<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, 1998 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 or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5700 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90036
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (323) 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 10, 1998, the registrant had outstanding 92,519,617 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, 1998 and December 31, 1997 (Unaudited) 3
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1998 and 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997 (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,
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,525 $ 860
Accounts receivable, net 98,869 104,150
Entertainment product, net 230,286 246,955
Other current assets 30,504 4,372
---------- ----------
TOTAL CURRENT ASSETS 367,184 356,337
Accounts receivable, net 72,615 90,593
Entertainment product, net 129,760 127,901
Property and equipment, net 10,629 11,409
Intangible assets, net 184,578 187,320
Other noncurrent assets 20 20
---------- ----------
$ 764,786 $ 773,580
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other liabilities $ 44,340 $ 34,691
Accrued participation expense 69,477 59,490
Deferred revenue 13,608 15,430
Income and other taxes 2,516 4,103
---------- ----------
TOTAL CURRENT LIABILITIES 129,941 113,714
Accrued participation expense 36,817 48,159
Long-term debt payable to Viacom 237,000 289,000
Deferred income and other taxes 25,349 25,245
Net liabilities related to discontinued operations of VIE 42,243 21,909
Net liabilities related to discontinued operations of Charter 2,737 4,535
---------- ----------
474,087 502,562
---------- ----------
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Preferred Stock -- --
Common Stock, $.001 par value,
- 300,000,000 shares authorized
- 92,427,499 and 90,987,329 shares issued and
outstanding 92 91
Capital in excess of par value 588,797 578,704
Accumulated deficit (311,690) (313,355)
Accumulated other comprehensive income 13,500 5,578
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 290,699 271,018
---------- ----------
$ 764,786 $ 773,580
========== ==========
</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 Six Months
Ended June 30, Ended June 30,
------------------------- -------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 108,785 $ 148,425 $ 276,210 $ 314,928
Gain on Sale of TeleUNO 7,030 -- 7,030 --
Costs and expenses:
Entertainment product costs 101,201 138,567 225,171 279,719
Selling, general and administrative 12,947 14,695 26,233 29,682
Provision for closure of film division -- -- 20,000 --
--------- --------- --------- ---------
Operating income (loss) 1,667 (4,837) 11,836 5,527
Interest income 448 279 891 519
Interest expense, net (5,162) (4,658) (10,606) (9,547)
Other, net (8) 5,667 (57) 5,666
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (3,055) (3,549) 2,064 2,165
Provision (benefit) for income taxes (3,106) (6,586) 399 (1,600)
--------- --------- --------- ---------
Net income $ 51 $ 3,037 $ 1,665 $ 3,765
========= ========= ========= =========
Weighted average number of common shares:
Basic 92,415 90,730 92,078 90,725
Diluted 93,556 90,730 93,255 90,725
Net income per common share:
Basic $ 0.00 $ 0.03 $ 0.02 $ 0.04
Diluted $ 0.00 $ 0.03 $ 0.02 $ 0.04
</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,
--------------------------
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,665 $ 3,765
Adjustments to reconcile net income to cash flows
from continuing operations:
Depreciation and amortization 4,727 4,515
Provision for closure of film division 20,000 --
Amortization of entertainment product costs 188,409 229,712
Additions to entertainment product costs (190,948) (198,540)
Gain from marketable securities -- (5,648)
Decrease (increase) in accounts receivable 23,486 (28,566)
Increase (decrease) in accounts payable, accrued expense,
other liabilities and income taxes 756 (1,497)
Increase in accrued participation expense 2,950 18,960
Decrease in deferred revenue (1,822) (13,363)
Other, net (4,342) (1,570)
---------- ----------
Net cash provided by continuing operations 44,881 7,768
Net cash provided by discontinued operations 5,903 637
---------- ----------
50,784 8,405
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (1,242) (1,077)
Repayments by discontinued operations of VIE 6,787 4,270
Changes in net liabilities related to
discontinued operations of Charter (1,798) 704
---------- ----------
Net cash provided by continuing operations 3,747 3,897
Net cash provided (used) by discontinued operations 585 (2,265)
---------- ----------
4,332 1,632
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities 31,000 33,000
Repayments of credit facilities (83,000) (41,000)
Issuances of Common Stock 10,037 4
---------- ----------
Net cash used by continuing operations (41,963) (7,996)
Net cash used by discontinued operations (7,130) (4,904)
---------- ----------
(49,093) (12,900)
---------- ----------
Net increase (decrease) in cash and cash equivalents 6,023 (2,863)
Cash and cash equivalents at beginning of period 10,113 16,175
---------- ----------
Cash and cash equivalents at end of period $ 16,136 $ 13,312
========== ==========
Cash and cash equivalents at end of period:
Continuing operations $ 7,525 $ 6,994
Discontinued operations 8,611 6,318
---------- ----------
$ 16,136 $ 13,312
========== ==========
</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.
