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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 SEPTEMBER 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.)
945 E. PACES FERRY ROAD, SUITE 2210, ATLANTA, GEORGIA 30326
(ADDRESS AND ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
(404) 261-6190
(Registrant's telephone number, including area code)
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT
4900 Georgia-Pacific Center, Atlanta, GA 30303
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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 September 30, 1995 -- 17,474,401 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)
SEPTEMBER 30, DECEMBER 31,
1995 1994
---------- ----------
ASSETS (UNAUDITED)
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 64,593 $ 47,916
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . 6,225 14,321
Receivables (less allowances for doubtful accounts
of $10,275 in 1995 and $6,851 in 1994) . . . . . . . . . . . . . . . . 85,874 132,948
Note receivable from Eastman Kodak Company (less
allowance for unearned discount of $3,635 in 1994) . . . . . . . . . . -- 96,365
Note receivable from Metromedia Company . . . . . . . . . . . . . . . . . 55,000 32,395
Current portion of note receivable from Triton Group Ltd. . . . . . . . . 5,000 6,250
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,358 13,403
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,137 7,384
Future income tax benefits . . . . . . . . . . . . . . . . . . . . . . . 6,600 6,911
--------- ---------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . 262,787 357,893
Investment in Roadmaster Industries, Inc. . . . . . . . . . . . . . . . . . 64,507 68,617
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . 73,362 74,902
Less allowances for depreciation . . . . . . . . . . . . . . . . . . . . (41,346) (40,005)
--------- ---------
32,016 34,897
Notes receivable from Triton Group Ltd. (less current portion) . . . . . . 12,976 16,726
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,706 15,013
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 940 633
--------- ---------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 380,932 $ 493,779
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities . . . . $ 82,628 $ 91,653
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,384 64,573
Current portion of long-term and subordinated debt . . . . . . . . . . . 4,057 34,244
Redeemable common stock . . . . . . . . . . . . . . . . . . . . . . . . . -- 12,000
--------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . 136,069 202,470
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,766 --
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 6,600 6,911
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,220 2,547
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153,925 157,193
STOCKHOLDERS' EQUITY
Common stock (22,767,485 shares in 1995 and 1994) . . . . . . . . . . . . 22,768 22,768
Additional capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,072 35,482
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,891 173,639
Less treasury stock--at cost (5,293,084 shares in 1995
and 5,490,327 shares in 1994) . . . . . . . . . . . . . . . . . . . . . (103,379) (107,231)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . 78,352 124,658
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . $ 380,932 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25,064 $124,497 $123,912 $403,711
Operating costs and expenses
Cost of products sold . . . . . . . . . . . . . . . . . . . 27,183 105,711 105,609 339,199
Selling, general and administrative expenses . . . . . . . 23,474 18,815 52,146 67,995
Provision for doubtful accounts . . . . . . . . . . . . . . 3,045 966 4,161 1,694
-------- -------- -------- --------
OPERATING LOSS . . . . . . . . . . . . . . . . . . . (28,638) (995) (38,004) (5,177)
Interest (expense) . . . . . . . . . . . . . . . . . . . . . (4,734) (6,404) (15,637) (21,226)
Other income (expense) -- net . . . . . . . . . . . . . . . . 4,132 2,133 8,605 2,874
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES, INCOME FROM EQUITY INVESTMENT
AND DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . (29,240) (5,266) (45,036) (23,529)
Income taxes (benefit) . . . . . . . . . . . . . . . . . . . -- -- -- --
-------- -------- -------- --------
LOSS BEFORE INCOME FROM EQUITY INVESTMENT
AND DISCONTINUED OPERATIONS . . . . . . . . . . . . . . . . (29,240) (5,266) (45,036) (23,529)
Loss from equity investment in Roadmaster Industries, Inc. . (1,048) -- (4,110) --
-------- -------- -------- --------
LOSS FROM CONTINUING OPERATIONS . . . . . . . . . . . . . . . (30,288) (5,266) (49,146) (23,529)
