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LOGO
FORM 10-Q
For the Quarter Ended
March 31, 1996
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
COMMISSION FILE NUMBER 1-9118
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HOME SHOPPING NETWORK, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 59-2649518
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2501 118TH AVENUE NORTH, ST. PETERSBURG, FLORIDA 33716
(Address of principal executive offices)
(813) 572-8585
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the latest
practicable date.
Total number of shares of outstanding stock
(net of 6,986,000 shares of common stock held in treasury) as of May 1, 1996:
Common stock....................................... 70,815,579
Class B common stock............................... 20,000,000
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
- ------------------------------------------------------------------------------
(In thousands, except
per share data)
<S> <C> <C>
NET SALES.......................................... $282,689 $243,610
Cost of sales...................................... 191,888 161,935
-------- --------
Gross profit................................. 90,801 81,675
-------- --------
Operating expenses:
Selling and marketing........................... 36,767 42,147
Engineering and programming..................... 24,078 25,357
General and administrative...................... 16,773 19,294
Depreciation and amortization................... 8,159 8,944
Restructuring charges........................... -- 2,041
-------- --------
85,777 97,783
-------- --------
Operating profit (loss)...................... 5,024 (16,108)
Other income (expense):
Interest income................................. 510 555
Interest expense................................ (4,081) (1,219)
Miscellaneous................................... 2,165 2,347
-------- --------
(1,406) 1,683
-------- --------
Earnings (loss) before income taxes................ 3,618 (14,425)
Income tax expense (benefit)....................... 1,375 (5,626)
-------- --------
NET EARNINGS (LOSS)................................ $ 2,243 $ (8,799)
======== ========
Net earnings (loss) per common share............... $ .02 $ (.10)
======== ========
Weighted average shares outstanding................ 92,757 91,190
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
1
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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<TABLE>
<CAPTION>
MARCH 31,
--------------------- DECEMBER 31,
ASSETS 1996 1995 1995
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(In thousands)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................. $ 22,838 $ 20,562 $ 25,164
Accounts and notes receivable, net........ 20,540 32,007 23,634
Income taxes receivable................... -- 12,578 --
Inventories, net.......................... 92,383 111,328 101,564
Deferred income taxes..................... 24,081 16,873 24,484
Other current assets...................... 7,135 9,557 8,149
-------- -------- ------------
Total current assets.......... 166,977 202,905 182,995
PROPERTY, PLANT AND EQUIPMENT
Computer and broadcast equipment.......... 90,661 106,789 90,581
Buildings and leasehold improvements...... 69,877 75,369 69,843
Furniture and other equipment............. 49,839 47,343 49,561
-------- -------- ------------
210,377 229,501 209,985
Less accumulated depreciation and
amortization..................... 122,265 121,337 118,710
-------- -------- ------------
88,112 108,164 91,275
Land...................................... 16,914 17,818 17,093
Construction in progress.................. 293 2,496 406
-------- -------- ------------
105,319 128,478 108,774
OTHER ASSETS
Cable distribution fees, net ($36,136 and
$35,086, at March 31, 1996 and 1995,
respectively, and $34,803 at December
31, 1995, to related parties).......... 107,536 79,177 99,161
Deferred income taxes..................... 22,364 -- 23,142
Long-term investments ($10,000 in a
related party)......................... 13,975 10,000 14,000
Other non-current assets.................. 9,260 9,817 8,223
-------- -------- ------------
153,135 98,994 144,526
-------- -------- ------------
$425,431 $430,377 $436,295
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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<TABLE>
<CAPTION>
MARCH 31,
LIABILITIES AND STOCKHOLDERS' --------------------- DECEMBER 31,
EQUITY 1996 1995 1995
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(In thousands)
<S> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term
obligations............................ $ 1,555 $ 1,540 $ 1,555
Accounts payable.......................... 83,736 86,850 84,297
Accrued liabilities:
Programming fees ($4,520 and $28,096 at
March 31, 1996 and 1995,
respectively, and $2,260 at December
31, 1995, to related parties)....... 23,805 37,467 20,377
Sales returns.......................... 12,734 9,343 10,832
Litigation settlements................. 5,965 4,850 6,140
Other.................................. 46,813 37,189 52,223
-------- -------- ------------
Total current liabilities..... 174,608 177,239 175,424
LONG-TERM OBLIGATIONS (net of current
maturities)............................ 123,027 72,365 135,810
DEFERRED INCOME TAXES..................... -- 5,295 --
COMMITMENTS AND CONTINGENCIES............. -- -- --
STOCKHOLDERS' EQUITY
Preferred stock -- $.01 par value;
authorized 500,000 shares, no shares
issued and outstanding.............. -- -- --
Common stock -- $.01 par value;
authorized 150,000,000 shares,
issued 77,750,579 and 77,591,329
shares at March 31, 1996 and 1995,
respectively, and 77,718,379 shares
at December 31, 1995................ 778 776 777
Class B -- convertible common
stock -- $.01 par value; authorized,
issued and outstanding, 20,000,000
shares................................. 200 200 200
Additional paid-in capital................ 169,234 167,724 169,057
Retained earnings......................... 9,920 60,761 7,677
Treasury stock -- 6,986,000 common shares,
at cost................................ (48,718) (48,718) (48,718)
Unearned compensation..................... (3,618) (5,265) (3,932)
-------- -------- ------------
127,796 175,478 125,061
-------- -------- ------------
$425,431 $430,377 $436,295
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
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<TABLE>
<CAPTION>
CLASS B
CONVERTIBLE ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY UNEARNED
STOCK STOCK CAPITAL EARNINGS STOCK COMPENSATION TOTAL
- -------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1995..................... $776 $ 200 $ 167,463 $ 69,560 $(27,136) $ (4,420) $206,443
