<PAGE> 1
-------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
March 31, 1998 0-25596
--------------------- -----------------------
SHOP AT HOME, INC.
--------------------
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1282758
--------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
5210 Schubert Road
P. O. Box 12600
Knoxville, Tennessee 37912
--------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (423) 688-0300
--------------
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
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock $.0025 par value 23,303,191
- ------------------------------ ----------------------
(Title of class) (Shares outstanding at
May 14, 1998)
<PAGE> 2
SHOP AT HOME, INC. AND SUBSIDIARIES
INDEX
THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------
PART I FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5-6
Notes to Condensed Consolidated Financial Statements 7-11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12-19
PART II OTHER INFORMATION 20-26
ITEM 1 - LEGAL PROCEEDINGS
ITEM 2 - CHANGES IN SECURITIES
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
</TABLE>
2
<PAGE> 3
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
---------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 26,702 $ 5,078
Accounts receivable 6,907 3,296
Inventories 5,162 3,262
Prepaid expenses 977
458
Deferred tax assets 1,351 1,342
--------- ---------
Total current assets 41,099 13,436
Notes receivable - related party, net of discount of $136,000 664 --
Property & equipment, net 10,832 4,434
FCC and NFL Licenses, net 84,820 13,423
Goodwill, net 2,588 1,990
Other assets 5,250 1,127
--------- ---------
Total assets $ 145,253 $ 34,410
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 19,241 $ 15,519
Current portion - capital leases and long term debt 163 2,451
Deferred revenue 302 108
--------- ---------
Total current liabilities 19,706 18,078
Long-term debt 75,285 7,522
Deferred income taxes 4,149 3,613
Redeemable Preferred Stock
$10 par value, 1,000,000 shares authorized,
137,943 shares issued and outstanding at
March 31, 1998 and June 30, 1997 1,393 1,393
Stockholders' equity:
Common stock - $.0025 par value,
30,000,000 shares authorized, 23,273,191 and
10,714,414 shares issued at March 31, 1998
and June 30, 1997, respectively 58 27
Additional paid in capital 48,964 10,067
Accumulated deficit (4,302) (6,290)
--------- ---------
Total liabilities and stockholders' equity $ 145,253 $ 34,410
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE> 4
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
1998 1997 1998 1997
----------- -------------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 26,163 $ 18,271 $ 70,457 $ 48,524
Cost of sales 15,622 10,732 40,866 28,878
-------- -------- ----------- -----------
Gross profit 10,541 7,539 29,591 19,646
Operating expenses 9,888 7,063 26,828 18,233
-------- -------- ----------- -----------
Operating income 653 476 2,763 1,413
Interest expense 286 209 741 597
Other income 1,044 62 1,214 129
-------- -------- ----------- -----------
Income before income taxes 1,411 329 3,236 945
Income tax expense (benefit) 536 (55) 1,238 (65)
-------- -------- ----------- -----------
Net income $ 875 $ 384 $ 1,998 $ 1,010
======== ======== =========== ===========
Basic earnings per share $ 0.07 $ 0.04 $ 0.17 $ 0.09
======== ======== =========== ===========
Diluted earnings per share $ 0.06 $ 0.03 $ 0.14 $ 0.08
======== ======== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 5
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
1998 1997
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 1,998 $ 1,010
Gain on sale of asset (900) --
Non-cash expenses included in net income
Depreciation and amortization 1,193 600
Deferred income taxes 869 (65)
Provision for bad debt 355 19
Changes in current and non-current items
Accounts receivable (4,257) (660)
Inventories (2,069) (36)
Prepaid expenses and other assets 183 (163)
Accounts payable and accrued expenses 3,380 5,048
Deferred revenue 194 (1,453)
--------- ---------
Net cash provided by operations 946 4,300
========= =========
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable - related party (800) --
Purchase of equipment (488) (1,176)
Purchase of assets (6,325) --
Purchase of licenses (71,500) (84)
Other assets (5,546) (1,100)
Proceeds from sale of asset 900 --
--------- ---------
Net cash used in investing activities (83,759) (2,360)
========= =========
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends -- (14)
Exercise of stock options and warrants 669 120
Common stock issued 40,250 --
Payment of stock issuance costs (2,963)
Repayments of debt (11,519) (626)
Additional long-term debt 78,000 --
--------- ---------
Net cash provided by (used in) financing
activities 104,437 (520)
========= =========
NET INCREASE IN CASH 21,624 1,420
Cash beginning of period 5,078 1,915
========= =========
Cash end of period $ 26,702 $ 3,335
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
SHOP AT HOME, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Stock issued for inventory and reduction
of accounts payable -- $ 57
========== ==========
Note payable issued for acquisition
of FCC license -- $ 1,400
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
SHOP AT HOME, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial information included herein is unaudited: however, such
information reflects all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of financial condition and results of operations of the interim
periods. The condensed consolidated balance sheet data for the fiscal year ended
June 30, 1997 was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
The accounting policies followed by the Company are set forth in the Company's
financial statements in the Shop at Home; Inc. and Subsidiaries Annual Report on
Form 10-K for the fiscal year ended June 30, 1997.
Certain amounts in the prior periods condensed consolidated financial statements
have been reclassified for comparative purposes to conform with the current year
presentation.
