-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AxoqHmItwzP6p9XDyrPWwB4PgvCXCuT1ExLgYCs7vWgcG3dFPGbRTEKk/SMriShI f3QlBlziMwtKbe4cjj3QdQ== /in/edgar/work/20000810/0000912057-00-036075/0000912057-00-036075.txt : 20000921 0000912057-00-036075.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-036075 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROMEDIA INTERNATIONAL GROUP INC CENTRAL INDEX KEY: 0000039547 STANDARD INDUSTRIAL CLASSIFICATION: [7812 ] IRS NUMBER: 580971455 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05706 FILM NUMBER: 691548 BUSINESS ADDRESS: STREET 1: ONE MEADOWLANDS PLZ STREET 2: STE 2210 CITY: EAST RUTHERFORD STATE: NJ ZIP: 07073 BUSINESS PHONE: 4042616190 MAIL ADDRESS: STREET 1: ONE MEADOWLANDS PLAZA CITY: EAST RUTHERFORD STATE: NJ ZIP: 07073 FORMER COMPANY: FORMER CONFORMED NAME: ACTAVA GROUP INC DATE OF NAME CHANGE: 19930723 FORMER COMPANY: FORMER CONFORMED NAME: FUQUA INDUSTRIES INC /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 a10-q.txt 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JUNE 30, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISION FILE NUMBER 1-5706 ------------------------ METROMEDIA INTERNATIONAL 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.)
ONE MEADOWLANDS PLAZA, EAST RUTHERFORD, NJ 07073-2137 (Address and zip code of principal executive offices) (201) 531-8000 (Registrant's telephone number, including area code) ------------------------------ INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / / THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 7, 2000 WAS 94,034,947. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- METROMEDIA INTERNATIONAL GROUP, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q PART I--FINANCIAL INFORMATION
PAGE -------- Item 1. Financial Statements (unaudited) Consolidated Condensed Statements of Operations............. 2 Consolidated Condensed Balance Sheets....................... 3 Consolidated Condensed Statements of Cash Flows............. 4 Consolidated Condensed Statement of Stockholders' Equity.... 5 Notes to Consolidated Condensed Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 27 Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................... 70 PART II--OTHER INFORMATION Item 1. Legal Proceedings................................... 72 Item 4. Submission of Matters to a Vote of Security Holders................................................... 75 Item 6. Exhibits and Reports on Form 8-K.................... 76 Signature................................................... 77
1 METROMEDIA INTERNATIONAL GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- ------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Revenues: Communications Group............................... $ 32,456 $ 5,821 $ 63,701 $ 13,429 Snapper............................................ 52,427 59,184 102,530 119,218 -------- -------- -------- -------- 84,883 65,005 166,231 132,647 Cost and expenses: Cost of sales and operating expenses--Communications Group................... 8,095 242 16,376 897 Cost of sales--Snapper............................. 34,296 38,734 66,915 78,675 Selling, general and administrative................ 38,038 28,177 72,372 60,602 Depreciation and amortization...................... 16,075 4,220 32,266 8,587 Reduction in estimate of asset impairment charge... (3,984) -- (3,984) -- -------- -------- -------- -------- Operating loss....................................... (7,637) (6,368) (17,714) (16,114) Other income (expense): Interest expense................................... (8,092) (3,523) (16,020) (6,929) Interest income.................................... 632 2,546 1,523 4,246 Equity in income (losses) of unconsolidated investees........................................ 1,894 (4,248) 2,144 (5,933) Gain on settlement of option....................... -- -- 2,500 -- Foreign currency gain (loss)....................... 519 (2,286) 41 (2,794) -------- -------- -------- -------- Loss before income tax expense and minority interest........................................... (12,684) (13,879) (27,526) (27,524) Income tax expense................................... (2,103) (111) (4,611) (205) Minority interest.................................... (1,815) 2,383 (996) 4,852 -------- -------- -------- -------- Net loss............................................. (16,602) (11,607) (33,133) (22,877) Cumulative convertible preferred stock dividend requirement........................................ (3,752) (3,752) (7,504) (7,504) -------- -------- -------- -------- Net loss attributable to common stock shareholders... $(20,354) $(15,359) $(40,637) $(30,381) ======== ======== ======== ======== Weighted average number of common shares--Basic...... 94,034 69,151 93,921 69,137 ======== ======== ======== ======== Loss per common share--Basic: Net loss attributable to common stock shareholders... $ (0.22) $ (0.22) $ (0.43) $ (0.44) ======== ======== ======== ========
See accompanying notes to consolidated condensed financial statements. 2 METROMEDIA INTERNATIONAL GROUP, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2000 1999 ----------- ------------ (UNAUDITED) ASSETS: Current assets: Cash and cash equivalents................................. $ 77,098 $ 50,985 Accounts receivable: Communications Group, net............................... 21,252 20,682 Snapper, net............................................ 27,059 26,898 Other, net.............................................. 313 265 Inventories............................................... 51,786 55,209 Other assets.............................................. 21,302 20,650 ----------- ----------- Total current assets.................................. 198,810 174,689 Investments in and advances to joint ventures: Eastern Europe and the republics of the former Soviet Union................................................... 80,173 78,067 China..................................................... 2,361 40,982 Property, plant and equipment, net of accumulated depreciation.............................................. 184,196 191,018 Intangible assets, less accumulated amortization............ 253,766 274,025 Other assets................................................ 9,027 18,073 ----------- ----------- Total assets.......................................... $ 728,333 $ 776,854 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable.......................................... $ 26,127 $ 38,808 Accrued expenses.......................................... 92,879 85,527 Current portion of long-term debt......................... 8,026 11,383 ----------- ----------- Total current liabilities............................. 127,032 135,718 Long-term debt.............................................. 215,909 212,569 Other long-term liabilities................................. 10,547 13,758 ----------- ----------- Total liabilities..................................... 353,488 362,045 ----------- ----------- Minority interest........................................... 29,855 29,874 Commitments and contingencies............................... Stockholders' equity: 7 1/4% Cumulative Convertible Preferred Stock............. 207,000 207,000 Common Stock, $1.00 par value, authorized 400,000,000 shares, issued and outstanding 94,034,947 and 93,284,589 shares at June 30, 2000 and December 31, 1999, respectively............................................ 94,035 93,285 Paid-in surplus........................................... 1,102,769 1,102,308 Accumulated deficit....................................... (1,054,921) (1,014,284) Accumulated other comprehensive loss...................... (3,893) (3,374) ----------- ----------- Total stockholders' equity............................ 344,990 384,935 ----------- ----------- Total liabilities and stockholders' equity............ $ 728,333 $ 776,854 =========== ===========
See accompanying notes to consolidated condensed financial statements. 3 METROMEDIA INTERNATIONAL GROUP, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ------------------------- 2000 1999 ----------- ----------- Operating activities: Net loss.................................................. $(33,133) $(22,877) Items not requiring cash outlays: Equity in income (losses) of unconsolidated investees..... (2,144) 5,933 Depreciation and amortization............................. 32,266 8,587 Reduction in estimate of asset impairment charge.......... (3,984) -- Amortization of debt discount............................. 9,204 -- Gain on settlement of option.............................. (2,500) -- Minority interest......................................... 996 (4,852) Other..................................................... (466) 209 Changes in: Accounts receivable....................................... (1,368) 6,768 Inventories............................................... 3,423 6,430 Other assets and liabilities.............................. (3,524) (2,273) Accounts payable and accrued expenses..................... (5,571) (8,209) Other operating activities, net........................... -- 855 -------- -------- Cash used in operating activities..................... (6,801) (9,429) -------- -------- Investing activities: Investments in and advances to joint ventures............. (2,731) (12,728) Distributions from joint ventures......................... 51,797 7,822 Advances to PLD Telekom under bridge loan................. -- (3,000) Cash paid for acquisitions and additional equity in subsidiaries............................................ (2,695) (1,238) Additions to property, plant and equipment................ (8,345) (2,452) Cash received in settlement of option..................... 11,000 -- -------- -------- Cash provided by (used in) investing activities....... 49,026 (11,596) -------- -------- Financing activities: Payments on debt and capital lease obligations............ (8,804) (7,175) Proceeds from issuance of common stock related to incentive plans......................................... 1,211 27 Preferred stock dividends paid............................ (7,504) (7,504) Dividends paid to minority interest in PeterStar.......... (1,015) -- -------- -------- Cash used in financing activities..................... (16,112) (14,652) -------- -------- Net increase (decrease) in cash and cash equivalents...... 26,113 (35,677) Cash and cash equivalents at beginning of period.......... 50,985 137,625 -------- -------- Cash and cash equivalents at end of period................ $ 77,098 $101,948 ======== ========
See accompanying notes to consolidated condensed financial statements. 4 METROMEDIA INTERNATIONAL GROUP, INC. CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AMOUNTS) (UNAUDITED)
7 1/4% CUMULATIVE CONVERTIBLE PREFERRED STOCK COMMON STOCK ACCUMULATED -------------------- --------------------- OTHER NUMBER OF NUMBER OF PAID-IN ACCUMULATED COMPREHENSIVE SHARES AMOUNT SHARES AMOUNT SURPLUS DEFICIT INCOME (LOSS) --------- -------- ---------- -------- ---------- ----------- ------------- Balances, December 31, 1998....................... 4,140,000 $207,000 69,118,841 $69,119 $1,012,794 $ (857,293) $(6,080) Net loss..................... -- -- -- -- -- (22,877) -- Other comprehensive income, net of tax: Foreign currency translation adjustments.............. -- -- -- -- -- -- 515 Total comprehensive loss..... Issuance of stock related to incentive plans............ -- -- 43,096 43 193 -- -- Dividends on 7 1/4% cumulative convertible preferred stock............ -- -- -- -- -- (7,504) -- --------- -------- ---------- ------- ---------- ----------- ------- Balances, June 30, 1999...... 4,140,000 $207,000 69,161,937 $69,162 $1,012,987 $ (887,674) $(5,565) ========= ======== ========== ======= ========== =========== ======= Balances, December 31, 1999....................... 4,140,000 $207,000 93,284,589 $93,285 $1,102,308 $(1,014,284) $(3,374) Net loss..................... -- -- -- -- -- (33,133) -- Other comprehensive income, net of tax: Foreign currency translation adjustments.............. -- -- -- -- -- -- (519) Total comprehensive loss..... Issuance of stock related to incentive plans............ -- -- 750,358 750 461 -- -- Dividends on 7 1/4% cumulative convertible preferred stock............ -- -- -- -- -- (7,504) -- --------- -------- ---------- ------- ---------- ----------- ------- Balances, June 30, 2000...... 4,140,000 $207,000 94,034,947 $94,035 $1,102,769 $(1,054,921) $(3,893) ========= ======== ========== ======= ========== =========== ======= TOTAL COMPREHENSIVE LOSS ------------- Balances, December 31, 1998....................... $ -- Net loss..................... (22,877) Other comprehensive income, net of tax: Foreign currency translation adjustments.............. 515 -------- Total comprehensive loss..... $(22,362) ======== Issuance of stock related to incentive plans............ Dividends on 7 1/4% cumulative convertible preferred stock............ Balances, June 30, 1999...... Balances, December 31, 1999....................... $ -- Net loss..................... (33,133) Other comprehensive income, net of tax: Foreign currency translation adjustments.............. (519) -------- Total comprehensive loss..... $(33,652) ======== Issuance of stock related to incentive plans............ Dividends on 7 1/4% cumulative convertible preferred stock............ Balances, June 30, 2000......
See accompanying notes to consolidated condensed financial statements. 5 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION AND LIQUIDITY BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Metromedia International Group, Inc. ("MMG" or the "Company") and its wholly-owned subsidiaries, Metromedia International Telecommunications, Inc., Snapper Inc. and as of September 30, 1999, PLD Telekom Inc. PLD Telekom, Metromedia International Telecommunications and its majority owned subsidiary, Metromedia China Corporation, are collectively known as the "Communications Group". PLD Telekom has been included in the Company's results of operations since September 30, 1999. All significant intercompany transactions and accounts have been eliminated. Investments in other companies, including those of the Communications Group's joint ventures that are not majority owned, or in which the Company does not have control but exercises significant influence, are accounted for using the equity method. The Company reflects its net investments in joint ventures under the caption "Investments in and advances to joint ventures." Almost all of the Communications Group's joint ventures other than the businesses of PLD Telekom report their financial results on a three-month lag. Therefore, the Communications Group's financial results for June 30 include the financial results for those joint ventures for the three and six months ending March 31. The Company is currently evaluating the financial reporting of these ventures and the possibility of reducing or eliminating the three-month reporting lag for certain of its principal businesses during 2000 (see note 2), for the purpose of presenting the Company's results of operations on a more timely basis. The accompanying interim consolidated condensed financial statements have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations although the Company believes that the disclosures made are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and related footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company as of June 30, 2000, and the results of its operations and its cash flows for the three and six month periods ended June 30, 2000 and 1999, have been included. The results of operations for the interim period are not necessarily indicative of the results which may be realized for the full year. LIQUIDITY The Company is a holding company and, accordingly, does not generate cash flows from operations. The Company believes that its cash on hand and the receipt of funds from Metromedia China will be sufficient to fund the Company's working capital requirements for the near term. The Communications Group is dependent on the Company for significant capital infusions to fund its operations and make acquisitions, as well as to fulfill its commitments to make capital contributions and loans to its joint ventures. Each of the Communications Group's joint ventures operates or invests in businesses, such as cable television, fixed telephony and cellular telecommunications, that are capital intensive and require significant capital investment in order to construct and develop operational systems and market their services. To date, such financing requirements have been funded from cash on hand. Future financing requirements of the Communications Group, including future acquisitions, will 6 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 1. BASIS OF PRESENTATION AND LIQUIDITY (CONTINUED) depend on available funding from the Company, receipt of funds from Metromedia China and on the ability of the Communications Group's joint ventures to generate positive cash flows. In addition to funding the cash requirements of the Communications Group, the Company has periodically funded the short-term working capital needs of Snapper. PLD Telekom and Snapper are restricted under covenants contained in their credit agreements from making dividend payments or advances, other than certain permitted debt repayments, to the Company. The Company will also be required to pay interest on the 10 1/2% senior discount notes issued in connection with the acquisition of PLD Telekom commencing September 30, 2002. As a result, the Company will require additional financing in order to satisfy its on-going working capital requirements, debt service and acquisition and expansion requirements. Such additional capital may be provided through the public or private sale of equity or debt securities of the Company or by separate equity or debt financings by the Communications Group or certain companies of the Communications Group or proceeds from the sale of assets. No assurance can be given that such additional financing will be available to the Company on acceptable terms, if at all. If adequate additional funds are not available, the Company may be required to curtail significantly its long-term business objectives and the Company's results of operations may be materially and adversely affected. Management believes that its long-term liquidity needs (including debt service) will be satisfied through a combination of the Company's successful implementation and execution of its growth strategy to become a global communications and media company and through the Communications Group's joint ventures and subsidiaries achieving positive operating results and cash flows through revenue and subscriber growth and control of operating expenses. 2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION GENERAL The Communications Group records its investments in other companies and joint ventures which are less than majority-owned, or which the Company does not control but in which it exercises significant influence, at cost, net of its equity in earnings or losses. Advances to the joint ventures under line of credit agreements between the Company or one of its subsidiaries and the joint ventures are reflected based on amounts recoverable under the credit agreement, plus accrued interest. Advances are made to joint ventures and subsidiaries in the form of cash, for working capital purposes, payment of expenses or capital expenditures, or in the form of equipment purchased on behalf of the joint ventures. Interest rates charged to the joint ventures and subsidiaries range from prime rate to prime rate plus 6%. The credit agreements generally provide for the payment of principal and interest from 90% of the joint ventures' and subsidiaries' available cash flow, as defined, prior to any substantial distributions of dividends to the joint venture partners. The Communications Group has entered into charter fund and credit agreements with its joint ventures and subsidiaries to provide up to $234.0 million in funding of which $46.4 million in funding obligations remain at June 30, 2000. The Communications Group's funding commitments are contingent on its approval of the joint ventures' and subsidiaries' business plans. COMSTAR As part of the Communications Group's strategy to develop further its fixed telephony business, in June 2000 it entered into an agreement with Marconi Communications Limited of the U.K. to acquire Marconi's 50% ownership position in Comstar, a digital overlay operator in Moscow. The Company has 7 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED) agreed to pay $60.0 million for the 50% interest in Comstar. The parties expect the transaction to close in the fall of 2000. Comstar is a 50/50 joint venture with the Moscow City Telephone Network ("MGTS"). It has an optical fiber network throughout Moscow City. This network supports local, national and international data and telephony services and is interconnected into MGTS' public network. Comstar facilitates all types of IP services through a Central Internet Service Node. Completion of the transaction is conditioned upon a number of matters, including the receipt of customary Russian regulatory approvals and obtaining financing for the transaction. In addition, the transfer of the Comstar shares by Marconi to the Communications Group requires the waiver of pre-emption rights by MGTS, the other 50% shareholder in Comstar. The agreement with Marconi required the Communications Group to place $3.0 million in escrow, pending closing of the transaction. In the event that the acquisition is not completed by November 30, 2000, Marconi has the right to terminate the Purchase Agreement and, in certain circumstances, retain the escrowed funds. In addition, if the transaction has not been completed by August 31, 2000, the purchase price is subject to escalation, with the additional amount not exceeding approximately $1.2 million. INTERNET SERVICES The Communications Group is actively seeking to develop internet services and in June 2000 the Company's joint venture in Romania, Romsat TV, acquired a 70% ownership position in FX Internet, a leading ISP, web hosting and domain registration service in Romania. FX Internet provides dial-up, leased line and wireless internet access services in Romania with 9,100 active subscribers, offering internet connectivity to customers in four districts, reaching a total population of approximately five million. The Communications Group paid $2.5 million for its 70% interest in FX Internet, $2.0 million of which was paid to the existing shareholders and $500,000 of which will be used to expand its network to eight additional regions before year-end to bring its total serviceable population to over eight million. FX Internet, working in combination with Romsat TV, will enable MITI ventures to offer bundled TV and internet services to Romsat TV's approximately 100,000 existing customers with competitive advantages, such as tiers of service and discounts, that other operators in the Romanian market are currently unable to duplicate. The transaction is part of the Communications Group's convergence strategy and is expected to enhance the value of Romsat TV by allowing it to bundle services and facilitate internet and portal development in Romania. 1999 RESTRUCTURING AND IMPAIRMENT CHARGES Shortly after completing its September 30, 1999 acquisition of PLD Telekom, the Company began identifying synergies and redundancies between Metromedia International Telecommunications, Inc. and PLD Telekom. The Company's efforts were directed toward streamlining its operations. Following the review of its operations, the Communications Group determined to make significant reductions in its projected overhead costs for 2000 by closing its offices in Stamford, Connecticut and London, England, consolidating its executive offices in New York, New York, consolidating its operational headquarters in Vienna, Austria and by consolidating its two Moscow offices into one. As part of this streamlining of its operations, the Company announced an employee headcount reduction. Employees impacted by the restructuring were notified in December 1999 and in almost all cases were terminated effective December 31, 1999. Employees received a detailed description of their separation package which was generally based on length of service. The total number of U.S. domestic and expatriate 8 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED) employees separated was approximately 60. In addition, there were reductions in locally hired staff. In 1999 the Company recorded a charge of $8.4 million in connection with the restructuring. Concurrent with the review of its existing operations and the change in management as the result of the acquisition of PLD Telekom, the Communications Group completed a strategic review of its telephony, cable television, radio broadcasting and paging assets. As a result of the Company's strategic review, the Company determined that certain businesses (including pre-operational businesses) in its portfolio did not meet certain of the objectives of its strategic review, such as the Company's ability to obtain control of the venture, geographic focus or convergence. The long lived assets or the investments in these businesses were evaluated to determine whether any impairment in their recoverability existed at the determination date. As a result, the Company assessed whether the estimated cash flows of the businesses over the estimated lives of the related assets were sufficient to recover their costs. Where such cash flows were insufficient, the Company utilized a discounted cash flow model to estimate the fair value of assets or investments and recorded an impairment charge to adjust the carrying values to estimated fair value. As a result of this evaluation, the Company recorded a non-cash impairment charge during the year ended December 31, 1999 on certain of its paging, cable television and telephony businesses of $23.2 million. Following is a rollforward of the activity and balances of the restructuring reserve account through June 30, 2000 (in thousands):
RESTRUCTURING DECEMBER 31, JUNE 30, TYPE OF COST COST PAYMENTS 1999 PAYMENTS ADJUSTMENTS 2000 - ------------ ------------- -------- ------------ -------- ----------- -------- Employee separations......... $6,175 $(303) $5,872 $(3,947) $ (214) $1,711 Facility closings............ 1,456 -- 1,456 (558) -- 898 ------ ----- ------ ------- ------- ------ 7,631 $(303) $7,328 $(4,505) $ (214) $2,609 ===== ====== ======= ======= ====== Write off of fixed assets.... 800 ------ $8,431 ======
Adjustments relate to reductions in the estimated severance liability. The restructuring reserve is included in accrued expenses in the accompanying balance sheet at June 30, 2000 and December 31, 1999. 9 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED) EQUITY METHOD INVESTMENT INFORMATION At June 30, 2000 and December 31, 1999, the Communications Group's unconsolidated investments in and advances to joint ventures in Eastern Europe and the republics of the former Soviet Union, at cost, net of adjustments for its equity in earnings or losses, impairment charges and distributions were as follows (in thousands):
YEAR OPERATIONS NAME 2000 1999 OWNERSHIP % COMMENCED (1) - ---- ------- ------- ----------- ------------- WIRELESS TELEPHONY Baltcom GSM, Latvia (2).................... $ 8,462 $ 8,348 22% 1997 Magticom, Georgia.......................... 18,496 11,110 35% 1997 Tyumenruskom, Russia (3)................... 117 575 46% 1999 BELCEL, Belarus............................ 976 1,088 50% 1999 ------- ------- 28,051 21,121 ------- ------- FIXED TELEPHONY Instaphone, Kazakhstan..................... 151 (68) 50% 1998 Caspian American Telecom, Azerbaijan (3)... 2,074 3,206 37% 1999 MTR-Sviaz, Russia.......................... 5,754 5,620 49% 1999 Telecom Georgia, Georgia................... 3,729 4,018 30% 1994 ------- ------- 11,708 12,776 ------- ------- CABLE TELEVISION Kosmos TV, Moscow, Russia.................. 1,138 1,547 50% 1992 Baltcom TV, Riga, Latvia................... 4,923 5,285 50% 1992 Ayety TV, Tbilisi, Georgia................. 1,492 2,194 49% 1993 Kamalak TV, Tashkent, Uzbekistan........... 3,282 3,329 50% 1993 Sun TV, Chisinau, Moldova.................. 3,429 3,941 50% 1994 Cosmos TV, Minsk, Belarus.................. 2,105 2,783 50% 1996 Alma TV, Almaty, Kazakhstan................ 7,280 7,549 50% 1995 Teleplus, St. Petersburg, Russia (3)....... (73) -- 45% 1998 ------- ------- 23,576 26,628 ------- ------- PAGING Baltcom Plus, Latvia (3)................... -- -- 50% 1995 Paging One, Georgia (3).................... -- -- 45% 1994 Raduga Poisk, Nizhny Novgorod, Russia (3)...................................... -- -- 45% 1994 PT Page, St. Petersburg, Russia (3)........ -- -- 40% 1995 Paging Ajara, Batumi, Georgia (3).......... -- -- 35% 1997 Kazpage, Kazakhstan (3).................... -- -- 26-41% 1997 Alma Page, Almaty, Kazakhstan (3).......... -- -- 50% 1995 Kamalak Paging, Tashkent, Uzbekistan....... 1,461 1,884 50% 1993 Mobile Telecom, Russia (4)................. 5,657 6,711 50% 1998 ------- ------- 7,118 8,595 ------- -------
10 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED)
YEAR OPERATIONS NAME 2000 1999 OWNERSHIP % COMMENCED (1) - ---- ------- ------- ----------- ------------- RADIO BROADCASTING Radio Nika, Socci, Russia.................. -- 287 51% 1995 AS Trio LSL, Estonia....................... 1,210 1,514 49% 1997 ------- ------- 1,210 1,801 ------- ------- PRE-OPERATIONAL (5) Telephony related ventures and equipment... 974 954 Other...................................... 7,536 6,192 ------- ------- 8,510 7,146 ------- ------- Total...................................... $80,173 $78,067 ======= =======
- ------------------------ (1) Indicates year operations commenced, or in the case of acquired operational entities, the year of acquisition. (2) At December 31, 1999, the results of Baltcom GSM were taken off the three-month lag. Accordingly, amounts reported above reflect results for the six months ended June 30, 2000 and March 31, 1999. (3) Investment balance reflects write down of investment. (4) The Company purchased its 50% interest in Mobile Telecom and a related paging distribution company in June 1998 for $7.5 million plus two potential earnout payments to be made in 2000 and 2001. The Company has not yet made any earnout payments, based on the operational results of the ventures. Approximately $7.0 million of the purchase price was allocated to goodwill. (5) At June 30, 2000 and December 31, 1999, amounts disbursed for proposed joint ventures, pre-operational joint ventures and amounts expended for equipment for future wireless local loop projects are included in pre-operational joint ventures. 11 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED) Summarized combined balance sheet financial information of unconsolidated joint ventures as of June 30, 2000 and December 31, 1999, and combined statement of operations financial information for the six months ended June 30, 2000 and 1999 accounted for under the equity method that have commenced operations as of the dates indicated are as follows (in thousands): COMBINED INFORMATION OF UNCONSOLIDATED JOINT VENTURES COMBINED BALANCE SHEETS