Issuance of common stock
upon exercise of stock
options.................. -- -- 211 -- -- -- 211
Income tax benefit related
to executive stock award
program and stock options
exercised................ -- -- 50 -- -- -- 50
Expense related to
executive stock award
program.................. -- -- -- -- -- 164 164
Unearned compensation
related to employee
equity participation
plan..................... -- -- -- -- -- (1,264) (1,264)
Expense related to employee
equity participation
plan..................... -- -- -- -- -- 255 255
Purchase of treasury stock,
at cost.................. -- -- -- -- (21,582) -- (21,582)
Net loss for the three
months ended March 31,
1995..................... -- -- -- (8,799) -- -- (8,799)
------ ----------- ---------- -------- -------- ------------ --------
BALANCE AT MARCH 31,
1995..................... $776 $ 200 $ 167,724 $ 60,761 $(48,718) $ (5,265) $175,478
====== ======== ======== ======= ======== ========== ========
BALANCE AT JANUARY 1,
1996..................... $777 $ 200 $ 169,057 $ 7,677 $(48,718) $ (3,932) $125,061
Issuance of common stock
upon exercise of stock
options.................. 1 -- 177 -- -- -- 178
Expense related to
executive stock award
program and stock
options.................. -- -- -- -- -- 59 59
Expense related to employee
equity participation
plan..................... -- -- -- -- -- 255 255
Net earnings for the three
months ended March 31,
1996..................... -- -- -- 2,243 -- -- 2,243
------ ----------- ---------- -------- -------- ------------ --------
BALANCE AT MARCH 31,
1996..................... $778 $ 200 $ 169,234 $ 9,920 $(48,718) $ (3,618) $127,796
====== ======== ======== ======= ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1996 1995
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(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)............................................... $ 2,243 $ (8,799)
Adjustments to reconcile net earnings (loss) to net cash provided
by
(used in) operating activities:
Depreciation and amortization................................ 4,209 6,423
Amortization of cable distribution fees...................... 3,967 2,521
Deferred income taxes........................................ 1,181 3,738
Inventory carrying value adjustment.......................... 528 (536)
Provision for losses on accounts receivable.................. 436 84
Common stock and change in Stock Appreciation Rights issued
for services provided....................................... 314 (869)
Gain on sale of assets....................................... (91) (18)
Equity in losses of unconsolidated affiliates................ -- 44
Change in current assets and liabilities:
Decrease in accounts and notes receivable................. 2,610 3,540
Increase in income taxes receivable....................... -- (9,762)
Decrease in inventories................................... 8,653 8,009
Decrease in other current assets.......................... 1,014 2,372
Increase (decrease) in accounts payable................... (561) 11,586
Decrease in accrued liabilities........................... (255) (25,524)
Increase in cable distribution fees.......................... (12,342) (13,719)
Stock purchases for employee benefit plan.................... -- (1,264)
--------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES....... 11,906 (22,174)
--------- --------
Cash flows from investing activities:
(Increase) decrease in other non-current assets................... (1,423) 2,280
Capital expenditures.............................................. (509) (3,343)
Proceeds from sale of assets...................................... 322 539
Increase in intangible assets..................................... -- (631)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES..................... (1,610) (1,155)
--------- --------
Cash flows from financing activities:
Principal payments on long-term obligations....................... (110,000) (277)
Net proceeds from issuance of Convertible Subordinated
Debentures..................................................... 97,200 --
Proceeds from issuance of common stock............................ 178 211
Borrowings from secured credit facility........................... -- 45,000
Payments for purchases of treasury stock.......................... -- (34,691)
--------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... (12,622) 10,243
--------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS........................... (2,326) (13,086)
Cash and cash equivalents at beginning of period.................... 25,164 33,648
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................... $ 22,838 $ 20,562
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 8
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The interim Condensed Consolidated Financial Statements of Home Shopping
Network, Inc. and Subsidiaries (the "Company") are unaudited and should be read
in conjunction with the audited Consolidated Financial Statements and Notes
thereto for the years ended December 31, 1995 and 1994.
In the opinion of the Company, all adjustments necessary for a fair
presentation of such Condensed Consolidated Financial Statements have been
included. Such adjustments consist of normal recurring items and a nonrecurring
item as discussed in Note E. Interim results are not necessarily indicative of
results for a full year. The interim Condensed Consolidated Financial Statements
and Notes thereto are presented as permitted by the Securities and Exchange
Commission and do not contain certain information included in the Company's
annual Consolidated Financial Statements and Notes thereto.
NOTE B -- LONG-TERM INVESTMENTS
In July 1995, the Company paid $4.0 million for a 20% interest in Body by
Jake Enterprises, L.L.C. ("BBJ"). This investment is accounted for under the
cost method. Simultaneously, the Company entered into a long-term joint
marketing agreement with BBJ to provide for the sale and promotion of
merchandise.
The Company has a $10.0 million investment consisting of 100,000 shares of
Series A non-voting preferred stock, $.01 par value, with a liquidation
preference of $100 per share, in The National Registry Inc. ("NRI"), which is
accounted for under the cost method. This investment is convertible into
6,336,154 shares of NRI common stock at the Company's option; however,
conversion to common stock is automatic in the event that cumulative gross
revenues for NRI reach $15.0 million.
The Company does not have the ability to exercise any significant influence
over the operating or financial activities of BBJ or NRI.
