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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-5706
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THE ACTAVA GROUP INC.
(EXACT NAME OF REGISTRANT, AS SPECIFIED IN ITS CHARTER)
DELAWARE 58-0971455
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4900 GEORGIA-PACIFIC CENTER, ATLANTA, GEORGIA 30303
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
(404) 658-9000
(Registrant's telephone number, including area code)
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT
Not Applicable
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of June 30, 1995 -- 17,346,726 shares of Common
Stock.
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PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1995 1994
----------- ----------
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 29,279 $ 47,916
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 9,572 14,321
Receivables (less allowances for doubtful accounts
of $7,564 in 1995 and $6,851 in 1994) . . . . . . . . . . . . . . . . . 109,938 132,948
Note receivable from Eastman Kodak Company (less
allowance for unearned discount of $618 in 1995
and $3,635 in 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . 49,382 96,365
Note receivable from Metromedia Company . . . . . . . . . . . . . . . . . 53,795 32,395
Current portion of note receivable from Triton Group Ltd. . . . . . . . . 5,000 6,250
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,276 13,403
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,270 7,384
Future income tax benefits . . . . . . . . . . . . . . . . . . . . . . . 6,709 6,911
--------- ---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . 307,221 357,893
Investment in Roadmaster Industries, Inc. . . . . . . . . . . . . . . . . . 65,555 68,617
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . 72,624 74,902
Less allowances for depreciation . . . . . . . . . . . . . . . . . . . . (39,753) (40,005)
--------- ----------
32,871 34,897
Notes receivable from Triton Group Ltd. (less current portion) . . . . . . 14,226 16,726
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,011 15,013
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 955 633
--------- ---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 426,839 $ 493,779
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities . . . . $ 85,654 $ 91,653
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,692 64,573
Current portion of long-term and subordinated debt . . . . . . . . . . . 4,124 34,244
Redeemable common stock . . . . . . . . . . . . . . . . . . . . . . . . . -- 12,000
--------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . 155,470 202,470
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 6,709 6,911
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,254 2,547
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,420 157,193
STOCKHOLDERS' EQUITY
Common stock (22,767,485 shares in 1995 and 1994) . . . . . . . . . . . . 22,768 22,768
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,705 35,482
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,385 173,639
Less treasury stock--at cost (5,420,759 shares in 1995
and 5,490,327 shares in 1994) . . . . . . . . . . . . . . . . . . . . . (105,872) (107,231)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . 107,986 124,658
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . $ 426,839 $ 493,779
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- ---------------------
1995 1994 1995 1994
---- ---- ---- ----
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,786 $ 123,943 $ 98,848 $ 279,214
Operating costs and expenses
Cost of products sold . . . . . . . . . . . . . . . . . . . 34,122 105,417 78,426 233,488
Selling, general and administrative expenses . . . . . . . 13,218 21,493 28,672 48,930
Provision for doubtful accounts . . . . . . . . . . . . . . 832 728 1,116 978
-------- --------- --------- ---------
OPERATING LOSS . . . . . . . . . . . . . . . . . . . (6,386) (3,695) (9,366) (4,182)
Interest (expense) . . . . . . . . . . . . . . . . . . . . . (5,347) (7,463) (10,903) (14,822)
Other income (expense) -- net . . . . . . . . . . . . . . . . 2,245 797 4,473 741
-------- --------- --------- ---------
LOSS BEFORE INCOME TAXES, INCOME FROM EQUITY INVESTMENT
AND DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . (9,488) (10,361) (15,796) (18,263)
Income taxes (benefit) . . . . . . . . . . . . . . . . . . . -- (188) -- --
-------- --------- --------- ---------
LOSS BEFORE INCOME FROM EQUITY INVESTMENT
AND DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . (9,488) (10,173) (15,796) (18,263)
Loss from equity investment in Roadmaster Industries, Inc. . (2,335) -- (3,062) --
-------- --------- --------- ---------
LOSS FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . (11,823) (10,173) (18,858) (18,263)
Loss from discontinued operations . . . . . . . . . . . . . . -- (36,110) -- (40,693)
-------- --------- --------- ---------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . $(11,823) $ (46,283) $ (18,858) $ (58,956)
======== ========= ========= =========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Continuing operations . . . . . . . . . . . . . . . . . . . $ (.68) $ (.56) $ (1.07) $ (1.02)
Discontinued operations . . . . . . . . . . . . . . . . . . $ -- $ (1.98) $ -- $ (2.27)
-------- --------- --------- ---------
Primary and fully diluted . . . . . . . . . . . . . . . . . $ (.68) $ (2.54) $ (1.07) $ (3.29)
======== ========= ========= =========
AVERAGE COMMON AND COMMON EQUIVALENT SHARES . . . . . . . . . 17,342 18,197 17,594 17,918
======== ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
INCREASE (DECREASE) IN CASH
---------------------------
SIX MONTHS ENDED
JUNE 30,
---------------------------
1995 1994
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations . . . . . . . . . . . . . . . . . . . $(18,858) $ (18,263)
Items providing cash from continuing operating activities . . . . . . . . 8,837 46,157
-------- ---------
Net cash provided (used) in continuing operations . . . . . . . . . . . (10,021) 27,894
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . -- (40,693)
Items providing cash from discontinued operations . . . . . . . . . . . . -- 29,363
-------- ---------
Net cash used in discontinued operations . . . . . . . . . . . . . . . -- (11,330)
-------- ---------
Net cash provided (used) in all operations . . . . . . . . . . . . . . (10,021) 16,564
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments (maturities over 90 days) . . . . . . . . . . . -- (52,584)
Sales of investments (maturities over 90 days) . . . . . . . . . . . . . 5,381 51,232
Net sales of other investments . . . . . . . . . . . . . . . . . . . . . -- (935)
Payments for property, plant and equipment . . . . . . . . . . . . . . . (1,985) (19,552)
Proceeds from disposals of property, plant and equipment . . . . . . . . 1 4,362
Collections on notes receivable . . . . . . . . . . . . . . . . . . . . . 301 483
Collections from Triton Group Ltd. . . . . . . . . . . . . . . . . . . . 3,750 2,500
Collection from Eastman Kodak Company . . . . . . . . . . . . . . . . . . 50,000 --
Loans to Metromedia Company . . . . . . . . . . . . . . . . . . . . . . . (21,400) --
Other investing activities -- net . . . . . . . . . . . . . . . . . . . . (970) (3,750)
-------- ---------
Net cash provided by (used in) investing activities . . . . . . . . . . 35,078 (18,244)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under short-term bank agreements . . . . . . . . . . . . . 1,119 (27,617)
Borrowings under long-term debt agreements . . . . . . . . . . . . . . . 101 228,000
Payments on long-term debt agreements . . . . . . . . . . . . . . . . . . (362) (194,470)
Payments of subordinated debt . . . . . . . . . . . . . . . . . . . . . . (33,152) (3,000)
Proceeds from issuance of Actava common stock . . . . . . . . . . . . . . 600 4,462
Payment on redeemable common stock . . . . . . . . . . . . . . . . . . . (12,000) --
Cash dividends paid by Qualex to minority interest . . . . . . . . . . . -- (10,450)
-------- ---------
Net cash used in financing activities . . . . . . . . . . . . . . . . . (43,694) (3,075)
-------- ---------
Decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . (18,637) (4,755)
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . 47,916 18,770
-------- ---------
Cash and cash equivalents at June 30 . . . . . . . . . . . . . . . . . $ 29,279 $ 14,015
======== =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do
not include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, such
financial statements reflect all adjustments necessary for a fair statement of
the results of operations and financial position for the interim periods
presented. All such adjustments are of a normal recurring nature. Operating
results for the six months ended June 30, 1995 are not necessarily indicative
of the results that may be expected for the year ended December 31, 1995.
