcasting and
various types of telephony services; (ii) the exhibition of filmed entertainment
product through Landmark; and (iii) the manufacture of lawn and garden products
through Snapper.
On November 1, 1995, Orion, MITI, the Company and MCEG Sterling Incorporated
("Sterling") consummated the November 1 Merger. In connection with the November
1 Merger, 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 acquirers 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 November 1 Merger 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 1995, the Company adopted a formal plan to dispose of
Snapper and, as a result, Snapper was classified as an asset held for sale and
the results of its operations were not included in the consolidated results of
operations of the Company from November 1, 1995 to October 31, 1996.
Subsequently, the Company announced its intention not to continue to pursue its
previously adopted plan to dispose of Snapper and to actively manage Snapper to
maximize its long term value to the Company. The operations of Snapper are
included in the accompanying consolidated financial statements as of November 1,
1996. In addition, at November 1, 1995 the Company's investment in RDM was
deemed to be a non-strategic asset and is included in the accompanying
consolidated financial statements as a discontinued operation and an asset held
for sale. The Company intends to dispose of its RDM stock during 1997.
THE COMMUNICATIONS GROUP
The Company, through the Communications Group, is the owner of various
interests in joint ventures that are currently in operation or planning to
commence operations in Eastern Europe, the republics of the former Soviet Union,
the PRC and other selected emerging markets.
The Communications Group's joint ventures currently offer wireless cable
television, AM/FM radio, paging, cellular telecommunications, international toll
calling and trunked mobile radio. Joint ventures are principally entered into
with governmental agencies or ministries under the existing laws of the
respective countries.
29
<PAGE>
The Company's financial statements only consolidate the accounts and results
of operations of 7 of the Communications Group's 35 operating joint ventures at
March 31, 1997. Investments in other companies and joint ventures which are not
majority owned, or which the Communications Group does not control, but
exercises significant influence over, have not been consolidated and have been
accounted for using the equity method. Investments of the Communications Group
or its consolidated subsidiaries over which significant influence is not
exercised are carried under the cost method. See Note 8 to the "Notes to
Consolidated Financial Statements" of the Company for the year ended December
31, 1996, included elsewhere in this Prospectus.
LANDMARK
As of March 31, 1997, Landmark operates 50 theaters with 138 screens and is
the largest exhibitor of specialized motion pictures and art films in the United
States.
SNAPPER
Snapper manufacturers Snapper-Registered Trademark- brand premium-priced
power lawnmowers, lawn tractors, garden tillers, snow throwers and related parts
and accessories. The lawnmowers include rear engine riding mowers, front engine
riding mowers or lawn tractors, and self-propelled and push-type walk-behind
mowers. Snapper also manufactures a line of commercial lawn and turf equipment
under the Snapper brand. Snapper provides lawn and garden products through
distribution channels to domestic and foreign retail markets.
RESULTS OF OPERATIONS--SEGMENT INFORMATION
The following tables set forth the operating results of the Company's,
Communications Group, Landmark and Snapper for the three months ended March 31,
1997 and 1996 and for the calendar years ended December 31, 1996 and 1995 and
for the fiscal year ended February 28, 1995. Financial information summarizing
the results of operations of Snapper, which was classified as an asset held for
sale until November 1, 1996, is presented in the consolidated financial
statements of the Company and the related notes thereto incorporated herein by
reference and included elsewhere in this Prospectus.
30
<PAGE>
SEGMENT INFORMATION
MANAGEMENT'S DISCUSSION & ANALYSIS TABLE
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Communications Group:
Revenues.......................................................................... $ 5,175 $ 3,164
Cost of sales and rentals and operating expenses.................................. (549) --
Selling, general and administrative............................................... (11,109) (7,525)
Depreciation and amortization..................................................... (1,949) (1,449)
------------- -------------
Operating loss.................................................................. (8,432) (5,810)
Equity in losses of joint ventures................................................ (1,598) (1,783)
Minority interest................................................................. 1,240 13
------------- -------------
(8,790) (7,580)
Landmark Theatre Group:
Revenues.......................................................................... 17,023 --
Cost of sales and rentals and operating expenses.................................. (13,070) --
Selling, general and administrative............................................... (1,212) --
Depreciation and amortization..................................................... (1,177) --
------------- -------------
Operating income................................................................ 1,564 --
Snapper:
Revenues.......................................................................... 53,800 --
Cost of sales and rentals and operating expenses.................................. (37,446) --
Selling, general and administrative............................................... (14,955) --
Depreciation and amortization..................................................... (1,907) --
------------- -------------
Operating loss.................................................................. (508) --
Corporate Headquarters and Eliminations:
Revenues.......................................................................... -- --
Cost of sales and rentals and operating expenses.................................. -- --
Selling, general and administrative............................................... (1,221) (1,626)
Depreciation and amortization..................................................... (3) (7)
------------- -------------
Operating loss.................................................................. (1,224) (1,633)
Consolidated:
Revenues.......................................................................... 75,998 3,164
Cost of sales and rentals and operating expenses.................................. (51,065) --
Selling, general and administrative............................................... (28,497) (9,151)
Depreciation and amortization..................................................... (5,036) (1,456)
------------- -------------
Operating loss.................................................................. (8,600) (7,443)
Interest expense.................................................................... (5,806) (4,824)
Interest income..................................................................... 2,707 1,214
Provision for income taxes.......................................................... (98) --
Equity in losses of joint ventures.................................................. (1,598) (1,783)
Minority interest................................................................... 1,240 13
Discontinued operations............................................................. (10,103) (6,318)
------------- -------------
Net loss........................................................................ $ (22,258) $ (19,141)
------------- -------------
------------- -------------
</TABLE>
31
<PAGE>
SEGMENT INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS TABLE
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALENDAR YEAR CALENDAR YEAR FISCAL YEAR
1996 1995 1995
------------- ------------- -----------
<S> <C> <C> <C>
Communications Group:
Revenues.......................................................... $ 14,047 $ 5,158 $ 3,545
Cost of sales and rentals and operating expenses.................. (1,558) -- --
Selling, general and administrative............................... (38,129) (26,991) (19,288)
Depreciation and amortization..................................... (6,403) (2,101) (1,149)
------------- ------------- -----------
Operating loss.................................................... (32,043) (23,934) (16,892)
------------- ------------- -----------
Equity in losses of joint ventures................................ (11,079) (7,981) (2,257)
Minority interest................................................. 666 188 221
------------- ------------- -----------
(42,456) (31,727) (18,928)
Landmark Theatre Group:
Revenues.......................................................... 29,581 -- --
Cost of sales and rentals and operating expenses.................. (23,304) -- --
Selling, general and administrative............................... (2,425) -- --
Depreciation and amortization..................................... (2,236) -- --
------------- ------------- -----------
Operating income.................................................. 1,616 -- --
------------- ------------- -----------
Snapper:
Revenues.......................................................... 22,544 -- --
Cost of sales and rental and operating expenses................... (20,699) -- --
Selling, general and adminsitrative............................... (9,954) -- --
Depreciation and amortization..................................... (1,256) -- --
------------- ------------- -----------
Operating loss.................................................... (9,365) -- --
------------- ------------- -----------
Corporate Headquarters and Eliminations:
Revenues.......................................................... -- -- --
Cost of sales and rental and operating expenses................... -- -- --
Selling, general and administrative............................... (9,355) (1,109) --
Depreciation and amortization..................................... (18) -- --
------------- ------------- -----------
Operating loss.................................................... (9,373) (1,109) --
------------- ------------- -----------
Consolidated:
Revenues.......................................................... 66,172 5,158 3,545
Cost of sales and rentals and operating expenses.................. (45,561) -- --
Selling, general and administrative............................... (59,863) (28,100) (19,288)
Depreciation and amortization..................................... (9,913) (2,101) (1,149)
------------- ------------- -----------
Operating loss.................................................... (49,165) (25,043) (16,892)
------------- ------------- -----------
Interest expense...................................................... (19,548) (5,935) (1,109)
Interest income....................................................... 8,552 2,506 896
Provision for income taxes............................................ (414) -- --
Equity in losses of joint ventures.................................... (11,079) (7,981) (2,257)
Minority interest..................................................... 666 188 221
Discontinued operations............................................... (39,750) (344,329) (50,270)
Extraordinary item.................................................... (4,505) (32,382) --
------------- ------------- -----------
Net loss.......................................................... $ (115,243) $ (412,976) $ (69,411)
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
32
<PAGE>
THE COMPANY CONSOLIDATED--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net loss increased to $22.3 million for the three months ended March 31,
1997 from $19.1 million for the three months ended March 31, 1996.
Operating loss increased to $8.6 million in the three months ended March 31,
1997 from $7.4 million for the three months ended March 31, 1996. The increase
in operating loss reflects the inclusion of Snapper's operating loss in 1997 and
increases in selling, general and administrative costs experienced by the
Communications Group as it continues its expansion efforts partially offset by
the operating income of Landmark.
Interest expense increased $1.0 million to $5.8 million for the three month
period ended March 31, 1997. The increase in interest expense was due primarily
to the inclusion of interest associated with Landmark and the Snapper credit
facility in 1997 partially offset by a reduction in the outstanding debt balance
at corporate headquarters.
Interest income increased $1.5 million to $2.7 million in 1997 principally
from funds invested at corporate headquarters.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
During the year ended December 31, 1996 ("calendar 1996"), the Company
reported a loss from continuing operations of $71.0 million, a loss from
discontinued operations of $39.7 million and a loss on extinguishment of debt of
$4.5 million, resulting in a net loss of $115.2 million. This compares to a loss
from continuing operations of $36.3 million, a loss from discontinued operations
of $344.3 million and a loss on extinguishment of debt of $32.4 million,
resulting in a net loss of $413.0 million for the year ended December 31, 1995
("calendar 1995"). The loss from continuing operations increased by $34.7
million as a result of increases in the operating losses at the Communications
Group, corporate overhead and the consolidation of Snapper losses as of November
1, 1996.
The calendar 1996 loss from discontinued operations and extraordinary item
is attributable to the writedown of the investment in RDM to its net realizable
value of $16.3 million and the operations associated with the Entertainment
Group Sale of $23.4 million and the loss associated with the refinancing of the
Orion debt facility as part of the acquisitions of Goldwyn and MPCA,
respectively.
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 of $293.6 million and the
operations associated with the Entertainment Group Sale of $50.7 million.
The extraordinary loss relating to the early extinguishment of debt in
calendar 1995 was a result of the repayment and termination of the Plan debt,
which was refinanced with funds provided under the Old Orion Credit Facility
(see Note 9 to the "Notes to Consolidated Financial Statements" of the Company
for the year ended December 31, 1996, included elsewhere in this Prospectus) and
a non-interest bearing promissory note from the Company, and to the charge-off
of the unamortized discount associated with such obligations.
Interest expense increased $13.6 million for calendar 1996. The increase in
interest expense was primarily due to the interest on the debt at corporate
headquarters for 12 months in calendar 1996 as compared to two months in
calendar 1995. This increase was partially offset by the reduction in interest
expense for the Communications Group because the funding of their operations is
from the Company. The average interest rates on average debt outstanding
including discontinued operations of $363.3 million and $254.8 million in
calendar 1996 and calendar 1995, were 10.0% and 11.4%, respectively.
33
<PAGE>
Interest income increased $6.0 million principally as a result of funds
invested at corporate headquarters and increased interest resulting from
increased borrowings under the Communications Group's credit facilities with its
joint ventures for their operating and investing cash requirements.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED FEBRUARY 28, 1995
During calendar 1995, the Company reported a loss from continuing operations
of $36.3 million, a loss from discontinued operations of $344.3 million and a
loss on extinguishment of debt of $32.4 million, resulting in a net loss of
$413.0 million. This compares to a loss from continuing operations of $19.1
million, and a loss from discontinued operations of $50.3 million for the year
ended February 28, 1995 ("fiscal 1995"). The loss from continuing operations
increased by $17.2 million from calendar 1995 as compared to fiscal 1995,
primarily as a result of an increase in the Communications Group's operating
loss in calendar 1995.
The effect of the acquisition of Actava on calendar 1995 results of
operations was to increase selling, general and administrative expenses by $1.2
million, and to increase interest expense by $2.2 million.
The calendar 1995 loss from discontinued operations represents the writedown
of the portion of the purchase price of the Company allocated to Snapper in the
November 1 Merger to its net realizable value and the operations associated with
the Sale of the Entertainment Companies.
The fiscal 1995 loss from discontinued operations represents the operations
associated with the Entertainment Group Sale.
The extraordinary loss relating to the early extinguishment of debt in
calendar 1995 was a result of the repayment and termination of the Plan debt,
which was refinanced with funds provided under the Old Orion Credit Facility
(see Note 9 to the "Notes to Consolidated Financial Statements" of the Company
for the year ended December 31, 1996, included elsewhere in this Prospectus) and
a noninterest bearing promissory note from the Company, and to the charge-off of
the unamortized discount associated with such obligations.
Interest expense increased by $4.8 million to $5.9 million in calendar 1995
due to increased borrowings by the Communications Group to finance operations
and investment activities of its joint ventures and two months of interest on
the debt at corporate headquarters as part of the November 1 Merger. The average
interest on average debt outstanding including discontinued operations was
$254.8 million and $245.2 million in calendar 1995 and fiscal 1995, were 11.4%
and 10.9% respectively.
Interest income increased $1.6 million to $2.5 million in calendar 1995 due
principally to interest charged by the Communications Group to the joint
ventures for credit facilities.
THE COMMUNICATIONS GROUP--RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES. Revenues increased to $5.2 million for the three months ended
March 31, 1997 from $3.2 million for the three months ended March 31, 1996.
Revenues of unconsolidated joint ventures for the three months ended March 31,
1997 and 1996 appear in note 6 to the consolidated condensed financial
statements. The growth in revenue of the consolidated joint ventures has
resulted primarily from an increase in radio operations in Hungary, paging
service operations in Romania and an increase in management and licensing fees.
Revenue from radio operations increased to $3.3 million for the three months
ended March 31, 1997 from $2.4 million for the three months ended March 31,
1996. Radio paging services generated revenues of $857,000 for the three months
ended March 31, 1997 as compared to $576,000 for the three months ended March
31, 1996. Management fees and licensing fees increased to
34
<PAGE>
$341,000 for the three months ended March 31, 1997 from $45,000 for the three
months ended March 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $3.6 million or 48% for the three months
ended March 31, 1997 as compared to the three months ended March 31, 1996.
Approximately fifty percent of the increase relates to the expansion of
operations in the PRC as a result of the acquisition of AAT. The remaining
increase relates to additional expenses associated with the increase in the
number of joint ventures, principally the addition of Protocall Ventures, Ltd.
and the need for the Communications Group to support and assist the operations
of the joint ventures, as well as additional staffing at the radio stations and
radio paging operations.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased to $1.9 million for the three months ended March 31, 1997 from
$1.4 million for the three months ended March 31, 1996. The increase is a result
of the amortization of goodwill in connection with the acquisition of AAT.
EQUITY IN LOSSES OF JOINT VENTURES. The Communications Group accounts for
the majority of its joint ventures under the equity method of accounting because
it generally does not exercise control of these ventures. Under the equity
method of accounting, the Communications Group 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 generally only its proportionate
share of income or losses of the joint ventures in its statement of operations.
The Communications Group reports the operations of its unconsolidated joint
ventures on a three month lag.
The Communications Group recognized equity in losses of its joint ventures
of approximately $1.6 million for the three months ended March 31, 1997 as
compared to $1.8 million for the three months ended March 31, 1996.
The losses recorded for the three months ended March 31, 1997 and the three
months ended March 31, 1996 represent the Communications Group's equity in the
losses of the joint ventures for the quarters ended December 31, 1996 and 1995,
respectively. Equity in the losses of the joint ventures by the Communications
Group are generally reflected according to the level of ownership of the joint
venture by the Communications Group until such joint venture's contributed
capital has been fully depleted. Subsequently, the Communications Group
recognizes the full amount of losses generated by the joint venture because the
Communications Group is generally the sole funding source of the Joint Ventures.
The decrease in losses of the joint ventures of $200,000 from the three
months ended March 31, 1996 to the three months ended March 31, 1997 is
attributable to increased cable and telephony revenues, which were partially
offset by the acquisition in May 1996 of Protocall Ventures, Ltd. ("Protocall"),
which includes five new trunked mobile radio ventures and increased the loss by
$400,000.
Revenues generated by unconsolidated joint ventures were $14.3 million for
the three months ended March 31, 1997 as compared to $9.0 million for the three
months ended March 31, 1996.
MINORITY INTEREST. The increase in losses allocable to minority interests
of $1.2 million for the three months ended March 31, 1997 principally represents
the losses allocable to the minority shareholders of MAC.
SUBSCRIBER GROWTH. Many of the joint ventures are in early stages of
development and consequently ordinarily generate operating losses in the first
years of operation. The Communications Group believes that subscriber growth is
an appropriate indicator to evaluate the progress of the subscriber based
35
<PAGE>
businesses. The following table presents the aggregate cable television, paging
and telephony Joint Ventures subscriber growth (reported on a three-month lag):
<TABLE>
<CAPTION>
WIRELESS TRUNKED
CABLE MOBILE
TELEVISION PAGING RADIO TOTAL
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
December 31, 1995..................................................... 37,900 14,460 -- 52,360
March 31, 1996........................................................ 44,632 20,683 -- 65,315
June 30, 1996......................................................... 53,706 29,107 -- 82,813
September 30, 1996.................................................... 62,568 37,636 6,104 106,308
December 31, 1996..................................................... 69,118 44,836 6,642 120,596
March 31, 1997........................................................ 101,016 51,942 8,711 161,669
</TABLE>
FOREIGN CURRENCY. The Communications Group's strategy is to minimize its
foreign currency exposure risk. To the extent possible, in countries that have
experienced high rates of inflation, the Communications Group bills and collects
all revenues in United States ("U.S.") dollars or an equivalent local currency
amount adjusted on a monthly basis for exchange rate fluctuations. The
Communications Group's joint ventures are generally permitted to maintain U.S.
dollar accounts to service their U.S. dollar denominated credit lines, thereby
reducing foreign currency risk. As the Communications Group and its joint
ventures expand their operations and become more dependent on local currency
based transactions, the Communications Group expects that its foreign currency
exposure will increase. The Communications Group does not hedge against foreign
exchange rate risks at the current time and therefore could be subject in the
future to any declines in exchange rates between the time a joint venture
receives its funds in local currencies and the time it distributes such funds in
U.S. dollars to the Communications Group.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased to $14.0 million for calendar 1996 from $5.2
million for calendar 1995. Revenues of unconsolidated joint ventures for
calendar 1996 and 1995 appear in Note 8 to the "Notes to the Consolidated
Financial Statements" of the Company for the year ended December 31, 1996,
included elsewhere in this Prospectus. The growth in revenue of the consolidated
joint ventures has resulted primarily from an increase in radio operations in
Hungary, paging service operations in Romania and an increase in management and
licensing fees. Revenue from radio operations increased to $9.4 million for
calendar 1996 from $3.9 million for calendar 1995. Radio paging services
generated revenues of $2.9 million for calendar 1996 as compared to $700,000 for
calendar 1995. Management fees and licensing fees increased to $1.8 million for
calendar 1996 from $600,000 for calendar 1995. In 1995, the Company 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 calendar 1995
consolidated statement of operations reflects nine months of these operations as
compared to 12 months for calendar 1996. Had the Company applied this method
from October 1, 1994, the net effect on the results of operations would not have
been material.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $11.1 million or 41.3% for calendar 1996 as
compared to calendar 1995. The increase 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 the Communications Group to support
and assist the operations of the joint ventures, as well as additional staffing
at the radio stations and radio paging operations.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased to $6.4 million for calendar 1996. The increase is attributed
principally to the amortization of goodwill in connection with the November 1
Merger.
36
<PAGE>
EQUITY IN LOSSES OF JOINT VENTURES. The Communications Group 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, the Communications Group 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 generally only its proportionate
share of income or losses of the joint ventures in its statement of operations.
The Communications Group recognized equity in losses of its joint ventures
of approximately $11.1 million for calendar 1996 as compared to $8.0 million for
calendar 1995.
The losses recorded for calendar 1996 and calendar 1995 represent the
Communications Group's equity in the losses of the joint ventures for the 12
months ended September 30, 1996 and 1995, respectively. Equity in the losses of
the joint ventures by the Communications Group are generally reflected according
to the level of ownership of the joint venture by the Communications Group until
such joint venture's contributed capital has been fully depleted. Subsequently,
the Communications Group recognizes the full amount of losses generated by the
joint venture since the Communications Group is generally the sole funding
source of the joint ventures.
The increase in losses of the joint ventures of $3.1 million from calendar
1995 to calendar 1996 is partially attributable to the acquisition during 1996
of Protocall, which included five new trunked mobile radio ventures and
increased the loss by $600,000. Further, a loss of $500,000 was incurred in
connection with the expansion of radio operations. The Communications Group's
paging ventures in Estonia and Riga, and a wireless cable television venture in
Tblisi were responsible for $600,000, $900,000 and $1.0 million, respectively,
of the increased loss. These losses were attributable to increased costs
associated with promotional discount campaigns at the paging ventures, which
resulted ultimately in increased subscribers, and a writedown of older
receivable balances at the cable television venture. Losses were offset by an
increase in equity in income of $1.2 million realized at the Communications
Group's international toll calling venture in Tblisi, Georgia.
Revenues generated by unconsolidated joint ventures were $43.8 million for
calendar 1996 as compared to $19.3 million for calendar 1995.
SUBSCRIBER GROWTH. Many of the joint ventures are in early stages of
development and consequently ordinarily generate operating losses in the first
years of operation. The Company believes that subscriber growth is an
appropriate indicator to evaluate the progress of the subscriber based
businesses. The following table presents the reported wireless cable television,
paging and trunked mobile radio joint ventures subscriber growth (reported on a
three-month lag):
<TABLE>
<CAPTION>
WIRELESS TRUNKED
CABLE MOBILE
TELEVISION PAGING RADIO TOTAL
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
December 31, 1995....................................................... 37,900 14,460 -- 52,360
March 31, 1996.......................................................... 44,632 20,683 -- 65,315
June 30, 1996........................................................... 53,706 29,107 -- 82,813
September 30, 1996...................................................... 62,568 37,636 6,104 106,308
December 31, 1996....................................................... 69,118 44,836 6,642 120,596
</TABLE>
FOREIGN CURRENCY. The Communications Group's strategy is to minimize its
foreign currency exposure risk. To the extent possible, in countries that have
experienced high rates of inflation, the Communications Group bills and collects
all revenues in U.S. dollars or an equivalent local currency amount adjusted on
a monthly basis for exchange rate fluctuations. The Communications Group's joint
ventures are generally permitted to maintain U.S. dollar accounts to service
their U.S. dollar denominated credit lines, thereby reducing foreign currency
risk. As the Communications Group and its joint ventures expand their operations
and become more dependent on local currency based transactions, the
Communications Group
37
<PAGE>
expects that its foreign currency exposure will increase. The Communications
Group does not hedge against foreign exchange rate risks at the current time and
therefore could be subject in the future to any declines in exchange rates
between the time a joint venture receives its funds in local currencies and the
time it distributes such funds in U.S. dollars to the Company.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased to $5.2 million in calendar 1995 from $3.5
million in the year ended December 31, 1994 ("calendar 1994"). This growth in
revenue from calendar 1994 to calendar 1995 resulted primarily from an increase
in radio operations in Hungary and paging service operations in Romania.
However, in calendar 1995 the Company 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 calendar 1995 statement
of operations reflects nine months of these operations as compared to 12 months
for calendar 1994. Had the Company 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $7.7 million or 40% in calendar 1995 as
compared to calendar 1994. The increases relate principally to the hiring of
additional staff and additional expenses associated with the increase in the
number of joint ventures and the need for the Communications Group to support
and assist the operations of the joint ventures. During calendar 1995, the
Communications Group completed the staffing of its Vienna office and opened an
office in Hong Kong.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased to $2.1 million for calendar 1995 from $1.1 million for
calendar 1994.
EQUITY IN LOSSES OF JOINT VENTURES. The Communications Group recognized
equity in losses of its joint ventures of approximately $8.0 million in calendar
1995 as compared to $2.3 million in calendar 1994. The increase in losses of the
joint ventures of $5.7 million is primarily attributable to losses of $4.0
million incurred as part of the expansion of its wireless cable television
operations, and the opening of a radio station in Moscow which resulted in a
loss of $1.3 million. As of September 30, 1995, there were 6 wireless cable
television TV joint ventures in operation as compared to 4 in the prior year.
The Communications Group's wireless cable television joint ventures in Moscow
and Riga were responsible for $2.1 million and $1.3 million, 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 wireless cable television operations, including two new
joint ventures and the expansion of two others that were in their second year of
operations, increased losses by $700,000. 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 successfully compete in the Moscow market.
Losses from the Communications Group's other operations, including five
paging entities, three of which were started in calendar 1995, and one telephony
operation, increased by $400,000 in calendar 1995.
The losses recorded for calendar 1995 represent the Communications Group's
equity in losses of the joint ventures for the 12 months ended September 30,
1995. On January 1, 1994, the Communications Group 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 calendar 1995,
reflect equity in the losses of the joint ventures for the period from October
1, 1994 to September 30, 1995. Had the Communications Group applied this method
from October 1, 1993, the effect on reported operating results for calendar 1994
would not have been material.
38
<PAGE>
FOREIGN CURRENCY. The Communications Group's strategy is to minimize its
foreign currency exposure risk. To the extent possible, in countries that have
experienced high rates of inflation, the Communications Group bills and collects
all revenues in U.S. dollars or an equivalent local currency amount adjusted on
a monthly basis for exchange rate fluctuations. The Communications Group's joint
ventures are generally permitted to maintain U.S. dollar accounts to service
their U.S. dollar denominated credit lines, thereby reducing foreign currency
risk. As the Communications Group and its joint ventures expand their operations
and become more dependent on local currency based transactions, the
Communications Group expects that its foreign currency exposure will increase.
The Communications Group does not hedge against foreign exchange rate risks at
the current time and therefore could be subject in the future to any declines in
exchange rates between the time a joint venture receives its funds in local
currencies and the time it distributes such funds in U.S. dollars to the
Company.
LANDMARK--RESULTS OF OPERATIONS
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
REVENUES. Film exhibition revenues for the current quarter were $17.0
million. As the acquisition of this business occurred on July 2, 1996, there
were no film exhibition revenues generated in the previous year's first quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $1.2 million for the current quarter.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
charges were $1.2 million for the current quarter. Depreciation and amortization
reflected the depreciation of the theater group property and equipment as well
as the amortization of the goodwill associated with the acquisition of Landmark.
OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
REVENUES. Film exhibition revenues for the six months ended December 31,
1996 were $29.6 million. As the acquisition of this businesses occurred on July
2, 1996, only six months of operations has been included in the calendar 1996
statement of operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $2.4 million for the six months ended December 31,
1996.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
charges were $2.2 million for the six month period ended December 31, 1996.
Depreciation and amortization also reflects the depreciation of the theater
group property and equipment as well as the amortization of the goodwill
associated with the acquisition of Landmark.
39
<PAGE>
SNAPPER--RESULTS OF OPERATIONS
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
REVENUES. Snapper's sales for the first quarter of 1997 were $53.8 million.
Sales of lawn and garden equipment contributed the majority of the revenues
during the period. First quarter sales for Snapper products reflect shipments to
dealers and distributors prior to the selling season for lawn and garden
equipment. Therefore, revenues are lower than what will be expected revenues for
the second quarter of the year which is the primary selling season for lawn and
garden products.
Gross profit during the period was $14.8 million. Higher sales margins were
obtained during the period due to the continuing implementation of the program
to restructure the distribution network. This program will be fully implemented
prior to the next model year production beginning in September 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $15.0 million for the period. In addition to normal
expenses, these expenses reflect increased costs associated with national
advertising and expenditures relating to the restructuring of the distribution
network.
OPERATING LOSS. Snapper experienced an operating loss of $500,000 during
the period. This loss was due to the lower levels of shipments prior to the
selling season and advertising costs incurred during the three months ended
March 31, 1997. Management anticipates that Snapper will not be profitable for
the full year of 1997 as it continues to change from a distributor network to a
dealer direct network, and as a result, offers to repurchase certain finished
goods from distributors for resale to dealers in subsequent periods. The
majority of these repurchases will occur in the second and third quarters and
are expected to have an approximately $7.0 million negative impact on Snapper's
profitability. Management believes that the change in the distribution network
will benefit Snapper's operating and financial performance in the future.
OPERATIONS FOR THE TWO MONTHS ENDED DECEMBER 31, 1996
REVENUES. Snapper's 1996 period sales were $22.5 million. Snapper continued
to implement its program to sell products directly to dealers. In implementing
this program to restructure its distribution network, Snapper repurchased
certain distributor inventory which resulted in sales reductions of $3.1
million. Sales of snowthrowers contributed the majority of the revenues during
the two-month period. In addition, Snapper sold older lawn and garden equipment
repurchased from distributors at close-out pricing during the period. Due to the
seasonal nature of selling lawn and garden equipment, these two-months do not
reflect an average sales period for Snapper.
Gross profit during the period was $1.8 million. These low profit results
were caused by reduced production due to the normal factory shut down periods in
the holiday season. In addition, a lower sales margin was realized on the
close-out pricing for the older lawn and garden equipment sold during the
period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general, and
administrative expenses were $10.0 million for the period. In addition to normal
selling, general and administrative expenses, these expenses reflect
expenditures relating to the acquisition of 16 distributorships during the final
two-months of 1996.
OPERATING LOSS. Snapper experienced an operating loss of $9.4 million
during this two-month period. This loss was the result of the reduced production
levels and the acquisition of the distributorships during the period. Management
anticipates that Snapper will not be profitable for the full year of 1997 as it
continues to repurchase certain finished goods from distributors for resale to
dealers in subsequent periods. Management believes that these actions will
benefit Snapper's operating and financial performance in the future.
40
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
The Company is a holding company, and accordingly, does not generate cash
flows. The Communications Group is dependent on the Company for significant
capital infusions to fund its operations, its commitments to make capital
contributions and loans to its joint ventures and any acquisitions. Such funding
requirements are based on the anticipated funding needs of its joint ventures
and certain acquisitions committed to by the Company. Future capital
requirements of the Communications Group, including future acquisitions, will
depend on available funding from the Company and on the ability of the
Communications Group's joint ventures to generate positive cash flow. In
addition, Snapper is restricted under covenants contained in its credit
agreements from making dividend payments or advances to the Company.
In the short term, the Company intends to satisfy its current obligations
and commitments with available cash on hand at March 31, 1997 of $27.5 million
and the proceeds from the Entertainment Group Sale and the sale of the Company's
investment in RDM. The Company's remaining strategic business is the business
conducted by the Communications Group. The Communications Group is engaged in
businesses that require the investment of significant amounts of capital in
order to construct and develop operational systems and market services. In
connection with the Entertainment Group Sale, the Company received $276.6
million after the repayment of the Entertainment Group Credit Facility. In
August, 1997, the Company used approximately $140.0 million of such net proceeds
to repay all of its outstanding subordinated debentures. As a result, although
the Company will have no significant long-term debt, the Company will require
additional financing in order to satisfy the Communications Group's on-going
capital requirements and to achieve the Communications Group's long-term
business strategies. Such additional capital may be provided through the public
or private sale of debt or equity securities. There can be no assurance that
such additional financing will be available to the Company on acceptable terms,
if at all. If adequate additional funds are not available, there can be no
assurance that the Company will have the funds necessary to support the current
needs of the Communications Group's current investments or any of the
Communications Group's additional 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
existing ventures and the number of additional ventures in which it invests may
be significantly curtailed.
The Company anticipates disposing of its investment in RDM during 1997. The
carrying value of the Company's investment in RDM at March 31, 1997 was
approximately $31.2 million. However, no assurances can be given that the
Company will be able to dispose of RDM in a timely fashion and on favorable
terms.
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 communications and media
company; and (ii) the Communications Group's joint ventures achieving positive
operating results and cash flows through revenue and subscriber growth and
control of operating expenses. If the Company is unable to successfully
implement its strategy, the Company may be required to (i) seek, in addition to
the Offering, 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 Snapper's credit
facility to permit the payment of dividends to the Company.
The Company believes that it will report significant operating losses for
the year ended December 31, 1997. In addition, because its Communications Group
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.
41
<PAGE>
THE COMMUNICATIONS GROUP
The Communications Group has invested significantly (in cash through capital
contributions, loans and management assistance and training) in its joint
ventures. The Communications Group has also incurred significant expenses in
identifying, negotiating and pursuing new wireless telecommunications
opportunities in emerging markets. The Communications Group 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, GSM
and international toll calling businesses are capital intensive. The
Communications Group generally provides the primary source of funding for its
joint ventures both for working capital and capital expenditures, with the
exception of its GSM joint ventures. At March 31, 1997, the GSM ventures were
funded on a pro-rata basis by western sponsors, and the Communications Group has
funded its pro rata share of the GSM joint venture obligations. The
Communications Group has had and continues to have discussions with vendors,
commercial lenders and international financial institutions to provide funding
for the GSM joint ventures. The Communications Group's joint venture agreements
generally provide for the initial contribution of assets or cash by the joint
venture partners, and for the provision of a line of credit from the
Communications Group to the joint venture. Under a typical arrangement, the
Communications Group'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. The Communications
Group's contribution is generally cash and equipment, but may consist of other
specific assets as required by the joint venture agreement.
Credit agreements between the joint ventures and the Communications Group
are intended to provide such ventures with sufficient funds for operations and
equipment purchases. The credit agreements generally provide for interest to be
accrued at rates ranging from the prime rate to the prime rate plus 6% and for
payment of principal and interest from 90% of the joint venture's available cash
flow, as defined, and significantly restricts the payment of dividends to the
Communications Group or its joint venture partners. The credit agreements also
often provide the Communications Group 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 March 31, 1997, the Communications Group
was committed to provide funding under the various credit lines in an aggregate
amount of approximately $75.6 million, of which $15.4 million remained unfunded.
The Communications Group's funding commitments under a credit agreement are
contingent upon its approval of the joint venture's business plan. The
Communications Group reviews the actual results compared to the approved
business plan on a periodic basis. If the review indicates that expenditures are
not in accordance with the approved business plan, the Communications Group may
withhold funding until such expenditures are in accordance with such plan.
The Communications Group's consolidated and unconsolidated joint ventures'
ability to generate positive operating results is dependent upon their ability
to attract subscribers to their systems, their ability to control operating
expenses and the sale of commercial advertising time in non-subscriber
businesses. Management's current plans with respect to the joint ventures are to
increase subscriber and advertiser bases and thereby 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 the Communications Group 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 assisting
42
<PAGE>
joint ventures in developing management information systems and automated
customer care and service systems. No assurances can be given that such
initiatives will be successful or that the joint ventures will be able to
generate positive operating results.
Additionally, if the joint ventures do 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.
The ability of the Communications Group and its consolidated and
unconsolidated joint ventures to establish profitable operations is also subject
to significant political, economic and social risks inherent in doing business
in emerging markets such as Eastern Europe, the republics of the former Soviet
Union and the PRC. 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 rate fluctuations and controls, civil
disturbances, deprivation or unenforceablility of contractual rights, and taking
of property without fair compensation.
For the quarter ended March 31, 1997 and year-ended December 31, 1996, the
Communications Group's primary source of funds was from the Company in the form
of non-interest bearing intercompany loans.
Until the Communications Group's consolidated and unconsolidated operations
generate positive cash flow, the Communications Group will require significant
capital to fund its operations, and to make capital contributions and loans to
its joint ventures. The Communications Group relies on the Company to provide
the financing for these activities. The Company believes that as more of the
Communications Group's joint ventures commence operations and reduce their
dependence on the Communications Group for funding, the Communications Group
will be able to finance its own operations and commitments from its operating
cash flow and the Communications Group will be able to attract its own financing
from third parties. There can, however, be no assurance that additional capital
in the form of debt or equity will be available to the Communications Group at
all or on terms and conditions that are acceptable to the Company, and as a
result, the Communications Group will continue to depend upon the Company for
its financing needs.
LANDMARK
Landmark's liquidity is generated from operations and on an as needed basis
with short-term working capital funding from the Company.
Landmark's current strategy is to develop and build additional theaters and
screens in target markets that complement the existing position in such markets
or that provide Landmark with a strategic position in a new market. Prior to
commitment, management conducts an exhaustive study of each potential site. Such
a study includes a review of competition currently in the market and any
potential competition, as well as market demographics.
For the three months ended March 31, 1997, Landmark has not opened any
theaters. During the remainder of 1997, Landmark expects to open two theaters
with seven screens at a cost of $2.4 million. Landmark expects to fund the
expansion of its properties through operating cash flow.
Management believes that available cash on hand, cash flow generated by
operating activities and short-term working capital funding from the Company
will provide sufficient funds for Landmark to meet its obligations. In addition,
to the extent Landmark identifies expansion opportunities which are consistent
with its current strategy, the Company will consider funding such opportunities
with third party financing. If such opportunities occur, no assurance can be
given that the Company will be able to obtain any such third party financing or
that such financing will be available to the Company on acceptable terms.
43
<PAGE>
SNAPPER
Cash flows used in operations totaled $5.4 million and $7.1 million for the
quarter ended March 31, 1997 and the two months ended December 31, 1996,
respectively. This shortfall in cash was related to the seasonality of sales and
the related cash collections, and the repurchase of distributor inventories.
Snapper's liquidity is generated from operations and borrowings. On November
26, 1996, Snapper entered into a credit agreement (the "Snapper Credit
Agreement") with AmSouth Bank of Alabama ("AmSouth") pursuant to which AmSouth
has agreed to make available to Snapper a revolving line of credit up to $55.0
million, under the terms and subject to conditions contained in the Snapper
Credit Agreement (the "Snapper Revolver") for a period ending on January 1,
1999. The Snapper Revolver is guaranteed by the Company. The Snapper Revolver
contains covenants regarding minimum quarterly cash flow and equity
requirements. Snapper was in compliance with these covenants as of March 31,
1997.
