<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended December 31, 1996
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 1-6715
NATIONAL MEDIA CORPORATION
------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-2658741
- ------------------------------------------ ------------------------------------
(State or Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
Eleven Penn Center
1835 Market Street, Suite 1100
Philadelphia, PA 19103
------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (215) 988-4600
--------------
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 |_|
There were 23,439,814 issued and outstanding shares of the registrant's common
stock, par value $.01 per share, at January 31, 1997. In addition, there were
707,311 shares of treasury stock as of such date.
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NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
INDEX
Page
Facing Sheet ..............................................................1
Index......................................................................2
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at
December 31, 1996 and March 31, 1996...................3
Condensed Consolidated Statements of Operations
Three months ended December 31, 1996 and 1995..........4
Condensed Consolidated Statements of Operations
Nine months ended December 31, 1996 and 1995...........5
Condensed Consolidated Statements of Cash Flows
Nine months ended December 31, 1996 and 1995...........6
Notes to Condensed Consolidated Financial Statements.....7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........11
Part II. Other Information
Item 1. Legal Proceedings ......................................18
Item 6. Exhibits and Reports on Form 8-K........................19
Signatures................................................................20
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<PAGE>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except number of shares and per share amounts)
<TABLE>
<CAPTION>
December 31, March 31,
1996 1996
------------ ----------------
(Unaudited) (See Note Below)
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................................. $ 9,970 $ 18,405
Accounts receivable, net .............................................................. 37,250 32,051
Inventories ........................................................................... 38,001 22,605
Prepaid media ......................................................................... 5,489 4,271
Prepaid show production ............................................................... 12,730 5,469
Deferred costs ........................................................................ 6,176 4,102
Prepaid expenses and other current assets ............................................. 4,299 2,339
Deferred income taxes ................................................................. 3,124 3,142
----------- -----------
Total current assets ................................................................ 117,039 92,384
Property and equipment, net .............................................................. 12,576 6,954
Excess of cost over net assets of acquired businesses and other
intangible assets, net ................................................................ 54,044 14,303
Other assets ............................................................................. 9,170 2,907
----------- -----------
Total assets .......................................................................... $192,829 $116,548
=========== ===========
Current liabilities:
Accounts payable ...................................................................... $ 16,217 $ 20,412
Accrued expenses ...................................................................... 24,563 26,510
Deferred revenue ...................................................................... 2,638 1,771
Income taxes payable .................................................................. 1,606 1,344
Deferred income taxes ................................................................. 2,993 2,749
Current portion of long-term debt and capital lease obligations........................ 1,193 876
----------- -----------
Total current liabilities ........................................................... 49,210 53,662
Long-term debt and capital lease obligations ............................................. 3,357 4,054
Deferred income taxes .................................................................... 393 393
Other liabilities ........................................................................ 1,919 1,977
Shareholders' equity:
Preferred stock, $.01 par value; authorized 10,000,000 shares; issued
122,000 and 136,375 shares Series B convertible preferred stock, respectively........ 1 1
Common stock, $.01 par value; authorized 75,000,000 shares;
issued 24,147,125 and 18,177,292 shares, respectively ............................... 242 182
Additional paid-in capital ............................................................ 126,438 48,135
Retained earnings ..................................................................... 20,129 16,569
Treasury stock, 707,311 and 686,710 shares, respectively, at cost ..................... (4,244) (3,791)
Notes receivable, directors, officers, employees, consultants and others .............. - (473)
Foreign currency translation adjustment ............................................... (4,616) (4,161)
----------- -----------
Total shareholders' equity .......................................................... 137,950 56,462
----------- -----------
Total liabilities and shareholders' equity .......................................... $192,829 $116,548
=========== ===========
</TABLE>
Note: The balance sheet at March 31, 1996 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended December 31,
----------------------------------
1996 1995
----------- ---------
<S> <C> <C>
Revenues:
Product sales .................................................... $ 68,979 $ 67,192
Retail royalties ................................................. 354 1,085
Sales commissions and other revenues ............................. 1,509 76
----------- ---------
Net revenues ............................................ 70,842 68,353
Operating costs and expenses:
Media purchases .................................................. 28,112 19,602
Direct costs ..................................................... 38,934 34,378
Selling, general and administrative .............................. 11,486 8,318
Severance expense ................................................ 1,100 -
Interest expense ................................................. 414 246
----------- ---------
Total operating costs and expenses ...................... 80,046 62,544
----------- ---------
(Loss) income before income taxes .................................. (9,204) 5,809
Income taxes (benefit) ............................................. (3,220) 877
----------- ---------
Net (loss) income .................................................. $ (5,984) $ 4,932
=========== =========
(Loss) income per common and common equivalent share:
Primary .......................................................... $ (0.24) $ 0.21
=========== =========
Fully-diluted .................................................... $ (0.24) $ 0.20
=========== =========
Weighted average number of common and common equivalent shares outstanding:
Primary .......................................................... 24,679 23,781
=========== =========
Fully-diluted .................................................... 24,679 24,414
=========== =========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine months ended December 31,
----------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Revenues:
Product sales ....................................................... $261,643 $187,163
Retail royalties .................................................... 14,119 3,443
Sales commissions and other revenues ................................ 4,036 400
------------ -----------
Net revenues ...................................................... 279,798 191,006
Operating costs and expenses:
Media purchases ..................................................... 99,748 57,557
Direct costs ........................................................ 137,732 98,025
Selling, general and administrative ................................. 34,611 22,042
Severance expense .................................................. 1,100 -
Interest expense .................................................... 1,127 719
------------ -----------
Total operating costs and expenses ................................ 274,318 178,343
------------ -----------
Income before income taxes ............................................. 5,480 12,663
Income taxes ........................................................... 1,920 1,984
------------ -----------
Net income ............................................................. $ 3,560 $ 10,679
============ ===========
Income per common and common equivalent share:
Primary ............................................................. $ 0.14 $ 0.49
============ ===========
Fully-diluted ....................................................... $ 0.14 $ 0.45
============ ===========
Weighted average number of common and common equivalent shares outstanding:
Primary ............................................................. 26,128 22,780
============ ===========
Fully-diluted ....................................................... 26,128 23,759
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine months ended December 31,
-------------------------------------
1996 1995
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 3,560 $ 10,679
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation and amortization ................................... 3,318 1,396
Tax benefit from exercise of stock options.......................... - 1,010
Changes in operating assets and liabilities, net of
effects from acquisitions................................... (30,948) (13,533)
Other ........................................................... (4,059) (7)
----------- ------------
Net cash used in operating activities .......................... (28,129) (455)
Cash flows from investing activities:
Additions to property and equipment .................................. (5,343) (2,156)
Cost of companies acquired, net of cash acquired ..................... (615) (897)
Investment in EarthLink .............................................. (1,250) -
----------- ------------
Net cash used in investing activities .......................... (7,208) (3,053)
Cash flows from financing activities:
Proceeds from borrowings ............................................. 9,400 -
Payments on borrowings ............................................... (15,294) (132)
Exercise of stock options and warrants................................ 6,027 2,958
Net proceeds from issuance of common stock............................ 28,869 -
Payments received on notes receivable ................................ - 1,719
----------- ------------
Net cash provided by financing activities ...................... 29,002 4,545
Effect of exchange rate changes on cash and cash equivalents ............ (2,100) (893)
----------- ------------
Net (decrease) increase in cash and cash equivalents ........... (8,435) 144
Cash and cash equivalents at beginning of period ........................ 18,405 13,467
----------- ------------
Cash and cash equivalents at end of period .............................. $ 9,970 $13,611
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
NATIONAL MEDIA CORPORATION
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
December 31, 1996
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine month period ended December 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending March 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1996.
2. Per Share Amounts
Income (loss) per share amounts have been computed based upon the weighted
average number of common shares and dilutive common equivalent shares (stock
options, warrants and preferred stock) outstanding using the "if converted
method".
3. Contingent Matters
Lachance and Efron and Cohen Class Actions.
In July and December 1994, stockholders filed purported class action lawsuits in
federal court against the Company and certain of its former officers and
directors in connection with an aborted merger transaction with ValueVision
International, Inc. The parties have reached an agreement in principle to settle
these matters. Similar actions filed in Delaware state court have been formally
and finally settled. Such settlements (both federal and Delaware state court)
provided for aggregate cash payments by the Company's insurer of approximately
$1.1 million and aggregate cash payments by the Company of $375,000, as to which
the Company recorded a charge against earnings in the fourth quarter of fiscal
1995. Consummation of these federal court settlements is subject to the approval
of such court.
Positive Response Shareholders' California Class Action.