Viacom Inc. ("Viacom") currently owns approximately 80% of the Company's common
stock ("Common Stock"). (See Note 5 regarding the Company's agreement with
Viacom regarding tax reporting and administrative matters.)
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, 1998. (See Note 9 regarding the planned disposition of VIEL
(together with its subsidiaries, "VIE").)
In February 1998, the Company announced its intention to exit the feature film
business and close Spelling Films Inc. ("Spelling Films"). The Company recorded
a charge of $20,000,000, including the write-down to estimated net realizable
value of capitalized development projects which will be sold or abandoned,
reserves for commitments to various talent, as well as severance costs related
to Spelling Films' employees. As of June 30, 1998, the remaining accrual balance
for this provision of $4,727,000 is included in accounts payable, accrued
expenses and other liabilities in the accompanying balance sheet.
In April 1998, the Company sold TeleUNO, its Latin American entertainment
channel. The Company recognized a gain of $7,030,000 from this transaction in
the second quarter which is reflected in the accompanying financial statements.
2. ENTERTAINMENT PRODUCT, NET
Entertainment product, net, includes development, 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.
6
<PAGE> 7
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
Domestic syndication and basic cable revenue estimates are not included in
estimated future gross revenue of television programming until such sales are
probable. 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>
June 30, December 31,
1998 1997
---------- -----------
<S> <C> <C>
Entertainment product:
Theatrical
Released $ 135,220 $ 147,301
In process and other 2,483 12,607
---------- ----------
137,703 159,908
---------- ----------
Television
Released 210,820 189,624
In process and other 11,523 25,324
---------- ----------
222,343 214,948
---------- ----------
Total 360,046 374,856
Less: non-current portion (129,760) (127,901)
---------- ----------
Current portion $ 230,286 $ 246,955
========== ==========
</TABLE>
3. DEBT
On September 30, 1996, the Company and Viacom executed a credit agreement (the
"Viacom Credit Agreement") which replaced its previous credit agreement with
Viacom. 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, 1999.
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, 1998 and
December 31, 1997, on borrowings under the Viacom Credit Agreement, was 8.2% and
8.5%, respectively. Additional terms of the Viacom Credit Agreement require,
among other items, a minimum amount of net worth, as defined. 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, 1998, the carrying value
of all of the Company's debt approximated fair value.
See Note 9 regarding debt related to discontinued operations.
7
<PAGE> 8
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>
Accumulated
Capital In Other
Common Excess of Accumulated Comprehensive
Stock Par Value Deficit Income Total
------ --------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 91 $578,704 $(313,355) $ 5,578 $ 271,018
Exercise of options and warrants 1 10,036 -- -- 10,037
Income tax benefit related
to stock options -- 57 -- -- 57
Net income for the period -- -- 1,665 -- 1,665
Unrealized holding gain, net -- -- -- 8,894 8,894
Cumulative translation adjustment -- -- -- (972) (972)
---- -------- --------- -------- ---------
Balance at June 30, 1998 $ 92 $588,797 $(311,690) $ 13,500 $ 290,699
==== ======== ========= ======== =========
</TABLE>
In February 1998, Viacom exercised warrants to acquire 1,337,148 shares of
Common Stock for a total exercise price of approximately $9,316,000.
The net liabilities related to discontinued operations of VIE included a common
stock investment which had a carrying value (fair value) of $16,611,000 at
December 31, 1997. On May 29, 1998, the Company acquired this investment from
VIE. At June 30, 1998 this investment is included in other current assets of the
Company at its carrying value (fair value) of $25,513,000, and the unrealized
gain associated with the investment is included in accumulated other
comprehensive income above. The Company has accounted for this common stock
investment as an "available for sale" security 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.
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," effective
January 1, 1998. Total comprehensive income for the three- and six-month periods
ended June 30, 1998 was $5,891,000 and $9,587,000, respectively. For the three-
and six-month periods ended June 30, 1997, total comprehensive income (loss) was
$3,245,000 and $(877,000), respectively. Total comprehensive income (loss) is
comprised of net income and other comprehensive income items, including foreign
currency translation adjustments and unrealized holding gains on securities.
