UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
February 2, 2008
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or
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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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
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(I.R.S. Employer
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of Incorporation or
Organization)
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Identification No.)
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6740 Shady Oak Road, Eden Prairie, MN
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55344-3433
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(Address of Principal Executive
Offices)
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(Zip Code)
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952-943-6000
(Registrants Telephone
Number, Including Area Code)
Securities registered under Section 12(b) of the
Exchange Act:
Common Stock, $0.01 par value
Name of
exchange on which registered: Nasdaq Global Market
Securities registered under Section 12(g) of the Exchange
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
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 if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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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 April 14, 2008, 33,550,834 shares of the
registrants common stock were outstanding. The aggregate
market value of the common stock held by non-affiliates of the
registrant on August 3, 2007, based upon the closing sale
price for the registrants common stock as reported by the
Nasdaq Global Market on August 3, 2007 was approximately
$269,762,167. For purposes of determining such aggregate market
value, all officers and directors of the registrant are
considered to be affiliates of the registrant, as well as
shareholders holding 10% or more of the outstanding common stock
as reflected on Schedules 13D or 13G filed with the registrant.
This number is provided only for the purpose of this annual
report on
Form 10-K
and does not represent an admission by either the registrant or
any such person as to the status of such person.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement to
be filed with the Securities and Exchange Commission pursuant to
Regulation 14A not later than 120 days after the close
of its fiscal year ended February 2, 2008 are incorporated
by reference in Part III of this annual report on
Form 10-K.
VALUEVISION
MEDIA, INC.
ANNUAL REPORT ON
FORM 10-K
For the Fiscal Year Ended
February 2, 2008
TABLE OF CONTENTS
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CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This annual report on
Form 10-K,
as well as other materials filed by us with the Securities and
Exchange Commission, and information included in oral statements
or other written statements made or to be made by us, contains
forward-looking statements regarding us, our business prospects
and our results of operations that are subject to certain risks
and uncertainties posed by many factors and events that could
cause our actual business, prospects and results of operations
to differ materially from those that may be anticipated by the
forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to,
those described in the Risk Factors section of this
annual report on
Form 10-K,
as well as risks relating to: consumer spending and debt levels;
the general economic and credit environment; 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 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; 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.
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PART I
When we refer to we, us or the
company, we mean ValueVision Media, Inc. and its
subsidiaries unless the context indicates otherwise. ValueVision
Media, Inc. is a Minnesota corporation with principal and
executive offices located at 6740 Shady Oak Road, Eden Prairie,
Minnesota
55344-3433.
ValueVision Media, Inc. was incorporated on June 25, 1990.
Our fiscal year ended February 2, 2008 is designated fiscal
2007, our fiscal year ended February 3, 2007 is designated
fiscal 2006 and our fiscal year ended February 4, 2006 is
designated fiscal 2005.
We are an integrated direct marketing company that markets,
sells and distributes our products directly to consumers through
various forms of electronic media and direct-to-consumer
mailings otherwise known as multi-channel retailing. Our
operating strategy incorporates television home shopping,
internet
e-commerce,
direct mail marketing and fulfillment services. Our principal
electronic media activity is our television home shopping
business, which uses on-air spokespersons to market brand name
merchandise and private label consumer products at competitive
prices. Our 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,
we distribute our programming through a company-owned full power
television station in Boston, Massachusetts. We also market and
sell a broad array of merchandise through our internet retailing
websites, www.shopnbc.com and www.shopnbc.tv.
We have an exclusive license from NBC Universal, Inc., known as
NBCU, for the worldwide use of an NBC-branded name and the
peacock image for a period ending in May 2011. Pursuant to the
license, we operate our television home shopping network under
the ShopNBC brand name and operate our internet website under
the ShopNBC.com brand name.
Television
and Internet Retailing
Our principal electronic media activity is our live
24-hour per
day television home shopping network program. Our home shopping
network is the third largest television home shopping retailer
in the United States. Through our merchandise-focused television
programming, we sell a wide variety of products and services
directly to consumers. Sales from our television and companion
internet website business, including shipping and handling
revenues, totaled $767,276,000, $755,302,000 and $680,592,000
representing 98% of consolidated net sales for fiscal 2007, 2006
and 2005. Products are presented by on-air television home
shopping sales persons and guests; viewers may then call a
toll-free telephone number and place orders directly with us or
enter an order on the ShopNBC.com website. Our television
programming is produced at our Eden Prairie, Minnesota facility
and is transmitted nationally via satellite to cable system
operators, satellite dish owners and to our full power broadcast
television station WWDP TV-46 in Boston, Massachusetts.
Products
and Product Mix
Products sold on our television network and internet shopping
website include jewelry, watches, computers and other
electronics, housewares, apparel, cosmetics, seasonal items and
other merchandise. We believe that having a broad diversity of
products appeals to a larger segment of potential customers and
is important to our growth. Our product diversification 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 operation.
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The following table shows our television and internet net sales
during the past three fiscal years by product category:
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Category
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Fiscal 2007
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Fiscal 2006
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Fiscal 2005
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Jewelry
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38
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%
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39
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%
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43
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Home products
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37
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%
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37
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%
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36
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Watches, apparel and other
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25
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24
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21
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Jewelry. Our jewelry merchandise assortment
includes gold and gemstone jewelry for men and women.
Home products. Home products consist of
products for the home, including home electronics such as
televisions and computers, mattresses, lamps and other home
furnishings.
Watches, apparel and other. Watches, apparel
and other consists of clothing and footwear for men and women,
as well as watches, cosmetics, health and beauty items, coins,
seasonal merchandise and other unique items.
We endeavor to be positioned as a profitable and innovative
leader in multi-channel retailing in the United States. The
following strategies were pursued during fiscal 2007 to increase
revenues and profitability and grow our active customer base,
for both television and internet sales: (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 capabilities,
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.
At the beginning of fiscal 2008, a new chief executive officer
and three new industry-experienced senior executives joined us.
These new senior executives are reviewing our strategy for
long-term growth in revenues and profits, in conjunction with
the board of directors and other members of management, and will
develop a plan for improving our strategic focus during fiscal
2008. Some of the key focus areas include: improving the
customer experience; retaining and growing the core customer
base of repeat customers; shifting the merchandise mix and price
points to appeal to the core female customer; broadening the
vendor base; and improving business disciplines and execution.
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C.
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Television
Program Distribution and Internet Operations
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Television
Home Shopping Network
Satellite Delivery of Programming. Our
programming is presently distributed via a leased communications
satellite transponder to cable systems, a full power television
station in Boston, certain other broadcast stations and
satellite dish owners. On January 31, 2005, we entered into
a new long-term satellite lease agreement with our present
provider of satellite services. Pursuant to the terms of this
agreement, we distribute our programming through a satellite
that was launched in February 2006. The agreement provides us
with preemptable
back-up
services if satellite transmission is interrupted.
Cable Affiliation Agreements. As of
February 2, 2008, we have entered into affiliation
agreements with parties representing approximately 1,400 cable
systems that require each operator to offer our television home
shopping programming substantially on a full-time basis over
their systems. The stated terms of the affiliation
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agreements typically ranged originally from three to twelve
years. Under certain circumstances, the television operators may
cancel the agreements prior to their expiration. The affiliation
agreements generally provide that we will pay each operator a
monthly access fee and marketing support payments based on the
number of homes receiving our programming. Certain of the
affiliation agreements also required payment of one-time initial
launch fees, which are capitalized and amortized on a
straight-line basis over the term of the agreements. We are
seeking to enter into affiliation agreements with additional
television operators providing for full- or part-time carriage
of our programming.
A significant number of cable operators have started to offer
cable programming on a digital basis. The use of digital
compression technology provides cable companies with greater
channel capacity. While greater channel capacity increases the
opportunity for distribution and, in some cases, reduces
subscriber fees paid by us, it also may adversely impact our
ability to compete for television viewers to the extent it
results in higher channel position for us, placement of our
programming in separate programming tiers, the broadcast of
additional competitive channels or viewer fragmentation due to a
greater number of programming alternatives.
During 2007, there were approximately 112 million homes in
the United States with at least one television set. Of those
homes, there were approximately 66 million basic cable
television subscribers and approximately 28 million
direct-to-home satellite subscribers or DTH. Homes that receive
our television home shopping programming 24 hours per day
are each counted as one full-time equivalent, or FTE, and homes
that receive our programming for any period less than
24 hours are counted based upon an analysis of time of day
and day of week that programming is received. We have continued
to experience growth in the number of FTE subscriber homes that
receive our programming.
As of February 2, 2008, we served approximately
72.4 million subscriber homes, or approximately
68.9 million average FTEs, compared with approximately
69.2 million subscriber homes, or approximately
65.2 million average FTEs, as of February 3, 2007. As
of February 2, 2008, our television home shopping
programming was carried by 1,454 broadcasting systems on a
full-time basis, compared to 1,320 broadcasting systems on
February 3, 2007, and 60 broadcasting systems on a
part-time basis for both fiscal years. The total number of cable
homes that presently receive our television home shopping
programming represents approximately 67% of the total number of
cable subscribers in the United States. NBCU has the exclusive
right to negotiate on our behalf for the distribution of our
television home shopping service pursuant to the terms of the
strategic alliance between us, NBCU and GE Capital Equity
Investments, Inc. (now known as GE Commercial
Finance Equity, and referred to in this report as GE
Equity) entered into in March 1999. See Strategic
Relationships Strategic Alliance with NBCU and GE
Equity Strategic Alliance discussed below.
Direct Satellite Service Agreements. Our
programming is carried on the direct-to-home, or DTH, satellite
services DIRECTV and DISH Network. Carriage is full-time and we
pay each operator a monthly access fee based upon the number of
subscribers receiving our television home shopping programming.
As of February 2, 2008, our programming reached
approximately 28 million DTH subscribers on a full-time
basis.
Other Methods of Program Distribution. Our
programming is also made available full-time to
C-band satellite dish owners nationwide and is made
available to homes in the Boston, Massachusetts market over the
air via a full power television broadcast station owned by us.
In fiscal 2007 and fiscal 2006, our Boston, Massachusetts
station and C-band satellite dish transmissions were
responsible for less than 5% of our total consolidated net sales.
Internet
Website
Our website, ShopNBC.com, provides customers with a broad array
of consumer merchandise, including all products being featured
on our television programming. The website includes a live
webcast feed of our television programming, an archive of recent
past programming, videos of many individual products that the
customer can view on demand and clearance and auction sites.
Internet sales for fiscal 2007 increased at a greater rate than
television sales over fiscal 2006. Internet net sales in fiscal
2007 increased by 18% over internet net sales in fiscal 2006,
while television home shopping net sales in fiscal 2007
decreased by 4% over television home shopping net sales in
fiscal 2006. Sales from our website
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business, inclusive of shipping and handling revenues, totaled
$217,854,000, $184,139,000 and $146,067,000, representing 28%,
24% and 21% of consolidated net sales for fiscal 2007, 2006 and
2005, respectively. We believe that our internet business
represents an important component of our future growth
opportunities, and we will continue to invest in and enhance our
internet-based capabilities.
Our
e-commerce
activities are subject to a number of general business
regulations and laws regarding taxation and online commerce. As
the role and importance of
e-commerce
has grown in the United States in recent years, there have been
continuing efforts to increase the legal and regulatory
obligations and restrictions on companies conducting commerce
through the internet, primarily in the areas of taxation,
consumer privacy and protection of consumer personal
information. These laws and regulations could increase the costs
and liabilities associated with our
e-commerce
activities and increase the price of our products to consumers,
without an increase in our revenue or net income. On
October 31, 2007, the United States enacted a seven-year
moratorium on internet access taxes extending a ban on internet
taxes that was set to expire on November 1, 2007. In
addition, in November 2002, a number of states approved a
multi-state agreement to simplify state sales tax laws by
establishing one uniform system to administer and collect sales
taxes on traditional retailers and electronic commerce
merchants. The agreement became effective on October 3,
2005, although fewer than half of the states have become members
by enacting implementation legislation. No prediction can be
made as to whether individual states will enact legislation
requiring retailers such as us to collect and remit sales taxes
on transactions that occur over the internet. Adding sales tax
to our internet transactions could negatively impact consumer
demand.
The federal Controlling the Assault of Non-Solicited Pornography
and Marketing Act of 2003, or the CAN-SPAM Act, was signed into
law on December 16, 2003 and went into effect on
January 1, 2004. The CAN-SPAM Act pre-empts similar laws
passed by over thirty states, some of which contain restrictions
or requirements that are viewed as stricter than those of the
CAN-SPAM Act. The CAN-SPAM Act is primarily an opt-out type law;
that is, prior permission to send
e-mail
solicitations to a recipient is not required, but a recipient
may affirmatively opt out of such future
e-mail
solicitations. The CAN-SPAM Act requires commercial
e-mails to
contain a clear and conspicuous identification that the message
is an advertisement or solicitation for goods or services
(unless the sender obtains prior affirmative consent from the
recipient to receive such messages), as well as a clear and
conspicuous unsubscribe function that allows recipients to alert
the sender that they do not desire to receive future
e-mail
solicitation messages. In addition, the CAN-SPAM Act requires
that all commercial
e-mail
messages include a valid physical postal address. We believe the
CAN-SPAM Act limits our ability to pursue certain direct
marketing activities, thus limiting our sales and potential
customers.
Changes in consumer protection laws also may impose additional
burdens on those companies conducting business online. The
adoption of additional laws or regulations may decrease the
growth of the internet or other online services, which could, in
turn, decrease the demand for our products and services and
increase our cost of doing business through the internet.
In addition, since our website is available over the internet in
all states, various states may claim that we are required to
qualify to do business as a foreign corporation in such state, a
requirement that could result in fees and taxes as well as
penalties for the failure to qualify. Any new legislation or
regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business
or the application of existing laws and regulations to the
internet and other online services could have a material adverse
effect on the growth of our business in this area.
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D.
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Strategic
Relationships
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NBC
Trademark License Agreement
On November 16, 2000, we entered into a trademark license
agreement with NBCU pursuant to which NBCU granted us an
exclusive, worldwide license for a term of ten years to use
certain NBC trademarks, service marks and domain names to
rebrand our business and corporate name and website. We
subsequently selected the names ShopNBC and ShopNBC.com.
Under the license agreement we have agreed, among other things,
to (i) certain restrictions on using trademarks, service
marks, domain names, logos or other source indicators owned or
controlled by NBCU, (ii) the
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loss of our rights under the license with respect to specific
territories outside of the United States in the event we fail to
achieve and maintain certain performance targets in such
territories, (iii) not own, operate, acquire or expand our
business to include certain businesses without NBCUs prior
consent, (iv) comply with NBCUs privacy policies and
standards and practices, and (v) not own, operate, acquire
or expand our business such that one-third or more of our
revenues or our aggregate value is attributable to certain
services (not including retailing services similar to our
existing
e-commerce
operations) provided over the internet. The license agreement
also grants to NBCU the right to terminate the license agreement
at any time upon certain changes of control of our company, in
certain situations upon the failure by NBCU to own a certain
minimum percentage of our outstanding capital stock on a fully
diluted basis, and certain other situations. On March 28,
2007, we and NBCU agreed to extend the term of the license by
six months, such that the license would continue through
May 15, 2011, and to provide that certain changes of
control involving a financial buyer would not provide the basis
for an early termination of the license by NBCU.
Strategic
Alliance with NBCU and GE Equity
In March 1999, we entered into a strategic alliance with NBCU
and GE Equity. Pursuant to the terms of the transaction, NBCU
and GE Equity acquired 5,339,500 shares of our
Series A Redeemable Convertible Preferred Stock between
April 1999 and June 1999, and NBCU was issued a warrant to
acquire 1,450,000 shares of our common stock, known as the
distribution warrants, with an exercise price of $8.29 per
share, under a distribution and marketing agreement discussed
below. In addition, we issued to GE Equity a warrant, known as
the investment warrant, to increase its potential aggregate
equity stake (together with its affiliates, including NBCU) at
the time of exercise to approximately 40%. The preferred stock
is convertible into an equal number of shares of our common
stock, subject to anti-dilution adjustments, has a mandatory
redemption on the tenth anniversary of its issuance or upon a
change of control at $8.29 per share, participates in dividends
on the same basis as the common stock and has a liquidation
preference over the common stock and any other junior
securities. On July 6, 1999, GE Equity exercised the
investment warrant and acquired an additional
10,674,000 shares of our common stock for an aggregate of
$178,370,000, or $16.71 per share. Following the exercise of the
investment warrant, the combined ownership of our company by GE
Equity and NBCU on a diluted basis was approximately 40%. In
February 2005, GE Equity sold 2,000,000 shares of our
common stock to several purchasers. In July 2005, GE Equity
entered into agreements to sell an additional
2,604,932 shares of our common stock in privately
negotiated transactions to a number of different purchasers;
this sale was completed on September 15, 2005. As of the
end of fiscal 2007, GE Equity and NBCU currently have a combined
ownership in our company of approximately 29% on a diluted basis.
GE
Equity Shareholder Agreement
In March 1999, we also entered into a shareholder agreement with
GE Equity, which provides for certain corporate governance and
standstill matters. The shareholder agreement (together with the
certificate of designation of the preferred stock) initially
provided that GE Equity and NBCU would be entitled to designate
nominees for two out of seven members of our board of directors
so long as their aggregate beneficial ownership was at least
equal to 50% of their initial beneficial ownership, and one out
of seven members so long as their aggregate beneficial ownership
was at least 10% of the adjusted outstanding shares of
common stock, as defined in the shareholder agreement. The
shareholder agreement also requires the consent of GE Equity
prior to our entering into any material agreements with certain
restricted parties (broadcast networks and internet portals in
certain limited circumstances). Finally, we are prohibited from
exceeding certain thresholds relating to the issuance of voting
securities over a twelve-month period, the payment of quarterly
dividends, the repurchase of common stock, acquisitions
(including investments and joint ventures) or dispositions, and
the incurrence of debt greater than the larger of
$40 million or 30% of our total capitalization. We are also
prohibited from taking any action that would cause any ownership
interest by us in TV broadcast stations from being attributable
to GE Equity, NBCU or their affiliates.
The shareholder agreement provides that during the standstill
period (as defined in the shareholder agreement), subject to
certain limited exceptions, GE Equity and NBCU are prohibited
from: (i) any asset/ business purchases from us in excess
of 10% of the total fair market value of our assets;
(ii) increasing their beneficial ownership above 39.9% of
our shares; (iii) making or in any way participating in any
solicitation of proxies; (iv) depositing any securities of
our company in a voting trust; (v) forming, joining or in
any way becoming a member of a 13D Group with
respect to any voting securities of our company;
(vi) arranging any financing for, or providing any
financing
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commitment specifically for, the purchase of any voting
securities of our company; (vii) otherwise acting, whether
alone or in concert with others, to seek to propose to us any
tender or exchange offer, merger, business combination,
restructuring, liquidation, recapitalization or similar
transaction involving us, or nominating any person as a director
of our company who is not nominated by the then incumbent
directors, or proposing any matter to be voted upon by our
shareholders. If, during the standstill period, any inquiry has
been made regarding a takeover transaction or
change in control, each as defined in the
shareholder agreement, that has not been rejected by the board
of directors, or the board pursues such a transaction, or
engages in negotiations or provides information to a third party
and the board has not resolved to terminate such discussions,
then GE Equity or NBCU may propose to us a tender offer or
business combination proposal.
In addition, unless GE Equity and NBCU beneficially own less
than 5% or more than 90% of the adjusted outstanding shares of
common stock, GE Equity and NBCU shall not sell, transfer or
otherwise dispose of any securities of our company except for
transfers: (i) to certain affiliates who agree to be bound
by the provisions of the shareholder agreement, (ii) that
have been consented to by us, (iii) pursuant to a
third-party tender offer, (iv) pursuant to a merger,
consolidation or reorganization to which we are a party,
(v) in a bona fide public distribution or bona fide
underwritten public offering, (vi) pursuant to
Rule 144 of the Securities Act of 1933, or (vii) in a
private sale or pursuant to Rule 144A of the Securities Act
of 1933; provided, that in the case of any transfer pursuant to
clause (v) or (vii), the transfer does not result in, to
the knowledge of the transferor after reasonable inquiry, any
other person acquiring, after giving effect to such transfer,
beneficial ownership, individually or in the aggregate with that
persons affiliates, of more than 10% of the adjusted
outstanding shares of the common stock.
The standstill period will terminate on the earliest to occur of
(i) the ten-year anniversary of the shareholder agreement,
(ii) our entering into an agreement that would result in a
change in control (subject to reinstatement),
(iii) an actual change in control, (iv) a
third-party tender offer (subject to reinstatement), or
(v) six months after GE Equity and NBCU can no longer
designate any nominees to the board of directors. Following the
expiration of the standstill period pursuant to clause (i)
or (v) above (indefinitely in the case of clause (i)
and two years in the case of clause (v)), GE Equity and
NBCUs beneficial ownership position may not exceed 39.9%
of our diluted outstanding stock, except pursuant to issuance or
exercise of any warrants or pursuant to a 100% tender offer for
our company.
On March 19, 2004, we agreed with NBCU and GE Equity to
amend the shareholder agreement as follows: (i) to increase
the authorized size of our board of directors to nine from
seven; (ii) to permit NBCU and GE Equity together to
appoint three directors instead of two to our board of
directors; and (iii) to provide that NBCU and GE Equity
would no longer have the right to have its director-nominees
serve on the audit, compensation or nominating and governance
committees, in the event the committees must be comprised solely
of independent directors under applicable laws or
Nasdaq regulations. In such case, NBCU and GE Equity would have
the right to have an observer attend all of these committee
meetings, to the extent permitted by applicable law or
regulation.
GE
Equity Registration Rights Agreement
Pursuant to the investment agreement, we entered into a
registration rights agreement with GE Equity providing GE
Equity, NBCU and their affiliates and any transferees and
assigns, an aggregate of five demand registrations and unlimited
piggy-back registration rights.
NBCU
Distribution and Marketing Agreement
We entered into a distribution and marketing agreement with NBCU
dated March 8, 1999 that provides NBCU with the exclusive
right to negotiate on our behalf for the distribution of our
home shopping television programming. NBCU may terminate the
distribution agreement if we enter into certain significant
affiliation agreements or a transaction resulting in a change in
control. As compensation for these services, we agreed to pay
NBCU an annual fee which is currently approximately $930,000 per
year, and issued NBCU 1,450,000 distribution warrants. The
exercise price of the distribution warrants was $8.29 per share.
In fiscal 2004, NBCU exercised a portion of the original
distribution warrants in a cashless exercise acquiring
101,509 shares of common stock. In fiscal 2005, NBCU
exercised all remaining original distribution warrants in a
cashless exercise acquiring 281,199 additional
9
shares of common stock. On March 28, 2007, we agreed with
NBCU to reduce the amount of the annual fee payable to NBCU to
the current rate of approximately $930,000.
Polo
Ralph Lauren/Ralph Lauren Media Electronic Commerce
Alliance
In February 2000, we entered into an agreement with Polo Ralph
Lauren, NBCU, NBCi and CNBC whereby the parties created RLM, a
joint venture formed for the purpose of bringing the Polo Ralph
Lauren lifestyle experience to consumers via multiple media
platforms, including internet, broadcast, cable and print.
During fiscal 2006, RLM was owned 50% by Polo Ralph Lauren,
37.5% by NBCU and its affiliates and 12.5% by us. RLMs
primary business activity to date has been the operation of the
Polo.com website. Polo.com launched in November 2000 and
includes an assortment of mens, womens,
childrens and home products across the Ralph Lauren family
of brands as well as unique gift items. In connection with the
formation of RLM, we entered into various agreements setting
forth the manner in which certain aspects of the business of RLM
are to be managed and certain of the members rights,
duties and obligations with respect to RLM. On March 28,
2007, we sold our 12.5% ownership interest in RLM to Polo Ralph
Lauren for approximately $43.8 million.
Agreement
for Services
In February 2000, RLM and our subsidiary VVI Fulfillment Center,
Inc., known as VVIFC, entered into an agreement for services
under which VVIFC provides certain telemarketing, customer
support and fulfillment services to RLM. 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. We anticipate that the services agreement will end in
the first quarter of fiscal 2008 as RLM migrates to its own
customer service, warehousing and fulfillment facilities.
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E.
|
Marketing
and Merchandising
|
Television
and Internet Retailing
Our television and internet revenues are generated from sales of
merchandise and services offered through our television home
shopping programming and website. Our television home shopping
business utilizes live television 24 hours a day, seven
days a week, to create an interactive and entertaining
atmosphere to describe and demonstrate our merchandise. Selected
customers participate through live conversations with on-air
sales hosts and occasional on-air guests. We believe our
customers make purchases based primarily on convenience, value,
quality of merchandise and promotional offerings, including
financing. Our customers are primarily women over the age of
35 with an annual household income in excess of $70,000. We
schedule special programming at different times of the day and
week to appeal to specific viewer and customer profiles. We
feature announced and occasionally unannounced promotions to
drive interest and incremental sales, including Our Top
Value, a sales program that features one special offer
every day. We also feature other major and special promotional
events and inventory-clearance sales.
Our merchandise is generally offered at or below comparable
retail prices. We continually introduce new products on our
television home shopping program and website. Inventory sources
include manufacturers, wholesalers, distributors and importers.
We intend to continue to promote private label merchandise,
which generally has higher margins than branded merchandise.
ShopNBC
Private Label and Co-Brand Credit Card Program
In the third quarter of fiscal 2006, we introduced a new private
label and co-branded revolving consumer credit card program. The
program is made available to all qualified consumers for the
financing of purchases of products and services from ShopNBC and
for the financing of purchases from other 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 all losses associated with non-payment by
cardholders. The issuing bank pays fees to us 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 our credit card rewards program.
Under the rewards program,
10
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 program provides a number
of benefits to customers in addition to the awards program,
including deferred billing options and other special offers.
During fiscal 2007 and fiscal 2006, customer use of the private
label and co-branded cards accounted for approximately 20% and
17% of our television and internet sales, respectively. We
believe that the use of the ShopNBC credit card furthers
customer loyalty and reduces our overall bad debt exposure since
the credit card issuing bank bears the risk of bad debt on
ShopNBC credit card transactions.
Favorable
Purchasing Terms
We obtain products for our direct marketing businesses from
domestic and foreign manufacturers and suppliers and are often
able to make purchases on favorable terms based on the volume of
products purchased or sold. Some of our purchasing arrangements
with our vendors include inventory terms that allow for return
privileges for a portion of the order or stock balancing. We
generally do not have long-term commitments with our vendors,
and a variety of sources are available for each category of
merchandise sold. During fiscal 2007 products purchased from one
vendor accounted for approximately 20% of our consolidated net
sales. We believe that we could find alternative sources for
this vendors products if this vendor ceased supplying
merchandise; however, the unanticipated loss of any large
supplier could impact our sales and earnings on a temporary
basis.
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F.
|
Order
Entry, Fulfillment and Customer Service
|
Our products are available for purchase via toll-free telephone
numbers or our website. We maintain an agreement with West
Teleservices Corporation to provide us with telephone order
entry operators for taking of customer orders. West Teleservices
provides teleservices to us from a service site located in
Omaha, Nebraska as well as through home agents. At the present
time, we do not utilize any call center services based overseas.
We own a 262,000 square foot distribution facility in
Bowling Green, Kentucky, which we use for the fulfillment of all
merchandise purchased and sold by us.
The majority of customer purchases are paid by credit card and
debit cards. As discussed above, we maintain a private label and
a co-brand credit card program using the ShopNBC name. Purchases
made with the ShopNBC private label credit card are non-recourse
to us. We also utilize an installment payment program called
ValuePay, which entitles customers to pay by credit card for
certain merchandise offered in two to five equal monthly
installments. We intend to continue to sell merchandise using
the ValuePay program due to its significant promotional value.
It does, however, create a credit collection risk from the
potential inability to collect outstanding balances.
We maintain a product inventory, which consists primarily of
consumer merchandise held for resale. The product inventory is
valued at the lower of average cost or realizable value, and we
reduce our balance by an allowance for excess and obsolete
merchandise. As of February 2, 2008 and February 3,
2007, we had inventory balances of $79,444,000 and $66,622,000,
respectively.
Merchandise is shipped to customers by the United States Postal
Service, UPS, DHL, and Federal Express or other recognized
carriers. We also have arrangements with certain vendors who
ship merchandise directly to our customers after an approved
customer order is processed.
Customer service functions are performed and processed by West
Teleservices as well as by us. Our in-house customer service
functions are located in our Brooklyn Center, Minnesota facility.
Our return policy allows a standard
30-day
refund period from the date of invoice for all customer
purchases. Our return rates have been approximately 32% to 33%
over the past three fiscal years. These return rates are higher
than the average return rates reported by our larger competitors
in the television home shopping industry. Management believes
the higher return rate is partially a result of (i) the
significantly higher average selling prices of our products as
compared to the average selling prices of our competitors, and
(ii) the fact that we have a higher percentage of sales
attributable to jewelry products. Both of these characteristics
are associated with higher product return rates. Management has
been pursuing a number of initiatives to reduce the overall
return rate.
11
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 we are in terms of annual revenues and
customers, and whose programming is carried more broadly to
U.S. households than is 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
businesses. The American Collectibles Network (ACN), the
operator of Jewelry Television, also competes with us for
television home shopping customers in the jewelry category. In
addition, there are a number of smaller niche players and
startups in the television home shopping arena who compete with
us.
The
e-commerce
sector is also highly competitive, and we are in direct
competition with virtually all other internet retailers, many of
whom are larger, more well-established, more well-financed
and/or have
broader customer bases. 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 us. For example, the
parent company of HSN has acquired the internet search business
Ask Jeeves (now known as Ask.com), and the parent company of QVC
acquired Provide Commerce, an operator of retail websites.