On April 30, 1997 Snapper closed a $10.0 million working capital facility
with AmSouth which amended Snapper's existing $55.0 million facility. The $10.0
million working capital facility will (i) have a PARI PASSU collateral interest
in all of Snapper's assets (including rights under the Make-Whole and Pledge
Agreement made by Metromedia Company in favor of AmSouth in connection with the
Snapper Revolver) (ii) accrues interest on borrowings at AmSouth's floating
prime rate (same borrowing rate as the Snapper Revolver), and (iii) become due
and payable on October 1, 1997. As additional consideration for AmSouth making
this new facility available, Snapper provided to AmSouth the joint and several
guarantees of Messrs. Kluge and Subotnick, Chairman of the Board of the Company
and Vice Chairman, President and Chief Executive Officer of the Company,
respectively, on the $10.0 million working capital facility. As of June 30,
1997, Snapper was in default of certain financial covenants under the Snapper
Revolver, which default has been waived by AmSouth.
Snapper has entered into various long-term manufacturing and purchase
agreements with certain vendors for the purchase of manufactured products and
raw materials. As of December 31, 1996, noncancelable commitments under these
agreements amounted to approximately $25.0 million.
Snapper has an agreement with a financial institution which makes available
floor plan financing to distributors and dealers of Snapper products. This
agreement provides financing for dealer inventories and accelerates Snapper's
cash flow. Under the terms of the agreement, a default in payment by a dealer is
nonrecourse to both the distributor and to Snapper. However, the distributor is
obligated to repurchase any equipment recovered from the dealer and Snapper is
obligated to repurchase the recovered equipment if the distributor defaults. At
December 31, 1996, there was approximately $35.3 million outstanding under this
floor plan financing arrangement.
Management believes that available cash on hand, borrowings from the Snapper
Revolver and Working Capital Facility, and the cash flow generated by operating
activities will provide sufficient funds for Snapper to meet its obligations.
THE COMPANY CONSOLIDATED
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES. Cash used in operations for the three
months ended March 31, 1997 was $19.7 million, an increase in cash used in
operations of $13.4 million from the same period in the prior year.
Losses from operations include significant non-cash items of depreciation,
amortization, equity in losses of joint ventures and losses allocable to
minority interests. Non-cash items increased $3.3 million from $3.9 million to
$7.2 million for the three months ended March 31, 1996 and 1997, respectively.
The increase relates principally to the increase in depreciation and
amortization associated with the acquisitions of Landmark. Changes in assets and
liabilities, net of the effect of acquisitions, decreased cash flows
44
<PAGE>
for the three months ended March 31, 1997 by $14.8 million and increased cash
flows by $2.6 million for the three months ended March 31, 1996.
The decrease in cash flows for the three months ended March 31, 1997
resulted from the increased losses in the Communications Group's operations due
to the start-up nature of these operations and increases in selling, general and
administrative expenses to support the increase in the number of joint ventures.
The increase in operating assets prinicpally reflects increases in inventory and
accounts receivable for sales of Snapper products to dealers and distributors
prior to the selling season.
CASH FLOWS FROM INVESTING ACTIVITIES. Cash used in investing activities
increased $22.2 million to $23.3 million for the three months ended March 31,
1997. The principal reasons for the increase are increases in investments in and
advances to joint ventures of $15.3 million in 1997 as compared to $2.5 million
in 1996 and the Communications Group utilized $7.2 million of funds in
acquisitions in the three months ended March 31, 1997.
CASH FLOWS FROM FINANCING ACTIVITIES. Cash used in financing activities was
$13.8 million for the three months ended March 31,1997 an increase of $11.3
million with the same period in the prior year. Of the $16.8 million of debt
payments, $15.0 million was the repayment of the 9 7/8% Debentures and $1.2
million of other notes. The additions to long-term debt of $6.0 million was
borrowed under the Snapper Revolver.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES. Cash used in operations for calendar
1996 was $54.9 million compared to cash used in operations of $24.5 million for
calendar 1995, an increase of $30.4 million.
The calendar 1996 net loss of $115.2 million includes a loss on discontinued
operations of $39.8 million and a loss on early extinguishment of debt of $4.5
million. The calendar 1995 net loss of $413.0 million includes a loss on
discontinued operations of $344.3 million and a loss on early extinguishment of
debt of $32.4 million. The calendar 1996 net loss, exclusive of the losses on
discontinued operations and extraordinary items was $71.0 million compared to a
$36.3 million loss in calendar 1995.
Losses from operations include significant non-cash items of depreciation,
amortization and equity in losses of joint ventures. Non-cash items increased
$13.1 million from $10.5 million in calendar 1995 to $23.6 million in calendar
1996. The increase in non-cash items principally relates to increased
depreciation and amortization related to the acquisition of Landmark, increased
losses of the Communications Group's joint ventures and a full year of
amortization on headquarters debt as compared to only two months in calendar
1995.
Net changes in assets and liabilities decreased cash flows from operations
in calendar 1996 and calendar 1995 by $7.6 million and $1.3 million,
respectively. After adjusting net losses for discontinued operations,
extraordinary items, non-cash items and net changes in assets and liabilities,
the Company utilized $54.9 million of cash in operations in calendar 1996 and
$24.5 million of cash flow for calendar 1995.
The decrease in cash flows for 1996 generally resulted from the increased
losses in the Communications Group's consolidated and equity joint ventures due
to the start-up nature of these operations and increases in selling, general and
administrative expenses at the Communications Group and corporate headquarters.
Net interest expense has decreased principally due to the increase in interest
income resulting from the increase in borrowings by the joint ventures under the
various credit agreements with the Communications Group for their operating and
investing cash requirements and from funds invested at corporate headquarters.
45
<PAGE>
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities
amounted to $29.5 million for the calendar 1996. During calendar 1996, the
Company collected $5.4 million from the proceeds from sale of short-term
investments and paid $41.0 million for investments in and advances to joint
ventures.
CASH FLOWS FROM FINANCING ACTIVITIES. Cash provided by financing activities
was $153.2 million for calendar 1996 as compared to cash used in financing
activities of $40.5 million for calendar 1995.
The principal reason for the increase in cash in calendar 1996 was the
completion of a public offering pursuant to which the Company issued 18.4
million shares of common stock, the proceeds of which, net of transaction costs,
was $190.6 million. Of the $52.6 million in additions to long-term debt, $46.4
million related to borrowing under the Snapper Credit Facility. Of the $81.9
million payments of long term debt, $28.8 million was the repayment of the
revolving credit agreement by the Company and Snapper made a payment of $38.6
million on its old credit facility.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED FEBRUARY 28, 1995
CASH FLOWS FROM OPERATING ACTIVITIES. Cash used in operating activities
increased $14.0 million from fiscal 1995 to calendar 1995.
The calendar 1995 net loss of $413.0 million includes a loss on discontinued
operations of $344.3 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 $36.3 million compared to a $19.1 million
net loss in fiscal 1995.
Losses from operations include significant non-cash items of depreciation,
amortization and equity in losses of joint ventures. Non-cash items increased
$7.1 million from $3.4 million in fiscal 1995 to $10.5 million in calendar 1995.
The increase in non-cash items principally relates to an increase in equity in
losses of joint venture. Net changes in assets and liabilities increased cash
flows from operations in calendar 1995 and fiscal 1995 by $1.3 million and $5.3
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 flows used in operating activities was $24.5 million and
$10.4 million in calendar 1995 and fiscal 1995, respectively.
CASH FLOWS FROM INVESTING ACTIVITIES. Cash flows from investing activities
increased $111.4 million from a use of funds in fiscal 1995 of $27.1 million to
cash provided in calendar 1995 of $84.3 million.
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 Merger of $66.7 million, net of advances
to Snapper of $4.2 million in calendar 1995.
Investments in the Communications Group's joint ventures increased $5.5
million, or 34%, from $16.4 million in fiscal 1995 to $21.9 million in calendar
1995. The increase represents an increase in the number of the Communications
Group's joint ventures as well as additional funding of existing ventures. In
addition, fiscal 1995 included net cash paid for East News Channel Trading and
Service, Kft of $7.0 million.
CASH FLOWS FROM FINANCING ACTIVITIES. Cash used in financing activities of
$40.5 million in calendar 1995 as compared to cash flows provided in financing
activities of $38.6 million.
Proceeds from the issuance of long-term debt in calendar 1995 include the
Company's borrowings under revolving credit agreements of $28.8 million.
Proceeds from the issuance of long-term debt in fiscal 1995 represent borrowings
by the Communications Group from Metromedia Company.
Proceeds from the issuance of stock decreased $15.4 million from $17.7
million in fiscal 1995 to $2.3 million in calendar 1995.
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BUSINESS
THE COMMUNICATIONS GROUP
The Communications Group, which was founded in 1990 to take advantage of the
rapidly growing demand for modern communications services in Eastern Europe, the
republics of the former Soviet Union and in other selected emerging markets,
launched its first operating system in 1992. At June 30, 1997, the
Communications Group owned interests in and participated with partners in the
management of joint ventures that had 35 operational systems, consisting of 9
wireless cable television systems, 7 AM/FM radio stations, 11 paging systems, 1
international toll calling service, 5 trunked mobile radio systems, 1 GSM
cellular telephone system and 1 joint venture that is building-out an
operational GSM system and providing financing, technical assistance and
consulting services to the system operator. In addition, the Communications
Group has interests in and participates with partners in the management of joint
ventures that, as of June 30, 1997, had 4 pre-operational systems, consisting of
1 wireless cable television system, 1 cellular telecommunications system, 1
company providing sales, financing and service for wireless local loop
telecommunications equipment and 1 company participating in the construction and
development of a local telephone network in the PRC for up to 1 million lines,
each of which the Company believes will be launched during 1997. The
Communications Group generally owns 50% or more of the joint ventures in which
it invests. The Company believes that the Communications Group is poised for
significant growth, as it continues to expand its existing systems' subscriber
base, construct and launch new systems in areas where it is currently licensed
and obtain new licenses in other attractive markets. The Company's objective is
to establish the Communications Group as a major multiple-market provider of
modern communications services in Eastern Europe, the republics of the former
Soviet Union, the PRC and other selected emerging markets.
The Communications Group's joint ventures have recently experienced rapid
growth with aggregate subscribers to their various services at June 30, 1997 of
246,773, a growth of 132.1% over aggregate subscribers at June 30, 1996 of
106,308. Total combined revenues reported by consolidated and unconsolidated
joint ventures in which the Communications Group had an investment for the
quarter ended March 31, 1997 and the year ended December 31, 1996 were $18.9
million and $56.2 million, respectively, as compared to $11.9 million and $23.9
million, respectively, for the quarter ended March 31, 1996 and the year ended
December 31, 1995. The Communications Group invested approximately $26.7 million
during the first quarter of 1997 and approximately $49.9 million during calendar
1996 in the construction and development of its consolidated and unconsolidated
joint ventures' communications networks and broadcasting stations.
The following chart summarizes operating statistics by service type of both
the pre-operational and operational systems of the Communications Group's joint
ventures:
<TABLE>
<CAPTION>
TARGET POPULATION/
MARKETS HOUSEHOLDS (MM)(A) AGGREGATE
PRE-OPERATIONAL OPERATIONAL AT SUBSCRIBERS AT
MARKETS AT JUNE 30, AT JUNE 30, JUNE 30,
COMMUNICATIONS JUNE 30, ------------------------ -------------------- --------------------
SERVICE 1997 1997 1996 1997 1996 1997 1996
- ---------------------------------------- ------------------- ----- ----- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Wireless Cable Television............... 1(b) 9 9 9.5 9.5 169,033 62,568
AM/FM Radio............................. --(c) 7 5 8.0 7.0 n/a n/a
Paging (d).............................. -- 11 8 89.5 81.5 53,321 37,636
Cellular Telecommunications............. 1(e) 2(f) -- 13.4 -- 12,365 --
International Toll Calling (g).......... -- 1 1 5.5 5.5 n/a n/a
Trunked Mobile Radio (h)................ -- 5 3 56.2 35.6 12,054 6,104
Fixed Telephony (i)..................... 2 -- -- 97.0(j) -- -- --
--- --- --- --------- --- --------- ---------
Total........................... 4 35 26 246,773 106,308
--- --- --- ---------
--- --- --- ---------
</TABLE>
47
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- ------------------------
(a) Covers both pre-operational markets and operational markets. Target
population is provided for paging, telephony and trunked mobile radio
systems, and target households are provided for wireless cable television
systems and radio stations.
(b) The Communications Group owns 45% of a pre-operational wireless cable joint
venture in St. Petersburg, Russia.
(c) The Communications Group has signed definitive agreements to purchase 70% of
a joint venture operating a radio station in Berlin, Germany and 85% of a
joint venture operating a radio station in Prague, Czech Republic.
(d) Target population for the Communications Group's paging joint ventures
includes the total population in the jurisdictions where such joint ventures
are licensed to provide services. In many markets, however, the
Communications Group's paging system currently only covers the capital city
and is expanding into additional cities.
(e) The Communications Group owns 34.3% of a joint venture that holds a license
and is constructing a nationwide cellular telecommunications system in
Georgia. See "BUSINESS--The Communications Group."
(f) The Communications Group's operational systems include its joint venture
operating a GSM system in Latvia and its joint venture in Ningbo City, PRC,
which is participating in the build-out of an operational GSM system and
providing financing, technical assistance and consulting services to the
systems operator.
(g) Provides international toll calling services between Georgia and the rest of
the world and is the only Intelstat-designated representative in Georgia to
provide such services.
(h) Target population for the Communications Group's trunked mobile radio
systems includes total population in the jurisdictions where such joint
ventures are licensed to provide services. In many markets, the
Communications Group's systems are currently only operational in major
cities.
(i) The Communications Group owns a 34% interest in a pre-operational joint
venture in the PRC that provides wired/wireless local loop
telecommunications equipment, financing, network planning, installation and
maintenance services to telecommunications operators and a 52% interest in a
pre-operational joint venture in the PRC that is participating in the
construction and development of a local telephone network for up to 1
million lines.
(j) Indicates population of the Hebei and Tianjin Provinces in the PRC in which
the Communications Group's joint venture has tested its equipment and
population of the Sichuan Province, where it is participating in the
construction of a local network.
The Communications Group's markets generally have large populations, with
high density and strong economic potential, but lack reliable and efficient
communications services. The Communications Group believes that most of these
markets have a growing number of persons who desire and can afford high quality
communications services. The Communications Group has assembled a management
team consisting of executives who have significant experience in the
communications services industry and in operating businesses in developing
markets. This management team believes that the Communications Group's systems
can be constructed with relatively low capital investments and focuses on
markets where the Company can provide multiple communications services. The
Company believes that the establishment of a far-reaching communications
infrastructure is crucial to the development of the economies of these
countries, and such development will, in turn, supplement the growth of the
Communications Group.
The Communications Group believes that the performance of its joint ventures
has demonstrated that there is significant demand for its services in its
license areas. While the Communications Group's operating systems have
experienced rapid growth to date, many of the systems are still in the early
stages of rolling out their services and, therefore, the Communications Group
believes it will significantly increase its subscriber and customer bases as
these systems mature. In addition, as an early entrant in many markets, the
Communications Group believes that it has developed a reputation for providing
quality service and has formed important relationships with local entities. As a
result, the Company believes it is well positioned to capitalize on
opportunities to provide additional communications services in its markets as
new licenses are awarded.
In addition to its existing projects and licenses, the Communications Group
is exploring a number of investment opportunities in wireless telephony systems
in certain markets in Eastern Europe, including Romania, certain republics of
the former Soviet Union, including Kazakstan, the PRC and other selected
48
<PAGE>
emerging markets, and has installed test systems in certain of these markets.
The Communications Group believes that its wireless local loop telephony
technology will be a high quality and cost effective alternative to the
existing, often antiquated and overloaded, telephone systems in these markets.
The Communications Group also believes that its system has a competitive
advantage in these markets because its equipment can be installed quickly, at a
competitive price, as compared to alternative wireline providers which often
take several years to provide telephone service. In addition, unlike certain
other existing wireless telephony systems in the Communications Group's target
markets, the Communications Group's equipment utilizes digital, high-speed
technology, which can be used for high-speed facsimile and data transmission,
including Internet access. In February, 1997, the Communications Group, through
MAC, acquired AAT which owns interests and participates in the management of 3
separate joint ventures in the PRC.
BUSINESS STRATEGY
The Communications Group's objective is to become the leading multiple
market provider of communications services in Eastern Europe, the republics of
the former Soviet Union, the PRC and other selected emerging markets. The
Communications Group intends to achieve its objective and expand its subscriber
and customer bases, as well as its revenues and cash flow by pursuing the
following strategies:
UTILIZE LOW COST WIRELESS TECHNOLOGIES THAT ALLOW FOR RAPID BUILD-OUT. The
use of wireless technologies has allowed and will continue to allow the
Communications Group to build-out its existing and future license areas faster
and at a lower cost than the construction of comparable wired networks. Many of
the cities where the Communications Group has or is pursuing wireless licenses
have limitations on wireline construction above ground and/or underground.
COMPLETE BUILD-OUT OF EXISTING LICENSE AREAS. Since its formation in 1990,
the Communications Group has been investing in joint ventures to obtain
communications licenses in emerging markets. During the first quarter of 1997
and in the calendar year ended December 31, 1996, the Communications Group
invested approximately $26.7 million and $49.9 million, respectively, in the
construction and development of its consolidated and unconsolidated joint
ventures' communications networks and broadcast stations in existing license
areas. For example, in 1996, the Company expanded the build-out of its paging
operations in Uzbekistan by adding several cities as part of its long-term plan
to provide nationwide paging service.
AGGRESSIVELY GROW THE SUBSCRIBER AND ADVERTISER BASE IN EXISTING LICENSE
AREAS. The Communications Group's existing license areas, in the aggregate,
represent a large potential revenue base. The Communications Group is
aggressively marketing its services in these areas and is experiencing
significant increases in subscriber count and advertising base. The
Communications Group believes it will continue to rapidly add subscribers by (i)
targeting each demographic in its markets with customized communications
services, (ii) cross-marketing and bundling communications services to existing
customers, (iii) providing technologically-advanced services and a high level of
customer service, (iv) providing new and targeted programming on its radio
stations to increase advertising revenue, and (v) opportunistically acquiring
additional existing systems in its service areas and in other strategic areas to
increase its subscriber base.
PURSUE ADDITIONAL LICENSES IN EXISTING MARKETS. The Communications Group is
pursuing opportunities to provide additional communications services in regions
in which it currently operates. For example, in March, 1997, the Communications
Group launched commercial cellular telecommunications services in Latvia where
it already provides wireless cable television, paging and radio broadcasting
services. This strategy enables the Communications Group to leverage its
existing infrastructure and brand loyalty and to capitalize on marketing
opportunities afforded by bundling its services and build brand loyalty and
awareness. The Communications Group believes that it has several competitive
advantages that will enable it to obtain additional licenses in these markets,
including (i) established relationships with local strategic joint venture
partners and local government, (ii) a proven track record of handling and
operating quality systems, and (iii) a fundamental understanding of the regions'
political, economic and cultural climate.
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<PAGE>
INVEST IN NEW MARKETS. The Communications Group is actively pursuing
investments in joint ventures to obtain new licenses for wireless communications
services in markets in which it presently does not have any licenses. The
Company is targeting emerging markets with strong economic potential which lack
adequate communications services. In evaluating whether to enter a new market,
the Communications Group assesses, among other factors, the (i) potential demand
for the Communications Group's services and the availability of competitive
services, (ii) strength of local partners, and (iii) political, social and
economic climate. The Communications Group has identified several attractive
opportunities in Eastern Europe and the Pacific Rim. For example, two of the
Communications Group's joint ventures recently began to provide paging services
in Austria and radio broadcasting in Prague, Czech Republic and in February,
1997, the Communications Group acquired AAT, a company which owns interests and
participates in the management of joint ventures with agreements to provide
wired/wireless telephony equipment and services in certain provinces in the PRC.
Also, the Communications Group has recently signed definitive agreements to
purchase 70% and 85%, respectively, of joint ventures operating radio stations
in Berlin, Germany and Prague, Czech Republic.
WIRELESS CABLE TELEVISION
OVERVIEW. The Communications Group commenced offering wireless cable
television services in 1992 with the launch by its joint venture of Kosmos TV in
Moscow, Russia ("Kosmos") and Baltcom TV in Riga, Latvia ("Baltcom"). The
Communications Group currently has interests in joint ventures which offer
wireless cable television services in 9 markets in Eastern Europe and the
republics of the former Soviet Union that reported 169,033 subscribers at June
30, 1997, an increase of approximately 170.2% from 62,568 subscribers at June
30, 1996. In addition, the Communications Group has an interest in a joint
venture which is licensed to provide wireless cable television service and is
building a system in St. Petersburg, Russia. The Communications Group believes
that there is a growing demand for multi-channel television services in each of
the markets where its joint ventures are operating, which demand is being driven
by several factors including: (i) the lack of quality television and alternative
entertainment options in these markets, (ii) the growing demand for
Western-style entertainment programming, and (iii) the increase in disposable
income in each market which increases the demand for entertainment services.
TECHNOLOGY. Each of the Communications Group's wireless television joint
ventures utilizes microwave multipoint distribution system ("MMDS") technology.
The Communications Group believes that MMDS is the most attractive technology to
utilize for multi-channel television services in these markets because (i) the
initial construction costs of a MMDS system generally are significantly lower
than wireline cable or direct-to-home ("DTH") satellite transmission, (ii) the
time required to construct a wireless cable network is significantly less than
the time required to build a standard wireline cable television network covering
a comparably-sized service area, (iii) the obstacles to obtaining the required
permits and rights-of-way to construct wired networks in the Communications
Group's markets are substantial, (iv) the high communications tower typically
utilized by the MMDS network combined with the high density of multi-family
dwelling units in these markets gives the MMDS networks very high line of sight
("LOS") penetration, and (v) the wide bandwidth of the spectrum typically
licensed by each of the Company's joint ventures gives each system the ability
to broadcast a wide variety of attractive international and localized
programming.
In each system operated by the Communications Group's joint ventures,
encrypted multichannel signals are broadcast in all directions from a
transmission tower which, in the case of such joint ventures' systems, is
typically the highest structure in the city and, as a result, has very high LOS
penetration. Specialized compact receiving antenna systems, installed by the
Company on building rooftops as part of the system, receive the multiple channel
signals transmitted by the transmission tower. The signal is then transmitted to
each subscriber via a coaxial cabling system within the building. In each city
where the Company provides or expects to provide service, a substantial
percentage of the population (e.g., approximately 90% in Moscow) lives in large,
multi-dwelling apartment buildings. This infrastructure significantly reduces
installation costs and eases penetration of wireless cable television services
into a city
50
<PAGE>
because a single MMDS receiving location can bring service to numerous apartment
buildings housing a large number of people. In order to take advantage of such
benefits, in many areas the Company is wiring buildings so that it can serve all
of the apartment dwellers in such buildings through one microwave receiving
location. Subscribers to the Company's premium tiered services typically utilize
a set-top converter which descrambles the signal and are also used as channel
selectors. The Company generally utilizes the same equipment across all its
wireless cable television systems, which enables it to realize purchasing
efficiencies in the build-out of its networks.
While the Communications Group's wireless cable television systems are
generally a leading provider of multi-channel television services in each of its
markets, in many markets there are several small undercapitalized wireline
competitors. The Communications Group's joint ventures in Bucharest, Romania and
Chisinau, Moldova have each acquired existing wireline systems and are in the
process of integrating them into their wireless systems. The Communications
Group believes there are additional acquisition/consolidation opportunities in
several of its markets and will pursue the acquisition of select competitors on
an opportunistic basis.
PROGRAMMING. The Communications Group believes that programming is a
critical component in building successful cable television systems. The
Communications Group currently offers a wide variety of programming including
English, French, German and Russian programming, some of which is dubbed or
subtitled into the local language. In order to maximize penetration and revenues
per subscriber, the cable television joint ventures generally offer multiple
tiers of service including, at a minimum, a "lifeline" service, a "basic"
service and a "premium" service. Generally, the lifeline service provides
programming of local off-air channels and an additional two to four channels
with a varied mixture of European or American sports, music, international news
or general entertainment. The basic and premium services generally include the
channels which constitute the lifeline service, as well as an additional number
of satellite channels and a movie channel that offer recent and classic movies.
The content of each programming tier varies from market to market, but generally
includes channels such as MTV, Eurosport, NBC Super Channel, Bloomberg TV,
Cartoon Network/TNT, BBC World, CNN, SKY News, Discovery Channel and an adult
channel. Each tier also offers localized programming.
One of the Communications Group's joint ventures offers "pay-per-view"
movies and plans to add similar services 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 the joint venture uses automatically deduct
the purchase of a particular service from the amount paid in advance. In
addition, one of the Communications Group's joint ventures has created a movie
channel, "TV21," consisting of U.S. and European films dubbed into Russian
language and distributes this channel to most of the Communications Group's
other wireless cable television ventures. Centralized dubbing and distribution
of this movie channel have enabled the Communications Group to avoid the cost of
separately creating a similar movie channel in its other markets.
MARKETING. While each wireless cable television joint venture initially
targets its wireless cable television services toward foreign national
households, embassies, foreign commercial establishments and international and
local hotels, each system offers multiple tiers, at least one of which is
targeted toward, and generally within the economic reach of, a substantial and
growing percentage of the local population in each market. The Communications
Group offers several tiers of programming in each market and strives to price
the lowest tier at a level that is affordable to a large percentage of the
population and that generally compares, in price, to alternative entertainment
products. The Communications Group believes that a growing number of subscribers
to local broadcast services will demand the superior quality programming and
increased viewing choices offered by its MMDS service. Upon launching a
particular system, the Communications Group uses a combination of event
sponsorships, billboard, radio and broadcast television advertising to increase
awareness in the marketplace about its services.
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<PAGE>
COMPETITION. Each of the Communications Group's wireless cable television
systems competes with off-the-air broadcast television stations. In addition, in
many markets there are several existing wireline cable television providers
which are generally undercapitalized, small, local companies that are providing
limited programming to subscribers in limited service areas. In many of its
wireless cable television markets, the Communications Group competes with
providers of DTH programming services, which offer subscribers programming
directly from satellite transponders. The Communications Group believes that it
has significant competitive advantages over DTH providers in its lower cost and
its ability to offer localized programming.
AM/FM RADIO
OVERVIEW. The Communications Group entered the radio broadcasting business
in Eastern Europe through the acquisition of Radio Juventus in Hungary in 1994.
Today, the Company is a leading operator of radio stations in Eastern Europe and
the republics of the former Soviet Union and owns and operates, through joint
ventures, stations in 7 markets. The Communications Group has announced plans to
submit a bid for one or both nationwide franchises for Hungary in September,
1997. If such nationwide franchises are awarded to the Communications Group,
Radio Juventus will surrender to the licensing authorities its regional
broadcasting license. The cost of such nationwide franchises is 3 billion
Hungarian Forints (approximately U.S. $15.1 million as of June 30, 1997) plus
25% value added tax, over a period of 7 years. The Communications Group has also
executed definitive agreements to purchase 70% of a radio station in Berlin,
Germany for DM4,800,000 and 85% of a second radio station in Prague, Czech
Republic for U.S.$2,040,000.
The Communications Group's radio broadcasting strategy is generally to
acquire underdeveloped "stick" properties (i.e., stations with insignificant
ratings and little or no positive cash flow) at attractive valuations. The
Communications Group then installs experienced radio management to improve
performance through increased marketing and focused programming. Management
utilizes its programming expertise to tailor specifically the programming of
each station utilizing sophisticated research techniques to identify
opportunities within each market and programs its stations to provide complete
coverage of a demographic or format type. This strategy allows each station to
deliver highly effective access to a target demographic and capture a higher
percentage of the radio advertising audience share.
PROGRAMMING. Programming in each of the Communications Group's AM and FM
markets is designed to appeal to the particular interests of a specific
demographic group in such markets. The Communications Group's radio programming
formats generally consist of popular music from the United States, Western
Europe, and the local region. 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, the Communications Group
believes it will be able to attract advertisers seeking to reach these
listeners. The Communications Group believes that the technical programming and
marketing expertise that it provides to its joint ventures enhances the
performance of the joint ventures' radio stations.
MARKETING. Radio station programming is generally targeted towards that
segment which the Communications Group believes to be the most affluent within
the 25- to 55-year-old demographic in each of its radio markets. 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.
COMPETITION. While the Communications Group's radio stations are generally
leaders in each of their respective markets, in each market there are a number
of competing stations currently in operation or anticipated to be in service
shortly. Other media businesses, including broadcast television, cable
television,
52
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newspapers, magazines and billboard advertising also compete with the
Communications Group's radio stations for advertising revenues.
PAGING
OVERVIEW. The Communications Group commenced offering radio paging services
in 1994 with the launch of paging networks serving the countries of Estonia and
Romania. Paging systems are useful as a means for one-way business/personal
communications without the need for a recipient to access a telephone network,
which in many of the Communication Group's markets is often overloaded or
unavailable. At June 30, 1997, the Communications Group's paging joint ventures
were licensed to offer paging services in markets containing approximately 89.5
million persons. The Communications Group's joint ventures generally provide
service in the capital or major cities in these countries and is currently
expanding the services of such operations to cover additional areas. The
Communications Group believes that these joint ventures are leading providers of
paging service in their respective markets and, as of June 30, 1997, had an
aggregate of 53,321 subscribers, which is an increase of approximately 41.7%
from 37,636 subscribers at June 30, 1996.
Management believes that its paging joint ventures will continue to
experience rapid subscriber growth due to (i) the low landline telephone
penetration that characterizes each of its markets, (ii) the rapid increase in
the number of individuals, corporations and other organizations that desire
communication services that offer substantial mobility, accessibility and the
ability to receive timely information, and (iii) the continued economic growth
in these markets which is expected to make paging services relatively more
affordable to the general population.
The Communications Group offers several types of pagers. However,
substantially all of the Communications Group's subscribers choose alphanumeric
pagers, which emit a variety of tones and display as many as 63 characters.
Subscribers may also purchase additional services, such as paging priority,
group calls and other options. The Communications Group provides a choice of
pagers, which are typically purchased by the subscriber or leased for a small
monthly fee. The Communications Group also provides 24-hour operator service
with operators who are capable of taking and sending messages in several
languages.
TECHNOLOGY. Paging is a one-way wireless messaging technology which uses an
assigned frequency and a specific pager identifier to contact a paging customer
within a geographic service area. Each customer who subscribes to a paging
service is assigned a specific pager number. Transmitters broadcast the
appropriate signal or message to the subscriber's pager, which has been preset
to monitor a designated radio frequency. Each pager has a unique number
identifier, a "cap code," which allows it to pick up only those messages sent to
that pager. The pager signals the subscriber through an audible beeping signal
or an inaudible vibration and displays the message on the subscriber's pager.
Depending on the market, the joint ventures offer alphanumeric pagers which have
Latin and/or Cyrillic (Slavic language) character display.
The effective signal coverage area of a paging transmitter typically
encompasses a radius of between 15 and 20 miles from each transmitter site.
Obstructions, whether natural, such as mountains, or man-made, such as large
buildings, can interfere with the signal. Multiple transmitters are often used
to cover large geographic areas, metropolitan areas containing tall buildings or
areas with mountainous terrain.
Each of the Communications Group's paging joint ventures uses either
terrestrial radio frequency ("Rf") control links that originate from one
broadcast transmitter which is controlled by a local paging terminal and
broadcast to each of the transmitters, or a satellite uplink which is controlled
by the paging terminal, which transmits to a satellite and downlinks to a
receiving dish adjacent to each of the transmitters. Once a message is received
by each transmitter in a simulcast market, they in turn broadcast the paging
information using the paging broadcast frequency. The Rf control link frequency
is different from the paging broadcast frequency. For non-contiguous regional
coverage, either telephone lines or microwave communication links are used in
lieu of an Rf control link or satellite link.
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MARKETING. Paging services are targeted toward people who spend a
significant amount of time outside of their offices, have a need for mobility or
are businesspeople without ready access to telephones. The Communications Group
targets its paging system primarily to local businesses, the police, the
military and expatriates. Paging provides an affordable way for local businesses
to communicate with employees in the field and with their customers. Subscribers
are charged a monthly fee which entitles a subscriber to receive an unlimited
number of pages each month.
COMPETITION. The Communications Group believes that its joint ventures are
leading providers of paging services in each of their respective markets. In
some of the Communications Group's paging markets, however, the Communications
Group has experienced and expects to continue to experience competition from
existing small, local, paging operators who have limited areas of coverage, and
from, in a few cases, paging operators established by Western European and
United States investors with substantial experience in paging. The
Communications Group believes it competes effectively against these companies
with its high quality, reliable, 24-hour service. The Communications Group does
not have or expect to have exclusive franchises with respect to its paging
operations and may therefore face more significant competition in its markets in
the future from highly capitalized entities seeking to provide similar services.
CELLULAR TELECOMMUNICATIONS
OVERVIEW. The Communications Group owns a 21.2% interest in Baltcom GSM,
which has recently completed construction and launched commercial service of a
cellular telecommunications system in Latvia which plans to provide nationwide
service. The Communications Group also owns a 34.3% interest in Magticom, a
joint venture that holds a license for and is constructing a national cellular
telephone system in the country of Georgia. Western Wireless, a leading U.S.
cellular provider, is a partner in each of these joint ventures. The
Communications Group believes that there is a large demand for cellular
telephone service in each of Latvia and Georgia due to the limited supply and
poor quality of wireline telephone service in these markets as well as the
rapidly growing demand for the mobility offered by cellular telephony service.
Landline telephone penetration is 25% in Latvia and 9% in Georgia. The demand
for reliable and mobile telephone service is increasing rapidly and the pace is
expected to continue as commerce in these regions continues to experience rapid
growth.
In June, 1997, the Communications Group's Latvian GSM joint venture, Baltcom
GSM, entered into certain agreements with the European Bank for Reconstruction
and Development ("EBRD") pursuant to which the EBRD agreed to lend up to
$23,000,000 to Baltcom GSM in order to finance its system build-out and
operations. Baltcom GSM's ability to borrow under these agreements is
conditioned upon reaching certain gross revenue targets. The loan has an
interest rate equal to the 3-month LIBOR plus 4% per annum, with interest
payable quarterly. The principal amount must be repaid in installments starting
in March, 2002 with final maturity in December, 2006. The shareholders of
Baltcom GSM were required to provide $20,000,000 to Baltcom GSM as a condition
precedent to EBRD funding the loan. In addition, the Company and Western
Wireless International, Inc. ("Western Wireless"), one of the Company's partners
in Baltcom GSM, agreed to provide or cause one of the shareholders of Baltcom
GSM to provide an additional $7,000,000 in funding to Baltcom GSM if requested
by EBRD.
As part of the financing, the EBRD was also provided a 5% interest in the
joint venture which it can put back to Baltcom GSM at certain dates in the
future at a multiple of Baltcom GSM's EBITDA, not to exceed $6,000,000. The
Company and Western Wireless have guaranteed the obligation of Baltcom GSM to
pay such amount. All of the shares in Baltcom GSM, including those belonging to
the Communications Group, were pledged to the EBRD as security for payment of
the loan. As of June 30, 1997, Baltcom GSM had borrowed $10,000,000 from the
EBRD under the agreements.
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<PAGE>
The Communications Group's Georgian GSM joint venture, Magticom, has entered
into a financing agreement with Motorola, Inc. ("Motorola") pursuant to which
Motorola has agreed to provide vendor financing for 75% of the equipment,
software and services it provides to Magticom up to an amount equal to
$15,000,000. Interest on the financed amount accrues at 6-month LIBOR plus 5%
per annum, with interest payable semi-annually. Repayment of principal with
respect to each drawdown commences 21 months after such drawdown with the final
payment being due 60 months after such drawdown. All drawdowns must be made
within 3 years of the initial drawdown date. Magticom is obligated to provide
Motorola with a security interest in the equipment provided by Motorola to the
extent permitted by applicable law. As additional security for the financing,
the Company has guaranteed Magticom's repayment obligation to Motorola.
The Communications Group and Western Wireless have funded the balance of the
financing to Magticom through a combination of debt and equity.
In addition, through AAT, the Communications Group has entered into a joint
venture agreement with Ningbo United Telecommunications Investment Co., Ltd. to
(i) finance and assist China Unicom in the construction of an advanced GSM
cellular telephone network and (ii) provide consulting and management support
services to China Unicom in its operation of such network within the City of
Ningbo, PRC. This system, which will have a capacity of up to 50,000
subscribers, commenced operations in May, 1997. The Communications Group's joint
venture is entitled to 73% of the distributed cash flow, as defined in the
agreement, from the network for a 15-year period.
TECHNOLOGY. The Communications Group's cellular telephone network in Latvia
has been constructed and the cellular telephone network in Georgia is being
constructed using GSM technology. GSM is the standard for cellular service
throughout Western Europe, which will allow the Communications Group's customers
to "roam" throughout the region. GSM's mobility is a significant competitive
advantage compared to competing Advanced Mobile Phone System ("AMPS") services
which cannot offer roaming service in most neighboring countries in Europe or
Nordic Mobile Telephone ("NMT") services which are based on what the
Communications Group believes is an older and less reliable technology.
MARKETING. The Communications Group targets its cellular telephony services
toward the rapidly growing number of individuals, corporations and other
organizations with a need for mobility, ready access to a high quality voice
transmission service and the ability to conduct business outside of the
workplace or home. The Communications Group sells cellular phones at a small
mark-up to cost. This pass-through strategy encourages quick market penetration
and early acceptance of cellular telephony as a desirable alternative to fixed
land-based telephony systems.
Management believes that its cellular systems will benefit from several
competitive advantages in each of its markets. The Communications Group intends
to market its cellular telephony service to customers of its existing wireless
cable television and paging services in both Latvia and Georgia. The
Communications Group believes that this database of names will be useful in
marketing its cellular telephony services, as these are customers who have
already exhibited an interest in modern communications services. In addition,
these joint ventures intend to market these systems by providing a comprehensive
set of packages with different service features which permit the subscriber to
choose the package that most closely fits his or her needs.
COMPETITION. Baltcom GSM's primary competitor in Latvia is Latvia Mobile
Telecom ("LMT"), which is partly owned by a state-owned enterprise. LMT
commenced service in 1995 and currently has approximately 20,000 subscribers.
LMT operates a second system using the older, less efficient NMT technology that
the Communications Group believes will pose less of a competitive threat than
LMT's GSM system. The Communications Group believes that its primary competitors
in Georgia will be Geocell, a Georgian-Turkish joint venture that recently
launched commercial service using a GSM system
55
<PAGE>
as well as an existing smaller provider of cellular telephony services which
uses the AMPS technology in its network.