NOTE C -- CREDIT FACILITY AND CONVERTIBLE SUBORDINATED DEBENTURES
On March 1, 1996, the Company completed an offering of $100.0 million of
unsecured Convertible Subordinated Debentures (the "Debentures"), due March 1,
2006, which bear interest at 5 7/8% and are convertible into shares of the
Company's common stock any time after May 1, 1996, at a conversion price of
$12.00 per share. The Debentures are redeemable by the Company for cash at any
time on or after March 1, 1998 at specified redemption prices, plus accrued
interest, except that prior to March 1, 1999, the Debentures may not be redeemed
unless the closing price of the common stock equals or exceeds 140% of the
conversion price per share for a specified period of time. The Debentures are
subordinated to all existing and future senior debt of the Company.
The Company used the net proceeds of $97.2 million from the Debentures to
repay borrowings under its Revolving Credit Facility (the "Credit Facility").
This and other repayments reduced the total outstanding amount under the Credit
Facility to $25.0 million at March 31, 1996. Subsequently, the Company repaid an
additional $5.0 million under the Credit Facility, leaving $20.0 million
outstanding at April 30, 1996.
On February 13, 1996, the Company amended its Credit Facility and agreed,
among other things, that upon consummation of the sale of the Debentures
discussed above, the amount available for borrowing under the Credit Facility
would be reduced by 30% of the principal amount of Debentures. Accordingly, the
maximum borrowing availability under the Credit Facility is now $120.0 million,
leaving $100.0 million available for borrowing at April 30, 1996.
The Company obtained a waiver of the working capital ratio requirement
under the Credit Facility for the first quarter of 1996. Due to the Company
obtaining in excess of $50.0 million in net proceeds from the sale of the
Debentures, the covenant under the Credit Facility related to the anticipated
change in control, as discussed in Note J, has been waived. The Company was in
compliance with all other covenants contained in the Credit Facility.
6
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HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE D -- INCOME TAXES
The Company had taxable income for the three months ended March 31, 1996
which offset a portion of the net operating loss carryforward from 1995.
Management believes that the Company will generate future taxable income
sufficient to realize the tax benefit of the loss carryforward prior to its
expiration. Accordingly, the Company has recognized a non-current asset related
to this carryforward and no valuation allowance has been provided. There can be
no assurance, however, that the Company will generate any earnings or any
specific level of continuing earnings in order to allow the Company to realize
the benefits of the net operating loss carryforward or other deferred tax
assets.
NOTE E -- RESTRUCTURING CHARGES
During the three months ended March 31, 1995, the Company recorded a charge
of $2.0 million covering employee and other costs related to the closing of its
fulfillment center in Reno, Nevada. In addition, in the fourth quarter of 1995
the Company recorded an additional $2.1 million of charges to reflect the
additional costs expected to be incurred in relation to the closing. The
facility was closed by June 30, 1995. During the three months ended March 31,
1996, payments totaling $.2 million were made related to this charge leaving
$2.4 million accrued for future charges. During the three months ended March 31,
1995, no payments were made which related to this charge.
NOTE F -- EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per common share is based on net earnings (loss)
divided by the weighted average number of common shares outstanding giving
effect to stock options and convertible debt, when dilutive. Fully diluted
earnings per share is not materially different from primary earnings per share
in any period presented.
NOTE G -- CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash and short-term investments. Short-term investments consist primarily of
auction preferred shares, money market funds and certificates of deposit with
original maturities of less than 91 days.
Supplemental disclosures of cash flow information:
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<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------
1996 1995
-------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
CASH PAID FOR:
Interest........................................................ $6,167 $938
Income taxes.................................................... 50 348
CASH RECEIVED FOR:
Income tax refund............................................... 649 --
</TABLE>
On March 27, 1995, Precision Systems, Inc. ("PSi") repaid $2.7 million,
plus accrued interest, of its $5.0 million loan from the Company. Under an
agreement between the Company and PSi, the remaining principal balance of the
loan was recorded as a prepayment of future monthly software maintenance
payments through December 1995.
NOTE H -- SUBSEQUENT EVENTS
During April 1996, the Company sold a majority of its interest in HSN
Direct Joint Venture ("HSND") for $5.9 million to a company under control of
Tele-Communications, Inc. ("TCI"), which also owns a controlling interest in the
Company. The Company received $4.9 million in cash at closing and is due an
7
<PAGE> 10
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
additional $1.0 million payable in four equal annual installments commencing on
February 1, 1997. The Company will retain a 15% interest in the venture and a
newly formed corporation. The Company made a capital contribution to the new
corporation in the amount of $155,000. Due to the Company's reduced interest in
the venture and inability to exercise significant influence over its operating
or financial activities, the Company's investment will be accounted for under
the cost method.
NOTE I -- PRO-FORMA QUARTERLY RESULTS, EXCLUDING HSND
Due to the sale of a majority of its interest in HSND during 1996, the
following unaudited table reports the pro-forma results for the Company for 1995
giving effect to the sale of HSND as if it occurred on January 1, 1995:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------
3/31/95 6/30/95 9/30/95 12/31/95
-----------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Net sales............................... $231,784 $241,348 $237,467 $287,099
Cost of sales........................... 157,180 163,772 160,706 210,192
-------- -------- -------- --------
Gross profit.......................... 74,604 77,576 76,761 76,907
Operating expenses...................... 89,274 91,504 96,219 103,691
-------- -------- -------- --------
Operating (loss)...................... (14,670) (13,928) (19,458) (26,784)
Other income (expense).................. 1,119 (636) (5,138) (11,413)
-------- -------- -------- --------
(Loss) before income taxes.............. $(13,551) $(14,604) $(24,596) $(38,197)
======== ======== ======== ========
</TABLE>
Pro forma results for the quarter ended March 31, 1996 are not applicable
because the net assets were held for sale and the operating results of HSND were
used to adjust this balance accordingly.
