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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
9 1/2% SUBORDINATED DEBENTURES, DUE AUGUST 1, 1998 NEW YORK STOCK EXCHANGE
9 7/8% SENIOR SUBORDINATED DEBENTURES, DUE MARCH 15,
1997 NEW YORK STOCK EXCHANGE
10% SUBORDINATED DEBENTURES, DUE OCTOBER 1, 1999 NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K. / /
THE AGGREGATE MARKET VALUE OF VOTING STOCK OF THE REGISTRANT HELD BY
NONAFFILIATES OF THE REGISTRANT AT MARCH 24, 1994 COMPUTED BY REFERENCE TO THE
LAST REPORTED SALE PRICE OF THE COMMON STOCK ON THE COMPOSITE TAPE ON SUCH DATE
WAS $127,855,099.
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF MARCH 24, 1994 WAS
17,635,186 SHARES.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
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PART I
ITEM 1. BUSINESS.
The Actava Group Inc. ("Actava" or the "Company") provides high quality,
brand-name products through distribution channels to retail markets across the
United States. Actava operates in three distinct businesses: photofinishing,
lawn and garden equipment and sporting goods. A description of each segment
appears below.
Actava was organized in 1929 under Pennsylvania law and reincorporated in
1968 under Delaware law. On July 19, 1993, the Company changed its name from
Fuqua Industries, Inc. to The Actava Group Inc. Actava's principal executive
offices are located at 4900 Georgia-Pacific Center, Atlanta, Georgia 30303 and
its telephone number is (404) 658-9000.
PHOTOFINISHING
Actava owns 51% of the voting stock and 50% of the equity of Qualex Inc.
("Qualex"). Qualex, the largest wholesale photofinishing company in the United
States, was created in 1988 through a combination of Actava's photofinishing
subsidiary, Colorcraft Corporation, and the United States photofinishing
operations of Eastman Kodak Company ("Kodak"). Kodak owns all of the voting
stock and equity interest of Qualex not owned by Actava. Both Actava and Kodak
have granted to the other a right of first refusal for the purchase of their
respective interests in Qualex.
Qualex is engaged in the processing of photographic film for consumer use
throughout the United States. Qualex primarily processes color film to produce
prints and slides, but also processes black and white and movie film. Qualex is
a wholesale photofinisher, obtaining over 98% of its sales from independent
retailers in 1993. Qualex's business also includes a limited amount of direct
sales to consumers through owned and operated retail photographic stores and
mail order operations.
Qualex offers nonbranded photofinishing products which are sold to major
retailers, largely drug, mass merchant and grocery operators, who market these
products under their own retail brands. In addition, Qualex offers certain
branded photofinishing products, including premium-quality photofinishing
through its Kodalux(R) Processing Services ("KPS"). KPS is available to all
Qualex customers and is currently offered from ten Qualex processing plants.
Kodalux(R) is a Kodak-owned trademark licensed to Qualex under an agreement
which expires on April 15, 1997. In addition to color roll processing, KPS
includes chrome processing (slides and movies) and ancillary work such as
reprints, enlargements and other services.
Qualex provides pickup and delivery services for over 41,000 retail stores
in all 50 states. These pickup and delivery services are provided by either
Qualex-owned vehicles or through third party contract delivery services. Qualex
provides 24-hour (next day) processing services, often on a seven-day-a-week
basis, to all major metropolitan areas it serves. The film to be processed is
picked up throughout the day and then delivered to Qualex's plants for
processing. Consequently, Qualex plants perform the majority of their processing
work at night.
Plants are located as close to customers as possible to minimize the
delivery constraints inherent in next-day service. Qualex currently operates 50
plants located in 33 states. The combination of Colorcraft and Kodak initially
permitted Qualex to consolidate plants and other distribution systems which
serviced overlapping geographic areas. The consolidation of redundant services
has allowed and will continue to allow Qualex to enjoy the benefits of economies
of scale and cost savings.
In early 1987, Colorcraft Corporation entered into long-term arrangements
to purchase a significant portion of its photofinishing materials from Kodak.
Upon its formation, Qualex assumed these arrangements on substantially the same
terms and conditions. Additionally, all of Qualex's photofinishing plants which
offer nonbranded products participate in the Kodak Colorwatch(R) photofinishing
marketing program and, therefore, use exclusively Kodak consumable materials. As
a result of the long-term arrangements and the fact that substantially all of
Qualex's plants are on the Kodak Colorwatch(R) program, Qualex purchases
substantially all
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of its photofinishing material from Kodak. SEE "CONSOLIDATED STATEMENTS OF
OPERATIONS" IN CONSOLIDATED FINANCIAL STATEMENTS.
In addition to its traditional photofinishing services, Qualex also
provides microlabs and related maintenance and supplies to customers who desire
to offer on-site processing. Because of the continuing development of the
microlab, the ultimate level of acceptance by retail stores and consumers cannot
be determined. Management believes the new microlabs will allow both Qualex and
its retail customers to participate in the well established on-site processing
market. SEE ITEM 3. "LEGAL PROCEEDINGS."
Qualex has not incurred significant research and development costs. In
order to deliver high-quality pictures in a brief period of time at a
competitive price, Qualex utilizes high-speed printers, paper processors and
other sophisticated equipment which require significant ongoing capital
expenditures. Capital expenditures in 1993 were approximately $44 million.
Competition in the photofinishing industry is aggressive and is based upon
price, quality processing, dependable delivery time and convenience. There are
many processors in each market, including mini-labs and microlabs which offer
"one-hour" on-site developing. In 1993, Qualex's largest account constituted 11%
of its sales volume, its five largest accounts produced approximately 31% of its
sales volume and its 10 largest accounts produced approximately 43% of its sales
volume. Due to the next day processing nature of the business, there is no
material backlog.
Actava and Kodak are parties to a Shareholders' Agreement (as amended, the
"Qualex Shareholders' Agreement") which sets forth certain rights of and
limitations on Actava and Kodak with regard to their Qualex stock. The Qualex
Shareholders' Agreement provides that certain decisions regarding Qualex's
operations are to be approved by a majority of the members of the Qualex Board
of Directors, including at least one of Kodak's representatives on the Board.
The declaration of dividends by Qualex merely requires the approval of a
majority of the Qualex directors. Actava has control over the distribution of
dividends from Qualex because its appointees constitute a majority of the Qualex
directors.
Upon any change of control of Actava, as defined in the Qualex
Shareholders' Agreement ("Qualex Control Event"), the Qualex Shareholders'
Agreement provides for changes in the stock ownership and the composition and
voting requirements of the Qualex Board of Directors that would eliminate
Actava's ability, among other things, unilaterally to cause the declaration of
dividends by Qualex. Pursuant to the terms of an amendment to the Qualex
Shareholders' Agreement (the "Amendment"), the parties have stipulated that the
election of Mr. Charles R. Scott as president and chief executive officer of
Actava on February 6, 1991 constituted a Qualex Control Event. Under the terms
of the Amendment, Kodak initially waived its Qualex Control Event rights under
the Qualex Shareholders' Agreement with respect to such Qualex Control Event,
but Kodak reserved the right to withdraw its waiver and enforce such rights on
March 1, 1992 or any subsequent March 1, by providing Actava with at least 30
days' prior written notice. Kodak did not withdraw its waiver and seek to
enforce its rights as a result of such Qualex Control Event on March 1, 1992,
March 1, 1993 or March 1, 1994. Kodak also retained its rights to require the
changes permitted by the Qualex Shareholders' Agreement if any other Qualex
Control Event occurs. If Kodak in the future elects to enforce its Qualex
Control Event rights, Actava would lose the ability to control the declaration
of dividends by Qualex, and therefore, any distribution of profits by Qualex.
The results of Qualex are consolidated with the results of Actava. In 1993,
Qualex accounted for 62% of Actava's consolidated sales. SEE ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." If Actava in the future is deemed to be no longer in control of
Qualex, then Actava would cease to consolidate the accounts of Qualex. In that
event, Actava would account for its ownership of Qualex using the equity method
of accounting. SEE "PHOTOFINISHING TRANSACTION" IN NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
LAWN AND GARDEN EQUIPMENT
Actava's Snapper Division manufactures Snapper(R) brand power lawnmowers,
lawn tractors, garden tillers, snow throwers, and related parts and accessories
and distributes blowers, string trimmers and edgers.
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The lawnmowers include rear engine riding mowers, front engine riding mowers or
lawn tractors, and self-propelled and push-type walk-behind mowers. Snapper also
manufactures a line of commercial lawn and turf equipment, a Blackhawk(TM) line
of mowers and markets a fertilizer line under the Snapper(R) brand.
Snapper products are premium priced, generally selling at retail from $250
to $8,200. They are sold exclusively through 54 independent distributors and to
approximately 7,800 dealers throughout the United States. In addition, Snapper
products are exported to 27 independent distributors and four company-owned
distributors covering 41 foreign countries. Snapper does no private label
manufacturing of lawn and garden equipment and does not sell directly to
multi-unit retailers or mass merchandisers. While the ultimate consumers
generally purchase lawnmowers in the spring and early summer, Snapper sells to
its distributors nearly year-round utilizing accounts receivable dating
programs, with the greatest volume of production and shipment preceding ultimate
consumer purchasing periods. Accounts receivable dating programs establish the
due dates for distributor accounts receivable to coincide with the anticipated
sales to the ultimate consumer. Therefore, Snapper's cash flow needs are
seasonal, with the greatest need for funds being in the first quarter of the
year. SEE ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS."
Snapper makes available, through General Electric Credit Corporation, a
retail customer revolving credit plan which allows consumers to pay for Snapper
products in installments. Consumers also receive Snapper credit cards which can
be used to purchase additional Snapper products.
In addition, Snapper 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 by the
financial institution to both the distributor and 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.
Snapper manufactures its products in McDonough, Georgia at facilities
totaling approximately 1,000,000 square feet. A substantial portion of the
component parts for Snapper products is manufactured by Snapper, excluding
engines and tires.
During the three years ended December 31, 1993, Snapper has expended an
average of $4.9 million per year for research and development. While it holds
several design and mechanical patents, Snapper is not dependent upon any one or
more patents, nor does it consider that patents play a material role in its
business. Snapper does believe, however, that its registered trademark
Snapper(R) is an important asset in its business. Snapper walk-behind mowers are
subject to Consumer Product Safety Commission safety standards and are designed
and manufactured in accordance therewith.
The lawn and garden business is highly competitive, with the competition
being based upon price, image, quality and service. While no one company
dominates the market, Actava believes Snapper is one of the significant
manufacturers of lawn and garden products. There are approximately 50
manufacturers in competition with Snapper. Snapper's principal brand name
competitors in the sale of power lawnmowers include The Toro Company, Lawn-Boy
(a product group of The Toro Company), Sears, Roebuck and Co., Deere & Company,
Ariens Company, Honda Corporation, Murray Ohio Manufacturing Co., American Yard
Products, Inc. (a subsidiary of AB Electrolux), MTD Products, Inc. and
Simplicity Manufacturing, Inc.
The Company announced in March 1993 that it had retained Merrill Lynch to
assist in exploring alternatives for realizing value from the Company's
investment in Snapper. These efforts have not been successful and management
believes they have resulted in a substantial distraction for Snapper's
management, distributors and dealers. As a result, the Company has suspended its
efforts to find alternatives for Snapper and has instructed Snapper's management
to devote their full time and attention to improving operating results.
At December 31, 1993, Snapper had approximately $122 million in backlog
orders believed to be firm as compared to approximately $114 million at December
31, 1992. In 1993, Snapper accounted for 18% of
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Actava's consolidated sales. SEE ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
SPORTING GOODS
The companies which comprise Actava Sports manufacture, import and
distribute products for a broad cross section of the sporting goods and leisure
time markets. Products are sold under a variety of Actava's own brand names,
including DP(R), Hutch(R), Reach(R), Weather-Rite(R) and American Camper(R).
Actava also sells exercise equipment under a license for the Body By Jake(R)
trademark and various other products under licenses from the National Football
League, National Basketball Association, National Hockey League, Major League
Baseball, The Walt Disney Company, Inc., Remington Arms Company, Inc. and
numerous colleges and universities. In addition, Actava has a nationally
distributed line of hosiery and is a licensee for the officially licensed socks
of the National Football League, Major League Baseball, Keds(R) and Pro-Keds(R)
(copyrights and registered trademarks which are held by third parties) and
various colleges and universities.
On June 8, 1993, Actava acquired substantially all of the assets of
Diversified Products Corporation ("DP"), a fitness and recreation equipment
company based in Opelika, Alabama, for a net purchase price consisting of
$11,629,500 in cash, 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. Actava also entered
into an agreement which may provide the seller with the right to receive
additional payments, or additional shares of Actava Common Stock, depending upon
the value of the issued shares over a period of not longer than one year from
the purchase. SEE ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS." The transaction has been accounted for
using the purchase method of accounting; accordingly, the purchased assets and
liabilities have been recorded at their estimated fair value at the date of the
acquisition. The results of operations of the acquired business have been
included in the consolidated financial statements of Actava since the date of
acquisition.
Approximately 57% of the sales of Actava Sports consists of products
manufactured or purchased domestically by Actava. These include hosiery,
footballs, uniforms and related equipment. The remaining 43% of sales comes from
imported merchandise, including fitness and camping equipment, soccer balls,
volleyballs, basketballs, footballs, rainwear and other related sports items.
Imported products come from a large number of suppliers, located primarily in
the Far East. Analyzed by product lines, camping and outdoor equipment comprised
approximately 26% of the Actava Sports sales in 1993, exercise equipment
represented 36% and products for team and other recreational activities
comprised approximately 38%.
International buying is an important part of the Actava Sports operations.
Actava World Trade Corporation maintains offices in The People's Republic of
China, Taiwan, Hong Kong and South Korea to facilitate purchasing in the Pacific
Rim.
To the extent the business of Actava Sports is dependent upon imports,
factors affecting foreign trade (such as dock and carrier strikes, tariff rates,
import and export quotas, currency fluctuations and revaluations, local economic
conditions in foreign countries, foreign relations between the United States and
other countries and international political and economic situations) are
significant in determining the general availability and prices paid by Actava
Sports for purchases abroad. Actava Sports has not encountered a shortage of raw
materials or finished goods and is generally not dependent upon any sole
supplier, although in 1993 DP was adversely affected by delays experienced in
receiving electronic components for DP treadmills. SEE ITEM 7. "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
Sporting goods are sold by Actava Sports through manufacturers'
representatives and directly to mass merchandisers and other retailers. The
sporting goods market is highly competitive. Actava Sports does not spend a
significant amount of funds for research and development. The trademarks used by
Actava Sports in the aggregate are considered to be of material importance, but
no single patent or trademark is of material importance to consolidated
operations. The loss of certain significant patents or trademarks could have a
material effect on the affected individual Actava Sports company.
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Actava Sports had approximately $34 million in backlog orders believed to
be firm as of December 31, 1993 as compared to approximately $19 million at
December 31, 1992. This increase is primarily due to the acquisition of DP. In
1993, Actava Sports accounted for 19% of Actava's consolidated sales. SEE ITEM
7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
ENVIRONMENTAL PROTECTION
Actava's manufacturing and processing 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 in 1993, and are not expected to be material in future years for
compliance relating to facilities owned by Actava in 1993. 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 $300,000 for all three sites. The Company is
participating with the Federal and Ohio Environmental Protection Agencies in
initial investigations of a potential environmental contamination site involving
a divested subsidiary. DP is also complying with various requirements under a
compliance order under the Resource Conservation Recovery Act as administered by
the State of Alabama. Upon the acquisition of DP, a reserve of approximately
$1.5 million was established for expected clean-up costs.
EMPLOYEES
At December 31, 1993, Actava, including Qualex, had approximately 11,200
employees, of whom approximately 1,400 were represented by unions under various
collective bargaining agreements. In general, Actava believes its employee
relations to be good.
INDUSTRY SEGMENT DATA
Industry Segment Data is included in ITEM 7. "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
ITEM 2. PROPERTIES.
The following is a list of Actava's principal properties. Certain of the
properties are subject to mortgages securing indebtedness, which, as of December
31, 1993, aggregated approximately $1.8 million, including mortgages on
machinery and equipment. SEE "NOTES PAYABLE AND LONG-TERM DEBT" IN NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
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DESCRIPTION OWNED LEASED LOCATION
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Lawn and Garden:
Manufacturing plant............................ 1 -- 1 state
Distribution facility.......................... -- 1 1 state
Photofinishing:
Processing plants.............................. 19 31 33 states
Retail photographic stores..................... -- 5 5 states
Sporting Goods:
Distribution facility.......................... -- 4 4 states
Manufacturing Plant............................ 1 -- 1 state
The management of Actava believes that the above listed facilities are
generally adequate and satisfactory for their present usage. In addition, Actava
owns or leases miscellaneous real estate, offices and warehouse facilities,
machinery and equipment at various locations which are not currently utilized in
Actava's current operations and are, or may be, offered for sale or other
disposal.
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ITEM 3. LEGAL PROCEEDINGS.
Qualex
On February 18, 1994, Photographic Concepts Inc. (PCI), a Florida
corporation, sued Qualex in the United States District Court for the Middle
District of North Carolina, in a lawsuit captioned Photographic Concepts, Inc.
v. Qualex, Inc., Civil Action No. 1:94-CV-00081. PCI's claims arise out of
allegations that Qualex entered into and then breached an agreement with PCI
relating to the marketing of on-site microlab photofinishing services. During
1993, Qualex's microlab business resulted in $33.3 million in revenues and $7.3
million in gross profits, and Qualex expects such business to increase in the
future. PCI alleges, among other things, that Qualex breached an agreement to
purchase an interest in PCI, violated a confidentiality agreement with PCI, and
misappropriated trade property and other information from PCI. PCI is seeking
both monetary and injunctive relief. Qualex is currently gathering the
information and documents necessary to file its response to PCI's Complaint.
That response must be filed by April 25, 1994. Qualex intends to defend the case
vigorously, but the Company is unable to determine the probable impact of the
suit at this early stage in the proceeding.
Divested Subsidiary
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 is 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 dispute, involving events occurring on or before June 22,
1987.
The DOJ alleges 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 seeks recovery of unspecified single and treble damages,
penalties, costs and prejudgment and post-judgment interest. The parties have
engaged in settlement discussions but have not agreed on a disposition of the
case. A trial, if necessary, has been scheduled for June 1995. Management
believes that American Seating has meritorious defenses to the allegations and
intends to vigorously defend the action. Since the suit is still in the early
stages, management is unable to determine the probable impact of the suit.
Because the DOJ has previously asserted damages of approximately $3.5 million,
the lawsuit could have a material effect on results of operations and financial
condition of the Company, if adversely determined, on a number of disputed
issues as to liability, damages and penalties.
Shareholder Litigation
In 1991, Virginia E. Abrams and Fuqua Industries, Inc. v. J. B. Fuqua, et
al., Civil Action No. 11974, was filed in the Delaware Chancery Court. The named
defendants are certain current and former members of Actava's Board of Directors
and Intermark, Inc., a predecessor of Triton Group Ltd., which currently owns
25.0% of the Company's Common Stock. The Company was named as a nominal
defendant. The action is brought derivatively in the right of and on behalf of
the Company and was purportedly brought as a class action on behalf of all
common stockholders of the Company other than the defendants. The complaint
alleges, among other things, a long-standing pattern and practice by the
defendants of misusing and abusing their power as directors and insiders of the
Company by manipulating the affairs of the Company to the detriment of the
Company's past and present stockholders. The complaint seeks (i) monetary
damages from the director defendants, including a joint and several judgment for
$15.7 million for alleged improper profits obtained by Mr. J. B. Fuqua in
connection with the sale of his shares in the Company to Intermark; (ii)
injunctive relief against the Company, Intermark and its current directors,
including a prohibition against
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approving or entering into any business combination with Intermark without
specified approval; and (iii) costs of suit and attorneys' fees.
In 1991, two additional complaints, Behrens and Harris v. Fuqua Industries,
Inc., et al., Civil Action No. 11988 and Freberg and Lewis v. Fuqua Industries,
Inc., et al., Civil Action No. 11989, were filed in the Delaware Chancery Court
by plaintiffs who allege that they are stockholders of the Company. Each of
these complaints purport to be brought on behalf of a class of stockholders of
the Company other than the named defendants. The named defendants are the
Company and certain of its current and former directors. The complaints allege,
among other things, that members of the Company's Board of Directors presently
contemplate either a sale, a merger or other business combination involving
Intermark and the Company or one or more of its subsidiaries or affiliates. The
complaints seek costs of suit and attorneys' fees and preliminary and permanent
injunctive relief and other equitable remedies, ordering the director defendants
to carry out their fiduciary duties to the plaintiffs and other members of the
class and to take all appropriate steps to enhance the Company's value as a
merger or acquisition candidate.
On motion by the defendants in all three class action suits, the Delaware
Chancery Court ordered the consolidation of the three suits in re Fuqua
Industries, Inc. Shareholder Litigation, Civil Action No. 11974 on May 1, 1991.
The action is in the discovery stage and no significant events occurred in
regard to these legal proceedings in 1993.
Other Litigation
Actava is the defendant in various other legal proceedings. Actava is not
aware, however, of any other action which, in the opinion of management, would
materially and adversely affect liquidity, results of operations or the
financial position of Actava. SEE ITEM 1. "ENVIRONMENTAL PROTECTION."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Each of the executive officers of Actava as of the date hereof was elected
to serve until the next annual meeting of the Board of Directors of Actava or
until his successor is elected and qualified:
POSITION
NAME AGE OFFICE HELD SINCE
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Charles R. Scott 66 President and Chief Executive Officer February 1991
Frederick B. Beilstein, III 46 Senior Vice President -- Treasurer &
Chief Financial Officer May 1991
Walter M. Grant 49 Senior Vice President, General
Counsel and Secretary July 1993
On February 6, 1991, Mr. Charles R. Scott was elected to the office of
president and chief executive officer. Mr. Scott had previously not held an
office with Actava although he had been a member of the Board of Directors since
January 16, 1989 and served as chairman from July 1, 1989 to February 6, 1991.
Prior to being elected as Actava's president and chief executive officer, Mr.
Scott served as chairman and chief executive officer of Intermark, Inc., which,
through its wholly owned subsidiary, Triton Group Ltd., owned approximately
25.0% of the outstanding shares of Actava's common stock. In 1992, Intermark
filed for protection under Chapter 11 of the Bankruptcy Act and was merged into
Triton Group Ltd. upon confirmation of its Plan of Reorganization on June 25,
1993. On March 3, 1994, Actava announced that an independent committee of its
Board of Directors had been appointed to select a successor to Mr. Scott.
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On May 30, 1991, Mr. Frederick B. Beilstein was elected to the office of
senior vice president-treasurer and chief financial officer. Prior to joining
Actava, Mr. Beilstein served as executive vice president and chief financial
officer of Edgcomb Metals Company from January 1990 through March 1991. Prior to
March 1991, Mr. Beilstein served as senior executive vice president and chief
financial officer of Days Inns Corp. and as president of Days Inns Management
Company, Inc.
