As filed with the Securities and Exchange Commission on June 28, 2007
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 28, 2007
METROMEDIA INTERNATIONAL GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-5706 58-0971455
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
8000 Tower Point Drive, Charlotte, NC 28227
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 321-7380
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(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On June 28, 2007, Metromedia International Group, Inc. (the "Company" or
"MIG"), the owner of interests in communications businesses in the country of
Georgia, announced the release of preliminary and unaudited financial results,
for the fiscal years ended December 31, 2006 and 2005, for its principal core
business, Magticom Limited ("Magticom"). The press release announcing this
matter is attached as Exhibit 99.1 and is incorporated herein by reference.
Management of the Company has determined that the following additional
preliminary and unaudited US GAAP financial results of Magticom should be
disclosed. Furthermore, since the information included within this periodic
report contains preliminary and unaudited US GAAP financial results for
Magticom, this financial information is subject to adjustment until such time
that the Company files its respective periodic reports for the periods presented
with the United States Securities and Exchange Commission ("SEC").
Magticom Financial Results - Revision of 2005 Preliminary Financial Results:
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The following table highlights the Company's current viewpoint of the
preliminary and unaudited US GAAP financial results of Magticom for the twelve
months ended December 31, 2005, as compared to the preliminary results for the
twelve months ended December 31, 2005 (as originally released by the Company in
October 2006):
The Company has not yet filed its quarterly reports on Form 10-Q for the fiscal
quarters of 2005, nor has the Company filed its annual report on Form 10-K for
the twelve months ended December 31, 2005. Accordingly the Company's revised
viewpoint of the preliminary and unaudited US GAAP financial results of Magticom
for the twelve months ended December 31, 2005 remains subject to further
adjustments.
Twelve months ended December 31, 2005
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Adjustments (A)
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Originally Adoption of Unaudited
(in thousands, except percentages) Disclosed EITF 06-03 Other Revised
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Operating revenues:
Subscribers $ 109,317 $ (985) $ 522 $ 108,854
Inbound interconnection 32,679 (280) 10 32,409
Roaming and other 4,135 (18) 4,117
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Total revenues 146,131 (1,283) 532 145,380
Cost of services (exclusive of
depreciation and amortization) 33,478 58 368 33,904
% of revenues 22.9% 23.3%
Selling, general and administrative
expenses 14,326 (1,341) 179 13,164
Other income (expense), net (522) -- 595 73
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EBITDA (1) $ 97,805 $ -- $ 580 $ 98,385
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(A) - Subsequent to the Company's October 2006 press release as related to
Magticom's preliminary and unaudited US GAAP financial results for 2005, certain
accounting adjustments have been identified for which the Company has determined
should be applied to Magticom's previously reported fiscal year 2005 financial
results. These accounting adjustments include Magticom's early adoption of
Emerging Issues Task Force 06-03 ("EITF 06-03") "How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented in the
Income Statement (That Is, Gross versus Net Presentation)" and such other
adjustments identified subsequent to October 2006 that are necessary to fairly
state Magticom's financial results in accordance with US GAAP.
(1) - EBITDA is a financial measure that is not defined by U.S. generally
accepted accounting principles ("US GAAP") and is intended to reflect earnings
before interest, taxes, depreciation and amortization. For purposes of this
presentation, the computation of EBITDA is calculated as: "Revenues", less "Cost
of services", less "Selling, general and administrative expenses", plus "Other
income (expense), net". Since the Company has not yet determined Magticom's
preliminary US GAAP "depreciation and amortization" expense amount for fiscal
year 2005, the Company is not able to calculate Magticom's preliminary US GAAP
"Operating income" amount for fiscal year 2005. EBITDA is a financial measure of
operating performance commonly used in the telecommunications and media
industries, but should not be construed as either an alternative to operating
income or cash flow from operating activities determined in accordance with US
GAAP.
