<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to ________
Commission File Number 1-5706
--------------------
METROMEDIA INTERNATIONAL
GROUP, INC.
(Exact name of registrant, as specified in its charter)
DELAWARE 58-0971455
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
One Meadowlands Plaza, East Rutherford, NJ 07073-2137
(Address and zip code of principal executive offices)
(201) 531-8000
(Registrant's telephone number, including area code)
--------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
The number of shares of Common Stock outstanding as of November 5, 1997
was 68,385,251.
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<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
INDEX TO
QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
Page
-----
<S>
PART I - FINANCIAL INFORMATION <C>
Item 1. Financial Statements (unaudited)
Consolidated Condensed Statements of Operations 2
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Cash Flows 4
Consolidated Condensed Statement of Stockholders' Equity 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 40
Item 4. Submission of Matters to a Vote of Security Holders 40
Item 6 Exhibits and Reports on Form 8-K 40
Signature 42
</TABLE>
1
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Condensed Statements of Operations
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- ------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues....................................................... $ 36,545 $ 4,380 $ 147,520 $ 10,319
Cost and expenses:
Cost of sales and rentals and operating expenses............. 22,011 -- 91,493 --
Selling, general and administrative.......................... 31,363 12,853 91,982 33,786
Depreciation and amortization................................ 3,974 1,549 12,071 4,643
------------- ------------- ------------- ----------
Operating loss................................................. (20,803) (10,022) (48,026) (28,110)
Interest expense............................................... 4,417 4,174 16,463 13,783
Interest income................................................ 4,560 3,166 9,360 5,359
------------- ------------- ------------- ----------
Interest expense (income), net............................... (143) 1,008 7,103 8,424
Loss before income tax benefit, equity in losses of
investees, minority interest, discontinued operations and
extraordinary items.......................................... (20,660) (11,030) (55,129) (36,534)
Income tax benefit............................................. 12,262 -- 11,948 --
Equity in losses of Joint Ventures............................. (5,376) (2,292) (7,561) (6,060)
Equity in losses of and writedown of investment in RDM Sports
Group, Inc................................................... (19,934) -- (45,056) --
Minority interest, including $2,423 and $4,512 attributable to
Metromedia Asia Corporation for the three and nine months
ended September 30, 1997..................................... 2,429 59 5,056 80
------------- ------------- ------------- ---------
Loss from continuing operations................................ (31,279) (13,263) (90,742) (42,514)
Discontinued operations:
Gain on disposal of Entertainment Group...................... 246,346 -- 246,346 --
Income (loss) from operations from Entertainment Group....... 6,577 (9,845) (28,789) (18,585)
Income (loss) from operations from Landmark Theatre Group.... (438) 1,058 261 1,058
Write down of investment in RDM Sports Group, Inc............ -- (16,305) -- (16,305)
------------- ------------- ------------- ---------
Income (loss) before extraordinary items....................... 221,206 (38,355) 127,076 (76,346)
Extraordinary items:
Equity in loss on early extinguishment of debt of RDM Sports
Group, Inc.................................................. -- -- (1,094) --
Loss on early extinguishment of debt of discontinued
operation................................................... -- (4,505) -- (4,505)
Loss on early extinguishment of debentures................... (13,598) -- (13,598) --
------------- ------------- ------------- ---------
Net income (loss).............................................. 207,608 (42,860) 112,384 (80,851)
Cumulative convertible preferred stock dividend requirement.... (584) -- (584) --
------------- ------------- ------------- --------
Net income (loss) attributable to common stock................. $ 207,024 $ (42,860) $ 111,800 $ (80,851)
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Weighted average number of common shares and common share
equivalents:
Primary...................................................... 69,377 65,482 68,070 50,311
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Fully diluted................................................ 71,628 n/a 69,096 n/a
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Income (loss) per common share--primary
Continuing operations........................................ $ (0.46) $ (0.20) $ (1.34) $ (0.84)
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Discontinued operations...................................... $ 3.64 $ (0.39) $ 3.20 $ (0.67)
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Extraordinary items.......................................... $ (0.20) $ (0.07) $ (0.22) $ (0.09)
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Net income (loss)............................................ $ 2.98 $ (0.66) $ 1.64 $ (1.60)
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Income (loss) per common share--fully diluted
Continuing operations......................................... $ (0.44) $ n/a $ (1.31) $ n/ a
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Discontinued operations....................................... $ 3.53 $ n/a $ 3.15 $ n/ a
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Extraordinary items........................................... $ (0.19) $ n/a $ (0.21) $ n/ a
------------- ------------- ------------- --------
------------- ------------- ------------- --------
Net income (loss)............................................. $ 2.90 $ n/a $ 1.63 $ n/ a
------------- ------------- ------------- --------
------------- ------------- ------------- --------
</TABLE>
See accompanying notes to consolidated condensed financial statements
2
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Condensed Balance Sheets
(in thousands, except share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................................................... $ 310,257 $ 88,208
Accounts receivable:
Snapper, net.............................................................................. 20,278 36,843
Other, net................................................................................ 4,965 3,444
Inventories................................................................................. 87,490 54,404
Other assets................................................................................ 5,466 3,777
------------- ------------
Total current assets.................................................................... 428,456 186,676
Investments in and advances to Joint Ventures................................................. 106,789 65,447
Assets held for sale--RDM Sports Group, Inc................................................... -- 31,150
Net assets of discontinued operations--Entertainment Group.................................... -- 10,972
Net assets of discontinued operations--Landmark Theatre Group, Inc............................ 47,450 46,589
Property, plant and equipment, net of accumulated depreciation................................ 39,979 35,458
Intangible assets, less accumulated amortization.............................................. 195,520 126,643
Other assets.................................................................................. 11,197 9,078
------------- ------------
Total assets............................................................................ $ 829,391 $ 512,013
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable............................................................................ $ 19,483 $ 19,384
Accrued expenses............................................................................ 102,200 79,177
Current portion of long-term debt........................................................... 11,045 17,489
Losses in excess of investment in RDM Sports Group, Inc..................................... 15,000 --
------------- ------------
Total current liabilities............................................................... 147,728 116,050
Long-term debt................................................................................ 57,055 172,160
Other long-term liabilities................................................................... 3,612 3,590
------------- ------------
Total liabilities....................................................................... 208,395 291,800
------------- ------------
Minority interest............................................................................. 36,435 531
Commitments and contingencies
Stockholders' equity:
7-1/4% Cumulative Convertible Preferred Stock, $1.00 par value,
4,140,000 shares issued and outstanding at September 30, 1997............................. 207,000 --
Common Stock, $1.00 par value, authorized 400,000,000
shares, issued and outstanding 67,995,751 and 66,153,439 shares at
September 30, 1997 and December 31, 1996, respectively.................................... 67,996 66,153
Paid-in surplus............................................................................. 1,004,383 959,558
Other....................................................................................... (3,853) (2,680)
Accumulated deficit......................................................................... (690,965) (803,349)
------------- ------------
Total stockholders' equity.............................................................. 584,561 219,682
------------- ------------
Total liabilities and stockholders' equity.............................................. $ 829,391 $ 512,013
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
<S> <C> <C>
Operating activities:
Net income (loss)................................................................. $ 112,384 $ (80,851)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Gain on Entertainment Group Sale.................................................. (246,346) --
Operating loss of discontinued operations......................................... 28,528 17,527
Loss on early extinguishment of debentures........................................ 13,598 --
Equity in losses on early extinguishment of debt.................................. 1,094 4,505
Equity in losses of Joint Ventures................................................ 7,561 6,060
Equity in losses and writedown of investment in RDM Sports Group, Inc............. 45,056 16,305
Amortization of debt discounts.................................................... 1,711 1,956
Depreciation and amortization..................................................... 12,071 4,643
Minority interest................................................................. (5,056) (80)
Other............................................................................. 3,825 538
Changes in assets and liabilities net of effect of acquisitions:
(Increase) decrease in accounts receivable........................................ 15,328 (1,604)
Increase in inventories........................................................... (32,629) (551)
(Increase) decrease in other assets............................................... (134) 1,058
Decrease in accounts payable and accrued expenses................................. (31,706) (3,168)
Other operating activities, net................................................... (227) 276
------------- -------------
Cash used in operations....................................................... (74,942) (33,386)
------------- -------------
Investing activities:
Investments in and advances to Joint Ventures..................................... (37,283) (25,384)
Distributions from Joint Ventures................................................. 4,003 --
Net proceeds from Entertainment Group Sale........................................ 276,607 --
Proceeds from sale of short-term investments...................................... -- 5,366
Purchase of additional equity in subsidiaries..................................... (4,389) --
Purchase of AAT................................................................... (4,750) --
Additions to property, plant and equipment........................................ (9,484) (1,374)
Other investing activities, net................................................... (8,934) 5,400
------------- -------------
Cash provided by (used in) investing activities............................... 215,770 (15,992)
------------- -------------
Financing activities:
Proceeds from issuance of long-term debt.......................................... 19,858 11,626
Proceeds from issuance of stock related to pulic stock offerings.................. 199,442 190,604
Proceeds from issuance of common stock related to incentive plans................. 14,965 867
Payments on notes and subordinated debt........................................... (156,716) (42,636)
Due from discontinued operations.................................................. 3,672 (11,389)
------------- -------------
Cash provided by (used in) financing activities............................... 81,221 149,072
------------- -------------
Net increase in cash and cash equivalents........................................... 222,049 99,694
Cash and cash equivalents at beginning of period.................................... 88,208 20,605
------------- -------------
Cash and cash equivalents at end of period.......................................... $ 310,257 $ 120,299
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
Consolidated Condensed Statement of Stockholders' Equity
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
7 1/4% CUMULATIVE
CONVERTIBLE PREFERRED
STOCK COMMON STOCK
---------------------- -----------------------
NUMBER OF NUMBER OF PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SURPLUS OTHER DEFICIT TOTAL
---------- ---------- ------------ --------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996................ -- $ -- 66,153,439 $ 66,153 $ 959,558 $(2,680) $(803,349) $219,682
Issuance of stock
related to incentive
plans............... -- -- 1,592,312 1,593 13,707 -- -- 15,300
Foreign currency
translation
adjustment.......... -- -- -- -- -- (3,818) -- (3,818)
Amortization of
restricted stock.... -- -- -- -- -- 2,645 -- 2,645
Issuance of stock
related to public
offering, net....... 4,140,000 207,000 -- -- (7,558) -- -- 199,442
Increase in equity
resulting from
issuance of stock by
subsidiary.......... -- -- -- -- 35,957 -- -- 35,957
Issuance of stock
related to
acquisition of a
minority interest of
a subsidiary........ -- -- 250,000 250 2,719 -- -- 2,969
Net income............ -- -- -- -- -- -- 112,384 112,384
---------- ---------- ------------ --------- ------------ ----------- ------------ ----------
Balances, September
30, 1997............ 4,140,000 $207,000 67,995,751 $ 67,996 $ 1,004,383 $(3,853) $(690,965) $584,561
---------- ---------- ------------ --------- ------------ ----------- ------------ ----------
---------- ---------- ------------ --------- ------------ ----------- ------------ ----------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<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") and Snapper
Inc. ("Snapper") as of November 1, 1996. All significant intercompany
transactions and accounts have been eliminated.