NOTE 2 - INVENTORY
The components of inventory at March 31, 1998 and June 30, 1997 are as follows:
<TABLE>
<CAPTION>
March 31, 1998 June 30, 1997
--------------- -------------
(Thousands of Dollars)
<S> <C> <C>
Work in process $ 213 $ 389
Finished goods 5,296 3,571
------- -------
5,509 3,960
Allowance (347) (698)
------- -------
Total $ 5,162 $ 3,262
======= =======
</TABLE>
NOTE 3 - LONG-TERM DEBT
As discussed in Note 7, the Company funded the acquisition of certain television
assets through the completion of a public offering of debt and equity (See Note
5). In March 1998, $75 million of 11% Senior Secured Notes due 2005 were issued.
Interest is payable semi-annually on April 1, and October 1.
In addition to the television station assets acquired, the proceeds from the
debt and stock offering were
7
<PAGE> 8
used to repay substantially all of the prior indebtedness of the Company. The
proceeds will also be used to upgrade the television station assets acquired, to
acquire and equip new Company facilities, to fund working capital needs and to
pay for fees and expenses of the transaction.
NOTE 4 - EQUITY
In March 1998, the Company received proceeds from a public offering of debt and
equity. The Company issued 11.5 million shares (including the underwriter's
over-allotment of 1.5 million shares) of $.0025 par value common stock at $3.50
per share (See Notes 4 & 7 for discussion of the use of proceeds). At the Annual
Meeting held March 6, 1998, shareholders approved the authorization of
30,000,000 shares of non-voting common stock.
NOTE 5 - NET INCOME PER SHARE
Basic income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding. Diluted income per share
was computed by dividing the net income by the weighted average number of shares
of common stock and assumed conversions of dilutive securities and potential
common shares outstanding during the respective periods. Dilutive securities are
represented by options, warrants, redeemable preferred stock and convertible
debt outstanding and have been included in the computation.
8
<PAGE> 9
The following table sets forth for the periods indicated the calculation of net
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
-------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Numerator:
Net income $ 875 $ 384 $ 1,998 $ 1,010
Preferred stock dividends (4) (4) (15) (15)
-------- -------- -------- --------
Numerator for basic earnings per share-
income available to common stockholders 871 380 1,983 995
Effect of dilutive securities:
Preferred stock dividends 4 4 15 15
Interest on convertible debt -- 42 50 134
Numerator for diluted earnings per share-
income available to common
stockholders after assumed conversions
-------- -------- -------- --------
$ 875 $ 426 $ 2,048 $ 1,144
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 12,227 10,700 11,593 10,631
-------- -------- -------- --------
Effect of dilutive securities:
Employee stock options 326 406 501 505
Non-employee stock-acquisition 233 93 242 246
Warrants 2,100 1,901 2,111 2,258
Convertible preferred stock 138 138 138 138
Convertible debt -- 520 158 552
-------- -------- -------- --------
Dilutive potential common shares 2,797 3,058 3,150 3,699
-------- -------- --------- --------
Denominator for diluted earnings per share-
adjusted weighted-average shares and
assumed conversions 15,024 13,758 14,743 14,330
======== ======== ======== ========
Basic earnings per share $ .07 $ .04 $ .17 $ .09
======== ======== ======== ========
Diluted earnings per share $ .06 $ .03 $ .14 $ .08
======== ======== ======== ========
</TABLE>
NOTE 6 - MANAGEMENT STOCK OPTIONS OUTSTANDING
At March 31, 1998, options to purchase up to 1,791,500 shares of common stock,
including 75,000 shares issued to outside directors, at prices ranging from
$1.00 to $3.75 per share were outstanding to employees and members of
management. Options vest annually over a period of up to five years. The options
expire the earlier of 5 years from date of vesting or 30 days after termination
of employment.
9
<PAGE> 10
NOTE 7 - THE ACQUISITIONS
On March 27, 1998, SAH Acquisition Corporation II ("SAH II"), a Tennessee
corporation and a wholly-owned subsidiary of the Company, acquired the assets
and broadcast licenses of Television Station KCNS, San Francisco, California;
WRAY, Wilson, North Carolina (Raleigh market); and WOAC, Canton, Ohio (Cleveland
market). The Stations were purchased pursuant to an Asset Purchase Agreement,
dated September 23, 1997, by and between Global Broadcasting Systems, Inc. and
its affiliate ("Global"), and SAH II, as purchaser.
Global are subject to a proceeding (the "Bankruptcy Proceeding") under Chapter
11 of Title 11 of the United States Code in the United States Bankruptcy Court
for the Southern District of New York (as debtors in the Bankruptcy Proceeding,
Global Broadcasting Systems, Inc. and its affiliate are referred to as
"Global"). Under the Asset Purchase Agreement, SAH II agreed to acquire two
broadcast television stations owned by Global, being KCNS and WRAY, and SAH II
also agreed to assume the legal right and obligation of Global under an
executory purchase contract (the "Executory Contract") to acquire WOAC. The
Company guaranteed the performance of SAH II under the Asset Purchase Agreement.
An order of the Bankruptcy Court approved the Asset Purchase Agreement on
November 20, 1997. The total purchase price payable by SAH II to Global in
connection with the acquisition was $52,350,000 (the "Global Purchase Price"),
of which the Company paid a total of $4,863,750 into escrow account held by the
trustee appointed to manage Global by the Bankruptcy Court and was applied to
the Global Purchase Price at the closing. The balance of $47,486,250 was paid by
the Company to Global at the closing of the acquisition.
In connection with the assignment of the Executory Contract, SAH II purchased
WOAC for a total purchase price of $23,500,000. SAH II received a credit for an
escrow deposit previously paid by Global to the sellers of WOAC in the amount of
$2,350,000 and made a cash payment of $21,150,000 at the closing of the purchase
of WOAC.