JUNE 30, DECEMBER 31, 2000 1999 -------- ------------ Assets: Current assets...................................... $ 33,735 $ 37,611 Investments in systems and equipment................ 135,438 131,592 Other assets........................................ 4,980 5,642 -------- -------- Total assets...................................... $174,153 $174,845 ======== ======== Liabilities and Joint Ventures' Deficit: Current liabilities................................. $ 51,862 $ 46,160 Amount payable under credit facility................ 102,408 98,540 Other long-term liabilities......................... 75,603 79,053 -------- -------- 229,873 223,753 Joint ventures' deficit............................. (55,720) (48,908) -------- -------- Total liabilities and joint ventures' deficit..... $174,153 $174,845 ======== ========
COMBINED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, ------------------- 2000 1999 -------- -------- Revenues.............................................. $69,404 $ 50,905 Costs and Expenses: Cost of sales and operating expenses................ 17,827 11,944 Selling, general and administrative................. 26,884 26,238 Depreciation and amortization....................... 17,224 13,896 ------- -------- Total expenses.................................... 61,935 52,078 ------- -------- Operating income (loss)............................... 7,469 (1,173) Interest expense...................................... (9,043) (7,424) Other income (expense)................................ (1,078) 42 Foreign currency transactions......................... (1,300) (3,832) ------- -------- Net loss.............................................. $(3,952) $(12,387) ======= ========
For the six months ended June 30, 2000 and 1999 the results of operations presented above are before the elimination of intercompany interest. Financial information for joint ventures which are not yet operational is not included in the above summary. 12 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED) The following tables represent summary financial information for all operating entities being grouped as indicated as of and for the six and three months ended June 30, 2000 and 1999. For the three and six months ended June 30, 2000 and 1999, the results of operations presented below are before the elimination of intercompany interest (in thousands):
SIX MONTHS ENDED JUNE 30, 2000 ----------------------------------------------------------------------- WIRELESS FIXED CABLE RADIO TELEPHONY TELEPHONY TELEVISION BROADCASTING PAGING TOTAL --------- --------- ---------- ------------ -------- -------- Revenues................................... $34,493 $14,243 $15,443 $ 849 $4,376 $69,404 Depreciation and amortization.............. 8,943 2,987 4,845 100 349 17,224 Operating income (loss).................... 9,624 (1,614) 690 (190) (1,041) 7,469 Interest expense........................... 5,106 882 2,928 26 101 9,043 Net income (loss).......................... 4,751 (3,088) (3,825) (254) (1,536) (3,952) Assets..................................... 104,999 34,954 30,747 890 2,563 174,153 Capital expenditures....................... 15,245 3,747 2,774 10 535 22,311 Net investment in joint ventures........... 28,051 11,708 23,576 1,210 7,118 71,663 Equity in income (losses) of unconsolidated investees................................ 6,999 (1,958) (812) (426) (1,121) 2,682
SIX MONTHS ENDED JUNE 30, 1999 ----------------------------------------------------------------------- WIRELESS FIXED CABLE RADIO TELEPHONY TELEPHONY TELEVISION BROADCASTING PAGING TOTAL --------- --------- ---------- ------------ -------- -------- Revenues................................... $17,920 $11,639 $13,627 $1,187 $6,532 $50,905 Depreciation and amortization.............. 6,555 1,061 5,845 131 304 13,896 Operating income (loss).................... (873) 757 (1,231) (18) 192 (1,173) Interest income............................ 1 -- 148 -- -- 149 Interest expense........................... 4,589 172 2,561 22 80 7,424 Net loss................................... (5,479) (2,653) (3,967) (88) (200) (12,387) Assets..................................... 80,804 21,784 32,748 1,160 5,236 141,732 Capital expenditures....................... 11,139 812 4,399 24 356 16,730 Net investment in joint ventures........... 20,700 5,588 25,727 2,055 9,027 63,097 Equity in losses of unconsolidated investees................................ (2,244) (2,146) (1,237) (80) (79) (5,786)
13 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 2. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2000 ----------------------------------------------------------------------- WIRELESS FIXED CABLE RADIO TELEPHONY TELEPHONY TELEVISION BROADCASTING PAGING TOTAL --------- --------- ---------- ------------ -------- -------- Revenues................................... $18,076 $7,011 $7,587 $304 $2,139 $35,117 Depreciation and amortization.............. 4,428 1,596 2,329 47 175 8,575 Operating income (loss).................... 5,695 277 536 (171) (816) 5,521 Interest income............................ -- -- (3) -- -- (3) Interest expense........................... 2,960 358 1,466 13 49 4,846 Net income (loss).......................... 3,431 (225) (1,915) (202) (1,028) 61 Equity in income (losses) of unconsolidated investees................................ 4,450 (434) (419) (389) (776) 2,432
THREE MONTHS ENDED JUNE 30, 1999 ----------------------------------------------------------------------- WIRELESS FIXED CABLE RADIO TELEPHONY TELEPHONY TELEVISION BROADCASTING PAGING TOTAL --------- --------- ---------- ------------ -------- -------- Revenues................................... $8,964 $5,470 $6,894 $484 $2,705 $24,517 Depreciation and amortization.............. 3,639 520 2,833 63 129 7,184 Operating loss............................. (419) (278) (129) (57) (84) (967) Interest income............................ -- -- 83 -- -- 83 Interest expense........................... 2,275 119 1,323 11 41 3,769 Net loss................................... (3,448) (1,364) (2,230) (76) (431) (7,549) Equity in losses of unconsolidated investees................................ (1,716) (1,468) (875) (66) (241) (4,366)
PRO FORMA INFORMATION The following unaudited pro forma information illustrates the effect of the acquisition of PLD Telekom on revenue, net loss and loss per share from continuing operations attributable to common stockholders for the six months ended June 30, 1999, and assumes that the acquisition of PLD Telekom occurred at the beginning of 1999 (in thousands, except per share amount):
1999 -------- Revenues.................................................... $189,975 -------- Net loss.................................................... $(53,260) ======== Net loss per common share attributable to common stock shareholders.............................................. $ (.57) ========
The unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as additional amortization expense as a result of goodwill and increased interest expense on acquisition debt. They do not purport to be indicative of the results of operations that actually would have resulted had the acquisition occurred at the beginning of 1999, or of future results of operations of the consolidated entity. 14 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA At June 30, 2000 and December 31, 1999 the Company's investments, through Metromedia China, in the joint ventures in China, at cost, net of adjustments for its equity in earnings or losses and distributions, were as follows (in thousands):
YEAR YEAR JUNE 30, DECEMBER 31, VENTURE OPERATIONS NAME 2000 1999 OWNERSHIP % FORMED COMMENCED - ---- -------- ------------ ----------- -------- ---------- Sichuan Tai Li Feng Telecommunications Co., Ltd. ("Sichuan JV")............... $ -- $15,899 92% 1996 1999 Chongqing Tai Le Feng Telecommunications Co., Ltd. ("Chongqing JV")............. -- 14,001 92% 1997 1999 Ningbo Ya Mei Telecommunications Co., Ltd. ("Ningbo JV")..................... 1,919 5,153 70% 1996 1997 Ningbo Ya Lian Telecommunications Co., Ltd. ("Ningbo JV II").................. -- 4,949 70% 1998 1998 Huaxia Metromedia Information Technology Co., Ltd. ("Huaxia JV")................ 442 980 49% 1999 2000 ------ ------- $2,361 $40,982 ====== =======
The reduction in investment in and advances to joint ventures during the first six months of 2000 reflects the liquidation of Sichuan JV, Chongqing JV, Ningbo JV and Ningbo JV II (as described below) and adjustments for its equity in losses of Huaxia JV. In connection with the liquidation of the telecommunications joint ventures, the Company as of July 1, 1999 stopped recording its share of distributable cash flows and amortization of project investments for the affected joint ventures. The $1.9 million balance of telecommunications joint venture investments, as of June 30, 2000, is exclusive of $15.2 million in goodwill. Metromedia International Group and Metromedia International Telecommunications have made intercompany loans to Metromedia China under a credit agreement, and Metromedia China has used the proceeds of these loans to fund its investments in these joint ventures in China. At June 30, 2000, Metromedia China owed $22.2 million under this credit agreement (including accrued interest). TELECOMMUNICATIONS JOINT VENTURES The Company held interests in four telecommunications joint ventures in China, each of which engaged in cooperation contracts with China United Telecommunications Incorporated ("China Unicom") to finance and support development of local telecommunications services. All four of these ventures prematurely terminated operations by order of the Chinese government in 1999. Concurrent with this termination, the Company reached agreement with China Unicom and its Chinese partners in the ventures, for the distribution of approximately $94.7 million (based on the June 30, 2000 exchange rates) in settlement of all claims under the joint venture agreements and cooperation contracts. The Company has received $77.5 million of this estimated total distribution as of June 30, 2000. As of June 30, 2000, the balance of investments in and advances to these joint ventures, exclusive of $15.2 million in goodwill, was approximately $1.9 million. As of June 30, 2000, Sichuan JV and Chongqing JV have been dissolved and all previously agreed upon distributions have been made to the Company in full. Ningbo JV and Ningbo JV II are expected to complete their formal dissolution proceedings with the Chinese government prior to September 2000. 15 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA (CONTINUED) Due to favorable resolution of certain matters in connection with the liquidation of the joint ventures, as of June 30, 2000 the Company now estimates it will receive a total distribution from the liquidated joint ventures of $94.7 million, an increase of $4.6 million over prior estimates. This currently estimated $94.7 million in total payments from the joint ventures is insufficient to fully recover the goodwill originally recorded in connection with the Company's investment in these joint ventures. The Company had recorded a non-cash impairment charge of $45.7 million in 1999 for the write-off of goodwill based on its then estimate of amounts to be recovered in dissolution of the ventures. With the $4.6 million increase in the estimated total dissolution proceeds to the Company, goodwill was increased by $4.0 million. The remaining goodwill amount at June 30, 2000 is $15.2 million. CHINA E-COMMERCE JOINT VENTURES In May 1999, Metromedia China's wholly-owned subsidiary, Asian American Telecommunications, entered into a joint venture agreement with All Warehouse Commodity Electronic Commerce Information Development Co., Ltd., a Chinese trading company. This agreement was for the purpose of establishing Huaxia Metromedia Information Technology Co., Ltd., known as Huaxia JV. The Chinese government licensed Huaxia JV in July 1999 to develop and provide technical services for the operation of electronic commerce computer information systems for China-based corporate clients. Also in May 1999, Huaxia JV entered into a 30-year computer information system and services contract with All Warehouse and its parent company, China Product Firm, that granted Huaxia JV exclusive rights to manage all of China Product Firm's electronic trading systems during the contract period. China Product Firm anticipated launching a commercial online trading service employing systems provided and operated by Huaxia JV. By agreement with All Warehouse and its parent, Huaxia JV's principal efforts were to be initially directed to e-commerce systems for use by China Product Firm and its affiliates and customers. The terms under which Huaxia JV is licensed require a total amount to be invested in the joint venture of $25.0 million, of which $10.0 million must be in the form of registered capital contributions from its shareholders. At its formation, Asian American Telecommunications owned a 49% interest in Huaxia JV and was obligated to make total registered capital contributions of $4.9 million over a three-year period. All Warehouse owned a 51% interest, obligating it to contribute $5.1 million. The remaining investment in Huaxia JV was to be in the form of up to $15.0 million of loans from Asian American Telecommunications. As of June 30, 2000, Asian American Telecommunications has made $980,000 of its scheduled registered capital investment. Huaxia JV commenced trial operation of an e-commerce system with China Product Firm in late 1999. The Company considered this business activity to be "pre-operational" since its purpose was to test technical and operational aspects of Huaxia JV's intended computer services and to support China Product Firm's initial trial of commercial online trading services. The technical and operational trials continued successfully through May 2000, but China Product Firm proved unable to successfully launch its intended online trading service. All Warehouse proposed in May 2000 to substantially reduce its equity interest in Huaxia JV and that Huaxia JV be relieved of further contractual obligations to serve All Warehouse's parent company China Product Firm. Negotiations to effect a change in the equity structure of Huaxia JV were concluded in June 2000 and the Company anticipates that it will obtain a 98% ownership interest in Huaxia JV upon Chinese government approval of a revised joint venture contract. The Company's only material cost for its increased ownership position in Huaxia JV will be its 16 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA (CONTINUED) increased obligation for future registered capital contributions. Huaxia JV's business mission remains unchanged, except that its initial software development and service efforts will no longer be principally restricted to China Product Firm. Huaxia JV is currently recruiting other China-based clients for its e-commerce support systems and the Company expects this joint venture to enter into commercial operations in the fourth quarter of 2000. For the three months ended June 30, 2000, the Company has recorded an equity in losses of the operations of $538,000 which represents the costs for establishing the joint venture and its technical and operational testing. Huaxia JV does not have any contractual relationship with China Unicom and is engaged in business fundamentally different from that of the Communications Group's earlier joint ventures cooperating with China Unicom. Computer and software services, such as offered by the Huaxia JV, are not subject to regulations applied to telecommunications operations in China. The Communications Group believes that the Company's equity interest in Huaxia JV does not constitute foreign equity investment in telecommunications operations or any other line of business restricted under current Chinese regulations. Furthermore, the Company believes that the Chinese regulatory policy situation and prospects facing Huaxia JV are fundamentally different from the regulatory policy situation and prospects faced by the Communication Group's earlier joint telecommunications projects with China Unicom. In May 2000, the Company made an offer to purchase Twin Poplars LLC for $300,000. Twin Poplars owns a 90% ownership interest in and controls two sino-foreign joint ventures licensed in China to engage in information content provision for print publishers and the internet and internet-based online sales. As of June 30, 2000, the Company had loaned $150,000 to Twin Poplars against a security interest in its China joint ventures. On July 24, 2000, the Company completed the acquisition of an 80% interest in Twin Poplars and obtained options to acquire the remaining 20%. The acquisition gives the Company 72% ownership in and control over two sino-foreign joint ventures. The Twin Poplars joint ventures provide content and services to Chinese publishers and have completed development of a companion website for internet content provision and online product sales. Both joint ventures are currently operational. 17 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 3. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES--CHINA (CONTINUED) The Company is no longer recording the operations of its China telecommunications joint ventures as of July 1, 1999. The following tables represent summary financial information for the Company's China telecommunications joint ventures and their related projects in China as of and for the six and three months ended June 30, 1999, respectively, (in thousands):
SIX MONTHS ENDED JUNE 30, 1999 ----------------------------------------------------- NINGBO NINGBO SICHUAN CHONGQING JV JVII JV JV TOTAL -------- -------- -------- --------- -------- Revenues.......................................... $1,996 $ 504 $ -- $ 27 $2,527 Depreciation and amortization..................... (1,221) -- (255) (240) (1,716) Operating income (loss)........................... 650 476 (424) (371) 331 Interest expense, net............................. (1,370) (110) (501) (126) (2,107) Net income (loss)................................. (720) 366 (925) (497) (1,776) Equity in income (losses) of joint ventures....... 287 336 (427) (343) (147) Assets............................................ 32,971 15,643 21,348 17,969 87,931 Net investment in project......................... 30,112 12,239 20,088 10,762 73,201
THREE MONTHS ENDED JUNE 30, 1999 ----------------------------------------------------- NINGBO NINGBO SICHUAN CHONGQING JV JVII JV JV TOTAL -------- -------- -------- --------- -------- Revenues.......................................... $1,008 $ 504 $ -- $ 3 $1,515 Depreciation and amortization..................... (613) -- (239) (182) (1,034) Operating income (loss)........................... 357 491 (341) (228) 279 Interest expense, net............................. (508) (74) (267) (46) (895) Net income (loss)................................. (151) 417 (608) (274) (616) Equity in income (losses) of joint ventures....... 303 344 (334) (195) 118
For the three and six months ended June 30, 1999 the results of operations presented above are before the elimination of intercompany interest. Ningbo JV records revenues from the Ningbo China Unicom GSM project based on amounts of revenues and profits reported to it by China Unicom for the period October 1, 1998 to March 31, 1999. 4. EARNINGS PER SHARE OF COMMON STOCK Basic earnings per share excludes all dilutive securities. It is based upon the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur if securities exercisable for or convertible into common stock were exercised or converted into common stock. In calculating diluted earnings per share, no potential shares of common stock are included in the computation if they would have an antidilutive effect on earnings per share. For the three and six months ended June 30, 2000 and 1999 the Company had not included diluted earnings per share since the calculation is antidilutive. The Company had at June 30, 2000 and 1999, potentially dilutive shares of common stock of 26,726,000 and 18,846,000, respectively. 5. INVESTMENT IN RDM The Company owns approximately 39% of the outstanding common stock of RDM Sports Group, Inc. In August 1997, RDM and certain of its affiliates filed a voluntary bankruptcy petition under chapter 18 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 5. INVESTMENT IN RDM (CONTINUED) 11 of the Bankruptcy Code. The chapter 11 trustee is in the process of selling all of RDM's assets to satisfy RDM's obligations to its creditors and the Company believes that it is unlikely that it will recover any distribution on account of its equity interest in RDM. The Company also holds certain claims in the RDM proceedings, although there can be no assurance that the Company will receive any distributions with respect to such claims. On August 19, 1998, a purported class action lawsuit, THEOHAROUS V. FONG, ET AL., Civ. No. 1:98CV2366, was filed in United States District Court for the Northern District of Georgia. On October 19, 1998, a second purported class action lawsuit with substantially the same allegations, SCHUETTE V. FONG, ET AL., Civ. No. 1:98CV3034, was filed in United States District Court for the Northern District of Georgia. On June 7, 1999, plaintiffs in each of these lawsuits filed amended complaints. The amended complaints alleged that certain officers, directors and shareholders of RDM, including the Company and current and former officers of the Company who served as directors of RDM, were liable under federal securities laws for misrepresenting and failing to disclose information regarding RDM's alleged financial condition during the period between November 7, 1995 and August 22, 1997, the date on which RDM disclosed that its management had discussed the possibility of filing for bankruptcy. The amended complaints also alleged that the defendants, including the Company and current and former officers of the Company who served as directors of RDM, were secondarily liable as controlling persons of RDM. In an opinion dated March 10, 2000, the court dismissed these actions in their entirety. On April 7, 2000, plaintiffs in each of these actions filed notices of appeal to the United States Court of Appeals for the Eleventh Circuit. On December 30, 1998, the chapter 11 trustee of RDM brought an adversary proceeding in the bankruptcy of RDM, HAYS, ET AL V. FONG, ET AL., Adv. Proc. No. 98-1128, in the United States Bankruptcy Court, Northern District of Georgia, alleging that current and former officers of the Company, while serving as directors on the board of RDM, breached fiduciary duties allegedly owed to RDM's shareholders and creditors in connection with the bankruptcy of RDM. On January 25, 1999, the plaintiff filed a first amended complaint. The official committee of unsecured creditors of RDM has moved to proceed as co-plaintiff or to intervene in this proceeding, and the official committee of bondholders of RDM has moved to intervene in or join the proceeding. Plaintiffs in this adversary proceeding seek the following relief against current and former officers of the Company who served as directors of RDM: actual damages in an amount to be proven at trial, reasonable attorney's fees and expenses, and such other and further relief as the court deems just and proper. On February 16, 1999, the creditors' committee brought an adversary proceeding, THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF RDM SPORTS GROUP, INC. AND RELATED DEBTORS V. METROMEDIA INTERNATIONAL GROUP INC., Adv. Proc. No. 99-1023, seeking in the alternative to recharacterize as contributions to equity a secured claim in the amount of $15 million made by the Company arising out of the Company's financing of RDM, or to equitably subordinate such claim made by Metromedia against RDM and other debtors in the bankruptcy proceeding. On March 3, 1999, the bondholders' committee brought an adversary proceeding, THE OFFICIAL COMMITTEE OF BONDHOLDERS OF RDM SPORTS GROUP, INC. V. METROMEDIA INTERNATIONAL GROUP, INC., Adv. Proc. No. 99-1029, with substantially the same allegations as the above proceeding. In addition to the equitable and injunctive relief sought by plaintiffs described above, plaintiffs in these adversary proceedings seek actual damages in an amount to be proven at trial, reasonable attorneys' fees, and such other and further relief as the court deems just and proper. The Company believes it has meritorious defenses and plans to vigorously defend these actions. Due to the early stage of these proceedings, the Company cannot evaluate the likelihood of an unfavorable outcome or an estimate of the likely amount or range of possible loss, if any. Accordingly, the Company has not recorded any liability in connection with these proceedings. 19 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS SEGMENT DATA The business activities of the Company consist of two operating groups, the Communications Group and Snapper. The Communications Group has operations in Eastern Europe and the republics of the former Soviet Union and China. Operations in Eastern Europe and the republics of the former Soviet Union provide the following services: (i) wireless telephony; (ii) fixed telephony; (iii) cable television; (iv) radio broadcasting; and (v) paging. Until recently, the Company also held interests in several telecommunications joint ventures in China. Those joint ventures were terminated in late 1999 and the Company reached agreement for the distribution of approximately $94.7 million (based on the June 30, 2000 exchange rate) in settlement of all claims under the joint venture agreements. The Communications Group is continuing to develop e-commerce business opportunities in China. Legal restrictions in China prohibit foreign participation in the operations or ownership in the telecommunications sector. The segment information for the Communications Group's China joint ventures represents the investment in network construction and development of telephony networks for China Unicom. The segment information does not reflect the results of operations of China Unicom's telephony networks. Snapper manufactures Snapper-Registered Trademark- brand premium priced power lawnmowers, lawn tractors, garden tillers, snow throwers and related parts and accessories. The Company evaluates the performance of its operating segments based on earnings before interest, taxes, depreciation, and amortization. The segment information is based on operating income (loss) which includes depreciation and amortization. Equity in income (losses) of unconsolidated investees reflects elimination of intercompany interest expense. The Company's segment information is set forth as of and for the six months ended June 30, 2000, and 1999 in the following tables (in thousands): 20 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS SEGMENT DATA (CONTINUED) SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS)
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION ------------------------------------------------------------------------------ RADIO SEGMENT WIRELESS FIXED CABLE BROAD- HEAD- COMMUNICATIONS TELEPHONY TELEPHONY TELEVISION CASTING PAGING QUARTERS TOTAL GROUP-CHINA --------- --------- ---------- -------- -------- -------- -------- --------------- COMBINED Revenues......................... $41,375 $56,643 $18,959 $8,723 $ 5,420 $ 1,985 $133,105 Depreciation and amortization.... 11,500 11,004 6,237 677 494 16,426 46,338 Operating income (loss).......... 7,750 5,414 362 (592) (1,292) (26,775) (15,133) CONSOLIDATED Revenues......................... $ 6,882 $42,400 $ 3,516 $7,874 $ 1,044 $ 1,985 $ 63,701 $ -- Gross profit..................... Depreciation and amortization.... 2,557 8,017 1,392 577 145 16,426 29,114 102 Reduction in estimate of asset impairment charge.............. -- -- -- -- -- -- -- (3,984) Operating income (loss).......... (1,874) 7,028 (328) (402) (251) (26,775) (22,602) 417 UNCONSOLIDATED JOINT VENTURES Revenues......................... $34,493 $14,243 $15,443 $ 849 $ 4,376 $ -- $ 69,404 $ -- Depreciation and amortization.... 8,943 2,987 4,845 100 349 -- 17,224 25 Operating income (loss).......... 9,624 (1,614) 690 (190) (1,041) -- 7,469 (540) Net income (loss)................ 4,751 (3,088) (3,825) (254) (1,536) -- (3,952) (538) Equity in income (losses) of unconsolidated investees....... 6,999 (1,958) (812) (426) (1,121) -- 2,682 (538) Foreign currency gain............ 41 -- Minority interest................ (2,251) 1,255 Interest expense................. Interest income.................. Gain on settlement of option..... Income tax expense............... Net loss......................... Capital expenditures............. 7,069 25 Assets at June 30, 2000.......... 527,346 21,610 CORPORATE SNAPPER HEADQUARTERS CONSOLIDATED -------- ------------ ------------ COMBINED Revenues......................... Depreciation and amortization.... Operating income (loss).......... CONSOLIDATED Revenues......................... $102,530 $ -- $166,231 Gross profit..................... 35,615 Depreciation and amortization.... 3,015 35 32,266 Reduction in estimate of asset impairment charge.............. -- -- (3,984) Operating income (loss).......... 7,528 (3,057) (17,714) UNCONSOLIDATED JOINT VENTURES Revenues......................... Depreciation and amortization.... Operating income (loss).......... Net income (loss)................ Equity in income (losses) of unconsolidated investees....... -- -- 2,144 Foreign currency gain............ -- -- 41 Minority interest................ -- -- (996) Interest expense................. (16,020) Interest income.................. 1,523 Gain on settlement of option..... 2,500 Income tax expense............... (4,611) -------- Net loss......................... $(33,133) ======== Capital expenditures............. 1,251 -- $ 8,345 Assets at June 30, 2000.......... 113,611 65,766 $728,333
21 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS SEGMENT DATA (CONTINUED) SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION ------------------------------------------------------------------------------ RADIO SEGMENT WIRELESS FIXED CABLE BROAD- HEAD- TELEPHONY TELEPHONY TELEVISION CASTING PAGING QUARTERS TOTAL --------- --------- ---------- -------- -------- -------- -------- COMBINED Revenues.......................... $17,920 $11,639 $16,288 $ 9,292 $ 8,277 $ 918 $ 64,334 Depreciation and amortization..... 6,555 1,061 6,798 662 611 2,166 17,853 Operating income (loss)........... (873) 757 (1,409) (1,271) (1,107) (14,029) (17,932) CONSOLIDATED Revenues.......................... $ -- $ -- $ 2,661 $ 8,105 $ 1,745 $ 918 $ 13,429 Gross profit...................... Depreciation and amortization..... -- -- 953 531 307 2,166 3,957 Operating income (loss)........... -- -- (178) (1,253) (1,299) (14,029) (16,759) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $17,920 $11,639 $13,627 $ 1,187 $ 6,532 $ -- $ 50,905 Depreciation and amortization..... 6,555 1,061 5,845 131 304 -- 13,896 Operating income (loss)........... (873) 757 (1,231) (18) 192 -- (1,173) Net loss.......................... (5,479) (2,653) (3,967) (88) (200) -- (12,387) Equity in losses of unconsolidated investees....................... (2,244) (2,146) (1,237) (80) (79) -- (5,786) Foreign currency loss............. (2,794) Minority interest................. 624 Interest expense.................. Interest income................... Income tax expense................ Net loss.......................... Capital expenditures.............. 1,088 Assets at December 31, 1999....... 537,279 COMMUNICATIONS CORPORATE GROUP-CHINA SNAPPER HEADQUARTERS CONSOLIDATED --------------- -------- ------------ ------------ COMBINED Revenues.......................... Depreciation and amortization..... Operating income (loss)........... CONSOLIDATED Revenues.......................... $ -- $119,218 $ -- $132,647 Gross profit...................... 40,543 Depreciation and amortization..... 1,574 3,053 3 8,587 Operating income (loss)........... (7,073) 10,651 (2,933) (16,114) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $ 2,527 Depreciation and amortization..... 1,716 Operating income (loss)........... 331 Net loss.......................... (1,776) Equity in losses of unconsolidated investees....................... (147) -- -- (5,933) Foreign currency loss............. -- -- -- (2,794) Minority interest................. 4,228 -- -- 4,852 Interest expense.................. (6,929) Interest income................... 4,246 Income tax expense................ (205) -------- Net loss.......................... $(22,877) ======== Capital expenditures.............. 2 1,362 -- $ 2,452 Assets at December 31, 1999....... 66,451 118,259 54,865 $776,854