Loss from discontinued operations . . . . . . . . . . . . . . -- -- -- (40,693)
-------- -------- -------- --------
NET LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . $(30,288) $ (5,266) $(49,146) $(64,222)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE OF COMMON STOCK
Continuing operations . . . . . . . . . . . . . . . . . . . $ (1.71) $ (.29) $ (2.77) $ (1.30)
Discontinued operations . . . . . . . . . . . . . . . . . . $ -- $ -- $ -- $ (2.26)
-------- -------- -------- --------
Primary and fully diluted . . . . . . . . . . . . . . . . . $ (1.71) $ (29) $ (2.77) $ (3.56)
======== ======== ======== ========
AVERAGE COMMON AND COMMON EQUIVALENT SHARES . . . . . . . . . 17,762 18,339 17,717 18,059
======== ======== ======== ========
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
------------------------------
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations . . . . . . . . . . . . . . . . . . . $ (49,146) $ (23,529)
Items providing cash from continuing operating activities . . . . . . . . (30,379) 48,244
--------- ---------
Net cash provided (used) in continuing operations . . . . . . . . . . . (18,767) 24,715
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . -- (40,693)
Items providing cash from discontinued operations . . . . . . . . . . . . -- 37,862
--------- ---------
Net cash used in discontinued operations . . . . . . . . . . . . . . . -- (2,831)
--------- ---------
Net cash provided (used) in all operations . . . . . . . . . . . . . . (18,767) 21,884
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments (maturities over 90 days) . . . . . . . . . . . -- (52,584)
Sales of investments (maturities over 90 days) . . . . . . . . . . . . . 8,723 56,168
Net sales of other investments (maturities less than 90 days) . . . . . . -- (37,807)
Payments for property, plant and equipment . . . . . . . . . . . . . . . (3,741) (23,071)
Proceeds from disposals of property, plant and equipment . . . . . . . . 1 4,375
Collections on notes receivable . . . . . . . . . . . . . . . . . . . . . 413 483
Collections from Triton Group Ltd. . . . . . . . . . . . . . . . . . . . 5,000 3,750
Collections from Eastman Kodak Company . . . . . . . . . . . . . . . . . 100,000 50,000
Loans to Metromedia Company . . . . . . . . . . . . . . . . . . . . . . . (22,605) --
Proceeds from Sienna Plantation Ltd. Partnership . . . . . . . . . . . . 8,960 --
Other investing activities -- net . . . . . . . . . . . . . . . . . . . . (2,345) (8,164)
--------- ---------
Net cash provided by (used in) investing activities . . . . . . . . . . 94,406 (6,850)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (payments) under short-term bank agreements . . . . . . . (15,189) (37,082)
Borrowings under long-term debt agreements . . . . . . . . . . . . . . . 101 228,575
Payments on long-term debt agreements . . . . . . . . . . . . . . . . . . (396) (195,015)
Payments of subordinated debt . . . . . . . . . . . . . . . . . . . . . . (33,827) (3,750)
Proceeds from issuance of Actava common stock . . . . . . . . . . . . . . 2,349 4,776
Payment on redeemable common stock . . . . . . . . . . . . . . . . . . . (12,000) --
Cash dividends paid by Qualex to minority interest . . . . . . . . . . . -- (10,450)
--------- ---------
Net cash used in financing activities . . . . . . . . . . . . . . . . . (58,962) (12,946)
--------- ---------
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . 16,677 2,088
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . 47,916 18,770
--------- ---------
Cash and cash equivalents at September 30 . . . . . . . . . . . . . . . $ 64,593 $ 20,858
========= =========
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 nine months ended September 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 did not bear interest, the Company
discounted the value of the note to $92,832,000 and recorded 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 and the remainder was recorded
in 1995. All amounts received in exchange for the covenant not to compete and
release were included in
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the computation of the anticipated loss on the sale of Qualex. The Company
received the first $50,000,000 installment under the promissory note on
February 13, 1995 and the final $50,000,000 installment on August 11, 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. Accordingly, the
Company's statement of operations for the periods ending on or before June 30,
1994 were restated to reflect Qualex as a discontinued operation.
ACCOUNTS AND NOTES RECEIVABLE
Receivables from sales of Actava's lawn and garden products amounted to
$84,167,000 at September 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.