The Communications Group also faces competition from the primary provider of
telephony services in each of its markets, which are the national PTTs. However,
given the low penetration rates in Latvia and Georgia and the underdeveloped
landline telephone system infrastructure, the Communications Group believes that
cellular telephony provides an attractive alternative to customers who need
fast, reliable and quality telephone service.
INTERNATIONAL TOLL CALLING
OVERVIEW. The Communications Group 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 has
interconnect arrangements with several international long distance carriers such
as Sprint and Telespazio. For every international call made to the Republic of
Georgia, a payment is due to Telecom Georgia by the interconnect carrier and for
every call made from the Republic of Georgia to another country, Telecom Georgia
charges its subscribers and pays a destination fee to the interconnect carrier.
Since Telecom Georgia commenced operations, long distance traffic in and out
of Georgia has increased dramatically as Telecom Georgia has expanded the number
of available international telephone lines. Incoming call traffic increased from
approximately 200,000 minutes per month in 1993 to the current rate of
approximately 1 million minutes per month, and outgoing call traffic increased
from approximately 100,000 minutes per month in 1993 to the current rate of
approximately 230,000 minutes. Telecom Georgia has instituted several marketing
programs in order to maintain this growth.
COMPETITION. The Communications Group does not currently face any
competition in the international long distance business in Georgia, as Telecom
Georgia is the only entity licensed to handle international call traffic in and
out of Georgia.
TRUNKED MOBILE RADIO
OVERVIEW. The Communications Group currently owns interests in joint
ventures which operate 5 trunked mobile radio services in Europe and Kazakstan,
servicing an aggregate of 12,054 subscribers at June 30, 1997 which is an
increase of approximately 97.5% from 6,104 subscribers at June 30, 1996. Trunked
mobile radio systems are commonly used by construction teams, security services,
taxi companies, service organizations and other groups with a need for
significant internal communications. Trunked mobile radio allows such users to
communicate with members of a closed user group without incurring the expense or
delay of the public switched telephone network, and also provides the ability to
provide dispatch service (i.e., one sender communicating to a large number of
users on the same network). In many cases, the Communications Group's trunked
mobile radio systems are also connected to the public switched telephone network
thus providing some or all of the users the flexibility of communicating outside
the closed user group. The Communications Group believes that lower costs and
the ability to provide dispatch services affords trunked mobile radio
significant advantages over cellular telephony or the public switched telephone
network in fleet applications.
COMPETITION. The Communications Group is a leading provider of trunked
mobile radio in its markets although it faces competition from other trunked
mobile radio service providers and from private networks in all of the markets
in which it operates. Trunked mobile radio also faces competition from cellular
providers, especially for users who need access to the public switched telephone
network for most of their needs, pagers for users who need only one-way
communication and private branch exchanges (PBXs), where users do not need
mobile communications.
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FIXED TELEPHONY
OVERVIEW. The Communications Group is currently exploring a number of
investment opportunities in wireless local loop telephony systems in certain
countries in Eastern Europe, the republics of the former Soviet Union and other
selected emerging markets and has installed test systems in certain of these
markets. The Communications Group believes that the proposed wireless local loop
telephony technology it is using is a time and cost effective means of improving
the communications infrastructure in such markets. The current telephone systems
in these markets are antiquated and overloaded, and consumers in these markets
often must wait several years to obtain telephone service.
The Communications Group plans to partner with the local telephone service
provider in each of its target markets to provide wireless local loop telephony
services to customers. The Company believes that wireless local loop technology
is a rapid and cost effective method to increase the number of subscribers to
local telephone services. Wireless local loop telephony systems can provide
telephone access to a large number of apartment dwellers through a single
microwave transceiver installed on their building. This microwave transceiver
sends signals to and from a receiver located adjacent to a central office of the
public switched telephone network where the signal is routed from or into such
network. This system eliminates the need to build fixed wireline infrastructure
between the central office and the subscribers' building, thus reducing the time
and expense involved in expanding telephone service to customers.
In addition, the Company plans to take advantage of wired telephony
opportunities from time to time. For example, the Communications Group, through
AAT, has entered into a joint venture agreement with China Huaneng Technology
Development Corporation, to (i) assist China Unicom in the development and
construction of advanced telecommunications systems in Sichuan Province, PRC and
(ii) provide telephone consulting and financing services to China Unicom within
Sichuan Province. With a population of over 100 million and a telephone
penetration rate estimated at less than 2%, the Sichuan Province project
provides a large potential market for AAT's products and services. The project
involves a 20-year period of cooperation between the Communications Group's
joint venture and China Unicom for the development of a wired local telephone
network in Sichuan Province with an initial capacity of 50,000 lines. For its
services, the Communications Group's joint venture is entitled to 78% of the
distributable cash flow, as defined in the agreement, from the network for a
20-year period for each phase of the network developed.
COMPETITION. While the existing wireline telephone systems in Eastern
Europe and the former Soviet Republics are often antiquated, the fact that the
network infrastructure is already in place means that it is a source of
competition for the Communications Group's proposed wireless telephony
operations. The Communications Group 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 the Communications
Group's services in its markets.
In certain markets, cellular telephone operators exist and represent a
competitive alternative to the Communications Group's proposed wireless local
loop telephony 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 service area. However, while cellular telephony enables
a subscriber to move from one place in a city to another while using the
service, wireless local loop telephony is intended to provide fixed telephone
services which can be deployed as rapidly as cellular telephony but at a lower
cost. This lower cost makes wireless local loop telephony a more attractive
alternative telephony alternative to a large portion of the populations in the
Communications Group's markets that do not require mobile communications. In
addition, because the wireless local loop technology which the Communications
Group is using operates at 64 kilobits per second, it can be used for high speed
facsimile and data transmission, including Internet access.
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JOINT VENTURE OWNERSHIP STRUCTURES/LIQUIDITY ARRANGEMENTS
The following table summarizes the Communications Group's joint ventures at
March 31, 1997 as well as the amount contributed, amount loaned and total amount
invested by the Communications Group in such joint ventures as of March 31,
1997:
<TABLE>
<CAPTION>
AMOUNT AMOUNT TOTAL
COMPANY CONTRIBUTED LOANED TO INVESTMENT
OWNERSHIP TO JOINT JOINT IN JOINT
JOINT VENTURE(1) % VENTURE VENTURE VENTURE
- ----------------------------------------------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
(US DOLLARS, IN THOUSANDS)
WIRELESS CABLE TELEVISION
Kosmos TV (Moscow, Russia)......................... 50% $ 1,093 $ 9,407 $ 10,500
Baltcom TV (Riga, Latvia).......................... 50 819 11,852 12,671
Ayety TV (Tbilisi, Georgia)........................ 49 779 6,619 7,398
Romsat Cable TV (Bucharest, Romania)(2)............ 99 682 5,080 5,762
Sun TV (Chisinau, Moldova)......................... 50 400 4,393 4,793
Alma TV (Almaty, Kazakstan)........................ 50 222 4,633 4,855
Cosmos TV (Minsk, Belarus)......................... 50 400 1,768 2,168
Vilnius Cable (Vilnius, Lithuania)(2).............. 55 434 1,328 1,762
Kamalak TV (Tashkent, Uzbekistan).................. 50 755 5,216 5,971
Teleplus (St. Petersburg, Russia)(6)............... 45 787 -- 787
PAGING
Baltcom Estonia (Estonia).......................... 39 396 4,151 4,547
CNM (Romania)...................................... 54 490 3,724 4,214
Kamalak Paging (Tashkent, Samarkand, Bukhara and
Andijan, Uzbekistan)(3).......................... 50 -- -- --
Paging One (Tbilisi, Georgia)...................... 45 250 911 1,161
Paging Ajara (Ajara, Georgia)...................... 35 43 220 263
Raduga Poisk (Nizhni Novgorod, Russia)............. 45 330 71 401
Alma Page (Almaty and Ust-Kamenogorsk,
Kazakstan)(4).................................... 50 -- -- --
Baltcom Plus (Latvia).............................. 50 250 2,764 3,014
Pt-Page (St. Petersburg, Russia)................... 40 1,072 -- 1,072
Paging One Services (Austria)(6)................... 100 1,007 2,193 3,200
RADIO BROADCASTING
Radio Juventus (Budapest, Siofok and Khebegy,
Hungary)(2)...................................... 100 8,107 274 8,381
SAC (Moscow, Russia)(2)............................ 83 631 3,128 3,759
Radio Katusha (St. Petersburg, Russia)............. 50 133 800 933
Radio Nika (Socci, Russia)......................... 51 244 7 251
Radio Skonto (Riga, Latvia)(2)..................... 55 302 276 578
Radio One (Prague, Czech Republic)................. 80 265 62 327
INTERNATIONAL TOLL CALLING
Telecom Georgia (Georgia).......................... 30 2,554 -- 2,554
TRUNKED MOBILE RADIO
Protocall Ventures, Ltd.(2)(5)..................... 56 2,530 3,900 6,430
CELLULAR TELECOMMUNICATIONS
Baltcom GSM (Latvia)............................... 34 11,094 -- 11,094
Magticom (Georgia)(6).............................. 34 2,450 -- 2,450
Ningbo Ya Mei Tele. Co. (6)........................ 39 9,508 -- 9,508
WIRELESS LOCAL LOOP
Metromedia-Jinfeng (PRC)(6)(7)..................... 60 3,019 -- 3,019
Sichuan Tai Li Feng Telecommunications, Co.(6)..... 52 11,040 -- 11,040
------- ------- --------------
TOTAL.......................................... $ 62,086 $ 72,777 $ 134,863
------- ------- --------------
------- ------- --------------
</TABLE>
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- ------------------------
(1) The parenthetical notes the area of operations for the operational joint
ventures and the area for which the joint venture is licensed for the
pre-operational joint ventures.
(2) Results of operations are consolidated with the Company's financial
statements. See Note 8 to the "Notes to Consolidated Financial Statements"
of the Company for the year ended December 31, 1996, included elsewhere in
this Prospectus.
(3) The Communications Group's cable and paging services in Uzbekistan are
provided by the same company, Kamalak TV. All amounts contributed and loaned
to Kamalak TV are listed above under wireless cable television.
(4) The Communications Group's cable and paging services in Kazakstan are
provided by the same company, Alma TV. All amounts contributed and loaned to
Alma TV are listed above under wireless cable television.
(5) The Communications Group's owns its trunked mobile radio ventures through
Protocall, in which it has a 56% ownership interest. Through Protocall, the
Communications Group owns interests in (i) Belgium Trunking (24%), which
provides services in Brussels and Flanders, Belgium, (ii) Radiomovel
Telecomunicacoes (14%), which provides services in Portugal, (iii) Teletrunk
Spain, (6-16%, depending on the venture), which provides services through 4
joint ventures in Madrid, Valencia, Aragon and Catalonia, Spain, (iv)
National Business Communications ("NBC") (58%), which provides services in
Bucharest, Cluj, Brasov, Constanta and Timisoira, Romania and (v) Spectrum
(31%), which operates in Almaty and Atyran, Kazakstan. A portion of the
Communications Group's interest in NBC and Spectrum is held directly.
Information provided includes $30,097 and $215,000, respectively,
contributed and loaned, respectively, to NBC directly by the Company and
$35,000 contributed to Spectrum directly by the Company. In July, 1997,
Protocall purchased additional shares in Radiomovel Telecomunicacoes for
approximately $1.0 million and increased the Communications Group's
ownership interest to 36%. In addition, in August, 1997, Protocall signed a
definitive agreement to purchase additional interests in its Spanish joint
ventures. When completed, this transaction will raise the Communications
Group's ownership interests from 6-16% to 17-48%.
(6) Pre-operational.
(7) Metromedia-Jinfeng is a pre-operational joint venture that plans to provide
wireless local loop telecommunications equipment, financing, network
planning, installation and maintenance services to telecommunications
operators in the PRC.
Generally, the Communications Group owns, on average, 50% or more of the
equity in a joint venture with the balance of such equity being owned by a local
entity, often a government-owned enterprise. Typically, the Communications
Group's joint venture provides frequency licenses and/or transmission
facilities. In some cases, the Communications Group owns or acquires interests
in entities (including competitors) that are already licensed and are providing
service. 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 the Communications Group and its
local partner. In other cases, a differing number of directors or managers of
the joint venture may be selected by the Communications Group on the basis of
the percentage ownership interest of the Communications Group in the joint
venture.
In many cases, the credit agreement pursuant to which the Company loans
funds to a joint venture provides the Company 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 the Company's percentage ownership interest in the joint
venture or under the terms of the joint venture's governing instruments.
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The Communications Group'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' equity holders have limited liability
to the extent of their investment. Under the joint venture agreements, each of
the Communications Group 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, the Company has established or plans to
establish an agreement with the joint venture whereby, in addition to cash
contributions by the Company, both the Company and the local partner make
in-kind contributions (usually communications equipment in the case of the
Company 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
the Company pursuant to which the Company loans the venture certain funds.
Typically, such credit agreements provide for interest payments to the Company
at rates ranging generally from prime to prime plus 6% and for payment of
principal and interest from 90% of the joint venture's available cash flow.
Prior to repayment of its credit agreement, the joint ventures are significantly
limited or prohibited from distributing profits to its shareholders. As of March
31, 1997, the Company had obligations to fund (i) an additional $377,000 to the
equity of its joint ventures (or to complete the payment of shares purchased by
the Company) and (ii) up to an additional $15.0 million to fund the various
credit lines the Company has extended to its joint ventures. The Company's
funding commitments under such credit lines are contingent upon its approval of
the joint ventures' business plans. To the extent that the Company does not
approve a joint venture's business plan, the Company is not required to provide
funds to such joint venture under the credit line. The distributions (including
profits) from the joint venture to the Company and the local partner are made on
a pro rata basis in accordance with their respective ownership interests.
In addition to loaning funds to the joint ventures, the Communications Group
often provides certain services to many of the joint ventures for a fee. The
Communications Group often does not require start-up joint ventures to reimburse
it for certain services that it provides such as engineering advice, assistance
in locating programming, and assistance in ordering equipment. As each joint
venture grows, the Company institutes various payment mechanisms to have the
joint venture reimburse it for such services where they are provided. The
failure of the Company to obtain reimbursement of such services will not have a
material impact on its results of operations.
Under existing legislation in certain of the Communications Group's markets,
distributions from a joint venture to its partners will be subject to taxation.
The laws in the Communications Group'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 the Communications Group'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
the Company and its operations.
RECENT DEVELOPMENTS--THE ENTERTAINMENT GROUP SALE
On July 10, 1997, the Company consummated the Entertainment Group Sale when
it sold substantially all of the assets of its Entertainment Group consisting of
Orion, Goldwyn and MPCA (and their respective subsidiaries) and a feature film
and television library of over 2,200 titles to P&F, the parent company of MGM,
for a gross consideration of $573.0 million. The Company had operated the
Entertainment Group since the November 1 Merger. The Company used $296.4 million
of the proceeds from the Entertainment Group Sale to repay all amounts
outstanding under the Entertainment Group's credit facilities and certain other
indebtedness of the Entertainment Group and $140.0 million of such proceeds to
repay all of its outstanding debentures. As a result, the Company will retain
approximately $136.6 million from the Entertainment Group Sale, following
repayment of debt. The Company intends to use these resources, along with the
net proceeds of this Offering, to fund principally the Communications
60
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Group's investments in Eastern Europe, the republics of the former Soviet Union,
the PRC and other emerging markets.
The Company elected to proceed with the Entertainment Group Sale in order to
focus its available resources into a single strategic business segment. As a
result of the Entertainment Group Sale, the Company has narrowed its strategic
focus from operating two core businesses through the Communications Group and
the Entertainment Group to focusing primarily on the global communications and
media businesses of the Communications Group. Landmark, which the Company
believes is the largest exhibitor of specialized motion pictures and art-house
films in the United States with, at March 31, 1997, 50 theatres and 138 screens,
was not included in the Entertainment Group Sale and the Company continues to
own and operate Landmark to maximize its value.
61
<PAGE>
LANDMARK
The Company believes that Landmark, with, at March 31, 1997, 138 screens in
50 theaters, is the largest exhibitor of specialized motion pictures and art
films in the United States. The Company intends to continue to pursue its
strategy to (i) expand Landmark's presence 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) maximize
revenues and cash flow from its existing theaters by capitalizing on the demand
for art and specialty films in the U.S. by continuing to reduce operating and
overhead costs as a percentage of revenues.
Landmark currently operates theaters in 18 cities in California, Colorado,
Louisiana, Massachusetts, Minnesota, Ohio, Texas, Washington and Wisconsin.
Landmark 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
Landmark is approximately 39,000, of which 56% is in theaters located in
California. The following table summarizes the location and number of theaters
and screens operated by Landmark:
<TABLE>
<CAPTION>
LOCATION THEATERS SCREENS
- -------------------------------------------------------------------------- ------------- -----------
<S> <C> <C>
Belmont, California....................................................... 1 3
Berkeley, California...................................................... 6 19
Los Angeles, California................................................... 3 7
Corona Del Mar, California................................................ 1 1
Palo Alto, California..................................................... 4 6
Pasadena, California...................................................... 1 1
Sacramento, California.................................................... 2 6
San Diego, California..................................................... 5 9
San Francisco, California................................................. 5 14
Denver, Colorado.......................................................... 3 8
New Orleans, Louisiana.................................................... 1 4
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
--
---
50 138
--
--
---
---
</TABLE>
Landmark recently closed its theater in Belmont, California, purchased a
theater in Detroit, Michigan, and began construction on two six-screen theaters,
in St. Louis, Missouri and a suburb of Boston, Massachusetts, both of which are
expected to open in early 1998.
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 theaters 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. Landmark typically shows
approximately 30 to 40 different films on its screens at any given time. In the
normal course of its business, Landmark actively pursues opportunities to
acquire or construct new theaters in promising locations and closes theaters
that are not performing well or for which it may not be feasible to renew the
lease.
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Although there are no other nationwide exhibitors of specialty motion
pictures, Landmark faces direct competition in each market from local or
regional exhibitors of specialized motion pictures and art films. To a lesser
degree, Landmark 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 Landmark. Many of these companies have greater financial and other
resources than Landmark. As a result of new theater development and conversion
of single-screen theaters to multiplexes, there is an increasing number of
motion picture screens in the geographic areas in which Landmark 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. Landmark also competes with national and regional circuits and
independent exhibitors with respect to attracting patrons and acquiring new
theaters.
SNAPPER
GENERAL. Snapper manufactures Snapper-Registered Trademark- brand power
lawn and garden equipment for sale to both residential and commercial customers.
The residential equipment includes self-propelled and push-type walk behind
lawnmowers, rear engine riding lawnmowers, garden tractors, zero turn radius
lawn equipment, garden tillers, snow throwers and related parts and accessories.
The commercial mowing equipment and mid-mount commercial equipment includes
commercial quality self-propelled walk-behind lawnmowers, and wide area and
front-mount zero turn radius lawn equipment.
Snapper products are premium-priced, generally selling at retail from $300
to $8,500. Snapper sells and supports directly a 4,000 dealer network for the
distribution of its products. Snapper also sells its products through an
existing distributor and distributes a limited selection of residential
walk-behind lawnmowers and rear engine riding lawnmowers through approximately
300 Home Depot locations.
A large percentage of the residential sales of lawn and garden equipment are
made during a 17-week period from early spring to mid-summer. Although some
sales are made to dealers and distributors prior to this period, the largest
volume of sales to the ultimate consumer is made during this time. The majority
of revenues during the late fall and winter periods are related to snow thrower
shipments. Snapper has an agreement with a financial institution which makes
floor-plan financing for Snapper products available to dealers. This agreement
provides financing for dealer inventories and accelerates cash flow to Snapper.
Under the terms of this agreement, a default in payment by one of the dealers to
the program is non-recourse to Snapper. If there is a default and the equipment
is retained by the dealer inventory, Snapper is obligated to repurchase any new
and unused equipment.
Snapper also makes available, through General Electric Credit Corporation, a
retail customer revolving credit plan. This credit plan allows consumers to pay
for Snapper products over time. Customers also receive Snapper credit cards
which can be used to purchase additional Snapper products.
Snapper manufactures its products in McDonough, Georgia at facilities
totaling approximately 1 million square feet. Excluding engines and tires,
Snapper manufactures a substantial portion of the component parts to its
products. Most of the parts and material for Snapper's products are commercially
available from a number of sources.
During the three years ended December 31, 1996, Snapper spent an average of
$4.6 million per year for research and development. Although it holds several
design and mechanical patents, Snapper is not dependent upon such patents, nor
does it believe that patents play an important role in its business. Snapper
does believe, however, that the registered trademark
"Snapper-Registered Trademark-" is an important asset in its business. Snapper
walk-behind mowers are subject to Consumer Product Safety Commission safety
standards and are designed and manufactured in accordance therewith.
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The lawn and garden industry is highly competitive, with the competition
being based on price, image, quality and service. Although no one company
dominates the market, the Company believes that Snapper is a significant
manufacturer of lawn and garden products. A large number of companies
manufacture and distribute products that compete with Snapper's including The
Toro Company, Lawn-Boy (a product of The Toro Company), Sears, Roebuck and Co.,
Deere and Company, Ariens Company, Honda Corporation, Murray Ohio Manufacturing
Co., American Yard Products, Inc., MTD Products, Inc. and Simplicity
Manufacturing, Inc.
SNAPPER REVOLVER. On November 26, 1996, Snapper entered into the Snapper
Credit Agreement with AmSouth, pursuant to which AmSouth has agreed to make
available to Snapper the Snapper Revolver for a period ending on January 1, 1999
(the "Snapper Revolver Termination Date"). The Snapper Revolver is guaranteed by
the Company. At December 31, 1996, $46.4 million was outstanding under the
Snapper Revolver.
Interest under the Snapper Revolver is payable at Snapper's option at a rate
equal to either (i) prime plus .5% (from November 26, 1996 through May 25, 1997)
or prime plus 1.5% (from May 26, 1997 to the Snapper Revolver Termination Date)
or (ii) LIBOR (as defined in the Snapper Credit Agreement) plus 2.5% (from
November 26, 1996 through May 25, 1997) or LIBOR plus 3.5% (from May 26, 1997 to
the Snapper Revolver Termination Date).
The Snapper Revolver contains customary covenants, including delivery of
certain monthly, quarterly and annual financial information, delivery of budgets
and other information related to Snapper, limitations on Snapper's ability to
(i) sell, transfer, lease (including sale-leaseback) or otherwise dispose of all
or any material portion of its assets or merge with any person; (ii) acquire an
equity interest in another business; (iii) enter into any contracts, leases,
sales or other transactions with any division or an affiliate of Snapper,
without the prior written consent of AmSouth; (iv) declare or pay any dividends
or make any distributions upon any of its stock or directly or indirectly apply
any of its assets to the redemption, retirement, purchase or other acquisition
of its stock; (v) make any payments to the Company on a subordinated promissory
note issued by Snapper to the Company at any time (a) an Event of Default (as
defined in the Snapper Credit Agreement) exists or would result because of such
payment, (b) there would be less than $10 million available to Snapper under the
terms of the Snapper Credit Agreement immediately after giving effect to such
payment, (c) a single payment would exceed $3 million, (d) prior to January 1,
1998; and (e) such payment would occur more frequently than quarterly after
January 1, 1998; (vi) make loans, issue additional indebtedness or make any
guarantees. In addition, Snapper is required to maintain at all times as of the
last day of each month a specified net worth. The Snapper Credit Agreement is
secured by a first priority security interest in all of Snapper's assets and
properties and is also entitled to the benefit of a replenishable $1,000,000
cash collateral account, which was initially funded by Snapper. Under the
Snapper Credit Agreement, AmSouth may draw upon amounts in this cash collateral
account to satisfy any payment defaults by Snapper and Messrs. Kluge and
Subotnick are obligated to replenish such account any time amounts are so
withdrawn, up to the entire amount of the snapper Revolver.
Under the Snapper Credit Agreement, the following events, among others, each
constitute an "Event of Default": (i) breach of any representation or warranty,
certification or certain covenants made by Snapper or any due observance or
performance to be observed or performed by Snapper; (ii) failure to pay within 5
days after payment is due; and (iii) a "Change of Control" shall occur. For
purposes of the Snapper Credit Agreement, a "Change of Control" means (i) a
change of ownership of Snapper that results in the Company not owning at least
80% of all the outstanding stock of Snapper, (ii) a change of ownership of the
Company that results in (a) Messrs. Kluge and Subotnick not having beneficial
ownership or common voting power of at least 15% of the common voting power of
at least 15% of the common voting power of the Company, (b) any person having
more common voting power than Messrs. Kluge and Subotnick, or (c) any person
other than Messrs. Kluge and Subotnick for any reason obtaining the right to
appoint a majority of the board of directors of the Company.
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As of June 30, 1997, Snapper is in default of certain financial covenants
under the Snapper Revolver, which default has been waived by AmSouth.
INVESTMENT IN RDM
In December 1994, the Company acquired 19,169,000 shares of RDM common
stock, or approximately 39% of the outstanding RDM common stock, in exchange for
all of the issued and outstanding capital stock of four of its wholly-owned
subsidiaries (the "Exchange Transaction"). RDM, through its operating
subsidiaries, is a leading manufacturer of fitness equipment and toy products in
the United States. RDM's common stock is listed on the New York Stock Exchange.
As of August 1, 1997, the closing price per share of RDM common stock was
$ 13/16 and the quoted market value of the Company's investment in Roadmaster
was approximately $16 million. As disclosed in Amendment No. 1 to its Schedule
13D relating to RDM, filed with the SEC on March 1, 1996, the Company intends to
dispose of its investment in RDM.
In connection with the Exchange Transaction, the Company, RDM and certain
officers of RDM entered into a shareholders agreement, pursuant to which, among
other things, the Company obtained the right to designate four individuals to
serve on RDM's nine-member Board of Directors, subject to certain reductions.
The Company currently has three designees on RDM's Board of Directors.
In June, 1997, RDM entered into a $100 million revolving credit facility
(the "RDM Credit Facility") with a syndicate of lenders led by Foothill Capital
Corporation (the "Lender") and used a portion of the proceeds of such facility
to refinance its existing credit facility. In order to induce the Lender to
extend the entire amount of the RDM Credit Facility, Metromedia provided the
Lender with a $15 million letter of credit that may be drawn by the Lender if
(i) RDM defaults in any payment of principal or interest or breaches any other
covenant or agreement in the RDM Credit Facility, subject, in each such case, to
customary grace periods, or (ii) the bankruptcy or insolvency of RDM. In
consideration for the provision of the $15 million letter of credit, RDM issued
to Metromedia 10-year warrants to acquire 3,000,000 shares of RDM common stock,
exercisable after 90 days from the date of issuance at an exercise price of $.50
per share (the "RDM Warrants"). In accordance with the terms of the agreement
entered into in connection with the RDM Credit Facility, Metromedia offered the
Company the opportunity to substitute its letter of credit for Metromedia's
letter of credit and to receive the RDM Warrants. On July 10, 1997, the
Company's Board of Directors elected to substitute its letter of credit for
Metromedia's letter of credit and the RDM Warrants were assigned to the Company.
LEGAL PROCEEDINGS
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., predecessor to Triton Group Ltd.
("Intermark"), which owned approximately 25% of the outstanding shares of the
Common Stock. The Company was named as a nominal defendant in this lawsuit. The
action was brought derivatively in the right and on behalf of the Company and
was purportedly filed as a class action lawsuit on behalf of all holders of the
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
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approval, and (iii) costs of suit and attorney's fees. On December 29, 1995, the
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. A hearing regarding the
motion to dismiss was held on November 6, 1996. On May 13, 1997, the Court
issued a decision on defendants' motion to dismiss. The Court dismissed all of
the plaintiffs' class claims and dismissed all of the plaintiffs' derivative
claims except for two specific claims alleging that the Fuqua board members
acted in furtherance of an entrenchment plan.
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 in MICHAEL SHORES V. SAMUEL GOLDWYN COMPANY, ET AL., case
no. BC 150360. The complaint alleges that Goldwyn's Board of Directors breached
its fiduciary duties to the stockholders of Goldwyn by agreeing to sell Goldwyn
to the Company at no premium, yet providing Mr. Samuel Goldwyn, Jr., Mr. Meyer
Gottlieb and the Samuel Goldwyn Jr. Family Trust (the "Trust") with benefits,
and seeks damages resulting therefrom. On May 8, 1997, the plaintiff was granted
leave to file a First Amended Complaint (the "Amended Complaint") adding the
Company and the Trust as defendants. In addition to the original allegations,
the Amended Complaint also alleges that Goldwyn's Board of Directors and the
Trust breached their fiduciary duties to Goldwyn's stockholders in agreeing to
and approving the structure and timing of the sale of Goldwyn to the Company
through a stock swap merger, and, in particular, by allowing the pricing period
for Goldwyn stock to take place prior to a secondary offering of stock by the
Company, with the alleged result being that the value of Common Stock received
by Goldwyn's stockholders when the sale was consummated was less than it
otherwise would have been. The Amended Complaint alleges that the Company aided
and abetted the fiduciary breaches of the other defendants. The Company believes
that the suit is without merit and intends to defend vigorously such action.
On June 30, 1997, the plaintiffs in SYDNEY H. SAPSOWITZ AND SID SAPSOWITZ &
ASSOCIATES, INC. V. JOHN W. KLUGE, STUART SUBOTNICK, METROMEDIA INTERNATIONAL
GROUP, INC., ORION PICTURES CORPORATION, LEONARD WHITE, ET AL. filed a lawsuit
in Superior Court of the State of California alleging $28 million in damages
from the breach of an agreement to pay a finder's fee in connection with the
Entertainment Group Sale. The Company believes that the suit is without merit
and it intends to vigorously defend such action.
Recently, the Communications Group and its partner in Kosmos TV (the "Kosmos
Shareholders") removed the General Director of Kosmos. The former General
Director is contesting that action in Russian Civil Court. The Kosmos
Shareholders appointed a new General Director who has operated Kosmos from its
studios and technical facilities. Despite his removal, the former General
Director has refused to vacate the administrative offices of Kosmos. The Company
believes that the suit is without merit and it intends to vigorously defend such
action.
ENVIRONMENTAL MATTERS
Snapper's manufacturing plant is subject to federal, state and local
environmental laws and regulations. Compliance with such laws and regulations
has not affected materially nor is it expected to affect materially 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 1996 and are not
expected to be material in future years.
The Company has agreed to indemnify a former subsidiary of the Company for
certain obligations, liabilities and costs incurred by the subsidiary arising
out of environmental conditions existing on or prior to the date on which the
subsidiary was sold by the Company 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
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and including the fiscal year ended December 31, 1996. As of December 31, 1996,
the Company had a remaining reserve of approximately $1.2 million to cover its
obligations to its former subsidiary. During 1996, the Company was notified by
certain potentially responsible parties at a superfund site in Michigan that the
former subsidiary may also be a potentially responsible party at the superfund
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") that 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. The Opelika Property was transferred to the
Company's wholly-owned subsidiary in connection with the sale of the Company's
former sporting goods subsidiary. In connection with such sale, the Company
entered into an environmental indemnity agreement (the "Environmental Indemnity
Agreement") under which the Company is obligated for costs and liabilities
resulting from the presence on or migration of regulated materials from the
Opelika Property. The Company's obligations under the Environmental Indemnity
Agreement with respect to the Opelika Property are not limited. The
Environmental 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") advised the Company 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. In 1997, the Company received the consulting firm's
report. The Company has conducted a grading and capping in accordance with the
remediation plan and has reported to ADEM that the work was completed and the
Company will undertake to monitor the property on a quarterly basis. The Company
believes that its reserves of approximately $1.8 million will be adequate to
cover all further costs of remediation.
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MANAGEMENT
The executive officers of the Company and certain executive officers of the
Communications Group and their respective ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ------------------------------------------ --- ---------------------------------------------------------------
<S> <C> <C>
John W. Kluge............................. 82 Chairman
Stuart Subotnick.......................... 55 Vice Chairman, President and Chief Executive Officer
Silvia Kessel............................. 47 Executive Vice President, Chief Financial Officer and Treasurer
Arnold L. Wadler.......................... 53 Executive Vice President, General Counsel and Secretary
Robert A. Maresca......................... 62 Senior Vice President
COMMUNICATIONS GROUP:
Carl C. Brazell........................... 55 Co-President
Richard J. Sherwin........................ 54 Co-President
</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 the Company
since the consummation of the November 1 Merger and served as Chairman of the
Board of Orion from 1992 until the Entertainment Group Sale. In addition, Mr.
Kluge has served as Chairman and President of Metromedia and its
predecessor-in-interest, Metromedia, Inc. for over six years. Mr. Kluge is also
a director of The Bear Stearns Companies, Inc., Occidental Petroleum Corporation
and Conair Corporation. Mr. Kluge is Chairman of the Company's Executive
Committee and is a member of the Nominating Committee.
MR. SUBOTNICK has served as Vice Chairman of the Board of Directors since
the consummation of the November 1 Merger and as President and Chief Executive
Officer of the Company since December, 1996. In addition, Mr. Subotnick served
as Vice Chairman of the Board of Orion from November, 1992 until the
Entertainment Group Sale. Mr. Subotnick has served as Executive Vice President
of Metromedia Company and its predecessor-in-interest, Metromedia, Inc., for
over six years. Mr. Subotnick is also a director of Carnival Cruise Lines, Inc,
and, since February 28, 1997, RDM. Mr. Subotnick is a member of the Executive
Committee.
MS. KESSEL has served as Executive Vice President, Chief Financial Officer
and Treasurer since August 29, 1996 and, from November 1, 1995 until that date,
as Senior Vice President, Chief Financial Officer and Treasurer of the Company.
In addition, Ms. Kessel served as Executive Vice President of Orion from
January, 1993 until the Entertainment Group Sale, 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 Orion
from June 1991 to November 1992 and Managing Director of Kluge & Company (and
its predecessor) from April 1990 to January 1994. Ms. Kessel has been a member
of the Board of Directors of RDM since February 28, 1997. Ms. Kessel is a member
of the Nominating Committee of the Company.
MR. WADLER has served as Executive Vice President, General Counsel and
Secretary since August 29, 1996 and, from November 1, 1995 until that date, as
Senior Vice President, General Counsel and Secretary of the Company. In
addition, Mr. Wadler served as a Director of Orion from 1991 until the
Entertainment Group Sale and as Senior Vice President, Secretary and General
Counsel of Metromedia for over six years. Mr. Wadler is Chairman of the
Nominating Committee of the Company.
MR. MARESCA has served as a Senior Vice President of the Company since
November 1, 1995. Mr. Maresca has served as a Senior Vice President--Finance of
Metromedia for over six years.
MR. BRAZELL has served as Co-President and Director of MITI and a
predecessor company since 1993. Prior to that time, 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 time, Mr. Sherwin served
as the Chief Operating Officer of Graphic Scanning Corp., a paging and wireless
telecommunications company. Mr. Sherwin has served as Chairman of the Board and
a director of the Personal Communications Industry Association.
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PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common Stock
with respect to (i) each director of the Company, (ii) 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 BENEFICIALLY PERCENTAGE OF
NAME OF BENEFICIAL OWNER OWNED (1) COMMON STOCK
- ----------------------------------------------------------------- ------------------------- -----------------
<S> <C> <C>
Carl C. Brazell.................................................. 138,535(2) *
John P. Imlay, Jr................................................ 25,000(3) *
Clark A. Johnson................................................. 43,000(3)(4) *
John W. Kluge.................................................... 16,768,612(5)(6) 25.0%
Silvia Kessel.................................................... 103,085(7) *
Robert A. Maresca................................................ 30,000(8) *
Carl E. Sanders.................................................. 67,097(3)(4) *
Richard J. Sherwin............................................... 912,605(9) 1.4%
Stuart Subotnick................................................. 12,866,680(6)(10) 19.2%
Arnold L. Wadler................................................. 115,415(7) *
Leonard White.................................................... -- *
All Directors and Officers as a group (10 persons)............... 18,654,574 27.2%
</TABLE>
- ------------------------
* 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 7,769 options issued under the Metromedia International
Telecommunications, Inc. 1994 Stock Plan, exercisable within 60 days of the
date hereof and 84,462 options issued under the Metromedia International
Group, Inc. 1996 Incentive Stock Plan (the "1996 Stock Plan"), exercisable
within 60 days of the date hereof. The 1996 Stock Plan was approved by the
Company's stockholders at the 1996 Annual Meeting of Stockholders of the
Company.
(3) Includes options to acquire 25,000 shares of Common Stock issued under the
1996 Stock Plan exercisable within 60 days of the date hereof.
(4) Includes 10,000 shares subject to purchase within 60 days of the date hereof
under the Company's 1991 Non-Employee Director Stock Option Plan.
(5) Represents 12,415,455 shares beneficially owned through Metromedia Company
and Met Telcell, 4,353,057 shares of Common Stock owned directly by a trust
affiliated with Mr. Kluge, and 100 shares beneficially owned through a
family member.
(6) Includes options to acquire 220,000 shares of Common Stock, exercisable
within 60 days of the date hereof.
(7) Includes 100,000 options issued under the 1996 Stock Plan, exercisable
within 60 days of the date hereof.
(8) Includes 30,000 options issued under the 1996 Stock Plan, exercisable within
60 days of the date hereof.
(9) Includes options to purchase 657,917 shares of Common Stock, exercisable
within 60 days of the date hereof at an exercise price equal to $1.08.
(10) Represents 12,415,455 shares beneficially owned through Metromedia and Met
Telcell and 451,225 shares owned directly by Mr. Subotnick.
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<PAGE>
DESCRIPTION OF THE PREFERRED STOCK
GENERAL
Under the Company's Restated Certificate of Incorporation, the Company's
Board of Directors is authorized, without further stockholder action, to provide
for the issuance of up to 70,000,000 shares of preferred stock, par value $1.00
per share, in one or more series, with such voting powers or without voting
powers, and with such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions, as shall be set forth in the resolutions providing therefor. As of
the date of this Prospectus, the Company has no preferred stock issued and
outstanding. The Preferred Stock, with respect to dividends and upon
liquidation, dissolution or winding up, will not rank junior to any future
preferred stock issued by the Company.
The Preferred Stock will, when issued, be fully paid and nonassessable. The
transfer agent, registrar, redemption, conversion and dividend disbursing agent
for shares of the Preferred Stock will be ChaseMellon Shareholder Services,
L.L.C. (the "Transfer Agent"). The Transfer Agent will send notices to
stockholders of any special meetings at which holders of the Preferred Stock
have the right to vote. See "-- Voting Rights" below.