8
<PAGE> 9
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
5. INCOME TAXES
Income taxes have been provided in each period based on the Company's expected
effective income tax rate.
Viacom has acquired approximately 80% of the outstanding shares of the Company
and, therefore, the Company is required to be included in the consolidated
federal income tax return of Viacom. The Company and Viacom are party to an
agreement that provides for the administration of federal, state and foreign tax
matters (the "Tax Agreement"). Under the Tax Agreement, the Company will remain
in the same tax position as it would have if it were continuing to file its tax
returns separate and apart from Viacom. As a result, the Company does not
anticipate any material impact to its consolidated financial condition or
results of operations.
6. NET INCOME PER COMMON SHARE
Basic income per common share amounts are based on the weighted average number
of common shares outstanding during the respective periods. Diluted income per
common share amounts are based on the weighted average common shares outstanding
during the period and shares assumed issued upon conversion of stock options and
warrants when the effect of such conversions would have been dilutive to income
from continuing operations.
Prior period amounts have been restated to conform to SFAS No. 128. The table
below presents a reconciliation of weighted average shares used in the
calculation of basic and diluted income per common share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic shares - weighted average
of common shares outstanding 92,415 90,730 92,078 90,725
Additional shares assuming conversion
of stock options and warrants 1,141 -- 1,177 --
------ ------ ------ ------
Diluted shares 93,556 90,730 93,255 90,725
====== ====== ====== ======
</TABLE>
9
<PAGE> 10
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
7. LEGAL MATTERS
The Company is subject to various lawsuits, claims and other legal matters in
the course of conducting its entertainment business operations. The Company
believes such lawsuits, claims and other legal matters should not have a
material adverse effect on the Company's consolidated results of operations or
financial condition.
The Company also is involved in a number of legal actions including threatened
claims, pending lawsuits and contract disputes in connection with certain
bankruptcy and environmental matters relating to the Company's discontinued
operations of Charter, as well as other matters. Some of the parties involved in
such actions seek significant damages. While the outcome of these suits and
claims cannot be predicted with certainty, based upon (i) its current 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.
8. RELATED PARTY TRANSACTIONS
The Company was charged interest and fees by Viacom of $11,365,000 and
$13,105,000 during the six months ended June 30, 1998 and 1997, respectively, in
connection with the Viacom Credit Agreement. Included in accounts payable,
accrued expenses and other liabilities is accrued interest payable to Viacom of
$1,327,000 and $568,000 as of June 30, 1998 and December 31, 1997, respectively.
(See Note 3 regarding the Company's credit facilities with Viacom and Note 9
regarding Viacom's guarantees of the Company's credit agreements with banks.)
The Company participates in the Viacom insurance programs with respect to
general business and workers' compensation coverage. Effective January 1, 1998,
the Company also began participating in certain Viacom health and welfare
benefit plans for its employees. As of June 30, 1998, the Company had a net
payable to Viacom of approximately $2,103,000 with respect to these and other
expenses.
During the six months ended June 30, 1998 and 1997, 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 the following parties in which Viacom has or had an ownership
interest (i) Showtime Networks Inc. ("Showtime"), a subsidiary of Viacom; (ii)
MTV Networks, a division of a subsidiary of Viacom; (iii) certain television
stations owned by Viacom; (iv) USA Network and Sci-Fi Channel, in which Viacom
had equity interests until October 1997; and (v) United Paramount Network,
Nickelodeon U.K. and Comedy Central, in which Viacom has equity interests. For
the six months ended June 30, 1998 and 1997, these transactions are 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 Entertainment Inc. ("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 entered into agreements with Paramount
for the production and funding of two additional feature films, "In & Out" and
"Breakdown," to which the Company owns the international distribution rights. In
August 1997, Republic entered into an agreement with Paramount and licensed its
domestic home video rights to ten rental titles, including "Night Falls on
Manhattan."
The Company has entered into an agreement with Comedy Partners, in which Viacom
has an equity interest, to perform certain licensing and merchandising
activities on its behalf in exchange for a fee.
In November 1997, the Company entered into an agreement with Famous Music
Corporation and Ensign Music Corporation, subsidiaries of Paramount, with
respect to administration of the Company's music rights.