These condensed consolidated financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year ended December 31,
1994.
PHOTOFINISHING TRANSACTION AND DISCONTINUED OPERATION
Qualex Inc. is a photofinishing business formed in March 1988 by the
combination of Actava's photofinishing operations with the domestic
photofinishing operations of Eastman Kodak Company. Prior to June 30, 1994,
Actava owned 51% of the voting stock of Qualex, was entitled to and elected a
majority of the members of the Board of Directors of Qualex, and had the
ability through its control of the Board of Directors to declare dividends,
remove the executive officers of Qualex and otherwise direct the management and
policies of Qualex, except for policies relating to certain designated actions
requiring the consent of at least one member of the Board of Directors of
Qualex designated by Kodak. Because of these rights, the Company believes that
it had effective unilateral control of Qualex which was not temporary during
the period from 1988 until the second quarter of 1994. As a result, the
Company consolidated the results of operations of Qualex with the results of
operations of the Company for periods ending prior to June 30, 1994 and
presented Kodak's portion of the ownership and equity in the income of Qualex
as a minority interest.
In June 1994, the Company decided to sell its interest in Qualex and
engaged in negotiations with Kodak regarding the sale of such interest.
Accordingly, the results of Qualex are reported in the accompanying
reclassified statements of operations under discontinued operations. On August
12, 1994, Kodak purchased all of the Company's interest in Qualex and obtained
a covenant not to compete and related releases from the Company in exchange for
$50,000,000 in cash and a promissory note in the principal amount of
$100,000,000. The promissory note provided for two installments of $50,000,000
each, without interest, on February 13, 1995 and August 11, 1995. Because the
principal amount due under the note does not bear interest, the Company
discounted the value of the note to $92,832,000 and will record imputed
interest income of $7,168,000 over the term of the note. Approximately
$3,500,000 of imputed interest income was recorded during 1994. All amounts
received in exchange for the covenant not to compete and release were included
in the computation of the anticipated loss on
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the sale of Qualex. The Company received $50,000,000 under the promissory note
on February 13, 1995.
No assets and liabilities for Qualex are included in the Company's
balance sheet at December 31, 1994 due to the sale of the Company's interest in
Qualex on August 12, 1994.
During the second quarter of 1994, the Company began accounting for its
investment in Qualex under the equity method. Also during the second quarter
of 1994, the Company made a decision to dispose of its interest in Qualex and
began accounting for Qualex as a discontinued operation. The Company's
statement of operations for the three and six month periods ended June 30, 1994
has been restated to reflect Qualex as a discontinued operation. The results
of Qualex for these periods are as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1994 JUNE 30, 1994
----------------- -----------------
Net sales . . . . . . . . . . . . . . . . . . . . $185,563 $333,970
Operating expenses . . . . . . . . . . . . . . . . 179,742 342,134
-------- --------
Operating profit (loss) . . . . . . . . . . . . . 5,821 (8,164)
Interest expense . . . . . . . . . . . . . . . . . 4,633 8,582
Other expense . . . . . . . . . . . . . . . . . . 38 439
-------- --------
Income (loss) before taxes . . . . . . . . . . . . 1,150 (17,185)
Income taxes (benefit) . . . . . . . . . . . . . . (2,346) (11,514)
-------- --------
Net income (loss) from discontinued
operations before minority interest . . . . . . 3,496 (5,671)
Minority interest . . . . . . . . . . . . . . . . (1,748) 2,836
-------- --------
Net income (loss) from
discontinued operations . . . . . . . . . . . . $ 1,748 $ (2,835)
======== ========
ACCOUNTS AND NOTES RECEIVABLE
Receivables from sales of Actava's lawn and garden products amounted to
$106,929,000 at June 30, 1995 and $137,815,000 at December 31, 1994. The
receivables are primarily due from independent distributors located throughout
the United States. Amounts due from distributors are supported by a security
interest in the inventory or accounts receivable of the distributors. The
receivables generally have extended due dates which correspond to the seasonal
nature of the products' retail selling season. Concentrations of credit risk
resulting from the common business of the customers are limited due to the
number of customers comprising the customer base and their geographic location.
Ongoing credit evaluations of customers' financial condition are performed and
reserves for potential credit losses are maintained. Such losses, in the
aggregate, have not exceeded management's expectations.
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TRITON GROUP LTD. LOAN
At June 30, 1995 and December 31, 1994, the Company had a $19,226,000
and a $22,976,000 note receivable, respectively, from Triton Group Ltd.
("Triton") secured by 2,932,884 shares and 3,690,998 shares of Actava Common
Stock, respectively. The note receivable relates to a loan originally made to
Triton in 1991. The loan agreement evidencing the loan has been amended on
several occasions. The loan agreement, as amended, provides for quarterly
principal payment installments of $1,250,000 due on the last day of each
quarter of each year beginning March 31, 1994, with any unpaid principal and
accrued interest due on April 1, 1997. The loan bears interest at prime plus 2
1/2% over the term of the loan. Pursuant to the terms of the loan agreement,
758,114 shares of Actava Common Stock were released to Triton during the six
month period ended June 30, 1995 and an additional 320,900 shares have been
released as of July 24, 1995. At July 24, 1995, the 2,611,984 shares of Actava
Common Stock pledged as security for the loan had a market value of
approximately $36,600,000 as compared to the loan balance of $19,226,000. In
the opinion of management, the shares held as collateral are, and will continue
to be, sufficient to provide for realization of the loan.