Set forth below is a description of the terms of the Preferred Stock. The
following summary of the Preferred Stock does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the provisions of the
Certificate of Designation of the % Cumulative Convertible Preferred Stock of
the Company (the "Certificate of Designation"), a copy of which will be filed as
an exhibit to the Registration Statement of which this Prospectus forms a part.
Application will be made to list the Preferred Stock on the AMEX and the PSE.
DIVIDENDS
Holders of the Preferred Stock will be entitled to receive cumulative annual
dividends of $ per share, payable quarterly out of assets legally
available therefor on February 28(29), May 31, August 31, and November 30, of
each year, commencing , 1997 (with respect to the period from the
Issue Date to , 1997), when, as and if declared by the Board of
Directors. Dividends will accrue from the Issue Date. Dividends may, at the
option of the Company, be paid in cash, by delivery of fully paid and
nonassessable shares of Common Stock or a combination thereof. Dividends will be
payable to holders of record as they appear on the Company's stock register on
such record dates, not more than 60 days nor less than 10 days preceding the
payment dates thereof, as shall be fixed by the Company's Board of Directors.
Dividends payable on the Preferred Stock for each full dividend period will be
computed by dividing the annual dividend rate by four. Dividends payable on the
Preferred Stock for any period less than a full dividend period will be computed
on the basis of a 360-day year consisting of twelve 30-day months.
If the Company elects to pay dividends in shares of Common Stock, the number
of shares of Common Stock to be distributed will be calculated by dividing such
payment by 95% of the Market Value as of the dividend payment date.
No dividends or distributions (other than a dividend or distribution in
stock of the Company ranking junior to the Preferred Stock as to dividends and
upon liquidation, other than the Common Stock) may be declared, made or paid or
set apart for payment upon the Common Stock or upon any other stock of the
Company ranking junior to or PARI PASSU with the Preferred Stock as to
dividends, nor may any Common Stock or any other stock of the Company ranking
junior to or PARI PASSU with the Preferred Stock as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys paid to or made available for a sinking fund for the redemption
of any shares of any such stock) by the Company (except by conversion into or
exchange for stock of the Company ranking junior to the Preferred Stock as to
dividends and upon liquidation) unless full cumulative dividends have been or
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<PAGE>
contemporaneously are paid or declared and a sum sufficient for the payment
thereof is set apart for such payment on the Preferred Stock for all dividend
payment periods terminating on or prior to the date of such declaration,
payment, redemption, purchase or acquisition. Notwithstanding the foregoing, if
full dividends have not been paid on the Preferred Stock and any other preferred
stock ranking PARI PASSU with the Preferred Stock as to dividends, dividends may
be declared and paid on the Preferred Stock and such other preferred stock so
long as the dividends are declared and paid PRO RATA so that the amounts of
dividends declared per share on the Preferred Stock and such other preferred
stock will in all cases bear to each other the same ratio that accrued and
unpaid dividends per share on the shares of the Preferred Stock and such other
preferred stock bear to each other; PROVIDED, that if such dividends are paid in
cash on the other preferred stock, dividends will also be paid in cash on the
Preferred Stock. Holders of shares of the Preferred Stock will not be entitled
to any dividend, whether payable in cash, property or stock, in excess of full
cumulative dividends. No interest, or sum of money in lieu of interest, will be
payable in respect of any dividend payment or payments which may be in arrears.
The Company's ability to declare and pay cash dividends and make other
distributions with respect to its capital stock, including the Preferred Stock,
is limited by provisions contained in various financing agreements which
restrict dividend payments to the Company by its subsidiaries. Similarly, the
Company's ability to declare and pay dividends may be limited by applicable
Delaware law. The Company does not anticipate having net profits from which to
pay dividends in the foreseeable future and will rely on the availability of
adequate surplus (the excess, if any, of total assets less total liabilities
over its capital). See "RISK FACTORS--Restrictions on the Company's Ability to
Pay Dividends or Redeem Shares of Capital Stock."
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary dissolution, liquidation or
winding up of the Company, the holders of the Preferred Stock will be entitled
to receive and to be paid out of the Company's assets available for distribution
to its stockholders, before any payment or distribution is made to holders of
Common Stock or any other class or series of stock of the Company ranking junior
to the Preferred Stock upon liquidation, a liquidation preference in the amount
of $50 per share of the Preferred Stock, plus accrued and unpaid dividends. If
upon any voluntary or involuntary dissolution, liquidation or winding up of the
Company, the amounts payable with respect to the liquidation preference of the
Preferred Stock and any other shares of stock of the Company ranking as to any
such distribution PARI PASSU with the Preferred Stock are not paid in full, the
holders of the Preferred Stock and of such other shares will share PRO RATA in
proportion to the full distributable amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of the Preferred Stock will have no right or claim to any
of the remaining assets of the Company. Neither the sale of all or substantially
all of the property or business of the Company (other than in connection with
the winding up of its business), nor the merger or consolidation of the Company
into or with any other corporation, will be deemed to be dissolution,
liquidation or winding up, voluntary or involuntary, of the Company.
OPTIONAL REDEMPTION
The Preferred Stock is not subject to any sinking fund or other similar
provisions. The Preferred Stock may not be redeemed prior to , 2000. On or
after , 2000, the Preferred Stock may be redeemed, in whole or in part, at
the option of the Company, in cash, by delivery of fully paid and nonassessable
shares of Common Stock or a combination thereof, upon not less than 30 days'
notice nor more than 60 days' notice, during the twelve-month periods commencing
on of the years indicated
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below, at the following redemption prices per share, plus in each case all
accrued and unpaid dividends to the date redemption date:
<TABLE>
<CAPTION>
REDEMPTION
PRICE PER
YEAR SHARE
- -------------------------------------------------------------------------------- ------------
<S> <C>
2000............................................................................ $
2001............................................................................
2002............................................................................
2003............................................................................
2004............................................................................
2005............................................................................
2006............................................................................
2007 and thereafter.............................................................
</TABLE>
In the event that fewer than all the outstanding shares of the Preferred
Stock are to be redeemed, the shares to be redeemed will be determined PRO RATA.
If the Company elects to make redemption payments in shares of Common Stock,
the number of shares of Common Stock to be distributed will be calculated by
dividing such payment by 95% of the Market Value for the period ending on the
redemption date.
From and after the applicable redemption date (unless the Company shall be
in default of payment of the redemption price), dividends on the shares of the
Preferred Stock to be redeemed on such redemption date shall cease to accrue,
said shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Company (except the right to receive the
redemption price) will cease.
If any dividends on the Preferred Stock are in arrears, no shares of the
Preferred Stock will be redeemed unless all outstanding shares of the Preferred
Stock are simultaneously redeemed.
VOTING RIGHTS
Except as required by law, holders of the Preferred Stock will have no
voting rights except as set forth below or as otherwise required by law from
time to time.
If the dividends payable on the Preferred Stock are in arrears for six
quarterly periods, the holders of the Preferred Stock voting separately as a
class with the shares of any other preferred stock or preference securities
having similar voting rights will be entitled at the next regular or special
meeting of stockholders of the Company to elect two directors of the Company
(such voting rights will continue until such time as the dividend arrearage on
the Preferred Stock has been paid in full). The affirmative vote or consent of
the holders of at least 66 2/3% of the outstanding Preferred Stock will be
required for the issuance of any class or series of stock (or security
convertible into stock) of the Company ranking PARI PASSU or senior to the
Preferred Stock as to dividends, liquidation rights or voting rights and for
amendments to the Company's Restated Certificate of Incorporation that would
affect adversely the rights of holders of the Preferred Stock, including,
without limitation, (i) any increase in the authorized number of shares of
preferred stock and (ii) the issuance of any shares of Preferred Stock in excess
of the number of shares of such stock authorized in the Certificate of
Designation thereof as of the date of the original issuance of the Preferred
Stock. In all such cases each share of Preferred Stock shall be entitled to one
vote.
CONVERSION RIGHTS
The Preferred Stock will be convertible at any time at the option of the
holder thereof into such number of whole shares of Common Stock as is equal to
the aggregate liquidation preference, plus accrued and unpaid dividends to the
date the shares of Preferred Stock are surrendered for conversion, divided by
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an initial conversion price of $ , subject to adjustment as described
below (such price or adjusted price being referred to as the "Conversion
Price"). A share of Preferred Stock called for redemption will be convertible
into shares of Common Stock up to and including but not after, unless the
Company defaults in the payment of the amount payable upon redemption, the close
of business on the date fixed for redemption.
No fractional shares of Common Stock or securities representing fractional
shares of Common Stock will be issued upon conversion. Any fractional interest
in a share of Common Stock resulting from conversion will be paid in cash based
on the last reported sale price of the Common Stock on the AMEX (or such other
national securities exchange or authorized quotation system on which the Common
Stock is then listed) at the close of business on the trading day next preceding
the date of conversion.
The Conversion Price is subject to adjustment (in accordance with formulas
set forth in the Certificate of Designation) in certain events, including (i)
any redemption payment or payment of a dividend (or other distribution) payable
in shares of Common Stock on any class of capital stock of the Company (other
than the issuance of shares of Common Stock in connection with the payment in
redemption for, of dividends on or the conversion of Preferred Stock), (ii) any
issuance to all holders of shares of Common Stock of rights, options or warrants
entitling them to subscribe for or purchase shares of Common Stock or securities
convertible into or exchangeable for shares of Common Stock at less than the
Market Value for the period ending on the date of conversion; PROVIDED, HOWEVER,
that no adjustment shall be made with respect to such a distribution if the
holder of shares of Preferred Stock would be entitled to receive such rights,
option or warrants upon conversion at any time of shares of Preferred Stock into
Common Stock and PROVIDED FURTHER, that if such options or warrants are only
exercisable upon the occurrence of certain triggering events, then the
Conversion Price will not be adjusted until such triggering events occur, (iii)
any subdivision, combination or reclassification of the Common Stock, (iv) any
distribution to all holders of shares of Common Stock of evidences of
indebtedness, shares of capital stock other than Common Stock, cash (except if
exclusively in cash as provided in (v) below), or other assets (including
securities, but excluding those dividends, rights, options, warrants and
distributions referred to above and dividends or distributions made pursuant to
any shareholder rights plan, "poison pill" or similar arrangement and excluding
regular dividends and distributions paid exclusively in cash and dividends
payable upon the Preferred Stock), (v) any distribution consisting exclusively
of cash (excluding any cash portion of distributions referred to in (iv) above,
or cash distributed upon a merger or consolidation to which the second
succeeding paragraph applies) to all holders of shares of Common Stock in an
aggregate amount that, combined together with (a) all other such all-cash
distributions made within the then-preceding 12-months in respect of which no
adjustment has been made and (b) any cash and the fair market value of other
consideration paid or payable in respect of any tender offer by the Company or
any of its subsidiaries for shares of Common Stock concluded within the
then-preceding 12-months in respect of which no adjustment has been made,
exceeds 15% of the Company's market capitalization (defined as the product of
the then-current market price of the Common Stock times the number of shares of
Common Stock then outstanding) on the record date of such distribution, and (vi)
the completion of a tender or exchange offer made by the Company or any of its
subsidiaries for shares of Common Stock that involves an aggregate consideration
that, together with (a) any cash and other consideration payable in a tender or
exchange offer by the Company or any of its subsidiaries for shares of Common
Stock expiring within the then-preceding 12-months in respect of which no
adjustment has been made and (b) the aggregate amount of any such all-cash
distributions referred to in (v) above to all holders of shares of Common Stock
within the then-preceding 12-months in respect of which no adjustments have been
made, exceeds 15% of the Company's market capitalization on the expiration of
such tender offer. No adjustment of the Conversion Price will be required to be
made until the cumulative adjustments (whether or not made) amount to 1.0% or
more of the Conversion Price as last adjusted. The Company reserves the right to
make such reductions in the Conversion Price in addition to those required in
the foregoing provisions as it considers to be advisable in order that any event
treated for Federal income tax purposes as a dividend of stock or stock rights
will not be taxable to the recipients. In the event the Company elects to make
such a reduction in the
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Conversion Price, the Company will comply with the requirements of Rule 14e-l
under the Exchange Act, and any other securities laws and regulations thereunder
if and to the extent that such laws and regulations are applicable in connection
with the reduction of the Conversion Price.
In the event that the Company distributes rights or warrants (other than
those referred to in (ii) in the preceding paragraph) PRO RATA to holders of
shares of Common Stock, so long as any such rights or warrants have not expired
or been redeemed by the Company, the holder of any Preferred Stock surrendered
for conversion will be entitled to receive upon such conversion, in addition to
the shares of Common Stock then issuable upon such conversion (the "Conversion
Shares"), a number of rights or warrants to be determined as follows: (i) if
such conversion occurs on or prior to the date for the distribution to the
holders of rights or warrants of separate certificates evidencing such rights or
warrants (the "Distribution Date"), the same number of rights or warrants to
which a holder of a number of shares of Common Stock equal to the number of
Conversion Shares is entitled at the time of such conversion in accordance with
the terms and provisions of and applicable to the rights or warrants and (ii) if
such conversion occurs after such Distribution Date, the same number of rights
or warrants to which a holder of the number of shares of Common Stock into which
such Preferred Stock was convertible immediately prior to such Distribution Date
would have been entitled on such Distribution Date in accordance with the terms
and provisions of and applicable to the rights or warrants. The Conversion Price
will not be subject to adjustment on account of any declaration, distribution or
exercise of such rights or warrants.
In case of any reclassification, consolidation or merger of the Company with
or into another person or any merger of another person with or into the Company
(with certain exceptions), or in case of any sale, transfer or conveyance of all
or substantially all of the assets of the Company (computed on a consolidated
basis), each share of Preferred Stock then outstanding will, without the consent
of any holder of Preferred Stock, become convertible only into the kind and
amount of securities, cash and other property receivable upon such
reclassification, consolidation, merger, sale, transfer or conveyance by a
holder of the number of shares of Common Stock into which such Preferred Stock
was convertible immediately prior thereto, after giving effect to any adjustment
event, who failed to exercise any rights of election and received the kind and
amount of securities, cash or other property received per share by a plurality
of non-electing shares.
In the case of any distribution by the Company to its stockholders of
substantially all of its assets, each holder of Preferred Stock will participate
PRO RATA in such distribution based on the number of shares of Common Stock into
which such holders' shares of Preferred Stock would have been convertible
immediately prior to such distribution.
CHANGE OF CONTROL
Notwithstanding the foregoing, upon a Change of Control (as defined below),
holders of Preferred Stock shall, in the event that the Market Value at such
time is less than the Conversion Price, have a one time option, upon not less
than 30 days' notice nor more than 60 days' notice, to convert all of their
outstanding shares of Preferred Stock into shares of Common Stock at an adjusted
Conversion Price equal to the greater of (i) the Market Value as of the Change
of Control Date and (ii) 66.67% of the Market Value as of the date of this
Prospectus. In lieu of issuing the shares of Common Stock issuable upon
conversion in the event of a Change of Control, the Company may, at its option,
make a cash payment equal to the Market Value of such Common Stock otherwise
issuable.
The Company's Certificate of Designation defines "Change of Control" as any
of the following events: (i) any merger or consolidation of the Company with or
into any person or any sale, transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of the Company, on a
consolidated basis, in one transaction or a series of related transactions, if,
immediately after giving effect to such transaction, any "person" or "group"
(other than Metromedia Company and its affiliates) is or becomes the "beneficial
owner," directly or indirectly, of more than 50% of the total voting power, in
the aggregate, normally entitled to vote in the election of directors, managers,
or trustees, as applicable, of the
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<PAGE>
transferee or surviving entity; (ii) when any "person" or "group" (other than
Metromedia Company and its affiliates) is or becomes the "beneficial owner,"
directly or indirectly, of more than 50% of the total voting power, in the
aggregate, normally entitled to vote in the election of directors of the
Company; or (iii) when, during any period of 12 consecutive months after the
original date of issuance of the Preferred Stock, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
For purposes of the definition of "Change of Control," (i) the terms
"person" and "group" shall have the meaning used for purposes of Rules 13d-3 and
13d-5 of the Exchange Act, as in effect on the original date of issuance of the
Preferred Stock, whether or not applicable and (ii) the term "beneficial owner"
shall have the meaning used in Rules 13d-3 and 13d-5 under the Exchange Act as
in effect on the original date of issuance of the Preferred Stock, whether or
not applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time or upon
the occurrence of certain events.
The phrase "all or substantially all" of the assets of the Company is likely
to be interpreted by reference to applicable state law at the relevant time, and
will be dependent on the facts and circumstances existing at such time. As a
result, there may be a degree of uncertainty in ascertaining whether a sale or
transfer is of "all or substantially all" of the assets of the Company.
The holders of shares of Preferred Stock at the close of business on a
dividend payment record date will be entitled to receive the dividend payment on
those shares (except that holders of shares called for redemption on a
redemption date between the record date and the dividend payment date will be
entitled to receive such dividend on such redemption date as indicated above) on
the corresponding dividend payment record date notwithstanding the subsequent
conversion thereof or the Company's default in payment of the dividend due on
that dividend payment date. However, shares of Preferred Stock surrendered for
conversion during the period between the close of business on any dividend
payment record date and the close of business on the day immediately preceding
the applicable dividend payment record date (except for shares called for
redemption on a redemption date during that period) must be accompanied by
payment of an amount equal to the dividend payable on the shares on that
dividend payment record date. A holder of shares of Preferred Stock on a
dividend payment record date who (or whose transferee) tenders any shares for
conversion on a dividend payment record date will receive the dividend payable
by the Company on the Preferred Stock on that date, and the converting holder
need not include payment in the amount of such dividend upon surrender of shares
of Preferred Stock for conversion. Except as provided above, the Company shall
make no payment or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the shares of Common Stock issued upon
conversion.
BOOK ENTRY; THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository for
the shares of Preferred Stock offered hereby. The shares of Preferred Stock will
be issued only as fully-registered securities registered in the name of Cede &
Co. (as nominee for DTC). One or more fully-registered global certificates will
be issued, representing in the aggregate the total number of shares of Preferred
Stock, and will be deposited with DTC (collectively, the "Global Certificate").
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the shares of Preferred Stock
represented by a Global Certificate.
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DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the NYSE, the AMEX and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants").
Purchases of shares of Preferred Stock within the DTC system must be made by
or through Direct Participants, which will receive a credit for the Preferred
Stock on DTC's records. The ownership interest of each actual purchaser of a
share of Preferred Stock ("Beneficial Owner") is in turn to be recorded on the
Direct or Indirect Participant's records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased the Preferred Stock.
Transfers of ownership interests in the Preferred Stock are to be accomplished
by entries made on the books of Participants acting on behalf of Beneficial
Owners. Beneficial Owners will not receive certificates representing their
ownership interests in the Preferred Stock, except upon a resignation of DTC or
upon a decision by the Company to discontinue the book-entry system for the
Preferred Stock.
To facilitate subsequent transfers, all the Preferred Stock deposited by
Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of shares of Preferred Stock with DTC and their registration in the
name of Cede & Co. effect no change in beneficial ownership. DTC has no
knowledge of the actual Beneficial Owners of the Preferred Stock; DTC's records
reflect only the identity of the Direct Participants to whose accounts such
shares of Preferred Stock are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices with respect to the shares of Preferred Stock shall be
sent to Cede & Co. If less than all of the shares of Preferred Stock are being
redeemed, DTC's practice is to determine by lot the amount of the interest of
each Direct Participant in such securities to be redeemed.
Although voting with respect to the Preferred Stock is limited, in those
cases where a vote is required, neither DTC nor Cede & Co. will itself consent
or vote with respect to the Preferred Stock. Under its usual procedures, DTC
would mail an "Omnibus Proxy" (i.e., a proxy conferring on Direct Participants
the right to vote as their interests appear) to the Direct Participants as soon
as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Preferred Stock are credited on the record date (identified in a listing
attached to the Omnibus Proxy). The Company believes that the arrangements among
DTC, Direct and Indirect Participants and Beneficial Owners will enable the
Beneficial Owners to exercise rights equivalent in substance to the rights that
can be directly exercised by a Direct Participant.
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Cash distribution payments and distribution payments in shares of Common
Stock on the shares of Preferred Stock will be made to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payments on such payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in "street name," and will be the
responsibility of such Participant and not of DTC or the Company, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of distributions to DTC is the responsibility of the Company,
disbursement of such payments to Direct Participants is the responsibility of
DTC and disbursement of such payments to the Beneficial Owners is the
responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a Global Certificate will
not be entitled to receive physical delivery of shares of Preferred Stock.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Preferred Stock, including elections as to form of
payment.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Stock at any time by giving reasonable notice to the
Company. Under such circumstances, in the event that a successor securities
depositary is not obtained, certificates representing the shares of Preferred
Stock will be printed and delivered. If the Company decides to discontinue use
of the system of book-entry transfers through DTC (or a successor depositary),
certificates representing the shares of Preferred Stock will be printed and
delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
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DESCRIPTION OF THE COMMON STOCK
The following summary description of the common stock of the Company does
not purport to be complete and is qualified in its entirety by reference to the
Company's Restated Certificate of Incorporation, By-laws and to the description
of the Company's capital stock contained in its Registration Statement on Form
8-A, filed with the Commission pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act") on November 1, 1995, which is incorporated
herein by reference.
GENERAL
The total number of shares of authorized stock is 470,000,000 shares,
consisting of 70,000,000 shares of preferred stock, par value $1.00 per share
(the "Blank Check Preferred Stock"), and 400,000,000 shares of Common Stock.
Prior to this offering, there are no shares of Blank Check Preferred Stock
issued and outstanding and, as of July 30, 1997, there are 67,101,498 shares of
Common Stock issued and outstanding.
DIVIDENDS
Holders of shares of Common Stock are entitled to receive such dividends, if
any, that may be declared from time to time by the Company's Board of Directors
in its discretion from funds legally available therefor, subject to the dividend
priority of the holders of Preferred Stock and other series of preferred stock,
if any. The holders of shares of Common Stock are also entitled to share in any
distribution to stockholders upon liquidation, dissolution or winding up of the
Company, subject to the prior liquidation rights of the holders of Preferred
Stock and other series of preferred stock, if any.
VOTING RIGHTS
Each holder of Common Stock is entitled to one vote for each share held of
record for all matters to be voted upon by the stockholders. Directors of the
Company are elected by a plurality of the votes of the shares present in person
or represented by proxy at the meeting and entitled to vote on the election of
directors.
BOARD OF DIRECTORS
The Board of Directors of the Company is divided into three classes. Members
of each class hold office until their successors are elected and qualified. At
each annual meeting of the stockholders of the Company, the successors of the
class of directors whose term expired at that meeting are to be elected by a
plurality vote of all votes cast at such meeting and such directors hold office
for a three-year term. Class I Directors are John W. Kluge, Stuart Subotnick,
and John P. Imlay, Jr; Class II Directors are Richard J. Sherwin, and Leonard
White; and Class III Directors are Clark A. Johnson, Silvia Kessel, Carl E.
Sanders and Arnold L. Wadler.
NO PREEMPTIVE RIGHTS
All outstanding shares of Common Stock are fully paid and nonassessable. The
holders of Common Stock do not have preemptive rights.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
GENERAL
The rights of stockholders of the Company are governed by Delaware law and
by the Company's Restated Certificate of Incorporation (the "Certificate") and
By-laws. The following does not purport to constitute a detailed discussion of
the provisions of Delaware law, or of the Certificate or By-laws. Stockholders
are referred to such law and the Certificate and By-laws for a definitive
treatment of the subject matter.
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CLASSIFICATION OF THE BOARD OF DIRECTORS
Delaware law permits (but does not require) classification of a
corporation's board of directors into one, two or three classes. The Certificate
provides for a Board of Directors divided into three classes. One class of
directors was elected for a term that expired at the annual meeting of
stockholders held in 1997, a second class was elected for a term expiring at the
annual meeting of stockholders to be held in 1998, and the third class was
elected for a term expiring at the annual meeting of stockholders to be held in
1999. Members of each class hold their respective offices until their successors
are elected and qualified. At each succeeding annual meeting of stockholders,
the successors of the class of directors whose term expires at that meeting are
elected by a plurality vote of all votes cast at such meeting and will hold
office for a three-year term.
AMENDMENTS TO BY-LAWS
Under Delaware law, the power to adopt, amend or repeal By-laws rests with
the stockholders entitled to vote. A Delaware corporation may, however, in its
certificate of incorporation, confer the power to adopt, amend or repeal By-laws
upon its directors. The Certificate and By-laws provide that the By-laws may be
amended by the affirmative vote of either a majority of the Company's Board of
Directors then in office or by the holders of a majority of the outstanding
capital stock of the Company entitled to vote thereon.
REMOVAL OF DIRECTORS
Under Delaware law, although stockholders may generally remove directors
with or without cause by a majority vote, stockholders may remove members of
classified boards only for cause unless the certificate of incorporation
provides otherwise. The Certificate provides that the Company's stockholders may
only remove members of its Board of Directors for cause.
POWER TO CALL SPECIAL MEETINGS OF STOCKHOLDERS
Under Delaware law, special meetings of a corporation's stockholders may be
called by the corporation's Board of Directors or by such person or persons as
may be authorized by its certificate of incorporation or By-laws. The
Certificate provides that special meetings of stockholders may only be called by
the Chairman or Vice Chairman of the Company's Board of Directors.
ACTION BY WRITTEN CONSENT
Delaware law provides that, unless otherwise provided in the certificate of
incorporation, stockholders may act by written consent in lieu of a meeting if
consents are signed representing not less than the minimum number of votes that
would be necessary to take such action at a meeting where all shares entitled to
vote were present and voted. The Certificate prohibits stockholder action by
written consent. Accordingly, all action by the Company's Stockholders must be
taken at a duly called annual or special meeting.
STOCKHOLDER NOMINATIONS AND PROPOSALS
The By-laws establish procedures that must be followed for stockholders to
nominate individuals to the Company's Board of Directors or to propose business
at the Company's annual meeting of stockholders. In order to nominate an
individual to the Board of Directors, a Company stockholder must provide timely
notice of such nomination in writing to the Secretary of the Company and a
written statement by the candidate of his or her willingness to serve. Such
notice must include the information required to be disclosed in solicitations
for proxies for election of directors pursuant to Regulation 14A under the
Exchange Act, along with the name, record address, class and number of shares of
Common Stock beneficially owned by the stockholder giving such notice.
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In order properly to propose that certain business come before the annual
meeting of stockholders, a stockholder of the Company must provide timely notice
in writing to the Secretary of the Company, which notice must include a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting. In addition, the
notice must contain the name, record address, class and number of shares of the
Company's capital stock beneficially owned by the stockholder giving such
notice, any material interest of the stockholder in such business and all other
information that would be required to be filed with the Commission if such
person were a participant in a solicitation subject to Section 14 of the
Exchange Act.
To be timely, notice must be received by the Company not less than 60 days
nor more than 90 days prior to the first anniversary of the date of the
Company's annual meeting for the preceding year; PROVIDED, HOWEVER, that in the
event the date of annual meeting of stockholders is advanced by more than 30
days or delayed by more than 60 days from such anniversary date, such notice
must be received within ten days following public disclosure by the Company of
the date of the annual or special meeting at which directors are to be elected
or the proposed business is to be conducted. For purposes of this notice
requirement, disclosure shall be deemed to be first made when disclosure of such
date of the annual or special meeting of stockholders is first made in a press
release reported by the Dow Jones News Service, Associated Press or other
comparable national news services, or in a document which has been publicly
filed by the Company with the Commission pursuant to Sections 13, 14 or 15(d) of
the Exchange Act.
STOCKHOLDERS' RIGHTS PLAN
The Board of Directors of the Company has previously disclosed its intention
to adopt a stockholders' rights plan. Although the exact terms of the rights
plan are not known, it is anticipated that such rights plan will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Company's Board. Such rights plan may have an
anti-takeover effect.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain of the Federal income tax consequences
of the purchase, ownership, and disposition of the Preferred Stock and any
Common Stock received as dividends thereon is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the final, temporary and
proposed Treasury Regulations promulgated thereunder, and administrative rulings
and judicial decisions now in effect, all of which are subject to change
(possibly with retroactive effect) or different interpretations. This summary
does not purport to deal with all aspects of Federal income taxation that may be
relevant to an investor's decision to purchase shares of Preferred Stock, nor
any tax consequences arising under the laws of any state, locality or foreign
jurisdiction. This summary is not intended to be applicable to all categories of
investors, such as dealers in securities, banks, insurance companies, tax-exempt
organizations, foreign persons, persons that hold the Preferred Stock or Common
Stock as part of a straddle or conversion transaction, or holders subject to the
alternative minimum tax, which may be subject to special rules. In addition,
this discussion is limited to persons who hold the Preferred Stock or Common
Stock as "capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Code. ALL PROSPECTIVE PURCHASERS OF PREFERRED
STOCK ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE FEDERAL,
STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND
DISPOSITION OF PREFERRED STOCK AND COMMON STOCK RECEIVED AS DIVIDENDS THEREON.
CONSEQUENCES TO HOLDERS OF PREFERRED STOCK
DISTRIBUTIONS
The amount of any distribution with respect to the Preferred Stock will be
equal to the amount of cash or the fair market value of the shares of Common
Stock distributed. A share of Common Stock distributed by the Company will be
equal to the fair market value of Common Stock on the date of distribution. A
stockholder's holding period for such shares of Common Stock will commence on
the day following the date of distribution and will not include such
stockholder's holding period for the shares of Preferred Stock with respect to
which the shares of Common Stock were distributed. The amount of any
distribution with respect to Preferred Stock, whether paid in cash or in shares
of Common Stock, and the amount of any distribution with respect to Common Stock
will be treated as a dividend, taxable as ordinary income to the recipient
thereof, to the extent of the Company's current or accumulated earnings and
profits ("earnings and profits") as determined under Federal income tax
principles. To the extent that the amount of such distribution exceeds the
current and accumulated earnings and profits of the Company, the excess will be
applied against and will reduce the holder's tax basis in the Preferred Stock or
Common Stock, as the case may be. Any amount by which such distribution exceeds
the amount treated as a dividend and the amount applied against basis will be
treated as short-term or long-term capital gain, as the case may be, depending
upon the holder's holding period for the Preferred Stock or Common Stock.
DIVIDENDS TO CORPORATE SHAREHOLDERS
In general, a distribution that is treated as a dividend for Federal income
tax purposes and that is made to a corporate shareholder with respect to the
Preferred Stock or Common Stock will qualify for the 70% dividends-received
deduction under Section 243 of the Code. Holders should note, however, that
there can be no assurance that distributions with respect to the Preferred Stock
or the Common Stock will not exceed the amount of current or accumulated
earnings and profits of the Company in the future. Accordingly, there can be no
assurance that the dividends-received deduction will apply to distributions on
the Preferred Stock or Common Stock.
In addition, there are many exceptions and restrictions relating to the
availability of such dividends-received deduction such as restrictions relating
to (i) the holding period of stock the dividends on which
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<PAGE>
are sought to be deducted, (ii) debt-financed portfolio stock, (iii) dividends
treated as "extraordinary dividends" for purposes of Section 1059 of the Code,
and (iv) taxpayers that pay alternative minimum tax. Corporate shareholders
should consult their own tax advisors regarding the extent, if any, to which
such exceptions and restrictions may apply to their particular factual
situation.
SALE OR REDEMPTION
Upon a sale or other disposition (other than a redemption or exchange of
Preferred Stock for Common Stock for Preferred Stock) of Preferred Stock or
Common Stock, a holder will generally recognize capital gain or loss equal to
the difference between the amount of cash and the fair market value of property
received by the holder in such sale or other disposition and such holder's
adjusted tax basis in such shares. Such gain or loss will be short-term or
long-term gain or loss, as the case may be, depending on the holder's holding
period for such Preferred Stock or Common Stock.
Any gain or loss recognized by a holder upon redemption of the Preferred
Stock or Common Stock will be treated as gain or loss from the sale or exchange
of Preferred Stock or Common Stock, if, taking into account stock that is
actually or constructively owned as determined under Section 318 of the Code,
(i) such holder's interest in the Company's Common and Preferred Stock is
completely terminated as a result of the redemption, (ii) such holder's
percentage ownership in the Company's voting stock immediately after the
redemption is less than 80% of such percentage ownership immediately before such
redemption, or (iii) the redemption is "not essentially equivalent to a
dividend" (within the meaning of Section 302 of the Code).
If a redemption of the Preferred Stock or Common Stock is treated as a
distribution that is taxable as a dividend, the holder will be taxed on the
payment received in the same manner as described above under "--Distributions,"
and the holder's adjusted tax basis in the redeemed Preferred Stock or Common
Stock will be transferred to any remaining shares held by such holder in the
Company. If the holder does not retain any stock ownership in the Company
following the redemption, then such holder may lose such basis completely.
CONVERSION OR EXCHANGE OF PREFERRED STOCK
A holder of Preferred Stock will generally not recognize gain or loss by
reason of receiving Common Stock in exchange for Preferred Stock upon the
redemption or conversion of the Preferred Stock, except that gain or loss will
be recognized with respect to any cash received in lieu of fractional shares and
the fair market value of any shares of Common Stock attributable to dividend
arrearages will be treated as a constructive distribution as described above
under "--Distributions." The adjusted tax basis of the Common Stock (including
fractional share interests) so acquired will be equal to the tax basis of the
shares of Preferred Stock exchanged therefor and the holding period of the
Common Stock received upon conversion will include the holding period of the
shares of Preferred Stock exchanged. The tax basis of any Common Stock treated
as a constructive distribution taxable as a dividend will be equal to its fair
market value on the date of the exchange.
ADJUSTMENT OF CONVERSION PRICE
If at any time the Company makes a distribution of property to holders of
Preferred Stock that would be taxable to such stockholders as a dividend for
Federal income tax purposes and, in accordance with the antidilution provisions,
the Conversion Price of the Preferred Stock is decreased, the amount of such
decrease may be deemed to be the payment of a taxable dividend to holders of
Preferred Stock. For example, a decrease in the Conversion Price in the event of
distributions of indebtedness or assets of the Company will generally result in
deemed dividend treatment to holders of the Preferred Stock, but generally, a
decrease in the event of stock dividends or the distribution of rights to
subscribe for the Common Stock will not.
82
<PAGE>
BACKUP WITHHOLDING
Under the backup withholding provisions of the Code and applicable Treasury
Regulations, a holder of Preferred Stock or Common Stock may be subject to
backup withholding at the rate of 31% with respect to dividends paid on, or the
proceeds of a sale, exchange or redemption of, Preferred Stock or Common Stock
unless such holder (a) is a corporation or comes within certain other exempt
categories and when required demonstrates this fact or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. The amount of any backup withholding from a payment to a
holder will be allowed as a credit against the holder's Federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the Internal Revenue Service.
CONSEQUENCES TO THE COMPANY
LIMITATION ON USE OF NET OPERATING LOSSES
Under Section 382 of the Code, if the percentage of stock (by value) of a
corporation (the "Loss Corporation") that is owned by one or more "five-percent
shareholders" has increased by more than 50 percentage points over the lowest
percentage of stock owned by the same shareholders during a three-year testing
period (an "Ownership Change"), the use of pre-Ownership Change net operating
losses of the Loss Corporation following such Ownership Change will be limited
based on the value of the Loss Corporation on the date the Ownership Change
occurs (a "Section 382 Limitation"). As of the end of its most recent taxable
year, the Company and various corporations comprising the Entertainment Group
and the Communications Group had net operating losses that were subject to
Section 382 Limitations. Although the Company believes that the issuance of the
Preferred Stock should not result in an Ownership Change, future equity
issuances or transactions among shareholders may trigger an Ownership Change. If
such an Ownership Change occurs, the Company's use of its net operating losses
(or those of corporations comprising the Communications Group) will be subject
to a Section 382 Limitation based on the value of the Company on the date of
such an Ownership Change.
In light of the current Section 382 Limitations, and other current
limitations on the use of net operating losses by the Company and such
corporations comprising the Entertainment Group (through July 10, 1997) and the
Communications Group, the Company has reflected these net operating losses on
its financial statements as a deferred tax asset, but has taken a full valuation
allowance against (and thereby fully eliminated) the deferred tax asset under
generally accepted accounting principles.
83
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement"), the Underwriters have severally agreed to
purchase from the Company, the shares of Preferred Stock set forth opposite the
name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF PREFERRED STOCK
- ---------------------------------------------------------------------------------------------- ------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")...................................
Goldman, Sachs & Co...........................................................................
Chase Securities Inc. ........................................................................
----------
Total................................................................................... 3,000,000
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Preferred 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 Preferred Stock offered hereby (other than in connection with
the over-allotment option described below) if any are taken.
The Underwriters has advised the Company that the Underwriters propose to
offer the shares of Preferred 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 Preferred Stock, the
public offering price and other selling terms may be changed by the
Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date hereof, to
purchase up to an additional 450,000 shares of Preferred Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page hereof. The 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 Preferred 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
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 capital stock or any securities convertible into or exercisable or
exchangeable for, or warrants, rights or options to acquire, capital 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.
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Preferred Stock. Specifically, the Underwriters may overallot this Offering,
creating a syndicate short position. In addition, the Underwriters may bid for,
and purchase, shares of the Preferred Stock in the open market to cover
syndicate shorts or to stabilize the price of the Preferred Stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributed
84
<PAGE>
Preferred Stock (in syndicate covering transactions, in stabilization
transactions or otherwise). Any of these activities may stabilize or maintain
the market price of the Preferred Stock above independent market levels. The
underwriters are not required to engage in these activities, and may end any of
these activities at any time.
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
and its affiliates collectively own approximately 600,000 shares of the Common
Stock.
LEGAL MATTERS
Certain legal matters in connection with the offering of the Preferred Stock
will be passed upon for the Company by Paul, Weiss, Rifkind, Wharton & Garrison,
New York, New York. Certain legal matters in connection with the offering of the
Preferred Stock will be passed upon for the Underwriters by Skadden, Arps,
Slate, Meagher & Flom LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements and related schedules for the Company
as of December 31, 1996 and December 31, 1995 and for each of the years in the
two-year period ended December 31, 1996, and for the year ended February 28,
1995 and the financial statements for AAT as of December 31, 1996 have been
included and/or incorporated by reference herein in reliance upon the reports of
KPMG Peat Marwick LLP, independent certified public accountants included and/or
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 of 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Summary and under the captions "Management's
Discussion and Analysis of Financial Condition" and "Business" and elsewhere in
this Prospectus constitute "forward-looking statements" within the meaning of
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 included, among others, the
following: general economic and business conditions, which will, among other
85
<PAGE>
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, competition
from other 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, the
PRC 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; developing legal structures in
Eastern Europe, the former Soviet Republics, the PRC 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, the
former Soviet Republics, the PRC and other emerging markets; exchange rate
fluctuations; license renewals for the Company's communications investments in
Eastern Europe, the former Soviet Republics, the PRC and other emerging markets;
the loss of any significant customers; changes in business strategy or
development plans; quality of management; availability of qualified personnel;
changes in, or the failure to comply with, government regulations; and other
factors referenced in this Prospectus, including the "Risk Factors." See "Risk
Factors."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with 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 Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants (such as the
Company) that file electronically with the Commission. The address of such site
is: http://www.sec.gov. In addition, the 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, with respect to the Preferred Stock offered hereby
and the Common Stock issuable upon conversion thereof or in redemption therefor
or as a dividend thereon. 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 address set forth above.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed with the Commission (File No.
