Back to GetFilings.com
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-20243
---------------
VALUEVISION MEDIA, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1673770
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6740 Shady Oak Road, Minneapolis, MN 55344
------------------------------------------
(Address of principal executive offices)
952-943-6000
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
As of June 10, 2003, there were 35,677,820 shares of the Registrant's common
stock, $.01 par value per share, outstanding.
================================================================================
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
APRIL 30, 2003
PAGE OF FORM
10-Q
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
-Condensed Consolidated Balance Sheets as of April 30, 2003
and January 31, 2003 3
-Condensed Consolidated Statements of Operations for the
Three Months Ended April 30, 2003 and 2002 4
-Condensed Consolidated Statement of Shareholders' Equity
for the Three Months Ended April 30, 2003 5
-Condensed Consolidated Statements of Cash Flows for the
Three Months Ended April 30, 2003 and 2002 6
-Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
Item 4. Controls and Procedures 19
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
CERTIFICATIONS 22-23
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
APRIL 30, JANUARY 31,
2003 2003
--------- ----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 74,749 $ 55,109
Short-term investments 63,316 113,525
Accounts receivable, net 60,641 76,734
Inventories 59,347 61,246
Prepaid expenses and other 7,193 7,449
--------- ---------
Total current assets 265,246 314,063
PROPERTY & EQUIPMENT, NET 52,298 39,905
FCC BROADCASTING LICENSE 31,943 --
NBC TRADEMARK LICENSE AGREEMENT, NET 24,334 25,141
CABLE DISTRIBUTION AND MARKETING AGREEMENT, NET 5,117 5,341
GOODWILL 9,442 9,442
OTHER INTANGIBLE ASSETS, NET 1,064 1,242
INVESTMENTS AND OTHER ASSETS, NET 10,405 11,140
--------- ---------
$ 399,849 $ 406,274
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 53,977 $ 56,961
Accrued liabilities 32,396 30,310
Income tax payable 76 226
--------- ---------
Total current liabilities 86,449 87,497
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,323 1,669
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$.01 PER SHARE PAR VALUE, 5,339,500 SHARES AUTHORIZED;
5,339,500 SHARES ISSUED AND OUTSTANDING 42,533 42,462
SHAREHOLDERS' EQUITY:
Common stock, $.01 per share par value, 100,000,000 shares
authorized; 35,657,277 and 36,171,250 shares issued
and outstanding 356 362
Warrants to purchase 8,235,343 shares of common stock 47,638 47,638
Additional paid-in capital 239,677 244,134
Accumulated other comprehensive losses (2,233) (2,517)
Deferred compensation (1,367) --
Note receivable from officer (4,115) (4,098)
Accumulated deficit (10,412) (10,873)
--------- ---------
Total shareholders' equity 269,544 274,646
--------- ---------
$ 399,849 $ 406,274
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
FOR THE THREE MONTHS ENDED
APRIL 30,
---------------------------------
2003 2002
------------ ------------
NET SALES $ 143,475 $ 132,849
COST OF SALES 90,386 81,030
------------ ------------
Gross profit 53,089 51,819
------------ ------------
OPERATING (INCOME) EXPENSE:
Distribution and selling 47,677 42,352
General and administrative 5,398 4,161
Depreciation and amortization 4,253 3,321
Gain on sale of television stations (4,417) --
------------ ------------
Total operating (income) expense 52,911 49,834
------------ ------------
OPERATING INCOME 178 1,985
------------ ------------
OTHER INCOME (EXPENSE):
Loss on sale and conversion of investments -- (6)
Unrealized gain on security holdings -- 1,021
Write-down of investments -- (985)
Equity in losses of affiliates -- (2,098)
Interest income 354 1,035
------------ ------------
Total other income (expense) 354 (1,033)
------------ ------------
INCOME BEFORE INCOME TAXES 532 952
Income tax provision -- 343
------------ ------------
NET INCOME 532 609
Accretion of redeemable preferred stock (71) (70)
------------ ------------
NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 461 $ 539
============ ============
NET INCOME PER COMMON SHARE $ 0.01 $ 0.01
============ ============
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION $ 0.01 $ 0.01
============ ============
Weighted average number of common shares outstanding:
Basic 35,981,187 38,153,172
============ ============
Diluted 42,500,565 46,558,647
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 30, 2003
(Unaudited)
(In thousands, except share data)
COMMON STOCK COMMON ACCUMULATED
-------------------- STOCK ADDITIONAL OTHER