In the ordinary course of business, the Company expects to continue to
do business with Viacom and its affiliates.
11
<PAGE> 12
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
9. DISCONTINUED OPERATIONS
On February 20, 1997, the Company announced its intention to dispose of its
interactive game business, VIE, and expects to complete a transaction in 1998.
Accordingly, the operations of VIE are reflected as discontinued.
VIE's net liabilities as of June 30, 1998 and December 31, 1997, are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- -----------
<S> <C> <C>
Current assets $ 49,579 $ 115,043
Current liabilities (173,866) (194,505)
--------- ---------
Net current liabilities (124,287) (79,462)
--------- ---------
Property and equipment, net 11,601 14,081
Intangibles, net 83,731 91,707
Other non-current assets 5,727 5,066
Non-current liabilities (19,015) (53,301)
--------- ---------
Net non-current assets 82,044 57,553
--------- ---------
Net liabilities $ (42,243) $ (21,909)
========= =========
</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, net of
income taxes. In the fourth quarter of 1997, the Company recorded an additional
provision of $40,000,000, net of income taxes, for future operating losses and
cash funding requirements projected for the remaining holding period through
completion of the disposition. For the six months ended June 30, 1998 and 1997,
revenue of VIE was $83,554,000 and $88,408,000, respectively. The net operating
losses of VIE were $32,745,000 and $30,184,000, respectively, for the same
periods. The net operating losses were provided for in the estimated loss on
disposal as of December 31, 1997 and 1996 discussed above.
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 Company's 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. In February 1998, the term was extended to September 30, 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, 1998 and
12
<PAGE> 13
SPELLING ENTERTAINMENT GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000's omitted in all tables)
(Continued)
December 31, 1997 were $97,000,000 and $97,472,000, respectively. As of June 30,
1998 and December 31, 1997, the Company had no letters of credit outstanding
under the Credit Agreement.
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 will expire on
September 30, 1998 and is guaranteed by Viacom and the Company. Advances under
the renegotiated UK Facility bear interest at the bank's prime rate plus 1.0% or
alternatively at selected Eurocurrency rates. Borrowings under the UK Facility
as of June 30, 1998 and December 31, 1997 were $11,219,000 and $11,090,000,
respectively. As of June 30, 1998, the Company had no letters of credit
outstanding under the UK facility. As of December 31, 1997, the Company had
approximately $938,000 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 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 a one-hour television series, network and
international license fees substantially offset the production costs of the
series, and accordingly the Company normally recognizes a nominal loss during
this period. With respect to half-hour network programming, the production costs
can substantially exceed the combination of the network and international
license fees during the initial years and the Company normally recognizes larger
losses during this period. However, if a sufficient number of episodes of a
one-hour or half-hour 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 recoup its deficits and realize
a profit with respect to these series.
First-run syndicated television series, which are sold on a cash basis, barter
basis or a combination of both, typically do not generate sufficient revenue to
cover the production and promotion costs of the programs during their initial
years and such financial risk is borne exclusively by the Company. However, with
strong ratings, the revenue which may be realized by the Company through its
cash license fees and barter arrangements can be significant.
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
regulations. 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. Accordingly, the networks are
able to own the programming which they broadcast and may increasingly become
competitors of the Company in the production and distribution of programming.
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
14
<PAGE> 15
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
limitation by one entity from 25% to 35%, which serves to further increase the
broadcast networks' and major studios' ability to secure distribution for their
own product.
REVENUE
The following table sets forth the components of the Company's revenue for the
three and six months ended June 30 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Television $ 84,270 $105,053 $233,073 $244,919
Home video 6,235 24,520 13,058 42,644
Film distribution 3,894 14,097 10,609 18,394
Licensing and merchandising 4,300 3,182 7,827 6,608
Other 10,086 1,573 11,643 2,363
-------- -------- -------- --------
$108,785 $148,425 $276,210 314,928
======== ======== ======== ========
</TABLE>
Television revenue decreased $20,783,000 (20%) and $11,846,000 (5%) in the
three- and six-month periods ended June 30, 1998, respectively, from the
comparable periods in 1997. The decrease in the 1998 period arose primarily from
(i) later network deliveries and international airings of certain episodes in
the current year; (ii) a one-time international sale in the prior year; and
(iii) the termination of certain licensing agreements for library product to
facilitate future sales.