Mr. Walter M. Grant was elected to the office of senior vice president and
general counsel in July 1993 and to the position of corporate secretary in March
1994. Mr. Grant served as senior vice president and general counsel for the
North American operations of Smith & Nephew plc, an international health care
company, from October 1991 through June 1993. Prior to October 1991, Mr. Grant
served as vice president, general counsel and secretary of Contel Corporation, a
telecommunications company.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Actava's Common Stock is listed and traded on the New York and Pacific
Stock Exchanges. The following table summarizes the high and low market prices
according to the New York Stock Exchange Composite Tape and cash dividends
declared for 1993 and 1992:
MARKET PRICE OF COMMON
STOCK
----------------------------
CASH
1993 1992 DIVIDENDS
------------ ------------ ------------
QUARTERS ENDED HIGH LOW HIGH LOW 1993 1992
--------------------------------------------- ---- --- ---- --- ---- ----
March 31..................................... 14 1/2 11 5/8 16 3/4 12 1/2 $.09 $.09
June 30...................................... 14 9 1/2 14 1/4 11 1/4 $.09 $.09
September 30................................. 9 5/8 7 1/4 12 3/8 9 7/8 $.09 $.09
December 31.................................. 8 1/4 6 5/8 13 3/4 9 3/8 $.09 $.09
Actava's debt agreements, including subordinated debt, contain covenants
which, among other things, place restrictions upon the amount of dividends it
may pay. SEE ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
On March 3, 1994, the Company reported the suspension of the dividend on
its Common Stock. SEE ITEM 7. "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
As of March 24, 1994, there were approximately 6,878 holders of record of
Common Stock. The last reported sale price of the Common Stock on the composite
tape on such date was $7 1/4 per share.
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ITEM 6. SELECTED FINANCIAL DATA.
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Net sales......................................... $1,241 $1,149 $ 925 $ 972 $ 926
Income (loss) from continuing operations.......... (43) 11 (51) (1) 7
Discontinued operations........................... -- -- -- -- (1)
Extraordinary item................................ -- -- -- 1 --
Cumulative effect of change in accounting
principle....................................... (4) 1 -- -- --
Net income (loss)................................. (47) 12 (51) -- 6
Total assets...................................... 1,275 1,218 1,090 1,016 1,148
Long-term debt.................................... 221 220 157 43 81
Subordinated debt................................. 191 194 195 200 220
------ ------ ------ ------ ------
Total long-term and subordinated debt............. $ 412 $ 414 $ 352 $ 243 $ 301
Per common share:
Primary earnings
Continuing operations........................ $(2.52) $ .64 $(3.08) $ (.06) $ .34
Discontinued operations...................... -- -- -- -- (.04)
Extraordinary item........................... -- -- -- .05 --
Cumulative effect of change in accounting
principle.................................. (.25) .06 -- -- --
------ ------ ------ ------ ------
Net income (loss)....................... $(2.77) $ .70 $(3.08) $ (.01) $ .30
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Fully diluted earnings
Continuing operations........................ $(2.52) $ .64 $(3.08) $ (.06) $ .34
Discontinued operations...................... -- -- -- -- (.04)
Extraordinary item........................... -- -- -- .05 --
Cumulative effect of change in accounting
principle.................................. (.25) .06 -- -- --
------ ------ ------ ------ ------
Net income (loss)....................... $(2.77) $ .70 $(3.08) $ (.01) $ .30
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Cash dividends declared........................... $ .36 $ .36 $ .36 $ .32 $ .26
------ ------ ------ ------ ------
------ ------ ------ ------ ------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Actava provides high-quality, brand name consumer products through
distribution channels to retail markets across the United States. The Company's
businesses encompass the broad leisure industry, including photofinishing,
fitness equipment and sporting goods, as well as lawn and garden equipment.
Actava owns 51% of the voting stock of Qualex, the largest photofinisher in
the United States, processing approximately 20% of all color print rolls of
film. Qualex also processes black and white and movie film. Qualex is a
wholesale photofinisher, obtaining substantially all of its sales from
independent retailers in 1993. Qualex's business also includes a limited amount
of direct sales to consumers through owned and operated retail photographic
stores and mail-order operations.
Actava's Snapper Division manufactures Snapper(R) brand power lawnmowers,
lawn tractors, garden tillers, snow throwers, and related products, parts and
accessories and distributes blowers, string trimmers and edgers. The lawnmowers
include rear engine riding mowers, front engine riding mowers or lawn tractors,
and walk-behind mowers. Snapper also manufactures a line of commercial lawn and
turf equipment and a Blackhawk(TM) line of mowers and markets a fertilizer line
under the Snapper(R) brand.
Actava Sports companies manufacture, import and distribute products for a
broad cross-section of the sporting goods, fitness and leisure markets. Products
are sold under a variety of Actava companies' own brand names, as well as under
licenses from the National Football League, National Basketball Association,
Major League Baseball, The Walt Disney Company, Inc., Remington Arms Company,
Inc., The Keds Corporation (Keds(R) and Pro-Keds(R)), Body by Jake Licensing
Corporation (Body by Jake(R)), and numerous colleges and universities.
Actava's long-range strategy is to maximize stockholder wealth by
concentrating its capital resources on its companies which offer the highest
potential returns. As a result, the Company continues to analyze its businesses
with a view toward enhancing their value through marketing alliances, licensing
arrangements and joint ventures, with particular emphasis on cost efficiencies
through plant consolidations or product-line expansions or improvements.
The following is a discussion of the operating results and financial
position of the Company on a consolidated basis and the operating results of
each of these business segments.
CONSOLIDATED CONTINUING OPERATIONS
The Company's consolidated sales for 1993 increased $92.4 million, or 8.0%
from 1992 principally because of the acquisition of DP. Gross profit as a
percentage of sales for 1993 of 22.9% is a decrease from 29.2% while gross
profit dollars decreased by $52.1 million to $283.7 million. This is primarily
due to gross profit declines suffered by Snapper and Qualex, but partially
offset by an increase in gross profits by Actava Sports companies. The Snapper
gross profit decline is primarily attributable to manufacturing problems
associated with new product introductions during 1993.
In 1992, sales increased $224.1 million, or 24.2%, from 1991, primarily as
a result of the resumption of production and shipment to distributors at
Snapper, the impact of the acquisitions at Qualex in the fourth quarter of 1991
and the first quarter of 1992 as well as increased market share with certain
Qualex customers and the expansion of business with existing customers for each
of the companies comprising Actava Sports.
The gross profit for 1992 of $335.8 million compared to the gross profit
for 1991 of $255.5 million, an increase of $80.3 million. This increase was
primarily attributable to the increased production and shipment levels at
Snapper for 1992 which resulted in significantly higher sales and absorption of
fixed manufacturing costs and the additional gross profit at Qualex attributable
to acquisition activities. During 1991, certain inventory quantities at Snapper
were reduced, resulting in a liquidation of LIFO inventory quantities which were
carried at lower costs prevailing in years prior to 1991 as compared with the
cost of 1991 purchases. The effect of this decreased the 1991 net loss by
approximately $1.5 million and decreased loss per share of common stock by $.09.
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13
Selling, general and administrative expenses, which include provisions for
doubtful accounts, decreased by $9.9 million, or 3.8%, to $253.7 million for
1993 in comparison to 1992. The reductions in selling, general and
administrative expenses are primarily attributable to cost reductions at Qualex
achieved through plant and administrative restructuring and consolidations.
Selling, general and administrative expenses, which include provisions for
doubtful accounts, increased by $1.7 million in 1992 in comparison to 1991. The
1992 increase is related to the additional costs at Qualex associated with the
increased volume of prints processed as well as higher promotional and
advertising expenses partially offset by reductions at Snapper due to the
curtailment of special promotional programs and the positive impact of other
administrative cost savings as a result of plant restructuring and a decrease in
unallocated corporate expenses principally because of the downsizing of the
corporate staff.
In 1993, Actava recorded an operating profit of $26.7 million, compared to
an operating profit from 1992 of $72.1 million. The 1993 operating profit
includes provisions of $3.2 million for plant relocations and consolidations and
an additional $4.0 million for a change in estimate of future warranty costs at
Snapper due to increased warranty claims. Also negatively impacting operating
profits for 1993 in comparison to 1992 was underutilization of plant capacity
and manufacturing inefficiencies at Snapper and DP, lower gross margins on
initial product introductions by Snapper, and an increase in corporate expenses
of approximately $4.0 million. The corporate expense increase is primarily
attributable to additional self-insurance reserves, as well as an increase in
insurance administrative expense, and the impact of reduced expense for 1992 due
to the reversal in 1992 of certain reserves previously established for
settlement of employee agreements and office relocations.
The 1992 operating profit of $72.1 million compares to an operating loss of
$35.7 million for 1991. The operating loss for 1991 included provisions for
plant relocations and consolidations totaling $19.0 million and provisions for
the settlement of employee agreements and related costs of $6.8 million.
Operating profit for 1991 was adversely affected by production costs at Snapper.
Interest expense for 1993 of $43.3 million is an increase of $9.8 million
from 1992. This increase is primarily attributable to higher average borrowings
at both Qualex and Snapper and the addition of interest associated with DP. The
increased borrowing resulted from the Qualex $200 million Senior Note private
placement completed in the second quarter of 1992 and the revolving credit
facilities established to provide working capital for Snapper and the Actava
Sports companies, including DP. These credit lines have substantially reduced
subsidiary reliance on Actava for working capital needs.
Interest expense for 1992 of $33.5 million is an increase of $9.9 million
from 1991. This increase is primarily attributable to higher average borrowings
at both Qualex and Snapper. The increased borrowing resulted from the financing
required for the acquisitions made by Qualex in the fourth quarter of 1991 and
January 1992, borrowings in excess of debt repayments from the Qualex Senior
Note private placement, and the revolving credit facilities established in 1992
to provide working capital for Snapper.
Other income (net of other deductions) decreased $9.0 million for 1993 when
compared to 1992. This is primarily due to a decrease in investment income from
lower levels of investment, increases in early payment interest credit expense
at Snapper, losses on asset sales at Qualex and an increase of $3.0 million in a
valuation allowance for a real estate investment due to an accelerated plan of
disposition.
Other income (net of other deductions) in 1992 increased $2.6 million in
comparison to 1991. This increase is the result of a decrease in early payment
interest credit expenses at Snapper, partially offset by reduced investment
income due to lower average investment levels and rates of return.
During the year, the Company provides for income taxes using anticipated
effective annual tax rates for Qualex and for all other company operations. The
rates are 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, excluding Qualex,
recognizes the benefit of current net operating losses only to the extent of
potential refunds from carrybacks. SEE "INCOME TAXES" IN NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
The Company has net deferred taxes of approximately $24.3 million composed
of deferred tax liabilities of approximately $78.1 million offset by deferred
tax assets of approximately $53.8 million. Deferred income
12
14
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. Included in the approximate $53.8 million
of deferred tax assets is approximately $16.2 million as recognized by Qualex,
which is not included in the Actava consolidated federal income tax return. The
remaining approximate $37.6 million of deferred assets have been recognized by
Actava due to available income tax carrybacks and the company's determination
that available net operating losses should not be allowed to expire, as the tax
savings represent significant amounts. The Company plans to implement actions to
create sufficient taxable income to utilize the carryover prior to any
expiration. In order to implement its tax planning strategy to utilize its tax
carryforwards, the Company would pursue the sale of certain corporate assets,
including its investment in Qualex. SEE "INCOME TAXES" IN NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
The minority interest shown on Actava's Consolidated Statements of
Operations represents Kodak's portion of the earnings of Qualex. In accordance
with the Shareholders' Agreement, the Company and Kodak are each entitled to 50%
of Qualex's net income for income reporting purposes. Although Qualex accounted
for 62% of Actava's 1993 revenues and had pre-tax profits of $33.7 million in
1993, only approximately 25% of its pre-tax profits ($8.5 million in 1993) is
reported in Actava's consolidated net income due to Qualex's income tax
provision at an effective rate of 49% and the 50% minority interest effect. SEE
"PHOTOFINISHING TRANSACTION" IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Effective January 1, 1992, Qualex changed its method of accounting for the
cost of its proof advertising program to recognize advertising expense as it is
incurred rather than at the time of the initial sale to the customer. SEE
"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- ACCOUNTING CHANGES -- CHANGE IN
ACCOUNTING FOR CERTAIN ADVERTISING COSTS" IN NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The Company adopted
the new method of accounting for income taxes as of January 1, 1993. Statement
No. 109 affects the manner and rates at which deferred income taxes are
reflected on the balance sheet and the amount of taxes reflected in the
statement of operations. The adoption of Statement No. 109 did not result in a
material effect on net income for 1993. SEE "SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES ACCOUNTING CHANGES -- CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES"
IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions". Statement No. 106 requires the cost of postretirement
benefits to be recognized in the financial statements over an employee's active
working career. The Company adopted the new method of accounting for these
benefits as of January 1, 1993. The adoption of Statement No. 106 resulted in a
charge to net income of $4.4 million and was reported as the cumulative effect
of change in accounting principle in the first quarter of 1993. SEE "SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES -- ACCOUNTING CHANGES -- CHANGE IN METHOD OF
ACCOUNTING FOR POSTRETIREMENT BENEFITS" IN NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
The Company and its subsidiaries provide benefits to former or inactive
employees after employment, but before retirement, such as severance benefits,
continuation of health care benefits and life insurance coverage. The costs of
these are currently accounted for on a pay-as-you-go (cash) basis. The Financial
Accounting Standards Board has issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits," which
requires employers to recognize the obligation to provide these benefits when
certain conditions are met. The Company is required to adopt the new method of
accounting for these benefits no later than January 1, 1994. The adoption of
Statement No. 112 will not have a significant effect on the Company's financial
position or results of operations.
The Company and its subsidiaries invest in various debt and equity
securities. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires certain debt securities to be
reported at amortized cost, certain debt and equity securities to be reported at
market with current recognition of unrealized gains and losses, and certain debt
and equity securities to be reported at market with unrealized gains and losses
as a separate component of shareholders' equity. The Company is required to
adopt the new method of accounting
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no later than January 1, 1994. The adoption of Statement No. 115 will not have a
significant impact on the Company's financial position or results of operations.
As a result of the items described above, Actava reported a net loss in
1993 of $47.6 million in comparison to net income in 1992 of $11.6 million and a
net loss in 1991 of $50.8 million, respectively.
OPERATING SEGMENTS
SEGMENT PERFORMANCE
THE ACTAVA GROUP INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- ------ ------ ------
(IN MILLIONS)
NET SALES
Photofinishing............................. $ 775.3 $ 770.8 $649.7 $623.9 $629.9
Lawn and Garden............................ 225.0 248.2 158.5 237.7 190.8
Sporting Goods............................. 240.8 129.7 116.4 110.7 105.0
-------- -------- ------ ------ ------
Total............................... $1,241.1 $1,148.7 $924.6 $972.3 $925.7
-------- -------- ------ ------ ------
-------- -------- ------ ------ ------
PRE-TAX EARNINGS (LOSS)(A)
Photofinishing............................. $ 51.3(c) $ 54.6 $ 28.0(c) $ 44.1(c) $ 43.7(c)
Lawn and Garden............................ (17.1)(d) 17.8 (50.6) (.3)(d) 2.3
Sporting Goods............................. 2.7 5.9 4.3 3.6 2.9
-------- -------- ------ ------ ------
Operating profit (loss) -- segments(b)... 36.9 78.3 (18.3) 47.4 48.9
Unallocated corporate expenses............... (10.2) (6.2) (10.6) (9.6) (12.3)
Settlement of employee agreements and related
costs...................................... -- -- (6.8) -- --
-------- -------- ------ ------ ------
Operating profit (loss)...................... 26.7 72.1 (35.7) 37.8 36.6
Interest expense............................. (43.3) (33.4) (23.5) (25.7) (27.8)
Other income (expense) -- net................ (2.9) 6.1 3.5 9.9 14.7
-------- -------- ------ ------ ------
Total pre-tax earnings (loss)....... $ (19.5) $ 44.8 $(55.7) $ 22.0 $ 23.5
-------- -------- ------ ------ ------
-------- -------- ------ ------ ------
- ---------------
(a) Pre-Tax Earnings include the minority interest of Eastman Kodak Company in
Qualex Inc.
(b) Operating profit represents total sales less costs of products sold and
selling, general and administrative expenses including goodwill
amortization. There were no significant intersegment sales or transfers.
(c) Includes a provision of $4.1 million in 1993, $17.0 million in 1991, $15.7
million in 1990, and $2.9 million in 1989 before tax for the relocation or
consolidation of certain photofinishing plants.
(d) Includes warranty expense of $4.0 million before tax in 1993 due to a change
in accounting estimate and provisions in 1990 of $13.7 million before tax
for the consolidation of lawn and garden manufacturing facilities and $4.8
million before tax for the write-off of excess inventory created as a result
of the elimination of certain models from lawn and garden product lines.
Photofinishing: In 1988, the Company combined its photofinishing
operations, with the domestic photofinishing operations of Eastman Kodak Company
in a transaction accounted for as a purchase, forming a jointly owned company,
Qualex Inc. SEE "PHOTOFINISHING TRANSACTION" IN NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
In October, 1993, Qualex entered into an Agreement of General Partnership
with JVQ Capital One, Inc. for the purpose of acquiring, owning, holding,
leasing, and selling on-site microlab equipment. In the future, Qualex intends
to sell to this partnership qualifying leases of microlab equipment with the
result that Qualex will record income upon the sale of the lease rather than
over the life of the lease. Qualex will continue to service the equipment under
an agreement with the lessee of the equipment and will pay fees for management
and leasing services to the parent corporation of JVQ Capital One, Inc., a
general partner.
Actava, which owns 51% of the voting shares of Qualex, consolidates the
accounts of Qualex with its accounts. Kodak's interest in the earnings and
equity of Qualex are reflected as minority interest.
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Photofinishing sales increased $4.4 million or .6% in 1993 as compared to
1992 due primarily to the conversion of former microlab operating leases to
salestype financing leases as a result of the expiration of early cancellation
periods for certain of such leases. An overall increase in equivalent prints
processed from 1992 to 1993 partially offset continued per print price declines.
Photofinishing sales increased $121.1 million or 18.6% in 1992 as compared to
1991. Generally, Qualex experienced price declines of 4% to 5% during the 1992
year while sales increased. These price decreases occurred due to the effect of
price reductions offered by competitors and the associated demand for similar
prices from Qualex customers. The primary reasons for the sales increase were
the added print volume resulting from acquisitions finalized in the last quarter
of 1991 and in January 1992 (SEE "ACQUISITIONS" IN NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS), and an overall increase in rolls processed through
comparable 1991 plants, partially offset by continued price declines. Although
sales increased in 1993, per print price continued to decline, resulting in a
decrease in gross profit as a percent of sales from 31.3% for 1992 to 28.3% for
1993, with 1992 restated to include route distribution costs as a cost of sales
component. Gross profit dollars decreased $22.2 million in 1993 from 1992
levels. Gross profit as a percentage of sales was 31.3% for 1992 and 1991.
However, because of the increase in sales, gross profit dollars rose $38.4
million or 18.9% in 1992 in comparison to 1991. The 1991 increase, however, was
partially offset by increases in selling, general and administrative expenses.
As a result of the additional sales volume, selling expense increased $8.1
million or 16.4% and route pick-up and delivery costs increased by $9.0 million
or 14.7% for 1992 in comparison to 1991. In addition, advertising and
promotional expenses decreased $1.7 million or 5.5% as a result of an accounting
principle change which resulted in the deferral of $3.5 million of advertising
expenses to later periods. If the accounting principle for the recognition of
certain advertising expenses had not been changed, advertising and promotional
expenses would have increased by $1.8 million or 5.8% in 1992. Qualex also
incurred increased administrative expenses of $19.3 million or 24.8% for 1992 in
comparison to 1991. This increase was primarily due to acquired administrative
offices, amortization of intangibles associated with the 1991 and 1992
acquisitions and the increased volume of prints processed, even though the cost
per print has decreased. As a result, operating profit before charges for plant
relocations and consolidations increased $807,000 in 1993 and $9.6 million in
1992 when compared to respective prior periods. Charges for plant relocations
and consolidations of $4.1 million for 1993 and $17.0 million for 1991 were
provided, while no provision was made for 1992. This contributed to the increase
in operating profit of $26.6 million, or 95%, from 1991 to 1992, and to a
decrease in operating profit of $3.3 million, or 6%, from 1992 to 1993.
In 1993 and 1991 Qualex recorded charges of $4.1 million and $17.0 million
before tax benefits, respectively, primarily for the expenses associated with
the relocation and consolidation of certain photofinishing plants and, in 1992,
$725,000 for the consolidation of certain marketing and sales and operations
functions. During 1992 and 1993, $33.3 million was charged against these
reserves for the direct costs associated with plant and administrative
relocations and consolidations and the reserve balance available for future
charges was $6.8 million at December 31, 1993.
As a result of the above factors, Qualex recorded an operating profit of
$51.3 million for 1993, a decrease of $3.3 million or 6.0% from 1992. The
operating profit for 1992 of $54.6 million was an increase of $26.6 million from
1991.
Management anticipates lower pricing trends in the wholesale photofinishing
industry to continue in 1994. Qualex will attempt to offset the effects of lower
pricing with improved product mix, lower prices for paper and chemicals, the
sale of certain microlab leases and continuing consolidations of plant
facilities and administrative offices.
Lawn and Garden: Snapper's sales to distributors decreased by $23.2
million, or 9.4% for 1993 in comparison to 1992, despite a strong retail sales
year for lawn and garden equipment, as Snapper continued to control production
to estimated retail sales by reducing production and shipments to distributors
in order to decrease retail inventories. Sales for 1993 and 1992 were $225.0
million and $248.2 million, respectively. Gross profit as a percentage of sales
decreased to 13.9% for 1993 as compared to 27.5% in 1992. Gross profit in
dollars decreased by $37.0 million from $68.2 million to $31.2 million for these
same respective periods. These decreases resulted from continuing manufacturing
problems such as unfavorable manufacturing variances and cost over-runs for
newly introduced products as well as an increase in product related expenses
such as
15
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warranty. The start-up costs, overall product mix and delays associated with
these new products negatively impacted Snapper's cost of sales. In addition,
because Snapper's new Blackhawk(TM) line of mowers, which represented sales of
approximately $10.9 million in 1993, is a lower price-point and margin product
than the Snapper(TM) brand line, per unit gross margin has been lower when
compared to last year's margins. Management does not expect sales of
Blackhawk(TM) line to be as significant in 1994 as in 1993. A $4.0 million
warranty expense was charged to operations in the fourth quarter of 1993 due to
recent unanticipated increases in warranty claims. Also, gross profit was lower
because of inventory shortages and shut-down costs for a company owned foreign
distributor. Snapper's sales to distributors and gross profit increased $89.7
million and $40.2 million or 56.5% and 143.7%, respectively, for 1992 in
comparison to 1991. 1991 sales to distributors were purposely reduced as a
result of the decision to decrease retail inventories by producing and shipping
less product than that sold at retail. Production and shipment to distributors
was increased for the 1992 model year. In addition, in 1992 Snapper redesigned
and reengineered its product offerings, with particular emphasis on recycling
and mulching capability.