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 sectors, including
telecommunications and cable companies, television networks, and
other established retailers. We believe that our success in the
television home shopping and
e-commerce
businesses is dependent on a number of key factors, including
(i) obtaining carriage on additional cable systems, and
retaining our existing carriage, on favorable terms,
(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. We believe
that we are positioned to compete because of our established
relationships with cable operators. No assurance can be given,
however, that we will be able to acquire additional cable
carriage or maintain our current cable carriage at prices
favorable to us.
The cable television industry and the broadcasting industry in
general are subject to extensive regulation by the FCC. The
following does not purport to be a complete summary of all of
the provisions of the Communications Act of 1934, as amended,
known as the Communications Act, the Cable Television Consumer
Protection Act of 1992 known as the Cable Act, the
Telecommunications Act of 1996, known as the Telecommunications
Act, or other laws and FCC rules or policies that may affect our
operations.
Cable
Television
The cable industry is regulated by the FCC under the Cable Act
and FCC regulations promulgated thereunder, as well as by state
or local governments with respect to certain franchising matters.
Must Carry. In general, the FCCs
must carry rules under the Cable Act entitle analog
full power television stations to mandatory cable carriage of
their signals, at no charge, to all cable homes located within
each stations broadcast market provided that the signal is
of adequate strength, and the cable system must carry designated
channels available. FCC rules currently extend similar cable
must carry rights to the primary video and programming-related
material of new television stations that transmit only digital
television signals, and to existing television stations that
return their analog spectrum and convert to digital operations.
Cable providers obligation to provide must carry rights to
full power television stations after the close of the transition
to digital television is discussed below in Federal
Regulation Advanced Television Systems. In
addition, certain aspects
12
of the must carry rights of stations transmitting digital
television signals now, as well as after the transmission to
digital television, remain subject to pending FCC proceedings.
The FCC has also been asked to reevaluate its 1993 extension of
must carry rights to predominantly home shopping television
stations. Although this request was filed over ten years ago, in
May 2007 the FCC issued a public notice seeking additional
comment on the request. The comment period in response to the
FCCs public notice closed in August 2007, and the
proceeding remains pending. There can be no assurance the FCC
will uphold the right of home shopping television stations to be
eligible for must carry in the future. In addition, under the
Cable Act, cable systems may petition the FCC to determine that
a station is ineligible for must carry rights because of the
stations lack of service to the community, its previous
noncarriage or other factors. The unavailability of must carry
rights to our existing or future stations would likely
substantially reduce the number of cable homes that could be
reached by any full power television station that we own or may
acquire or on which we might provide programming.
Cable
Leased Access
The Cable Act and the FCCs rules provide unaffiliated
cable programmers such as us with certain rights to lease
channels from cable operators. In February 2008, the FCC
released an order revising its leased access rate formulas and
policies. The FCC declined, however, to extend at this time the
revised lease access rates and policies to home shopping
programmers, such as us, and other programmers that
predominantly transmit sales presentations or program length
commercials and infomercials. Instead, the FCC deferred
resolution of that issue until it completes a further
proceeding, on which it solicited comments. A number of parties,
including us, have sought judicial review of various aspects of
the FCCs February 2008 order, and those appeals have been
consolidated before the U.S. Court of Appeals for the Sixth
Circuit where they remain pending. We also have filed comments
in response to the FCCs further notice. There can be no
assurance as to the outcome of this litigation or of the
FCCs ongoing proceeding considering whether to extend the
revised lease access rates and policies to home shopping
programmers. Although no prediction can be made at this time, it
is possible that in the future it will become more difficult for
us to lease channels from cable operators because other
programmers will occupy the required leased access slots on a
particular cable system.
Broadcast
Television
General. Our acquisition and operation of
television stations is subject to FCC regulation under the
Communications Act. The Communications Act prohibits the
operation of television broadcasting stations except under a
license issued by the FCC. The statute empowers the FCC, among
other things, to issue, revoke and modify broadcasting licenses,
adopt regulations to carry out the provisions of the
Communications Act and impose penalties for violation of such
regulations. Such regulations impose certain obligations with
respect to the programming and operation of television stations,
including requirements for carriage of childrens
educational and informational programming, programming
responsive to local problems, needs and interests, advertising
upon request by legally qualified candidates for federal office,
closed captioning, and other matters. In addition, FCC rules
prohibit foreign governments, representatives of foreign
governments, aliens, representatives of aliens and corporations
and partnerships organized under the laws of a foreign nation
from holding broadcast licenses. Aliens may own up to 20% of the
capital stock of a licensee corporation, or generally up to 25%
of a U.S. corporation, which, in turn, has a controlling
interest in a licensee.
Full Power Television Station. In April 2003,
one of our wholly owned subsidiaries acquired a full power
television station serving the Boston, Massachusetts market. On
April 11, 2007, the FCC granted our application for renewal
of the stations license.
Broadcast Multiple Ownership Limits. Many of
our existing and potential competitors are larger and more
diversified than we are, or have greater financial, marketing,
merchandising and distribution resources. In January 2004,
Congress passed legislation that would allow a television
broadcaster to own local television stations reaching 39% of the
nations households, up from the previous 35% limit, and
these limits have been codified by the FCC. In June 2003, the
FCC adopted rules that would have significantly relaxed certain
other limits and restrictions on media ownership. Among other
changes, the FCC relaxed its rules governing the common
ownership of more than
13
one television station in any given market. In June 2004, the
U.S. Court of Appeals for the Third Circuit invalidated
these revised media ownership rules on the ground that the FCC
had failed to provide a sufficient justification for the relaxed
ownership limitations and restrictions, and stayed the new rules
pending further FCC proceedings and subsequent judicial review.
In June 2006, the FCC issued a further notice of proposed
rulemaking, again seeking comment on potential changes to its
media ownership rules. In February 2008, the FCC issued a report
and order that made limited changes to its rules governing
newspaper/broadcast cross ownership. It made no changes to its
other rules. A number of appeals of that decision have been
brought, and it is possible that, as a result of those appeals,
new rules will be adopted that result in increased consolidation
in the broadcast industry, making it more difficult for us to
compete.
Alternative
Technologies
Alternative technologies could increase the types of video
program delivery systems on which we may seek carriage. Three
direct broadcast satellite systems known as DBS currently
provide service to the public. According to FCC statistics, the
number of DBS subscribers continues to increase, and as of June
2006, 29% of households received their video programming via DBS
systems. Congress has enacted legislation designed to facilitate
the delivery of local broadcast signals by DBS operators and
thereby to promote DBS competition with cable systems. In
addition, another new technology permits the viewing of live
linear cable television channels through broadband-connected
personal computers, laptops and mobile devices, without the need
for a physical cable-box or special software. We currently
broadcast our live programming through a dedicated website,
ShopNBC.tv as well as through BiggyTV.com.
Advanced
Television Systems
Technological developments in television transmission will make
it possible for the broadcast and nonbroadcast media to provide
advanced television services, that is television services using
digital or other advanced technologies. The FCC in late 1996
approved a digital television technical standard known as DTV to
be used by television broadcasters, television set
manufacturers, the computer industry and the motion picture
industry. This DTV standard allows the simultaneous transmission
of multiple streams of digital data on the bandwidth presently
used by a normal analog channel. It is possible to broadcast one
or more high-definition channels with visual and sound quality
superior to
present-day
television or several standard-definition channels with digital
sound and pictures of a quality slightly better than present
television, or one high-definition and one or more
standard-definition channels; to provide interactive data
services, including visual or audio transmission, on multiple
channels simultaneously; or to provide some combination of these
possibilities on the multiple channels allowed by DTV.
As part of the nationwide transition from analog to digital
broadcasting, each full power television station has been
granted a second channel by the FCC on which to initiate digital
operations. On February 1, 2006, Congress passed a law
setting a final deadline for the DTV transition of
February 17, 2009, by which broadcasters must surrender
their analog signals and broadcast only on their allotted
digital frequency. We commenced operations on our digital
channel in May 2003. While broadcasters currently do not have to
pay to obtain digital channels, the FCC has ruled that a
television station that receives compensation from a third party
for the ancillary or supplementary use of its DTV spectrum
(e.g., data transmission or paging services) must pay a fee of
5% of gross revenues received. The FCC has rejected a proposal
that fees be imposed when a DTV broadcaster receives payment for
transmitting home shopping programming, although it left open
the question whether interactive home shopping programming might
be treated differently. It is not yet clear whether and how
television broadcast stations will be able to profit by the
transition to DTV, how quickly the viewing public will embrace
the cost of new digital television sets and monitors, or how
difficult it will be for viewers who do not do so to continue to
receive television broadcasts, whether through cable or DBS
service or over the air.
As noted above, the FCCs must carry rules generally
entitle analog full power television stations to mandatory cable
carriage of their signals, at no charge, to all cable homes
located within each stations designated market area, or
DMA. After the end of the digital transition in 2009, the FCC
has determined that full power television stations will be
entitled to mandatory cable carriage of their digital signals.
In November 2007, the FCC released a decision providing that
cable operators will be required to provide those broadcast
station signals to subscribers with analog
14
television receivers in a viewable format at no additional
charge to the subscriber and at no cost to the broadcast
station. These rules will remain in force until February 2012,
and are subject to extension by the FCC. In addition, the FCC
has confirmed that after the transition, cable operators will
only be obligated to carry the primary video and
programming-related material of digital television
stations signals and are not required to carry any of the
stations additional programming streams. Petitions for
reconsideration of that decision remain pending at the FCC.
As part of this transition to digital television, the spectrum
currently used by broadcasters transmitting on channels
52-69 will
be transitioned to use by new wireless and public safety
operators. Some broadcast stations, including our station in the
Boston, Massachusetts marketplace, originally were granted a
digital channel allocation within this spectrum. Under FCC
rules, although stations awarded digital channels between
channels 52 and 69 may use those channels until the close
of the DTV transition, they must either seek an alternative
digital channel below channel 52 on which to transmit their
digital signal or transition their digital operations to their
analog channel. On August 6, 2007, the FCC issued a
decision granting our request to use channel 10 as our digital
television channel after the close of the DTV transition. On
March 26, 2008, the FCC granted our application for a
construction permit for our post-transition facility on channel
10. We believe that our operations on channel 10 will provide us
with coverage that is equivalent to or exceeds our current
coverage.
Telephone
Companies Provision of Programming Services
The Telecommunications Act eliminated the previous statutory
restriction forbidding the common ownership of a cable system
and telephone company. Verizon, AT&T, Qwest, and a number
of other local telephone companies are planning to provide or
are providing video services through fiber to the home or fiber
to the neighborhood technologies, while other local exchange
carriers are using video digital subscriber loop technology,
known as VDSL, to deliver video programming, high-speed internet
access and telephone service over existing copper telephone
lines. In March 2007 and November 2007, the FCC released orders
designed to streamline entry by carriers by preempting the
imposition by local franchising authorities of unreasonable
conditions on entry. A number of franchising authorities have
sought judicial review of the March 2007 order, and those cases
have been consolidated before the U.S. Court of Appeals for
the Sixth Circuit where they remain pending. In addition, a
number of parties have requested that the FCC reconsider various
aspects of the March 2007 and November 2007 orders, and those
requests also remain pending. No prediction can be made as to
the deployment schedules of these telephone companies, the
success of their technologies, or their ability to attract and
retain customers.
Regulations
Affecting Multiple Payment Transactions
The antitrust settlement between MasterCard, VISA and
approximately 8 million retail merchants raises certain
issues for retailers who accept telephonic orders that involve
consumer use of debit cards for multiple or continuity payments.
A condition of the settlement agreement provided that the code
numbers or other means of distinguishing between debit and
credit cards be made available to merchants by VISA and
MasterCard. Under Federal Reserve Board regulations, this may
require merchants to obtain consumers written consent for
preauthorized transfers where the merchant is aware that the
method of payment is a debit card as opposed to a credit card.
We believe that debit cards are currently being offered as the
payment vehicle in approximately 30% of our transactions with
VISA and MasterCard. Effective February 9, 2006, the
Federal Reserve Board amended language in its official
commentary to Regulation E by removing an express
prohibition on the use of taped verbal authorization from
consumers as evidence of a written authorization for purposes of
the regulation. There can be no assurance that compliance with
the authorization procedures under this regulation will not
adversely affect the customer experience in placing orders or
adversely affect sales.
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I.
|
Seasonality
and Economic Sensitivity
|
Our businesses are subject to seasonal fluctuation, with the
highest sales activity normally occurring during our fourth
fiscal quarter of the year, primarily November through January.
Our businesses are also sensitive to general economic conditions
and business conditions affecting consumer spending.
Additionally, our television audience (and therefore sales
revenue) can be significantly impacted by major world or
domestic events, which divert audience attention away from our
programming.
15
At February 2, 2008, we had approximately
1,100 employees, the majority of whom are employed in
customer service, order fulfillment and television production.
Approximately 21% of our employees work part-time. We are not a
party to any collective bargaining agreement with respect to our
employees. Management considers its employee relations to be
good.
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K.
|
Executive
Officers of the Registrant
|
Set forth below are the names, ages and titles of the persons
serving as our executive officers.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position(s) Held
|
|
Rene G. Aiu
|
|
|
58
|
|
|
President and Chief Executive Officer and Director
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Frank P. Elsenbast
|
|
|
42
|
|
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Senior Vice President and Chief Financial Officer
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Nathan E. Fagre
|
|
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52
|
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Senior Vice President, General Counsel & Secretary
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Glenn K. Leidahl
|
|
|
59
|
|
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Chief Operating Officer
|
Terry T. Curtis
|
|
|
49
|
|
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Senior Vice President Customer Analytics and
Sales Planning
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John D. Gunder
|
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58
|
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Senior Vice President Media & On-Air Sales
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Geoffrey Smith
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42
|
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Vice President Internet & Marketing
|
Rene G. Aiu joined us as President and Chief Executive
Officer in March 2008. From July 2005 until she accepted her
position with ShopNBC, Ms. Aiu served as an independent
consultant and provided new business development services in the
television shopping and interactive television areas to major
corporate clients, including InterActive Corporation and Liberty
Global Inc. From January 2004 until June 2007, she also was a
director of Jupiter SHOP Channel Japan. From February 2003
through May 2005, Ms. Aiu was the President and Chief
Executive Officer of
Parti-TV
Japan, a venture of Liberty Global Inc. and Sumitomo Corporation
through Jupiter TV, Japan. From April 2000 through February
2003, Ms. Aiu was the President and Chief Executive Officer
of Jupiter SHOP Channel Japan, and was promoted to the position
of Chairman and Chief Executive Officer from February 2003
through December 2003. Before joining Jupiter SHOP Channel
Japan, Ms. Aiu worked in various capacities as an
international business consultant in the television shopping
arena and from February 1992 through July 1995 was Senior Vice
President of Marketing, Sales, Programming &
Production at Home Shopping Network. Prior to her position at
Home Shopping Network, Ms. Aiu held senior level management
positions at JCPenney Television Shopping Network, Cable Value
Network, which later merged with QVC, and Twentieth Century Fox.
From time to time in her professional career, including since
July 2005, Ms. Aiu worked on various TV shopping related
projects in a consultancy capacity across the globe with TCI
International, HSN International and Liberty Global.
Frank P. Elsenbast served as our Vice President of
Financial Planning and Analysis from September 2003 to October
2004, when he became Vice President and Chief Financial Officer.
Mr. Elsenbast was promoted to Senior Vice President in May
2006. Mr. Elsenbast has over 19 years of corporate
finance, operations analysis and public accounting experience.
From May 2001 to September 2003, he served as Finance Director
and from May 2000 to May 2001 he served as Finance Manager at
our company. Prior to joining us, Mr. Elsenbast served in
various analytical and operational roles with The Pillsbury
Company from May 1995 through May 2000. Mr. Elsenbast is a
CPA and began his career with Arthur Andersen, LLP.
Nathan E. Fagre joined us as Senior Vice President,
General Counsel and Secretary in May 2000. From 1996 to 2000,
Mr. Fagre was Senior Vice President and General Counsel of
Occidental Oil and Gas Corporation in Los Angeles, California,
the oil and gas operating subsidiary of Occidental Petroleum
Corporation. From 1995 to 1996, Mr. Fagre held other
positions in the legal department at Occidental. His previous
legal experience included corporate and securities law practice
with the law firms of Sullivan & Cromwell in New York
and Gibson, Dunn & Crutcher in Washington, D.C.
Mr. Fagre served on the board of Ralph Lauren Media, L.L.C.
as our representative from October 2004 through April 2007. In
addition, Mr. Fagre is a director, member of the executive
committee and chair-elect of the Electronic Retailing
Association, an industry association serving the television home
shopping,
e-commerce,
infomercial and electronic direct-response industry.
16
Glenn K. Leidahl joined us as Chief Operating Officer in
April 2008. Since 1994, Mr. Leidahl served as Managing
Director of GLK Management Consulting, LLP, where he and his
associates provided consulting and bridge management services in
the launch and operation of television and web shopping ventures
for QVC, Sportsfair America, HSN, and Liberty Media.
Mr. Leidahl also served as Director of Planning and
Development and then Vice President of Affiliate Relations for
Cable Value Network, a
24-hour
television home shopping network, from 1986 through its sale to
QVC in 1990. Following the sale, Mr. Leidahl served as a
consultant to QVC to integrate the marketing programs of the two
stations. Mr. Leidahl also served as the President of
MarQuest, Inc., which provides product and fundraising services
to the non-profit sector, as General Manager for Genmar, Inc., a
marina and restaurant complex, and as Chief Operating Officer of
Watkins Inc., a national multilevel marketing company.
Terry T. Curtis joined us in April 2008 as Senior Vice
President Customer Analytics and Sales Planning.
From August 2005 to October 2007, Mr. Curtis served as
Chief Financial Officer at Liberty Globals Jupiter SHOP
Channel Japan until the company was sold. From June 2004 to
August 2005 Mr. Curtis was Senior Vice President of Finance
International for HSN and Vice President of Finance
International from April 2000 to January 2002. From January 2002
to June 2004, Mr. Curtis served as Chief Financial Officer
and Chief Operating Officer of Home Shopping Europe, AG, a
German tele-shopping,
e-commerce
subsidiary of IAC/HSN. Prior to April 2000, Mr. Curtis held
senior manager roles at The Timberland Company and Honeywell
Bull.
John D. Gunder joined us in April 2008 as Senior Vice
President Media & On-Air Sales. From
January 2000 to March 2008, Mr. Gunder operated his own
consulting business, offering client services to LiveShop
(Netherlands), IAC, Liberty Global, and Jupiter SHOP Channel.
From April 1996 to December 1998, Mr. Gunder held senior
level positions at TCI Internationals Jupiter SHOP Channel
Japan, including General Manager of Production and Executive
Producer. Prior to April 1996, Mr. Gunder was Vice
President of Production Design and Styling for HSN and started
his home shopping career with the JCPenney Television Shopping
Channel in Hollywood as Creative Director and Special Project
Director.
Geoffrey Smith joined us as Vice President of ShopNBC.com
in August 2006. Prior to joining, from June 2005 to July 2006
Mr. Smith was Senior Vice President, Interactive Commerce
for the Shop At Home network, a division of E.W. Scripps Company
where he was responsible for online commerce for Shop At Home,
Food Network Store and the HGTV and DIY Stores. From June 2000
to May 2005 Mr. Smith served as President, Internet
Division for Creative Catalog Corp. From November 1997 to May
2000 he served as Vice President of Retail for Hickory Farms and
from September 1996 to October 1997 served as Director of the
AOL Shopping Channel for America Online.
Our annual report on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
and amendments to these reports if applicable, are available,
without charge, on our Investor Relations website as soon as
reasonably practicable after they are filed electronically with
the Securities and Exchange Commission. Copies also are
available, without charge, by contacting the General Counsel,
ValueVision Media, Inc., 6740 Shady Oak Road, Eden Prairie,
Minnesota
55344-3433.
Our Investor Relations internet address is
www.valuevisionmedia.com. The information contained on and
connected to our Investor Relations website is not incorporated
into this report.
In addition to the general investment risks and those factors
set forth throughout this document, including those set forth
under the caption Cautionary Statement Concerning
Forward-Looking Information, the following risks should be
considered regarding our company.
We
have a history of losses and a high fixed cost operating base
and may not be able to achieve or maintain profitable operations
in the future.
We experienced operating losses from continuing operations of
approximately $23.1 million, $9.5 million and
$18.6 million in fiscal 2007, 2006 and 2005, respectively.
While we reported net income per basic and diluted share
17
in fiscal 2007, this was due to the $40.2 million pre-tax
gain we recorded on the sale of our equity interest in Ralph
Lauren Media, LLC, operator of the polo.com website. We reported
a net loss in fiscal 2006 and 2005. There is no assurance that
we will be able to achieve or maintain profitable operations in
future fiscal years.
In addition, our television home shopping business operates with
a high fixed cost base, primarily driven by fixed annual fees
under multi-year contracts with cable and satellite system
operators to carry our programming. In order to operate on a
profitable basis, we must reach and maintain sufficient annual
sales revenues to cover our high fixed cost base
and/or
negotiate a reduction in this cost structure. In the event we do
not achieve our expected sales revenue targets or experience an
unanticipated decline in sales, our ability to reduce operating
expenses in the near term will be limited by the fixed cost
base. In that case, our earnings and growth prospects could be
adversely affected.
A
majority of our cable and satellite distribution agreements are
scheduled to expire at the end of 2008 and it may be difficult
or more costly to renew these agreements for additional
terms.
We have entered into affiliation agreements that represent
approximately 1,400 cable systems that require each operator to
offer our television home shopping programming substantially on
a full-time basis over their systems. The stated terms of the
affiliation agreements typically ranged originally from three to
twelve years. Under certain circumstances, the television
operators may cancel the agreements prior to their expiration.
If these agreements are terminated, the termination may
materially or adversely affect our business. Cable and satellite
distribution agreements representing a majority 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 NBCU, as our agent, have begun discussions
with certain cable and satellite 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. In addition, unless we and NBCU mutually
agree on an extension of the distribution and marketing
agreement under which NBCU acts as our agent, this agreement
will expire in March 2009 and this could adversely affect our
ability to increase our program distribution.
We may
be required to issue substantial numbers of new warrants to NBCU
in fiscal 2008 and 2009 in connection with successful renewals
of cable and satellite distribution agreements.
Under our 1999 marketing and distribution agreement with NBCU,
we may be required to issue a substantial number of new warrants
to NBCU upon their successful negotiation of cable and satellite
distribution agreements for us, under a detailed formula
outlined in the agreement. If NBCU is able successfully to
negotiate renewals of all or a substantial portion of our
existing distribution agreements that expire in 2008 within the
financial parameters we have established and with terms of three
years or longer, they could be entitled to receive additional
warrants to purchase shares of our common stock under a formula
(outlined in the 1999 marketing and distribution agreement) that
includes factors such as the number of subscribers covered by
the renewal, the length of the new distribution agreement and
the market price of our common stock at the time the renewal
agreement is effective. These warrants would contain a cashless
exercise feature.
Mandatory
redemption of our Preferred Stock could have a material impact
on our liquidity and cash resources.
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 in March 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. We ended fiscal 2007 with cash
and cash equivalents and short-term investments of $59,078,000,
with long-term investments of $26,306,000 and no long-term debt.
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
18
accordingly, if the market value of our stock is lower than the
redemption price immediately prior to the redemption date, GE
Equity may choose to redeem its shares of preferred stock rather
than exercise its right to conversion into common stock. We
intend to discuss with G.E. Equity alternatives to a possible
redemption but there is no assurance that any such alternative
will be agreed to by us and G.E. Equity. On April 16, 2008,
the trading day immediately preceding the date of this Annual
Report on
Form 10-K,
the closing price of our common stock on the NASDAQ Global
Trading System was $5.00.
NBCU
and GE Equity have the ability to exert significant influence
over us and have the right to disapprove of certain actions by
us.
As a result of their equity ownership in our company, NBCU and
GE Equity together are currently our largest shareholder and
have the ability to exert significant influence over actions
requiring shareholder approval, including the election of
directors, adoption of equity-based compensation plans and
approval of mergers or other significant corporate events.
Through the provisions in the shareholder agreement and
certificate of designation for the preferred stock, NBCU and GE
Equity also have the right to disapprove of certain major
corporate actions by our company (as discussed under
Business Strategic Relationships
Shareholder Agreement above).
In addition, because NBCU has the exclusive right to negotiate
for the distribution of our television home shopping
programming, NBCU exercises significant control on our ability
to maintain or increase our program distribution.
Loss
of the NBC branding license would require us to pursue a new
branding strategy that may not be successful and may incur
significant additional expense.
We have branded our television home shopping network and
internet site as ShopNBC and ShopNBC.com, respectively, under an
exclusive, worldwide licensing agreement with NBCU for the use
of NBC trademarks, service marks and domain names that continues
until May 2011. We do not have the right to automatic renewal at
the end of the license term, and consequently may be required to
pursue a new branding strategy which may not be as successful as
the NBC brand with current or potential customers, and which may
involve significant additional expense. In addition, there are
limitations and conditions to our use of the license, which may
under certain circumstances restrict us from pursuing business
opportunities outside of our current scope of operations. NBCU
also has the right to terminate the license prior to the end of
the license term in the event of a breach by us of the terms of
the license agreement or upon certain changes of control, as
outlined in greater detail in Business
Strategic Relationships NBC Trademark License
Agreement above.
Intense
competition in the general merchandise retailing industry and
particularly the live home shopping and
e-commerce
sectors could limit our growth and reduce our
profitability.
As a general merchandise retailer, we compete for consumer
expenditures with other forms of retail businesses, including
department, discount, warehouse and specialty stores, television
home shopping,
e-commerce
businesses, mail order and catalog companies, and other direct
sellers. The home shopping industry is highly competitive, with
the two largest competitors being HSN and QVC. QVC and HSN offer
home shopping programming similar to our programming, and are
well established, reach a significantly larger percentage of
United States television households than we do, and in many
markets have more favorable channel locations than we have. QVC
is owned by Liberty Media Corp., while HSN is a wholly owned
subsidiary of InterActiveCorp. Liberty Media and InterActiveCorp
are larger, more diversified and have greater financial,
marketing and distribution resources than us. The internet
retailing industry is also highly competitive, with numerous
e-commerce
websites competing in every product category we carry, in
addition to the websites operated by the other television home
shopping companies. This competition in the internet retailing
sector makes it more challenging and expensive for us to attract
new customers, retain existing customers and maintain desired
gross margin levels.
19
We may
not be able to maintain our satellite services in certain
situations, beyond our control, which may cause our programming
to go off the air for a period of time and incur substantial
additional costs.
Our programming is presently distributed to cable systems, full
power television stations and satellite dish owners via a leased
communications satellite transponder. In the future, satellite
service may be interrupted due to a variety of circumstances
beyond our control, such as satellite transponder failure,
satellite fuel depletion, governmental action, preemption by the
satellite service provider, solar activity and service failure.
The agreement provides us with preemptable
back-up
service if satellite transmission is interrupted. However, there
can be no assurance if satellite transmission is so interrupted
that we will be able to utilize existing
back-up
transponder or satellite capacity. In the event of any
transmission interruption, we may need to enter into new
arrangements, resulting in substantial additional costs and the
inability to broadcast our signal for some period of time.
The
FCC may limit must-carry rights, which would impact distribution
of our television home shopping programming and might impair the
value of our Boston FCC license.
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 decides 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.
We may
be subject to product liability claims for on air
misrepresentations or if people or properties are harmed by
products sold by us.
Products sold by us and representations related to these
products may expose us to potential liability from claims by
purchasers of such products, subject to our rights, in certain
instances, to seek indemnification against this liability from
the suppliers or manufacturers of the products. In addition to
potential claims of personal injury, wrongful death or damage to
personal property, the live unscripted nature of our television
broadcasting may subject us to claims of misrepresentation by
our customers, the Federal Trade Commission and state attorneys
general. We maintain, and have generally required the
manufacturers and vendors of these products to carry, product
liability and errors and omissions insurance. There can be no
assurance that we will maintain this coverage or obtain
additional coverage on acceptable terms, or that this insurance
will provide adequate coverage against all potential claims or
even be available with respect to any particular claim. There
also can be no assurance that our suppliers will continue to
maintain this insurance or that this coverage will be adequate
or available with respect to any particular claims. Product
liability claims could result in a material adverse impact on
our financial performance.
Our
ValuePay installment payment program could lead to significant
unplanned credit losses if our credit loss rate was to
deteriorate.
We utilize an installment payment program called ValuePay that
entitles customers to purchase merchandise and generally pay for
the merchandise in two to five equal monthly installments. As of
February 2, 2008 we had approximately $100 million due
from customers under the ValuePay installment program. We
maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our customers to make required
payments. While credit losses have historically been within our
estimates for such losses, during fiscal 2007, we saw a
significant increase in bad debt write offs due to the recent
deterioration of consumer credit. Hence, there is no guarantee
that we will continue to experience the same credit loss rate
that we have in the past or that losses will not
20
continue to increase or not be within current provisions. A
continued significant increase in our credit losses could result
in a material adverse impact on our financial performance.
We may
be subject to claims by consumers and state and federal
authorities for security breaches involving customer
information, which could materially harm our reputation and
business.
In order to operate our business we take orders for our products
from customers. This requires us to obtain personal information
from these customers including credit card numbers. Although we
take reasonable and appropriate security measures to protect
customer information, there is still the risk that external or
internal security breaches could occur. In addition, new tools
and discoveries by third parties in computer or communications
technology or software or other developments may facilitate or
result in a future compromise or breach of our computer systems.
Such compromises or breaches could result in significant
liability or costs to us from consumer lawsuits for monetary
redress, state and federal authorities for fines and penalties,
and could also lead to interruptions in our operations and
negative publicity causing damage to our reputation and limiting
customers willingness to purchase products from us.
Recently, a major discount retailer and a credit reporting
agency experienced theft of credit card numbers of millions of
consumers resulting in multi-million dollar fines and consumer
settlement costs, FTC audit requirements, and significant
internal administrative costs.
The
expansion of digital cable systems may adversely impact our
ability to compete for television viewers.