Home video revenue decreased $18,285,000 (75%) and $29,586,000 (69%) in the
three- and six-month periods ended June 30, 1998, respectively, from the same
periods in 1997. The decreases are due primarily to a decline in the number of
initial releases during the periods, specifically in connection with the
Company's exit in 1997 from the business of distributing video titles in the
domestic rental market.
Film distribution revenue decreased $10,203,000 (72%) and $7,785,000 (42%) in
the three-and six-month periods ended June 30, 1998, respectively, compared to
the same periods in 1997. The decrease in the 1998 periods is due primarily to
the Company's exit from the feature film business announced in February 1998 and
the resulting cessation of production, acquisition and distribution of new
feature films. Film distribution revenue is expected to continue to decrease in
the future as a result of the Company's exit from the feature film business.
Licensing and merchandising revenue increased $1,118,000 (35%) and $1,219,000
(18%) in the three- and six-month periods ended June 30, 1998, respectively,
compared to the same periods in 1997. The increase is due primarily to increased
revenues from third-party clients, particularly relating to merchandising and
licensing agreements with Comedy Partners for the show "South Park."
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Other revenue increased $8,513,000 (541%) and $9,280,000 (393%) in the three
months and six months ended June 30, 1998, respectively, compared to the same
periods in 1997. This increase is due primarily to the recognition of a new
agreement with Famous Music Corporation and Ensign Music Corporation for the
administration of the Company's music rights and the associated non-refundable
advances received in conjunction with the agreement.
Certain operations of the Company 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.
The Company has no material transactions denominated in Asian currencies.
GAIN ON SALE OF TELEUNO
In April 1998, the Company sold TeleUNO, its Latin American entertainment
channel. The Company recognized a gain of $7,030,000 in the quarter ended June
30, 1998 relating to the sale.
ENTERTAINMENT PRODUCT COSTS
Entertainment product costs consist primarily of the amortization of capitalized
product costs and the accrual of third-party participations and residuals. Such
costs decreased $37,366,000 (27%) and $54,548,000 (20%) in the three- and
six-month periods ended June 30, 1998, respectively, from the comparable
prior-year periods. The decrease resulted primarily from the decreases in
revenue described above. In addition, the percentage relationship between such
costs and the related revenue decreased to 82% from 89% for the six months ended
June 30, 1998 and 1997, 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 $16,370,000 and $13,483,000 in the quarters ended
June 30, 1998 and 1997, respectively. The increase in write-downs in the 1998
period is primarily attributable to inherent losses recognized upon the delivery
of several new pilots during the 1998 quarter, offset by lower write-downs to
net realizable value related to theatrical and made-for-video feature films.
Included in the quarter ended June 30, 1997, were write-downs to net realizable
value of $8,602,000 related to theatrical and made-for-video feature films.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative costs decreased $1,748,000 (12%) and
$3,449,000 (12%) in the quarter and six-month period ended June 30, 1998,
respectively, from the comparable prior-year periods. The decrease results
primarily from the Company's August 1997 exit from the business of distributing
video titles in the domestic rental market and the Company's February 1998 exit
from the theatrical feature film business.
16
<PAGE> 17
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
PROVISION FOR CLOSURE OF FILM DIVISION
Charges of $20,000,000, of which approximately $14,400,000 were non-cash, were
recorded in the quarter ended March 31, 1998 related to the Company's decision
to exit the theatrical feature film business and close Spelling Films. These
charges include the write-down to estimated net realizable value of capitalized
development projects which will be sold or abandoned, reserves for commitments
to various talent, as well as severance costs related to Spelling Films'
employees. As of June 30, 1998, the remaining accrual balance for this provision
of $4,727,000 is included in accounts payable, accrued expenses and other
liabilities in the accompanying balance sheet. (See Note 1.)
INTEREST EXPENSE
Interest expense, net of amounts capitalized, increased $504,000 (11%) and
$1,059,000 (11%) in the three-month and six-month periods ended June 30, 1998,
respectively, due primarily to a decrease in capitalized interest associated
with the Company's theatrical production activities, partially offset by lower
average indebtedness outstanding under the Company's credit arrangements.
PROVISION FOR INCOME TAXES
During the six months ended June 30, 1998, the Company's provision for income
taxes increased $1,999,000 to a provision of $399,000 in 1998 as compared to a
benefit of $1,600,000 in 1997, largely as a result of an increase in the
effective tax rate. The effective tax rate increased to 19% in 1998 from (74%)
in 1997, primarily as a result of changes in the relationships between revenue
and expenses comprising income from continuing operations before income taxes.