As a part of the transaction, Global also agreed to assign an executory contract
to SAH II giving it the right to acquire television station WPMC in the
Knoxville, Tennessee market. The Company subsequently sold the right to acquire
WPMC to an unaffiliated entity resulting in a one time gain of $900,000, which
is included in Other Income.
The obligations of the parties under the Asset Purchase Agreement and the
Executory Contract were subject to receipt of the approval of the Federal
Communications Commission ("FCC") of the Applications for Consent to Assignment
of Broadcast Station Licenses (collectively, the "Applications") filed with
respect to the broadcast licenses to be transferred to SAH II. The FCC published
public notice of its approval of the Applications for KCNS and WRAY on December
15, 1997, and such approval became a final order on January 25, 1998. The FCC
published public notice of its approval of the Application for WOAC on January
29, 1998, and such approval became a final order on March 10, 1998.
Funds for the acquisition of the stations were obtained from the proceeds of the
sale by the Company of 11,500,000 shares (including the underwriter's
over-allotment of 1.5 million shares) of its Common Stock, par value $.0025 per
share, at a price of $3.50 per share, for total gross proceeds of
10
<PAGE> 11
$40,250,000; and the issuance of the Company of its 11% Senior Secured Notes due
2005, for total gross proceeds of $75,000,000. These offerings were made
pursuant to the Company's Registration Statement on Form S-1 (the "Registration
Statement"), filed on January 14, 1998 (Registration No. 333-44251) as amended
by Amendment No.1 filed on March 5, 1998, and Amendment No. 2 on March 23, 1998.
The Registration Statement was declared effective by the SEC on March 23, 1998,
and the closing of the issuance of the above described shares and notes occurred
on March 27, 1998.
The acquisition of the stations was accounted for by the Company as an
acquisition of assets and not the acquisition of a "business," as defined in SEC
Rule 210.11-01(d). The Company reached this conclusion because, with the
exception of a de minimis period of time, none of the acquired stations have
been historically operated as a broadcast outlet for home shopping programming
of Global or the predecessor in title, and the Company concluded that there was
no continuity of revenues from those stations which relevant historical
information could be derived.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following analysis of the financial condition and results of
operations of the Company is qualified in its entirety by the more detailed
information and financial data, including the Consolidated Financial Statements
and Notes thereto included elsewhere herein.
GENERAL
The Company, founded in 1986, is a nationally televised home shopping
retailer offering high-quality merchandise, at prices below those generally
available from traditional retailers and catalogs, as well as unique merchandise
and memorabilia that may be unavailable or have limited availability elsewhere.
The Company derives revenues primarily from the sale of merchandise marketed
through its home shopping programming carried by television stations owned by
the Company, by television stations with whom the Company has entered into
agreements to purchase broadcast time, by the carriage of those television
broadcasts on cable television systems under the "must-carry" or retransmission
consent provisions of federal law, by the direct carriage on cable television
systems under agreements with cable system operators and by the direct reception
of the Company satellite transmission by individuals which own satellite
downlink equipment. Beginning in 1997, another source of revenues has been
provided by the Company's manufacturing subsidiary, Collector's Edge of
Tennessee, Inc. ("Collector's Edge"), a wholly-owned subsidiary, which is
engaged in the business of manufacturing and sales of sports trading cards under
license with National Football League Properties, Inc., and National Football
Players, Incorporated. Collector's Edge was organized in February, 1997 and
acquired the assets of an existing company that had been engaged in the same
business for approximately four years. The Company also receives some revenues
from the sale of broadcast time on its owned television stations for the
broadcast of infomercials.
As of March 31, 1998, the Company's programming was viewable during all
or a part of each day by approximately 61.1 million cable households, of which
approximately 4.5 million cable households receive the programming on
essentially a full-time basis (20 or more hours per day) and the remaining 56.6
million cable households receive it on a part-time basis. In order to measure
its performance in a manner that reflects both the growth of the Company and the
nature of its access to part-time cable households, the Company utilizes a cable
household full-time equivalent method to measure the reach of the Company's
programming which accounts for both the quantity and quality of time available
to the Company. To derive this full-time equivalent cable household base ("FTE
Cable Household"), the Company has developed a methodology to assign a relative
value of each daypart to the Company's overall sales, which is based on sales in
markets where the programming is carried on a full-time basis. While the
weighting of each daypart has a subjective element, the Company believes that
changes in the number of FTE Cable Households provide a measure of the growth of
the Company and applies this methodology to all affiliates. Accordingly, the
Company utilizes the revenue per average FTE Cable Household as a measure of
pricing new affiliate contracts and estimating their anticipated revenue
performance.
Principal elements in the Company's cost structure are (i) cost of
goods sold, (ii) transponder and cable costs, and (iii) salaries and wages. The
Company's costs of goods sold have been generally
12
<PAGE> 13
trending downward in recent periods resulting in a corresponding increase in
gross margins. This trend is primarily a result of the Company's strategy to
have its product mix include merchandise with higher product margins, and also
reflects the Company's success in negotiating more favorable prices from its
vendors. Transponder and cable costs include expenses related to carriage under
affiliation and transponder agreements. Carriage costs have increased on an
absolute basis in recent years. The Company's increased carriage costs are
primarily attributable to the initiation of the Company's programming in new
markets. FTE Cable Households have grown from 6.7 million at March 31, 1997, to
12.7 million at March 31, 1998. The Company expects this trend will continue as
the Company enters new markets.