In addition, as of April 1, 1997, for financial statement reporting
purposes, the Company no longer qualified to treat its investment in RDM
Sports Group, Inc. ("RDM") as a discontinued operation and the Company has
included in its results of continuing operations the Company's share of the
earnings and losses of RDM. On August 29, 1997, RDM filed a voluntary
bankruptcy petition under Chapter 11 of the Bankruptcy Code in Atlanta,
Georgia. On August 28, 1997, an involuntary bankruptcy petition was filed
against a subsidiary of RDM in Federal bankruptcy court in Montgomery,
Alabama (see note 6).
On July 10, 1997, the Company completed the sale of substantially all of
its entertainment assets (the "Entertainment Group Sale") (see note 2). The
transaction has been recorded as a discontinuance of a business segment, and;
accordingly the consolidated condensed balance sheet at December 31, 1996
reflect the net assets of the discontinued segment. The consolidated
condensed statements of operations reflect the results of operations through
May 2, 1997, the date of the execution of the definitive agreement relating
to the Entertainment Group Sale, of the discontinued segment. The Company
recorded a gain on the sale of the discontinued segment on July 10, 1997 (see
note 2).
In addition, the Company has adopted a plan to dispose of Landmark
Theatre Group ("Landmark") and the Company is currently negotiating the terms
of an agreement with a third party (see note 12). Accordingly, Landmark has
been recorded as a discontinuance of a business segment, and the consolidated
condensed balance sheets at September 30, 1997 and December 31, 1996 reflect
the net assets of the discontinued segment. The consolidated statements of
operations reflect the results of operations through September 30, 1997.
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 September 30, 1997 presentation.
The total allowance for doubtful accounts at September 30, 1997 and
December 31, 1996 was $3.3 million and $1.7 million, respectively. Interest
expense includes amortization of debt discount of $355,000 and $652,000 for
the three months ended September 30, 1997 and 1996, respectively, and $1.7
million and $2.0 million for the nine months ended September 30, 1997 and
1996, respectively.
6
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
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
agreement from making dividend payments or advances to MMG. In addition,
periodically, the Company has been required to fund the short-term working
capital needs of Snapper.
The Communications Group's businesses are capital intensive and require
the investment of significant amounts of capital in order to construct and
develop operational systems and market its services. As a result, the Company
will require in addition to its cash on hand and the proceeds from the
anticipated sale of Landmark, additional financing in order to satisfy its
on-going working capital and debt service requirements and to achieve its
long-term business strategies. Such additional capital may be provided
through the public or private sale of equity or debt 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.
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 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.
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 Entertainment
Group Sale (as described in note 2) and sale of Landmark (as described in
note 12) necessary to present fairly the financial position of the Company as
of September 30, 1997, the results of its operations and its cash flows for
the three month and nine month periods ended September 30, 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.
7
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
2. THE ENTERTAINMENT GROUP SALE
On July 10, 1997, the Company sold all of the outstanding shares of common
stock of Orion Pictures Corporation ("Orion") and thereby substantially all of
the assets of its entertainment group (the "Entertainment Group"), consisting
of Orion, Goldwyn Entertainment Company and Motion Picture Corporation of
America (and their respective subsidiaries) which owned a feature film and
television library of over 2,200 titles to P&F Acquisition Corp., the parent
company of Metro-Goldwyn-Mayer Inc. for a gross consideration of
$573.0 million. The Company used $296.4 million of the proceeds from
the Entertainment Group Sale to repay amounts outstanding under the
Entertainment Group's credit facilities and certain other indebtedness of
the Entertainment Group. As a result of the Entertainment Group Sale, the
Company has narrowed its strategic focus to the global communications and
media businesses of the Communications Group. The Entertainment Group's
Landmark Theatre Group was not included in the Entertainment Group Sale and
the Company intends to dispose of Landmark and is currently negotiating the
terms of an agreement with a third party (see note 12).
The net gain on sale reflected in the consolidated condensed statement of
operations for the three and nine months ended September 30, 1997 is as
follows (in thousands):
Net proceeds................................. $ 276,607
Net liabilities of Entertainment Group
at May 2, 1997............................. 22,089
Transaction costs............................ (6,000)
Income taxes................................. (46,350)
---------
Gain on Entertainment Group Sale............. $ 246,346
---------
---------
The Entertainment Group's revenues for the three months ended September
30, 1996 were $25.1 million, for the four months ended April 30, 1997 were
$41.7 million and for the nine months ended September 30, 1996 were $88.0
million. The Entertainment Group's revenues for the period May 2, 1997 to
July 10, 1997 were $29.3 million and the loss from operations was $6.4
million.
Income (loss) from discontinued operations for the three months ended
September 30, 1997 and 1996 and for the nine months ended September 30, 1997
and 1996 include income taxes (benefits) of ($6.6) million, $323,000 ($6.4)
million and $723,000, respectively.
8
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
Net assets of the Entertainment Group at December 31, 1996 were as
follows (in thousands):
DECEMBER 31,
1996
------------
Current assets...................... $ 101,883
Non-current assets.................. 327,698
Current liabilities................. (119,314)
Non-current liabilities............. (299,295)
----------
Net assets..................... $ 10,972
----------
----------
The following unaudited pro forma information illustrates the effect of
(1) the Entertainment Group Sale, (2) the repayment of MMG's outstanding
subordinated debentures (see note 4), (3) the acquisition of Asian American
Telecommunications Corporation, ("AAT") (see note 7) and (4) the anticipated
sale of Landmark (see note 11) on revenues, loss from continuing operations
and loss from continuing operations per share for the nine months ended
September 30, 1997 and 1996. The Pro Forma information assumes (1) the
Entertainment Group Sale, (2) the repayment of MMG's outstanding subordinated
debentures and (3) the acquisition of AAT occurred at the beginning of each
period. It also assumes Snapper and Landmark were included in the
consolidated results of operations at the beginning of 1996 (in thousands,
except per share amounts).
1997 1996
------------- ------------
(unaudited) (unaudited)
Revenues.................................... $ 147,520 $ 126,949
---------- ----------
---------- ----------
Loss from continuing operations............. (82,856) (71,240)
---------- ----------
---------- ----------
Loss from continuing operations per share... $ (1.25) $ (1.42)
---------- ----------
---------- ----------
3. STOCKHOLDERS' EQUITY
On September 16, 1997, the Company completed a public offering of 4.14
million shares of 7 1/4% cumulative convertible preferred stock ("Preferred
Stock") with a liquidation preference of $50 per share, generating net
proceeds of approximately $199.4 million. Dividends on the Preferred Stock
are cumulative from the date of issuance and payable quarterly, in arrears,
commencing on December 15, 1997. The Company may make any payments due on the
Preferred Stock, including dividend payments and redemptions (i) in cash;
(ii) issuance of the Company's 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 the Company's common stock, at a
conversion price of $15.00 per share (equivalent to a conversion rate of 3
1/3 shares of common stock for each share of Preferred Stock), subject to
adjustment under certain conditions.
9
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
The Preferred Stock is redeemable by the Company at any time on or after
September 15, 2000, in whole or in part, at the option of the Company, initially
at a price of $52.5375 and thereafter at prices declining to $50.00 per share
on or after September 15, 2007, plus in each case all accrued and unpaid
dividends to the redemption date. Upon any Change of Control (as defined in
the certificate of designation of the Preferred Stock (the "Certificate of
Designation")), each holder of Preferred Stock shall, in the event that the
Market Value at such time is less than the conversion price of $15.00, have a
one-time option to convert the Preferred Stock into the Company's common stock
at a conversion price equal to the greater of (i) the Market Value as of the
Change of Control Date (as defined in the Certificate of Designation) and
(ii) $8.00. In lieu of issuing shares of the Company's common stock, the
Company may, at its option, make a cash payment equal to the Market Value
of the Company's common stock otherwise issuable.