COMPREHENSIVE NUMBER PAR PURCHASE PAID-IN COMPREHENSIVE DEFERRED
INCOME OF SHARES VALUE WARRANTS CAPITAL LOSSES COMPENSATION
------------- ---------- ------ --------- ----------- ------------- ------------
BALANCE, JANUARY 31, 2003 36,171,250 $ 362 $ 47,638 $ 244,134 $ (2,517) $ --
Comprehensive income:
Net income $ 532 -- -- -- -- -- --
Other comprehensive
income, net of tax:
Unrealized gains on
securities, net of tax 284 -- -- -- -- 284 --
-------
Comprehensive income $ 816
=======
Repurchases of common stock (567,100) (6) -- (6,189) -- --
Increase in note receivable
from officer -- -- -- -- -- --
Exercise of stock
options and common
stock issuances 53,127 -- -- 241 --
Restricted stock award -- -- -- 1,491 (1,491)
Vesting of deferred
compensation -- -- -- -- -- 124
Accretion on redeemable
preferred stock -- -- -- -- -- --
---------- ------ --------- ----------- --------- ---------
BALANCE, APRIL 30, 2003 35,657,277 $ 356 $ 47,638 $ 239,677 $ (2,233) $ (1,367)
========== ====== ========= =========== ========= =========
NOTE
RECEIVABLE TOTAL
FROM ACCUMULATED SHAREHOLDERS
OFFICER DEFICIT EQUITY
---------- ----------- ------------
BALANCE, JANUARY 31, 2003 $ (4,098) $ (10,873) $ 274,646
Comprehensive income:
Net income -- 532 532
Other comprehensive
income, net of tax:
Unrealized gains on
securities, net of tax -- -- 284
Comprehensive income
Repurchases of common stock -- -- (6,195)
Increase in note receivable
from officer (17) -- (17)
Exercise of stock
options and common
stock issuances -- -- 241
Restricted stock award -- -- --
Vesting of deferred
compensation -- -- 124
Accretion on redeemable
preferred stock -- (71) (71)
--------- --------- ----------
BALANCE, APRIL 30, 2003 $ (4,115) $ (10,412) $ 269,544
========= ========== ==========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share data)
FOR THE THREE MONTHS ENDED APRIL 30,
------------------------------------
2003 2002
------------ -------------
OPERATING ACTIVITIES:
Net income $ 532 $ 609
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization 4,253 3,321
Common stock issued to employees 4 8
Vesting of deferred compensation 124 --
Gain on sale of television stations (4,417) --
Loss on sale and conversion of investments -- 6
Unrealized gain on security holdings -- (1,021)
Equity in losses of affiliates -- 2,098
Write-down of investments -- 985
Changes in operating assets and liabilities, net
of businesses acquired:
Accounts receivable, net 16,093 11,241
Inventories 1,899 (10,171)
Prepaid expenses and other 845 (2,098)
Accounts payable and accrued liabilities (1,120) 10,821
Income taxes payable (receivable), net (150) 308
-------- --------
Net cash provided by operating activities 18,063 16,107
-------- --------
INVESTING ACTIVITIES:
Property and equipment additions (13,863) (2,509)
Proceeds from sale of investments and property -- 2
Purchase of short-term investments (28,316) (58,076)
Proceeds from sale of short-term investments 78,526 36,859
Payment for investments and other assets -- (1,434)
Acquisition of television station WWDP TV-46, net of cash acquired (33,466) --
Proceeds from sale of television stations 5,000 --
Acquisition of FanBuzz, Inc., net of cash acquired -- (12,307)
-------- --------
Net cash provided by (used for) investing activities 7,881 (37,465)
-------- --------
FINANCING ACTIVITIES:
Payments for repurchases of common stock (6,195) (419)
Proceeds from exercise of stock options 237 3,064
Payment of long-term obligation (346) (120)
-------- --------
Net cash provided by (used for) financing activities (6,304) 2,525
-------- --------
Net increase (decrease) in cash and cash equivalents 19,640 (18,833)
BEGINNING CASH AND CASH EQUIVALENTS 55,109 66,144
-------- --------
ENDING CASH AND CASH EQUIVALENTS $ 74,749 $ 47,311
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 54 $ 32
======== ========
Income taxes paid $ 150 $ 35
======== ========
SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Restricted stock award $ 1,491 $ --
======== ========
Liabilities assumed from acquisitions $ 105 $ 4,690
======== ========
Accretion of redeemable preferred stock $ 71 $ 70
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2003
(Unaudited)
(1) GENERAL
ValueVision Media, Inc. and its subsidiaries ("ValueVision" or the
"Company") is an integrated direct marketing company that markets its products
directly to consumers through various forms of electronic media. The Company's
operating strategy incorporates television home shopping, Internet e-commerce,
vendor programming sales, fulfillment services and outsourced e-commerce and
fulfillment solutions. Effective May 16, 2002, the Company changed its name to
ValueVision Media, Inc. from ValueVision International, Inc.