OVERVIEW OF RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain items included in the Company's Condensed
Consolidated Statements of Operations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 59.7 58.7 58.0 59.5
Gross profit 40.3 41.3 42.0 40.5
Salaries & wages 7.2 7.5 7.3 8.0
Transponder & cable 17.1 20.3 17.8 18.0
Other general operating and
administrative expense 11.9 9.9 11.3 10.4
Depreciation & amortization 1.6 1.0 1.7 1.2
Total operating expenses 37.8 38.7 38.1 37.6
Interest expense 1.1 1.1 1.1 1.2
Other income 4.0 0.3 1.7 0.3
Net income before income taxes 5.4 1.8 4.5 2.0
Income tax expense (benefit) 2.0 (0.3) 1.7 (0.1)
Net income 3.4 2.1 2.8 2.1
</TABLE>
13
<PAGE> 14
THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997
REVENUES. The Company's revenues for the quarter ended March 31, 1998,
were $26.2 million, an increase of 43.2% from revenues of $18.3 million for the
same quarter in 1997. The core business of the shopping network accounted for
96% of revenues on an average of 11.7 million FTE Cable Households in the
quarter ended March 31, 1998 compared to an average of 6.7 million FTE Cable
Households in the 1997 quarter, representing a 71.9% increase in FTEs. The
remaining 4% of the 1998 increase in revenues resulted from the inclusion of
approximately $1.1 million in sales from Collector's Edge, which was acquired in
February 1997, and therefore its operations were not included in the 1997
results.
Also included in net sales was infomercial income, generated by the Company's
television stations in Boston and Houston, of $294,000 compared to $289,000 in
the comparable 1997 quarter representing a 1.7% increase. The increase
represents a stronger effort to sell time during hours where demand for home
shopping products is weaker. Also, Shop at Home sold approximately $64,000 of
broadcast time to certain vendors during the 1998 period.
GROSS PROFITS. The gross profit margin for the quarter ended March 31,
1998 decreased to 40.3% from 41.3% in the comparable quarter of the prior year.
The decrease is primarily attributable to the increased percentage of
electronics sales in 1998. Other product lines enjoy gross profit percentages
which are in line with the overall Company average.
SALARIES AND WAGES. Salaries and wages for the quarter ended March 31,
1998, were $1.9 million, an increase of 36.5% compared to the comparable 1997
quarter. Salaries and wages as a percent of sales, however, decreased to 7.2%
from 7.5%. This decrease is attributable to the Company's investment in prior
years in management and operating personnel to build an infrastructure to
support growth and expansion. Salaries and wages expressed as a percentage of
sales have declined since 1995 and have been outpaced by the rapid increase in
sales.
TRANSPONDER AND CABLE. Transponder and cable costs for the quarter
ended March 31, 1998 were $4.5 million, an increase of $744,000 or 20% compared
to the comparable 1997 quarter. Carriage costs decreased as a percentage of
sales from 20.3% to 17.1%. Carriage costs as a percentage of sales initially
tend to be higher in periods during which the Company enters a new market. Due
to the fixed nature of this expense, however, its relationship usually decreases
as revenues develop and the audience is cultivated. The Company's ultimate goal
is for carriage costs to stabilize in mature markets at approximately 15% of
revenues. As a market matures, if carriage costs do not move down toward the
target, management generally attempts to renegotiate the carriage contract.
OTHER GENERAL OPERATING AND ADMINISTRATIVE EXPENSES. Other general,
operating and administrative expenses for the quarter ended March 31, 1998 were
$3.1 million, an increase of $1.3 million or 76% compared to the comparable 1997
quarter. This constituted an increase as a percentage of sales from 9.9% in 1997
to 11.9% in 1998; and is attributable to a number of factors, including legal
and other expenses.
14
<PAGE> 15
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
quarter ended March 31, 1998 were $413,000, an increase of $229,000 or 123.7%
compared to the comparable 1997 quarter and is attributable to the acquisition
of additional fixed assets and the amortization of the licenses by Collector's
Edge (which was acquired in February, 1997, and therefore, not reflected in the
prior year).
INTEREST. Interest expense for the quarter ended March 31, 1998 was
$286,000, an increase of $77,000 or 36.9% compared to the comparable 1997
quarter. This increase was the result of $32,000 of interest in connection with
$1.6 million of debt which did not exist in the prior year for Collector's Edge
and $3 million of additional bank debt incurred in mid-November in connection
with the deposit on the purchase of the Global stations. This debt was retired
at the end of March 1998 in connection with the Global acquisitions.
OTHER INCOME. Other income, excluding a $900,000 gain on the sale of
the right-to-acquire a television station, increased to $144,000 for the quarter
ended March 31, 1998, from $61,000 for the same period in 1997, representing a
134% increase. This was due to income from the promotion of a phone company
credit card, sales of the Company's mailing lists and miscellaneous interest
income.
INCOME TAX EXPENSE. Income tax expense for the quarter ended March 31,
1998 was $536,000, an increase of $591,000 compared to the income tax benefit in
the comparable 1997 quarter. For the quarter ended March 31, 1997, income tax
expense was lower due to the reversal of a portion of the valuation allowance on
deferred tax assets.
NET INCOME. As a result of the above revenues and expenses, the Company
generated net income of $875,000 for the quarter ended March 31, 1998, compared
to net income of $384,000 for the comparable 1997 quarter, an increase of 128%.
EBITDA. In the third quarter of 1998, EBITDA increased 68% to $1.21
million (excluding a $900,000 gain on the sale of the right-to-acquire a
television station) from $722,000 in the same period in 1997.
15
<PAGE> 16
NINE MONTHS ENDED MARCH 31, 1997 VS. NINE MONTHS ENDED MARCH 31, 1998.