Because sales were down for 1993, selling, general and administrative
expenses, including sales volume related expenses such as co-operative
advertising, decreased by 2.5% in comparison to 1992. Income of $849,000 was
provided by reducing a reserve for plant relocation and consolidation in
recognition of finalizing a plant closing. During 1993, Snapper's management
extended the due dates of certain receivables for terms beyond one year and as a
result recorded unearned discounts in the amount of approximately $1.8 million
as a charge to other expense. The decreased gross profit, partially offset by
reduced selling, general and administrative expenses, resulted in an operating
loss of $17.1 million at Snapper in 1993 as compared to an operating profit of
$17.8 million for 1992. Operating profit decreased $34.9 million in 1993,
compared to 1992, because selling, general and administrative expenses remained
relatively constant whereas gross profit decreased by $37.0 million. In 1991,
Snapper initiated an aggressive retail marketing campaign in order to further
accelerate the reduction of inventory. Snapper reduced its expenditures for
marketing promotions and advertising campaigns in 1992 in comparison to 1991,
concentrating its 1992 programs on the new product offerings with particular
emphasis on mulching capabilities as well as quality and service. As a result,
selling, general and administrative expenses decreased $28.1 million or 35.8% in
1992, in comparison to 1991. In addition, certain cost reductions were achieved
as a result of the 1991 closing of two of the three Snapper manufacturing
facilities. Management believes these savings were approximately $10.0 million.
As a result of the factors discussed above, Snapper recorded an operating profit
of $17.8 million in 1992 in comparison to an operating loss of $50.6 million for
1991.
The Company announced in March, 1993, that it had retained Merrill Lynch to
assist in exploring alternatives for realizing value from the Company's
investment in Snapper. These efforts have not been successful and management
believes they have resulted in a substantial distraction for Snapper's
management, distributors and dealers. As a result, the Company has suspended its
efforts to find alternatives for Snapper and has instructed Snapper's management
to devote their full time and attention to improving operating results.
On August 9, 1993, the Company announced that a new Chief Executive Officer
had been employed for Snapper.
Sporting Goods: Sales for Actava Sports increased by $111.2 million, or
85.7% for 1993 when compared to 1992. This increase is primarily due to the
acquisition of DP in June, 1993. In addition to the increase resulting from the
acquisition, sales increased for other Actava Sports companies during 1993.
Gross profit as a percent of sales decreased from 20.1% to 13.8% for 1993 but
gross profit in dollars increased by $7.2 million, or 27.4%, from $26.0 million
to $33.2 million, when compared to 1992. Selling, general and administrative
expenses increased by $10.3 million for 1993 as compared to 1992, from $20.1
million to $30.4 million. This was due to $8.6 million of DP selling, general
and administrative expense incurred from the acquisition date to year-end 1993.
Operating profit decreased from $5.9 million in 1992 to $2.7 million in 1993.
The decrease in operating profit is primarily attributable to DP, which recorded
a loss for the six months ended December 31, 1993 due to the cautious retail
environment and production problems caused by late delivery of electronic
components for treadmill equipment. Actava announced on October 26, 1993, that a
new President and Chief Executive Officer had been appointed for DP.
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Sales for Actava Sports increased $13.2 million or 11.4% in 1992 as
compared to 1991. Each of the three subsidiaries that comprised this segment in
1992 had increased net sales in 1992 to their major multi-unit retail customers.
The Actava Sports operating profit of $5.9 million for 1992 was an increase of
33.3% from 1991. Operating profit as a percent of net sales was 4.5% and 3.7%,
respectively, for 1992 and 1991. In addition, operating profit for 1991 included
the impact of provisions for plant consolidations of $500,000 before tax
benefits for the costs of consolidating the manufacturing and warehouse
facilities of one of the companies in Actava Sports.
FINANCIAL POSITION
Actava's working capital was $103.4 million at December 31, 1993 as
compared to $176.1 million at December 31, 1992. The decrease reflects the loss
incurred by the Company for 1993, repayment by Qualex of long-term debt using
cash realized through collections and sales of accounts receivable, the payment
of certain sinking fund requirements, the use of approximately $11.6 million of
cash in the DP acquisition and $23.0 million of additional cash provided to DP.
Increases in accounts receivable and increases in inventory are principally
financed by borrowings from working capital lines of credit.
Cash and short-term investments at Actava, excluding Qualex, decreased by
$31.6 million in 1993, to $44.3 million. The primary reasons for this decrease
were the cash requirements for the DP acquisition, plus a $15.0 million equity
contribution and an $8.0 million working capital advance made by Actava to DP
following the acquisition. Increased inventory also contributed to the decrease
in cash. At December 31, 1993, approximately $5.0 million of Actava's cash and
short-term investments were pledged to secure a Snapper credit line and
approximately $20.7 million of cash and short-term investments were pledged to
support outstanding letters of credit. Due to the seasonal nature of its
businesses, the Company has the greatest need for funds in the first and last
quarters of the year.
For 1993, consolidated cash flows of $12.9 million were used by operations,
investing activities used $25.0 million of cash, and financing activities
provided $35.9 million of cash. Cash flow used by operations included
depreciation of $44.7 million and amortization of $25.8 million. Investing
activities used $25.0 million of cash, including payments for property, plant
and equipment (net of disposals) of $39.5 million, payments for purchases of
businesses of $9.4 million, representing the acquisition of DP, and net sales of
investments of $34.2 million. Financing activities provided $35.9 million during
the year with borrowings under short-term bank agreements of $52.3 million, net
payments of $311,000 under longterm debt agreements, payments of subordinated
debt of $1.8 million, and payments of dividends by Qualex and the Company of
$8.6 million and $6.3 million, respectively.
Actava's senior long-term debt increased slightly from $220.4 million at
December 31, 1992 to $220.9 million at December 31, 1993. This increase is
primarily attributable to borrowings by Qualex, partially offset by the
termination of capitalized lease obligations for Snapper.
Actava's long-term subordinated debt position of $190.6 million at December
31, 1993 is a decrease of $3.0 million from year-end 1992. Subordinated debt is
46.5% of Actava's total long-term debt, including the current portion, with the
first significant maturity due in 1996.
The Company has a currency swap agreement with a financial institution in
order to eliminate exposure to foreign currency exchange rates for its 6% Senior
Subordinated Swiss Franc Bonds. A default by the financial institution that is a
party to the swap agreement would expose the Company to potential currency
exchange risk on the remaining bond interest and principal payments. SEE
"SUBORDINATED DEBENTURES" IN NOTES TO FINANCIAL STATEMENTS.
On June 8, 1993, the Company acquired substantially all the assets of DP
for a net purchase price consisting of $11.6 million in cash, the issuance of
1,090,909 shares of the Company's Common Stock valued at $12 million, and the
assumption or payment of certain liabilities including trade payables and a
revolving credit facility. SEE "ACQUISITIONS" IN NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS. The Company also entered into an agreement which may provide the
seller with the right to receive additional payments of cash, or additional
shares of Company Common Stock, depending upon the value of the issued shares
over a period of
17
19
not longer than one year from the purchase date. The agreement gives the seller
the right under certain circumstances, to require the Company to purchase the
1,090,909 shares issued to the seller in connection with the acquisition (the
"Acquisition Shares") at a price equal to $11.00 per share. The payment of
additional cash or the issuance of additional shares will not increase the cost
recorded by Actava for DP, but will affect the manner in which the total
purchase price is recorded by Actava. The right of the seller to receive
additional payments of cash or additional shares of Company Common Stock becomes
exercisable after June 8, 1994. In the event that a registration statement under
the Securities Act of 1933, as amended, is in effect with respect to the
Acquisition Shares, the Company may require the seller to sell the Acquisition
Shares to purchasers other than the Company and pay to the seller the difference
between the price received and $11.00 per share. The Company has filed a
Registration Statement under the Securities Act of 1933, as amended, with
respect to the Acquisition Shares. If the Registration Statement is not declared
effective on or before June 8, 1994, the Company will be required to repurchase
the Acquisition Shares for $12.0 million in cash. Any such repurchase would
violate covenants in the Company's credit and subordinated debt agreements.
Actava's debt agreements contain covenants which, among other things, place
restrictions upon the amount of stock the Company may repurchase and dividends
it may pay. Under the terms of Actava's 6% Senior Subordinated Swiss Franc Bonds
due 1996, Actava may not make any cash redemptions (in excess of the aggregate
net cash proceeds from the sale of Common Stock) of its Common Stock or declare
any cash dividends after September 30, 1985 in excess of $25 million plus (or
minus) the net income (or loss) of Actava subsequent to September 30, 1985. As
of December 31, 1993 Actava had approximately $3.4 million available for
dividends or redemptions pursuant to this covenant. The Qualex credit agreement
and the Shareholders' Agreement with Eastman Kodak Company also restrict the
amount of net assets of Qualex which may be transferred to the Company or Kodak
by dividend or other means. In addition, the DP credit agreement requires that
Actava maintain, at all times, an unrestricted cash and short-term investment
position of $20 million after September 30, 1994. Non-compliance with this
requirement subjects this agreement to termination by the lender upon
seventy-five days notice to Actava.
In November 1991, the Company entered into a Loan Agreement with its 25.0%
stockholder, Triton Group Ltd. ("Triton"), whereby Triton could borrow up to
$32.0 million from the Company secured by the stock in the Company owned by
Triton (the "Triton Loan"). SEE "TRITON GROUP LTD." IN NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS. The Triton Loan Agreement 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 the Stockholder Agreement
between Actava and Triton, as described in the Notes to the Consolidated
Financial Statements. As modified, the Triton Loan provided for quarterly
payments of interest only with no scheduled principal payments due until final
maturity in April 1997. In December 1993, Triton and Actava entered into a
further amendment to the Loan Agreement pursuant to which Triton made a
principal payment of $5.0 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 described in the Notes to Consolidated
Financial Statements. Triton has announced that it is seeking to make
arrangements to prepay the remaining balance of approximately $26.7 million due
under the Triton Loan and has obtained a bank commitment, subject to certain
conditions, that would enable Triton to prepay its obligations in full. Triton
has also announced, however, that it may seek to impose additional requirements
on Actava as a condition to Triton's repayment of the loan.
On December 31, 1993, the Company, excluding its subsidiaries and Snapper,
had $9.3 million of unrestricted cash and short-term investments. The Company's
subsidiaries, excluding Qualex, had unused borrowing capacity of approximately
$36.5 million at December 31, 1993 under credit agreements secured by assets
such as accounts receivable and inventory. Such subsidiaries, however, are
restricted by financial covenants in their credit agreements from paying the
Company more than 70% of their net income as dividends. Qualex is subject to
similar restrictions under its credit agreements. In addition, Qualex is subject
18
20
to the Change of Control provisions in the Shareholders Agreement between the
Company and Kodak. These Change of Control provisions could have the effect of
eliminating the Company's ability to control the payment of dividends by Qualex.
During 1994, the Company will be entitled, under these covenants, to receive
approximately $8.8 million in cash dividends from its subsidiaries, including
Qualex and Snapper, based on their earnings in 1993 plus an additional dividend
of approximately $4.7 million from Qualex pursuant to a waiver of the dividend
restrictions by the lender to Qualex. These subsidiary dividends are usually
paid in the first three months of the year. The Company 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, debt service, and dividend payments to shareholders. On March 3, 1994,
the Company announced it was suspending dividend payments to shareholders, which
will result in approximately $6.3 million of cash savings in 1994. The Company,
excluding its subsidiaries and Snapper, has debt service payments scheduled in
1994 of approximately $21.3 million, and the Company anticipates that its total
cash needs in 1994 will exceed the anticipated amount of additional cash to be
received by the Company, including dividends from its subsidiaries. As a result,
if the Company does not receive additional cash through either a refinancing,
the repayment of the Triton Loan or the realization of value from the sale or
partial sale of one of its operating entities, the Company will end 1994 with
less unrestricted cash and short-term investments than it held at the end of
1993.
The amended credit agreements (SEE "NOTES PAYABLE AND LONG-TERM DEBT" IN
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS), with Snapper and one of the
Company's sporting goods subsidiaries contain financial covenants (involving
tangible net worth, book net worth and other matters) which the Company must
comply with to prevent a default. A default under these credit agreements would
have serious adverse consequences, including the elimination of funding for the
operations of Snapper and the sporting goods company, as well as the prohibition
on payment of any dividends to the Company by these businesses. As a result of
the net loss for 1993, it was necessary for the Company to obtain financial
covenant amendments from the lenders in order for the Company to be in
compliance with these covenants at December 31, 1993. Management expects the
Company to remain in compliance with these covenants, as amended, for the first
and second quarters of 1994 and thereafter if certain events take place,
including increased earnings. Management expects that the Company would continue
to be in compliance after the second quarter of 1994 without regard to increased
earnings if the $26.7 million Triton Loan is repaid because the Triton Loan is
excluded for purposes of determining compliance with certain covenants in the
credit agreements. If existing cash, dividends from subsidiaries and payments on
the Triton Loan are not sufficient to meet its cash requirements, the Company
will seek to generate additional cash by selling or pledging certain assets, and
will consider additional options to reduce its cash expenditures.
OTHER ITEMS
On March 28, 1991, the Qualex Shareholders Agreement between Actava and
Eastman Kodak Company was amended. The amendment stipulates that a change of
control of Actava, as defined in the Shareholders' Agreement ("Change of
Control"), occurred on February 6, 1991. However, in the amendment, Kodak waived
its Change of Control rights under the Shareholders' Agreement with respect to
the February 6, 1991 Change of Control. Kodak may withdraw its waiver and
enforce its rights under the agreement as of each March 1, by providing Actava
with 30 days written notice. Kodak did not give the notice required to exercise
its Change of Control rights on March 1, 1994. The amendment also provides that
the Board of Directors of Qualex would be increased to nine members, comprised
of five representatives of Actava, three representatives of Kodak and the chief
executive officer of Qualex.
Since the formation of Qualex in March, 1988, Actava has consolidated the
accounts of Qualex as Actava has a controlling interest in the entity. Actava's
controlling interest includes ownership of 51% of the voting securities of
Qualex and majority representation on Qualex's Board of Directors. SEE
"PHOTOFINISHING TRANSACTION" IN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
While the March, 1991 amendment does not change Actava's controlling interest in
Qualex, if Kodak were to withdraw its waiver, or if an additional Change of
Control of Actava were to occur, the Shareholders' Agreement, as amended,
provides for the redemption of certain of Qualex's preferred stock, including
the voting preferred stock owned by Actava. Upon
19
21
redemption, Actava would own 50% of the voting securities of Qualex. While
Actava's voting stock would be reduced from 51% to 50%, this change would not
alter Actava's and Kodak's current equal interest in the equity, earnings and
cash dividends of Qualex. In addition, the Board of Directors of Qualex would be
composed of 11 members, comprised of five representatives of Actava, five
representatives of Kodak and the chief executive officer of Qualex and all
actions of the board would require the affirmative vote of at least seven board
members. In the event these changes were to occur, Actava may possibly be deemed
to no longer control Qualex and Actava would no longer be in a position to
unilaterally control, among other things, the declaration of dividends to Actava
and Kodak by Qualex as the declaration would require the concurrence of Kodak.
If Actava were deemed in the future to no longer be in control of Qualex,
Actava would cease to consolidate the accounts of Qualex. In that event, Actava
would account for its ownership of Qualex using the equity method of accounting.
Such a development would not affect the net income and shareholders' equity of
Actava. However, Actava's consolidated total assets, liabilities, sales and
costs and expenses would be reduced as they would no longer include specific
accounts of Qualex. If Actava had accounted for Qualex using the equity method
during all of 1993, Actava's total assets and liabilities at December 31, 1993
would have been $696.4 million and $500.5 million, respectively, and sales and
total costs and expenses would have been $465.8 million and $519.0 million,
respectively.
Actava's manufacturing and processing 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 in 1993, and are not expected to be material in future years for
compliance in regard to its 1993 facilities. 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 $300,000 for all three sites. The Company is participating with the
Federal and Ohio Environmental Protection Agencies in initial investigations of
a potential environmental contamination site involving a divested subsidiary. DP
is also complying with various requirements under a compliance order under the
Resource Conservation Recovery Act as administered by the State of Alabama. Upon
the acquisition of DP, a reserve of approximately $1.5 million was established
for expected clean-up costs.
20
22
OTHER SEGMENT DATA
THE ACTAVA GROUP INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
(IN MILLIONS)
ASSETS
Photofinishing............................................... $ 778.2 $ 787.8 $ 702.2
Lawn and Garden.............................................. 230.7 236.8 186.3
Sporting Goods............................................... 165.7 47.2 45.3
-------- -------- --------
Segments.................................................. 1,174.6 1,071.8 933.8
Corporate(a).............................................. 100.5 146.1 155.8
-------- -------- --------
Total................................................ $1,275.1 $1,217.9 $1,089.6
-------- -------- --------
-------- -------- --------
DEPRECIATION AND AMORTIZATION
Photofinishing............................................... $ 58.3 $ 50.3 $ 35.7
Lawn and Garden.............................................. 8.9 8.1 7.6
Sporting Goods............................................... 3.1 .4 .4
-------- -------- --------
Segments.................................................. 70.3 58.8 43.7
Corporate................................................. .1 .2 .3
-------- -------- --------
Total................................................ $ 70.4 $ 59.0 $ 44.0
-------- -------- --------
-------- -------- --------
CAPITAL EXPENDITURES
Photofinishing............................................... $ 43.9 $ 68.5 $ 45.5
Lawn and Garden.............................................. 6.4 13.0 13.7
Sporting Goods............................................... .3 .2 .2
-------- -------- --------
Segments.................................................. 50.6 81.7 59.4
Corporate................................................. -- .1 .1
-------- -------- --------
Total................................................ $ 50.6 $ 81.8 $ 59.5
-------- -------- --------
-------- -------- --------
- ---------------
(a) Corporate assets consist primarily of short-term investments, land, notes
receivable and certain property and equipment.
ACCOUNTING PRINCIPLE DEVELOPMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Actava adopted the
new method of accounting for income taxes on January 1, 1993. Statement No. 109
affects the manner and rates at which deferred income taxes are reflected on the
balance sheet and therefore, possibly the amount of taxes reflected in the
statement of operations. The adoption of Statement No. 109 did not result in a
significant impact to net income when reported as the cumulative effect of a
change in accounting principle in the first quarter of 1993. SEE "SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES -- INCOME TAXES" IN NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." Statement No. 106 requires the cost of postretirement
benefits to be recognized in the financial statements over an employee's active
working career. Actava adopted the new method of accounting for these benefits
on January 1, 1993. The adoption of Statement No. 106 resulted in a $4.4 million
charge to net income and was reported as the cumulative effect of a change in
accounting principle in the first quarter of 1993. SEE "SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS" IN NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
The Company and its subsidiaries provide benefits to former or inactive
employees after employment, but before retirement, such as severance benefits,
continuation of health care benefits and life insurance coverage.
21
23
The costs of these are currently accounted for on a pay-as-you-go (cash) basis.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits," which requires employers to recognize the obligation to provide these
benefits when certain conditions are met. The Company is required to adopt the
new method of accounting for these benefits no later than January 1, 1994. The
adoption of Statement No. 112 will not have a significant effect on the
Company's financial position or results of operations.
The Company and its subsidiaries invest in various debt and equity
securities. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires certain debt securities to be
reported at amortized cost, certain debt and equity securities to be reported at
market with current recognition of unrealized gains and losses, and certain debt
and equity securities to be reported at market with unrealized gains and losses
as a separate component of shareholders' equity. The Company is required to
adopt the new method of accounting no later than January 1, 1994. The adoption
of Statement No. 115 will not have a significant impact on the Company's
financial position or results of operations.
22
24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required under this item is submitted as a separate section
in this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
23
25
PART III
Incorporated by reference to the Proxy Statement for the 1994 annual
meeting of stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
INDEX OF FINANCIAL STATEMENTS
The following consolidated financial statements of The Actava Group Inc.
and subsidiaries are included in Item 8:
PAGE
----
Report of Independent Auditors................................................ F-3
Consolidated Balance Sheets as of December 31, 1993 and 1992.................. F-4
Consolidated Statements of Operations for the years ended December 31, 1993,
1992 and 1991............................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993,
1992 and 1991............................................................... F-6
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1993, 1992 and 1991..................................................... F-7
Notes to Consolidated Financial Statements -- December 31, 1993............... F-8
Summary of Quarterly Earnings and Dividends................................... F-30
(a)(2) Schedules
INDEX OF FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of The Actava
Group Inc. and subsidiaries are included in Item 14(d):
PAGE
----
Schedule II -- Amounts Receivable From Related Parties and Underwriters,
Promoters, and Employees Other Than Related Parties........... S-2
Schedule III -- Condensed Financial Information of The Actava Group Inc....... S-3
Schedule V -- Property, Plant and Equipment................................. S-7
Schedule VI -- Accumulated Depreciation, Depletion and Amortization of
Property, Plant and Equipment................................. S-8
Schedule VIII -- Valuation and Qualifying Accounts............................. S-9
Schedule IX -- Short-term Borrowings......................................... S-12
Schedule X -- Supplementary Income Statement Information.................... S-13
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
24
26
(a)(3) Listing of Exhibits.
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
3(a)(i) Restated Certificate of
Incorporation of Actava
3(b)(i) Restated By-laws of Actava
4(a) Reference is made to Exhibit
3(a)(i)
4(b)(i) Indenture dated as of August Application on Form T-3 for Exhibit T3C
1, 1973, with respect to Qualification of Indenture
9 1/2% Subordinated under the Trust Indenture Act
Debentures due August 1, of 1939 (File No. 22-7615)
1998, between Actava and
Chemical Bank, as Trustee
4(b)(ii) Agreement among Actava, Chem- Registration Statement on Exhibit 4(d)(ii)
ical Bank and Manufacturers Form S-14 (Registration No.
Hanover Trust Company, dated 2-81094)
as of September 26, 1980,
with respect to successor
trusteeship of the 9 1/2%
Subordinated Debentures due
August 1, 1998
4(b)(iii) Instrument of resignation, Annual Report on Form 10-K Exhibit 4(d)(iii)
appointment and acceptance for the year ended December
dated as of June 9, 1986 31, 1986
among Actava, Manufacturers
Hanover Trust Company and
Irving Trust Company, with
respect to successor trustee-
ship of the 9 1/2%
Subordinated Debentures due
August 1, 1998
4(c)(i) Indenture dated as of March Registration Statement on Exhibit 2(d)
15, 1977, with respect to Form S-7 (Registration No.
9 7/8% Senior Subordinated 2-58317)
Debentures due March 15,
1997, between Actava and The
Chase Manhattan Bank, N.A.,
as Trustee
4(c)(ii) Agreement among Actava, The Registration Statement on Exhibit 4(e)(ii)
Chase Manhattan Bank, N.A. Form S-14 (Registration No.
and United States Trust 2-81094)
Company of New York, dated as
of June 14, 1982, with
respect to successor
trusteeship of the 9 7/8%
Senior Subordinated
Debentures due March 15, 1997
4(d)(i) Indenture between National Post-Effective Amendment No. Exhibit T3C
Industries, Inc. and First 1 to Application on Form T-3
National City Bank, dated for Qualification of
October 1, 1974, for the 10% Indenture Under The Trust
Subordinated Debentures, due Indenture Act of 1939 (File
October 1, 1999 No. 22-8076)
25
27
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
4(d)(ii) Agreement among National In- Registration Statement on Exhibit 4(f)(ii)
dustries, Inc., Actava, Form S-14 (Registration No.