METROMEDIA COMPANY LOAN
On August 31, 1994, the Company entered into letters of intent
providing for a proposed combination of the Company with Orion Pictures
Corporation ("Orion"), MCEG Sterling Incorporated ("Sterling"), and Metromedia
International Telecommunications Inc. ("MITI") (the "Proposed Metromedia
Transaction"). Metromedia Company ("Metromedia") and its affiliates control in
excess of 50% of the voting power of both Orion and MITI. Pursuant to the
letters of intent, the Company and Metromedia entered into a Credit Agreement
dated as of October 11, 1994 (the "Credit Agreement") under which the Company
agreed to make loans to Metromedia in an amount not to exceed an aggregate of
$55 million. Under the terms of the Credit Agreement, Metromedia agreed to use
the proceeds of the loans to make advances to or to pay obligations on behalf
of Orion, Sterling and MITI. All loans made by the Company to Metromedia under
the Credit Agreement are secured by shares of stock of Orion and MITI owned by
Metromedia and its affiliates. In addition, a general partner of Metromedia
has personally guaranteed the loans. The Credit Agreement provides that
interest will be due on the principal amount of all loans at an annual rate
equal to the prime rate announced from time to time by Chemical Bank. Interest
will be increased to prime plus three percent per annum if a party other than
the Company terminates discussions relating to the Proposed Metromedia
Transaction. All loans were originally scheduled to be due and payable on
April 12, 1995. On April 12, 1995, the Company and the other parties to the
Proposed Metromedia Transaction entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for the merger of each of Orion, Sterling
and MITI into and with the Company. In addition, the maturity date of the
loans was extended until the earlier of (i) the date of consummation of the
Proposed Metromedia Transaction, (ii) three months following the abandonment or
termination of the Merger Agreement by any party thereto pursuant to Article 14
thereof, or (iii) December 31, 1995. The outstanding balance under the Credit
Agreement as of June 30, 1995 was $53,795,000.
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INVENTORIES
Inventory balances are summarized as follows (in thousands):
JUNE 30, DECEMBER 31,
1995 1994
-------- --------
Finished goods and goods purchased for resale . . . . . . . . . . . $ 33,548 $ 12,618
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . 18,051 15,395
-------- --------
51,599 28,013
Reserve for LIFO cost valuation . . . . . . . . . . . . . . . . . . (15,323) (14,610)
-------- --------
$ 36,276 $ 13,403
======== ========
Work in process is not considered significant.
During 1994, certain inventory quantities were reduced resulting in a
liquidation of LIFO inventory quantities which were carried at lower costs
prevailing in prior years as compared with the cost of current year purchases.
During 1994, the utilization of this lower cost inventory decreased the
Company's net loss by approximately $1,200,000 and decreased the loss per share
of common stock by $.07.
INVESTMENT IN ROADMASTER INDUSTRIES, INC.
On December 6, 1994, the Company transferred ownership of its four
sporting goods subsidiaries to Roadmaster Industries, Inc. ("Roadmaster") in
exchange for 19,169,000 shares of Roadmaster's Common Stock. As of December
31, 1994, the Company owned approximately 39% of the issued and outstanding
shares of Roadmaster's Common Stock based on approximately 48,600,000 shares of
Roadmaster's Common Stock outstanding. The four Actava subsidiaries
transferred to Roadmaster were Diversified Products Corporation, Hutch Sports
USA Inc., Nelson/Weather-Rite, Inc. and Willow Hosiery Company, Inc. No gain
or loss was recognized for this nonmonetary transaction. The Company's initial
investment in Roadmaster was recorded at approximately $68,300,000 and is
accounted for by the equity method.
The excess of the Company's investment in Roadmaster over its share in
the related underlying equity in net assets is being amortized on a
straight-line basis over a period of 40 years. The remaining unamortized
balance at June 30, 1995 and December 31, 1994 was $28,493,000 and $28,855,000,
respectively.
The quoted market value of the Company's investment in Roadmaster
common stock as of December 31, 1994, was $3.625 per share or a total value of
$69,488,000 and as of June 30, 1995, was $3.00 per share or a total value of
$57,507,000.
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Summarized financial information for Roadmaster is shown below (in
thousands):
ROADMASTER INDUSTRIES, INC.
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ ----------------------
JULY 1, 1995 JULY 2, 1994 JULY 1, 1995 JULY 2, 1994
------------ ------------ ------------ ------------
Net sales . . . . . . . . . . . $172,713 $102,566 $348,259 $200,854
Gross profit . . . . . . . . . . 19,778 15,623 43,735 28,775
Net income . . . . . . . . . . . (5,579) 1,053 (7,056) 1,835
RETIREMENT OF 6% SENIOR SUBORDINATED SWISS FRANC BONDS
In 1986 Actava issued 6% Senior Subordinated Swiss Franc Bonds due in
1996 for 100,000,000 Swiss francs. Simultaneously, in order to eliminate
exposure to fluctuations in the currency exchange rate over the life of the
bonds, Actava entered into a currency swap agreement with a financial
institution whereby Actava received approximately $48,000,000 in exchange for
the Swiss Franc Bond proceeds. As a result of the swap agreement, Actava, in
effect, made its interest and principal bond repayments in U.S. dollars without
regard to changes in the currency exchange rate. A default by the counterparty
to the swap agreement would have exposed Actava to potential currency exchange
risk on the remaining bond interest and principal payments in that Actava would
have been required to purchase Swiss francs at current exchange rates rather
than at the swap agreement exchange rate. After considering the stated
interest rate, the cost of the currency swap agreement, taxes and underwriting
commissions, the effective cost of the bonds was approximately 11.3%.
In December 1994, Actava entered into an agreement to redeem the
outstanding Swiss Franc Bonds at par plus accrued interest and to terminate the
currency swap agreement on February 17, 1995. The Company recorded an
extraordinary loss of $1,601,000 in 1994 related to this early extinguishment
of debt. The Company paid $34,900,000 due under the agreement on February 17,
1995.
REDEEMABLE COMMON STOCK
Redeemable Common Stock represents 1,090,909 shares of the Company's
Common Stock which were issued in connection with the acquisition of
substantially all the assets and liabilities of Diversified Products
Corporation ("DP") on June 8, 1993. The Company acquired substantially all the
assets of DP for a net purchase price consisting of $11,629,500, the issuance
of 1,090,909 shares of the Company's Common Stock valued at $12,000,000, and
the assumption or payment of certain liabilities including trade payables and a
revolving credit facility. The Company also entered into an agreement which
could provide the seller the right to additional payments depending upon the
value of the issued shares over a period of not longer than one year from the
purchase date. The additional payments of cash or the issuance of additional
shares would not have increased the cost of DP; any subsequent payment or
issuance would only have affected the manner in which the total purchase price
was recorded by Actava.
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The shares of the Company's Common Stock issued in connection with the
acquisition of DP were redeemed on February 17, 1995 for $12,000,000.
INCOME TAXES
Income tax expense is based upon statutory tax rates and book income
or loss adjusted for permanent differences between book and taxable income or
loss. The Company's businesses may have an annual effective tax rate which is
above or below statutory rates depending upon the amount of earnings from any
short-term tax advantaged investments and other items. For the three and six
month periods ended June 30, 1995, the Company has not recognized a tax benefit
for its losses due to limitations from prior period recognition. For the three
month period ended June 30, 1994 the Company reported a $188,000 tax benefit
which reduced the 1994 year-to-date tax expense to zero.
During the year, the Company provides for income taxes using
anticipated effective annual tax rates for all Company operations. The rates
are based on expected operating results for the year, estimated permanent
differences between book and tax income, and estimated utilization of any net
operating loss carryovers.