On May 1, 1995, a purported class action suit was filed in the United States
District Court for the Central District of California against Positive Response
Television, Inc. ("PRTV") and its principal executive officers alleging that
PRTV has made false and misleading statements in its public filings, press
releases and other public statements with respect to its business and financial
prospects. The suit was filed on behalf of all persons who purchased PRTV common
stock during the period from January 4, 1995 to April 28, 1995. The suit seeks
unspecified compensatory damages and other equitable relief. An amended
complaint was dismissed in late July 1995. On or about September 25, 1995, the
plaintiffs filed a second amended complaint, which added additional officers as
defendants and attempted to set forth new facts to support plaintiffs'
entitlement to legal relief. The Company has reached an agreement in principle
to
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<PAGE>
settle this action. Such settlement is contingent upon court approval. If the
action is settled upon the terms agreed upon in principle, the settlement will
not have a material adverse impact on the Company's results of operation or
financial position.
Ab Roller Plus Patent Litigation
On March 1, 1996, Precise Exercise Equipment ("Precise") filed suit in the
United States District Court for the Central District of California against
certain parties, including the Company, alleging patent infringement, unfair
competition and other intellectual property claims. Such claims relate to an
alleged infringement of Precise's initial US patent for an exercise device. The
suit claims that a product marketed by the Company pursuant to a license granted
by a third party violates Precise's initial US patent. Pursuant to the terms of
such license, the third party is contractually obligated to indemnify the
Company in this suit. The suit seeks an injunction and treble damages. The
Company's independent legal counsel has issued an opinion to the Company that
the product marketed by the Company does not infringe upon Precise's initial US
patent. A second US patent was issued to Precise on November 26, 1996 for its
exercise device. Precise amended its pleadings to include additional claims
based on such new patent. Upon the issuance of the new patent, the Company
terminated active marketing of the Ab Roller Plus product in the US. The Company
believes that it has valid defenses against any claims for damages by Precise
and that the foregoing will not have any material adverse effect on the Company.
However, unanticipated adverse determinations in connection with this matter
could have a material adverse effect on the Company's results of operations in a
future period.
Edmark Industries Litigation
In February 1996, Edmark Industries ("Edmark"), a supplier of the Super Slicer
kitchen product, filed suit in the U.S. District Court for the Southern District
of Texas against PRTV and the retail distributor of the product, alleging
certain breach of contract, false advertising and copyright infringement claims
in connection with the marketing of such product. Pursuant to PRTV's agreement
with the retail distributor, PRTV may be required to indemnify such distributor
and such distributor's retail customers for costs incurred and for losses
sustained in connection with this suit. In November 1996, the Court provided
injunctive relief to the plaintiff on the issues of copyright infringement and
false advertising. Discovery is ongoing and the case is expected to come to
trial in 1997. The Company believes that it has valid defenses against claims
for damages by Edmark and is pursuing its defenses vigorously.
4. Debt
In June 1996, the Company increased its revolving credit line from $5.0 million
to $20.0 million. The revolving credit facility is available until December 31,
1997 at which time its continuation will be considered. Interest on cash
advances under the facility will accrue at varying rates based, at the Company's
option, on the bank's national commercial rate or the London Interbank Offering
Rate (LIBOR) plus 1.25%. The agreement requires the Company to pay an annual fee
of .25% on the unused portion of the facility. At December 31, 1996, there were
approximately $6.0 million of outstanding letters of credit under this facility.
The facility is secured by a lien on substantially all of the Company and its
subsidiaries' assets. Such lien on certain non-domestic assets of the Company is
subordinate to a lien held by Barclays Bank PLC ("Barclays"). At present, the
Company has an overdraft line with Barclays in the amount of (pound).2 million
(approximately $.3 million). Under its agreement with the bank, the Company is
subject to certain restrictions, including the payment of dividends and must
comply with covenants including the maintenance of specific ratios. The Company
is in compliance with these restrictions and covenants.
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<PAGE>
5. Acquisitions
As previously reported, on May 17, 1996 the Company acquired all of the issued
and outstanding capital stock of PRTV, a publicly traded direct marketing
company and producer of infomercials, for 1,836,773 shares (of which 211,146
shares have been deposited into an escrow account for possible future delivery
to PRTV shareholders) of the Company's common stock valued at $25.9 million. The
acquisition was accounted for as a purchase and is included in the Company's
financial statements from the date of acquisition. A total of $35.6 million in
assets were acquired and included excess cost over acquired assets of
approximately $21.7 million which is being amortized over 20 years.
As of July 2, 1996, the Company had also acquired two direct response marketing
companies, Prestige Marketing Limited and Prestige Marketing International
Limited (collectively "Prestige") and Suzanne Paul Holdings Pty Limited and its
operating subsidiaries (collectively "Suzanne Paul"). The aggregate
consideration paid by the Company for Prestige and Suzanne Paul was
approximately $4.2 million in cash, $2.8 million in a note payable due (and
subsequently paid on) December 5, 1996 and 787,879 shares of the Company's
common stock valued at $14.7 million. Upon consummation of these acquisitions,
the Company also funded a dividend of approximately $4.6 million to the
shareholders of Suzanne Paul. In addition, the Company may be required to issue
up to an aggregate of an additional $5.0 million in the Company's common stock,
valued at then present market prices, in 1997 and 1998, contingent upon the
levels of net income achieved in those years by Prestige and Suzanne Paul. The
acquisition has been accounted for as a purchase and is included in the
Company's financial statements from the date of acquisition. A total of $33.8
million in assets were acquired and included excess cost over acquired assets of
approximately $18.8 million, which is to be amortized over 20 years.
The purchase price allocations for PRTV, Prestige and Suzanne Paul are based on
management's preliminary estimates of the fair value of assets acquired and
liabilities assumed. Had the PRTV, Prestige and Suzanne Paul acquisitions been
made at April 1, 1995, pro forma unaudited condensed results from operations for
the nine months ended December 31, 1996 and 1995 would have been as follows (in
thousands, except per share data):
Nine Months Ended December 31,
------------------------------
1996 1995
Net revenues $294,313 $249,606
Net income $ 3,783 $ 8,233
Primary income per share $ 0.14 $ 0.31
Fully diluted income per share $ 0.14 $ 0.29
These pro forma amounts do not give effect to any contingent shares of the
Company's common stock which may be issued to the shareholders of Prestige
and/or Suzanne Paul. In addition, the pro forma information does not purport to
be indicative of the combined results of operations that would have been
reported had the transactions taken place on April 1, 1995 or of future results
of operations and does not reflect synergies or cost savings that may be
realized as a result of the acquisitions, particularly PRTV.
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<PAGE>
6. Public Offering
On August 6, 1996, the Company completed a public offering of an additional 2.0
million shares of its common stock with net proceeds to the Company of
approximately $28.9 million. If these shares had been outstanding for the entire
nine month periods ended December 31, 1996 and 1995 and the PRTV, Prestige and
Suzanne Paul acquisitions had been made at the beginning of these periods,
primary income per share and fully diluted income per share would have been
$0.14 for the nine month period ended December 31, 1996 while for the nine
months ended December 31, 1995, primary and fully-diluted income per share would
have been $0.29 and $0.26, respectively.
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CAUTIONARY STATEMENT FOR FORWARD - LOOKING STATEMENTS
This report contains "forward-looking" statements. The Company is including this
statement for the express purpose of availing itself of the protections of the
safe harbor provided by the Private Securities Litigation Reform Act of 1995
with respect to all of such forward-looking statements. Examples of
forward-looking statements include, but are not limited to (a) projections of
revenues, income or loss, earnings or loss per share, capital expenditures,
growth prospects, dividends, capital structure and other financial items, (b)
statements of plans and objectives of the Company or its management or Board of
Directors, including the introduction of new products, or estimates or
predictions of actions by customers, suppliers, competitors or regulating
authorities, (c) statements of future economic performance and (d) statements of
assumptions underlying other statements and statements about the Company or its
business.
The Company's ability to predict projected results or to predict the effect of
certain events on the Company's operating results is inherently uncertain.
Therefore, the Company wishes to caution each reader of this report to carefully
consider certain factors, including competition for customers and media access;
market conditions regarding buyers and sellers of media; the potential effect of
litigation involving the Company; the risks of doing business in the U.S. and in
the international marketplace; the uncertainty of developing or obtaining rights
to new products that will be accepted by the market; the limited market life of
the Company's products; the effects of government regulations; issues relating
to entering new markets, the difficulty inherent in identifying successful
products, locating efficient suppliers of such products, bringing new products
to market in a timely fashion and other factors discussed herein, because such
factors in some cases have affected and in the future (together with other
factors) could affect, the ability of the Company to achieve its anticipated
results and may cause actual results to differ materially from those expressed
herein.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is engaged in the direct marketing of consumer products, primarily
through the use of infomercials. The Company continually attempts to diversify
and expand its product offerings to generate increased revenues. The Company's
diversification efforts are designed to reduce the risk associated with relying
on a limited number of successful products for a disproportionate amount of its
revenues. Such efforts include the expansion of its presence in the global
marketplace, thereby creating new markets for its products and joining forces
with strategic partners to increase its product base. As the Company enters new
markets, it is able to air shows from its existing library, thus reducing its
dependence on new products and new show productions. The Company takes advantage
of the product awareness created by its infomercials by extending the sales life
of its infomercial products through non-infomercial distribution channels, such
as retail arrangements and by entering into agreements with manufacturers of
consumer products in which the Company's strategic partners supply new products
and retail distribution channels for product sales.