Citibank, N.A., and Marine 2-81094)
Midland Bank, dated as of
December 20, 1977, with
respect to successor trustee-
ship of the 10% Subordinated
Debentures due October 1,
1999
4(d)(iii) First Supplemental Indenture Registration Statement on Exhibit 2(q)
among Actava, National Indus- Form S-7 (Registration No.
tries, Inc. and Marine 2-60566)
Midland Bank, dated January
3, 1978, supplemental to the
Indenture dated October 1,
1974 between National and
First National City Bank for
the 10% Subordinated
Debentures due October 1,
1999
4(e) Public Bond Issue Agreement Annual Report on Form 10-K Exhibit 4(h)
dated February 19, 1986, with for the year ended December
respect to 6% Senior 31, 1985
Subordinated Swiss Franc
Bonds due March 6, 1996,
among Actava, Soditic S.A.
and certain other
institutions named therein
4(f) Indenture dated as of August Annual Report on Form 10-K Exhibit 4(i)
1, 1987 with respect to for the year ended December
6 1/2% Convertible 31, 1987
Subordinated Debentures due
August 4, 2002, between Ac-
tava and Chemical Bank, as
Trustee
4(g) Loan and Security Agreement, Amendment No. 1 to Registra- Exhibit 4(i)
dated as of April 30, 1992, tion Statement on Form S-3
with respect to $35 million (Registration No. 33-48202)
secured revolving credit
facility, among Actava,
certain of its subsidiaries
and Barclays Business Credit,
Inc.
4(h) Senior Note Agreement, dated Amendment No. 1 to Registra- Exhibit 4(j)
as of June 8, 1992, with tion Statement on Form S-3
respect to private placement (Registration No. 33-48202)
of $200 million of Senior
Notes due 1997, 1999 and
2002, among Qualex Inc. and
the purchasers listed
therein.
26
28
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
4(i) Credit Agreement, dated as of
October 30, 1992, with
respect to a $115 million
revolving credit facility,
among Qualex Inc. and the
eight participants thereto. A
copy of this agreement is not
filed as the debt does not
exceed 10% of the total
assets of total assets of
registrant; however,
registrant hereby agrees to
furnish a copy of such
agreement to the Commission
upon request.
4(j)(i) Finance and Security
Agreement, dated as of
October 30, 1992, with
respect to a revolving credit
facility of up to $100
million, between Actava
Industries, Inc. and ITT
Commercial Finance Corp. A
copy of this agreement is not
filed as the debt does not
exceed 10% of the total
assets of registrant; how-
ever, registrant hereby
agrees to furnish a copy of
such agreement to the
Commission upon request.
4(j)(ii) Amendment, dated as of March
29, 1994, to Finance and
Security Agreement, dated as
of October 30, 1992, with
respect to a revolving credit
facility of up to $100
million, between Actava In-
dustries, Inc. and ITT
Commercial Finance Corp. A
copy of this agreement is not
filed as the debt does not
exceed 10% of the total
assets of registrant;
however, registrant hereby
agrees to furnish a copy of
such agreement to the
Commission upon request.
4(k) Loan and Security Agreement,
dated as of December 29,
1992, with respect to a
revolving credit facility of
up to $35 million between
Nelson/Weather-Rite, Inc. and
BA Business Credit, Inc. A
copy of this agreement is not
filed as the debt does not
exceed 10% of the total
assets of registrant; how-
ever, registrant hereby
agrees to furnish a copy of
such agreement to the
Commission upon request.
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29
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
4(l)(i) Finance and Security
Agreement, dated as of
December 15, 1993, with
respect to a revolving credit
facility of up to $50
million, between Diversified
Products Corporation and ITT
Commercial Finance Corp. and
the Provident Bank. A copy of
this agreement is not filed
as the debt does not exceed
10% of the total assets of
registrant; however,
registrant hereby agrees to
furnish a copy of such
agreement to the commission
upon request.
4(l)(ii) Amendment, dated as of March
29, 1994, to Finance and
Security Agreement, dated as
of December 15, 1993, with
respect to a revolving credit
facility of up to $50
million, between Diversified
Products Corporation and ITT
Commercial Finance Corp. and
the Provident Bank. A copy of
this agreement is not filed
as the debt does not exceed
10% of the total assets of
registrant; however, regis-
trant hereby agrees to
furnish a copy of such
agreement to the commission
upon request.
4(m) Revolving Loan and Security
Agreement, dated as of April
29, 1993, with respect to a
revolving credit facility of
up to $10 million between
Willow Hosiery Company, Inc.
and Sterling National Bank
and Trust Company of New
York. A copy of this
agreement is not filed as the
debt does not exceed 10% of
the total assets of
registrant; however,
registrant hereby agrees to
furnish a copy of such
agreement to the Commission
upon request.
28
30
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
4(n) Amended and Restated $5
Million Revolving Note,
Amended and Restated $3
Million Letter of Credit
Note, and First Amendment to
the Revolving Loan Agreement
dated as of August 31, 1993,
and Revolving Loan Agreement
dated as of August 24, 1992,
between Hutch Sports USA Inc.
and the Fifth Third Bank.
Copies of these agreements
are not filed as the debt
does not exceed 10% of the
total assets of the
registrant; however,
registrant hereby agrees to
furnish copies of such agree-
ments to the Commission upon
request.
10(a)(i) 1982 Stock Option Plan of Proxy Statement dated March Exhibit A
Actava 31, 1982
10(a)(ii) 1989 Stock Option Plan of Proxy Statement dated March Exhibit A
Actava 31, 1989
10(a)(iii) 1969 Restricted Stock Plan of Annual Report on Form 10-K Exhibit 10(a)(iii)
Actava for the year ended December
31, 1990
10(a)(iv) 1991 Non-Employee Director Annual Report on Form 10-K Exhibit 10(a)(iv)
Stock Option Plan for the year ended December
31, 1991
10(a)(v) Amendment to 1991 Non-Em- Annual Report on Form 10-K Exhibit 10(a)(v)
ployee Director Stock Option for the year ended December
Plan 31, 1992
10(b) Form of Severance Agreement Annual Report on Form 10-K Exhibit 10(c)
between officers of Actava for the year ended December
and Actava dated May 20, 1985 31, 1985
10(c) Snapper Power Equipment Annual Report on Form 10-K Exhibit 10(c)
Profit Sharing Plan for the year ended December
31, 1987
10(f)(iii) Termination Agreement between Annual Report on Form 10-K Exhibit 10(f)(iii)
J. B. Fuqua and Actava dated for the year ended December
March 18, 1991 31, 1990
10(h)(i) Retirement Plan executed No- Annual Report on Form 10-K Exhibit 10(h)(i)
vember 1, 1990 as amended to for the year ended December
be effective January 1, 1989 31, 1990
10(h)(ii) Supplemental Retirement Plan Annual Report on Form 10-K Exhibit 10(j)
of Actava for the year ended December
31, 1983
10(h)(iii) Supplemental Executive Annual Report on Form 10-K Exhibit 10(h)(iii)
Medical Reimbursement Plan for the year ended December
31, 1990
29
31
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
10(h)(iv) Amendment to Supplemental Re- Annual Report on Form 10-K Exhibit 10(h)(iv)
tirement Plan of Actava for the year ended December
effective April 1, 1992 31, 1991
10(i)(i) Shareholders' Agreement dated Annual Report on Form 10-K Exhibit 10(j)
as of December 7, 1987 by and for the year ended December
between Eastman Kodak Company 1, 1987
and Actava
10(i)(ii) Amendment No. 1, dated as of Current Report on Form 8-K Exhibit 2(b)
March 29, 1988 to the dated April 12, 1988
Shareholders' Agreement dated
as of June 7, 1987 between
Eastman Kodak Company and
Actava
10(i)(iii) Amendment No. 2, dated as of Annual Report on Form 10-K Exhibit 10(i)(iii)
March 28, 1991 to the for the year ended December
Shareholders' Agreement dated 31, 1990
as of June 7, 1987 between
Eastman Kodak Company and
Actava
10(j) Stockholder Agreement dated Quarterly Report on Form 10-Q Exhibit 3
as of May 22, 1989 by and for the three months ended
between Actava and Triton June 30, 1989
Group Ltd.
10(j)(ii) Loan Agreement dated Novem- Annual Report on Form 10-K Exhibit 10(j)(ii)
ber 27, 1991 between Actava for the year ended December
and Triton Group Ltd. 31, 1991
10(k)(i) Form of Post Employment Con- Annual Report of Form 10-K Exhibit 10(k)
sulting Agreement between of- for the year ended December
ficers of Actava and Actava 31, 1991
10(k)(ii) Form of First Amendment to
Post-employment Consulting
Agreement between officers of
Actava and Actava
10(l) 1992 Officer and Director Annual Report on Form 10-K Exhibit 10(l)
Stock Purchase Plan for the year ended December
31, 1991
10(m) Director Group Medical Plan Annual Report on Form 10-K Exhibit 10(m)
for the year ended December
31, 1991
10(n) Form of Restricted Stock Annual Report on Form 10-K Exhibit 10(n)
Purchase Agreement between for the year ended December
certain officers of Actava 31, 1991
and Actava
10(o) Incentive Bonuses for Certain Annual Report on Form 10-K Exhibit 10(o)
Corporate Officers for the year ended December
31, 1991
10(p)(i) Forbearance Agreement dated Amendment No. 1 Registration Exhibit 10(o)
June 30, 1992 between Actava, Statement on Form S-3 (Regis-
Triton Group Ltd. and tration No. 33-48202)
Intermark, Inc.
30
32
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
10(p)(ii) Amendment, dated July 13, Quarterly Report on Form 10-Q Exhibit 5
1992, to Forbearance for the three months ended
Agreement dated June 30, 1992 June 30, 1992
between Actava, Triton Group
Ltd. and Intermark, Inc.
10(p)(iii) Amendment, dated July 30, Quarterly Report on Form 10-Q Exhibit 6
1992, to Forbearance for the three months ended
Agreement dated June 30, 1992 June 30, 1992
between Actava, Triton Group
Ltd. and Intermark, Inc., as
amended by Amendment to
Forbearance Agreement dated
July 13, 1992.
10(p)(iv) Amendment, dated September Quarterly Report on Form 10-Q Exhibit 4
23, 1992, to Forbearance for the three months ended
Agreement dated June 30, 1992 September 30, 1992
between Actava Industries,
Inc., Triton Group Ltd. and
Intermark, Inc., as amended
by Amendments to Forbearance
Agreement dated July 13, 1992
and July 30, 1992.
10(p)(v) Amendment, dated October 7, Quarterly Report on Form 10-Q Exhibit 5
1992, to Forbearance for the three months ended
Agreement dated June 30, 1992 September 30, 1992
between Actava Industries,
Inc., Triton Group Ltd. and
Intermark, Inc., as amended
by Amendments to Forbearance
Agreement dated July 13, July
30, and September 23, 1992.
10(q) Agreement between The Actava Annual Report on Form 10-K Exhibit 10(q)
Group Inc. and J.B. Fuqua for the year ended December
regarding sale by The Actava 31, 1992
Group, Inc. of rights in the
name "Actava".
10(r) Amended and Restated Loan Quarterly report on Form 10-Q Exhibit 19
Agreement between The Actava for the three months ended
Group Inc. and Triton Group June 30, 1993.
Ltd. dated June 25, 1993.
10(s) First Amendment, dated Au- Quarterly Report on Form 10-Q Exhibit 19
gust 19, 1993 to Amended and for the three months ended
Restated Loan Agreement be- September 30, 1993
tween The Actava Group Inc.
and Triton Group Ltd. dated
June 5, 1993
10(t) Second Amendment, dated De-
cember 7, 1993 to Amendment
and Restated Loan Agreement
between The Actava Group Inc.
and Triton Group Ltd. dated
June 25, 1993
31
33
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
10(u) Form of Indemnification
Agreement between Actava and
each of its directors and
executive officers
10(v) 1993 Incentive Bonus Plan for Confidential Treatment Re-
certain corporate officers quested by the Company. Filed
separately with the
Commission.
11 Statement of computation of
earnings per share
18 Letter regarding change in Annual Report on Form 10-K Exhibit 18
accounting principle for the for the year ended December
costs associated with proof 31, 1992
advertising program.
22 Subsidiaries of Actava
23 Consent of Ernst & Young
24 Powers-of-Attorney
- ---------------
(b) Reports on Form 8-K filed in the fourth quarter of 1993:
None.
(c) The response to this portion of Item 14 is submitted as a separate section
in this report.
(d) The response to this portion of Item 14 is submitted as a separate section
in this report.
32
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE ACTAVA GROUP INC.
By: /s/ FREDERICK B. BEILSTEIN, III
--------------------------------
Frederick B. Beilstein, III
Senior Vice President and
Chief Financial Officer
Dated: March 31, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant ad in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
/s/ CHARLES R. SCOTT President and Chief Executive March 31, 1994
- --------------------------------------------- Officer and Director
Charles R. Scott (Principal Executive Officer)
/s/ FREDERICK B. BEILSTEIN, III Senior Vice President -- Chief March 31, 1994
- --------------------------------------------- Financial Officer (Principal
Frederick B. Beilstein, III Financial and Accounting
Officer)
* Director March 31, 1994
- ---------------------------------------------
John E. Aderhold
Director March 31, 1994
- ---------------------------------------------
Michael E. Cahr
* Director March 31, 1994
- ---------------------------------------------
J. M. Darden III
* Director March 31, 1994
- ---------------------------------------------
John P. Imlay, Jr.
* Director March 31, 1994
- ---------------------------------------------
Clark A. Johnson
* Director March 31, 1994
- ---------------------------------------------
Anthony F. Kopp
* Director March 31, 1994
- ---------------------------------------------
Richard Nevins
* Director March 31, 1994
- ---------------------------------------------
Carl E. Sanders
*By: /s/ FREDERICK B. BEILSTEIN, III
------------------------------------
Frederick B. Beilstein, III
Attorney-in-fact
33
35
THE ACTAVA GROUP INC.
ANNUAL REPORT ON FORM 10-K
ITEM 14(A)(1) AND (2), (C) AND (D)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1993
F-1
36
FORM 10-K-ITEM 14(A)(1) AND (2)
The Actava Group Inc. and Subsidiaries
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of The Actava Group Inc.
and subsidiaries are included in Item 8:
Consolidated balance sheets -- December 31, 1993 and 1992
Consolidated statements of operations -- Years ended December 31, 1993, 1992
and 1991
Consolidated statements of cash flows -- Years ended December 31, 1993, 1992
and 1991
Consolidated statements of stockholders' equity -- Years ended December 31,
1993, 1992 and 1991
Notes to consolidated financial statements -- December 31, 1993
The following consolidated financial statement schedules of The Actava
Group Inc. and subsidiaries are included in Item 14(d)
Schedule II -- Amounts receivable from related parties and underwriters, promoters, and
employees other than related parties
Schedule III -- Condensed financial information of registrant
Schedule V -- Property, plant and equipment
Schedule VI -- Accumulated depreciation, depletion, and amortization of property, plant and
equipment
Schedule VIII -- Valuation and qualifying accounts
Schedule IX -- Short-term borrowings
Schedule X -- Supplementary income statement information
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
F-2
37
REPORT OF INDEPENDENT AUDITORS
To The Stockholders
The Actava Group Inc.
We have audited the accompanying consolidated balance sheets of The Actava
Group Inc. and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1993. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
The Actava Group Inc. and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in the notes to consolidated financial statements, in 1993
Actava changed its method of accounting for income taxes and postretirement
benefits, and in 1992 Actava changed its method of accounting for the cost of
its proof advertising program.
ERNST & YOUNG
Atlanta, Georgia
March 3, 1994,
except for the
Notes Payable
and Long-Term Debt Note
as to which the date
is March 29, 1994
F-3
38
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-----------------------
1993 1992
---------- ----------
(IN THOUSANDS)
ASSETS
Current Assets
Cash.......................................................................... $ 18,770 $ 20,792
Short-term investments........................................................ 29,635 63,842
Receivables (less allowance for doubtful accounts of $10,227 in 1993 and
$12,805 in 1992)............................................................ 276,018 243,368
Inventories................................................................... 108,439 63,987
Prepaid expenses.............................................................. 43,809 38,365
Income tax benefits........................................................... 32,434 45,790
---------- ----------
Total Current Assets................................................... 509,105 476,144
Property, Plant and Equipment
Land.......................................................................... 8,303 8,700
Buildings and improvements.................................................... 72,289 57,490
Machinery and equipment....................................................... 393,643 343,140
---------- ----------
474,235 409,330
Less allowances for depreciation.............................................. (198,881) (165,720)
---------- ----------
Total Property, Plant and Equipment.................................... 275,354 243,610
Notes Receivable from Triton Group Ltd.......................................... 26,726 31,726
Other Assets (less allowance for doubtful notes and accounts of $3,988 in 1993
and $3,104 in 1992)........................................................... 50,702 45,754
Long-term investments........................................................... 26,611 24,719
Intangibles (less accumulated amortization of $88,281 in 1993 and $65,219 in
1992)......................................................................... 386,626 395,913
---------- ----------
Total Assets........................................................... $1,275,124 $1,217,866
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.............................................................. $ 86,163 $ 69,665
Accrued expenses and other current liabilities................................ 177,720 160,810
Notes payable................................................................. 135,114 64,795
Current portion of long-term debt............................................. 6,665 10,013
---------- ----------
Total Current Liabilities.............................................. 405,662 305,283
Deferred Income Taxes........................................................... 56,715 53,431
Long-Term Debt.................................................................. 220,887 220,357
Subordinated Debt............................................................... 190,551 193,566
Minority Interest in Photofinishing Subsidiary.................................. 205,395 205,382
Stockholders' Equity
Common Stock (22,767,744 shares in 1993 and 1992)............................. 22,768 22,768
Additional capital............................................................ 37,056 46,362
Retained earnings............................................................. 236,334 292,266
Less treasury stock -- at cost (5,132,558 shares in 1993 and 6,223,467 shares
in 1992).................................................................... (100,244) (121,549)
---------- ----------
Total Stockholders' Equity............................................. 195,914 239,847
---------- ----------
Contingent Liabilities and Commitments
Total Liabilities and Stockholders' Equity............................. $1,275,124 $1,217,866
---------- ----------
---------- ----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
39
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
---------- ---------- --------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
Net sales................................................. $1,241,111 $1,148,743 $924,635
Costs, expenses and other costs of products sold (includes
$219,825 in 1993, $202,360 in 1992 and $172,652 in 1991
purchased from Eastman Kodak Company)................... 957,440 812,932 669,129
Selling, general and administrative....................... 246,465 260,256 259,904
Interest expense.......................................... 43,299 33,454 23,534
Provision for doubtful accounts........................... 7,262 3,419 5,485
Other (income) expense-net................................ 2,915 (6,099) (3,537)
Provision for plant relocations and consolidations........ 3,231 -- 18,969
Provision for employee agreements and related costs....... -- -- 6,839
---------- ---------- --------
Total costs, expenses and other........................... 1,260,612 1,103,962 980,323
Income (Loss) before Income Taxes, Minority Interest and
Cumulative Effect of Change in Accounting
Principle............................................ (19,501) 44,781 (55,688)
Income tax expense (benefit).............................. 15,163 23,328 (10,033)
---------- ---------- --------
Income (Loss) before Minority Interest and Cumulative
Effect of Change in Accounting Principle............. (34,664) 21,453 (45,655)
Minority interest......................................... (8,526) (10,888) (5,166)
---------- ---------- --------
Income (Loss) before Cumulative Effect of Change in
Accounting Principle................................. (43,190) 10,565 (50,821)
Cumulative effect of change in accounting principle....... (4,404) 1,034 --
---------- ---------- --------
Net Income (Loss)....................................... $ (47,594) $ 11,599 $(50,821)
---------- ---------- --------
---------- ---------- --------
Earnings (Loss) Per Share of Common Stock
Primary
Continuing operations..................................... $ (2.52) $ .64 $ (3.08)
Cumulative effect of change in accounting principle....... (.25) .06 --
---------- ---------- --------
Net Income (Loss)......................................... $ (2.77) $ .70 $ (3.08)
---------- ---------- --------
---------- ---------- --------
Pro forma Effect Assuming the Changes in Accounting
Principles are Applied Retroactively:
Net Income (Loss)......................................... $ (43,190) $ 10,565 $(50,667)
---------- ---------- --------
---------- ---------- --------
Net Income (Loss) Per Share............................... $ (2.77) $ .64 $ (3.07)
---------- ---------- --------
---------- ---------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
40
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- --------- ---------
(IN THOUSANDS)
INCREASE (DECREASE) IN CASH
Cash Flows from Operating Activities:
Net Income (Loss)............................................ $(47,594) $ 11,599 $ (50,821)
Cumulative effect of change in accounting principle.......... (4,404) 1,034 --
-------- --------- ---------
Income (loss) before cumulative effect of change in
accounting principle....................................... (43,190) 10,565 (50,821)
Items providing cash from operating activities............... 30,243 13,714 95,965
-------- --------- ---------
Net Cash Provided (Used) by Operating Activities............. (12,947) 24,279 45,144
-------- --------- ---------
Cash Flows from Investing Activities:
Purchases of investments (maturities over 90 days)........... (99,510) (99,198) (288,996)
Sales of investments (maturities over 90 days)............... 111,851 107,932 284,980
Net sales of other investments............................... 21,866 6,143 50,739
Purchase of long-term investments............................ -- (24,719) --
Payments for property, plant and equipment................... (55,554) (81,800) (59,499)
Proceeds from disposals of property, plant and equipment..... 16,024 10,230 6,018
Payments for purchases of businesses......................... (9,415) (30,560) (90,019)
Loans to Triton Group Ltd.................................... 5,000 (1,426) (30,300)
Other investing activities -- net............................ (15,221) (3,604) 5,801
-------- --------- ---------
Net Cash Used by Investing Activities........................ (24,959) (117,002) (121,276)
-------- --------- ---------
Cash Flows from Financing Activities:
Net borrowings (payments) under short-term bank agreements... 52,284 51,107 (4,013)
Borrowings under long-term debt agreements................... 21,503 817,000 774,740
Payments on long-term debt agreements........................ (21,192) (771,136) (653,895)
Payments of subordinated debt................................ (1,847) (200) (5,824)
Proceeds from issuance of Actava Common Stock................ -- 365
Cash dividends paid by Qualex to minority interest........... (8,614) (3,886) (5,884)
Cash dividends paid by Actava................................ (6,250) (5,956) (5,947)
-------- --------- ---------
Net Cash Provided by Financing Activities.................. 35,884 86,929 99,542
-------- --------- ---------
Increase (Decrease) in Cash............................. (2,022) (5,794) 23,410
Cash at beginning of year.................................... 20,792 26,586 3,176
-------- --------- ---------
Cash at End of Year..................................... $ 18,770 $ 20,792 $ 26,586
-------- --------- ---------
-------- --------- ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
41
THE ACTAVA GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON STOCK TREASURY STOCK
---------------- ADDITIONAL RETAINED ------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------- ---------- -------- ------ --------- --------
(IN THOUSANDS)
Balance -- January 1, 1991........................ 22,768 $22,768 $ 46,276 $344,622 6,254 $(122,136) $291,530
Net (loss) for the year......................... (50,821) (50,821)
Cash dividends on Common Stock, $.36 per
share......................................... (5,947) (5,947)
Common Stock issued under employee stock
options....................................... (220) (30) 585 365
Common Stock purchased and other................ 306 (2) 304
------ ------- ---------- -------- ------ --------- --------
Balance -- December 31, 1991...................... 22,768 22,768 46,362 287,854 6,224 (121,553) 235,431
Net income for the year......................... 11,599 11,599
Cash dividends on Common Stock, $.36 per
share......................................... (5,956) (5,956)
Common Stock issued under employee stock
options....................................... (1) 4 4
Other, principally foreign currency translation
adjustment.................................... (1,231) (1,231)
------ ------- ---------- -------- ------ --------- --------
Balance -- December 31, 1992...................... 22,768 22,768 46,362 292,266 6,223 (121,549) 239,847
Net income for the year......................... (47,594) (47,594)
Cash dividends on Common Stock, $.36 per
share......................................... (6,250) (6,250)
Common Stock issued from Treasury............... (9,305) (1,090) 21,305 12,000
Other, principally foreign currency translation
adjustment.................................... (1) (2,088) (2,089)
------ ------- ---------- -------- ------ --------- --------
Balance -- December 31, 1993...................... 22,768 $22,768 $ 37,056 $236,334 5,133 $(100,244) $195,914
------ ------- ---------- -------- ------ --------- --------
------ ------- ---------- -------- ------ --------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-7
42
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Actava and
its majority-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation.