22 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 6. BUSINESS SEGMENT DATA (CONTINUED) Information about the Communications Group's consolidated operations by geographic location for the six months ended June 30, 2000 and 1999 and as of June 30, 2000 and December 31, 1999 is as follows (in thousands):
REVENUES ASSETS ------------------- ------------------- COUNTRY 2000 1999 2000 1999 - ------- -------- -------- -------- -------- Austria............................................... $ -- $ 346 $ -- $ -- Azerbaijan............................................ -- -- 4,037 3,274 Belarus............................................... 425 -- 6,690 6,985 Cyprus................................................ -- -- 52 -- Czech Republic........................................ 863 829 3,202 3,117 Estonia............................................... 267 370 1,358 1,636 Georgia............................................... 110 187 26,252 19,372 Germany............................................... 148 57 298 1,555 Hungary............................................... 3,116 3,747 3,455 5,469 Kazakhstan............................................ 6,882 -- 61,303 63,432 Krgyzstan............................................. 98 -- 1,984 1,668 Latvia................................................ 245 368 13,891 14,029 Lithuania............................................. 655 516 1,385 1,643 Moldova............................................... -- -- 3,429 4,147 People's Republic of China............................ -- -- 21,610 66,451 Romania............................................... 2,596 2,564 10,433 10,470 Russia................................................ 46,280 3,198 252,084 256,304 Ukraine............................................... 463 339 873 975 United Kingdom........................................ -- -- 54 226 United States (1)..................................... 1,553 908 131,823 137,765 Uzbekistan............................................ -- -- 4,743 5,212 ------- ------- -------- -------- $63,701 $13,429 $548,956 $603,730 ======= ======= ======== ========
- ------------------------ (1) Assets include goodwill of $116.6 million, and $123.6 million at June 30, 2000 and December 31, 1999, respectively. All of the Company's remaining assets and substantially all remaining revenue relate to operations in the United States. 7. OTHER CONSOLIDATED CONDENSED FINANCIAL STATEMENT INFORMATION ACCOUNTS RECEIVABLE The total allowance for doubtful accounts at June 30, 2000 and December 31, 1999 was $2.3 million and $2.9 million, respectively. 23 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 7. OTHER CONSOLIDATED CONDENSED FINANCIAL STATEMENT INFORMATION (CONTINUED) INVENTORIES Inventories consist of the following as of June 30, 2000 and December 31, 1999 (in thousands):
2000 1999 -------- -------- Lawn and garden equipment: Raw materials........................................... $ 8,550 $11,346 Finished goods.......................................... 40,382 40,380 ------- ------- 48,932 51,726 Less: LIFO reserve........................................ -- -- ------- ------- 48,932 51,726 ------- ------- Telecommunications: Pagers.................................................. 138 152 Telephony............................................... 2,418 2,934 Cable................................................... 298 397 ------- ------- 2,854 3,483 ------- ------- $51,786 $55,209 ======= =======
INTEREST EXPENSE Interest expense includes amortization of debt discount of $9.2 million for the six months ended June 30, 2000. GAIN ON SETTLEMENT OF OPTION For the six months ended June 30, 2000, the Company recorded a $2.5 million gain representing the gain realized on the buyout of options to acquire an indirect interest in Telecominvest, a holding company with diverse telecommunications interests in northwest Russia. 8. CONTINGENCIES RISKS ASSOCIATED WITH THE COMMUNICATIONS GROUP'S INVESTMENTS The ability of the Communications Group and its joint ventures and subsidiaries (including PLD Telekom Inc.) to establish profitable operations is subject to, among other things, significant political, economic and social risks inherent in doing business in emerging markets such as Eastern Europe, the republics of the former Soviet Union and China. These include matters arising out of government policies, economic conditions, imposition of or changes in government regulations or policies, imposition of or changes to taxes or other similar charges by government bodies, exchange rate fluctuations and controls, civil disturbances, deprivation or unenforceability of contractual rights, and taking of property without fair compensation. These and other risks associated with the Company are discussed more fully in the Company's Form 10-K "Item 1--Risks Associated with the Company." During 1998, and continuing in 1999, a number of emerging market economies suffered significant economic and financial difficulties resulting in liquidity crises, devaluation of currencies, higher interest rates and reduced opportunities for financing. In the early part of 2000 there have been indications that 24 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 8. CONTINGENCIES (CONTINUED) the economic climate may be improving, however, at this time, the prospects for complete recovery for the economies of Russia and the other republics of the former Soviet Union and Eastern Europe negatively affected by the economic crisis remain unclear. The economic crisis of 1998 resulted in a number of defaults by borrowers in Russia and other countries. Although some debt was rescheduled in the first part of 2000, a reduced level of financing remains available to investors in these countries. The devaluation of many of the currencies in the region in 2000 has not been as marked as in previous years but the potential still remains for future negative effect on the U.S. dollar value of the revenues generated by certain of the Communications Group's joint ventures and may lead to certain additional restrictions on the convertibility of certain local currencies. The effect of these uncertainties has negatively impacted the financial performance of certain of the Communications Group's cable television, telephony, radio broadcasting and paging ventures. Some of the Communications Group's subsidiaries and joint ventures operate in countries where the inflation rate in the past has been high. For example, inflation in Russia increased dramatically following the August 1998 financial crisis and there are increased risks of inflation in Kazakhstan. The inflation rates in Belarus have been at hyperinflationary levels for some years and as a result, the currency has essentially lost all intrinsic value. Although the rate of inflation in 2000 has not been as high as in previous years, the risk of further increases in the future remains possible. While the Communications Group's subsidiaries and joint ventures attempt to increase their subscription rates to offset increases in operating costs, there is no assurance that they will be able to do so. Therefore, operating costs may rise faster than associated revenue, resulting in a material negative impact on operating results. The Company itself is generally negatively impacted by inflationary increases in salaries, wages, benefits and other administrative costs, the effects of which to date have not been material to the Company. The value of the currencies in the countries in which the Communications Group operates in the past has fluctuated, sometimes significantly. For example, during 1998 and 1999, the value of the Russian Rouble was under considerable economic and political pressure and has suffered significant declines against the U.S. dollar and other currencies. In addition, in 1999 local currency devaluations in Uzbekistan, Kazakhstan and Georgia, in addition to weakening of local currencies in Austria and Germany, had an adverse effect on the Communications Group's ventures in these countries. The Communications Group currently does not hedge against exchange rate risk and therefore could be negatively impacted by declines in exchange rates between the time one of its joint ventures receives its funds in local currency and the time it distributes these funds in U.S. dollars to the Communications Group. The Communications Group's strategy is to minimize its foreign currency risk. To the extent possible, the Communications Group bills and collects all revenues in U.S. dollars or an equivalent local currency amount adjusted on a monthly basis for exchange rate fluctuations. The Communications Group's subsidiaries and joint ventures are generally permitted to maintain U.S. dollar accounts to service their U.S. dollar denominated debt and current account obligations, thereby reducing foreign currency risk. As the Communications Group's subsidiaries and joint ventures expand their operations and become more dependent on local currency based transactions, the Communications Group expects that its foreign currency exposure will increase. 25 METROMEDIA INTERNATIONAL GROUP, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) 8. CONTINGENCIES (CONTINUED) CHINA TELECOMMUNICATIONS JOINT VENTURES Due to favorable resolution of certain matters in connection with the liquidation of the joint ventures as of June 30, 2000, the Company now estimates it will receive a total distribution from the liquidated joint ventures of $94.7 million, an increase of $4.6 million over prior estimates. This currently estimated $94.7 million in total payments from the joint ventures is insufficient to fully recover the goodwill originally recorded in connection with the Company's investment in these joint ventures. The Company had recorded a non-cash impairment charge of $45.7 million in 1999 for the write-off of goodwill based on its then estimate of amounts to be recovered in dissolution of the ventures. With the $4.6 million increase in the estimated total dissolution proceeds to the Company, goodwill was increased by $4.0 million. The remaining goodwill amount at June 30, 2000 is $15.2 million. CHINA E-COMMERCE JOINT VENTURE The Communication Group's Huaxia JV is established as a sino-foreign equity joint venture between Asian American Telecommunications and All Warehouse Commodity Electronic Commerce Information Development Co., Ltd. Huaxia JV is licensed to develop and provide technical services for the operation of electronic commerce computer information systems for China-based corporate clients. Huaxia JV does not have any contractual relationship with China Unicom and is engaged in business fundamentally different from that of the Communications Group's earlier joint ventures cooperating with China Unicom. Computer and software services, such as offered by the Huaxia JV, are subject to regulations different from those applied to telecommunications operations in China. The Communications Group believes that the Company's equity interest in Huaxia JV does not constitute foreign equity investment in telecommunications operations or any other line of business restricted under current Chinese regulations. Furthermore, the Company believes that the Chinese regulatory policy situation and prospects facing Huaxia JV are fundamentally different from the regulatory policy situation and prospects faced by the Communication Group's earlier joint telecommunications projects with China Unicom. The investment in Twin Poplars entails certain risks resulting from regulatory uncertainty and the fact that certain necessary licenses, while applied for, have not yet been obtained. The Chinese regulatory regime is currently unclear as to the precise extent of the restrictions on foreign investment in the publishing and internet content provision industries. With respect to publishing, the Communications Group believes that Twin Poplars' information content joint venture cannot be deemed to be operating a publishing business, since it is merely providing content to Chinese publishers for fixed fees. With respect to internet content-related operations, given the lack of explicit regulations, the Communications Group may be required in the future to adjust the webhosting and internet content provision arrangements of Twin Poplars to comply with any new regulatory developments. Other transitional risks are that the publication for which content is currently primarily provided by Twin Poplars' joint venture is still in the process of obtaining relevant publishing and advertising licenses, and Twin Poplars' internet joint venture is still in the process of obtaining an online advertising license. Twin Poplars will not be entitled to legally receive certain revenues until such licenses are obtained. LITIGATION The Company is involved in various legal and regulatory proceedings and while the results of any litigation or regulatory issue contain an element of uncertainty, management believes that the outcome of any known, pending or threatened legal proceedings, except as disclosed in note 5, will not have a material effect on the Company's consolidated financial position and results of operations. 26 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Company's consolidated condensed financial statements and related notes thereto. The business activities of the Company consist of two operating groups, the Communications Group and Snapper. COMMUNICATIONS GROUP OVERVIEW The Communications Group has operations in Eastern Europe and the republics of the former Soviet Union and an e-commerce business in China. Operations in Eastern Europe and the republics of the former Soviet Union provide the following services: (i) wireless telephony; (ii) fixed telephony; (iii) cable television; (iv) radio broadcasting; and (v) paging. The Company also held interests in several telecommunications joint ventures in China. These ventures terminated operations in late 1999 and the Company reached agreement for the distribution of approximately $94.7 million (based on the June 30, 2000 exchange rate) in settlement of all claims under the joint venture agreements, of which $77.5 million has been received. The Communications Group is now developing e-commerce business opportunities in China. During 1999 the Company continued to focus its growth strategy on opportunities in communications businesses in Eastern Europe and the republics of the former Soviet Union. The convergence of cable television and telephony, and the relationship of each business to internet access, provides the Company with new opportunities. On September 30, 1999, the Company consummated the acquisition of PLD Telekom, a provider of high quality long distance and international telecommunications services in the republics of the former Soviet Union. As a result of the acquisition, PLD Telekom became a wholly owned subsidiary of the Company. The Communications Group's consolidated revenues represent approximately 38% and 10% of the Company's total consolidated revenues for the six months ended June 30, 2000 and 1999, respectively. The Company expects this proportion to increase with the acquisition of PLD Telekom and as the Communications Group's joint ventures develop their businesses. Consolidated revenues of the Company for the six months ended June 30, 2000 include $49.7 million attributable to PLD Telekom. BASIS OF PRESENTATION Almost all of the Communications Group's joint ventures other than the PLD Telekom businesses report their financial results on a three-month lag. Therefore, the Communications Group's financial results for June 30 include the financial results for those joint ventures for the three and six months ending March 31. The Company is currently evaluating the financial reporting of these ventures and the possibility of reducing or eliminating the three-month reporting lag for certain of its principal businesses during 2000 for the purpose of presenting the Company's results of operations on a more timely basis. 1999 RESTRUCTURING AND IMPAIRMENT CHARGES Shortly after completing its September 30, 1999 acquisition of PLD Telekom, the Company began identifying synergies and redundancies between Metromedia International Telecommunications, Inc. and PLD Telekom. The Company's efforts were directed toward streamlining its operations. Following the review of its operations, the Communications Group determined to make significant reductions in 27 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) its projected overhead costs for 2000 by closing its offices in Stamford, Connecticut and London, England, consolidating its executive offices in New York, New York, consolidating its operational headquarters in Vienna, Austria and by consolidating its two Moscow offices into one. As part of this streamlining of its operations, the Company announced an employee headcount reduction. Employees impacted by the restructuring were notified in December 1999 and in almost all cases were terminated effective December 31, 1999. Employees received a detailed description of their separation package which was generally based on length of service. The total number of U.S. domestic and expatriate employees separated was approximately 60. In addition, there were reductions in locally hired staff. In 1999 the Company recorded a charge of $8.4 million in connection with the restructuring. Concurrent with the review of its existing operations and the change in management as the result of the acquisition of PLD Telekom, the Communications Group completed a strategic review of its telephony, cable television, radio broadcasting and paging assets. As a result of the Company's strategic review, the Company determined that certain businesses (including some pre-operational businesses) in its portfolio did not meet certain of the objectives of the strategic review, such as the Company's ability to obtain control of the venture, geographic focus or convergence. The long lived assets or the investments in these businesses were evaluated to determine whether any impairment in their recoverability existed at the determination date. As a result, the Company assessed whether the estimated cash flows of the businesses over the estimated lives of the related assets were sufficient to recover their costs. Where such cash flows were insufficient, the Company utilized a discounted cash flow model to estimate the fair value of assets or investments and recorded an impairment charge to adjust the carrying values to estimated fair value. As a result of this evaluation, the Company recorded a non-cash impairment charge on certain of its paging, cable television and telephony businesses of $23.2 million. Following is a rollforward of the activity and balances of the restructuring reserve account from inception to June 30, 2000 (in thousands):
RESTRUCTURING DECEMBER 31, JUNE 30, TYPE OF COST COST PAYMENTS 1999 PAYMENTS ADJUSTMENTS 2000 - ------------ ------------- -------- ------------ -------- ----------- -------- Employee separations.................. $6,175 $(303) $5,872 $(3,947) $(214) $1,711 Facility closings..................... 1,456 -- 1,456 (558) -- 898 ------ ----- ------ ------- ----- ------ 7,631 $(303) $7,328 $(4,505) $(214) $2,609 ===== ====== ======= ===== ====== Write off of fixed assets............. 800 ------ $8,431 ======
Adjustments relate to reductions in the estimated severance liability. CHINA TELECOMMUNICATIONS JOINT VENTURES During 1997 and 1998, the Company made investments in four telecommunications joint ventures in China through its majority-owned subsidiary, Asian American Telecommunications Corporation. All four of these ventures prematurely terminated operations by order of the Chinese government in late 1999. Concurrent with this termination, the Company reached agreement with China Unicom and its Chinese partners in the ventures, for the distribution of approximately $94.7 million (based on the June 30, 2000 estimates and exchange rate) in settlement of all claims under the joint venture agreements and cooperation contracts. The Company has received $77.5 million of this estimated total distribution as of June 30, 2000. As of June 30, 2000, all Company advances to the four joint ventures 28 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) have been repaid plus accrued interest thereon and the balance of investments in these joint ventures, exclusive of $15.2 million in goodwill, was approximately $1.9 million. As of June 30, 2000, Sichuan JV and Chongqing JV have been fully dissolved and all previously agreed upon distributions have been made to the Company in full. Ningbo JV and Ningbo JV II are expected to complete their formal dissolution proceedings with the Chinese government prior to September 2000. Due to favorable resolution of certain matters in connection with the liquidation of the joint ventures as of June 30, 2000, the Company now estimates it will receive a total distribution from the liquidated joint ventures of $94.7 million, an increase of $4.6 million over prior estimates. This currently estimated $94.7 million in total payments from the joint ventures is insufficient to fully recover the goodwill originally recorded in connection with the Company's investment in these joint ventures. The Company had recorded a non-cash impairment charge of $45.7 million in 1999 for the write-off of goodwill based on its then estimate of amounts to be recovered in dissolution of the ventures. With the $4.6 million increase in the estimated total dissolution proceeds to the Company, goodwill was increased by $4.0 million. The remaining goodwill amount at June 30, 2000 is $15.2 million. Huaxia JV was established as a sino-foreign equity joint venture between the Communications Group and All Warehouse Commodity Electronic Commerce Information Development Co. Ltd., a Chinese trading company. Huaxia JV will develop and provide technical services for the operation of electronic commerce computer information systems for use by Chinese enterprises under transaction fee-for-services arrangements. JOINT VENTURE OWNERSHIP STRUCTURES The following table summarizes the Communications Group's joint ventures and subsidiaries at June 30, 2000 and the Communications Group's ownership in each company:
COMPANY JOINT VENTURE (1) OWNERSHIP % - ----------------- ----------- WIRELESS TELEPHONY Baltcom GSM (Latvia)........................................ 22% Magticom (Tbilisi, Georgia)................................. 35% ALTEL (Kazakhstan) (2)...................................... 50% BELCEL (Belarus)............................................ 50% Tyumenruskom (Tyumen, Russia)............................... 46% Gorizont-RT (Sakha) (3)..................................... 25% Ningbo Ya Mei Telecommunications Co., Ltd. (Ningbo City, China) (4)................................................ 41% Ningbo Ya Lian Telecommunications Co., Ltd. (Ningbo Municipality, China) (4).................................. 41%
29 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
COMPANY JOINT VENTURE (1) OWNERSHIP % - ----------------- ----------- FIXED AND OTHER TELEPHONY PeterStar (St. Petersburg, Russia) (2)...................... 71% Baltic Communications Limited (St. Petersburg, Russia) (2)....................................................... 100% Teleport-TP (Moscow, Russia) (2) (5)........................ 56% Telecom Georgia (Tbilisi, Georgia).......................... 30% MTR-Sviaz (Moscow, Russia) (5).............................. 49% Instaphone (Kazakhstan)..................................... 50% Caspian American Telecommunications (Azerbaijan) (6)........ 37% CPY Yellow Pages (St. Petersburg, Russia) (2) (7)........... 100% Cardlink ZAO (Moscow, Russia) (2) (8)....................... 84.5% Spectrum (Kazakhstan)....................................... 33% INTERNET SERVICES Huaxia Metromedia Information Technology Co., Ltd. (China) (9)....................................................... 29% FX Internet (Romania)....................................... 70% CABLE TELEVISION Romsat Cable TV (Bucharest, Romania) (2).................... 100% Viginta (Vilnius, Lithuania) (2)............................ 55% ATK (Archangelsk, Russia) (2)............................... 81% Ala TV (Bishkek, Kyrghizstan) (2) (10)...................... 53% Kosmos TV (Moscow, Russia).................................. 50% Baltcom TV (Riga, Latvia)................................... 50% Ayety TV (Tbilisi, Georgia) (11)............................ 49% Kamalak TV (Tashkent, Uzbekistan)........................... 50% Sun TV (Chisinau, Moldova) (12)............................. 50% Alma TV (Almaty, Kazakhstan)................................ 50% Cosmos TV (Minsk, Belarus).................................. 50% Teleplus (St. Petersburg, Russia)........................... 45% RADIO BROADCASTING Radio Juventus (Budapest, Hungary) (2)...................... 100% SAC (Moscow, Russia) (2).................................... 83% Radio Skonto (Riga, Latvia) (2)............................. 55% Radio One (Prague, Czech Republic) (2)...................... 80% NewsTalk Radio (Berlin, Germany) (2) (13)................... 85% Radio Vladivostok, (Vladivostok, Russia) (2)................ 51% Country Radio (Prague, Czech Republic) (2).................. 85% Radio Georgia (Tbilisi, Georgia) (2) (14)................... 51% Radio Katusha (St. Petersburg, Russia) (2) (14)............. 75% Radio Nika (Sochi, Russia) (15)............................. 51% AS Trio LSL (Estonia) (14).................................. 49%
30 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED)
COMPANY JOINT VENTURE (1) OWNERSHIP % - ----------------- ----------- PAGING Baltcom Paging (Estonia) (2)................................ 85% CNM (Romania) (2) (16)...................................... 54% Eurodevelopment (Ukraine) (2)............................... 51% Baltcom Plus (Latvia)....................................... 50% Paging One (Tbilisi, Georgia)............................... 45% Raduga Poisk (Nizhny Novgorod, Russia)...................... 45% PT Page (St. Petersburg, Russia)............................ 40% Kazpage (Kazakhstan) (17)................................... 26-41% Kamalak Paging (Tashkent, Samarkand, Bukhara and Andijan, Uzbekistan)............................................... 50% Alma Page (Almaty and Ust-Kamenogorsk, Kazakhstan).......... 50% Paging Ajara (Batumi, Georgia).............................. 35% Mobile Telecom (Russia) (18)................................ 50%
- ------------------------ (1) Each parenthetical notes the area of operations for each operational joint venture or the area for which each pre-operational joint venture is licensed. (2) Results of operations are consolidated with the Company's financial statements. (3) The Communications Group is selling its 25% interest to one of the other partners in the venture and the sale is expected to close in the second half of 2000. (4) See note 3 to the consolidated condensed financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations. (5) The Company's interests in Teleport-TP and MTR-Sviaz are held through its wholly owned subsidiary Technocom Limited. (6) In August 1998, the Communications Group acquired a 76% interest in Omni-Metromedia Caspian, Ltd., a company that owns 50% of a joint venture in Azerbaijan, Caspian American. Caspian American has been licensed by the Ministry of Communications of Azerbaijan to provide high speed wireless local loop services and digital switching throughout Azerbaijan. Omni-Metromedia has committed to provide up to $40.5 million in loans to Caspian American for the funding of equipment acquisition and operational expenses subject to its concurrence with Caspian American's business plans. Caspian American Telecommunications launched commercial operations in April 1999. In May 1999, the Communications Group sold 2.2% of Omni-Metromedia thereby reducing its ownership interest in Caspian American Telecommunications to 37%. During the fourth quarter of 1999, the Company determined that there was a decline in value of its investment in Caspian American that was other than temporary and has recorded the decline of $9.9 million as an impairment charge. (7) CPY Yellow Pages is the publisher of a yellow pages directory in St. Petersburg. (8) Cardlink ZAO is utilizing proprietary wireless technology for the processing and management of wireless electronic transactions, initially in Moscow. (9) The Communications Group currently owns 49% of a joint venture in China licensed to provide e-commerce trading support systems to the Chinese partner in the joint venture. The partner is a 31 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) domestic trading company pursuing internet-based commerce among Chinese state-owned enterprises. The Company is currently negotiating to obtain a 98% ownership interest in Huaxia JV upon Chinese government approval of a revised joint venture contract. (10) Launched service in June 1999. (11) The Communications Group is currently negotiating to increase its ownership interest to 76%. (12) The Communications Group is currently negotiating to increase its ownership interest to 65%. (13) The Communications Group disposed of the operations of News Talk Radio on July 28, 2000. (14) Radio Katusha includes two radio stations operating in St. Petersburg, Russia. AS Trio LSL and Radio Georgia include five radio stations operating in various cities throughout Estonia and two radio stations operating in Georgia, respectively. (15) The Company's ownership interest was sold on June 30, 2000. (16) Joint venture is currently in liquidation. (17) Kazpage is comprised of a service entity and 10 paging joint ventures that provide services in Kazakhstan. The Company's interest in the joint ventures ranges from 26% to 41% and its interest in the service entity is 51%. (18) The Company purchased its 50% interest in Mobile Telecom and a related paging distribution company in June 1998 for $7.5 million plus two potential earnout payments to be made in 2000 and 2001. The Company has not yet made any earnout payments, based on the operational results of the ventures. Approximately $7.0 million of the purchase price was allocated to goodwill. SNAPPER Snapper manufactures Snapper-Registered Trademark- brand premium-priced power lawnmowers, lawn tractors, garden tillers, snowthrowers and related parts and accessories. The lawnmowers include rear engine riding mowers, front-engine riding mowers or lawn tractors, and self-propelled and push-type walk-behind mowers. Snapper also manufactures a line of commercial lawn and turf equipment under the Snapper brand. Snapper provides lawn and garden products through distribution channels to domestic and foreign retail markets. CERTAIN DISPOSITIONS OF ASSETS AND OTHER COMPANY INFORMATION On November 1, 1995, as a result of the mergers of Orion Pictures Corporation and Metromedia International Telecommunications, Inc. with and into wholly-owned subsidiaries of the Company and of MCEG Sterling Incorporated with and into the Company, the Company changed its name from "The Actava Group Inc." to "Metromedia International Group, Inc." As part of the November 1, 1995 merger, the Company acquired approximately 39% of RDM Sports Group, Inc. On August 29, 1997, RDM and certain of its affiliates filed voluntary bankruptcy petitions under chapter 11. The Company does not believe it will receive any funds in respect of its equity interest in RDM. Certain statements set forth below under this caption constitute "Forward-Looking Statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. See "Special Note Regarding Forward-Looking Statements" on page 70. SEGMENT INFORMATION The following tables set forth operating results for the three and six months ended June 30, 2000 and 1999, for the Company's Communications Group and Snapper. 32 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) SEGMENT INFORMATION THREE MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS) SEE NOTE 1
