UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended November 3, 2007
OR
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o |
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-20243
VALUEVISION MEDIA, INC.
(Exact name of registrant as specified in its charter)
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|
Minnesota
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41-1673770 |
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|
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
6740 Shady Oak Road, Eden Prairie, MN 55344
(Address of principal executive offices)
952-943-6000
(Registrants 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 þ NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer.
Large Accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES o NO þ
As of December 7, 2007, there were 35,930,578 shares of the registrants common stock, $.01 par
value per share, outstanding.
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
November 3, 2007
2
PART I Financial Information
ITEM 1. Financial Statements
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
November 3, |
|
|
February 3, |
|
|
|
2007 |
|
|
2007 |
|
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|
(Unaudited) |
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|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
20,755 |
|
|
$ |
41,496 |
|
Short-term investments |
|
|
82,039 |
|
|
|
29,798 |
|
Accounts receivable, net |
|
|
105,344 |
|
|
|
117,169 |
|
Inventories |
|
|
80,914 |
|
|
|
66,622 |
|
Prepaid expenses and other |
|
|
5,009 |
|
|
|
5,360 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
294,061 |
|
|
|
260,445 |
|
Property & equipment, net |
|
|
36,768 |
|
|
|
40,107 |
|
FCC broadcasting license |
|
|
31,943 |
|
|
|
31,943 |
|
NBC trademark license agreement, net |
|
|
11,414 |
|
|
|
12,234 |
|
Cable distribution and marketing agreement, net |
|
|
1,088 |
|
|
|
1,759 |
|
Other assets |
|
|
738 |
|
|
|
5,492 |
|
|
|
|
|
|
|
|
|
|
$ |
376,012 |
|
|
$ |
351,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
LIABILITIES AND SHAREHOLDERS EQUITY |
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Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
66,409 |
|
|
$ |
57,196 |
|
Accrued liabilities |
|
|
54,786 |
|
|
|
47,709 |
|
Deferred revenue |
|
|
599 |
|
|
|
369 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
121,794 |
|
|
|
105,274 |
|
Other long-term obligations |
|
|
|
|
|
|
2,553 |
|
Deferred revenue |
|
|
2,295 |
|
|
|
1,699 |
|
Series A Redeemable Convertible Preferred Stock, $.01
per share par value, 5,339,500 shares authorized;
5,339,500 shares issued and outstanding |
|
|
43,825 |
|
|
|
43,607 |
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock, $.01 per share par value, 100,000,000
shares authorized; 35,930,578 and 37,593,768 shares
issued and outstanding |
|
|
359 |
|
|
|
376 |
|
Warrants to purchase 4,036,858 shares of common stock |
|
|
22,972 |
|
|
|
22,972 |
|
Additional paid-in capital |
|
|
273,566 |
|
|
|
287,541 |
|
Accumulated deficit |
|
|
(88,799 |
) |
|
|
(112,042 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
208,098 |
|
|
|
198,847 |
|
|
|
|
|
|
|
|
|
|
$ |
376,012 |
|
|
$ |
351,980 |
|
|
|
|
|
|
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|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
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|
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|
|
|
|
|
|
|
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For the Three Month Periods Ended |
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|
For the Nine Month Periods Ended |
|
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|
November 3, |
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|
November 4, |
|
|
November 3, |
|
|
November 4, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net sales |
|
$ |
184,821 |
|
|
$ |
184,886 |
|
|
$ |
563,543 |
|
|
$ |
550,592 |
|
Cost of sales |
|
|
119,837 |
|
|
|
121,311 |
|
|
|
365,124 |
|
|
|
358,588 |
|
(exclusive of depreciation and
amortization shown below) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Operating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and selling |
|
|
59,126 |
|
|
|
55,069 |
|
|
|
179,619 |
|
|
|
165,470 |
|
General and administrative |
|
|
5,423 |
|
|
|
7,476 |
|
|
|
19,128 |
|
|
|
21,339 |
|
Depreciation and amortization |
|
|
4,734 |
|
|
|
5,777 |
|
|
|
15,581 |
|
|
|
16,527 |
|
Restructuring costs |
|
|
1,061 |
|
|
|
|
|
|
|
3,104 |
|
|
|
|
|
CEO transition costs |
|
|
2,096 |
|
|
|
|
|
|
|
2,096 |
|
|
|
|
|
Asset impairments and write offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense |
|
|
72,440 |
|
|
|
68,322 |
|
|
|
219,528 |
|
|
|
203,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(7,456 |
) |
|
|
(4,747 |
) |
|
|
(21,109 |
) |
|
|
(11,361 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
(119 |
) |
|
|
350 |
|
Interest income |
|
|
1,728 |
|
|
|
990 |
|
|
|
4,543 |
|
|
|
2,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income |
|
|
1,728 |
|
|
|
990 |
|
|
|
4,424 |
|
|
|
3,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
equity in income of affiliates |
|
|
(5,728 |
) |
|
|
(3,757 |
) |
|
|
(16,685 |
) |
|
|
(8,060 |
) |
Gain on sale of RLM investment |
|
|
|
|
|
|
|
|
|
|
40,240 |
|
|
|
|
|
Equity in income of affiliates |
|
|
|
|
|
|
646 |
|
|
|
609 |
|
|
|
2,192 |
|
Income tax provision |
|
|
|
|
|
|
(15 |
) |
|
|
(921 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(5,728 |
) |
|
|
(3,126 |
) |
|
|
23,243 |
|
|
|
(5,913 |
) |
Accretion of redeemable preferred stock |
|
|
(73 |
) |
|
|
(73 |
) |
|
|
(218 |
) |
|
|
(217 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common
shareholders |
|
$ |
(5,801 |
) |
|
$ |
(3,199 |
) |
|
$ |
23,025 |
|
|
$ |
(6,130 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share |
|
$ |
(0.16 |
) |
|
$ |
(0.09 |
) |
|
$ |
0.54 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share
assuming dilution |
|
$ |
(0.16 |
) |
|
$ |
(0.09 |
) |
|
$ |
0.54 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
36,330,800 |
|
|
|
37,628,215 |
|
|
|
42,438,322 |
|
|
|
37,700,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
36,330,800 |
|
|
|
37,628,215 |
|
|
|
42,458,720 |
|
|
|
37,700,351 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
FOR THE NINE MONTH PERIOD ENDED NOVEMBER 3, 2007
(Unaudited)
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Stock |
|
|
Additional |
|
|
|
|
|
|
Total |
|
|
|
Comprehensive |
|
|
Number |
|
|
Par |
|
|
Purchase |
|
|
Paid-In |
|
|
Accumulated |
|
|
Shareholders |
|
|
|
Income |
|
|
of Shares |
|
|
Value |
|
|
Warrants |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
BALANCE, February
3, 2007 |
|
|
|
|
|
|
37,593,768 |
|
|
$ |
376 |
|
|
$ |
22,972 |
|
|
$ |
287,541 |
|
|
$ |
(112,042 |
) |
|
$ |
198,847 |
|
Net income |
|
$ |
23,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,243 |
|
|
|
23,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of
common stock |
|
|
|
|
|
|
(1,754,172 |
) |
|
|
(18 |
) |
|
|
|
|
|
|
(16,085 |
) |
|
|
|
|
|
|
(16,103 |
) |
Exercise of stock
options and common
stock issuances |
|
|
|
|
|
|
90,982 |
|
|
|
1 |
|
|
|
|
|
|
|
539 |
|
|
|
|
|
|
|
540 |
|
Share-based payment
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,789 |
|
|
|
|
|
|
|
1,789 |
|
Accretion on
redeemable
preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(218 |
) |
|
|
|
|
|
|
(218 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, November
3, 2007 |
|
|
|
|
|
|
35,930,578 |
|
|
$ |
359 |
|
|
$ |
22,972 |
|
|
$ |
273,566 |
|
|
$ |
(88,799 |
) |
|
$ |
208,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
For the Nine Month |
|
|
|
Periods Ended |
|
|
|
November 3, |
|
|
November 4, |
|
|
|
2007 |
|
|
2006 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
23,243 |
|
|
$ |
(5,913 |
) |
Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
15,581 |
|
|
|
16,527 |
|
Share-based payment compensation |
|
|
1,789 |
|
|
|
1,349 |
|
Common stock issued to employees |
|
|
12 |
|
|
|
15 |
|
Asset impairments and write offs |
|
|
428 |
|
|
|
179 |
|
Equity in earnings of affiliates |
|
|
(609 |
) |
|
|
(2,192 |
) |
Amortization of deferred revenue |
|
|
(216 |
) |
|
|
(28 |
) |
Gain on sale of investments |
|
|
(40,240 |
) |
|
|
(500 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
11,825 |
|
|
|
(9,810 |
) |
Inventories |
|
|
(14,293 |
) |
|
|
(15,180 |
) |
Prepaid expenses and other |
|
|
506 |
|
|
|
377 |
|
Deferred revenue |
|
|
1,041 |
|
|
|
1,000 |
|
Accounts payable and accrued liabilities |
|
|
12,961 |
|
|
|
10,621 |
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
|
12,028 |
|
|
|
(3,555 |
) |
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
Property and equipment additions |
|
|
(8,704 |
) |
|
|
(8,641 |
) |
Purchase of short-term investments |
|
|
(82,913 |
) |
|
|
(20,627 |
) |
Proceeds from sale of short-term investments |
|
|
30,673 |
|
|
|
30,949 |
|
RLM dividends |
|
|
|
|
|
|
250 |
|
Proceeds from sale of investments |
|
|
43,750 |
|
|
|
500 |
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities |
|
|
(17,194 |
) |
|
|
2,431 |
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Payments for repurchases of common stock |
|
|
(16,103 |
) |
|
|
(4,698 |
) |
Proceeds from exercise of stock options |
|
|
528 |
|
|
|
939 |
|
Payment of long-term obligation |
|
|
|
|
|
|
(222 |
) |
|
|
|
|
|
|
|
Net cash used for financing activities |
|
|
(15,575 |
) |
|
|
(3,981 |
) |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(20,741 |
) |
|
|
(5,105 |
) |
BEGINNING CASH AND CASH EQUIVALENTS |
|
|
41,496 |
|
|
|
43,143 |
|
|
|
|
|
|
|
|
ENDING CASH AND CASH EQUIVALENTS |
|
$ |
20,755 |
|
|
$ |
38,038 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
2 |
|
|
$ |
14 |
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
695 |
|
|
$ |
13 |
|
|
|
|
|
|
|
|
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Common stock purchase warrants forfeited |
|
$ |
|
|
|
$ |
1,175 |
|
|
|
|
|
|
|
|
Property and equipment purchases included in accounts payable |
|
$ |
514 |
|
|
$ |
335 |
|
|
|
|
|
|
|
|
Accretion of redeemable preferred stock |
|
$ |
218 |
|
|
$ |
217 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 3, 2007
(Unaudited)
(1) General
ValueVision Media, Inc. and its subsidiaries (the Company) is an integrated direct marketing
company that markets, sells and distributes its products directly to consumers through various
forms of electronic media and direct-to-consumer mailings. The Companys operating strategy as a
multi-channel retailer incorporates television home shopping, internet e-commerce, direct mail
marketing and fulfillment services.
The Companys television home shopping business uses on-air spokespersons to market brand name
and private label consumer products at competitive prices. The Companys live 24-hour per day
television home shopping programming is distributed primarily through cable and satellite
affiliation agreements and the purchase of month-to-month full and part-time lease agreements of
cable and broadcast television time. In addition, the Company distributes its programming through
one Company-owned full power television station in Boston, Massachusetts. The Company also markets
a broad array of merchandise through its internet shopping websites, www.shopnbc.com and
www.shopnbc.tv.