Accounting Changes
Change in Method of Accounting for Certain Advertising Costs
Effective January 1, 1992, Qualex changed its method of accounting for the
cost of its proof advertising program to recognize these costs at the time the
advertising is placed by the customer. Under the proof advertising program,
Qualex reimburses certain advertising costs incurred by its customers up to a
percentage of sales to that customer. Qualex previously accrued such costs at
the time of the initial sale. Qualex believes that this new method is preferable
because it recognizes advertising expense as it is incurred rather than at the
time of the initial sale to the customer. The 1992 adjustment of $1,034,000, net
of income taxes of $1,437,000 and minority interest of $1,033,000, was included
in income for 1992 to apply retroactively the new method. The 1992 adjustment
before income taxes and minority interest was $3,504,000. The pro forma amounts
presented in the consolidated statements of operations for 1992 and 1991 reflect
the effect of the retroactive application of applying the new method and related
taxes and minority interest.
Change in Method of Accounting for Income Taxes
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement 109, the liability method is used
in accounting for income taxes: deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. Prior to
the adoption of Statement 109, income tax expense was determined using the
deferred method: deferred tax expense was based on items of income and expense
that were reported in different years in the financial statements and tax
returns and were measured at the tax rate in effect in the year the difference
originated.
As permitted by Statement 109, the Company has elected not to restate the
financial statements of any prior years. The presentation of some items, such as
depreciation, has changed; however, the cumulative effect of the change in
accounting principle on pre-tax income from continuing operations, net income
and financial position was not material.
Change in Method of Accounting for Postretirement Benefits
Effective January 1, 1993, the Company adopted FASB Statement No. 106,
"Accounting for Postretirement Benefits Other Than Pensions." The Company and
its subsidiaries provide group medical plans and life insurance coverage for
certain employees subsequent to retirement. The plans have been funded on a
pay-as-you-go (cash) basis. The plans are contributory, with retiree
contributions adjusted annually, and contain other cost-sharing features such as
deductibles, coinsurance and life-time maximums. The plan accounting anticipates
future cost-sharing changes that are consistent with the Company's expressed
intent to increase the retiree contribution rate annually for the expected
medical trend rate for that year. The Company funds the excess of the cost of
benefits under the plans over the participants' contributions as the costs are
incurred. The coordination of benefits with medicare uses a supplemental, or
exclusion of benefits, approach.
As permitted by Statement 106, the Company elected to immediately recognize
the effect in the statement of operations for the first quarter of 1993 as a
$4,404,000 charge to net income as the cumulative effect of a change in
accounting principle. The annual net periodic postretirement benefit expense for
1993 decreased by $38,000 as a result of adopting the new rules. Postretirement
benefit expense for 1992 and 1991,
F-8
43
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded on a cash basis, has not been restated. The pro forma amounts presented
in the consolidated statements of operations reflect no effect of the
retroactive application of applying the new method as it is not material. The
assumed health care cost trend rate used to measure the expected cost of
benefits covered by the plan for 1993 is 14%. This trend rate is assumed to
decrease in 1% decrements to 6% in 2001 and years thereafter. A 7% discount rate
per year, compounded annually, was assumed to measure the accumulated
postretirement benefit obligation as of December 31, 1993, as compared to 9% for
January 1, 1993. A 1% increase in the assumed health care cost trend rate would
increase the accumulated postretirement benefit obligations as of December 31,
1993, by 16% and the net periodic postretirement benefit cost by 18%.
The following table presents the plans' funded status reconciled with
amounts recognized in the Company's consolidated balance sheet:
DECEMBER 31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
Accumulated postretirement benefit obligation:
Retirees....................................................... $(1,094) $ (990)
Fully eligible active plan participants........................ (788) (932)
Other active plan participants................................. (1,149) (2,482)
------- -------
(3,031) (4,404)
Plan assets...................................................... -- --
------- -------
Accumulated postretirement benefit obligation in excess of plan
assets......................................................... (3,031) (4,404)
Unrecognized prior service cost.................................. (1,995) --
Unrecognized net (gain) or loss.................................. 544 --
Unrecognized transition obligation............................... -- 4,404
------- -------
Accrued postretirement benefit cost.............................. $(4,482) $ --
------- -------
------- -------
Net periodic postretirement benefit cost includes the following components:
1993 1992
------- -------
(IN THOUSANDS)
Service cost..................................................... $ 96 $ --
Interest cost.................................................... 296 --
Amortization of unrecognized prior service cost.................. (154) --
Cash basis expense............................................... -- 102
------- -------
$ 238 $ 102
------- -------
------- -------
Change in Accounting Estimate
During 1993, Snapper revised its estimate of accrued product warranty
expense to reflect an increase in the amount of future warranty expense to be
incurred due to increased warranty claims. This change in accounting estimate
resulted in an additional $4,000,000 charge to net income in 1993.
Short-Term Investments
Short-term investments which are classified as current assets are carried
at the lower of aggregate cost or market value. These investments consist of
interest bearing obligations and other obligations whose return is based upon
market rates of interest. There is no significant concentration of short-term
investments in any single issuer.
F-9
44
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Marketable equity securities which are classified as long-term investments
are carried at the lower of aggregate cost or market value. Marketable debt
securities which are classified as long-term investments are carried at cost
which approximates market value. Market values for these securities are based on
quoted market prices. Interest income is accrued as earned, while dividend
income is recorded on the exdividend date. The cost of marketable securities
sold is determined on the specific identification method and realized gains and
losses are reflected in income.
Inventories
Inventories of finished goods, work in process and raw materials are stated
at the lower of cost or market. The Last-In, First-Out (LIFO) method of
determining cost is used for a substantial portion of these inventories.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and are depreciated over
their expected useful lives. Generally, depreciation is provided on the
straight-line method for financial reporting purposes and on accelerated methods
for tax purposes. Amortization associated with capitalized leases is included in
depreciation expense.
Intangibles
Intangibles consist of the excess of the purchase price over the net asset
of businesses acquired, customer lists and covenants not to compete. Amounts
relating to the excess of the purchase price over the net assets of businesses
acquired are amortized over a 40-year period using the straight-line method.
Amounts relating to customer lists and covenants not to compete are amortized
over two to five years or the life of the agreement, respectively. Management
continuously evaluates intangible assets to determine that no diminishment in
value has occurred.
Intangible assets are summarized as follows:
DECEMBER 31,
-------------------
1993 1992
-------- --------
(IN THOUSANDS)
Excess of purchase price over net assets of businesses
acquired....................................................... $349,546 $344,948
Customer lists................................................... 29,847 40,912
Covenants not to compete......................................... 7,233 10,053
-------- --------
$386,626 $395,913
-------- --------
-------- --------
Income Taxes
Income taxes are provided for all taxable items in the statement of
operations regardless of when these items are reported for federal income tax
purposes. Actava elects to utilize certain provisions of the federal income tax
laws to reduce current taxes payable. Deferred income taxes are provided for
temporary differences in recognition of income and expenses for tax and
financial reporting purposes.
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement 109, the liability method is used
in accounting for income taxes: deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
F-10
45
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Postemployment Benefits
The Company and its subsidiaries provide benefits to former or inactive
employees after employment, but before retirement, such as severance benefits,
continuation of health care benefits and life insurance coverage. The costs of
these are currently accounted for on a pay-as-you-go (cash) basis. The Financial
Accounting Standards Board has issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits," which
requires employers to recognize the obligation to provide these benefits when
certain conditions are met. The Company is required to adopt the new method of
accounting for these benefits no later than January 1, 1994. The adoption of
Statement No. 112 will not have a significant effect on the Company's financial
position or results of operations.
Certain Investments in Debt and Equity Securities
The Company and its subsidiaries invest in various debt and equity
securities. The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires certain debt securities to be
reported at amortized cost, certain debt and equity securities to be reported at
market with current recognition of unrealized gains and losses, and certain debt
and equity securities to be reported at market with unrealized gains and losses
as a separate component of shareholders' equity. The Company is required to
adopt the new method of accounting no later than January 1, 1994. The adoption
of Statement No. 115 will not have a significant impact on the Company's
financial position or results of operations.
Earnings Per Share of Common Stock
Primary earnings per share are computed by dividing net income (loss) by
the average number of common and common equivalent shares outstanding during the
year. Common equivalent shares include shares issuable upon the assumed exercise
of stock options using the treasury stock method when dilutive. Computations of
common equivalent shares are based upon average prices during each period.
Fully diluted earnings per share are computed using such average shares
adjusted for any additional shares which would result from using end-of-year
prices in the above computations, plus the additional shares that would result
from the conversion of the 6 1/2% Convertible Subordinated Debentures. Net
income (loss) is adjusted by interest (net of income taxes) on the 6 1/2%
Convertible Subordinated Debentures. The computation of fully diluted earnings
per share is used only when it results in an earnings per share number which is
lower than primary earnings per share.
Revenue Recognition
Sales from the lawn and garden and sporting goods segments are recognized
when the products are shipped to their customers. Sales from the photofinishing
segment are recognized when the products are delivered to their customer.
Index Protection Agreements
The Company uses index protection agreements to hedge interest rate risk
associated with its borrowings and to hedge the risk or market price
fluctuations of commodities bought and sold in the normal course of business.
These contracts are accounted for as hedges and any gains or losses are deferred
and included in the basis of the underlying transactions. Cash flows from the
contracts are accounted for in the same categories as the cash flows from the
items being hedged.
During 1993, Qualex entered into a $100,000,000 notional amount interest
rate swap agreement which expires in 1996. Under the agreement, Qualex pays a
variable interest rate based on the London interbank offered rate (LIBOR) and
receives a variable amount based on the difference between LIBOR and prime
F-11
46
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rate. At December 31, 1993, termination of this interest rate swap agreement
would require a cash payment by Qualex of $1,158,000 based on market quotes.
Qualex also entered into various commodity swaps to provide protection for
silver recoveries from photofinishing processes. During 1993 and 1992, Qualex
received $835,000 and $12,335,000, respectively, from the termination of such
swap agreements. These gains were deferred and are being amortized over the
original agreement terms. During 1993 and 1992, $2,928,000 and $1,683,000 of
these gains were amortized as reductions of cost of sales while $1,961,000 and
$782,000 of gain amortization reduced interest expense in 1993 and 1992,
respectively. At December 31, 1993 and 1992, respectively, $7,422,000 and
$11,476,000 of these gains were recorded as deferred income. At December 31,
1993, termination of the commodity swap agreements would require cash payments
by Qualex of $18,688,000 based on market quotes.
Self-Insurance
The Company is primarily self-insured for workers' compensation, health,
automobile, product and general liability costs. The self-insurance claim
liability is determined based on claims filed and an estimate of claims incurred
but not yet reported.
Reclassifications
Certain reclassifications were made in prior years' financial statements to
conform to current presentations.
F-12
47
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
The following tables provide additional information related to the
Consolidated Statements of Cash Flows:
YEARS ENDED DECEMBER 31,
------------------------------
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
Items providing (not providing) cash from continuing
operations:
Minority interest............................................ $ 8,526 $ 11,922 $ 5,166
Depreciation................................................. 44,665 35,030 30,896
Amortization................................................. 25,780 24,006 13,118
Provision for doubtful accounts.............................. 7,262 3,419 5,485
Provision for plant relocations and consolidations........... 3,231 -- 18,969
Changes in operating assets and liabilities, net of effects
from purchases and dispositions:
Accounts receivable.......................................... (30,665) (25,464) 41,399
Inventories.................................................. (31,435) (4,763) 27,336
Prepaid expenses and other assets............................ (13,912) (23,621) (2,965)
Accounts payable, accrued expenses and other current
liabilities............................................... 299 (22,129) (12,603)
Current and deferred taxes................................... 16,118 16,332 (24,336)
Other operating activities -- net............................ 374 (1,018) (6,500)
-------- -------- --------
Net items providing cash from continuing operations............ $ 30,243 $ 13,714 $ 95,965
-------- -------- --------
-------- -------- --------
Net assets of business sold:
Total assets................................................. $ -- $ -- $ 2,696
Total liabilities............................................ -- -- 871
-------- -------- --------
Net assets................................................... $ -- $ -- $ 1,825
-------- -------- --------
-------- -------- --------
Net assets of businesses purchased:
Total assets................................................. $ 71,693 $ 58,040 $127,825
Total liabilities............................................ 48,063 27,448 37,437
-------- -------- --------
Net assets................................................... $ 23,630 $ 30,592 $ 90,388
-------- -------- --------
-------- -------- --------
Interest paid................................................ $ 44,570 $ 27,279 $ 23,142
Income taxes paid............................................ $ 11,406 $ 3,334 $ 11,060
-------- -------- --------
-------- -------- --------
PHOTOFINISHING TRANSACTION
Photofinishing operations are conducted by Qualex Inc., which was formed in
March 1988 by the combination of Actava's photofinishing subsidiary with the
domestic photofinishing operations of Eastman Kodak Company. While Actava and
Kodak currently share Qualex's equity, income and dividends equally, Actava has
51% voting control by virtue of its ownership of 50% of Qualex's common stock
and 100% of Qualex's voting preferred stock. Actava also has majority
representation on the Qualex Board of Directors, although certain decisions, not
including the declaration of dividends, require the concurrence of Kodak's Board
representatives.
Actava consolidates the accounts of Qualex and presents Kodak's portion of
ownership and equity in the income of Qualex as minority interest.
The Qualex Shareholders' Agreement between Actava and Eastman Kodak Company
stipulates that upon a change of control at Actava certain Qualex preferred
stock, including the voting preferred owned by
F-13
48
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Actava, will be redeemed. On March 28, 1991, the Qualex Shareholders' Agreement
between Actava and Kodak was amended. The amendment stipulates that a change of
control of Actava, as defined in the Shareholders' Agreement, occurred on
February 6, 1991. However, in the amendment Kodak waived its change of control
rights under the Shareholders' Agreement with respect to the February 6, 1991
change of control. As of March 1, 1992, and each subsequent March 1, Kodak may
withdraw its waiver, and enforce its rights under the Agreement by providing
Actava with 30 days written notice. At March 3, 1994, Kodak had not provided
notice to Actava of an election to withdraw its waiver. The Board of Directors
of Qualex was increased from seven to nine members, comprised of five
representatives of Actava, three representatives of Kodak and the chief
executive officer of Qualex, pursuant to the amendment.
Should Kodak withdraw its waiver or if an additional change in control of
Actava were to occur and if the Qualex preferred stock were redeemed, Actava
would own 50% of the voting securities of Qualex. While Actava's voting stock
would be reduced from 51% to 50%, this change would not alter Actava's and
Kodak's current equal interest in the equity, earnings and cash dividends of
Qualex. In addition, the Board of Directors of Qualex would be composed of 11
members, comprised of five representatives of Actava, five representatives of
Kodak and the chief executive officer of Qualex, and all actions of the Board
would require the affirmative vote of at least seven board members. In the event
these changes were to occur, Actava may possibly be deemed to no longer control
Qualex and Actava would no longer be in a position unilaterally to control,
among other things, the declaration of dividends to Actava and Kodak by Qualex.
If Actava were deemed in the future to no longer be in control of Qualex,
Actava would cease to consolidate the accounts of Qualex. In that event, Actava
would account for its ownership of Qualex by using the equity method of
accounting. Such a development would not affect the net income or shareholders'
equity of Actava. However, Actava's consolidated total assets, liabilities,
sales and costs and expenses would be reduced as they would no longer include
the specific accounts of Qualex. If Actava had accounted for Qualex using the
equity method during all of 1993, Actava's total assets and liabilities would
have been $696,374,000 and $500,460,000, respectively, and sales and total costs
and expenses would have been $465,812,000 and $518,963,000, respectively.
ACQUISITIONS
On June 8, 1993, the Company acquired substantially all the assets of
Diversified Products Corporation ("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 may 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 issuance of additional payments
of cash or additional shares will not increase the cost to DP; any subsequent
issuance will only affect the manner in which the total purchase price is
recorded for Actava. This transaction was accounted for using the purchase
method of accounting; accordingly, the purchased assets and liabilities have
been recorded at their estimated fair value at the date of the acquisition. The
purchase price resulted in an excess of costs over net assets acquired of
approximately $11,417,000. The results of operations of the acquired business
have been included in the consolidated financial statements since the date of
acquisition.
The following data represents the combined unaudited operating results of
Actava on a pro forma basis as if the above transaction had taken place at the
beginning of 1992. The pro forma information does not necessarily reflect the
results of operations as they would have been had the transaction actually taken
place at
F-14
49
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that time. Adjustments include amounts of depreciation to reflect the fair value
and economic lives of property, plant and equipment and amortization of
intangible assets:
PRO FORMA
YEAR ENDED
DECEMBER 31,
-------------------------
1993 1992
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
UNAUDITED
Sales....................................................... $1,294,776 $1,304,993
Net income (loss)........................................... (56,988) 1,352
Income (loss) per share -- primary.......................... (3.23) .08
During 1992, Qualex acquired Samiljan Foto, L.P. and certain other
photofinishing operations for $21,228,000 and $22,997,000 respectively,
including expenses. For one of the businesses in which Qualex purchased a
majority interest in 1992, the sellers have the right to require Qualex to
purchase the remaining interest, beginning in 1997, at an amount not to exceed
$18,000,000. During 1991, Qualex acquired Guardian Photo Inc. and Phototron
Corporation for $73,785,000 and $16,137,000, respectively, including expenses.
In a concurrent transaction with the acquisition of Phototron Corporation,
Actava, Kodak and Qualex settled the litigation brought against them by
Phototron Corporation.
These transactions were accounted for using the purchase method of
accounting, accordingly; the assets and liabilities of the purchased businesses
have been recorded at their estimated fair value at the dates of acquisition.
The purchase price resulted in an excess of costs over net assets acquired of
approximately $23,321,000 and $53,848,000 during 1992 and 1991, respectively, in
addition to $19,215,000 and $30,300,000 attributed to customer lists,
respectively. The results of operations of the businesses acquired have been
included in the consolidated financial statements since the dates of
acquisition.
The following data represents the combined unaudited operating results of
Actava on a pro forma basis as if the 1991 transactions had taken place at the
beginning of 1991. Pro forma information for 1992 acquisitions would not be
significantly different from the results reported. The pro forma information
does not necessarily reflect the results of operations as they would have been
had the transaction actually taken place at that time. Adjustments include
amounts of depreciation to reflect the fair value and economic lives of
property, plant and equipment and amortization of intangible assets.
PRO FORMA
YEAR ENDED
DECEMBER 31,
1991
----------------
(IN THOUSANDS
EXCEPT PER SHARE
AMOUNTS)
UNAUDITED
Sales......................................................................... $1,029,676
Net (loss).................................................................... (53,538)
(Loss) per share -- primary................................................... (3.24)
ACCOUNTS AND NOTES RECEIVABLE
Receivables from sales of Actava's lawn and garden products amounted to
$146,994,000 and $157,605,000 at December 31, 1993 and 1992, respectively. 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 due
to the common business of the customers are limited due to the number of
customers
F-15
50
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprising the customer base and their geographic location. Ongoing credit
evaluations of customer's financial condition are performed and reserves for
potential credit losses are maintained. Such losses, in the aggregate, have not
exceeded management's expectations.
Photofinishing sales are made to national, regional and local retailers
located throughout the United States, including mass merchants, grocery store
chains and drug store chains. Photofinishing receivables, which were $70,744,000
and $76,202,000 at December 31, 1993 and 1992, respectively, are unsecured and
generally due within 20 days following the end of each month. Included in
accounts receivable at December 31, 1993 and 1992 are $54,711,000 and
$47,564,000, respectively, due from national retail chains. Of these amounts,
$9,812,000 and $9,465,000 at December 31, 1993 and 1992, respectively, were
receivable from one such customer on net sales of $84,297,000 and $86,611,000,
respectively. The Company provides an allowance for doubtful accounts equal to
the estimated losses expected to be incurred in the collection of accounts
receivable. Such losses have consistently been within management's expectations.
Receivables from the sale of sporting goods are primarily from mass
merchants and sporting goods retailers located throughout the United States. The
receivables, which are unsecured, were $71,836,000 and $19,781,000 at December
31, 1993 and 1992, respectively, and are generally due within 30 to 60 days. Of
these amounts, $23,362,000, and $4,686,000 are from the same four highest
balance customers for December 31, 1993 and 1992, respectively. The companies
which comprise the sporting goods group maintain allowances for potential credit
losses and such losses, in the aggregate, have not exceeded management's
expectations.
TRITON GROUP LTD. LOAN
At December 31, 1993, the Company had a $26,726,000 million note receivable
from Triton Group Ltd. secured by 4,413,598 shares of Actava Common Stock. At
December 31, 1992, $31,726,000 was outstanding under the agreement and was
secured by 4,338,598 shares of Actava Common Stock.
Effective June 25, 1993, the Company and Triton modified the terms of the
loan as part of a plan of reorganization filed by Triton under Chapter 11 of the
U.S. Bankruptcy Code. The modifications, which became effective June 25, 1993,
included: extending the due date of the Loan to April 1, 1997; reducing the
interest rate to prime plus 1 1/2% for the first six months following June 25,
1993, to prime plus 2% for the next six months, and to prime plus 2 1/2% for the
remainder of the term of the note; revising collateral maintenance (margin call)
requirements; and providing for release of collateral under certain
circumstances. Under the modified agreements, Actava's right of first refusal
with respect to any sale by Triton of its Actava Common stock will continue in
effect until the loan is paid off. The Stockholder Agreement was amended to
permit Triton to designate two directors (who are not officers or employees of
Triton) on an expanded nine-member Board of Directors so long as Triton
continues to own 20% or more of Actava's outstanding Common Stock.
Triton filed a motion on July 30, 1993, with the United States Bankruptcy
Court for the Southern District of California seeking to modify Triton's
recently approved Plan of Reorganization. The modifications sought by Triton
would have amended or eliminated the collateral maintenance (margin call)
provisions that are an integral part of the Amended and Restated Loan Agreement.
On August 2, 1993, the Bankruptcy Court entered a temporary restraining order
suspending the effectiveness of the margin call provisions until the Court had
an opportunity to hear Triton's motion seeking preliminary injunction. The
motion seeking a preliminary injunction was heard on August 10, 1993, and was
denied. Triton then withdrew its motion to modify its Plan of Reorganization.