NOTE J -- ANTICIPATED CHANGE IN CONTROL
In November 1995, Liberty Media Corporation ("Liberty"), a wholly-owned
subsidiary of TCI, and the new Chairman of the Company's Board of Directors (the
"Chairman"), entered into an agreement, which related to, among other things,
Silver King Communications, Inc.'s ("SKC")acquisition of control of the Company
through the transfer to SKC of the common stock and Class B common stock owned
by Liberty ("Company Shares"). Pursuant to the agreement between the Chairman
and Liberty and certain other agreements entered into at such time, SKC would
acquire the Company Shares (which shares represent a majority of the voting
power of the outstanding equity securities of the Company) in exchange for
additional shares of SKC's common stock and Class B stock. If such transactions
are consummated, the Chairman, who became Chairman of the Board and Chief
Executive Officer of SKC in August 1995, and acquired a significant number of
options to acquire SKC common stock at such time, would also control securities
of SKC representing a majority of the outstanding voting power of that entity.
In addition, in connection with such transfer of the Company Shares, TCI would
acquire beneficial ownership of a substantial additional equity interest in SKC
and, through such ownership of SKC securities, would continue to have a
substantial equity interest in the Company.
The consummation of each of the foregoing transactions is subject to the
satisfaction of certain conditions, including, but not limited to, receipt of
FCC approval, and approval of the transaction in which SKC is to acquire the
Company Shares by the stockholders of SKC. In addition, SKC's acquisition of
control of the Company referred to above, will constitute a "change in control"
of the Company. There can be no assurance that the transactions described above
will be consummated.
8
<PAGE> 11
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HOME SHOPPING NETWORK, INC. AND SUBSIDIARIES
GENERAL
Home Shopping Network, Inc. (the "Company") is a holding company, the
subsidiaries of which conduct the day-to-day operations of the Company's various
business activities. The Company's primary business is electronic retailing
conducted by Home Shopping Club, Inc. ("HSC"), a wholly-owned subsidiary of the
Company.
A. CONSOLIDATED RESULTS OF OPERATIONS
The following discussion presents the material changes in the consolidated
results of operations of the Company which have occurred in the quarter ended
March 31, 1996, compared with the quarter ended March 31, 1995. Reference should
also be made to the Condensed Consolidated Financial Statements included herein.
In April 1996, the Company sold a majority of its interest in its
infomercial joint venture, HSN Direct Joint Venture ("HSND"). Due to the
anticipated sale and gain associated therewith, the results of operation of HSND
were not included in the consolidated results of operation for the first quarter
of 1996. During 1995, the consolidated results of operations included a $4.3
million pre-tax loss related to HSND. See Note I to the Condensed Consolidated
Financial Statements for pro-forma effects of excluding HSND from the Company's
1995 results of operations.
All tables and discussion included herein calculate the percentage changes
using actual dollar amounts, versus rounded dollar amounts.
NET SALES
For the quarter ended March 31, 1996, net sales for the Company increased
$39.1 million, or 16.0%, to $282.7 million from $243.6 million compared to the
same period in 1995. Net sales of HSC increased $44.8 million, or 21.8%, for the
quarter ended March 31, 1996, reflecting a 10.2% increase in the number of
packages shipped and an 11.9% increase in the average price per unit sold
compared to the quarter ended March 31, 1995. In addition, sales by wholly-owned
subsidiaries, Internet Shopping Network, Inc. ("ISN") and Vela Research, Inc.
("Vela") increased $4.2 million and $2.8 million, respectively, for the quarter
ended March 31, 1996. These increases were offset by a decrease of $11.8 million
in sales by HSND.
In November 1995, the Company appointed a new chairman of the board and a
new president and chief executive officer, both with significant experience in
the electronic retailing and programming areas. The Company believes that the
improved sales in the quarter ended March 31, 1996 compared to the same period
in 1995 were primarily the result of immediate changes made by new management to
the Company's merchandising and programming strategies. Management expects to
take additional steps designed to attract both first-time and active customers
which include improving inventory mix with respect to product assortment and
average price per unit, improving inventory management and better planning of
programmed shows. The Company believes that its negative performance in the
first quarter of 1995, which resulted in a $30.6 million decrease in its
consolidated net sales from the comparable 1994 period, was due, in part, to the
adverse effects of certain merchandising and programming strategies which had
been implemented in late 1994 and 1995. While management is optimistic that
results will continue to improve and the Company will remain profitable, there
can be no assurance that changes to the Company's merchandising and programming
strategies will achieve management's intended results.
For the quarter ended March 31, 1996, HSC's merchandise return percentage
increased to 24.9% from 24.1% for the same period in 1995. Management believes
that the increase in return rate is attributable to an increase in the average
price per unit sold. New management's merchandising strategy is intended to
reduce return rates for the remainder of 1996 by attempting to decrease the
average price per unit for the remainder
9
<PAGE> 12
of 1996. Promotional price discounts increased to 3.8% of HSC sales for the
quarter ended March 31, 1996 from 3.5% in the same period in 1995.
At March 31, 1996, HSC had approximately 4.7 million active customers
representing a 5.0% decline from March 31, 1995. An active customer is defined
as a customer that has completed a transaction within the last 18 months or
placed an order within the last seven months. In addition, 59.4% of active
customers have made more than one purchase in the last 18 months, compared to
58.8% at March 31, 1995.
