<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________________ TO _______________
COMMISSION FILE NUMBER: 1-6739
SPELLING ENTERTAINMENT GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-0862100
- ------------------------------- -------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5700 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
- ------------------------------- -------------------
(Address of principal executive (Zip Code)
offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (213) 965-5700
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
--- ---
On August 11, 1997, the registrant had outstanding 90,746,265 shares of
Common Stock, $.001 par value.
<PAGE> 2
SPELLING ENTERTAINMENT GROUP INC.
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 (Unaudited) 3
Condensed Consolidated Statements of
Operations - Three Months and Six Months Ended
June 30, 1997 and 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 and 1996 (Unaudited) 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
</TABLE>
2
<PAGE> 3
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,994 $ 3,325
Accounts receivable, net 118,717 104,645
Entertainment product, net 253,063 233,002
Other current assets 3,940 4,204
--------- ---------
Total current assets 382,714 345,176
Accounts receivable, net 105,474 91,880
Entertainment product, net 133,052 182,786
Property and equipment, net 12,660 13,389
Net assets of VIE 10,746 14,289
Intangible assets, net 190,063 192,806
Other noncurrent assets 20 20
--------- ---------
Total assets $ 834,729 $ 840,346
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable, accrued expenses and other liabilities $ 38,581 $ 36,103
Accrued participation expense 68,044 54,534
Deferred revenue 8,026 21,388
Income and other taxes 3,242 791
--------- ---------
Total current liabilities 117,893 112,816
Accrued participation expense 51,846 45,797
Long-term debt payable to Viacom 307,000 315,000
Deferred income and other taxes 27,051 36,156
Net liabilities related to discontinued operations of Charter 11,538 10,834
--------- ---------
515,328 520,603
--------- ---------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Preferred Stock - -
Common Stock, $.001 par value,
- 300,000,000 shares authorized
- 90,730,254 and 90,625,321 shares issued and outstanding 91 91
Capital in excess of par value 576,795 576,260
Accumulated deficit (258,307) (258,671)
Cumulative translation adjustment 822 2,063
--------- ---------
Total shareholders' equity 319,401 319,743
--------- ---------
Total liabilities and shareholders' equity $ 834,729 $ 840,346
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 148,425 $ 99,206 $ 314,928 $ 227,985
Costs and expenses:
Entertainment product costs 138,567 85,654 279,719 197,508
Selling, general and administrative 14,695 13,478 29,682 28,981
--------- --------- --------- ---------
Operating income (loss) (4,837) 74 5,527 1,496
Interest income 279 352 519 751
Interest expense, net (4,658) (3,134) (9,547) (5,667)
Other income (expense), net 5,667 - 5,666 (3)
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (3,549) (2,708) 2,165 (3,423)
Benefit for income taxes (6,586) (957) (1,600) (1,314)
--------- --------- --------- ---------
Income (loss) from continuing operations 3,037 (1,751) 3,765 (2,109)
Loss from discontinued operations of VIE, net - (20,235) - (23,623)
--------- --------- --------- ---------
Net income (loss) $ 3,037 ($ 21,986) $ 3,765 ($ 25,732)
========= ========= ========= =========
Average number of common and common
equivalent shares 90,730 90,409 90,725 90,255
========= ========= ========= =========
Income (loss) per common and common equivalent share:
Continuing operations $ 0.03 ($ 0.02) $ 0.04 ($ 0.03)
Discontinued operations - (0.22) - (0.26)
--------- --------- --------- ---------
Net income (loss) per common and common
equivalent share $ 0.03 ($ 0.24) $ 0.04 ($ 0.29)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,765 $ (25,732)
Adjustments to reconcile net income (loss) to cash flows
from continuing operations:
Net loss from discontinued operations -- 23,623
Depreciation and amortization 4,515 4,176
Amortization of entertainment product costs 229,712 172,716
Additions to entertainment product costs (198,540) (192,005)
Gain from marketable securities (5,648) -
(Increase) decrease in accounts receivable (28,566) 402
Decrease in accounts payable, accrued expense,
other liabilities and income taxes (1,497) (6,181)
Increase (decrease) in accrued participation expense 18,960 (339)
Decrease in deferred revenue (13,363) (11,618)
Other, net (1,570) (1,494)
--------- ---------
Net cash provided (used) by continuing operations 7,768 (36,452)
Net cash provided (used) by discontinued operations 637 (36,678)
--------- ---------
8,405 (73,130)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,077) (3,449)
Repayments by (advances to) discontinued operations of VIE 4,270 (15,229)
Changes in net liabilities related to
discontinued operations of Charter 704 (2,122)
--------- ---------
Net cash provided (used) by continuing operations 3,897 (20,800)
Net cash used by discontinued operations (2,265) (2,462)
--------- ---------
1,632 (23,262)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 33,000 55,000
Repayments of credit facilities (41,000) --
Issuances of Common Stock 4 1,543
--------- ---------
Net cash provided (used) by continuing operations (7,996) 56,543
Net cash provided (used) by discontinued operations (4,904) 26,123
--------- ---------
(12,900) 82,666
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,863) (13,726)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,175 20,678
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,312 $ 6,952
========= =========
CASH AND CASH EQUIVALENTS AT END OF PERIOD:
Continuing operations $ 6,994 $ 5,935
Discontinued operations 6,318 1,017
--------- ---------
$ 13,312 $ 6,952
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Spelling Entertainment Group Inc. and subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading; however, these
unaudited condensed consolidated financial statements should be read in
conjunction with the more detailed financial statements and notes thereto
included in the Company's most recent Annual Report on Form 10-K.