Results of Operations
The operating results for Positive Response Television, Inc. ("PRTV"), Prestige
Marketing Limited and Prestige Marketing International Limited (collectively,
"Prestige") and Suzanne Paul Holdings Pty Limited and its operating subsidiaries
(collectively, "Suzanne Paul") are included in the Company's current period
results from the date of each respective acquisition.
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The following table sets forth the operating data of the Company as a percentage
of net revenues for the periods indicated below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
------------------------ ---------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Media purchases 39.7% 28.7% 35.7% 30.1%
Direct costs 55.0% 50.3% 49.2% 51.3%
Selling, general and administrative 16.2% 12.2% 12.4% 11.5%
Severance expense 1.6% - 0.4% -
Interest expense 0.6% 0.4% 0.4% 0.4%
-------- -------- -------- --------
Total operating costs
and expenses 113.1% 91.6% 98.1% 93.3%
(Loss) income before income taxes -13.1% 8.4% 1.9% 6.7%
Income Taxes -4.5% 1.3% 0.7% 1.0%
-------- -------- -------- --------
Net (loss) income -8.6% 7.1% 1.2% 5.7%
======== ======== ======== ========
</TABLE>
Three months ended December 31, 1996 compared to December 31, 1995
Net Revenues
Net revenues were $70.8 million for the three months ended December 31, 1996, as
compared to $68.4 million for the three months ended December 31, 1995, an
increase of $2.4 million or 3.6%. The Company aired five new shows in the
quarter ended December 31, 1996. These shows did not have a significant impact
on the revenues for the current year quarter due to the timing of their airings
and the buildup of backlog created by manufacturing/sourcing difficulties for
the related products. As of December 31, 1996, the Company's North American
operation had a backorder volume in excess of $10.0 million due in part to these
new shows. The Company believes it has created a pipeline of new shows to
support its domestic operations on an ongoing basis and to add to its library of
shows. The Company's Japanese business was off due to increased competition from
traditional programming and other infomercial competitors and the fact that
additional Japanese airtime was not obtained in the quantity or speed
anticipated.
Core market revenues, which consist of net revenues in the United States,
Western Europe and Japan were $52.6 million for the three months ended December
31, 1996, as compared to $65.2 million for the three months ended December 31,
1995, a decrease of $12.6 million or 19.3%. This decrease was primarily due to
the timing of, and other matters related to, new shows for the U.S. marketplace,
as discussed above, the decline of the Ab Roller Plus product and the less than
anticipated Japanese results.
Emerging market revenues, which include the non-Japanese countries in the
Pacific Rim, Eastern Europe, the Middle East, Canada, Africa and Latin America,
were $18.2 million for the three months ended December 31, 1996 as compared to
$3.1 million for the three months ended
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<PAGE>
December 31, 1995, an increase of $15.1 million. The growth was a result of
ongoing expansion of the Company's operations into new marketplaces. This
included significant growth generated from the Prestige/Suzanne Paul
acquisitions.
Operating Costs
Total operating costs and expenses were $80.0 million for the three months ended
December 31, 1996 as compared to $62.5 million for the three months ended
December 31, 1995, an increase of $17.5 million or 28.0%. This was principally
due to higher media costs in the U.S. market.
Media Purchases
Media purchases were $28.1 million (net of $7.3 million in media sales) for the
three months ended December 31, 1996 as compared to $19.6 million (net of $3.6
million in media sales) for the three months ended December 31, 1995, an
increase of $8.5 million or 43.4%. The ratio of media purchases to net revenues
increased from 28.7% for the three months ended December 31, 1995 to 39.7% for
the three months ended December 31, 1996. These increases were primarily due to
the following factors: As a result of the PRTV and Nancy Langston acquisitions
completed earlier in the fiscal year, the Company added significant blocks of
infomercial media time that could not be resold or used profitably during the
1996 pre-holiday period. New shows were not brought to market quickly enough to
fill excess media time, nor was the Company able to scale up product
manufacturing for new shows quickly enough to ship products against orders
generated in the third quarter. Media costs rose considerably in the third
fiscal quarter over the comparable quarter from a year ago, a problem
experienced industry-wide during the period.
Direct Costs
Direct costs consist of the cost of materials, freight, infomercial production,
commissions and royalties, fulfillment, inbound telemarketing, credit card
authorization and warehousing. Direct costs were $38.9 million for the three
months ended December 31, 1996 as compared to $34.4 million for the three months
ended December 31, 1995, an increase of $4.5 million or 13.3%. The ratio of
direct costs to net revenues increased from 50.3% in the year earlier period to
55.0% in the current period. The increase in direct costs as a percentage of net
revenues resulted from the underabsorbtion of certain fixed costs by lower U.S.
revenues, product mix changes in the Company's core market and a higher
percentage of revenues being generated in the international marketplace where
direct costs are typically higher.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased approximately 38.1% from
$8.3 million for the three months ended December 31, 1995 to $11.5 million for
the three months ended December 31, 1996, primarily due to costs associated with
the Company's continued global expansion. Selling, general and administrative
expenses as a percentage of net revenues increased from 12.2% for the three
months ended December 31, 1995 to 16.2% for the three months ended December 31,
1996, primarily due to lower core market revenues.
Severance Expense
During the current quarter, the Company recorded a $1.1 million charge against
earnings relating to severance expense associated with the restructuring of
management.
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<PAGE>
Interest Expense
Interest expense was $0.4 million for the three months ended December 31, 1996,
as compared to $0.2 million for the three months ended December 31, 1995. The
increase was primarily due to an increase in the average outstanding
indebtedness during the current period.
Income Taxes
The Company's effective tax benefit was 35.0% for the three months ended
December 31, 1996, as compared to 15.1% for the three months ended December 31,
1995. The lower rate in the prior year was as a result of the Company's
utilization of net operating loss carryforwards to offset U.S. federal and state
income taxes. The Company's current year rate is also unfavorably impacted by
non-deductible goodwill amortization related to the acquisitions of PRTV,
Prestige and Suzanne Paul.
Net Loss
For the three months ended December 31, 1996 the Company experienced a net loss
of $6.0 million. As outlined above, the factors contributing to this situation
were decreasing core market revenues, increasing media costs and severance
expenses.
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<PAGE>
Nine months ended December 31, 1996 compared to December 31, 1995
Net Revenues
Net revenues were $279.8 million for the nine months ended December 31, 1996, as
compared to $191.0 million for the nine months ended December 31, 1995, an
increase of $88.8 million or 46.5%. Retail royalties were $14.1 million for the
nine months ended December 31, 1996 versus $3.4 million for the nine months
ended December 31, 1995 and principally reflected the royalties generated from
sales of the Ab Roller Plus into the retail marketplace.
Core market revenues were $241.8 million for the nine months ended December 31,
1996, as compared to $185.2 million for the nine months ended December 31, 1995,
an increase of $56.6 million or 30.6%. Approximately 32.4% of the Company's core
market revenues for the nine months ended December 31, 1996 were generated from
sales of the Ab Roller Plus. In addition, sales of the Ab Roller Plus accounted
for 44.4% of domestic net revenues during the period.
Emerging market revenues were $38.0 million for the nine months ended December
31, 1996, as compared to $5.8 million for the nine months ended December 31,
1995, an increase of $32.2 million. The growth was a result of ongoing expansion
of the Company's operations into new marketplaces via acquisition and internal
growth.
Operating Costs
Total operating costs and expenses were $274.3 million for the nine months ended
December 31, 1996, as compared to $178.3 million for the nine months ended
December 31, 1995, an increase of $96.0 million or 53.8%. This increase
corresponds with the 46.5% increase in revenues during the nine month period.
Media Purchases
Media purchases were $99.7 million (net of $10.8 million in media sales) for the
nine months ended December 31, 1996, as compared to $57.6 million (net of $11.6
million in media sales) for the nine months ended December 31, 1995, an increase
of $42.1 million or 73.3%. The increase was attributable to the growth in
revenues and higher U.S. media costs. The ratio of media purchases to net
revenues increased from 30.1% for the nine months ended December 31, 1995 to
35.7% for the nine months ended December 31, 1996. This was primarily due to
higher U.S. media costs especially during the quarter ended December 31, 1996
(see above "Three months ended December 31, 1996 compared to December 31, 1995 -
Media Purchases"), a higher percentage of the current period's net revenues
being earned in the domestic marketplace where media costs are typically higher
and significant airings of the Ab Roller Plus show to support its rollout in
retail. The current nine month period was also unfavorably impacted by U.S.
elections and the summer Olympics (lower domestic viewership and fewer
international airings.)