Magticom Preliminary and Unaudited US GAAP Financial Results -
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First Quarter 2006 and 2005:
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Three Months
(In thousands, except percentages March 31, Percent Change
and performance data) ----------------------- Three Months
2006 2005 2006 to 2005
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Revenues
Subscribers $ 28,241 $ 22,676 24.5 %
Inbound interconnection 7,673 7,286 5.3 %
Roaming & other 1,011 909 11.2 %
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Total revenues 36,925 30,871 19.6 %
Cost of services (exclusive of
depreciation and amortization) 8,624 7,408 16.4 %
% of revenues 23.4% 24.0% --
Selling, general & administrative 3,730 3,073 21.4 %
Other income (expense), net 833 (124) --
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EBITDA (1) $ 25,404 $ 20,266 25.4 %
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Performance Data:
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Average monthly revenue per average
subscriber (a) $ 12.99 $ 13.79 (5.8)%
Average monthly minutes of use per
average subscriber (b) 79.08 88.98 (11.1)%
Average subscribers (c) 724,501 548,193 32.2 %
Total subscribers (d), as of: 735,543 565,929 30.0 %
Personnel Headcount 654 583 12.2 %
(a) - Average monthly revenue per subscriber is determined by dividing revenue
from subscribers for the period by average subscribers during the period, and
dividing that result by the number of months in the period. Revenue from
subscribers excludes inbound interconnection, roaming and other revenues earned
from other operators.
(b) - Average monthly minutes of use per subscriber is determined by dividing
total minutes of subscriber-originated calls for the period by average
subscribers during the period, and dividing that result by the number of months
in the period.
(c) - Average subscribers for the period is determined as the sum of active
subscribers at the beginning and at the end of the period divided by two.
Magticom considers a subscriber to be "active" if that subscriber undertook any
revenue generating activity within the prior 30 days.
(d) - Substantially all of Magticom's subscribers pre-pay for services via
scratch-cards or deposits; that is, less than 2% of Magticom's subscribers pay
for services on a post service utilization basis.
(1) - EBITDA is a financial measure that is not defined by U.S. generally
accepted accounting principles ("US GAAP") and is intended to reflect earnings
before interest, taxes, depreciation and amortization. For purposes of this
presentation, the computation of EBITDA is the product of: "Revenues", less
"Cost of services", less "Selling, general and administrative expenses", plus
"Other income (expense), net". Since the Company has not yet determined
Magticom's preliminary US GAAP "depreciation and amortization" expense amount
for the three months ended March 31, 2006 and 2005, the Company is not able to
calculate Magticom's preliminary US GAAP "Operating income" amount for the three
months ended March 31, 2006 and 2005. EBITDA is a financial measure of operating
performance commonly used in the telecommunications and media industries, but
should not be construed as either an alternative to operating income or cash
flow from operating activities determined in accordance with US GAAP.
The average exchange rate of the Georgian Lari, Magticom's functional currency,
strengthened marginally (0.8%) against the U.S. Dollar during the first quarter
2006 as compared to the same period in 2005.
Revenues at Magticom increased by $6.0 million (20%) to $36.9 million for the
three months ended March 31, 2006 as compared to $30.9 million for the three
months ended March 31, 2005, due principally to the expansion of Magticom's
subscriber base.
Magticom is the market leader in Georgia, based on both revenues and number of
subscribers. Magticom's total and average subscribers have increased 30% and
32%, respectively, since March 31, 2005. Magticom anticipates further increases
in its subscriber base as it continues to penetrate the market; however, the
rate of new subscriber acquisition can be expected to decline as overall
penetration of mobile telephony services in Georgia increases. Despite the
significant increase in its subscriber base, average revenue per subscriber
("ARPU") decreased 5.8% for the three months ended March 31, 2006 as compared to
the three months ended March 31, 2005. Such decreases are attributable to an
11.1% decrease in the average minutes of use per subscriber ("AMPU"). These
results reflect, in part, the lower level of average spending by recently
acquired subscribers, who on average possess more limited means than subscribers
acquired earlier in Magticom's history. This is a common effect of penetration
deeper into an established market and is experienced by mobile operations
worldwide. 2006 ARPU decreases also reflect selective price discounts Magticom
offered as a marketing measure to both gain subscribers and secure its
subscriber base from competition. Magticom anticipates that ARPU and AMPU will
continue to decline in future periods in the face of stiffening competition and
as a consequence of continuing penetration of its services into lower
affordability segments of the Georgian population.