The majority of cable operators now offer cable programming on a
digital basis. While the growth of digital cable systems may
over time make it possible for our programming to be more widely
distributed and at a lower cost, there are several risks as
well. First, as cable operators move our network from analog to
digital tiers, we experience a loss of viewers, since at the
current time less than half of all cable television subscribers
choose to also subscribe to the digital tier. Second, we could
experience a reduction in the growth rate or an absolute decline
in sales per digital tier subscriber because of the increased
number of channels offered on digital systems competing for the
same number of viewers and the higher channel location we
typically are assigned in digital tiers, unless we are able to
offset the reduction through increased marketing efforts,
greater internet-based sales or alternative distribution
channels for our television programming. Such efforts may not be
successful or may incur significant additional operating costs.
The
unanticipated loss of several of our larger vendors could impact
our sales on a temporary basis.
Under the current economic conditions, it is possible that one
or more of our larger vendors could experience financial
difficulties, including bankruptcy, or otherwise could determine
to cease doing business with us. While we have periodically
experienced the loss of a major vendor, if a number of our
current larger vendors ceased doing business with us, this could
materially and adversely impact our sales and profitability on a
short term basis.
Many
of our key functions are concentrated in a single location, and
a natural disaster could seriously impact our ability to
operate.
Our television broadcast studios, internet operations, IT
systems, merchandising team, inventory control systems,
executive offices and finance/accounting functions, among
others, are centralized in our adjacent offices at 6740 and
6690, Shady Oak Road in Eden Prairie, Minnesota. In addition,
our only fulfillment and distribution facility is centralized at
a location in Bowling Green, Kentucky. A natural disaster such
as a tornado could seriously disrupt our ability to continue or
resume normal operations for some period of time. While we have
certain business continuity plans in place, no assurances can be
given as to how quickly we would be able to resume operations
and how long it may take to return to normal operations. We
could incur substantial financial losses above and beyond what
may be covered by applicable insurance policies, and may
experience a loss of customers, vendors and employees during the
recovery period.
21
Our
television home shopping and internet businesses are sensitive
to general economic conditions, consumer confidence and major
news events.
Our businesses are sensitive to general economic conditions
affecting consumer spending. Unfavorable economic conditions
and/or a
loss of consumer confidence may lead to a reduction in consumer
spending generally and in home shopping specifically, and may
lead to a reduction in consumer spending on the types of
merchandise we currently offer. Additionally, our television
audience and sales revenue can be significantly impacted by
major world or domestic events, which divert audience attention
away from our programming.
Our
e-commerce
activities are subject to a number of general business
regulations and laws regarding taxation and online commerce,
which may increase our pricing or lessen consumer
demand.
Our
e-commerce
activities are subject to a number of general business
regulations and laws regarding taxation and online commerce. As
the role and importance of
e-commerce
has grown in the United States in recent years, there have been
continuing efforts to increase the legal and regulatory
obligations and restrictions on companies conducting commerce
through the internet, primarily in the areas of taxation,
consumer privacy and protection of consumer personal
information. These laws and regulations could increase the costs
and liabilities associated with our
e-commerce
activities and increase the price of our product to consumers,
without a corresponding increase in our revenue or net income.
On October 31, 2007, the United States enacted a seven-year
moratorium on internet access taxes, extending a ban on internet
taxes that was set to expire on November 1, 2007. In
addition, in November 2002, a number of states approved a
multi-state agreement to simplify state sales tax laws by
establishing one uniform system to administer and collect sales
taxes on traditional retailers and electronic commerce
merchants. The agreement became effective on October 3,
2005, although fewer than half of the states have become members
by enacting implementation legislation. No prediction can be
made as to whether individual states will enact legislation
requiring retailers such as us to collect and remit sales taxes
on transactions that occur over the internet. Adding sales tax
to our internet transactions could negatively impact consumer
demand.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
In connection with its review of our Form 10-K for our
fiscal year ended February 3, 2007, the Commission
requested that we file the financial statements of Ralph Lauren
Media, LLC, in which we had a minority interest that was
sold in March 2007, as of and for the year ended
March 31, 2007 as an exhibit to that Form 10-K. We
requested and received from the Commission a waiver to permit us
to file these financial statements as an exhibit in this
form 10-K.
We own two commercial buildings occupying approximately
209,000 square feet in Eden Prairie, Minnesota (a suburb of
Minneapolis). One of the buildings is used for our corporate
administrative and television production. The second building
has approximately 70,000 square feet of commercial rental
space, which we utilize for additional office space. We own a
262,000 square foot distribution facility on a
34-acre
parcel of land and lease approximately 72,000 square feet
of warehouse space in Bowling Green, Kentucky. We also lease
approximately 25,000 square feet of office space for a
telephone call center in Brooklyn Center, Minnesota, which we
primarily use to fulfill our service obligations in connection
with the services agreement entered into with RLM and our own
customer service operations. Additionally, we rent transmitter
site and studio locations in Boston, Massachusetts for our full
power television station. We believe that our existing
facilities are adequate to meet our current needs and that
suitable additional or alternative space will be available as
needed to accommodate expansion of operations.
|
|
Item 3.
|
Legal
Proceedings
|
We are involved from time to time in various claims and lawsuits
in the ordinary course of business. In the opinion of
management, these claims and suits individually and in the
aggregate have not had a material adverse effect on our
operations or consolidated financial statements.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
No matters were submitted to our shareholders during the fourth
quarter ended February 2, 2008.
22
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities
|
Market
Information for Common Stock
Our common stock is traded on the Nasdaq Global Market under the
symbol VVTV. The following table sets forth the
range of high and low sales prices of the common stock as quoted
by the Nasdaq Global Market for the periods indicated.
|
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High
|
|
|
Low
|
|
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
13.30
|
|
|
$
|
11.12
|
|
Second Quarter
|
|
|
12.19
|
|
|
|
8.85
|
|
Third Quarter
|
|
|
10.06
|
|
|
|
5.00
|
|
Fourth Quarter
|
|
|
7.21
|
|
|
|
4.45
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
13.13
|
|
|
|
11.48
|
|
Second Quarter
|
|
|
13.75
|
|
|
|
9.83
|
|
Third Quarter
|
|
|
12.95
|
|
|
|
10.03
|
|
Fourth Quarter
|
|
|
14.12
|
|
|
|
11.83
|
|
Holders
As of April 3, 2008 we had approximately
550 shareholders of record.
Dividends
We have never declared or paid any dividends with respect to our
capital stock. Pursuant to the shareholder agreement we have
with GE Equity, we are prohibited from paying dividends in
excess of 5% of our market capitalization in any quarter. We
currently expect to retain our earnings for the development and
expansion of our business and do not anticipate paying cash
dividends in the foreseeable future. Any future determination by
us to pay cash dividends will be at the discretion of the board
of directors and will be dependent upon our results of
operations, financial condition, any contractual restrictions
then existing and other factors deemed relevant at the time by
the board of directors.
Issuer
Purchases of Equity Securities
In August 2006, our board of directors authorized a common stock
repurchase program. The program authorizes our management,
acting through an investment banking firm selected as our agent,
to repurchase up to $10 million of our common stock by open
market purchases or negotiated transactions at prices and
amounts as we determine from time to time. In May 2007, our
board of directors authorized the repurchase of an additional
$25 million of our common stock under the repurchase
program. During fiscal 2007, we purchased a total of
3,618,000 shares of common stock for a total investment of
$26,985,000 at an average price of $7.46 per share. During
fiscal 2006, we repurchased a total of 406,000 shares of
common stock for a total investment of $4,699,000 at an average
price of $11.58 per share. We did not repurchase any shares
under any stock repurchase program during fiscal 2005.
23
The following table presents information with respect to
purchases of our common stock made during the three months ended
February 2, 2008, by our company or by any of
affiliated purchaser of our company, as defined in
Rule 10b-18(a)(3)
under the Exchange Act:
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|
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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
|
|
|
Announced Program
|
|
|
Program(1)
|
|
|
November 4, 2007 through December 1, 2007
|
|
|
292,000
|
|
|
$
|
6.44
|
|
|
|
2,046,000
|
|
|
$
|
12,318,000
|
|
December 2, 2007 through January 5, 2008
|
|
|
483,000
|
|
|
$
|
6.33
|
|
|
|
2,529,000
|
|
|
$
|
9,258,000
|
|
January 6, 2008 through February 2, 2008
|
|
|
1,089,000
|
|
|
$
|
5.46
|
|
|
|
3,618,000
|
|
|
$
|
3,317,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,864,000
|
|
|
$
|
5.84
|
|
|
|
3,618,000
|
|
|
$
|
3,317,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On March 6, 2008, our board of directors authorized an
additional $10 million for stock repurchases under its
stock repurchase program. |
24
Stock
Performance Graph
The graph below compares the cumulative five-year total return
to our shareholders (based on appreciation of the market price
of our common stock) on an indexed basis with (i) a broad
equity market index and (ii) a peer group created by us
over the same period and consisting of companies involved in
various aspects of the television home shopping, jewelry and
internet retail and service industries. The presentation
compares the common stock price in the period from
January 31, 2003 to February 2, 2008, to the Nasdaq
Global Market stock index and to the peer group. The total
return to shareholders of those companies comprising the peer
group are weighted according to their stock market
capitalization. The companies in the current peer group are:
InterActiveCorp, the parent company of the Home Shopping
Network; Liberty Interactive, the holding company of QVC, a home
shopping television network; Amazon.com, Inc., an on-line
retailer; RedEnvelope, Inc., an upscale on-line retailer; GSI
Commerce, Inc., a provider of professional services to the
on-line retail industry; and Zale Corporation, a specialty
jewelry retailer; On May 9, 2006, shares of Liberty Media
Corporation were exchanged for shares of Liberty Interactive and
Liberty Capital tracking stocks and the old Liberty Media
Corporation Series A and Series B shares ceased
trading. The cumulative return is calculated assuming an
investment of $100 on January 31, 2003, and reinvestment of
all dividends. You should not consider shareholder return over
the indicated period to be indicative of future shareholder
returns.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among ValueVision Media, Inc. The NASDAQ Composite Index
And A Peer Group
* $100 invested on 1/31/03 in stock or index-including
reinvestment of dividends.
Index calculated on month-end basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
January 31,
|
|
|
January 31,
|
|
|
February 4,
|
|
|
May 10,
|
|
|
February 3,
|
|
|
February 2,
|
|
|
|
2003
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
ValueVision Media, Inc.
|
|
|
$
|
100.00
|
|
|
|
$
|
134.27
|
|
|
|
$
|
108.04
|
|
|
|
$
|
94.16
|
|
|
|
$
|
100.99
|
|
|
|
$
|
94.09
|
|
|
|
$
|
46.47
|
|
Nasdaq Stock Market (U.S.) Index
|
|
|
|
100.00
|
|
|
|
|
156.84
|
|
|
|
|
158.35
|
|
|
|
|
179.18
|
|
|
|
|
181.71
|
|
|
|
|
193.92
|
|
|
|
|
186.99
|
|
Peer Group
|
|
|
|
100.00
|
|
|
|
|
186.78
|
|
|
|
|
152.31
|
|
|
|
|
147.76
|
|
|
|
|
138.55
|
|
|
|
|
167.46
|
|
|
|
|
192.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
Equity
Compensation Plan Information
The following table provides information as of February 2,
2008 for our compensation plans under which securities may be
issued:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Number of Securities
|
|
|
|
Number of Securities to be Issued
|
|
|
Exercise Price of
|
|
|
Remaining Available for
|
|
|
|
Upon Exercise of Outstanding
|
|
|
Outstanding Options,
|
|
|
Future Issuance under
|
|
Plan Category
|
|
Options, Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Equity Compensation Plans
|
|
|
Equity Compensation Plans Approved by Security holders
|
|
|
4,418,000
|
|
|
$
|
10.27
|
|
|
|
1,875,000
|
(1)
|
Equity Compensation Plans Not Approved by Security holders(2)
|
|
|
3,474,000
|
(2)
|
|
$
|
16.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,892,000
|
|
|
$
|
13.02
|
|
|
|
1,875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes securities available for future issuance under
shareholder approved compensation plans other than upon the
exercise of an outstanding options, warrants or rights, as
follows: 1,114,000 shares under the 2001 Omnibus Stock Plan
and 761,000 shares under the 2004 Omnibus Stock Plan. |
|
(2) |
|
Reflects 2,037,000 shares of common stock issuable upon
exercise of the various warrants issued by our company and held
by NBCU, described in Business Strategic
Relationships Strategic Alliance with NBCU and GE
Equity, and 1,437,000 shares of common stock issuable
upon exercise of nonstatutory stock options granted to our
employees at per share exercise prices equal to the fair market
value of a share of common stock on the date of grant. Each of
these options expires between five and ten years after the date
of issuance, and is subject to vesting requirements varying
between completely vested and vesting over a period of three to
six years, depending on the circumstances of each individual
grant. |
Equity
Compensation Plans Not Approved By Shareholders
Outstanding options to purchase up to 1,437,000 shares of
common stock to employees at per share exercise prices equal to
the fair market value of a share of common stock on the date of
grant. Each of these options expires between five and ten years
after the date of issuance, and is subject to vesting
requirements varying between completely vested and vesting over
a period of three to six years, depending on the circumstances
of each individual grant. These stock options were utilized
solely for inducement stock option grants for newly hired
officers and certain key employees.
26
|
|
Item 6.
|
Selected
Financial Data
|
The selected financial data for the five years ended
February 2, 2008 have been derived from our audited
consolidated financial statements. The selected financial data
presented below are qualified in their entirety by, and should
be read in conjunction with, the financial statements and notes
thereto and other financial and statistical information
referenced elsewhere herein including the information referenced
under the caption Managements Discussion and
Analysis of Financial Condition and Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2008(a)
|
|
|
2007
|
|
|
2006(b)
|
|
|
2005(c)
|
|
|
2004(d)
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
781,550
|
|
|
$
|
767,275
|
|
|
$
|
691,851
|
|
|
$
|
623,634
|
|
|
$
|
591,185
|
|
Net sales less cost of sales, exclusive of depreciation and
amortization(g)
|
|
|
271,015
|
|
|
|
267,161
|
|
|
|
238,944
|
|
|
|
204,096
|
|
|
|
209,508
|
|
Operating loss
|
|
|
(23,052
|
)
|
|
|
(9,479
|
)
|
|
|
(18,646
|
)
|
|
|
(44,271
|
)
|
|
|
(7,987
|
)
|
Income (loss) from continuing operations(e)
|
|
|
22,452
|
|
|
|
(2,396
|
)
|
|
|
(13,457
|
)
|
|
|
(42,719
|
)
|
|
|
(8,329
|
)
|
Discontinued operations(f)
|
|
|
|
|
|
|
|
|
|
|
(2,296
|
)
|
|
|
(14,882
|
)
|
|
|
(3,063
|
)
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations per common share
|
|
$
|
0.53
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(0.23
|
)
|
Net income (loss) from continuing operations per common share
assuming dilution
|
|
$
|
0.53
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(1.17
|
)
|
|
$
|
(0.23
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
41,992
|
|
|
|
37,646
|
|
|
|
37,182
|
|
|
|
36,815
|
|
|
|
35,934
|
|
Diluted
|
|
|
42,011
|
|
|
|
37,646
|
|
|
|
37,182
|
|
|
|
36,815
|
|
|
|
35,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
|
$
|
59,078
|
|
|
$
|
71,294
|
|
|
$
|
82,350
|
|
|
$
|
100,581
|
|
|
$
|
127,181
|
|
Current assets
|
|
|
252,183
|
|
|
|
260,445
|
|
|
|
246,029
|
|
|
|
240,524
|
|
|
|
270,984
|
|
Long-term investments
|
|
|
26,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, equipment and other assets
|
|
|
80,591
|
|
|
|
91,535
|
|
|
|
101,110
|
|
|
|
109,772
|
|
|
|
125,607
|
|
Total assets
|
|
|
359,080
|
|
|
|
351,980
|
|
|
|
347,139
|
|
|
|
350,296
|
|
|
|
396,591
|
|
Current liabilities
|
|
|
118,350
|
|
|
|
105,274
|
|
|
|
100,820
|
|
|
|
89,074
|
|
|
|
84,837
|
|
Other long-term obligations
|
|
|
|
|
|
|
2,553
|
|
|
|
130
|
|
|
|
1,380
|
|
|
|
2,002
|
|
Redeemable preferred stock
|
|
|
43,898
|
|
|
|
43,607
|
|
|
|
43,318
|
|
|
|
43,030
|
|
|
|
42,745
|
|
Shareholders equity
|
|
|
194,510
|
|
|
|
198,847
|
|
|
|
202,871
|
|
|
|
216,812
|
|
|
|
267,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands, except statistical data)
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales margin(g)
|
|
|
34.7
|
%
|
|
|
34.8
|
%
|
|
|
34.5
|
%
|
|
|
32.7
|
%
|
|
|
35.4
|
%
|
Working capital
|
|
$
|
133,833
|
|
|
$
|
155,171
|
|
|
$
|
145,209
|
|
|
$
|
151,450
|
|
|
$
|
186,147
|
|
Current ratio
|
|
|
2.1
|
|
|
|
2.5
|
|
|
|
2.4
|
|
|
|
2.7
|
|
|
|
3.2
|
|
Adjusted EBITDA (as defined)(h)
|
|
$
|
6,850
|
|
|
$
|
14,690
|
|
|
$
|
1,910
|
|
|
$
|
(19,129
|
)
|
|
$
|
11,465
|
|
Cash Flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
$
|
11,189
|
|
|
$
|
3,542
|
|
|
$
|
(10,374
|
)
|
|
$
|
(18,070
|
)
|
|
$
|
3,368
|
|
Investing
|
|
$
|
(475
|
)
|
|
$
|
(1,562
|
)
|
|
$
|
(10,111
|
)
|
|
$
|
(2,304
|
)
|
|
$
|
23,003
|
|
Financing
|
|
$
|
(26,605
|
)
|
|
$
|
(3,627
|
)
|
|
$
|
988
|
|
|
$
|
1,981
|
|
|
$
|
(447
|
)
|
27
|
|
|
(a) |
|
Results of operations for the year ended February 2, 2008
includes a $40,240,000 gain on the sale of RLM. Results of
operations for the year ended February 2, 2008 also include
a charge of $5.0 million related to the restructuring of
certain company operations and a charge of $2.5 million
related to costs associated with our chief executive officer
transition. See Notes 2, 16 and 17 to the consolidated
financial statements. |
|
(b) |
|
Results of operations for the year ended February 4, 2006
includes a $294,000 gain on the sale of a television station. |
|
(c) |
|
Results of operations for the year ended January 31, 2005
includes a non-cash charge of $1.9 million related to the
write off of deferred advertising credits. |
|
(d) |
|
Results of operations for the year ended January 31, 2004
include the operations of television station WWDP TV-46 from the
effective date of its acquisition, April 1, 2003. Results
of operations for the year ended January 31, 2004 also
include a charge of $4.6 million related to costs
associated with our chief executive officer transition and a
$4.4 million gain on the sale of television stations. |
|
(e) |
|
Income (loss) from continuing operations includes a net pre-tax
gain of $40.2 million from the sale of RLM and a net
pre-tax loss of $1.7 million from the sale and holdings of
investments and other assets in fiscal 2003. |
|
(f) |
|
Discontinued operations relate to the operations of our FanBuzz
subsidiary, which were shut down in fiscal 2005. See Note 5
to the consolidated financial statements. |
|
(g) |
|
Management views net sales less cost of sales (exclusive of
depreciation and amortization), or sales margin, as an
alternative operating measure because it is commonly used by
management, analysts and institutional investors in analyzing
our net sales profitability. This term is not considered a
measure determined in accordance with generally accepted
accounting principles, or GAAP. The comparable GAAP measurement
is gross profit, which is defined as net sales less cost of
sales (inclusive of depreciation and amortization). Our gross
profit from continuing operations for fiscal 2007, 2006 and 2005
is $251.0 million, $244.9 million and
$218.4 million, respectively. The percentage change year
over year under either measure is relatively consistent. |
|
(h) |
|
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 equity-based compensation
expense. Management has included the term EBITDA, as adjusted,
in its EBITDA reconciliation in order to adequately assess the
operating performance of our 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. |
28
A reconciliation of EBITDA, as adjusted, to its comparable GAAP
measurement, net income (loss), follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
EBITDA, as adjusted
|
|
$
|
6,850
|
|
|
$
|
14,690
|
|
|
$
|
1,910
|
|
|
$
|
(19,129
|
)
|
|
$
|
11,465
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating gains (losses) and equity in income of RLM
|
|
|
40,663
|
|
|
|
3,356
|
|
|
|
1,379
|
|
|
|
(50
|
)
|
|
|
(1,650
|
)
|
Restructuring costs and other non-recurring television station
sale gains
|
|
|
(5,043
|
)
|
|
|
(29
|
)
|
|
|
212
|
|
|
|
(5,736
|
)
|
|
|
2,417
|
|
CEO transition costs
|
|
|
(2,451
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,625
|
)
|
Non-cash share-based compensation expense
|
|
|
(2,415
|
)
|
|
|
(1,901
|
)
|
|
|
(199
|
)
|
|
|
(486
|
)
|
|
|
(845
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (as defined)
|
|
|
37,604
|
|
|
|
16,116
|
|
|
|
3,302
|
|
|
|
(25,401
|
)
|
|
|
6,762
|
|
A reconciliation of EBITDA to net income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA, as defined
|
|
|
37,604
|
|
|
|
16,116
|
|
|
|
3,302
|
|
|
|
(25,401
|
)
|
|
|
6,762
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(19,993
|
)
|
|
|
(22,239
|
)
|
|
|
(20,569
|
)
|
|
|
(18,920
|
)
|
|
|
(16,399
|
)
|
Interest income
|
|
|
5,680
|
|
|
|
3,802
|
|
|
|
3,048
|
|
|
|
1,627
|
|
|
|
1,488
|
|
Income tax (provision) benefit
|
|
|
(839
|
)
|
|
|
(75
|
)
|
|
|
762
|
|
|
|
(25
|
)
|
|
|
(180
|
)
|
Discontinued operations of FanBuzz
|
|
|
|
|
|
|
|
|
|
|
(2,296
|
)
|
|
|
(14,882
|
)
|
|
|
(3,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
22,452
|
|
|
$
|
(2,396
|
)
|
|
$
|
(15,753
|
)
|
|
$
|
(57,601
|
)
|
|
$
|
(11,392
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Introduction
The following discussion and analysis of financial condition and
results of operations is qualified by reference to and should be
read in conjunction with the financial statements and notes
thereto included elsewhere herein.
Cautionary
Statement for Purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995
This Annual Report on
Form 10-K,
including 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. All statements
other than statements of historical fact, including statements
regarding guidance, industry prospects or future results of
operations or financial position, made in this Annual Report on
Form 10-K
are forward looking. We often use words such as
anticipates, believes, expects, intends and similar
expressions to identify forward-looking statements. These
statements are based on managements current expectations
and are accordingly subject to uncertainty and changes in
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; the general economic and credit environment; 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; significant public
events that are difficult to predict, such as widespread weather
catastrophes or other significant television-covering
29
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 and 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
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
otherwise known as multi-channel retailing. Our operating
strategy incorporates television home shopping, internet
e-commerce,
direct mail and on-line 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. We have an exclusive license from
NBC Universal, Inc., known as NBCU, for the worldwide use of an
NBC-branded name and the peacock image for a period ending in
May 2011. Pursuant to the license, we operate our television
home shopping network under the ShopNBC brand name and operate
our internet website under the ShopNBC.com brand name.
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 is our largest single
category of merchandise, representing 38% of television home
shopping and internet net sales in fiscal 2007, 39% in fiscal
2006 and 43% in fiscal 2005. Home products, including
electronics product categories, represented approximately 37% of
television home shopping and internet net sales in fiscal 2007,
37% in fiscal 2006 and 36% in fiscal 2005. Watches, apparel and
health and beauty product categories represented approximately
25% of television home shopping and internet net sales in fiscal
2007, 24% in fiscal 2006 and 21% in fiscal 2005. 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 minute in our
television home shopping and internet operations. Our customers
are primarily women over the ages of 35 with an average annual
household income in excess of $70,000 and who make purchases
based primarily on convenience, unique product offerings, value
and quality of merchandise.
Company
Strategy
We endeavor to be positioned as a profitable and innovative
leader in multi-channel retailing in the United States. The
following strategies were pursued during fiscal 2007 to increase
revenues and profitability and grow our active customer base,
for both television and internet sales: (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 capabilities,
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.
At the beginning of fiscal 2008, a new chief executive officer
and three new industry-experienced senior executives joined us.
These new senior executives are reviewing our strategy for
long-term growth in revenues and profits, in conjunction with
the board of directors and other members of management, and will
develop a plan for improving our strategic focus during fiscal
2008. Some of the key focus areas include: improving the
customer experience; retaining and growing the core customer
base of repeat customers; shifting the merchandise mix and
30
price points to appeal to the core female customer; broadening
the vendor base; and improving business disciplines and
execution.
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 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 immediate capability to reduce our fixed
cable and satellite distribution operating expenses to mitigate
any potential sales shortfall.
Our
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 we are in terms of annual revenues and
customers, and whose programming is carried more broadly to
U.S. households than is 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. 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
TV 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 Fiscal 2007
Consolidated net sales from continuing operations in fiscal 2007
were $781,550,000 compared to $767,275,000 in fiscal 2006, a 2%
increase. The increase in consolidated net sales from continuing
operations is directly attributable to increased net sales from
our television home shopping and internet operations. Effective
for fiscal 2005, the results of operations of FanBuzz have been
presented as loss from discontinued operations in the
accompanying consolidated statements of operations for fiscal
2005. Net sales attributed to our television home shopping and
internet operations increased 2% to $767,276,000 in fiscal 2007
from $755,302,000 in fiscal 2006. We reported an operating loss
of $23,052,000 and net income of $22,452,000, which included a
pretax gain of $40,240,000 from the sale of RLM, in fiscal 2007.
We reported an operating loss of $9,479,000 and a net loss of
$2,396,000 in fiscal 2006. Operating expenses in fiscal 2007
included a $5,043,000 restructuring charge and CEO termination
costs of $2,451,000.
31
Critical
Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition
and Results of Operations discusses our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting periods. On an on-going basis, management
evaluates its estimates and assumptions, including those related
to the realizability of long-term investments and intangible
assets, accounts receivable, inventory and product returns.
Management bases its estimates and assumptions on historical
experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. There can be no assurance that actual results will not
differ from these estimates under different assumptions or
conditions.
Management believes the following critical accounting policies
affect the more significant assumptions and estimates used in
the preparation of the consolidated financial statements:
|
|
|
|
|
Accounts receivable. We utilize an installment
payment program called ValuePay that entitles customers to
purchase merchandise and generally pay for the merchandise in
two to five equal monthly credit card installments in which we
bear the risk for uncollectibility. As of February 2, 2008
and February 3, 2007, we had approximately $99,875,000 and
$105,197,000 respectively, due from customers under the ValuePay
installment program. We maintain allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. Estimates are used in
determining the allowance for doubtful accounts and are based on
historical write off and delinquency rates, historical
collection experience, current trends, credit policy and a
percentage of accounts receivable by aging category. In
determining these percentages, we review our historical
write-off experience, current trends in the credit quality of
the customer base as well as changes in credit policies and our
sales mix. While credit losses have historically been within our
expectations and the provisions established, during fiscal 2007
we saw a significant increase in bad debt write offs due to the
recent deterioration of consumer credit coupled with our mix
shift to higher delinquency product categories, increases in our
average ValuePay installment length and increased sales to lower
credit-score customers. Provision for doubtful accounts
receivable (primarily related to our ValuePay program) for
fiscal 2007, 2006 and 2005 were $12,613,000, $6,065,000 and
$4,542,000, respectively. Based on our fiscal 2007 bad debt
experience, a one-half point increase or decrease in our bad
debt experience as a percentage of total television home
shopping and internet sales would have an impact of
approximately $3.8 million on consolidated distribution and
selling expense.
|
|
|
|
Inventory. We value our inventory, which
consists primarily of consumer merchandise held for resale,
principally at the lower of average cost or realizable value,
and reduce our balance by an allowance for excess and obsolete
merchandise. As of February 2, 2008 and February 3,
2007, we had inventory balances of $79,444,000 and $66,622,000,
respectively. We regularly review inventory quantities on hand
and record a provision for excess and obsolete inventory based
primarily on a percentage of the inventory balance as determined
by its age and specific product category. In determining these
percentages, we look at our historical write-off experience, the
specific merchandise categories on hand, our historic recovery
percentages on liquidations, forecasts of future product
television shows and the current market value of gold. Provision
for excess and obsolete inventory for fiscal 2007, 2006 and 2005
were $1,811,000, $2,977,000 and $3,508,000, respectively. Based
on our fiscal 2007 inventory write down experience, a 10%
increase or decrease in inventory write downs would have had an
impact of approximately $181,000 on consolidated net sales less
cost of sales (exclusive of depreciation and amortization).
|
|
|
|
Product returns. We record a reserve as a
reduction of gross sales for anticipated product returns at each
month-end and must make estimates of potential future product
returns related to current period product revenue. Our return
rates on our television and internet sales have been
approximately 32% to 33% over the past three fiscal years. We
estimate and evaluate the adequacy of our returns reserve by
analyzing historical returns by merchandise category, looking at
current economic trends and changes in customer demand and
|
32
|
|
|
|
|
by analyzing the acceptance of new product lines. Assumptions
and estimates are made and used in connection with establishing
the sales returns reserve in any accounting period. Reserves for
product returns for fiscal years 2007, 2006 and 2005 were
$8,376,000, $8,498,000 and $7,658,000, respectively. Based on
our fiscal 2007 sales returns, a one-point increase or decrease
in our television and internet sales returns rate would have had
an impact of approximately $4.7 million on consolidated net
sales less cost of sales (exclusive of depreciation and
amortization).
|
|
|
|
|
|
Long-term investments. As of February 2,
2008 our investment portfolio included auction rate securities
with an estimated fair value of $24,346,000 ($26,800,000 cost
basis). Our auction rate securities are primarily variable rate
debt instruments that have underlying securities with
contractual maturities ranging from 17 to 42 years and
interest rates that are reset at auction primarily every
28 days. These mostly AAA-rated auction rate securities,
which met our investment guidelines at the time the investments
were made, have failed to settle in auctions during fiscal 2007.