Direct Costs
Direct costs were $137.7 million for the nine months ended December 31, 1996, as
compared to $98.0 million for the nine months ended December 31, 1995, an
increase of $39.7 million or 40.5%. This is reflective of the 46.5% increase in
net revenues during the nine months ended December 31, 1996, as compared to the
same period in the prior year. The ratio of direct costs to net revenues
decreased from 51.3% in the year earlier period to 49.2% in the current period.
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<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased approximately 57.0% from
$22.0 million for the nine months ended December 31, 1995 to $34.6 million for
the nine months ended December 31, 1996, primarily due to costs associated with
the Company's continued global expansion through both acquisition and internal
growth. Selling, general and administrative expenses as a percentage of net
revenues increased from 11.5% for the nine months ended December 31, 1995 to
12.4% for the nine months ended December 31, 1996
Severance Expense
During the current nine month period, the Company recorded a $1.1 million charge
against earnings relating to severance expense associated with the restructuring
of management.
Interest Expense
Interest expense was $1.1 million for the nine months ended December 31, 1996,
as compared to $0.7 million for the nine months ended December 31, 1995. This
was primarily due to an increase in the Company's average outstanding
indebtedness during the current period.
Income Taxes
The Company's effective tax rate was 35.0% for the nine months ended December
31, 1996, as compared to 15.7% for the nine months ended December 31, 1995. The
lower rate in the prior year was as a result of the Company's utilization of net
operating loss carryforwards to offset U.S. federal and state income taxes. The
Company's current year rate is also unfavorably impacted by non-deductible
goodwill amortization relating to the acquisitions of PRTV, Prestige and Suzanne
Paul.
Liquidity and Capital Resources
The Company's working capital was $67.8 million at December 31, 1996 as compared
to $38.7 million at March 31, 1996, an increase of $29.1 million. This was
principally due to increases in accounts receivable and inventory associated
with the Company's increased sales volume as a result of the Company's continued
global expansion, the effect of acquisitions and the reduction of accounts
payable and accrued expenses. Cash flow used in operations was $28.1 million for
the nine months ended December 31, 1996 as compared to cash used in operations
of $0.5 million in the nine months ended December 31, 1995. The increase was
principally due to the increase in working capital accounts mentioned above as
well as the net loss generated during the three months ended December 31, 1996.
In June 1996, the Company increased its revolving credit line from $5.0 million
to $20.0 million. This facility is available for working capital, acquisitions
and general corporate purposes as well as for the issuance of letters of credit.
As of December 31, 1996 there were approximately $6.0 million of outstanding
letters of credit and no actual borrowings under this facility. At present, the
Company has approximately $8.5 million of borrowings outstanding under the
facility.
The Company believes that its available cash, cash from operations and available
borrowings under its revolving credit facility will be sufficient to meet its
normal operating, capital expenditure and debt service requirements for the near
term.
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<PAGE>
The Company intends to pursue acquisition and expansion opportunities as they
may arise. During the nine months ended December 31, 1996, the Company completed
its acquisition of PRTV in a stock for stock transaction, which resulted in the
issuance of 1,836,773 shares of the Company's common stock, 211,146 of which
have been issued into escrow and may be delivered to the former shareholders of
PRTV on or before November 1997 upon the realization of certain assets. In
addition, the Company repaid approximately $1.0 million of outstanding debt of
PRTV. Also during this nine month period, the Company acquired two direct
response marketing companies, Prestige and Suzanne Paul. The aggregate
consideration paid by the Company for Prestige and Suzanne Paul was
approximately $4.2 million in cash, $2.8 million in note payable due (and
subsequently paid on) December 5, 1996 and 787,879 shares of the Company's
common stock. Upon consummation of these acquisitions, the Company also funded a
dividend of approximately $4.6 million to the shareholders of Suzanne Paul.
These cash amounts were funded by borrowings under the Company's aforementioned
revolving credit facility. In addition, the Company may be required to issue up
to an aggregate of an additional $5.0 million in the Company's common stock,
valued at then present market prices, in 1997 and 1998, contingent upon the
levels of net income achieved in those years by Prestige and Suzanne Paul.
During the current nine month period, the Company and the creator of the Ab
Roller Plus contributed equal amounts of cash into an escrow fund designed to
establish a sharing of a portion of the product's retail partner's cash risk
among the Company, the retail partner and the creator of the product. The amount
contributed by the Company is not material to the Company's financial condition
and is only available to the retail partner in very limited circumstances.
On August 6, 1996, the Company completed a public offering of an additional 2.0
million shares of its common stock with net proceeds to the Company of
approximately $28.9 million. The Company used the net proceeds to retire
approximately $13.5 million of indebtedness incurred with the acquisitions of
PRTV, Prestige and Suzanne Paul and Nancy Langston, as well as a
$1.0 million paydown of long-term debt. The Company used the remaining proceeds
to provide for the acquisition and retention of media access contracts and for
general corporate purposes, including working capital requirements and
expenditures related to acquisitions.
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<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The information contained in Note 3 (Contingent Matters) to the Condensed
Consolidated Financial Statements in Part I of this report is incorporated
herein by reference. All of the matters referred to in Note 3 (Contingent
Matters) have been the subject of disclosure in prior reports on Form 10-Q
and/or 10-K.
As a result of prior settlements with the Federal Trade Commission (the "FTC"),
the Company has agreed to two consent orders. Prior to the Company's acquisition
of PRTV, PRTV and its Chief Executive Officer, Michael S. Levey, also agreed to
a consent order with the FTC. Among other things, such consent orders require
the Company, PRTV and Mr. Levey to submit compliance reports to the FTC staff.
The Company, PRTV and Mr. Levey have submitted compliance reports as well as
additional information requested by the FTC staff. In addition, in connection
with the acquisition by the Company of PRTV, both the Company and PRTV were
required pursuant to such consent orders to, and did, notify the FTC of such
acquisition and Michael S. Levey was required to, and did, notify the FTC of his
pending affiliation with the Company. In early June 1996, the Company received a
request from the FTC for additional information regarding two of the Company's
infomercials in order to determine whether the Company is operating in
compliance with the consent orders referred to above. Such request also included
a request for additional information concerning the Company's acquisition of
PRTV. The Company responded to such request. The FTC recently advised the
Company that it believed the Company had violated one of the consent orders by
allegedly failing to substantiate certain claims made in one of its infomercials
which was aired by the Company between 1993 and 1995. This infomercial is not
currently being aired. The Company provided information to the FTC to
demonstrate substantiation. If the Company's substantiation were deemed to be
insufficient by the FTC, the FTC has a variety of enforcement mechanisms
available to it, including, but not limited to, monetary penalties. While no
assurances can be given, the Company does not believe that any remedies to which
it may become subject will have a material adverse effect on the Company's
results of operations or financial condition. It is possible that the
notifications referred to above will result in additional requests for
information from the Company and Mr. Levey and/or additional scrutiny of the
Company's operations. In an effort to maintain continued compliance with the
terms of the consent order, shortly following its acquisition of PRTV, the
Company caused PRTV to cease airing two of its infomercials until the Company
could make changes to such infomercials or take such other actions as it deems
appropriate to conform such infomercials to the Company's standards, if
possible. The airing of one of such infomercials by the Company has been
terminated and the other has begun re-airing. The Company does not believe that
such infomercials or the Company's actions regarding them will have a material
adverse effect on the Company's financial condition.
As discussed in Note 5 in Part I of this report, the Company consummated its
acquisition of PRTV on May 17, 1996. The Company also acquired Prestige and
Suzanne Paul in early July 1996. As a result of these acquisitions, all
liabilities of such entities became the responsibility of the Company.
Other Matters
The Company in the normal course of its business is a party to litigation
relating to trademark and copyright infringement, product liability,
contract-related disputes and other actions. It is the Company's policy to
vigorously defend all such claims and to enforce its rights in these
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<PAGE>
areas. Except as disclosed herein, the Company does not believe any of these
actions, either individually or in the aggregate, will have a material adverse
effect on the Company's results of operations or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
10.1 Agreement, dated October 21, 1996, by and between the Company
and David Carman.
10.2 Agreement, dated October 21, 1996, by and between Quantum
International Limited and David Carman.
10.3 Consulting Agreement, dated as of December 19, 1996, by and
between Brian McAdams and the Company.