LITIGATION
In 1991, three lawsuits were filed against Actava, certain of Actava's
current and former directors and Intermark, Inc. (predecessor of Triton Group
Ltd.), which owned approximately 26% of Actava's Common Stock. One complaint
alleged, among other things, a long-standing pattern and practice by the
defendants of misusing and abusing their power as directors and insiders of
Actava by manipulating the affairs of Actava to the detriment of Actava's past
and present stockholders. The complaint sought monetary damages from the
director defendants, injunctive relief against Actava, Intermark and its then
current directors, and costs of suit and attorney's fees. The other two
complaints alleged, among other things, that members of the Actava Board of
Directors contemplate either a sale, a merger, or other business combination
involving Intermark, Inc. and Actava or one or more of its subsidiaries or
affiliates. The complaints sought costs of suit and attorney's fees and
preliminary and permanent injunctive relief and other equitable remedies,
including an order requiring the director defendants to carry out their
fiduciary duties and to take all appropriate steps to enhance Actava's value as
a merger or acquisition candidate. These three suits were consolidated on May
1, 1991 into a lawsuit captioned In re Fuqua Industries, Inc. Shareholders
Litigation, Civil Action No. 11974. These lawsuits continue to be in the
discovery stage. No significant events occurred with respect to these lawsuits
during 1994 or the first six months of 1995.
On November 30, 1993, a lawsuit was filed by the Department of Justice
("DOJ") against American Seating Company ("American Seating"), a former
subsidiary of Actava, in the United States District Court for the Western
District of Michigan. The lawsuit was captioned United States v. American
Seating Co., Civil Action No. 1:93-CV-956. Pursuant to an asset purchase
agreement between Actava and Amseco Acquisition, Inc., dated July 15, 1987,
Actava assumed the obligation for certain liabilities incurred by American
Seating arising out of litigation or other disputes involving events occurring
on or before June 22, 1987. The DOJ alleged among other things that American
Seating failed to disclose certain information relating to its price discount
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practices that it contends was required in an offer submitted by American
Seating to the General Services Administration for possible contracts for sales
of systems furniture and related services. The complaint sought recovery of
unspecified single and treble damages, penalties, costs and prejudgment and
post-judgment interest which could have exceeded $10,000,000 in total. This
case was settled on May 3, 1995 after the Company paid $800,000 on behalf of
American Seating. The amount of the payment was agreed to by the Company based
on a mediation panel's recommendation.
On September 23, 1994, a stockholder of the Company filed a class
action lawsuit against the Company and each of its directors seeking to block
the Proposed Metromedia Transaction. The lawsuit was filed in the Chancery
Court for New Castle County, Delaware and is styled James F. Sweeney, Trustee
of Frank Sweeney Defined Benefit Pension Plan Trust v. John D. Phillips, et.
al., Civil Action No. 13765. The Company and its directors were served with
this lawsuit on September 28, 1994. The complaint alleges that the terms of
the Proposed Metromedia Transaction constitute an overpayment for the assets
being acquired and as a result would result in a waste of the Company's assets.
The complaint further alleges that the directors of the Company would be
breaching their fiduciary duties to the Company's stockholders by approving the
Proposed Metromedia Transaction and that the transaction would result in a
change of voting control without giving stockholders an opportunity to maximize
their investment and that the current stockholders of the Company would suffer
a dramatic dilution of their voting rights. The Company and its directors have
filed a motion to dismiss this lawsuit. The stockholder who filed the lawsuit
has not responded to the motion to dismiss.
Actava is a defendant in various other legal proceedings. Except as
noted above, however, Actava is not aware of any action which, in the opinion
of management, would materially affect the financial position or results of
operations of Actava.
CONTINGENT LIABILITIES AND COMMITMENTS
Actava, on behalf of its Snapper Division, has an agreement with a
financial institution which makes available to dealers floor plan financing for
Snapper products. This agreement provides financing for dealer inventories and
accelerates cash flow to Snapper's distributors and to Snapper. Under the
terms of the agreement, a default in payment by one of the dealers on the
program is non-recourse to both the distributor and to Snapper. However, the
distributor is obligated to repurchase any equipment recovered from the dealer
and Snapper is obligated to repurchase the recovered equipment if the
distributor defaults. At June 30, 1995 and December 31, 1994, there were
approximately $34,291,000 and $29,449,000, respectively, outstanding under
these floor plan financing arrangements.
Actava is contingently liable under various guarantees of debt
totaling approximately $5,695,000. The debt is primarily Industrial Revenue
Bonds which were issued to finance the manufacturing facilities and equipment
of subsidiaries disposed of in earlier years, and is secured by the facilities
and equipment. In addition, upon the sale of the subsidiaries, Actava received
lending institution guarantees or bank letters of credit to support Actava's
contingent obligations. There are no material defaults on the debt agreements.
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Actava is contingently liable under various real estate leases of
subsidiaries which were sold in prior years. The total future payments under
these leases, including real estate taxes, is estimated to be approximately
$2,600,000. The leased properties generally have financially sound subleases.
Former subsidiaries of the Company handled and stored various
materials in the normal course of business that have been classified as
hazardous by various Federal, state and local regulatory agencies and for which
the Company may be liable. As of June 30, 1995, the Company is continuing to
participate in conducting tests at the sites where these materials were stored
and will perform any necessary cleanup where and to the extent legally
required. At those sites where tests have been completed, cleanup costs have
been immaterial. At the sites currently being tested, it is management's
opinion that cleanup costs will not have a material effect on Actava's
financial position or results of operations, but an estimate of costs exceeding
those previously recognized cannot be made at this time.
The Company, through a wholly owned subsidiary, presently owns real
property in Opelika, Alabama which was previously owned by DP, a former
subsidiary of the Company. DP previously stored cement, sand and mill scale
materials needed for or resulting from the manufacture of exercise weights on
the property. Although these materials have not been determined to be
hazardous by a regulatory agency, the Company is investigating cleanup
alternatives for this site. The Company cannot predict with certainty the
total cost of this cleanup; however, based upon, among other things, past
experience and preliminary site studies, the Company presently believes total
costs will be approximately $1.9 million. A reserve of this amount has been
recorded to provide for these cleanup costs. The Company is not entitled to
any recoveries for these costs from any other party. Although this liability
has been recorded currently, cleanup expenditures generally are incurred over
an extended period of time and the Company expects the cleanup of this site to
take several years. Cleanup expenditures related to this site have totaled
approximately $10,000 as of June 30, 1995.
At June 30, 1995, approximately $5,000,000 of the Company's cash was
pledged to secure a Snapper credit line.
Snapper has entered into various long-term manufacturing and purchase
agreements with certain vendors for the purchase of manufactured products and
raw materials. At June 30, 1995, non-cancelable commitments under these
agreements amounted to approximately $6,700,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
During 1994, Actava's management took several steps to redirect the
Company's focus in order to improve its operating results and financial
condition and to enable it to pursue new business opportunities. These steps
included the sale of four sporting goods companies to Roadmaster in exchange
for Roadmaster's publicly traded stock and the sale of the Company's 50%
ownership interest in Qualex to Kodak for cash and short-term notes totaling
$150 million. On April 12, 1995, the Company entered into the Merger Agreement
relating to the Proposed Metromedia Transaction.
The Company's Snapper Division currently provides lawn and garden
products through distribution channels to domestic and foreign retail markets.
In addition, the Company is indirectly involved in the sporting goods business
through its ownership interest in Roadmaster.