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION ---------------------------------------------------------------------------------- SEGMENT WIRELESS FIXED CABLE RADIO HEAD- TELEPHONY TELEPHONY TELEVISION BROADCASTING PAGING QUARTERS TOTAL --------- --------- ---------- ------------ -------- -------- -------- COMBINED Revenues.......................... $21,464 $29,154 $ 9,573 $3,425 $2,651 $ 1,306 $ 67,573 Depreciation and amortization..... 5,687 5,604 3,039 346 248 8,122 23,046 Operating income (loss)........... 4,720 4,816 588 (902) (1,061) (14,256) (6,095) CONSOLIDATED Revenues.......................... $ 3,388 $22,143 $ 1,986 $3,121 $ 512 $ 1,306 $ 32,456 Gross profit...................... Depreciation and amortization..... 1,259 4,008 710 299 73 8,122 14,471 Reduction in estimate of asset impairment charge............... -- -- -- -- -- -- -- Operating income (loss)........... (975) 4,539 52 (731) (245) (14,256) (11,616) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $18,076 $ 7,011 $ 7,587 $ 304 $2,139 $ -- $ 35,117 Depreciation and amortization..... 4,428 1,596 2,329 47 175 -- 8,575 Operating income (loss)........... 5,695 277 536 (171) (816) -- 5,521 Net income (loss)................. 3,431 (225) (1,915) (202) (1,028) -- 61 Equity in income (losses) of unconsolidated investees (note 2).............................. 4,450 (434) (419) (389) (776) -- 2,432 Foreign currency gain............. 519 Minority interest................. (1,613) Interest expense.................. Interest income................... Income tax expense................ Net loss.......................... COMMUNICATIONS CORPORATE GROUP-CHINA SNAPPER HEADQUARTERS CONSOLIDATED -------------- -------- ------------ ------------ COMBINED Revenues.......................... Depreciation and amortization..... Operating income (loss)........... CONSOLIDATED Revenues.......................... $ -- $52,427 $ -- $ 84,883 Gross profit...................... 18,131 Depreciation and amortization..... 50 1,536 18 16,075 Reduction in estimate of asset impairment charge............... (3,984) -- -- (3,984) Operating income (loss)........... 2,322 3,363 (1,706) (7,637) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $ -- Depreciation and amortization..... 25 Operating income (loss)........... (540) Net income (loss)................. (538) Equity in income (losses) of unconsolidated investees (note 2).............................. (538) -- -- 1,894 Foreign currency gain............. -- -- -- 519 Minority interest................. (202) -- -- (1,815) Interest expense.................. (8,092) Interest income................... 632 Income tax expense................ (2,103) -------- Net loss.......................... $(16,602) ========
- --------------- Note 1: The Company evaluates the performance of its operating segments based on earnings before interest, taxes, depreciation, and amortization. The above segment information and the discussion of the Company's operating segments is based on operating income (loss) which includes depreciation and amortization. In addition, the Company evaluates the performance of the Communications Group's operating segment in Eastern Europe and the republics of the former Soviet Union on a combined basis. The Company is providing as supplemental information an analysis of combined revenues and operating income (loss) for its consolidated and unconsolidated joint ventures in Eastern Europe and the republics of the former Soviet Union. As previously discussed, legal restrictions in China prohibit foreign participation in the operations or ownership in the telecommunications sector. The above segment information for the Communications Group's China joint ventures represents, in part, the investment in network construction and development of telephony networks for China Unicom. The above segment information does not reflect the results of operations of China Unicom's telephony networks. The Company terminated operations of its joint ventures formerly engaged in cooperation with China Unicom pursuant to a Chinese government ruling that demanded the termination. These joint ventures executed settlement contracts with China Unicom on December 3, 1999, the terms of which include substantial payments to the joint ventures from China Unicom. Note 2: Equity in income (losses) of unconsolidated investees reflects elimination of intercompany interest expense. 33 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) SEGMENT INFORMATION THREE MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION ---------------------------------------------------------------------------------- SEGMENT WIRELESS FIXED CABLE RADIO HEAD- TELEPHONY TELEPHONY TELEVISION BROADCASTING PAGING QUARTERS TOTAL --------- --------- ---------- ------------ -------- -------- -------- COMBINED Revenues.......................... $ 8,964 $ 5,470 $ 8,307 $3,400 $3,506 $ 691 $ 30,338 Depreciation and amortization..... 3,639 520 3,343 211 145 1,256 9,114 Operating loss.................... (419) (278) (249) (846) (230) (7,543) (9,565) CONSOLIDATED Revenues.......................... $ -- $ -- $ 1,413 $2,916 $ 801 $ 691 $ 5,821 Gross profit...................... Depreciation and amortization..... -- -- 510 148 16 1,256 1,930 Operating income (loss)........... -- -- (120) (789) (146) (7,543) (8,598) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $ 8,964 $ 5,470 $ 6,894 $ 484 $2,705 $ -- $ 24,517 Depreciation and amortization..... 3,639 520 2,833 63 129 -- 7,184 Operating income (loss)........... (419) (278) (129) (57) (84) -- (967) Net loss.......................... (3,448) (1,364) (2,230) (76) (431) -- (7,549) Equity in income (losses) of unconsolidated investees (note 2).............................. (1,716) (1,468) (875) (66) (241) -- (4,366) Foreign currency loss............. (2,286) Minority interest................. 331 Interest expense.................. Interest income................... Income tax expense................ Net loss.......................... COMMUNICATIONS CORPORATE GROUP-CHINA SNAPPER HEADQUARTERS CONSOLIDATED -------------- -------- ------------ ------------ COMBINED Revenues.......................... Depreciation and amortization..... Operating loss.................... CONSOLIDATED Revenues.......................... $ -- $59,184 $ -- $ 65,005 Gross profit...................... 20,450 Depreciation and amortization..... 790 1,498 2 4,220 Operating income (loss)........... (3,526) 7,332 (1,576) (6,368) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $ 1,515 Depreciation and amortization..... 1,034 Operating income (loss)........... 279 Net loss.......................... (616) Equity in income (losses) of unconsolidated investees (note 2).............................. 118 -- -- (4,248) Foreign currency loss............. -- -- -- (2,286) Minority interest................. 2,052 -- -- 2,383 Interest expense.................. (3,523) Interest income................... 2,546 Income tax expense................ (111) -------- Net loss.......................... $(11,607) ========
34 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) SEGMENT INFORMATION SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS)
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION ---------------------------------------------------------------------------------- SEGMENT WIRELESS FIXED CABLE RADIO HEAD- TELEPHONY TELEPHONY TELEVISION BROADCASTING PAGING QUARTERS TOTAL --------- --------- ---------- ------------ -------- -------- -------- COMBINED Revenues.......................... $41,375 $56,643 $18,959 $8,723 $5,420 $ 1,985 $133,105 Depreciation and amortization..... 11,500 11,004 6,237 677 494 16,426 46,338 Operating income (loss)........... 7,750 5,414 362 (592) (1,292) (26,775) (15,133) CONSOLIDATED Revenues.......................... $ 6,882 $42,400 $ 3,516 $7,874 $1,044 $ 1,985 $ 63,701 Gross profit...................... Depreciation and amortization..... 2,557 8,017 1,392 577 145 16,426 29,114 Reduction in estimate of asset impairment charge............... -- -- -- -- -- -- -- Operating income (loss)........... (1,874) 7,028 (328) (402) (251) (26,775) (22,602) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $34,493 $14,243 $15,443 $ 849 $4,376 $ -- $ 69,404 Depreciation and amortization..... 8,943 2,987 4,845 100 349 -- 17,224 Operating income (loss)........... 9,624 (1,614) 690 (190) (1,041) -- 7,469 Net income (loss)................. 4,751 (3,088) (3,825) (254) (1,536) -- (3,952) Equity in income (losses) of unconsolidated investees (note 2).............................. 6,999 (1,958) (812) (426) (1,121) -- 2,682 Foreign currency gain............. 41 Minority interest................. (2,251) Interest expense.................. Interest income................... Gain on settlement of option...... Income tax expense................ Net loss.......................... COMMUNICATIONS CORPORATE GROUP-CHINA SNAPPER HEADQUARTERS CONSOLIDATED -------------- -------- ------------ ------------ COMBINED Revenues.......................... Depreciation and amortization..... Operating income (loss)........... CONSOLIDATED Revenues.......................... $ -- $102,530 $ -- $166,231 Gross profit...................... 35,615 Depreciation and amortization..... 102 3,015 35 32,266 Reduction in estimate of asset impairment charge............... (3,984) -- -- (3,984) Operating income (loss)........... 417 7,528 (3,057) (17,714) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $ -- Depreciation and amortization..... 25 Operating income (loss)........... (540) Net income (loss)................. (538) Equity in income (losses) of unconsolidated investees (note 2).............................. (538) -- -- 2,144 Foreign currency gain............. -- -- -- 41 Minority interest................. 1,255 -- -- (996) Interest expense.................. (16,020) Interest income................... 1,523 Gain on settlement of option...... 2,500 Income tax expense................ (4,611) -------- Net loss.......................... $(33,133) ========
35 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) SEGMENT INFORMATION SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS)
COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION ---------------------------------------------------------------------------------- SEGMENT WIRELESS FIXED CABLE RADIO HEAD- TELEPHONY TELEPHONY TELEVISION BROADCASTING PAGING QUARTERS TOTAL --------- --------- ---------- ------------ -------- -------- -------- COMBINED Revenues.......................... $17,920 $11,639 $16,288 $9,292 $8,277 $ 918 $ 64,334 Depreciation and amortization..... 6,555 1,061 6,798 662 611 2,166 17,853 Operating income (loss)........... (873) 757 (1,409) (1,271) (1,107) (14,029) (17,932) CONSOLIDATED Revenues.......................... $ -- $ -- $ 2,661 $8,105 $1,745 $ 918 $ 13,429 Gross profit...................... Depreciation and amortization..... -- -- 953 531 307 2,166 3,957 Operating income (loss)........... -- -- (178) (1,253) (1,299) (14,029) (16,759) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $17,920 $11,639 $13,627 $1,187 $6,532 $ -- $ 50,905 Depreciation and amortization..... 6,555 1,061 5,845 131 304 -- 13,896 Operating income (loss)........... (873) 757 (1,231) (18) 192 -- (1,173) Net loss.......................... (5,479) (2,653) (3,967) (88) (200) -- (12,387) Equity in losses of unconsolidated investees (note 2).............. (2,244) (2,146) (1,237) (80) (79) -- (5,786) Foreign currency loss............. (2,794) Minority interest................. 624 Interest expense.................. Interest income................... Income tax expense................ Net loss.......................... COMMUNICATIONS CORPORATE GROUP-CHINA SNAPPER HEADQUARTERS CONSOLIDATED -------------- -------- ------------ ------------ COMBINED Revenues.......................... Depreciation and amortization..... Operating income (loss)........... CONSOLIDATED Revenues.......................... $ -- $119,218 $ -- $132,647 Gross profit...................... 40,543 Depreciation and amortization..... 1,574 3,053 3 8,587 Operating income (loss)........... (7,073) 10,651 (2,933) (16,114) UNCONSOLIDATED JOINT VENTURES Revenues.......................... $ 2,527 Depreciation and amortization..... 1,716 Operating income (loss)........... 331 Net loss.......................... (1,776) Equity in losses of unconsolidated investees (note 2).............. (147) -- -- (5,933) Foreign currency loss............. -- -- -- (2,794) Minority interest................. 4,228 -- -- 4,852 Interest expense.................. (6,929) Interest income................... 4,246 Income tax expense................ (205) -------- Net loss.......................... $(22,877) ========
36 RESULTS OF OPERATIONS--THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999, AND SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 LEGEND C = Consolidated D = Dissolution E = Equity method P = Pre-operational N/A = Not applicable N/M = Not meaningful COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION Operations in Eastern Europe and the republics of the former Soviet Union provide the following services: (i) wireless telephony; (ii) fixed telephony; (iii) cable television; (iv) radio broadcasting; and (v) paging. Certain of the Communications Group's ventures pay management fees to their shareholders. The figures presented for the ventures reflect all payments of such fees (i.e. management fees are included in operating expenses in the same way as other expenses of the ventures). Certain of the Communications Group's investments have been written down to zero and, since the Communications Group no longer funds their operations, the results of these ventures are no longer reported. WIRELESS TELEPHONY The following sets forth the names, ownership percentage and accounting treatment of the Communications Group's wireless telephony ventures as of and for the three and six months ended June 30, 2000 and 1999:
JUNE 30, ------------------- VENTURE OWNERSHIP % 2000 1999 - ------- ----------- -------- -------- ALTEL* (Almaty, Kazakhstan)................................. 50% C N/A Baltcom GSM (Latvia)........................................ 22% E E Magticom (Tbilisi, Georgia)................................. 35% E E Tyumenruskom (Tyumen, Russia)............................... 46% E P BELCEL* (Minsk, Belarus).................................... 50% E N/A
- ------------------------ * Acquired in connection with the Company's acquisition of PLD Telekom on September 30, 1999. 37 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) The following table sets forth the revenues and operating loss for consolidated wireless telephony ventures (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ WIRELESS TELEPHONY--CONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - -------------------------------- -------- -------- -------- -------- -------- -------- Revenues...................................... $3,388 $ -- N/A $ 6,882 $ -- N/A Operating loss................................ $ (975) $ -- N/A $(1,874) $ -- N/A
REVENUES. Wireless telephony consolidated revenues for the six months ended June 30, 2000 amounted to $6.9 million and were attributable to ALTEL, the Kazakhstan D-AMPS operator acquired with PLD Telekom Inc. in September 1999. ALTEL's revenues for the first six months of 1999 amounted to $13.8 million. ALTEL's first half year 2000 revenues continued to be adversely affected by competition from two GSM operators who entered the Kazakhstan market in 1999. Wireless telephony consolidated revenues for the three months ended June 30, 2000 amounted to $3.4 million. OPERATING LOSS. As a result of the above mentioned competition from the two GSM operators, ALTEL in March 2000 lowered its tariffs and moved to a one second billing step from the previous full minute billing step. The resultant reduction in operating margins together with the reduced revenues led the venture to report an operating loss of $1.9 million for the six months ended June 30, 2000, compared to operating income of $2.8 million for the same period in 1999. The long term effect of ALTEL's change in tariffs and billing steps on revenues is uncertain. However, continued competition in the remainder of 2000 is likely to have further adverse effects on the venture's operating results. Wireless telephony consolidated operating losses for the three months ended June 30, 2000 amounted to $975,000. The following table sets forth the revenues, operating income (loss), net income (loss), equity in income (losses) of the unconsolidated joint ventures, which are recorded under the equity method (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ WIRELESS TELEPHONY--UNCONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - ---------------------------------- -------- -------- -------- -------- -------- -------- Revenues..................................... $18,076 $ 8,964 102% $34,493 $17,920 92% Operating income (loss)...................... $ 5,695 $ (419) N/M $ 9,624 $ (873) N/M Net income (loss)............................ $ 3,431 $(3,448) N/M $ 4,751 $(5,479) N/M Equity in income (losses) of joint ventures................................... $ 4,450 $(1,716) N/M $ 6,999 $(2,244) N/M
EQUITY IN INCOME (LOSSES) OF JOINT VENTURES. The share in income from investments in wireless telephony ventures for the six months ended June 30, 2000 amounted to $7.0 million, compared to losses of $2.2 million in the six months ended June 30, 1999. These results were attributable mainly to GSM wireless operations in Latvia and Georgia. In Latvia, Baltcom GSM's six months ended June 30, 2000 revenues increased by 58% to $17.4 million from $11.0 million in the six months ended June 30, 1999. In late 1999 the three month reporting lag for Baltcom GSM was eliminated. Accordingly, first half year 2000 revenues for the venture represented results for the six months ended June 30, 2000, whereas first half year 1999 results represented those of the six months ended March 31, 1999. The increase in the six months ended June 30, 2000 revenues as compared with the six months ended June 30, 1999 was due primarily to 38 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) continued subscriber growth and wider service area coverage, as well as the above mentioned reporting lag elimination. Baltcom GSM's operating profit for the first six months of 2000 increased to $2.7 million from a loss of $585,000 in the six months ended June 30, 1999. In Georgia, Magticom's six months ended June 30, 2000 revenues amounted to $13.3 million, a 93% increase on the six months ended June 30, 1999 revenues of $6.9 million and due in part to the settlement of a legal claim of $1.8 million in the venture's favor in early 2000. In addition, revenues increased due to strong subscriber growth. As a result of the above, Magticom achieved a net income of $6.9 million in the first six months of 2000, as compared to a net loss of $2.0 million during the first six months of 1999. Magticom's future growth could be adversely affected by the recent emergence of competing wireless networks in Georgia. Other ventures in this category include BELCEL, which operates an NMT 450 wireless network in Belarus and was acquired with PLD Telekom in September 1999, and Tyumenruscom, the D-AMPS operator in Tyumen, Russia. These ventures jointly generated revenues of $3.8 million and net losses of $1.0 million in the first half year 2000. The share in income from investments in wireless telephony ventures for the three months ended June 30, 2000 amounted to $4.5 million, compared to losses of $1.7 million for the three months ended June 30, 1999. In Latvia, Baltcom GSM reported operating income of $1.6 million for the three months ended June 30, 2000 compared with operating losses of $356,000 for the three months ended June 30, 1999. In Georgia, for the three months ended June 30, 2000 Magticom had operating income of $4.2 million as compared with an operating loss of $63,000 in the corresponding period of 1999. For the three months ended June 30, 2000 operating losses for Tyumenruscom and BELCEL jointly amounted to $73,000. FIXED TELEPHONY The following sets forth the names, ownership percentage and accounting treatment of the Communications Group's fixed telephony ventures as of and for the three and six months ended June 30, 2000 and 1999:
JUNE 30 ------------------- VENTURE OWNERSHIP % 2000 1999 - ------- ----------- -------- -------- Technocom (Moscow, Russia)*................................. 100% C N/A PeterStar (St. Petersburg, Russia)*......................... 71% C N/A Baltic Communications (St. Petersburg, Russia)*............. 100% C N/A Instaphone (Kazakhstan)**................................... 50% E E MTR Sviaz*.................................................. 49% E N/A Caspian American Telecommunications (Azerbaijan)............ 38% E P Telecom Georgia (Tbilisi, Georgia).......................... 30% E E Spectrum (Kazakhstan)**..................................... 33% E E
- ------------------------ * Acquired in connection with the Company's acquisition of PLD Telekom on September 30, 1999. ** Results not reported. 39 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) The following table sets forth the revenues and operating income (loss) for the consolidated fixed telephony ventures (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ FIXED TELEPHONY--CONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - ----------------------------- -------- -------- -------- -------- -------- -------- Revenues...................................... $22,143 $ -- N/A $42,400 $ -- N/A Operating income.............................. $ 4,539 $ -- N/A $ 7,028 $ -- N/A
REVENUES. Fixed telephony consolidated revenues for the six months ended June 30, 2000 amounted to $42.4 million and were attributable to subsidiaries acquired in connection with the Company's acquisition of PLD Telecom on September 30, 1999. The most significant ventures acquired were PeterStar, which operates a fully digital, city-wide fiber optic telecommunications network in St Petersburg, Russia, and Technocom, which through Teleport-TP operates Moscow-based long distance and international telephony networks using satellite and fiber optic technology. The Company also acquired Baltic Communications, which provides international direct dial, payphone and leased line services for Russian and international businesses in St Petersburg, Russia. In the first six months of 2000 PeterStar generated revenues of $26.9 million as compared to $27.7 million in the same period in 1999, with the reduction due primarily to lower installation revenue in 2000. In the first six months of 2000, Technocom generated revenues of $11.6 million compared to $9.0 million in the same period in 1999. The venture continued to experience higher international and long distance traffic volumes in the six months ended June 30, 2000 which caused Technocom's revenues to increase compared to those in 1999. Technocom's traffic levels in the remaining part of 2000 are expected to continue to improve. Fixed telephony consolidated revenues for the three months ended June 30, 2000 amounted to $22.1 million. PeterStar's revenues for the three months ended June 30, 2000 amounted to $13.9 million, a slight increase on revenues of $13.8 million generated in the same period in 1999. Technocom's revenues increased from $4.7 million for the three months ended June 30, 1999 to $6.4 million in the same period in 2000. OPERATING INCOME. During the six months ended June 30, 2000, fixed telephony consolidated ventures generated operating income of $7.0 million. PeterStar's operating income for the six months ended June 30, 2000 amounted to $9.6 million compared to $8.6 million for the six months ended June 30, 1999. PeterStar's profitability for the six months ended June 30, 2000 was favorably affected by reduced overhead expenses. Technocom generated an operating loss of $508,000 during the first six months of 2000 compared to a loss of $6.2 million in the corresponding period in 1999. The reduction of Technocom's operating loss was due to a restructuring of operations in early 1999 resulting in reduced overhead expense and also to the above mentioned increases in revenue. Fixed telephony operating profits for the three months ended June 30, 2000 amounted to $4.5 million. PeterStar's operating income for the three months ended June 30, 2000 increased by $1.1 million from $4.5 million in the same period of 1999 to $5.6 million for the three months ended June 30, 2000. Technocom generated for the three months ended June 30, 2000 operating income of $31,000 as compared with an operating loss of $2.3 million in the corresponding period of 1999. 40 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) The following table sets forth the revenues, operating income (loss), net loss and equity in losses of the unconsolidated fixed telephony joint ventures which are recorded under the equity method (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ FIXED TELEPHONY--UNCONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - ------------------------------- -------- -------- -------- -------- -------- -------- Revenues.................................... $7,011 $ 5,470 28% $14,243 $11,639 22% Operating income (loss)..................... $ 277 $ (278) N/M $(1,614) $ 757 N/M Net loss.................................... $ (225) $(1,364) (84)% $(3,088) $(2,653) 16% Equity in losses of joint ventures.......... $ (434) $(1,468) (70)% $(1,958) $(2,146) (9)%
EQUITY IN LOSSES OF JOINT VENTURES. The Communications Group's share in losses from investments in fixed telephony ventures for the six months ended June 30, 2000 decreased to $2.0 million from $2.1 million in the six months ended June 30 1999. These results were attributable mainly to the operations of Telecom Georgia and Caspian American Telephone ("CAT"). In the first six months of 2000, Telecom Georgia generated revenues of $12.4 million compared to revenues of $11.6 million in the first six months of 1999. Telecom Georgia's operating losses for the period amounted to $599,000 as compared with operating income of $940,000 achieved in the first six months of 1999. The venture's first six months of 2000 operating results were adversely affected by higher interconnect costs and by local competition. CAT generated revenues of $973,000 in the first six months of 2000 and reported operating losses and net losses for the period of $1.2 million and $1.9 million, respectively. Results for the six months ended June 30, 1999 are not applicable as the venture was pre-operational at that time. High start up costs and slow build up of the venture's customer base continued to adversely affect CAT's results. In late 1999 the Company recorded an impairment charge of $9.9 million in the value of its investment in this venture. The Communications Group is reviewing various options to maximize the value of this venture. The above results also include those of MTR Sviaz which was acquired with PLD Telekom on September 30, 1999 and operates a Moscow-based telephony network using fiber optic technology. During the six months ended June 30, 2000 MTR Sviaz generated revenues of $919,000 and an operating income of $156,000, as compared to revenues of $730,000 and operating income of $60,000 in the same period of 1999. The venture's results are expected to improve over the remainder of 2000 as a result of improved cross-marketing opportunities with Mosenergo, the Company's 51% partner in MTR Sviaz. The Communications Group's share in losses from investments in fixed telephony ventures for the three months ended June 30, 2000 decreased by 70% to $434,000 from $1.5 million during the same period in 1999. Telecom Georgia generated for the three months ended June 30, 2000 operating income of $549,000 as compared with an operating loss of $201,000 for the same period of 1999. CAT still in its first year of operation, reported for the three months ended June 30, 2000 operating losses of $364,000. 41 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) CABLE TELEVISION The following sets forth the names, ownership percentage and accounting treatment of the Communications Group's cable television ventures as of and for the three and six months ended June 30, 2000 and 1999:
JUNE 30 ------------------- VENTURE OWNERSHIP % 2000 1999 - ------- ----------- -------- -------- Romsat Cable TV (Bucharest, Romania)........................ 100% C C Ala TV (Bishkek, Kyrgyzstan)................................ 53% C N/A Viginta (Vilnius, Lithuania)................................ 55% C C ATK (Archangelsk, Russia)................................... 81% C C Kosmos TV (Moscow, Russia).................................. 50% E E Baltcom TV (Riga, Latvia)................................... 50% E E Ayety TV (Tbilisi, Georgia)................................. 49% E E Kamalak TV (Tashkent, Uzbekistan)........................... 50% E E Sun TV (Chisinau, Moldova).................................. 50% E E Alma TV (Almaty, Kazakhstan)................................ 50% E E Cosmos TV (Minsk, Belarus).................................. 50% E E Teleplus (St. Petersburg, Russia)*.......................... 45% E E
- ------------------------ * Results not reported. The following table sets forth the revenues and operating loss for consolidated cable television ventures (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ CABLE TELEVISION--CONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - ------------------------------ -------- -------- -------- -------- -------- -------- Revenues..................................... $1,986 $1,413 41% $3,516 $2,661 32% Operating loss............................... $ 52 $ (120) N/M $ (328) $ (178) 84%