In connection with the Entertainment Group Sale, 256,504 shares of
restricted common stock previously issued to certain employees of a
subsidiary of the Entertainment Group became fully vested. The cost of $2.3
million associated with the vesting of the restricted common stock was
included as a reduction to the Entertainment Group Sale gain.
4. LONG TERM DEBT
In connection with the Entertainment Group Sale, the Company repaid all
of its outstanding debentures. During August 1997, the Company
repaid its 9 1/2% Subordinated Debentures, 10% Subordinated Debentures
and 6 1/2% Convertible Subordinated Debentures. In connection with the
repayment of its outstanding debentures, the Company expensed certain
unamortized discounts associated with the debentures and recognized an
extraordinary loss of $13.6 million on the extinguishment of the debt.
5. 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 for 1996 the additional shares that
would result from the conversion of the Company's 6 1/2% Convertible
Subordinated Debentures (the "6 1/2% Debentures") and for 1997 the additional
shares that would result from the conversion of the Company's 7 1/4% Cumulative
Convertible Preferred Stock. Net income (loss) is adjusted by interest (net
of income taxes) on the 6 1/2% Debentures in 1996 and Preferred Stock
dividends in 1997. 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 the three and nine month periods
ended September 30, 1996 have been restated to reflect the Entertainment
Group and Landmark as a discontinued operation.
10
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
6. INVESTMENT IN RDM
In connection with the acquisition of The Actava Group on November 1,
1995, RDM was classified as an asset held for sale and the Company excluded
its equity in earnings and losses of RDM from its results of operations. At
November 1, 1995, the Company recorded its investment in RDM to reflect the
anticipated proceeds from its sale. During 1996, the Company reduced the
carrying value of its investment in RDM to its then estimated net realizable
value of $31.2 million.
On April 1, 1997, for financial statement reporting purposes, the Company
no longer qualified to treat its investment in RDM as a discontinued
operation. For the three months ended June 30, 1997, the Company recorded in
its results of operations a reduction in the carrying value of its investment
in RDM of $18.0 million and has recorded its share of the expected net loss
of RDM of $8.2 million.
On June 20, 1997, RDM entered into a $100.0 million revolving and term
credit facility (the "RDM Facility"). The RDM Facility is guaranteed by a
letter of credit in the amount of $15.0 million in favor of the lenders
thereunder ( the "Lenders"), which was obtained by Metromedia Company, an
affiliate of the Company ("Metromedia"), and cannot be drawn until five days
after a payment default and fifteen days after Non-Payment Default (as
defined under the RDM Facility). In consideration of providing the letters of
credit, Metromedia was granted warrants to purchase 3 million shares of RDM
common stock (approximately 5% of RDM) ("RDM Warrants") at an exercise price
of $.50 per share. The RDM Warrants have a ten year term and are exercisable
beginning September 19, 1997. 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.
On August 29, 1997, RDM filed a voluntary bankruptcy petition under
Chapter 11 of the Bankruptcy Code in Atlanta Georgia. On August 28, 1997, an
involuntary bankruptcy petition was filed against a subsidiary of RDM in
Federal bankruptcy court in Montgomery, Alabama. RDM is currently a
debtor-in-possession credit. As a result the Lenders may immediately draw the
entire amount of the $15.0 million letter of credit established by the
Company, but to date have not done so. Accordingly, the Company has recorded
in its results of operations for the three months ended September 30, 1997 a
further reduction in the carrying value of RDM of $4.9 million and as
required under the equity method of accounting a loss of $15.0 million on the
letter of credit guarantee.
As of September 30, 1997, the Company owned approximately 39% of the
issued and outstanding shares of common stock of RDM (the "RDM Common Stock")
based on approximately 49,507,000 shares of RDM Common Stock outstanding at
August 5, 1997.
The latest published summarized unaudited condensed statements of
operations information for the six months ended June 29, 1997 and balance
sheet information as of June 29, 1997 for RDM is shown below (in thousands):
11
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
Net sales................................ $ 95,505
Gross profit............................. 1,548
Interest expense......................... 6,056
Net loss................................. (30,383)
Current assets........................... $ 119,560
Non-current assets....................... 111,281
Current liabilities...................... 83,978
Non-current liabilities.................. 121,113
Total shareholders' equity............... 25,750
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
The Communications Group has recorded its investments in less than
majority-owned 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,
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 $92.1 million in funding of which $13.1
million remains available at September 30, 1997. The Communications Group
funding commitments are contingent on its approval of the Joint Ventures'
business plans.
12
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
At September 30, 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, and distributions since inception, were as
follows (in thousands):
INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
<TABLE>
<CAPTION>
YEAR
SEPTEMBER 30, DECEMBER 31, OWNERSHIP VENTURE DATE OPERATIONS
NAME 1997 1996 % FORMED COMMENCED
- ------------------------------------------ ------------- ------------ ----------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Wireless Cable TV
Kosmos TV, Moscow, Russia................. $ 1,243 $ 759 50% 1991 1992
Baltcom TV, Riga Latvia................... 7,321 8,513 50% 1991 1992
Ayety TV, Tbilisi, Georgia................ 4,609 4,691 49% 1991 1993
Kamalak, Tashkent, Uzbekistan(1).......... 5,764 6,031 50% 1992 1993
Sun TV, Kishinev, Moldova................. 4,848 3,590 50% 1993 1994
Cosmos TV, Minsk, Belarus................. 1,717 1,980 50% 1993 1996
AlmaTV, Almaty, Kazakhstan(1)............. 4,515 2,840 50% 1994 1995
TV-21, Riga, Latvia....................... 343 -- 48% 1996 1997
----------- ----------
.......................................... 30,360 28,404
----------- ----------
Paging
Baltcom Paging, Tallinn, Estonia(2)....... -- 3,154 85% 1992 1993
Baltcom Plus, Riga, Latvia................ 1,218 1,711 50% 1994 1995
Paging One, Tbilisi, Georgia.............. 1,048 829 45% 1993 1994
Raduga Poisk, Nizhny, Novgorod, Russia.... 440 450 45% 1993 1994
PT Page, St. Petersburg, Russia........... 1,006 963 40% 1994 1995
Paging Ajara, Batumi, Georgia............. 227 256 35% 1996 1997
Kazpage, Kazakhstan(3).................... 661 350 26-41% 1996 1997
----------- ----------
.......................................... 4,600 7,713
----------- ----------
Radio Broadcasting
Eldoradio (formerly Radio Katusha),
St. Petersburg, Russia.................... 709 435 50% 1993 1995
Radio Nika, Socci, Russia................. 267 361 51% 1995 1995
AS Trio LSL, Tallinn, Estonia............. 1,001 -- 49% 1997 1997
----------- ----------
.......................................... 1,977 796
----------- ----------
Telephony
Telecom Georgia, Tbilisi, Georgia......... 5,046 2,704 30% 1994 1994
Baltcom GSM, Latvia....................... 12,146 7,874 21% 1996 1997
Magticom, Tbilisi, Georgia................ 4,696 2,450 34% 1996 1997
Trunked mobile radio ventures............. 6,223 2,049
Ningbo Ya Mei Communications, PRC......... 9,882 -- 41% 1996 1997
----------- ----------
.......................................... 37,993 15,077
----------- ----------
Pre-Operational
Teleplus, St. Petersburg, Russia.......... 929 554 45% 1996
PRC telephony related ventures and
equipment............................... 5,649 9,712
Sichuan Tai Li-Feng Telecom. Co., Ltd.,
PRC..................................... 10,512 -- 54% 1996
Indonesia telephony related ventures and
equipment............................... 2,800 --
Other..................................... 11,969 3,191
----------- ----------
.......................................... 31,859 13,457
----------- ----------
Total..................................... $ 106,789 $ 65,447
----------- ----------
----------- ----------
</TABLE>
- ------------------------
(1) Includes Paging Operations
(2) In July, 1997, the Communications Group purchased an additional 54% of
Estcom Sweden, the parent of Baltcom Paging, increasing the ownership
percentages of Estcom Sweden and Baltcom Paging to 100% and 85%,
respectively. Accordingly, this investment is now accounted for on a
consolidated basis.
(3) Kazpage is comprised of a service entity and 10 paging joint ventures. The
Company's interest in the paging jointventures ranges from 26% to 41% and
its interest in the service entity is 51%.