1-5706) and are hereby 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, 1996 filed with the Commission on March 31, 1997, as amended by Form
10-K/A Amendment No. 1 filed with the Commission on June 17, 1997 (File No.
1-5706).
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 filed with the Commission on May 15, 1997 (File No. 1-5706).
3. The Company's Current Report on Form 8-K dated February 11, 1997
filed with the Commission on February 12, 1997 (File No. 1-5706).
86
<PAGE>
4. The Company's Current Report on Form 8-K dated May 2, 1997 filed
with the Commission on May 6, 1997 (File No. 1-5706).
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) filed with the Commission on March 31, 1995,
as amended by Form 10-K/A Amendment No. 1 filed with the Commission on April
28, 1995 and Form 10-K/A Amendment No. 2 filed with the Commission on July
13, 1995 (File No. 1-5706).
6. The Consolidated Financial Statements and related schedules of The
Samuel Goldwyn Company included in The Samuel Goldwyn Company Annual Report
on Form 10-K for the year ended March 31, 1996 filed with the Commission on
June 30, 1996 (File No. 1-10935).
7. The description of the Common Stock contained in the Company's
registration statement on Form 8-A, as filed with the Commission on November
1, 1995, including any amendment or report filed for the purpose of amending
such description (File No. 1-5706).
8. All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the termination of the Offering.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein 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 herein 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.
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 documents incorporated by reference herein (not including
exhibits to such information unless such exhibits are specifically incorporated
by reference in such documents). Any such request should be directed to:
Secretary, Metromedia International Group, Inc., One Meadowlands Plaza, East
Rutherford, New Jersey 07073-2137, telephone (201) 531-8000.
87
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
METROMEDIA INTERNATIONAL GROUP, INC.
Report of Independent Auditors........................................................................... F-2
Consolidated Statements of Operations for the years ended December 31, 1996, December 31, 1995 and
February 28, 1995...................................................................................... F-3
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1995................................ F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1996, December 31, 1995 and
February 28, 1995...................................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, December 31, 1995
and February 28, 1995.................................................................................. F-6
Notes to Consolidated Financial Statements............................................................... F-7
Consolidated Condensed Statements of Operations for the three months ended March 31, 1997 and March 31,
1996 (unaudited)....................................................................................... F-48
Consolidated Condensed Balance Sheets as of March 31, 1997 (unaudited) and December 31, 1996............. F-49
Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 1997 and March 31,
1996 (unaudited)....................................................................................... F-50
Consolidated Condensed Statements of Stockholders' Equity for the three months ended March 31, 1997
(unaudited)............................................................................................ F-51
Notes to Consolidated Condensed Financial Statements..................................................... F-52
ASIAN AMERICAN TELECOMMUNICATIONS CORPORATION
Report of Independent Auditors........................................................................... F-66
Balance Sheet as of December 31, 1996.................................................................... F-67
Consolidated Statement of Operations for the period from January 22, 1996 (date of inception) to December
31, 1996............................................................................................... F-68
Statement of Stockholders' Equity for the period from January 22, 1996 (date of inception)
to December 31, 1996................................................................................... F-69
Statement of Cash Flows for the period from January 22, 1996 (date of inception) to December 31, 1996.... F-70
Notes to Financial Statements............................................................................ F-71
</TABLE>
F-1
<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, 1996 and 1995 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the two-year period ended December 31, 1996 and
for the year 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 includes
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 subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years in
the two-year period ended December 31, 1996 and for the year ended February 28,
1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
New York, New York
March 27, 1997 except for
note 15 which is
as of July 10, 1997
F-2
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
<S> <C> <C> <C>
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1996 1995 1995
------------ ------------ ------------
<CAPTION>
(NOTE 1)
<S> <C> <C> <C>
Revenues............................................................... $ 66,172 $ 5,158 $ 3,545
Cost and expenses:
Cost of sales and rentals and operating expenses..................... 45,561 -- --
Selling, general and administrative.................................. 59,863 28,100 19,288
Depreciation and amortization........................................ 9,913 2,101 1,149
------------ ------------ ------------
Operating loss......................................................... (49,165) (25,043) (16,892)
Interest expense, including amortization of debt discount of $2,607 in
December 31, 1996, and $434 in December 31, 1995..................... 19,548 5,935 1,109
Interest income........................................................ 8,552 2,506 896
------------ ------------ ------------
Interest expense, net................................................ 10,996 3,429 213
Loss before provision for income taxes, equity in losses of Joint
Ventures, minority interests, discontinued operations and
extraordinary item................................................... (60,161) (28,472) (17,105)
Provision for income taxes............................................. (414) -- --
Equity in losses of Joint Ventures..................................... (11,079) (7,981) (2,257)
Minority interest...................................................... 666 188 221
------------ ------------ ------------
Loss from continuing operations........................................ (70,988) (36,265) (19,141)
Discontinued operations:
Loss on disposal of assets held for sale............................. (16,305) (293,570) --
Loss from operations of Entertainment Companies (less income taxes of
$1,000, $767 and $1,300 for the years ended December 31, 1996 and
1995 and February 28, 1995, respectively).......................... (23,445) (50,759) (50,270)
------------ ------------ ------------
Loss from discontinued operations.................................... (39,750) (344,329) (50,270)
------------ ------------ ------------
Loss before extraordinary item......................................... (110,738) (380,594) (69,411)
Extraordinary item:
Early extinguishment of debt of discontinued operations.............. (4,505) (32,382) --
------------ ------------ ------------
Net loss............................................................... $ (115,243) $ (412,976) $ (69,411)
------------ ------------ ------------
------------ ------------ ------------
Primary loss per common share:
Continuing operations.................................................. $ (1.31) $ (1.48) $ (0.95)
------------ ------------ ------------
------------ ------------ ------------
Discontinued operations................................................ $ (0.73) $ (14.03) $ (2.48)
------------ ------------ ------------
------------ ------------ ------------
Extraordinary item..................................................... $ (0.08) $ (1.32) $ --
------------ ------------ ------------
------------ ------------ ------------
Net loss............................................................... $ (2.12) $ (16.83) $ (3.43)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents.......................................................... $ 89,400 $ 20,605
Short-term investments............................................................. -- 5,366
Accounts receivable:
Snapper, net of allowance for doubtful accounts of $974 at December 31, 1996..... 36,843 --
Other, net of allowance for doubtful accounts of $717 and $313 at December 31,
1996 and 1995, respectively.................................................... 3,686 2,146
Inventories........................................................................ 54,404 224
Other assets....................................................................... 4,331 3,815
------------ ------------
Total current assets........................................................... 188,664 32,156
Investments in and advances to Joint Ventures........................................ 65,447 36,934
Net assets of discontinued operations................................................ 10,972 12,057
Asset held for sale--RDM Sports Group, Inc........................................... 31,150 47,455
Asset held for sale--Snapper, Inc.................................................... -- 79,200
Property, plant and equipment, net of accumulated depreciation....................... 71,089 3,560
Intangible assets, less accumulated amortization..................................... 149,261 111,967
Other assets......................................................................... 9,548 5,271
------------ ------------
Total assets................................................................... $ 526,131 $ 328,600
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable................................................................... $ 23,810 $ 3,012
Accrued expenses................................................................... 80,286 70,351
Current portion of long-term debt.................................................. 19,515 32,976
------------ ------------
Total current liabilities...................................................... 123,611 106,339
Long-term debt....................................................................... 178,717 138,028
Other long-term liabilities.......................................................... 4,121 395
------------ ------------
Total liabilities.............................................................. 306,449 244,762
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, authorized 70,000,000 shares, none issued......................... -- --
Common Stock, $1.00 par value, authorized 400,000,000 and 110,000,000 shares,
issued and outstanding 66,153,439 and 42,613,738 shares at December 31, 1996 and
1995, respectively............................................................... 66,153 42,614
Paid-in surplus.................................................................... 959,558 728,747
Other.............................................................................. (2,680) 583
Accumulated deficit................................................................ (803,349) (688,106)
------------ ------------
Total stockholders' equity..................................................... 219,682 83,838
------------ ------------
Total liabilities and stockholders' equity................................... $ 526,131 $ 328,600
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------
DECEMBER 31, DECEMBER 31, FEBRUARY 28,
1996 1995 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operations:
Net loss............................................................. $ (115,243) $ (412,976) $ (69,411)
Adjustments to reconcile net loss to net cash used in operating
activities:
Operating loss of discontinued operation............................. 23,445 50,759 50,270
Loss on early extinguishment of debt of discontinued operation....... 4,505 32,382 --
Loss on disposal of assets held for sale............................. 16,305 293,570 --
Equity in losses of Joint Ventures................................... 11,079 7,981 2,257
Amortization of debt discounts....................................... 2,607 434 --
Depreciation and amortization........................................ 9,913 2,101 1,149
Changes in assets and liabilities, net of effect of acquisitions and
consolidation of Snapper:
Increase in accounts receivable.................................... (1,018) (581) (632)
Increase in inventories............................................ (2,473) (224) --
Increase in other assets........................................... (6,010) -- --
Increase in accounts payable and accrued expenses.................. 2,544 3,833 2,890
Other operating activities, net.................................... (602) (1,737) 3,048
------------ ------------ ------------
Cash used in operations.......................................... (54,948) (24,458) (10,429)
------------ ------------ ------------
Investing activities:
Proceeds from Metromedia Company notes receivable.................. -- 45,320 --
Investments in and advances to Joint Ventures...................... (40,999) (21,949) (16,409)
Distributions from Joint Ventures.................................. 3,438 784 --
Cash paid for acquisitions......................................... (2,545) -- (7,033)
Cash acquired in acquisitions...................................... 7,588 66,702 --
Additions to property, plant and equipment......................... (7,719) (2,324) (3,610)
Other investing activities, net.................................... 10,766 (4,200) --
------------ ------------ ------------
Cash provided by (used in) investing activities.................. (29,471) 84,333 (27,052)
------------ ------------ ------------
Financing activities:
Proceeds from issuance of long-term debt........................... 52,594 77,916 20,734
Proceeds from issuance of common stock............................. 190,604 2,282 17,690
Payments on notes and subordinated debt............................ (81,864) (48,222) --
Proceeds from issuance of stock related to incentive plans......... 972 -- --
Due from discontinued operation.................................... (9,092) (72,877) --
Other financing activities, net.................................... -- 399 184
------------ ------------ ------------
Cash provided by (used in) financing activities.................. 153,214 (40,502) 38,608
------------ ------------ ------------
Net increase in cash and cash equivalents.......................... 68,795 19,373 1,127
Cash and cash equivalents at beginning of year..................... 20,605 1,232 105
------------ ------------ ------------
Cash and cash equivalents at end of year........................... $ 89,400 $ 20,605 $ 1,232
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS))
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SURPLUS OTHER DEFICIT TOTAL
------------ --------- ---------- --------- ------------ -----------
Balances, February 28, 1994.................... 17,188,408 $ 17,189 $ 265,156 $ -- $ (240,727) $ 41,618
Issuance of stock related to private
offerings.................................... 3,735,370 3,735 20,455 -- -- 24,190
Issuance of stock related to incentive plans... 11,120 11 3,618 -- -- 3,629
Foreign currency translation adjustment........ -- -- -- 184 -- 184
Net loss....................................... -- -- -- -- (69,411) (69,411)
------------ --------- ---------- --------- ------------ -----------
Balances, February 28, 1995.................... 20,934,898 20,935 289,229 184 (310,138) 210
November 1 Merger:
Issuance of stock related to the acquisition
of Actava and Sterling..................... 17,974,155 17,974 316,791 -- -- 334,765
Issuance of stock in exchange for
MetProductions and Met International....... 3,530,314 3,530 33,538 -- -- 37,068
Valuation of Actava and MITI options......... -- -- 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
Issuance of stock related to incentive plans... 174,371 175 2,589 -- -- 2,764
Foreign currency translation adjustment........ -- -- -- 399 -- 399
Net loss....................................... -- -- -- -- (412,976) (412,976)
------------ --------- ---------- --------- ------------ -----------
Balances, December 31, 1995.................... 42,613,738 42,614 728,747 583 (688,106) 83,838
Issuance of stock related to public offering,
net.......................................... 18,400,000 18,400 172,204 -- -- 190,604
Issuance of stock related to the acquisitions
of the Samuel Goldwyn Company and Motion
Picture Corporation of America............... 4,715,869 4,716 54,610 -- -- 59,326
Issuance of stock related to incentive plans... 423,832 423 3,997 (3,174) -- 1,246
Foreign currency translation adjustment........ -- -- -- (618) -- (618)
Amortization of restricted stock............... -- -- -- 529 -- 529
Net loss....................................... -- -- -- -- (115,243) (115,243)
------------ --------- ---------- --------- ------------ -----------
Balances, December 31, 1996.................... 66,153,439 $ 66,153 $ 959,558 $ (2,680) $ (803,349) $ 219,682
------------ --------- ---------- --------- ------------ -----------
------------ --------- ---------- --------- ------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION (SEE NOTES 2 AND 15)
The accompanying consolidated financial statements include the accounts of
Metromedia International Group, Inc. ("MMG" or the "Company") and its
wholly-owned subsidiaries, Metromedia International Telecommunications, Inc.
("MITI" or the "Communications Group") and as of July 2, 1996 Landmark Theatre
Group ("Landmark"). In connection with the November 1 Merger (see note 2),
Snapper, Inc. ("Snapper"), a wholly-owned subsidiary of the Company, was
included in the accompanying consolidated financial statements as an asset held
for sale. Subsequently, the Company announced its intention not to continue to
pursue its previously adopted plan to dispose of Snapper and to actively manage
Snapper to maximize its long term value. As of November 1, 1996, the Company has
consolidated Snapper and has included Snapper's operating results for the
two-month period ended December 31, 1996 in its statement of operations (see
notes 2 and 4). All significant intercompany transactions and accounts have been
eliminated.
On July 10, 1997 the Company completed the sale of substantially all of MMG's
entertainment assets (see note 15). The transaction has been recorded as a
discontinuance of a business segment and, accordingly, the consolidated balance
sheets at December 31, 1996 and 1995 reflect the net assets of the discontinued
segment. The consolidated statements of operations reflects the results of
operations as a discontinued segment. The Company will record a gain on the sale
of the discontinued segment on July 10, 1997 (see note 15).
Certain reclassifications have been made to prior year financial statements to
conform to the December 31, 1996 presentation.
DIFFERENT FISCAL YEAR ENDS
The Company reports on the basis of a December 31 year end. In connection with
the November 1 Merger discussed in note 2, Orion and MITI, for accounting
purposes only, were deemed to be the joint acquirers 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 November 1 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.
DESCRIPTION OF THE BUSINESS
The Company is a global communications and media company engaged in 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 the republics of the
former Soviet Union, Eastern Europe, the Peoples Republic of China (the "PRC"),
and other selected emerging markets, through its Communications Group. Landmark
operates 50 theaters with 138 screens and is the largest exhibitor of
specialized motion pictures and art films in the United States.
F-7
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In addition, the Company manufacturers Snapper-Registered Trademark- brand
premium-priced power lawnmowers, lawn tractors, garden tillers, snowthrowers and
related parts and accessories and distributes edgers. The lawnmowers include
rear-engine riding mowers, front-engine riding mowers or lawn tractors, and
self-propelled and push-type walk-behind mowers. The Company also manufactures a
line of commercial lawn and turf equipment under the
Snapper-Registered Trademark- brand.
LIQUIDITY
MMG is a holding company, and accordingly, does not generate cash flows. The
Entertainment Group and Snapper are restricted under covenants contained in
their respective credit agreements from making dividend payments or advances to
MMG (see note 15). The Communications Group is dependent on MMG for significant
capital infusions to fund its operations, its commitments to make capital
contributions and loans to its Joint Ventures and any acquisitions. Such funding
requirements are based on the anticipated funding needs of its Joint Ventures
and certain acquisitions committed to by the Company. Future capital
requirements of the Communications Group, including future acquisitions, will
depend on available funding from the Company and on the ability of the
Communications Group's Joint Ventures to generate positive cash flows. There can
be no assurance that the Company will have the funds necessary to support the
current needs of the Communications Group's current investments or any of the
Communications Group's additional opportunities or that the Communications Group
will be able to obtain financing from third parties. If such financing is
unavailable, the Group may not be able to further develop existing ventures and
the number of additional ventures in which it invests may be significantly
curtailed.
MMG is obligated to make principal and interest payments under its own various
debt agreements and has debt repayment requirements of $17.1 million and $60.3
million in 1997 and 1998, respectively (see note 9), in addition to funding its
working capital needs, which consist principally of corporate overhead and
payments on self insurance claims.
In the short term, MMG intends to satisfy its current obligations and
commitments with available cash on hand and the proceeds from the sale of RDM
Sports Group, Inc. (see note 5). At December 31, 1996 MMG had approximately
$82.7 million of available cash on hand. The Company anticipates disposing of
its investment in RDM Sports Group, Inc. during 1997. The carrying value of the
Company's investment in RDM Sports Group, Inc. at December 31, 1996 was $31.2
million.
Management believes that its available cash on hand and proceeds from the
disposition of its investment in RDM Sports Group, Inc., will provide sufficient
funds for the Company to meet its obligations, including the Communications
Group's funding requirements, in the short term. However, no assurances can be
given that the Company will be able to dispose of RDM Sports Group, Inc. in a
timely fashion and on favorable terms. Any delay in the sale of RDM Sports
Group, Inc. or reductions in the proceeds anticipated to be received upon this
disposition may result in the Company's inability to satisfy its obligations,
including the funding of the Communications Group during the year ended December
31, 1997. Delays in funding the Communications Group's capital requirements may
have a material adverse impact on the results of operations of the
Communications Group's Joint Ventures.
The Company expects that it will sell either equity or debt securities in a
public or private offering during the remainder of 1997. The Company intends to
use the proceeds from the sale of these securities to finance the continued
build-out of the Communications Group's systems and for general corporate
F-8
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
purposes, including working capital needs of the Company and its subsidiaries,
the repayment of certain indebtedness of the Company and its subsidiaries and
potential future acquisitions. However, no assurances can be given that the
Company will be able to successfully complete the sale of its securities in a
timely fashion or on favorable terms.
In addition, 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 communications and media
company and (ii) the Communications Group's Joint Ventures achieving positive
operating results and cash flows through revenue and subscriber growth and
control of operating expenses. In addition to disposing of its investment in RDM
Sports Group, Inc., the Company may be required to (i) attempt to obtain
financing in addition to the offering described above, through the 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
EQUITY METHOD INVESTMENTS
Investments in other companies and Joint Ventures ("Joint Ventures") which are
not majority owned, or which the Company does not control but in which it
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 are adjusted
by the Company's share of undistributed earnings or losses of the Joint Venture.
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 Venture.
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. As a result, the December 31,
1996 and 1995 consolidated statement of operations reflects twelve months of
operations through September 30, 1996 and 1995, respectively, for the Joint
Ventures and the February 28, 1995 consolidated statement of operations reflects
nine months of operations through September 30, 1994 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, 1996 and 1995 balance sheets includes the
accounts of these subsidiaries at September 30, 1996 and 1995, respectively, 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. For the year ended December 31, 1996
F-9
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
("calendar 1996") the results of operations reflect twelve months of activity
based upon a September 30 fiscal year end of these subsidiaries.
SHORT-TERM INVESTMENTS
The Company classifies its debt and equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities in which the Company has
the ability and intent to hold the securities until maturity. All other
securities not classified as trading or held-to-maturity are classified as
available-for-sale.
Management determines the appropriate classification of investments as trading,
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
stockholders' 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.
At December 31, 1995 short-term investments of $5.4 million, classified as
available-for-sale, had an amortized cost that approximated fair value. The
short-term investments were sold during calendar 1996.
REVENUE RECOGNITION
THE COMMUNICATIONS GROUP
The Communications Group 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 Communications Group and its Joint Ventures' radio
operations recognize advertising revenue when commercials are broadcast.
THE ENTERTAINMENT GROUP (SEE NOTE 15)
Revenue from the theatrical distribution of films is recognized as the films are
exhibited. The Entertainment Group distributes its films to the home video
market in the United States and Canada. The Entertainment Group's home video
revenue, less a provision for returns, is recognized when the video cassettes
are shipped. Distribution of the Entertainment Group'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
Entertainment Group, 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 Entertainment Group's product without a minimum amount
F-10
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
guaranteed to the Entertainment Group, such sales are recognized when the
Entertainment Group's share of the income from exhibition or exploitation is
earned.
Revenue from the licensing of the Entertainment Group'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, including the availability of such product for exhibition.
Theater admission revenues and related film rental expenses are recognized as
films are exhibited.
SNAPPER
Sales are recognized when the products are shipped to distributors or dealers.
Provision for estimated warranty costs is recorded at the time of sale and
periodically adjusted to reflect actual experience.
FILM INVENTORIES AND COST OF RENTALS (SEE NOTE 15)
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.
INVENTORIES
Lawn and garden equipment inventories and pager inventories are stated at the
lower of cost or market. Lawn and garden equipment inventories are valued
utilizing the last-in, first-out (LIFO) method. Pager inventories are calculated
on the weighted-average method.
Inventories consist of the following as of December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Lawn and garden equipment:
Raw materials............................................................ $ 18,733 $ --
Finished goods........................................................... 34,822 --
--------- ---------
53,555 --
Telecommunications:
Pagers................................................................... 849 224
--------- ---------
$ 54,404 $ 224
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1995 consists of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land..................................................................... $ 2,270 $ --
Buildings and improvements............................................... 12,409 --
Machinery and equipment.................................................. 33,823 3,841
Theater and other leasehold improvements................................. 27,425 694
--------- ---------
75,927 4,535
Less: Accumulated depreciation and amortization.......................... (4,838) (975)
--------- ---------
$ 71,089 $ 3,560
--------- ---------
--------- ---------
</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. Theatre and other
leasehold improvements are amortized using the straight-line method over the
life of the improvements or the life of the lease, whichever is shorter.
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 to 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.
Management continuously 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 intangible assets, their carrying
value is compared to management's best estimate of undiscounted future cash
flows over the remaining amortization period. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying value of the assets exceeds the fair value of the assets. The
Company believes that the carrying value of recorded intangibles is not
impaired.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of," on January 1, 1996. SFAS
121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of SFAS 121 did
not have any impact on the Company's financial position, results of operations,
or liquidity.
F-12
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 9). 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 primary loss per share amounts for calendar 1996, calendar 1995 and fiscal
1995 have been restated to reflect the Sale of the Entertainment Companies as a
discontinued operation (see note 15).
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 rates 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.
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.
F-13
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 9 for
the fair values of long-term debt.
INCOME TAXES
The Company accounts for deferred income taxes using the asset and liability
method of accounting. Under the asset and 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. 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.
STOCK OPTION PLANS
Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25
("APB 25"), "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS 123 also allows entities to continue to apply the provisions
of APB 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS 123 had been applied. The Company
has elected to continue to apply the provisions of APB 25 and provide the pro
forma disclosure requirements of SFAS 123.
PENSION AND OTHER POSTRETIREMENT PLANS
Snapper has a defined benefit pension plan covering substantially all of its
collective bargaining unit employees. The benefits are based on years of service
multiplied by a fixed dollar amount and the employee's compensation during the
five years before retirement. The cost of this program is funded currently.
Snapper also sponsors a defined benefit health care plan for substantially all
of its retirees and employees. Snapper measures the costs of its obligation
based on its best estimate. The net periodic costs are recognized as employees
render the services necessary to earn postretirement benefits.
BARTER TRANSACTIONS
In connection with its AM/FM radio broadcast business, 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
F-14
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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".
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 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 amounted to $255,000, $54,000 and $69,000 for calendar 1996,
calendar 1995, and fiscal 1995, respectively, and were immaterial to the
Company's results of operations for each of the periods presented. In addition,
translation differences resulting from the effect of exchange rate changes on
cash and cash equivalents were immaterial and are not reflected in the Company's
consolidated statements of cash flows for each of the periods presented.
ACCRUED EXPENSES (SEE NOTE 15)
Accrued expenses at December 31, 1996 and 1995 consist of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Accrued salaries and wages............................................. $ 3,339 $ --
Accrued taxes.......................................................... 15,339 11,000
Accrued interest....................................................... 6,401 5,109
Self-insurance claims payable.......................................... 29,833 31,549
Accrued warranty costs................................................. 4,317 --
Other.................................................................. 21,057 22,693
---------- ---------
$ 80,286 $ 70,351
---------- ---------
---------- ---------
</TABLE>
F-15
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION, DESCRIPTION OF THE BUSINESS, LIQUIDITY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SELF-INSURANCE
The Company is self-insured for workers' compensation, health, automobile,
product and general liability costs for its lawn and garden operation and for
certain former subsidiaries. The self-insurance claim liability is determined
based on claims filed and an estimate of claims incurred but not yet reported.
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, 1996,
is approximately $1.0 million of restricted cash which represents collateral
pursuant to the terms of the Snapper Credit Agreement (see note 9).
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 the
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.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash flow information (in thousands):
<TABLE>
<CAPTION>
CALENDAR CALENDAR FISCAL
1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................................... $ 15,782 $ 2,670 $ 647
--------- --------- ---------
--------- --------- ---------
Taxes...................................................... $ -- $ 33 $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
Supplemental schedule of non-cash investing and financing activities (in
thousands):
<TABLE>
<CAPTION>
CALENDAR CALENDAR FISCAL
1996 1995 1995
---------- ---------- ---------
<S> <C> <C> <C>
Acquisition of business:
Fair value of assets acquired............................. $ 36,663 $ 290,456 $ --
Fair value of liabilities assumed......................... 13,278 239,109 --
---------- ---------- ---------
Net value............................................. $ 23,385 $ 51,347 $ --
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See note 4 regarding the consolidation of Snapper.
F-16
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. THE NOVEMBER 1 MERGER
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. The Merger Agreement provided for, among other things,
the simultaneous mergers of each of Orion and MITI with and into OPC Merger
Corp. and MITI Merger Corp., the Company's recently-formed subsidiaries, and the
merger of Sterling with and into the Company (the "November 1 Merger"). In
connection with the November 1 Merger, the Company changed its name from The
Actava Group Inc. to Metromedia International Group, Inc.
Upon consummation of the November 1 Merger, 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 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 consisting of (i) interests in a
partnership and (ii) the 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 November 1 Merger, there were
17,490,901 shares of the Company's common stock outstanding. As a result of the
consummation of the November 1 Merger 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 November 1 Merger and the
transactions contemplated by the contribution agreement, Metromedia Company (an
affiliate of the Company) and its affiliates (the "Metromedia Holders")
collectively held 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 the Metromedia Holders' common control of Orion and MITI
prior to consummation of the November 1 Merger, their combination pursuant to
the November 1 Merger was accounted for as a combination of entities under
common control. Orion was deemed to be the acquirer 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 November 1 Merger.
F-17
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. THE NOVEMBER 1 MERGER (CONTINUED)
For accounting purposes only, Orion and MITI were deemed to be the joint
acquirers 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 November 1 Merger 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 (see notes 1 and 4). In addition, the Company's investment in RDM
Sports Group, Inc. (formerly Roadmaster Industries, Inc.), was deemed to be a
non-strategic asset (see note 5).
At December 31, 1995, Snapper was included in the accompanying balance sheet in
an amount equal to the sum of estimated cash flows from the operations of
Snapper plus the anticipated proceeds from the sale of Snapper which amounted to
$79.2 million. The excess of the purchase price allocated to Snapper in the
November 1 Merger over the expected estimated cash flows from the operations and
sale of Snapper in the amount of $293.6 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.
The purchase price of Actava, Sterling and MITI minority interests, exclusive of
transaction costs, amounted to $438.9 million at November 1, 1995. The excess
purchase price over the net fair value of assets acquired amounted to $404
million at November 1, 1995, before the write-off of Snapper goodwill of $293.6
million.
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 MMG.
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 $55.0 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 were repaid on November 1,
1995.
3. ENTERTAINMENT GROUP ACQUISITIONS (SEE NOTE 15)
On July 2, 1996, the Entertainment Group consummated the acquisition (the
"Goldwyn Merger") of the Samuel Goldwyn Company ("Goldwyn") by merging the
Company's newly formed subsidiary, SGC Merger Corp., into Goldwyn. Upon
consummation of the Goldwyn Merger, Goldwyn was renamed Goldwyn Entertainment
Company. Holders of common stock received .3335 shares of the Company's common
stock (the "Common Stock") for each share of Goldwyn Common Stock in accordance
with a formula set forth in the Agreement and Plan of Merger relating to the
Goldwyn Merger (the "Goldwyn Merger Agreement"). Pursuant to the Goldwyn Merger,
the Company issued 3,130,277 shares of common stock.
F-18
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ENTERTAINMENT GROUP ACQUISITIONS (SEE NOTE 15) (CONTINUED)
The purchase price, including the value of existing Goldwyn stock options and
transaction costs related to the Goldwyn Merger, was approximately $43.8
million.
Also on July 2, 1996, the Entertainment Group consummated the acquisition (the
"MPCA Merger", together with the Goldwyn Merger, the "July 2 Mergers") of Motion
Picture Corporation of America ("MPCA") by merging the Company's recently formed
subsidiary, MPCA Merger Corp., with MPCA. In connection with the MPCA Merger,
the Company (i) issued 1,585,592 shares of common stock to MPCA's sole
stockholders, and (ii) paid such stockholders approximately $1.2 million in
additional consideration, consisting of promissory notes. The purchase price,
including transaction costs, related to the acquisition of MPCA was
approximately $21.9 million.
The excess of the purchase price over the net fair value of liabilities assumed
in the July 2 Mergers amounted to $125.4 million.
Following the consummation of the July 2 Mergers, the Company contributed its
interests in Goldwyn and MPCA to Orion, with Goldwyn and MPCA becoming
wholly-owned subsidiaries of Orion. Orion, Goldwyn and MPCA are collectively
referred to as the Entertainment Group. The July 2 Mergers have been recorded in
accordance with the purchase method of accounting for business combinations. The
purchase price to acquire both Goldwyn and MPCA were allocated to the net assets
acquired according to management's estimate of their respective fair values and
the results of those purchased businesses have been included in the accompanying
consolidated condensed financial statements from July 2, 1996, the date of
acquisition.
4. SNAPPER, INC.
In connection with the November 1 Merger, Snapper was classified as an asset
held for sale. Subsequently, the Company has announced its intention not to
continue to pursue its previously adopted plan to dispose of Snapper and to
actively manage Snapper in order to grow and develop Snapper so as to maximize
its long term value to the Company. Snapper has been included in the
consolidated financial statements as of November 1, 1996. The allocation of the
November 1, 1996 carrying value of Snapper, $73.8 million, which included an
intercompany receivable of $23.8 million, is as follows (in thousands):
<TABLE>
<S> <C>
Cash.............................................................. $ 7,395
Accounts receivable............................................... 36,544
Inventories....................................................... 51,707
Property, plant and equipment..................................... 29,118
Other assets...................................................... 773
Accounts payable and accrued expenses............................. (25,693)
Debt.............................................................. (40,059)
Other liabilities................................................. (3,200)
---------
Excess of assets over liabilities................................. 56,585
Carrying value at November 1, 1996................................ 73,800
---------
Excess of carrying value over fair value of net assets............ $ 17,215
---------
---------
</TABLE>
The excess of the carrying value over fair value of net assets is reflected in
the accompanying consolidated financial statements as goodwill and is being
amortized over 25 years.
F-19
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. SNAPPER, INC. (CONTINUED)
The following table summarizes the operating results of Snapper for the ten
months ended October 31, 1996 and for the period November 1, 1995 to December
31, 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales............................................................. $ 130,623 $ 14,385
Operating expenses.................................................... 148,556 34,646
---------- ----------
Operating loss........................................................ (17,933) (20,261)
Interest expense...................................................... (6,859) (1,213)
Other income (expenses)............................................... 1,210 (259)
---------- ----------
Loss before taxes..................................................... (23,582) (21,733)
Income taxes.......................................................... -- --
---------- ----------
Net loss.............................................................. $ (23,582) $ (21,733)
---------- ----------
---------- ----------
</TABLE>
As part of Snapper's transition to the dealer-direct business, Snapper has from
time to time reacquired the inventories and less frequently has purchased the
accounts receivable of distributors it has canceled. The purchase of inventories
is recorded by reducing sales for the amount credited to accounts receivable
from the canceled distributor and recording the repurchased inventory at the
lower of cost or market. During 1996 and 1995, 18 and 7 distributors were
canceled, respectively. Inventories purchased (and/or credited to the account of
canceled distributors) under such arrangements amounted to (in thousands):
<TABLE>
<CAPTION>
TEN MONTHS
TWO MONTHS ENDED TWO MONTHS
ENDED OCTOBER 31, ENDED
DECEMBER 31, 1996 1996 DECEMBER 31, 1995
----------------- --------------- -----------------
<S> <C> <C> <C>
Inventories............................................... $ 2,438 $ 15,550 $ 4,596
Decrease in gross profit.................................. 2,106 5,967 1,245
</TABLE>
5. RDM SPORTS GROUP, INC.
The Company has identified its investment in RDM Sports Group, Inc. ("RDM") as a
non-strategic asset and the Company's investment in RDM is included in the
balance sheet at December 31, 1996 and 1995 as an asset held for sale. As of
November 1, 1995, the Company's investment in RDM was adjusted to the
anticipated proceeds from its sale under the purchase method of accounting.
Management regularly monitors and evaluates the net realizable value of its
assets held for sale to determine whether their carrying values have been
impaired. During 1996, the Company reduced the carrying value of its investment
in RDM to $31.2 million. The Company's write-down of its investment in RDM of
$16.3 million is reflected as a discontinued operation in the 1996 consolidated
statement of operations. The Company intends to dispose of its RDM stock during
1997. The equity in earnings and losses of RDM have been excluded from the
Company's results of operations since the November 1 Merger.
F-20
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RDM SPORTS GROUP, INC. (CONTINUED)
As of December 31, 1996, the Company owned 39% of the issued and outstanding
shares of RDM Common Stock based on approximately 49,507,000 shares of RDM
Common Stock outstanding at November 8, 1996. Summarized financial information
for RDM is shown below (in thousands):
<TABLE>
<CAPTION>
AS OF, AND FOR
THE
NINE MONTHS AS OF, AND FOR
ENDED THE
SEPTEMBER 28, YEAR ENDED
1996 DECEMBER 31,
(UNAUDITED) 1995
---------------- ----------------
<S> <C> <C>
Net sales................................................ $ 304,235 $ 730,875
Gross profit............................................. 12,369 86,607
Interest expense......................................... 19,920 35,470
Gain on sale of subsidiaries............................. 98,475 --
Net income (loss)........................................ 412 (51,004)
Current assets........................................... 209,272 406,586
Non-current assets....................................... 82,657 170,521
Current liabilities...................................... 126,144 232,502
Non-current liabilities.................................. 110,730 289,081
Total shareholders' equity............................... 55,055 55,524
</TABLE>
6. FILM ACCOUNTS RECEIVABLE AND DEFERRED REVENUES (SEE NOTE 15)
Included in net asset of discontinued operations are film accounts receivable
which consist 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. Film accounts receivable is
stated net of an allowance for doubtful accounts of $11.6 million at both
December 31, 1996 and 1995.
The Entertainment Group 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 $175.0 million at December 31, 1996.
Included in this amount is $61.5 million of license fees for which the revenue
and the related accounts receivable will be recorded only when the Entertainment
Group 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.
F-21
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. FILM INVENTORIES (SEE NOTE 15)
Included in net assets of discontinued operations are film inventories at
December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Current:
Theatrical and television product released less amortization.......... $ 60,377 $ 59,430
Completed not released................................................ 5,779 --
---------- ----------
66,156 59,430
---------- ----------
Non Current:
Theatrical and television product released less amortization.......... 133,014 137,233
Completed not released................................................ 2,476 --
In process and other.................................................. 50,653 --
---------- ----------
186,143 137,233
---------- ----------
$ 252,299 $ 196,663
---------- ----------
---------- ----------
</TABLE>
The Entertainment Group has in prior years recorded substantial writeoffs to its
released product. As a result, approximately one-half of the gross cost of 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. The Entertainment Group has amortized 94% of such gross cost of its
film inventories. Approximately 98% of such gross film inventory costs will have
been amortized by December 31, 1999. As of December 31, 1996, approximately 62%
of the unamortized balance of such film inventories will be amortized within the
next three-year period based upon the Company's revenue estimates at that date.
For the year ended December 31, 1996 interest costs of $1.2 million were
capitalized to film inventories.
8. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
The Communications Group has recorded its investments in Joint Ventures at cost,
net of 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 under the credit agreement range from prime rate to prime
rate plus 6%. 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. The Communications Group has entered into credit agreements
with its Joint Ventures to provide up to $69.6 million in funding of which $18.9
million remains unfunded at December 31, 1996. Under its credit agreements the
Communications Group's funding commitments are contingent on its approval of the
Joint Ventures' business plans.