REVENUES. Cable television operations generated consolidated revenues of $3.5 million in the first six months of 2000, representing a 32% increase on first half year 1999 consolidated revenues of $2.7 million. The majority of consolidated revenues were attributable to Romsat, Viginta, and ATK. In Romania, Romsat reported revenues of $2.3 million for the six months ended June 30, 2000 as compared to revenues of $1.9 million in the same period of 1999 due to increased subscriber numbers, and incremental revenues generated by the Devasat operation which was acquired by Romsat in late 1999. In Lithuania, Viginta generated revenues of $655,000 in the first six months of 2000, representing an increase of 27% on the six months ended June 30, 1999 revenues of $516,000 and attributable to higher subscriber numbers. ATK, which recently commenced operations in Arkhangelsk, Russia, reported revenues of $481,000 for the first six months of 2000, a 77% increase on revenues for the same period in 1999 when the venture was still in its start up phase. In the three months ended June 30, 2000 cable television operations generated consolidated revenues of $2.0 million, being 41% higher than consolidated revenues generated in the corresponding period of 1999. Romsat generated for the three months ended June 30, 2000 revenues of $1.3 million, a 37% increase on revenues of $982,000 reported during the same period in 1999. For the three months ended 42 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) June 30, 2000, Viginta's revenues amounted to $335,000 compared with the corresponding period in 1999 revenues of $265,000. ATK had revenues of $251,000 for the three months ended June 30, 2000, a 51% increase compared with the same period of 1999 revenues of $166,000. For the remainder of 2000 consolidated revenues arising from cable operations are expected to continue to grow as a result of improved programming, network expansion, tariff increases and possible further acquisitions. OPERATING LOSS. Cable television reported consolidated operating losses for the first six months of 2000 of $328,000, compared to the six months ended June 30, 1999 operating losses of $178,000. Romsat reported for the six months ended June 30, 2000 operating income of $238,000 compared to $137,000 for the same period in 1999, mainly due to the effects of the Devasat business acquired in late 1999. Viginta's operating loss for the six months ended June 30, 2000 decreased to $179,000 as compared to $384,000 in the corresponding period in 1999, the improvement is due to the above mentioned increase in revenues. ATK reported six months ended June 30, 2000 operating losses of $197,000, as compared to six months ended June 30, 1999 operating losses of $116,000. For the three months ended June 30, 2000, cable television consolidated operating income amounted to $52,000 as compared with operating losses of $120,000 for the corresponding period in 1999. Romsat had for the three months ended June 30, 2000 operating income of $274,000 as compared with an operating loss of $66,000 for the same period of 1999. Viginta reported an operating loss of $38,000 for the three months ended June 30, 2000 compared to $235,000 in the same period of 1999. ATK's operating loss increased from $19,000 for the three months ended June 30, 1999 to $101,000 in the same period of 2000. The following table sets forth the revenues, operating income (loss), net loss and equity in losses of unconsolidated cable television joint ventures, which are recorded under the equity method (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ CABLE TELEVISION--UNCONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - -------------------------------- -------- -------- -------- -------- -------- -------- Revenues.................................... $ 7,587 $ 6,894 10% $15,443 $13,627 13% Operating income (loss)..................... $ 536 $ (129) N/M $ 690 $(1,231) N/M Net loss.................................... $(1,915) $(2,230) (14)% $(3,825) $(3,967) (4)% Equity in losses of joint ventures.......... $ (419) $ (875) (52)% $ (812) $(1,237) (34)%
EQUITY IN LOSSES OF JOINT VENTURES. The Communications Group's share in losses from equity investments in cable television ventures in the six months ended June 30, 2000 amounted to $812,000, compared to losses of $1.2 million in the six months ended June 30, 1999. The operating results for unconsolidated cable television ventures were mainly attributable to Baltcom TV in Latvia, Kosmos TV in Moscow and Alma TV in Kazakhstan. Baltcom TV reported revenues of $3.6 million in the first six months of 2000, a 9% increase on the same period in 1999 revenues of $3.3 million due to increases in subscriber numbers arising from improved programming. The venture reported operating income of $522,000 in the first six months of 2000 compared to $498,000 in the first six months of 1999. Kosmos TV's revenues increased by $300,000 in the six months ended June 30, 2000 to $3.1 million from $2.8 million in the same period of 1999 due to increased subscriber numbers. The venture 43 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) generated operating income of $105,000 for the first six months of 2000 as compared with operating losses of $323,000 for the same period in 1999. Alma TV's revenues increased from $2.4 million in the six months ended June 30, 1999 to $3.1 million in the six months ended June 30, 2000 due to growth of subscriber numbers and continued geographic expansion in Kazakhstan. However, due to increased costs associated with improved programming, the venture reported a decrease in operating income of $128,000 in the first six months of 2000. Alma TV expects to improve profitability over the remainder of 2000 with the continued build out of its networks and improved subscriber management. The Communications Group's share in losses from equity investments in cable television ventures for the three months ended June 30, 2000 amounted to $419,000, 52% less than losses of $875,000 recorded in the same period of 1999. Baltcom TV reported for the three months ended June 30, 2000 operating income of $227,000, down 21% on the same period in 1999 operating income of $287,000. Kosmos TV had operating income of $6,000 in the three months ended June 30, 2000 as compared with $158,000 in the corresponding period of 1999. Alma TV's operating income for the three months ended June 30, 2000 amounted to $28,000, down slightly from the same period of 1999 operating income of $47,000. RADIO BROADCASTING The following sets forth the names, ownership percentage and accounting treatment of the Communications Group's radio broadcasting ventures as of and for the three and six months ended June 30, 2000 and 1999:
JUNE 30, ------------------- VENTURE OWNERSHIP % 2000 1999 - ------- ----------- -------- -------- Radio Juventus (Budapest, Hungary).......................... 100% C C SAC (Moscow, Russia)........................................ 83% C C Radio Skonto (Riga, Latvia)................................. 55% C C Radio One (Prague, Czech Republic).......................... 80% C C NewsTalk Radio (Berlin, Germany)............................ 85% C C Radio Vladivostok (Vladivostok, Russia)..................... 51% C C Country Radio (Prague, Czech Republic)...................... 85% C C Radio Georgia (Tbilisi, Georgia)............................ 51% C C Radio Katusha (St. Petersburg, Russia)...................... 75% C C Radio Nika (Socci, Russia).................................. 51% E E AS Trio LSL (Tallinn, Estonia).............................. 49% E E
The following table sets forth the revenues and operating loss for consolidated radio broadcasting ventures (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ RADIO--CONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - ------------------- -------- -------- -------- -------- -------- -------- Revenues..................................... $3,121 $2,916 7% $7,874 $ 8,105 (3)% Operating loss............................... $ (731) $ (789) (7)% $ (402) $(1,253) (68)%
REVENUES. Radio operations reported consolidated revenues of $7.9 million in the first six months of 2000, representing a 3% decrease compared with the same period in 1999 revenues of $8.1 million. The 44 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) majority of revenues were generated by SAC and Radio Katusha in Russia, and Radio Juventus in Hungary. In Russia, SAC and Radio Katusha's revenues rose from $2.1 million and $771,000, respectively, in the six months ended June 30, 1999, when the after effects of the Russian economic crisis in late 1998 were still having an impact on operations, to $2.4 million and $957,000 respectively in the same period of 2000. In Hungary, Radio Juventus in the six months ended June 30, 2000 generated revenues of $3.1 million, down 17% compared with same period of 1999 revenues of $3.7 million. Radio Juventus' results continue to be adversely affected by competition from recently launched national Hungarian radio networks. Consolidated radio revenues for the three months ended June 30, 2000 amounted to $3.1 million, 7% greater than revenues of $2.9 million generated in the corresponding period in 1999. SAC and Radio Katusha in Russia together generated revenues of $1.5 million for three months ended June 30, 2000, compared with $1.3 million in the same period of 1999. In Hungary, Radio Juventus reported for three months ended June 30, 2000 revenues of $1.1 million, down slightly from 1999 revenues of $1.2 million. OPERATING LOSS. Notwithstanding the reduced revenues noted above, in the six months ended June 30, 2000, radio operations generated operating losses of $402,000, down from operating losses of $1.3 million during the same period in 1999. In the six months ended June 30, 2000, profitability was favorably affected by increased revenues at SAC and Radio Katusha. Together these ventures generated operating income of $1.1 million compared to $670,000 in the same period in 1999. In addition, News Talk Radio in Germany reported in the first six months of 2000 operating losses of $1.7 million, representing a 36% decrease in its operating losses of $2.7 million for the corresponding period of 1999. Disposal of the operations of NewsTalk Radio was finalized on July 28, 2000. In Hungary, Radio Juventus generated operating income of $100,000, a decrease of $475,000 compared with the first six months of 1999 operating income of $575,000 due to reduced revenues. The Communications Group's radio businesses generated consolidated operating losses of $731,000 for the three months ended June 30, 2000, as compared with losses of $789,000 for the three months ended June 30, 1999. SAC and Radio Katusha reported operating income of $346,000 and an operating loss of $25,000 for the three months ended June 30, 2000, compared with operating income of $261,000 and $25,000 respectively, in the corresponding period of 1999. Radio Juventus had for the three months ended June 30, 2000 operating losses of $151,000, an increase of $99,000 compared with the corresponding period in 1999. The following table sets forth the revenues, operating loss, net loss and equity in losses of the Communications Group's investment in unconsolidated radio joint ventures, which are recorded under the equity method (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ RADIO--UNCONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - --------------------- -------- -------- -------- -------- -------- -------- Revenues...................................... $ 304 $484 (37)% $ 849 $1,187 (28)% Operating loss................................ $(171) $(57) 200% $(190) $ (18) 956% Net loss...................................... $(202) $(76) 166% $(254) $ (88) 189% Equity in losses of joint ventures............ $(389) $(66) 489% $(426) $ (80) 433%
EQUITY IN LOSSES OF JOINT VENTURES. The Communications Group's share in losses from equity investments in radio ventures amounted to $426,000 in the six months ended June 30, 2000, compared to losses of $80,000 in the six months ended June 30, 1999. These results were partly attributable to a loss of $205,000 on the sale of Radio Nika, Russia, in June 2000. In Estonia, Radio Trio generated revenues of 45 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) $812,000 during the first six months of 2000 compared to $1.1 million during the same period in 1999. The decrease in revenues was attributable to continued competition and contraction of the local advertising market. As a result Radio Trio reported in the six months ended June 30, 2000 operating losses of $180,000 as compared with operating losses of $17,000 in the corresponding 1999 period. The share in losses for the three months ended June 30, 2000 from equity investments in radio joint ventures amounted to $389,000, including the above mentioned loss on the sale of Radio Nika, compared to losses of $66,000 in the same period of 1999. Radio Trio reported for the three months ended June 30, 2000 operating losses of $164,000 compared with operating losses of $50,000 in the same period of 1999. PAGING OVERVIEW. In 1999 the Communications Group stopped funding most paging operations and it continues to manage almost all of its paging ventures on a cash break even basis. The Communications Group will continue to manage its paging businesses to levels not requiring significant additional funding as it continues to review options to maximize the value of its paging investments. Paging ventures generated losses during the six months ended June 30, 2000. For the remainder of the year it is expected that the paging operations will continue to generate losses. The Company has adjusted its investment in certain paging operations which were recorded under the equity method to zero, and unless it provides future funding, will no longer record its proportionate share of any future net losses of these ventures. The following sets forth the names, ownership percentage and accounting treatment of the Communications Group's paging ventures as of and for the three and six months ended June 30, 2000 and 1999:
JUNE 30, ------------------- VENTURE OWNERSHIP % 2000 1999 - ------- ----------- -------- -------- Baltcom Paging (Tallinn, Estonia)........................... 85% C C CNM (Romania)............................................... 54% C C Paging One Services (Austria)............................... 100% N/A C Eurodevelopment (Ukraine)................................... 51% C C Baltcom Plus (Riga, Latvia)*................................ 50% E E Paging One (Tbilisi, Georgia)*.............................. 45% E E Raduga Poisk (Nizhny Novgorod, Russia)*..................... 45% E E PT Page (St. Petersburg, Russia)*........................... 40% E E Kazpage (Kazakhstan)*....................................... 26-41% E E Alma Page (Almaty and Ust-Kamenogorsk, Kazakhstan)*......... 50% E E Paging Ajara (Batumi, Georgia)*............................. 35% E E Kamalak Paging (Tashkent, Samarkand, Bukhara and Andijan, Uzbekistan)............................................... 50% E E Mobile Telecom (Russia)..................................... 50% E E
- ------------------------ * Results not reported. 46 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) The following table sets forth the revenues and operating loss for consolidated paging ventures (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ PAGING--CONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - -------------------- -------- -------- -------- -------- -------- -------- Revenues..................................... $ 512 $ 801 (36)% $1,044 $ 1,745 (40)% Operating loss............................... $(245) $(146) 68% $ (251) $(1,299) (81)%
REVENUES. The Communications Group's paging ventures generated consolidated revenues of $1.0 million in the first six months of 2000, representing a 40% decrease compared with revenues of $1.7 million for the same period in 1999. The decrease was due primarily to continued competition from the wireless telephony market and the disposition of Paging One Services in 1999. A significant portion of the revenues for the six months ended June 30, 2000 were attributable to Eurodevelopment in the Ukraine, whose revenues amounted to $463,000 compared with $339,000 for the same period in 1999 when the venture was in its start up phase. CNM, Romania, generated revenues of $314,000 for the six months ended June 30, 2000 compared to $690,000 in the first six months of 1999. The Communications Group has recently concluded negotiations to dispose of this venture in the third quarter of 2000. Other consolidated paging revenues were attributable to Baltcom Estonia, which had revenues of $267,000 in the first six months of 2000 as compared with $370,000 for the six months ended June 30, 1999. Consolidated paging revenues for the three months ended June 30, 2000 amounted to $512,000, representing a 36% decrease compared with paging revenues during the same period in 1999. OPERATING LOSS. Consolidated operating losses arising from paging operations amounted to $251,000 in the six months of 2000, compared to $1.3 million in the same period in 1999. Operating losses for the six months ended June 30, 1999 were adversely affected by Paging One Services whose operations generated operating losses of $1.3 million for that period and which was disposed of later in 1999. CNM's operating losses, including costs connected with the disposition of the venture, amounted to $267,000 for the six months of 2000 as compared with income of $171,000 for the corresponding period in 1999. Consolidated operating losses arising from paging operations for the three months ended June 30, 2000 amounted to $245,000, 68% higher than the three months ended June 30, 1999 operating losses of $146,000. The following table sets forth the revenues, operating income (loss), net loss and equity in losses of unconsolidated joint ventures, which are recorded under the equity method (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ PAGING--UNCONSOLIDATED 2000 1999 % CHANGE 2000 1999 % CHANGE - ---------------------- -------- -------- -------- -------- -------- -------- Revenues....................................... $ 2,139 $2,705 (21)% $ 4,376 $6,532 (33)% Operating income (loss)........................ $ (816) $ (84) 871% $(1,041) $ 192 N/M Net loss....................................... $(1,028) $ (431) 139% $(1,536) $ (200) 668% Equity in losses of joint ventures............. $ (776) $ (241) 222% $(1,121) $ (79) 1,319%
EQUITY IN LOSSES OF JOINT VENTURES. The Communications Group's share of losses from equity investments in paging ventures for the first six months of 2000 amounted to $1.1 million compared to losses of $79,000 for the same period in 1999 and related primarily to the operations of Mobile Telecom in Moscow. 47 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) Mobile Telecom generated revenues of $3.8 million during the first six months of 2000, a decrease of $1.8 million compared to the same period in 1999. The venture has experienced strong competition from the wireless telephony sector. As a result of decreased revenues, the venture reported a net loss of $1.0 million for the six months ended June 30, 2000 compared to net losses of $161,000 for the six months ended June 30, 1999. For the three months ended June 30, 2000, the Company's share of losses from equity investments in paging ventures amounted to $776,000 compared to losses of $241,000 for the corresponding period in 1999. SEGMENT HEADQUARTERS Segment headquarters operations relate to executive, administrative, logistical and joint venture support activities. The following table sets forth the consolidated revenues and operating loss for the segment headquarters (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ 2000 1999 % CHANGE 2000 1999 % CHANGE -------- -------- -------- -------- -------- -------- Revenues.................................. $ 1,306 $ 691 89% $ 1,985 $ 918 116% Operating loss............................ $(14,256) $(7,543) 89% $(26,775) $(14,029) 91%
REVENUES. Increased revenues in the first six months of 2000 compared to the same period in the prior year reflect continued growth in programming and management fee revenues from the Communications Group's unconsolidated businesses OPERATING LOSS. Operating losses for the first six months of 2000 amounted to $26.8 million, a 91% increase on 1999 first six months operating losses of $14.0 million. Increased operating losses were due to increased depreciation and amortization charges related to goodwill arising from, and telephony licenses acquired pursuant to, the Company's acquisition of PLD Telekom in September 1999, of $12.4 million, and to the revision of the amortization life of goodwill in July 1999 from 25 years to 10 years which increased amortization from $1.3 million in 1999 to $4.3 million in 2000. FOREIGN CURRENCY GAIN (LOSS) AND MINORITY INTEREST The following table sets forth foreign currency gain (loss) and minority interest for the consolidated operations of the Communications Group--Eastern Europe and the republics of the former Soviet Union.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ 2000 1999 % CHANGE 2000 1999 % CHANGE -------- -------- -------- -------- -------- -------- Foreign currency gain (loss)............... $ 519 $(2,286) N/M $ 41 $(2,794) N/M Minority interest.......................... $(1,613) $ 331 N/M $(2,251) $ 624 N/M
Foreign currency gains for the first six months of 2000 amounted to $41,000 compared to losses of $2.8 million in the first six months of 1999 and represented the remeasurement of the ventures' financial statements, in all cases using the U.S. dollar as the functional currency. U.S. dollar transactions are shown at their historical value. Monetary assets and liabilities denominated in local currencies are translated into U.S. dollars at the prevailing period-end exchange rate. All other assets and liabilities are translated at historical exchange rates. Results of operations have been translated 48 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) using the monthly average exchange rates. The foreign currency loss also relates to the transaction differences resulting from the use of these different rates. The first six months of 2000 foreign currency gain resulted primarily from the fluctuation of the U.S. dollar against the local currency in Russia. Large foreign currency losses in 1999 were incurred in connection with the disposal of the Communications Group's Austrian paging venture. Minority interest represents the allocation of income for the three and six months ended June 30, 2000, principally PeterStar, as compared to losses for the three and six months ended June 30, 1999 by the Communications Group's majority owned subsidiaries and joint ventures to its minority ownership interest. COMMUNICATIONS GROUP--CHINA The following sets forth the names, ownership percentage and accounting treatment of the Communications Group's ventures as of and for the three and six months ended June 30, 2000 and 1999:
JUNE 30, ------------------- JOINT VENTURE/SUBSIDIARY OWNERSHIP % 2000 1999 - ------------------------ ----------- -------- -------- WIRELESS TELEPHONY Ningbo Ya Mei Telecommunications Co., Ltd. (Ningbo City, China).................................................... 70% D E Ningbo Ya Lian Telecommunications Co., Ltd. (Ningbo Municipality, China)...................................... 70% D E FIXED TELEPHONY Sichuan Tai Li Feng Telecommunications Co., Ltd. (Sichuan Province, China).......................................... 92% D P Chongqing Tai Le Feng Telecommunications Co., Ltd. (Chongqing Municipality, China)........................... 92% D P INTERNET SERVICES--E-COMMERCE Huaxia Metromedia Information Technology Co., Ltd........... 49% E N/A
49 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) WIRELESS AND FIXED TELEPHONY JOINT VENTURE INFORMATION The Company stopped recording the operations of its China telecommunications joint ventures as of July 1, 1999. The following tables represent summary financial information for the Company's telecommunications joint ventures and their related projects in China as of and for the six and three months ended June 30, 1999, respectively, (in thousands):
THREE MONTHS ENDED JUNE 30, 1999 ----------------------------------------------------- NINGBO NINGBO SICHUAN CHONGQING JV JV II JV JV TOTAL -------- -------- -------- --------- -------- Revenues.......................................... $1,008 $504 $ -- $ 3 $ 1,515 Depreciation and amortization..................... $ (613) $ -- $(239) $(182) $(1,034) Operating income (loss)........................... $ 357 $491 $(341) $(228) $ 279 Net income (loss)................................. $ (151) $417 $(608) $(274) $ (616) Equity in income (losses) of joint ventures....... $ 303 $344 $(334) $(195) $ 118
SIX MONTHS ENDED JUNE 30, 1999 ----------------------------------------------------- NINGBO NINGBO SICHUAN CHONGQING JV JV II JV JV TOTAL -------- -------- -------- --------- -------- Revenues......................................... $ 1,996 $504 $ -- $ 27 $ 2,527 Depreciation and amortization.................... $(1,221) $ -- $(255) $(240) $(1,716) Operating income (loss).......................... $ 650 $476 $(424) $(371) $ 331 Net income (loss)................................ $ (720) $366 $(925) $(497) $(1,776) Equity in income (losses) of joint ventures...... $ 287 $336 $(427) $(343) $ (147)
OVERVIEW. The Company held interests in four telecommunications joint ventures in China, each of which engaged in cooperation contracts with China United Telecommunications Incorporated ("China Unicom") to finance and support development of local telecommunications services. All four of these ventures prematurely terminated operations by order of the Chinese government in 1999. Concurrent with this termination, the Company reached agreement with China Unicom and its Chinese partners in the ventures, for the distribution of approximately $94.7 million (based on the June 30, 2000 exchange rates) in settlement of all claims under the joint venture agreements and cooperation contracts. The Company has received $77.5 million of this estimated total distribution as of June 30, 2000. As of June 30, 2000, the balance of investments in and advances to these joint ventures, exclusive of $15.2 million in goodwill, was approximately $1.9 million. As of June 30, 2000, Sichuan JV and Chongqing JV have been dissolved and all previously agreed upon distributions have been made to the Company in full. Ningbo JV and Ningbo JV II are expected to complete their formal dissolution proceedings with the Chinese government prior to September 2000. Due to favorable resolution of certain matters in connection with the liquidation of the joint ventures, as of June 30, 2000 the Company now estimates it will receive a total distribution from the liquidated joint ventures of $94.7 million, an increase of $4.6 million over prior estimates. This currently estimated $94.7 million in total payments from the joint ventures is insufficient to fully recover the goodwill originally recorded in connection with the Company's investment in these joint ventures. The Company had recorded a non-cash impairment charge of $45.7 million in 1999 for the write-off of goodwill based on its then estimate of amounts to be recovered in dissolution of the ventures. With the $4.6 million increase in the estimated total dissolution proceeds to the Company, 50 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) goodwill was increased by $4.0 million. The remaining goodwill amount at June 30, 2000 is $15.2 million. CHINA INTERNET SERVICES--E-COMMERCE JOINT VENTURE INFORMATION Huaxia JV commenced trial operation of an e-commerce system with China Product Firm in late 1999. The Company considered this business activity to be "pre-operational" since its purpose was to test technical and operational aspects of Huaxia JV's intended computer services and to support China Product Firm's initial trial of commercial online trading services. The technical and operational trials continued successfully through May 2000, but China Product Firm proved unable to successfully launch its intended online trading service. All Warehouse proposed in May 2000 to substantially reduce its equity interest in Huaxia JV and that Huaxia JV be relieved of further contractual obligations to serve All Warehouse's parent company China Product Firm. Negotiations to effect a change in the equity structure of Huaxia JV were concluded in June 2000 and the Company anticipates that it will obtain a 98% ownership interest in Huaxia JV upon Chinese government approval of a revised joint venture contract. The Company's only material cost for its increased ownership position in Huaxia JV will be its increased obligation for future registered capital contributions. Huaxia JV's business mission remains unchanged, except that its initial software development and service efforts will no longer be principally restricted to China Product Firm. Huaxia JV is currently recruiting other China-based clients for its e-commerce support systems and the Company expects this joint venture to enter into commercial operations in the fourth quarter of 2000. For the three months ended June 30, 2000, the Company has recorded an equity in losses of the operations of $538,000 which represents the costs for establishing the joint venture and its technical and operational testing. Huaxia JV does not have any contractual relationship with China Unicom and is engaged in business fundamentally different from that of the Communications Group's earlier joint ventures cooperating with China Unicom. Computer and software services, such as offered by the Huaxia JV, are subject to regulations different from those applied to telecom operations in China. The Communications Group believes that the Company's equity interest in Huaxia JV does not constitute foreign equity investment in telecommunications operations or any other line of business restricted under current Chinese regulations. Furthermore, the Company believes that the Chinese regulatory policy situation and prospects facing Huaxia JV are fundamentally different from the regulatory policy situation and prospects faced by the Communications Group's earlier joint telecommunications projects with China Unicom. In May 2000, the Company made an offer to purchase Twin Poplars LLC for $300,000. Twin Poplars owns a 90% ownership interest in and controls two sino-foreign joint ventures licensed in China to engage in information content provision for print publishers and the internet and internet-based online sales. As of June 30, 2000 the Company had loaned $150,000 to Twin Poplars against a security interest in Twin Poplars China JVs. On July 24, 2000 the Company completed the acquisition of an 80% interest in Twin Poplars and obtained options to acquire the remaining 20%. The acquisition gives the Company 72% ownership in and control over two sino-foreign joint ventures. The Twin Poplars joint ventures provide content and services to Chinese publishers and have completed development of a companion website for internet content provision and online product sales. Both joint ventures are currently operational. The Company is currently evaluating other investment opportunities in China's information industry sector. The Company's majority-owned subsidiary, Metromedia China Corporation, is actively 51 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) negotiating e-commerce and internet ventures similar to the Huaxia JV and Twin Poplars joint ventures. The following table sets forth operating loss, equity in losses of joint ventures and minority interests for the Communications Group's various telephony-related ventures in China (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ 2000 1999 % CHANGE 2000 1999 % CHANGE -------- -------- -------- -------- -------- -------- Operating income (loss)....................... $2,322 $(3,526) N/M $ 417 $(7,073) N/M Equity in income (losses) of joint ventures... $ (538) $ 118 N/M $ (538) $ (147) 266 % Minority interests............................ $ (202) $ 2,052 N/M $1,255 $ 4,228 (70)%