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
(b) The Company did not file any Current Reports on Form 8-K during the
three month period ended December 31, 1996.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MEDIA CORPORATION
Registrant
Date: February 14, 1997 /s/ Mark P. Hershhorn
----------------------
Mark P. Hershhorn
President, Chief Executive Officer and Director
Date: February 14, 1997 /s/ James M. Gallagher
-----------------------
James M. Gallagher
Vice President and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit No.
- -----------
10.1 Agreement, dated October 21, 1996, by and between the Company and
David Carman.
10.2 Agreement, dated October 21, 1996, by and between Quantum
International Limited and David Carman.
10.3 Consulting Agreement, dated as of December 19, 1996, by and between
Brian McAdams and the Company.
11.1 Statement Re: Computation of Per Share Earnings.
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 10.1
A G R E E M E N T
This agreement is made the 21st day of October 1996 between Quantum
International Limited, an English company ("Quantum"), and David Carman.
The purpose of this agreement is to set forth the terms of the
separation of David Carman as an employee of Quantum pursuant to an Employment
Agreement between Quantum and Carman dated June 1, 1993, as amended (the
"Contract"). Pursuant to Section 7(c) of the Contract, Carman's employment by
Quantum ended on September 29, 1996.
The parties, intending to be legally bound, agree as follows:
1. Compensation After the Date of Termination. Quantum will make the
payments to Carman contemplated by Section 7(d)(1)(i) of the Contract from the
date of termination on September 29, 1996 until May 31, 1997, the expiration of
the term of the Contract, subject to applicable withholding taxes and other
legally required deductions. Quantum intends to continue withholding and
deductions at the same rates as have been in effect. If during such period
Carman accepts employment he might not otherwise accept under
<PAGE>
Section 9(a)(1) of the Contract, he will promptly notify Quantum of such
employment and provide Quantum with information about payments of salary and
other guaranteed amounts, so that the appropriate offsets contemplated by
Section 7(d)(1(i) can be made.
2. Benefits After the Date of Termination. Notwithstanding the
provisions of Section 7(d)(1)(ii) of the Contract, Carman shall not be entitled
to any compensation pursuant to the 1995 Management Incentive Plan of NMC, nor
be entitled to any outplacement services.
3. The Contract. Except to the extent modified in Sections 1 and 2 of
this agreement, the Contract will remain in full force and effect after the date
hereof and each of its provisions, including but not limited to Section 9
relating to competition, trade secrets, injunctive relief, among other things,
are confirmed.
4. Directorships and Officerships. Carman hereby confirms his
resignation as an officer and as a director of Quantum, and of each subsidiary
or affiliate of Quantum of which he is currently serving as a director or
officer, effective at the close of business on October 16, 1996.
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<PAGE>
5. Supplemental Payments. It is understood that any credit card or
other charges to NMC received after the date hereof that are attributable to the
matters covered by the reimbursement payments previously made will be deducted
from Carman's compensation. The Company will process any business expenses
submitted to it by Carman and incurred prior to July 29, 1996 in the ordinary
course.
6. Releases.
(a) In consideration of the payments and arrangements in this
Agreement, Carman, for himself and on behalf of each of his heirs, executors,
administrators, legal representatives and assigns does hereby remise, release
and forever discharge Quantum, and each and every of the predecessors,
successors, parents, subsidiaries, affiliates, assigns, directors, officers,
shareholders, employees or agents of Quantum, both current and former
(hereinafter "the Quantum Released Parties"), of and from every claim, demand,
right of action or cause of action whatsoever, and from all debts, obligations,
costs (including but not limited to attorney's fees), expenses, damages, losses
and liabilities whatsoever, whether known or unknown, that Carman ever had, now
has, or hereafter may have against the Quantum Released Parties arising out of
or relating to any matter, thing, or event occurring up to and including the
date
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<PAGE>
of this agreement, relating to the Contract or to Carman's employment by Quantum
and its subsidiaries, or to his separation or to his status as a director or
officer, including claims arising under any statute, ordinance, rule, regulation
or common-law principle. Notwithstanding the foregoing, nothing in this section
is intended to diminish any rights that Carman may have as a former officer or
director under any indemnification provisions providing indemnification to
Carman. If, notwithstanding the foregoing, Carman makes any claim against
Quantum with respect to the matters covered by this paragraph, Carman shall
forfeit his rights to any further payment hereunder or under the Contract.
(b) In consideration of the payments and arrangements in this
Agreement, Quantum, for itself and on behalf of its successors and assigns does
hereby remise, release and forever discharge Carman and his heirs, executors,
administrators, legal representatives and assigns (hereinafter "the Carman
Released Parties"), of and from every claim, demand, right of action or cause of
action whatsoever, and from all debts, obligations, costs (including but not
limited to attorney's fees), expenses, damages, losses and liabilities
whatsoever, whether known or unknown, that Quantum ever had, now has, or
hereafter may have against the Quantum Released Parties arising out of or
relating to any matter,
-4-
<PAGE>
thing, or event occurring up to and including the date of this Agreement,
relating to the Contract or to Carman's employment by Quantum and its
subsidiaries, or to his separation or to his status as a director or officer,
including claims arising under any statute, ordinance, rule, regulation or
common-law principle, except as contemplated in this Agreement.
7. Confidentiality. Neither Quantum nor Carman will issue any press
release or publish any public document or make any public statement relating to
or connected with or arising out of any matters relating to his employment by
NMC or Quantum or its termination or any matters contained in this Agreement
without the prior written consent of the other as to its contents and the manner
of its presentation and publication except as may be required by law or
regulation. Except as set out in this paragraph the contents of this Agreement
shall remain entirely confidential except that each party may disclose it to the
Inland Revenue and to their respective professional advisers.
8. Dispute Resolution. The parties will endeavor to settle any dispute
without resort to litigation or arbitration. If, however, a dispute under this
Agreement becomes the subject of
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<PAGE>
litigation or arbitration, the trier of fact shall award the attorney's fees of
each party as he or she may see fit to recognize the relative merits of the
positions of each party.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
a deed on the date first above written.
Quantum International Limited
SIGNED as a Deed by )
QUANTUM INTERNATIONAL ) By:/s/__________________________
LIMITED acting by ) Director and Vice Chairman
___________________ and )
___________________. ________________________________
[Director] [Secretary]
SIGNED as a Deed and )
sealed by DAVID CARMAN )
in the presence of: ) /s/
---------------------------------------
Witness signature: /s/
---------------------------------------
Name:
Address:
Occupation:
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<PAGE>
EXHIBIT 10.2
REVISED
-------
A G R E E M E N T
This agreement is made the 21st day of October 1996 between National
Media Corporation, a Delaware corporation ("NMC"), and David Carman.
The purpose of this agreement is to set forth the terms of the
separation of David Carman as an employee of NMC pursuant to an Employment
Agreement between NMC and Carman dated June 1, 1993, as amended (the
"Contract"). Pursuant to the Contract, Carman's employment by NMC ended on
September 29, 1996.
The parties, intending to be legally bound, agree as follows:
1. Compensation After the Date of Termination. NMC will make the
payments to Carman contemplated by Section 8(d)(1)(i) of the Contract from the
date of termination on September 29, 1996 until May 31, 1997, the expiration of
the term of the Contract, subject to applicable withholding taxes and other
legally required deductions. Pursuant to Carman's request, NMC will not withhold
any amount in respect of taxes on Carman's compensation. If during such period
Carman accepts employment he might not otherwise accept under Section 10(a)(1)
of the Contract, he will promptly notify NMC of such employment and provide NMC
with information about payments of salary and other guaranteed amounts, so that
the appropriate offsets contemplated by Section 8(d)(1(i) can be made.
<PAGE>
2. Benefits After the Date of Termination. Notwithstanding the
provisions of Section 8(d)(1)(ii) of the Contract, Carman shall not be entitled
to any payment pursuant to the 1995 Management Incentive Plan of NMC in respect
of the year ended March 31, 1997, nor be entitled to any outplacement services.
3. Automobile Allowance. NMC will include in Carman's compensation
payments the $800.00 per month automobile allowance provided for in the
Contract. Such payments will terminate at the end of May 1997.
4. Pension Payments. The provision for a pension payment in the July
17, 1995 Amendment to the Contract is amended to provide that the amount of the
pension contribution shall be paid to Carman, or to a person designated by
Carman, rather than to the person designated in the Contract. Carman has
designated the law firm of Frankfurt, Garbus, Klein & Selz as the person to
which such payments are to be made, and NMC will make payments to the designated
person through May 1997. The amount of such monthly payment is $5,091.66
5. The Contract. Except to the extent modified in Sections 1 through 5
of this agreement, the Contract will remain in full force and effect after the
date hereof, and each of its provisions, including but not limited to Section 10
relating to competition, trade secrets, injunctive relief, among other things,
are confirmed.