The Company's television home shopping business uses on-air
personalities to market brand name merchandise and proprietary / private label
consumer products at competitive prices. The Company's live 24-hour per day
television home shopping programming is distributed primarily through long-term
cable and satellite affiliation agreements and the purchase of month-to-month
full and part-time block 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 complements its television home shopping business by the sale of a
broad array of merchandise through its Internet shopping website
(www.shopnbc.com).
On November 16, 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc. ("NBC") pursuant to which NBC
granted ValueVision worldwide use of an NBC-branded name and the Peacock image
for a ten-year period. The Company rebranded its growing home shopping network
and companion Internet shopping website as "ShopNBC" and "ShopNBC.com",
respectively, in fiscal 2001. This rebranding is intended to position
ValueVision as a multimedia retailer, offering consumers an entertaining,
informative and interactive shopping experience, and position the Company as a
leader in the evolving convergence of television and the Internet.
In 1999, the Company founded ValueVision Interactive, Inc. as a wholly
owned subsidiary of the Company to manage and develop the Company's Internet
e-commerce initiatives. The Company, through its wholly owned subsidiary, VVI
Fulfillment Center, Inc. ("VVIFC"), provides fulfillment, warehousing and
telemarketing services to Ralph Lauren Media, LLC ("RLM"), the NBC Experience
Store in New York City and direct to consumer products sold on NBC's website and
to its FanBuzz, Inc. subsidiary. Through its wholly owned subsidiary, FanBuzz,
Inc. ("FanBuzz"), the Company also provides e-commerce and fulfillment solutions
to some of the most recognized sports, media and other well-known entertainment
and retail companies.
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles in the United States of America have been
condensed or omitted in accordance with such rules and regulations. The
information furnished in the interim condensed consolidated financial statements
includes normal recurring accruals and reflects all adjustments which, in the
opinion of management, are necessary for a fair presentation of such financial
statements. Although management believes the disclosures and information
presented are adequate, it is suggested that these interim condensed
consolidated financial statements be read in conjunction with the Company's most
recent audited financial statements and notes thereto included in its fiscal
2002 Annual Report on Form 10-K. Operating results for the three month period
ended April 30, 2003 are not necessarily indicative of the results that may be
expected for the fiscal year ending January 31, 2004.
7
The accompanying condensed consolidated financial statements include
the accounts of ValueVision and its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation. The
accompanying condensed consolidated results of operations for the three months
ended April 30, 2003 include the operations of television station WWDP TV-46 as
of the effective date of its acquisition, April 1, 2003. The accompanying
condensed consolidated results of operations for the three months ended April
30, 2002 include the operations of FanBuzz, Inc. as of the effective date of its
acquisition, March 8, 2002.
(3) STOCK-BASED COMPENSATION
At April 30, 2003, the Company had a number of stock-based compensation
plans. The Company accounts for these plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. No stock-based employee compensation
cost is reflected in net income, 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 income and net
income per share if the Company had applied the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123," Accounting
for Stock-Based Compensation" ("SFAS No. 123"), to stock-based employee
compensation:
THREE MONTHS ENDED APRIL 30,
----------------------------
2003 2002
------------ ------------
Net income available to common shareholders:
As reported............................................. $ 461,000 $ 539,000
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects..................... (2,038,000) (2,763,000)
------------ ------------
Pro forma............................................... $ (1,577,000) $ (2,224,000)
============ ============
Net income per share:
Basic:
As reported.......................................... $ 0.01 $ 0.01
Pro forma............................................ (0.04) (0.06)
Diluted:
As reported.......................................... $ 0.01 $ 0.01
Pro forma............................................ (0.04) (0.06)
(4) NET INCOME PER COMMON SHARE
The Company calculates earnings per share ("EPS") in accordance with
the provisions of Statement of Financial Accounting Standards No. 128, "Earnings
per Share" ("SFAS No. 128"). Basic EPS is computed by dividing reported earnings
by the weighted average number of common shares outstanding for the reported
period. 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.