OPERATING LOSS, INCLUDING CHANGE IN ESTIMATE OF ASSET IMPAIRMENT CHARGE. For the three and six months ended June 30, 2000, operating income was $2.3 million and $417,000, respectively. In the comparable periods in the prior years, the Company recorded operating losses of $3.5 million and $7.1 million, respectively. The principal reason for operating income in the current year is the Company's revised estimate of an increase in the expected proceeds of $4.6 million in connection with the dissolution of its telecommunications joint venture. Operating expenses for the three and six months ended June 30, 2000 were $1.9 million and $3.5 million, respectively, as compared to $2.8 million and $5.5 million, respectively, for the three and six months ended June 30, 1999. With the dissolution of its telecommunications joint ventures, the Company has substantially reduced its overhead expenses. EQUITY IN LOSSES OF JOINT VENTURES. For the three and six months ended June 30, 2000, the Company has recorded an equity in losses of the operations of $538,000 which represents the costs for establishing the Huaxia JV and its technical and operational testing. Equity in losses of the Communications Group's joint ventures in China for the three and six months ended June 30, 1999 reflect the operations prior to the joint ventures signing the settlement agreements with China Unicom on December 3, 1999. MINORITY INTERESTS. For the three and six months ended June 30, 2000 and 1999, minority interests represents the allocation of income (losses) to Metromedia China Corporation's minority ownership. INFLATION AND FOREIGN CURRENCY During 1998, and continuing in 1999, a number of emerging market economies suffered significant economic and financial difficulties resulting in liquidity crises, devaluation of currencies, higher interest rates and reduced opportunities for financing. In the early part of 2000, there have been indications that the economic climate may be improving, however, at this time, the prospects for complete recovery for the economies of Russia and the other republics of the former Soviet Union and Eastern Europe negatively affected by the economic crisis remain unclear. The economic crisis of 1998 resulted in a number of defaults by borrowers in Russia and other countries. Although some debt was rescheduled in the first part of 2000, a reduced level of financing remains available to investors in these countries. The devaluation of many of the currencies in the region in 2000 has not been as marked as in previous years but the potential still remains for future negative effect on the U.S. dollar value of the revenues generated by certain of the Communications Group's joint ventures and may lead to certain additional restrictions on the convertibility of certain local currencies. The effect of these uncertainties has negatively impacted the financial performance of certain of the Communications Group's cable television, telephony, radio broadcasting and paging ventures. 52 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) Some of the Communications Group's subsidiaries and joint ventures operate in countries where the inflation rate in the past has been high. For example, inflation in Russia increased dramatically following the August 1998 financial crisis and there are increased risks of inflation in Kazakhstan. The inflation rates in Belarus have been at hyperinflationary levels for some years and as a result, the currency has essentially lost all intrinsic value. Although the rate of inflation in 2000 has not been as high as in previous years, the risk of further increases in the future remains possible. While the Communications Group's subsidiaries and joint ventures attempt to increase their subscription rates to offset increases in operating costs, there is no assurance that they will be able to do so. Therefore, operating costs may rise faster than associated revenue, resulting in a material negative impact on operating results. The Company itself is generally negatively impacted by inflationary increases in salaries, wages, benefits and other administrative costs, the effects of which to date have not been material to the Company. The value of the currencies in the countries in which the Communications Group operates in the past has fluctuated, sometimes significantly. For example, during 1998 and 1999, the value of the Russian Rouble was under considerable economic and political pressure and has suffered significant declines against the U.S. dollar and other currencies. In addition, in 1999 local currency devaluations in Uzbekistan, Kazakhstan and Georgia, in addition to weakening of local currencies in Austria and Germany, had an adverse effect on the Communications Group's ventures in these countries. The Communications Group currently does not hedge against exchange rate risk and therefore could be negatively impacted by declines in exchange rates between the time one of its joint ventures receives its funds in local currency and the time it distributes these funds in U.S. dollars to the Communications Group. The Communications Group's strategy is to minimize its foreign currency risk. To the extent possible, the Communications Group bills and collects all revenues in U.S. dollars or an equivalent local currency amount adjusted on a monthly basis for exchange rate fluctuations. The Communications Group's subsidiaries and joint ventures are generally permitted to maintain U.S. dollar accounts to service their U.S. dollar denominated debt and current account obligations, thereby reducing foreign currency risk. As the Communications Group's subsidiaries and joint ventures expand their operations and become more dependent on local currency based transactions, the Communications Group expects that its foreign currency exposure will increase. SNAPPER The following table sets forth Snapper's results of operations for the three and six months ended June 30, 2000 and 1999 (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ 2000 1999 % CHANGE 2000 1999 % CHANGE -------- -------- -------- -------- -------- -------- Revenues................................ $52,427 $59,184 (11.4)% $102,530 $119,218 (14.0)% Gross profit............................ $18,131 $20,450 (11.3)% $ 35,615 $ 40,543 (12.2)% Operating income........................ $ 3,363 $ 7,332 (54.1)% $ 7,528 $ 10,651 (29.3)%
REVENUES. Snapper's sales for the three months ended June 30, 2000 were $52.4 million as compared to $59.2 million for the same period in 1999. Sales of lawn and garden equipment contributed the majority of the revenues during both periods. June 30, 2000 sales were lower in all lawn and garden categories due to drought conditions in the Southeast. Also, in the first quarter of 2000, Snapper notified a number of its commissioned distributors and commissioned agents informing them of 53 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) Snapper's decision not to extend their existing contracts, which are set to expire August 31, 2000. Snapper chose not to renew these contracts in order to give it direct control over these territories, which may allow it to improve profit margins in the future. This announcement negatively impacted sales during the second quarter, and is anticipated to negatively impact sales for the remainder of 2000. Snapper's sales for the six months ended June 30, 2000 were $102.5 million as compared to $119.2 million for the same period in 1999. Drought conditions in the Southeast and its decision not to renew the commissioned distributor and agent contracts discussed above and a $5.0 million decrease in snowthrower sales in 2000 as compared to 1999 accounted for decreased sales year-to-date. GROSS PROFIT. Gross profit for the three months ended June 30, 2000 was $18.1 million as compared to $20.4 million for the same period in 1999. The lower gross profit was due to lower sales noted above. Gross profit for the six months ended June 30, 2000 was $35.6 million as compared to $40.5 million for the same period in 1999. The lower gross profit was due to lower sales noted above. OPERATING INCOME. Operating income for the three months ended June 30, 2000 was $3.4 million as compared to $7.3 million for the same period in 1999. The decrease in operating income was due principally to lower sales as noted above. In addition, 1999 operating income included the reversal of a legal liability accrual of $2.4 million as a result of the settlement of certain legal matters. For the six months ended June 30, 2000 operating income was $7.5 million as compared to $10.7 million for the same period in 1999. Operating income decreases were due to lower sales as noted above and, in addition, the effect on 1999 operating income of the settlement of certain legal matters referred to above. In connection with Snapper's decision not to extend the existing sales contracts to certain commissioned distributors and commissioned agents, Snapper has incurred approximately $645,000 in costs. Snapper anticipates incurring an additional $2.6 million of costs to complete this program, which should be completed prior to December 31, 2000. CORPORATE HEADQUARTERS The following table sets forth the operating loss for Corporate Headquarters (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ 2000 1999 % CHANGE 2000 1999 % CHANGE -------- -------- -------- -------- -------- -------- Operating loss............................. $(1,706) $(1,576) 8% $(3,057) $(2,933) 4%
OPERATING LOSS. For the three and six months ended June 30, 2000 and 1999, Corporate Headquarters had general and administrative expenses of approximately $1.7 million and $3.1 million, and $1.6 million and $2.9 million, respectively. Corporate headquarters includes general and administrative expenses. 54 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) MMG CONSOLIDATED The following table sets forth on a consolidated basis the following items for the three months and six months ended June 30, 2000 and 1999 (in thousands):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------------ ------------------------------ 2000 1999 % CHANGE 2000 1999 % CHANGE -------- -------- -------- -------- -------- -------- Interest expense....................... $ (8,092) $ (3,523) 130 % $(16,020) $ (6,929) 131 % Interest income........................ $ 632 $ 2,546 (75)% $ 1,523 $ 4,246 (64)% Gain on settlement of option........... $ -- $ -- N/M $ 2,500 $ -- N/M Income tax expense..................... $ (2,103) $ (111) N/M $ (4,611) $ (205) N/M Net loss............................... $(16,602) $(11,607) 43 % $(33,133) $(22,877) 45 %
INTEREST EXPENSE. Interest expense increased $4.6 million to $8.1 million, and $9.1 million to $16.0 million, for the three and six months ended June 30, 2000, respectively, when compared to 1999. The increase in interest was principally due to the $4.7 million and $9.2 million, respectively, of amortization of debt discount on the Company's 10 1/2% senior discount notes for the three and six months ended June 30, 2000. INTEREST INCOME. Interest income decreased $1.9 million to $632,000 for the three months ended June 30, 2000 when compared to 1999, principally from the reduction of funds at Corporate Headquarters which have been utilized in the operation of the Company. Interest income decreased $2.7 million to $1.5 million for the six months ended June 30, 2000, principally from the reduction of funds at Corporate Headquarters which have been utilized in the operations of the Company. INCOME TAX EXPENSE. For the three and six months ended June 30, 2000 and 1999, the income tax benefit that would have resulted from applying the federal statutory rate of 35% was $5.2 million and $4.0 million, $10.1 million and $7.9 million, respectively. The income tax benefit in 2000 and 1999 was reduced principally by losses attributable to foreign operations, equity losses in joint ventures currently not deductible and a 100% valuation allowance on the current year loss not utilized. The income tax expense in 2000 is principally from income taxes on the Company's PeterStar operations. The income tax expense in 1999 reflects foreign taxes in excess of the federal credit. NET LOSS INCLUDING GAIN ON SETTLEMENT OF OPTION. Net loss increased to $16.6 million for the three months ended June 30, 2000 from $11.6 million for the three months ended June 30, 1999. The increase in the net loss is principally from increased amortization of goodwill and licenses attributable to the acquisition of PLD Telekom, the change in the estimated useful life from 25 years to 10 years on goodwill attributable to the Communications Group's operations in Eastern Europe and the republics of the former Soviet Union, the increase in interest expense of $4.6 million principally from the amortization of debt discount on the Company's 10 1/2% senior discount notes and increased income tax expense of $2.0 million partially offset by the improvement in the Communications Group's operations in Eastern Europe and the republics of the former Soviet Union and the net gain from the change in estimate on the asset impairment of the Communications Group's operations in China. Net loss increased to $33.1 million for the six months ended June 30, 2000 from $22.9 million for the six months ended June 30, 1999. The increase in the net loss is principally from increased amortization of goodwill and licenses attributable to the acquisition of PLD Telekom, the change in the estimated useful life from 25 years to 10 years on goodwill attributable to the Communications Group's 55 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) operations in Eastern Europe and the republics of the former Soviet Union, the increase in interest expense of $9.2 million principally from the amortization of debt discount on the Company's 10 1/2% senior discount notes and increased income tax expense of $4.4 million. The increase in the current period was partially offset by the improvement in the Communications Group's operations in Eastern Europe and the republics of the former Soviet Union, the net gain from the change in estimate in the asset impairment of the Communications Group's operation in China of $4.0 million and a gain of $2.5 million which represents the gain realized on the buyout of options to acquire an indirect interest in Telecominvest, a holding company with various telecommunications interests in northwest Russia. LIQUIDITY AND CAPITAL RESOURCES THE COMPANY OVERVIEW. The Company is a holding company and, accordingly, does not generate cash flows from operations. The Company believes that its cash on hand and the receipt of funds from Metromedia China will be sufficient to fund the Company's working capital requirements for the near-term. The Communications Group is dependent on the Company for significant capital infusions to fund its operations and make acquisitions, as well as to fulfill its commitments to make capital contributions and loans to its joint ventures. Each of the Communications Group's joint ventures operates or invests in businesses, such as cable television, fixed telephony and cellular telecommunications, that are capital intensive and require significant capital investment in order to construct and develop operational systems and market their services. To date, such financing requirements have been funded from cash on hand. Future financing requirements of the Communications Group, including future acquisitions, will depend on available funding from the Company, receipt of funds from Metromedia China, and if necessary, selective disposition of assets and on the ability of the Communications Group's joint ventures to generate positive cash flows. In addition to funding the cash requirements of the Communications Group, the Company has periodically funded the short-term working capital needs of Snapper. PLD Telekom and Snapper are restricted under covenants contained in their credit agreements from making dividend payments or advances, other than certain permitted debt repayments, to the Company. The Company will also be required to pay interest on the 10 1/2% senior discount notes issued in connection with the acquisition of PLD Telekom commencing September 30, 2002. As a result, the Company will require additional financing in order to satisfy its on-going working capital requirements, debt service and acquisition and expansion requirements. Such additional capital may be provided through the public or private sale of equity or debt securities of the Company or by separate equity or debt financings by the Communications Group or certain companies of the Communications Group or proceeds from the sale of assets. No assurance can be given that such additional financing will be available to the Company on acceptable terms, if at all. If adequate additional funds are not available, the Company may be required to curtail significantly its long-term business objectives and the Company's results of operations may be materially and adversely affected. Management believes that its long-term liquidity needs (including debt service) will be satisfied through a combination of the Company's successful implementation and execution of its growth strategy to become a global communications and media company and the Communications Group's joint ventures and subsidiaries achieving positive operating results and cash flows through revenue and subscriber growth and control of operating expenses. 56 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) The Company expects to generate consolidated net losses for the foreseeable future as the Communications Group continues to build out and market its services. CONVERTIBLE PREFERRED STOCK. On September 16, 1997 the Company completed a public offering of 4,140,000 shares of $1.00 par value, 7 1/4% cumulative convertible preferred stock with a liquidation preference of $50.00 per share, generating net proceeds of approximately $199.4 million. Dividends on the preferred stock are cumulative from the date of issuance and payable quarterly, in arrears, commencing on December 15, 1997. The Company may make any payments due on the preferred stock, including dividend payments and redemptions (i) in cash; (ii) through issuance of the Company's common stock or (iii) through a combination thereof. If the Company were to elect to continue to pay the dividend in cash, the annual cash requirement would be $15.0 million. Since its initial dividend payment on December 15, 1997 through June 15, 2000, the Company has paid its quarterly dividends on the preferred stock in cash. The preferred stock is convertible at the option of the holder at any time, unless previously redeemed, into the Company's common stock, at a conversion price of $15.00 per share equivalent to a conversion rate of 3 1/3 shares of common stock for each share of preferred stock, subject to adjustment under certain conditions. The preferred stock is redeemable at any time on or after September 15, 2000, in whole or in part, at the option of the Company, initially at a price of $52.5375 and thereafter at prices declining to $50.00 per share on or after September 15, 2007, plus in each case all accrued and unpaid dividends to the redemption date. Upon any change of control, as defined in the certificate of designation of the preferred stock, each holder of preferred stock shall, in the event that the market value at such time is less than the conversion price of $15.00, have a one-time option to convert the preferred stock into the Company's common stock at a conversion price equal to the greater of (i) the market value, as of the change of control date, as defined in the certificate of designation, and (ii) $8.00. In lieu of issuing shares of the Company's common stock, the Company may, at its option, make a cash payment equal to the market value of the Company's common stock otherwise issuable. SENIOR DISCOUNT NOTES. In connection with the acquisition of PLD Telekom, the Company issued $210.6 million in aggregate principal amount at maturity of its 10 1/2% Senior Discount Notes due 2007 (the "Senior Discount Notes") to the holders of PLD Telekom's then outstanding 14% senior discount notes due 2004 and 9% convertible subordinated notes due 2006 pursuant to an agreement to exchange and consent, dated as of May 18, 1999, by and among the Company, PLD Telekom and such holders. The terms of the Senior Discount Notes are set forth in an Indenture, dated as of September 30, 1999, between the Company and U.S. Bank Trust National Association, as Trustee. The Senior Discount Notes will mature on September 30, 2007. The Senior Discount Notes were issued at a discount to their aggregate principal amount at maturity and will accrete in value until March 30, 2002 at the rate of 10 1/2% per year, compounded semi-annually to an aggregate principal amount at maturity of $210.6 million. The Senior Discount Notes will not accrue cash interest before March 30, 2002. After this date, the Senior Discount Notes will pay interest at the rate of 10 1/2% per year, payable semi-annually in cash and in arrears to the holders of record on March 15 or September 15 immediately preceding the interest payment date on March 30 and September 30 of each year, commencing September 30, 2002. The interest on the Senior Discount Notes will be computed on the basis of a 360-day year comprised of twelve months. 57 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) The Senior Discount Notes are general senior unsecured obligations of the Company, rank senior in right of payment to all existing and future subordinated indebtedness of the Company, rank equal in right of payment to all existing and future senior indebtedness of the Company and will be effectively subordinated to all existing and future secured indebtedness of the Company to the extent of the assets securing such indebtedness and to all existing and future indebtedness of the Company's subsidiaries, whether or not secured. The Senior Discount Notes will be redeemable at the sole option of the Company on and after March 30, 2002 only at a redemption price equal to their principal amount plus accrued and unpaid interest, if any, up to but excluding the date of redemption. Upon the occurrence of a change of control of the Company (as such term is defined in the Indenture), the holders of the Senior Discount Notes will be entitled to require the Company to repurchase such holders' notes at a purchase price equal to 101% of the accreted value of the Senior Discount Notes (if such repurchase is before March 30, 2002) or 101% of the principal amount of such notes plus accrued and unpaid interest to the date of repurchase (if such repurchase is after March 30, 2002). The Indenture for the Senior Discount Notes permits the Company to finance the development of its communications operations. The Indenture for the Senior Discount Notes limits the ability of the Company and certain of its subsidiaries to, among other things, incur additional indebtedness or issue capital stock or preferred stock, pay dividends on, and repurchase or redeem their capital stock or subordinated obligations, invest in and sell assets and subsidiary stock, engage in transactions with affiliates and incur additional liens. The Indenture for the Senior Discount Notes also limits the ability of the Company to engage in consolidations, mergers and transfers of substantially all of its assets and also contains limitations on restrictions on distributions from its subsidiaries. TRAVELERS. Also at completion of the Company's acquisition of PLD Telekom, PLD Telekom paid The Travelers Insurance Company and The Travelers Indemnity Company (together, "Travelers") approximately $8.7 million of amounts due under the revolving credit and warrant agreement dated November 26, 1997 between PLD Telekom and Travelers (the "Old Travelers Agreement"). PLD Telekom and Travelers also entered into an amended and restated revolving credit note agreement (the "New Travelers Agreement") pursuant to which PLD Telekom has agreed to repay Travelers the remaining $4.9 million due under the Old Travelers Agreement on August 30, 2000 and to pay interest on the outstanding amount at a rate of 10 1/2%. In addition, Travelers received at the closing of the merger 100,000 shares of PLD Telekom common stock (which were converted in the merger into shares of common stock of the Company at the .6353 exchange ratio) and 10-year warrants to purchase 700,000 shares of common stock of the Company at an exercise price to be determined in December 2000 that will be between $10.00 and $15.00 per share. However, if the amount outstanding under the New Travelers Agreement has not been fully repaid by August 30, 2000, the exercise price of the warrants will be reset to $.01 per share. Travelers retained its existing security interests in certain of PLD Telekom's assets. The performance by PLD Telekom of its obligations under the New Travelers Agreement is guaranteed by the Company and certain subsidiaries of PLD Telekom. COMSTAR. As part of the Communications Group's strategy to further develop its fixed telephony business, in June 2000 it entered into an agreement with Marconi Communications Limited of the U.K. to acquire Marconi's 50% ownership position in Comstar, the third largest digital overlay operator in Moscow. The Company has agreed to pay $60.0 million for the 50% interest in Comstar. The parties expect the transaction to close in the fall of 2000. Comstar is a 50/50 joint venture with the Moscow City 58 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) Telephone Network ("MGTS"). It has a 756 mile optical fiber network throughout Moscow City. This network supports local, national and international data and telephony services and is interconnected into MGTS' public network of 4.5 million customers. Comstar has a well-established platform that facilitates all types of IP services through a Central Internet Service Node based on Marconi technology. This platform will enable Comstar to develop VoIP services, point-to-point data communications, frame relay, ATM and a total package of ISP services. The acquisition of the Comstar interest is expected to give the Communications Group a significant presence in the Moscow market, which remains the most important in Russia, and complements its position in Russia's second largest city, St. Petersburg, through its majority owned interests in PeterStar and its wholly owned interest in Baltic Communications Limited. Completion of the transaction is conditioned upon a number of matters, including the receipt of customary Russian regulatory approvals and obtaining financing for the transaction. In addition, the transfer of the Comstar shares by Marconi to the Communications Group requires the waiver of pre-emption rights by MGTS, the other 50% shareholder in Comstar. The agreement with Marconi required the Communications Group to place $3.0 million in escrow, pending closing of the transaction. In the event that the acquisition is not completed by November 30, 2000, Marconi has the right to terminate the Purchase Agreement and, in certain circumstances, retain the escrowed funds. In addition, if the transaction has not been completed by August 31, 2000, the purchase price is subject to escalation, with the additional amount not exceeding approximately $1.2 million. TELECOMINVEST. In September and October 1999, PLD Telekom entered into certain option agreements (subsequently assigned to the Company) with Commerzbank AG and First National Holding S.A. which owns the majority of the ordinary shares of OAO Telecominvest, a Russian company with interests in a wide range of telecommunications companies in St. Petersburg and Northwestern Russia, and which is PLD Telekom's joint venture partner in its subsidiary PeterStar. The aggregate consideration for the options was $8.5 million. The options gave the Company the right to participate in a planned private placement by First National Holding by acquiring, for nominal value, that number of shares equal to $8.5 million divided by 80% of the issuance price in the placement or, if the placement was not completed on or before December 31, 1999 (extended by amendment to January 31, 2000), to acquire up to 16% of First National Holding for additional consideration of approximately $8.5 million. In resolution of disputes regarding the parties' rights under those agreements, on March 30, 2000, First National Holding paid the Company $11.0 million in full settlement of the Company's and PLD Telekom's rights under the option agreements. COMMUNICATIONS GROUP--EASTERN EUROPE AND THE REPUBLICS OF THE FORMER SOVIET UNION OVERVIEW. The Communications Group has invested significantly (in cash or equipment through capital contributions, loans and management assistance and training) in its joint ventures. The Communications Group has also incurred significant expenses in identifying, negotiating and pursuing new telecommunications opportunities in selected emerging markets. The Communications Group and many of its joint ventures are experiencing continuing losses and negative operating cash flow since many of the businesses are in the development and start-up phase of operations. The Communications Group's primary source of funds has been from the Company in the form of inter-company loans. Until the Communications Group's operations generate positive cash flow, the Communications Group will require significant capital to fund its operations, and to make capital contributions and loans to its 59 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) joint ventures. The Communications Group relies on the Company to provide the financing for these activities. The Company believes that as more of the Communications Group's joint ventures commence operations and reduce their dependence on the Communications Group for funding, the Communications Group will be able to finance its own operations and commitments from its operating cash flow and will be able to attract its own financing from third parties. There can be no assurance, however, that additional capital in the form of debt or equity will be available to the Communications Group at all or on terms and conditions that are acceptable to the Communications Group or the Company, and as a result, the Communications Group may continue to depend upon the Company for its financing needs. Credit agreements between certain of the joint ventures and the Communications Group are intended to provide such ventures with sufficient funds for operations and equipment purchases. The credit agreements generally provide for interest to accrue at rates ranging from the prime rate to the prime rate plus 6% and for payment of principal and interest from 90% of the joint venture's available cash flow, as defined, prior to any distributions of dividends to the Communications Group or its joint venture partners. The credit agreements also often provide the Communications