The following is a discussion of the operating results and financial
condition of the continuing operations of Actava on a consolidated basis and
the operating results of the Company's lawn and garden segment and the
Company's sporting goods segment. Financial information summarizing the
results of operations for Qualex, which is classified in discontinued
operations, is presented in "Qualex Inc. - Discontinued Operations" in Notes to
Consolidated Financial Statements. Summary financial information for the
Company's equity investment in Roadmaster is presented in "Investment in
Roadmaster Industries, Inc." in Notes to Consolidated Financial Statements.
CONSOLIDATED CONTINUING OPERATIONS
The following table presents a summary of the consolidated results of
continuing operations of the Company for the periods indicated:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1995 1994 $CHANGE 1995 1994 $CHANGE
---- ---- ------- ---- ---- -------
Net sales . . . . . . . . . . . $41,786 $123,943 $(82,157) $98,848 $279,214 $(180,366)
Gross profit . . . . . . . . . 7,664 18,526 (10,862) 20,422 45,726 (25,304)
Gross profit % . . . . . . . . 18.3% 14.9% -- 20.7% 16.4% --
S, G & A . . . . . . . . . . . 14,050 22,221 (8,171) 29,788 49,908 (20,120)
Operating loss . . . . . . . . (6,386) (3,695) (2,691) (9,366) (4,182) (5,184)
Interest expense . . . . . . . 5,347 7,463 (2,116) 10,903 14,822 (3,919)
Other income (expenses) . . . . 2,245 797 1,448 4,473 741 3,732
Income taxes (benefit) . . . . -- (188) 188 -- -- --
Loss from equity investment . . (2,335) -- (2,335) (3,062) -- (3,062)
Loss from continuing operations (11,823) (10,173) (1,650) (18,858) (18,263) (595)
Three Months Ended June 30, 1995 and 1994
The Company's consolidated sales decrease of 66.3% for the quarter
ended June 30, 1995 compared to the same 1994 quarter is principally
attributable to the sale of the Company's four
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sporting goods companies to Roadmaster in December 1994. Sales of $68.5
million for those companies are reflected for the 1994 period while the 1995
period includes only sales for the Company's remaining operations. In
addition, the Company's Snapper Division experienced a $13.7 million decrease
in sales for the 1995 period as compared to the 1994 period. This decrease at
Snapper resulted from the implementation by Snapper of a dealer direct sales
program which resulted in the repurchase of certain finished goods from
distributors. The dealer direct program will replace sales to some independent
distributors in selected markets with sales to Snapper dealers formerly
serviced by the distributors. Snapper also experienced lower factory
production and sales to distributors because of decreased retail sales.
The 58.6% decrease in consolidated gross profit dollars is principally
the result of the December 1994 sale of the sporting goods companies because
$8.7 million of gross profit from these companies was included in the 1994
quarter while the 1995 quarter reflects the post-sale results for the Company.
Consolidated gross profit dollars also decreased because Snapper's gross profit
dollars declined by $2.2 million due to its sales decrease. The change in the
consolidated gross profit percentage is primarily due to the sale of the
sporting goods companies. Snapper's gross profit percentage changed only
slightly for the 1995 and 1994 quarters.
The decrease in consolidated selling, general and administrative
expenses, which include provisions for doubtful accounts and employee
termination costs, is primarily attributable to the December 1994 sale of the
Company's four sporting goods companies. Approximately $9.2 million of such
expenses were included for those companies in the 1994 quarter. Snapper's
selling, general and administrative expenses for this quarter increased by
12.9% from the 1994 quarter.
For the quarter ended June 30, 1995, the Company's consolidated
operating loss of $6.4 million exceeds the same 1994 quarter operating loss of
$3.7 million primarily due to the decrease in Snapper's 1995 gross profit which
resulted from reduced sales and higher selling, general and administrative
expenses. The 1994 period included an operating loss of $558,000 for the
sporting goods companies which were sold in December 1994.
The 28.4% decrease in consolidated interest expense for the 1995
quarter is due to $1.3 million of interest expense which was reflected in the
1994 quarter for the four sporting goods companies sold in December 1994 and
$877,000 of interest expense reported in the 1994 quarter for the Swiss Franc
Bonds which were retired before the 1995 quarter. The interest expense for the
remaining operations for the 1995 quarter was substantially equivalent to the
1994 quarter.
The increase in other income for the 1995 quarter as compared to the
1994 quarter is primarily attributable to additional investment income in 1995
and the interest income on the Kodak and Metromedia notes reported by the
Company during 1995. See "Photofinishing Transaction and Discontinued
Operations" and "Metromedia Company Loan" in Notes to Consolidated Financial
Statements.
Six Months Ended June 30, 1995 and 1994
The Company's consolidated sales decrease of 64.6% for the six month
period ended June 30, 1995 compared to the same 1994 period is primarily
attributable to the sale of the Company's
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four sporting goods companies to Roadmaster in December 1994. Sales of $149
million for those companies are reflected in the 1994 period while the 1995
period includes only sales for the Company's remaining operations. In
addition, the Company's Snapper Division experienced a $31.3 million decrease
in sales during the 1995 period compared to the 1994 period. This decrease
resulted from the fact that Snapper's distributors accelerated their purchases
of Snapper products during December 1994 in order to build their inventories
prior to the implementation by Snapper of price increases in 1995, the
implementation by Snapper of a dealer direct sales program which resulted in
the repurchase of certain finished goods from distributors and lower factory
production and sales to distributors because of decreased retail sales.
The 55.3% decrease in consolidated gross profit dollars is principally
the result of the December 1994 sale of the sporting goods companies because
$19.2 million of gross profit from these companies was included in the 1994
period while the 1995 period reflects the post-sale results for the Company.
Consolidated gross profit dollars also decreased because Snapper's gross profit
dollars declined by $6.1 million due to its sales decrease. The change in the
consolidated gross profit percentage is primarily due to the sale of the
sporting goods companies. Snapper's gross profit percentage remained
substantially constant for the 1995 and 1994 periods.
The 40.3% decrease in consolidated selling, general and administrative
expenses, which include provisions for doubtful accounts and employee
termination costs, is primarily attributable to the December 1994 sale of the
Company's four sporting goods companies. Approximately $18.9 million of such
expenses were included for those companies in the 1994 period. In addition, a
non-recurring provision of $1.3 million for employee termination costs was
included in the 1994 first quarter selling, general and administrative expense.
For the six months ended June 30, 1995, the Company's consolidated
operating loss of $9.4 million exceeds the 1994 period operating loss of $4.2
million due in part to the 23% decrease in Snapper's 1995 gross profit
resulting from reduced sales and a 2.6% increase in Snapper's selling, general
and administrative expenses, as compared to the 1994 period. In addition, the
1994 period included as operating profit $305,000 for the sporting goods
companies which were sold in December 1994.
The 26.4% decrease in consolidated interest expense for the 1995
period is principally due to $2.6 million of interest expense which was
reflected in the 1994 period for the four sporting goods companies sold in
December 1994 and $1.5 million of interest expense reported in the 1994 period
for the Swiss Franc Bonds. The interest expense for the remaining operations
for the 1995 period was substantially equivalent to the same 1994 period.