TRITON GROUP LTD. LOAN
At September 30, 1995 and December 31, 1994, the Company had a
$17,976,000 and a $22,976,000 note receivable, respectively, from Triton Group
Ltd. ("Triton") secured by 1,902,776 shares and 3,690,998 shares of Actava
Common Stock, respectively. The note receivable related to a loan originally
made to Triton in 1991. The loan agreement evidencing the loan was amended on
several occasions. The loan agreement, as amended, provided 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 interest rate on the loan was at
prime plus 2-1/2% over the term of the loan. On October 20, 1995, Triton paid
to Actava the entire principal amount of $17,976,000 outstanding under the loan
agreement plus all accrued and unpaid interest. Concurrently, Actava released
to Triton all shares of Actava Common Stock which had been pledged as security
for 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
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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 "Initial Merger Agreement") providing for the merger of
each of Orion, Sterling and MITI into and with the Company. The Initial Merger
Agreement was amended and restated on September 27, 1995. Upon execution of
the Initial Merger Agreement, 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
Initial Merger Agreement by any party thereto pursuant to Article 14 thereof,
or (iii) December 31, 1995. On October 10, 1995, the Credit Agreement was
amended to provide for reborrowings under the Credit Agreement to the extent
any optional prepayments were made. The outstanding balance under the Credit
Agreement as of September 30, 1995 was $55,000,000. On October 10, 1995,
Metromedia prepaid $10,000,000 under the Credit Agreement, and the outstanding
balance thereunder was $45,000,000 as of October 23, 1995.
INVENTORIES
Inventory balances are summarized as follows (in thousands):
SEPTEMBER 30, DECEMBER 31,
1995 1994
-------- --------
Finished goods and goods purchased for resale . . . . . . . . . . . $ 29,947 $ 12,618
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . 18,381 15,395
-------- --------
48,328 28,013
Reserve for LIFO cost valuation . . . . . . . . . . . . . . . . . . (15,970) (14,610)
-------- --------
$ 32,358 $ 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.
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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 September 30, 1995 and December 31, 1994 was $28,313,000 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 September 30, 1995, was $2.875 per share or a total value
of $55,111,000.
Summarized financial information for Roadmaster is shown below (in
thousands):
ROADMASTER INDUSTRIES, INC.
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
SEPT. 30, 1995 OCT. 1, 1994 SEPT. 30, 1995 OCT. 1, 1994
-------------- ------------ -------------- ------------
Net sales . . . . . . . . . . . $175,221 $103,102 $523,480 $303,956
Gross profit . . . . . . . . . . 24,376 17,392 68,111 46,167
Net income (loss) . . . . . . . (2,203) 2,995 (9,259) 4,830
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%.
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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
provided the seller with the right to additional payments depending upon the
value of the issued shares over a period of not longer than one year from the
purchase date. The 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. 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 nine
month periods ended September 30, 1995, the Company has not recognized a tax
benefit for its losses due to limitations from prior period recognition.
During the year, the Company provides for income taxes using
anticipated effective annual tax rates for all Company operations. The rates
are based on expected operating results for the year, estimated permanent
differences between book and tax income, and estimated utilization of any net
operating loss carryovers.
LITIGATION
In 1991, three lawsuits were filed against Actava, certain of Actava's
current and former directors and Intermark, Inc. (predecessor of Triton Group
Ltd.), which owned approximately 26% of Actava's Common Stock. One complaint
alleged, among other things, a long-standing pattern and practice by the
defendants of misusing and abusing their power as directors and insiders of
Actava by manipulating the affairs of Actava to the detriment of Actava's past
and present stockholders. The complaint sought monetary damages from the
director defendants, injunctive relief against Actava, Intermark and its then
current directors, and costs of suit and attorney's fees. The other two
complaints alleged, among other things, that members of the Actava Board of
Directors contemplate either a sale, a merger, or other business combination
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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 nine 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
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.
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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 September 30, 1995 and December 31, 1994, there were
approximately $24,771,000 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.
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
$2,500,000. 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 September 30, 1995, the Company is continuing
to participate in conducting periodic 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 $1,900,000. 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 September 30, 1995.