13
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (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, exclusive of
the Joint Ventures in the PRC, accounted for on a three-month lag under the
equity method that have commenced operations are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
COMBINED BALANCE SHEETS 1997 1996
- --------------------------------------------------------------------- ------------- ------------
<S> <C> <C>
Assets:
Current assets....................................................... $ 28,395 $ 16,073
Investments in wireless systems and equipment........................ 80,905 38,447
Other assets......................................................... 6,702 3,100
------------- ------------
Total Assets......................................................... $ 116,002 $ 57,620
------------- ------------
------------- ------------
Liabilities and Joint Ventures' Equity (Deficit):
Current liabilities.................................................. $ 21,077 $ 18,544
Amount payable under MITI credit facility............................ 40,251 41,055
Other long-term liabilities.......................................... 43,073 6,043
------------- ------------
..................................................................... 104,401 65,642
Joint Ventures' Capital (Deficit).................................... 11,601 (8,022)
------------- ------------
Total Liabilities and Joint Ventures' Capital........................ $ 116,002 $ 57,620
------------- ------------
------------- ------------
<CAPTION>
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
COMBINED STATEMENT OF OPERATIONS 1997 1996
- --------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Revenue.............................................................. $ 45,235 $ 34,327
Expenses:
Cost of service...................................................... 10,531 14,706
Selling, general and administrative.................................. 23,567 17,014
Depreciation and amortization........................................ 8,204 4,912
------------- -------------
Total expenses....................................................... 42,302 36,632
------------- -------------
Operating income (loss).............................................. 2,933 (2,305)
Interest expense..................................................... (3,967) (2,614)
Other income (loss).................................................. (1,890) 7
Foreign currency translation......................................... (1,847) 1,224
------------- -------------
Net loss............................................................. $ (4,771) $ (3,688)
------------- -------------
------------- -------------
</TABLE>
Financial information for Joint Ventures which are not yet operational is
not included in the above summary. The Communications Group's investment in
and advances to those Joint Ventures and for those entities whose venture
agreements are not yet finalized amounted to approximately $31.9 million at
September 30, 1997, and $13.5 million at December 31, 1996.
14
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
7. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES (CONTINUED)
The following tables represent summary financial information for
operating entities exclusive of the Joint Ventures in the PRC being grouped
as indicated as of and for the nine months ended September 30, 1997 (in
thousands, except subscribers):
<TABLE>
<CAPTION>
WIRELESS CABLE RADIO SEPTEMBER 30, SEPTEMBER 30,
TV PAGING BROADCASTING TELEPHONY 1997 TOTAL 1996 TOTAL
-------------- -------- ------------ --------- ------------- -------------
<C> <C> <C> <C> <C> <C>
CONSOLIDATED SUBSIDIARIES AND
JOINT VENTURES
Revenues $ 1,560 $2,301 $ 9,899 $ -- $ 13,760 (1) $ 7,578 (1)
Depreciation and amortization 495 562 187 -- 1,244 881
Operating income (loss) before taxes (845) (2,621) 3,960 -- 494 (1) 1,411 (1)
Net income (loss) (1,311) (3,125) 2,121 -- (2,315)(1) (145)(1)
Assets 6,794 7,006 5,927 -- 19,727 7,405
Capital expenditures 1,226 730 181 -- 2,137 2,070
UNCONSOLIDATED JOINT VENTURES(2)
Revenues 14,191 4,121 1,557 25,366 45,235 34,327
Depreciation and amortization 5,304 396 69 2,435 8,204 4,912
Operating income (loss) before taxes (1,360) (485) 245 4,533 2,933 (2,305)
Net income (loss)... (4,424) (1,162) 178 637 (4,771) (3,688)
Assets... 29,982 3,393 1,607 81,020 116,002 65,990
Capital expenditures... 6,504 472 132 44,458 51,566 5,177
Net investment in Joint Ventures 30,360 4,600 1,977 28,111 65,048 36,699
MITI equity in income (losses)
of unconsolidated investees (5,290) (1,140) 168 276 (5,986) (6,060)
COMBINED
Revenues 15,751 6,422 11,456 25,366 58,995 41,905
Depreciation and amortization 5,799 958 256 2,435 9,448 5,793
Operating income (loss) before taxes (2,205) (3,106) 4,205 4,533 3,427 (894)
Net income (loss) (5,735) (4,287) 2,299 637 (7,086) (3,833)
Assets 36,776 10,399 7,534 81,020 135,729 73,395
Capital expenditures 7,730 1,202 313 44,458 53,703 7,247
Subscribers (unaudited) 169,033 53,321 n/a 24,419 246,773 106,308
</TABLE>
- ------------------------
(1) Does not reflect the Communications Group's headquarter's revenue and
selling, general and administrative expenses for the nine months ended
September 30, 1997 and 1996, respectively.
(2) Does not reflect the results of Joint Ventures in PRC. Metromedia Asia
Corporation ("MAC") a subsidiary of the Company has invested in two
telephony joint ventures in PRC. As of September 30, 1997, the Company's
investments in the joint ventures were as follows (in thousands):
The following table represents a summary of financial information for the
Joint Ventures in the PRC.
<TABLE>
<CAPTION>
COST OF
INVESTMENTS EQUITY IN
IN LOSS NET INVESTMENTS
MAC JOINT OF JOINT IN JOINT
OWNERSHIP % VENTURES VENTURES VENTURES
----------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Sichuan Tai Li Feng Telecommunications
Co. Ltd............................... 92% $ 11,039 $ (527) $ 10,512
Ningbo Ya Mei Communications............ 70% 10,930 (1,048) 9,882
--------- --------- ----------
Total................................... $ 21,969 $ (1,575) $ 20,394
--------- --------- ----------
--------- --------- ----------
</TABLE>
These joint ventures participate in project cooperation contracts with
China Unicom that entitle the joint ventures to certain percentages of
the project's cash flow, as defined. The summary financial information for
the projects that underly the project cooperation contracts as of September
30, 1997, is as follows (in thousands):
<TABLE>
<CAPTION>
SICHUAN PROVINCE AND CITY CITY OF NINGBO
OF CHONGQING PROJECT PROJECT
------------------------- --------------------
<S> <C> <C>
Joint Ventures' net investment in project........................ $ 8,579 $ 30,390
--------- ----------
--------- ----------
Total project assets............................................. 5,447 23,944
Net income (loss) of projects.................................... (612) 1,160
</TABLE>
15
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
Information about the Communication Group's operations in different
geographic locations at September 30, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
REPUBLICS OF
FORMER SOVIET PRC &
UNITED UNION AND SOUTHEAST
STATES EASTERN EUROPE ASIA OTHER FOREIGN CONSOLIDATED
------------ -------------- ----------- --------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.................................. $ 610 13,903 -- 411 $ 14,924
Assets.................................... $ 85,696 88,417 39,476 8,963 $ 222,552
</TABLE>
In February, 1997, Metromedia Asia Corporation ("MAC") a subsidiary of
the Company with telephony interests in the PRC, acquired 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 (i) one share of AAT common stock
(the "AAT Common Stock") for one share of MAC Common Stock, par value $.01
per share ("MAC Common Stock"), (ii) one warrant to acquire one share of AAT
Common Stock 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 share of AAT Common Stock 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 and the City of Ningbo 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. Subsequently, additional shares were
purchased from a minority shareholder, increasing the ownership percentage to
58.7% with 81% 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 nine months ended September 30, 1997
was approximately $1.6 million.
16
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
The purchase price was allocated as follows (in thousands)
Current assets........................................... $ 46
Property, plant and equipment............................ 279
Investments in Joint Ventures............................ 18,950
Goodwill................................................. 68,975
Current liabilities...................................... (2,202)
Other liabilities........................................ (5)
-------
Purchase price....................................... $86,043
-------
-------
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 $54.5 million was recorded as an
increase to paid-in surplus of $36.0 million in the consolidated condensed
statement of stockholders' equity.
The Communications Group has signed definitive agreements to purchase 70%
and 85% respectively, of joint ventures operating radio stations in Berlin,
Germany and Prague, Czech Republic.
The Communication Group's trunked mobile radio joint ventures are owned
through its 56% ownership interest in Protocall Ventures. In October 1997,
Protocall completed a transaction increasing the the Communication Group's
ownership percentage in Protocall's Spanish Joint Ventures from 6%-16% to
17%-48%.
8. 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.
17
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
Inventories consist of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
Lawn and garden equipment:
Raw materials............................. $ 7,426 $18,733
Finished goods............................ 79,094 35,113
------- -------
86,520 53,846
Less LIFO reserve......................... 517 291
------- -------
86,003 53,555
------- -------
Telecommunications:
Pagers.................................... 1,113 635
Cable..................................... 374 214
------- -------
1,487 849
------- -------
$87,490 $54,404
------- --------
------- --------
9. SNAPPER
In connection with the acquisition of The Actava Group on November 1,
1995, 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 of January 1, 1996 through
September 30, 1996, which were excluded from the accompanying consolidated
condensed statements of operations, are as follows (in thousands):
Net sales............................... $116,630
Operating expense....................... 135,492
--------
Operating loss.......................... (18,862)
Interest expense........................ (6,244)
Other income............................ 1,021
--------
Loss before taxes....................... $(24,085)
---------
---------
Included in the Snapper's results of operations is the repurchase of
inventories and to a lesser extent purchasing of the accounts receivable of
distributors it has terminated in the implementation of its dealer-direct
program. The purchases of inventories are accounted for by reducing sales for
the amount credited to accounts receivable from the terminated distributions.
Included in Snapper's results of operations for the nine months ended September
30, 1996 are the effects of commitments to repurchase inventories and
accounts receivable of $12.8 million.
18
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
On April 30, 1997, Snapper closed a $10.0 million working capital
facility ("Working Capital Facility") with AmSouth Bank of Alabama
("AmSouth"); which amended Snapper's existing $55.0 million facility. The
Working Capital Facility (i) gives AmSouth a PARI PASSU collateral interest
in all of Snapper's assets (including rights under a Make-Whole and Pledge
Agreement made by Metromedia in favor of AmSouth in connection with Snapper's
revolving credit facility (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 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 Working Capital
Facility. On October 1, 1997, the Company repaid the $10.0 million Working
Capital Facility. On November 12, 1997, Snapper amended and restated the Snapper
Credit Agreement to increase the amount of the revolving line
of credit from $55.0 million to $80.0 million. Interest on the Snapper
Revolver bears interest at an applicable margin above the prime rate (up to
15%) or a LIBOR rate (up to 4.0%). The Snapper Revolver matures on January 1,
2000. The Snapper Revolver continues to be guaranteed by the Company and
Messrs. Kluge and Subotnick have agreed to guarantee $10.0 million of the
Snapper Revolver. The Snapper Credit Agreement, as amended, continues to
contain certain financial covenants regarding maintaining minimum tangible
net worth and satisfying certian quarterly cash flow requirements.