Management believes that future levels of net sales of HSC will be
dependent on the success of its current efforts to increase market penetration.
Market penetration represents the level of active customers within a market.
The following table highlights the changes in the estimated unduplicated
television household reach, as explained below, of HSN, the Company's primary
network, for the twelve months ended March 31, 1996:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
CABLE* BROADCAST* SATELLITE TOTAL
---------------------------------------------------------------------------------------------
(In thousands of households)
<S> <C> <C> <C> <C>
Households -- March 31, 1995....................... 40,872 22,758 3,750 67,380
Net additions/(deletions).......................... 3,139 (2,078) 38 1,099
Shift in classification............................ 502 (502) -- --
Change in Nielsen household counts................. -- 42 -- 42
------ ---------- --------- ------
Households -- March 31, 1996....................... 44,513 20,220 3,788 68,521
====== ======== ====== ======
</TABLE>
- ---------------
* Households capable of receiving both broadcast and cable transmissions are
included under cable and excluded from broadcast to present unduplicated
television household reach.
According to industry sources, as of March 31, 1996, there were 95.8
million homes in the United States with a television set, 62.5 million basic
cable television subscribers and 3.8 million homes with satellite dish
receivers.
In addition to the households in the above table, as of March 31, 1996
approximately 12.6 million cable television households were reached by the
Company's Spree! network, of which 3.8 million were on a part-time basis. Of the
total cable television households receiving Spree!, 10.4 million also receive
HSN.
During the remainder of 1996, cable system contracts covering 3.0 million
cable subscribers are subject to termination or renewal. This represents 6.7% of
the total number of unduplicated cable households receiving HSN. The Company is
pursuing both renewals and additional cable television system contracts, but
channel availability, competition, consolidation within the cable industry and
cost of carriage are some of the factors affecting the negotiations for cable
television system contracts. Although management cannot determine the percentage
of expiring contracts that will be renewed or the number of households that will
be added through new contracts, management believes that a majority of these
contracts will be renewed.
COST OF SALES
For the quarter ended March 31, 1996, cost of sales increased $30.0
million, or 18.5%, to $191.9 million from $161.9 million for the quarter ended
March 31, 1995. As a percentage of net sales, cost of sales increased to 67.9%
from 66.5% compared to the quarter ended March 31, 1995.
Cost of sales of HSC, ISN and Vela increased $30.6 million, $4.1 million
and $1.5 million, respectively, for the quarter ended March 31, 1996. These
increases were partially offset by a decrease related to HSND of $4.8 million.
As a percentage of HSC's net sales, cost of sales decreased slightly to 69.5%
from 69.7% compared to the quarter ended March 31, 1995.
The dollar increases in consolidated and HSC's cost of sales relate to the
higher sales volume. The increase in consolidated cost of sales percentage when
compared to 1995 primarily relates to the exclusion of HSND's results of
operations in the first quarter of 1996.
10
<PAGE> 13
OPERATING EXPENSES
The following table highlights the operating expense section from the
Company's Condensed Consolidated Statements of Operations:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
QUARTER ENDED
MARCH 31,
--------------- $ %
1996 1995 CHANGE CHANGE
-----------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C>
Selling and marketing................................. $36.8 $42.2 $ (5.4) (12.8)%
Engineering and programming........................... 24.1 25.4 (1.3) (5.0)
General and administrative............................ 16.8 19.3 (2.5) (13.1)
Depreciation and amortization......................... 8.1 8.9 (.8) (8.8)
Restructuring charges................................. -- 2.0 (2.0) (100.0)
------ ------ ------
$85.8 $97.8 $(12.0) (12.3)
===== ===== ======
</TABLE>
As a percentage of net sales, operating expenses decreased to 30.3% from
40.1% compared to the quarter ended March 31, 1995.
In late 1995 and the first quarter of 1996, management instituted measures
aimed at streamlining operations primarily by reducing its work force and taking
other actions to reduce operating expenses. These changes resulted in some
reduction of operating expenses in the first quarter of 1996 compared with the
same period in 1995 and are expected to result in future reductions to operating
expenses when compared to 1995.
SELLING AND MARKETING
For the quarter ended March 31, 1996, selling and marketing expenses, as a
percentage of net sales, decreased to 13.0% from 17.3% compared to the quarter
ended March 31, 1995.
The major components of selling and marketing expenses are detailed below:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
QUARTER ENDED
MARCH 31,
------------- $ %
1996 1995 CHANGE CHANGE
-----------------------------------------------------------------------------------------
(In millions, except %)
<S> <C> <C> <C> <C>
Telephone, operator and customer service................ $13.3 $12.7 $ .6 4.9%
Fees to cable system operators:
Commissions........................................... 10.3 7.3 3.0 42.1
Marketing payments for cable advertising.............. 2.7 4.3 (1.6 ) (37.4)
Performance bonus commissions......................... 2.7 3.4 (.7 ) (21.8)
HSND Selling Expenses................................... -- 6.3 (6.3 ) (100.0)
</TABLE>
Telephone, operator and customer service expenses are typically related to
sales, call volume and the number of packages shipped. For the quarter ended
March 31, 1996, compared to the same period in 1995, these expenses increased at
a rate lower than the increase in sales and packages shipped. This was due in
part to a new contract with the Company's long distance telephone carrier which
was negotiated in the third quarter of 1995. In addition, operator and customer
service payroll expenses remained constant due to the work force reduction
measures, and volume efficiencies. Management expects telephone, operator and
customer service expenses to fluctuate in relation to call and package volume
for the remainder of 1996.