The Company has an exclusive license agreement with NBC Universal, Inc. (NBC), pursuant to
which NBC granted the Company worldwide use of an NBC-branded name and the peacock image for a
10.5-year period. The Company rebranded its television home shopping network and internet shopping
website as ShopNBC and ShopNBC.com, respectively, in June 2001.
The Company, through its wholly owned subsidiary, VVI Fulfillment Center, Inc. (VVIFC),
provides fulfillment and warehousing services for the fulfillment of merchandise sold by the
Company. VVIFC also provides fulfillment, warehousing, customer service and telemarketing services
to Ralph Lauren Media, LLC (RLM), the operator of the Polo.com e-commerce business.
(2) Basis of Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles in the United States of America have been
condensed or omitted in accordance with such rules and regulations. The information furnished in
the interim condensed consolidated financial statements includes normal recurring accruals and
reflects all adjustments which, in the opinion of management, are necessary for a fair presentation
of such financial statements. Although management believes the disclosures and information
presented are adequate, it is suggested that these interim condensed consolidated financial
statements be read in conjunction with the Companys most recent audited financial statements and
notes thereto included in its annual report on Form 10-K for the fiscal year ended February 3,
2007. Operating results for the three and nine-month periods ended November 3, 2007 are not
necessarily indicative of the results that may be expected for the fiscal year ending February 2,
2008.
The accompanying condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been
eliminated in consolidation.
Fiscal Year
The Companys most recently completed fiscal year ended on February 3, 2007 and is designated
fiscal 2006. The Companys fiscal year ending February 2, 2008 is designated fiscal 2007. The
Company reports on a 52/53 week fiscal year which ends on the Saturday nearest to January 31. The
52/53 week fiscal year allows for the weekly and monthly comparability of sales results relating to
the Companys television home-shopping business.
7
(3) Stock Option Compensation
The Company accounts for stock-based compensation arrangements in accordance with Statement of
Financial Accounting Standards No. 123(R) (revised 2004), Share-Based Payment. Compensation is
recognized for all stock-based compensation arrangements by the Company, including employee and
non-employee stock options granted after February 2, 2006 and all unvested stock-based compensation
arrangements granted prior to February 2, 2006 as of such date, commencing with the quarter ended
May 6, 2006. Stock-based compensation expense in the third quarter of fiscal 2007 and the third
quarter of fiscal 2006 related to stock option awards was $382,000 and $393,000, respectively.
Stock-based compensation expense in the nine-month periods ended November 3, 2007 and November 4,
2006 related to stock option awards was $1,394,000 and $1,138,000, respectively. The Company has
not recorded any income tax benefit from the exercise of stock options due to the uncertainty of
realizing income tax benefits in the future.
As of November 3, 2007, the Company had two active omnibus stock plans for which stock awards
can be currently granted: the 2004 Omnibus Stock Plan (as amended and restated in fiscal 2006)
which provides for the issuance of up to 4,000,000 shares of the Companys common stock; and the
2001 Omnibus Stock Plan which provides for the issuance of up to 3,000,000 shares of the Companys
stock. These plans are administered by the human resources and compensation committee of the board
of directors (Compensation Committee) and provide for awards for employees, directors and
consultants. All employees and directors of the Company and its affiliates are eligible to receive
awards under the plans. The types of awards that may be granted under these plans include
restricted and unrestricted stock, incentive and nonstatutory stock options, stock appreciation
rights, performance units, and other stock-based awards. Incentive stock options may be granted to
employees at such exercise prices as the Compensation Committee may determine but not less than
100% of the fair market value of the underlying stock as of the date of grant. No incentive stock
option may be granted more than ten years after the effective date of the respective plans
inception or be exercisable more than ten years after the date of grant. Options granted to outside
directors are nonstatutory stock options with an exercise price equal to 100% of the fair market
value of the underlying stock as of the date of grant. Options granted under these plans are
exercisable and generally vest over three years in the case of employee stock options and vest
immediately on the date of grant in the case of director options, and generally have contractual
terms of either five years from the date of vesting or ten years from the date of grant. Prior to
the adoption of the 2004 and 2001 plans, the Company had other incentive stock option plans in
place in which stock options were granted to employees under similar vesting terms. The Company no
longer makes any further grants from these other plans. The Company has also granted non-qualified
stock options to current and former directors and certain employees with similar vesting terms.
The fair value of each option award is estimated on the date of grant using the Black-Scholes
option pricing model that uses assumptions noted in the following table. Expected volatilities are
based on the historical volatility of the Companys stock. Expected term is calculated using the
simplified method taking into consideration the options contractual life and vesting terms. The
risk-free interest rate for periods within the contractual life of the option is based on the U.S.
Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the
fair value computations as the Company has never declared or paid dividends on its common stock and
currently intends to retain earnings for use in operations.
|
|
|
|
|
|
|
Fiscal |
|
Fiscal |
|
|
2007 |
|
2006 |
Expected volatility |
|
33% - 34% |
|
33% - 35% |
Expected term (in years) |
|
6 years |
|
6 years |
Risk-free interest rate |
|
4.5% - 5.06% |
|
4.7% - 5.12% |
8
A summary of the status of the Companys stock option activity as of November 3, 2007 and
changes during the nine months then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
2001 |
|
|
|
|
|
|
1990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 |
|
|
|
|
|
|
Incentive |
|
|
Weighted |
|
|
Incentive |
|
|
Weighted |
|
|
Incentive |
|
|
Weighted |
|
|
Other Non- |
|
|
Weighted |
|
|
Executive |
|
|
Weighted |
|
|
|
Stock |
|
|
Average |
|
|
Stock |
|
|
Average |
|
|
Stock |
|
|
Average |
|
|
Qualified |
|
|
Average |
|
|
Stock |
|
|
Average |
|
|
|
Option |
|
|
Exercise |
|
|
Option |
|
|
Exercise |
|
|
Option |
|
|
Exercise |
|
|
Stock |
|
|
Exercise |
|
|
Option |
|
|
Exercise |
|
|
|
Plan |
|
|
Price |
|
|
Plan |
|
|
Price |
|
|
Plan |
|
|
Price |
|
|
Options |
|
|
Price |
|
|
Plan |
|
|
Price |
|
Balance outstanding,
February 3, 2007 |
|
|
1,734,000 |
|
|
$ |
12.08 |
|
|
|
1,624,000 |
|
|
$ |
14.44 |
|
|
|
462,000 |
|
|
$ |
18.03 |
|
|
|
1,838,000 |
|
|
$ |
15.89 |
|
|
|
356,000 |
|
|
$ |
27.57 |
|
Granted |
|
|
30,000 |
|
|
|
11.65 |
|
|
|
526,000 |
|
|
|
10.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(48,000 |
) |
|
|
10.58 |
|
|
|
|
|
|
|
|
|
|
|
(1,000 |
) |
|
|
10.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or
canceled |
|
|
(197,000 |
) |
|
|
12.30 |
|
|
|
(513,000 |
) |
|
|
14.68 |
|
|
|
(421,000 |
) |
|
|
18.45 |
|
|
|
(401,000 |
) |
|
|
17.80 |
|
|
|
(356,000 |
) |
|
|
27.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding,
November 3, 2007 |
|
|
1,519,000 |
|
|
$ |
12.09 |
|
|
|
1,637,000 |
|
|
$ |
13.13 |
|
|
|
40,000 |
|
|
$ |
13.94 |
|
|
|
1,437,000 |
|
|
$ |
15.35 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable
at: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007 |
|
|
1,347,000 |
|
|
$ |
12.09 |
|
|
|
975,000 |
|
|
$ |
14.54 |
|
|
|
40,000 |
|
|
$ |
13.94 |
|
|
|
1,403,000 |
|
|
$ |
15.46 |
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information regarding stock options outstanding at November 3,
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
Vested or |
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Options |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
|
Expected to |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
Option Type |
|
Outstanding |
|
|
Price |
|
|
Life (Years) |
|
|
Value |
|
|
Vest |
|
|
Price |
|
|
Life (Years) |
|
|
Value |
|
2004 Incentive: |
|
|
1,519,000 |
|
|
$ |
12.09 |
|
|
|
7.2 |
|
|
$ |
|
|
|
|
1,501,000 |
|
|
$ |
12.09 |
|
|
|
7.2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Incentive: |
|
|
1,637,000 |
|
|
$ |
13.13 |
|
|
|
6.6 |
|
|
$ |
|
|
|
|
1,571,000 |
|
|
$ |
13.22 |
|
|
|
5.6 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1990 Incentive: |
|
|
40,000 |
|
|
$ |
13.94 |
|
|
|
1.4 |
|
|
$ |
|
|
|
|
40,000 |
|
|
$ |
13.94 |
|
|
|
1.4 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Non-qualified: |
|
|
1,437,000 |
|
|
$ |
15.35 |
|
|
|
5.1 |
|
|
$ |
|
|
|
|
1,403,000 |
|
|
$ |
15.46 |
|
|
|
5.0 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 Executive: |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant-date fair value of options granted in the nine months of fiscal
2007 and 2006 was $4.50 and $4.88, respectively. The total intrinsic value of options exercised
during the first nine months of fiscal 2007 and 2006 was $52,000 and $1,124,000, respectively. As
of November 3, 2007, total unrecognized compensation cost related to stock options was $2,960,000
and is expected to be recognized over a weighted average period of approximately 1.4 years.
(4) Net Income (Loss) Per Common Share
The Company calculates earnings per share (EPS) in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128). Basic
EPS is computed by dividing reported earnings applicable to common shareholders by the weighted
average number of common shares outstanding for the reported period following the two-class method.
The effect of our participating convertible preferred stock is included in basic earnings per share
under the two-class method per EITF 03-6, Participating Securities and the Two-Class Method if
dilutive. Diluted EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock of the Company during
reported periods.
9
A reconciliation of EPS calculations and the number of shares used in the calculation of basic EPS
under the two-class method and diluted EPS under SFAS No. 128 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Month Periods Ended |
|
|
Nine Month Periods Ended |
|
|
|
November 3, |
|
|
November 4, |
|
|
November 3, |
|
|
November 4, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Net income (loss) available to common shareholders |
|
$ |
(5,801,000 |
) |
|
$ |
(3,199,000 |
) |
|
$ |
23,025,000 |
|
|
$ |
(6,130,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding using two-class method |
|
|
36,331,000 |
|
|
|
37,628,000 |
|
|
|
37,098,000 |
|
|
|
37,700,000 |
|
Effect of participating convertible preferred stock |
|
|
|
|
|
|
|
|
|
|
5,340,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding using two-class method Basic |
|
|
36,331,000 |
|
|
|
37,628,000 |
|
|
|
42,438,000 |
|
|
|
37,700,000 |
|
Dilutive effect of stock options, non-vested shares
and warrants |
|
|
|
|
|
|
|
|
|
|
21,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding Diluted |
|
|
36,331,000 |
|
|
|
37,628,000 |
|
|
|
42,459,000 |
|
|
|
37,700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share |
|
$ |
(0.16 |
) |
|
$ |
(0.09 |
) |
|
$ |
0.54 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share-assuming dilution |
|
$ |
(0.16 |
) |
|
$ |
(0.09 |
) |
|
$ |
0.55 |
|
|
$ |
(0.16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with SFAS No. 128, for the three-month periods ended November 3, 2007 and
November 4, 2006, approximately 58,000 and 206,000, respectively in-the-money potentially dilutive
common share stock options and warrants and 5,340,000 shares of convertible preferred stock have
been excluded from the computation of diluted earnings per share, as the effect of their inclusion
would be antidilutive. For the nine-month period ended November 4, 2006, approximately 235,000
in-the-money potentially dilutive common share stock options and warrants and 5,340,000 shares of
convertible preferred stock have been excluded from the computation of diluted earnings per share,
as the effect of their inclusion would be antidilutive.