The increase in other income for the 1995 period as compared to the
1994 period is primarily attributable to additional investment income in 1995
and the interest income on the Kodak and Metromedia notes reported by the
Company during 1995. See "Photofinishing Transaction and Discontinued
Operations" and "Metromedia Company Loan" in Notes to Consolidated Financial
Statements.
During the year, the Company provides for income taxes using
anticipated effective annual tax rates based on expected operating results for
the year and estimated permanent differences between book and taxable income.
Due to the recognition of net operating loss
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benefits to the extent possible through a reduction in deferred income tax
liabilities in a prior year, Actava recognizes the benefit of current net
operating losses only to the extent of potential refunds from carrybacks. Any
income tax effect relating to Qualex was recognized in the loss from
discontinued operations. Income taxes for the four sporting goods companies
sold to Roadmaster were included in Actava's operations for the period for
which they were consolidated. The Company has a net deferred tax balance of
zero, which is composed of deferred tax liabilities of approximately $16.4
million and deferred tax assets of approximately $59 million subject to a $42.6
million valuation allowance to reflect limitations on the Company's ability to
utilize net operating losses and other tax benefits. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. See "Income Taxes" in Notes to
Consolidated Financial Statements.
Loss from equity investment of $2.3 million and $3.1 million is
reported for the Company's investment in Roadmaster for the second quarter of
1995 and the 1995 year-to-date period, respectively. This represents the
Company's approximate 39% share of Roadmaster's net loss for the three and six
month periods ended June 30, 1995. In December 1994, the Company received
shares of Roadmaster Common Stock in exchange for the Company's investment in
four sporting goods companies. See "Investment in Roadmaster Industries, Inc."
in Notes to Consolidated Financial Statements.
As a result of the items described above, the Company reported a net
loss of $11.8 million for the second quarter of 1995 and a net loss of $18.9
million for the six months ended June 30, 1995. The Company reported a loss
from continuing operations of $10.2 million and a loss from discontinued
operations of $36.1 million, resulting in a net loss of $46.3 million for the
second quarter of 1994. For the six months ended June 30, 1994, the Company
reported a loss from continuing operations of $18.3 million and a loss from
discontinued operations of $40.7 million, resulting in a net loss of $59
million.
LAWN AND GARDEN
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1995 1994 $CHANGE 1995 1994 $CHANGE
---- ---- ------- ---- ---- -------
Net sales . . . . . . . . . . . $41,786 $55,460 $(13,674) $98,848 $130,169 $(31,321)
Gross profit . . . . . . . . . 7,664 9,840 (2,176) 20,422 26,527 (6,105)
Gross profit % . . . . . . . . 18.3% 17.7% -- 20.7% 20.4% --
S, G, & A . . . . . . . . . . . 11,482 10,168 1,314 24,772 24,152 620
Operating profit (loss) . . . . (3,818) (328) (3,490) (4,350) 2,375 (6,725)
Three Months Ended June 30, 1995 and 1994
The 24.7% decrease in Snapper's 1995 second quarter sales as compared
to the same 1994 quarter is in part attributable to the repurchase by Snapper
of certain finished goods previously sold to distributors. Snapper repurchased
the goods in connection with the implementation of its dealer direct program.
Under this program, Snapper, in selected regions, is selling products directly
to dealers. The repurchases resulted in sales reductions of $3.7
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million for the quarter. The repurchased products will be sold to dealers
during 1995 or early 1996. Snapper also experienced lower factory production
and sales to distributors because of reduced retail sales demand which is
believed to be the result of adverse weather conditions in specific geographic
regions and due to Snapper's continued program to reduce retail inventories to
optimum levels.
The 22.1% decrease in 1995 second quarter gross profit dollars as
compared to the 1994 second quarter is directly attributable to the $13.7
million sales decrease experienced for the quarter. Snapper's 1995 second
quarter gross profit percentage increased to 18.3% from 17.7% for the
comparable 1994 quarter.
Selling, general and administrative expenses increased by 12.9% from
the second quarter of 1994, a $1.3 million increase from $10.2 million to $11.5
million. This increase is principally due to the timing of various cooperative
advertising program expenses.
Snapper experienced an operating profit decrease of $3.5 million for
the 1995 second quarter as compared to the 1994 second quarter as a result of
the $2.2 million decrease in gross profit dollars and the $1.3 million increase
in selling, general and administrative expenses.
Six Months Ended June 30, 1995 and 1994
The 24.1% decrease in Snapper's 1995 period sales as compared to the
same 1994 period is attributable to the acceleration of purchases by Snapper's
distributors in December of 1994 in anticipation of 1995 price increases and
the repurchase of certain finished goods sold in prior periods to distributors
as Snapper continues to implement, in selected areas, its program to sell
products directly to dealers. In implementing dealer direct sales, Snapper
repurchased certain distributor finished goods inventory which resulted in
sales reductions of $8.8 million for the six month period. The repurchased
products will be sold to dealers during 1995 or early 1996. Snapper also
experienced lower factory production and sales to distributors due to decreased
retail sales demand which is believed to be the result of adverse weather
conditions in specific geographic regions.
Management anticipates that Snapper will not be profitable in the
third or fourth quarters of 1995 or for the full year as it continues on a
selected basis to repurchase certain finished goods from distributors for
resale to dealers in subsequent periods and to control factory production to
less than retail demand in order to reduce retail inventories to optimum
levels. In addition, Snapper is planning enhanced retail sales promotions in
the second half of 1995 in order to improve sales to consumers and reduce
inventory levels. Management believes that these actions will benefit
Snapper's operating and financial performance significantly in the future.
The 23% decrease in the 1995 period gross profit dollars as compared
to the 1994 period is directly attributable to the $31.3 million sales decrease
experienced for the 1995 period. Snapper's gross profit percentage remained
substantially constant for the comparable periods.
Selling, general and administrative expenses increased by 2.6% in the
1995 period as compared to the 1994 period, a $620,000 increase from $24.2
million to $24.8 million.
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Snapper experienced an operating profit decrease of $6.7 million for
the 1995 period as compared to the 1994 period as a result of the $6.1 million
decrease in gross profit dollars and the $620,000 increase in selling, general
and administrative expenses.
SPORTING GOODS
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
1995 1994 $CHANGE 1995 1994 $CHANGE
---- ---- ------- ---- ---- -------
Net sales . . . . . . . . . . . $ -- $68,483 $(68,483) $ -- $149,045 $(149,045)
Gross profit . . . . . . . . . -- 8,686 (8,686) -- 19,199 (19,199)
Gross profit % . . . . . . . . -- 12.7% -- -- 12.9% --
S, G, & A . . . . . . . . . . . -- 9,244 (9,244) -- 18,894 (18,894)
Operating profit (loss) . . . . -- (558) 558 -- 305 (305)
Loss from equity investment . . (2,335) -- (2,335) (3,062) -- (3,062)
The four companies which formerly comprised the Company's sporting
goods segment were combined with Roadmaster on December 6, 1994. See "Equity
Investment in Roadmaster Industries, Inc." in Notes to Consolidated Financial
Statements. Roadmaster, through its operating subsidiaries, is a manufacturer
of bicycles, fitness equipment and toy products in the United States. The
Company consolidated the results of operations of its four sporting goods
companies with the results of operations of the Company for periods ending
prior to December 6, 1994. Income or loss from the Company's equity investment
in Roadmaster is reported for periods ending after December 6, 1994. The loss
of $2.3 million reflected in net income for the second quarter and the
year-to-date loss of $3.1 million result from the Company's approximate 39%
investment in Roadmaster and is based on information received from Roadmaster.