A reconciliation of EPS calculations under SFAS No. 128 is as follows:
THREE MONTHS ENDED APRIL 30,
----------------------------
2003 2002
----------- -----------
Net income available to
common shareholders $ 461,000 $ 539,000
=========== ===========
Weighted average number of common
shares outstanding - Basic 35,981,000 38,153,000
Dilutive effect of convertible preferred
stock 5,340,000 5,340,000
Dilutive effect of stock options and
warrants 1,180,000 3,066,000
----------- -----------
Weighted average number of common
shares outstanding - Diluted 42,501,000 46,559,000
=========== ===========
Net income per common share $ 0.01 $ 0.01
=========== ===========
Net income per common share-
assuming dilution $ 0.01 $ 0.01
=========== ===========
8
(5) COMPREHENSIVE INCOME
The Company reports comprehensive income 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 includes net income and other comprehensive income (loss),
which consists of unrealized holding gains and losses from equity investments
classified as "available-for-sale". Total comprehensive income was $816,000 and
$1,886,000 for the three months ended April 30, 2003 and 2002, respectively.
(6) SEGMENT DISCLOSURES
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), requires
the disclosure of certain information about operating segments in financial
statements. The Company's reportable segments are based on the Company's method
of internal reporting. The Company's primary business segment is its electronic
media segment, which consists of the Company's television home shopping business
and Internet shopping website business. Management has reviewed the provisions
of SFAS No. 131 and has determined that the Company's television and internet
home shopping businesses meet the aggregation criteria as outlined in the
Statement since these two business units have similar customers, products,
economic characteristics and sales processes. Products sold through the
Company's electronic media segment primarily include jewelry, computers and
other electronics, housewares, apparel, health and beauty aids, seasonal items
and other merchandise. The Company's segments operate exclusively in the United
States and no one customer represents more than 5% of the Company's overall
revenue. There are no intersegment sales. Segment information as of and for the
quarters ended April 30, 2003 and 2002 is as follows:
ELECTRONIC ALL
THREE MONTHS ENDED APRIL 30 (IN THOUSANDS) MEDIA OTHER (A) CORPORATE TOTAL
- ------------------------------------------ ---------- -------- --------- ---------
2003
Revenues ............................. $137,120 $ 6,355 $ -- $143,475
Operating income (loss) .............. 1,022 (844) -- 178
Depreciation and amortization ........ 3,663 590 -- 4,253
Interest income (expense) ............ 396 (42) -- 354
Income taxes ......................... -- -- -- --
Net income (loss) .................... 1,540 (1,008) -- 532
Identifiable assets .................. 354,455 38,398 6,996(b) 399,849
-------- -------- -------- --------
2002
Revenues ............................. $127,886 $ 4,963 $ -- $132,849
Operating income ..................... 1,960 25 -- 1,985
Depreciation and amortization ........ 2,543 778 -- 3,321
Interest income (expense) ............ 1,040 (5) -- 1,035
Income taxes ......................... 363 (20) -- 343
Net income (loss) .................... 642 (33) -- 609
Identifiable assets .................. 395,908 31,939 41,984(b) 469,831
-------- -------- -------- --------
(a) Revenue from segments below quantitative thresholds are attributable to
FanBuzz, which provides e-commerce and fulfillment solutions to sports,
media and entertainment companies and VVIFC, which provides
fulfillment, warehousing and telemarketing services primarily to RLM.
(b) Corporate assets consist of long-term investments not directly
assignable to a business segment.
(7) EQUITY INVESTMENTS
As of April 30, 2003 and 2002, the Company had equity investments
totaling approximately $6,996,000 and $41,984,000, respectively of which $-0-
and $31,764,000 related to the Company's investment in RLM after adjusting for
the Company's equity share of RLM losses under the equity method of accounting.
At April 30, 2003 and 2002, investments in the accompanying condensed
9
consolidated balance sheets also included approximately $4,985,000 and
$8,209,000, respectively, related to equity investments made in companies whose
shares are traded on a public exchange. Investments in common stock are
classified as "available-for-sale" investments and are accounted for under the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS No. 115").
Investments held in the form of stock purchase warrants are accounted for under
the provisions of Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.133").
In addition, investments at April 30, 2003 and 2002 include certain other
nonmarketable equity investments in private and other enterprises totaling
approximately $2,011,000 which are carried at the lower of cost or net
realizable value.