At this time, these investments are not currently liquid, and in
the event we need to access these funds, we will not be able to
do so without a loss of principle unless a future auction on
these investments is successful. As a result, in fiscal 2007, we
reduced the carrying value of these investments by $2,454,000
through other comprehensive income (loss) to reflect a temporary
impairment on these securities. While we believe that our
estimates and assumptions regarding the valuation of our
investments are reasonable, different assumptions could have a
material affect on our valuations. As of February 3, 2007,
we had $4,139,000 of long-term equity investment in RLM recorded
in connection with our equity share of RLM income under the
equity method of accounting. On March 28, 2007, we sold our
12.5% ownership interest in RLM for approximately
$43.8 million. See Note 2 to the consolidated
financial statements.
|
|
|
|
FCC broadcasting license. As of
February 2, 2008 and February 3, 2007, we have
recorded an intangible FCC broadcasting license asset totaling
$31,943,000 as a result of our acquisition of Boston television
station WWDP TV-46 in fiscal 2003. In assessing the
recoverability of our FCC broadcasting license asset, which we
determined to have an indefinite life, we must make assumptions
regarding estimated projected cash flows, recent comparable
asset market data and other factors to determine the fair value
of the related reporting unit. We performed an impairment test
with respect to our FCC broadcasting license in the fourth
quarter of fiscal 2007 using resent comparable market data for
this asset and a discounted cash flow analysis as stipulated by
SFAS No. 142, Goodwill and other Intangible Assets,
and determined that an impairment had not occurred. With respect
to the FCC broadcasting license asset, the fair value of the
reporting unit exceeded its carrying value. While we believe
that our estimates and assumptions regarding the valuation of
our reporting unit are reasonable, different assumptions or
future events could materially affect our valuations.
|
|
|
|
Intangible assets. As of February 2, 2008
and February 3, 2007, we had amortizable intangible assets
totaling $11,480,000 and $13,993,000, respectively, for the
trademark license agreement with NBCU and the distribution and
marketing agreement entered into with NBCU. We performed an
impairment test with respect to these amortizable intangible
assets in the fourth quarter of fiscal 2007 using an
undiscounted cash flow analysis as stipulated by
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, and determined that an
impairment had not occurred. In assessing the recoverability of
our intangible assets, we must make assumptions regarding
estimated future cash flows and other factors to determine the
fair value of the respective assets and reporting units.
|
|
|
|
Stock-based compensation. We account for
stock-based compensation issued to employees in accordance with
Statement of Financial Accounting Standards No. 123(R)
(revised 2004), Share-Based Payment
(SFAS No. 123(R)), which revised
SFAS No. 123, Accounting for Stock-Based
Compensation, and superseded APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB
25). This standard requires compensation costs related to
all share-based payment transactions to be recognized in the
financial statements at fair value. The fair value of each
option award is estimated on the date of grant using the
Black-Scholes option pricing model that uses assumptions for
stock volatility, option terms, risk-free interest rates and
dividend yields. Expected volatilities are based on the
historical volatility of our stock. Expected term is calculated
using the simplified method taking into consideration the
options contractual life and vesting
|
33
|
|
|
|
|
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 are not used in the fair value
computations as we have never declared or paid dividends on our
common stock. While we believe that our estimates and
assumptions regarding the valuation of our share-based awards
are reasonable, different assumptions could have a material
affect on our valuations. See Note 6, Shareholders
Equity Stock-Based Compensation, for our disclosure
regarding our share-based equity awards.
|
|
|
|
|
Deferred taxes. We account for income taxes
under the liability method of accounting whereby income taxes
are recognized during the fiscal year in which transactions
enter into the determination of financial statement income
(loss). Deferred tax assets and liabilities are recognized for
the expected future tax consequences of temporary differences
between the financial statement and tax basis of assets and
liabilities. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
the enactment of such laws. We assess the recoverability of our
deferred tax assets in accordance with the provisions of
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes
(SFAS No. 109). The ultimate realization
of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those
temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected
future taxable income and tax planning strategies in making this
assessment. In accordance with that standard, as of
February 2, 2008 and February 3, 2007, we recorded a
valuation allowance of approximately $56,530,000 and
$63,194,000, respectively, for our net deferred tax assets and
net operating and capital loss carryforwards. Based on our
recent history of losses, a full valuation allowance was
recorded in fiscal 2007, 2006 and 2005 and was calculated in
accordance with the provisions of SFAS No. 109, which
places primary importance on our most recent operating results
when assessing the need for a valuation allowance. Although
management believes that our recent operating losses were
heavily affected by a challenging retail economic environment
and slowdown in consumer spending experienced by us and other
merchandise retailers, we intend to maintain a full valuation
allowance for our net deferred tax assets and loss carryforwards
until sufficient positive evidence exists to support reversal of
allowances.
|
Sale of
RLM Equity Investment
On March 28, 2007, we entered into a membership interest
purchase agreement with Polo Ralph Lauren, NBCU and certain NBCU
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.
Restructuring
Costs
On May 21, 2007 we announced the initiation of a
restructuring of our operations that included a 12% reduction in
the salaried workforce, a consolidation of our distribution
operations into a single warehouse facility, the exit and
closure of a retail outlet store and other cost saving measures.
On January 14, 2008, the Company announced additional
organizational changes and cost-saving measures following a
formal business review conducted by management and an outside
consulting firm. As a result of the business review, the
Companys organizational structure was simplified and
streamlined to focus on profitability. As part of this
restructuring, the Company reduced its salaried workforce by an
additional 10%. As a result, we recorded a $5,043,000
restructuring charge for fiscal 2007. Restructuring costs
include employee severance and retention costs associated with
the consolidation and elimination of approximately 80 positions
across our company including four officers. In addition,
restructuring costs also include incremental charges associated
with our consolidation of our 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.
34
Chief
Executive Officer Transition Costs
On October 26, 2007, we announced that William J. Lansing,
at the request of the board of directors, had stepped down as
president and chief executive officer and had left our board of
directors. In conjunction with Mr. Lansings
resignation, we recorded a charge to income of $2,451,000 during
fiscal 2007 relating primarily to severance payments which
Mr. Lansing is entitled to in accordance with the terms of
his employment agreement and executive search fees.
Limitation
on Must-Carry Rights
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 decides 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.
Results
of Operations
The following table sets forth, for the periods indicated,
certain statement of continuing operations data expressed as a
percentage of net sales.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (exclusive of depreciation and amortization)
|
|
|
65.3
|
%
|
|
|
65.2
|
%
|
|
|
65.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and selling
|
|
|
30.9
|
%
|
|
|
29.5
|
%
|
|
|
30.7
|
%
|
General and administrative
|
|
|
3.2
|
%
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
Depreciation and amortization
|
|
|
2.6
|
%
|
|
|
2.9
|
%
|
|
|
2.9
|
%
|
Restructuring costs
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
CEO termination costs
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
37.6
|
%
|
|
|
36.0
|
%
|
|
|
37.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(2.9
|
)%
|
|
|
(1.2
|
)%
|
|
|
(2.7
|
)%
|
Other income, net
|
|
|
0.7
|
%
|
|
|
0.5
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
equity in net income of affiliates
|
|
|
(2.2
|
)%
|
|
|
(0.7
|
)%
|
|
|
(2.3
|
)%
|
Income taxes
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
0.1
|
%
|
Gain on sale of RLM
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
Equity in net income of affiliates
|
|
|
0.1
|
%
|
|
|
0.4
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
2.9
|
%
|
|
|
(0.3
|
)%
|
|
|
(2.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
Key
Performance Metrics*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Twelve Months Ended
|
|
|
|
February 2,
|
|
|
%
|
|
|
February 3,
|
|
|
%
|
|
|
February 4,
|
|
|
|
2008
|
|
|
Change
|
|
|
2007
|
|
|
Change
|
|
|
2006
|
|
|
Program Distribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cable FTEs (in thousands, except percentages)
|
|
|
41,335
|
|
|
|
5
|
%
|
|
|
39,288
|
|
|
|
4
|
%
|
|
|
37,822
|
|
Satellite FTEs
|
|
|
27,585
|
|
|
|
6
|
%
|
|
|
25,923
|
|
|
|
8
|
%
|
|
|
24,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Average FTEs
|
|
|
68,920
|
|
|
|
6
|
%
|
|
|
65,211
|
|
|
|
5
|
%
|
|
|
61,910
|
|
Net Sales per FTE (Annualized)
|
|
$
|
11.13
|
|
|
|
(4
|
)%
|
|
$
|
11.58
|
|
|
|
5
|
%
|
|
$
|
10.99
|
|
Customer Metrics (in thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Customers 12 month rolling
|
|
|
893,991
|
|
|
|
6
|
%
|
|
|
845,564
|
|
|
|
5
|
%
|
|
|
803,607
|
|
% New Customers 12 month rolling
|
|
|
51
|
%
|
|
|
|
|
|
|
53
|
%
|
|
|
|
|
|
|
56
|
%
|
% Retained Customers 12 month rolling
|
|
|
49
|
%
|
|
|
|
|
|
|
47
|
%
|
|
|
|
|
|
|
44
|
%
|
Customer Penetration 12 month rolling
|
|
|
1.3
|
%
|
|
|
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
1.3
|
%
|
Product Mix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jewelry
|
|
|
38
|
%
|
|
|
|
|
|
|
39
|
%
|
|
|
|
|
|
|
43
|
%
|
Watches Apparel, Health & Beauty
|
|
|
25
|
%
|
|
|
|
|
|
|
24
|
%
|
|
|
|
|
|
|
21
|
%
|
Home and All Other
|
|
|
37
|
%
|
|
|
|
|
|
|
37
|
%
|
|
|
|
|
|
|
36
|
%
|
Shipped Units (in thousands)
|
|
|
4,621
|
|
|
|
(7
|
)%
|
|
|
4,989
|
|
|
|
1
|
%
|
|
|
4,942
|
|
Average Selling Price Shipped Units
|
|
$
|
233
|
|
|
|
10
|
%
|
|
$
|
211
|
|
|
|
8
|
%
|
|
$
|
196
|
|
|
|
|
* |
|
Includes television home shopping and internet sales only. |
Program
Distribution
Our television home shopping program was available to
approximately 68.9 million average full time equivalent, or
FTE, households for the twelve months ended February 2,
2008, approximately 65.2 million average FTE households for
the twelve months ended February 3, 2007 and approximately
61.9 million average FTE households for the twelve months
ended February 4, 2006. Average FTE subscribers grew 6% in
fiscal 2007, resulting in a 3.7 million increase in average
FTEs compared to fiscal 2006. Average FTE subscribers grew
5% in fiscal 2006, resulting in a 3.3 million increase in
average FTEs compared to fiscal 2005. The annual increases
were 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. Our
television home shopping programming is also simulcast live
24 hours a day, 7 days a week through our internet
website, www.shopnbc.tv, which is not included in total FTE
households.
Net
Sales Per FTE
Net sales per FTE for fiscal 2007 decreased 4%, or $0.45, per
FTE compared to fiscal 2006. Net sales per FTE for fiscal 2006
increased 5%, or $0.59, per FTE compared to fiscal 2005. The
decrease in the fiscal 2007 net sales per FTE was primarily
due to the overall increase in FTEs of 6% during the year
while net sales increased only 2% during the year. Home shopping
net sales growth was unfavorably affected during the year as a
result of the general softness in overall consumer demand. The
increase in fiscal 2006 net sales per FTE were largely the
result of strong television home shopping and internet net sales
growth over fiscal 2005, primarily in the first three quarters
of fiscal
36
2006. Consistent with industry practice, we include internet
sales along with television sales in our calculation of net
sales per FTE.
Customers
During fiscal 2007, we added 48,427 active customers, a 6%
increase over fiscal 2006. During fiscal 2006, we added 41,957
active customers, a 5% increase over fiscal 2005. 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 fiscal 2007, fiscal 2006 and fiscal 2005. 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 fiscal 2007, jewelry net sales decreased from 39% of
total television and internet net sales to 38% as compared to
fiscal 2006. Net sales from home products, including electronic
categories, remained flat at 37% of total television home
shopping and internet net sales for both fiscal 2007 and fiscal
2006 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 24% as compared to fiscal
2006. During fiscal 2007, our product mix remained relatively
flat as compared to fiscal 2006.
During fiscal 2006, jewelry net sales decreased from 43% of
total television and internet net sales to 39% as compared to
fiscal 2005. Net sales from home products, including electronic
categories, increased to 37% of total television home shopping
and internet net sales from 36% as compared to fiscal 2005 and
net sales from watches, apparel and health and beauty product
categories increased to 24% of total television home shopping
and internet net sales from 21% as compared to fiscal 2005. Our
merchandise mix prior to fiscal 2007 had moved away from our
historical reliance on jewelry and computers to a broader mix
that also includes apparel, watches, health and beauty, home and
other electronic product lines. Going forward, we plan to adjust
our merchandise mix as needed in an effort to focus on growing
our long term core customer base, in response to customer demand
and in order to maximize margin dollars per minute in our
television home shopping and internet operations.
Shipped
Units
The number of units shipped during fiscal 2007 decreased 7% from
fiscal 2006 to 4,621,000 from 4,989,000. The number of units
shipped during fiscal 2006 increased 1% from fiscal 2005 to
4,989,000 from 4,942,000. The decrease in shipped units was
primarily due to a shift in mix during fiscal 2007 within the
jewelry category to higher price point items, which resulted in
less shipped units. The increase in shipped units during fiscal
2006 was due primarily to the overall increase in net sales over
fiscal 2005.
Average
Selling Price
Our average selling price, or ASP, per unit was $233 in fiscal
2007, a 10% increase over fiscal 2006. The increase in 2007 ASP
was driven primarily by selling price increases within the
jewelry category, due to higher gold prices, and within the
apparel product category. For fiscal 2006, the average per unit
selling price was $211, an 8% increase over fiscal 2005. The
increase in the ASP in fiscal 2006 was driven by increases in
price points associated primarily with watches, electronics and
apparel merchandise categories, in addition to the mix shift
towards higher priced electronics and home merchandise
categories.
37
Sales
Consolidated net sales from continuing operations, inclusive of
shipping and handling revenue, for fiscal 2007 were $781,550,000
compared to $767,275,000 for fiscal 2006, a 2% increase. The
increase in consolidated net sales from continuing operations
was directly attributable to continued improvement in net sales
from our television home shopping and internet operations. Net
sales attributed to our television home shopping and internet
operations increased 2% to $767,276,000 for fiscal 2007 from
$755,302,000 for fiscal 2006. The growth in television home
shopping and internet net sales during fiscal 2007 is primarily
attributable to increased merchandise sales driven by the higher
productivity achieved from certain product categories including
jewelry and computers and an 18% increase, or $33,716,000, in
internet net sales over fiscal 2006. Although net sales
increased overall from fiscal 2006 to fiscal 2007, we
experienced slower sales growth during fiscal 2007 than we have
seen recently. We believe this is driven by a general softness
in overall consumer demand and due to increases in product
discount offerings made during fiscal 2007.
Consolidated net sales from continuing operations, inclusive of
shipping and handling revenue, for fiscal 2006 were $767,275,000
compared to $691,851,000 for fiscal 2005, an 11% increase. The
increase in consolidated net sales from continuing operations
was directly attributable to continued improvement in net sales
from our television home shopping and internet operations. Net
sales attributed to our television home shopping and internet
operations increased 11% to $755,302,000 for fiscal 2006 from
$680,592,000 for fiscal 2005. The growth in television home
shopping and internet net sales during fiscal 2006 is primarily
attributable to increased merchandise sales driven by the growth
in the number of homes receiving our television programming,
higher productivity from existing homes due to increased sales
per hour results achieved in the jewelry, watches, apparel and
electronics merchandise categories and a 26% increase, or
$38,072,000, in internet net sales over fiscal 2005. In
addition, television and internet net sales increased due to
increased shipping and handling revenue resulting from increased
sales during fiscal 2006 compared to fiscal 2005.
We record a reserve as a reduction of gross sales for
anticipated product returns at each month-end based upon
historical product return experience. The return rates for our
television home shopping and internet operations have been
approximately 32% to 33% over the past three fiscal years and
have remained relatively stable. We continue to manage return
rates and are adjusting average selling price points and product
mix, in an effort to reduce the overall return rate related to
our television home shopping and internet businesses.
Cost
of Sales (exclusive of depreciation and
amortization)
Cost of sales (excluding depreciation and amortization) from
continuing operations for fiscal 2007 was $510,535,000 compared
to $500,114,000 for fiscal 2006, an increase of 2%. The
increases in cost of sales is directly attributable to increased
costs associated with increased sales volume from our television
home shopping and internet businesses. Cost of sales (excluding
depreciation and amortization) from continuing operations for
fiscal 2006 was $500,114,000 compared to $452,907,000 for fiscal
2005, an increase of 10%. The increases in cost of sales 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 (sales margin) for fiscal 2007, 2006 and
2005 was 34.7%, 34.8% and 34.5%, respectively. The slight sales
margin decrease for fiscal 2007 from fiscal 2006 was primarily
due to a mix shift to lower margin computers and electronics
product categories made during fiscal 2007. The product sales
margin improvement for fiscal 2006 over fiscal 2005 was
primarily due to the achievement of higher merchandise margins
on television and internet merchandise in primarily the jewelry,
watches, electronics and apparel product categories and as a
result of decreased inventory obsolescence and lower promotional
discounting as a percentage of total net sales.
Operating
Expenses
Total operating expenses from continuing operations were
$294,067,000, $276,640,000 and $257,590,000 for fiscal 2007,
2006 and 2005, respectively, representing an increase of
$17,427,000, or 6%, from fiscal 2006 to fiscal 2007, and an
increase of $19,050,000, or 7%, from fiscal 2005 to fiscal 2006.
Fiscal 2007 total operating expenses included a $5,043,000
restructuring charge following its second quarter announcement
and a $2,451,000 charge
38
relating to the termination and transition of our chief
executive officer. Fiscal 2005 total operating expenses included
a charge of $82,000 recorded in connection with employee
terminations and a $294,000 gain recorded in connection with the
sale of our remaining low power television station, which
reduced total operating expenses in fiscal 2005.
Distribution and selling expense for fiscal 2007 increased
$15,231,000, or 7%, to $241,681,000, or 31% of net sales
compared to $226,450,000, or 30% of net sales in fiscal 2006.
Distribution and selling expense increased over fiscal 2006
primarily due to an increase in net cable and satellite access
fees of $6,314,000 as a result of increased subscribers over
prior year; increased bad debt expense of $7,219,000 due to
increased provisions for recent up-trends in account
delinquencies, costs of collection and write offs experienced
during fiscal 2007 all associated with increased exposure
relating to the current consumer credit environment; increased
internet and direct-mail and marketing expenses of $6,030,000
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 $1,860,000 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 $5,205,000 during
fiscal 2007 and decreased net credit card processing fees and
chargebacks totaling $1,078,000.
Distribution and selling expense for fiscal 2006 increased
$14,081,000, or 7%, to $226,450,000, or 30% of net sales
compared to $212,369,000, or 31% of net sales in fiscal 2005.
Distribution and selling expense increased over fiscal 2005
primarily due to an increase in salaries, accrued bonuses and
related personnel costs associated with hiring and retaining
primarily merchandising, television production and show
management personnel and on-air talent of $3,452,000 during
fiscal 2006; increased credit card and net collection fees of
$3,430,000 due to the overall increase in net sales; increased
internet and direct-mail and marketing expenses of $3,490,000 as
we attempt to acquire additional customers and increase our
overall penetration; increased telemarketing and customer
service costs of $3,463,000 associated with increased sales
volumes and our commitment to improve our customer service; a
$724,000 contract buyout fee relating to our legacy private
label credit card agreement and increased share-based
compensation expense of $778,000. These increases were offset by
a decrease in net cable and satellite access fees of $888,000.
General and administrative expense for fiscal 2007 decreased
$3,023,000, or 11%, to $24,899,000, or 3% of net sales from
continuing operations, compared to $27,922,000, or 4% of net
sales from continuing operations in fiscal 2006. General and
administrative expense decreased from fiscal 2006 primarily as a
result of our restructuring initiative that included reductions
in salaries, related benefits and accrued bonuses totaling
$4,913,000, offset by increases associated with director
stock-based compensation of $190,000, information systems
service and contract labor fees of $726,000, legal fees of
$507,000 and stock option expense of $162,000
General and administration expense for fiscal 2006 increased
$3,058,000, or 12%, to $27,922,000, or 4% of net sales from
continuing operations, compared to $24,864,000, or 4% of net
sales from continuing operations in fiscal 2005. General and
administrative expense increased over fiscal 2005 primarily as a
result of compensation recorded related to share-based payments
of $778,000, increased salaries, accrued bonuses, and related
personnel costs of $2,982,000, information systems service fees
of $402,000 and director stock-based compensation of $273,000,
offset by $660,000 of decreased legal fees and proceeds received
from a litigation settlement totaling $300,000.
Depreciation and amortization expense was $19,993,000,
$22,239,000 and $20,569,000 for fiscal 2007, 2006 and 2005,
respectively, representing an decrease of $2,246,000, or 10%,
from fiscal 2006 to fiscal 2007 and an increase of $1,670,000,
or 8%, from fiscal 2005 to fiscal 2006. Depreciation and
amortization expense as a percentage of net sales was 3% for
fiscal 2007, 2006 and 2005. The 2007 decrease in depreciation
and amortization expense relates to the timing of fully
depreciated assets year over year, offset by increased
depreciation and amortization as a result of assets places in
service in connection with our various application software
development and functionality enhancements. The dollar increase
experienced during fiscal 2006 was primarily due to increased
depreciation and amortization as a result of assets placed in
service in connection with our various application software
development and functionality enhancements.
39
Operating
Loss
We reported an operating loss from continuing operations of
$23,052,000 for fiscal 2007 compared with an operating loss from
continuing operations of $9,479,000 for fiscal 2006, an
increased loss of $13,573,000. Our operating loss increased
during fiscal 2007 primarily as a result of experiencing slower
net sales growth driven by a general softness in overall
consumer demand. In addition, we experienced increases during
fiscal 2007 in operating expenses, particularly
(i) increases in distribution and selling expenses recorded
in connection with bad debt expense, net cable access fees,
internet direct mail, marketing and search engine expenses,
(ii) increases in costs associated with our restructuring
initiative, and (iii) incremental costs associated with our
chief executive officer departure and transition. These
operating expense increases were offset by the dollar increase
in sales margin (sales minus cost of sales, exclusive of
depreciation and amortization), 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.
We reported an operating loss from continuing operations of
$9,479,000 for fiscal 2006 compared with an operating loss from
continuing operations of $18,646,000 for fiscal 2005, an
improvement of $9,167,000. Our operating loss for fiscal 2006
improved from fiscal 2005 primarily as a result of our dollar
increase in sales margin. Offsetting the increase in sales
margin over fiscal 2005 were increases in distribution and
selling expenses, particularly (i) additional personnel
costs associated with merchandising, television production, show
management and on-air talent, (ii) internet, direct-mail
and marketing expenses, (iii) credit card fees and bad debt
expense, (iv) increases in general and administrative
expenses recorded in connection with salaries, accrued bonuses
and information system service fees, and (v) increases in
depreciation and amortization expense as a result of assets
placed in service in connection with our various application
software development and functionality enhancements, the details
of which are discussed above. In addition, operating expenses
increased over the prior year due to the recording of noncash
stock option expense totaling $1,556,000 resulting from our
adoption of SFAS No. 123(R) in the first quarter of
fiscal 2006.
Net
Income (Loss)
For fiscal 2007, we reported net income available to common
shareholders of $22,161,000, or $0.53 per basic and diluted
share, on 41,992,000 weighted average common shares outstanding
(42,011,000 diluted shares). For fiscal 2006, we reported a net
loss available to common shareholders of $2,685,000, or $0.07
per basic and diluted share, on 37,646,000 weighted average
common shares outstanding. For fiscal 2005, we reported a net
loss available to common shareholders of $16,040,000, or $0.43
per basic and diluted share, on 37,182,000 weighted average
common shares outstanding. Net income available to common
shareholders for fiscal 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 loss of $119,000 on
the sale of a non-operating real estate asset held for sale, a
loss of $67,000 relating to non-operating investments and
interest income totaling $5,680,000 earned on our cash and
investments. Net loss available to common shareholders for
fiscal 2006 includes the recording of $3,006,000 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 $3,802,000 earned on our
cash and short-term investments. Net loss available to common
shareholders for fiscal 2005 includes a net loss of $2,296,000
from discontinued operations, a $250,000 cash dividend received
from RLM, a $256,000 write-down of a non-operating real estate
asset held for sale, the recording of $1,383,000 of equity in
earnings of RLM, a $762,000 income tax benefit, and interest
income totaling $3,048,000 earned on our cash and short-term
investments.
For fiscal 2007, we reported a net income tax provision of
$839,000 which resulted in a recorded effective tax rate of
3.6%. The provision recorded in fiscal 2007 primarily relates to
income taxes attributable to the gain on the sale of RLM which
reflects a 2.5% effective alternative minimum tax rate recorded
on the gain on the sale of RLM and state income taxes payable on
certain income for which there is no loss carryforward benefit
available.
For fiscal 2006 and 2005, net loss reflects an income tax
benefit (provision) of $(75,000) and $762,000, respectively,
which resulted in a recorded effective tax rate of 3.2% in
fiscal 2006 and 5.4% in fiscal 2005. We have recorded an income
tax provision during fiscal 2006 and fiscal 2005 relating to
state income taxes payable on certain income for which there is
no loss carryforward benefit available. We recorded an income
tax benefit of
40
$832,000 in the second quarter of fiscal 2005 related to the
reversal of an income tax contingency reserve that expired in
the quarter and was no longer required. We have not recorded any
other income tax benefit on the losses recorded during fiscal
2006 and fiscal 2005 due to the uncertainty of realizing income
tax benefits in the future as indicated by our recording of an
income tax valuation reserve. Based on our recent history of
losses, a full valuation allowance has been recorded and was
calculated in accordance with the provisions of
SFAS No. 109, which places primary importance on our
most recent operating results when assessing the need for a
valuation allowance. Although management believes that our
recent operating losses were heavily affected by the attendant
fixed costs associated with a significant expansion of cable
homes, a challenging retail economic environment and a slowdown
in consumer spending experienced by us and other merchandise
retailers, we intend to maintain a full valuation allowance for
our net deferred tax assets and net operating loss carryforwards
until we believe it is more likely than not that these assets
will be realized in the future.
Quarterly
Results
The following summarized unaudited results of operations for the
quarters in fiscal 2007 and 2006 have been prepared on the same
basis as the annual financial statements and reflect adjustments
(consisting of normal recurring adjustments) that we consider
necessary for a fair presentation of results of operations for
the periods presented. Our results of operations have varied and
may continue to fluctuate significantly from quarter to quarter.
Results of operations in any period should not be considered
indicative of the results to be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(In thousands, except percentages and per share amounts)
|
|
|
Fiscal 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
188,109
|
|
|
$
|
190,613
|
|
|
$
|
184,821
|
|
|
$
|
218,007
|
|
|
$
|
781,550
|
|
Net sales less cost of sales (exclusive of depreciation and
amortization)
|
|
|
66,113
|
|
|
|
67,322
|
|
|
|
64,984
|
|
|
|
72,596
|
|
|
|
271,015
|
|
Sales margin
|
|
|
35.1
|
%
|
|
|
35.3
|
%
|
|
|
35.2
|
%
|
|
|
33.3
|
%
|
|
|
34.7
|
%
|
Operating expenses
|
|
|
73,541
|
|
|
|
73,547
|
|
|
|
72,440
|
|
|
|
74,539
|
|
|
|
294,067
|
|
Operating income (loss)
|
|
|
(7,428
|
)
|
|
|
(6,225
|
)
|
|
|
(7,456
|
)
|
|
|
(1,943
|
)
|
|
|
(23,052
|
)
|
Other income, net
|
|
|
1,240
|
|
|
|
1,456
|
|
|
|
1,728
|
|
|
|
1,070
|
|
|
|
5,494
|
|
Gain on sale of RLM
|
|
|
40,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,240
|
|
Income (loss) from continuing operations
|
|
|
34,380
|
|
|
|
(5,409
|
)
|
|
|
(5,728
|
)
|
|
|
(791
|
)
|
|
|
22,452
|
|
Net income (loss)
|
|
$
|
34,380
|
|
|
$
|
(5,409
|
)
|
|
$
|
(5,728
|
)
|
|
$
|
(791
|
)
|
|
$
|
22,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
.80
|
|
|
$
|
(.15
|
)
|
|
$
|
(.16
|
)
|
|
$
|
(.02
|
)
|
|
$
|
.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share assuming dilution
|
|
$
|
.80
|
|
|
$
|
(.15
|
)
|
|
$
|
(.16
|
)
|
|
$
|
(.02
|
)
|
|
$
|
.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
42,939
|
|
|
|
37,367
|
|
|
|
36,331
|
|
|
|
35,314
|
|
|
|
41,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
42,939
|
|
|
|
37,367
|
|
|
|
36,331
|
|
|
|
35,314
|
|
|
|
42,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Total
|
|
|
|
(In thousands, except percentages and per share amounts)
|
|
|
Fiscal 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
178,724
|
|
|
$
|
186,982
|
|
|
$
|
184,886
|
|
|
$
|
216,683
|
|
|
$
|
767,275
|
|
Net sales less cost of sales (exclusive of depreciation and
amortization)
|
|
|
63,202
|
|
|
|
65,227
|
|
|
|
63,575
|
|
|
|
75,157
|
|
|
|
267,161
|
|
Sales margin
|
|
|
35.4
|
%
|
|
|
34.9
|
%
|
|
|
34.4
|
%
|
|
|
34.7
|
%
|
|
|
34.8
|
%
|
Operating expenses
|
|
|
67,120
|
|
|
|
67,923
|
|
|
|
68,322
|
|
|
|
73,275
|
|
|
|
276,640
|
|
Operating income (loss)
|
|
|
(3,918
|
)
|
|
|
(2,696
|
)
|
|
|
(4,747
|
)
|
|
|
1,882
|
|
|
|
(9,479
|
)
|
Other income, net
|
|
|
1,296
|
|
|
|
1,015
|
|
|
|
990
|
|
|
|
851
|
|
|
|
4,152
|
|
Income (loss) from continuing operations
|
|
|
(2,091
|
)
|
|
|
(696
|
)
|
|
|
(3,126
|
)
|
|
|
3,517
|
|
|
|
(2,396
|
)
|
Net income (loss)
|
|
$
|
(2,091
|
)
|
|
$
|
(696
|
)
|
|
$
|
(3,126
|
)
|
|
$
|
3,517
|
|
|
$
|
(2,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(.06
|
)
|
|
$
|
(.02
|
)
|
|
$
|
(.09
|
)
|
|
$
|
.09
|
|
|
$
|
(.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share assuming dilution
|
|
$
|
(.06
|
)
|
|
$
|
(.02
|
)
|
|
$
|
(.09
|
)
|
|
$
|
.08
|
|
|
$
|
(.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
37,679
|
|
|
|
37,736
|
|
|
|
37,628
|
|
|
|
37,484
|
|
|
|
37,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
37,679
|
|
|
|
37,736
|
|
|
|
37,628
|
|
|
|
42,861
|
|
|
|
37,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Condition, Liquidity and Capital Resources
As of February 2, 2008 and February 3, 2007, cash and
cash equivalents and investments were $85,384,000 and
$71,294,000, respectively, a $14,090,000 increase. For fiscal
2007 working capital decreased $21,338,000 to $133,833,000
compared to working capital of $155,171,000 for fiscal 2006. The
decrease in fiscal 2007 working capital is primarily related to
the reclassification of $24,346,000 of auction rate security
investments ($26,800,000 par value) from short term to long
term following auction failures in fiscal 2007. The current
ratio was 2.1 at February 2, 2008 compared to 2.5 at
February 3, 2007.