As of September 30, 1997, Snapper was in compliance with the financial
covenants under the Snapper Revolver and Working Capital Facility.
10. INCOME TAXES
In connection with the Entertainment Group Sale, the Company has utilized
its net operating loss carryforwards. In addition, the remaining net
operating loss carryforwards attributable to the Entertainment Group are no
longer available to the Company. At September 30, 1997, the Company had
available net operating loss carryforwards, capital loss carryforwards, and
unused minimum tax credits of approximately $166.0 million, $16.6 million and
$15.3 million, respectively.
11. 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 $9.31, the fair market value of MMG common stock (the
"Common Stock") at such date.
In addition, on March 26, 1997, the Board of Directors authorized the
grant of approximately 1,900,000 stock options at an exercise price of $9.31
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
Common Stock at a purchase price of $7.44 per share, the fair market value of
the Common Stock at such date. The stock options vest and become fully
exercisable four years from the date of grant.
The MMG Plan provides that upon a sale of "substantially all" of the
Company's assets, all unvested outstanding options to acquire the Common
Stock under such plan would vest and become immediately exerciseable. In
connection with the Entertainment Group Sale, the Company's Compensation
Committee determined that the Entertainment Group Sale constituted a sale of
"substantially all" of the Company's assets for purposes of the MMG Plan,
thereby accelerating the vesting of all options outstanding under such plan.
As of September 30, 1997, 2,329,489 options had been issued to the directors,
officers and certain employees of the Company, Landmark and the
Communications Group, and remain outstanding under the MMG Plan and 1,486,932
of such options had not vested. All such options are exercisable at a price
equal to $9.31 per share. All of the directors of the Company have agreed to
waive the accelerated vesting of their options and the Company is in the
process of obtaining waivers from the remaining officers and employees of the
Company and Communications Group.
19
<PAGE>
METROMEDIA INTERNATIONAL GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS (CONTINUED)
12. SUBSEQUENT EVENT - SALE OF LANDMARK THEATRE GROUP
The Company has adopted a plan to dispose of Landmark and is currently
negotiating the terms of an agreement with a third party. Accordingly,
Landmark has been recorded as a discontinuance of a business segment in the
accompanying financial statements. The Company expects to record a gain on
the sale of the discontinued segment.
Net assets of Landmark at September 30, 1997 and December 31, 1996 were as
follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Current assets $ 1,396 $ 1,988
Non-current assets 57,958 58,719
Current liabilities (5,894) (7,551)
Non-current liabilities (6,010) (6,567)
--------- ---------
Net assets $ 47,450 $ 46,589
--------- ---------
--------- ---------
</TABLE>
Landmark's revenues for the three months ended September 30, 1997 and for
the period July 2, 1996 (date of acquisition of Landmark) to September 30,
1996 were $14.3 million and $14.9 million, respectively, and for the nine
months September 30, 1997 were $43.1 million. Income (loss) from operations
for the three months and nine months ended September 30, 1997 include income
taxes of $401,000 and $410,000, respectively.
13. 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.
14. CONTINGENT LIABILITIES
The Company is involved in various legal and regulatory proceedings and
while the results of any litigation or regulatory issue contain an element of
uncertainty, management believes that the outcome of any known, pending or
threatened legal proceedings will not have a material effect on the Company's
consolidated financial position.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
consolidated condensed financial statements and related notes thereto.
GENERAL
On July 10, 1997, the Company completed the Entertainment Group Sale, and
the Company has adopted a plan to dispose of Landmark and is currently
negotiating the terms of an agreement with a third party (see notes 2 and 12
of the notes to consolidated condensed financial statements, respectively).
The transactions have been recorded as the discontinuance of business segments
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 discontinued segments.
The continuing business activities of the Company consist of two business
segments: the development and operation of communications businesses, which
include wireless cable television, paging services, radio broadcasting and
various types of telephony services; and 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 had 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, as of April 1, 1997, for financial statement reporting
purposes, the Company no longer qualifies to treat its investment in RDM as a
discontinued operation and the Company has included in its results of
operations the Company's share of the earnings and losses of RDM. On August
29, 1997, RDM filed a voluntary bankruptcy petition under chapter 11 of the
Bankruptcy Code in Atlanta, Georgia and on August 28, 1997, an involuntary
bankruptcy petition was filed against a subsidiary of RDM in Federal
bankruptcy court in Montgomery, Alabama.
21
<PAGE>
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, certain 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.
The Company's financial statements consolidate the accounts and results
of operations of 9 of the Communications Group's 43 operating companies and
Joint Ventures at September 30, 1997. Investments in other companies and
joint ventures which are not majority owned, or in which the Communications
Group does not have control, but exercises significant influence, 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 7 of the notes to
consolidated condensed financial statements, "Investments in and Advances to
Joint Ventures", for these Joint Ventures and their summary financial
information.
The following table summarizes the Communications Group's Joint Ventures
and subsidiaries at September 30, 1997, as well as the amounts contributed,
amounts loaned, net of repayments and total amounts invested in such Joint
Ventures at September 30, 1997 (in thousands).
<TABLE>
<CAPTION>
NET
AMOUNT AMOUNT (10)
CONTRIBUTED LOANED TO TOTAL
TO JOINT JOINT INVESTMENT IN
COMPANY VENTURE/ VENTURE/ JOINT VENTURE/
JOINT VENTURE (1) OWNERSHIP % SUBSIDIARY SUBSIDIARY SUBSIDIARY
- -------------------------------------------------------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Wireless Cable Television
Kosmos TV (Moscow, Russia).............................. 50% $ 1,093 $ 9,496 $ 10,589
Baltcom TV (Riga, Latvia)............................... 50% 819 11,541 12,360
Ayety TV (Tbilisi, Georgia)............................. 49% 779 7,180 7,959
Romsat Cable TV (Bucharest, Romania) (2)................ 97% 682 5,781 6,463
Sun TV(Chisinau, Moldova)............................... 50% 400 5,495 5,895
Alma TV (Almaty, Kazakhstan)............................ 50% 222 5,460 5,682
Cosmos TV (Minsk, Belarus).............................. 50% 400 2,344 2,744
Viginta (Vilnius, Lithuania) (2)........................ 55% 434 2,067 2,501
Kamalak TV (Tashkent, Uzbekistan)....................... 50% 835 5,154 5,989
Teleplus (St. Petersburg, Russia) (6)................... 45% 929 -- 929
Paging
Baltcom Paging (Tallinn, Estonia) (2)................... 85% 3,715 1,251 4,966
CNM (Romania) (2)....................................... 54% 490 4,202 4,692
Kamalak Paging (Tashkent, Samarkand, Bukhara and
Andijan, Uzbekistan) (3).............................. 50%
Paging One (Tbilisi, Georgia)........................... 45% 250 1,251 1,501
Paging Ajara (Batumi, Georgia).......................... 35% 43 184 227
Raduga Poisk (Nizhny, Novgorod, Russia)................. 45% 330 52 382
Alma Page (Almaty and Ust-Kamenogorsk, Kazakhstan)
(4)................................................... 50%
Baltcom Plus (Riga, Latvia)............................. 50% 250 2,507 2,757
PT-Page (St. Petersburg, Russia)........................ 40% 1,102 -- 1,102
Paging One Services (Austria) (2)....................... 100% 1,036 4,022 5,058
Kazpage (Kazakhstan) (11)............................... 26-41% 520 141 661
Radio Broadcasting
Radio Juventus (Budapest, Siofok and Khebegy Hungary)
(2)................................................... 100% 8,107 -- 8,107
SAC (Moscow, Russia) (2)................................ 83% 631 3,058 3,689
Eldoradio (formerly Radio Katusha)(St. Petersburg,
Russia) (8)........................................... 50% 133 885 1,018
Radio Nika (Socci, Russia).............................. 51% 215 25 240
Radio Skonto (Riga, Latvia) (2)......................... 55% 302 293 595
Radio One (Prague, Czech Republic) (2).................. 80% 657 97 754
AS Trio LSL (Estonia) (8)............................... 49% 1,000 -- 1,000
International Toll Calling
Telecom Georgia (Tbilisi, Georgia)...................... 30% 2,554 -- 2,554
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AMOUNT (10)
CONTRIBUTED LOANED TO TOTAL
COMPANY TO JOINT JOINT INVESTMENT IN
JOINT VENTURE (1) OWNERSHIP % VENTURE VENTURE JOINT VENTURE
- -------------------------------------------------------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Trunked Mobile Radio
Protocall Ventures, Ltd. (2) (5)........................ 56% 2,550 7,932 10,482
National Business Communications (Romania).............. 58% 30 215 245
Spectrum (Kazakhstan)................................... 31% 36 392 428
Cellular Telecommunications
Baltcom GSM (Latvia).................................... 21% 13,270 -- 13,270
Magticom (Tbilisi, Georgia)............................. 34% 4,696 -- 4,696
Ningbo Ya Mei Communications (Ningbo, PRC) (6).......... 41% 10,930 -- 10,930
Fixed Telephony
Metromedia-Jinfeng (PRC) (7)............................ 35% 719 -- 719
Sichuan Tai Li Feng Telecommunications, Co. Sichuan
Province, PRC) (9).................................... 54% 11,039 -- 11,039
----------- ------------ -------------
Total................................................... $ 71,198 $ 81,025 $ 152,223
----------- ------------ -------------
----------- ------------ -------------
</TABLE>
- ------------------------
(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.