(5) Comprehensive Income (Loss)
The Company reports comprehensive income (loss) in accordance with Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No. 130). SFAS No. 130
establishes standards for reporting in the financial statements all changes in equity during a
period, except those resulting from investments by and distributions to owners. For the Company,
comprehensive income (loss) includes net income (loss) and other comprehensive income (loss). Total
comprehensive loss was $(5,728,000) and $(3,126,000) for the three-month periods ended November 3,
2007 and November 4, 2006, respectively. Total comprehensive income (loss) was $23,243,000 and
$(5,913,000) for the nine-month periods ended November 3, 2007 and November 4, 2006, respectively.
The Company no longer has any long-term equity investments classified as available-for-sale.
(6) Segment Disclosures
Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS No. 131), requires the disclosure of certain
information about operating segments in financial statements. The Companys reportable segments are
based on the Companys method of internal reporting. The Companys primary business segment is its
electronic media segment, which consists of the Companys television home shopping business and
internet shopping website business. Management has reviewed the provisions of SFAS No. 131 and has
determined that the Companys television and internet home shopping businesses meet the aggregation
criteria as outlined in SFAS No. 131 since these two businesses have similar customers, products,
economic characteristics and sales processes. Products sold through the Companys electronic media
segment primarily include jewelry, watches, computers and other electronics, housewares, apparel,
health and beauty aids, fitness products, giftware, collectibles, seasonal items and other
merchandise. The Companys segments currently operate in the United States and no one customer
represents more than 5% of the Companys overall revenue. There are no material intersegment
product sales. Segment information as of and for the three and nine month periods ended November 3,
2007 and November 4, 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ShopNBC & |
|
|
Fulfillment |
|
|
Equity |
|
|
|
|
Three-Month Periods Ended (in thousands) |
|
ShopNBC.com |
|
|
Services (a) |
|
|
Investments (b) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
181,514 |
|
|
$ |
3,307 |
|
|
$ |
|
|
|
$ |
184,821 |
|
Operating (loss) income |
|
|
(8,357 |
) |
|
|
901 |
|
|
|
|
|
|
|
(7,456 |
) |
Depreciation and amortization |
|
|
4,614 |
|
|
|
120 |
|
|
|
|
|
|
|
4,734 |
|
Interest income |
|
|
1,728 |
|
|
|
|
|
|
|
|
|
|
|
1,728 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(6,539 |
) |
|
|
811 |
|
|
|
|
|
|
|
(5,728 |
) |
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ShopNBC & |
|
|
Fulfillment |
|
|
Equity |
|
|
|
|
Three-Month Periods Ended (in thousands) |
|
ShopNBC.com |
|
|
Services (a) |
|
|
Investments (b) |
|
|
Total |
|
Identifiable assets |
|
|
369,882 |
|
|
|
6,130 |
|
|
|
|
|
|
|
376,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 4, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
182,312 |
|
|
$ |
2,574 |
|
|
$ |
|
|
|
$ |
184,886 |
|
Operating (loss) income |
|
|
(4,785 |
) |
|
|
38 |
|
|
|
|
|
|
|
(4,747 |
) |
Depreciation and amortization |
|
|
5,607 |
|
|
|
170 |
|
|
|
|
|
|
|
5,777 |
|
Interest income |
|
|
990 |
|
|
|
|
|
|
|
|
|
|
|
990 |
|
Income taxes |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
(15 |
) |
Net income (loss) |
|
|
(3,735 |
) |
|
|
(37 |
) |
|
|
646 |
|
|
|
(3,126 |
) |
Identifiable assets, February 3, 2007 |
|
|
341,873 |
|
|
|
5,338 |
|
|
|
3,325 |
|
|
|
350,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ShopNBC & |
|
|
Fulfillment |
|
|
Equity |
|
|
|
|
Nine-Month Periods Ended (in thousands) |
|
ShopNBC.com |
|
|
Services (a) |
|
|
Investments (b) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 3, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
553,892 |
|
|
$ |
9,651 |
|
|
$ |
|
|
|
$ |
563,543 |
|
Operating (loss) income |
|
|
(23,054 |
) |
|
|
1,945 |
|
|
|
|
|
|
|
(21,109 |
) |
Depreciation and amortization |
|
|
15,143 |
|
|
|
438 |
|
|
|
|
|
|
|
15,581 |
|
Interest income |
|
|
4,543 |
|
|
|
|
|
|
|
|
|
|
|
4,543 |
|
Income taxes |
|
|
(149 |
) |
|
|
(12 |
) |
|
|
(760 |
) |
|
|
(921 |
) |
Net income (loss) |
|
|
(19,269 |
) |
|
|
1,663 |
|
|
|
40,849 |
|
|
|
23,243 |
|
Identifiable assets |
|
|
369,882 |
|
|
|
6,130 |
|
|
|
|
|
|
|
376,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 4, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
543,083 |
|
|
$ |
7,509 |
|
|
$ |
|
|
|
$ |
550,592 |
|
Operating (loss) income |
|
|
(11,780 |
) |
|
|
419 |
|
|
|
|
|
|
|
(11,361 |
) |
Depreciation and amortization |
|
|
16,007 |
|
|
|
520 |
|
|
|
|
|
|
|
16,527 |
|
Interest income |
|
|
2,951 |
|
|
|
|
|
|
|
|
|
|
|
2,951 |
|
Income taxes |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
(45 |
) |
Net income (loss) |
|
|
(8,301 |
) |
|
|
196 |
|
|
|
2,192 |
|
|
|
(5,913 |
) |
Identifiable assets, February 3, 2007 |
|
|
341,873 |
|
|
|
5,338 |
|
|
|
3,325 |
|
|
|
350,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Revenues from segments below quantitative thresholds are attributable to VVIFC, which
provides fulfillment, warehousing and telemarketing services primarily to RLM and the
Company. The Company anticipates that this services agreement with RLM will end in the
first quarter of fiscal 2008 as RLM migrates to its own customer service, warehousing and
fulfillment facilities. |
|
(b) |
|
Equity investment assets and net income and gains from equity investments consist of
long-term investments and earnings from equity investments accounted for under the equity
method of accounting and are not directly assignable to a business unit. |
Information on net sales from continuing operations by significant product groups are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Periods Ended |
|
|
Nine-Month Periods Ended |
|
|
|
November 3, |
|
|
November 4, |
|
|
November 3, |
|
|
November 4, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Jewelry |
|
$ |
68,821 |
|
|
$ |
61,633 |
|
|
$ |
217,717 |
|
|
$ |
211,057 |
|
Home, Electronics
and all other
merchandise
categories |
|
|
57,140 |
|
|
|
69,599 |
|
|
|
180,829 |
|
|
|
182,530 |
|
Watches, apparel
and health &
beauty |
|
|
45,810 |
|
|
|
42,228 |
|
|
|
127,837 |
|
|
|
121,811 |
|
All other revenue,
less than 10% each |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,050 |
|
|
|
11,426 |
|
|
|
37,160 |
|
|
|
35,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
184,821 |
|
|
$ |
184,886 |
|
|
$ |
563,543 |
|
|
$ |
550,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
(7) Related Party Transactions
In conjunction with its services agreement with RLM, the Company records revenue for amounts
billed to RLM for customer service and fulfillment services. Revenues recorded from these services
were $3,307,000 and $2,574,000 for the quarters ended November 3, 2007 and November 4, 2006,
respectively and were $9,651,000 and $7,509,000 for the nine month periods ended November 3, 2007
and November 4, 2006, respectively. Amounts due from RLM were $1,185,000 and $994,000 as of
November 3, 2007 and February 3, 2007, respectively. On March 28, 2007, VVIFC and RLM entered into
an amendment to the agreement for services providing for certain changes to the agreement,
including a potential extension of the term at RLMs option. The Company anticipates that this
services agreement with RLM will end in the first quarter of fiscal 2008 as RLM migrates to its own
customer service, warehousing and fulfillment facilities.
The Company entered into an agreement with RightNow Technologies, Inc. (RightNow) in 2005
under which the Company purchased software applications which enable the Company to utilize certain
customer services technologies developed by RightNow. The Companys former President and Chief
Executive Officer, William J. Lansing, serves on the board of directors of RightNow. The Company
made payments totaling approximately $46,000 during fiscal 2007 (as of November 3, 2007) and
$171,000 during fiscal 2006 for this technology and annual software maintenance fees relating to
this technology and other services.
The Company entered into a Private Label Credit Card and Co-Brand Credit Card Consumer Program
Agreement with GE Money Bank for the financing of private label credit card purchases from ShopNBC
and for the financing of co-brand credit card purchases of products and services from other
non-ShopNBC retailers. GE Money Bank, the issuing bank for the program, is indirectly wholly-owned
by the General Electric Company (GE), which is also the parent company of NBC and GE Commercial
Finance Equity. NBC and GE Commercial Finance Equity have a substantial percentage ownership
in the Company and together have the right to select three members of the Companys board of
directors.
The Company and NBC are partners in a ten-year Distribution and Marketing Agreement dated
March 8, 1999 that provides that NBC shall have the exclusive right to negotiate on behalf of the
Company for the distribution of its home shopping television programming service. As compensation
for these services, the Company currently pays NBC an annual fee of approximately $925,000.
(8) Restricted Stock
On June 28, 2007, the Company granted a total of 40,000 shares of restricted stock from the
Companys 2004 Omnibus Stock Plan to its five non-management directors elected by the holders of
the Companys common stock (in contrast to the three directors elected by the holders of the
Companys preferred stock) as part of the Companys annual director compensation program. The
restricted stock vests on the first anniversary of the date of grant. The aggregate market value of
the restricted stock at the date of award was $459,000 and is being amortized as director
compensation expense over the twelve-month vesting period. On June 21, 2006, the Company granted
40,000 shares of restricted stock from the Companys 2004 Omnibus Stock Plan to its five
non-management directors as part of the Companys annual director compensation program. The
aggregate market value of the restricted stock at the date of award was $468,000, and was amortized
as director compensation expense over the twelve-month vesting period. The shares vested on June
21, 2007. In the second quarter of fiscal 2004, the Company awarded 25,000 shares of restricted
stock to certain employees. This restricted stock grant vests over different periods ranging from
17 to 53 months. The aggregate market value of the restricted stock at the award dates was $308,000
and is being amortized as compensation expense over the respective vesting periods. Compensation
expense recorded in the first nine months of fiscal 2007 and the first nine months of fiscal 2006
relating to restricted stock grants was $395,000 and $211,000, respectively. As of November 3,
2007, there was $340,000 of total unrecognized compensation cost related to non-vested restricted
stock granted. That cost is expected to be recognized over a weighted average period of 0.7 years.
The total fair value of restricted stock vested during the first nine months of fiscal 2007 and
2006 was $476,000 and $26,000, respectively.
12
A summary of the status of the Companys non-vested restricted stock activity as of November
3, 2007 and changes during the nine-month period then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Non-vested outstanding,
February 3, 2007 |
|
|
60,000 |
|
|
$ |
11.87 |
|
Granted |
|
|
40,000 |
|
|
$ |
11.47 |
|
Vested |
|
|
(43,000 |
) |
|
$ |
11.75 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested outstanding,
November 3, 2007 |
|
|
57,000 |
|
|
$ |
11.68 |
|
|
|
|
|
|
|
|
|
|
(9) Common Stock Repurchase Program
In August 2006, the Companys board of directors authorized a common stock repurchase program.