Sources
of Liquidity
Our principal sources of liquidity are our available cash, cash
equivalents and short and long-term investments, accrued
interest earned from our short and long-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. During fiscal 2007, we
experienced a $7.2 million increase in bad debt expense
over fiscal 2006 due to recent up-trends experienced in customer
account delinquencies, costs of collection and write offs during
fiscal 2007, all associated with increased exposure relating to
the current consumer credit environment. While credit losses
have historically been within our estimates for such losses,
there is no guarantee that we will continue to experience the
same credit loss rate that we have had in the past or that the
recent increase in bad debt losses will not continue.
Historically, we have also been able to generate additional cash
sources from the proceeds of stock option exercises and from the
sale of equity investments and other properties; however, these
sources of cash are neither relied upon nor controllable by us.
We have no debt other than fixed capital lease obligations and
believe we have the ability to obtain additional financing if
necessary. At February 2, 2008 and February 3, 2007,
short and long-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 original tender option terms ranging from one
month to one year. Although management believes our short and
long-term investment policy is conservative in nature, certain
short-term investments in commercial paper
42
can be exposed to the credit risk of the underlying companies to
which they relate and interest earned on these investments is
subject to interest rate fluctuations. The maturities and tender
option terms within our investment portfolio generally range
from 30 to 180 days.
At February 2, 2008, our investment portfolio included
auction rate securities with an estimated fair value of
$24,346,000 ($26,800,000 cost basis). Our auction rate
securities are variable rate debt instruments that have
underlying securities with contractual maturities greater than
ten years. Holders of auction rate securities can either sell
through the auction or bid based on a desired interest rate or
hold and accept the reset rate. If there are insufficient
buyers, then the auction fails and holders are unable to
liquidate their investment through the auction. A failed auction
is not a default of the debt instrument, but does set a new
interest rate in accordance with the original terms of the debt
instrument. The result of a failed auction is that the auction
rate security continues to pay interest in accordance with its
terms. Auctions continue to be held as scheduled until the
auction rate security matures or until it is called. These
mostly AAA-rated auction rate securities, which met our
investment guidelines at the time the investments were made,
have failed to settle in auctions during fiscal 2007. At this
time, these investments are not liquid, and in the event we need
to access these funds, we will not be able to do so without a
loss of principle. We have reduced the carrying value of these
investments by $2,454,000 through other comprehensive income
(loss) to reflect a temporary impairment on these securities.
Currently, we believe these investments are temporarily
impaired, but it is not clear in what period of time they will
be settled. Due to the current lack of liquidity of these
investments, they are classified as long-term investments on our
balance sheet. See Note 2 to the consolidated financial
statements.
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 have also used our cash resources
for various strategic investments and for the repurchase of
stock under stock repurchase programs but are under no
obligation to continue doing so if protection of liquidity is
desired. In March 2008, we authorized an additional
$10 million under our stock repurchase program and have the
discretion to repurchase stock under the program and make
strategic investments consistent with our business strategy.
We ended fiscal 2007 with cash and cash equivalents and
investments of $85,384,000 ($26,306,000 of which is classified
as long-term), 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 partially
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 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 the
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.
Our 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 the 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
43
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 and not impact our cash liquidity position.
Total assets at February 2, 2008 were $359,080,000 compared
to $351,980,000 at February 3, 2007. Shareholders
equity was $194,510,000 at February 2, 2008 compared to
$198,847,000 at February 3, 2007, a decrease of $4,337,000.
The decrease in shareholders equity from fiscal 2006 to
fiscal 2007 resulted primarily from common stock repurchases of
$26,985,000, the unrealized loss of $2,454,000 recorded on our
auction rate security investments and accretion on redeemable
preferred stock of $291,000. These decreases were offset by
increases in shareholders equity of $22,452,000 from net
income during the year, $2,415,000 related to the recording of
share-based compensation and $514,000 primarily from proceeds
received related to the exercise of stock options. The decrease
in shareholders equity from fiscal 2005 to fiscal 2006
resulted primarily from the net loss of $2,396,000 recorded
during the year, common stock repurchases of $4,699,000 and
accretion on redeemable preferred stock of $289,000. These
decreases were offset by increases in shareholders equity
of $1,901,000 related to the recording of share-based
compensation and $1,459,000 primarily from proceeds received
related to the exercise of stock options.
For fiscal 2007, net cash provided by operating activities
totaled $11,189,000 compared to net cash provided by operating
activities of $3,542,000 in fiscal 2006 and net cash used for
operating activities of $10,374,000 in fiscal 2005. Net cash
provided by operating activities for fiscal 2007 reflects net
income, as adjusted for depreciation and amortization,
share-based payment compensation, common stock issued to
employees, amortization of deferred revenue, gain on sale of
property and investments, asset impairments and write off
charges and equity in net income of affiliates. In addition, net
cash provided by operating activities for fiscal 2007 reflects a
decrease in accounts receivable, decreases in prepaid expenses
and other assets, an increase in deferred revenue and an
increase in accounts payable and accrued liabilities, offset by
an increase in inventory. Accounts receivable decreased
primarily due to a decrease from sales made during the fourth
quarter of fiscal 2007 utilizing extended payment terms over
fiscal 2006 as we tightened up our customer credit offerings.
Prepaid expenses decreased primarily as a result of proceeds
received on the sale of a non-operating real estate asset held
for sale. 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.
The increase in accounts payable and accrued expenses is a
direct result of the increase in inventory levels and the timing
of merchandise payments, increased accruals associated with our
private label loyalty point program and the restructuring
initiative. These increases were offset by decreases in accrued
salaries, bonuses and accrued cable access and marketing fees.
Inventories increased due to marginal fourth quarter sales
increases and due to the timing of merchandise receipts.
Net cash provided by operating activities for fiscal 2006
reflects a net loss, as adjusted for depreciation and
amortization, share-based payment compensation, common stock
issued to employees, amortization of deferred revenue, gain on
sale of property and investments, asset impairments and write
off charges, proceeds from RLM dividends and equity in net
income of affiliates. In addition, net cash provided by
operating activities for fiscal 2006 reflects decreases in
inventory, prepaid expenses and other assets and an increase in
deferred revenue, accounts payable and accrued liabilities,
offset by an increase in accounts receivable. Inventories
decreased primarily as a result of our strong fourth quarter
sales activity and managements focused effort to reduce
overall inventory levels. Prepaid expenses decreased primarily
as a result of the timing of prepaid cable access fees. The
increase in deferred revenue was primarily the result of
receiving upfront cash payments in connection with our new
private label and co-branded credit card program. The increase
in accounts payable and accrued expenses is a result of
increases associated with accrued salaries, accrued cable access
and marketing fees, offset primarily by amounts due to customers
for returns. Accounts receivable increased primarily due to the
overall increase in net sales and specifically due to increases
in sales made utilizing extended payment terms and the timing of
customer collections made under our ValuePay installment program.
Net cash used for operating activities for fiscal 2005 reflects
a net loss, as adjusted for depreciation and amortization,
common stock issued to employees, amortization of deferred
compensation, gain on sale of television stations, gain on sale
of property and investments, asset impairment and write off
charges, equity in net income of affiliates, a noncash tax
benefit recorded in fiscal 2005 and a gain on the termination of
a long-term lease associated with FanBuzz. In addition, net cash
used for operating activities for fiscal 2005 reflects an
increase in inventories, accounts receivable and prepaid
expenses and other assets, offset by an increase in accounts
payable and accrued
44
liabilities. Inventories increased primarily in preparation for
the fourth quarter anticipated strong holiday season and as a
direct result of our effort to diversify our product mix
offerings. Accounts receivable increased primarily due to an
increase in receivables from sales utilizing extended payment
terms and the timing of customer collections under the ValuePay
installment program. Prepaid expenses and other assets increased
primarily as a result of an increase in prepaid cable access
fees due to the timing of payments, an increase in deferred
satellite rent, offset by a decrease in prepaid postage. The
increase in accounts payable and accrued liabilities is a direct
result of the increase in inventory levels and the timing of
merchandise receipts. In addition, accounts payable and accrued
liabilities increased as a result of the timing of payments made
for accrued cable access and marketing fees, offset by a
decrease in accrued salaries and a decrease in amounts due to
customers for returned merchandise.
We utilize an installment payment program called ValuePay that
entitles customers to purchase merchandise and generally pay for
the merchandise in two to five equal monthly credit card
installments. As of February 2, 2008, we had approximately
$99,875,000 due from customers under the ValuePay installment
program, compared to $105,197,000 at February 3, 2007. The
decrease in ValuePay receivables from fiscal 2006 is primarily
the result of decreased sales made during the fourth quarter of
fiscal 2007 utilizing extended payment terms over fiscal 2006 as
we tighten up our customer credit offerings. ValuePay was
introduced many years ago to increase sales and to respond to
similar competitive programs while at the same time reducing
return rates on merchandise with above average selling prices.
We record a reserve for uncollectible accounts in our financial
statements in connection with ValuePay installment sales and
intend to continue to sell merchandise using the ValuePay
program. Receivables generated from the ValuePay program will be
funded in fiscal 2008 from our present capital resources and
future operating cash flows.
Net cash used for investing activities totaled $475,000 in
fiscal 2007, compared to net cash used for investing activities
of $1,562,000 in fiscal 2006 and net cash used for investing
activities of $10,111,000 in fiscal 2005. Expenditures for
property and equipment were $11,789,000 in fiscal 2007 compared
to $11,470,000 in fiscal 2006 and $9,750,000 in fiscal 2005.
Expenditures for property and equipment during fiscal 2007,
fiscal 2006 and fiscal 2005 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 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. During fiscal 2007, we invested $82,913,000 in
various short and long-term investments, received proceeds of
$50,477,000 from the sale of short and long-term investments and
received proceeds of $43,750,000 from the sale of our RLM
investment.
During fiscal 2006, we invested $21,627,000 in various
short-term investments, received proceeds of $31,035,000 from
the sale of short-term investments and received proceeds of
$500,000 from the sale of an internet investment previously
written off.
During fiscal 2005, we invested $80,454,000 in various
short-term investments, received proceeds of $79,193,000 from
the sale of short-term investments, received proceeds of
$400,000 in connection with the sale of a low power television
station and received proceeds of $500,000 from the sale of
property and equipment in connection with the shut down of
FanBuzz.
Net cash used for financing activities totaled $26,605,000 in
fiscal 2007 and related primarily to payments made of
$26,985,000 in conjunction with the repurchase of
3,618,000 shares of our common stock and payments of
long-term lease obligations of $134,000, offset by cash proceeds
received of $514,000 from the exercise of stock options. Net
cash used for financing activities totaled $3,627,000 in fiscal
2006 and related primarily to payments made of $4,699,000 in
conjunction with the repurchase of 406,000 shares of our
common stock and payments of long-term lease obligations of
$363,000, offset by cash proceeds received of $1,435,000 from
the exercise of stock options. Net cash provided by financing
activities totaled $988,000 in fiscal 2005 and related primarily
to cash proceeds received of $1,869,000 from the exercise of
stock options, offset by payments of long-term capital lease
obligations of $881,000.
45
Contractual
Cash Obligations and Commitments
The following table summarizes our obligations and commitments
as of February 2, 2008, and the effect these obligations
and commitments are expected to have on our liquidity and cash
flow in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Cable and satellite agreements(a)
|
|
$
|
245,873
|
|
|
$
|
105,688
|
|
|
$
|
77,608
|
|
|
$
|
62,577
|
|
|
$
|
|
|
Employment agreements
|
|
|
4,909
|
|
|
|
3,756
|
|
|
|
1,153
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
20,327
|
|
|
|
2,197
|
|
|
|
3,947
|
|
|
|
3,933
|
|
|
|
10,250
|
|
Purchase order obligations
|
|
|
55,700
|
|
|
|
55,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
326,809
|
|
|
$
|
167,341
|
|
|
$
|
82,708
|
|
|
$
|
66,510
|
|
|
$
|
10,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Future cable and satellite payment commitments are based on
subscriber levels as of February 2, 2008 and future payment
commitment amounts could increase or decrease as the number of
cable and satellite subscribers increase or decrease. Under
certain circumstances, operators may cancel their agreements
prior to expiration. |
Impact of
Inflation
We believe that inflation has not had a material impact on our
results of operations for each of the fiscal years in the
three-year period ended February 2, 2008. We cannot assure
you that inflation will not have an adverse impact on our
operating results and financial condition in future periods.
Recently
Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
No. 141(R), Business Combinations.
SFAS No. 141(R) applies to all transactions or other
events in which an entity obtains control of one or more
businesses. SFAS No. 141(R) establishes how the
acquirer of a business should recognize, measure and disclose in
its financial statements the identifiable assets and goodwill
acquired, the liabilities assumed and any noncontrolling
interest in the acquired business. SFAS No. 141(R) is
applied prospectively for all business combinations with an
acquisition date on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008,
with early application prohibited. SFAS No. 141(R)
will not have an impact on our historical consolidated financial
statements and will be adopted in the first quarter of fiscal
2009.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements, to establish a consistent
framework for measuring fair value and expand disclosures on
fair value measurements. SFAS No. 157 does not impose
fair value measurements on items not already accounted for at
fair value; rather it applies, with certain exceptions, to other
accounting pronouncements that either require or permit fair
value measurements. Under SFAS No. 157, fair value
refers to the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants in the principal or most advantageous
market. The standard clarifies that fair value should be based
on the assumptions market participants would use when pricing
the asset or liability. The provisions of SFAS No. 157
are effective for fiscal years beginning after November 15,
2007. We are currently evaluating the effect that the adoption
of SFAS No. 157 will have on our consolidated results
of operations and financial condition.
|
|
Item 7A.
|
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. We have
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 currently do not have investments in
the form of common stock purchase warrants. Our operations are
conducted primarily in the United States and as such 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 have no
long-term debt other than fixed capital lease obligations, 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.
46
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
OF VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
48
|
|
Consolidated Balance Sheets as of February 2, 2008 and
February 3, 2007
|
|
|
49
|
|
Consolidated Statements of Operations for the Years Ended
February 2, 2008, February 3, 2007 and
February 4, 2006
|
|
|
50
|
|
Consolidated Statements of Shareholders Equity for the
Years Ended February 2, 2008, February 3, 2007 and
February 4, 2006
|
|
|
51
|
|
Consolidated Statements of Cash Flows for the Years Ended
February 2, 2008, February 3, 2007 and
February 4, 2006
|
|
|
52
|
|
Notes to Consolidated Financial Statements
|
|
|
53
|
|
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts
|
|
|
84
|
|
47
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
ValueVision Media, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
ValueVision Media, Inc. and subsidiaries
(the Company) as of February 2, 2008 and
February 3, 2007 and the related consolidated statements of
operations, shareholders equity and cash flows for each of
the years ended February 2, 2008, February 3, 2007 and
February 4, 2006. Our audits also included the financial
statement schedule included in Item 15. These financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of ValueVision Media, Inc. and subsidiaries as of
February 2, 2008 and February 3, 2007, and the results
of its operations and its cash flows for each of the years ended
February 2, 2008, February 3, 2007 and
February 4, 2006, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, the financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information
set forth therein.
As discussed in Note 2 and Note 6 to the consolidated
financial statements, in the fiscal year ended February 3,
2007 the Company changed its method of accounting for
stock-based compensation.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
February 2, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated April 17, 2008, expressed
an unqualified opinion on the Companys internal control
over financial reporting.
/s/ DELOITTE &
TOUCHE LLP
Minneapolis, MN
April 17, 2008
48
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
25,605
|
|
|
$
|
41,496
|
|
Short-term investments
|
|
|
33,473
|
|
|
|
29,798
|
|
Accounts receivable, net
|
|
|
109,489
|
|
|
|
117,169
|
|
Inventories
|
|
|
79,444
|
|
|
|
66,622
|
|
Prepaid expenses and other
|
|
|
4,172
|
|
|
|
5,360
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
252,183
|
|
|
|
260,445
|
|
Long-term investments
|
|
|
26,306
|
|
|
|
|
|
Property and equipment, net
|
|
|
36,627
|
|
|
|
40,107
|
|
FCC broadcasting license
|
|
|
31,943
|
|
|
|
31,943
|
|
NBC Trademark License Agreement, net
|
|
|
10,608
|
|
|
|
12,234
|
|
Cable distribution and marketing agreement, net
|
|
|
872
|
|
|
|
1,759
|
|
Other assets
|
|
|
541
|
|
|
|
5,492
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
359,080
|
|
|
$
|
351,980
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
73,093
|
|
|
$
|
57,196
|
|
Accrued liabilities
|
|
|
44,609
|
|
|
|
47,709
|
|
Deferred revenue
|
|
|
648
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
118,350
|
|
|
|
105,274
|
|
Other long-term obligations
|
|
|
|
|
|
|
2,553
|
|
Deferred revenue
|
|
|
2,322
|
|
|
|
1,699
|
|
Commitments and contingencies (Notes 8 and 9)
|
|
|
|
|
|
|
|
|
Series A Redeemable Convertible Preferred Stock,
$.01 par value, 5,339,500 shares authorized;
5,339,500 shares issued and outstanding
|
|
|
43,898
|
|
|
|
43,607
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 100,000,000 shares
authorized; 34,070,422 and 37,593,768 shares issued and
outstanding
|
|
|
341
|
|
|
|
376
|
|
Warrants to purchase 2,036,858 and 4,036,858 shares of
common stock
|
|
|
12,041
|
|
|
|
22,972
|
|
Additional paid-in capital
|
|
|
274,172
|
|
|
|
287,541
|
|
Accumulated other comprehensive losses
|
|
|
(2,454
|
)
|
|
|
|
|
Accumulated deficit
|
|
|
(89,590
|
)
|
|
|
(112,042
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
194,510
|
|
|
|
198,847
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
359,080
|
|
|
$
|
351,980
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
49
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Net sales
|
|
$
|
781,550
|
|
|
$
|
767,275
|
|
|
$
|
691,851
|
|
Cost of sales (exclusive of depreciation and amortization
shown below)
|
|
|
510,535
|
|
|
|
500,114
|
|
|
|
452,907
|
|
Operating (income) expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution and selling
|
|
|
241,681
|
|
|
|
226,450
|
|
|
|
212,369
|
|
General and administrative
|
|
|
24,899
|
|
|
|
27,922
|
|
|
|
24,864
|
|
Depreciation and amortization
|
|
|
19,993
|
|
|
|
22,239
|
|
|
|
20,569
|
|
Restructuring costs
|
|
|
5,043
|
|
|
|
29
|
|
|
|
82
|
|
CEO transition costs
|
|
|
2,451
|
|
|
|
|
|
|
|
|
|
Gain on sale of television station
|
|
|
|
|
|
|
|
|
|
|
(294
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
294,067
|
|
|
|
276,640
|
|
|
|
257,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(23,052
|
)
|
|
|
(9,479
|
)
|
|
|
(18,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
(186
|
)
|
|
|
350
|
|
|
|
(4
|
)
|
Interest income
|
|
|
5,680
|
|
|
|
3,802
|
|
|
|
3,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income
|
|
|
5,494
|
|
|
|
4,152
|
|
|
|
3,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes and
equity in net income of affiliates
|
|
|
(17,558
|
)
|
|
|
(5,327
|
)
|
|
|
(15,602
|
)
|
Gain on sale of RLM investment
|
|
|
40,240
|
|
|
|
|
|
|
|
|
|
Income tax benefit (provision)
|
|
|
(839
|
)
|
|
|
(75
|
)
|
|
|
762
|
|
Equity in net income of affiliates
|
|
|
609
|
|
|
|
3,006
|
|
|
|
1,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
22,452
|
|
|
|
(2,396
|
)
|
|
|
(13,457
|
)
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued FanBuzz operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
(2,296
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
22,452
|
|
|
|
(2,396
|
)
|
|
|
(15,753
|
)
|
Accretion of redeemable preferred stock
|
|
|
(291
|
)
|
|
|
(289
|
)
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders
|
|
$
|
22,161
|
|
|
$
|
(2,685
|
)
|
|
$
|
(16,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.53
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.37
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.53
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share assuming
dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
0.53
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.37
|
)
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
0.53
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
41,992,167
|
|
|
|
37,646,162
|
|
|
|
37,181,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
42,010,972
|
|
|
|
37,646,162
|
|
|
|
37,181,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
50
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
For
the Years Ended February 2, 2008, February 3, 2007 and
February 4, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Comprehensive
|
|
|
Common Stock
|
|
|
Stock
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Income
|
|
|
Number of
|
|
|
Par
|
|
|
Purchase
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Shareholders
|
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Value
|
|
|
Warrants
|
|
|
Capital
|
|
|
Compensation
|
|
|
Losses
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2005
|
|
|
|
|
|
|
37,043,912
|
|
|
$
|
370
|
|
|
$
|
46,683
|
|
|
$
|
264,005
|
|
|
$
|
(353
|
)
|
|
$
|
|
|
|
$
|
(93,893
|
)
|
|
$
|
216,812
|
|
Net loss
|
|
$
|
(15,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,753
|
)
|
|
|
(15,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options and common stock issuances
|
|
|
|
|
|
|
318,564
|
|
|
|
3
|
|
|
|
|
|
|
|
1,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,906
|
|
Exercise of stock purchase warrants
|
|
|
|
|
|
|
281,200
|
|
|
|
3
|
|
|
|
(5,378
|
)
|
|
|
5,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Stock purchase warrants forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,276
|
)
|
|
|
7,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
Accretion on redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 4, 2006
|
|
|
|
|
|
|
37,643,676
|
|
|
|
376
|
|
|
|
34,029
|
|
|
|
278,266
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
(109,646
|
)
|
|
|
202,871
|
|
Net loss
|
|
$
|
(2,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,396
|
)
|
|
|
(2,396
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock
|
|
|
|
|
|
|
(405,685
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,699
|
)
|
Exercise of stock options and common stock issuances
|
|
|
|
|
|
|
355,777
|
|
|
|
4
|
|
|
|
|
|
|
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,459
|
|
Stock purchase warrants forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,057
|
)
|
|
|
11,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,901
|
|
Effect of accounting change (SFAS 123R)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion on redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 3, 2007
|
|
|
|
|
|
|
37,593,768
|
|
|
|
376
|
|
|
|
22,972
|
|
|
|
287,541
|
|
|
|
|
|
|
|
|
|
|
|
(112,042
|
)
|
|
|
198,847
|
|
Net income
|
|
$
|
22,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,452
|
|
|
|
22,452
|
|
Other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
|
|
|
(2,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,454
|
)
|
|
|
|
|
|
|
(2,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
19,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
(3,617,562
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
(26,948
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,984
|
)
|
Exercise of stock options and common stock issuances
|
|
|
|
|
|
|
94,216
|
|
|
|
1
|
|
|
|
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
526
|
|
Stock purchase warrants forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,931
|
)
|
|
|
10,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,414
|
|
Accretion on redeemable preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(291
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 2, 2008
|
|
|
|
|
|
|
34,070,422
|
|
|
$
|
341
|
|
|
$
|
12,041
|
|
|
$
|
274,172
|
|
|
$
|
|
|
|
$
|
(2,454
|
)
|
|
$
|
(89,590
|
)
|
|
$
|
194,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
51
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
22,452
|
|
|
$
|
(2,396
|
)
|
|
$
|
(15,753
|
)
|
Adjustments to reconcile net income (loss) to net cash (used
for) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,993
|
|
|
|
22,239
|
|
|
|
20,871
|
|
Share-based payment compensation
|
|
|
2,415
|
|
|
|
1,901
|
|
|
|
|
|
Common stock issued to employees
|
|
|
12
|
|
|
|
24
|
|
|
|
37
|
|
Amortization of deferred revenue
|
|
|
(287
|
)
|
|
|
(119
|
)
|
|
|
|
|
Gain on sale of property and investments
|
|
|
(40,240
|
)
|
|
|
(500
|
)
|
|
|
(250
|
)
|
Asset impairments and writeoffs
|
|
|
428
|
|
|
|
179
|
|
|
|
400
|
|
Equity in net income of affiliates
|
|
|
(609
|
)
|
|
|
(3,006
|
)
|
|
|
(1,383
|
)
|
RLM dividends
|
|
|
|
|
|
|
250
|
|
|
|
|
|
Vesting of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
190
|
|
Gain on sale of television station
|
|
|
|
|
|
|
|
|
|
|
(294
|
)
|
Noncash lease termination benefit
|
|
|
|
|
|
|
|
|
|
|
(924
|
)
|
Noncash tax benefit
|
|
|
|
|
|
|
|
|
|
|
(832
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
7,680
|
|
|
|
(29,691
|
)
|
|
|
(8,073
|
)
|
Inventories
|
|
|
(12,822
|
)
|
|
|
1,222
|
|
|
|
(12,941
|
)
|
Prepaid expenses and other
|
|
|
1,532
|
|
|
|
3,594
|
|
|
|
(3,416
|
)
|
Deferred revenue
|
|
|
1,189
|
|
|
|
2,188
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
9,446
|
|
|
|
7,657
|
|
|
|
11,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by operating activities
|
|
|
11,189
|
|
|
|
3,542
|
|
|
|
(10,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment additions
|
|
|
(11,789
|
)
|
|
|
(11,470
|
)
|
|
|
(9,750
|
)
|
Proceeds from sale of investment in RLM and property
|
|
|
43,750
|
|
|
|
500
|
|
|
|
500
|
|
Purchase of investments
|
|
|
(82,913
|
)
|
|
|
(21,627
|
)
|
|
|
(80,454
|
)
|
Proceeds from sale of short and long-term investments
|
|
|
50,477
|
|
|
|
31,035
|
|
|
|
79,193
|
|
Proceeds from sale of television stations
|
|
|
|
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(475
|
)
|
|
|
(1,562
|
)
|
|
|
(10,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
514
|
|
|
|
1,435
|
|
|
|
1,869
|
|
Payments for repurchases of common stock
|
|
|
(26,985
|
)
|
|
|
(4,699
|
)
|
|
|
|
|
Payment of long-term obligations
|
|
|
(134
|
)
|
|
|
(363
|
)
|
|
|
(881
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities
|
|
|
(26,605
|
)
|
|
|
(3,627
|
)
|
|
|
988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(15,891
|
)
|
|
|
(1,647
|
)
|
|
|
(19,497
|
)
|
BEGINNING CASH AND CASH EQUIVALENTS
|
|
|
41,496
|
|
|
|
43,143
|
|
|
|
62,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENDING CASH AND CASH EQUIVALENTS
|
|
$
|
25,605
|
|
|
$
|
41,496
|
|
|
$
|
43,143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
52
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended February 2, 2008, February 3, 2007, and
February 4, 2006
ValueVision Media, Inc. and 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 otherwise known as multi-channel
retailing. The Companys operating strategy incorporates
television home shopping, internet
e-commerce,
direct mail and on-line 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. (NBCU), for the worldwide use of an
NBC-branded name and the peacock image through May 2011.
Pursuant to the license, we operate our television home shopping
network under the ShopNBC brand name and operate our internet
website under the ShopNBC.com brand name.
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.
|
Summary
of Significant Accounting Policies:
|
Principles
of Consolidation
The accompanying 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 2, 2008 and is designated fiscal 2007. The year
ended February 3, 2007 is designated fiscal 2006 and the
year ended February 4, 2006 is designated fiscal 2005.
Starting in fiscal 2005, the Company started reporting 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. As a
result of this fiscal year change, the fourth quarter of fiscal
2006 had 13 weeks compared to the fourth quarter of fiscal
2005 which had 14 weeks, a 1.36% decrease in the number of
days over fiscal 2005. The change in the fiscal year was not
significant to the Companys annual consolidated financial
statements.