(3) The Communication Group's cable and paging services in Uzbekistan are
provided by or through the same company, Kamalak TV. All amounts
contributed and loaned to Kamalak TV are listed above under wireless
cable television.
(4) The Communication Group's cable and paging services in Kazakhstan are
provided by or through the same company, Alma TV. All amounts contributed
and loaned to Alma TV are listed above under wireless cable television.
(5) The Communications Group owns its trunked mobile radio ventures through
Protocall, in which it has a 56% ownership interest. Through Protocall,
the Communications Group owns interest in (i) Belgium Trunking (24%),
which provides services in Brussels and Flanders, Belgium, (ii)
Radiomovel Telecommunicacoes (36%), 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
Aryran, Kazakhstan. A portion of the Communications Group's interest in
NBC and Spectrum is held directly. The above amounts include $30,000 and
$215,000, respectively, contributed and loaned, respectively, to NBC
directly by the Company and $36,050 contributed to Spectrum directly by
the Company. In addition, in October 1997 Protocall completed a
transaction increasing the Communication Group's ownership of Protocall's
Spanish joint ventures 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.
23
<PAGE>
(8) Eldoradio includes two radio stations operating in St. Petersburg, Russia
and AS Trio LSL includes seven operating in various cities throughout
Estonia.
(9) Sichuan Tai Li Feng Telecommunications, Co. is a pre-operational joint
venture that is participating in the construction and development of a
local telephone network in the Sichuan Province of China.
(10) The total investment does not include any incurred losses.
(11) Kazpage is comprised of a service entity and 10 paging joint ventures
that provide services in Kazakhstan. The Company's interest in the joint
ventures ranges from 26% to 41% and its interest in the service entity is
51%. Amounts described as loaned in the above table represent loans to
the service entity which in turn funds the joint ventures.
SNAPPER
Snapper manufacturers Snapper-Registered Trademark- brand premium-priced
power lawnmowers, lawn tractors, garden tillers, snowthrowers 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.
24
<PAGE>
The following table sets forth the operating results of the Company's
Communications Group and lawn and garden segments for the three months and nine
months ended September 30, 1997 and 1996. 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 note 9 to the notes to the consolidated
condensed financial statements.
Segment Information
Management's Discussion and Analysis Table
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Communications Group:
Revenues............................................. $ 5,772 $ 4,380 $ 14,924 $ 10,319
Cost of sales and rentals and operating expenses..... (491) -- (1,837) --
Selling, general and administrative.................. (13,263) (9,636) (40,042) (26,151)
Depreciation and amortization........................ (2,567) (1,545) (6,854) (4,628)
------------- ------------- ------------- -------------
Operating loss...................................... (10,549) (6,801) (33,809) (20,460)
Equity in losses of Joint Ventures................... (5,376) (2,292) (7,561) (6,060)
Minority interest.................................... 2,429 59 5,056 80
------------- ------------- ------------- -------------
(13,496) (9,034) (36,314) (26,440)
Snapper:
Revenues............................................. 30,773 -- 132,596 --
Cost of sales and rentals and operating expenses..... (21,520) -- (89,656) --
Selling, general and administrative.................. (16,358) -- (47,701) --
Depreciation and amortization........................ (1,404) -- (5,208) --
------------- ------------- ------------- -------------
Operating loss...................................... (8,509) -- (9,969)
Corporate Headquarters and Eliminations:
Revenues............................................. -- -- -- --
Cost of sales and rentals and operating expenses..... -- -- -- --
Selling, general and administrative.................. (1,742) (3,217) (4,239) (7,635)
Depreciation and amortization........................ (3) (4) (9) (15)
------------- ------------- ------------- -------------
Operating loss...................................... (1,745) (3,221) (4,248) (7,650)
Consolidated:
Revenues............................................. 36,545 4,380 147,520 10,319
Cost of sales and rentals and operating expenses..... (22,011) -- (91,493) --
Selling, general and administrative.................. (31,363) (12,853) (91,982) (33,786)
Depreciation and amortization........................ (3,974) (1,549) (12,071) (4,643)
------------- ------------- ------------- -------------
Operating loss...................................... (20,803) (10,022) (48,026) (28,110)
Interest expense...................................... (4,417) (4,174) (16,463) (13,783)
Interest income....................................... 4,560 3,166 9,360 5,359
Income tax benefit.................................... 12,262 -- 11,948 --
Equity in losses of Joint Ventures.................... (5,376) (2,292) (7,561) (6,060)
Equity in losses of and writedown of investment in
RDM Sports Group, Inc................................. (19,934) -- (45,056) --
Minority interest..................................... 2,429 59 5,056 80
Discontinued operations............................... 252,485 (25,092) 217,818 (33,832)
Extraordinary items................................... (13,598) (4,505) (14,692) (4,505)
------------- ------------- ------------- -------------
Net income (loss).................................. $ 207,608 $ (42,860) $ 112,384 $ (80,851)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
25
<PAGE>
MMG CONSOLIDATED--RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996.
For the three months ended September 30, 1997 net income was $207.6
million as compared to a net loss of $42.9 million for the comparable period
in the prior year.
The net income for the three months ended September 30, 1997 includes the
gain on the Entertainment Group Sale of $246.3 million, an extraordinary loss
of $13.6 million relating to the early extinguishment of the Company's
debentures and equity losses and a further writedown of the investment in RDM
amounting to $19.9 million.
Operating loss increased to $20.8 million for the three months ended
September 30, 1997 from $10.0 million for the three months ended September 30,
1996. The increase in operating loss reflects the inclusion of Snapper's
operating loss in 1997 of $8.5 million and increases in selling, general and
administrative costs due principally to the continued growth of the
Communications Group.
Interest expense increased $243,000 to $4.4 million for the three months
ended September 30, 1997, primarily due to the inclusion of interest
associated with the Snapper credit facility partially offset by the reduction
in the outstanding debt balance at corporate headquarters.
Interest income increased $1.4 million to $4.6 million in 1997,
principally from funds invested at corporate headquarters and increased
interest income resulting from increased borrowings under the Communications
Group's credit facilities with its Joint Ventures for their operating and
investing cash requirements.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996.
For the nine months ended September 30, 1997 net income was $112.4
million as compared to a net loss of $80.9 million for the comparable period
in the prior year.
The net income for the nine months ended September 30, 1997 includes the
gain on the Entertainment Group Sale of $246.3 million and losses from the
discontinued operations of the Entertainment Group of $28.8 million, an
extraordinary loss of $13.6 million relating to the early extinguishment of
the Company's debentures and equity loss and a further writedown of the
investment in RDM amounting to $45.1 million.
Operating loss increased to $48.0 million for the nine months ended
September 30, 1997 from $28.1 million for the nine months ended September 30,
1996. The increase in operating loss reflects the inclusion of Snapper's
operating loss in 1997 of $10.0 million, and increases in selling, general
and administrative costs due principally to the continued growth of the
Communications Group.
Interest expense increased $2.7 million to $16.5 million for the nine
months ended September 30, 1997, primarily due to the inclusion of interest
associated with the Snapper credit facility partially offset by the reduction
in the outstanding debt balance at corporate headquarters.
26
<PAGE>
Interest income increased $4.0 million to $9.4 million in 1997,
principally from funds invested at corporate headquarters and increased
interest income resulting from increased borrowings under the Communications
Group's credit facilities with its Joint Ventures for their operating and
investing cash requirements.
THE COMMUNICATIONS GROUP--RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996.
REVENUES
Revenues increased to $5.8 million for the three months ended September
30, 1997 from $4.4 million for the three months ended September 30, 1996. The
growth in revenue of the consolidated Joint Ventures has resulted primarily
from an increase in radio operations in Hungary. Revenue from radio
operations increased to $4.1 million for the three months ended September 30,
1997 from $2.7 million for the three months ended September 30, 1996. Radio
paging services generated revenues of $840,000 for the three months ended
September 30, 1997 as compared to $900,000 for the three months ended
September 30, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $3.6 million or
38% for the three months ended September 30, 1997 as compared to the three
months ended September 30, 1996. Approximately fifty-six percent of the
increase relates to the expansion of operations in the PRC and 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. ("Protocall") 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 $2.6 million for the
three months ended September 30, 1997 from $1.5 million for the three months
ended September 30, 1996. The increase is primarily 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 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
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 $5.4 million for the three months ended September
30, 1997, including the equity in the losses of its Joint Ventures in PRC, as
compared to $2.3 million for the three months ended September 30, 1996.
27
<PAGE>
The losses recorded for the three months ended September 30, 1997 and the
three months ended September 30, 1996 represent the Communications Group's
equity in the losses of the Joint Ventures for the quarters ended June 30,
1997 and 1996, 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.
Revenues generated by unconsolidated Joint Ventures were $16.1 million
for the three months ended September 30, 1997 as compared to $19.6 million
for the three months ended September 30, 1996.
MINORITY INTEREST
Losses allocable to minority interests increased to $2.4 million for the
three months ended September 30, 1997 from $59,000 for the three months ended
September 30, 1996. The increase principally represents the inclusion of
losses allocable to the minority shareholders of MAC.