In February 2000, the Company entered into a strategic alliance with
Polo Ralph Lauren, NBC, NBCi and CNBC.com 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 owns a 12.5% interest in RLM. In
connection with forming this strategic alliance, the Company had committed to
provide up to $50 million of cash for purposes of financing RLM's operating
activities of which the entire commitment has been funded. In the fourth quarter
of fiscal 2002, the Company evaluated the carrying value of its RLM investment
and concluded that an impairment had occurred with respect to this investment
and the decline in value was determined to be other than temporary whereby the
Company will not be able to recover the carrying amount of its investment. As a
result, the Company wrote off its investment in RLM in the fourth quarter of
fiscal 2002.
The Company evaluates the carrying values of its other investments by
using recent financing and securities transactions, present value and other
pricing models, as well as by evaluating available information on financial
condition, liquidity prospects, cash flow forecasts and comparing operating
results to plan. Impairment losses are recorded if events or circumstances
indicate that such investments may be impaired and the decline in value is other
than temporary. For the three months ended April 30, 2002, the Company recorded
a pre-tax investment loss of $985,000 relating to an investment made in 1997.
The decline in fair value of such investment was determined by the Company to be
other than temporary.
(8) RELATED PARTY TRANSACTION
At April 30, 2003, the Company held a note receivable totaling
$4,115,000, including interest (the "Note"), from an officer of the Company for
a loan made in accordance with provisions set forth in such officer's employment
agreement with the Company. The Note is reflected as a reduction of
shareholders' equity in the accompanying condensed consolidated balance sheet as
the Note is collateralized by a security interest in vested stock options and in
shares of the Company's common stock to be acquired by the officer upon the
exercise of such vested stock options.
(9) RESTRICTED STOCK
On February 1, 2003, the Company awarded 114,170 shares of restricted
stock from the Company's 2001 Omnibus Stock Plan (as amended) to certain
executive officers. The stock vests one third on each of the next three
anniversary dates of the grant provided that the recipient is still employed
with the Company. The aggregate market value of the restricted stock at the date
of award was $1,491,000 and has been recorded as deferred compensation, a
separate component of shareholders' equity, and is being amortized as
compensation expense over the three-year vesting period.
(10) COMMON STOCK REPURCHASE PROGRAM
In the second quarter of fiscal 2001, the Company's Board of Directors
authorized a $25 million common stock repurchase program whereby the Company may
repurchase shares of its common stock in the open market and through negotiated
transactions, at prices and times deemed to be beneficial to the long-term
interests of shareholders and the Company. In the second quarter of fiscal 2002,
the Company's Board of Directors authorized the repurchase of an additional $25
million of the Company's common stock. In November 2002, the Company's Board of
Directors authorized an additional $25 million for repurchases of the Company's
common stock pursuant to its common stock repurchase program. The repurchase
program is subject to applicable securities laws and may be discontinued at any
time without any obligation or commitment by the Company to repurchase all or
any portion of the shares covered by the authorization. As of April 30, 2003,
the Company had repurchased a total of 3,801,000 shares of its common stock
under its stock repurchase programs for a total net cost of $54,089,000 at an
average price of $14.23 per share. During the quarter ended April 30, 2003, the
Company had repurchased 567,000 shares of its common stock at an average price
of approximately $10.90 per share.
10
(11) ACQUISITIONS AND DISPOSITIONS
On January 15, 2003, the Company announced that it entered into an agreement
with Norwell Television LLC to acquire full power television station WWDP TV-46
in Boston, which reaches approximately 1.8 million cable households. The deal
closed in the first quarter of fiscal 2003 on April 1, following FCC approval.
The Company made the investment in television station WWDP TV-46 in order to
build a long-term and cost effective distribution strategy in the Boston,
Massachusetts area. The purchase price of the acquisition was $33,617,000,
including professional fees, and has been accounted for using the purchase
method of accounting as stipulated by Statement of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS No. 141"). The results of
operations of the acquired television station have been included in the
accompanying condensed consolidated financial statements from April 1, 2003, the
date of acquisition. The allocation of the purchase price has been prepared on a
preliminary basis, however, the Company does not expect any material changes
when finalized. Pro-forma results of the Company, assuming the acquisition had
been made at the beginning of each period presented, would not be materially
different from the results reported.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed from television station WWDP TV-46 on the date
of acquisition:
Current assets ................. $ 176,000
Property and equipment ......... 1,598,000
Other assets ................... 5,000
FCC broadcasting license ....... 31,943,000
-----------
Total assets acquired ..... 33,722,000
Current liabilities ............ 105,000
-----------
Net assets acquired ....... $33,617,000
===========
The Company assigned $31,943,000 of the total acquisition price to
television station WWDP TV-46's Federal Communication Commission ("FCC")
broadcasting license, which is not subject to amortization as a result of its
indefinite useful life. The Company will test the FCC license asset for
impairment annually, or more frequently if events or changes in circumstances
indicate that the asset might be impaired.