Revenue
Recognition and Accounts Receivable
Revenue is recognized at the time merchandise is shipped or when
services are provided. Shipping and handling fees charged to
customers are recognized as merchandise is shipped and are
classified as revenue in the accompanying statements of
operations in accordance with Emerging Issues Task Force
(EITF) Issue
No. 00-10,
Accounting for Shipping and Handling Fees and Cost
(EITF 00-10).
The Company classifies shipping and handling costs in the
accompanying statements of operations as a component of cost of
sales. Revenue is reported net of estimated sales returns and
excludes sales taxes. Sales returns are estimated and provided
for at the time of
53
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
sale based on historical experience. Payments received for
unfilled orders are reflected as a component of accrued
liabilities.
Revenue is recognized for the Companys fulfillment
services when the services are provided in accordance with the
Companys contractual obligation, the sales price is fixed
or determinable and collectibility is reasonably assured. The
Companys customary shipping terms for its fulfillment
services are
Freight-On-Board
shipping point.
Accounts receivable consist primarily of amounts due from
customers for merchandise sales and from credit card companies,
and are reflected net of reserves for estimated uncollectible
amounts of $6,888,000 at February 2, 2008 and $3,641,000 at
February 3, 2007. The Company utilizes an installment
payment program called ValuePay that entitles customers to
purchase merchandise and generally pay for the merchandise in
two to five equal monthly credit card installments. As of
February 2, 2008 and February 3, 2007, the Company had
approximately $99,875,000 and $105,197,000, respectively, of net
receivables due from customers under the ValuePay installment
program. The Company maintains allowances for doubtful accounts
for estimated losses resulting from the inability of its
customers to make required payments. Provision for doubtful
accounts receivable (primarily related to the Companys
ValuePay program) for the years ended February 2, 2008,
February 3, 2007 and February 4, 2006 were
$12,613,000, $6,065,000 and $4,542,000, respectively.
Cost
of Sales and Other Operating Expenses
Cost of sales includes primarily the cost of merchandise sold,
shipping and handling costs, inbound freight costs, excess and
obsolete inventory charges and customer courtesy credits.
Purchasing and receiving costs, including costs of inspection,
are included as a component of distribution and selling expense
and were approximately $10,289,000, $11,689,000 and $10,460,000
for the years ended February 2, 2008, February 3, 2007
and February 4, 2006, respectively. Distribution and
selling expense consist primarily of cable and satellite access
fees, credit card fees, bad debt expense and costs associated
with purchasing and receiving, inspection, marketing and
advertising, show production, website marketing and
merchandising, telemarketing, customer service, warehousing and
fulfillment. General and administrative expense consists
primarily of costs associated with executive, legal, accounting
and finance, information systems and human resources
departments, software and system maintenance contracts,
insurance, investor and public relations and director fees.
Cash
and Cash Equivalents
Cash and cash equivalents consist of cash, money market funds
and commercial paper with an original maturity of 90 days
or less. The Company maintains its cash balances at financial
institutions in investment accounts that are not federally
insured. The Company has not experienced losses in such accounts
and believes it is not exposed to any significant credit risk on
its cash and cash equivalents.
Short
and Long-Term Investments
Short-term investments consist principally of investment grade
corporate debt with original maturity dates of less than one
year. Long-term investments consist principally of investment
grade securities and corporate debt with original maturity dates
greater than one year. The Company maintains its short and
long-term investments at financial institutions in investment
accounts that are not federally insured. Although management
believes the Companys short and long-term investment
policy is conservative in nature, certain short-term investments
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 Company believes it
is not exposed to any significant credit risk on its short-term
investments. The average maturity of the Companys
short-term investment portfolio ranges from
30-180 days.
The Companys short and long-term investments consist
principally of corporate debt securities, which are classified
as either available-for-sale or held-to-maturity, depending on
managements investment intentions
54
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
relating to these securities. The Company determines the
appropriate classification of its short and long-term
investments at the time of purchase and re-evaluates such
classification as of each balance sheet date. Available-for-sale
securities are marked to market based upon quoted market values
of these securities. For available-for-sale securities not
actively traded, fair values are estimated by using quoted
market prices of comparable instruments or, if there are no
relevant comparables, on pricing models, formulas or cash flow
forecasting models using current assumptions. Investments
categorized as held-to-maturity are carried at amortized cost
because the Company has both the intent and ability to hold
these investments until they mature. Premiums and discounts are
amortized or accreted into earnings over the life of the related
available-for-sale or held-to-maturity security. Dividends or
interest income is recognized when earned. The Company owns no
investments that are classified as trading securities.
The Company reviews impairments associated with the above to
determine the classification of the impairment as
temporary or other-than-temporary. A
temporary impairment charge results in an unrealized loss being
recorded in the other comprehensive income component of
stockholders equity. Such an unrealized loss does not
reduce net income for the applicable accounting period because
the loss is viewed as temporary. The factors evaluated to
differentiate between temporary and other-than-temporary are the
near-term and long-term prospects of the issuer, the duration
and extent to which the market value has been less than cost and
our ability and intent to hold these investments for a period of
time sufficient for them to recover in value.
Inventories
Inventories, which consist primarily of consumer merchandise
held for resale, are stated principally at the lower of average
cost or realizable value and are reflected net of obsolescence
write downs of $4,103,000 at February 2, 2008 and
$4,431,000 at February 3, 2007.
Advertising
Costs
Promotional advertising, including internet search marketing
fees and direct response customer mailings are expensed in the
period the advertising initially takes place. Other
direct-response advertising costs, printing and postage
expenditures, are capitalized and amortized over the period
during which the benefits are expected. The Company receives
vendor allowances for the reimbursement of certain advertising
costs. Advertising allowances received by the Company are
recorded as a reduction of expense and were $2,020,000, $581,000
and $904,000 for the years ended February 2, 2008,
February 3, 2007 and February 4, 2006, respectively.
Total advertising costs and internet search marketing fees,
after reflecting allowances given by vendors, totaled
$24,838,000, $18,610,000 and $14,408,000 for the years ended
February 2, 2008, February 3, 2007 and
February 4, 2006, respectively, and consists primarily of
contractual marketing fees paid to certain cable operators for
cross channel promotions and internet advertising paid to search
engine operators and traffic-driving affiliate websites. The
Company includes advertising costs as a component of
distribution and selling expense in the Companys
consolidated statement of operations.
Property
and Equipment
Property and equipment are stated at cost. Improvements and
renewals that extend the life of an asset are capitalized and
depreciated. Repairs and maintenance are charged to expense as
incurred. The cost and accumulated depreciation of property and
equipment retired or otherwise disposed of are removed from the
related accounts, and any residual values are charged or
credited to operations. Depreciation and amortization for
financial reporting purposes are provided on the straight-line
method based upon estimated useful lives.
55
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Property and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
(In Years)
|
|
|
2008
|
|
|
2007
|
|
|
Land and improvements
|
|
|
|
|
|
$
|
3,454,000
|
|
|
$
|
3,454,000
|
|
Buildings and improvements
|
|
|
5-40
|
|
|
|
21,885,000
|
|
|
|
18,403,000
|
|
Transmission and production equipment
|
|
|
5-10
|
|
|
|
8,267,000
|
|
|
|
7,881,000
|
|
Office and warehouse equipment
|
|
|
3-15
|
|
|
|
10,790,000
|
|
|
|
10,003,000
|
|
Computer hardware, software and telephone equipment
|
|
|
3-7
|
|
|
|
64,210,000
|
|
|
|
57,206,000
|
|
Leasehold improvements
|
|
|
3-5
|
|
|
|
3,136,000
|
|
|
|
3,440,000
|
|
Less Accumulated depreciation and amortization
|
|
|
|
|
|
|
(75,115,000
|
)
|
|
|
(60,280,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,627,000
|
|
|
$
|
40,107,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NBC
Trademark License Agreement
As discussed further in Note 15, in November 2000, the
Company entered into a Trademark License Agreement with NBCU
(the License Agreement) pursuant to which NBCU
granted the Company an exclusive, worldwide license for a term
of ten years to use certain NBC trademarks, service marks and
domain names to rebrand the Companys business and
corporate name on the terms and conditions set forth in the
License Agreement. In the first quarter of fiscal 2007, the
Company entered into an amendment to the License Agreement which
extended the term of the License Agreement by six months to
May 15, 2011. In connection with the License Agreement, the
Company issued to NBCU warrants to purchase
6,000,000 shares of the Companys common stock at an
exercise price of $17.375 per share (see Note 6). In March
2001, the Company established a measurement date with respect to
the License Agreement by amending the agreement, and fixed the
fair value of the trademark license asset at $32,837,000, which
is being amortized over the remaining term of the License
Agreement. The Company used the Black-Scholes option pricing
model to compute the fair market value of the NBCU warrants at
March 12, 2001. Significant assumptions in the warrant fair
value calculation included: market price of $11.00; exercise
price of $17.375; risk-free interest rate of 5.08%; volatility
factor of 53.54%; and dividend yield of 0%. As of
February 2, 2008, all of the warrants are vested and
4,000,000 of the warrants have expired unexercised. As of
February 2, 2008 and February 3, 2007, accumulated
amortization related to this asset totaled $23,829,000 and
$20,603,000, respectively.
Cable
Distribution and Marketing Agreement
As discussed further in Note 13, in March 1999, the Company
entered into a ten-year Distribution and Marketing Agreement
with NBCU, which gives NBCU the exclusive right to negotiate on
behalf of the Company for the distribution of its home shopping
television service. In compensation for these services, the
Company currently pays NBCU an annual fee of approximately
$930,000 and issued NBCU a Distribution Warrant to purchase
1,450,000 shares of the Companys common stock at an
exercise price of $8.29. The value assigned to the Distribution
and Marketing Agreement and related warrant of $6,931,000 was
determined pursuant to an independent appraisal using the
Black-Scholes option pricing model and is being amortized on a
straight-line basis over the term of the agreement. Significant
assumptions used in the warrant valuation included: market price
of $9.00; exercise price of $8.29; risk-free interest rate of
5.01%; volatility factor of 55.36%; and dividend yield of 0%. As
of February 2, 2008 and February 3, 2007, accumulated
amortization related to this asset totaled $6,082,000 and
$5,389,000, respectively.
In the fourth quarter of fiscal 2002, the Company issued to NBCU
additional warrants to purchase 36,858 shares of the
Companys common stock at an exercise price of $15.74 per
share. The warrants were
56
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
assigned a fair value of $172,000, vest over five years and had
a five-year term from the date of vesting. These warrants were
issued in connection with the Distribution and Marketing
Agreement which provides that additional warrants are to be
granted at current market prices upon the achievement of
specific goals associated with the distribution of the
Companys television programming with respect to full-time
equivalent (FTE) subscriber homes. The fair value
assigned to these distribution warrants were determined using
the Black-Scholes option pricing model and are being amortized
over the weighted average term of the new distribution
agreements which range from five to seven years. As of
February 2, 2008 and February 3, 2007, total
accumulated amortization related to this asset totaled $172,000
and $146,000, respectively.
Intangible
Assets
Intangible assets have been recorded in connection with the
Companys acquisition of the ShopNBC license and with the
issuance of distribution warrants to NBCU. 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:
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
February 2, 2008
|
|
|
February 3, 2007
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
Life
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NBC trademark license agreement
|
|
|
10.5
|
|
|
$
|
34,437,000
|
|
|
$
|
(23,829,000
|
)
|
|
$
|
32,837,000
|
|
|
$
|
(20,603,000
|
)
|
Cable distribution and marketing agreement
|
|
|
9.5
|
|
|
|
8,278,000
|
|
|
|
(7,406,000
|
)
|
|
|
8,278,000
|
|
|
|
(6,519,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,715,000
|
|
|
$
|
(31,235,000
|
)
|
|
$
|
41,115,000
|
|
|
$
|
(27,122,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FCC broadcast license
|
|
|
|
|
|
$
|
31,943,000
|
|
|
|
|
|
|
$
|
31,943,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the NBCU intangible assets was
$4,113,000 for the year ended February 2, 2008 and was
$4,122,000 for each of the years ended February 3, 2007 and
February 4, 2006, respectively. Estimated amortization
expense for the next five years is as follows: $3,943,000 in
fiscal 2008, $3,383,000 in fiscal 2009, $3,227,000 in fiscal
2010 and $927,000 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. There
was no impairment as of February 2, 2008.
Other
Assets
Other assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
Investment in RLM
|
|
$
|
|
|
|
$
|
4,139,000
|
|
Prepaid launch fees, net
|
|
|
|
|
|
|
561,000
|
|
Deferred satellite rent
|
|
|
538,000
|
|
|
|
672,000
|
|
Other, net
|
|
|
3,000
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
541,000
|
|
|
$
|
5,492,000
|
|
|
|
|
|
|
|
|
|
|
57
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Prepaid launch fees represent prepaid amounts paid to cable
operators upon entering into cable affiliation agreements and
prepaid satellite transponder launch fees. These fees are
capitalized and amortized over the lives of the related
affiliation contracts, which ranged from 7-8 years.
Deferred satellite rent is attributable to the Companys
fiscal 2004 long-term satellite services rental agreement that
contains provisions for scheduled rent decreases over the lease
term. The Company recognizes the related rental expense on a
straight-line basis and records the difference between the
recognized rental expense and amounts payable under the lease as
deferred rent.
Other assets consist principally of long-term deposits and the
long-term portion of prepaid compensation costs associated with
employment contracts entered into with certain key employees of
the Company in fiscal 2004. Compensation expense is being
recognized for these contracts over the four-year service period.
RLM
Investment
As discussed in Note 14, in February 2000, the Company
entered into a strategic alliance with Polo Ralph Lauren, NBCU,
NBCi and CNBC and created RLM, a joint venture formed for the
purpose of bringing the Polo Ralph Lauren American
lifestyle experience to consumers via multiple platforms,
including the internet, broadcast, cable and print. The Company,
through VVIFC, has entered into an agreement to provide certain
fulfillment and customer care services to RLM.
On March 28, 2007, the Company entered into a Membership
Interest Purchase Agreement (Purchase Agreement)
with Polo Ralph Lauren, NBCU and certain NBCU 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 pre-tax gain of $40,240,000 on the sale of
RLM in the first quarter of fiscal 2007.
The Company accounted for its ownership interest in RLM under
the equity method of accounting and adjusted its investment
balance for its share of RLM income and losses each reporting
period. Total equity in net income of RLM recorded by the
Company during fiscal 2007, 2006 and 2005 was $609,000,
$3,006,000 and $1,383,000, respectively.
The following summarized financial information relates to RLM
for the applicable reporting periods (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Twelve Months Ended
|
|
|
Twelve Months Ended
|
|
|
|
March 31, 2007
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
Net sales
|
|
$
|
26,211
|
|
|
$
|
110,930
|
|
|
$
|
85,584
|
|
Gross profit
|
|
$
|
17,223
|
|
|
$
|
75,857
|
|
|
$
|
56,970
|
|
Net income
|
|
$
|
4,871
|
|
|
$
|
24,053
|
|
|
$
|
17,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
Total current assets
|
|
$
|
78,746
|
|
|
$
|
76,526
|
|
|
|
|
|
Total assets
|
|
$
|
79,639
|
|
|
$
|
76,837
|
|
|
|
|
|
Total liabilities
|
|
$
|
18,908
|
|
|
$
|
22,179
|
|
|
|
|
|
58
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Accrued
Liabilities
Accrued liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
Accrued cable access fees
|
|
$
|
13,483,000
|
|
|
$
|
17,960,000
|
|
Accrued salaries and related
|
|
|
4,640,000
|
|
|
|
11,083,000
|
|
Reserve for product returns
|
|
|
8,376,000
|
|
|
|
8,498,000
|
|
Other
|
|
|
18,110,000
|
|
|
|
10,168,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,609,000
|
|
|
$
|
47,709,000
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
The Company accounts for income taxes under the liability method
of accounting in accordance with the provisions of Statement of
Financial Accounting Standards No. 109, Accounting for
Income Taxes (SFAS No. 109) whereby
deferred tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences
between financial statement and tax basis of assets and
liabilities. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
the enactment of such laws. The Company assesses the
recoverability of its deferred tax assets in accordance with the
provisions of SFAS No. 109.
The Company adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes
(FIN 48), on February 4, 2007.
FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in an enterprises financial statements in
accordance with SFAS No. 109. FIN 48 also
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return.
Additionally, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. Upon implementation, the
Company determined its positions will more-likely-than-not be
sustained if challenged. Therefore, no cumulative effect
relating to adoption of FIN 48 resulted.
The Company recognizes interest and penalties related to
uncertain tax positions within income tax expense. During the
twelve months ended February 2, 2008 the Company did not
recognized expense for interest and penalties, and, do not have
any amounts accrued at February 2, 2008 and
February 3, 2007 respectively, for the payment of interest
and penalties.
The Company is subject to U.S. federal income taxation and
the taxing authorities of various states. The Companys tax
years for 2004, 2005, and 2006 are currently subject to
examination by taxing authorities. With limited exceptions, the
Company is no longer subject to U.S. federal, state, or
local examinations by tax authorities for years before 2004.
Net
Income (Loss) Per Common Share
Basic EPS is computed by dividing reported earnings 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.
59
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Net income (loss) from continuing operations
|
|
$
|
22,452,000
|
|
|
$
|
(2,396,000
|
)
|
|
$
|
(13,457,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding using
two-class method
|
|
|
36,652,000
|
|
|
|
37,646,000
|
|
|
|
37,182,000
|
|
Effect of participating convertible preferred stock
|
|
|
5,340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding using
two-class method Basic
|
|
|
41,992,000
|
|
|
|
37,646,000
|
|
|
|
37,182,000
|
|
Dilutive effect of stock options, non-vested shares and warrants
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
Diluted
|
|
|
42,011,000
|
|
|
|
37,646,000
|
|
|
|
37,182,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations per common share
|
|
$
|
0.53
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations per common
share assuming dilution
|
|
$
|
0.53
|
|
|
$
|
(0.07
|
)
|
|
$
|
(0.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with SFAS No. 128, for the years ended
February 3, 2007 and February 4, 2006, approximately
228,000 and 611,000, 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
required under SFAS No. 128, as the effect of their
inclusion would be anti-dilutive.
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
income (loss) was $19,998,000, $(2,396,000) and $(15,753,000)
for the years ended February 2, 2008 February 3,
2007 and February 4, 2006 respectively.
Fair
Value of Financial Instruments
Statement of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial Instruments
(SFAS No. 107), requires disclosures
of fair value information about financial instruments for which
it is practicable to estimate that value. In cases where quoted
market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions
used, including discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its
disclosure requirements. Accordingly, the aggregate fair value
of amounts presented do not represent the underlying value of
the Company.
60
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company used the following methods and assumptions in
estimating its fair values for financial instruments:
The carrying amounts reported in the accompanying consolidated
balance sheets approximate the fair value for cash and cash
equivalents, short-term investments, accounts receivable,
accounts payable and accrued liabilities, due to the short
maturities of those instruments.
Fair values for long-term investments are based on quoted market
prices, where available. For securities not actively traded,
fair values are estimated by using quoted market prices of
comparable instruments or, if there are no relevant comparables,
on pricing models, formulas or cash flow forecasting models
using current assumptions.
Use of
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues
and expenses during reporting periods. These estimates relate
primarily to the carrying amounts of accounts receivable and
inventories, the realizability of certain long-term assets and
the recorded balances of certain accrued liabilities and
reserves. Ultimate results could differ from these estimates.
Stock-Based
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. The Company adopted the standard
using the modified prospective transition method, which requires
the application of the accounting standard to all share-based
awards issued on or after the date of adoption and any
outstanding share-based awards that were issued but not vested
as of the date of adoption. Accordingly, the Company did not
restate the financial statements for periods prior to the first
quarter of fiscal 2006 as a result of the adoption but does
present the disclosure-only effects of stock-based compensation.
See Note 6.
In accordance with SFAS 123R, the estimated grant date fair
value of each stock-based award is recognized in income over the
requisite service period (generally the vesting period). The
estimated fair value of each option is calculated using the
Black-Scholes option-pricing model. Non-vested share awards are
recorded as compensation cost over the requisite service periods
based on the market value on the date of grant.
Prior to February 5, 2006 the Company applied the
recognition and measurement principles of Accounting Principles
Board No. 25, Accounting for Stock Issued to Employees
(APB 25), to our stock options and other
stock-based compensation plans as permitted pursuant to
Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation. In accordance
with APB 25, cost for stock-based compensation was recognized in
income based on the excess, if any, of the quoted market price
of the stock at the grant date of the award or other measurement
date over the amount an employee must pay to acquire the stock.
The exercise price for stock options granted to employees
equaled the fair market value of the Companys common stock
at the date of grant, thereby resulting in no recognition of
compensation expense by the Company. Non-vested share awards are
recorded as compensation cost over the requisite service periods
based on the market value on the date of grant. Unearned
compensation cost on non-vested share awards was shown as a
reduction to shareholders equity.
Recently
Issued Accounting Pronouncements
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 141(R), Business
Combinations (SFAS No. 141(R)).
SFAS No. 141(R)
61
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
applies to all transactions or other events in which an entity
obtains control of one or more businesses.
SFAS No. 141(R) establishes how the acquirer of a
business should recognize, measure and disclose in its financial
statements the identifiable assets and goodwill acquired, the
liabilities assumed and any noncontrolling interest in the
acquired business. SFAS No. 141(R) is applied
prospectively for all business combinations with an acquisition
date on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, with early
application prohibited. SFAS No. 141(R) will not have
an impact on the Companys historical consolidated
financial statements and will be adopted in the first quarter of
fiscal 2009.
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. SFAS No. 157 does not impose
fair value measurements on items not already accounted for at
fair value; rather it applies, with certain exceptions, to other
accounting pronouncements that either require or permit fair
value measurements. Under SFAS No. 157, fair value
refers to the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants in the principal or most advantageous
market. The standard clarifies that fair value should be based
on the assumptions market participants would use when pricing
the asset or liability. 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.
|
|
3.
|
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 ShopNBC Private Label and
Co-Brand Credit Card Agreement, the Company received from the
issuing bank a non-refundable 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.
|
|
4.
|
Short and
Long-Term Investments:
|
At February 2, 2008, our investment portfolio included
auction rate securities with an estimated fair value of
$24,346,000 ($26,800,000 cost basis). The Companys auction
rate securities are variable rate debt instruments that have
underlying securities with contractual maturities greater than
ten years. Holders of auction rate securities can either sell
through the auction or bid based on a desired interest rate or
hold and accept the reset rate. If there are insufficient
buyers, then the auction fails and holders are unable to
liquidate their investment through the auction. A
62
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
failed auction is not a default of the debt instrument, but does
set a new interest rate in accordance with the original terms of
the debt instrument. The result of a failed auction is that the
auction rate security continues to pay interest in accordance
with its terms. Auctions continue to be held as scheduled until
the auction rate security matures or until it is called. These
mostly AAA-rated auction rate securities, which met our
investment guidelines at the time the investments were made,
have failed to settle in auctions during fiscal 2007. At this
time, these investments are not liquid, and in the event the
Company needs to access these funds, the Company will not be
able to do so without a loss of principle.
The Company has reduced the carrying value of these investments
by $2,454,000 through other comprehensive income (loss) to
reflect a temporary impairment on these securities. Currently,
the Company believes these investments are temporarily impaired,
but it is not clear in what period of time they will be settled.
Due to the current lack of liquidity of these investments, they
are classified as long-term investments on our balance sheet.
Short and long-term investments include the following
available-for-sale securities at February 2, 2008 and
February 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction-rate securities
|
|
$
|
6,502,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,502,000
|
|
Corporate bonds
|
|
|
4,088,000
|
|
|
|
|
|
|
|
|
|
|
|
4,088,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,590,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,590,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction-rate securities
|
|
$
|
26,800,000
|
|
|
$
|
|
|
|
$
|
2,454,000
|
|
|
$
|
24,346,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auction-rate securities
|
|
$
|
29,798,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
29,798,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short and long-term investments include the following
held-to-maturity securities at February 2, 2008 and
February 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Carrying
|
|
|
Unrecognized
|
|
|
Unrecognized
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Holding Gains
|
|
|
Holding Losses
|
|
|
Fair Value
|
|
|
Short-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
22,883,000
|
|
|
$
|
122,000
|
|
|
$
|
87,000
|
|
|
$
|
22,918,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
1,960,000
|
|
|
$
|
|
|
|
$
|
28,000
|
|
|
$
|
1,932,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes the contractual maturities of the
Companys short and long-term debt securities as of
February 2, 2008:
|
|
|
|
|
Less than one year
|
|
$
|
33,473,000
|
|
Mature in 1-2 years
|
|
|
1,960,000
|
|
Mature after 5 years
|
|
|
24,346,000
|
|
|
|
|
|
|
|
|
$
|
59,779,000
|
|
|
|
|
|
|
Proceeds from sales of available-for-sale and held-to-maturity
securities were $50,477,000, $31,035,000, and $79,193,000 during
fiscal 2007, 2006 and 2005, respectively. Sales of
available-for-sale securities in fiscal 2007, fiscal 2006 and
fiscal 2005 resulted in no gains or losses recorded. The cost of
all securities sold is based on the specific identification
method. The Company recorded charges for other-than-temporary
impairment securities of $72,000, $-0- and $-0- during fiscal
2007, 2006 and 2005, respectively. As of February 2, 2008,
all gross unrealized losses on the Companys taxable
auction rate security investments deemed to be temporarily
impaired have been in an unrealized position for less than
twelve months.
|
|
5.
|
Discontinued
FanBuzz Operations:
|
In the second quarter of fiscal 2005, the Company decided to
close its FanBuzz subsidiary operations and finalized the shut
down in the third quarter of fiscal 2005. FanBuzz was an
e-commerce
and fulfillment solutions provider for a number of sports,
media, entertainment and retail companies. The decision to shut
down FanBuzz was made after continued operating losses were
experienced following the loss of its NHL contract in September
2004 and after a number of other FanBuzz customers notified the
Company in the first quarter of fiscal 2005 that they elected
not to renew the term of their
e-commerce
services agreements. FanBuzz ceased business operations as of
October 29, 2005 and was a reportable segment under
SFAS No. 131. The results of operations for FanBuzz
have been classified as discontinued operations in the
accompanying consolidated statements of operations for all
periods presented. Net sales from discontinued operations was
$5,384,000 for the fiscal year ended February 4, 2006. Loss
from discontinued operations was $2,296,000 for the fiscal year
ended February 4, 2006.
|
|
6.
|
Shareholders
Equity and Redeemable Preferred Stock:
|
Common
Stock
The Company currently has authorized 100,000,000 shares of
undesignated capital stock, of which approximately
34,070,000 shares were issued and outstanding as common
stock as of February 2, 2008. The board of directors may
establish new classes and series of capital stock by resolution
without shareholder approval.
Dividends
The Company has never declared or paid any dividends with
respect to its capital stock. Under the terms of the shareholder
agreement between the Company and GE Capital Equity Investments,
Inc. (GE Equity), the Company is prohibited from
paying dividends in excess of 5% of the Companys market
capitalization in any fiscal quarter.
Redeemable
Preferred Stock
As discussed further in Note 13, in fiscal 1999, pursuant
to an Investment Agreement between the Company and GE Equity,
the Company sold to GE Equity 5,339,500 shares of its
Series A Redeemable Convertible Preferred Stock,
$0.01 par value for aggregate proceeds of $44,264,000 less
issuance costs of $2,850,000. The preferred stock is convertible
into an equal number of shares of the Companys common
stock and has a mandatory redemption after ten years from date
of issuance at $8.29 per share. The excess of the redemption
value over the carrying value is being accreted by periodic
charges to equity over the ten-year redemption period.
64
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Warrants
As discussed further in Notes 2 and 15, in November 2000,
the Company issued to NBCU warrants to purchase
6,000,000 shares of the Companys common stock at an
exercise price of $17.375 per share. The warrants were issued in
connection with the Companys execution of a Trademark
License Agreement pursuant to which NBCU granted the Company an
exclusive, worldwide license to use certain NBC trademarks,
service marks and domain names to rebrand the Companys
business and corporate name for a term of ten years. As of
February 2, 2008, all of the warrants are vested and
4,000,000 of the warrants have expired unexercised.
As discussed further in Notes 2 and 13, in fiscal 2002, the
Company issued to NBCU warrants to purchase 36,858 shares
of the Companys common stock at an exercise price of
$15.74 per share. The warrants vest over five years, and have a
term of five years from the date of vesting. The additional
warrants, which are currently outstanding, were issued in
connection with the Companys Distribution and Marketing
Agreement with NBCU, which provides that warrants will be
granted at current market prices upon the achievement of
specific goals in connection with distribution of the
Companys television programming with respect to FTE
subscriber homes.
Stock-Based
Compensation
Stock-based compensation expense charged to continuing
operations for fiscal 2007 and fiscal 2006 related to stock
option awards was $1,880,000 and $1,556,000, 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. Additionally, in fiscal 2006,
the Company reclassified unearned compensation on restricted
stock awards of $154,000 to additional paid in capital. The
cumulative effect adjustment for forfeitures related to
non-vested stock-based awards was not material.