F-22
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
At December 31, 1996 and 1995 the Communications Group's investments in the
Joint Ventures, at cost, net of adjustments for its equity in earnings or
losses, were as follows (in thousands):
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
<TABLE>
<CAPTION>
YEAR
VENTURE DATE OPERATIONS
JOINT VENTURE (BY SERVICE TYPE) 1996 1995 OWNERSHIP % FORMED COMMENCED
- ----------------------------------------------- --------- --------- ----------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
WIRELESS CABLE TV
Kosmos TV, Moscow, Russia...................... $ 759 $ 4,317 50% 1991 1992
Baltcom TV, Riga, Latvia....................... 8,513 6,983 50% 1991 1992
Ayety TV, Tbilisi, Georgia..................... 4,691 3,630 49% 1991 1993
Kamalak, Tashkent, Uzbekistan(1)............... 6,031 3,731 50% 1992 1993
Sun TV, Kishinev, Moldova...................... 3,590 1,613 50% 1993 1994
Alma-TV, Almaty, Kazakhstan(1)................. 2,840 1,318 50% 1994 1995
--------- ---------
26,424 21,592
--------- ---------
PAGING
Baltcom Paging, Tallinn, Estonia............... 3,154 2,585 39% 1992 1993
Baltcom Plus, Riga, Latvia..................... 1,711 1,412 50% 1994 1995
Tbilisi Paging, Tbilisi, Georgia............... 829 619 45% 1993 1994
Raduga Paging, Nizhny Novgorod, Russia......... 450 364 45% 1993 1994
St. Petersburg Paging, St. Petersburg,
Russia....................................... 963 527 40% 1994 1995
--------- ---------
7,107 5,507
--------- ---------
RADIO BROADCASTING
SAC, Moscow, Russia............................ -- 1,174 51%(2) 1994 1994
Eldoradio, St. Petersburg, Russia.............. 435 561 50% 1993 1995
Radio Socci, Socci, Russia..................... 361 269 51% 1995 1995
--------- ---------
796 2,004
--------- ---------
TELEPHONY
Telecom Georgia, Tbilisi, Georgia.............. 2,704 2,078 30% 1994 1994
Trunked mobile radio ventures.................. 2,049 --
--------- ---------
4,753 2,078
--------- ---------
PRE-OPERATIONAL
St. Petersburg Cable, St. Petersburg, Russia... 554 -- 45% 1996 Pre-Operational
Minsk Cable, Minsk, Belarus.................... 1,980 918 50% 1993 Pre-Operational
Kazpage, Kazakhstan............................ 350 -- 51% 1996 Pre-Operational
Magticom, Tbilisi, Georgia..................... 2,450 -- 34% 1996 Pre-Operational
Batumi Paging, Batumi, Georgia................. 256 -- 35% 1996 Pre-Operatoinal
Baltcom GSM.................................... 7,874 -- 24% 1996 Pre-Operational
PRC Telephony ventures and equipment........... 9,712 2,378
Other.......................................... 3,191 2,457
--------- ---------
26,367 5,753
--------- ---------
Total.......................................... $ 65,447 $ 36,934
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Includes paging operations
(2) During 1996, the Communications Group purchased an additional 32% of
SAC/Radio 7, increasing the ownership percentage to 83% and acquiring
control of its business. Accordingly, this investment is now accounted for
on a consolidated basis.
F-23
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
The ability of the Communications Group 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 the republics of the
former Soviet Union, Eastern Europe and the PRC. 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 two of its Joint Ventures. The policies
cover loss of investment and losses due to business interruption caused by
political violence or expropriation. Recently, the United States House of
Representatives extended the insuring authority of OPIC for one year. If such
authority is not further renewed, OPIC may be unable to write any new insurance
policies or underwrite new investments.
Summarized combined balance sheet financial information as of September 30, 1996
and 1995 and combined statement of operations financial information for the
years ended September 30, 1996 and 1995 and for the nine months ended September
30, 1994 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>
1996 1995
--------- ---------
<S> <C> <C>
Assets
Current assets.................................................................... $ 16,073 $ 6,937
Investments in wireless systems and equipment..................................... 38,447 31,349
Other assets...................................................................... 3,100 2,940
--------- ---------
Total Assets...................................................................... $ 57,620 $ 41,226
--------- ---------
--------- ---------
Liabilities and Joint Ventures' Equity (Deficit)
Current liabilities............................................................... $ 18,544 $ 10,954
Amount payable under MITI credit facility......................................... 41,055 33,699
Other long-term liabilities....................................................... 6,043 --
--------- ---------
65,642 44,653
Joint Ventures' Equity (Deficit).................................................. (8,022) (3,427)
--------- ---------
Total Liabilities and Joint Ventures' Equity (Deficit)............................ $ 57,620 $ 41,226
--------- ---------
--------- ---------
</TABLE>
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Revenue......................................................................... $ 43,768 $ 19,344 $ 3,280
Expenses:
Cost of service............................................................... 15,171 9,993 2,026
Selling, general and administrative........................................... 23,387 11,746 2,411
Depreciation and amortization................................................. 7,989 3,917 1,684
Other......................................................................... 1,674 -- 203
--------- ---------- ---------
Total expenses.................................................................. 48,221 25,656 6,324
--------- ---------- ---------
Operating loss.................................................................. (4,453) (6,312) (3,044)
Interest expense................................................................ (3,655) (1,960) (632)
Other income (expense).......................................................... (391) (1,920) 47
Foreign currency translation.................................................... (356) (203) 15
--------- ---------- ---------
Net loss........................................................................ $ (8,855) $ (10,395) $ (3,614)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
F-24
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. 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. The Communication Group's investment in and
advances to those Joint Ventures and for those entities whose venture agreements
are not yet finalized at December 31, 1996 amounted to approximately $26.4
million.
The following table represents summary financial information for all operating
entities being grouped as indicated as of and for the year ended December 31,
1996 and totals for the years ended December 31, 1995 and February 28, 1995 (in
thousands):
<TABLE>
<CAPTION>
CALENDAR CALENDAR FISCAL
WIRELESS RADIO 1996 1995 1995
CABLE TV PAGING BROADCASTING TELEPHONY TOTAL TOTAL TOTAL
----------- ----------- ------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUBSIDIARIES AND JOINT
VENTURES
Revenues............................. $ 170 $ 2,880 $ 9,363 $ 52 $ 12,465(1) $ 4,569(1) $ 3,545
Depreciation and amortization........ 302 461 174 4 941 498 635
Operating income (loss) before
taxes.............................. (832) (427) 2,102 (298) 545 (260) (1,485)
Assets............................... 2,017 3,232 3,483 2,179 10,911 10,397 12,795
Capital expenditures................. 1,813 443 555 6 2,817 212 146
UNCONSOLIDATED EQUITY
JOINT VENTURES
Revenues............................. $ 17,850 $ 5,207 $ 504 $ 20,207 $ 43,768 $ 19,344 $ 3,280
Depreciation and amortization........ 5,816 1,030 33 1,110 7,989 3,917 1,684
Operating income (loss) before
taxes.............................. (4,398) (1,276) (492) 1,713 (4,453) (6,312) (3,044)
Assets............................... 29,490 5,328 642 22,160 57,620 41,226 19,523
Capital expenditures................. 7,889 1,238 234 2,096 11,457 21,446 8,333
Net investment in Joint Ventures..... 26,424 7,107 796 4,753 39,080 29,824 18,603
Equity in earnings (losses) of
consolidated investees............. (7,281) (1,950) (2,152) 304 (11,079) (7,981) (2,257)
COMBINED
Revenues............................. $ 18,020 $ 8,087 $ 9,867 $ 20,259 $ 56,233 $ 23,913 $ 6,825
Depreciation and amortization........ 6,118 1,491 207 1,114 8,930 4,415 2,319
Operating income (loss) before
taxes.............................. (5,230) (1,703) 1,610 1,415 (3,908) (6,572) (4,529)
Assets............................... 31,507 8,560 4,125 24,339 68,531 51,623 32,318
Capital expenditures................. 9,702 1,681 789 2,102 14,274 21,658 8,479
Subscribers (unaudited).............. 69,118 44,836 n/a 6,642 120,596 52,360 17,773
</TABLE>
- ------------------------
(1) Does not reflect revenues for the Communications Group's headquarters of
approximately $1.6 million for calendar 1996 and $600,000 for calendar 1995.
F-25
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
The following table represents information about the Communication Group's
operations in different geographic locations:
<TABLE>
<CAPTION>
REPUBLICS OF
FORMER
SOVIET UNION
UNITED AND OTHER
STATES EASTERN EUROPE PRC FOREIGN TOTAL
---------- -------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Calendar 1996
- ----------------------------------------------------
Revenues............................................ $ 1,582 $ 12,413 $ -- $ 52 $ 14,047
Assets.............................................. 118,670 61,319 10,105 4,911 195,005
---------- ------- --------- --------- ----------
---------- ------- --------- --------- ----------
Calendar 1995
- ----------------------------------------------------
Revenues............................................ 589 4,569 -- -- 5,158
Assets.............................................. 119,280 39,269 2,384 156 161,089
---------- ------- --------- --------- ----------
---------- ------- --------- --------- ----------
Fiscal 1995
- ----------------------------------------------------
Revenues............................................ 417 3,128 -- -- 3,545
Assets.............................................. 12,518 27,764 -- -- 40,282
---------- ------- --------- --------- ----------
---------- ------- --------- --------- ----------
</TABLE>
In December 1995, the Communications Group and Protocall Ventures, Ltd.
("Protocall") executed a letter of intent together with a loan agreement. The
letter of intent called for the Communications Group to loan up to $1.5 million
to Protocall and negotiate for the purchase by the Communications Group from
Protocall of 51% of Protocall for $2.6 million. This letter was amended on April
12, 1996 to allow for a total borrowing of $1.9 million against the purchase
price and to increase the Communications Group's ownership to 56% of Protocall.
Upon closing of the purchase agreement, the principal and accrued interest under
the loan were offset against the purchase price otherwise payable to Protocall.
On May 17, 1996 the acquisition of Protocall by the Communications Group was
completed with final payment of $600,000 to Protocall and all prior amounts
loaned to Protocol were offset against the purchase price of $2.6 million. The
transaction was accounted for under the purchase method of accounting.
Accordingly, the difference between the purchase price and the underlying equity
in the net assets of Protocall of approximately $1.5 million has been allocated
to goodwill and is being amortized over 25 years.
In October 1996, The Communications Group entered into a Joint Venture agreement
to design, construct, install and operate Magticom, a mobile radio network in
Tbilisi, Georgia. The equity contribution to the Joint Venture is $5.0 million
of which 49% was contributed by the Communications Group.
In December 1996, the Communications Group, through its 50% owned Moldovan Joint
Venture, Sun-TV, acquired the assets of Eurocable Moldova, Ltd., a wired cable
television company with approximately 30,000 subscribers, for approximately $1.5
million.
In January 1997, the Communication Group's 99% owned Joint Venture, Romsat Cable
TV and Radio, S.A., acquired the cable-television assets of Standard Ideal
Consulting, S.A., a wired cable television company with approximately 37,000
subscribers, for approximately $2.8 million.
On March 18, 1996 Metromedia Asia Limited ("MAC," n/k/a Metromedia Asia
Corporation), entered into a Joint Venture agreement with Golden Cellular
Communications, Ltd, ("GCC") a company located in the PRC. The purpose of the
Joint Venture is to provide wireless local loop telephony equipment, network
F-26
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
planning, technical support and training to domestic telephone operators
throughout the PRC. Total required equity contributions to the venture is $8.0
million, 60% of which is to be contributed by MAC and 40% by GCC.
The equipment contributed by MAC as an in-kind capital contribution must be
verified by a Chinese registered accountant in order to obtain a business
license. Although the capital verification process has not yet been successfully
completed, MAC is continuing its efforts towards completion. Management believes
that the capital verification will be completed successfully. In addition, GCC's
potential customers require an allocation of an appropriate frequency spectrum
to utilize the equipment contributed to the Venture.
In February 1997, MAC acquired Asian American Telecommunications Corporation
("AAT") pursuant to a Business Combination Agreement (the "BCA") in which MAC
and AAT agreed to combine their businesses and operations. Pursuant to the BCA,
each AAT shareholder and warrant holder exchanged (the "Exchange") (i) one AAT
common share for one share of MAC common stock, par value $.01 per share ("MAC
Common Stock"), (ii) one warrant to acquire one AAT common share at an exercise
price of $4.00 per share for one warrant to acquire one share of MAC Common
Stock at an exercise price of $4.00 per share and (iii) one warrant to acquire
one AAT common share at an exercise price of $6.00 per share for one warrant to
acquire one share of MAC Common Stock at an exercise price of $6.00 per share.
AAT is engaged in the development and construction of communications services in
the PRC. AAT, through a joint venture, has a contract with one of the PRC's two
major providers of telephony services to provide telecommunications services in
the Sichuan Province of the PRC. This transaction will be accounted for under
the purchase method of accounting with MAC as the acquiring entity. After the
consummation of the acquisition the Communications Group owns 57% of MAC.
As a condition to the closing of the BCA, the Communications Group purchased
from MAC, for an aggregate purchase price of $10.0 million, 3,000,000 shares of
MAC's Class A Common Stock, par value $.01 per share (the "MAC Class A Common
Stock") and 1,250,000 warrants to purchase an additional 1,250,000 shares of MAC
Class A Common Stock, at an exercise price of $6.00 per share (the "MAC
Purchase"). The securities received by the Communications Group in the MAC
Purchase are not registered under the Securities Act, but have certain demand
and piggyback registration rights as provided in the MAC Purchase Agreement.
F-27
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (SEE NOTE 15)
Long-term debt at December 31, 1996 and 1995 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
MMG (excluding Communications Group, Entertainment Group and Snapper)
MMG Credit Facility....................................................................... $ -- $ 28,754
6 1/2% Convertible Debentures due 2002, net of unamortized discount of $15,261 and
$17,994................................................................................. 59,739 57,006
9 1/2% Debentures due 1998, net of unamortized discount of $86 and $140................... 59,398 59,344
9 7/8% Senior Debentures due 1997, net of unamortized premium of $38 and $217............. 15,038 18,217
10% Debentures due 1999................................................................... 5,467 6,075
MPCA Acquisition Notes Payable due 1997................................................... 1,179 --
6 1/4% Secured Note Payable due 1998 700 1,020
---------- ----------
141,521 170,416
---------- ----------
Entertainment Group
Notes payable to banks under Credit, Security and Guaranty Agreements..................... 247,500 123,700
Other guarantees and contracts payable, net of unamortized discounts of $2,699 and
$2,402.................................................................................. 16,138 9,939
---------- ----------
263,638 133,639
---------- ----------
Communications Group
Hungarian Foreign Trade Bank.............................................................. 246 588
---------- ----------
246 588
---------- ----------
Snapper
Snapper Revolver.......................................................................... 46,419 --
Industrial Development Bonds.............................................................. 1,050 --
---------- ----------
47,469 --
---------- ----------
Capital lease obligations, interest rates of 9% to 13%.................................... 6,185 --
---------- ----------
Long-term debt including discontinued operations........................................ $ 459,059 $ 304,643
Long term debt attributable to discontinued operations (see note 15).................... (260,827) (133,639)
Current portion......................................................................... (19,515) (32,976)
---------- ----------
Long-term debt........................................................................ $ 178,717 $ 138,028
---------- ----------
---------- ----------
</TABLE>
Aggregate annual repayments of long-term debt including the effect of the sale
of the discontinued operations over the next five years and thereafter are as
follows (in thousands):
<TABLE>
<S> <C>
1997............................................. $ 283,003
1998............................................. 60,864
1999............................................. 51,870
2000............................................. 448
2001............................................. 1,186
Thereafter....................................... 79,696
</TABLE>
F-28
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (SEE NOTE 15) (CONTINUED)
MMG DEBT (EXCLUDING COMMUNICATIONS GROUP, ENTERTAINMENT GROUP AND SNAPPER)
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 1/2% Subordinated Debentures are due in 1998. These debentures do not
require annual principal payments.
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. The Senior
Subordinated Debetures were paid in March 1997.
At the option of the Company, the 10% Subordinated Debentures are redeemable, in
whole or in part, at the principal amount plus accrued interest. Mandatory
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.
During 1996 the Company repaid its outstanding balance of $28.8 million under
its revolving Credit Facility.
The carrying value of the Company's long-term and subordinated debt, including
the current portion at December 31, 1996, approximates fair value. Estimated
fair value 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.
ENTERTAINMENT GROUP CREDIT FACILITY
On July 2, 1996, the Entertainment Group entered into a credit agreement with
Chase Bank as agent for a syndicate of lenders, pursuant to which the lenders
provided to the Entertainment Group and its subsidiaries a $300 million credit
facility (the "Entertainment Group Credit Facility"). The $300 million facility
consists 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"). Proceeds from the Term
Loan and $24.0 million of the Revolving Credit Facility were used to refinance
the existing indebtedness of Orion (the "Old Orion Credit Facility"), Goldwyn
and MPCA. In connection with the refinancing of the Old Orion Credit Facility,
the Entertainment Group expensed the deferred financing costs associated with
the Old Orion Credit Facility and recorded an extraordinary loss of
approximately $4.5 million.
Borrowings under the Entertainment Group's Credit Facility which do not exceed
the "borrowing base" as defined in the agreement will bear interest, at the
Entertainment Group's option, at a rate of LIBOR plus 2.5% or Chase's
alternative base rate plus 1.5%, 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 Chase's
alternative base rate. The Term Loan has a final maturity date of June 30, 2001
and amortizes in 20 equal quarterly installments of $7.5 million commencing on
F-29
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (SEE NOTE 15) (CONTINUED)
September 30, 1996, with the remaining principal amount due at the final
maturity date. If the outstanding balance under the Term Loan exceeds the
borrowing base, the Company will be required to pay down such excess amount. The
Term Loan and the Revolving Credit Facility are 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 assets, including its accounts receivable and film and
television libraries. Amounts outstanding under the Revolving Credit Facility in
excess of the applicable borrowing base are also guaranteed jointly and
severally by Metromedia Company, and John W. Kluge, a general partner. 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 contains customary convenants including
limitations on the issuance of additional indebtedness and guarantees, on the
creation of new liens, development costs and budgets and other information
regarding motion picture production and made-for television movies, the
aggregate amount of unrecouped print and advertising costs the Entertainment
Group may incur, 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 of the
declaration of dividends or distributions by the Entertainment Group (except as
defined in the agreement), 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's Credit
Facility also contains financial covenants, including requiring maintenance by
the Entertainment Group of certain cash flow and operational ratios.
The Revolving Credit Facility contains certain events of default, including
nonpayment of principal or interest on the facility, the occurrence of a "change
of control" (as defined in the agreement) or an assertion by the guarantors of
such facility that the guarantee of such facility is unenforceable. The Term
Loan portion of the Entertainment Group's Credit Facility also contains a number
of customary events of default, including non-payment of principal and interest
and the occurrence of a "change of management" (as defined in the agreement),
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.
At the November 1 Merger date (see note 2), proceeds from the Old Orion Credit
Facility as well as amounts advanced from MMG under a subordinated promissory
note, were used 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, the Entertainment Group 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.
It is assumed that the carrying value of the Entertainment Group's bank debt
approximates its face value because it is a floating rate instrument.
COMMUNICATIONS GROUP DEBT
A loan from the Hungarian Foreign Trade Bank, which bears interest at 34.5%, is
due on September 14, 1997. The loan is a Hungarian Forint based loan and is
secured by a letter of credit in the amount of $1.2 million.
F-30
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (SEE NOTE 15) (CONTINUED)
On November 1, 1995, MMG issued 2,537,309 shares of common stock in repayment of
$26.6 million of MITI notes payable.
Included in interest expense for calendar 1996, calendar 1995 and fiscal 1995
are $107,000, $3.8 million and $430,000, respectively, of interest on amounts
due to Metromedia Company, an affiliate of MMG.
SNAPPER DEBT
On November 26, 1996, Snapper entered into a credit agreement (the "Snapper
Credit Agreement") with AmSouth Bank of Alabama ("AmSouth"), pursuant to which
AmSouth has agreed to make available to Snapper a revolving line of credit up to
$55.0 million, upon the terms and subject to conditions contained in the Snapper
Credit Agreement (the "Snapper Revolver") for a period ending on January 1, 1999
(the "Snapper Revolver Termination Date"). The Snapper Revolver is guaranteed by
the Company.
Interest under the Snapper Revolver is payable at Snapper's option at a rate
equal to either (i) prime plus .5% (from November 26, 1996 through May 25, 1997)
and prime plus 1.5% (from May 26, 1997 to the Snapper Revolver Termination Date)
and (ii) LIBOR (as defined in the Snapper Credit Agreement) plus 2.5% (from
November 26, 1996 through May 25, 1997) and LIBOR plus 3.5% (from May 26, 1997
to the Snapper Revolver Termination Date).
The Snapper Revolver contains customary covenants, including delivery of certain
monthly, quarterly and annual financial information, delivery of budgets and
other information related to Snapper, limitations on Snapper's ability to (i)
sell, transfer, lease (including sale-leaseback) or otherwise dispose of all or
any material portion of its assets or merge with any person; (ii) acquire an
equity interest in another business; (iii) enter into any contracts, leases,
sales or other transactions with any division or an affiliate of Snapper,
without the prior written consent of AmSouth; (iv) declare or pay any dividends
or make any distributions upon any of its stock or directly or indirectly apply
any of its assets to the redemption, retirement, purchase or other acquisition
of its stock; (v) make any payments to the Company on a subordinated promissory
note issued by Snapper to the Company at any time (a) an Event of Default (as
defined in the Snapper Credit Agreement) exists or would result because of such
payment, (b) there would be less than $10 million available to Snapper under the
terms of the Snapper Credit Agreement, (c) a single payment would exceed $3
million, (d) prior to January 1, 1998, and (e) such payment would occur more
frequently than quarterly after January 1, 1998; (vi) make loans, issue
additional indebtedness or make any guarantees. In addition, Snapper is required
to maintain at all times as of the last day of each month a specified net worth.
The Snapper Credit Agreement is secured by a first priority security interest in
all of Snapper's assets and properties and is also entitled to the benefit of a
replenishable $1.0 million cash collateral account, which was initially funded
by Snapper. Under the Snapper Credit Agreement, AmSouth may draw upon amounts in
the cash collateral account to satisfy any payment defaults by Snapper and
Messrs. Kluge and Subotnick, general partners of Metromedia, are obligated to
replenish such account any time amounts are so withdrawn up to the entire amount
of the Snapper Revolver.
Under the Snapper Credit Agreement, the following events, among others, each
constitute an "Event of Default": (i) breach of any representation or warranty,
certification or certain covenants made by Snapper or any due observance or
performance to be observed or performed by Snapper; (ii) failure to pay within 5
days after payment is due; and (iii) a "change of control" shall occur. For
purposes of the Snapper Credit Agreement, "change of control" means (i) a change
of ownership of Snapper that results in the Company not owning at least 80% of
all the outstanding stock of Snapper, (ii) a change of ownership of the
F-31
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. LONG-TERM DEBT (SEE NOTE 15) (CONTINUED)
Company that results in (a) Messrs. Kluge and Subotnick not having beneficial
ownership or common voting power of at least 15% of the common voting power of
the Company, (b) any person having more common voting power than Messrs. Kluge
and Subotnick, or (c) any person other than Messrs. Kluge and Subotnick for any
reason obtaining the right to appoint a majority of the board of directors of
the Company.
At December 31, 1996 Snapper was not in compliance with certain of these
covenants. The Company and AmSouth have amended the Snapper Credit Agreement to
provide for (i) an annual administrative fee to be paid on December 31, 1997,
(ii) an increase in Snapper's borrowing rates as of December 31, 1997 (from
prime rate to prime rate plus 1.50% and from LIBOR plus 2.50% to LIBOR plus
4.00%), and (iii) an increase in Snapper's commitment fee as of December 31,
1997 from .50% per annum to .75% per annum. As part of the amendment to the
Snapper Credit Agreement AmSouth waived: (i) the covenant defaults as of
December 31, 1996, (ii) the $250,000 semi-annual administrative fee requirement
which was set to commence on May 26, 1997 and (iii) the mandatory borrowing rate
and commitment fee increase that was to occur on May 26, 1997. Furthermore, the
amendment replaces certain existing financial covenants with covenants on
minimum quarterly cash flow and equity requirements, as defined. In addition,
the Company and AmSouth have agreed to the major terms and conditions of a $10.0
million credit facility. The closing of the credit facility shall remain subject
to the delivery of satisfactory loan documentation.
The $10.0 million working capital facility will: (i) have a PARI PASSU
collateral interest (including rights under the Make-Whole and Pledge Agreement)
with the Credit Facility, (ii) accrue interest on borrowings at AmSouth's prime
rate, floating (same borrowing rate as the Credit Facility), (iii) become due
and payable on October 1, 1997. As additional consideration for AmSouth making
this new facility available, Snapper shall provide AmSouth with either: (i) the
joint and several guarantees of Messrs. Kluge and Subotnick on the new facility
only, or (ii) a $10.0 million interest-bearing deposit made by MMG at AmSouth
(this deposit will not be specifically pledged to secure the Snapper facility or
to secure MMG's obligations thereunder, but AmSouth shall have the right of
offset against such deposit as granted by law and spelled out within the Credit
Agreement).
It is assumed that the carrying value of Snapper's bank debt approximates its
face value because it is a floating rate instrument.
In addition, Snapper has industrial development bonds with certain
municipalities. The industrial development bonds mature in 1999 and 2001, and
their interest rates range from 62% to 75% of the prime rate.
10. 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, 1996.
COMMON STOCK
On July 2, 1996, the Company completed a public offering of 18.4 million shares
of common stock, generating net proceeds of approximately $190.6 million.
F-32
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
On August 29, 1996, the Company increased the number of authorized shares of
common stock from 110,000,000 to 400,000,000. At December 31, 1996 and 1995 and
February 28, 1995 there were 66,153,439, 42,613,738 and 20,934,898 shares issued
and outstanding, respectively.
At December 31, 1996, the Company has reserved for future issuance shares of
Common Stock in connection with the plans and debentures listed below:
<TABLE>
<S> <C>
Stock option plans.............................................. 10,067,603
6 1/2% Convertible Debentures................................... 1,801,802
Restricted stock plan........................................... 132,800
---------
12,002,205
---------
---------
</TABLE>
STOCK OPTION PLANS
On August 29, 1996, the stockholders of MMG approved the Metromedia
International Group, Inc. 1996 Incentive Stock Option Plan (the "MMG Plan"). The
aggregate number of shares of common stock that may be the subject of awards
under the MMG Plan is 8,000,000. The maximum number of shares which may be the
subject of awards to any one grantee under the MMG Plan may not exceed 250,000
in the aggregate. The MMG Plan provides for the issuance of incentive stock
options and nonqualified stock options. Incentive stock options may not be
issued at a per share price less than the market value at the date of grant.
Nonqualified stock options may be issued at prices and on terms determined in
the case of each stock option grant. Stock options may be granted for terms of
up to but not exceeding ten years and vest and become fully exercisable after
four years from the date of grant. At December 31, 1996 there were 5,210,279
additional shares available for grant under the MMG Plan.
Following the November 1 Merger, options granted pursuant to each of the MITI
stock option plan and the Actava stock option plans and, following the Goldwyn
Merger, the Goldwyn stock option plans were converted into stock options
exercisable for common stock of MMG in accordance with their respective exchange
ratios.
F-33
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
The per share weighted-average fair value of stock options granted during 1996
was $7.36 on the date of grant using the Black Scholes option-pricing model with
the following weighted average assumptions: expected volatility of 49%, expected
dividend yield of zero percent, risk-free interest rate of 5.2% and an expected
life of 7 years.
The Company applies APB 25 in recording the value of stock options granted
pursuant to its plans. No compensation cost has been recognized for stock
options granted under the MMG Plan and compensation expense of $153,000 has been
recorded for stock options under the MITI stock option plan in the financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS 123, the Company's net loss
would have increased to the pro forma amounts indicated below (in thousands,
except per share amount):
<TABLE>
<CAPTION>
1996
-----------
<S> <C>
Net loss:
As reported.................................................................... $ (115,243)
Pro forma...................................................................... $ (118,966)
Primary loss per common share:
As reported.................................................................... $ (2.12)
Pro forma...................................................................... $ (2.19)
</TABLE>
Pro forma net income reflects only options granted under the MMG Plan and MITI
stock option plan in 1996. MITI and Actava stock options granted prior to the
November 1 Merger were recorded at fair value. In addition, Goldwyn stock
options granted prior to the Goldwyn Merger, were recorded at fair value and
included in the Goldwyn purchase price.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
---------- -------------
<S> <C> <C>
Balance at December 31, 1994...................................... 941,000 $ 2.38
Transfer of Actava options in merger.............................. 737,000 $ 8.17
Options granted................................................... 367,000 $ 5.41
Options exercised................................................. (93,000) $ 8.63
Options canceled.................................................. (89,000) $ 5.41
----------
Balance at December 31, 1995...................................... 1,863,000 $ 4.81
Transfer of Goldwyn options in acquisition........................ 202,000 $ 23.33
Options granted................................................... 2,945,000 $ 12.63
Options exercised................................................. (167,000) $ 7.46
Options canceled.................................................. (264,000) $ 13.03
----------
Balance at December 31, 1996...................................... 4,579,000 $ 10.09
----------
----------
</TABLE>
At December 31, 1996 the range of exercise prices and the weighted-average
remaining contractual lives of outstanding options was $1.08--$97.45 and 8.4
years, respectively.
In addition to the MMG Plan, at December 31, 1996, there were 278,000 shares
that may be the subject of awards under other existing stock option plans.
F-34
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
At December 31, 1996 and 1995, the number of stock options exercisable was
2,031,000 and 1,214,000, respectively, and the weighted-average exercise price
of these options was $7.92 and $3.97, respectively
During 1994, an officer of the Communications Group 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 the fiscal 1995 statement of operations is $3.6 million of
compensation expense in connection with these options.
Prior to the November 1 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.
As part of the MPCA Merger, the Company issued 256,504 shares of restricted
common stock to certain employees. The common stock vests on a pro-rata basis
over a three year period ending in July 1999. The total market value of the
shares at the time of issuance is treated as unearned compensation and is
charged to expense over the vesting period. Unearned compensation charged to
expense for the period ended December 31, 1996 was $529,000.
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 stock options granted
under this plan and had granted 20,000 options thereunder.
No shares have been granted under the Company's restricted stock plan during
1996 and 102,800 shares of common stock remain available under this plan.
11. INCOME TAXES (SEE NOTE 15)
The provision for income taxes for calendar 1996, calendar 1995 and fiscal 1995
all of which is current, consists of the following (in thousands):
<TABLE>
<CAPTION>
CALENDAR CALENDAR FISCAL
1996 1995 1995
----------- ----------- ---------
<S> <C> <C> <C>
Federal........................................................ $ -- $ -- $ --
State and local................................................ -- -- --
Foreign........................................................ 414 -- --
----------- ----------- ---------
Current........................................................ 414 -- --
Deferred....................................................... -- -- --
----------- ----------- ---------
$ 414 $ -- $ --
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
The provision for income taxes for calendar 1996, calendar 1995 and fiscal 1995
applies to continuing operations before discontinued operations and
extraordinary items.
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, including discontinued
operations, of $4.4 million, $1.9 million and $9.5 million in calendar 1996,
calendar 1995 and fiscal 1995, respectively. Pre-tax
F-35
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (SEE NOTE 15) (CONTINUED)
losses from domestic operations were $88.6 million, $84.4 million and $58.6
million in calendar 1996, calendar 1995 and fiscal 1995, respectively.
Foreign tax expense in calendar 1996 reflects estimates of withholding and
remittance taxes.
The temporary differences and carryforwards including discontinued operations
which give rise to deferred tax assets and (liabilities) at December 31, 1996
and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net operating loss carryforward....................................... $ 237,713 $ 241,877
Deferred income....................................................... 29,183 22,196
Investment credit carryforward........................................ 25,000 28,000
Allowance for doubtful accounts....................................... 7,471 4,395
Capital loss carryforward............................................. 6,292 3,850
Film costs............................................................ (29,412) (1,832)
Shares payable........................................................ 21,228 15,670
Reserves for self-insurance........................................... 10,415 10,970
Investment in equity investee......................................... 12,325 22,146
Purchase of safe harbor lease investment.............................. (7,903) (9,115)
Minimum tax credit (AMT) carryforward................................. 8,805 8,805
Other reserves........................................................ 11,790 6,331
Other................................................................. (2,628) 7,654
---------- ----------
Subtotal before valuation allowance................................... 330,279 360,947
Valuation allowance................................................... (330,279) (360,947)
---------- ----------
Deferred taxes........................................................ $ -- $ --
---------- ----------
---------- ----------
</TABLE>
The net change in the total valuation allowance for calendar 1996, calendar 1995
and fiscal 1995 was an increase (decrease) of ($30.7) million, $119.9 million
and $51.3 million, respectively.
The Company's provision (benefit) for income taxes including discontinued
operations for calendar 1996, calendar 1995 and fiscal 1995, differs from the
provision (benefit) that would have resulted from applying the federal statutory
rates during those periods to income (loss) before the provision (benefit) for
income taxes. The reasons for these differences are explained in the following
table (in thousands):
<TABLE>
<CAPTION>
CALENDAR CALENDAR FISCAL
1996 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
Benefit based upon federal statutory rate of 35%.............................. $ (32,556) $ (30,190) $ (23,839)
State taxes, net of federal benefit........................................... 65 109 65
Foreign taxes in excess of federal credit..................................... 1,314 600 1,200
Amortization of goodwill...................................................... 2,510 17 --
Non-deductible direct expenses of chapter 11 filing........................... 76 448 214
Foreign operations............................................................ 1,548 656 --
Current year operating loss not benefited..................................... 17,632 26,725 22,832
Equity in losses of Joint Ventures............................................ 10,690 2,376 790
Other, net.................................................................... 135 26 38
---------- ---------- ----------
Provision for income taxes.................................................... $ 1,414 $ 767 $ 1,300
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
At December 31, 1996 the Company had available net operating loss carryforwards,
capital loss carryforwards, unused minimum tax credits and unused investment tax
credits of approximately $615.0 million, $18.0 million, $9.0 million and $25.0
million, respectively, which can reduce future federal income taxes.
F-36
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. INCOME TAXES (SEE NOTE 15) (CONTINUED)
These carryforwards and credits began to expire in 1996. The minimum tax credit
may be carried forward indefinitely to offset regular tax in certain
circumstances.
The use by the Company of the pre-November 1, 1995 net operating loss
carryforwards reported by Orion, Actava, MITI and Sterling ("the Pre-November 1
Losses") (and the subsidiaries included in their respective affiliated groups of
corporations which filed consolidated Federal income tax returns with Orion,
Actava, MITI or Sterling as the parent corporations) are subject to certain
limitations as a result of the November 1 Merger, respectively.
Under Section 382 of the Internal Revenue Code, annual limitations generally
apply to the use of the Pre-November 1 Losses by the Company. The annual
limitations on the use of the Pre-November 1 Losses of Orion, Actava, MITI or
Sterling by the Company approximate $11.9 million, $18.3 million, $10.0 million,
$510,000 per year, respectively. To the extent Pre-November 1 Losses equal to
the annual limitation with respect to Orion, Actava, MITI or Sterling are not
used in any year, the unused amount is generally available to be carried forward
and used to increase the applicable limitation in the succeeding year.
The use of Pre-November 1 Losses of Orion, MITI and Sterling is also separately
limited by the income and gains recognized by the corporations that were members
of the Orion, MITI and Sterling affiliated groups, respectively. Under proposed
Treasury regulations, such Pre-November 1 Losses of any such former members of
any such group, are usable on an aggregate basis to the extent of the income and
gains of such former members of such group.
As a result of the November 1 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.
12. EMPLOYEE BENEFIT PLANS (SEE NOTE 15)
Orion, MITI and Snapper have defined contribution plans which provide for
discretionary annual contributions covering substantially all of their
employees. Participating employees can defer receipt of up to 15% of their
compensation, subject to certain limitations. Orion matches 50% of amounts
contributed up to $1,000 per participant per plan year and may make
discretionary contributions on an annual basis. MITI has the discretion to match
amounts contributed by plan participants up to 3% of their compensation.
Snapper's employer match is determined each year, and was 50% of the first 6% of
compensation contributed by each participant for the period November 1, 1996 to
December 31, 1996. The contribution expense for calendar 1996, calendar 1995 and
fiscal 1995 was $375,000, $124,000 and $107,000, respectively.
In addition, Snapper has a profit sharing plan covering substantially all
non-bargaining unit employees. Contributions are made at the discretion of
management. No profit sharing amounts were approved by management in 1996.
Prior to the November 1 Merger, Actava had a noncontributory defined benefit
plan which was "qualified" under Federal tax law and covered substantially all
of Actava's employees. In addition, Actava had a "nonqualified" supplemental
retirement plan which provided for the payment of benefits to certain
F-37
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEE BENEFIT PLANS (SEE NOTE 15) (CONTINUED)
employees in excess of those payable by the qualified plans. Following the
November 1 Merger (see note 2), the Company froze the Actava noncontributory
defined benefit plan and the Actava nonqualified supplemental retirement plan
effective as of December 31, 1995. Employees no longer accumulate benefits under
these plans.
In connection with the November 1 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.
Snapper sponsors a defined benefit pension plan which covers substantially all
bargaining unit employees. Benefits are based upon the employee's years of
service multiplied by fixed dollar amounts. Snapper's funding policy is to
contribute annually such amounts as are necessary to provide assets sufficient
to meet the benefits to be paid to the plan's members and keep the plan
actuarially sound.
In addition, Snapper provides a group medical plan and life insurance coverage
for certain employees subsequent to retirement. The plans have been funded on a
pay-as-you-go (cash) basis. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing features such as
deductibles, coinsurance, and life-time maximums. The plan accounting
anticipates future cost-sharing changes that are consistent with Snapper's
expressed intent to increase the retiree contribution rate annually for the
expected medical trend rate for that year. The coordination of benefits with
Medicare uses a supplemental, or exclusion of benefits approach. Snapper funds
the excess of the cost of benefits under the plans over the participants'
contributions as the costs are incurred.
The net periodic pension cost and net periodic post-retirement benefit cost
(income) for the year ended December 31, 1996 amounts to $128,000 and
($104,000), respectively. Snapper's defined benefit plan's projected benefit
obligation and fair value of plan assets at December 31, 1996 were $5.4 million
and $6.7 million, respectively. Accrued post-retirement benefit cost at December
31, 1996 was $3.1 million. Disclosures regarding the funded status of the plan
have not been included herein because they are not material to the Company's
consolidated financial statements at December 31, 1996.