6. Payments in Lieu. In settlement of disagreements between the parties
as to their rights and obligations under the Contract, including but not limited
to Carman's right to
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<PAGE>
outplacement services and Carman's right to a payment under the 1995 Management
Incentive Plan for the year ended March 31, 1997, NMC will pay to Carman, within
ten days after the date hereof, the sum of $125,000.00. Pursuant to Carman's
request, NMC will not withhold any amount in respect of taxes on such payment.
NMC intends to make withholding and deductions at the same rates as have been in
effect in the case of Carman's compensation under the Contract.
7. Directorships and Officerships. Carman hereby confirms his
resignation as an officer and as a director of NMC, and of each subsidiary and
affiliate of NMC of which he is currently serving as a director or officer,
effective at the close of business on October 16, 1996.
8. Extension of Option Exercise Period. Notwithstanding anything to the
contrary contained in NMC's Amended and Restated Stock Option Plan, the date by
which all vested and unexercised stock options previously granted to Carman
under such Plan may be exercised shall be extended until the close of business
on March 3, 1997. All such stock options which have not been exercised as of
such date shall terminate.
9. Releases.
(a) In consideration of the payment and arrangements in this
Agreement, Carman, for himself and on behalf of each of his heirs, executors,
administrators, legal representatives and assigns does hereby remise, release
and forever discharge NMC, and each and every of the predecessors, successors,
parents, subsidiaries, affiliates, assigns, directors, officers, shareholders,
employees or agents of NMC, both current and former (hereinafter "the NMC
Released Parties"),
-3-
<PAGE>
of and from every claim, demand, right of action or cause of action whatsoever,
and from all debts, obligations, costs (including but not limited to attorney's
fees), expenses, damages, losses and liabilities whatsoever, whether known or
unknown, that Carman ever had, now has, or hereafter may have against the NMC
Released Parties arising out of or relating to any matter, thing, or event
occurring up to and including the date of this agreement, relating to the
Contract or to Carman's employment by NMC and its subsidiaries, or to his
separation or to his status as a director and officer, including claims arising
under the Age Discrimination in Employment Act, Pennsylvania Human Relations
Act, and any other federal, state or local statute, ordinance, rule, regulation
or common-law principle. Notwithstanding the foregoing, nothing in this section
is intended to diminish any right that Carman may have as a former officer or
director under any provisions providing indemnification to Carman. If,
notwithstanding the foregoing, Carman makes any claim against NMC or any of its
subsidiaries with respect to the matters covered by this paragraph, NMC shall be
entitled to forfeit Carman's right to any further payment hereunder or under the
Contract.
(b) In consideration of the payment and arrangements in this
Agreement, NMC, for itself and on behalf of its successors and assigns does
hereby remise, release and forever discharge Carman and his heirs, executors,
administrators, legal representatives and assigns (hereinafter "the Carman
Released Parties"), of and from every claim, demand, right of action or cause of
action whatsoever, and from all debts, obligations, costs (including but not
limited to attorney's fees), expenses, damages, losses and liabilities
whatsoever, whether known or unknown, that NMC ever had, now has, or hereafter
may have against the Carman Released Parties arising out of or relating to any
matter, thing, or event occurring up to and including the date of this
agreement, relating to the Contract or to Carman's employment by NMC and its
subsidiaries, or to his separation
-4-
<PAGE>
or to his status as a director and officer, including claims arising under any
federal, state or local statute, ordinance, rule, regulation or common-law
principle.
10. Time Allowed to Review this Agreement. In compliance with the Older
Workers Benefit Protection Act ("OWBPA"), Carman has twenty-one (21) days to
consider this Agreement prior to signing the Agreement and is hereby advised to
consult an attorney prior to signing the Agreement. In addition, Carman will
have the right to revoke or cancel the Agreement within seven (7) days after
Carman signs the Agreement by submitting written notice of revocation to
Marshall Fleisher, Esq., National Media Corporation, 1700 Walnut Street,
Philadelphia, PA 19103. If Carman signs the Agreement and does not revoke the
Agreement, the Agreement will become binding, irrevocable, and enforceable at
the expiration of such seven (7) day revocation period and any rights which
Carman may have under any applicable statute will be waived. Carman is not
obligated to sign this Agreement, and refusal to do so will not jeopardize
Carman's right to any benefits to which he is already entitled.
-5-
<PAGE>
11. Confidentiality. Neither NMC nor Carman will issue any press
release or publish any public document or make any public statement relating to
or connected with or arising out of any matters relating to his employment by
NMC or its termination or any matters contained in this Agreement without the
prior written consent of the other as to its contents and the manner of its
presentation and publication except as may be required by law or regulation.
Except as set out in this paragraph the contents of this Agreement shall remain
entirely confidential, except that each party may disclose it to the Internal
Revenue Service and to their respective professional advisers.
12. Dispute resolution. The parties will endeavor to settle any dispute
without resort to litigation or arbitration. If, however, a dispute under this
Agreement becomes the subject of litigation or arbitration, the trier of fact
shall award the attorneys fees of each party as he or she may see fit to
recognize the relative merits of the positions of each party.
IN WITNESS WHEREOF, the parties hereto have executed this agreement
on the date first above written.
National Media Corporation
By: /s/
-------------------------------
/s/
-------------------------------
David Carman
-6-
<PAGE>
EXHIBIT 10.3
CONSULTING AGREEMENT
This Consulting Agreement ("Consulting Agreement") is entered into as
of December 19, 1996 by and between Brian McAdams ("McAdams") and National Media
Corporation, a Delaware corporation ("National Media").
WITNESSETH:
WHEREAS, McAdams and National Media are parties to an employment
agreement made as of September 27, 1995 (the "Employment Agreement") pursuant to
which McAdams is employed as Chairman of the Board of Directors of National
Media and Chairman of the Executive Committee of the Board of Directors of
National Media;
WHEREAS, McAdams and National Media have mutually determined that it is
in the best interests of both parties that McAdams resign his employment with
National Media and enter into this Consulting Agreement (the "Resignation"); and
WHEREAS, in connection with such Resignation and the execution and
delivery of this Consulting Agreement, the parties desire to terminate the
Employment Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, agree as follows:
1. Termination of Employment Agreement; Resignation.
(a) Termination of Employment Agreement. Effective as of the
date hereof, this Consulting Agreement shall supersede the Employment Agreement,
and the Employment Agreement shall terminate in its entirety and be of no
further force or effect.
(b) Resignation. McAdams hereby resigns from the positions of
Chairman of the Board of Directors of National Media and Chairman of the
Executive Committee of the Board of Directors of National Media, such
resignations to become effective as of December 31, 1996 (the "Resignation
Date"). McAdams shall not be deemed hereby to have resigned from his membership
on the Board of Directors of National Media.
2. Engagement as Consultant; Duties. For the period beginning January
1, 1997 and concluding December 31, 1998 (the "Term"), McAdams agrees to provide
consulting services to National Media relating to the infomercial and direct
marketing industries, as reasonably requested from time to time by National
Media (the "Consulting Services"). McAdams shall devote up to twenty (20) hours
per month of his time, energy and skill to the performance of the Consulting
Services at such time or times upon which the parties shall mutually agree.
-1-
<PAGE>
3. Compensation.
(a) Consulting Services. In consideration of the rendition of
the Consulting Services and subject to Section 10(a)(i) of this Consulting
Agreement, National Media shall pay McAdams annual compensation of $100,000
during the Term, payable in semi-monthly installments and subject to applicable
withholding taxes and other legally required deductions.
(b) Payments in Consideration of Termination of Employment
Agreement. In consideration of the termination of the Employment Agreement and
subject to Section 10(a)(i) of this Consulting Agreement, National Media shall
make annual payments to McAdams of $300,000 during the Term, payable in
semi-monthly installments and subject to applicable withholding taxes and other
legally required deductions.
4. Benefits.
(a) Generally. Subject to Section 10(a)(i) of this Consulting
Agreement, National Media shall maintain in effect during the Term, at National
Media's expense, such health insurance, dental insurance, short- and long-term
disability insurance and accidental death and dismemberment insurance benefits
as are in effect for McAdams as of the date hereof (as such benefit plans may be
modified from time to time with respect to all National Media benefit
participants). Moreover, Subject to Section 10(a)(i) of this Consulting
Agreement, National Media shall maintain in effect at its expense during the
Term the life insurance provided to McAdams pursuant to Section 4 of the
Employment Agreement.
(b) Exceptions. Notwithstanding anything to the contrary
contained herein, McAdams shall not be entitled to a paid luncheon club
membership or automobile allowance, nor shall McAdams be entitled to participate
in National Media's Management Incentive Plan or any successor plan.