Group the right to appoint the general director of the joint venture and the right to approve the annual business plan of the joint venture. Advances under the credit agreements are made to the joint ventures in the form of cash for working capital purposes, as direct payment of expenses or expenditures, or in the form of equipment, at the cost of the equipment plus cost of shipping. As of June 30, 2000, the Communications Group was committed to provide funding under various charter fund agreements and credit lines in an aggregate amount of approximately $234.0 million, of which $46.4 million remained unfunded. The Communications Group's funding commitments under a credit agreement are contingent upon its approval of the joint venture's business plan. To the extent that the Communications Group does not approve a joint venture's business plan, the Communications Group is not required to provide funds to the joint venture under the credit line. The Communications Group's consolidated and unconsolidated joint ventures' ability to generate positive operating results is dependent upon their ability to attract subscribers to their systems, the sale of commercial advertising time and their ability to control operating expenses. FORMER PLD BUSINESSES. PLD Telekom's operating businesses have become largely self-sustaining, and while they continue to have on-going capital requirements associated with the development of their businesses, they have been able to pay for capital expenditures and operational expenses out of internally generated cash flows from operations and/or have been able to arrange their own financing, including supplier financing. In no case is PLD Telekom specifically obligated to provide capital to its operating businesses as all past obligations have been met. As a result of the acquisition of PLD Telekom by the Company, the majority of PLD Telekom's commitments at the holding company level have been satisfied or assumed by the Company, such that the $4.9 million due to Travelers on August 30, 2000, as described above is the only material obligation to be satisfied during 2000. BALTCOM GSM. In June 1997, the Communications Group's Latvian GSM Joint Venture, Baltcom GSM, entered into certain agreements with the European Bank for Reconstruction and Development pursuant to which the European Bank for Reconstruction and Development agreed to lend up to $23.0 million to Baltcom GSM in order to finance its system buildout and operations. Baltcom GSM's ability to borrow under these agreements is conditioned upon reaching certain gross revenue targets. The loan has an interest rate equal to the 3-month London interbank offered rate or LIBOR plus 4% per annum, with interest payable quarterly. The principal amount must be repaid in installments 60 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) starting in March 2002 with final maturity in December 2006. The shareholders of Baltcom GSM were required to provide $20.0 million to Baltcom GSM as a condition precedent to European Bank for Reconstruction and Development funding the loan. In addition, the Communications Group and Western Wireless agreed to provide or cause one of the shareholders of Baltcom GSM to provide an additional $7.0 million in funding to Baltcom GSM if requested by European Bank for Reconstruction and Development which amount has been provided. In August 1998, the European Bank for Reconstruction and Development and Baltcom GSM amended their loan agreement in order to provide Baltcom GSM the right to finance the purchase of up to $3.5 million in additional equipment from Nortel. As part of such amendment, the Communications Group and Western Wireless agreed to provide Baltcom GSM the funds needed to repay Nortel, if necessary, and to provide Baltcom GSM debt service support for the loan agreement with the European Bank for Reconstruction Development in an amount not to exceed the greater of $3.5 million or the aggregate of the additional equipment purchased from Nortel plus interest payable on the financing. As part of the financing, the European Bank for Reconstruction and Development was also provided a 5% interest in the joint venture which it can put back to Baltcom GSM at certain dates in the future at a multiple of Baltcom GSM's earnings before interest, taxes, depreciation and amortization or EBITDA, not to exceed $6.0 million. The Company and Western Wireless have guaranteed the obligation of Baltcom GSM to pay such amount. All of the shareholders of Baltcom GSM, including Metromedia International Telecommunications, pledged their respective shares to the European Bank for Reconstruction and Development as security for repayment of the loan. Under the European Bank for Reconstruction and Development agreements, amounts payable to the Communications Group are subordinated to amounts payable to the European Bank for Reconstruction and Development. MAGTICOM. In April 1997, the Communications Group's Georgian GSM Joint Venture, Magticom, entered into a financing agreement with Motorola, Inc. pursuant to which Motorola agreed to finance 75% of the equipment, software and service it provides to Magticom up to $15.0 million. Interest on the financed amount accrues at 6-month London interbank offered rate or LIBOR plus 5% per annum, with interest payable semi-annually. Repayment of principal with respect to each drawdown commences twenty-one months after such drawdown with the final payment being due 60 months after such drawdown. All drawdowns must be made within 3 years of the initial drawdown date. Magticom is obligated to provide Motorola with a security interest in the equipment provided by Motorola to the extent permitted by applicable law. As additional security for the financing, the Company has guaranteed Magticom's repayment obligation to Motorola. In June 1998, the financing agreement was amended and Motorola agreed to make available an additional $10.0 million in financing. Interest on the additional $10.0 million accrues at 6-month LIBOR plus 3.5%. Under such amendment, the Company guaranteed Magticom's repayment obligation to Motorola. The Communications Group and Western Wireless have funded the balance of the financing to Magticom through a combination of debt and equity. Repayment of indebtedness owed to such partners is subject to certain conditions set forth in the Motorola financing agreements. AZERBAIJAN. As of August 1998, the Communications Group acquired a 76% interest in Omni-Metromedia Caspian, Ltd., a company that owns 50% of a Joint Venture in Azerbaijan, Caspian American. Caspian American has been licensed by the Ministry of Communications of Azerbaijan to provide high speed wireless local loop services and digital switching throughout Azerbaijan. Omni-Metromedia has committed to provide up to $40.5 million in loans to Caspian American for the acquisition of equipment and operational expenses subject to its concurrence with Caspian American's business plans. The Communications Group was obligated to contribute approximately $5.0 million in 61 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) equity to Omni-Metromedia and to lend up to $36.5 million subject to its concurrence with Caspian American's business plan. As part of the original transaction, the Communications Group sold a 17.1% participation in the $36.5 million loan commitment to AIG Silk Road Fund, Ltd., which requires AIG Silk Road Fund to provide the Communications Group 17.1% of the funds to be provided under the loan agreement and entitles AIG Silk Road Fund to 17.1% of the repayments to the Communications Group. The Communications Group agreed to repurchase such loan participation from AIG Silk Road Fund in August 2005 on terms and conditions agreed by the parties. In addition, the Communications Group provided AIG Silk Road Fund the right to put its 15.7% ownership interest in Omni-Metromedia to the Communications Group starting in February 2001 for a price equal to seven times the EBITDA of Caspian American minus debt, as defined, multiplied by AIG Silk Road Fund's percentage ownership interest. In May 1999, the Communications Group sold 2.2% of the shares of Omni-Metromedia to Verbena Servicos e Investimentos, S.A., thereby reducing its ownership interest in Caspian American from 38% to 37%. In addition, the Communications Group sold a 2.4% participation in the $36.5 million loan to Verbena Servicos e Investimentos, which requires Verbena Servicos e Investimentos to provide the Communications Group 2.4% of the funds to be provided under the loan agreement and entitles Verbena Servicos e Investimentos to 2.4% of the repayments to the Communications Group. The Communications Group has agreed to repurchase such loan participation from Verbena Servicos e Investimentos in August 2005 on terms and conditions agreed by the parties. In addition, the Communications Group provided Verbena Servicos e Investimentos the right to put its 2.2% ownership interest in Omni Metromedia to the Communications Group starting in February 2001 for a price equal to seven times the EBITDA of Caspian American minus debt, as defined, multiplied by Verbena Servicos e Investimentos percentage ownership interest. In January 1999, Caspian American entered into an equipment purchase agreement with Innowave Tadiran Telecommunications Wireless Systems, Ltd. to purchase wireless local loop telecommunications equipment. In connection with such agreement, the Communications Group provided Innowave Tadiran a payment guarantee of $2.0 million, which was paid during 1999. As part of its ongoing strategic review, in late 1999 the Company reevaluated the operations of Caspian American in order to ascertain the requirement to account for impairment losses. In view of the limited number of potential customers in the region in which the business operates and limited potential for growth, it was determined that an impairment loss of $9.9 million was required in 1999 relating to the Company's investment in Caspian American. The venture has developed a revised operating plan to stabilize its operations and minimize future funding requirements until potential restructuring options have been fully explored. TYUMENRUSKOM. As part of its investment in Tyumenruskom announced in November 1998, the Company agreed to provide a guarantee of payment of $6.1 million to Ericsson Radio Systems, A.B. for equipment financing provided by Ericsson to one of the Communication Group's wholly owned subsidiaries and to its 46% owned joint venture, Tyumenruskom. Tyumenruskom has purchased a digital advanced mobile phone or DAMPS cellular system from Ericsson in order to provide fixed and mobile cellular telephone in the regions of Tyumen and Tobolsk, Russian Federation. The Communications Group has made a $1.7 million equity contribution to Tyumenruskom and has agreed to lend the joint venture up to $4.0 million for start-up costs and other operating expenses. Tyumenruskom also intends to provide wireless local loop telephone services. 62 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) Following a reevaluation of the venture's operations as part of the Company's ongoing strategic reviews, in 1999, $3.8 million of the Company's investment in this venture was recorded as an impairment charge in view of its low profitability and limited potential for improvement. INTERNET SERVICES The Communications Group is actively seeking to develop internet services and in June 2000 the Company's venture in Romania acquired a 70% ownership position in FX Internet, a leading ISP, web hosting and domain registration service in Romania. FX Internet provides dial-up, leased line and wireless internet access services in Romania with 9,100 active subscribers, offering internet connectivity to customers in four districts, reaching a total population of approximately five million. The Communications Group paid $2.5 million for its 70% interest in FX Internet, $2.0 million of which was paid to the existing shareholders and $500,000 of which will be used to expand its network to eight additional regions before year-end to bring its total serviceable population to over eight million. FX Internet, working in combination with Romsat TV, will enable MITI ventures to offer bundled TV and internet services to Romsat TV's approximately 100,000 existing customers with competitive advantages, such as tiers of service and discounts, that other operators in the Romanian market are currently unable to duplicate. The transaction is part of the Communications Group's convergence strategy and is expected to enhance the value of Romsat TV by allowing it to bundle services and facilitate internet and portal development in Romania. PORTAL DEVELOPMENT During the quarter ended June 30, 2000, the Communications Group commenced the roll out of two national language portal websites affiliated with its radio stations in Estonia and Hungary. Over the next twelve months, the Communications Group expects to rollout additional national language portal websites in Russia, Latvia and the Czech Republic, and using the marketing power of its eighteen radio stations in Eastern Europe and the republics of the former Soviet Union to create the first transnational network of consumer-oriented entertainment portals in this part of the world. In addition, the Company is working to develop a full range of internet service offerings related to all of the Company's assets in Eastern Europe and the republics of the former Soviet Union. The portal UunoWeb features all the functionalities of a general portal site including real time local and international news, search engines, classified and personal sections, TV and radio schedule information, SMS- short message service, forums and chat rooms. Users can access real time information about the song playing on the appropriate MITI radio station, including information on the artist, engage in voting and polling, and purchase CDs on-line. Users have the ability to listen to the latest newscast, updated every half hour. This service will be extended to provide mobile users the ability to access this information and more, using WAP (wireless access protocol) services. The portal also contains banner ads and a full database of current advertisers, including product mini websites and product commercials, offered through UunoWeb's proprietary software, the rights to which are controlled by the Communications Group. This proprietary software, the only one of its kind in use in Eastern Europe, will form the basis of the development and rollout of the Communications Group's portal network. In addition, UunoWeb has peering agreements with other sites such as Yahoo, AltaVista and Rolling Stone, enabling the portal to generate revenues each time these sites are accessed via the portal. 63 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) CARDLINK The Communications Group is continuing the development of its Cardlink business, which utilizes proprietary wireless technology owned by the Communications Group and is targeted initially at the processing and management of wireless electronic payment transactions. Cardlink ZAO, in which the Communications Group has a 84.5% interest, is introducing this technology in Moscow, but it has potential application in other regions of Russia and Eastern and Central Europe. Cardlink has entered into agreements with several Russian banks for the processing of card transactions, and the card processing network commenced operations in June 2000, processing point of sale transactions for a Russian Bank. Although initially targeted as wireless card verification transactions with banks and credit card issuers, the Cardlink technology can be applied to developing and implementing other wireless data communication network infrastructures where conventional telephone networks are either non-existent or poor in terms of coverage and availability. Cardlink has also recently entered into an agreement in the United Kingdom to utilize the Cardlink technology in the recharge of prepaid mobile phones and is exploring the commercial development of other applications using this technology. COMMUNICATIONS GROUP--CHINA During 1997 and 1998, the Company made investments in four telecommunications joint ventures in China through its majority-owned subsidiary, Asian American Telecommunications Corporation. All four of these ventures prematurely terminated operations by order of the Chinese government in late 1999. Concurrent with this termination, the Company reached agreement with China Unicom and its Chinese partners in the ventures, for the distribution of approximately $94.7 million (based on the June 30, 2000 estimates and exchange rate) in settlement of all claims under the joint venture agreements and cooperation contracts. The Company has received $77.5 million of this estimated total distribution as of June 30, 2000. As of June 30, 2000, all Company advances to the four joint ventures have been repaid plus accrued interest thereon and the balance of investments in these joint ventures, exclusive of $15.2 million in goodwill, was approximately $1.9 million. As of June 30, 2000, Sichuan JV and Chongqing JV have been fully dissolved and all previously agreed upon distributions were made to the Company in full. Ningbo JV and Ningbo JV II are expected to complete their formal dissolution proceedings with the Chinese government prior to September 2000. Due to favorable resolution of certain matters in connection with the liquidation of the joint ventures as of June 30, 2000, the Company now estimates it will receive a total distribution from the liquidated joint ventures of $94.7 million, an increase of $4.6 million over prior estimates. This currently estimated $94.7 million in total payments from the joint ventures is insufficient to fully recover the goodwill originally recorded in connection with the Company's investment in these joint ventures. The Company had recorded a non-cash impairment charge of $45.7 million in 1999 for the write-off of goodwill based on its then estimate of amounts to be recovered in dissolution of the ventures. With the $4.6 million increase in the estimated total dissolution proceeds to the Company, goodwill was increased by $4.0 million. The remaining goodwill amount at June 30, 2000 is $15.2 million. Metromedia International Group and Metromedia International Telecommunications, Inc. have made inter-company loans to Metromedia China under a credit agreement, and Metromedia China has used the proceeds of these loans to fund its investments in these joint ventures in China. At June 30, 2000, Metromedia China owed $22.2 million under this credit agreement (including accrued interest). 64 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) In May 1999, Metromedia China's wholly-owned subsidiary, Asian American Telecommunications, entered into a joint venture agreement with All Warehouse Commodity Electronic Commerce Information Development Co., Ltd., a Chinese trading company. This agreement was for the purpose of establishing Huaxia Metromedia Information Technology Co., Ltd., known as Huaxia JV. The Chinese government licensed Huaxia JV in July 1999 to develop and provide technical services for the operation of electronic commerce computer information systems for China-based corporate clients. Also in May 1999, Huaxia JV entered into a 30-year computer information system and services contract with All Warehouse and its parent company, China Product Firm, that granted Huaxia JV exclusive rights to manage all of China Product Firm's electronic trading systems during the contract period. China Product Firm anticipated launching a commercial online trading service employing systems provided and operated by Huaxia JV. By agreement with All Warehouse and its parent, Huaxia JV's principal efforts were to be initially directed to e-commerce systems for use by China Product Firm and its affiliates and customers. The terms under which Huaxia JV is licensed require a total amount to be invested in the joint venture of $25.0 million, of which $10.0 million must be in the form of registered capital contributions from its shareholders. At its formation, Asian American Telecommunications owned a 49% interest in Huaxia JV and would be obligated to make total registered capital contributions of $4.9 million over a three-year period. All Warehouse owned a 51% interest, obligating it to contribute $5.1 million. The remaining investment in Huaxia JV was to be in the form of up to $15.0 million of loans from Asian American Telecommunications. As of June 30, 2000, Asian American Telecommunications has made $980,000 of its scheduled registered capital investment. Huaxia JV commenced trial operation of an e-commerce system with China Product Firm Corporation in late 1999. The Company considered this business activity to be "pre-operational" since its purpose was to test technical and operational aspects of Huaxia JV's intended computer services and to support China Product Firm Corporation's initial trial of commercial online trading services. The technical and operational trials continued successfully through May 2000, but China Product Firm Corporation proved unable to successfully launch its intended online trading service. Since launch of this anticipated trading service was the principal reason for All Warehouse's investment in Huaxia JV, All Warehouse proposed that its equity interest in Huaxia JV be substantially reduced and that Huaxia JV be relieved of further contractual obligations to serve All Warehouse's parent company China Product Firm. Negotiations to effect a change in equity structure of Huaxia JV were concluded in June and the Company anticipates that it will obtain a 98% ownership interest in Huaxia JV upon Chinese government approval of a revised JV contract. The Company's only material cost for its increased ownership position in Huaxia JV will be its larger obligation for future registered capital contribution. Huaxia JV's business mission remains unchanged, except that its initial software development and service efforts will no longer be principally restricted to China Product Firm. Huaxia JV is currently recruiting other China-based clients for its e-commerce support systems and the Company expects this joint venture to enter into commercial operations in the fourth quarter of 2000. Huaxia JV does not have any contractual relationship with China Unicom and is engaged in business fundamentally different from that of the Communications Group's earlier joint ventures cooperating with China Unicom. Computer and software services, such as offered by the Huaxia JV, are subject to regulations different from those applied to telecom operations in China. The Communications Group believes that the Company's equity interest in Huaxia JV does not constitute foreign equity investment in telecommunications operations or any other line of business restricted under current Chinese regulations. Furthermore, the Company believes that the Chinese regulatory policy situation and prospects facing Huaxia JV are fundamentally different from the regulatory policy situation and 65 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) prospects faced by the Communication Group's earlier joint telecommunications projects with China Unicom. In May 2000, the Company made an offer to purchase Twin Poplars LLC. Twin Poplars owns a 90% ownership interest in and controls two sino-foreign joint ventures licensed in China to engage in information content provision for print publishers and the internet and internet-based online sales. As of June 30, 2000 the Company had loaned $150,000 to Twin Poplars against security a interest in its China joint venture. On July 24, 2000 the Company completed the acquisition of an 80% interest in Twin Poplars and obtained options to acquire the remaining 20%. The acquisition gives the Company 72% ownership in and control over two sino-foreign joint ventures. One provides original Chinese and English language information content to Chinese print publishers. This joint venture currently has contracts to provide editorial content and certain advertising-related services to the Chinese publisher of "City Weekend" magazine, an English language print publication targeted to the Beijing and Shanghai markets. It also provides content and distribution-related services to the Chinese publishers of several Chinese-language domestic travel and entertainment guides published in book format. The other joint venture supports a companion website to the print publications offering frequently updated content in an online browsing format accompanied by related online product sales offers. The purchase price, including advances to Twin Poplars, was $1.3 million. The Communications Group is currently evaluating other investment opportunities in China's information industry sector. The Communications Group is actively negotiating e-commerce and internet ventures similar to the Huaxia JV and Twin Poplars joint ventures. SNAPPER Snapper's liquidity is generated from operations and borrowings. On November 11, 1998, Snapper entered into a loan and security agreement with the Lenders named therein and Fleet Capital Corporation, as agent and as the initial lender, pursuant to which the lenders have agreed to provide Snapper with a $5.0 million term loan facility and a $55.0 million revolving credit facility, the proceeds of which were used to refinance Snapper's then outstanding obligations under its prior revolving credit agreement and will also be used for working capital purposes. The Snapper loan will mature in November 2003 (subject to automatic one-year renewals), and is guaranteed by the Company up to $10.0 million (increasing to $15.0 million on the occurrence of specified events). Interest on the Snapper loan is payable at Snapper's option at a rate equal to prime plus up to 0.5% or the London interbank offered rate or LIBOR plus between 2.5% and 3.25%, in each case depending on Snapper's leverage ratio under the Snapper loan agreement. The agreements governing the Snapper loan contain standard representations and warranties, covenants, conditions precedent and events of default, and provide for the grant of a security interest in substantially all of Snapper's assets other than real property. At June 30, 2000, Snapper was in compliance with all covenants under the loan and security agreement. Snapper signed a $2.5 million term loan on June 1, 2000 with its lenders to fund additional capital expenditures, over and above the capital expenditures the Company is allowed to purchase under its Loan and Security Agreement. The loan will be funded on an as approved basis for up to 12 months after the effective date, and will be due in 20 consecutive quarterly installments beginning September 1, 2000, with the interest rate at prime plus .25%. 66 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) On March 24, 2000, Snapper's leased distribution facility in Greenville, Ohio was substantially damaged by fire. Snapper is adequately insured for the loss, and anticipates receiving approximately $1.9 million for inventory losses and expenses incurred related to the fire. The payment from the insurer is expected to be received in the third quarter of 2000. Snapper has entered into various long-term manufacturing and purchase agreements with certain vendors for the purchase of manufactured products and raw materials. As of June 30, 2000, noncancelable commitments under these agreements amounted to approximately $9.6 million. Snapper has an agreement with a financial institution which makes available floor plan financing to dealers of Snapper products. This agreement provides financing for inventories and accelerates Snapper's cash flow. Under the terms of the agreement, a default in payment by a dealer is nonrecourse to Snapper. However, the third-party financial institution can require Snapper to repurchase new and unused equipment, if the dealer defaults and the inventory can not be sold to another dealer. At June 30, 2000, there was approximately $89.5 million outstanding under this floor plan financing arrangement. The Company has guaranteed Snapper's payment obligations under this agreement. The Company believes that Snapper's available cash on hand, the cash flow generated by operating activities, borrowings from the Snapper loan agreement and, on an as needed basis, short-term working capital funding from the Company, will provide sufficient funds for Snapper to meet its obligations and capital requirements. RISKS ASSOCIATED WITH THE COMPANY The ability of the Communications Group and its joint ventures to establish profitable operations is subject to significant political, economic and social risks inherent in doing business in emerging markets such as Eastern Europe, republics of the former Soviet Union and China. These include matters arising out of government policies, economic conditions, imposition of or changes in government regulations or policies, imposition of or changes to taxes or other similar charges by governmental bodies, exchange rate fluctuations and controls, civil disturbances, deprivation or unenforceability of contractual rights, and taking of property without fair compensation. The Communications Group's strategy is to minimize its foreign currency risk. To the extent possible, in countries that have experienced high rates of inflation, the Communications Group bills and collects all revenues in U.S. dollars or an equivalent local currency amount adjusted on a monthly basis for exchange rate fluctuations. The Communications Group's joint ventures are generally permitted to maintain U. S. dollar accounts to serve their U.S. dollar obligations, thereby reducing foreign currency risk. As the Communications Group and its joint ventures expand their operations and become more dependent on local currency based transactions, the Communications Group expects that its foreign currency exposure will increase. The Communications Group does not hedge against foreign exchange rate risks at the current time and, therefore, could be subject in the future to any declines in exchange rates between the time a joint venture receives its funds in local currencies and the time it distributes such funds in U.S. dollars to the Communications Group. The Company held interests in four telecommunications joint ventures with China United Telecommunications Incorporated, a Chinese telecommunications operator known as China Unicom. Because legal restrictions in China prohibited direct foreign investment and operating participation in Chinese telephone companies, these ventures were structured as a "sino-sino-foreign joint venture cooperation", a structure commonly accepted at the time the ventures were formed. Subsequently, the 67 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) Chinese government began reconsidering the advisability of continuing these arrangements, leading ultimately to the directive in 1999 to all participants in such arrangements, including the Company, that they should be terminated. The Communications Group's Huaxia JV in China is established as a sino-foreign equity joint venture between Asian American Telecommunications and All Warehouse Commodity Electronic Commerce Information Development Co., Ltd. Huaxia JV is licensed to develop and provide technical services for the operation of electronic commerce computer information systems for China-based corporate clients. Huaxia JV does not have any contractual relationship with China Unicom and is engaged in business fundamentally different from that of the Communications Group's earlier telecommunications joint ventures cooperating with China Unicom. Computer and software services, such as offered by the Huaxia JV, are subject to regulations different from those applied to telecommunications operations in China. The Communications Group believes that the Company's equity interest in Huaxia JV does not constitute foreign equity investment in telecommunications operations or any other line of business restricted under current Chinese regulations. Furthermore, the Company believes that the Chinese regulatory policy situation and prospects facing Huaxia JV are fundamentally different from the regulatory policy situation and prospects faced by the Communication Group's earlier joint telecommunications projects with China Unicom. The investment in Twin Poplars entails certain risks resulting from regulatory uncertainty and the fact that certain necessary licenses, while applied for, have not yet been obtained. The Chinese regulatory regime is currently unclear as to the precise extent of the restrictions on foreign investment in the publishing and internet content provision industries. With respect to publishing, the Communications Group believes that Twin Poplars' information content joint venture cannot be deemed to be operating a publishing business, since it is merely providing content to Chinese publishers for fixed fees. With respect to internet content-related operations, given the lack of explicit regulations, the Communications Group may be required in the future to adjust the webhosting and internet content provision arrangements of Twin Poplars to comply with any new regulatory developments. Other transitional risks are that the publication for which content is currently primarily provided by Twin Poplars' joint venture is still in the process of obtaining relevant publishing and advertising licenses, and Twin Poplars' internet joint venture is still in the process of obtaining an online advertising license. Twin Poplars will not be entitled to legally receive certain revenues until such licenses are obtained. MMG CONSOLIDATED SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 CASH FLOWS FROM OPERATING ACTIVITIES Cash used in operating activities for the six months ended June 30, 2000 was $6.8 million, a decrease in cash used in operating activities of $2.6 million from the same period in the prior year. Losses from operating activities include significant non-cash items such as depreciation, amortization, equity in income (losses) of investees, gain on settlement of option, amortization of interest, and income (loss) allocable to minority interests. Non-cash items increased $23.5 million from $9.9 million to $33.4 million for the six months ended June 30, 1999 and 2000, respectively. The increase relates principally to depreciation and amortization expenses. Changes in operating assets and liabilities, net of the effect of acquisitions, decreased cash flows for the six months ended June 30, 2000 by $7.0 million and increased cash flows for the six months ended June 30, 1999 by $3.6 million. 