Additional information regarding Roadmaster's results of operations will be
reported in Roadmaster's Current Report on Form 10-Q for the quarter ended July
1, 1995.
DISCONTINUED OPERATIONS
In 1988, Actava combined its photofinishing operations with the
domestic photofinishing operations of Kodak in a transaction accounted for as a
purchase. This combination created a new company, Qualex, which was jointly
owned by Actava and Kodak. Actava consolidated the results of operations of
Qualex with the results of operations of Actava for periods ending prior to
June 30, 1994. During the second quarter of 1994, Actava began accounting for
its investment in Qualex under the equity method. Also during the second
quarter of 1994, Actava made a decision to dispose of its interest in Qualex
and began accounting for Qualex as a discontinued operation. On August 12,
1994, Actava sold its investment in Qualex to Kodak. Accordingly, the results
of Qualex for all periods presented are reported in the accompanying
consolidated statements of operations as discontinued operations. Losses of
$36.1 million and $40.7 million from the operations of Qualex are reflected in
Actava's net loss under discontinued operations for the three and six month
periods ended June 30, 1994, respectively. See "Qualex, Inc. - Discontinued
Operations" in Notes to Consolidated Financial Statements.
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FINANCIAL POSITION
Actava's working capital decreased to $151.8 million at June 30, 1995
from $155.4 million at December 31, 1994 primarily due to the payment of
subordinated debt sinking fund requirements. Cash and short-term investments
at Actava decreased by $23.3 million to $38.9 million at June 30, 1995 from
$62.2 million at December 31, 1994. Cash and short-term investments of $5
million were pledged at June 30, 1995 to secure a Snapper credit line. At
December 31, 1994, $5 million of Actava's cash and short-term investments was
pledged to secure a Snapper credit line and $12 million was pledged to secure a
letter of credit relating to Actava's redeemable common stock.
For the six months ended June 30, 1995, operating activities used $10
million of cash and financing activities used $43.7 million of cash. Cash
flows of $35.1 million were provided by investing activities. For operating
activities, accounts receivable decreased by $30.9 million, inventories
increased by $22.9 million due in part to inventory repurchased by Snapper and
reduced retail sales demand while accounts payable decreased by $4.5 million.
Depreciation of $4 million was included in determining cash flow from operating
activities.
Financing activities during the first six months of 1995 used $43.7
million of cash, including $12 million paid for redeemable common stock, $30.2
million paid to retire the outstanding principal balance on the Company's 6%
Senior Subordinated Swiss Franc Bonds and sinking fund requirements of $3
million paid on other subordinated debt, as partially offset by net borrowings
of $1.1 million under short-term bank agreements.
Investing activities during the first six months of 1995 provided
$35.1 million of cash, including collections of $50 million on a note
receivable from Kodak and $3.8 million on a note receivable from Triton, as
partially offset by payments for plant, property and equipment (net of
disposals) of $2 million and by loans to Metromedia of $21.4 million.
Actava's subordinated debt, including the current portion, decreased
from $191 million at December 31, 1994 to $158 million at June 30, 1993 due to
the retirement of the outstanding principal balance of $30.2 million on the
Company's 6% Senior Subordinated Swiss Franc Bonds and sinking fund
requirements of $3 million paid on other subordinated debt.
Actava is subject to various contingent liabilities and commitments.
These include a floor plan agreement entered into by Snapper under which
approximately $34.3 million was outstanding at June 30, 1995 and $29.5 million
at December 31, 1994, various guaranties of debt totaling approximately $5.7
million, various real estate leases with estimated future payments of
approximately $2.6 million, and various pledges of cash and short-term
investments. See "Contingent Liabilities and Commitments" in Notes to
Consolidated Financial Statements.
Actava's manufacturing plants are subject to federal, state and local
pollution laws and regulations. Compliance with such laws and regulations has
not, and is not expected to, materially affect Actava's competitive position.
Actava's capital expenditures for environmental control facilities and
incremental operating costs in connection therewith were not material during
the first six months of 1995 and are not expected to be material in future
years. The Company is involved in various environmental matters including
clean-up efforts at landfill or refuse sites
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and groundwater contamination. The Company's participation in three existing
superfund sites has been quantified and its remaining exposure is estimated to
be less than $400,000 for all three sites. In addition, the Company has been
notified that it may be a responsible party with respect to a potential
environmental contamination site that is being investigated by a state
environmental agency. The Company sold the business operated at the potential
contamination site in 1968. The current owner of the potential contamination
site has conducted a preliminary site assessment, but the Company's liability,
if any, has not been determined and cannot be reasonably estimated. To the
best of the Company's knowledge, the investigation by the state environmental
agency has not been active for several years. The costs incurred by the
Company with respect to this matter have been minimal. Actava may also be
liable for remediation of environmental damage relating to businesses
previously sold in excess of amounts accrued. In connection with the sale of
Actava's four sporting goods companies to Roadmaster, the Company assumed
environmental liabilities relating to approximately 17 acres of real property
formerly owned by DP and located in Opelika, Alabama. It is management's
opinion that cleanup costs will not have a material effect on Actava's
financial position or results of operations. See "Contingent Liabilities and
Commitments" in Notes to Consolidated Financial Statements.
During 1994, the Westinghouse Executive Pension Trust Fund
("Westinghouse") acquired 1,090,909 shares of the Company's Common Stock (the
"Westinghouse Shares"), which represented approximately 5.9% of the shares then
outstanding. The Westinghouse Shares were issued by the Company on June 8,
1993 in connection with the Company's acquisition of substantially all of the
assets of DP. Simultaneously with the issuance of the Westinghouse Shares, the
Company and Westinghouse entered into a Shareholder Rights Agreement under
which Westinghouse had the right under certain circumstances to require the
Company to purchase the Westinghouse Shares at a price equal to $11 per share.
On February 17, 1995, the Company purchased the Westinghouse Shares pursuant to
the Shareholder Rights Agreement for a price equal to $11 per share or an
aggregate price of $12 million.
Actava and Metromedia entered into the Credit Agreement on October 11,
1994, under which Actava has made and will make loans to Metromedia in an
amount not to exceed $55 million. Under the terms of the Credit Agreement,
Metromedia used or will use the proceeds of the loans to make advances to or
pay obligations on behalf of Orion, MCEG Sterling, and MITI. All loans made by
Actava to Metromedia under the Credit Agreement are secured by the shares of
stock of Orion and MITI owned by Metromedia and its affiliates. In addition,
John W. Kluge, a general partner of Metromedia, has personally guaranteed the
loans. The Credit Agreement provides that interest will be due on the
principal amount of all loans made under the Credit Agreement at an annual rate
equal to the prime rate announced from time to time by Chemical Bank. Interest
will be increased to prime plus three percent per annum if a party other than
Actava terminates discussions relating to the Proposed Metromedia Transaction.