(c) Outplacement Fees. Subject to Section 10(a)(i) hereof,
National Media shall reimburse up to a maximum of $50,000 in actual fees
incurred by McAdams for outplacement services which are rendered to him by an
outplacement service provider of national or regional standing from the date
hereof through the shorter of (i) the expiration of the Term or (ii) the date on
which McAdams secures new employment. McAdams shall be solely responsible for
all such fees incurred by him in excess of $50,000 and for all incidental
expenses (such as travel, food and lodging) which he may incur in connection
therewith. National Media shall have no obligation to reimburse fees for
outplacement services rendered to McAdams after he secures new employment, or,
if he does not secure new employment, after the expiration of the Term.
-2-
<PAGE>
5. Stock Options.
(a) Accelerated Vesting. Notwithstanding anything to the
contrary contained in the Employment Agreement, National Media's Amended and
Restated Stock Option Plan (the "Stock Option Plan") or any agreement between
the parties or other instrument pursuant to which McAdams was granted options to
purchase National Media common stock, the following stock options granted to
McAdams shall be deemed vested as of the Resignation Date: (i) stock options for
210,000 shares at an exercise price of $12.99 per share granted pursuant to the
Employment Agreement, (ii) stock options for 250,000 shares at an exercise price
of $16.375 per share approved by the shareholders of National Media on July 25,
1996, and (iii) stock options for 5,000 shares at an exercise price of $10.75
per share granted as of March 21, 1994 pursuant to the Stock Option Agreement
(collectively, "McAdams' Stock Options").
(b) Exercise Deadline. Notwithstanding anything to the
contrary contained in the Employment Agreement, the Stock Option Plan, or any
agreement between the parties or other instrument pursuant to which McAdams was
granted McAdams' Stock Options, and subject to Section 10(a)(i) of this
Consulting Agreement, McAdams' right to exercise McAdams' Stock Options shall
absolutely expire at the close of business December 31, 1998.
6. Release.
(a) By McAdams. In consideration of the payments and
arrangements set forth in this Consulting Agreement, McAdams, for himself and on
behalf of each of his heirs, executors, administrators, legal representatives
and assigns, does hereby remise, release and forever discharge National Media
and each and every of the predecessors, parents, subsidiaries, affiliates,
assigns, directors, officers, shareholders, employees and agents of National
Media, both current and former (hereinafter, the "National Media Released
Parties") of and from every claim, demand, right of action and cause of action
whatsoever, and from all debts, obligations, costs (including, without
limitation, attorney's fees), expenses, damages, losses and liabilities
whatsoever (collectively, "Claims"), whether known or unknown, that McAdams ever
had, now has, or hereafter may have against the National Media Released Parties
(or any of them) arising out of or relating to (i) any matter, thing or event
occurring up to and including the date of this Consulting Agreement, (ii) the
Employment Agreement or McAdams' employment by or service to National Media and
its subsidiaries, or (iii) McAdams' separation or his status as an officer or
director of National Media, including, without limitation, claims arising under
the Older Workers Benefit Protection Act and all other federal, state and local
statutes, ordinances, rules, regulations and common law principles.
Notwithstanding the preceding sentence, nothing in this Consulting Agreement is
intended to diminish any right to indemnification that McAdams may have as a
director or former officer under National Media's Certificate of Incorporation
and Bylaws. If, notwithstanding the foregoing, McAdams makes any claim against
National Media or any of its subsidiaries with respect to the matters covered by
this section, National Media shall be entitled to forfeit McAdams' right to any
further payments hereunder.
-3-
<PAGE>
(b) By National Media. In consideration of the payments and
arrangements set forth in this Consulting Agreement, National Media, for itself
and on behalf of its successors and assign, does hereby remise, release and
forever discharge McAdams and his heirs, executors, administrators, legal
representatives and assigns (hereinafter, the "McAdams Released Parties") of and
from every Claim, whether known or unknown, that National Media ever had, now
has or hereafter may have against the McAdams Released Parties arising out of or
relating to (i) any matter, thing or event occurring up to and including the
date of this Consulting Agreement, (ii) the Employment Agreement or McAdams'
employment by National Media and its subsidiaries, or (iii) McAdams' separation
or his status as an officer or director of National Media, including, without
limitation, Claims arising under all federal, state and local statutes,
ordinances, rules, regulations and common law principles; provided, however,
that there shall be excepted from the foregoing release any and all Claims for
or relating to any breach by McAdams of his fiduciary duties to National Media
and/or its shareholders.
7. Older Workers Benefit Protection Act.
(a) Waiver of Claims Under Act. McAdams acknowledges that any
and every right or claim for discrimination which he may have under the Age
Discrimination in Employment Act, the Older Workers Benefit Protection Act, the
Pennsylvania Human Relations Act or any other federal, state or local law,
whether such claim is known or unknown, arising out of McAdams' hire, employment
or termination of employment with National Media up to and including the
Resignation Date, is hereby released and waived. McAdams further acknowledges
that he is receiving consideration which is in addition to anything of value to
which he would otherwise be entitled.
(b) Time Allowed to Review Agreement. McAdams acknowledges
that he was given the opportunity to consult with an attorney of his choice
before signing this Consulting Agreement, and that National Media advised
McAdams that he had twenty-one (21) calendar days within which to consider the
terms of this Consulting Agreement prior to its execution.
(c) Revocation. The waiver and release of claims and rights
which McAdams may have under the Older Workers Benefit Protection Act is
revocable and does not become enforceable until seven (7) calendar days after
this Consulting Agreement is executed. If the seventh day is a weekend or
national holiday, McAdams shall have until the next business day to exercise his
right of revocation. McAdams may effectuate such revocation and thereby revoke
this Consulting Agreement in its entirety by submitting written notice of
revocation to Marshall Fleisher, Esq., National Media Corporation, 1700 Walnut
Street, Philadelphia, PA 19103. If McAdams signs this Consulting Agreement and
does not revoke it, this Consulting Agreement will become binding, irrevocable
and enforceable at the expiration of such seven (7) day revocation period, and
any rights which McAdams may have under any applicable statute will be waived.
McAdams is not obliged to sign this
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<PAGE>
Consulting Agreement, and refusal to do so will not jeopardize McAdams' right to
any benefits to which he is already entitled.
8. Confidentiality. Neither National Media nor McAdams will issue any
press release, publish any public document, file this Consulting Agreement with
any governmental or regulatory body or disclose the contents hereof, or
otherwise make any public statement relating to or connected with or arising out
of any matters relating to his employment by National Media or its termination
or any matters contained in this Consulting Agreement without the prior written
consent of the other as to its contents and the manner of its presentation and
publication, except as may be required by law or regulation (including, without
limitation, except as may be legally required in the opinion of counsel to
National Media). Except as set forth in this section, the contents of the
Consulting Agreement shall remain entirely confidential, except that each party
may disclose it to the Internal Revenue Service and to its respective
professional advisors.
9. Voluntary Agreement; Representation of No Filings.
(a) Voluntary Agreement. McAdams hereby acknowledges that he
fully understands the terms of this Consulting Agreement, including the release
of claims contained herein, and that he enters into it voluntarily and without
coercion on the part of any person. McAdams further acknowledges that he was
given adequate time to consider all implications of this Consulting Agreement
and to freely and fully consult with and seek the advice of whomever he deemed
appropriate in connection with his review of this Consulting Agreement.
(b) Representation of No Filings. McAdams represents that he
has filed no suits, charges, claims or the like regarding his employment and/or
its termination, and he agrees that he will not do so at any time hereafter.
Further, during all times hereafter, McAdams shall do nothing to damage the good
name of National Media, and National Media shall do nothing to damage the good
name of McAdams.
10. Restrictive Covenants.
(a) Competition.
(i) McAdams undertakes and agrees that he will not
compete, directly or indirectly, or participate as a director, officer,
employee, consultant, agent, representative or otherwise, or as a stockholder,
partner or joint venturer, or have any direct or indirect financial interest,
including, without limitation, the interest of a creditor, in any business
competing directly with the infomercial direct response business of National
Media or any of its subsidiaries within any geographical area in which the
business of National Media or its subsidiaries is being conducted during the
Term. In the event that McAdams breaches the foregoing covenant, then National
Media shall have no further obligation from the date of such breach to make any
payments under Section 3(a) or 3(b) hereof or to
-5-
<PAGE>
continue providing the benefits described in Section 4(a) hereof or reimburse
outplacement fees under Section 4(c) hereof, and all of McAdams' Stock Options
which are unexercised as of the date of such breach shall immediately terminate
and no longer be exercisable.
(ii) McAdams further undertakes and agrees that
during the Term he will not, directly or indirectly, employ, cause to be
employed or solicit for employment any employees of National Media or any of its
subsidiaries.
(b) Trade Secrets. During and after the Term, McAdams shall
not disclose, divulge, copy or otherwise use any trade secret of National Media
or any of its subsidiaries other than any knowledge or information already known
to McAdams prior to the commencement of his service to National Media, it being
acknowledged that all information and materials compiled or obtained by or
disclosed to McAdams while in the service of National Media as a director, while
employed by McAdams under the Employment Agreement or while retained by National
Media under this Consulting Agreement are confidential and the exclusive
property of National Media or its subsidiaries, as the case may be.