The financial statements reflect, in the opinion of management, all normal
recurring adjustments necessary to present fairly the Company's financial
position and results of operations. In order to maintain consistency and
comparability between periods presented, certain amounts have been reclassified
from the previously reported financial statements in order to conform with the
financial statement presentation in the current period. The Condensed
Consolidated Statements of Operations and of Cash Flows for the second quarter
and the six-month period ended June 30, 1996 have been restated to conform with
the current year discontinued operations presentation.
Viacom Inc. ("Viacom") currently owns approximately 75% of the Company's Common
Stock. On April 18, 1997, Viacom announced its intention to acquire additional
shares of the Company's outstanding common stock and increase its ownership to
approximately 80%. Viacom indicated that the purchase of additional shares is
intended to permit it to consolidate the Company's results for tax purposes and
it has no plans to increase its ownership beyond approximately 80%.
On July 30, 1994, the Company acquired approximately 91% of the ordinary shares
("Ordinary Shares") of Virgin Interactive Entertainment Limited ("VIEL") and
also entered into put- and call-option agreements with respect to the Ordinary
Shares of VIEL not owned by the Company and currently owned by Viacom. Viacom
and the Company have executed amendments to extend the put- and call-option
agreements, which were originally scheduled to expire in July 1995, through
December 31, 1997. (See Note 9 regarding the planned disposition of VIEL
(together with its subsidiaries, "VIE")).
2. ENTERTAINMENT PRODUCT, NET
Entertainment product, net, includes production or acquisition costs (including
advance payments to producers), capitalized overhead and interest, home video
manufacturing costs, and prints, advertising and other related distribution
costs expected to benefit future periods. These costs are amortized, and
third-party participations and residuals are accrued, generally on an individual
product basis in the ratio that current-year gross revenue bears to estimated
future gross revenue. Domestic syndication and basic cable revenue estimates are
not included in estimated future gross revenue of television programming until
such sales are probable.
6
<PAGE> 7
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
Entertainment product, net, is stated at the lower of cost less amortization or
estimated net realizable value. Estimates of total gross revenue, costs and
participations are reviewed quarterly and revised as necessary. When estimates
of total revenue and costs indicate that an individual product will realize an
ultimate loss, additional amortization is provided to fully recognize such loss
in that period.
Entertainment product, net, is comprised of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Entertainment product:
Theatrical
Released $163,117 $137,266
Completed, not released 6,889 4,833
In process and other 25,736 73,745
-------- --------
195,742 215,844
Television
Released 172,970 184,954
Completed, not released 524 --
In process and other 16,879 14,990
-------- --------
190,373 199,944
$386,115 $415,788
======== ========
</TABLE>
3. DEBT
In January 1994, the Company entered into a three-year credit agreement (the
"Viacom Facility") with a predecessor-in-interest to Viacom. This agreement was
amended and restated in January 1995 and again in November 1995, to provide,
among other things, increases in the amount available under such facility. The
Viacom Facility, as amended, provided for (i) a term loan of $100,000,000 which
funded the Company's merger with Republic Entertainment Inc. ("Republic") in
April 1994 and (ii) a revolving credit facility of $140,000,000 to fund the
Company's working capital and other requirements. All outstanding borrowings
under the Viacom Facility were due to mature on March 31, 1997.
On September 30, 1996, the Company and Viacom executed a credit agreement (the
"Viacom Credit Agreement") which replaced the Viacom Facility. The Viacom Credit
Agreement provides for (i) a term loan of $200,000,000 and (ii) a revolving
credit facility of $155,000,000 to fund the Company's working capital and other
requirements. All outstanding borrowings under the Viacom Credit Agreement
mature on December 31, 1998.
7
<PAGE> 8
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
Under the Viacom Credit Agreement, the Company pays an annual fee (currently
0.375%) based on the unused portion of the facility, as well as certain facility
and administration fees. Effective as of October 1, 1996, interest on all
outstanding borrowings is payable, at the Company's option, at LIBOR plus a
spread based on the Company's leverage ratio, as defined (currently 2.5%) or at
Citibank N.A.'s base rate. The average interest rate at June 30, 1997, on
borrowings under the Viacom Credit Agreement, was 8.2%. Additional terms of the
Viacom Credit Agreement require, among other things, a minimum amount, as
defined, of net worth. Borrowings under the Viacom Credit Agreement are secured
by all of the assets of the Company and its domestic subsidiaries and the entire
amount outstanding under the Viacom Credit Agreement may be accelerated if
Viacom's borrowings under its separate credit facilities were to be accelerated.
At June 30, 1997, the carrying value of all of the Company's debt approximated
fair value.
See Note 9 regarding debt related to discontinued operations.