For the quarter ended March 31, 1996, commissions to cable system operators
increased as a result of the increase in sales. Commission payments are based on
net merchandise sales after giving effect to customer returns. Additionally,
cable operators which have executed affiliation agreements to carry the
Company's programming are generally compensated for all sales within their
franchise areas, regardless of whether a customer's order results from watching
the program via cable, satellite dish, or a broadcast television station.
Commissions as a percentage of sales increased due to the growth in cable
households and the increase in cable households within broadcast markets. As a
result of the above factors, subject to sales volume, fees paid to cable system
operators are expected to remain at higher levels in future periods.
11
<PAGE> 14
Marketing payments for cable advertising decreased for the quarter ended
March 31, 1996, because older agreements containing such payments expired or
were renegotiated and new cable carriage agreements were executed. Current
contracts, instead of providing marketing payments for cable advertising,
generally provide other forms of incentive compensation to cable operators.
These include upfront payments of cable distribution fees, as discussed in
"Depreciation and Amortization," and performance bonus commissions which require
payments based upon HSC attaining certain sales levels in the cable operator's
franchise area. Accordingly, marketing payments for cable advertising are
expected to decrease, and depreciation and amortization, relating to cable
distribution fees, will increase in 1996.
Performance bonus commissions decreased because of lower guaranteed minimum
commission expense in the quarter ended March 31, 1996, as compared to the
quarter ended March 31, 1995, relating to contracts with certain cable
operators.
Selling and marketing expenses are expected to decrease for the remainder
of 1996 related to the sale of a majority of the Company's interest in HSND. The
remaining net decrease in selling and marketing expenses is attributable to
lower advertising and promotional expenses of the Company's other subsidiary
operations.
ENGINEERING AND PROGRAMMING
For the quarter ended March 31, 1996, engineering and programming expenses,
as a percentage of net sales, decreased to 8.5% from 10.4% compared to the
quarter ended March 31, 1995 primarily as a result of the increase in net sales.
The dollar decrease in engineering and programming expenses for the quarter
ended March 31, 1996 was primarily due to lower broadcast costs of $1.9 million
relating to fewer broadcast affiliates compared to the quarter ended March 31,
1995. This decrease was partially offset by a $1.2 million increase in the
amount payable to Silver King Communications, Inc., compared to the quarter
ended March 31, 1995. In addition, engineering and programming expenses
decreased by $1.0 million related to the sale of a majority of the Company's
interest in HSND. For the remainder of 1996, these engineering and programming
expenses are expected to remain relatively constant in comparison to the first
quarter of 1996.
GENERAL AND ADMINISTRATIVE
For the quarter ended March 31, 1996, general and administrative expenses,
as a percentage of net sales, decreased to 5.9% from 7.9% compared to the
quarter ended March 31, 1995.
For the quarter ended March 31, 1996, decreases in payroll, consulting,
legal, repairs and maintenance and other administrative expenses totaling $3.7
million were primarily offset by a $1.2 million credit in the quarter ended
March 31, 1995 related to Stock Appreciation Rights.
Based on savings expected to be realized in connection with the reduction
of the Company's work force and other expense reduction initiatives, management
expects general and administrative expenses to remain at lower levels for the
remainder of 1996, compared to the same periods in 1995.
DEPRECIATION AND AMORTIZATION
The decrease in depreciation and amortization for the quarter ended March
31, 1996 was primarily due to a decrease of $1.7 million related to assets that
became fully depreciated in 1995, the retirement of certain equipment in the
fourth quarter of 1995 and lower capital expenditure levels in the quarter ended
March 31, 1996 compared to the same period in 1995. Depreciation expense is
expected to remain at lower levels for the remainder of 1996 compared to the
same periods in 1995. In addition, amortization expense for name lists decreased
$.5 million relating to the sale of the assets of Ortho-Vent, Inc. in the fourth
quarter of 1995. These decreases were partially offset by increased amortization
of cable distribution fees of $1.4 million to $3.9 million for the quarter ended
March 31, 1996. Amortization of these fees is expected to total $16.0 million in
1996 based on existing agreements. This amortization will increase if additional
long-term cable contracts containing upfront payments of cable distribution fees
are entered into during 1996, as discussed in "Net Sales."
12
<PAGE> 15
RESTRUCTURING CHARGES
Restructuring charges for the quarter ended March 31, 1995, of $2.0
million, represented management's estimate of costs to be incurred in connection
with the closing of the Company's Reno, Nevada, distribution center, which was
accomplished in June 1995. The decision to close the Reno distribution center
was based on an evaluation of the Company's overall distribution strategy.
Management believes that consolidation of the Company's distribution facilities
results in operating efficiencies and improved service to customers.
OTHER INCOME (EXPENSE)
For the quarter ended March 31, 1996, the Company had net other expense of
$(1.4) million compared to net other income of $1.7 million for the quarter
ended March 31, 1995.
Interest expense increased $2.9 million for the quarter ended March 31,
1996, due to a higher level of outstanding borrowings by the Company and a
reduction in the useful life of loan costs due to the anticipated refinancing of
the Company's Credit Facility. On March 1, 1996, the Company obtained additional
financing through a private placement of $100.0 million of Convertible
Subordinated Debentures (the "Debentures"), as discussed in "Financial Position,
Liquidity and Capital Resources" and Note C to the Condensed Consolidated
Financial Statements. Management expects that interest expense for the remainder
of 1996 will be approximately equal to 1995.