The program authorizes the Companys management, acting through an investment banking firm selected
as the Companys agent, to repurchase up to $10 million of the Companys common stock by open
market purchases or negotiated transactions at prices and amounts as determined by the Company from
time to time. In May 2007, the Companys board of directors authorized the repurchase of an
additional $25 million of the Companys common stock under its stock repurchase program. During the
nine months ended November 3, 2007, the Company repurchased a total of 1,754,000 shares of common
stock for a total investment of $16,103,000 at an average price of $9.18 per share. During fiscal
2006, the Company repurchased a total of 406,000 shares of common stock for a total investment of
$4,698,000 at an average price of $11.57 per share.
(10) Intangible Assets
Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
addresses the financial accounting and reporting standards for the acquisition of intangible assets
outside of a business combination and for goodwill and other intangible assets subsequent to their
acquisition. The accounting standard requires that goodwill be separately disclosed from other
intangible assets in the statement of financial position, and no longer be amortized but tested for
impairment annually or whenever an event has occurred that would more likely than not reduce the
fair value of the asset below its carrying amount.
Intangible assets have been recorded in connection with the Companys acquisition of the
ShopNBC license and with the issuance of distribution warrants to NBC. Intangible assets have also
been recorded by the Company as a result of the acquisition of television station WWDP TV-46.
Intangible assets in the accompanying consolidated balance sheets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
November 3, 2007 |
|
|
February 3, 2007 |
|
|
|
Average |
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Life |
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
|
|
(Years) |
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NBC trademark license agreement |
|
|
10.5 |
|
|
$ |
34,437,000 |
|
|
$ |
(23,023,000 |
) |
|
$ |
32,837,000 |
|
|
$ |
(20,603,000 |
) |
Cable distribution and marketing agreement |
|
|
9.5 |
|
|
|
8,278,000 |
|
|
|
(7,190,000 |
) |
|
|
8,278,000 |
|
|
|
(6,519,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42,715,000 |
|
|
$ |
(30,213,000 |
) |
|
$ |
41,115,000 |
|
|
$ |
(27,122,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC broadcast license |
|
|
|
|
|
$ |
31,943,000 |
|
|
|
|
|
|
$ |
31,943,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On March 28, 2007, the Company and NBC entered into an agreement to sell their respective
equity interests in RLM to Polo Ralph Lauren. Concurrently with the execution of the sale of RLM,
the Company also entered into an amendment to its License Agreement with NBC under which NBC agreed
to extend the term of the License Agreement for an additional six months to May 15, 2011. The
Company determined the fair value of the license extension to be $1,600,000 and extended the life
of the agreement for an additional six months. See Note 13.
13
Amortization expense for the NBC intangible assets was $1,031,000 and $3,091,000,
respectively, for the quarter and nine-month period ended November 3, 2007 and $1,031,000 and
$3,091,000, respectively, for the quarter and nine-month period ended November 4, 2006. Estimated
amortization expense for the next five years is as follows: $4,113,000 in fiscal 2007, $3,943,000
in fiscal 2008, $3,383,000 in fiscal 2009, $3,227,000 in fiscal 2010 and $928,000 in fiscal 2011.
The FCC broadcasting license, which relates to the Companys acquisition of television station
WWDP TV-46, is not subject to amortization as a result of its indefinite useful life. The Company
tests the FCC license asset for impairment annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired.
(11) Recently Issued Accounting Pronouncements
In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and
Financial Liabilities (SFAS No. 159). This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The provisions of SFAS No. 159 are
effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating
the effect that the adoption of SFAS No. 159 will have on its consolidated results of operations
and financial condition.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157),
to establish a consistent framework for measuring fair value and expand disclosures on fair value
measurements. The provisions of SFAS No. 157 are effective for fiscal years beginning after
November 15, 2007. The Company is currently evaluating the effect that the adoption of SFAS No. 157
will have on its consolidated results of operations and financial condition.
(12) ShopNBC Private Label and Co-Brand Credit Card Program
In the third quarter of fiscal 2006, the Company introduced and established a new private
label and co-brand revolving consumer credit card program (the Program). The Program is made
available to all qualified consumers for the financing of purchases of products from ShopNBC and
for the financing of purchases of products and services from other non-ShopNBC retailers. The
Program is intended to be used by cardholders for purchases made primarily for personal, family or
household use. The issuing bank is the sole owner of the account issued under the Program and
absorbs losses associated with non-payment by cardholders. The issuing bank pays fees to the
Company based on the number of credit card accounts activated and on card usage. Once a customer is
approved to receive a ShopNBC private label or co-branded credit card and the card is activated,
the customer is eligible to participate in the Companys credit card rewards program. Under the
rewards program, points are earned on purchases made with the credit cards at ShopNBC and other
retailers where the co-branded card is accepted. Cardholders who accumulate the requisite number of
points are issued a $50 certificate award towards the future purchase of ShopNBC merchandise. The
certificate award expires after twelve months if unredeemed. The Company accounts for the rewards
program in accordance with Emerging Issues Task Force (EITF) issue No. 00-22, Accounting for
Points and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to Be Delivered in the Future. The value of points earned is included in
accrued liabilities and recorded as a reduction in revenue as points are earned, based on the
retail value of points that are projected to be redeemed. The Company accounts for the Private
Label and Co-Brand Credit Card Agreement in accordance with EITF No. 00-21, Revenue Arrangements
with Multiple Deliverables. In conjunction with the signing of the Private Label and Co-Brand
Credit Card Agreement, the Company received from the issuing bank a signing bonus as an incentive
for the Company to enter into the agreement. The bonus has been recorded as deferred revenue in the
accompanying financial statements and is being recognized as revenue over the term of the
agreement.
(13) Sale of RLM Equity Investment
On March 28, 2007, the Company entered into a Membership Interest Purchase Agreement
(Purchase Agreement) with Polo Ralph Lauren, NBC and certain NBC affiliates, pursuant to which
the Company sold its 12.5% membership interest in RLM to Polo Ralph Lauren for an aggregate
purchase price of $43,750,000 in cash. As a result of this sales transaction, the Company recorded
a per-tax gain of $40,240,000 on the sale of RLM in the first quarter of fiscal 2007. The income
tax provision attributable to the gain on sale of RLM of $760,000 was computed using a 2% effective
alternative minimum tax rate. The Company utilized approximately $32,186,000 of Federal net
operating loss carryforwards and approximately $7,000,000 of state net operating loss carryforwards
to compute income subject to the alternative minimum tax. As of November 3, 2007, the Company has
gross operating loss carryforwards for Federal and State income tax purposes of approximately $122
million and $7 million, respectively, which begin to expire in January 2022 and 2017, respectively.
The full text of the Purchase Agreement is attached as an exhibit to the Companys Current Report
on Form 8-K filed with the Commission on April 3, 2007.
14
Concurrently with the execution of the Purchase Agreement, the Company also entered into an
amendment to the License Agreement (for the limited, worldwide use of NBC trademarks, service
marks, domain names and logos), under which NBC agreed to extend the term of the License Agreement
to May 15, 2011 and to certain limitations on NBCs right to terminate the License Agreement in the
event of a change in control of the Company involving a financial buyer. On the same date, the
Company and NBC also entered into an amendment to the NBC Distribution Agreement providing for a
reduction in the annual affiliate relations and marketing fee paid by the Company to NBC to a
market rate.
(14) Restructuring Costs
On May 21, 2007, the Company announced the initiation of a restructuring of its operations
that includes a 12% reduction in the salaried workforce, a consolidation of its distribution
operations into a single warehouse facility, the exit and closure of a retail outlet store and
other cost saving measures. As a result, the Company recorded a $3,104,000 restructuring charge
during the nine months ended November 3, 2007. Restructuring costs include employee severance and
retention costs associated with the consolidation and elimination of approximately 75 positions
across the Company. In addition, restructuring costs also include incremental charges associated
with the Companys consolidation of its distribution and fulfillment operations into a single
warehouse facility, the closure of a retail outlet store, fixed asset impairments incurred as a
direct result of the operational consolidation and closures and restructuring advisory service
fees.
The table below sets forth for the nine months ended November 3, 2007, the significant
components and activity under the restructuring program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
Balance at |
|
|
|
February 3, 2007 |
|
|
Charges |
|
|
Write-offs |
|
|
Payments |
|
|
November 3, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and retention |
|
$ |
|
|
|
$ |
2,222,000 |
|
|
$ |
|
|
|
$ |
(1,544,000 |
) |
|
$ |
678,000 |
|
Asset impairments |
|
|
|
|
|
|
426,000 |
|
|
|
(426,000 |
) |
|
|
|
|
|
|
|
|
Incremental restructuring charges |
|
|
|
|
|
|
456,000 |
|
|
|
|
|
|
|
(456,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
3,104,000 |
|
|
$ |
(426,000 |
) |
|
$ |
(2,000,000 |
) |
|
$ |
678,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15) CEO Transition Costs
On October 26, 2007,
the Company announced that William J. Lansing, at the request of the board of directors, had stepped down as president and chief executive officer (CEO) and had left the
Companys board of directors. The Companys board appointed John D. Buck, currently the chairman
of the board, as the interim CEO. The board has retained Spencer Stuart, a leading global
executive search firm, to assist a selection committee of the board in conducting a national search
for a new CEO for the Company. In conjunction with Mr. Lansings resignation, the Company recorded
a charge to income of $2,096,000 in the third quarter of fiscal 2007 relating to severance payments which Mr. Lansing is entitled to
in accordance with the terms of his employment agreement with the Company.
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should
be read in conjunction with our accompanying unaudited condensed consolidated financial statements
and notes included herein and the audited consolidated financial statements and notes included in
our annual report on Form 10-K for the fiscal year ended February 3, 2007.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations and other materials we file with the Securities and Exchange Commission (as well as
information included in oral statements or other written statements made or to be made by us)
contain certain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements are based on managements current expectations and are
accordingly subject to uncertainty and changes in
15
circumstances. Actual results may vary materially from the expectations contained herein due
to various important factors, including (but not limited to): consumer spending and debt levels;
interest rates; seasonal variations in consumer purchasing activities; changes in the mix of
products sold by us; competitive pressures on sales; pricing and sales margins; the level of cable
and satellite distribution for our programming and the associated fees; the success of our
e-commerce initiatives; the success of our strategic alliances and relationships; our ability to
manage our operating expenses successfully; risks associated with acquisitions; changes in
governmental or regulatory requirements; litigation or governmental proceedings affecting our
operations; the risks identified under Risk Factors and Critical Accounting Policies and
Estimates in our Form 10-K for our fiscal year ended February 3, 2007; significant public events
that are difficult to predict, such as widespread weather catastrophes or other significant
television-covering events causing an interruption of television coverage or that directly compete
with the viewership of our programming; and our ability to obtain and retain key executives and
employees. Investors are cautioned that all forward-looking statements involve risk and
uncertainty. The facts and circumstances that exist when any forward-looking statements are made
and on which those forward-looking statements are based may significantly change in the future,
thereby rendering obsolete the forward-looking statements on which such facts and circumstances
were based. We are under no obligation (and expressly disclaims any obligation) to update or alter
our forward-looking statements whether as a result of new information, future events or otherwise.