8
<PAGE> 9
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
4. SHAREHOLDERS' EQUITY
The following is a summary of the changes in the components of shareholders'
equity:
<TABLE>
<CAPTION>
Capital In Cumulative
Common Excess of Accumulated Translation
Stock Par Value Deficit Adjustment Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 91 $ 576,260 $(258,671) $ 2,063 $ 319,743
Exercise of options and warrants -- 535 -- -- 535
Realized gain included in net income -- -- (3,484) -- (3,484)
Unrealized holding gain, net -- -- 83 -- 83
Net income for the period -- -- 3,765 -- 3,765
Cumulative translation adjustment -- -- -- (1,241) (1,241)
--------- --------- --------- --------- ---------
Balance at June 30, 1997 $ 91 $ 576,795 $(258,307) $ 822 $ 319,401
========= ========= ========= ========= =========
</TABLE>
In May 1997, the Company realized a non-cash gain with respect to a common stock
investment upon the merger of the investee with an unrelated acquiring company.
The Company received common shares of the acquiring company in exchange for the
common shares of the investee, and recorded the fair market value of the shares
received as the cost basis for such shares.
The Company has accounted for both common stock investments (prior and
subsequent to the merger) as "available for sale" securities under the
applicable provisions of Statement of Financial Accounting Standards ("SFAS")
No. 115, adjusting the carrying value to fair market value, with a corresponding
adjustment, net of tax, to Shareholders' Equity.
5. INCOME TAXES
Income taxes have been provided in each period based on the Company's
anticipated annual effective income tax rate.
6. NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net income (loss) per common and common equivalent share amounts are based on
the weighted average number of common and common equivalent shares outstanding
during the respective periods. Primary and fully diluted net income (loss) per
common and common equivalent share are not presented as they result in a
dilution of less than 3% from basic net income (loss) per common and common
equivalent share or are anti-dilutive.
9
<PAGE> 10
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
During February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which is effective for financial statements for both
interim and annual periods ending after December 15, 1997. The Company does not
expect this statement to have a material impact on its net income (loss) per
share.
7. LEGAL MATTERS
The Company is involved in certain legal proceedings which arise in the normal
course of conducting its entertainment business operations. The Company believes
such legal proceedings should not have a material adverse effect on the
Company's consolidated results of operations or financial condition.
The Company also is subject to pending and contingent claims relating to the
Company's discontinued operations, including certain claims involving
environmental matters. Some of the parties involved in such actions seek
significant damages. While the outcome of these claims cannot be predicted with
certainty, based upon (i) its knowledge of the facts and circumstances and its
understanding of the applicable law; (ii) allowances for estimated losses on
disposal of the discontinued operations, and (iii) an indemnity agreement, the
Company believes that the ultimate resolution of such suits and claims will not
have a material adverse effect on the Company's consolidated results of
operations or financial condition.
A subsidiary of the Company had pursued a cost recovery action against former
owners of a petroleum storage terminal property in Tiverton, Rhode Island,
seeking contribution to the cost of an environmental cleanup. In June 1997, a
settlement was agreed upon with the last of the former owners pursuant to which
$400,000 was paid to the subsidiary and the case (Charter International Oil
Company v. United States, et. al., U.S. District Court, Rhode Island, filed
March 3, 1995) was dismissed.
8. RELATED PARTY TRANSACTIONS
The Company was charged interest and fees by Viacom of $13,105,000 and
$8,267,000 during the six months ended June 30, 1997 and 1996, respectively, in
connection with the Viacom Credit Agreement and the Viacom Facility. Included in
accounts payable, accrued expenses and other liabilities is accrued interest
payable to Viacom of $918,000 and $1,226,000 as of June 30, 1997 and December
31, 1996, respectively. See Note 3 regarding the Company's credit facilities
with Viacom and Note 9 regarding Viacom's guarantee of the Company's credit
agreements with banks.
Viacom provided the Company with management services for which the Company was
charged $150,000 for the three-month period ended March 31, 1996 for the
services of an executive. No further charges were incurred after the resignation
of such executive in the first quarter of 1996. As of June 30, 1997, the Company
had a net payable to Viacom of approximately $2,385,000 with respect to these
and other expenses.
During the six months ended June 30, 1997 and 1996, the Company sold home video
product to several operating subsidiaries of Viacom International Inc., a
subsidiary of Viacom. Additionally, the Company licensed certain entertainment
product to (i) Showtime Networks Inc. ("Showtime"), a subsidiary of Viacom; (ii)
certain television stations owned by Viacom; and (iii) USA Network, Sci-Fi
Channel and United Paramount Network, in which Viacom has equity interests. For
the six months ended June 30, 1997 and 1996, these transactions were not
material.
10
<PAGE> 11
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
Republic has entered into agreements with, and in certain cases has advanced
funds to Viacom, a partnership in which a subsidiary of Viacom is the managing
partner and Showtime to distribute certain of their productions in the home
video market.
The Company has entered into agreements with Paramount Pictures Corporation
("Paramount"), a Viacom subsidiary, with respect to the distribution of two of
the Company's feature film releases, "Night Falls on Manhattan" and "Stephen
King's Thinner," in the domestic theatrical, non-theatrical and pay television
markets. Additionally, the Company has partnered with Paramount in the
production or funding of two additional feature films, "In & Out" and
"Breakdown," in which the Company owns the international distribution rights.
In the ordinary course of business, the Company has and expects to continue to
do business with Viacom and its affiliates.
9. DISCONTINUED OPERATIONS
On February 20, 1997, the Company announced its intention to dispose of its
interactive game business, VIE, by December 31, 1997 and has, accordingly,
reflected the operations of VIE as discontinued.