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.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996.
REVENUES
Revenues increased to $14.9 million in the nine months ended September
30, 1997 from $10.3 million for the nine months ended September 30, 1996.
Revenues of unconsolidated Joint Ventures for the nine months ended September
30, 1997 and 1996 appear in note 7 to the notes to consolidated financial
statements. This growth in revenue has resulted primarily from an increase in
radio operations in Hungary and paging service operations in Romania. Revenue
from radio operations for the first nine months of 1997 was $9.9 million as
compared to $6.4 million in the first nine months of 1996. Radio paging
services generated revenues of $2.3 for the first nine months of 1997 and the
first nine months of 1996.
28
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense increased by $13.9 million or
53% for the nine months ended September 30, 1997 as compared to the nine
months ended September 30, 1996. Approximately forty-three percent of the
increase relates to the expansion of operations in the PRC and the
acquisition of AAT. The increase relates principally to the hiring of
additional staff and expenses associated with the increase in the number
Joint Ventures and the need for the Communications Group to support and
assist the operations of the Joint Ventures, and additional staffing at the
radio station and radio paging operations.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense increased to $6.9 million for the
nine months ended September 30, 1997 from $4.6 for the nine months ended
September 30, 1996. The increase is primarily a result of the amortization of
goodwill in connection with the acquisition of AAT.
EQUITY IN LOSSES OF JOINT VENTURES
The Communications Group recognized equity in losses of its Joint
Ventures of approximately $7.6 million for the nine months ended September
30, 1997, including equity in the losses of its Joint Ventures in PRC, as
compared to $6.1 million for the nine months ended September 30, 1996.
Revenues generated by unconsolidated Joint Ventures were $45.2 million
for the nine months ended September 30, 1997 as compared to $34.3 million for
the nine months ended September 30, 1996.
MINORITY INTEREST
Losses allocable to minority interests increased to $5.1 million for the
nine months ended September 30, 1997 from $80,000 for the nine months ended
September 30, 1996. The increase principally represents the inclusion of
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
businesses. The following table presents the aggregate telephony, paging and
cable TV Joint Ventures subscriber growth:
29
<PAGE>
<TABLE>
<CAPTION>
WIRELESS
CABLE TV PAGING TELEPHONY 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
June 30, 1997.................... 147,671 53,416 12,809 213,896
September 30, 1997............... 169,033 53,321 24,419 246,773
</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 dominated 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 fund in local currencies and the time it
distributes such funds in U.S. dollars to the Communications Group.
30
<PAGE>
SNAPPER--RESULTS OF OPERATIONS
Three Months Ended September 30, 1997
REVENUES
Snapper's 1997 period sales were $30.8 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 $17.3
million. Sales of lawn and garden equipment contributed the majority of the
revenues during the period. Sales were much lower than anticipated due to
lower distributor sales than expected due to the repurchase of distributor
inventory.
Gross profit during the period was $9.3 million. These low gross profit
results were caused by lower distributor sales than anticipated due to the
distributor repurchases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
31
<PAGE>
Selling, general and administrative expenses were $16.4 million for the
period. In addition to normal selling, general and administrative expenses,
these expenses reflect acquisition expenditures related to five large
distributorships purchased during the period.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization charges were $1.4 million for the current
quarter. Depreciation and amortization reflected the depreciation of
Snapper's property, plant and equipment as well as the amortization of the
goodwill associated with the acquisition of Snapper.
OPERATING LOSSES
Snapper experienced an operating loss of $8.5 million during the quarter.
This loss was the result of the acquisition expenses related to five large
distributorships repurchased during the quarter as well as lower than
expected sales to distributors. Management anticipates that Snapper will not
be profitable for the full year of 1997 as it completes the repurchase of
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.
Nine Months Ended September 30, 1997
REVENUES
Snapper's 1997 period sales were $132.6 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 $23.6
million. Sales of lawn and garden equipment contributed the majority of the
revenues during the period. Sales were much lower than anticipated due to
unseasonably cool weather during April and May, and due to the impact of
lower distributor sales than expected due to the repurchase of distributor
inventory.
Gross profit during the period was $42.9 million. Although higher sales
margins were obtained during the period due to the continuing implementation
of the program to restructure the distribution network, the low profit
results were caused by lower than anticipated sales as noted above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $47.7 million for the
period. In addition to normal selling, general and administrative expenses,
these expenses reflect additional television commercial expenditures to
assist Snapper dealers during the distribution network restructuring, as well
as acquisition expenditures related to seven distributorships purchased
during the period.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization charges were $5.2 million for the period.
Depreciation and amortization reflected the depreciation of Snapper's
property, plant and equipment as well as the amortization of the goodwill
associated with the acquisition of Snapper.
OPERATING LOSSES
32
<PAGE>
Snapper experienced an operating loss of $10.0 million during the period.
The loss was the result of unseasonably cool weather during April and May of
the period 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 completes the repurchase of 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.
33
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
MMG CONSOLIDATED
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash used in operations for the nine months ended September 30, 1997 was
$74.9 million, an increase in cash used in operations of $41.6 million from
the same period in the prior year.
Net income (loss) includes significant non-cash items of the gain on the
Entertainment Group Sale, operating loss of discontinued operations, equity
in losses and writedown of investment in RDM, losses on early extinguishment
of debt, depreciation, amortization, equity in losses of Joint Ventures and
losses allocable to minority interests. Excluding the gain on the
Entertainment Group Sale of $246.3 million in 1997 non-cash items increased
to $108.4 million from $51.5 million in 1996. The increase relates
principally to the increase in depreciation and amortization associated with
the consolidation of Snapper, losses from discontinued operations and the
equity losses and write down of the Company's investment in RDM partially
offset by losses allocable to AAT's minority owners. Changes in assets and
liabilities, net of the effect of acquisitions, decreased cash flows for the
nine months ended September 30, 1997 and 1996 by $49.4 million and $4.0
million, respectively.
The decrease in cash flows for the nine months ended September 30, 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 and the inclusion of Snapper's operating losses in 1997. The
increase in operating assets principally reflects increases in inventory of
Snapper products.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash provided by investing activities for the nine months ended September
30, 1997 was $215.8 million as compared to cash used in investing activities
of $16.0 million in the comparable period in the prior year. The principal
reason for the increase in cash provided by investing activities was the net
proceeds from the Entertainment Group sale of $276.6 million. Cash used in
investments in and advances to joint ventures and additions to property,
plant and equipment were $37.3 million and $9.5 million, respectively, in
1997 as compared to $25.4 million and $1.4 million, respectively in 1996 and
the Communications Group utilized $9.1 million of funds in acquisitions in
the nine months ended September 30, 1997.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by financing activities was $81.2 million for the nine
months ended June 30, 1997 as compared to $149.1 million in the same period
in the prior year. The current year includes the proceeds from the issuance
of 4,140,000 shares of 7 1/4% cumulative convertible preferred stock of
$199.4 million as compared to 1996 which includes proceeds of $190.6 million
from the issuance of 18,400,000 shares of common stock. Of the $156.7 million
of payments in 1997 in notes and subordinated debt, $155.5 million relates to
payment on the Company's debentures. Of the $42.6 million of payments in 1996
on notes subordinated debt $28.8 million was the repayment of the revolving
credit agreement by the Company.
THE COMPANY
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 and make acquisitions, as well as fulfill
its commitments to make capital contributions and loans to its Joint
Ventures. 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. In
addition, periodically, the Company has been required to fund the short-term
working capital needs of Snapper.
Since each of the Communications Group's Joint Ventures operates
businesses, such as wireless cable television, fixed telephony, paging and
cellular telecommunications, 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, the Company will require
in addition to its cash on hand and the proceeds from the anticipated sale of
Landmark, 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
equity or debt 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.
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 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.
As the 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.
34
<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 certain of its GSM Joint Ventures. Certain GSM ventures have
been funded to date 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 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, prior to any distributions 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 September 30, 1997, the Communications Group was
committed to provide funding under the various credit lines in an aggregate
amount of approximately $92.1 million, of which $13.1 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 a material variance
from the approved business plan, the Communications Group may terminate or
revise its commitment to fund the credit agreements.
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. 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
35
<PAGE>
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 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.
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, the PRC, and other emerging markets. 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.
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.
36
<PAGE>
SNAPPER
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 pursuant to which AmSouth has agreed to make available
to Snapper a revolving line of credit up to $55.0 million, the Snapper Revolver,
through January 1, 1999. The Snapper Revolver is guaranteed by the Company. The
Snapper Revolver contains covenants regarding minimum quarterly cash flow and
equity requirements.
On April 30, 1997, Snapper closed a on the Working Capital Facility with
AmSouth. 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 in favor of AmSouth in
connection with the Snapper Revolver), (ii) accrue 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 MMG and Vice Chairman, President and
Chief Executive Officer of MMG, respectively, on the $10.0 million working
capital facility. The Company repaid the Working Capital Facility on October
1, 1997. During the months of August and September, MMG loaned Snapper an
additional $10.0 million to meet working capital and distributor repurchase
proceeds.
On November 12, 1997, Snapper amended and restated the Snapper Credit
Agreement to increase the amount of the revolving line of credit from $55.0
million to $80.0 million. Interest on the Snapper Revolver bears interest at
an applicable margin above the prime rate (up to 15%) or a LIBOR rate (up to
4.0%). The Snapper Revolver matures on January 1, 2000. The Snapper
Revolver continues to be guaranteed by the Company and Messrs. Kluge and
Subotnick have agreed to guarantee $10.0 million of the Snapper Revolver. The
Snapper Credit Agreement, as amended, continues to contain certain financial
covenants regarding maintaining minimum tangible net worth and satisfying
certain quarterly cash flow requirements.