In February 2003, the Company entered into an agreement to purchase
property and two commercial buildings occupying approximately 209,000 square
feet in Eden Prairie, Minnesota for approximately $11,300,000. One building
purchased is where the Company currently maintains its corporate administrative,
television production and jewelry distribution operations. Included, as part of
the acquisition, was a second building of approximately 70,000 square feet of
commercial rental space, which the Company leases out to third parties. As a
result of this acquisition, the Company's long-term property lease has been
terminated.
In February 2003, the Company completed the sale of ten of its eleven
LPTV stations for a total of $5,000,000. The Company recorded a pre-tax
operating gain on the sale of these LPTV stations of $4,417,000 in the first
quarter of fiscal 2003. Management believes that the sale of these stations will
not have a significant impact on the ongoing operations of the Company.
On February 25, 2002, the Company announced it had signed a definitive
agreement to acquire 100% of the outstanding shares of the parent of
Minneapolis-based FanBuzz that provides e-commerce and fulfillment solutions to
some of the most recognized sports, media and other well known entertainment
companies in the world and many other professional sports teams, leagues and
colleges. The purchase price of the acquisition, which closed on March 8, 2002,
was $14.1 million and has been accounted for using the purchase method of
accounting as stipulated by SFAS No. 141, "Business Combinations". Pro-forma
results of the Company, assuming the acquisition had been made at the beginning
of each period presented, would not be materially different from the results
reported.
11
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed from FanBuzz on the date of acquisition:
Current assets ................ $ 3,965,000
Property and equipment ........ 3,305,000
Other assets .................. 78,000
Intangible assets ............. 2,000,000
Goodwill ...................... 9,442,000
-----------
Total assets acquired ....... 18,790,000
-----------
Current liabilities ........... 3,265,000
Capital lease obligations ..... 1,425,000
-----------
Total liabilities assumed ... 4,690,000
-----------
Net assets acquired ......... $14,100,000
===========
Total amortizable intangible assets acquired were $2,000,000 (4-year
weighted average useful life) and were assigned as follows: registered website
and URL address of $1,000,000 (3-year weighted average useful life), partnership
contracts of $280,000 (2-year weighted average useful life), non-compete
agreements of $230,000 (3-year weighted average useful life), favorable lease
contracts of $200,000 (13-year weighted average useful life) and other assets of
$290,000 (1-year weighted average useful life). Total goodwill recorded as a
result of the acquisition was $9,442,000 none of which is expected to be
deductible for tax purposes. The Company does not expect there to be any
significant residual value with respect to these acquired intangible assets.
(12) GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which addresses the financial accounting and reporting
standards for the acquisition of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to their
acquisition. This accounting standard requires that goodwill be separately
disclosed from other intangible assets in the statement of financial position,
and no longer be amortized but tested for impairment on a periodic basis. These
impairment tests are required to be performed at adoption and at least annually
thereafter.
Changes in the carrying amount of goodwill for the three-month period
ended April 30, 2003 are as follows:
Balance as of January 31, 2003 $9,442,000
Goodwill acquired during the period --
Impairment losses --
----------
Balance as of April 30, 2003 $9,442,000
==========
Intangible assets have been recorded by the Company as a result of the
acquisition of FanBuzz in the first quarter of fiscal 2002 and television
station WWDP TV-46 in the first quarter of fiscal 2003. The components of
amortized and unamortized intangible assets in the accompanying condensed
consolidated balance sheets consist of the following:
APRIL 30, 2003 JANUARY 31, 2003
------------------------------- -------------------------------
AVERAGE GROSS GROSS
LIFE CARRYING ACCUMULATED CARRYING ACCUMULATED
(YEARS) AMOUNT AMORTIZATION AMOUNT AMORTIZATION
------- ----------- ------------ ----------- ------------
Amortized intangible assets:
Website address 3 $ 1,000,000 $ (361,000) $ 1,000,000 $ (278,000)
Partnership contracts 2 280,000 (243,000) 280,000 (187,000)
Non-compete agreements 3 230,000 (83,000) 230,000 (64,000)
Favorable lease contracts 13 200,000 (17,000) 200,000 (13,000)
Other 2 290,000 (232,000) 290,000 (216,000)
----------- ----------- ----------- -----------
Total $ 2,000,000 $ (936,000) $ 2,000,000 $ (758,000)