68 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) CASH FLOWS FROM INVESTING ACTIVITIES Cash provided by investing activities for the six months ended June 30, 2000 was $49.0 million as compared to cash used in investing activities was $11.6 million for the six months ended June 30, 1999. The principal sources of funds in 2000 are cash received of $11.0 million in connection with the settlement of an option agreement and distributions received from joint ventures of $51.8 million, primarily related to the liquidation of the telecommunications joint ventures in China. In 2000, the Company utilized $8.3 million in additions to property, plant and equipment and $2.7 million of funds for acquisitions. The principal uses of funds for the six months ended June 30, 1999 were investments in and advances to joint ventures of $12.7 million, advances to PLD Telekom under a bridge loan agreement of $3.0 million, acquisitions by the Communications Group of $1.2 million and additions to property, plant and equipment of $2.5 million. CASH FLOWS FROM FINANCING ACTIVITIES Cash used in financing activities was $16.1 million and $14.7 million, for the six months ended June 30, 2000 and 1999, respectively. For the six months ended June 30, 2000 the Company used $7.5 million to pay its preferred stock dividend, and there were $8.8 million of debt payments. Funds used in financing activities in 1999 were for the preferred stock dividend of $7.5 million and payments of Snapper's debt of $7.2 million. NEW ACCOUNTING DISCLOSURES ACCOUNTING FOR DERIVATIVES In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), was issued. SFAS 133 established accounting and reporting standards for derivative instruments and for hedging activities. SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. The accounting for the gain or loss due to changes in fair value of the derivative instrument depends on whether the derivative instrument qualifies as a hedge. In June 2000, SFAS 138 was issued which addresses a limited number of issues causing implementation difficulties for numerous entities that have applied SFAS 133. SFAS 133 and SFAS 138 are effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS 133 can not be applied retroactively to financial statements of prior periods. Given the complexity of SFAS 133 and SFAS 138 and the continued uncertainty surrounding certain implementation issues, which has led to a Derivatives Implementation Group, the Company has not completed its evaluation of the impact of SFAS 133 and SFAS 138 on its consolidated financial position and results of operations. ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION In March 2000, the Financial Accounting Standards Board ("FASB") issued FASB No. 44 "Accounting for Certain Transactions involving Stock Compensation" ("FIN 44"), an interpretation of APB Opinion No. 25 "Accounting for Stock Issued to Employees". FIN 44 is effective July 1, 2000. Among other issues, FIN 44 clarifies (a) the definition of employee for the purposes of applying Opinion No. 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. 69 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (CONTINUED) The guidance in FIN 44 is generally more stringent than existing practice and its application to accounting for stock options could generate compensation expense when none had been recognized prior to its issuance. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the financial position of the Company is routinely subjected to a variety of risks. In addition to the market risk associated with interest rate movements on outstanding debt and currency rate movements on non-U.S. dollar denominated assets and liabilities, other examples of risk include collectibility of accounts receivable and significant political, economic and social risks inherent in doing business in emerging markets such as Eastern Europe, republics of the former Soviet Union and China. With the exception of Snapper and prior to the acquisition of PLD Telekom at September 30, 1999, the Company did not have any significant long term obligations. Since Snapper's bank debt is a floating rate instrument, its carrying value approximates its fair value. A 100 basis point increase in the level of interest rates with all other variables held constant would result in an increase in interest expense of $19,000. In addition, a 100 basis point increase in interest rates on Snapper's floor plan financing for dealers would have resulted in an increase in interest expense of $44,000. With the exception of certain vendor financing at the operating business level (approximately $6.8 million in the aggregate), the Company's debt obligations and those of its operating businesses are fixed rate obligations, and are therefore not exposed to market risk from changes in interest rates. The Company does not believe that it is exposed to a material market risk from changes in interest rates. Furthermore, with the exception of the approximately $5.9 million in vendor financing which is denominated in Euros, Deutsche Marks and Dutch Guilders, the Company's long-term debt and that of its operating businesses are denominated in U.S. dollars. The Company does not believe that the Communications Group's debt not denominated in U.S. dollars exposes the Company to a material market risk from changes in foreign exchange rates. The Company does not hedge against foreign exchange rate risks at the current time. In the majority of the countries that the Communications Group's joint ventures operate, there currently do not exist derivative instruments to allow the Communications Group to hedge foreign currency risk. In addition, at the current time the majority of the Communications Group's joint ventures are in the early stages of development and the Company does not expect in the near term to repatriate significant funds from the Communications Group's joint ventures. "Item 2--Management's Discussion and Analysis of Financial Conditions and Results of Operations--Inflation and Foreign Currency" contains additional information on risks associated with the Company's investments in Eastern Europe, the republics of the former Soviet Union and China. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements in this Form 10-Q including, without limitation, statements under "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "believes," "expects," "may," "will," "should" or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involves risks and uncertainties. Such forward-looking statements involve 70 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS (CONTINUED) known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, which will, among other things, affect demand for the Company's products and services; industry capacity, which tends to increase during strong years of the business cycle; changes in public taste and industry trends; demographic changes; competition from other communications companies, which may affect the Company's ability to enter into or acquire new joint ventures or to generate revenues; political, social and economic conditions and changes in laws, rules and regulations or their administration or interpretation, particularly in Eastern Europe and the republics of the former Soviet Union, China and selected other emerging markets, which may affect the Company's results of operations; timely completion of construction projects for new systems for the joint ventures in which the Company has invested, which may impact the costs of such projects; developing legal structures in Eastern Europe and the republics of the former Soviet Union, China and other selected emerging markets, which may affect the Company's results of operations; cooperation of local partners for the Company's communications investments in Eastern Europe and the republics of the former Soviet Union, China and other selected emerging markets, which may affect the Company's results of operations; exchange rate fluctuations; license renewals for the Company's communications investments in Eastern Europe and the republics of the former Soviet Union, China and other selected emerging markets; the loss of any significant customers; changes in business strategy or development plans; quality of management; availability of qualified personnel; changes in or the failure to comply with government regulations; and other factors referenced herein. Any forward-looking statement speaks only as of the date on which it is made. New factors emerge from time to time and it is not possible for the Company to predict which will arise. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. 71 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Updated information on litigation and environmental matters subsequent to December 31, 1999 is as follows: FUQUA INDUSTRIES, INC. SHAREHOLDER LITIGATION IN RE FUQUA INDUSTRIES, INC. SHAREHOLDER LITIGATION, Del. Ch., Consolidated C.A. No. 11974, plaintiff Virginia Abrams filed a purported class and derivative action in the Delaware Court of Chancery on February 22, 1991 against Fuqua Industries, Inc., Intermark, Inc., the then-current directors of Fuqua Industries and certain past members of the board of directors. The action challenged certain transactions which were alleged to be part of a plan to change control of the board of Fuqua Industries from J.B. Fuqua to Intermark and sought a judgment against defendants in the amount of $15.7 million, other unspecified money damages, an accounting, declaratory relief and an injunction prohibiting any business combination between Fuqua Industries and Intermark in the absence of approval by a majority of Fuqua Industries' disinterested shareholders. Subsequently, two similar actions, styled BEHRENS V. FUQUA INDUSTRIES, INC. ET AL., Del. Ch., C.A. No. 11988 and FREBERG V. FUQUA INDUSTRIES, INC. ET AL., Del. Ch., C.A. No. 11989 were filed with the Court. On May 1, 1991, the Court ordered all of the foregoing actions consolidated. On October 7, 1991, all defendants moved to dismiss the complaint. Plaintiffs thereafter took three depositions during the next three years. On December 28, 1995, plaintiffs filed a consolidated second amended derivative and class action complaint, purporting to assert additional facts in support of their claim regarding an alleged plan, but deleting their prior request for injunctive relief. On January 31, 1996, all defendants moved to dismiss the second amended complaint. After the motion was briefed, oral argument was held on November 6, 1996. On May 13, 1997, the Court issued a decision on defendants' motion to dismiss, the Court dismissed all of plaintiffs' class claims and dismissed all of plaintiffs' derivative claims except for the claims that Fuqua Industries board members (i) entered into an agreement pursuant to which Triton Group, Inc. (which was subsequently merged into Intermark), was exempted from 8 Del. C. 203 and (ii) undertook a program pursuant to which 4.9 million shares of Fuqua Industries common stock were repurchased, allegedly both in furtherance of an entrenchment plan. On January 16, 1998, the Court entered an order implementing the May 13, 1997 decision. The order also dismissed one of the defendants from the case with prejudice and dismissed three other defendants without waiver of any rights plaintiffs might have to reassert the claims if the opinion were to be vacated or reversed on appeal. On February 5, 1998, plaintiffs filed a consolidated third amended derivative complaint and named as defendants Messrs. J.B. Fuqua, Klamon, Sanders, Scott, Warner and Zellars. The complaint alleged that defendants (i) entered into an agreement pursuant to which Triton was exempted from 8 Del. C. 203 and (ii) undertook a program pursuant to which 4.9 million shares of Fuqua Industries common stock were repurchased, both allegedly in furtherance of an entrenchment plan. For their relief, plaintiffs seek damages and an accounting of profits improperly obtained by defendants. In March 1998, defendants J. B. Fuqua, Klamon, Sanders, Zellars, Scott and Warner filed their answers denying each of the substantive allegations of wrongdoing contained in the third amended complaint. The Company also filed its answer, submitting itself to the jurisdiction of the Court for a proper resolution of the claims purported to be set forth by the plaintiffs. Discovery is ongoing. 72 ITEM 1. LEGAL PROCEEDINGS (CONTINUED) ANTHONY NICHOLAS GEORGIOU, ET AL. V. MOBIL EXPLORATION AND PRODUCING SERVICES, INC., METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC., ET AL. On January 14, 1998, ANTHONY NICHOLAS GEORGIOU, ET AL. V. MOBIL EXPLORATION AND PRODUCING SERVICES, INC., METROMEDIA INTERNATIONAL TELECOMMUNICATIONS, INC., ET AL., Civil Action No. H-98-0098, was filed in the United States District Court for the Southern District of Texas. Plaintiffs claim that Metromedia International Telecommunications conspired against and tortuously interfered with plaintiffs' potential contracts involving certain oil exploration and production contracts in Siberia and telecommunications contracts in the Russian Federation. Plaintiffs are claiming damages, for which all defendants could be held jointly and severally liable, of an amount in excess of $395.0 million. On or about February 27, 1998 Metromedia International Telecommunications filed its answer denying each of the substantive allegations of wrongdoing contained in the complaint. The contracts between plaintiff Tiller International Limited and defendant Mobil Exploration and Producing Services, Inc. which are at issue in this case contain broad arbitration clauses. In accordance with these arbitration clauses, Mobil Exploration and Producing Services instituted arbitration proceeding before the London Court of International Arbitration on July 31, 1997. On August 27, 1998, Judge David Hittner entered an order staying and administratively closing the Houston litigation pending final completion of arbitration proceedings in Great Britain. As such, this matter is presently inactive. The parties have engaged in some discovery. The Company believes it has meritorious defenses and is vigorously defending this action. LEGAL PROCEEDINGS IN CONNECTION WITH RDM In December 1994, the Company acquired 19,169,000 shares of RDM common stock, representing approximately 39% of the outstanding shares of RDM common stock as of the date thereof, in exchange for all of the issued and outstanding capital stock of four of its wholly owned subsidiaries. At the time of the transaction, RDM, a New York Stock Exchange listed company, through its operating subsidiaries, was a leading manufacturer of fitness equipment and toy products in the United States. In connection with the transaction pursuant to which the Company acquired the RDM shares, the Company, RDM and certain officers of RDM entered into a shareholders agreement, pursuant to which, among other things, the Company obtained the right to designate four individuals to serve on RDM's Board of Directors, subject to certain reductions. In June 1997, RDM entered into a $100.0 million revolving credit facility with a syndicate of lenders led by Foothill Capital Corporation and used a portion of the proceeds of such facility to refinance its existing credit facility. In order to induce Foothill to extend the entire amount of the RDM credit facility, Metromedia Company, an affiliate of the Company, provided Foothill with a $15.0 million letter of credit that could be drawn by Foothill (i) upon five days notice, if RDM defaulted in any payment of principal or interest or breached any other convenant or agreement in the RDM credit facility and as a result of such other default the lenders accelerated the amounts outstanding under the RDM credit facility, subject, in each such case, to customary grace periods, or (ii) immediately, upon the bankruptcy or insolvency of RDM. In consideration for the Metromedia Company letter of credit, RDM issued to Metromedia Company 10-year warrants to acquire 3,000,000 shares of RDM common stock, exercisable after 90 days from the date of issuance at an exercise price of $.50 per share. In accordance with the terms of the agreement entered into in connection with the RDM credit facility, Metromedia Company offered the Company the opportunity to substitute its letter of credit for the Metromedia Company letter of credit and to receive the RDM warrants. On July 10, 1997, the Company's Board of Directors elected to substitute its letter of credit for Metromedia Company's letter of credit and the RDM warrants were assigned to the Company. 73 ITEM 1. LEGAL PROCEEDINGS (CONTINUED) On August 22, 1997, RDM announced that it had failed to make the August 15, 1997 interest payment due on its subordinated debentures and that it had no present ability to make such payment. As a result, on August 22, 1997, Foothill declared an event of default under the RDM credit facility and accelerated all amounts outstanding under such facility. On August 29, 1997, RDM and certain of its affiliates each subsequently filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. Since the commencement of their respective chapter 11 cases, RDM and its affiliates have discontinued ongoing business operations and their assets are being liquidated. As of August 22, 1997, the closing price per share of RDM common stock was $.50 and the quoted market value of the Company's investment in RDM was approximately $9.6 million. As a result of RDM's financial difficulties and uncertainties, the New York Stock Exchange halted trading in the shares of RDM common stock and the Company believes that it will not receive any compensation for its equity interest. After the commencement of the chapter 11 cases, Foothill drew the entire amount of the letter of credit. Consequently, the Company will become subrogated to Foothill's secured claims against the Company in an amount equal to the drawing under the letter of credit, following payment in full of Foothill. The Company intends to vigorously pursue its subrogation claims in the chapter 11 cases. However, it is uncertain whether the Company will succeed in any such subrogation claims or if it is successful in asserting any such subrogation claims, whether RDM's remaining assets will be sufficient to pay them. On February 18, 1998, the Office of the United States Trustee filed a motion to appoint a chapter 11 trustee in the United States Bankruptcy Court for the Northern Division of Georgia. RDM and its affiliates subsequently filed a motion to convert the chapter 11 cases to cases under chapter 7 of the Bankruptcy Code. On February 19, 1998, the bankruptcy court granted the United States Trustee's motion and ordered that a chapter 11 trustee be appointed. The bankruptcy court also ordered that the chapter 11 cases not convert to cases under chapter 7 of the Bankruptcy Code. On February 25, 1998, each of the Company's designees on RDM's board of directors submitted a letter of resignation. The chapter 11 trustee is in the process of selling all of RDM's assets to satisfy its obligations to its creditors and the Company believes that its equity interest will not be entitled to receive any distributions. On August 19, 1998, a purported class action lawsuit, THEOHAROUS V. FONG, ET AL., Civ. No. 1:98CV2366, was filed in United States District Court for the Northern District of Georgia. On October 19, 1998, a second purported class action lawsuit with substantially the same allegations, SCHUETTE V. FONG, ET AL., Civ. No. 1:98CV3034, was filed in United States District Court for the Northern District of Georgia. On June 7, 1999, plaintiffs in each of these lawsuits filed amended complaints. The amended complaints alleged that certain officers, directors and shareholders of RDM, including the Company and current and former officers of the Company who served as directors of RDM, were liable under federal securities laws for misrepresenting and failing to disclose information regarding RDM's alleged financial condition during the period between November 7, 1995 and August 22, 1997, the date on which RDM disclosed that its management had discussed the possibility of filing for bankruptcy. The amended complaints also alleged that the defendants, including the Company and current and former officers of the Company who served as directors of RDM, were secondarily liable as controlling persons of RDM. In an opinion dated March 10, 2000, the court dismissed these actions in their entirety. On April 7, 2000, plaintiffs in each of these actions filed notices of appeal to the United States Court of Appeals for the Eleventh Circuit. On December 30, 1998, the chapter 11 trustee of RDM brought an adversary proceeding in the bankruptcy of RDM, HAYS, ET AL. V. FONG, ET AL., Adv. Proc. No. 98-1128, in the United States 74 ITEM 1. LEGAL PROCEEDINGS (CONTINUED) Bankruptcy Court, Northern District of Georgia, alleging that current and former officers or directors of the Company, while serving as directors of RDM, breached fiduciary duties allegedly owed to RDM's shareholders and creditors in connection with the bankruptcy of RDM. On January 25, 1999, the plaintiff filed a first amended complaint. The official committee of unsecured creditors of RDM has moved to proceed as co-plaintiff or to intervene in this proceeding, and the official committee of bondholders of RDM has moved to intervene in or join the proceeding. Plaintiffs in this adversary proceeding seek the following relief against current and former officers of the Company who served as directors of RDM: actual damages in an amount to be proven at trial, reasonable attorney's fees and expenses, and such other and further relief as the court deems just and proper. On February 16, 1999, the creditors' committee brought an adversary proceeding, THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF RDM SPORTS GROUP, INC. AND RELATED DEBTORS V. METROMEDIA INTERNATIONAL GROUP, INC., Adv. Proc. No. 99-1023, seeking in the alternative to recharacterize as contributions to equity a secured claim in the amount of $15 million made by the Company arising out of the Company's financing of RDM, or to equitably subordinate such claim made by the Company against RDM and other debtors in the bankruptcy proceeding. On March 3, 1999, the bondholders' committee brought an adversary proceeding, THE OFFICIAL COMMITTEE OF BONDHOLDERS OF RDM SPORTS GROUP, INC. V. METROMEDIA INTERNATIONAL GROUP, INC., Adv. Proc. No. 99-1029, with substantially the same allegations as the above proceeding. In addition to the equitable and injunctive relief sought by plaintiffs described above, plaintiffs in these adversary proceedings seek actual damages in an amount to be proven at trial, reasonable attorneys' fees, and such other and further relief as the court deems just and proper. The Company believes it has meritorious defenses and plans to vigorously defend these actions. Due to the early stage of these proceedings, the Company cannot evaluate the likelihood of an unfavorable outcome or an estimate of the likely amount or range of possible loss, if any. INDEMNIFICATION AGREEMENTS In accordance with Section 145 of the General Corporation Law of the State of Delaware, pursuant to the Company's Restated Certificate of Incorporation, the Company has agreed to indemnify its officers and directors against, among other things, any and all judgments, fines, penalties, amounts paid in settlements and expenses paid or incurred by virtue of the fact that such officer or director was acting in such capacity to the extent not prohibited by law. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's 2000 Annual Meeting of Stockholders held on May 17, 2000, the stockholders of the Company were asked to consider and vote on the following matters: (i) the election of three members to the Company's Board of Directors to serve as Class II Directors for three year terms ending in the year 2003; (ii) the ratification of the appointment of KPMG LLP as the Company's independent accountants for the year ending December 31, 2000; and (iii) a proposal submitted by a stockholder of the Company to amend the Company's certificate of incorporation to allow stockholders of the Company to take action by written consent and to call special meetings (the "Stockholder Proposal"). At such meeting, a majority of the Company's stockholders voted to approve the election of James R. S. Hatt, I. Martin Pompadur and Leonard White as Class II Directors for three year terms ending in the year 2003 and the ratification of the appointment of KPMG LLP as the Company's independent accountants for the year ending December 31, 2000. A majority of the stockholders did not approve the Stockholder Proposal. 75 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (CONTINUED) The following is a summary of the voting results with respect to each of the proposals:
PROPOSAL VOTES FOR WITHELD ------------------------------------------------------------ ---------- --------- 1. The Election of Class II Directors Name James R. S. Hatt............................................ 62,038,399 7,545,472 I. Martin Pompadur.......................................... 62,425,739 7,158,132 Leonard White............................................... 62,119,731 7,464,140
VOTES FOR AGAINST ABSTAIN BROKER NON-VOTES ---------- ---------- -------- ----------------- 2. Ratification of the Appointment of 69,330,799 167,776 85,296 -0- Independent Accountants............ 3. The Stockholder Proposal............. 18,833,782 26,098,709 392,136 24,259,244
No other matters were submitted to a vote of the Company's stockholders, through the solicitation of proxies or otherwise, during the second quarter of the year ending December 31, 2000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER DESCRIPTION - --------------------- ------------------------------------------ 11 * Computation of Earnings Per Share 27 * Financial Data Schedule (b) Reports on Form 8-K None
- ------------------------ * Filed herewith 76 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. METROMEDIA INTERNATIONAL GROUP, INC. By: /s/ SILVIA KESSEL ----------------------------------------- Silvia Kessel EXECUTIVE VICE PRESIDENT CHIEF FINANCIAL OFFICER AND TREASURER Dated: August 10, 2000
77 EX-11 2 ex-11.txt EXHIBIT 11 COMPUTATION OF EARNINGS EXHIBIT 11 METROMEDIA INTERNATIONAL GROUP, INC. COMPUTATION OF EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ------------ ------------ Loss per common share-Basic (A): Net loss $ (16,602) $ (11,607) Cumulative convertible preferred stock dividend requirement (3,752) (3,752) ------------ ------------ Net loss attributable to common stock shareholders $ (20,354) $ (15,359) ============ ============ Weighted average common stock shares outstanding during the period 94,034 69,151 ============ ============ Loss per common share-Basic: Net loss attributable to common stock shareholders $ (0.22) $ (0.22) ============ ============
SIX MONTHS ENDED JUNE 30, --------------------------------- 2000 1999 ------------ ------------ Loss per common share-Basic (A): Net loss $ (33,133) $ (22,877) Cumulative convertible preferred stock dividend requirement (7,504) (7,504) ------------ ------------ Net loss attributable to common stock shareholders $ (40,637) $ (30,381) ============ ============ Weighted average common stock shares outstanding during the period 93,921 69,137 ============ ============ Loss per common share-Basic: Net loss attributable to common stock shareholders $ (0.43) $ (0.44) ============ ============ - -----------
(A) In calculating diluted earnings per share, no potential shares of common stock are to be included in the computation of diluted earnings per share if they would have an antidilutive effect on earnings per share. For the three and six months ended June 30, 2000 and 1999, the Company has not included diluted earnings per share since the calculation is antidilutive. EX-27 3 ex-27.txt EX 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONSOLIDATED FINANCIAL STATEMENTS FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JUN-30-2000 70,098 0 50,920 (2,296) 51,786 198,810 228,532 (44,336) 728,333 127,032 215,909 0 207,000 94,035 43,955 728,333 166,231 166,231 83,291 183,945 0 0 (16,020) (28,746) 4,611 (33,357) 0 0 0 (33,133) (0.43) (0.43)
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