VIE's net assets (liabilities) as of June 30, 1997 and December 31, 1996, and
results of operations for the three- and six-month periods ended June 30, 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
Current assets $ 68,417 $ 152,724
Current liabilities (158,040) (116,400)
--------- ---------
Net current assets (liabilities) (89,623) 36,324
--------- ---------
Property and equipment, net 16,276 16,793
Intangibles, net 100,619 107,657
Other non-current assets 22,747 21,257
Non-current liabilities (39,273) (167,742)
--------- ---------
Net non-current assets (liabilities) 100,369 (22,035)
--------- ---------
Net assets (liabilities) $ 10,746 $ 14,289
========= =========
</TABLE>
11
<PAGE> 12
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Revenue $ 30,300 $ 66,439
Costs and expenses 53,552 99,711
-------- --------
Loss before provision for income taxes (23,252) (33,272)
Benefit for income taxes (3,139) (9,240)
-------- --------
Net loss before minority interest (20,113) (24,032)
Minority interest 122 (409)
-------- --------
Net loss from discontinued operations $(20,235) $(23,623)
======== ========
</TABLE>
During the year ended December 31, 1996, the Company provided for an estimated
loss on disposal of VIE of approximately $139,501,000, which included a
provision for future operating losses of approximately $56,000,000. For the six
months ended June 30, 1997, revenue and the net operating loss of VIE were
$88,408,000 and $30,184,000, respectively, and the net operating loss was
provided for in the estimated loss on disposal as of December 31, 1996.
In May 1996, the SEC staff announced its position that companies developing
computer software are required to capitalize development costs in accordance
with the standards of SFAS No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed." Accordingly, the Company has
applied the principles of SFAS No. 86 with respect to the capitalization of
software development costs. This resulted in a cumulative pretax adjustment of
approximately $7,500,000 and a pretax adjustment of approximately $600,000
recorded in the second and third quarters of 1996, respectively, as restated.
The amounts included for prior periods were not material to the respective
periods.
Pursuant to SFAS No. 86, the Company capitalizes certain software development
and production costs once technological feasibility has been achieved.
Capitalized software development and production costs are reported at the lower
of cost less amortization or estimated net realizable value. Software
development costs incurred prior to achieving technological feasibility are
charged to expense as incurred. Amortization of capitalized software development
costs and development costs expensed prior to achieving technological
feasibility are included in product costs in the accompanying statements of
operations.
12
<PAGE> 13
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
On December 23, 1993, a wholly owned subsidiary of VIE established a
multi-currency credit agreement (the "Credit Agreement") with a bank in the U.S.
The Credit Agreement initially provided for maximum borrowings of $15,000,000,
subject to a borrowing base test. Following the acquisition of VIE, the amount
of borrowings allowable under the Credit Agreement was increased to $75,000,000
and the borrowing base test and other ratio tests were eliminated, based on the
guarantee of all borrowings under the Credit Agreement by Viacom. During 1995,
the borrowings allowable under the Credit Agreement were increased to
$100,000,000. During 1996, the term was extended to March 31, 1998. Interest is
payable monthly at the bank's reference rate or, at the Company's option,
certain alternative rates. Additionally, the Company must pay a commitment fee
of 0.125% on the unused portion of the available credit. Borrowings under the
Credit Agreement as of June 30, 1997 and December 31, 1996 were $92,662,000 and
$98,010,000, respectively. As of June 30, 1997, the Company had approximately
$105,000 in letters of credit outstanding under the Credit Agreement to
guarantee its interactive game purchases.
On September 8, 1993, another wholly owned subsidiary of VIE established a
5,000,000 pounds sterling credit facility (the "UK Facility") with a bank in the
United Kingdom. On April 12, 1994, the UK Facility was increased to 10,000,000
pounds sterling, based in part on the personal guarantee of two of the directors
of the subsidiary. Following the acquisition of VIE, the Company guaranteed the
UK Facility and the guarantees of the two directors were terminated. Advances
under the UK Facility bear interest at the bank's prime rate plus 1.0%.
Effective as of April 3, 1997, the UK Facility was renegotiated on terms more
favorable to the subsidiary. The renegotiated UK Facility, which is an annual
facility, will expire on December 31, 1997 and is guaranteed by Viacom and the
Company. Advances under the renegotiated UK Facility will bear interest at the
bank's prime rate plus 1% or alternatively at selected Eurocurrency rates.
Borrowings under the UK Facility as of June 30, 1997 and December 31, 1996 were
$8,084,000 and $3,898,000, respectively. As of June 30, 1997, the Company had
approximately $211,000 in letters of credit outstanding under the UK Facility to
guarantee its interactive game purchases. The Company and Viacom also provide a
rent guarantee, which expires in 2005, for this subsidiary.
Pursuant to the separate credit facilities under which Viacom is a borrower,
certain subsidiaries of Viacom, including the Company, are restricted from
incurring indebtedness (other than indebtedness owing to Viacom) without the
prior consent of Viacom's lenders. Such consent has been given with respect to
the Credit Agreement and the UK Facility.
13
<PAGE> 14
SPELLING ENTERTAINMENT GROUP INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
unaudited condensed consolidated financial statements and the related notes
thereto. References to Notes refer to the notes to such statements.