F-38
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. BUSINESS SEGMENT DATA (SEE NOTE 15)
The business activities of the Company constitute three business segments (see
note 1 Description of the Business) and are set forth in the following table (in
thousands):
BUSINESS SEGMENT DATA
<TABLE>
<CAPTION>
CALENDAR CALENDAR FISCAL
1996 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
Communications Group:
Revenues................................................................... 14,047 5,158 3,545
Direct operating costs..................................................... (39,687) (26,991) (19,288)
Depreciation and amortization.............................................. (6,403) (2,101) (1,149)
---------- ---------- ----------
Loss from operations....................................................... (32,043) (23,934) (16,892)
---------- ---------- ----------
---------- ---------- ----------
Equity in losses of Joint Ventures......................................... (11,079) (7,981) (2,257)
---------- ---------- ----------
---------- ---------- ----------
Assets at year end......................................................... 195,005 161,089 40,282
Capital expenditures....................................................... 3,829 2,324 3,610
---------- ---------- ----------
---------- ---------- ----------
Landmark Theatre Group (1):
Revenues................................................................... $ 29,581 $ -- $ --
Direct operating costs..................................................... (25,729) -- --
Depreciation and amortization.............................................. (2,236) -- --
---------- ---------- ----------
Income from operations..................................................... 1,616 -- --
---------- ---------- ----------
---------- ---------- ----------
Assets at year end......................................................... 60,707 -- --
Capital expenditures....................................................... 2,638 -- --
---------- ---------- ----------
---------- ---------- ----------
Snapper (1):
Revenues................................................................... 22,544 -- --
Direct operating costs..................................................... (30,653) -- --
Depreciation and amortization.............................................. (1,256) -- --
---------- ---------- ----------
Loss from operations....................................................... (9,365) -- --
---------- ---------- ----------
---------- ---------- ----------
Assets at year end......................................................... 140,327 -- --
Capital expenditures....................................................... 1,252 -- --
---------- ---------- ----------
---------- ---------- ----------
Headquarters and Eliminations:
Revenues................................................................... -- -- --
Direct operating costs..................................................... (9,355) (1,109) --
Depreciation and amortization.............................................. (18) -- --
---------- ---------- ----------
Income from operations..................................................... (9,373) (1,109) --
---------- ---------- ----------
---------- ---------- ----------
Assets at year end including discontinued operations and eliminations...... 130,092 167,511 --
---------- ---------- ----------
---------- ---------- ----------
Consolidated--Continuing Operations:
Revenues................................................................... 66,172 5,158 3,545
Direct operating costs..................................................... (105,424) (28,100) (19,288)
Depreciation and amortization.............................................. (9,913) (2,101) (1,149)
---------- ---------- ----------
Loss from operations....................................................... (49,165) (25,043) (16,892)
---------- ---------- ----------
---------- ---------- ----------
Equity in losses of Joint Ventures......................................... (11,079) (7,981) (2,257)
---------- ---------- ----------
---------- ---------- ----------
Assets at year end......................................................... 526,131 328,600 40,282
Capital expenditures....................................................... $ 7,719 $ 2,324 $ 3,610
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ------------------------
(1) Represents operations from July 2, 1996 to December 31, 1996.
(2) Represents operations from November 1, 1996 to December 31, 1996.
F-39
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. BUSINESS SEGMENT DATA (SEE NOTE 15) (CONTINUED)
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 the
Entertainment Group's export sales from continuing operations by major
geographic area for each of the last three fiscal years (in thousands):
<TABLE>
<CAPTION>
CALENDAR CALENDAR FISCAL
1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
Canada....................................................... $ 1,996 $ 4,150 $ 3,862
Europe....................................................... 32,699 32,126 36,532
Mexico and South America..................................... 3,151 2,454 4,586
Asia and Australia........................................... 8,669 8,841 13,820
--------- --------- ---------
$ 46,515 $ 47,571 $ 58,800
--------- --------- ---------
--------- --------- ---------
</TABLE>
Revenues and assets of the Communications Group's foreign operations are
disclosed in note 8.
Showtime Networks, Inc. ("Showtime") and Lifetime Television ("Lifetime") have
been significant customers of the Company. During calendar 1996, calendar 1995
and fiscal 1995, the Company recorded approximately $800,000, $15.4 million and
$45.5 million, respectively, of revenues under its pay cable agreement with
Showtime, and during calendar 1996, calendar 1995 and fiscal 1995, the Company
recorded approximately $1.9 million, $15.0 million and $12.5 million of
revenues, respectively, under its basic cable agreement with Lifetime.
14. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS (SEE NOTE 15)
The Company is obligated under various operating and capital leases. Total rent
expense amounted to $5.0 million, $908,000 and $615,000 in calendar 1996,
calendar 1995, and fiscal 1995, respectively. Plant, property and equipment
included capital leases of $7.2 million and related accumulated amortization of
$1.4 million at December 31, 1996.
F-40
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Minimum rental commitments under noncancellable leases exclusive of the
Entertainment Companies are set forth in the following table (in thousands):
<TABLE>
<CAPTION>
YEAR CAPITAL LEASES OPERATING LEASES
- ------------------------------------------------------------ --------------- ----------------
<S> <C> <C>
1997........................................................ $ 1,049 $ 6,847
1998........................................................ 1,049 5,570
1999........................................................ 1,515 3,934
2000........................................................ 833 3,132
2001........................................................ 538 3,022
Thereafter.................................................. 8,761 20,121
------ -------
Total....................................................... 13,745 $ 42,626
-------
-------
Less: amount representing interest.......................... (7,560)
------
Present value of future minimum lease payments.............. $ 6,185
------
------
</TABLE>
The Company and certain of its subsidiaries have employment contracts with
various officers, with remaining terms of up to five years, at amounts
approximating their current levels of compensation. The Company's remaining
aggregate commitment at December 31, 1996 under such contracts is approximately
$7.2 million.
In addition, the Company and certain of its subsidiaries have post-employment
contracts with various officers. The Company's remaining aggregate commitment at
December 31, 1996 under such contracts is approximately $1.1 million.
The Company pays a management fee to Metromedia for certain general and
administrative services provided by Metromedia personnel. Such management fee
amounted to $1.5 million in calendar 1996 and $250,000 for the period November
1, 1995 to December 31, 1995. The management fee commitment for the year ended
December 31, 1997 is $3.3 million.
Snapper has entered into various long-term manufacturing and purchase agreements
with certain vendors for the purchase of manufactured products and raw
materials. As of December 31, 1996, noncancelable commitments under these
agreements amounted to approximately $25.0 million.
Snapper has an agreement with a financial institution which makes available
floor plan financing to distributors and dealers of Snapper products. This
agreement provides financing for dealer inventories and accelerates Snapper's
cash flow. Under the terms of the agreement, a default in payment by a dealer is
nonrecourse to both the distributor and to Snapper. However, the distributor is
obligated to repurchase any equipment recovered from the dealer and Snapper is
obligated to repurchase the recovered equipment if the distributor defaults. At
December 31, 1996, there was approximately $35.3 million outstanding under this
floor plan financing arrangement.
CONTINGENCIES
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. Two of the licenses held by the Communications Group have
recently expired, although the Communications Group has been permitted to
continue operations while the reissuance is pending. The Communications Group
has applied for
F-41
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
renewals and expects new licenses to be issued. Six other licenses held or used
by the Communications Group will expire in 1997. While there can be no assurance
on this matter, based on past experience, the Communications Group expects that
all of these licenses will be renewed.
At December 31, 1996 the Company had $17.8 million of outstanding letters of
credit which principally collateralize certain liabilities under the Company's
self-insurance program.
The Company 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 may have a material adverse effect on the
Company's prospective projects in the country. The Russian Federation has
periodically proposed legislation that would limit the ownership percentage that
foreign companies can have in communications businesses. While such proposed
legislation has not been made into law, it is possible that such legislation
could be enacted in Russia and/or that other countries in Eastern Europe and the
republics of the former Soviet Union may enact similar legislation which could
have a material adverse effect on the business, operations, financial condition
or prospects of the Company. Such legislation could be similar to United States
federal law which limits the foreign ownership in entities owning broadcasting
licenses. Similarly, PRC law and regulation restrict and prohibit foreign
companies or joint ventures in which they participate from providing telephony
service to customers in the PRC and generally limit the role that foreign
companies or their joint ventures may play in the telecommunications industry.
As a result, a Communications Group affiliate that has invested in the PRC must
structure its transactions as a provider of telephony equipment and technical
support services as opposed to a direct provider of such services. In addition,
there is no way of predicting whether additional 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.
The Republic of Latvia passed legislation which came into effect in September,
1996 and purports to limit to 49% 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
requires the Communications Group to reduce to 49% 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.
ACQUISITION COMMITMENTS
During December 1996, the Communications Group and the shareholders of AS Trio
LSL, executed a letter of intent together with a loan agreement. The letter of
intent states that the Communications Group will loan up to $1.0 million to the
shareholders and negotiate for the purchase of AS Trio LSL. Upon
F-42
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
closing of the purchase agreement, the principal and accrued interest under the
loan will be applied to the purchase price.
In connection with the Communications Group's activities directed at entering
into joint venture agreements in the Pacific Rim, MAC has entered into certain
agreements with Communications Technology International, Inc., ("CTI"), owner of
7% of the equity of MAC. Under these agreements, MAC has agreed to loan up to
$2.5 million to CTI which would be used to fund certain of CTI's operations in
the Pacific Rim, and permit CTI to purchase up to an additional 7% of the equity
of MAC provided that CTI is successful in obtaining rights to operate certain
services, as defined, and MAC is provided with the right to participate in the
operation of such services. MAC has also agreed to loan the funds required to
purchase the equity interests in MAC to CTI. No amounts have been loaned under
this provision as of December 31, 1996.
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 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 at one time 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 in the right of and 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, the 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. A hearing regarding the motion to dismiss was held on
November 6, 1996; the decision relating to the motion is pending.
MICHAEL SHORES V. SAMUEL GOLDWYN COMPANY
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 in Michael Shores v. Samuel Goldwyn Company, et. al., case
no. BC 150360. In the complaint, the plaintiff alleged that Goldwyn's Board of
Directors breached its fiduciary duties to the stockholders of Goldwyn by
agreeing to sell Goldwyn to the Company at a premium, yet providing Mr. Samuel
Goldwyn, Jr., the Samuel Goldwyn
F-43
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Family Trust and Mr. Meyer Gottlieb with additional consideration, and sought to
enjoin consummation of the Goldwyn Merger. The Company believes that the suit is
without merit and intends to vigorously defend such action.
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
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 1996 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, 1996. As of December 31, 1996, the Company had a remaining
reserve of approximately $1.3 million to cover its obligations of 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 sale of the Company's former
sporting goods business to RDM Sports Group, Inc. 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
sale to RDM, RDM 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 sale, the Company and RDM entered into an Environmental Indemnity
Agreement (the "Indemnity Agreement") under which the Company agreed to
indemnify RDM 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
F-44
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
environmental liabilities relating to any property now or previously owned by DP
except for the Opelika Property.
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 has been developed.
15. SALE OF ENTERTAINMENT COMPANIES
On July 10, 1997, the Company sold substantially all of the assets of its
entertainment group (the "Entertainment Group"), consisting of Orion Pictures
Corporation ("Orion"), Goldwyn Entertainment Company ("Goldwyn") and Motion
Picture Corporation of America ("MPCA") (and their respective subsidiaries) and
a feature film and television library of over 2,200 titles to P&F Acquisition
Corp. ("P&F"), the parent company of Metro-Goldwyn-Meyer Inc. ("MGM") for a
gross consideration of $573.0 million (such transaction hereinafter referred to
as the "Entertainment Group Sale"). The Company used $296.4 million of the
proceeds from the Entertainment Group Sale to repay all amounts outstanding
under the Entertainment Group's credit facilities and certain other indebtedness
of the Entertainment Group and it intends to use $140.0 million of such proceeds
to repay all of its outstanding debentures. As a result of the Entertainment
Group Sale, the company has narrowed its strategic focus from operating two core
businesses through the Communications Group and the Entertainment Group to
focusing primarily on the global communications and media businesses of the
Communications Group. The Entertainment Group's Landmark Theatre Group
("Landmark"), which the Company believes is the largest exhibitor of specialized
motion pictures and art-house films in the United States with, at March 31,
1997, 50 theatres and 138 screens, was not included in the Entertainment Group
Sale and the Company continues to own and operate Landmark to maximize its
value.
The Company will record a gain which will be reflected in the consolidated
statement of operations in 1997.
The Entertainment Companies revenues for calendar 1996, calendar 1995 and fiscal
1995 were $135,583, $133,812 and $191,244 respectively.
Net assets of the discontinued operations at December 31, 1996 and 1995 were as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
Current assets....................................................... $ 101,883 $ 95,296
Non-current assets................................................... 327,698 187,797
Current liabilities.................................................. (119,314) (69,304)
Non-current liabilities.............................................. (299,295) (201,732)
---------- -----------
Net assets....................................................... $ 10,972 $ 12,057
---------- -----------
---------- -----------
</TABLE>
The following unaudited pro forma information illustrates the effect of the sale
of the Entertainment Companies and the repayment of MMG's outstanding
subordinated debentures on revenues, loss from continuing operations and loss
from continuing operations per share for the year ended December 31, 1996, and
assumes that the sale of the Entertainment Companies, the repayment of MMG's
outstanding subordinated debentures (see note 9) occurred at the beginning of
the year and Snapper and Landmark
F-45
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SALE OF ENTERTAINMENT COMPANIES (CONTINUED)
were included in the consolidated results of operations at the beginning of 1996
(in thousands, except per share amounts).
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Revenues.......................................................................... $ 223,715
----------
----------
Loss from continuing operations................................................... (81,987)
----------
----------
Loss from continuing operations per share......................................... $ (1.51)
----------
----------
</TABLE>
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected financial information for the quarterly periods in calendar 1996 and
1995 is presented below (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
FIRST QUARTER OF SECOND QUARTER OF
------------------------ --------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---------- ---------- ----------- -----------
Revenues..................................................... $ 3,164 $ 1,276 $ 2,775 $ 1,401
Operating loss............................................... (7,443) (4,858) (10,645) (5,117)
Interest expense, net........................................ 3,610 439 3,806 487
Equity in losses of Joint Ventures........................... (1,783) (588) (1,985) (1,633)
Loss from continuing operations.............................. (12,823) (5,885) (16,428) (7,237)
Loss from discontinued operations............................ (6,318)(d) (14,481)(d) (2,422)(d) (9,477)(d)
Net loss..................................................... (19,141) (20,366) (18,850) (16,714)
Primary loss per common share:
Continuing operations...................................... $ (0.30) $ (0.28) $ (0.38) $ (0.35)
Discontinued operations.................................... $ (0.15) $ (0.69) $ (0.06) $ (0.45)
Net loss................................................. $ (0.45) $ (0.97) $ (0.44) $ (0.80)
</TABLE>
<TABLE>
<CAPTION>
THIRD QUARTER OF FOURTH QUARTER OF
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
1996(A) 1995 1996(C) 1995
----------- ----------- ----------- -----------
Revenues.......................................... $ 19,239 $ 1,357 $ 40,994 $ 1,124
Operating loss.................................... (8,672) (3,802) (22,405) (11,266)
Interest expense, net............................. 1,241 646 2,339 1,857
Equity in losses of Joint Ventures................ (2,292) (1,568) (5,019) (4,192)
Loss from continuing operations................... (12,204) (6,016) (29,533) (17,127)
Loss from discontinued operations................. (26,151)(b)(d) (10,130)(d) (4,859)(d) (310,241)(d)(e)
Loss from extraordinary item...................... (4,505)(f) -- -- (32,382)(g)
Net loss.......................................... (42,860) (16,146) (34,392) (359,750)
Primary loss per common share:
Continuing operations........................... $ (0.19) $ (0.29) $ (0.45) $ (0.48)
Discontinued operations......................... $ (0.40) $ (0.48) $ (0.07) $ (8.78)
Extraordinary item.............................. $ (0.07) $ -- $ -- $ (0.92)
Net loss........................................ $ (0.66) $ (0.77) $ (0.52) $ (10.18)
</TABLE>
- ------------------------
(a) Reflect the acquisition of Goldwyn and MPCA as of July 2, 1996.
(b) Reflects the writedown of the Company's investment in RDM.
F-46
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
(c) Reflects the consolidation of Snapper as of November 1, 1996.
(d) On July 10, 1997, the Company completed the sale of substantially all of the
assets of the Company's Entertainment Group. The transaction has been
treated as a discontinuance of a business segment and, accordingly, the
consolidated financial statements reflect the results of operations of the
Entertainment Group as a discontinued segment.
(e) Represents the excess of the allocated purchase price attributed to Snapper
in the November 1 Merger, over the estimated cash flows from the operations
and the anticipated sale of Snapper.
(f) In connection with the refinancing of the Orion Credit Facility, the Company
expensed the deferred financing costs of $4.5 million.
(g) Orion removed certain unamortized discounts associated with such obligations
from the accounts and recognized an extraordinary loss on the extinguishment
of debt.
F-47
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
<S> <C> <C>
MARCH 31, MARCH 31,
1997 1996
---------- ----------
Revenues.................................................................................. $ 75,998 $ 3,164
Cost and expenses:
Cost of sales and rentals and operating expenses........................................ 51,065 --
Selling, general and administrative..................................................... 28,497 9,151
Depreciation and amortization........................................................... 5,036 1,456
---------- ----------
Operating loss.......................................................................... (8,600) (7,443)
Interest expense.......................................................................... 5,806 4,824
Interest income........................................................................... 2,707 1,214
---------- ----------
Interest expense, net................................................................... 3,099 3,610
Loss before provision for income taxes, equity in losses of Joint Ventures, minority
interest and discontinued operations.................................................. (11,699) (11,053)
Provision for income taxes................................................................ (98) --
Equity in losses of Joint Ventures........................................................ (1,598) (1,783)
Minority interest, including $890 of Metromedia Asia Corporation for the three months
ended March 31, 1997.................................................................... 1,240 13
---------- ----------
Loss from continuing operations........................................................... (12,155) (12,823)
Discontinued operations:
Loss from operations from discontinued operations (less income taxes of $200 and $200
for the three months ended March 31, 1997 and 1996, respectively...................... (10,103) (6,318)
---------- ----------
Net loss.................................................................................. $ (22,258) $ (19,141)
---------- ----------
---------- ----------
Primary loss per common share:
Continuing operations..................................................................... $ (0.19) $ (0.30)
---------- ----------
---------- ----------
Discontinued operations................................................................... $ (0.15) $ (0.15)
---------- ----------
---------- ----------
Net loss.................................................................................. $ (0.34) $ (0.45)
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated condensed financial statements
F-48
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------------- -------------
<S> <C> <C>
(UNAUDITED)
ASSETS:
Current assets:
Cash and cash equivalents........................................................ $ 32,522 $ 89,400
Accounts receivable:
Snapper, net................................................................... 48,191 36,843
Other, net..................................................................... 7,867 3,686
Inventories...................................................................... 59,457 54,404
Other assets..................................................................... 5,193 4,331
--------------- -------------
Total current assets......................................................... 153,230 188,664
Investments in and advances to Joint Ventures...................................... 96,294 65,447
Asset held for sale--RDM Sports Group, Inc. ....................................... 31,150 31,150
Net assets of discontinued operations.............................................. 3,914 10,972
Property, plant and equipment, net of accumulated depreciation..................... 70,750 71,089
Intangible assets, less accumulated amortization................................... 214,681 149,261
Other assets....................................................................... 4,894 9,548
--------------- -------------
Total assets................................................................. $ 574,913 $ 526,131
--------------- -------------
--------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable................................................................. $ 29,432 $ 23,810
Accrued expenses................................................................. 83,982 80,286
Current portion of long-term debt................................................ 2,962 19,505
--------------- -------------
Total current liabilities.................................................... 116,376 123,601
Long-term debt..................................................................... 185,099 178,727
Other long-term liabilities........................................................ 3,482 3,590
--------------- -------------
Total liabilities............................................................ 304,957 305,918
--------------- -------------
Minority interest.................................................................. 41,142 531
Commitments and contingencies
Stockholders' equity:
Preferred Stock, authorized 70,000,000 shares -- --
Common Stock, $1.00 par value, authorized 400,000,000 shares, issued and
outstanding 66,158,525 and 66,153,439 shares at March 31, 1997 and December 31,
1996, respectively............................................................. 66,159 66,153
Paid-in surplus.................................................................. 994,665 959,558
Other............................................................................ (6,403) (2,680)
Accumulated deficit.............................................................. (825,607) (803,349)
--------------- -------------
Total stockholders' equity....................................................... 228,814 219,682
--------------- -------------
Total liabilities and stockholders' equity................................... $ 574,913 $ 526,131
--------------- -------------
--------------- -------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-49
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
<S> <C> <C>
MARCH 31, MARCH 31,
1997 1996
----------- -----------
Operating activities:
Net loss.............................................................................. $ (22,258) $ (19,141)
Adjustments to reconcile net loss to net cash used in operating activities:
Operating loss of discontinued operation............................................ 10,103 6,318
Equity in losses of Joint Ventures.................................................. 1,598 1,783
Amortization of debt discounts...................................................... 659 652
Depreciation and amortization....................................................... 5,036 1,456
Minority interest................................................................... (1,083) --
Other............................................................................... 980 --
Changes in assets and liabilities, net of effect of acquisitions:
(Increase) decrease in accounts receivable.......................................... (15,529) 84
Increase in inventories............................................................. (5,053) --
Increase in accounts payable and accrued expenses................................... 7,092 1,821
Other operating activities, net..................................................... (1,291) 650
----------- -----------
Cash used in operations......................................................... (19,746) (6,377)
----------- -----------
Investing activities:
Investments in and advances to Joint Ventures....................................... (15,343) (2,542)
Distributions from Joint Ventures................................................... 1,848 --
Purchase of short-term investments.................................................. -- (500)
Proceeds from sale of short-term investments........................................ -- 1,342
Purchase of additional equity in subsidiaries....................................... (2,445) --
Purchase of AAT..................................................................... (4,750) --
Additions to property, plant and equipment.......................................... (2,615) (3,276)
Other investing activities, net..................................................... -- 3,872
----------- -----------
Cash used in investing activities............................................... (23,305) (1,104)
----------- -----------
Financing activities:
Proceeds from issuance of long-term debt............................................ 6,008 --
Proceeds from issuance of stock related to incentive plans.......................... 48 238
Payments on notes and subordinated debt............................................. (16,838) (3,030)
Due from discontinued operations.................................................... (3,045) 74
Other financing activities, net..................................................... -- 142
----------- -----------
Cash used in financing activities............................................... (13,827) (2,576)
----------- -----------
Net decrease in cash and cash equivalents............................................... (56,878) (10,057)
Cash and cash equivalents at beginning of period........................................ 89,400 20,605
----------- -----------
Cash and cash equivalents at end of period.............................................. $ 32,522 $ 10,548
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-50
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SURPLUS OTHER DEFICIT TOTAL
------------ --------- ---------- --------- ------------ ----------
Balances, December 31, 1996..................... 66,153,439 $ 66,153 $ 959,558 $ (2,680) $ (803,349) $ 219,682
Issuance of stock related to incentive
plans......................................... 5,086 6 42 -- -- 48
Foreign currency translation adjustment......... -- -- -- (3,987) -- (3,987)
Amortization of restricted stock................ -- -- -- 264 -- 264
Increase in equity resulting from issuance of
stock by subsidiary........................... -- -- 35,065 -- -- 35,065
Net loss........................................ -- -- -- -- (22,258) (22,258)
------------ --------- ---------- --------- ------------ ----------
Balances, March 31, 1997........................ 66,158,525 $ 66,159 $ 994,665 $ (6,403) $ (825,607) $ 228,814
------------ --------- ---------- --------- ------------ ----------
------------ --------- ---------- --------- ------------ ----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-51
<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. ("MMG" or the "Company") and
its wholly-owned subsidiaries Metromedia International Telecommunications, Inc.
("MITI" or the "Communications Group"), as of July 2, 1996 Landmark Theatre
Group ("Landmark") and as of November 1, 1996, Snapper, Inc. ("Snapper"). All
significant intercompany transactions and accounts have been eliminated.
On July 10, 1997 the Company completed the sale of substantially all of MMG's
entertainment assets (see note 2). The transaction has been recorded as a
discontinuance of a business segment and, accordingly the consolidated condensed
balance sheets at March 31, 1997 and December 31, 1996 reflect the net assets of
the discontinued segment. The consolidated condensed statements of operations
reflects the results of operations as a discontinued segment. The Company will
record a gain on the sale of the discontinued segment on July 10, 1997 (see note
2).
Investments in other companies, including the Communications Group's 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.
Certain reclassifications have been made to the prior year financial statements
to conform to the March 31, 1997 presentation.
The total allowance for doubtful accounts at March 31, 1997 and December 31,
1996 was $2.0 million and $1.7 million, respectively. Interest expense includes
amortization of debt discount of $659,000 and $652,000 for the three months
ended March 31, 1997 and March 31, 1996, respectively.
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/A Amendment No. 1 (the "1996 Form 10-K"). In the opinion of
management, all adjustments, consisting only of normal recurring adjustments and
adjustments to reflect the sale of MMG Entertainment Companies as defined in
note 2, necessary to present fairly the financial position of the Company as of
March 31, 1997, the results of its operations and its cash flows for the
three-month periods ended March 31, 1997 and 1996, 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. SALE OF ENTERTAINMENT COMPANIES
On May 2, 1997, MMG, Orion Pictures Corporation ("Orion") and P&F Acquisition
Corp., a Delaware Corporation ("P&F"), executed a Stock Purchase Agreement (the
"Stock Purchase Agreement") for the sale (the "Sales Transaction") of certain of
MMG's entertainment assets (including Orion and its direct and indirect
subsidiaries), other than Landmark Theatre Corporation and its subsidiaries
("Landmark") to
F-52
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
2. SALE OF ENTERTAINMENT COMPANIES (CONTINUED)
P&F (Orion, together with such subsidiaries, excluding Landmark, are
collectively referred to herein as the "Entertainment Companies").
Pursuant to the terms of the Stock Purchase Agreement, MMG agreed to sell the
Entertainment Companies to P&F for an aggregate purchase price of $573.0
million, less the sum of (i) the greater of (A) all amounts outstanding under an
existing credit facility between Orion and Chase Manhattan Bank (the "Orion
Credit Facility"), net of cash on hand of the Entertainment Companies on
December 31, 1996 or (B) all amounts outstanding under the Orion Credit
Facility, net of cash on hand of the Entertainment Companies on the Closing
Date; and (ii) unpaid interest under the Orion Credit Facility accrued to, but
not including, the Closing Date; and (iii) the greater of (A) $13.0 million or
(B) all other debt of the Entertainment Companies (other than the Orion Credit
Facility) outstanding on the Closing Date; and (iv) unpaid interest on such
other debt (other than the Orion Credit Facility) accrued to, but not including,
the Closing Date ( the "Purchase Price"). The assets to be sold to P&F include
MMG's film and television library, consisting of approximately 2,200 titles, the
production and distribution activities of the Entertainment Companies, which
include the operations of Orion, Goldwyn Entertainment Company and Motion
Picture Corporation of America, 12 substantially complete films and 5
direct-to-video features, and substantially all of the liabilities of these
entities. MMG will retain Landmark, which, as of December 31, 1996, has a total
of 138 screens at 50 locations throughout the United States.
Consummation of the Sales Transaction is not subject to any financing condition.
However, because the Sales Transaction may require stockholder approval, the
Company has decided to submit to the stockholders the Proposed Transaction and
Stock Purchase Agreement for approval. Pursuant to the terms of a Stockholders
Agreement, dated as of April 27, 1997, among John W. Kluge, Stuart Subotnick,
Met Telcell, Inc., a Delaware corporation, Metromedia Company, a Delaware
general partnership (collectively the "Metromedia Holders"), and P&F, the
Metromedia Holders have agreed (i) to vote their shares of common stock of MMG
(the "Common Stock"), in favor of the Sales Transaction and approve the Stock
Purchase Agreement and (ii) not to transfer their shares of Common Stock until
the later of September 30, 1997 or 90 days after the date of the stockholders
meeting held to approve and adopt the Stock Purchase Agreement (as long as such
meeting is held by September 30, 1997). As of May 2, 1997, the Metromedia
Holders owned approximately 25% of the outstanding Common Stock.
Consummation of the Sales Transaction is subject to various other conditions,
including, but not limited to (i) the release of MMG and its affiliates
(including certain of the Metromedia Holders) of all obligations under the Orion
Credit Facility; (ii) stockholder approval of the Stock Purchase Agreement;
(iii) the release of MMG of all obligations as guarantor under Orion's existing
lease; and (iv) the expiration or early termination of the waiting periods
prescribed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
At a meeting of the Board of Directors of MMG held on May 2, 1997, the Board of
Directors unanimously approved the terms of the Proposed Transaction as being in
the best interests of MMG and its stockholders, and unanimously recommended that
the stockholders of MMG vote to approve the Proposed Transaction.
Subsequent to the closing of the Sales Transaction, MMG will use a portion of
the net Purchase Price to repay MMG's outstanding subordinated debentures.
F-53
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
2. SALE OF ENTERTAINMENT COMPANIES (CONTINUED)
As a result of the sale of the Entertainment Companies, MMG intends to
significantly alter its strategic focus. MMG will continue to operate its
remaining businesses.
The Entertainment Companies revenues for the three months ended March 31, 1997
and 1996 were $27.4 million and $27.6 million, respectively.
Net assets of the Entertainment Companies at March 31, 1997 and December 31,
1996 were as follows (in thousands):
<TABLE>
<CAPTION>
1996
1997 ----------
-----------
(UNAUDITED)
<S> <C> <C>
Current assets.................................................... $ 97,729 $ 101,883
Non-current assets................................................ 330,050 327,698
Current liabilities............................................... (128,360) (119,314)
Non-current liabilities........................................... (295,505) (299,295)
----------- ----------
Net assets.................................................... 3,914 10,972
----------- ----------
----------- ----------
</TABLE>
The following unaudited pro forma information illustrates the effect of the sale
of the Entertainment Companies and the repayment of MMG's outstanding
subordinated debentures on revenues, loss from continuing operations (which does
not include the Entertainment Companies) and loss from continuing operations per
share for the three months ended March 31, 1997 and 1996, and assumes that the
sale of the Entertainment Companies, the repayment of MMG's outstanding
subordinated debentures and the acquisition of Asian American Telecommunications
Corporation occurred at the beginning of each period and that Snapper and
Landmark were included in the consolidated results of operations at the
beginning of 1996 (in thousands, except per share amounts).
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues........................................................... $ 75,998 $ 86,234
----------- -----------
----------- -----------
Loss from continuing operations.................................... (9,395) (9,683)
----------- -----------
----------- -----------
Loss from continuing operations per share.......................... $ (0.14) $ (0.20)
----------- -----------
----------- -----------
</TABLE>
3. FUTURE FINANCING NEEDS
MMG is a holding company, and accordingly, does not generate cash flows. The
Communications Group is dependent on MMG for significant capital infusions to
fund its operations, its commitments to make capital contributions and loans to
its Joint Ventures and any acquisitions. Such funding requirements are based on
the anticipated funding needs of its Joint Ventures and certain acquisitions
committed to by the Company. Future capital requirements of the Communications
Group, including future acquisitions, will depend on available funding from the
Company and on the ability of the Communications Group's Joint Ventures to
generate positive cash flows. In addition, Snapper is restricted under covenants
contained in its credit agreements from making dividend payments or advances to
MMG.
F-54
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
3. FUTURE FINANCING NEEDS (CONTINUED)
In the short term, MMG intends to satisfy its current obligations and
commitments with available cash on hand of $27.5 million and the proceeds from
the sale of the Entertainment Companies and RDM Sports Group, Inc. (see note 5).
The Company's remaining strategic business is the business conducted by the
Communications Group. The Communications Group is engaged in businesses that
require the investment of significant amounts of capital in order to construct
and develop operational systems and market services. In connection with the
Sales Transaction, the Company received $276.6 million after the repayment of
the Entertainment Companies debt, as defined in the Stock Purchase Agreement. In
August 1997 MMG will use approximately $140.0 million of such net proceeds to
repay some or all of its outstanding subordinated debentures. As a result,
although MMG will have no significant long-term debt, MMG may require additional
financing in order to satisfy the Communications Group's on-going capital
requirements and to achieve the Communications Group's long-term business
strategies. Such additional capital may be provided through the public or
private sale of debt or equity securities. On April 4, 1997, MMG filed a
Registration Statement with the SEC to register $125.0 million of its
convertible preferred stock. No determination has been made by MMG as to whether
it will proceed with this financing. If MMG elects to proceed, no assurance can
be given that the Company will be able to consummate this financing or that any
additional financing will be available to MMG on acceptable terms, if at all. If
adequate additional funds are not available, there can be no assurance that the
Company will have the funds necessary to support the current needs of the
Communications Group's current investments or any of the Communications Group's
additional 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 existing ventures and
the number of additional ventures in which it invests may be significantly
curtailed.
Management believes that its long term liquidity needs will be satisfied through
a combination of the Company's successful implementation and execution of its
growth strategy to become a global and communications and media company and the
Communications Group's Joint Ventures achieving positive operating results and
cash flows through revenue and subscriber growth and control of operating
expenses.
4. 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 period. 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. 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 that is lower than
primary earnings per share.
The primary loss per share amounts for the three months ended March 31, 1997
have been restated to reflect the sale of the Entertainment Companies as a
discontinued operation.
F-55
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
5. ASSETS HELD FOR SALE
RDM SPORTS GROUP, INC.
As of March 31, 1997, the Company owned approximately 39% of the issued and
outstanding shares of Common Stock of RDM Sports Group, Inc. (the "RDM Common
Stock") based on approximately 49,507,000 shares of RDM Common Stock outstanding
at November 8, 1996.
The Company has deemed its investment in RDM to be a non-strategic asset and it
intends to dispose of its investment in RDM during 1997. Since the Company's
investment in RDM is classified as a discontinued operation, the Company
excludes its equity in earnings and losses of RDM from its results of
operations. The carrying value of the Company's investment in RDM at March 31,
1997 and December 31, 1996, was approximately $31.2 million based on the
anticipated proceeds from its sale. However, no assurances can ge given that the
Company will be able to dispose of RDM in a timely fashion and/or on favorable
terms.
Summarized unaudited condensed statements of operations information for the year
ended December 31, 1996 and balance sheet information as of September 30, 1996
for RDM is shown below (in thousands):
<TABLE>
<S> <C>
Net sales......................................................... $ 366,683
Gross profit...................................................... 1,282
Interest expense.................................................. 22,652
Gain on sale of subsidiaries...................................... 116,324
Net income........................................................ 775
Current assets.................................................... $ 209,272
Non-current assets................................................ 82,657
Current liabilities............................................... 126,144
Non-current liabilities........................................... 110,730
Total shareholders' equity........................................ 55,055
</TABLE>
F-56
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
5. ASSETS HELD FOR SALE (CONTINUED)
SNAPPER, INC.
In connection with the November 1 Merger, Snapper was classified as an asset
held for sale. Subsequently, the Company announced its intention not to continue
to pursue its previously adopted plan to dispose of Snapper and to actively
manage Snapper. As of November 1, 1996, the Company has consolidated Snapper
into its results of operations.
The results of Snapper for the period January 1, 1996 through March 31, 1996,
which were 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
---------
Income before taxes................................................ $ 481
---------
---------
</TABLE>
6. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
The Communications Group has recorded its investments in Joint Ventures at cost,
net of 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 prime rate to prime rate plus 6%. The credit
agreements generally provide for the payment of principal and interest from 90%
of the Joint Ventures' available cash flow, as defined, and significantly
restricts the amount of dividends that may be paid to the Joint Venture
partners. The Communications Group has entered into credit agreements with its
Joint Ventures to provide up to $75.6 million in funding, of which $15.4 million
remains available at March 31, 1997. Under its credit agreements the
Communications Group's funding commitments are contingent on its approval of the
Joint Ventures' business plans.
F-57
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
At March 31, 1997 and December 31, 1996, the Communications Group's cumulative
investments in the Joint Ventures, at cost, net of adjustments for its equity in
earnings or losses since inception, were as follows (in thousands):
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
<TABLE>
<CAPTION>
YEAR DATE
MARCH 31, DECEMBER 31, OWNERSHIP VENTURE OPERATIONS
1997 1996 % FORMED COMMENCED
----------- ------------- --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
NAME
- -----------------------------------------------
WIRELESS CABLE TV
Kosmos TV, Moscow, Russia...................... $ 685 $ 759 50% 1991 1992
Baltcom TV, Riga Latvia........................ 8,878 8,513 50% 1991 1992
Ayety TV, Tbilisi, Georgia..................... 4,910 4,691 49% 1991 1993
Kamalak, Tashkent,.............................
Uzbekistan(1)................................ 5,686 6,031 50% 1992 1993
Sun TV, Kishinev, Moldova...................... 4,232 3,590 50% 1993 1994
Minsk Cable, Minsk, Belarus.................... 1,281 1,980 50% 1993 1996
Alma TV, Almaty, Kazakhstan(1)................. 4,134 2,840 50% 1994 1995
----------- -------------
29,806 28,404
----------- -------------
PAGING
Baltcom Paging, Tallinn, Estonia............... 3,419 3,154 39% 1992 1993
Baltcom Plus, Riga, Latvia..................... 1,668 1,711 50% 1994 1995
Tbilisi Paging, Tbilisi, Georgia............... 909 829 45% 1993 1994
Raduga Paging, Nizhny..........................
Novgorod, Russia............................. 404 450 45% 1993 1994
St. Petersburg Paging, St. Petersburg,
Russia....................................... 976 963 40% 1994 1995
----------- -------------
7,376 7,107
----------- -------------
RADIO BROADCASTING
Eldoradio (formerly Radio Katusha), St.
Petersburg, Russia........................... 580 435 50% 1993 1995
Radio Socci, Socci, Russia..................... 248 361 51% 1995 1995
----------- -------------
828 796
----------- -------------
TELEPHONY
Telecom Georgia, Tbilisi, Georgia.............. 4,020 2,704 30% 1994 1994
Baltcom GSM.................................... 10,979 7,874 24% 1996 1997
Trunked mobile radio ventures.................. 2,399 2,049
----------- -------------
17,398 12,627
----------- -------------
PRE-OPERATIONAL
St. Petersburg Cable, St. Petersburg, Russia... 787 554 45% 1996 Pre-operational
Kazpage, Kazakhstan............................ 350 350 51% 1996 Pre-operational
Magticom, Tbilisi, Georgia..................... 2,450 2,450 34% 1996 Pre-operational
Batumi Paging, Batumi, Georgia................. 263 256 35% 1996 Pre-operational
PRC telephony related ventures and equipment... 8,719 9,712 Pre-operational
Tai Li-Feng Telecom. Co., Ltd., PRC............ 11,040 -- 52% Pre-operational
Ningbo Ya Mei Communications, PRC.............. 9,508 -- 39% Pre-operational
Other.......................................... 7,769 3,191
----------- -------------
40,886 16,513
----------- -------------
Total $ 96,294 $ 65,447
----------- -------------
----------- -------------
</TABLE>
- ------------------------
(1) includes Paging Operations
F-58
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
The ability of the Communications Group and its Joint Ventures to establish
profitable operations is subject to among other things, significant political,
economic and social risks inherent in doing business in Eastern Europe, the
republics of the former Soviet Union, and the People's Republic of China
("PRC"). These include potential risks 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.