Therefore, the provisions of the Amended and Restated Loan Agreement continue to
remain in effect. On August 19, 1993, the Amended and Restated Loan agreement
was amended to allow Triton to satisfy certain margin call requirements by
making deposits to a Collateral Deposit Account in lieu of delivering
certificates of deposit. The margin call provisions for principal repayments and
transfers of shares of Company Common Stock were not amended. On December 7,
1993, the Amended and Restated Loan Agreement was amended, in connection with a
$5,000,000 prepayment of principal received on December 7, 1993, to provide for
quarterly principal payment installments of $1,250,000 due on the last day of
each quarter
F-16
51
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of each year beginning March 31, 1994, with any unpaid principal and accrued
interest due on April 1, 1997. The Agreement was also amended to require 75,000
additional shares of Actava Common Stock to be pledged as collateral and to
modify the margin call provisions of the Agreement to provide a $7.50 minimum
per share value of Actava Common Stock for purposes of determining the amount of
any margin call mandatory payments. These modifications limit the circumstances
under which Triton must pledge additional collateral for the loan; however, the
4,413,598 shares of Actava Common Stock owned by Triton will continue to be
pledged to secure the loan until the loan is paid in full. At March 3, 1994, the
pledged shares had a market value of $30,895,000 as compared to the loan balance
of $26,726,000. In the opinion of management, the shares held as collateral are,
and will continue to be, sufficient to provide for realization of the loan.
INVENTORIES
Inventory balances are summarized as follows:
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
Finished goods and goods purchased for resale.................. $ 82,559 $ 49,279
Raw materials and supplies..................................... 46,018 33,537
-------- --------
128,577 82,816
Reserve for LIFO cost valuation................................ (20,138) (18,829)
-------- --------
$108,439 $ 63,987
-------- --------
-------- --------
Work in process is not considered significant.
During 1991, 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.
The utilization of this lower cost inventory decreased net loss by approximately
$1,487,000 and decreased loss per share of common stock by $.09.
LONG-TERM INVESTMENTS
Marketable securities are summarized as follows:
DECEMBER 31,
-------------------
1993 1992
------- -------
(IN THOUSANDS)
Marketable equity securities, at lower cost or market............ $15,850 $15,031
Bonds and commercial paper....................................... 3,003 7,430
U.S. Treasury bills.............................................. 7,758 2,258
------- -------
Total.................................................. $26,611 $24,719
------- -------
------- -------
Net realized gains (losses) on the sale of these securities totaled
$(185,000) and $134,000 in 1993 and 1992, respectively, and have been included
in the determination of income. At December 31, 1993, the value of marketable
equity securities exceeded their cost by $265,000, while at December 31, 1992,
unrealized losses on these securities of $201,000 were recorded to a valuation
allowance and included in shareholders' equity. The market value of debt
securities approximates cost.
F-17
52
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities, including
$31,392,000 in 1993 and $44,274,000 in 1992 due to Eastman Kodak Company, are
summarized as follows:
DECEMBER 31,
-------------------
1993 1992
-------- --------
(IN THOUSANDS)
Accrued salaries and wages....................................... $ 8,363 $ 10,211
Accrued interest................................................. 14,471 15,741
Accrued advertising and promotion................................ 25,238 15,039
Deferred income.................................................. 13,791 17,251
Self-insurance claims payable.................................... 35,070 35,683
Reserve for relocation and consolidation of photofinishing
operations..................................................... 6,754 15,286
Other............................................................ 74,033 51,599
-------- --------
$177,720 $160,810
-------- --------
-------- --------
NOTES PAYABLE AND LONG-TERM DEBT
Qualex has three separate line of credit agreements for working capital
needs. These agreements are $5,000,000 each, for a total of $15,000,000. The
Company pays a facility fee of 1/4% per annum on the committed line of credit
agreements. At December 31, 1993, $3,200,000 was outstanding under these
agreements while no amounts were outstanding at December 31, 1992.
Included in Notes Payable at December 31, 1993 and 1992 is $87,359,000 and
$58,243,000, respectively, which was outstanding under a three year Finance and
Security Agreement which provides working capital to the Snapper division. The
Agreement, dated October 23, 1992, is for $75,000,000 (and may be increased
under certain circumstances up to $100,000,000 for a specified period of time).
Interest is payable at the prime rate plus 3/4% to 1 1/4%, depending upon the
prime rate in effect. The Agreement provides for the payment of an annual line
fee of $487,500 which is subject to increases in certain circumstances. The loan
is principally secured by Snapper assets and certain inventory of Snapper and
requires Actava to comply with various restrictive financial covenants. 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 is defined in the credit agreement; however, the assets potentially
available as collateral are, in the aggregate, $173,068,000. As of March 29,
1994, effective as of December 31, 1993, various provisions of the Agreement,
including the financial covenants, were amended.
During 1992, in order to provide additional working capital and for general
corporate purposes, an Actava Sports subsidiary entered into a three year Loan
and Security Agreement with a financial institution to provide up to $35,000,000
of working capital. Interest is payable at the prime rate plus 1 1/4%. The
Agreement provides for a facility fee of $350,000. The loan is principally
secured by certain receivables and inventory of the subsidiary and requires the
subsidiary to comply with various restrictive financial covenants. 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 is
defined in the credit agreement; however, the assets potentially available as
collateral are, in the aggregate, $23,681,000. At December 31, 1993, $1,846,000
was outstanding under the agreement while no amounts were outstanding at
December 31, 1992.
During 1992, in order to provide additional working capital and for general
corporate purposes, an Actava Sports subsidiary entered into a one-year
Revolving Loan Agreement with a financial institution to provide up to
$6,500,000 for working capital. Interest is payable at the prime rate of the
financial institution. The loan is unsecured and requires the subsidiary to
comply with various restrictive financial covenants. In August, 1993, the
agreement was amended to increase the facility limit to $8,000,000 for a
six-month period beginning
F-18
53
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
September 1, 1993, and to extend the term of the agreement until August 31,
1994. At December 31, 1993, $2,700,000 was outstanding under the Agreement while
no amounts were outstanding at December 31, 1992.
In April 1993, a Revolving Loan and Security Agreement with respect to a
revolving credit facility of up to $10,000,000 was entered into by an Actava
Sports subsidiary. Interest is payable at the prime rate plus 1%. The agreement
provides for a facility fee of $25,000. The loan is principally secured by
certain receivables and inventory of the subsidiary and requires the subsidiary
to comply with various restrictive financial covenants. 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 is defined in
the credit agreement; however, the assets potentially available as collateral
are, in the aggregate, $12,881,000. At December 31, 1993 and 1992, no amounts
were outstanding under the agreement.
In December 1993, an Actava Sports subsidiary, DP, entered into a Finance
and Security Agreement with two financial institutions in order to provide up to
$50,000,000 of working capital under a revolving credit facility. The agreement
is secured by certain receivables, inventories, property, plant and equipment,
and intangibles, as well as DP's issued and outstanding common stock and
requires compliance with various restrictive financial covenants. 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 is
defined in the credit agreement; however, the assets potentially available as
collateral are, in the aggregate, $109,000,000. As of March 29, 1994, effective
December 31, 1993, various provisions of the Agreement, including the financial
covenants, were amended. Interest is payable at the prime rate plus 1 1/2%. The
Agreement provides for an annual facility fee of $375,000. At December 31, 1993,
$36,178,000 was outstanding under the agreement.
Long-term debt is summarized as follows:
DECEMBER 31,
-------------------
1993 1992
-------- --------
(IN THOUSANDS)
Senior notes -- Qualex........................................... $200,000 $200,000
Revolving credit agreement -- Qualex............................. 10,000 --
Capitalized lease obligations.................................... 545 5,053
Other long-term debt:
Secured (4-9% notes due at various dates to 2002)................ 1,900 2,630
Unsecured (4-8% notes due at various dates to 2001).............. 8,442 12,674
-------- --------
$220,887 $220,357
-------- --------
-------- --------
Qualex issued through a private placement $200,000,000 of Senior Notes in
1992 with September 1 maturities in 1997, 1999 and 2002 of $60,000,000,
$70,000,000 and $70,000,000, respectively, with interest rates of 7.99%, 8.45%
and 8.84%, respectively.
During 1992, Qualex entered into an unsecured $115,000,000 Revolving Credit
Agreement with eight financial institutions which will expire in May 1995.
Interest is payable under three rate options which are determined by reference
to the prime rate, the London interbank offered rate plus 1/2% to 3/4%, and
competitive bids. The Agreement provides for a participation fee of 1/8% and an
annual facility fee of 1/4%. At December 31, 1993, $10,000,000 was outstanding
under the agreement while no amounts were outstanding at December 31, 1992.
The Qualex Credit Agreement and the Shareholders' Agreement with Eastman
Kodak Company restrict the amount of net assets of Qualex which may be
transferred to Actava by dividend or other means. At December 31, 1993,
approximately $166,000,000 of the $194,000,000 representing Actava's share of
the net assets of Qualex was restricted under the terms of these agreements.
F-19
54
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Collateral for certain of the long-term debt includes real property. Assets
pledged as collateral under the borrowings are not material. Maturities of
long-term and subordinated debt are $15,142,000 in 1995, $35,172,000 in 1996,
$75,783,000 in 1997 and $59,121,000 in 1998.
The fair value of Actava's long-term and subordinated debt, including the
current portion, at December 31, 1993 is estimated to be approximately
$445,000,000 and was estimated at $425,000,000 at December 31, 1992. This
estimate is based on a discounted cash flow analysis using Actava's current
incremental borrowing rates for similar types of agreements and on quoted market
prices for issues which are traded. Actava does not anticipate settlement of
long-term debt at fair value and currently does not intend to pay the debt prior
to maturity.
SUBORDINATED DEBT
Subordinated debt is summarized as follows:
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
6% Senior Swiss Franc Bonds due 1996........................... $ 30,152 $ 30,152
6 1/2% Convertible Debentures due 2002......................... 75,000 75,000
9 1/2% Debentures due 1998, net of unamortized discount of
$1,308 in 1993 and $1,593 in 1992............................ 58,176 57,891
9 7/8% Senior Debentures due 1997, net of unamortized discount
of $468 in 1993 and $661 in 1992............................. 20,532 23,339
10% Debentures due 1999........................................ 6,691 7,184
-------- --------
$190,551 $193,566
-------- --------
-------- --------
In 1986 Actava issued 6% Senior Subordinated Swiss Franc Bonds due 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 will, in effect, make its
interest and principal bond repayments in U.S. dollars without regard for
changes in the currency exchange rate. A default by the counterparty to the swap
agreement would expose Actava to potential currency exchange risk on the
remaining bond interest and principal payments in that Actava would be required
to purchase Swiss francs at current exchange rates rather than at the swap
agreement exchange rate. The amount of this potential risk cannot be currently
calculated as the principal and interest payments will be made in future years
and alternative swap agreements could be entered into by Actava. At December 31,
1993, the swap agreement has an effective exchange rate over its remaining term
of .5459 Swiss francs per U.S. dollar while the U.S. dollar equivalent market
exchange rate was .6734. After considering the stated interest rate, the cost of
the currency swap agreement, taxes and underwriting commissions, the effective
cost of the bonds is approximately 11.3%. The fair value of the currency swap as
of December 31, 1993 and 1992, was $10,795,000 and $7,242,000, respectively;
however, this is subject to change as domestic interest rates and foreign
currency markets are determining factors.
Actava, at its option, may redeem the Senior Subordinated Swiss Franc Bonds
at 101.0% plus accrued interest for one year subsequent to March 6, 1994 and at
decreasing amounts thereafter. The Bonds include a covenant which restricts the
amount of stockholders' equity available for cash dividends and the cash
redemption of capital stock. At December 31, 1993, $3,412,000 was available for
these purposes pursuant to this covenant.
In 1987 Actava issued $75,000,000 of 6 1/2% Convertible Subordinated
Debentures due in 2002 in the Euro-dollar market. The Debentures are convertible
into Actava's Common Stock at a conversion price of
F-20
55
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$41 5/8 per share. At Actava's option the Debentures may be redeemed at 101%
plus accrued interest prior to August 4, 1994 and at 100% thereafter.
The 9 7/8% Senior Subordinated Debentures are redeemable at the option of
Actava at 101.555% of the principal amount plus accrued interest if redeemed
prior to March 15, 1994, and at decreasing prices thereafter. Mandatory sinking
fund payments of $3,000,000 (which Actava may increase to $6,000,000 annually)
began in 1982 and are intended to retire, at par plus accrued interest, 75% of
the issue prior to maturity.
At the option of Actava, the 10% Subordinated Debentures are redeemable, in
whole or in part, at the principal amount plus accrued interest. Sinking fund
payments of 10% of the outstanding principal amount commenced in 1989; however,
Actava receives credit for Debentures redeemed or otherwise acquired in excess
of sinking fund payments.
CAPITAL STOCK
Preferred and Preference Stock
There are 5,000,000 authorized shares of Preferred Stock and 1,000,000
authorized shares of Preference Stock, none of which were outstanding or
designated as to a particular series at December 31, 1993.
Common Stock
There are 100,000,000 authorized shares of Common Stock, $1 par value. At
December 31, 1993, 1992 and 1991 there were 17,635,186, 16,544,277 and
16,544,027 shares issued and outstanding, respectively, after deducting
5,132,558, 6,223,467 and 6,223,717 treasury shares, respectively.
Actava has reserved the shares of Common Stock listed below for possible
future issuance:
DECEMBER 31,
-----------------------
1993 1992
--------- ---------
Stock options................................................. 761,000 871,375
6 1/2% Convertible Subordinated Debentures.................... 1,801,802 1,801,802
Restricted stock plan......................................... 102,800 102,800
--------- ---------
2,665,602 2,775,977
--------- ---------
--------- ---------
F-21
56
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Options
Actava's stock option plans provide for the issuance of qualified incentive
stock options and nonqualified stock options. Incentive stock options may be
issued at a per share price not less than the market value of Actava's Common
Stock at the date of grant. Nonqualified options may be issued generally at
prices and on terms determined by the stock option committee. The following
table reflects changes in the incentive stock options issued under these plans:
APPROXIMATE
PRICE RANGE
SHARES PER SHARE
-------- -----------
Options outstanding at January 1, 1991......................... 138,525 $ 20-28
Granted...................................................... 64,500 12
Exercised.................................................... (30,000) 12
Canceled..................................................... (13,000) 28
Expired...................................................... (104,775) 20
-------- -----------
Options outstanding at December 31, 1991....................... 55,250 12-28
Granted...................................................... 60,000 12-15
Exercised.................................................... (250) 12
Canceled..................................................... (17,125) 12-28
-------- -----------
Options outstanding at December 31, 1992....................... 97,875 12-28
Granted...................................................... 50,000 9-12
Canceled..................................................... (21,125) 12-28
-------- -----------
Options outstanding at December 31, 1993....................... 126,750 $ 9-28
-------- -----------
-------- -----------
During 1993 nonqualified options for 75,500 shares at $13.75 per share were
granted.
At December 31, 1993, incentive stock options totaling 64,000 shares were
exercisable at prices ranging from $11.875 to $27.875 and nonqualified options
totaling 53,875 shares were exercisable at prices ranging from $13.75 to $14.50.
There were 591,550 and 696,300 shares under Actava's stock option plans at
December 31, 1993 and 1992, respectively, which were available for the granting
of additional stock options.
PROVISIONS FOR PLANT RELOCATION AND CONSOLIDATION
The 1993 and 1991 consolidated provisions for plant relocations and
consolidations include $4,096,000 and $17,037,000, respectively, before tax and
minority interest for the costs of relocating or consolidating certain of
Qualex's photofinishing plants. After tax benefit and minority interest, the
Qualex provisions amounted to $1,038,000 and $5,196,000 or $.06 and $.31 per
share for 1993 and 1991, respectively. In addition, the 1993 provision includes
reductions of $865,000, before and after tax, or $.05 per share, to reserves for
consolidating certain lawn and garden facilities and Actava Sports facilities.
The 1991 provision also includes $500,000 before tax ($315,000 net of tax or
$.02 per share) for consolidating facilities at a sporting goods subsidiary and
$1,432,000 before tax ($945,000 net of tax or $.06 per share) for reducing the
Actava corporate office facilities.
F-22
57
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INCOME -- NET
Other income net of other (expenses) from continuing operations is
summarized as follows:
YEARS ENDED DECEMBER 31,
-----------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
Interest and investment income.......................... $ 8,731 $ 8,399 $ 7,459
Miscellaneous income (expense).......................... (11,646) (2,300) (3,922)
------- ------- -------
$(2,915) $ 6,099 $ 3,537
------- ------- -------
------- ------- -------
Early payment interest credit expense which is the result of cash payments
received by Snapper from distributors prior to receivable due dates is included
in net miscellaneous income (expense). The early payment interest credit expense
was $4,322,000 for 1993, $2,522,000 for 1992, and $4,348,000 for 1991.
INCOME TAXES
Income tax expense (benefit) is composed of the following:
YEARS ENDED DECEMBER 31,
--------------------------------
LIABILITY DEFERRED
METHOD METHOD
--------- -------------------
1993 1992 1991
--------- ------- --------
(IN THOUSANDS)
Current federal........................................ $ 7,620 $ 6,900 $ 7,366
Current state.......................................... 3,451 4,360 3,256
Deferred federal and state............................. 4,092 12,068 (20,655)
--------- ------- --------
$ 15,163 $23,328 $(10,033)
--------- ------- --------
--------- ------- --------
Income tax expense (benefit) computed by applying federal statutory rates
to income (loss) before income taxes is reconciled to the actual income tax
expense (benefit) as follows:
YEARS ENDED DECEMBER 31,
--------------------------------
LIABILITY DEFERRED
METHOD METHOD
--------- -------------------
1993 1992 1991
--------- ------- --------
(IN THOUSANDS)
Computed tax at statutory rates........................ $ (6,825) $15,226 $(18,934)
State tax, net of federal benefit...................... 2,243 2,877 2,149
Effect of tax rate changes on realization of timing
differences.......................................... 414 153 301
Amortization of goodwill............................... 3,123 3,235 2,753
Effect of nontax basis adjustments in connection with
acquisitions......................................... -- 914 1,037
Tax-exempt interest.................................... (26) (80) (70)
Dividends received deduction........................... (290) -- --
Undistributed earnings of majority-owned subsidiary.... 603 812 351
Over provision of current tax.......................... -- -- 1,675
Deferred tax valuation allowance....................... 16,227 -- --
Other.................................................. (306) 191 705
--------- ------- --------
$ 15,163 $23,328 $(10,033)
--------- ------- --------
--------- ------- --------
F-23
58
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of deferred tax assets and liabilities at December
31, 1993, are as follows:
DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES
------------ ------------
(IN THOUSANDS)
Net operating loss carryforward........................ $ 30,383
Reserves for losses and write-down of certain assets... 14,885
Reserves for self-insurance............................ 11,781
Alternative minimum tax credit......................... 8,805
Provision for loss on loans and receivables............ 3,509
Tax amortizable intangible............................. 3,145
State tax accruals..................................... 2,676
Gain on hedge transaction.............................. 2,609
Obligation for postretirement benefits................. 1,966
Plant relocations and consolidations................... 1,541
Charitable contribution carryforward................... 1,053
Other.................................................. 1,913 $ 1,793
Investment in less than 80% owned subsidiary........... -- 37,627
Basis differences in fixed assets...................... -- 29,387
Purchase of safe harbor lease investment............... -- 9,783
Undistributed earnings of majority-owned subsidiary.... -- 1,282
------------ ------------
Subtotal............................................... 84,266 79,872
Valuation allowance.................................... 28,675 --
------------ ------------
Total deferred taxes................................... $ 55,591 $ 79,872
------------ ------------
------------ ------------
Net deferred taxes..................................... $ 24,281
------------
------------
The components of deferred income tax expense (benefit) for the years ended
December 31, 1992 and 1991 are as follows:
YEARS ENDED DECEMBER 31,
------------------------
1992 1991
------- --------
(IN THOUSANDS)
Accelerated depreciation.................................. $ 5,138 $ 3,273
Provision for loss on loans and receivables............... 366 (1,178)
Reserves for losses and write-down of certain assets...... 1,961 (1,337)
Plant relocations and consolidations...................... 9,148 (1,714)
Gain on hedge transaction................................. (3,356) 273
Difference in book and tax basis of assets disposed of.... (881) 197
Undistributed earnings of majority-owned subsidiary....... 547 (110)
Recognition of income tax net operating loss benefit...... -- (19,986)
Other..................................................... (855) (73)
------- --------
$12,068 $(20,655)
------- --------
------- --------
Actava has a net operating loss carryforward for federal income tax
purposes of approximately $86,800,000 at December 31, 1993, which will expire in
years 2006 through 2008. Actava has an alternative minimum tax credit
carryforward of approximately $8,800,000, which may be carried forward
indefinitely, available to offset regular tax in certain circumstances.
PENSION PLANS
Actava and its subsidiaries have several noncontributory defined benefit
and other pension plans which are "qualified" under federal tax law and cover
substantially all employees. In addition Actava has a
F-24
59
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"nonqualified" supplemental retirement plan which provides for the payment of
benefits to certain employees in excess of those payable by the qualified plans.
Benefits under the qualified and nonqualified plans are based upon the
employee's years of service and level of compensation. Actava's funding policy
for the qualified plans is to contribute annually such amounts as are necessary
to provide assets sufficient to meet the benefits to be paid to the plans'
members and to keep the plans actuarially sound. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future.
The components of net periodic pension costs are as follows:
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
Service cost -- benefits earned during the period......... $ 2,724 $ 3,234 $ 2,707
Interest cost on projected benefit obligation............. 1,892 1,712 1,378
Actual return on plan assets.............................. (2,318) (1,912) (2,304)
Net amortization and deferral............................. 454 298 1,001
------- ------- -------
$ 2,752 $ 3,332 $ 2,782
------- ------- -------
------- ------- -------
Assumptions used in the accounting for the defined benefit plans are as
follows:
YEARS ENDED
DECEMBER 31,
----------------------
1993 1992 1991
---- ---- ----
Weighted-average discount rates............................... 7.2 % 8.4 % 8.3 %
Rates of increase in compensation levels...................... 4.7 % 6.1 % 6.2 %
Expected long-term rate of return on assets................... 7.6 % 8.3 % 8.3 %
These actuarial assumptions were changed during 1993 for accounting for the
defined benefit plans as of December 31, 1993. The change in discount rates from
8.4% for 1992 to 7.2% for 1993 increased projected benefit obligations by
approximately 12%.