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At September 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 September 30, 1995, non-cancelable commitments under these
agreements amounted to approximately $5,500,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
During 1994, Actava's management took several steps to redirect the
Company's focus in order to improve its operating results and financial
condition and to enable it to pursue new business opportunities. These steps
included the sale of four sporting goods companies to Roadmaster in exchange
for Roadmaster's publicly traded stock and the sale of the Company's 50%
ownership interest in Qualex to Kodak for cash and short-term notes totaling
$150 million. On April 12, 1995, the Company entered into the Initial Merger
Agreement relating to the Proposed Metromedia Transaction. The Initial Merger
Agreement was amended and restated on September 27, 1995.
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.
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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 SEPT. 30, NINE MONTHS ENDED SEPT. 30,
-------------------------------- ---------------------------------
1995 1994 $CHANGE 1995 1994 $CHANGE
---- ---- ------- ---- ---- -------
Net sales . . . . . . . . . . . $25,064 $124,497 $(99,433) $123,912 $403,711 $(279,799)
Gross profit . . . . . . . . . (2,119) 18,786 (20,905) 18,303 64,512 (46,209)
Gross profit % . . . . . . . . (8.5%) 15.1% -- 14.8% 16.0% --
S, G & A . . . . . . . . . . . 26,519 19,781 6,738 56,307 69,689 (13,382)
Operating loss . . . . . . . . (28,638) (995) (27,643) (38,004) (5,177) (32,827)
Interest expense . . . . . . . 4,734 6,404 (1,670) 15,637 21,226 (5,589)
Other income (expenses) . . . . 4,132 2,133 1,999 8,605 2,874 5,731
Income taxes (benefit) . . . . -- -- -- -- -- --
Loss from equity investment . . (1,048) -- (1,048) (4,110) -- (4,110)
Loss from continuing operations (30,288) (5,266) (25,022) (49,146) (23,529) (25,617)
Three Months Ended September 30, 1995 and 1994
The Company's consolidated sales decrease of 79.9% for the quarter
ended September 30, 1995 compared to the same 1994 quarter is principally
attributable to the sale of the Company's four sporting goods companies to
Roadmaster in December 1994. Sales of $83.7 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 $15.8 million decrease in sales for the 1995 period as compared
to the 1994 period. This decrease at Snapper resulted from the continuation 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 decrease in consolidated gross profit dollars is partially the
result of the December 1994 sale of the sporting goods companies because $11.4
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 $9.5 million due to its sales decrease and inventory
repurchases which reduced sales and resulted in a reversal of previously
recognized gross profit. The change in the consolidated gross profit
percentage is due to both the sale of the sporting goods companies and the
effect of the inventory repurchases on gross profit during the quarter.
The decrease in consolidated selling, general and administrative
expenses, which include provisions for doubtful accounts and employee
termination costs, is partially attributable to the December 1994 sale of the
Company's four sporting goods companies. Approximately $8.1 million of such
expenses was included for those companies in the 1994 quarter. Snapper's
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selling, general and administrative expenses for this quarter increased from
the 1994 quarter due to the cumulative effect of reduced sales on sales based
accruals and a sales rebate program.
For the quarter ended September 30, 1995, the Company's consolidated
operating loss of $28.6 million exceeds the same 1994 quarter operating loss of
$995,000 primarily due to higher selling, general and administrative expenses
and the decrease in Snapper's 1995 gross profit which resulted from reduced
sales and inventory repurchases. The 1994 period included an operating profit
of $3.3 million for the sporting goods companies which were sold in December
1994.
The 26.1% decrease in consolidated interest expense for the 1995
quarter is primarily due to $1.4 million of interest expense which was
reflected in the 1994 quarter for the four sporting goods companies sold in
December 1994. Interest expense reported in the 1994 quarter for the Swiss
Franc Bonds which were paid on February 17, 1995 is not included in the 1995
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.
Nine Months Ended September 30, 1995 and 1994
The Company's consolidated sales decrease of 69.3% for the nine month
period ended September 30, 1995 compared to the same 1994 period is primarily
attributable to the sale of the Company's four sporting goods companies to
Roadmaster in December 1994. Sales of $232.7 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 $47.1 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 71.6% decrease in consolidated gross profit dollars is principally
the result of the December 1994 sale of the sporting goods companies because
$30.6 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 $15.6 million due to its sales decrease and inventory
repurchases. The change in the consolidated gross profit percentage is
primarily due to the decrease in Snapper's gross profit percentage for the 1995
and 1994 periods.