As of February 2, 2008, 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 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
65
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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
|
|
|
Fiscal
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Expected volatility
|
|
|
33%-40%
|
|
|
|
33%-35%
|
|
|
|
36%
|
|
Expected term (in years)
|
|
|
6 years
|
|
|
|
6 years
|
|
|
|
6 years
|
|
Risk-free interest rate
|
|
|
3.2%-5.1%
|
|
|
|
4.7%-5.12%
|
|
|
|
4.7%
|
|
A summary of the status of the Companys stock option
activity as of February 2, 2008 and changes during the year
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
|
|
|
1,603,000
|
|
|
|
6.19
|
|
|
|
526,000
|
|
|
|
10.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(48,000
|
)
|
|
|
10.58
|
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
|
|
10.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or canceled
|
|
|
(348,000
|
)
|
|
|
12.38
|
|
|
|
(689,000
|
)
|
|
|
14.25
|
|
|
|
(425,000
|
)
|
|
|
18.41
|
|
|
|
(401,000
|
)
|
|
|
17.80
|
|
|
|
(356,000
|
|
|
|
27.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
2,941,000
|
|
|
$
|
8.86
|
|
|
|
1,461,000
|
|
|
$
|
13.14
|
|
|
|
36,000
|
|
|
$
|
13.83
|
|
|
|
1,437,000
|
|
|
$
|
15.35
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2, 2008
|
|
|
1,276,000
|
|
|
$
|
11.91
|
|
|
|
918,000
|
|
|
$
|
14.46
|
|
|
|
36,000
|
|
|
$
|
13.83
|
|
|
|
1,403,000
|
|
|
$
|
15.46
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007
|
|
|
1,394,000
|
|
|
$
|
12.22
|
|
|
|
1,467,000
|
|
|
$
|
14.64
|
|
|
|
462,000
|
|
|
$
|
18.03
|
|
|
|
1,804,000
|
|
|
$
|
15.98
|
|
|
|
356,000
|
|
|
$
|
27.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 4, 2006
|
|
|
1,322,000
|
|
|
$
|
12.39
|
|
|
|
2,097,000
|
|
|
$
|
14.82
|
|
|
|
900,000
|
|
|
$
|
18.16
|
|
|
|
2,501,000
|
|
|
$
|
16.61
|
|
|
|
648,000
|
|
|
$
|
16.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information regarding stock
options at February 2, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
2,941,000
|
|
|
$
|
8.86
|
|
|
|
8.6
|
|
|
$
|
479,000
|
|
|
|
2,774,000
|
|
|
$
|
9.00
|
|
|
|
8.5
|
|
|
$
|
431,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Incentive:
|
|
|
1,461,000
|
|
|
$
|
13.14
|
|
|
|
6.4
|
|
|
$
|
|
|
|
|
1,405,000
|
|
|
$
|
13.22
|
|
|
|
5.6
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1990 Incentive:
|
|
|
36,000
|
|
|
$
|
13.83
|
|
|
|
1.1
|
|
|
$
|
|
|
|
|
36,000
|
|
|
$
|
13.83
|
|
|
|
1.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Non-qualified:
|
|
|
1,437,000
|
|
|
$
|
15.35
|
|
|
|
0.2
|
|
|
$
|
|
|
|
|
1,403,000
|
|
|
$
|
15.46
|
|
|
|
0.2
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 Executive:
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average grant date fair value of options granted in
fiscal 2007, 2006 and 2005 was $3.16, $5.18 and $6.84,
respectively. The total intrinsic value of options exercised
during fiscal 2007, 2006 and 2005 was $52,000, $2,984,000 and
$1,252,000, respectively. As of February 2, 2008, total
unrecognized compensation cost related to stock options was
$6,307,000 and is expected to be recognized over a weighted
average period of approximately 1.7 year.
Prior to fiscal 2006, the Company accounted for its stock option
plans under the recognition and measurement principles of APB
No. 25, and the disclosure-only provisions of
SFAS 123. No employee stock option
66
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
compensation cost was reflected in the net loss, as all options
granted under those plans had an exercise price equal to the
market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net loss
and net loss per share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based
employee compensation:
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
February 4, 2006
|
|
|
Net loss available to common shareholders:
|
|
|
|
|
As reported
|
|
$
|
(16,040,000
|
)
|
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related tax effects
|
|
|
(17,591,000
|
)
|
|
|
|
|
|
Pro forma
|
|
$
|
(33,631,000
|
)
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
Basic:
|
|
|
|
|
As reported
|
|
$
|
(0.43
|
)
|
Pro forma
|
|
|
(0.90
|
)
|
Diluted:
|
|
|
|
|
As reported
|
|
$
|
(0.43
|
)
|
Pro forma
|
|
|
(0.90
|
)
|
In December 2005, the Companys board of directors approved
the acceleration and vesting of approximately 1,200,000
outstanding unvested stock options with an exercise price
greater than $11.78 per share as of December 19, 2005 under
the Companys stock-based incentive compensation plans. The
options affected are held by executive officers, directors and
employees of the Company and have a range of exercise prices
between $11.80 and $19.26 per share and a weighted average
exercise price of $15.06 per share. The board accelerated the
vesting period to eliminate the Companys future
recognition of compensation expense associated with these
out-of-the money stock options required under
SFAS No. 123R, which was effective for the Company
beginning in the first quarter of fiscal 2006. As a condition of
the acceleration, the Company also imposed a holding period on
shares underlying the accelerated options held by certain of its
executive officers requiring these officers to refrain from
selling any shares acquired upon the exercise of the accelerated
options until the date on which the related options would have
vested under the options original vesting terms.
Stock
Option Tax Benefit
The exercise of certain stock options granted under the
Companys stock option plans gives rise to compensation,
which is includible in the taxable income of the applicable
employees and deductible by the Company for federal and state
income tax purposes. Such compensation results from increases in
the fair market value of the Companys common stock
subsequent to the date of grant of the applicable exercised
stock options and is not recognized as an expense for financial
accounting purposes, as the options were originally granted at
the fair market value of the Companys common stock on the
date of grant. The related tax benefits will be recorded as
additional paid-in capital if and when realized, and totaled
$23,000, $1,106,000 and $484,000 in fiscal 2007, 2006 and 2005,
respectively. The Company has not recorded the tax benefit
through paid in capital in these fiscal years, as the related
tax deductions were not taken due to the losses incurred. These
benefits will be recorded in the applicable future periods.
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
67
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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 fiscal 2007, 2006 and 2005 relating to
restricted stock grants was $534,000, $345,000 and $190,000,
respectively. As of February 2, 2008, there was $375,000 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 fiscal 2007, 2006 and
2005 was $492,000, $26,000 and $888,000 respectively.
A summary of the status of the Companys non-vested
restricted stock activity as of February 2, 2008 and
changes during the nine-month period then ended is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Grant Date Fair
|
|
|
|
Shares
|
|
|
Value
|
|
|
Non-vested outstanding, February 3, 2007
|
|
|
60,000
|
|
|
$
|
11.87
|
|
Granted
|
|
|
67,000
|
|
|
$
|
9.39
|
|
Vested
|
|
|
(45,000
|
)
|
|
$
|
11.81
|
|
Forfeited
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested outstanding, February 2, 2008
|
|
|
82,000
|
|
|
$
|
9.88
|
|
|
|
|
|
|
|
|
|
|
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 fiscal 2007, the Company repurchased a total of
3,618,000 shares of common stock for a total investment of
$26,985,000 at an average price of $7.46 per share. During
fiscal 2006, the Company repurchased a total of
406,000 shares of common stock for a total investment of
$4,699,000 at an average price of $11.58 per share. The Company
did not repurchase any shares under its repurchase program
during the fiscal year ended February 4, 2006. On
March 6, 2008, the Companys board of directors
authorized an additional $10 million for stock repurchases
under its stock repurchase program.
68
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company records deferred taxes for differences between the
financial reporting and income tax bases of assets and
liabilities, computed in accordance with tax laws in effect at
that time. The deferred taxes related to such differences as of
February 2, 2008 and February 3, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2008
|
|
|
2007
|
|
|
Accruals and reserves not currently deductible for tax purposes
|
|
$
|
9,341,000
|
|
|
$
|
7,578,000
|
|
Inventory capitalization
|
|
|
1,388,000
|
|
|
|
1,273,000
|
|
Basis differences in intangible assets
|
|
|
(4,139,000
|
)
|
|
|
(3,477,000
|
)
|
Differences in depreciation lives and methods
|
|
|
989,000
|
|
|
|
(5,043,000
|
)
|
Differences in investments and other items
|
|
|
1,064,000
|
|
|
|
2,182,000
|
|
Net operating loss carryforwards
|
|
|
47,887,000
|
|
|
|
60,681,000
|
|
Valuation allowance
|
|
|
(56,530,000
|
)
|
|
|
(63,194,000
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The (provision) benefit from income taxes consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current
|
|
$
|
(839,000
|
)
|
|
$
|
(75,000
|
)
|
|
$
|
762,000
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(839,000
|
)
|
|
$
|
(75,000
|
)
|
|
$
|
762,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the statutory tax rates to the
Companys effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Taxes at federal statutory rates
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal tax benefit
|
|
|
2.5
|
|
|
|
4.1
|
|
|
|
5.2
|
|
SFAS 123(R) stock option vesting expense
|
|
|
3.1
|
|
|
|
(53.2
|
)
|
|
|
|
|
Valuation allowance and NOL carryforward benefits
|
|
|
(37.0
|
)
|
|
|
10.9
|
|
|
|
(34.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate on continuing operations
|
|
|
3.6
|
%
|
|
|
(3.2
|
)
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on the Companys recent history of losses, the
Company has recorded a full valuation allowance for its net
deferred tax assets and net operating loss carryforwards as of
February 2, 2008 and February 3, 2007 in accordance
with the provisions of SFAS No. 109, which places
primary importance on the Companys most recent operating
results when assessing the need for a valuation allowance. The
ultimate realization of these deferred tax assets depends on the
ability of the Company to generate sufficient taxable income and
capital gains in the future. The Company intends to maintain a
full valuation allowance for its net deferred tax assets and net
operating loss carryforwards until sufficient positive evidence
exists to support reversal of the reserve. As of
February 2, 2008, the Company has gross operating loss
carryforwards for Federal and State income tax purposes of
approximately $117 million and $52 million,
respectively, which begin to expire in January 2022 and 2017,
respectively. Effective November 3, 2007, the Company
experienced an ownership change as defined in
section 382 of the Internal Revenue Code. Because of the
ownership change, the Companys ability to use its net
operating loss carryforwards and credits to offset future
taxable income is subject to annual limitations.
69
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
8.
|
Commitments
and Contingencies:
|
Cable
and Satellite Affiliation Agreements
As of February 2, 2008, the Company has entered into
affiliation agreements that represent approximately 1,400 cable
systems along with the satellite companies DIRECTV and EchoStar
(DISH Network) that require each to offer the Companys
television home shopping programming on a full-time basis over
their systems. Under certain circumstances, these television
operators may cancel their agreements prior to expiration. The
affiliation agreements generally provide that the Company will
pay each operator a monthly access fee and marketing support
payment based upon the number of homes carrying the
Companys television home shopping programming. For the
years ended February 2, 2008, February 3, 2007 and
February 4, 2006, respectively, the Company expensed
approximately $128,024,000, $121,710,000 and $122,599,000 under
these affiliation agreements.
The Company has entered into, and will continue to enter into,
affiliation agreements with other television operators providing
for full- or part-time carriage of the Companys television
home shopping programming. Under certain circumstances the
Company may be required to pay the operator a one-time initial
launch fee, which is capitalized and amortized on a
straight-line basis over the term of the agreement.
Future cable and satellite affiliation cash commitments at
February 2, 2008 are as follows:
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
|
2008
|
|
$
|
105,688,000
|
|
2009
|
|
|
39,982,000
|
|
2010
|
|
|
37,626,000
|
|
2011
|
|
|
32,649,000
|
|
2012 and thereafter
|
|
|
29,928,000
|
|
Employment
Agreements
The Company has entered into employment agreements with a number
of on-air hosts of the Company for original terms ranging from
12 to 48 months. These agreements specify, among other
things, the term and duties of employment, compensation and
benefits, termination of employment (including for cause, which
would reduce the Companys total obligation under these
agreements), severance payments and non-disclosing and
non-compete restrictions. The aggregate commitment for future
base compensation at February 2, 2008 was approximately
$4,909,000.
The Company has entered into change in control and separation
agreements with a number of its officers under which separation
pay of up to 12 to 24 months of base salary and benefits
could become payable in the event of terminations without cause
only under specified circumstances, including terminations
following a change in control (as defined in the related
agreements) of the Company.
Operating
Lease Commitments
The Company leases certain property and equipment under
non-cancelable operating lease agreements. Property and
equipment covered by such operating lease agreements include
offices and warehousing facilities at subsidiary locations,
satellite transponder, office equipment and certain tower site
locations.
70
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Future minimum lease payments at February 2, 2008 are as
follows:
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
|
2008
|
|
$
|
2,197,000
|
|
2009
|
|
|
1,976,000
|
|
2010
|
|
|
1,971,000
|
|
2011
|
|
|
1,975,000
|
|
2012 and thereafter
|
|
|
12,208,000
|
|
Total rent expense under such agreements was approximately
$2,499,000 in fiscal 2007, $2,640,000 in fiscal 2006 and
$2,771,000 in fiscal 2005.
Retirement
and Savings Plan
The Company maintains a qualified 401(k) retirement savings plan
covering substantially all employees. The plan allows the
Companys employees to make voluntary contributions to the
plan. The Companys contribution, if any, is determined
annually at the discretion of the board of directors. Starting
in January 1999, the Company elected to make matching
contributions to the plan. The Company currently matches $.50
for every $1.00 contributed by eligible participants up to a
maximum of 6% of eligible compensation. The Company made plan
contributions totaling approximately $1,106,000, $860,000 and
$653,000 during fiscal 2007, 2006 and 2005, respectively.
The Company is involved from time to time in various claims and
lawsuits in the ordinary course of business. In the opinion of
management, the claims and suits individually and in the
aggregate have not had a material adverse effect on the
Companys operations or consolidated financial statements.
|
|
10.
|
Related
Party Transactions:
|
In conjunction with its services agreement with RLM, the Company
records revenue for amounts billed to RLM for customer service,
fulfillment and warehousing services. Revenues recorded from
these services were $14,274,000, $11,973,000 and $11,259,000 for
the years ended February 2, 2008, February 3, 2007 and
February 4, 2006, respectively. Amounts due from RLM as of
February 2, 2008 and February 3, 2007 were $1,320,000
and $994,000, 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, $171,000 during fiscal
2006 and $48,000 during fiscal 2005 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 NBCU and
GE Commercial Finance Equity. NBCU and GE Commercial
71
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 NBCU are partners in a ten-year Distribution and
Marketing Agreement dated March 8, 1999 that provides that
NBCU 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 NBCU an annual fee of approximately
$930,000. As of February 2, 2008 the Company had accrued
approximately $77,000 in connection with this distribution
agreement with NBCU.
|
|
11.
|
Supplemental
Cash Flow Information:
|
Supplemental cash flow information and noncash investing and
financing activities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
9,000
|
|
|
$
|
33,000
|
|
|
$
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
1,009,000
|
|
|
$
|
66,000
|
|
|
$
|
71,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock purchase warrants forfeited
|
|
$
|
10,931,000
|
|
|
$
|
11,057,000
|
|
|
$
|
7,276,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of common stock purchase warrants
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,378,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
$
|
633,000
|
|
|
$
|
468,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeited
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment purchases included in accounts payable
|
|
$
|
523,000
|
|
|
$
|
98,000
|
|
|
$
|
883,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchases under capital lease
|
|
$
|
|
|
|
$
|
|
|
|
$
|
258,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash reduction of capital lease obligation from FanBuzz
capital lease termination
|
|
$
|
|
|
|
$
|
|
|
|
$
|
924,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable preferred stock
|
|
$
|
291,000
|
|
|
$
|
289,000
|
|
|
$
|
287,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.
|
Segment
Disclosures and Related Information:
|
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.
The accounting policies of the Companys segments are the
same as those described in the
72
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
summary of significant accounting policies in Note 2. There
are no material intersegment product sales. Segment information
included in the consolidated balance sheets as of
February 2, 2008, February 3, 2007 and
February 4, 2006 and included in the consolidated
statements of operations for the years then ended is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ShopNBC &
|
|
|
All
|
|
|
Equity
|
|
|
Continuing
|
|
|
FanBuzz, Inc.
|
|
|
|
|
Years Ended
|
|
ShopNBC.com
|
|
|
Other(a)
|
|
|
Investments(b)
|
|
|
Operations
|
|
|
(Discontinued)
|
|
|
Total
|
|
|
February 2, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
767,276
|
|
|
$
|
14,274
|
|
|
$
|
|
|
|
$
|
781,550
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(26,015
|
)
|
|
|
2,963
|
|
|
|
|
|
|
|
(23,052
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,449
|
|
|
|
544
|
|
|
|
|
|
|
|
19,993
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
5,680
|
|
|
|
|
|
|
|
|
|
|
|
5,680
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
34
|
|
|
|
(12
|
)
|
|
|
(861
|
)
|
|
|
(839
|
)
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(20,126
|
)
|
|
|
2,590
|
|
|
|
39,988
|
|
|
|
22,452
|
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
|
352,745
|
|
|
|
6,335
|
|
|
|
|
|
|
|
359,080
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
11,541
|
|
|
|
248
|
|
|
|
|
|
|
|
11,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
755,302
|
|
|
$
|
11,973
|
|
|
$
|
|
|
|
$
|
767,275
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(10,705
|
)
|
|
|
1,226
|
|
|
|
|
|
|
|
(9,479
|
)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
21,548
|
|
|
|
691
|
|
|
|
|
|
|
|
22,239
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
3,802
|
|
|
|
|
|
|
|
|
|
|
|
3,802
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
(66
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
(75
|
)
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(5,629
|
)
|
|
|
227
|
|
|
|
3,006
|
|
|
|
(2,396
|
)
|
|
|
|
|
|
|
|
|
Identifiable assets
|
|
|
341,576
|
|
|
|
6,265
|
|
|
|
4,139
|
|
|
|
351,980
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
11,428
|
|
|
|
42
|
|
|
|
|
|
|
|
11,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 4, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
680,592
|
|
|
$
|
11,259
|
|
|
$
|
|
|
|
$
|
691,851
|
|
|
$
|
5,384
|
|
|
$
|
|
|
Operating income (loss)
|
|
|
(19,888
|
)
|
|
|
1,242
|
|
|
|
|
|
|
|
(18,646
|
)
|
|
|
(2,235
|
)
|
|
|
|
|
Depreciation and amortization
|
|
|
19,707
|
|
|
|
862
|
|
|
|
|
|
|
|
20,569
|
|
|
|
302
|
|
|
|
|
|
Interest income (expense)
|
|
|
3,048
|
|
|
|
|
|
|
|
|
|
|
|
3,048
|
|
|
|
(61
|
)
|
|
|
|
|
Income tax benefit
|
|
|
762
|
|
|
|
|
|
|
|
|
|
|
|
762
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(15,092
|
)
|
|
|
252
|
|
|
|
1,383
|
|
|
|
(13,457
|
)
|
|
|
(2,296
|
)
|
|
|
(15,753
|
)
|
Identifiable assets
|
|
|
338,939
|
|
|
|
6,461
|
|
|
|
1,383
|
|
|
|
346,783
|
|
|
|
356
|
|
|
|
347,139
|
|
Capital expenditures
|
|
|
9,623
|
|
|
|
55
|
|
|
|
|
|
|
|
9,678
|
|
|
|
72
|
|
|
|
9,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Revenue from segments below quantitative thresholds is
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 segment. |
73
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Information on net sales from continuing operations by
significant product groups is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
February 4,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Jewelry
|
|
$
|
289,786
|
|
|
$
|
285,262
|
|
|
$
|
278,928
|
|
Electronics
|
|
|
170,262
|
|
|
|
173,121
|
|
|
|
140,460
|
|
Watches, Apparel and Health & Beauty
|
|
|
180,803
|
|
|
|
181,093
|
|
|
|
145,697
|
|
Home
|
|
|
84,708
|
|
|
|
80,934
|
|
|
|
78,116
|
|
All others, less than 10% each
|
|
|
55,991
|
|
|
|
46,865
|
|
|
|
48,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
781,550
|
|
|
$
|
767,275
|
|
|
$
|
691,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
NBCU and
GE Equity Strategic Alliance:
|
In March 1999, the Company entered into a strategic alliance
with NBCU and GE Equity. Pursuant to the terms of the
transaction, NBCU and GE Equity acquired 5,339,500 shares
of the Companys Series A Redeemable Convertible
Preferred Stock (the Preferred Stock), and NBCU was
issued a warrant to acquire 1,450,000 shares of the
Companys common stock (the Distribution
Warrants) under a Distribution and Marketing Agreement
discussed below. The Preferred Stock was sold for aggregate
consideration of $44,265,000 (or approximately $8.29 per share).
In addition, the Company agreed to issue to GE Equity a warrant
(the Investment Warrant) to increase its potential
aggregate equity stake (together with its affiliates, including
NBCU) at the time of exercise to approximately 40%. NBCU also
has the exclusive right to negotiate on behalf of the Company
for the distribution of its television home shopping service.
The sale of 3,739,500 shares of the Preferred Stock was
completed on April 15, 1999. Final consummation of the
transaction regarding the sale of the remaining 1,600,000
Preferred Stock shares was completed on June 2, 1999. The
Preferred Stock was recorded at fair value on the date of
issuance. The Preferred Stock is convertible into an equal
number of shares of the Companys common stock, subject to
anti-dilution adjustments, has a mandatory redemption on the
tenth anniversary of its issuance or upon a change of
control at $8.29 per share, participates in dividends on
the same basis as the common stock and has a liquidation
preference over the common stock and any other junior
securities. The excess of the redemption value over the carrying
value is being accreted by periodic charges to equity over the
ten-year redemption period. On July 6, 1999, GE Equity
exercised the Investment Warrant and acquired an additional
10,674,000 shares of the Companys common stock for an
aggregate of $178,370,000, or $16.71 per share. Following the
exercise of the Investment Warrant, the combined ownership of
the Company by GE Equity and NBCU on a fully diluted basis was
approximately 40%. In February 2005, GE Equity sold
2,000,000 shares of the Companys common stock to a
number of different purchasers. In July 2005, GE Equity entered
into agreements to sell an additional 2,604,932 shares of
the Companys common stock in privately negotiated
transactions to a number of different purchasers. In connection
with such transactions, the Company filed a registration
statement on
Form S-3
with the Securities and Exchange Commission in July 2005 with
respect to an aggregate of 4,604,932 shares of the
Companys common stock, pursuant to contractual
registration rights obligations. The Company received no
proceeds from the sale of the shares covered by the registration
statement. GE Equity and NBCU currently have a combined
ownership in the Company of approximately 29% on a diluted basis.
GE
Equity Shareholder Agreement
In March 1999, the Company and GE Equity also entered into a
Shareholder Agreement (the Shareholder Agreement),
which provides for certain corporate governance and standstill
matters. The Shareholder Agreement (together with the
Certificate of Designation of the Preferred Stock) initially
provided that GE Equity and NBCU would be entitled to designate
nominees for two out of seven members of the Companys
board of directors so long as their aggregate beneficial
ownership was at least equal to 50% of their initial beneficial
ownership, and one out of seven members so long as their
aggregate beneficial ownership was at least 10% of the
adjusted outstanding shares
74
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
of common stock. The Shareholder Agreement also requires
the consent of GE Equity prior to the Company entering into any
material agreements with certain restricted parties (broadcast
networks and internet portals in certain limited circumstances).
Finally, the Company is prohibited from exceeding certain
thresholds relating to the issuance of voting securities over a
12-month
period, the payment of quarterly dividends, the repurchase of
common stock, acquisitions (including investments and joint
ventures) or dispositions, and the incurrence of debt greater
than the larger of $40.0 million or 30% of the
Companys total capitalization. The Company is also
prohibited from taking any action that would cause any ownership
interest by the Company in television broadcast stations from
being attributable to GE Equity, NBCU or their affiliates.
The Shareholder Agreement provides that during the Standstill
Period (as defined in the Shareholder Agreement), and subject to
certain limited exceptions, GE Equity and NBCU are prohibited
from: (i) any asset or business purchases from the Company
in excess of 10% of the total fair market value of the
Companys assets, (ii) increasing their beneficial
ownership above 39.9% of the Companys shares,
(iii) making or in any way participating in any
solicitation of proxies, (iv) depositing any securities of
the Company in a voting trust, (v) forming, joining, or in
any way becoming a member of a 13D Group with
respect to any voting securities of the Company,
(vi) arranging any financing for, or providing any
financing commitment specifically for, the purchase of any
voting securities of the Company, (vii) otherwise acting,
whether alone or in concert with others, to seek to propose to
the Company any tender or exchange offer, merger, business
combination, restructuring, liquidation, recapitalization or
similar transaction involving the Company, or nominating any
person as a director of the Company who is not nominated by the
then incumbent directors, or proposing any matter to be voted
upon by the shareholders of the Company. If, during the
standstill period, any inquiry has been made regarding a
takeover transaction or change in
control, each as defined in the Shareholder Agreement,
which has not been rejected by the Board, or the Board pursues
such a transaction, or engages in negotiations or provides
information to a third party and the Board has not resolved to
terminate such discussions, then GE Equity or NBCU may propose
to the Company a tender offer or business combination proposal.
In addition, unless GE Equity and NBCU beneficially own less
than 5% or more than 90% of the adjusted outstanding shares of
common stock, GE Equity and NBCU shall not sell, transfer or
otherwise dispose of any securities of the Company except for
transfers: (i) to certain affiliates who agree to be bound
by the provisions of the Shareholder Agreement, (ii) which
have been consented to by the Company, (iii) pursuant to a
third party tender offer, (iv) pursuant to a merger,
consolidation or reorganization to which the Company is a party,
(v) in a bona fide public distribution or bona fide
underwritten public offering, (vi) pursuant to
Rule 144 of the Securities Act of 1933, or (vii) in a
private sale or pursuant to Rule 144A of the Securities Act
of 1933; provided that, in the case of any transfer pursuant to
clause (v) or (vii), the transfer does not result in, to
the knowledge of the transferor after reasonable inquiry, any
other person acquiring, after giving effect to such transfer,
beneficial ownership, individually or in the aggregate with such
persons affiliates, of more than 10% of the adjusted
outstanding shares of the common stock.
The standstill period will terminate on the earliest to occur of
(i) the ten-year anniversary of the Shareholder Agreement,
(ii) the entering into by the Company of an agreement that
would result in a change in control (subject to
reinstatement), (iii) an actual change in
control, (iv) a third party tender offer (subject to
reinstatement), or (v) six months after GE Equity and NBCU
can no longer designate any nominees to the Board. Following the
expiration of the standstill period pursuant to clause (i)
or (v) above (indefinitely in the case of clause (i)
and two years in the case of clause (v)), GE Equity and
NBCUs beneficial ownership position may not exceed 39.9%
of the Companys fully-diluted outstanding stock, except
pursuant to issuance or exercise of any warrants or pursuant to
a 100% tender offer for the Company.
On March 19, 2004 the Company, NBCU and GE Equity agreed to
amend the Shareholder Agreement as follows: (i) to increase
the authorized size of the Companys board of directors to
nine from seven, (ii) to permit NBCU and GE Equity together
to appoint three directors instead of two to the Companys
board of directors, and (iii) to provide that NBCU and GE
Equity would no longer have the right to have its
director-nominees serve on the
75
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Audit, Compensation or Nominating and Governance Committees, in
the event the committees must be comprised solely of
independent directors under applicable laws or
Nasdaq regulations. In such case, NBCU and GE Equity would have
the right to have an observer attend all of these committee
meetings, to the extent permitted by applicable law.
GE
Equity Registration Rights Agreement
Pursuant to the Investment Agreement, the Company and GE Equity
entered into a Registration Rights Agreement providing GE
Equity, NBCU and their affiliates and any transferees and
assigns, an aggregate of four demand registrations and unlimited
piggy-back registration rights.
NBCU
Distribution and Marketing Agreement
NBCU and the Company entered into a ten-year Distribution and
Marketing Agreement dated March 8, 1999 (the
Distribution Agreement) that provides that NBCU
shall have the exclusive right to negotiate on behalf of the
Company for the distribution of its home shopping television
programming. As compensation for these services, the Company
agreed to pay NBCU an annual fee which is currently
approximately $930,000, and issued NBCU 1,450,000 distribution
warrants. The exercise price of the distribution warrants was
$8.29 per share. In conjunction with the Companys November
2000 execution of the Trademark License Agreement with NBCU, the
Company agreed to accelerate the vesting of the unvested
original Distribution Warrants. On April 7, 2004, NBCU
exercised a portion of the original Distribution Warrants in a
cashless exercise acquiring 101,509 shares of the
Companys common stock. In November 2005, NBCU exercised
all remaining original Distribution Warrants in a cashless
exercise acquiring 281,199 additional shares of the
Companys common stock. Because NBCU successfully delivered
to the Company 10 million FTE homes pursuant to the
Distribution Agreement, in fiscal 2001, the Company issued to
NBCU additional warrants to purchase 343,725 shares of the
Companys common stock at an exercise price of $23.07 which
expired unexercised during fiscal 2006 and in fiscal 2002, the
Company issued to NBCU additional warrants to purchase
36,858 shares of the Companys common stock at an
exercise price of $15.74 which are currently outstanding. NBC
could earn additional warrants to the extent that it
successfully negotiates additional distribution agreements for
the Company (including renewals of existing distribution
agreements). During 2008, a majority of the Companys
distribution agreements are scheduled to expire. If NBC
successfully negotiates extensions or renewals of these
agreements under the parameters established by the Company, it
will be entitled to receive additional warrants from the Company
under a formula set forth in the Distribution Agreement; some
elements of the formula include the length of the new or renewed
contract; the number of subscribers covered by the contract; and
the current market price of the Companys common stock at
the effective date of the new contract. The Company had a right
to terminate the Distribution Agreement after the twenty-fourth,
thirty-sixth and forty-second month anniversary if NBCU was
unable to meet the performance targets. In addition, the Company
would have been entitled to a $2.5 million payment from
NBCU if the Company terminated the Distribution Agreement as a
result of NBCUs failure to meet the
24-month
performance target. NBCU may terminate the Distribution
Agreement if the Company enters into certain significant
affiliation agreements or a transaction resulting in a
change of control.
|
|
14.
|
Ralph
Lauren Media, LLC Electronic Commerce Alliance (RLM):
|
During fiscal 2006, the Company owned a 12.5% equity interest in
RLM which was being accounted for under the equity method of
accounting. RLMs primary business activity to date has
been the operations of the Polo.com website. Polo.com officially
launched in November 2000 and includes an assortment of
mens, womens and childrens products across the
Ralph Lauren family of brands as well as unique gift items. In
connection with the formation of RLM, the Company entered into
various agreements setting forth the manner in which certain
aspects of the business of RLM are to be managed and certain of
the members rights, duties and obligations with respect to
RLM, including the Amended and Restated Limited Liability
Company Agreement, pursuant to which certain terms and
conditions regarding operations of RLM and certain rights and
obligations of its members are set forth.