OVERVIEW
Company Description
ValueVision Media, Inc. is an integrated direct marketing company that markets its products to
consumers through various forms of electronic media and direct-to-consumer mailings. Our operating
strategy as a multi-channel retailer incorporates television home shopping, internet e-commerce,
direct mail marketing and fulfillment services. Our live 24-hour per day television home shopping
programming is distributed primarily through cable and satellite affiliation agreements and on-line
through ShopNBC.TV.
Products and Customers
Products sold on our television home shopping network and internet shopping website include
jewelry, watches, computers and other electronics, housewares, apparel, cosmetics, seasonal items
and other merchandise. Jewelry represents our largest single category of merchandise, representing
38% and 39% of television home shopping and internet net sales for the respective three and
nine-month periods ended November 3, 2007 and 35% and 40% of television and internet net sales for
the respective three and nine-month periods ended November 4, 2006. Home products, including
electronics product categories, represented approximately 36% of television home shopping and
internet net sales for the three and nine-month periods ended November 3, 2007, and approximately
41% and 37% of television home shopping and internet net sales for the three and nine-month periods
ended November 4, 2006. Watches, apparel and health and beauty product categories represented
approximately 26% and 25% of television home shopping and internet net sales for the respective
three and nine-month periods ended November 3, 2007, and approximately 24% and 23% of television
home shopping and internet net sales for the respective three and nine-month periods ended November
4, 2006. Our strategy is to continue to develop new product offerings across multiple merchandise
categories as needed in response to both customer demand and in order to maximize margin dollars
per hour in our television home shopping and internet operations. Our customers are primarily
women between the ages of 35 and 55 with average annual household incomes in excess of $70,000 and
who make purchases based primarily on convenience, unique product offerings, value and quality of
merchandise.
Company Strategy
Our objective is to be positioned as a profitable and innovative leader in multi-channel
retailing in the United States, offering consumers an entertaining, informative and interactive
shopping experience. The following strategies are being pursued to increase revenues and
profitability and grow the active customer base, both for television sales and sales through the
internet: (i) continue to optimize our mix of product categories offered on television and the
internet in order to appeal to a broader population of potential customers; (ii) continue the
growth of our internet business through the innovative use of technology and marketing efforts,
such as advanced search techniques, personalization, internet video, affiliate agreements and
internet-based auction capabilities; (iii) obtain cost-effective distribution agreements for our
television programming with cable and satellite operators, as well as pursuing other means of
reaching customers such as through webcasting, internet videos and internet-based broadcasting
networks; (iv) increase the productivity of each hour of television programming, through a focus on
television offers of merchandise that maximizes margin dollars per hour and marketing efforts to
increase the number of customers within the households currently receiving our television
programming; (v) continue to enhance our television broadcast quality, programming, website
features and customer support; (vi)
increase the average order size through sales initiatives such as add-on sales, continuity
programs and warranty sales; and (vii) leverage the strong brand recognition of the NBC brand name.
16
Challenge
Our television home shopping business operates with a high fixed cost base, which is primarily
due to fixed contractual fees paid to cable and satellite operators to carry our programming. In
order to attain profitability, we must achieve sufficient sales volume through the acquisition of
new customers and the increased retention of existing customers to cover our high fixed costs
and/or reduce the fixed cost base for our cable and satellite distribution. Our growth and
profitability could be adversely impacted if sales volume does not meet expectations, as we will
have limited near-term capability to reduce our fixed cable and satellite distribution operating
expenses to mitigate any potential sales shortfall.
Competition
The direct marketing and retail businesses are highly competitive. In our television home
shopping and e-commerce operations, we compete for customers with other types of consumer retail
businesses, including traditional brick and mortar department stores, discount stores, warehouse
stores and specialty stores; other television home shopping and e-commerce retailers; infomercial
companies; catalog and mail order retailers and other direct sellers.
In the competitive television home shopping sector, we compete with QVC Network, Inc. and HSN,
Inc., both of whom are substantially larger than our company in terms of annual revenues and
customers, and whose programming is carried more broadly to U.S. households than our programming.
Both QVC and HSN are owned by large, well-capitalized parent companies in the media business, who
are also expanding into related e-commerce and web-based businesses. The American Collectibles
Network, known as ACN, which operates Jewelry Television, also competes with us for television home
shopping customers in the jewelry category, and ACN has acquired the assets of Shop At Home from E.
W. Scripps Company and is operating a second channel of programming in a number of non-jewelry
categories, including collectible coins and knives. In addition, there are a number of smaller
niche players and startups in the television home shopping arena who compete with our company.
The e-commerce sector is also highly competitive, and we are in direct competition with
numerous other internet retailers, many of whom are larger, more well-financed and/or have a
broader customer base. Certain of our competitors in the television home shopping sector have
acquired internet businesses complementary to their existing internet sites, which may pose new
competitive challenges for our company.
We anticipate continuing competition for viewers and customers, for experienced home shopping
personnel, for distribution agreements with cable and satellite systems, and for vendors and
suppliers not only from television home shopping companies, but also from other companies that
seek to enter the home shopping and internet retail industries, including telecommunications and
cable companies, television networks, and other established retailers. We believe that our success
in the television home shopping and e-commerce sectors is dependent on a number of key factors,
including (i) obtaining more favorable terms in our cable and satellite distribution agreements,
(ii) increasing the number of households who purchase products from us, and (iii) increasing the
dollar value of sales per customer to our existing customer base.
Results for the Third Quarter of Fiscal 2007 and Fiscal 2006
Consolidated net sales for the 2007 third quarter were $184,821,000 and were relatively flat
as compared to $184,886,000 for the 2006 third quarter. The slight decrease in consolidated net
sales from continuing operations is directly attributable to the decreased net sales from our
television home shopping and internet operations. Net sales attributed to our television home
shopping and internet operations decreased to $180,770,000 for the 2007 third quarter from
$182,312,000 for the 2006 third quarter. We reported an operating loss of $7,456,000 and a net loss
of $5,728,000 for the 2007 third quarter. We reported an operating loss of $4,747,000 and a net
loss of $3,126,000 for the 2006 quarter.
17
SALE OF RLM EQUITY INVESTMENT
On March 28, 2007, we entered into a membership interest purchase agreement with Polo Ralph
Lauren, NBC and certain NBC affiliates, pursuant to which we sold our 12.5% membership interest in
RLM to Polo Ralph Lauren for an aggregate purchase price of $43,750,000 in cash. As a result of
this transaction, we recorded a pre-tax gain of $40,240,000 on the sale of RLM in the first quarter
of fiscal 2007. The full text of the purchase agreement is attached as an exhibit to our current
report on Form 8-K filed with the Commission on April 3, 2007. Concurrently with the execution of
the purchase agreement, we also entered into an amendment to our NBC license agreement for the
limited, worldwide use of NBC trademarks, service marks, domain names and logos, under which NBC
agreed to extend the term of the license agreement to May 15, 2011 and to certain limitations on
NBCs right to terminate the license agreement in the event of a change in control of our company
involving a financial buyer. On the same date, we also entered into an amendment to our NBC
distribution agreement providing for a reduction in the annual affiliate relations and marketing
fee paid by us to NBC to a market rate. The income tax provision attributable to the gain on sale
of RLM of $760,000 was computed using a 2% effective alternative minimum tax rate.
RESTRUCTURING COSTS
On May 21, 2007, the Company announced the initiation of a restructuring of its operations
that includes a 12% reduction in the salaried workforce, a consolidation of its distribution
operations into a single warehouse facility, the exit and closure of a retail outlet store and
other cost saving measures. As a result, the Company recorded a $3,104,000 restructuring charge
during the nine months ended November 3, 2007. Restructuring costs include employee severance and
retention costs associated with the consolidation and elimination of approximately 75 positions
across the Company. In addition, restructuring costs also include incremental charges associated
with the Companys consolidation of its distribution and fulfillment operations into a single
warehouse facility, the closure of a retail outlet store, fixed asset impairments incurred as a
direct result of the operational consolidation and closures and restructuring advisory service
fees.
CEO TRANSITION COSTS
On October 26, 2007,
the Company announced that William J. Lansing, at the request of the board of directors, had stepped down as president and chief executive officer (CEO) and had left the
Companys board of directors. The Companys board appointed John D. Buck, currently the chairman
of the board, as the interim CEO. The board has retained Spencer Stuart, a leading global
executive search firm, to assist a selection committee of the board in conducting a national search
for a new CEO for the Company. In conjunction with Mr. Lansings resignation, the Company recorded
a charge to income of $2,096,000 in the third quarter of fiscal 2007 relating to severance payments which Mr. Lansing is entitled to
in accordance with the terms of his employment agreement with the Company.
18
RESULTS OF OPERATIONS
Selected Condensed Consolidated Financial Data
Continuing Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar Amount as a |
|
Dollar Amount as a |
|
|
Percentage of Net Sales for |
|
Percentage of Net Sales for |
|
|
the |
|
the |
|
|
Three-Month Periods |
|
Nine-Month Periods |
|
|
Ended |
|
Ended |
|
|
November 3, |
|
November 4, |
|
November 3, |
|
November 4, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Net sales |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization) |
|
|
64.8 |
% |
|
|
65.6 |
% |
|
|
64.8 |
% |
|
|
65.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and selling |
|
|
32.0 |
% |
|
|
29.8 |
% |
|
|
31.8 |
% |
|
|
30.1 |
% |
General and administrative |
|
|
2.9 |
% |
|
|
4.1 |
% |
|
|
3.4 |
% |
|
|
3.9 |
% |
Depreciation and amortization |
|
|
2.6 |
% |
|
|
3.1 |
% |
|
|
2.8 |
% |
|
|
3.0 |
% |
Restructuring costs |
|
|
0.6 |
% |
|
|
|
% |
|
|
0.6 |
% |
|
|
|
% |
CEO transition costs |
|
|
1.1 |
% |
|
|
|
% |
|
|
0.4 |
% |
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39.2 |
% |
|
|
37.0 |
% |
|
|
39.0 |
% |
|
|
37.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(4.0 |
)% |
|
|
(2.6 |
)% |
|
|
(3.7 |
)% |
|
|
(2.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Performance Metrics*
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Month |
|
|
|
|
|
|
For the Nine Month |
|
|
|
|
|
|
Periods Ended |
|
|
|
|
|
|
Periods Ended |
|
|
|
|
|
|
November 3, |
|
|
November 4, |
|
|
|
|
|
|
November 3, |
|
|
November 4, |
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
% |
|
|
2007 |
|
|
2006 |
|
|
% |
|
Program Distribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable FTEs (Average 000s) |
|
|
41,726 |
|
|
|
39,854 |
|
|
|
5 |
% |
|
|
41,156 |
|
|
|
39,055 |
|
|
|
5 |
% |
Satellite FTEs (Average 000s) |
|
|
27,687 |
|
|
|
26,019 |
|
|
|
6 |
% |
|
|
27,421 |
|
|
|
25,691 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FTEs (Average 000s) |
|
|
69,413 |
|
|
|
65,873 |
|
|
|
5 |
% |
|
|
68,577 |
|
|
|
64,746 |
|
|
|
6 |
% |
Net Sales per FTE (Annualized) |
|
$ |
10.46 |
|
|
$ |
11.07 |
|
|
|
(6 |
%) |
|
$ |
10.77 |
|
|
$ |
11.18 |
|
|
|
(4 |
%) |
Active Customers 12 month rolling |
|
|
876,261 |
|
|
|
834,701 |
|
|
|
5 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
% New Customers 12 month rolling |
|
|
52 |
% |
|
|
54 |
% |
|
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
% Retained Customers 12 month rolling |
|
|
48 |
% |
|
|
46 |
% |
|
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
Customer Penetration 12 month
rolling |
|
|
1.3 |
% |
|
|
1.3 |
% |
|
|
|
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merchandise Mix |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jewelry |
|
|
38 |
% |
|
|
35 |
% |
|
|
|
|
|
|
39 |
% |
|
|
40 |
% |
|
|
|
|
Watches, Apparel, Health & Beauty |
|
|
26 |
% |
|
|
24 |
% |
|
|
|
|
|
|
25 |
% |
|
|
23 |
% |
|
|
|
|
Home, Electronics and All Other |
|
|
36 |
% |
|
|
41 |
% |
|
|
|
|
|
|
36 |
% |
|
|
37 |
% |
|
|
|
|
Shipped Units (000s) |
|
|
1,069 |
|
|
|
1,098 |
|
|
|
(3 |
%) |
|
|
3,350 |
|
|
|
3,648 |
|
|
|
(8 |
%) |
Average Selling Price Shipped Units |
|
$ |
240 |
|
|
$ |
225 |
|
|
|
7 |
% |
|
$ |
233 |
|
|
$ |
208 |
|
|
|
12 |
% |
|
|
|
* |
|
Includes television home shopping and Internet sales only. |
19
Program Distribution
Our television home shopping programming was available to approximately 69.4 million average
full time equivalent, or FTE, households for the third quarter of fiscal 2007 and approximately
65.9 million average FTE households for the third quarter of fiscal 2006. Average FTE subscribers
grew 5% in the third quarter of fiscal 2007, resulting in a 3.5 million increase in average FTEs
versus the prior year comparable quarter. The increase was driven by continued strong growth in
satellite distribution of our programming and increased distribution of our programming on digital
cable. We anticipate that our cable programming distribution will increasingly shift towards a
greater mix of digital as opposed to analog cable tiers, both through growth of the number of
digital subscribers and through cable system operators moving programming that is carried on analog
channels over to digital channels. Nonetheless, because of the broader universe of programming
choices available for viewers in digital systems and the higher channel placements commonly
associated with digital tiers, the shift towards digital systems may adversely impact our ability
to compete for television viewers even if our programming is available in more homes.