The 19.2% decrease in consolidated selling, general and administrative
expenses, which include provisions for doubtful accounts and employee
termination costs, is primarily attributable
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to the December 1994 sale of the Company's four sporting goods companies.
Approximately $27 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. These decreases were partially offset by a
48.8% increase in selling, general and administrative expenses for Snapper.
For the nine months ended September 30, 1995, the Company's
consolidated operating loss of $38 million exceeds the 1994 period operating
loss of $5.2 million due in part to the 46% decrease in Snapper's 1995 gross
profit resulting from reduced sales and a 48.8% increase in Snapper's selling,
general and administrative expenses, as compared to the 1994 period. In
addition, the 1994 period included as operating profit $3.6 million for the
sporting goods companies which were sold in December 1994.
The 26.3% decrease in consolidated interest expense for the 1995
period is principally due to $4 million of interest expense which was reflected
in the 1994 period for the four sporting goods companies sold in December 1994
and 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 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 $1.0 million and $4.1 million is
reported for the Company's investment in Roadmaster for the third 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 nine
month periods ended September 30, 1995. In December 1994, the Company received
shares of Roadmaster Common Stock in exchange for the Company's
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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 $30.3 million for the third quarter of 1995 and a net loss of $49.1
million for the nine months ended September 30, 1995. The Company reported a
loss from continuing operations of $5.3 million for the third quarter of 1994.
For the nine months ended September 30, 1994, the Company reported a loss from
continuing operations of $23.5 million and a loss from discontinued operations
of $40.7 million, resulting in a net loss of $64.2 million.
LAWN AND GARDEN
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
-------------------------------- ---------------------------------
1995 1994 $CHANGE 1995 1994 $CHANGE
---- ---- ------- ---- ---- -------
Net sales . . . . . . . . . . . $25,064 $40,817 $(15,753) $123,912 $170,986 $(47,074)
Gross profit . . . . . . . . . (2,119) 7,347 (9,466) 18,303 33,874 (15,571)
Gross profit % . . . . . . . . (8.5%) 18.0% -- 14.8% 19.8% --
S, G, & A . . . . . . . . . . . 23,998 8,630 15,368 48,770 32,782 15,988
Operating profit (loss) . . . . (26,117) (1,283) (24,834) (30,467) 1,092 (31,559)
Three Months Ended September 30, 1995 and 1994
The 38.6% decrease in Snapper's 1995 third 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 continuation 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 $6.6 million for
the quarter. The repurchased products will be sold to dealers in late 1995 or
during 1996. Snapper also experienced lower factory production and sales to
distributors primarily due to Snapper's continued program to reduce retail
inventories to optimum levels and a temporary plant shut-down.
The decrease in 1995 third quarter gross profit dollars as compared to
the 1994 second quarter is attributable to the $15.8 million sales decrease
experienced for the quarter. Snapper's 1995 third quarter gross profit
percentage decreased as compared to the 1994 quarter due to the effect of
inventory repurchases.
Selling, general and administrative expenses increased by $15.4
million for the third quarter of 1994 from $8.6 million to $24 million. This
increase is principally due to the timing of various cooperative advertising
program expenses, the cumulative effect on sales based accruals of revisions in
sales forecasts and a sales rebate program.
Snapper experienced an operating profit decrease for the 1995 third
quarter as compared to the 1994 third quarter as a result of the $9.5 million
decrease in gross profit dollars and the $15.4 million increase in selling,
general and administrative expenses.
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Nine Months Ended September 30, 1995 and 1994
The 27.5% 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 $15.4 million for the nine month period. The repurchased
products will be sold to dealers in late 1995 or during 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
fourth quarter 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 to continue sales promotions during the remainder 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
in the future.
The 46% decrease in the 1995 period gross profit dollars as compared
to the 1994 period is attributable to the $47.1 million sales decrease
experienced for the 1995 period.