Inbound interconnection revenues are earned for termination of other telephone
service providers' traffic on Magticom's telecommunications network. 2006 growth
in the inbound interconnection revenue reflects increased traffic termination
volumes consistent with the general expansion of Magticom's subscriber base and
that of its competitors (i.e. more callers in the market will, in general,
increase the volume of interconnection traffic). The effect of this traffic
increase on inbound revenue was partially offset by a decrease in the per-minute
traffic terminating fee charged by telephone service providers as mandated by
the Georgian regulator. Interconnection rates are set by regulation and the
Georgian regulator has announced an intention to reduce these rates over time as
a means of promoting new market entrants.
Roaming revenues reflect charges to Magticom subscribers originating calls using
their Magticom-equipped mobile telephone in a territory not directly serviced by
Magticom and charges to subscribers of a foreign operator originating calls
utilizing the Magticom network while in Georgia. Period-over-period increases in
roaming revenues reflect modest increases in Georgian travel abroad and tourist
or commercial traffic into Georgia. Magticom and most other operators worldwide
bill roaming subscribers at a significant premium over the rates charged for
conventional domestic usage. This practice is now being aggressively challenged
in several regulatory jurisdictions, especially in the European Union; and
Magticom expects that premiums associated with roaming will erode, perhaps
sharply, over future periods.
Cost of services at Magticom increased by $1.2 million (16%) to $8.6 million in
the three months ended March 31, 2006 as compared to $7.4 million in the three
months ended March 31, 2005, due principally to increases in interconnection and
base station expenses, which includes start-up costs associated with the
deployment of the 3rd generation mobile communications network.
Interconnection costs of service reflect the charges that Magticom incurs from
other telephone service providers when terminating its subscriber traffic on
those other providers' telecommunications networks. 2006 growth in these
interconnection costs is consistent with the general expansion of Magticom's
subscriber base and that of its competitors; partially offset by the
aforementioned decrease in per-minute interconnection rates mandated by the
Georgian regulator. Magticom (and its competitors) have adopted various retail
pricing strategies which favor calling within Magticom's network over placing
calls to subscribers of other telephone service providers. This practice of
promoting "on-net" calling has proven to be effective in gaining and retaining
subscribers; and will likely be continued in future periods.
The increase in base station related costs of service reflects a rise in the
repair and maintenance of Magticom's base stations and an upsurge in fuel and
electricity rates throughout the country of Georgia. Furthermore, base station
expenses grew as a result of Magticom's introduction of 3rd generation mobile
communications technology within its network in mid-2006 and the training of its
employees and technical support to maintain this technology. Magticom
anticipates that the start-up expenses to support its new 3rd generation mobile
communications technology will continue to be incurred over the next eighteen
months.
Despite these significant increases, cost of services as a percentage of revenue
for the first quarter 2006 improved 2.5% as compared to the same period in 2005.
Selling, general and administrative expenses increased $0.6 million (21%) to
$3.7 million for the three months ended March 31, 2006 as compared to $3.1
million for the three months ended March 31, 2005. The increase is principally
attributable to a $0.2 million increase in personnel costs and a $0.2 million
increase in marketing expenses.
The increase in personnel costs reflects an overall 15% increase in the average
number of personnel for the first quarter 2006 as compared to the same period in
2005 and annual wage increases provided to existing employees effective January
1, 2006. Such increases were partially offset by the absence of a performance
bonus program in 2006, which accounted for $0.3 million of personnel costs
during the first quarter 2005. Magticom's increase in personnel is attributable
to the necessary expansion of its administrative, sales and technical staff to
support the continued growth of the business.
The $0.2 million increase in Magticom's marketing expenses reflects the
necessity of an aggressive marketing strategy in an increasingly competitive
business environment. Magticom has focused its 2006 advertising efforts on
improving the performance of its "Magti" brand through the use of television
commercials, print advertisements and marketing materials.