=========== =========== =========== ===========
Unamortized intangible assets:
FCC broadcast license $31,943,000 $ --
=========== ===========
12
Amortization expense for intangible assets for the three months ended
April 30, 2003 and 2002 was $178,000 and $101,000, respectively. Estimated
amortization expense for fiscal 2003 and the succeeding five years is as
follows: $581,000 in fiscal 2003, $436,000 in fiscal 2004, $84,000 in fiscal
2005, $15,000 in fiscal 2006, $15,000 in fiscal 2007 and $15,000 in fiscal 2008.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion and analysis of financial condition and
results of operations should be read in conjunction with the Company's
accompanying unaudited condensed consolidated financial statements and notes
included herein and the audited consolidated financial statements and notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 2003.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
DOLLAR AMOUNT AS A
PERCENTAGE OF NET SALES FOR
THE
THREE MONTHS
ENDED APRIL 30,
2003 2002
------- ------
NET SALES 100.0% 100.0%
======= ======
GROSS MARGIN 37.0% 39.0%
------- ------
Operating (income) expenses:
Distribution and selling 33.2% 31.9%
General and administrative 3.8% 3.1%
Depreciation and amortization 3.0% 2.5%
Gain on sale of television stations (3.1)% ---%
------- ------
36.9% 37.5%
------- ------
Operating income 0.1% 1.5%
======= ======
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ValueVision Media, Inc. and its subsidiaries ("ValueVision" or the
"Company") is an integrated direct marketing company that markets its products
directly to consumers through various forms of electronic media. The Company's
operating strategy incorporates television home shopping, Internet e-commerce,
vendor programming sales, fulfillment services and outsourced e-commerce and
fulfillment solutions. Effective May 16, 2002, the Company changed its name to
ValueVision Media, Inc. from ValueVision International, Inc.
The Company's television home shopping business uses on-air
personalities to market brand name merchandise and proprietary / private label
consumer products at competitive prices. The Company's live 24-hour per day
television home shopping programming is distributed primarily through long-term
cable and satellite affiliation agreements and the purchase of month-to-month
full and part-time block 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 complements its television home shopping business by the sale of a
broad array of merchandise through its Internet shopping website
(www.shopnbc.com).
On November 16, 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc. ("NBC") pursuant to which NBC
granted ValueVision worldwide use of an NBC-branded name and the Peacock image
for a ten-year period. The Company rebranded its growing home shopping network
and companion Internet shopping website as "ShopNBC" and "ShopNBC.com",
respectively, in fiscal 2001. This rebranding is intended to position
ValueVision as a multimedia retailer, offering consumers an entertaining,
informative and interactive shopping experience, and position the Company as a
leader in the evolving convergence of television and the Internet.
In 1999, the Company founded ValueVision Interactive, Inc. as a wholly
owned subsidiary of the Company to manage and develop the Company's Internet
e-commerce initiatives. The Company, through its wholly owned subsidiary, VVI
Fulfillment Center, Inc. ("VVIFC"), provides fulfillment, warehousing and
telemarketing services to Ralph Lauren Media, LLC ("RLM"), the NBC Experience
Store in New York City and direct to consumer products sold on NBC's website and
to its FanBuzz, Inc. subsidiary. Through its wholly owned subsidiary, FanBuzz,
Inc. ("FanBuzz"), the Company also provides e-commerce and fulfillment solutions
to some of the most recognized sports, media and other well-known entertainment
and retail companies.
On March 20, 2003, the Company announced that its Chairman and Chief
Executive Officer (CEO), Gene McCaffery will be part of a transition process to
determine a successor as CEO of the Company. The Company has engaged the search
firm Korn/Ferry International to assist in the transition process. Mr. McCaffery
and the Company's Board of Directors have amicably agreed upon this approach and
are committed to a process that is orderly and in the Company's best interests.
Mr. McCaffery will remain as Chairman and CEO during the transition period and
will serve on the search committee to assist in the selection of the successor.
The Board of Directors and Mr. McCaffery are in discussions to finalize terms of
the transition as well as address any relationship that would be deemed
beneficial going forward.
ACQUISITIONS AND DISPOSITIONS
On January 15, 2003, the Company announced that it entered into an
agreement with Norwell Television LLC to acquire full power television station
WWDP TV-46 in Boston, which reaches approximately 1.8 million cable households.