REVENUES. The Company's revenues for the nine months ended March 31,
1998, were $70.5 million, an increase of 45.2% from revenues of $48.5 million
for the nine months ended March 31, 1997. The core business of the shopping
network accounted for 94% of revenues on an average of 10.4 million FTE Cable
Households in the nine months ended March 31, 1998 compared to an average of 6.1
million FTE Cable Households in the same period in 1997. The remaining 6% of the
1998 increase in net sales resulted from approximately $4.5 million in sales
from Collector's Edge, which was acquired in February 1997 and, therefore, its
operations were not included in the 1997 results.
Also included in net sales was infomercial income generated by the Company's
television stations in Boston and Houston of $922,000 compared to $746,000 in
the comparable 1997 nine month period, representing a 23.6% increase. In
addition, a new source of revenue in the 1998 period was the sale of
approximately $373,000 of broadcast time to certain vendors which did not exist
in 1997.
GROSS PROFITS. As a result of management's continuing focus on
improving margins, the gross profit margin for the nine months ended March 31,
1998, was 42% compared to 40.5% for the same period in 1997. This increase
represents a continuation of increasing gross margins and has been accomplished
through improved buying power as the Company and an emphasis on product lines
with higher gross margins such as sports memorabilia and ceremonial cutlery.
SALARIES AND WAGES. Salaries and wages for the nine months ended March
31, 1998, were $5.2 million, an increase of 32.5% compared to the nine months
ended March 31, 1997. Salaries and wages as a percent of sales, however,
decreased to 7.3% from 8%. This decrease is attributable to the Company's
investment in prior years in management and operating personnel to build an
infrastructure to support growth and expansion. Salaries and wages expressed as
a percentage of sales have declined since 1995.
TRANSPONDER AND CABLE. Transponder and cable costs for the nine months
ended March 31, 1998 were $12.5 million, an increase of $3.8 million or 43.4%
compared to the nine months ended March 31, 1997. Carriage costs decreased as a
percentage of sales from 18% to 17.8%. Carriage costs as a percentage of sales
initially tend to be higher in periods during which the Company adds a
significant number of new households. Due to the fixed nature of this expense,
however, its relationship usually decreases as revenues develop and the audience
matures. The Company's ultimate goal is for carriage costs to stabilize in
mature markets at approximately 15% of revenues. As a market matures, if
carriage costs do not move down toward the target, management generally attempts
to renegotiate the carriage contract.
OTHER GENERAL OPERATING AND ADMINISTRATIVE EXPENSES. Other general,
operating and administrative expenses for the nine months ended March 31, 1998
were $7.9 million, an increase of $2.9 million or 58.8% compared to the nine
months ended March 31, 1997. This constituted an increase as a percentage of
sales from 10.4% in 1997 to 11.3% in 1998 and is attributable to a number of
factors, including legal and other expenses.
16
<PAGE> 17
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
nine months ended March 31, 1998, was $1.2 million, an increase of $593,000 or
98.8% compared to the nine months ended March 31, 1997, and is attributable to
the acquisition of additional fixed assets and the amortization of the licenses
by Collector's Edge (which was not acquired until February, 1997, and therefore
not included in the prior year).
INTEREST. Interest expense for the nine months ended March 31, 1998 was
$741,000, an increase of $144,000 or 24% compared to the nine months ended March
31, 1997. The increase was the result of borrowing $1.6 million by Collector's
Edge which was not a consolidated subsidiary in the prior year, and $3 million
of additional bank debt incurred by the Company in connection with the deposit
on the Global stations. This debt was retired in March 1998 in connection with
the Global acquisitions.
OTHER INCOME. Other income, excluding a $900,000 one time gain on the
sale of the right-to-acquire a television station, increased to $314,000 for the
nine months ended March 31, 1998 from $129,000 for the same period in 1997,
representing a 143% increase. This increase was due to income from the promotion
of a phone company credit card, sales of the Company's mailing lists and
miscellaneous interest income.
INCOME TAX (BENEFIT) EXPENSE. Income tax expense for the nine months
ended March 31, 1998 was $1.2 million; an increase of $1.3 million compared to
the income tax benefit of $65,000 for the nine months ended March 31, 1997. For
the nine month period ended March 31, 1997, income tax expense was lower due to
the reversal of a portion of the valuation allowance on deferred tax assets. For
the nine months ended March 31, 1998, tax expense was higher due to the impact
of state taxes.
NET INCOME. As a result of the above revenues and expenses, the Company
generated net income of $2 million for the nine months ended March 31, 1998,
compared to net income of $1 million for the nine months ended March 31, 1997,
an increase of 97.8%.
EBITDA. EBITDA increased 43% to $4.3 million (excluding a $900,000 gain
on the sale of the right to acquire a television station to an unrelated third
party) in the quarter ending March 31, 1998 as compared to $3 million in the
same period in 1997.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The Company's historical capital sources have included an initial
public offering of Common Stock, proceeds from the private placement of Common
Stock, proceeds from the exercise of warrants, bank lines of credit, funds from
operations and long-term debt incurred in connection with acquisitions.
In October 1997, a note payable of the Company in the amount of
$1,333,000 was converted into 444,177 shares of Common Stock at the conversion
price of $3.00 per share as provided in the original 1995 note.
As of March 31, 1998, the Company had total current assets of $41.1
million and total current liabilities of $19.7 million for working capital of
$21.4 million. The Company's positive working capital position is primarily
attributable to the infusion of excess cash from the public offering which will
be used to fund capital expenditures and general working capital requirements.