RESULTS OF OPERATIONS
The results of operations for any period are significantly affected by the
quantity and performance of the Company's entertainment product which is
licensed or sold to, and available for exhibition by, licensees or customers in
various media and territories. Consequently, results of operations may vary
significantly between periods, and the results of operations in any one period
may not be indicative of results of operations in future periods.
The success of the Company's television programming business depends, in large
part, upon the successful network exhibition of its television series over a
sufficient number of years to allow for off-network exhibition opportunities.
During the initial years of one-hour television series, network and
international license fees normally approximate the production costs of the
series, and accordingly the Company recognizes only minimal profit or loss
during this period. With respect to half-hour network programming and first-run
syndication television programming, the production costs can substantially
exceed the combination of the network or other domestic revenue and
international license fees, and the Company recognizes losses during this
period. However, if a sufficient number of episodes of a series are produced,
the Company is reasonably assured that it will also be able to sell the series
in the domestic off-network market, and the Company would then expect to be able
to reduce its loss or realize a profit with respect to the series.
The Company's business in general is affected by the public's acceptance of its
product, which is unpredictable and subject to change, and by conditions within
the entertainment industry, including, but not limited to, the quality and
availability of creative talent and the negotiation and renewal of union
contracts relating to writers, directors, actors, musicians and studio
technicians and craftsmen as well as any changes in the law and governmental
regulation. On September 6, 1995, the Federal Communications Commission released
an order repealing its rules which prohibited television networks from acquiring
financial interests and syndication rights in television programming produced by
program suppliers such as the Company. The Telecommunications Act of 1996
eliminates the restrictions on the number of television stations that one entity
may own and increases the national audience reach limitation by one entity from
25% to 35%. Accordingly, the networks will be able to own the programming which
they broadcast and increase their national audience reach, thereby becoming
greater competitors of the Company in the production and distribution of
programming.
14
<PAGE> 15
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
REVENUE
The following table sets forth the components of revenue from the Company's
major media and markets for the three and six months ended June 30 (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Television $105,053 $ 78,840 $244,919 $185,115
Home video 24,520 12,855 42,644 26,880
Film distribution 14,097 2,701 18,394 6,975
Licensing and merchandising 3,182 3,151 6,608 6,689
Other 1,573 1,659 2,363 2,326
-------- -------- -------- --------
$148,425 $ 99,206 $314,928 $227,985
======== ======== ======== ========
</TABLE>
Television revenue increased $26,213,000 (33%) and $59,804,000 (32%) in the
three- and six-month periods ended June 30, 1997, respectively, from the
comparable periods in 1996. The increase in the 1997 periods arose primarily
from (i) higher per episode network license fees for the Company's continuing
series; (ii) increased hours of programming delivered to the networks, including
the new daytime serial "Sunset Beach"; and (iii) higher revenue from
exploitation of the Company's library.
Home video revenue increased $11,665,000 (91%) and $15,764,000 (59%) in the
three- and six-month periods ended June 30, 1997, respectively, from the same
periods in 1996, due primarily to the release of "Stephen King's Thinner" in the
second quarter of 1997 and "Bound" in the first quarter of 1997. Both of the
foregoing feature films were released theatrically in October 1996. The home
video market continues to be very competitive due to home video retailers
purchasing greater volumes of theatrical releases from the major studios and
lower volumes of made-for-video product, such as the Company's. It is expected
that this trend will continue in the near term. The Company continues to reduce
its acquisition of made-for-video titles.
Film distribution revenue increased $11,396,000 (422%) and $11,419,000 (164%) in
the three- and six-month periods ended June 30, 1997, respectively, compared to
the same periods in 1996. In the second quarter of 1997, the Company released
"Night Falls on Manhattan" in the domestic theatrical market and expanded its
release internationally. "Breakdown" was also released in limited markets
internationally in the second quarter of 1997. A release of similar significance
in the 1996 period was "Moll Flanders."
Licensing and merchandising revenue remained stable in the three- and six-month
periods ended June 30, 1997 compared to the same periods in 1996. The continuing
decline in the licensing revenue for "Beverly Hills, 90210" and "Melrose Place,"
was offset by an overall increase in revenue from third-party clients.
15
<PAGE> 16
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Certain of the Company's operations generate revenue denominated in foreign
currencies, and as a result, fluctuations in foreign currency exchange rates may
affect operating results. In particular, the Company generates revenue
denominated in French francs, Canadian dollars and Mexican pesos, among others.
ENTERTAINMENT PRODUCT COSTS
Entertainment product costs consist primarily of amortization of capitalized
product costs and the accrual of third-party participations and residuals. Such
costs increased $52,913,000 (62%) and $82,211,000 (42%) in the quarter and
six-month period ended June 30, 1997, respectively, from the comparable
prior-year periods. The increase resulted primarily from the increases in
revenue described above. Additionally, the percentage relationship between such
costs and the related revenue was 89% and 87% for the six months ended June 30,
1997 and 1996, respectively. This percentage relationship is a function of (i)
the mix of entertainment product generating the revenue in each period and (ii)
changes in the projected profitability of individual entertainment product based
on the Company's estimates of such product's ultimate revenue and costs. The
Company recorded write-downs to net realizable value with respect to its
entertainment product of $13,483,000 and $7,888,000 in the quarters ended June
30, 1997 and 1996, respectively. The increase in write-downs in the 1997 period
was primarily attributable to the domestic theatrical performance of feature
films released during the period, and the related revisions to profitability
estimates resulting in net realizable value adjustments.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs increased $1,217,000 (9%) and $701,000
(2%) in the quarter and six months ended June 30, 1997, respectively, from the
comparable prior-year periods. The increases result from the Company's growth
between periods.