Viacom owns approximately 80% of the outstanding shares of the Company and,
therefore, the Company is required to be included in the consolidated federal
income tax return of Viacom. The Company and Viacom are party to an agreement
that provides for the administration of federal, state and foreign tax matters
(the "Tax Agreement"). Under the Tax Agreement, the Company will remain in the
same tax position as it would have if it were continuing to file its tax returns
separate and apart from Viacom. As a result, the Company does not anticipate any
material impact to its consolidated financial condition or results of
operations.
17
<PAGE> 18
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
DISCONTINUED OPERATIONS
On February 20, 1997, the Company announced its intention to dispose of its
interactive game business, VIE, and expects to complete a transaction in 1998.
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 $190,948,000
and $198,540,000 in the six months ended June 30, 1998 and 1997, respectively.
Additionally, future expenditures by the Company are expected to increase from
1997 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 has historically been 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. At June 30, 1998, $118,000,000 was available under these
facilities to fund the Company's operations and investments. (See Note 3.)
The Company continues to explore opportunities for additional sources of
financing. No assurance can be given that the Company will obtain such
additional external financing.
The Company believes that its financial condition remains strong and that it has
the financial resources necessary to meet its anticipated capital requirements.
The Company expects to have sufficient resources available from the cash
provided by operating activities and funds available under its credit facility
and other financing sources 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.)
Net cash flow from operating activities of the Company's continuing operations
increased to $44,881,000 for the six months ended June 30, 1998 from $7,768,000
for the comparable prior-year period due in significant part to increased
collections during the period. Net cash flow from investing activities of the
Company's continuing operations decreased to $3,747,000 from $3,897,000 for the
six months ended June 30, 1998 and 1997, respectively.
18
<PAGE> 19
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Financing activities principally reflect borrowings and repayments under the
Viacom Credit Agreement in both periods and the exercise of warrants by Viacom
in the first quarter of 1998. (See Note 4.)
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, 1998 and December 31, 1997
were $97,000,000 and $97,472,000, respectively. As of June 30, 1998 and December
31, 1997, the Company had no 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
September 30, 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 September 30,
1998. Borrowings under the UK Facility as of June 30, 1998 and December 31, 1997
were $11,219,000 and $11,090,000, respectively. As of June 30, 1998, the Company
had no letters of credit outstanding under the UK facility. As of December 31,
1997, the Company had approximately $938,000 in letters of credit outstanding
under the UK Facility to guarantee its interactive game purchases.
(See Note 9.)
VIE's net liabilities as of June 30, 1998 and December 31, 1997, are as follows
(in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Current assets $ 49,579 $ 115,043
Current liabilities (173,866) (194,505)
--------- ---------
Net current liabilities (124,287) (79,462)
--------- ---------
Property and equipment, net 11,601 14,081
Intangibles, net 83,731 91,707
Other non-current assets 5,727 5,066
Non-current liabilities (19,015) (53,301)
--------- ---------
Net non-current assets 82,044 57,553
--------- ---------
Net liabilities $ (42,243) $ (21,909)
========= =========
</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. In the
fourth quarter of 1997, the Company recorded an additional provision of
$40,000,000, net of income taxes, for future operating losses and cash funding
requirements projected for the remaining holding period through completion of
the disposition. For the six months ended June 30, 1998 and 1997, revenue of VIE
was $83,554,000 and $88,408,000, respectively. The net operating losses of VIE
were $32,745,000 and $30,184,000, respectively, for the same periods.
19
<PAGE> 20
SPELLING ENTERTAINMENT GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The net operating losses were provided for in the estimated loss on disposal as
of December 31, 1997 and 1996 discussed above.
OTHER FINANCING ITEMS. Viacom owns approximately 80% of the Company's common
stock. 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.
UNCERTAINTIES
The Company is subject to various lawsuits, claims and other legal matters in
the course of conducting its entertainment business operations. The Company
believes such lawsuits, claims and other legal matters should not have a
material adverse effect on the Company's consolidated results of operations or
financial condition.
The Company also is involved in a number of legal actions including threatened
claims, pending lawsuits and contract disputes in connection with certain
bankruptcy and environmental matters relating to the Company's discontinued
operations of Charter, as well as other matters. Some of the parties involved in
such actions seek significant damages. While the outcome of these suits and
claims cannot be predicted with certainty, based upon (i) its current 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.