(c) Injunctive Relief. The parties agree that the remedy at
law for any breach of the provisions of this Section 10 will be inadequate and
that National Media and its subsidiaries (and their respective successors and
assigns) shall be entitled to injunctive relief with respect thereto without
bond. Such injunctive relief shall not be exclusive, but shall be in addition to
any other rights and remedies which National Media and its subsidiaries (and
their respective successors and assigns) may have with respect to such breach.
(d) Scope of Covenant. Should the duration, geographic area or
range of proscribed activities in Section 10(a) of this Consulting Agreement be
held unreasonable by any court of competent jurisdiction, then such duration,
geographical area or range of proscribed activities shall be modified to such
degree as to make it or them reasonable and enforceable.
-6-
<PAGE>
11. Miscellaneous.
(a) Notices. All notices, requests, instructions, consents and
other communications to be given pursuant to this Consulting Agreement shall be
in writing and shall be deemed received (i) on the same day if delivered in
person, by same-day courier or by telegraph, telex or facsimile transmission,
(ii) on the next day if delivered by overnight mail or courier, or (iii) on the
date indicated on the return receipt, or if there is no such receipt, on the
third calendar day (excluding Sundays) if delivered by certified or registered
mail, postage prepaid, to the party for whom intended to the following
addresses:
If to National Media:
National Media Corporation
1700 Walnut Street
Philadelphia, PA 19103
Attention: General Counsel
FAX: 215/772-5173
If to McAdams:
Brian McAdams
117 Maple Avenue
Bala Cynwyd, PA 19004
The foregoing addresses may be changed at any time by notice given in the manner
herein provided.
(b) Entire Agreement. This Consulting Agreement contains the
entire understanding of the parties with respect to the subject matter hereof
and supersedes all prior negotiations, understandings and agreements, whether
oral or written, between them with respect to such subject matter (including,
without limitation, the Employment Agreement) and with respect to McAdams'
service as a director of National Media. Each party has executed this Consulting
Agreement without reliance upon any promise, representation or warranty other
than those expressly set forth herein. Each party acknowledges that (i) it has
carefully read this Consulting Agreement; (ii) it has had the opportunity to
have the assistance of legal counsel of its choosing (and such other
professionals and advisors as it has deemed necessary) in the review and
execution hereof; (iii) the meaning and effect of the various terms and
provisions hereof have been fully explained to it by such counsel, if any; (iv)
it has conducted such investigation, review and analysis as it has deemed
necessary to understand the provisions of this Consulting Agreement and the
transactions contemplated hereby; and (v) it has executed this Consulting
Agreement of its own free will.
-7-
<PAGE>
(c) Amendment. No amendment of this Consulting Agreement shall
be effective unless embodied in a written instrument executed by McAdams and a
duly authorized officer of National Media.
(d) Waiver of Breach. The failure of either party hereto at
any time to enforce any of the provisions of this Consulting Agreement shall not
be deemed or construed to be a waiver of any such provision, nor in any way to
affect the validity of this Consulting Agreement or any provisions hereof or the
right of any party hereto to thereafter enforce each and every provision of this
Consulting Agreement. No waiver of any breach of any of the provisions of this
Consulting Agreement shall be effective unless set forth in a written instrument
executed by the party against whom or which enforcement of such waiver is
sought; and no waiver of any such breach shall be construed or deemed to be a
waiver of any other or subsequent breach.
(e) Assignability. This Consulting Agreement shall be binding
on and inure to the benefit of the parties hereto and their respective heirs,
representatives, successors and assigns, provided, however, that McAdams may not
assign this Consulting Agreement or any rights hereunder to any person or
entity.
(f) Governing Law. This Consulting Agreement shall be governed
by and construed in accordance with the internal laws of the Commonwealth of
Pennsylvania without regard to conflict of laws principles. Each of the parties
agrees that it shall deal fairly and in good faith with the other party in
performing, observing and complying with the covenants, promises, duties,
obligations, terms and conditions to be performed, observed or complied with by
it hereunder, and this Consulting Agreement shall be interpreted, construed and
enforced in accordance with the foregoing covenant, notwithstanding any law to
the contrary.
(g) Severability. All of the provisions of this Consulting
Agreement are intended to be distinct and severable. If any provision of this
Consulting Agreement is or is declared to be invalid or unenforceable in any
jurisdiction, it shall be ineffective in such jurisdiction only to the extent of
such invalidity or unenforceability. Such invalidity or unenforceability shall
not affect either the balance of such provision, to the extent it is not invalid
or unenforceable, or the remaining provisions hereof, nor render invalid or
unenforceable such provision in any other jurisdiction.
(h) Headings. The headings of sections and subsections have
been included for convenience only and shall not be considered in interpreting
this Consulting Agreement.
(i) Counterparts. This Consulting Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, and
all of which together shall constitute one and the same Consulting Agreement.
This Consulting Agreement may be executed and delivered via electronic facsimile
transmission with the same force and
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<PAGE>
effect as if it were executed and delivered by the parties simultaneously in the
presence of one another.
IN WITNESS WHEREOF, this Consulting Agreement has been executed by
McAdams and on behalf of National Media by its duly authorized officer as of the
date first above written.
NATIONAL MEDIA CORPORATION
By: /s/
----------------------------------------
Mark P. Hershhorn,
President and Chief Executive Officer
/s/
-----------------------------------------
Brian McAdams
APPROVED:
COMPENSATION COMMITTEE
By: /s/
-----------------------------------------
Jon W. Yoskin, II, Director
Chairman of the Compensation Committee
of the Board of Directors of National Media Corporation
-9-
<PAGE>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF EARNINGS
<TABLE>
<CAPTION>
(In thousands, except per share data)
Three Months Ended Nine Months Ended
December 31 December 31
------------------------------ ----------------------------
Primary 1996 1995 1996 1995
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Average shares outstanding 23,459 15,545 21,574 14,741
Conversion of preferred stock 1,220 2,418 1,248 2,511
Net effect of common stock equivalents (2)(3) 5,818 3,306 5,528
------------- ------------- ------------ ------------
Total 24,679 23,781 26,128 22,780
============= ============= ============ ============
Net (loss) income $(5,984) $ 4,932 $3,560 $10,679
Adjustments to net income:
Reduction of interest expense (net of tax)
related to retired debt 11 398
Increase in interest income (net of tax) from
investment of excess proceeds in short-term paper - 172
------------- ------------- ------------ ------------
Adjusted net income $(5,984) $ 4,932 $3,571 $11,249
============= ============= ============ ============
Per share earnings:
Net (loss) income $(0.24) $ .21 $ 0.14 .49
============= ============= ============ ============
Fully Diluted
Average shares outstanding 23,459 15,545 21,574 14,741
Conversion of preferred stock 1,220 2,418 1,248 2,511
Net effect of common stock equivalents (2)(4) 0 6,451 3,306 6,507
------------- ------------- ------------ ------------
Total 24,679 24,414 26,128 23,759
============= ============= ============ ============
Net (loss) income (5,984) $ 4,932 $3,560 $10,679
Adjustments to net income:
Reduction of interest expense (net of tax)
related to retired debt 0 - 11 -
Increase in interest income (net of tax) from
investment of excess proceeds in short-term paper 0 - - -
------------- ------------- ------------ ------------
Adjusted net income (5,984) $ 4,932 3,571 $10,679
============= ============= ============ ============
Per share earnings:
Net (loss) income (1) $(.24) $ .20 $ .14 $ .45
============= ============= ============ ============
</TABLE>
(1) This calculation is submitted in accordance with the requirements of
Regulation S-K although not required by APB Opinion No. 15 because it
results in dilution of less than 3%.
(2) Common stock equivalents include the effect of the exercise of stock options
and warrants.
(3) Based on common stock equivalents using the if converted method and average
market price.
(4) Based on common stock equivalents using the if converted method and the
period-end market price, if higher than the average market price.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 9,970
<SECURITIES> 0
<RECEIVABLES> 45,304
<ALLOWANCES> (8,054)
<INVENTORY> 38,001
<CURRENT-ASSETS> 117,039
<PP&E> 21,237
<DEPRECIATION> (8,661)
<TOTAL-ASSETS> 12,576
<CURRENT-LIABILITIES> 49,210
<BONDS> 0
0
1
<COMMON> 242
<OTHER-SE> 137,707
<TOTAL-LIABILITY-AND-EQUITY> 192,829
<SALES> 279,798
<TOTAL-REVENUES> 279,798
<CGS> 237,480
<TOTAL-COSTS> 273,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,127
<INCOME-PRETAX> 5,480
<INCOME-TAX> 1,920
<INCOME-CONTINUING> 3,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,560
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