INTEREST EXPENSE
Interest expense, net of amounts capitalized, increased $1,524,000 (49%) and
$3,880,000 (68%) in the three- and six-month periods ended June 30, 1997, due to
(i) higher average indebtedness outstanding under the Company's credit
arrangements; (ii) an increase in the weighted average interest rate; and (iii)
a decrease in capitalized interest associated with the Company's theatrical
production activities.
16
<PAGE> 17
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
OTHER INCOME (EXPENSE), NET
Other income (expense), net, increased in the quarter ended June 30, 1997 from
the same period in 1996 due to the realization of a non-cash gain related to an
investment in a marketable equity security. Such gain had previously been
recorded as an unrealized adjustment to shareholders' equity pursuant to the
requirements of SFAS No. 115. (See Note 4.)
PROVISION FOR INCOME TAXES
During the six months ended June 30, 1997, the Company's provision for income
taxes decreased $286,000, to a benefit of $1,600,000 in 1997 as compared to a
benefit of $1,314,000 in 1996, largely as a result of adjustments to tax
attributes and valuation allowances offset by an increase in the effective tax
rate. There was a net reduction in valuation allowances and tax attributes
of approximately $5,661,000 recognized in the six months ended June 30, 1997,
as compared to no adjustment for the similar period in 1996. Further, for the
same period, the effective tax rate increased to 188% in 1997 from 38% in 1996,
largely as a result of the expected changes in the relationships between
revenue and expenses comprising income from continuing operations before
income taxes.
The tax benefit of $6,586,000 for the three months ended June 30, 1997, is
largely a result of the net reduction in valuation allowances and the related
tax attributes discussed above, coupled with a change in the effective tax rate
between the first and second quarters of 1997. The effective tax rate increased
from 87% for the three months ended March 31, 1997, to 188% for the six months
ended June 30, 1997, principally as a result of the expected changes in the
relationships between revenue and expenses comprising income from continuing
operations before income taxes. Additionally, the decrease in the effective tax
rate from 50% for the three months ended March 31, 1996, to 38% for the six
months ended June 30, 1996, was a result of changes in expected operating
results for the year.
DISCONTINUED OPERATIONS
On February 20, 1997, the Company announced its intention to dispose of its
interactive game business, VIE, by December 31, 1997, and accordingly, VIE is
presented as a discontinued operation in the accompanying financial statements.
See "Financial Condition - Discontinued Operations" below.
FINANCIAL CONDITION
CONTINUING OPERATIONS. The Company's continuing operations require significant
capital resources for the production of entertainment product and the
acquisition of distribution or other rights to entertainment product produced by
third parties. The Company's expenditures in this regard totaled $198,540,000
and $192,005,000 in the six months ended June 30, 1997 and 1996, respectively.
Additionally, future expenditures by the Company are expected to remain
consistent with 1996 expenditures in conjunction with its projected production
levels. The cost of producing network television programming is largely funded
through the receipt of the related network license fees.
The deficit financing of its network programming and the cost of other
production and acquisition activities is funded through the Company's operating
cash flow and borrowings under its credit arrangements. The Company's principal
credit agreement is with Viacom. The Viacom Credit Agreement provides for a term
loan facility of $200,000,000 and a revolving credit facility of $155,000,000 to
fund the Company's working capital and other requirements. (See Note 3.)
17
<PAGE> 18
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In order to meet the anticipated capital requirements to fund its production and
acquisition activities, the Company is currently exploring directly additional
sources of financing, including financing from Viacom. No assurance can be given
that the Company will obtain such additional financing.
The Company believes that it has the financial resources necessary to meet its
anticipated capital requirements. The Company has sufficient resources available
from the cash provided by operating activities and available under its credit
facilities to meet its ongoing plans for the production, acquisition and
distribution of entertainment product and to take advantage of internal and
external development and growth opportunities. See Note 3 regarding certain
acceleration provisions of the Viacom Facility.
DISCONTINUED OPERATIONS. A wholly owned subsidiary of VIEL has a revolving
multi-currency credit agreement for $100,000,000 with a bank in the U.S.
Borrowings under the Credit Agreement as of June 30, 1997 and December 31, 1996
were $92,662,000 and $98,010,000, respectively. As of June 30, 1997, the Company
had approximately $105,000 in letters of credit outstanding under the Credit
Agreement to guarantee its interactive game purchases. (See Note 9.) Viacom has
guaranteed all of the borrowings under the Credit Agreement, which are due March
31, 1998.
Another wholly owned subsidiary of VIEL has a credit facility with a bank in the
United Kingdom in the net amount of 10,000,000 pounds sterling, which the
Company and Viacom have guaranteed. The UK Facility expires on December 31,
1997. Borrowings under the UK Facility as of June 30, 1997 and December 31, 1996
were $8,084,000 and $3,898,000, respectively. As of June 30, 1997, the Company
had approximately $211,000 in letters of credit outstanding under the UK
Facility to guarantee its interactive game purchases. (See Note 9.)