Selling, general and administrative expenses increased by 48.8% in the
1995 period as compared to the 1994 period, a $16 million increase from $32.8
million to $48.8 million. This increase is principally due to the timing of
various cooperative advertising program expenses, the cumulative effect on
sales based accruals of revisions in sales forecasts and a sales rebate
program.
Snapper experienced an operating profit decrease of $31.6 million for
the 1995 period as compared to the 1994 period as a result of the $15.6 million
decrease in gross profit dollars and the $16 million increase in selling,
general and administrative expenses.
SPORTING GOODS
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
-------------------------------- ---------------------------------
1995 1994 $CHANGE 1995 1994 $CHANGE
---- ---- ------- ---- ---- -------
Net sales . . . . . . . . . . . $ -- $83,680 $(83,680) $ -- $232,725 $(232,725)
Gross profit . . . . . . . . . -- 11,439 (11,439) -- 30,638 (30,638)
Gross profit % . . . . . . . . -- 13.7% -- -- 13.2% --
S, G, & A . . . . . . . . . . . -- 8,095 (8,095) -- 26,989 (26,989)
Operating profit (loss) . . . . -- 3,344 (3,344) -- 3,649 (3,649)
Loss from equity investment . . (1,048) -- (1,048) (4,110) -- (4,110)
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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 $1 million reflected in net income for the third quarter and the
year-to-date loss of $4.1 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
September 30, 1995.
DISCONTINUED OPERATIONS
In 1988, Actava combined its photofinishing operations with the
domestic photofinishing operations of Kodak in a transaction accounted for as a
purchase. This combination created a new company, Qualex, which was jointly
owned by Actava and Kodak. Actava consolidated the results of operations of
Qualex with the results of operations of Actava for periods ending prior to
June 30, 1994. During the second quarter of 1994, Actava began accounting for
its investment in Qualex under the equity method. Also during the second
quarter of 1994, Actava made a decision to dispose of its interest in Qualex
and began accounting for Qualex as a discontinued operation. On August 12,
1994, Actava sold its investment in Qualex to Kodak. Accordingly, the results
of Qualex for all periods presented are reported in the accompanying
consolidated statements of operations as discontinued operations. A loss of
$40.7 million from the operations of Qualex is reflected in Actava's net loss
under discontinued operations for the nine month period ended September 30,
1994. No loss from discontinued operations was reported for the nine month
period ended September 30, 1995. See "Qualex, Inc. - Discontinued Operations"
in Notes to Consolidated Financial Statements.
FINANCIAL POSITION
Actava's working capital decreased to $126.7 million at September 30,
1995 from $155.4 million at December 31, 1994 primarily due to subordinated
debt payments and the operating losses experienced at Snapper. Cash and
short-term investments at Actava increased by $8.6 million to $70.8 million at
September 30, 1995 from $62.2 million at December 31, 1994. Cash and
short-term investments of $5 million were pledged at September 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 nine months ended September 30, 1995, operating activities
used $18.8 million of cash and financing activities used $59.8 million of cash.
Cash flows of $94.4 million were provided by investing activities. For
operating activities, accounts receivable decreased by $44 million, inventories
increased by $19 million due in part to inventory repurchased by Snapper and
reduced retail sales demand while accounts payable decreased by $5 million.
Depreciation of $6.6 million was included in determining cash flow from
operating activities.
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Financing activities during the first nine months of 1995 used $59.8
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 $3.7 million paid on other
subordinated debt, as partially offset by net borrowings of $15.2 million under
short-term bank agreements.
Investing activities during the first nine months of 1995 provided
$94.4 million of cash, including collections of $100 million on a note
receivable from Kodak and $5 million on a note receivable from Triton, as
partially offset by payments for plant, property and equipment (net of
disposals) of $3.7 million and by loans to Metromedia of $22.6 million.
Actava's subordinated debt, including the current portion, decreased
from $191 million at December 31, 1994 to $157.5 million at September 30, 1995
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 $24.8 million was outstanding at September 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 $2.5 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 nine 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 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.
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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 Initial 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, $55 million as of September 30, 1995, and $45 million as of October
25, 1995. See "Metromedia Company Loan" in Notes to Consolidated Financial
Statements.