F-25
60
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables set forth the funded status and amount recognized in
the Consolidated Balance Sheets for Actava's defined benefit pension plans:
DECEMBER 31,
---------------------
1993 1992
-------- --------
(IN THOUSANDS)
PLANS WHOSE ASSETS EXCEED ACCUMULATED BENEFITS
Actuarial present value of benefit obligations:
Vested benefit obligations................................... $ (4,652) $(11,717)
-------- --------
-------- --------
Accumulated benefit obligation............................... $ (5,232) $(13,100)
-------- --------
-------- --------
Projected benefit obligations................................ $ (5,232) $(15,035)
Plan assets at fair value.................................... 6,296 15,197
-------- --------
Funded status -- plan assets in excess of projected benefit
obligation................................................ $ 1,064 $ 162
-------- --------
-------- --------
Comprised of:
Accrued pension cost......................................... $ -- $ (2,265)
Prepaid pension cost......................................... 415 332
Unrecognized net gain (loss)................................. (523) 702
Unrecognized prior service cost.............................. 187 325
Unrecognized net assets at January 1, 1987, net of
amortization.............................................. 985 1,068
-------- --------
$ 1,064 $ 162
-------- --------
-------- --------
PLANS WHOSE ACCUMULATED BENEFITS EXCEED ASSETS
Actuarial present value of benefit obligations:
Vested benefit obligation.................................... $(21,174) $ (8,198)
-------- --------
-------- --------
Accumulated benefit obligation............................... $(22,224) $ (8,340)
-------- --------
-------- --------
Projected benefit obligation................................. $(25,320) $ (9,035)
Plan assets at fair value.................................... 18,615 5,594
-------- --------
Funded status -- projected benefit obligation in excess of
plan assets............................................... $ (6,705) $ (3,441)
-------- --------
-------- --------
Comprised of:
Accrued pension cost......................................... $ (4,637) $ (3,246)
Prepaid pension cost......................................... -- 596
Unrecognized net gain (loss)................................. (2,157) (1,098)
Unrecognized prior service cost.............................. (215) (215)
Unrecognized net obligation at January 1, 1987, net of
amortization.............................................. 304 522
-------- --------
$ (6,705) $ (3,441)
-------- --------
-------- --------
Substantially all of the plan assets at December 31, 1993 and 1992 are
invested in governmental bonds, mutual funds and temporary investments.
Some of the Company's subsidiaries also have defined contribution plans
which provide for discretionary annual contributions covering substantially all
of their employees. Contributions from continuing operations of approximately
$5,900,000 in 1993, $7,000,000 in 1992, and $4,800,000 in 1991 were made to
these plans.
LEASES
Actava and its subsidiaries are lessees of warehouses, manufacturing
facilities and other properties under numerous noncancelable leases.
F-26
61
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Capitalized leased property, which is not significant, is included in
property, plant and equipment and other assets.
Future minimum payments for the capital leases and noncancelable operating
leases with initial or remaining terms of one year or more are summarized as
follows:
YEARS ENDING OPERATING CAPITAL
DECEMBER 31, LEASES LEASES
------------------------------------------------------------- --------- -------
(IN THOUSANDS)
1994......................................................... $12,976 $ 462
1995......................................................... 10,321 287
1996......................................................... 8,813 157
1997......................................................... 7,717 138
1998......................................................... 5,377 0
Thereafter................................................... 12,847 0
--------- -------
Total minimum lease payments................................. $58,051 1,044
---------
---------
Less amounts representing interest........................... (128)
-------
Present value of net minimum lease payments.................. 916
-------
-------
Rental expense charged to continuing operations for all operating leases
was $19,729,000, $21,499,000 and $17,720,000 for the years ended December 31,
1993, 1992 and 1991, respectively.
Certain noncancelable leases have renewal options for up to 10 years, and
generally, related real estate taxes, insurance and maintenance expenses are
obligations of Actava. Certain leases have escalation clauses which provide for
increases in annual rentals in certain circumstances.
LITIGATION
On February 18, 1994, Photographic Concepts Inc. ("PCI"), a Florida
corporation, sued Qualex in the United States District Court for the Middle
District of North Carolina, in a lawsuit captioned Photographic Concepts, Inc.
v. Qualex, Inc., Civil Action No. 1:94-CV-00081. PCI's claims arise out of
allegations that Qualex entered into and then breached an agreement with PCI
relating to the marketing of on-site "microlab" photofinishing services. During
1993, Qualex's microlab business resulted in $33,300,000 in revenues and
$7,300,000 in gross profits, and Qualex expects such business to increase in the
future. PCI alleges, among other things, that Qualex breached agreement with
PCI, and misappropriated trade property and other information from PCI. PCI is
seeking both monetary and injunctive relief. Qualex is currently gathering the
information and documents necessary to file its response to PCI's Complaint.
That response must be filed by April 25, 1994. Qualex intends to defend the case
vigorously, but the Company is unable to determine the probable impact of the
suit at this early stage in the proceeding.
In 1991, three lawsuits were filed against Actava, certain of Actava's
current and former directors and Intermark, Inc., 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 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, ordering the director defendants to carry out their fiduciary duties
and to take all appropriate steps to enhance Actava's value as a
merger/acquisition candidate.
F-27
62
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These three suits were consolidated on May 1, 1991. While these actions are in
their preliminary stages, management currently believes the actions will not
materially affect the operations or financial position of Actava.
Actava is a defendant in various other legal proceedings. 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
December 31, 1993 and 1992, there was approximately $23,000,000 and $20,000,000,
respectively, outstanding under these floor plan financing arrangements.
Actava is contingently liable under various guarantees of debt totaling
approximately $8,600,000. The debt is primarily Industrial Revenue Bonds which
were issued by former subsidiaries to finance their manufacturing facilities and
equipment, 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 former
subsidiaries. The total future payments under these leases, including real
estate taxes, is estimated to be approximately $9,100,000. The leased properties
generally have financially sound subleases.
In January 1992, Qualex entered into an agreement whereby it sells an
undivided interest in a designated pool of trade accounts receivable on an
ongoing basis. The maximum allowable amount of receivables to be sold, initially
set at $50,000,000, was increased to $75,000,000 in August 1992. As collections
reduce the pool of sold accounts receivable, Qualex sells participating
interests in new receivables to bring the amount sold up to the desired level.
At December 31, 1993 and 1992, the uncollected balance of receivables sold
amounted to $60,000,000 and $30,000,000, respectively. The proceeds are reported
as operating cash flows in the statement of cash flows and a reduction of
receivables in Qualex's balance sheet. Total proceeds received by Qualex during
the year were $519,000,000 for 1993 and $220,000,000 for 1992. There has been no
adjustment to the allowance for doubtful accounts because Qualex has retained
substantially the same risk of credit loss as if the receivables had not been
sold. Qualex pays fees based on the purchaser's level of investment and
borrowing costs. During 1993 and 1992, Qualex recorded $2,200,000 and
$1,100,000, respectively, of these fees as other expenses.
Qualex has a supply contract with Kodak for the purchase of sensitized
photographic paper and purchases substantially all of the chemicals used in
photoprocessing from Kodak. Qualex also purchases various other production
materials and equipment from Kodak.
Qualex and DP handle and store various materials in the normal course of
business that have been classified as hazardous by various federal, state and
local regulatory agencies. As of December 31, 1993, Qualex and DP are continuing
to conduct tests at various sites 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. The Company may also be liable
for remediation of environmental damage relating to businesses previously sold
in excess of amounts accrued. 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.
F-28
63
THE ACTAVA GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1993, Qualex signed a ten year agreement to purchase its
information systems services from an outside agency. Annual service charges
under this agreement are approximately $13,000,000.
At December 31, 1993, approximately $5,000,000 of Actava's cash and
short-term investments were pledged to secure a Snapper credit line and
approximately $20,700,000 of cash and short-term investments were pledged to
support outstanding letters of credit.
SEGMENT INFORMATION
A description of Actava's segments is presented in the first four
paragraphs of Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Additional segment information as of and
for the three years ended December 31, 1993 is presented in the tables captioned
"Segment Performance" and "Other Segment Data" which are included in Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
F-29
64
THE ACTAVA GROUP INC. AND SUBSIDIARIES
SUMMARY OF QUARTERLY EARNINGS AND DIVIDENDS
QUARTERS ENDED IN 1993
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net Sales............................................. $263,887 $313,261 $344,479 $319,484
Gross Profit.......................................... 61,402 82,210 85,632 54,427
Cumulative effect of change in accounting
principle(c)........................................ (4,404) -- -- --
Net income (loss)(a)(c)(d)(e)......................... $ (7,604) $ 43 $ (9,047) $(30,986)
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share before cumulative effect of
change in accounting principle...................... $ (.19) $ -- $ (.51) $ (1.76)
Cumulative effect of change in accounting principle... (.27) -- -- --
Net income (loss)..................................... $ (.46) $ -- $ (.51) $ (1.76)
-------- -------- -------- --------
-------- -------- -------- --------
Cash dividends........................................ $ .09 $ .09 $ .09 $ .09
QUARTERS ENDED IN 1992
-----------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net Sales............................................. $276,284 $288,248 $307,585 $276,626
Gross Profit.......................................... 86,607 106,136 119,885 92,985
Cumulative effect of change in accounting
principle(b)........................................ 1,034 -- -- --
Net income (loss)(a)(b)............................... $ (772) $ 2,631 $ 4,713 $ 5,027
-------- -------- -------- --------
-------- -------- -------- --------
Earnings (loss) per share before cumulative effect of
change in accounting principle...................... $ (.11) $ .16 $ .28 $ .31
Cumulative effect of change in accounting principle... .06 -- -- --
Net income (loss)..................................... $ (.05) $ .16 $ .28 $ .31
-------- -------- -------- --------
-------- -------- -------- --------
Cash dividends........................................ $ .09 $ .09 $ .09 $ .09
- ---------------
(a) Actava's lawn and garden division estimates certain sales related expenses
for the year and charges these expenses to income based upon estimated sales
for the year. Sales and expenses for 1993 were different than estimated in
the first three quarters. If the expenses had been charged to income based
upon actual sales for the year, net loss would have increased in the first
and second quarter by $4,500,000 and $7,450,000, respectively, and decreased
in the third and fourth quarters by $1,750,000 and $10,200,000,
respectively. Sales and expenses for the year were also different in 1992
than estimated in the first three quarters. If the expenses had been charged
to income based upon actual sales for the year, net income would have
increased in the first and third quarters by $3,500,000 and $700,000,
respectively, and decreased in the fourth quarter by $4,200,000.
(b) Effective January 1, 1992, Qualex changed its method of accounting for the
cost of its proof advertising program to recognize these costs at the time
the advertising is placed by the customer. Under the proof advertising
program, Qualex reimburses certain advertising costs incurred by its
customers up to a percentage of sales to that customer. Qualex previously
accrued such costs at the time of the initial sale. Qualex believes that
this new method is preferable because it recognizes advertising expense as
it is incurred rather than at the time of the initial sale to the customer.
Information for the first quarter of 1992, as previously reported, differs
from the above amounts as a result of this change. The effects of this
change do not have a significant effect on the other quarters.
(c) Effective January 1, 1993, Actava adopted FASB Statement No. 106,
"Accounting for Postretirement Benefits Other Than Pensions". Actava and its
subsidiaries provide group medical plans and life insurance coverage for
certain employees subsequent to retirement. In prior years, these benefits
had been charged to operations on a pay-as-you-go (cash) basis; effective as
of 1993 they are charged to operations
F-30
65
on an accrual basis. Information for the first quarter of 1993, as
previously reported, differs from the above amounts because the cumulative
effect was originally reported net-of-tax.
(d) During the fourth quarter of 1993, Actava's lawn and garden division revised
its estimate of accrued product warranty expense to reflect an increase in
the amount of future warranty cost to be incurred due to increased warranty
claims. This change in accounting estimate resulted in an increase in the
net loss for the fourth quarter of approximately $4,000,000.
(e) During the fourth quarter of 1993, Actava increased its valuation allowance
for an investment in a real estate development from $1,425,000 to
$4,425,000, due to an accelerated plan for disposition. This change in
estimate resulted in an increase in the net loss for the fourth quarter of
approximately $3,000,000.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-31
66
THE ACTAVA GROUP INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1993
ITEM 14(D)
FINANCIAL STATEMENT SCHEDULES
S-1
67
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
THE ACTAVA GROUP INC. AND SUBSIDIARIES
DECEMBER 31, 1993
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------------------- ------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
-------------------- ------------------------
BALANCE AT (1) (2) (1) (2)
BEGINNING AMOUNTS AMOUNTS
NAME OF PERIOD ADDITIONS COLLECTED WRITTEN-OFF CURRENT NON-CURRENT
-------- ---------- --------- --------- ----------- -------- ------------
Frederick B. Beilstein, III(A)... $ 376,986 $ -- $ -- $ -- $ -- $376,986(B)
- ---------------
(A) Senior Vice-President, Treasurer and Chief Financial Officer
(B) Represents one note receivable in the amount of $117,000, with interest at
6.5%, due June 25, 2001, with interest payable annually, four notes
receivable each in the amount of $60,938, with interest at 6.5%, due August
1, 2001, with at least one-half of interest payable annually, and one note
receivable in the amount of $16,234, with interest at 6.5%, due August 1,
2002, with at least one-half of interest payable annually. All notes
receivable were issued in connection with purchases of The Actava Group Inc.
stock.
See "Triton Group Ltd. Loan" of Notes to Consolidated Financial Statements for
information regarding a note receivable from Triton Group Ltd.
S-2
68
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF THE ACTAVA GROUP INC.
CONDENSED BALANCE SHEETS
DECEMBER 31,
-----------------------------
1993 1992
------------- -------------
ASSETS
Current Assets
Cash.......................................................... $ 11,316,000 $ 11,432,000
Short-term investments........................................ 8,566,000 8,335,000
Receivables (less allowance for doubtful accounts of
$5,675,000 in 1993 and $9,390,000 in 1992)................. 142,607,000 150,398,000
Inventories................................................... 32,612,000 26,126,000
Prepaid expenses.............................................. 2,855,000 2,940,000
Income tax receivable and future benefits..................... 21,807,000 27,564,000
------------- -------------
Total Current Assets.................................. 219,763,000 226,795,000
Property, Plant and Equipment -- net............................ 37,332,000 39,999,000
Other Assets
Investment in and advances from wholly owned and majority
subsidiaries -- net........................................ 290,467,000 283,179,000
Notes receivable from Triton Group Ltd........................ 26,726,000 31,726,000
Notes receivable and other assets............................. 18,488,000 24,211,000
------------- -------------
Total Other Assets.................................... 335,681,000 339,116,000
Intangibles..................................................... 799,000 675,000
------------- -------------
Total Assets.......................................... $ 593,575,000 $ 606,585,000
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable, accrued expenses and other current
liabilities................................................ $ 167,548,000 $ 125,419,000
Current portion of long-term debt............................. 3,838,000 2,727,000
------------- -------------
Total Current Liabilities............................. 171,386,000 128,146,000
Deferred Income Taxes........................................... 34,144,000 38,850,000
Long-Term Debt.................................................. 1,580,000 6,176,000
Subordinated Debt............................................... 190,551,000 193,566,000
Stockholders' Equity
Common Stock.................................................. 22,768,000 22,768,000
Additional capital............................................ 37,056,000 46,362,000
Retained earnings............................................. 236,334,000 292,266,000
Less treasury stock........................................... (100,244,000) (121,549,000)
------------- -------------
Total Stockholders' Equity...................................... 195,914,000 239,847,000
------------- -------------
Total Liabilities and Stockholder's Equity............ $ 593,575,000 $ 606,585,000
------------- -------------
------------- -------------
S-3
69
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF
THE ACTAVA GROUP INC. -- (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
----------------------------------------------
1993 1992 1991
------------ ------------ ------------
Net Sales........................................ $224,960,000 $248,198,000 $158,500,000
Management fees from wholly owned subsidiaries... 8,181,000 3,837,000 6,958,000
------------ ------------ ------------
233,141,000 252,035,000 165,458,000
Costs, Expenses and Other
Costs of products sold......................... 193,773,000 179,973,000 130,510,000
Selling, general and administrative............ 59,048,000 56,411,000 87,587,000
Interest expense............................... 23,647,000 20,801,000 19,663,000
Interest paid to wholly owned subsidiaries..... 29,224,000 29,224,000 25,258,000
Other expense (income) -- net.................. 4,981,000 (1,040,000) 1,166,000
Provision for plant consolidations............. (849,000) -- 1,432,000
Settlement of employee agreements and
related costs............................... -- -- 6,839,000
------------ ------------ ------------
Total costs, expenses and other............. 309,824,000 285,369,000 272,455,000
(Loss) before Income Taxes, Equity in Net
Income of Subsidiaries, and Cumulative
Effect of Changes in Accounting
Principles................................ (76,683,000) (33,334,000) (106,997,000)
Income taxes (benefits).......................... (12,725,000) (10,316,000) (33,675,000)
Equity in net income of subsidiaries............. 20,768,000 34,617,000 22,501,000
Cumulative effect of change in accounting
principle...................................... (4,404,000) -- --
------------ ------------ ------------
Net Income (Loss)........................... $(47,594,000) $ 11,599,000 $(50,821,000)
------------ ------------ ------------
------------ ------------ ------------
S-4
70
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF
THE ACTAVA GROUP INC. -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
YEARS ENDED DECEMBER 31,
--------------------------------------------
1993 1992 1991
------------ ------------ ------------
Net Cash Flows Used by Operating Activities........ $(42,287,000) $(63,153,000) $(26,738,000)
Cash Flows from Investing Activities:
Investment in subsidiaries....................... (15,000,000) (28,818,000) (1,228,000)
Dividends received from Qualex................... 8,614,000 3,886,000 6,782,000
Sales of investments (maturities over 90 days)... -- -- 10,000,000
Net sales (purchases) of other investments....... (76,000) (3,209,000) 42,300,000
Payments for property, plant and equipment....... (6,465,000) (13,003,000) (13,818,000)
Proceeds from disposals of property, plant and
equipment..................................... 401,000 754,000 373,000
Collections on notes receivable.................. 12,000 226,000 --
Payments for purchases of businesses............. (11,630,000) -- --
Loans to Triton Group Ltd........................ 5,000,000 (1,426,000) (30,300,000)
Other investing activities -- net................ (3,868,000) (2,120,000) 1,393,000
------------ ------------ ------------
Net Cash Provided (Used) by Investing
Activities.................................. (23,012,000) (43,710,000) 15,502,000
------------ ------------ ------------
Cash Flows from Financing Activities:
Borrowings under short-term financing
agreements.................................... 30,141,000 57,111,000 --
Borrowings under long-term debt agreements....... -- -- 5,000,000
Payments on long-term debt agreements............ (356,000) (204,000) (1,226,000)
Payments of subordinated debt.................... (1,847,000) (200,000) (5,824,000)
Proceeds from issuance of Actava Common Stock.... -- -- 365,000
Cash dividends paid.............................. (6,250,000) (5,956,000) (5,947,000)
Decrease in advance to subsidiaries.............. 43,495,000 61,426,000 21,970,000
------------ ------------ ------------
Net Cash Provided by Financing Activities..... 65,183,000 112,177,000 14,338,000
------------ ------------ ------------
Increase (Decrease) in Cash................. (116,000) 5,314,000 3,102,000
Cash at beginning of year.......................... 11,432,000 6,118,000 3,016,000
------------ ------------ ------------
Cash at End of Year......................... $ 11,316,000 $ 11,432,000 $ 6,118,000
------------ ------------ ------------
------------ ------------ ------------
S-5
71
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF
THE ACTAVA GROUP INC. -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A -- ACCOUNTING POLICIES
In the parent-company-only financial statements, Actava's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. Actava's share of net income of its
unconsolidated subsidiaries in these financial statements is included in
consolidated income using the equity method. Parent-company-only financial
statements should be read in conjunction with Actava's consolidated financial
statements.
NOTE B -- DEBT
Long-term debt consisted of the following:
DECEMBER 31,
-----------------------
1993 1992
---------- ----------
Capitalized lease obligations......................................... $ -- $4,508,000
Other long-term debt.................................................. 1,580,000 1,668,000
---------- ----------
$1,580,000 $6,176,000
---------- ----------
---------- ----------
Subordinated debt of The Actava Group Inc. is described in "Subordinated
Debt" of Notes to Consolidated Financial Statements. Notes payable and long-term
debt of The Actava Group Inc. are described in "Notes Payable and Long-Term
Debt" of Notes to Consolidated Financial Statements.
Maturities of long-term and subordinated debt are $3,764,000 in 1995,
$33,849,000 in 1996, $15,171,000 in 1997 and $58,761,000 in 1998.
NOTE C -- DIVIDENDS FROM SUBSIDIARIES
Cash dividends paid by Qualex Inc. to Actava amounted to $8,614,000 in
1993, $3,886,000 in 1992 and $6,782,000 in 1991.
S-6
72
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
THE ACTAVA GROUP INC. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E COL. F
- ------------------------------------------ ------------ ----------- ----------- --------------- -------------
OTHER
BALANCE AT CHANGES --
BEGINNING ADDITIONS ADD (DEDUCT) -- BALANCE AT
CLASSIFICATION OF PERIOD AT COST RETIREMENTS DESCRIBE END OF PERIOD
- ------------------------------------------ ------------ ----------- ----------- --------------- -------------
Year ended December 31, 1993:
Land.................................... $ 8,700,000 $ 19,000 $ 1,836,000 $ 1,420,000A $ 8,303,000
Buildings and improvements................ 57,490,000 7,836,000 4,828,000 11,890,000A 72,289,000
(99,000)C
Machinery and equipment................... 343,140,000 42,782,000 21,267,000 28,988,000A 393,643,000
------------ ----------- ----------- --------------- -------------
Totals............................ $409,330,000 $50,637,000B $27,931,000 $ 42,199,000 $474,235,000
------------ ----------- ----------- --------------- -------------
------------ ----------- ----------- --------------- -------------
Year ended December 31, 1992:
Land.................................... $ 10,977,000 $ 10,000 $ 2,443,000 $ 156,000C $ 8,700,000
Buildings and improvements.............. 51,804,000 6,470,000 3,615,000 273,000C 57,490,000
2,558,000C
Machinery and equipment................. 280,578,000 75,320,000 16,462,000 6,446,000A 343,140,000
(2,742,000)C
------------ ----------- ----------- --------------- -------------
Totals............................ $343,359,000 $81,800,000B $22,520,000 $ 6,691,000 $409,330,000
------------ ----------- ----------- --------------- -------------
------------ ----------- ----------- --------------- -------------
Year ended December 31, 1991:
Land.................................... $ 10,782,000 $ 675,000 $ 571,000 $ 761,000A $ 10,977,000
(73,000)D
(597,000)E
Buildings and improvements................ 52,033,000 6,969,000 3,173,000 3,165,000A 51,804,000
(1,849,000)D
(5,341,000)E
Machinery and equipment................... 257,081,000 51,855,000 12,705,000 8,713,000A 280,578,000
(2,359,000)C
(1,889,000)D
(20,118,000)E
------------ ----------- ----------- --------------- -------------
Totals............................ $319,896,000 $59,499,000B $16,449,000 $ (19,587,000) $343,359,000
------------ ----------- ----------- --------------- -------------
------------ ----------- ----------- --------------- -------------
- ---------------
Note A -- Assets acquired in acquisitions of businesses.
Note B -- Purchases in the normal course of business.
Note C -- Reclassifications and other changes.
Note D -- Sale of businesses.
Note E -- Reclassification to other assets held for sale.