Net Sales Per FTE
Net sales per FTE for the third quarter decreased 6%, or $0.61 per FTE, compared to the prior
years comparable quarter. For the nine-month period ended November 3, 2007, net sales per FTE
decreased 4%, or $0.41 per FTE, versus the prior years comparable period. The decrease in the
third quarter and year-to-date net sales per FTE was primarily due to the overall increase in FTEs
of 5% and 6% during the respective quarter and nine-month periods while net sales remained flat for
the third quarter and increased only 2% for the nine months ended November 3, 2007.
Customers
We added 41,560 active customers over the twelve-month period ended November 3, 2007, a 5%
increase over active customers added in the prior year comparable twelve-month period. The increase
in active customers resulted from the increase in household distribution and increases in marketing
and promotional efforts aimed at attracting new customers.
Customer Penetration
Customer penetration measures the total number of customers who purchased from our company
over the past twelve months divided by our average FTEs for that same period. This measure was
1.3% for each of the third quarters of fiscal 2007 and fiscal 2006. We include in our customer
penetration calculations all of our customers during the applicable time period, whether they
became customers as a result of our television programming, through direct-mail campaigns, or
because of our e-commerce marketing efforts.
Merchandise Mix
During the 2007 third quarter, jewelry net sales increased to 38% of total television home
shopping and internet net sales from 35% during the prior year comparable quarter. Net sales from
home products, including electronics categories, decreased to 36% of total television home shopping
and internet net sales from 41% as compared to the prior year third quarter and net sales from
watches, apparel and health and beauty product categories increased to 26% of total television home
shopping and internet net sales from 24% as compared to the prior year third quarter. During the
nine-month period ended November 3, 2007, jewelry net sales decreased to 39% of total television
home shopping and internet net sales from 40% during the prior year comparable period. Net sales
from home products, including electronics categories, decreased to 36% of total television home
shopping and internet net sales from 37% as compared to the prior year comparable period and net
sales from watches, apparel and health and beauty product categories increased to 25% of total
television home shopping and internet net sales from 23% as compared to the prior year nine-month
period. Our merchandise mix over the past several years has moved away from its historical reliance
on jewelry and computers to a broader mix that also includes apparel, watches, health and beauty,
home and other electronic product lines. During the third quarter of fiscal 2007, we increased our
merchandise mix in the jewelry category as a result of LCD television sales being significantly
down over the same period in fiscal 2006. Going forward, we plan to adjust our merchandise mix as needed in response
to both customer demand and in order to maximize margin dollars per hour in our television home
shopping and internet operations.
20
Shipped Units
The number of units shipped during the 2007 third quarter decreased 3% from the prior years
comparable quarter to 1,069,000 from 1,098,000. For the nine-month period ended November 3, 2007,
shipped units decreased 8% from the prior years comparable period to 3,350,000 from 3,648,000.
The decrease in shipped units was primarily due to a shift in mix during the first nine months of
fiscal 2007 to higher price point jewelry, which resulted in less
shipped units.
Average Selling Price
The average selling price, or ASP, per unit was $240 in the 2007 third quarter, a 7% increase
from the comparable prior year quarter. For the nine-month period ended November 3, 2007, the
average selling price was $233, a 12% increase from the prior year comparable period. The year-to-date increase
in the 2007 ASP was driven primarily by selling price increases within the jewelry category, due to
higher gold prices, and within the apparel product category.
Net Sales
Consolidated net sales for the 2007 third quarter were $184,821,000 and remained flat as
compared with consolidated net sales of $184,886,000 for the 2006 third quarter. Consolidated net
sales for the nine-month period ended November 3, 2007 were $563,543,000 compared with consolidated
net sales of $550,592,000 for the comparable prior year period, a 2% increase. Although 2007 third
quarter net sales equaled 2006 third quarter net sales, the comparison was adversely affected and
impacted by a change in merchandise mix year over year. High ticket LCD televisions sales, which
drove sales growth in fiscal 2006, were down significantly for the current quarter. In response
the Company shifted airtime hours back to the more traditional categories of gemstones, watches,
apparel and notebook computers which performed strongly but did not totally offset the decrease in
LCD television sales. Although net sales increased overall during fiscal 2007 over prior year, we
believe we experienced slower sales growth during the first nine months of 2007 than we have seen
in recent quarters driven by a general softness in overall consumer demand. The overall
year-to-date increase in consolidated net sales is directly attributable to the continued
improvement in net sales from our television home shopping and internet operations. Net sales
attributed to our television home shopping and internet operations slightly decreased to
$181,514,000 for the 2007 third quarter from $182,312,000 for the 2006 third quarter. Net sales
attributed to our television home shopping and internet operations increased 2% to $553,892,000 for
the nine-month period ended November 3, 2007 from $543,083,000 for the comparable prior year
period. The growth in television home shopping and internet net sales during the nine-month period
ended November 3, 2007 is primarily attributable to increased merchandise sales driven by the
higher productivity achieved from certain product categories including jewelry, gemstones and
electronics and an increase in internet net sales of 18% and 21% for the three and nine-month
respective periods ended November 3, 2007 over the prior year comparable periods. In addition,
television and internet net sales increased due to increased shipping and handling revenue
resulting from increased sales in the 2007 nine-month period compared to 2006.
Cost of Sales (exclusive of depreciation and amortization)
Cost of sales (exclusive of depreciation and amortization) for the 2007 third quarter and 2006
third quarter was $119,837,000 and $121,311,000, respectively, a decrease of $1,474,000, or 1%.
Cost of sales (exclusive of depreciation and amortization) for the nine months ended November 3,
2007 and for the nine months ended November 4, 2006 was $365,124,000 and $358,588,000,
respectively, an increase of $6,536,000, or 2%. The increases in cost of sales on a year-to-date
basis is directly attributable to increased costs associated with increased sales volume from our
television home shopping and internet businesses and increased shipping costs associated with
increases in shipping and handling revenues. Net sales less cost of sales (exclusive of
depreciation and amortization) as a percentage of sales for the quarter ended November 3, 2007 and
November 4, 2006 was 35.2% and 34.4%, respectively. Net sales less cost of sales (exclusive of
depreciation and amortization) as a percentage of sales for the nine months ended November 3, 2007
and November 4, 2006 was 35.2% and 34.9%, respectively.
Operating Expenses
Total operating expenses for the 2007 third quarter were $72,440,000 compared to $68,322,000
for the comparable prior year period, an increase of 6%. Total operating expenses for the
nine-months ended November 3, 2007 were $219,528,000 compared to $203,365,000 for the comparable
prior year period, an increase of 8 %. Distribution and selling expense increased $4,057,000, or
7%, to $59,126,000, or 32% of net sales during the 2007 third quarter compared to $55,069,000 or
30% of net sales for the comparable prior year quarter. Distribution and selling expense increased
$14,149,000, or 9%, to $179,619,000, or 32% of net sales for the nine-month
21
period ended November 3, 2007 compared to $165,470,000, or 30% of net sales for the comparable prior year period.
Distribution and selling expense increased on a year-to-date basis over the prior year primarily due to an
increase in net cable and satellite access fees of $5,183,000 as a result of increased subscribers
over prior year; increased credit card fees, net collection fees and bad debt expense of $4,382,000
due to the overall increase in net sales and increases in net sales sold under our ValuePay
installment method; increased internet and direct-mail and marketing expenses of $5,661,000
primarily associated with our internet website search engine initiative and our attempt to acquire
additional customers and increase our overall penetration; and increased telemarketing and customer
service costs of $2,454,000 associated with increased sales volumes and our commitment to improve
our customer service. These increases were offset by a decrease in salaries, accrued bonuses and
other related personnel costs associated with merchandising, television production and show
management personnel and on-air talent of $3,487,000 during the first nine months of fiscal 2007.
General and administrative expense for the 2007 third quarter decreased $2,053,000, or 27%, to
$5,423,000, or 3% of net sales, compared to $7,476,000, or 4% of net sales for the 2006 third
quarter. General and administrative expense for the nine months ended November 3, 2007 decreased
$2,211,000, or 10%, to $19,128,000, or 3% of net sales, compared to $21,339,000, or 4% of net sales
for the nine months ended November 4, 2006. General and administrative expense decreased on a
year-to-date basis over the prior year primarily as a result of the Companys restructuring
initiative which included reductions in salaries, related benefits and accrued bonuses totaling
$2,838,000, offset by increases associated with director stock-based compensation of $192,000,
information systems service and contract labor fees of $377,000, and stock option expense of
$128,000.
Depreciation and amortization expense for the 2007 third quarter was $4,734,000 compared to
$5,777,000 for the 2006 quarter, representing a decrease of $1,043,000, or 18%, from the comparable
prior year period. Depreciation and amortization expense for the nine months ended November 3,
2007 was $15,581,000 compared to $16,527,000 for the nine months ended November 4, 2006,
representing an decrease of $946,000, or 6%, from the comparable prior year period. Depreciation
and amortization expense as a percentage of net sales for the three and nine-month periods ended
November 3, 2007 and November 4, 2006 was 3% for each period. The quarterly and year-to-date
decrease relates to the timing of fully depreciated assets quarter over quarter, offset by
increased depreciation and amortization as a result of total assets placed in service in connection
with our various application software development and functionality enhancements year over year.