(See below)
As discussed in Note 7 to the Condensed Consolidated Financial
Statements, the Company has acquired two broadcast television stations, KCNS
located in San Francisco, California, and WRAY located in the Raleigh-Durham,
North Carolina market. The Company also acquired WOAC in the Cleveland, Ohio,
market and assumed the right to acquire WPMC in the Knoxville, Tennessee,
market. The Company sold the right to acquire WPMC to an unaffiliated entity for
a one time gain of $900,000.
The total purchase price paid in connection with the acquisitions was
$73.5 million. To fund the Acquisition, the Company completed a public offering
in March, 1998, which raised gross proceeds of $75 million in debt and $40.3
million in equity.
In addition to the expenditures necessary to close the Acquisition, the
Company expects to incur capital expenditures of approximately $18.9 million
during the 1998 fiscal year. These expenditures are expected to include (i) $4
million to upgrade the equipment at the stations acquired in the Acquisition in
order to increase the power and quality of the broadcast signals of the
stations, (ii) $6.4 million to acquire and renovate the Nashville facilities;
(iii) $4 million to equip new studio facilities for the Company to be located in
Nashville, Tennessee, (iv) $3 million for build out and tenant improvements at
the Company's new facility and (v) $1.5 million for normal recurring capital
expenditures for the Company's currently owned facilities. These expenditures
will be funded from the proceeds of the stock and notes offering.
The Company expects that the notes offering and the Acquisition and the
resulting discontinuation of the recently commenced time brokerage agreements
with KCNS, WRAY and WOAC will impact the results of operations as follows: (i)
costs of carriage will decrease due to the termination of the time brokerage
agreements, (ii) costs related to station operations will increase, (iii)
depreciation and amortization will significantly increase as a result of the
Acquisition, (iv) interest expense will increase as a result of the notes
offering, (v) infomercial income may increase, and (vi) net revenues will
increase as a result of additional households resulting from the newly acquired
stations. Notwithstanding the increase in interest expense resulting from the
notes offering, the
18
<PAGE> 19
Company believes that funds necessary to meet the Company's capital requirements
for the foreseeable future will be available from the proceeds of the stock and
notes offering, funds from operations (after giving effect of the items listed
in (i) through (vi) above) and additional financings, if necessary or desirable.
The indenture associated with the notes offering will permit the Company,
subject to satisfaction of certain conditions, to incur indebtedness which may
be used for future capital needs of the Company, including the acquisition of
additional broadcast properties subject to satisfaction of certain conditions.
Upon the acquisition of WMFP by a subsidiary of the Company in February
1995, the Company concluded that it was not legally obligated to collect and
remit sales and use tax on sales to residents of Massachusetts. The Company
requested a ruling from the Massachusetts state taxing authority that such taxes
do not apply to the Company. The ruling request is currently pending and no
decision has been made by the taxing authority. As a defensive strategy, the
Company collects sales and use tax on all sales made into Massachusetts. The
Company intends to pay these collected amounts to the taxing authority if a
determination is made that taxes are due or to refund these amounts to its
customers if not due as taxes. Through March 31, 1998, the Company has collected
approximately $935,000 with respect to Massachusetts sales tax amounts.
19
<PAGE> 20
SHOP AT HOME, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
ITEM 2: CHANGES IN SECURITIES
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Exhibit
No. Description
------- -----------
3 (i).3 Articles of Amendment to the Charter
27 Financial Data Schedule, filed as part of the Form 10-Q
(a) Reports on Form 8-K - No reports on Form 8-K were filed during the
period covered by this report.
20
<PAGE> 21
ITEM 1: LEGAL PROCEEDINGS
The Company is occasionally a party to litigation arising out of the conduct of
its business.
In May 1997, Signature Financial/Marketing, Inc. ("Signature") filed a Complaint
for Declaratory Judgment in the U.S. District Court for the Northern District of
Illinois seeking a judgment of non-violation of the Lanham Act (the federal law
governing trademarks) with respect to Signature's use of the designation "SHOP
AT HOME" in connection with the promotion and sale of goods. The case was
precipitated by letters from the Company to Signature asserting that the use of
the "SHOP AT HOME" mark by Signature in connection with catalogue sales and
sales on the internet infringed on the Company's right to that designation and
created confusion in the marketplace. In response to the filing of the
declaratory judgment action, the Company has filed an answer and counterclaim
alleging that the use of the name "SHOP AT HOME" by Signature infringes on the
trademark of the Company and requesting compensatory and injunctive relief.
Signature has filed an amendment to its original complaint alleging that the use
of the name by the Company infringes on the trademark of Signature and
requesting compensatory and injunctive relief. Counsel to the Company has
indicated that based upon its initial review of the matter, the likelihood of
Signature preventing the Company from using the designation of "SHOP AT HOME"
for its television programming or of Signature recovering damages for such use,
is remote. The parties are participating in mediation to determine whether a
settlement can be reached.
In July 1997, NBA Properties, Inc., the licensing affiliate of the National
Basketball Association, filed a complaint in the U.S. District Court for the
Southern District of Florida, alleging that a number of defendants, including
the Company, have committed trademark infringement and counterfeiting, false
designation of origin, dilution and unfair competition, in connection with
alleging fraudulent manufacture, promotion, distribution and sale of unlicensed
basketball trading cards depicting the NBA's Properties trademarks. NBA
Properties is seeking injunctive relief, an accounting of profits, compensatory
damages, treble damages, punitive damages, statutory damages, interest, costs
and fees in the amount of $1,000,000 from each defendant. According to the
complaint filed by NBA Properties, one of the named defendants that previously
had a licensing agreement with NBA Properties caused trading cards to be printed
so as to appear to have been issued during the period of time the licensing
agreement was effective, but which in fact were issued with false dates and
thereby infringed on the NBA's marks. NBA Properties alleges that the Company
acquired and sold some of these false cards. The cards sold by the Company were
not acquired from the named defendant who allegedly created the false cards, but
from the Company's regular suppliers of sports cards, and the Company had no
knowledge that any of the cards were false or infringed upon any trademarks.