For the quarter ended March 31, 1996, net miscellaneous income decreased
$.2 million compared to the same period in 1995. Net miscellaneous income for
the quarter ended March 31, 1996, included a one-time $1.5 million payment
received in connection with the termination of the Canadian Home Shopping
Network license agreement. Net miscellaneous income for the quarter ended March
31, 1995, includes the receipt of proceeds from a lawsuit settlement totaling
$.6 million, a gain on the sale of other assets of $.6 million and royalty
income related to HSND of $.5 million.
INCOME TAXES
The Company's effective tax rate was 38.0% for the quarter ended March 31,
1996, and a benefit of (39.0)% for the quarter ended March 31, 1995. The
Company's effective tax rate for these periods differed from the statutory rate
due primarily to the amortization of goodwill, state income taxes and the
provision for interest on adjustments proposed by the Internal Revenue Service.
The Company anticipates full realization of its net operating loss carryforward
and accordingly no valuation allowance has been provided. The Company's
effective tax rate is expected to vary from the statutory rate for the remainder
of 1996.
NET EARNINGS (LOSS)
The Company had net earnings of $2.2 million, or $.02 per share, for the
quarter ended March 31, 1996, compared to net loss of $(8.8) million, or $(.10)
per share, for the quarter ended March 31, 1995. The increase in earnings for
the quarter ended March 31, 1996, was primarily attributable to the increase in
net sales of $39.1 million, the increase in gross profit of $9.1 million and the
decrease in operating expenses, as discussed above, compared to the quarter
ended March 31, 1995.
13
<PAGE> 16
SEASONALITY
The Company believes that seasonality does impact its business but not to
the same extent it impacts the retail industry in general.
B. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The following table highlights various balances and ratios from the
Condensed Consolidated Financial Statements included herein:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
MARCH 31,
---------------- DECEMBER 31,
1996 1995 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents (millions)..................... $ 22.8 $ 20.6 $ 25.2
Working capital (millions)............................... $ (7.6) $ 25.7 $ 7.6
Current ratio............................................ .96:1 1.14:1 1.04:1
Accounts and notes receivable, net (millions)............ $ 20.5 $ 32.0 $ 23.6
Inventories, net (millions).............................. $ 92.4 $ 111.3 $ 101.6
Annual inventory turnover (annualized for March periods
only).................................................. 7.92 5.63 6.37
</TABLE>
The principal sources of cash for the twelve months ended March 31, 1996
were borrowings by the Company under its Credit Facility and the Debentures,
which were used principally to repay outstanding borrowings under the Credit
Facility, pay cable distribution fees of $57.2 million, pay litigation
settlements of $5.6 million and pay for capital expenditures of $10.2 million.
The principal sources of cash for the quarter ended March 31, 1996, were the
issuance of the Debentures and $11.9 million of operating funds, which were used
principally to repay outstanding borrowings under the Credit Facility and to pay
cable distribution fees of $8.6 million. Net earnings (loss) adjusted for
non-cash items totaled $(22.0) million and $12.8 million, respectively, for the
twelve months and three months ended March 31, 1996.
The primary reason for the decrease in accounts and notes receivable is
"FlexPay" accounts receivable which totaled $11.1 million at March 31, 1996,
compared to $21.1 million at March 31, 1995 and $13.0 million at December 31,
1995. The Company's financing of "FlexPay" accounts receivable has not had a
significant impact on its liquidity position.
The inventory balance is net of a carrying value adjustment of $33.8
million at March 31, 1996, compared to $18.3 million at March 31, 1995 and $33.3
million at December 31, 1995. The inventory carrying value adjustment, which was
significantly increased in the fourth quarter of 1995, is primarily related to
product which is inconsistent with HSC's new sales and merchandising philosophy.
Capital expenditures for the quarter ended March 31, 1996, were $.5
million. The Company estimates capital expenditures will range between $11.0
million and $13.0 million for the remainder of 1996.
On February 13, 1996, the covenants in the Credit Facility were amended to,
among other things, allow for additional subordinated financing and a reduction
in the maximum borrowing availability under the Credit Facility by 30% of any
subordinated financing. Accordingly, upon completion of the private placement of
the Debentures, the maximum borrowing availability of the Credit Facility was
reduced to $120.0 million. The Company used the net proceeds of the Debentures
to repay borrowings under its Credit Facility. This repayment and additional
repayments made using operating funds reduced the outstanding loan balance to
$20.0 million as of April 30, 1996, and $100.0 million was available for
borrowing. The Company anticipates that it may use its borrowing capacity under
the Credit Facility to finance working capital requirements, capital
expenditures and for general corporate purposes.
During the remainder of 1996, management expects to pay cable distribution
fees totaling $44.9 million relating to new and current contracts with cable
system operators. Of this amount, $3.9 million is payable to a related party.
14
<PAGE> 17
In April 1996, the Company sold a majority of its interest in HSND for $5.9
million, $4.9 million of which was received as of the closing of the
transaction, the remainder of which will be received in four equal annual
installments commencing on February 1, 1997.
In management's opinion, available cash, internally generated funds and the
Credit Facility will provide sufficient capital resources to meet the Company's
foreseeable needs.
The Company also has credit lines which back letters of credit which are
used exclusively to facilitate the purchase of imported inventory. Presentation
of letters of credit by vendors results in an immediate charge to the Company's
account with no interest charges incurred. As of April 30, 1996, the Company had
a $25.0 million committed bank credit line collateralized by the capital stock
of HSC and HSN Realty Inc. and an uncommitted unsecured bank credit line offered
on a conditional basis. Outstanding letters of credit, which cannot exceed $25.0
million in total in accordance with the Credit Facility, amounted to $12.4
million at April 30, 1996, on the committed and uncommitted lines, leaving $12.6
million available.