Operating Loss
For the 2007 third quarter, our operating loss was $7,456,000 compared to an operating loss of
$4,747,000 for the 2006 third quarter. For the nine months ended November 3, 2007 our operating
loss was $21,109,000 compared to an operating loss of $11,361,000 for the comparable prior year
period. Our year-to-date operating loss increased during fiscal 2007 from the comparable prior
year period primarily as a result of experiencing a slower quarterly net sales growth driven by a
general softness in overall consumer demand. In addition, we experienced increases during the
quarter in operating expenses, particularly (i) increases in distribution and selling expenses
recorded in connection with net cable access fees, internet, direct-mail and marketing expenses,
credit card fees and bad debt expense, (ii) increases in costs associated with our restructuring
initiative and (iii) expense associated with our CEO departure. These operating expense
increases were offset by decreases in general and administrative expense as a result of the
restructuring initiative, reduced salary and bonuses and a net decrease in depreciation and
amortization expense as a result of the timing of fully depreciated assets year over year.
Net Income (Loss)
For the 2007 third quarter, we reported a net loss available to common shareholders of
($5,801,000) or ($.16) per share on 36,331,000 weighted average common shares outstanding compared
with a net loss available to common shareholders of ($3,199,000) or ($.09) per share on 37,628,000
weighted average common shares outstanding for the 2006 third quarter. For the nine months ended
November 3, 2007, we reported net income available to common shareholders of $23,025,000 or $.54
per share on 42,438,000 weighted average common shares outstanding ($.55 per share on 42,459,000
diluted shares), compared with a net loss available to common shareholders of ($6,130,000) or ($.16)
per share on 37,700,000 weighted average common shares outstanding for the nine months ended
November 4, 2006. Net loss available to common shareholders for the third quarter of 2007 includes
interest income totaling $1,728,000 earned on our cash and short-term investments. Net loss
available to common shareholders for the third quarter of 2006 includes the recording of $646,000
of equity in earnings from RLM, and interest income totaling $990,000 earned on our cash and
short-term investments. Net income available to common shareholders for the nine months ended
November 3, 2007 includes the recording of a pre-tax gain of $40,240,000 on the sale of RLM, the
recording of $609,000 of equity in earnings from RLM, a $119,000 loss on the sale of a
non-operating real estate asset held for sale and interest income totaling $4,543,000 earned on our
cash and short-term investments.
22
For the nine months ended November 4, 2006, the net loss
available to common shareholders included the recording of $2,192,000 of equity in earnings from RLM, a $500,000 gain on the sale of an investment, a $150,000
write-down of a non-operating real estate asset held for sale, and interest income totaling
$2,951,000 earned on our cash and short-term investments.
For the first nine months of 2007 we reported a net income tax provision of $921,000, which
included $760,000 of income taxes attributable to the gain on the sale of RLM. The income tax
provision recorded for the first nine months of fiscal 2007 reflects a 2% effective alternative
minimum tax rate recorded on the gain recorded on the sale of RLM and state income taxes payable on
certain income for which there is no loss carryforward benefit available. We have not recorded any
income tax benefit on the loss recorded in the 2006 third quarter due to the uncertainty of
realizing income tax benefits in the future as indicated by our recording of an income tax
valuation reserve. We recorded state income taxes payable on certain income for which there is no
loss carryforward benefit available for the 2006 third quarter. We will continue to maintain a
valuation reserve against our net deferred tax assets until we believe it is more likely than not
that these assets will be realized in the future.
Adjusted EBITDA Reconciliation
Adjusted EBITDA
(as defined below) for the 2007 third quarter was $817,000 compared with
Adjusted EBITDA of $1,422,000 for the 2006 third quarter. For the nine months ended November 3,
2007 Adjusted EBITDA was $1,066,000 compared with Adjusted EBITDA of $6,333,000 for the nine months
ended November 4, 2006.
A reconciliation of EBITDA, as adjusted, to its comparable GAAP measurement, net income (loss)
follows, in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three-Month Periods |
|
|
For the Nine-Month Periods |
|
|
|
Ended |
|
|
Ended |
|
|
|
November 3, 2007 |
|
|
November 4, 2006 |
|
|
November 3, 2007 |
|
|
November 4, 2006 |
|
EBITDA, as adjusted |
|
$ |
817 |
|
|
$ |
1,422 |
|
|
$ |
1,066 |
|
|
$ |
6,333 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating gains and equity in income of RLM |
|
|
|
|
|
|
646 |
|
|
|
40,730 |
|
|
|
2,542 |
|
Restructuring costs |
|
|
(1,061 |
) |
|
|
|
|
|
|
(3,104 |
) |
|
|
(29 |
) |
CEO transition costs |
|
|
(2,096 |
) |
|
|
|
|
|
|
(2,096 |
) |
|
|
|
|
Non-cash stock option expense |
|
|
(382 |
) |
|
|
(392 |
) |
|
|
(1,394 |
) |
|
|
(1,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (as defined) |
|
|
(2,722 |
) |
|
|
1,676 |
|
|
|
35,202 |
|
|
|
7,708 |
|
A reconciliation of EBITDA to net income
(loss) is as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA, as defined |
|
|
(2,722 |
) |
|
|
1,676 |
|
|
|
35,202 |
|
|
|
7,708 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
(4,734 |
) |
|
|
(5,777 |
) |
|
|
(15,581 |
) |
|
|
(16,527 |
) |
Interest income |
|
|
1,728 |
|
|
|
990 |
|
|
|
4,543 |
|
|
|
2,951 |
|
Income taxes |
|
|
|
|
|
|
(15 |
) |
|
|
(921 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(5,728 |
) |
|
$ |
(3,126 |
) |
|
$ |
23,243 |
|
|
$ |
(5,913 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA represents net income (loss) from continuing operations for the respective periods
excluding depreciation and amortization expense, interest income (expense) and income taxes. We
define EBITDA, as adjusted, as EBITDA excluding non-recurring non-operating gains (losses) and
equity in income of Ralph Lauren Media, LLC; non-recurring restructuring and CEO transition costs;
and non-cash stock option expense.
Management has included the term EBITDA, as adjusted, in its EBITDA reconciliation in order to
adequately assess the operating performance of the Companys core television and Internet
businesses and in order to maintain comparability to our analysts coverage and financial guidance.
Management believes that EBITDA, as adjusted, allows investors to make a more meaningful
comparison between our core business operating results over different periods of time with those of
other similar small cap, higher growth companies. In addition, management uses EBITDA, as
adjusted, as a metric measure to evaluate operating performance under its management and executive
incentive compensation programs. EBITDA, as adjusted, should not be construed as an alternative to
operating income (loss) or to cash flows from operating activities as determined in accordance with
generally accepted accounting principles and should not be construed as a measure of liquidity.
EBITDA, as adjusted, may not be comparable to similarly entitled measures reported by other
companies.
23
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RISK FACTORS
A discussion of the critical accounting policies related to accounting estimates and
assumptions and specific risks and uncertainties are discussed in detail in our fiscal 2006 annual
report on Form 10-K under the captions entitled Risk Factors and Critical Accounting Policies
and Estimates.
Cable and satellite distribution agreements representing approximately 60% of the total cable
and satellite households who currently receive our television programming are scheduled to expire
at the end of 2008. While we and NBC, as our agent, have begun initial discussions with certain
cable system operators regarding extensions or renewals of these agreements, no assurance can be
given that we will be successful in negotiating renewal contracts with all the existing systems, or
that the financial and other terms of renewal will be on acceptable terms. Failure to successfully
renew carriage agreements covering a material portion of our existing cable and satellite
households on acceptable financial and other terms could adversely affect our future growth, sales
revenues and earnings unless we were able to arrange for alternative means of broadly distributing
our television programming.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of November 3, 2007, cash and cash equivalents and short-term investments were
$102,794,000, compared to $71,294,000 as of February 3, 2007, a $31,500,000 increase driven
primarily by the cash proceeds received in connection with the sale of RLM during the first quarter
of fiscal 2007. For the quarter, working capital increased $17,096,000 to $172,267,000. The current
ratio was 2.4 at November 3, 2007 compared to 2.5 at February 3, 2007.
Sources of Liquidity
Our principal sources of liquidity are our available cash, cash equivalents and short-term
investments, accrued interest earned from our short-term investments and our operating cash flow,
which is primarily generated from credit card receipts from sales transactions and the collection
of outstanding customer accounts receivables. The timing of customer collections made pursuant to
our ValuePay installment program and the extent to which we extend credit to our customers is
important to our short-term liquidity and cash resources. A significant increase in our accounts
receivable aging or credit losses could negatively impact our source of cash from operations in the
short term. While credit losses have historically been within our estimates for these losses, there
is no guarantee that we will continue to experience the same credit loss rate that we experienced
in the past. Historically, we have also generated additional cash sources from the proceeds of
stock option exercises and from the sale of our equity investments and other properties; however,
these sources of cash are neither relied upon nor controllable by us. We have no long-term debt and
believe we have the ability to obtain additional financing if necessary. At November 3, 2007,
short-term investments and cash equivalents were invested primarily in money market funds, high
quality commercial paper with original maturity dates of less than 270 days and investment grade
corporate and auction rate securities with tender option terms ranging from one month to two years.
Although management believes our short-term investment policy is conservative in nature, certain
short-term investments in commercial paper can be exposed to the credit risk of the underlying
companies to which they relate and interest earned on these investments are subject to interest
rate fluctuations. The maturities and tender option terms within our investment portfolio generally
range from 30 to 180 days.
Cash Requirements
Our principal use of cash is to fund our business operations, which consist primarily of
purchasing inventory for resale, funding account receivables growth in support of sales growth and
funding operating expenses, particularly our contractual commitments for cable and satellite
programming and the funding of capital expenditures. Expenditures made for property and equipment
in fiscal 2007 and 2006 and for expected future capital expenditures include the upgrade and
replacement of computer software and front-end merchandising systems, expansion of capacity to
support our growing business, continued improvements and modifications to our owned headquarter
buildings and the upgrade and digitalization of television production and transmission equipment
and related computer equipment associated with the expansion of our home shopping business and
e-commerce initiatives. Historically, we also used our cash resources for various strategic
investments and for the repurchase of stock under stock repurchase programs but we are under no
obligation to do so if protection of liquidity is desired. We are authorized to purchase
$35 million of our stock under repurchase programs and have the discretion to repurchase stock under the programs and make strategic
investments consistent with our business strategy.
24
We ended November 3, 2007 with cash and cash equivalents and short-term investments of
$102,794,000 and no long-term debt obligations. We expect future growth in working capital as
revenues grow beyond fiscal 2007 but expect cash generated from operations to offset the expected use. We believe our existing cash balances and our ability to raise
additional financing will be sufficient to fund our obligations and commitments as they come due on
a long-term basis and sufficient to fund potential foreseeable contingencies. These estimates are
subject to business risk factors including those identified under Risk Factors in our fiscal 2006
annual report on Form 10-K. In addition to these risk factors, a significant element of uncertainty
in future cash flows arises from potential strategic investments we may make, which are inherently
opportunistic and difficult to predict. We believe existing cash balances, our ability to raise
financing and our ability to structure transactions in a manner reflective of capital availability
will be sufficient to fund any investments while maintaining sufficient liquidity for our normal
business operations.
Total assets at November 3, 2007 were $376,012,000, compared to $351,980,000 at February 3,
2007, a $24,032,000 increase. Shareholders equity was $208,098,000 at November 3, 2007, compared
to $198,847,000 at February 3, 2007, a $9,251,000 increase. The increase in shareholders equity
for the first nine months of fiscal 2007 resulted primarily from net income of $23,243,000 recorded
during the period, $1,789,000 related to the recording of share-based compensation and $540,000
from proceeds received related to the exercise of stock options. These increases were offset by
decreases in shareholders equity of $16,103,000 related to common stock repurchases and from
accretion on redeemable preferred stock of $218,000.