76
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On March 28, 2007, the Company entered into a Membership
Interest Purchase Agreement (Purchase Agreement)
with Polo Ralph Lauren, NBCU and certain NBCU 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.
Agreement
for Services
RLM and VVIFC entered into an Agreement for Services under which
VVIFC agreed to provide to RLM certain telemarketing, customer
support and fulfillment services to RLM. RLM has advised the
Company that it intends to develop the capability to provide
these services internally in the future. 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 the 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.
|
|
15.
|
NBC
Trademark License Agreement:
|
On November 16, 2000, the Company entered into a Trademark
License Agreement (the License Agreement) with NBCU
pursuant to which NBCU granted the Company an exclusive,
worldwide license for a term of ten years to use certain NBC
trademarks, service marks and domain names to rebrand the
Companys business and corporate name and website. Under
the License Agreement, the Company agreed to (i) certain
restrictions on using trademarks, service marks, domain names,
logos or other source indicators owned or controlled by NBCU or
its affiliates in connection with certain permitted businesses
(the Permitted Businesses), as defined in the
License Agreement, before the agreement of NBCU to such use,
(ii) the loss of its rights under the grant of the license
with respect to specific territories outside of the United
States in the event the Company fails to achieve and maintain
certain performance targets in such territories,
(iii) amend and restate the current Registration Rights
Agreement dated as of April 15, 1999 among the Company,
NBCU and GE Equity so as to increase the demand rights held by
NBCU and GE Equity from four to five, among other things,
(iv) not, own, operate, acquire or expand its business to
include any businesses other than the Permitted Businesses
without NBCUs prior consent, (v) comply with
NBCUs privacy policies and standards and practices, and
(vi) not own, operate, acquire or expand the Companys
business such that one-third or more of the Companys
revenues or its aggregate value is attributable to certain
services (not including retailing services similar to the
Companys existing
e-commerce
operations) provided over the internet. The License Agreement
also grants to NBCU the right to terminate the License Agreement
at any time upon certain changes of control of the Company, in
certain situations the failure by NBCU to own a certain minimum
percentage of the outstanding capital stock of the Company on a
fully-diluted basis and certain other related matters. On
March 28, 2007, the Company and NBCU agreed to extend the
term of the license by six months, such that the license would
continue through May 15, 2011 and to certain limitations on
NBCUs right to terminate the License Agreement in the
event of a change in control of the Company involving a
financial buyer.
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.
On January 14, 2008, the Company announced additional
organizational changes and cost-saving measures following a
formal business review conducted by management and an outside
consulting firm. As a result of the business review, the
Companys organizational structure was simplified and
streamlined to focus on profitability. As part of this
restructuring, the Company reduced its salaried workforce by an
additional 10%. As a result, the Company recorded a $5,043,000
restructuring charge for the year February 2, 2008.
Restructuring costs include employee severance and retention
costs associated with the consolidation and elimination of
approximately 80 positions across the Company including four
officers. 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
77
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
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 year ended February 2,
2008, the significant components and activity under the
restructuring program:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
February 3,
|
|
|
|
|
|
|
|
|
Cash
|
|
|
February 2,
|
|
|
|
2007
|
|
|
Charges
|
|
|
Write-offs
|
|
|
Payments
|
|
|
2008
|
|
|
Severance and retention
|
|
$
|
|
|
|
$
|
3,307,000
|
|
|
$
|
|
|
|
$
|
(2,433,000
|
)
|
|
$
|
874,000
|
|
Asset impairments
|
|
|
|
|
|
|
428,000
|
|
|
|
(428,000
|
)
|
|
|
|
|
|
|
|
|
Incremental restructuring charges
|
|
|
|
|
|
|
1,308,000
|
|
|
|
|
|
|
|
(1,014,000
|
)
|
|
|
294,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
5,043,000
|
|
|
$
|
(428,000
|
)
|
|
$
|
(3,447,000
|
)
|
|
$
|
1,168,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.
|
Chief
Executive Officer 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 and had left the
Companys board of directors. In conjunction with
Mr. Lansings resignation, the Company recorded a
charge to income of $2,451,000 during the year ended
February 2, 2008 relating primarily to severance payments
which Mr. Lansing is entitled to in accordance with the
terms of his employment agreement with the company and executive
search fees.
78
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
As of the end of the period covered by this report, 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). Based on this
evaluation, the officers concluded that our disclosure controls
and procedures are 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, and to
ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is accumulated
and communicated to management, including our principal
executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosures.
79
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of ValueVision Media, Inc. is responsible for
establishing and maintaining adequate internal control over
financial reporting as defined in
Rules 13a-15
(f) under the Securities Exchange Act 1934. Our
companys internal control system was designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles.
All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined
to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our companys
internal control over financial reporting as of February 2,
2008. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control
Integrated Framework.
Based on managements evaluation under the framework in
Internal Control Integrated Framework,
management concluded that our internal control over financial
reporting was effective as of February 2, 2008.
The Companys independent registered public accounting
firm, Deloitte & Touche LLP, has issued an attestation
report on our companys internal control over financial
reporting for February 2, 2008. The Deloitte &
Touche LLP attestation report is set forth below.
Rene G. Aiu
Chief Executive Officer and President
(Principal Executive Officer)
Frank P. Elsenbast
Senior Vice President Finance, Chief Financial
Officer (Principal Financial Officer)
April 17, 2008
Changes
in Internal Controls over Financial Reporting
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 quarter ended February 2, 2008. 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 is reasonably likely to
materially affect, the internal controls over financial
reporting.
80
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
ValueVision Media, Inc. and Subsidiaries
We have audited the internal control over financial reporting of
ValueVision Media, Inc. and subsidiaries (the
Company) as of February 2, 2008, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of February 2, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule listed in the index at Item 15 as of and for the
year ended February 2, 2008, of the Company and our report
dated April 17, 2008, expressed an unqualified opinion on
those financial statements and financial statement schedule.
/s/ DELOITTE &
TOUCHE LLP
Minneapolis, MN
April 17, 2008
81
|
|
Item 9B.
|
Other
Information
|
None
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Information in response to this item with respect to certain
information relating to our executive officers is contained in
Item 1 under the heading Executive Officers of the
Registrant and with respect to other information relating
to our executive officers and directors is incorporated herein
by reference to the sections titled
Proposal 1 Election of Directors
and Section 16(a) Beneficial Ownership Reporting
Compliance in our definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the
end of the fiscal year covered by this
Form 10-K.
Code
of Business Conduct and Ethics
We have adopted a code of business conduct and ethics applicable
to all of our directors and employees, including our principal
executive officer, principal financial officer, principal
accounting officer, controller and other employees performing
similar functions. A copy of this code of business conduct and
ethics is available on our website at www.shopnbc.com, under
Investor Relations Business Ethics
Policy. In addition, we have adopted a code of ethics
policy for our senior financial management; this policy is also
available on our website at www.shopnbc.com, under
Investor Relations Code of Ethics Policy for
Chief Executive and Senior Financial Officers.
We intend to satisfy the disclosure requirements under
Form 8-K
regarding an amendment to, or waiver from, a provision of our
code of business conduct and ethics by posting such information
on our website at the address specified above.
|
|
Item 11.
|
Executive
Compensation
|
Information in response to this item is incorporated herein by
reference to the sections titled
Proposal 1 Election of
Directors Director Compensation and
Executive Compensation in our definitive proxy
statement to be filed pursuant to Regulation 14A within
120 days after the end of the fiscal year covered by this
Form 10-K.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters
|
Information in response to this item is incorporated herein by
reference to the section titled Security Ownership of
Principal Shareholders and Management in our definitive proxy
statement to be filed pursuant to Regulation 14A within
120 days after the end of the fiscal year covered by this
Form 10-K.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Information in response to this item is incorporated herein by
reference to the section titled Certain Transactions
and Proposal 1 Election of
Directors in our definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the
end of the fiscal year covered by this
Form 10-K.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Information in response to this item is incorporated herein by
reference to the section titled
Proposal 2 Ratification of the
Independent Registered Public Accounting Firm Fees
Billed by Deloitte & Touche LLP and
Proposal 2 Ratification of the
Independent Auditors Approval of Independent
Registered Public Accounting Firm Services and Fees in our
definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the end of the
fiscal year covered by this
Form 10-K.
82
PART IV
|
|
Item 15.
|
Exhibit
and Financial Statement Schedule
|
1. Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
|
Consolidated Balance Sheets as of February 2, 2008 and
February 3, 2007
|
|
|
|
Consolidated Statements of Operations for the Years Ended
February 2, 2008, February 3, 2007 and
February 4, 2006
|
|
|
|
Consolidated Statements of Shareholders Equity for the
Years Ended February 2, 2008, February 3, 2007 and
February 4, 2006
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended
February 2, 2008, February 3, 2007 and
February 4, 2006
|
|
|
|
Notes to Consolidated Financial Statements
|
2. Financial Statement Schedule
83
VALUEVISION
MEDIA, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column C
|
|
|
|
|
|
|
|
|
|
Column B
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balances at
|
|
|
Charged to
|
|
|
|
|
|
Column E
|
|
|
|
Beginning of
|
|
|
Costs and
|
|
|
Column D
|
|
|
Balance at
|
|
Column A
|
|
Year
|
|
|
Expenses
|
|
|
Deductions
|
|
|
End of Year
|
|
|
For the year ended February 2, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
3,641,000
|
|
|
$
|
12,613,000
|
|
|
$
|
(9,366,000
|
)(1)
|
|
$
|
6,888,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for returns
|
|
$
|
8,498,000
|
|
|
$
|
153,607,000
|
|
|
$
|
(153,729,000
|
)(2)
|
|
$
|
8,376,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 3, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,478,000
|
|
|
$
|
6,065,000
|
|
|
$
|
(4,902,000
|
)(1)
|
|
$
|
3,641,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for returns
|
|
$
|
7,658,000
|
|
|
$
|
142,983,000
|
|
|
$
|
(142,143,000
|
)(2)
|
|
$
|
8,498,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended February 4, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,421,000
|
|
|
$
|
4,542,000
|
|
|
$
|
(4,485,000
|
)(1)
|
|
$
|
2,478,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for returns
|
|
$
|
7,290,000
|
|
|
$
|
131,682,000
|
|
|
$
|
(131,314,000
|
)(2)
|
|
$
|
7,658,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Write off of uncollectible receivables, net of recoveries. |
|
(2) |
|
Refunds or credits on products returned. |
3. Exhibits
The exhibits filed with this report are set forth on the exhibit
index filed as a part of this report immediately following the
signatures to this report.
84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on April 29, 2008.
VALUEVISION MEDIA, INC.
(Registrant)
Rene G. Aiu
Chief Executive Officer and President
Each of the undersigned hereby appoints Rene G. Aiu and Frank P.
Elsenbast, and each of them (with full power to act alone), as
attorneys and agents for the undersigned, with full power of
substitution, for and in the name, place and stead of the
undersigned, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1934, any and all
amendments and exhibits to this annual report on
Form 10-K
and any and all applications, instruments, and other documents
to be filed with the Securities and Exchange Commission
pertaining to this annual report on
Form 10-K
or any amendments thereto, with full power and authority to do
and perform any and all acts and things whatsoever requisite and
necessary or desirable. Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and
in the capacities indicated on April 29, 2008.
|
|
|
|
|
Name
|
|
Title
|
|
|
|
|
/s/ RENE
G. AIU
Rene
G. Aiu
|
|
Chief Executive Officer President and Director
(Principal Executive Officer)
|
|
|
|
/s/ FRANK
P. ELSENBAST
Frank
P. Elsenbast
|
|
Senior Vice President Finance, Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
/s/ JOHN
D. BUCK
John
D. Buck
|
|
Chairman of the Board
|
|
|
|
James
J. Barnett
|
|
Director
|
|
|
|
/s/ MARSHALL
S. GELLER
Marshall
S. Geller
|
|
Director
|
|
|
|
/s/ RONALD
J. HERMAN, JR.
Ronald
J. Herman, Jr.
|
|
Director
|
|
|
|
/s/ DOUGLAS
V. HOLLOWAY
Douglas
V. Holloway
|
|
Director
|
|
|
|
/s/ ROBERT
J. KORKOWSKI
Robert
J. Korkowski
|
|
Director
|
|
|
|
/s/ GEORGE
A. VANDEMAN
George
A. Vandeman
|
|
Director
|
85
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
Method of Filing
|
|
|
3
|
.1
|
|
Sixth Amended and Restated Articles of Incorporation, as amended
|
|
Incorporated by reference(B)
|
|
3
|
.2
|
|
Certificate of Designation of Series A Redeemable Convertible
Preferred Stock
|
|
Incorporated by reference(G)
|
|
3
|
.3
|
|
Articles of Merger
|
|
Incorporated by reference(Q)
|
|
3
|
.4
|
|
Bylaws, as amended
|
|
Incorporated by reference(B)
|
|
10
|
.1
|
|
Second Amended 1990 Stock Option Plan of the Registrant (as
amended and restated)
|
|
Incorporated by reference(H)
|
|
10
|
.2
|
|
Form of Option Agreement under the Amended 1990 Stock Option
Plan of the Registrant
|
|
Incorporated by reference(A)
|
|
10
|
.3
|
|
1994 Executive Stock Option and Compensation Plan of the
Registrant
|
|
Incorporated by reference(D)
|
|
10
|
.4
|
|
Form of Option Agreement under the 1994 Executive Stock Option
and Compensation Plan of the Registrant
|
|
Incorporated by reference(E)
|
|
10
|
.5
|
|
2001 Omnibus Stock Plan of the Registrant
|
|
Incorporated by reference(N)
|
|
10
|
.6
|
|
Amendment No. 1 to the 2001 Omnibus Stock Plan of the Registrant
|
|
Incorporated by reference(P)
|
|
10
|
.7
|
|
Form of Incentive Stock Option Agreement under the 2001 Omnibus
Stock Plan of the Registrant
|
|
Incorporated by reference(R)
|
|
10
|
.8
|
|
Form of Nonstatutory Stock Option Agreement under the 2001
Omnibus Stock Plan of the Registrant
|
|
Incorporated by reference(R)
|
|
10
|
.9
|
|
Form of Restricted Stock Agreement under the 2001 Omnibus Stock
Plan of the Registrant
|
|
Incorporated by reference(R)
|
|
10
|
.10
|
|
2004 Omnibus Stock Plan
|
|
Incorporated by reference(U)
|
|
10
|
.11
|
|
Form of Stock Option Agreement (Employees) under 2004 Omnibus
Stock Plan
|
|
Incorporated by reference(V)
|
|
10
|
.12
|
|
Form of Stock Option Agreement (Executive Officers) under 2004
Omnibus Stock Plan
|
|
Incorporated by reference(V)
|
|
10
|
.13
|
|
Form of Stock Option Agreement (Executive Officers) under 2004
Omnibus Stock Plan
|
|
Incorporated by reference(V)
|
|
10
|
.14
|
|
Form of Stock Option Agreement (Directors Annual
Grant) under 2004 Omnibus Stock Plan
|
|
Incorporated by reference(V)
|
|
10
|
.15
|
|
Form of Stock Option Agreement (Directors Other
Grants) under 2004 Omnibus Stock Plan
|
|
Incorporated by reference(V)
|
|
10
|
.16
|
|
Form of Restricted Stock Agreement (Directors) under 2004
Omnibus Stock Plan
|
|
Incorporated by reference(CC)
|
|
10
|
.21
|
|
Option Agreement between the Registrant and Marshall Geller
dated as of March 3, 1997
|
|
Incorporated by reference(A)
|
|
10
|
.17
|
|
Option Agreement between the Registrant and Marshall Geller
dated May 9, 2001
|
|
Incorporated by reference(N)
|
|
10
|
.18
|
|
Option Agreement between the Registrant and Marshall Geller
dated June 21, 2001
|
|
Incorporated by reference(N)
|
|
10
|
.19
|
|
Option Agreement between the Registrant and Robert Korkowski
dated March 3, 1997
|
|
Incorporated by reference(A)
|
|
10
|
.20
|
|
Option Agreement between the Registrant and Robert Korkowski
dated May 9, 2001
|
|
Incorporated by reference(N)
|
|
10
|
.21
|
|
Option Agreement between the Registrant and Robert Korkowski
dated June 21, 2001
|
|
Incorporated by reference(N)
|
86
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
Method of Filing
|
|
|
10
|
.22
|
|
Option Agreement between the Registrant and Nathan Fagre dated
May 1, 2000
|
|
Incorporated by reference(K)
|
|
10
|
.23
|
|
Option Agreement between the Registrant and Jim Gilbertson dated
November 30, 2005
|
|
Incorporated by reference(DD)
|
|
10
|
.24
|
|
2006 Long Term Incentive Plan
|
|
Incorporated by reference(BB)
|
|
10
|
.25
|
|
2007 Annual Management Incentive Plan
|
|
Incorporated by reference (FF)
|
|
10
|
.26
|
|
Form of Change of Control and Severance Agreement with Executive
Officers
|
|
Incorporated by reference(Z)
|
|
10
|
.27
|
|
Form of Resale Restriction Agreement with Executive Officers
|
|
Incorporated by reference(AA)
|
|
10
|
.28
|
|
Description of Director Compensation Program
|
|
Filed herewith
|
|
10
|
.29
|
|
Offer letter from the Registrant to Rene G. Aiu dated March 3,
2008
|
|
Incorporated by reference(C)
|
|
10
|
.30
|
|
Non-competition agreement between the Registrant and Rene G. Aiu
dated March 3, 2008
|
|
Incorporated by reference(C)
|
|
10
|
.31
|
|
Employment Agreement between the Registrant and Bryan Venberg
dated May 3, 2004
|
|
Incorporated by reference(W)
|
|
10
|
.32
|
|
Severance Agreement dated as of November 8, 2007 between the
Registrant and Brian Venberg
|
|
Incorporated by reference(T)
|
|
10
|
.33
|
|
Form of Salary Continuation Agreement between the Registrant and
Nathan Fagre dated July 2, 2003
|
|
Incorporated by reference(S)
|
|
10
|
.34
|
|
Description of Modification of Severance Arrangements for Nathan
Fagre and Frank Elsenbast approved December 13, 2007
|
|
Incorporated by reference(GG)
|
|
10
|
.35
|
|
Offer letter from the Registrant to Glenn Leidahl dated March
25, 2008
|
|
Filed herewith
|
|
10
|
.36
|
|
Non-competition agreement between the Registrant and Glenn
Leidahl dated March 25, 2008
|
|
Filed herewith
|
|
10
|
.37
|
|
Investment Agreement by and between the Registrant and GE Equity
dated as of March 8, 1999
|
|
Incorporated by reference(F)
|
|
10
|
.38
|
|
First Amendment and Agreement dated as of April 15, 1999 to the
Investment Agreement, dated as of March 8, 1999, by and between
the Registrant and GE Equity
|
|
Incorporated by reference(G)
|
|
10
|
.39
|
|
Distribution and Marketing Agreement dated as of March 8, 1999
by and between NBC and the Registrant
|
|
Incorporated by reference(F)
|
|
10
|
.40
|
|
Letter Agreement dated March 8, 1999 between NBC, GE Equity and
the Registrant
|
|
Incorporated by reference(F)
|
|
10
|
.41
|
|
Shareholder Agreement dated April 15, 1999 between the
Registrant, and GE Equity
|
|
Incorporated by reference(G)
|
|
10
|
.42
|
|
Amendment No. 1 dated March 19, 2004 to Shareholder Agreement
dated April 15, 1999 between the Registrant, NBC and GE Equity
|
|
Incorporated by reference(U)
|
|
10
|
.43
|
|
ValueVision Common Stock Purchase Warrant dated as of April 15,
1999 issued to GE Equity
|
|
Incorporated by reference(G)
|
|
10
|
.44
|
|
Registration Rights Agreement dated April 15, 1999 between the
Registrant, GE Equity and NBC
|
|
Incorporated by reference(G)
|
|
10
|
.45
|
|
Letter Agreement dated November 16, 2000 between the Registrant
and NBC
|
|
Incorporated by reference(M)
|
|
10
|
.46
|
|
Trademark License Agreement dated as of November 16, 2000
between NBC and the Registrant
|
|
Incorporated by reference(L)
|
87
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
Method of Filing
|
|
|
10
|
.47
|
|
ValueVision Common Stock Purchase Warrant dated as of April 15,
1999 issued to NBC
|
|
Incorporated by reference(G)
|
|
10
|
.48
|
|
Warrant Purchase Agreement dated as of November 16, 2000 between
NBC and the Registrant
|
|
Incorporated by reference(L)
|
|
10
|
.49
|
|
Common Stock Purchase Warrant dated as of November 16, 2000
between NBC and the Registrant
|
|
Incorporated by reference(L)
|
|
10
|
.50
|
|
Amendment No. 1 dated March 12, 2001 to Common Stock Purchase
Warrant dated as of November 16, 2000 between NBC and the
Registrant
|
|
Incorporated by reference(O)
|
|
10
|
.51
|
|
ValueVision Common Stock Purchase Warrant dated as of March 20,
2001 between NBC and the Registrant
|
|
Incorporated by reference(O)
|
|
10
|
.52
|
|
Warrant Purchase Agreement dated September 13, 1999 between the
Registrant, Snap!LLC, a Delaware limited liability company and
Xoom.com, Inc., a Delaware corporation
|
|
Incorporated by reference(I)
|
|
10
|
.53
|
|
Common Stock Purchase Warrant dated September 13, 1999 to
purchase shares of the Registrant held by Xoom.com, Inc., a
Delaware corporation
|
|
Incorporated by reference(I)
|
|
10
|
.54
|
|
Registration Rights Agreement dated September 13, 1999 between
the registrant and Xoom.com, Inc., a Delaware corporation,
relating to Xoom.com, Inc.s warrant to purchase shares of
the Registrant
|
|
Incorporated by reference(I)
|
|
10
|
.55
|
|
Amended and Restated Limited Liability Company Agreement of
Ralph Lauren Media, LLC, a Delaware limited liability company,
dated as of February 7, 2000, among Polo Ralph Lauren
Corporation, a Delaware corporation, National Broadcasting
Company, Inc., a Delaware corporation, the Registrant, CNBC.com
LLC, a Delaware limited liability company and NBC Internet,
Inc., a Delaware corporation
|
|
Incorporated by reference(J)
|
|
10
|
.56
|
|
Agreement for Services dated February 7, 2000 between Ralph
Lauren Media, LLC, a Delaware limited liability company, and VVI
Fulfillment Center, Inc., a Minnesota corporation
|
|
Incorporated by reference(J)
|
|
10
|
.57
|
|
Amendment to Agreement for Services dated as of January 31, 2003
between Ralph Lauren Media, LLC and VVI Fulfillment Center, Inc.
|
|
Incorporated by reference(R)
|
|
10
|
.58
|
|
Stock Purchase Agreement dated as of February 9, 2005 between GE
Capital Equity Investments, Inc. and Delta Onshore, LP, Delta
Institutional, LP, Delta Pleiades, LP and Delta Offshore, Ltd.
|
|
Incorporated by reference(Y)
|
|
10
|
.59
|
|
Stock Purchase and Registration Agreement dated as of July 8,
2005 between GE Capital Equity Investments, Inc. and Janus
Investment Fund
|
|
Incorporated by reference(X)
|
|
10
|
.60
|
|
Stock Purchase and Registration Agreement dated as of July 8,
2005 between GE Capital Equity Investments, Inc. and Caxton
International Limited
|
|
Incorporated by reference(X)
|
|
10
|
.61
|
|
Stock Purchase and Registration Agreement dated as of July 8,
2005 between GE Capital Equity Investments, Inc. and Magnetar
Investment Management, LLC
|
|
Incorporated by reference(X)
|
|
10
|
.62
|
|
Stock Purchase and Registration Agreement dated as of July 8,
2005 between GE Capital Equity Investments, Inc. and RCG Ambrose
Master Fund, Ltd., RCG Halifax Fund, Ltd., Ramius Securities,
LLC, Starboard Value and Opportunity Fund, LLC, Parche, LLC and
Ramius Master Fund, Ltd.
|
|
Incorporated by reference(X)
|
|
21
|
|
|
Significant Subsidiaries of the Registrant
|
|
Filed herewith
|
88
|
|
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
Method of Filing
|
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
Filed herewith
|
|
23
|
.2
|
|
Consent of Independent Registered Public Accounting Firm (RLM)
|
|
Filed herewith
|
|
24
|
|
|
Powers of Attorney
|
|
Included with signature pages
|
|
31
|
.1
|
|
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith
|
|
31
|
.2
|
|
Certification of Chief Financial Officer pursuant to Section
302
of the Sarbanes-Oxley Act of 2002
|
|
Filed herewith
|
|
32
|
|
|
Section 1350 Certification of Chief Executive Officer and Chief
Financial Officer
|
|
Filed herewith
|
|
99
|
.1
|
|
Audited Financial Statements for Ralph Lauren Media, LLC as
of April 1, 2006, and for the fifteen-month period ended April
1, 2006
|
|
Filed herewith
|
|
99
|
.2
|
|
Audited Financial Statements for Ralph Lauren Media, LLC as
of and for the year ended March 31, 2007
|
|
Filed herewith
|
|
|
|
|
|
Management compensatory plan/arrangement. |
|
(A) |
|
Incorporated herein by reference to Quantum Direct
Corporations Registration Statement on
Form S-4,
filed on March 13, 1998, File
No. 333-47979. |
|
(B) |
|
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. |
|
(C) |
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
dated March 3, 2008, filed on March 7, 2008, File
No. 0-20243. |
|
(D) |
|
Incorporated herein by reference to the Registrants Proxy
Statement in connection with its annual meeting of shareholders
held on August 17, 1994, filed on July 19, 1994, File
No. 0-20243. |
|
(E) |
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended January 31, 1998, filed on
April 30, 1998, File
No. 0-20243. |
|
(F) |
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
dated March 8, 1999, filed on March 18, 1999, File
No. 0-20243. |
|
(G) |
|
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. |
|
(H) |
|
Incorporated herein by reference to the Registrants
Registration Statement on
Form S-8,
filed on September 25, 2000, File No.
333-46572. |
|
(I) |
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended July 31, 1999, filed on
September 14, 1999, File
No. 0-20243. |
|
(J) |
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended January 31, 2000, File
No. 0-20243. |
|
(K) |
|
Incorporated herein by reference to the Registrants
Registration Statement on
Form S-8,
filed on September 25, 2000, File No.
333-46576. |
|
(L) |
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended October 31, 2000, filed on
December 14, 2000, File
No. 0-20243. |
|
(M) |
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended January 31, 2001, File
No. 0-20243. |
|
(N) |
|
Incorporated herein by reference to the Registrants
Registration Statement on
Form S-8
filed on January 25, 2002, File No.
333-81438. |
|
(O) |
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended April 30, 2001, filed on
June 14, 2001, File
No. 0-20243. |
89
|
|
|
(P) |
|
Incorporated herein by reference to the Registrants Proxy
Statement in connection with its annual meeting of shareholders
held on June 20, 2002, filed on May 23, 2002, File
No. 0-20243. |
|
(Q) |
|
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. |
|
(R) |
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended January 31, 2003, File
No. 0-20243. |
|
(S) |
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended June 30, 2003, filed on
August 15, 2003, File
No. 0-20243. |
|
(T) |
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
dated November 8, 2007, filed on November 14, 2007,
File
No. 333-13957. |
|
(U) |
|
Incorporated herein by reference to the Registrants Proxy
Statement in connection with its annual meeting of shareholders
held on June 21, 2006, filed on May 23, 2006, File
No. 0-20243. |
|
(V) |
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
dated January 14, 2005, filed on January 14, 2005,
File
No. 0-20243. |
|
(W) |
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended April 30, 2005, filed on June 9,
2005, File
No. 0-20243. |
|
(X) |
|
Incorporated herein by reference to the Registrants
Registration Statement on
Form S-3
filed on July 29, 2005, File No.
333-127040. |
|
(Y) |
|
Incorporated by reference to the Schedule 13D/A (Amendment
No. 7) dated February 11, 2005, filed
February 15, 2005, File No.
005-41757. |
|
(Z) |
|
Incorporated by reference to the description of this program
included in the Registrants Current Report on
Form 8-K
dated August 24, 2005, filed on August 26, 2005, File
No. 0-20243. |
|
(AA) |
|
Incorporated herein by reference to the Registrants
Quarterly Report on
Form 10-Q
for the quarter ended October 29, 2005, filed on
December 8, 2005, File
No. 0-20243. |
|
(BB) |
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
dated December 19, 2005, filed on December 23, 2005,
File
No. 0-20243. |
|
(CC) |
|
Incorporated herein by reference to the Registrants
Current Report on
Form 8-K
dated June 21, 2006, filed on June 26, 2006, File
No. 0-20243. |
|
(DD) |
|
Incorporated herein by reference to the Registrants
Registration Statement on
Form S-8
filed on December 22, 2006, File No.
333-13957. |
|
(EE) |
|
Incorporated herein by reference to the Registrants Annual
Report on
Form 10-K
for the fiscal year ended February 3, 2007, File
No. 0-20243. |
|
(FF) |
|
Incorporated herein by reference to the Registrants Proxy
Statement in connection with its annual meeting of shareholders
held on June 28, 2007, filed on June 1, 2007, File
No. 0-20243. |
|
(GG) |
|
Incorporated herein by reference to Item 5.02 of the
Registrants Current Report on
Form 8-K
dated December 13, 2007, filed on December 19, 2007,
File
No. 0-20243. |
90