Summarized combined financial information of Joint Ventures accounted for on a
three-month lag under the equity method that have commenced operations are as
follows (in thousands):
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS
Current assets................................................................ $ 21,130 $ 16,073
Investments in wireless systems and equipment................................. 43,337 38,447
Other assets.................................................................. 11,568 3,100
------- -------
Total Assets.................................................................. $ 76,035 $ 57,620
------- -------
------- -------
LIABILITIES AND JOINT VENTURES' EQUITY (DEFICIT)
Current liabilities........................................................... $ 16,762 $ 18,544
Amount payable under MITI credit facility..................................... 46,454 41,055
Other long-term liabilities................................................... 6,505 6,043
------- -------
69,721 65,642
Joint Ventures' Equity (Deficit).............................................. 6,314 (8,022)
------- -------
Total Liabilities and Joint Ventures' Capital................................. $ 76,035 $ 57,620
------- -------
------- -------
</TABLE>
F-59
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
<S> <C> <C>
MARCH 31, MARCH 31,
1997 1996
----------- -----------
Revenue............................................................................... $ 14,310 $ 8,995
Expenses:
Cost of service..................................................................... 1,317 4,161
Selling, general and administrative................................................. 6,953 4,409
Depreciation and amortization....................................................... 2,653 1,322
----------- -----------
Total expenses........................................................................ 10,923 9,892
----------- -----------
Operating income (loss)............................................................... 3,387 (897)
Interest expense...................................................................... (1,135) (732)
Other expense......................................................................... (979) (10)
Foreign currency translation.......................................................... 346 846
----------- -----------
Net income (loss)..................................................................... $ 1,619 $ (793)
----------- -----------
----------- -----------
</TABLE>
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 and for those entities whose venture agreements are not yet finalized
amounted to approximately $40.9 million and $6.3 million at March 31, 1997 and
1996, respectively.
F-60
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
The following tables represent summary financial information for all operating
entities being grouped as indicated as of and for the three months ended March
31, 1997 and 1996 (in thousands, except subscribers):
<TABLE>
<CAPTION>
MARCH 31,
--------------------
<S> <C> <C> <C> <C> <C> <C>
WIRELESS RADIO 1997 1996
CABLE TV PAGING BROADCASTING TELEPHONY TOTAL TOTAL
-------- ------- ------------ --------- -------- ----------
CONSOLIDATED SUBSIDIARIES AND JOINT VENTURES
Revenues.......................................... $ 493 $ 857 $3,274 -- $ 4,624(1) $ 2,954(1)
Depreciation and amortization..................... 103 105 108 -- 316 160
Operating income (loss)........................... (271) (5) 1,152 -- 876(1) 512(1)
Assets............................................ 3,125 3,010 3,801 -- 9,936 5,586
Capital expenditures.............................. 860 103 87 -- 1,050 420
UNCONSOLIDATED EQUITY JOINT VENTURES
Revenues.......................................... $ 5,405 $ 1,560 $ 401 $ 6,944 $ 14,310 $ 8,995
Depreciation and amortization..................... 2,122 134 16 381 2,653 1,322
Operating income (loss)........................... (1,090) (55) 66 4,466 3,387 (897)
Assets............................................ 33,315 6,046 757 35,917 76,035 47,356
Capital expenditures.............................. 2,117 124 2 1,704 3,947 2,471
Net investment in Joint Ventures.................. 29,806 7,376 828 17,398 55,408 30,802
Equity in income (losses) of unconsolidated
investees....................................... (2,415) (294) 93 1,018 (1,598) (1,783)
COMBINED
Revenues.......................................... $ 5,898 $ 2,417 $3,675 $ 6,944 $ 18,934(1) $ 11,949(1)
Depreciation and amortization..................... 2,225 239 124 381 2,969 1,482
Operating income (loss)........................... (1,361) (60) 1,218 4,466 4,263(1) (385)(1)
Assets............................................ 36,440 9,056 4,558 35,917 85,971 52,942
Capital expenditures.............................. 2,977 227 89 1,704 4,997 2,891
Subscribers....................................... 101,016 51,942 n/a 8,711 161,669 65,315
</TABLE>
- ------------------------
(1) Does not reflect the Communications Group's headquarter's revenue and
selling, general and administrative expenses for the three months ended
March 31, 1997 and 1996, respectively.
The following table represents information about the Communications Group's
operations in different geographic locations:
<TABLE>
<CAPTION>
REPUBLICS OF
FORMER SOVIET
UNION AND
UNITED EASTERN OTHER
MARCH 31, 1997 STATES EUROPE PRC FOREIGN CONSOLIDATED
- ------------------------------------------------- ------------ ------------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenues......................................... $ 405 $ 4,651 $ -- $ 119 $ 5,175
Assets........................................... 178,844 70,075 36,739 6,773 292,431
</TABLE>
F-61
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
On March 18, 1996, Metromedia Asia Telephony Limited, ("MATL") a subsidiary of
the Communications Group's Metromedia Asia Limited (n/k/a Metromedia Asia
Corporation) ("MAC") entered into a Joint Venture agreement with Golden Cellular
Communications, Ltd., ("GCC") to provide wireless local loop telephony
equipment, network planning, technical support and training to domestic
telephone operators throughout the PRC. Total required equity contributions to
the venture is $8.0 million, 60% of which has been contributed by MATL and 40%
by GCC.
The equipment contributed by MAC as an in-kind capital contribution must be
verified by a Chinese registered accountant in order for the joint venture to
obtain a business license. Although the capital verification process has not
been completed, MATL is continuing its efforts towards completion and management
believes that the capital verification will be completed successfully. In
addition, GCC's potential customers require an allocation of an appropriate
frequency spectrum to utilize the equipment contributed to the venture.
In February 1997, MAC acquired Asian American Telecommunications Corporation
("AAT") pursuant to a Business Combination Agreement (the "BCA") in which MAC
and AAT agreed to combine their businesses and operations. Pursuant to the BCA,
each AAT shareholder and warrant holder exchanged (the "Exchange") (i) one AAT
share of common stock for one share of MAC common stock, par value $.01 per
share ("MAC Common Stock"), (ii) one warrant to acquire one AAT common share at
an exercise price of $4.00 per share for one warrant to acquire one share of MAC
Common Stock at an exercise price of $4.00 per share and (iii) one warrant to
acquire one AAT common share at an exercise price of $6.00 per share for one
warrant to acquire one share of MAC Common Stock at an exercise price of $6.00
per share. AAT is engaged in the development and construction of communication
services in the PRC. AAT, through a joint venture, has a contract with one of
the PRC's two major providers of telephony services to provide
telecommunications services in the Sichuan Province of the PRC. The transaction
was accounted for as a purchase, with MAC as the acquiring entity.
As a condition to the closing of the BCA, the Communications Group purchased
from MAC, for an aggregate purchase price of $10.0 million, 3,000,000 shares of
MAC Class A Common Stock, par value $.01 per share (the "MAC Class A Common
Stock") and warrants to purchase an additional 1,250,000 shares of MAC Class A
Common Stock, at an exercise price of $6.00 per share. Shares of MAC Class A
Common Stock are identical to shares of MAC Common Stock except that they are
entitled, when owned by the Communications Group, to three votes per share on
all matters voted upon by MAC's stockholders and to vote as a separate class to
elect six of the ten members to MAC's Board of Directors. The securities
received by the Communications Group are not registered under the Securities
Act, but have certain demand and piggyback registration rights as provided in
the stock purchase agreement. As a result of the transaction, the Communications
Group owns 56.52% of MAC's outstanding common stock with 79% voting rights.
The purchase price of the AAT transaction was determined to be $86.0 million.
The excess of the purchase price over the fair value of the net tangible assets
acquired was $69.0 million. This has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years. The amortization of such
goodwill for the three months ended March 31, 1997 was approximately $300,000.
F-62
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
The purchase price was allocated as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets...................................................................... $ 46
Property, plant and equipment....................................................... 279
Investments in Joint Ventures....................................................... 18,950
Goodwill............................................................................ 68,999
Current liabilities................................................................. (2,226)
Other liabilities................................................................... (5)
-------------
Purchase price.................................................................. $ 86,043
-------------
-------------
</TABLE>
The difference between the Company's investment balance of $18.6 million in MAC
prior to the acquisition of AAT and 56.52% of the net equity of MAC subsequent
to the acquisition of AAT of $53.7 million was recorded as an increase to
paid-in surplus of $35.1 million in the consolidated condensed statement of
stockholders' equity.
In January 1997, the Communications Group's 99% owned Joint Venture, Romsat
Cable TV and Radio, S.A., acquired the cable television assets of Standard Ideal
Consulting, S.A., a wired cable television company with approximately 37,000
connected subscribers, for approximately $2.8 million.
7. INVENTORIES
Lawn and garden equipment inventories and pager inventories are stated at the
lower of cost or market. Lawn and garden equipment inventories are valued
utilizing the last-in, first-out (LIFO) method. Pager inventories are calculated
on the weighted-average method.
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- ------------
<S> <C> <C>
Lawn and garden equipment:
Raw materials............................................................... $ 19,766 $ 18,733
Finished goods.............................................................. 39,733 34,822
----------- ------------
59,499 53,555
Less LIFO reserve........................................................... 654 --
----------- ------------
58,845 53,555
Telecommunications:
Pagers...................................................................... 612 849
----------- ------------
$ 59,457 $ 54,404
----------- ------------
----------- ------------
</TABLE>
8. LONG-TERM DEBT
On April 30, 1997 Snapper closed a $10.0 million working capital facility with
AmSouth Bank of Alabama ("AmSouth") which amended Snapper's existing $55.0
million facility. The $10.0 million working capital facility (i) gives AmSouth a
PARI PASSU collateral interest in all of Snapper's assets (including rights
under
F-63
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
the Make-Whole and Pledge Agreement made by Metromedia Company in favor of
AmSouth in connection with the Snapper Revolver), (ii) accrues interest on
borrowings at AmSouth's floating prime rate (same borrowing rate as the Snapper
Revolver), and (iii) becomes due and payable on October 1, 1997. As additional
consideration for AmSouth making this new facility available, Snapper provided
to AmSouth the joint and several guarantees of Messrs. Kluge and Subotnick,
Chairman of the Board of MMG and Vice Chairman, President and Chief Executive
Officer of MMG, respectively, on the $10.0 million working capital facility.
9. STOCK OPTION PLANS
On March 26, 1997 the Board of Directors approved the cancellation and
reissuance of all stock options previously granted pursuant to the 1996
Metromedia International Group, Inc. Incentive Stock Plan (the "MMG Plan") at an
exercise price of $9.3129, the fair market value of MMG common stock at such
date. In addition, on March 26, 1997 the Board of Directors authorized the grant
of approximately 1,700,000 stock options at an exercise price of $9.3129 under
the MMG Plan.
On April 18, 1997, two officers of the Company were granted stock options, not
pursuant to any plan, to purchase 1,000,000 shares each of MMG common stock at a
purchase price of $7.4375 per share, the fair market value of MMG stock at such
date. The stock options vest and become fully exercisable after four years from
the date of grant.
10. ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128") which
supersedes APB Opinion 15, "Earnings per Share". SFAS 128 specifies the
computation, presentation and disclosure requirements for earnings per share
("EPS") for entities with publicly held common stock. SFAS 128 replaces primary
EPS and fully diluted EPS with basic EPS and diluted EPS, respectively. SFAS
128, effective December 31, 1997, is not expected to have a material impact on
the Company's reporting of earnings per share. Earlier adoption of SFAS 128 is
not permitted. After the effective date, the Company's prior-period EPS data
will be restated to conform with the provisions of SFAS 128.
11. CONTINGENT LIABILITIES
Updated information on litigation and environmental matters subsequent to
December 31, 1996 is as follows:
MICHAEL SHORES V. SAMUEL GOLDWYN COMPANY
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 in MICHAEL SHORES V. SAMUEL GOLDWYN COMPANY. ET AL., case
no. BC 150360. In the complaint, plaintiff alleged that Goldwyn's Board of
Directors breached its fiduciary duties to the stockholders of Goldwyn by
agreeing to sell Goldwyn to the Company at a premium, yet providing Mr. Samuel
Goldwyn, Jr., the Samuel Goldwyn Family Trust and Mr. Meyer Gottlieb with
additional consideration and other benefits not received by the other Goldwyn
shareholders, and sought to enjoin consummation of the Goldwyn Merger. On May 8,
1997, the plaintiff filed a motion for leave to file an amended complaint adding
the Company as a defendant and alleging that
F-64
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
11. CONTINGENT LIABILITIES (CONTINUED)
Goldwyn's Board of Directors breached their fiduciary duties further by failing
to negotiate certain provisions concerning price and disseminating to
stockholders misleading information. In addition, the plaintiff alleges that the
Company aided and abetted the other defendents in their breaches of fiduciary
duties. The Company believes that the suit is without merit and intends to
vigorously defend such action.
F-65
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Asian American Telecommunications
Corporation, Inc.
We have audited the accompanying balance sheet of Asian American
Telecommunications Corporation, Inc. (the Company) (a development stage
enterprise) as of December 31, 1996 and the related statements of operations,
stockholders' equity and cash flows for the period from January 22, 1996 (date
of inception) to December 31, 1996. 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 audit.
We conducted our audit 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 includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Asian American
Telecommunications Corporation, Inc. (a development stage enterprise) at
December 31, 1996 and the results of its operations and its cash flows for the
period from January 22, 1996 (date of inception) to December 31, 1996 in
conformity with generally accepted accounting principles.
June 24, 1997
F-66
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
- -------------------------------------------------------------------------------
<S> <C>
Current assets:
Cash and cash equivalents.................................................... $ 303,693
Prepaid expenses and other current assets.................................... 50,532
----------
Total current assets....................................................... 354,225
Property and equipment, net.................................................... 185,662
Investments in joint ventures.................................................. 14,177,474
----------
Total assets............................................................... $14,717,361
----------
----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
<S> <C>
Current liabilities:
Note payable................................................................. 5,250,000
Accounts payable............................................................. 188,637
Accrued expenses............................................................. 1,011,160
----------
Total current liabilities.................................................. 6,449,797
----------
Stockholders' equity:
Common stock, no par value; no stated value, 40,000,000 shares authorized;
23,383,000 shares issued and outstanding................................... 27,773,657
Warrants..................................................................... 3,087,715
Deficit accumulated during the development stage............................. (22,593,808)
----------
Total stockholders' equity................................................. 8,267,564
Commitments....................................................................
----------
Total liabilities and stockholders' equity................................. $14,717,361
----------
----------
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 22, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues $ --
Expenses:
General and administrative expenses.......................................... 6,627,543
Legal and consulting fees.................................................... 6,069,029
Cancellation agreement fees (note 4d)........................................ 9,920,000
Depreciation................................................................. 11,003
----------
Loss from operations....................................................... 22,627,575
----------
Other income (expense):
Equity in loss of joint ventures............................................. (22,402)
Interest income.............................................................. 105,726
Interest expense............................................................. (49,557)
----------
33,767
----------
Net loss................................................................... $22,593,808
----------
----------
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 22, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED TOTAL
COMMON STOCK DURING THE STOCK-
--------------------------- DEVELOPMENT HOLDERS'
SHARES AMOUNT WARRANTS STAGE EQUITY
------------ ------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock............... 16,000,000 $ 10,000 $ -- $ -- $ 10,000
Issuance of common stock and warrants
through private placement............ 3,883,000 15,124,285 407,715 -- 15,532,000
Offering costs of private placement.... 500,000 (776,628) -- -- (776,628)
Issuance of shares to employee for
compensation......................... 1,000,000 3,120,000 -- -- 3,120,000
Transfer of shares from significant
shareholder to consultants........... -- 3,120,000 -- -- 3,120,000
Shares to be issued in conjunction with
litigation settlement................ -- 936,000 -- -- 936,000
Issuance of shares and warrants in
conjunction with cancellation
agreement............................ 2,000,000 6,240,000 2,680,000 -- 8,920,000
Net loss............................... -- -- -- (22,593,808) (22,593,808)
------------ ------------- ------------ -------------- -------------
Balance at December 31, 1996........... 23,383,000 $ 27,773,657 $ 3,087,715 $ (22,593,808) $ 8,267,564
------------ ------------- ------------ -------------- -------------
------------ ------------- ------------ -------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 22, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss..................................................................... $(22,593,808)
Adjustments to reconcile net loss to net cash used in operating activities:
Issuance of shares and warrants in conjunction with cancellation
agreement.................................................................. 8,920,000
Compensation, consulting services and litigation settlement paid in common
stock...................................................................... 7,176,000
Depreciation............................................................... 11,003
Equity in loss of joint ventures........................................... 22,402
Increase in prepaid expenses and other assets.............................. (50,532)
Increase in accounts payable............................................... 188,637
Increase in accrued expenses............................................... 1,011,160
-----------
Net cash used in operating activities.................................. (5,315,138)
-----------
Cash flows from investing activities:
Purchases of property and equipment.......................................... (196,665)
Investments in joint ventures................................................ (14,199,876)
-----------
Net cash used in investing activities.................................. (14,396,541)
-----------
Cash flows from financing activities:
Proceeds from borrowings under note payable.................................. 5,250,000
Proceeds from issuance of common stock and warrants, net of offering costs... 14,765,372
-----------
Net cash provided by financing activities.............................. 20,015,372
-----------
Net increase in cash and cash equivalents.............................. 303,693
-----------
Cash and cash equivalents at beginning of period............................... --
-----------
Cash and cash equivalents at end of period..................................... $ 303,693
-----------
-----------
SUPPLEMENTAL INFORMATION TO STATEMENTS OF CASH FLOWS--
Cash paid for interest....................................................... $ 35,293
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) SUMMARY OF SIGNIFICANT POLICIES
(A) ORGANIZATION
Asian American Telecommunications Corporation, Inc. (the Company) is a
Cayman Island corporation incorporated on January 22, 1996. The Company is
developing ventures as the financier and consultant of telecommunication
companies seeking to provide cellular, wireless and wireline public switched
telephone networks in the People's Republic of China.
(B) CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. At December 31, 1996, the
Company's cash consisted entirely of cash in banks.
(C) PROPERTY AND EQUIPMENT
Property and equipment, consisting primarily of office equipment, are stated
at cost. Depreciation on property and equipment is computed on the straight-line
method over the estimated useful lives of the assets.
(D) INVESTMENTS IN JOINT VENTURES
Investments in joint ventures are accounted for by the equity method based
upon the level of the Company's influence on the joint ventures' operations. The
excess of cost of the joint ventures over the Company's share of their net
assets at the acquisition date is being amortized straight line over 15 years.
The amortization is included in the equity in loss of joint ventures.
(E) INCOME TAXES
The Company is a foreign entity and therefore not directly subject to U.S.
federal and state income taxes.
(F) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(2) INVESTMENTS IN JOINT VENTURES
The Company has entered into two separate joint ventures (collectively, the
Joint Ventures) with entities in the People's Republic of China. Both of the
Joint Ventures were formed as limited liability companies, with the Company's
liability from each Joint Venture limited to contributing its share of each
F-71
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) INVESTMENTS IN JOINT VENTURES (CONTINUED)
Joint Venture's capital and performing its cooperative conditions as defined in
the individual Joint Venture Agreements (the Agreements).
As of December 31, 1996, the Company's investments in the Joint Ventures
were as follows:
<TABLE>
<CAPTION>
COST OF NET
INVESTMENTS EQUITY IN INVESTMENTS
IN LOSS OF IN
JOINT JOINT JOINT
OWNERSHIP % VENTURES VENTURES VENTURES
----------------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Sichuan Tai Li Feng Telecommunications Co., Ltd. ........ 92% $10,477,631 9,472 10,468,159
Ningbo Ya Mei Communications............................. 70% 3,715,576 6,261 3,709,315
--
------------- --------- -------------
$14,193,207 15,733 14,177,474
------------- --------- -------------
------------- --------- -------------
</TABLE>
The unamortized portion of the excess of cost over the Company's share of
net assets of the Joint Ventures is $1,193,811 at December 31, 1996.
The Joint Ventures participate in project cooperation contracts with China
Unicom that entitle the Joint Ventures to certain percentages of the project
revenues. The Joint Ventures amortize the contributions to these cooperation
contracts over the anticipated periods of benefit (15 to 20 years).
(A) SICHUAN TAI LI-FENG TELECOMMUNICATIONS CO., LTD.
On May 21, 1996, the Company entered into a Joint Venture Agreement (the
Huaneng Agreement) with China Huaneng Technology Development Corp. (CHTD) for
the purpose of establishing Sichuan Tai Li Feng Telecommunications Co., Ltd.
(STLF). Also on May 21, 1996, STLF entered into a Network Systems Cooperation
Contract (the STLF Contract) with China Unicom. The STLF Contract provides for
the establishment of a network of 50,000 local telephone lines in the Sichuan
Province (the Sichuan Network), approximately 350 kilometers of secondary class
fiber optical truck lines between Chengdu and Chongqing cities, and an office
and housing facility in Chengdu city. This initial phase has a contractual term
of five years. Subsequent phases are projected to expand the Sichuan Network to
a total of 1,000,000 lines of local telephone network and expand
intra-provincial long distance trunk lines.
Under the STLF Contract, China Unicom will be responsible for the
construction and operation of the Sichuan Network, while STLF will provide
financing and consulting services for the project. Distributable Cash Flows, as
defined in the STLF Contract, are to be distributed 22% to China Unicom and 78%
to STLF for a 20 year period for each phase. STLF holds title to all assets
constructed, except for gateway switches and long distance transmission trunks.
On the 10th anniversary of the completion of the Sichuan Network's initial
phase, the assets will transfer from STLF to China Unicom. The Joint Venture
considers the cost of these fixed assets to be part of its contribution to the
STLF Contract.
The total amount to be invested in STLF is $29.5 million, with equity
contributions from its members amounting to $12 million. The Company is required
to make capital contributions to STLF of $11,040,000, representing 92% of the
Venture's equity. CHTD is required to contribute $960,000, representing 8% of
the Venture's equity. The remaining investment in STLF will be in the form of a
$17,500,000 loan from manufacturers who provide equipment for construction of
the network. STLF is obligated to secure this
F-72
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) INVESTMENTS IN JOINT VENTURES (CONTINUED)
financing. On March 3, 1997, the Company made an additional investment of
$562,000 in the Joint Venture.
Summary financial information for STLF as of and for the period ended
December 31, 1996 follows:
<TABLE>
<S> <C>
Cash........................................................... $5,047,189
Property and equipment ..................................... 330,031
STLF Contract.................................................. 6,016,522
Other assets................................................... 961
----------
Total assets................................................. $11,394,703
----------
----------
Members' equity................................................ $11,394,703
----------
----------
Net loss....................................................... $ 10,296
----------
----------
</TABLE>
The Company also has a consulting contract with China Huaneng for assistance
with operations in China. Under the contract, the Company is obligated to pay an
annual fee of RMB 15 million (US$1,829,000 at December 31, 1996 exchange rates).
During 1996, the Company paid China Huaneng approximately $914,000 under the
agreement which is included in legal and consulting fees.
(B) NINGBO YA MEI COMMUNICATIONS CO., LTD.
The Company entered into a Joint Venture Agreement (the Ningbo Agreement)
with Ningbo United Telecommunications Investment Co., Ltd. (NUT) on September
17, 1996 for the purpose of establishing Ningbo Ya Mei Telecommunications Co.,
Ltd. (NYM). NYM is engaging in the development of a telecommunications project
in the City of Ningbo, Zhejiang Province, for China Unicom. This project entails
construction of a mobile communications network with a capacity for 30,000
subscribers. China Unicom is to operate the network, and NYM will provide
financing and consulting services to China Unicom.
NUT assigned to NYM the rights and obligations received under a Network
System Cooperation Contract (the NUT Contract) with China Unicom, including the
right to expand the project to a capacity of 50,000 subscribers. NUT has also
agreed to assign the rights of first refusal on additional telecommunications
projects to NYM in the event such rights are granted to NUT by China Unicom.
Distributable Cash Flows, as defined in the NUT Contract are to be distributed
27% to China Unicom and 73% to NYM for a 15 year period for each phase. The
initial phase has no contractual term. Under the NUT Contract, NYM will own 30%
of all assets constructed. Ownership of these assets will transfer to China
Unicom as project cash flows are distributed. The Joint Venture considers the
cost of these assets to be part of its contribution to the NUT Contract.
Under the terms of the Ningbo Agreement, the Company is required to provide
$8,316,000 of capital contributions, representing 70% of the Venture's equity.
NUT is required to provide $3,564,000 of capital contributions to NYM,
representing 30% of the Venture's equity. NYM shall arrange loans with
manufacturers of the equipment for the project and banks in the amount of
$17,820,000. Any interest on loans executed prior to March 31, 1997 in excess of
10% per annum and any interest on loans executed after March 31, 1997 in excess
of 6% per annum will be paid by the Company.
F-73
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) INVESTMENTS IN JOINT VENTURES (CONTINUED)
Subsequent to year-end, the Company made an additional investment of
$5,794,000 in the Joint Venture pursuant to their Joint Venture agreement. The
Company also loaned the Joint Venture approximately $9,000,000.
Summary financial information for NYM as of and for the period ended
December 31, 1996 follows:
<TABLE>
<S> <C>
Cash............................................................ $ 145,052
NUT Contract.................................................... 2,283,414
Other assets.................................................... 320,357
---------
Total assets.................................................. $2,748,823
---------
---------
Other liabilities............................................... 249,112
---------
Members' equity................................................. $2,499,711
---------
---------
Net loss........................................................ $ 8,944
---------
---------
</TABLE>
The ability of AAT and its Joint Ventures to finance and to establish
profitable operations is subject to, among other things, special political,
economic and social risks inherent in doing business in The People's Republic of
China. These include matters arising out of government policies, economic
conditions, imposition of or changes to taxes and other similar charges by
governmental bodies, foreign exchange fluctuations and controls, civil
disturbances, deprivation or unenforceability of contractual rights and
obligations, and taking of property without fair compensation. Due to these
uncertainties and because the Joint Ventures have yet to commence principal
operations, the Company is unable to determine the recoverability of its
investments in Joint Ventures.
(3) NOTE PAYABLE
On July 15, 1996, the Company entered into a credit agreement with
Metromedia International Telecommunications, Inc. (MITI). Under the agreement,
the Company can borrow up to $10 million at 10% annual interest. The agreement
is secured by the common stock of the Company owned by a major stockholder and
officer. All borrowings are due and payable on February 28, 1997 (see note 8).
As of December 31, 1996, the Company had borrowed $5,250,000 under the
Agreement.
The credit agreement gives MITI the option to convert the outstanding
borrowings of $10 million into 3 million shares of the Company's common stock
and warrants to purchase 1,250,000 shares of common stock at an exercise price
of $6 per share. The warrants would be immediately exercisable and expire on
July 12, 1999.
Subsequent to year-end, the Company borrowed an additional $4,750,000 under
the Agreement. On February 28, 1997, MITI converted the total note payable into
Metromedia Asia Corporation (MAC) Class A Common Stock and MAC Class A Common
Stock warrants exercisable at $6 per share in connection with the business
combination with MAC (see note 8).
F-74
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) STOCKHOLDERS' EQUITY
(A) RECAPITALIZATION
The Company was initially incorporated with 16,000,000 shares of common
stock. On July 12, 1996 the Company's Board of Directors approved an increase in
the authorized shares of common stock from 16,000,000 shares (no par value) to
40,000,000 shares (no par value) with the aggregate consideration not to exceed
$100 million.
(B) PRIVATE PLACEMENT
On August 8, 1996 the Company raised $15,532,000 through the issuance of
3,883,000 units at $4 per unit in a private placement offering. Each unit
consisted of one share of the Company's common stock and one half of one warrant
to purchase one share at a price of $6 per share at any time from the period
beginning on August 5, 1996 and expiring on August 5, 1999. The Company recorded
the warrants at $.21 per warrant based upon management's best estimate of fair
value. In connection with the offering, the Company issued 500,000 shares of
common stock and paid $776,628 in commissions to the placement agents.
(C) NONCASH COMMON STOCK TRANSACTIONS
In August 1996, the Company issued 1,000,000 shares of common stock to an
employee and significant stockholder as compensation for past services. The
Company recorded $3,120,000 of expense related to the issuance which is included
in general and administrative expenses.
During the year, a significant shareholder transferred 1,000,000 shares of
his personal holdings of common stock to consultants on behalf of the Company.
The Company recorded $3,120,000 as a capital contribution and as an expense.
This expense is included in legal and consulting fees.
In connection with a litigation settlement, the Company agreed to issue
125,000 shares of common stock and a significant shareholder agreed to transfer
175,000 of his personal holdings of common stock on behalf of the Company (see
note 7). The Company accrued for the equity settlement as an additional capital
contribution and recorded a corresponding $936,000 expense in general and
administrative expenses.
All noncash common stock transactions were recorded at management's best
estimate of fair market value.
(D) ACQUISITION AGREEMENT AND CANCELLATION
On April 26, 1996 the Company entered into an Acquisition Agreement and Plan
of Reorganization with PortaCom Wireless, Inc. (PortaCom) whereby PortaCom would
acquire the Company. The Acquisition Agreement was amended to stipulate that
prior to the execution of the Acquisition Agreement PortaCom must raise a total
of $20 million through a private placement. On May 24, 1996 the Board of
Directors of the Company authorized the execution of a Private Placement Stock
Conversion Agreement between the Company and the proposed investors of the
PortaCom Wireless, Inc. Private Placement. This Private Placement would enable
the investors to receive shares in return for the funds advanced to the
F-75
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) STOCKHOLDERS' EQUITY (CONTINUED)
Company through PortaCom for the development of the Company's China Joint
Ventures in the event that the Acquisition Agreement was not consummated.
On September 11, 1996 the Company entered into a cancellation agreement with
PortaCom to cancel all previous agreements. It called for PortaCom to receive
$1,000,000 in cash, two million shares of the Company's common stock and
warrants to purchase four million shares of the Company's common stock at $4 per
share for a three year period. Values of $6,240,000 and $2,680,000 were assigned
to the common stock and warrants, respectively, based upon management's best
estimate of fair market value. The values of the common stock and warrants are
included in cancellation fee expense.
In order to protect the Company against any additional claims or
obligations, PortaCom has pledged all of the shares of common stock received
under the Cancellation Agreement to the Company until January 1, 1999.
(E) WARRANTS
The Company has warrants outstanding to purchase its common stock which are
exercisable upon issuance. During the period ended December 31, 1996, the
Company issued warrants to purchase 5,941,500 shares of common stock with a
weighted-average exercise price of $4.65.
The weighted-average grant date fair value of warrants issued in 1996 was
$.52.
(5) RELATED PARTY TRANSACTION
Effective June 1, 1996, the Company engaged McLernon & Associates, Ltd., to
perform certain management services on behalf of the Company. The primary
services provided are the executive positions of Chief Operating Officer, Chief
Financial Officer and Vice President-Treasurer. During 1996, the Company paid
$279,000 for these services which is included in legal and consulting fees. The
individuals received no direct renumeration for acting as officers; however, the
three individuals in the aggregate own over 80% of the membership units of
McLernon & Associates, Ltd. Effective December 31, 1996, the Management Services
Agreement was terminated and the three individuals became direct employees of
the Company.
F-76
<PAGE>
ASIAN AMERICAN TELECOMMUNICATIONS
CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(6) LEASES
The Company has two operating leases for office space in Columbus, Ohio and
Beijing, China. Future minimum lease payments under these noncancelable
operating leases (with initial or remaining lease terms in excess of one year)
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997.............................................................. $ 156,636
1998.............................................................. 182,591
1999.............................................................. 107,080
2000.............................................................. 102,669
2001 and thereafter............................................... 100,724
---------
Total....................................................... $ 649,700
---------
---------
</TABLE>
Total rent expense was $103,055 in 1996.
(7) LEGAL PROCEEDINGS
Subsequent to year-end the Company settled an outstanding legal matter with
a consultant. The Company agreed to pay the consultant $330,000 which is
included in accrued expenses at December 31, 1996. in connection with the
settlement agreement. Metromedia Asia Corporation (see note 8) also agreed to
issue 125,000 shares of common stock to the consultant and a significant
shareholder of the Company agreed to transfer 175,000 of his personal holdings
of common stock on behalf of the Company to the consultant. The issuance and
transfer of these shares has been reflected in the 1996 financial statements.
Subsequent to year-end, the Company also settled a complaint filed in
January 1997, by former shareholders. The Company agreed to pay these
shareholders $500,000 to settle matters related to the initial capital formation
of the Company. This is included in accrued expenses at December 31, 1996.
(8) BUSINESS COMBINATION WITH METROMEDIA ASIA CORPORATION
On December 23, 1996, the Company and Metromedia Asia Corporation (MAC), a
subsidiary of Metromedia International Telecommunications, Inc. (MITI), entered
into a Business Combination Agreement (the BCA) pursuant to which they agreed to
combine their businesses and operations. The BCA was consummated on February 28,
1997 and will be accounted for as a purchase transaction. Pursuant to the BCA,
each of the Company's shareholders and warrantholders exchanged (the Exchange)
(i) one of the Company's common shares for one share of MAC common stock, par
value $.01 per share (MAC Common Stock), (ii) one warrant to acquire one of the
Company's common shares at an exercise price of $4.00 per share for one warrant
to acquire one share of MAC Commons Stock at an exercise price of $4.00 per
share and (iii) one warrant to acquire one of the Company's common shares at an
exercise price of $6.00 per share for one warrant to acquire one share of MAC
Common Stock at an exercise price of $6.00 per share.
F-77
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION 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 PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO BUY OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 13
Use of Proceeds................................. 21
Price Range of Common Stock and Dividend
Policy........................................ 21
Capitalization.................................. 22
Pro Forma Consolidated Condensed Financial
Information................................... 23
Selected Consolidated Financial Data............ 28
Management's Discussion and Analysis of
Financial Condition........................... 29
Business........................................ 47
Management...................................... 68
Principal Stockholders.......................... 69
Description of the Preferred Stock.............. 70
Description of the Common Stock................. 78
Certain Provisions of the Restated Certificate
of Incorporation and By-laws.................. 78
Certain Federal Income Tax Consequences......... 81
Underwriting.................................... 84
Legal Matters................................... 85
Experts......................................... 85
Special Note Regarding Forward-Looking
Statements.................................... 85
Available Information........................... 86
Information Incorporated by Reference........... 86
Index to Financial Statements................... F-1
</TABLE>
3,000,000 SHARES
[LOGO]
% CUMULATIVE CONVERTIBLE
PREFERRED STOCK
--------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 Commission registration fee and the National
Association of Securities Dealers, Inc. ("NASD") filing fee, are estimated:
<TABLE>
<S> <C>
Commission registration fee...................................... $ 52,273
NASD filing fee.................................................. 17,850
AMEX listing fees................................................ *
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.
II-1
<PAGE>
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 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
- --------- -------------------------------------------------------------------------------------------------------
<C> <S>
1** Form of Underwriting Agreement.
4.1** Form of Certificate of Designation of the % Cumulative Convertible Preferred Stock of the Company.
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.
</TABLE>
- ------------------------
* Filed herewith.
** To be filed by amendment.
*** Filed previously.
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:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
II-3
<PAGE>
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) 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
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 Commission such indemnification is
against public policy as expressed in the Securities Act and 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 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,
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, 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, 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 Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York.
METROMEDIA INTERNATIONAL GROUP, INC.
By: /s/ STUART SUBOTNICK
-----------------------------------------
Stuart Subotnick
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: August 6, 1997
Pursuant to the requirements of the Securities Act, this Amendment to the
Registration Statement has been signed by the following persons in the
capacities indicated on the 6th day of August, 1997.
SIGNATURE TITLE
- ------------------------------ ---------------------------
* Chairman of the Board
- ------------------------------
John W. Kluge
Vice Chairman of the Board,
* President and Chief
- ------------------------------ Executive Officer
Stuart Subotnick (Principal Executive
Officer)
Executive Vice President,
/s/ SILVIA KESSEL Chief Financial Officer
- ------------------------------ and Director (Principal
Silvia Kessel Financial Officer)
* Executive Vice President,
- ------------------------------ General Counsel and
Arnold L. Wadler Director
* Senior Vice President
- ------------------------------ (Principal Accounting
Robert A. Maresca Officer)
* Director
- ------------------------------
John P. Imlay, Jr.
* Director
- ------------------------------
Clark A. Johnson
* Director
- ------------------------------
Richard J. Sherwin
II-5
<PAGE>
SIGNATURE TITLE
- ------------------------------ ---------------------------
* Director
- ------------------------------
Leonard White
* Director
- ------------------------------
Carl E. Sanders
*By: /s/ SILVIA KESSEL
------------------------------
Silvia Kessel
ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
- ----------- ------------------------------------------
<C> <S> <C>
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Price Waterhouse LLP
</TABLE>
<PAGE>
EXHIBIT 23.1
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
August 6, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated March 10, 1995, with respect to the consolidated
financial statements and schedule of The Actava Group Inc. Included in Form 10-K
of The Actava Group, Inc. for the year ended December 31, 1994 as amended by
Amendment No. 1 on Form 10K/A on April 28, 1995 and Amendment No. 2 on Form
10K/A on July 13, 1995, incorporated by reference in the Registration Statement
(Form S-3 No. 333-24601) and the related Prospectus of Metromedia International
Group, Inc. for the registration of shares of convertible preferred stock.
ERNST & YOUNG LLP
Atlanta, Georgia
August 5, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of Metromedia
International Group, Inc. of our report dated May 3, 1996 appearing on page F-2
of The Samuel Goldwyn Company's Annual Report on Form 10-K for the year ended
March 31, 1996. We also consent to the incorporation by reference of our report
on the Financial Statement Schedule which appears on page F-21 of The Samuel
Goldwyn Company's Form 10-K. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
Price Waterhouse LLP
August 6, 1997