For the nine months ended November 3, 2007, net cash provided by operating activities totaled
$12,028,000 compared to net cash used for operating activities of $3,555,000 for the nine months
ended November 4, 2006. Net cash provided by (used for) operating activities for the 2007 and 2006
periods reflects net income (loss), as adjusted for depreciation and amortization, share-based
payment compensation, common stock issued to employees, asset impairment and write off charges,
equity in earnings of affiliates, amortization of deferred revenue and gain on sale of investments.
In addition, net cash provided by operating activities for the nine months ended November 3, 2007
reflects primarily an increase in inventories, deferred revenue and accounts payable and accrued
liabilities and a decrease in accounts receivable and prepaid expenses and other assets. Accounts
receivable decreased primarily due to a decrease from year end of receivables from sales utilizing
extended payment terms and the timing of customer collections under our ValuePay installment
program. Inventories increased from year-end primarily in preparation for the fourth quarter
holiday season. The increase in accounts payable and accrued expenses results primarily from
increases in accounts payable due to increased inventory levels and increased accruals recorded in
conjunction with our private label loyalty point program, CEO transition charge, restructuring
effort and accrued marketing fees, offset by decreases in accrued salaries, bonuses and accrued
cable access fees. The increase in deferred revenue is a direct result of the sales growth volume
experienced with our private label and co-branded credit card program which launched in fiscal
2006.
Net cash used for investing activities totaled $17,194,000 for the nine months ended November
3, 2007 compared to net cash provided by investing activities of $2,431,000 for the nine months
ended November 4, 2006. For the nine months ended November 3, 2007 and November 4, 2006,
expenditures for property and equipment were $8,704,000 and $8,641,000, respectively. Expenditures
for property and equipment during the 2007 and 2006 periods primarily include capital expenditures
made for the development, upgrade and replacement of computer software and front-end ERP, customer
care management and merchandising systems, related computer equipment, digital broadcasting
equipment and other office equipment, warehouse equipment, production equipment and building
improvements. Principal future capital expenditures are expected to include the development,
upgrade and replacement of various enterprise software systems, continued improvements and
modifications to our owned headquarter buildings, the expansion of warehousing capacity and
security in our Bowling Green distribution facility, the upgrade and digitalization of television
production and transmission equipment and related computer equipment associated with the expansion
of our home shopping business and e-commerce initiatives. In the nine months ended November 3,
2007, we invested $82,913,000 in various short-term investments, received proceeds of $30,673,000
from the sale of short-term investments and received proceeds of $43,750,000 from the sale of our
RLM investment. In the nine months ended November 4, 2006, we invested $20,627,000 in various
short-term investments, received proceeds of $30,949,000 from the sale of short-term investments
and received proceeds of $500,000 from the sale of an internet investment previously written off
and received a $250,000 cash dividend from RLM.
Net cash used for financing activities totaled $15,575,000 for the nine months ended November
3, 2007 and related primarily to payments made of $16,103,000 in conjunction with the repurchase of
1,754,000 shares of the Companys common stock, offset by cash proceeds received of $528,000 from
the exercise of stock options. Net cash used for financing activities totaled $3,981,000 for the
comparable prior year period and related primarily to payments made of $4,698,000 in conjunction
with the repurchase of 406,000 shares of the Companys common stock and cash payments on long-term
capital lease obligations of $222,000, offset by cash proceeds received of $939,000 from the
exercise of stock options.
25
Our Class A Redeemable Convertible Preferred Stock issued to GE Equity may be redeemed upon
certain changes in control of our company and, in any event, may be redeemed on March 8, 2009 upon the
ten-year anniversary of its issuance (unless previously converted into common stock). If we are
unable to generate positive cash flow or obtain additional capital prior to any such redemption,
the requirement that we pay cash in connection with such redemption may have a material impact on
our liquidity and cash resources. The aggregate redemption cost of all the Preferred Stock is
$44,264,000. The Preferred Stock has a redemption price of $8.29 per share and is convertible on a
one-for-one basis into our common stock, and accordingly, if the market value of our stock is
higher than the redemption price immediately prior to the redemption date, GE Equity may choose to
convert its shares of Preferred Stock to common stock rather than exercise its right to redemption.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
We do not enter into financial instruments for trading or speculative purposes and do not
currently utilize derivative financial instruments as a hedge to offset market risk. In past years,
we held certain equity investments in the form of common stock purchase warrants in public
companies and accounted for these investments in accordance with the provisions of SFAS No. 133. We
no longer have investments of that nature. Our operations are conducted primarily in the United
States and are not subject to foreign currency exchange rate risk. However, some of our products
are sourced internationally and may fluctuate in cost as a result of foreign currency swings. We
currently have no long-term debt, and accordingly, are not significantly exposed to interest rate
risk, although changes in market interest rates do impact the level of interest income earned on
our substantial cash and short-term investment portfolio.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the periods covered by this report, our management conducted an evaluation,
under the supervision and with the participation of our chief executive officer and chief financial
officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) established and maintained by
our management. Based on this evaluation, the officers concluded that our disclosure controls and
procedures were effective to ensure that information required to be disclosed by us in reports that
we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in Internal Controls over Financial Reporting
Our management, with the participation of the chief executive officer and chief financial
officer, performed an evaluation as to whether any change in the internal controls over financial
reporting (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934)
occurred during the periods covered by this report. Based on that evaluation, the chief executive
officer and chief financial officer concluded that no change occurred in the internal controls over
financial reporting during the period covered by this report that materially affected, or were
reasonably likely to materially affect, the internal controls over financial reporting.
26
PART II Other Information
ITEM 1. Legal Proceedings
The Federal Communications Commission, known as the FCC, issued a public notice on May 4, 2007
stating that it was updating the public record for a petition for reconsideration filed in 1993 and
still pending before the FCC. The petition challenges the FCCs prior determination to grant the
same mandatory cable carriage (or must-carry) rights for TV broadcast stations carrying home
shopping programming that the FCCs rules accord to other TV stations. The time period for comments
and reply comments regarding the reconsideration closed in August 2007, and we submitted comments
supporting the continuation of must-carry rights for home shopping stations. If the FCC decided to
change its prior determination and withdraw must-carry rights for home shopping stations as a
result of this updating of the public record, we could lose our current carriage distribution on
cable systems in three markets: Boston, Pittsburgh and Seattle, which currently constitute
approximately 3.2 million full-time equivalent households, or FTEs, receiving our programming. We
own the Boston television station and have carriage contracts with the Pittsburg and Seattle
television stations. In addition, if must-carry rights for home shopping stations are withdrawn, it
may not be possible to replace these FTEs on commercially reasonable terms and the carrying value
of our Boston television station ($31.9 million) may become partially impaired. At this time, we
cannot predict the timing or the outcome of the FCCs action to update the public record on this
issue.
On November 27, 2007, the FCC adopted amendments to its rules implementing the commercial
leased access provisions of the Communications Act of 1934, as amended. These provisions set aside
up to 15% of activated channels on cable systems for lease by independent programmers such as the
Company, at rates set by the FCC pursuant to standards set forth in the Act. Although the text of
the order has not yet been released, the FCCs public notice of the order and the public FCC
meeting leading to its adoption indicate that it is intended to enhance customer service standards
for provision of leased access, expedite responses to leased access requests, and strengthen
existing procedures for enforcing leased access rights. While the order also appears to reduce
current rates for leased access, the FCC has reserved for further proceedings the question of
whether home shopping programmers should be entitled to that reduction. At this time, we cannot
predict the outcome of those proceedings, whether any amendments to the FCCs leased access rules
will be challenged on judicial review, the outcome of any such litigation, or the impact of these
proceedings on the ability of the Company to maintain or increase its carriage on cable systems.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to purchases of common stock of the
Company made during the three months ended November 3, 2007, by the Company or by any affiliated
purchaser of the Company, as defined in Rule 10b-18(a)(3) under the Exchange Act:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Value of Shares |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
that May Yet Be |
|
|
Total Number of |
|
Average Price Paid |
|
Part of a Publicly |
|
Purchased Under the |
Period |
|
Shares Purchased |
|
per Share (1) |
|
Announced Program |
|
Program (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 5, 2007 through September 1, 2007 |
|
|
412,000 |
|
|
$ |
8.13 |
|
|
|
1,009,000 |
|
|
$ |
20,267,000 |
|
September 2, 2007 through October 6, 2007 |
|
|
745,000 |
|
|
$ |
8.05 |
|
|
|
1,754,000 |
|
|
$ |
14,274,000 |
|
October 7, 2007 through November 3, 2007 |
|
|
|
|
|
|
|
|
|
|
1,754,000 |
|
|
$ |
14,274,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,157,000 |
|
|
$ |
8.08 |
|
|
|
1,754,000 |
|
|
$ |
14,274,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes fees and commissions paid on stock repurchases. |
27
|
|
|
(2) |
|
In August 2006, the Companys board of directors authorized a common stock repurchase
program. The program authorizes the Companys management, acting through an investment
banking firm selected as the Companys agent, to repurchase up to $10 million of the
Companys common stock by open market purchases or negotiated transactions at prices and
amounts as determined by the Company from time to time. In May 2007, the Companys board
of directors authorized the repurchase of an additional $25 million of its common stock
under the repurchase program. |
ITEM 6. Exhibits
|
|
|
Exhibit Number |
|
Exhibit |
3.1
|
|
Sixth Amended and Restated Articles of Incorporation, as Amended. (A) |
3.2
|
|
Certificate of Designation of Series A Redeemable Convertible Preferred Stock. (B) |
3.3
|
|
Articles of Merger. (C) |
3.4
|
|
Bylaws, as amended. (A) |
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.* |
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.* |
32
|
|
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer.* |
|
|
|
* |
|
Filed herewith. |
|
(A) |
|
Incorporated herein by reference to the Registrants Quarterly Report on Form 10-QSB for the
quarter ended August 31, 1994, filed on September 13, 1994, File No. 0-20243. |
|
(B) |
|
Incorporated herein by reference to the Registrants Current Report on Form 8-K dated April
15, 1999, filed on April 29, 1999, File No. 0-20243. |
|
(C) |
|
Incorporated herein by reference to the Registrants Current Report on Form 8-K dated May 16,
2002, filed on May 17, 2002, File No. 0-20243. |
28
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.
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
December 13, 2007
|
|
|
|
|
|
|
|
|
/s/ John D. Buck
|
|
|
John D. Buck |
|
|
Interim Chief Executive Officer and Director
(Interim Principal Executive Officer) |
|
|
December 13, 2007
|
|
|
|
|
|
|
|
|
/s/ Frank P. Elsenbast
|
|
|
Frank P. Elsenbast |
|
|
Senior Vice President Finance, Chief Financial
Officer
(Principal Financial Officer) |
|
29
EXHIBIT INDEX
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
Exhibit |
|
Filed by |
3.1
|
|
Sixth Amended and Restated Articles of Incorporation, as Amended
|
|
Incorporated by reference |
3.2
|
|
Certificate of Designation of Series A Redeemable Convertible Preferred Stock
|
|
Incorporated by reference |
3.3
|
|
Articles of Merger
|
|
Incorporated by reference |
3.4
|
|
Bylaws, as amended
|
|
Incorporated by reference |
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
|
|
Filed herewith |
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
|
|
Filed herewith |
32
|
|
Section 1350 Certification of Chief Executive Officer and Chief Financial
Officer
|
|
Filed herewith |
30