37
<PAGE>
At September 30, 1997, Snapper was in compliance with the financial
covenants under the Snapper Revolver and Working Capital Facility.
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 September 30, 1997, 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
September 30, 1997, there was approximately $42.8 million outstanding under this
floor plan financing arrangement. The Company has guaranteed Snapper's payment
obligations under this agreement.
Management believes that available cash on hand, borrowings from the Snapper
Revolver, and on as needed basis short-term working capital funding from the
Company, and the cash flow generated by operating activities will provide
sufficient funds for Snapper to meet its obligations.
38
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the captions "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and elsewhere in this Form
10-Q constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such factors include among others, the following: general
economic and business conditions, which will, among other things, impact demand
for the Company's products and services; industry capacity, which tends to
increase during strong years of the business cycle; changes in public taste,
industry trends and demographic changes, 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 republics of the former Soviet Union, 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, which may impact the costs of
such projects; developing legal structures in Eastern Europe, the republics of
the former Soviet Union, 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 republics of the
former Soviet Union, the PRC and other selected emerging markets; exchange rate
fluctuations; license renewals for the Company's communications investments in
Eastern Europe, the republics of the former Soviet Union, the PRC and other
selected 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 the Form 10-Q.
39
<PAGE>
PART II. Other Information
ITEM 1. LEGAL PROCEEDINGS.
Except as set forth below, for a description of legal proceedings, reference
is made to the Company's quarterly report on Form 10-Q for the quarter ended
June 30, 1997.
Michael Shores v. Samuel Goldwyn Company, et al.
On May 20, 1996, Shore v. Samuel Goldwyn Company, et al., Case No. BC
150360, was filed in the Superior Court of the State of California as a
purported class action lawsuit. Plaintiff Michael Shores alleged that, in
connection with the Goldwyn Merger, Goldwyn's directors and majority
shareholders breached their fiduciary duties to the public shareholders of
Goldwyn. Plaintiff subsequently added, in an amended complaint, an allegation
that the Company aided and abetted the other defendants' fiduciary breaches. The
Company successfully demurred to the amended complaint on the ground that it did
not state a cause of action against the Company, and plaintiff was given an
opportunity to replead. Plaintiff has filed a second amended complaint and now
alleges, in addition to his other claims, that the Company negligently
misrepresented and/or omitted material facts in the Company's prospectus issued
for the Goldwyn Merger.
Samuel Goldwyn, Jr. V. Metro-Goldwyn-Mayer Inc., et al.
On October 29, 1997, Samuel Goldwyn, Jr., former chairman of Goldwyn, filed
Samuel Goldwyn, Jr. v. Metro-Goldwyn-Mayer Inc., et al., Case No. BC 180290, in
Superior Court of the State of California, alleging that the Company
fraudulently induced him and the Samuel Goldwyn, Jr. Family Trust (the "Trust")
to enter into various agreements in connection with the Goldwyn Merger; breached
an agreement to guarantee the performance of Goldwyn Entertainment Company's
obligations to the Trust; and is using, without permission, the "Samuel Goldwyn"
trademark. The complaint also alleges that the Company and other defendants
breached Mr. Goldwyn's employment agreement and fiduciary duties owed to him and
the Trust, both before and after the sale of Goldwyn Entertainment Company to
Metro-Goldwyn-Mayer Inc.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
For a description of the Company's 1997 Annual Meeting of Stockholders held
on July 10, 1997, reference is made to the Company's quarterly report on Form
10-Q for the quarter ended June 30, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits
--------
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------------------------------------------------
11* Computation of Earnings Per Share*
40
<PAGE>
27* Financial Data Schedule*
(b) Reports on Form 8-K
-------------------
None
* Enclosed herein
41
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
METROMEDIA INTERNATIONAL GROUP, INC.
By: /s/ Silvia Kessel
-------------------------------------
Silvia Kessel
Executive Vice President, Chief
Financial Officer and Treasurer
Dated: November 14, 1997
42
<PAGE>
EXHIBIT 11
METROMEDIA INTERNATIONAL GROUP, INC.
Computation of Earnings Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
<S> <C> <C>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Income (Loss) Per Share--Primary
Continuing operations............................................................. $ (31,279) $ (13,263)
Cumulative convertible preferred stock dividend requirement....................... (584) --
------------- -------------
Continuing operations attributable to common stock................................ (31,863) (13,263)
Discontinued operations........................................................... 252,485 (25,092)
Extraordinary items............................................................... (13,598) (4,505)
------------- -------------
Net income (loss) available for common stock and common stock equivalents......... $ 207,024 $ (42,860)
------------- -------------
------------- -------------
Common stock and common stock equivalents (A)
Weighted average common stock and common stock equivalents outstanding during
the period....................................................................... 69,377 65,482
------------- -------------
------------- -------------
Income (Loss) Per Share--Primary
Continuing operations............................................................. $ (0.46) $ (0.20)
Discontinued operations........................................................... 3.64 (0.39)
Extraordinary items............................................................... (0.20) (0.07)
------------- -------------
Net income (loss)................................................................. $ 2.98 $ (0.66)
------------- -------------
------------- -------------
Income (Loss) Per Share--Fully Diluted (B)
Continuing operations............................................................. (31,279)
Discontinued operations........................................................... 252,485
Extraordinary items............................................................... (13,598)
-------------
Net income (loss) available for common stock and common stock equivalents......... $ 207,608
-------------
-------------
Common stock, common stock equivalents and convertible securities
Weighted average common stock, common stock equivalents and convertible
securities outstanding during the period........................................ 71,628
-------------
-------------
Income (Loss) Per Share--Fully Diluted
Continuing operations............................................................. $ (0.44)
Discontinued operations........................................................... 3.53
Extraordinary items............................................................... (0.19)
-------------
Net income........................................................................ $ 2.90
-------------
-------------
</TABLE>
(A)Common stock equivalents are not included in primary loss per share in the
three months ended September 30, 1996 because they would be anti-dilutive.
(B)Fully diluted loss per share is not used in the three months ended September
30, 1996 because it is less than primary loss per share.
1
<PAGE>
EXHIBIT 11
METROMEDIA INTERNATIONAL GROUP, INC.
Computation of Earnings Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
<S> <C> <C>
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Income (Loss) Per Share--Primary
Continuing operations............................................................. $ (90,742) $ (42,514)
Cumulative convertible preferred stock dividend requirement....................... (584) --
------------- -------------
Continuing operations attributable to common stock................................ (91,326) (42,514)
Discontinued operations........................................................... 217,818 (33,832)
Extraordinary items............................................................... (14,692) (4,505)
------------- -------------
Net income (loss) available for common stock and common stock equivalents......... $ 111,800 $ (80,851)
------------- -------------
------------- -------------
Common stock and common stock equivalents (A)
Weighted average common stock and common stock equivalents outstanding
during the period............................................................... 68,070 50,311
------------- -------------
------------- -------------
Income (Loss) Per Share--Primary
Continuing operations............................................................. $ (1.34) $ (0.84)
Discontinued operations........................................................... 3.20 (0.67)
Extraordinary items............................................................... (0.22) (0.09)
------------- -------------
Net income (loss)................................................................. $ 1.64 $ (1.60)
------------- -------------
------------- -------------
Income (Loss) Per Share--Fully Diluted (B)
Continuing operations............................................................. (90,742)
Discontinued operations........................................................... 217,818
Extraordinary items............................................................... (14,692)
-------------
Net income (loss) available for common stock and common stock equivalents........... $ 112,384
-------------
-------------
Common stock, common stock equivalents and convertible securities
Weighted average common stock, common stock equivalents and convertible
securities outstanding during the period........................................ 69,096
-------------
-------------
Income (Loss) Per Share--Fully Diluted
Continuing operations............................................................. $ (1.31)
Discontinued operations........................................................... 3.15
Extraordinary items............................................................... (0.21)
-------------
Net income........................................................................ $ 1.63
-------------
-------------
</TABLE>
(A)Common stock equivalents are not included in primary loss per share in the
nine months ended September 30, 1996 because they would be anti-dilutive.
(B)Fully diluted loss per share is not used in the nine months ended September
30, 1996 because it is less than primary loss per share.
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FILED AS PART OF THE QUARTERLY
REPROT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 310,257
<SECURITIES> 0
<RECEIVABLES> 28,502
<ALLOWANCES> (3,259)
<INVENTORY> 87,490
<CURRENT-ASSETS> 428,456
<PP&E> 42,280
<DEPRECIATION> (8,301)
<TOTAL-ASSETS> 829,391
<CURRENT-LIABILITIES> 147,728
<BONDS> 57,055
0
207,000
<COMMON> 67,996
<OTHER-SE> 309,565
<TOTAL-LIABILITY-AND-EQUITY> 829,391
<SALES> 147,520
<TOTAL-REVENUES> 147,520
<CGS> 91,493
<TOTAL-COSTS> 195,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,463
<INCOME-PRETAX> (102,690)
<INCOME-TAX> (11,948)
<INCOME-CONTINUING> (90,742)
<DISCONTINUED> 217,818
<EXTRAORDINARY> (14,692)
<CHANGES> 0
<NET-INCOME> 112,384
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.63
</TABLE>