All loans under the Credit Agreement were originally scheduled to be due and
payable on April 12, 1995, but the Credit Agreement was amended on April 12,
1995 to extend the maturity date of the loans until the earlier of (i) the date
of consummation of the Proposed Metromedia Transaction, (ii) three months
following the abandonment or termination of the Merger Agreement by any party
thereto pursuant to Article 14 thereof, or (iii) December 31, 1995. The
outstanding balance under the Credit Agreement was $32.4 million as of December
31, 1994, $53.8 million as of June 30, 1995 and $55 million as of July 24,
1995.
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In November 1991, Actava entered into a Loan Agreement with Triton,
its then 25% stockholder, under which Triton could borrow up to $32 million
from Actava secured by the stock in Actava owned by Triton (the "Triton Loan").
The agreement relating to the Triton Loan was modified in June 1993, pursuant
to the Plan of Reorganization filed by Triton in its Chapter 11 bankruptcy
proceeding. The modification reduced the interest rate on the Triton Loan,
extended the maturity date from November 1994 to April 1997 and modified the
mandatory payment (margin call) provisions and certain provisions in a
stockholder agreement between Actava and Triton. As modified, the Triton Loan
provided for quarterly payments of interest only with no scheduled principal
payments due until the final maturity of the Triton Loan in April 1997. In
December 1993, Triton and Actava entered into a further amendment to the
agreement relating to the Triton Loan pursuant to which Triton made a principal
payment of $5 million plus accrued interest on the Triton Loan, reducing the
loan balance to approximately $26.7 million. In addition, the December 1993
amendment provided for quarterly principal payments of $1.25 million commencing
March 31, 1994 and modified the mandatory payment (margin call) provisions of
the loan. As of June 30, 1995, the outstanding balance under the Triton Loan
was $19.2 million.
Actava has not paid a dividend to its stockholders since the fourth
quarter of 1993.
Actava, excluding Snapper, had $38.5 million of unpledged cash and
short-term investments as of December 31, 1994 and $24.8 million of unpledged
cash and short-term investments as of June 30, 1995. The change in Actava's
unpledged cash and short-term investments from December 31, 1994 to June 30,
1995 is primarily due to the net effect of the collection of $50 million on the
Kodak note, collections of principal and interest of $5.6 million on the Triton
Loan, payments of $34.9 million for principal and interest in connection with
the retirement of Actava's 6% Senior Subordinated Swiss Franc Bonds, loans of
$21.4 million to Metromedia under the Credit Agreement, and other debt related
payments of $7.5 million. The amount of unpledged cash and short-term
investments referred to above excludes the remaining amount due to Actava from
Kodak in connection with the sale of Qualex and the amounts due to Actava from
Metromedia under the Credit Agreement. Actava's Snapper Division is restricted
by financial covenants in its credit agreement from paying Actava more than 70%
of its net income. The Company has a domestic captive insurance subsidiary
chartered by the Georgia State Insurance Department which is required to
maintain invested funds in an amount not less than certain minimum reserve and
paid-in capital stock requirements of approximately $10 million.
Actava uses its existing cash and short-term investments, as well as
dividends from its subsidiaries and payments on the Triton Loan, to provide for
items such as operating expense payments and debt service. For 1995, Actava,
excluding Snapper, has debt service payments of approximately $9.6 million
scheduled after June 30, 1995.
As of June 30, 1995, Actava's Snapper Division had $15 million of
borrowing capacity under a credit agreement which is secured by accounts
receivable, inventory and other assets. The assets which serve as collateral
are determined by reference to the outstanding balance under the credit
agreement and the qualification of the assets as collateral are defined in the
credit agreement; the assets potentially available as collateral total, in the
aggregate, $74.9 million. Snapper's credit agreement contains financial
covenants (involving tangible net worth, book net
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worth and other matters) with which Actava must comply to prevent a default. A
default under Snapper's credit agreement would have serious adverse
consequences, including the elimination of funding for the operations of
Snapper, as well as the prohibition on payments to Actava by Snapper. As a
result of the loss incurred by Actava in connection with the sale of Qualex,
Actava obtained financial covenant amendments from its lenders so that Actava
would remain in compliance with these covenants. Actava was in compliance with
these covenants as of June 30, 1995, and management believes that Actava will
remain in compliance with these covenants during the term of Snapper's credit
agreement.
METROMEDIA MERGER
On April 12, 1995, Actava, Orion, Sterling, and MITI entered into the
Merger Agreement providing for the merger of each of Orion, Sterling and MITI
into and with Actava (the "Mergers"). If the Mergers are consummated, Actava
will be renamed "Metromedia International Group, Inc." On April 12, 1995,
Actava also entered into a Share Exchange Agreement (the "Share Exchange
Agreement") with Metromedia and certain of its affiliates (together with
Metromedia, the "Exchanging Holders"). The Exchanging Holders are the
principal stockholders of both Orion and MITI. The Merger Agreement and the
Share Exchange Agreement were approved by the Board of Directors of Actava at a
meeting held on April 12, 1995. For additional information, see the Current
Report on Form 8-K filed by the Company on April 14, 1995, as amended by Form
8-K/A filed by the Company on April 28, 1995.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this Form 10-Q for the quarter ended June
30, 1995 to be signed on its behalf by the undersigned hereunto duly
authorized.
THE ACTAVA GROUP INC.
------------------------------
Registrant
/s/Frederick B. Beilstein, III
---------------------------------------
Frederick B. Beilstein, III
Senior Vice President and
Chief Financial Officer
Dated: August 3, 1995
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PART II -- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Document with which Designation of
Exhibit Exhibit was previously such Exhibit in
Number Description filed with Commission that Document
- ------ --------------------------------------- --------------------- -------------
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use
only)
(b) Reports on Form 8-K
(i) On April 14, 1995, a Form 8-K was filed to report that on April 12, 1995, the Company entered into an
Agreement and Plan of Merger with Orion Pictures Corporation, MCEG Sterling Incorporated and Metromedia
International Telecommunications, Inc. (the "Metromedia Plan"). No financial statements were filed.
(ii) On April 28, 1995, a Form 8-K/A Amendment Number 1 to the Form 8-K filed on April 14, 1995, was filed
to report (a) the extension of due dates for loans entered into in connection with the Metromedia Plan,
(b) correct minor typographical errors, and (c) the commencement of a tender offer by TAC, Inc. to
purchase shares of common stock of Triton Group Ltd. TAC, Inc. is a company controlled by Messrs. John
D. Phillips, Stuart Subotnick, and John Kluge and Triton Group Ltd. owns approximately 25.5% of the
issued and outstanding shares of Actava Common Stock.
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EXHIBIT INDEX
Exhibit
Number Description
- ------ --------------------------------------------------------------------------------------------
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
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