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").
As of September 30, 1995, the outstanding balance under the Triton Loan was
$17.9 million. On October 20, 1995, Triton paid to Actava the outstanding
principal amount of $17.9 million plus accrued interest of $112,000.
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 $61 million of unpledged
cash and short-term investments as of September 30, 1995. The change in
Actava's unpledged cash and short-term investments from December 31, 1994 to
September 30, 1995 is primarily due to the net effect of the collection of $100
million on the Kodak note, collections of principal and interest of $7.3
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 $22.6 million to Metromedia under the Credit
Agreement, and other debt related payments of $16.8
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million. The amount of unpledged cash and short-term investments referred to
above excludes 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 to provide
for items such as operating expense payments and debt service. For 1995,
Actava, excluding Snapper, has no debt service payments scheduled after
September 30, 1995.
As of September 30, 1995, Actava's Snapper Division had $1.3 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, $48.9 million. Snapper's credit agreement contains financial
covenants (involving tangible net worth and other matters) with which Actava
must comply to prevent a default. A default under Snapper's credit agreement
would have serious adverse consequences, including the elimination of funding
for the operations of Snapper, as well as the prohibition on payments to Actava
by 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 September 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
Initial 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." The Initial
Merger Agreement was approved by the Board of Directors of Actava at a meeting
held on April 12, 1995. On September 27, 1995, Actava, Orion, Sterling and
MITI entered into an Amended and Restated Agreement and Plan of Merger (the
"Amended Merger Agreement"). Actava's Board of Directors approved the Amended
Merger Agreement on September 15, 1995. A Special Meeting of Stockholders of
Actava is scheduled to be held on November 1, 1995 to consider and vote upon
the Amended Merger Agreement. For additional information, see the Registration
Statement on Form S-4 (Registration No. 33-63003) filed by the Company on
September 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
September 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: October 30, 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
- ------ --------------------------------------- --------------------- ---------------
2(a) Amended and Restated Agreement Current Report on Form 99(a)
and Plan of Merger dated September 8-K for event occurring
27, 1995 by and among The Actava on September 27, 1995
Group Inc., Orion Pictures
Corporation, MCEG Sterling
Incorporated, Metromedia
International Telecommunications,
Inc., OPC Merger Corp. and
MITI Merger Corp.
2(b) Amendment No. 2 dated as of Registration Statement 2(b)(iii)
October 10, 1995 to the Credit on Form S-3
Agreement dated as of October (Registration No. 33-63401)
11, 1994 by and between The
Actava Group Inc. and
Metromedia Company
4 Letter Agreement dated October 12, Registration Statement on 4(d)(i)
1995 between Triton Group, Ltd. Form S-3
and The Actava Group Inc. (Registration No. 33-63401)
10 Lease Agreement dated as of October
4, 1995 between JDP Aircraft II, Inc.
and The Actava Group Inc.
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use
only)
(b) Reports on Form 8-K
(i) On September 28, 1995, a Report on Form 8-K was filed to
report the Amended and Restated Agreement and Plan of Merger
dated September 27, 1995 between The Actava Group Inc., Orion
Pictures Corporation, MCEG Sterling Incorporated, Metromedia
International Telecommunications,Inc., OPC Merger Corp. and
MITI Merger Corp. No financial statements were filed.
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EXHIBIT INDEX
Exhibit
Number Description
- ------ --------------------------------------------------------------------------------
2(a) Amended and Restated Agreement and Plan of Merger dated September 27, 1995
by and among The Actava Group Inc., Orion Pictures Corporation, MCEG
Sterling Incorporated, Metromedia International Telecommunications, Inc.,
OPC Merger Corp. and MITI Merger Corp.
2(b) Amendment No. 2 dated as of October 10, 1995 to the Credit Agreement dated as of
October 11, 1994 by and between The Actava Group Inc. and Metromedia Company
4 Letter Agreement dated October 12, 1995 between Triton Group, Ltd. and The Actava
Group Inc.
10 Lease Agreement dated as of October 4, 1995 between JDP Aircraft II, Inc. and The
Actava Group Inc.
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
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