At the present time, the Company has agreed to a temporary injunction with the
plaintiff whereby the Company will not sell any additional cards of that series
of trading cards pending the resolution of the case. If the trading cards were
in fact counterfeit, it is probable that the Company can assert a successful
cross-claim against other defendants who produced the cards or who sold them to
the Company. The Company may be able to recover a portion or all of any loss
from an insurance carrier
21
<PAGE> 22
for the Company, and the Company has notified its carriers of this litigation.
One carrier has confirmed coverage in an amount of up to $2,000,000 and is
currently paying the costs of counsel.
In July 1996, one of the Company's liability insurance carriers filed a lawsuit
against the Company in the Chancery Court of Knox County, Tennessee, seeking a
declaratory action that the Company does not have coverage with the insurance
company with respect to certain costs and expenses incurred by the Company in a
lawsuit filed against the Company by Upper Deck Authenticated, Ltd. ("Upper
Deck"), in the State of California. The Upper Deck suit has been settled and
dismissed. The current litigation involves the liability of the insurance
company to pay a portion of the legal expenses and costs incurred by the Company
in the Upper Deck suit. The insurance carrier alleges that the Company failed to
properly disclose the existence of the litigation to the carrier and violated
the terms of the insurance policy by failing to give timely notice of the
existence of a claim and that the claims are not within the coverage extended by
the insurance policy. The amount at issue with this carrier is estimated by the
Company to be less than $150,000. Unless the Company can obtain a satisfactory
settlement, the Company plans to vigorously defend the action at trial and on
appeal, if necessary.
ITEM 2: CHANGES IN SECURITIES
(a) At the annual meeting of stockholders of the Company held on March 6, 1998,
the stockholders approved an amendment to the Charter of the Company authorizing
the issuance of 30,000,000 shares of Non-Voting Common Stock, par value $.0025.
The amendment of the Charter became effective on April 8, 1998, upon filing of
articles of amendment with the office of the Secretary of State of Tennessee. A
copy of the amendment is included herewith as Exhibit 3(I).3.
Prior to the amendment to the Charter described above, the Charter authorized
the issuance of 30,000,000 shares of Common Stock, par value $.0025 and
1,000,000 shares of Preferred Stock, $10.00, which included specific
authorization to issue 140,000 shares of Series A Common Stock. Holders of the
Non-Voting Common Stock have the same preferences, limitations and relative
rights as holders of the Common Stock, except that holders of Non-Voting Common
Stock are not entitled to vote on any matter unless expressly required by
applicable law. Accordingly, holders of Non-Voting Common Stock are entitled to
receive dividends when and if declared by the Board of Directors. In the event
of a dissolution of the Company, the holders of Non-Voting Common Stock are
entitled to be paid out of the net assets of the Company, after payment to the
holders of outstanding Preferred Stock of any amount to which such holders are
entitled, the balance of the assets according to their respective rights and on
a parity with the holders of Common Stock according to the number of shares
held. Holders of Non-Voting Common Stock are not entitled to redemption or
conversion rights, or to preemptive rights.
As of this date, no shares of Non-Voting Common stock have been issued by the
Board of Directors.
(b) On March 27, 1998, the Company issued its 11% Senior Secured Notes Due 2005
in the aggregate principal amount of $75,000,000 (the "Notes"). The Notes were
issued pursuant to a Registration Statement on Form S-1 filed with the
Securities and Exchange Commission, which was made effective by the SEC on March
23, 1998 (File No. 333-44251).
The Notes were issued under an Indenture dated March 27, 1998 (the "Indenture"),
among the
22
<PAGE> 23
Company, certain of its subsidiaries, and PNC Bank, National Association, as
trustee. The terms of the Indenture include provisions that restrict the ability
of the Company to pay dividends on its Common Stock. Generally, the Company has
agreed, so long as the Notes are outstanding, that it will not declare or pay
any dividend on, or make any distribution to holders of, any shares of its
Common Stock (including any payment to the stockholders of the Company in
connection with a merger or consolidation involving the Company), other than
dividends or distribution payable solely in Qualified Equity Interests.
Qualified Equity Interests include any capital stock of the Company (and
warrants, options or other rights to acquire such stock), other than certain
capital stock which is mandatorily redeemable, redeemable at the option of the
holder, or is convertible into debt securities.
The Indenture also generally provides that, during the term of the Notes, the
Company will not purchase, redeem or otherwise acquire any shares of its Common
Stock. The Company may make such repurchases or redemptions in exchange for, or
out of the net proceeds from the sale of, Qualified Equity Interests.
The above brief description of the general effect of the issuance of the Notes
upon the rights of the holders of the Company's Common Stock is qualified in its
entirety by reference to the provisions of the Indenture, filed as Exhibit 4.6
to the Company's Amendment No. 2 to its Registration Statement on Form S-1 with
the Commission on March 21, 1998, and incorporated herein by reference.