Other income increased $0.9 million from a $0.1 million net other loss for the
three months ended March 31, 2005 to a $0.8 million net other income for the
three months ended March 31, 2006. This increase is the result of Magticom's
recognition of a $0.8 million foreign currency gain in the three months ended
March 31, 2006 as compared to a $0.1 million foreign currency loss in the three
months ended March 31, 2005. When comparing the rate of currency exchange of the
U.S. Dollar relative to the Georgian Lari at March 31, 2006 as compared to
December 31, 2005, the U.S. Dollar strengthened against the Georgian Lari.
Accordingly, since Magticom had a significantly larger amount of cash held in a
U.S. Dollar denominated bank account during the three months ended March 31,
2006 as compared to the same period in 2005, Magticom recognized a foreign
currency gain from the fluctuation of the strengthening U.S. Dollar.
Magticom Financial Results - Revision of 2005 Preliminary Financial Results:
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The following table highlights the Company's current viewpoint of the
preliminary and unaudited US GAAP financial results of Magticom for the three
months ended March 31, 2005, as compared to the preliminary results for the
three months ended March 31, 2005 (as originally released by the Company in
October 2006):
The Company has not yet filed its quarterly report on Form 10-Q for the fiscal
quarter ended March 31, 2005. Accordingly the Company's revised viewpoint of the
preliminary and unaudited financial results of Magticom for the three months
ended March 31, 2005 remains subject to further adjustments.
Three months ended March 31, 2005
--------------------------------------------
Adjustments (A)
--------------------
Originally Adoption of Unaudited
(in thousands, except percentages) Disclosed EITF 06-03 Other Revised
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Operating revenues:
Subscribers $ 22,633 $ (197) $ 240 $ 22,676
Inbound interconnection 7,340 (64) 10 7,286
Roaming and other 861 (9) 57 909
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Total revenues 30,834 (270) 307 30,871
Cost of services (exclusive of
depreciation and amortization) 7,263 12 133 7,408
% of revenues 23.6% 24.0%
Selling, general and administrative
expenses 3,234 (282) 121 3,073
Other income (expense), net (183) -- 59 (124)
---------- ----------- ------- ----------
EBITDA (1) $ 20,154 $ -- $ 112 $ 20,266
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(A) - Subsequent to the Company's October 2006 press release as related to
Magticom's preliminary and unaudited US GAAP financial results for the three
months ended March 31, 2005, certain accounting adjustments have been identified
for which the Company has determined should be applied to Magticom's previously
reported first quarter 2005 financial results. These accounting adjustments
include Magticom's early adoption of Emerging Issues Task Force 06-03 ("EITF
06-03") "How Taxes Collected from Customers and Remitted to Governmental
Authorities Should Be Presented in the Income Statement (That Is, Gross versus
Net Presentation)" and such other adjustments identified subsequent to October
2006 that are necessary to fairly state Magticom's financial results in
accordance with US GAAP.
(1) - EBITDA is a financial measure that is not defined by U.S. generally
accepted accounting principles ("US GAAP") and is intended to reflect earnings
before interest, taxes, depreciation and amortization. For purposes of this
presentation, the computation of EBITDA is calculated as: "Revenues", less "Cost
of services", less "Selling, general and administrative expenses", plus "Other
income (expense), net". Since the Company has not yet determined Magticom's
preliminary US GAAP "depreciation and amortization" expense amount for the three
months ended March 31, 2005, the Company is not able to calculate Magticom's
preliminary US GAAP "Operating income" amount for the three months ended March
31, 2005. EBITDA is a financial measure of operating performance commonly used
in the telecommunications and media industries, but should not be construed as
either an alternative to operating income or cash flow from operating activities
determined in accordance with US GAAP.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
99.1 Press Release of Metromedia International Group, Inc. dated June
28, 2007.
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
METROMEDIA INTERNATIONAL GROUP, INC.
By: /S/ HAROLD F. PYLE, III
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Name: Harold F. Pyle, III
Title: Executive Vice President Finance,
Chief Financial Officer and
Treasurer
Date: June 28, 2007
Charlotte, NC