On February 20, 1997, the Company announced its intention to dispose of its
interactive game business, VIE, by December 31, 1997 and has, accordingly,
reflected the operations of VIE as discontinued.
18
<PAGE> 19
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
VIE's net assets (liabilities) as of June 30, 1997 and December 31, 1996, and
results of operations for the three- and six-month periods ended June 30, 1996,
are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
Current assets $ 68,417 $ 152,724
Current liabilities (158,040) (116,400)
--------- ---------
Net current assets (liabilities) (89,623) 36,324
--------- ---------
Property and equipment, net 16,276 16,793
Intangibles, net 100,619 107,657
Other non-current assets 22,747 21,257
Non-current liabilities (39,273) (167,742)
--------- ---------
Net non-current assets (liabilities) 100,369 (22,035)
--------- ---------
Net assets (liabilities) $ 10,746 $ 14,289
========= =========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Revenue $ 30,300 $ 66,439
Costs and expenses 53,552 99,711
--------- ---------
Loss before provision for income taxes (23,252) (33,272)
Benefit for income taxes (3,139) (9,240)
--------- ---------
Net loss before minority interest (20,113) (24,032)
Minority interest 122 (409)
--------- ---------
Net loss from discontinued operations $ (20,235) $ (23,623)
========= =========
</TABLE>
During the year ended December 31, 1996, the Company provided for an estimated
loss on disposal of VIE of approximately $139,501,000, which included a
provision for future operating losses of approximately $56,000,000. For the six
months ended June 30, 1997, revenue and the net operating loss of VIE were
$88,408,000 and $30,184,000, respectively, and the net operating loss was
provided for in the estimated loss on disposal as of December 31, 1996.
19
<PAGE> 20
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
In May 1996, the SEC staff announced its position that companies developing
computer software are required to capitalize development costs in accordance
with the standards of SFAS No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased or Otherwise Marketed." Accordingly, the Company has
applied the principles of SFAS No. 86 with respect to the capitalization of
software development costs. This resulted in a cumulative pretax adjustment of
approximately $7,500,000 and a pretax adjustment of approximately $600,000
recorded in the second and third quarters of 1996, respectively, as restated.
The amounts included for prior periods were not material to the respective
periods.
OTHER FINANCING ITEMS. Viacom owns approximately 75% of the Company's Common
Stock. Pursuant to the separate credit facilities under which Viacom is
borrower, certain subsidiaries of Viacom, including the Company, are restricted
from incurring indebtedness (other than indebtedness owing to Viacom) without
the prior consent of Viacom's lenders. Such consent has been given with respect
to the Credit Agreement and the UK Facility.
UNCERTAINTIES
The Company is involved in certain legal proceedings which arise in the normal
course of conducting its entertainment business operations. The Company believes
such legal proceedings should not have a material adverse effect on the
Company's consolidated results of operations or financial condition.
The Company also is subject to pending and contingent claims relating to the
Company's discontinued operations, including certain claims involving
environmental matters. Some of the parties involved in such actions seek
significant damages. While the outcome of these claims cannot be predicted with
certainty, based upon (i) its knowledge of the facts and circumstances and its
understanding of the applicable law; (ii) allowances for estimated losses on
disposal of the discontinued operations, and (iii) an indemnity agreement, the
Company believes that the ultimate resolution of such claims will not have a
material adverse effect on the Company's consolidated results of operations or
financial condition.
A subsidiary of the Company had pursued a cost recovery action against former
owners of a petroleum storage terminal property in Tiverton, Rhode Island,
seeking contribution to the cost of an environmental cleanup. In June 1997, a
settlement was agreed upon with the last of the former owners pursuant to which
$400,000 was paid to the subsidiary and the case (Charter International Oil
Company v. United States, et. al., U.S. District Court, Rhode Island, filed
March 3, 1995) was dismissed.
20
<PAGE> 21
SPELLING ENTERTAINMENT GROUP INC.
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 21, 1997, the
stockholders voted to elect the following persons as directors:
<TABLE>
<CAPTION>
Votes Cast Votes
For Withheld
<S> <C> <C>
Sumner M. Redstone 86,813,722 839,865
Aaron Spelling 86,828,329 825,258
Philippe P. Dauman 86,812,524 841,063
Thomas E. Dooley 86,812,918 840,669
John L. Muething 86,820,563 833,024
</TABLE>
The stockholders also voted to increase by 5,000,000 the number of shares
subject to the 1994 Stock Option Plan, with 80,427,932 votes cast for the
proposal and 7,104,243 votes against.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 8 to Exchange Agreement dated as of August 2, 1997, by
and among the Registrant, Blockbuster Entertainment Group on behalf of
Viacom International Inc. and SEGI Holding Co. (successor-in-interest
to Blockbuster Interactive Entertainment, Inc.).
11 Computation of net income (loss) per common and common equivalent
share.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None
21
<PAGE> 22
SPELLING ENTERTAINMENT GROUP INC.
Pursuant to the requirements 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.
SPELLING ENTERTAINMENT GROUP INC.