23
<PAGE> 24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on March 6, 1998. At the
meeting, the stockholders voted upon the following matters:
1. The election of all of the members of the Board of Directors of the Company.
2. The approval of an amendment to the Charter of the Company authorizing a
total of 30,000,000 shares of a new class of capital stock of the Company,
designated as Non-Voting Common Stock, par value $.0025.
3. The approval of the selection Coopers & Lybrand L.L.P., as the Company's
independent accountants for the 1998 fiscal year.
Broker non-votes at the meeting totaled 60,500. Set forth below in tabular form
are the votes cast for, against or withheld (abstain) as to each of the above
matters:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
VOTES
- -------------------------------------------------------------------------------------
MATTER FOR AGAINST WITHHELD
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------------
J.D. Clinton 6,030,435 30,100 2,440
- --------------------------------------------------------------------------------------
Kent E. Lillie 6,030,535 30,000 2,440
- --------------------------------------------------------------------------------------
W. Paul Cowell 6,030,135 30,400 2,440
- --------------------------------------------------------------------------------------
A.E. Jolley 6,030,535 30,000 2,440
- --------------------------------------------------------------------------------------
Joseph I. Overholt 6,030,535 30,000 2,440
- --------------------------------------------------------------------------------------
Frank A. Woods 6,030,535 30,000 2,440
- --------------------------------------------------------------------------------------
J. Daniel Sullivan 6,030,535 30,000 2,440
- --------------------------------------------------------------------------------------
Patricia E. Mitchell 6,030,535 30,000 2,440
- --------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------------
2. AMENDMENT TO CHARTER TO AUTHORIZE
NON-VOTING COMMON STOCK 5,548,283 314,640 139,552
- --------------------------------------------------------------------------------------
3. TO APPROVE COOPERS & LYBRAND L.L.P. 6,032,715 29,600 660
- --------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
ITEM 6: EXHIBITS AND REPORTS
EXHIBIT 3(I).3
ARTICLES OF AMENDMENT TO THE CHARTER
OF
SHOP AT HOME, INC.
Pursuant to the provisions of Section 48-20-106 of the Tennessee
Business Corporation Act, the undersigned Corporation adopts the following
amendments to its Charter:
1. The name of the Corporation is:
SHOP AT HOME, INC.
2. Paragraph 6 of the Charter is amended as follows:
(a) Subparagraph 6.1 is amended to read as follows:
6.1 Capital Stock
The aggregate number and designation of the classes of shares of
capital stock that the Corporation shall have authority to issue are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
CLASS AUTHORIZED PAR VALUE
----- ---------- ---------
<S> <C> <C>
Common Stock 30,000,000 $.0025
Non-Voting Common
Stock 30,000,000 $.0025
Preferred Stock 1,000,000 $10.00
</TABLE>
(b) By adding a new subparagraph 6.2.2 to read as follows:
6.2.2 Non-Voting Common Stock
The Board of Directors is authorized to issue Non-Voting
Common Stock from time to time. The holders of Non-Voting Common Stock
are entitled to receive dividends, when, as and if declared by the
Board of Directors of the Corporation out of funds legally available
25
<PAGE> 26
therefore. The holders of outstanding Common Stock shall not be
entitled to vote on any matter unless expressly required by applicable
law. In the event of the voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, the
holders of outstanding Non-Voting Common Stock shall be entitled to be
paid out of the net assets of the Corporation, after payment to the
holders of the outstanding Preferred Stock of the amount to which they
are entitled, the balance of such assets according to their respective
rights and on a parity with the Common Stock according to the number of
shares held. Holders of shares of Non-Voting Common Stock are not
entitled to redemption or conversion rights, or preemptive rights with
respect to any shares or other securities of the Corporation which may
be issued. In all respects, except voting rights, holders of Non-Voting
Common stock shall have the same preferences, limitations and relative
rights as the holders of Common Stock.
3. The amendments contained in these Articles of Amendment were duly adopted
by a vote of the Corporation's shareholders at a duly called and convened
meeting held on March 6, 1998.
4. These Articles of Amendment shall be effective upon filing with the Office
of the Secretary of State of the State of Tennessee.
This the 7th day of April, 1998.
SHOP AT HOME, INC.
By: /s/ Kent E. Lillie
--------------------------------
Kent E. Lillie, President
ATTEST:
/S/ George J. Phillips
- --------------------------------
George J. Phillips
This Instrument Prepared By:
WYATT, TARRANT & COMBS
1500 Nashville City Center
Nashville, Tennessee 37219
26
<PAGE> 27
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.
/S/ Kent E. Lillie
- ----------------------------------------------
Kent E. Lillie, President
Date: 5/14/98
----------------------------------------
/S/ James Bauchiero
- ----------------------------------------------
James Bauchiero, Chief Financial Officer
Date: 5/14/98
----------------------------------------
27
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 26,702
<SECURITIES> 0
<RECEIVABLES> 7,124
<ALLOWANCES> (217)
<INVENTORY> 5,162
<CURRENT-ASSETS> 41,099
<PP&E> 13,261
<DEPRECIATION> (2,429)
<TOTAL-ASSETS> 145,253
<CURRENT-LIABILITIES> 19,706
<BONDS> 75,285
1,393
0
<COMMON> 58
<OTHER-SE> 48,964
<TOTAL-LIABILITY-AND-EQUITY> 145,253
<SALES> 69,226
<TOTAL-REVENUES> 70,457
<CGS> 40,866
<TOTAL-COSTS> 26,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 217
<INTEREST-EXPENSE> 741
<INCOME-PRETAX> 3,236
<INCOME-TAX> 1,238
<INCOME-CONTINUING> 1,998
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,998
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.14
</TABLE>