Note F -- The annual provisions for depreciation have been computed principally
in accordance with the following ranges of rates:
Buildings and improvements 2% to 10%
Machinery and equipment 7% to 33%
S-7
73
SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION
AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
THE ACTAVA GROUP INC. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------------------- ------------ ----------- ----------- -------------- -------------
OTHER
ADDITIONS CHANGES --
BALANCE AT CHARGED TO ADD
BEGINNING COSTS AND (DEDUCT) -- BALANCE AT
CLASSIFICATION OF PERIOD EXPENSES RETIREMENTS DESCRIBE END OF PERIOD
- ---------------------------------------- ------------ ----------- ----------- -------------- -------------
Year ended December 31, 1993:
Land improvements..................... $ 318,000 $ 29,000 $ -- $ -- $ 347,000
Buildings and improvements............ 17,300,000 3,317,000 1,317,000 151,000A 19,451,000
Machinery and equipment............... 148,102,000 41,319,000 10,590,000 252,000A 179,083,000
------------ ----------- ----------- -------------- -------------
Totals.......................... $165,720,000 $44,665,000 $11,907,000 $ 403,000 $198,881,000
------------ ----------- ----------- -------------- -------------
------------ ----------- ----------- -------------- -------------
Year ended December 31, 1992:
Land improvements..................... $ 293,000 $ 25,000 $ -- $ -- $ 318,000
Buildings and improvements............ 16,541,000 2,591,000 1,832,000 -- 17,300,000
Machinery and equipment............... 125,509,000 32,414,000 11,448,000 1,627,000A 148,102,000
------------ ----------- ----------- -------------- -------------
Totals.......................... $142,343,000 $35,030,000 $13,280,000 $ 1,627,000 $165,720,000
------------ ----------- ----------- -------------- -------------
------------ ----------- ----------- -------------- -------------
Year ended December 31, 1991:
Land improvements..................... $ 326,000 $ 25,000 $ -- $ (58,000)C $ 293,000
Buildings and improvements............ 17,691,000 2,481,000 1,603,000 (329,000)B 16,541,000
(1,699,000)C
Machinery and equipment............... 126,049,000 28,390,000 8,828,000 (452,000)A 125,509,000
(836,000)B
(18,814,000)C
------------ ----------- ----------- -------------- -------------
Totals.......................... $144,066,000 $30,896,000 $10,431,000 $(22,188,000) $142,343,000
------------ ----------- ----------- -------------- -------------
------------ ----------- ----------- -------------- -------------
- ---------------
Note A -- Reclassifications and other changes.
Note B -- Sale of businesses.
Note C -- Reclassification to other assets held for sale.
S-8
74
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
THE ACTAVA GROUP INC. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E
- --------------------------------- ----------- ------------------------------ ------------ -------------
ADDITIONS (REDUCTIONS)
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS-- DEDUCTIONS -- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------- ----------- ----------- ---------------- ------------ -------------
Year ended December 31, 1993:
Allowances for doubtful $ 9,123,000 A
accounts etc (deducted from $ 1,322,000 B
current receivables)......... $12,805,000 $ 7,262,000 $ -- $ (605,000 )C $ 10,227,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Allowances for doubtful
accounts, etc. (deducted from
non-current notes $ 1,054,000 A
receivable).................. $ 3,104,000 $ 4,000 $ -- $(1,934,000 )B $ 3,988,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for loss on sales of
subsidiaries (included in
current liabilities)......... $ 2,418,000 $ -- $ -- $ 265,000 F $ 2,152,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for obsolete and excess
inventory (included in
inventories)................. $ 1,206,000 $ 647,000 $4,909,000 C $ 4,795,000 A $ 1,967,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for relocation and
consolidation of facilities
(included in current $ 2,393,000 B
liabilities)................. $13,168,000 $ 3,231,000 $ -- $ 7,252,000 E $ 6,754,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for loss on sale of
partnership interest
(included in current
liabilities)................. $ 1,245,000 $ 3,000,000 $ -- $ -- $ 4,245,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
S-9
75
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS -- (CONTINUED)
THE ACTAVA GROUP INC. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E
- --------------------------------- ----------- ------------------------------ ------------ -------------
ADDITIONS (REDUCTIONS)
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS-- DEDUCTIONS -- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------- ----------- ----------- ---------------- ------------ -------------
Year ended December 31, 1992:
Allowances for doubtful
accounts etc (deducted from $ 3,900,000 A
current receivables)......... $13,953,000 $ 4,209,000 $ -- $ 1,457,000 B $ 12,805,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Allowances for doubtful
accounts, etc. (deducted from
non-current notes
receivable).................. $ 3,590,000 $ (790,000) $1,457,000 B $ 1,153,000 B $ 3,104,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for loss on sales of
subsidiaries (included in
current liabilities)......... $ 3,268,000 $ -- $ -- $ 850,000 A $ 2,418,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for obsolete and excess
inventory (included in
inventories)................. $ 1,397,000 $ -- $ -- $ 191,000 A $ 1,206,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for relocation and
consolidation of facilities
(included in current
liabilities)................. $40,747,000 $(1,506,000) $ -- $26,073,000 E $ 13,168,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for loss on sale of
partnership interest
(included in current
liabilities)................. $ 1,500,000 $ -- $ -- $ 255,000 F $ 1,245,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
S-10
76
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS -- (CONTINUED)
THE ACTAVA GROUP INC. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E
- --------------------------------- ----------- ------------------------------ ------------ -------------
ADDITIONS (REDUCTIONS)
------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS-- DEDUCTIONS -- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- --------------------------------- ----------- ----------- ---------------- ------------ -------------
Year ended December 31, 1991:
Allowances for doubtful
accounts, etc. (deducted from
current receivables)......... $ 9,912,000 $ 5,401,000 $ (231,000)B $ 1,129,000 A $ 13,953,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Allowances for doubtful
accounts, etc. (deducted from
non-current notes
receivable).................. $ 4,103,000 $ 84,000 $ 479,000B $ 1,076,000 A $ 3,590,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for loss on sales of
subsidiaries (included in
current liabilities)......... $ 3,468,000 $ -- $ -- $ 200,000 A $ 3,268,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for obsolete and excess
inventory (included in
inventories)................. $ 5,008,000 $ -- $ -- $ 3,611,000 F $ 1,397,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for relocation and
consolidation of facilities
(included in current
liabilities)................. $29,853,000 $18,969,000 $ -- $ 8,075,000 E $ 40,747,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
Reserve for loss on sale of
partnership interest
(included in current
liabilities)................. $ -- $ 1,500,000 $ -- $ -- $ 1,500,000
----------- ----------- ---------------- ------------ -------------
----------- ----------- ---------------- ------------ -------------
- ---------------
Note A -- Uncollectible accounts charged off -- net of recoveries.
Note B -- Reclassifications and other changes.
Note C -- Acquisition of business
Note D -- Losses of subsidiaries held for disposition and discontinued
operations.
Note E -- Costs incurred in consolidation of facilities.
Note F -- Costs incurred.
S-11
77
SCHEDULE IX -- SHORT-TERM BORROWINGS
THE ACTAVA GROUP INC. AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------- ------------ -------- ------------ ------------ -------------
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AT AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE END OF INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD(B) PERIOD(C)
- ----------------------------- ------------ -------- ------------ ------------ -------------
Year ended December 31, 1993:
Notes payable to
banks(A)................ $135,114,000 7.29% $189,927,149 $116,784,706 7.82%
Year ended December 31, 1992:
Notes payable to
banks(A)................ 64,795,000 7.24 123,114,000 61,027,000 7.74
Year ended December 31, 1991:
Notes payable to
banks(A)................ 10,000,000 5.66 20,650,000 2,401,000 6.14
- ---------------
Note A -- Notes payable to banks represent borrowings under lines of credit
arrangements that are reviewed and renewed periodically.
Note B -- The average amount outstanding during the period was computed by
dividing the total of daily outstanding principal balances by 360, or
by the number of days the lines of credit were available.
Note C -- The weighted-average interest rate during the period was computed by
dividing the actual interest expense by average short-term debt
outstanding.
S-12
78
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
THE ACTAVA GROUP INC. AND SUBSIDIARIES
COL. A COL. B
- ------------------------------------------------------ -----------------------------------------
CHARGED TO COSTS AND EXPENSES
-----------------------------------------
CHARGED TO CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------------------------
ITEM 1993 1992
- ------------------------------------------------------ ----------- -----------
Depreciation of fixed assets.......................... $44,665,000 $35,030,000 $30,896,000
Advertising........................................... 41,398,000 45,509,000 47,642,000
Maintenance and repairs............................... 20,178,000 18,864,000 17,872,000
Amortization of intangibles........................... 25,780,000 24,007,000 13,118,000
Amounts for taxes, other than payroll and income taxes, and royalties are
not presented as such amounts are less than 1% of total sales and revenues.
S-13
79
INDEX TO EXHIBITS
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
3(a)(i) Restated Certificate of
Incorporation of Actava
3(b)(i) Restated By-laws of Actava
4(a) Reference is made to Exhibit
3(a)(i)
4(b)(i) Indenture dated as of August Application on Form T-3 for Exhibit T3C
1, 1973, with respect to Qualification of Indenture
9 1/2% Subordinated under the Trust Indenture Act
Debentures due August 1, of 1939 (File No. 22-7615)
1998, between Actava and
Chemical Bank, as Trustee
4(b)(ii) Agreement among Actava, Chem- Registration Statement on Exhibit 4(d)(ii)
ical Bank and Manufacturers Form S-14 (Registration No.
Hanover Trust Company, dated 2-81094)
as of September 26, 1980,
with respect to successor
trusteeship of the 9 1/2%
Subordinated Debentures due
August 1, 1998
4(b)(iii) Instrument of resignation, Annual Report on Form 10-K Exhibit 4(d)(iii)
appointment and acceptance for the year ended December
dated as of June 9, 1986 31, 1986
among Actava, Manufacturers
Hanover Trust Company and
Irving Trust Company, with
respect to successor trustee-
ship of the 9 1/2%
Subordinated Debentures due
August 1, 1998
4(c)(i) Indenture dated as of March Registration Statement on Exhibit 2(d)
15, 1977, with respect to Form S-7 (Registration No.
9 7/8% Senior Subordinated 2-58317)
Debentures due March 15,
1997, between Actava and The
Chase Manhattan Bank, N.A.,
as Trustee
4(c)(ii) Agreement among Actava, The Registration Statement on Exhibit 4(e)(ii)
Chase Manhattan Bank, N.A. Form S-14 (Registration No.
and United States Trust 2-81094)
Company of New York, dated as
of June 14, 1982, with
respect to successor
trusteeship of the 9 7/8%
Senior Subordinated
Debentures due March 15, 1997
4(d)(i) Indenture between National Post-Effective Amendment No. Exhibit T3C
Industries, Inc. and First 1 to Application on Form T-3
National City Bank, dated for Qualification of
October 1, 1974, for the 10% Indenture Under The Trust
Subordinated Debentures, due Indenture Act of 1939 (File
October 1, 1999 No. 22-8076)
80
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
4(d)(ii) Agreement among National In- Registration Statement on Exhibit 4(f)(ii)
dustries, Inc., Actava, Form S-14 (Registration No.
Citibank, N.A., and Marine 2-81094)
Midland Bank, dated as of
December 20, 1977, with
respect to successor trustee-
ship of the 10% Subordinated
Debentures due October 1,
1999
4(d)(iii) First Supplemental Indenture Registration Statement on Exhibit 2(q)
among Actava, National Indus- Form S-7 (Registration No.
tries, Inc. and Marine 2-60566)
Midland Bank, dated January
3, 1978, supplemental to the
Indenture dated October 1,
1974 between National and
First National City Bank for
the 10% Subordinated
Debentures due October 1,
1999
4(e) Public Bond Issue Agreement Annual Report on Form 10-K Exhibit 4(h)
dated February 19, 1986, with for the year ended December
respect to 6% Senior 31, 1985
Subordinated Swiss Franc
Bonds due March 6, 1996,
among Actava, Soditic S.A.
and certain other
institutions named therein
4(f) Indenture dated as of August Annual Report on Form 10-K Exhibit 4(i)
1, 1987 with respect to for the year ended December
6 1/2% Convertible 31, 1987
Subordinated Debentures due
August 4, 2002, between Ac-
tava and Chemical Bank, as
Trustee
4(g) Loan and Security Agreement, Amendment No. 1 to Registra- Exhibit 4(i)
dated as of April 30, 1992, tion Statement on Form S-3
with respect to $35 million (Registration No. 33-48202)
secured revolving credit
facility, among Actava,
certain of its subsidiaries
and Barclays Business Credit,
Inc.
4(h) Senior Note Agreement, dated Amendment No. 1 to Registra- Exhibit 4(j)
as of June 8, 1992, with tion Statement on Form S-3
respect to private placement (Registration No. 33-48202)
of $200 million of Senior
Notes due 1997, 1999 and
2002, among Qualex Inc. and
the purchasers listed
therein.
81
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
4(i) Credit Agreement, dated as of
October 30, 1992, with
respect to a $115 million
revolving credit facility,
among Qualex Inc. and the
eight participants thereto. A
copy of this agreement is not
filed as the debt does not
exceed 10% of the total
assets of total assets of
registrant; however,
registrant hereby agrees to
furnish a copy of such
agreement to the Commission
upon request.
4(j)(i) Finance and Security
Agreement, dated as of
October 30, 1992, with
respect to a revolving credit
facility of up to $100
million, between Actava
Industries, Inc. and ITT
Commercial Finance Corp. A
copy of this agreement is not
filed as the debt does not
exceed 10% of the total
assets of registrant; how-
ever, registrant hereby
agrees to furnish a copy of
such agreement to the
Commission upon request.
4(j)(ii) Amendment, dated as of March
29, 1994, to Finance and
Security Agreement, dated as
of October 30, 1992, with
respect to a revolving credit
facility of up to $100
million, between Actava In-
dustries, Inc. and ITT
Commercial Finance Corp. A
copy of this agreement is not
filed as the debt does not
exceed 10% of the total
assets of registrant;
however, registrant hereby
agrees to furnish a copy of
such agreement to the
Commission upon request.
82
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
4(k) Loan and Security Agreement,
dated as of December 29,
1992, with respect to a
revolving credit facility of
up to $35 million between
Nelson/Weather-Rite, Inc. and
BA Business Credit, Inc. A
copy of this agreement is not
filed as the debt does not
exceed 10% of the total
assets of registrant; how-
ever, registrant hereby
agrees to furnish a copy of
such agreement to the
Commission upon request.
4(l)(i) Finance and Security
Agreement, dated as of
December 15, 1993, with
respect to a revolving credit
facility of up to $50
million, between Diversified
Products Corporation and ITT
Commercial Finance Corp. and
the Provident Bank. A copy of
this agreement is not filed
as the debt does not exceed
10% of the total assets of
registrant; however,
registrant hereby agrees to
furnish a copy of such
agreement to the commission
upon request.
4(l)(ii) Amendment, dated as of March
29, 1994, to Finance and
Security Agreement, dated as
of December 15, 1993, with
respect to a revolving credit
facility of up to $50
million, between Diversified
Products Corporation and ITT
Commercial Finance Corp. and
the Provident Bank. A copy of
this agreement is not filed
as the debt does not exceed
10% of the total assets of
registrant; however, regis-
trant hereby agrees to
furnish a copy of such
agreement to the commission
upon request.
83
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
4(m) Revolving Loan and Security
Agreement, dated as of April
29, 1993, with respect to a
revolving credit facility of
up to $10 million between
Willow Hosiery Company, Inc.
and Sterling National Bank
and Trust Company of New
York. A copy of this
agreement is not filed as the
debt does not exceed 10% of
the total assets of
registrant; however,
registrant hereby agrees to
furnish a copy of such
agreement to the Commission
upon request.
4(m) Amended and Restated $5
Million Revolving Note,
Amended and Restated $3
Million Letter of Credit
Note, and First Amendment to
the Revolving Loan Agreement
dated as of August 31, 1993,
and Revolving Loan Agreement
dated as of August 24, 1992,
between Hutch Sports USA Inc.
and the Fifth Third Bank.
Copies of these agreements
are not filed as the debt
does not exceed 10% of the
total assets of the
registrant; however,
registrant hereby agrees to
furnish copies of such agree-
ments to the Commission upon
request.
10(a)(i) 1982 Stock Option Plan of Proxy Statement dated March Exhibit A
Actava 31, 1982
10(a)(ii) 1989 Stock Option Plan of Proxy Statement dated March Exhibit A
Actava 31, 1989
10(a)(iii) 1969 Restricted Stock Plan of Annual Report on Form 10-K Exhibit 10(a)(iii)
Actava for the year ended December
31, 1990
10(a)(iv) 1991 Non-Employee Director Annual Report on Form 10-K Exhibit 10(a)(iv)
Stock Option Plan for the year ended December
31, 1991
10(a)(v) Amendment to 1991 Non-Em- Annual Report on Form 10-K Exhibit 10(a)(v)
ployee Director Stock Option for the year ended December
Plan 31, 1992
10(b) Form of Severance Agreement Annual Report on Form 10-K Exhibit 10(c)
between officers of Actava for the year ended December
and Actava dated May 20, 1985 31, 1985
84
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
10(c) Snapper Power Equipment Annual Report on Form 10-K Exhibit 10(c)
Profit Sharing Plan for the year ended December
31, 1987
10(f)(iii) Termination Agreement between Annual Report on Form 10-K Exhibit 10(f)(iii)
J. B. Fuqua and Actava dated for the year ended December
March 18, 1991 31, 1990
10(h)(i) Retirement Plan executed No- Annual Report on Form 10-K Exhibit 10(h)(i)
vember 1, 1990 as amended to for the year ended December
be effective January 1, 1989 31, 1990
10(h)(ii) Supplemental Retirement Plan Annual Report on Form 10-K Exhibit 10(j)
of Actava for the year ended December
31, 1983
10(h)(iii) Supplemental Executive Annual Report on Form 10-K Exhibit 10(h)(iii)
Medical Reimbursement Plan for the year ended December
31, 1990
10(h)(iv) Amendment to Supplemental Re- Annual Report on Form 10-K Exhibit 10(h)(iv)
tirement Plan of Actava for the year ended December
effective April 1, 1992 31, 1991
10(i)(i) Shareholders' Agreement dated Annual Report on Form 10-K Exhibit 10(j)
as of December 7, 1987 by and for the year ended December
between Eastman Kodak Company 1, 1987
and Actava
10(i)(ii) Amendment No. 1, dated as of Current Report on Form 8-K Exhibit 2(b)
March 29, 1988 to the dated April 12, 1988
Shareholders' Agreement dated
as of June 7, 1987 between
Eastman Kodak Company and
Actava
10(i)(iii) Amendment No. 2, dated as of Annual Report on Form 10-K Exhibit 10(i)(iii)
March 28, 1991 to the for the year ended December
Shareholders' Agreement dated 31, 1990
as of June 7, 1987 between
Eastman Kodak Company and
Actava
10(j) Stockholder Agreement dated Quarterly Report on Form 10-Q Exhibit 3
as of May 22, 1989 by and for the three months ended
between Actava and Triton June 30, 1989
Group Ltd.
10(j)(ii) Loan Agreement dated Novem- Annual Report on Form 10-K Exhibit 10(j)(ii)
ber 27, 1991 between Actava for the year ended December
and Triton Group Ltd. 31, 1991
10(k)(i) Form of Post Employment Con- Annual Report of Form 10-K Exhibit 10(k)
sulting Agreement between of- for the year ended December
ficers of Actava and Actava 31, 1991
10(k)(ii) Form of First Amendment to
Post-employment Consulting
Agreement between officers of
Actava and Actava
85
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
10(l) 1992 Officer and Director Annual Report on Form 10-K Exhibit 10(l)
Stock Purchase Plan for the year ended December
31, 1991
10(m) Director Group Medical Plan Annual Report on Form 10-K Exhibit 10(m)
for the year ended December
31, 1991
10(n) Form of Restricted Stock Annual Report on Form 10-K Exhibit 10(n)
Purchase Agreement between for the year ended December
certain officers of Actava 31, 1991
and Actava
10(o) Incentive Bonuses for Certain Annual Report on Form 10-K Exhibit 10(o)
Corporate Officers for the year ended December
31, 1991
10(p)(i) Forbearance Agreement dated Amendment No. 1 Registration Exhibit 10(o)
June 30, 1992 between Actava, Statement on Form S-3 (Regis-
Triton Group Ltd. and tration No. 33-48202)
Intermark, Inc.
10(p)(ii) Amendment, dated July 13, Quarterly Report on Form 10-Q Exhibit 5
1992, to Forbearance for the three months ended
Agreement dated June 30, 1992 June 30, 1992
between Actava, Triton Group
Ltd. and Intermark, Inc.
10(p)(iii) Amendment, dated July 30, Quarterly Report on Form 10-Q Exhibit 6
1992, to Forbearance for the three months ended
Agreement dated June 30, 1992 June 30, 1992
between Actava, Triton Group
Ltd. and Intermark, Inc., as
amended by Amendment to
Forbearance Agreement dated
July 13, 1992.
10(p)(iv) Amendment, dated September Quarterly Report on Form 10-Q Exhibit 4
23, 1992, to Forbearance for the three months ended
Agreement dated June 30, 1992 September 30, 1992
between Actava Industries,
Inc., Triton Group Ltd. and
Intermark, Inc., as amended
by Amendments to Forbearance
Agreement dated July 13, 1992
and July 30, 1992.
10(p)(v) Amendment, dated October 7, Quarterly Report on Form 10-Q Exhibit 5
1992, to Forbearance for the three months ended
Agreement dated June 30, 1992 September 30, 1992
between Actava Industries,
Inc., Triton Group Ltd. and
Intermark, Inc., as amended
by Amendments to Forbearance
Agreement dated July 13, July
30, and September 23, 1992.
86
EXHIBITS INCORPORATED HEREIN BY REFERENCE
---------------------------------------------------
DESIGNATION DOCUMENT WITH WHICH EXHIBIT DESIGNATION OF SUCH
OF EXHIBIT IN DESCRIPTION OF WAS PREVIOUSLY FILED WITH EXHIBIT IN THAT
THIS FORM 10-K EXHIBITS COMMISSION DOCUMENT
- --------------- ----------------------------- ----------------------------- --------------------
10(q) Agreement between The Actava Annual Report on Form 10-K Exhibit 10(q)
Group Inc. and J.B. Fuqua for the year ended December
regarding sale by The Actava 31, 1992
Group, Inc. of rights in the
name "Actava".
10(r) Amended and Restated Loan Quarterly report on Form 10-Q Exhibit 19
Agreement between The Actava for the three months ended
Group Inc. and Triton Group June 30, 1993.
Ltd. dated June 25, 1993.
10(s) First Amendment, dated Au- Quarterly Report on Form 10-Q Exhibit 19
gust 19, 1993 to Amended and for the three months ended
Restated Loan Agreement be- September 30, 1993
tween The Actava Group Inc.
and Triton Group Ltd. dated
June 5, 1993
10(t) Second Amendment, dated De-
cember 7, 1993 to Amendment
and Restated Loan Agreement
between The Actava Group Inc.
and Triton Group Ltd. dated
June 25, 1993
10(u) Form of Indemnification
Agreement between Actava and
each of its directors and
executive officers
10(v) 1993 Incentive Bonus Plan for Confidential Treatment Re-
certain corporate officers quested by the Company. Filed
separately with the
Commission.
11 Statement of computation of
earnings per share
18 Letter regarding change in Annual Report on Form 10-K Exhibit 18
accounting principle for the for the year ended December
costs associated with proof 31, 1992
advertising program.
22 Subsidiaries of Actava
23 Consent of Ernst & Young
24 Powers-of-Attorney
- ---------------
(b) Reports on Form 8-K filed in the fourth quarter of 1993:
None.
(c) The response to this portion of Item 14 is submitted as a separate section
in this report.
(d) The response to this portion of Item 14 is submitted as a separate section
in this report.