August 13, 1997 By: /s/ Peter H. Bachmann
---------------------
Peter H. Bachmann
President
(Principal Executive Officer)
By: /s/ James Miller
--------------------
James Miller
Vice President,
Corporate Controller
(Principal Financial Officer)
22
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 8 TO EXCHANGE AGREEMENT
AMENDMENT, dated as of August 2, 1997, by and among Spelling
Entertainment Group Inc. (the "Company"), a Delaware corporation
(successor-in-interest to VIE Holding Company), Blockbuster Entertainment Group
("BEG") a division of Viacom International Inc., a Delaware corporation
(successor-in-interest to Blockbuster Entertainment Corporation), and SEGI
Holding Co. ("SEGI Holding"), a Delaware corporation (successor-in-interest to
Blockbuster Interactive Entertainment, Inc.), to that certain Exchange
Agreement by and among the Company, BEG and SEGI Holding dated as of June 30,
1994, amended as of July 8, 1995, November 7, 1995, February 22, 1996, May 6,
1996, November 5, 1996, February 1, 1997 and May 3, 1997 and assigned by the
Company to VIE Holding Company as of December 8, 1995 and reassigned by VIE
Holding Company to the Company as of May 5, 1997 (as so amended and assigned,
the "Agreement").
WHEREAS, the Company, BEG and SEGI Holding have agreed to amend certain
provisions of the Agreement pertaining to BEG's Put Right and the Company's
Call Right;
NOW, THEREFORE, in consideration of the premises and pursuant to
Section 12.3 of the Agreement, the Company, BEG and SEGI Holding hereby agree
as follows:
1. Section 10.5(c) of the Agreement is hereby amended to
read in its entirety as follows:
(c) The options provided for in this Section 10.5
are collectively referred to herein as the "Put Right." The Put
Right may be exercised by BEG at any time within the 151 day
period commencing on August 2, 1997 and concluding on December
31, 1997.
2. Section 10.6(b) of the Agreement is hereby amended to
read in its entirety as follows:
(b) The options provided for in this Section 10.6
are referred to herein as the "Call Right." The Call Right may
be exercised by the Company at any time within the 151 day
period commencing on August 2, 1997 and concluding on December
31, 1997.
3. This Amendment shall be deemed effective as of August
2, 1997.
4. Except as expressly provided in this Amendment, the
Agreement shall not be deemed amended, modified or altered in any manner
whatsoever.
<PAGE> 2
5. Capitalized terms not otherwise defined herein shall have
the meaning given to them in the Agreement.
6. This Amendment may be executed in one or more counterparts and
by the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned have caused this Amendment No. 8 to
Exchange Agreement to be duly executed on this ____ day of July, 1997.
SPELLING ENTERTAINMENT GROUP INC.
By: /s/ SALLY SUCHIL
---------------------------------
Name: Sally Suchil
Title: Senior Vice President
BLOCKBUSTER ENTERTAINMENT GROUP,
a division of Viacom International Inc.
By: /s/ MICHAEL D. FRICKLAS
---------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President
SEGI HOLDING CO.
By: /s/ MICHAEL D. FRICKLAS
---------------------------------
Name: Michael D. Fricklas
Title: Senior Vice President
2
<PAGE> 1
SPELLING ENTERTAINMENT GROUP INC.
EXHIBIT 11 - COMPUTATION OF NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss):
Continuing operations $ 3,037 $ (1,751) $ 3,765 $ (2,109)
Discontinued operations -- (20,235) -- (23,623)
-------- -------- -------- --------
Net income (loss) $ 3,037 $(21,986) $ 3,765 $(25,732)
======== ======== ======== ========
Shares:
Basic shares - weighted average of common shares
outstanding 90,730 90,409 90,725 90,255
Additional shares assuming conversion of stock
options and warrants -- -- -- --
-------- -------- -------- --------
Primary shares 90,730 90,409 90,725 90,255
Additional shares, when dilutive, assuming full
dilution of stock options and warrants -- -- -- --
-------- -------- -------- --------
Fully diluted shares 90,730 90,409 90,725 90,255
======== ======== ======== ========
Basic, primary and fully diluted net income (loss)
per common and common
equivalent share:
Continuing operations $ 0.03 $ (0.02) $ 0.04 $ (0.03)
Discontinued operations -- (0.22) -- (0.26)
-------- -------- -------- --------
Net income (loss)
per common and common equivalent share $ 0.03 $ (0.24) $ 0.04 $ (0.29)
======== ======== ======== ========
</TABLE>
Note 1: This calculation is submitted in accordance with the Securities Exchange
Act of 1934 although not required by footnote 2 to paragraph 14 of APB
Opinion No. 15 because the calculation of primary and fully diluted net
income (loss) per common and common equivalent share results in a
dilution of less than 3% or is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND
THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,994
<SECURITIES> 0
<RECEIVABLES> 136,848
<ALLOWANCES> 18,131
<INVENTORY> 253,063
<CURRENT-ASSETS> 382,714
<PP&E> 25,645
<DEPRECIATION> 12,985
<TOTAL-ASSETS> 834,729
<CURRENT-LIABILITIES> 117,893
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 319,310
<TOTAL-LIABILITY-AND-EQUITY> 834,729
<SALES> 314,928
<TOTAL-REVENUES> 314,928
<CGS> 279,719
<TOTAL-COSTS> 279,719
<OTHER-EXPENSES> 29,682
<LOSS-PROVISION> 3,582
<INTEREST-EXPENSE> 9,547
<INCOME-PRETAX> 2,165
<INCOME-TAX> (1,600)
<INCOME-CONTINUING> 3,765
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,765
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