For the quarter ended March 31, 1996, the Company did not pay any cash
dividends and does not anticipate paying cash dividends in the immediate future.
During April 1996, the Company paid $2.5 million, which was accrued in
1995, into an escrow account related to the settlement of certain pending
litigation.
At April 30, 1996, 2.7 million options to purchase the Company's stock were
outstanding and exercisable at prices ranging between $3.25 and $14.75. The
exercise of such stock options would result in a cash inflow of $25.1 million to
the Company.
In 1994, the Company's Board of Directors authorized the repurchase of up
to an additional $75.0 million of the Company's common stock. In 1994, the
Company repurchased 1.3 million shares at a total cost of $13.1 million and in
the quarter ended March 31, 1995, the Company repurchased an additional 2.6
million shares at a total additional cost of $21.6 million. Under the terms of
the Credit Facility, the Company is restricted from purchasing its common stock
until it meets certain cash flow ratios.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") effective for fiscal years beginning after December
15, 1995. FAS 123 provides alternatives for the methods used by entities to
record compensation expense associated with its stock-based compensation plans.
Additionally, FAS 123 provides further guidance on the disclosure requirements
relating to stock-based compensation plans. Presently, management intends to
present the effects of FAS 123 only on a disclosure basis.
15
<PAGE> 18
PART II -- OTHER INFORMATION
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 1996, the annual meeting of stockholders was held. At the annual
meeting, stockholders representing 20,000,000 shares of Class B Common Stock and
70,760,579 shares of Common Stock were entitled to vote thereat. Stockholders
present or in person by proxy, representing 20,000,000 shares of Class B Common
Stock and 64,695,582 shares of Common Stock, voted on the following matters:
The stockholders elected the following seven directors of the Company to
hold office until the next annual meeting of stockholders or until their
successors have been duly elected:
Elected by holders of Common Stock voting as a separate class:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES FOR WHICH
CAST IN FAVOR AUTHORITY WITHHELD
---------------- ------------------
<S> <C> <C>
Leo J. Hindery, Jr.................................... 63,697,563 998,019
General H. Norman Schwarzkopf......................... 63,592,343 1,103,239
Eli J. Segal.......................................... 63,876,949 818,633
</TABLE>
Elected by holders of Common Stock and Class B Common Stock voting as a single
class:
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES FOR WHICH
CAST IN FAVOR AUTHORITY WITHHELD
---------------- ------------------
<S> <C> <C>
Peter R. Barton....................................... 83,696,718 998,864
Robert R. Bennett..................................... 83,702,043 993,539
Barry Diller.......................................... 83,711,110 984,472
James G. Held......................................... 83,705,459 990,123
</TABLE>
The stockholders of both the Common Stock and Class B Common Stock voting
as a single class also approved the adoption of the 1996 Stock Option Plan for
Employees and the 1996 Stock Option Plan for outside directors as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
SHARES CAST SHARES CAST SHARES
IN FAVOR AGAINST ABSTAINING
----------- ----------- -----------
<S> <C> <C> <C>
1996 Stock Option Plan for Employees................ 63,093,444 21,394,175 207,963
1996 Stock Option Plan for Outside Directors........ 68,939,578 15,507,819 248,185
</TABLE>
ITEM 6(A) -- EXHIBITS
Exhibit 27 Financial Data Schedule (SEC use only).
ITEM 6(B) -- REPORTS ON FORM 8-K
A report on Form 8-K dated February 15, 1996 reported a decrease in the
borrowings under the Revolving Credit Facility and the Company's intent to raise
$100.0 million of additional financing through Convertible Subordinated
Debentures.
A report on Form 8-K dated February 26, 1996 reported the financial
statements of Home Shopping Network, Inc. for the years ended December 31, 1995
and 1994.
A report on Form 8-K dated March 1, 1996 reported the placement of $100.0
million of 5.875% Convertible Subordinated Debentures due March 1, 2006.
16
<PAGE> 19
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.
<TABLE>
<S> <C>
HOME SHOPPING NETWORK, INC.
--------------------------------------------
(Registrant)
Dated May 10, 1996 /s/ JAMES G. HELD
- -------------------------------------------- --------------------------------------------
James G. Held
President and Chief Executive Officer
Dated May 10, 1996 /s/ KEVIN J. MCKEON
- -------------------------------------------- --------------------------------------------
Kevin J. McKeon
Executive Vice President, Chief Financial
Officer
and Treasurer
(Principal Financial Officer)
Dated May 10, 1996 /s/ BRIAN J. FELDMAN
- -------------------------------------------- --------------------------------------------
Brian J. Feldman
Vice President and Controller
(Chief Accounting Officer)
</TABLE>
17
<PAGE> 20
LOGO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 22,838
<SECURITIES> 0
<RECEIVABLES> 20,540
<ALLOWANCES> 0
<INVENTORY> 92,383
<CURRENT-ASSETS> 166,977
<PP&E> 227,584
<DEPRECIATION> 122,265
<TOTAL-ASSETS> 425,431
<CURRENT-LIABILITIES> 174,608
<BONDS> 123,027
0
0
<COMMON> 778
<OTHER-SE> 127,018
<TOTAL-LIABILITY-AND-EQUITY> 425,431
<SALES> 282,689
<TOTAL-REVENUES> 282,689
<CGS> 191,888
<TOTAL-COSTS> 191,888
<OTHER-EXPENSES> 85,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,081
<INCOME-PRETAX> 3,618
<INCOME-TAX> 1,375
<INCOME-CONTINUING> 2,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,243
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