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, 1998, the
stockholders voted to elect the following persons as directors:
<TABLE>
<CAPTION>
VOTES CAST VOTES
FOR WITHHELD
---------- --------
<S> <C> <C>
Sumner M. Redstone 88,357,748 502,607
Aaron Spelling 88,362,482 497,873
Philippe P. Dauman 88,356,704 503,651
Thomas E. Dooley 88,356,708 503,647
William M. Haber 88,451,611 408,744
John L. Muething 88,453,760 406,595
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment No. 10 to Exchange Agreement dated as of July 1, 1998, by
and among the Registrant, Viacom International Inc. and SEGI Holding
Co. (successor-in-interest to Blockbuster Interactive Entertainment,
Inc.).
11 Computation of net income per common share.
27.1 Financial Data Schedule.
27.2 Restated 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 14, 1998 By: /s/ Peter H. Bachmann
----------------------------------------
Peter H. Bachmann
President
(Principal Executive Officer)
By: /s/ Ross G. Landsbaum
----------------------------------------
Ross G. Landsbaum
Vice President - Finance and Business
Development and Treasurer
(Principal Financial Officer)
22
<PAGE> 1
SPELLING ENTERTAINMENT GROUP INC.
EXHIBIT 11 - COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 51 $ 3,037 $ 1,665 $ 3,765
======== ======== ======== ========
Shares:
Basic shares - weighted average of common shares
outstanding 92,415 90,730 92,078 90,725
Additional shares assuming conversion of stock
options and warrants 1,141 -- 1,177 --
-------- -------- -------- --------
Diluted shares 93,556 90,730 93,255 90,725
======== ======== ======== ========
Net income per common share:
Basic $ 0.00 $ 0.03 $ 0.02 $ 0.04
Diluted $ 0.00 $ 0.03 $ 0.02 $ 0.04
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLDIATED BALANCE SHEET AS OF JUNE 30, 1998 AND
THE UNAUDITED CONDENSED CONSOLDIATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS
THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,525
<SECURITIES> 0
<RECEIVABLES> 190,594
<ALLOWANCES> 19,110
<INVENTORY> 360,046
<CURRENT-ASSETS> 367,184
<PP&E> 27,534
<DEPRECIATION> 16,905
<TOTAL-ASSETS> 764,786
<CURRENT-LIABILITIES> 129,941
<BONDS> 0
0
0
<COMMON> 92
<OTHER-SE> 290,607
<TOTAL-LIABILITY-AND-EQUITY> 764,786
<SALES> 276,210
<TOTAL-REVENUES> 276,210
<CGS> 225,171
<TOTAL-COSTS> 225,171
<OTHER-EXPENSES> 46,233
<LOSS-PROVISION> 574
<INTEREST-EXPENSE> 10,606
<INCOME-PRETAX> 2,064
<INCOME-TAX> 399
<INCOME-CONTINUING> 1,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,665
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996
AND THE UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
THEN ENDED, AS RESTATED FOR EARNINGS PER SHARE PRESENTED IN ACCORDANCE WITH SFAS
NO. 128.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996<F1>
<CASH> 3,325
<SECURITIES> 0
<RECEIVABLES> 123,580
<ALLOWANCES> 18,935
<INVENTORY> 233,002
<CURRENT-ASSETS> 345,176
<PP&E> 24,568
<DEPRECIATION> 11,179
<TOTAL-ASSETS> 840,346
<CURRENT-LIABILITIES> 112,816
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 319,652
<TOTAL-LIABILITY-AND-EQUITY> 840,346
<SALES> 497,601
<TOTAL-REVENUES> 497,601
<CGS> 413,845
<TOTAL-COSTS> 413,845
<OTHER-EXPENSES> 59,966
<LOSS-PROVISION> 4,331
<INTEREST-EXPENSE> 14,431
<INCOME-PRETAX> 11,328
<INCOME-TAX> 7,253
<INCOME-CONTINUING> 4,075
<DISCONTINUED> (255,200)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (251,125)
<EPS-PRIMARY> (2.78)
<EPS-DILUTED> (2.75)
<FN>
<F1>RESTATEMENT REFLECTED HEREIN IS THE RESULT OF RESTATEMENTS TO PRIOR PERIODS'
FINANCIAL STATEMENTS TO CONFORM TO THE CURRENT PERIOD PRESENTATION.
</FN>
</TABLE>