The deal closed in the first quarter of fiscal 2003 on April 1, following FCC
approval. The Company made the investment in television station WWDP TV-46 in
order to build a long-term and cost effective distribution strategy in the
attractive Boston, Massachusetts area. The purchase price of the acquisition was
$33,617,000, including professional fees, and has been accounted for using the
purchase method of accounting. The results of operations of the acquired
television station have been included in the accompanying condensed consolidated
financial statements as of April 1, 2003, the date of acquisition.
In February 2003, the Company entered into an agreement to purchase
property and two commercial buildings occupying approximately 209,000 square
feet in Eden Prairie, Minnesota for approximately $11,300,000. One building
purchased is where the Company currently maintains its corporate administrative,
television production and jewelry distribution operations. Included, as part of
the acquisition, was a second building of approximately 70,000 square feet of
commercial rental space, which the Company leases out to third parties. As a
result of this acquisition, the Company's long-term property lease has been
terminated.
14
In February 2003, the Company completed the sale of ten of its eleven
LPTV stations for a total of $5,000,000. The Company recorded a pre-tax
operating gain on the sale of these LPTV stations of $4,417,000 in the first
quarter of fiscal 2003. Management believes that the sale of these stations will
not have a significant impact on the ongoing operations of the Company.
On February 25, 2002, the Company announced it had signed a definitive
agreement to acquire Minneapolis-based FanBuzz, Inc., an e-commerce and
fulfillment solutions provider of affinity based merchandise to some of the most
recognized sports, media and other well known entertainment brands in the world,
including ESPN, the Salt Lake 2002 Winter Games, the National Hockey League, the
Museum Company, San Francisco Music Box and many other professional sports
teams, leagues and colleges. FanBuzz, Inc. has focused its business model of
operating online product stores and providing fulfillment and customer care
solutions for already-established brands and destinations. The purchase price of
the acquisition, which closed on March 8, 2002, was $14.1 million and has been
accounted for using the purchase method of accounting as stipulated by SFAS No.
141, "Business Combinations".
WRITE-DOWN OF INVESTMENTS
In the first quarter ended April 30, 2002, the Company recorded a
pre-tax investment loss of $985,000 relating to an investment made in 1997. The
decline in fair value of this investment was determined by the Company to be
other than temporary.
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales, inclusive of shipping and handling revenue for
the three months ended April 30, 2003 were $143,475,000 compared with net sales
of $132,849,000 for the three months ended April 30, 2002, an 8% increase. The
increase in consolidated net sales is directly attributable to the continued
improvement in and increased sales from the Company's television home shopping
and Internet operations. Net sales attributed to the Company's television home
shopping and Internet operations increased 7% to $137,120,000 for the three
months ended April 30, 2003 from $127,887,000 for the comparable prior year
period. The still challenging retail economic environment and slowdown in
consumer spending experienced by the Company and other merchandise retailers
along with the distraction of hostilities in Iraq has continued to have an
adverse affect on total net sales growth for the quarter as compared to the
prior year. Notwithstanding the challenging economic situation, the continued
growth in home shopping net sales is primarily attributable to the growth in
full-time equivalent ("FTE") homes receiving the Company's television
programming. During the 12-month period ended April 30, 2003, the Company added
approximately 7.4 million FTE subscriber homes, a 16% increase, however, the
complete net sales impact and productivity from these additional homes is still
to be realized as these additional new homes have yet to completely mature. In
addition to new FTE subscriber homes, television home shopping and Internet
sales increased due to the continued addition of new customers from households
already receiving the Company's television home shopping programming, an
increase in the average order size and an 8% year-to-date increase in Internet
sales over the prior year. In addition, total net sales increased over prior
year as a result of the Company reflecting a full quarter of sales associated
with its acquisition of FanBuzz, Inc. in March 2002. The Company intends to
continue to test and change its merchandising and programming strategies with
the goal of improving its television home shopping and Internet sales results.
While the Company is optimistic that television home shopping and Internet sales
results will continue to improve, there can be no assurance that such changes in
strategy will achieve the intended results.
GROSS PROFITS
Gross profits for the three months ended April 30, 2003 and 2002 were
$53,089,000 and $51,819,000, respectively, an increase of $1,270,000 or 2%.
Gross margins for the three months ended April 30, 2003 and 2002 were 37.0% and
39.0%, respectively. The principal reason for the increase in gross profits was
the increased sales volume from the Company's television home shopping and
FanBuzz businesses. In addition, gross profit for the three months ended April
30, 2003 included positive contributions from VVIFC's fulfillment services
provided to RLM. Television and Internet gross margins for the three month
period ended April 30, 2003 decreased as compared to the three month period
ended April 30, 2002 primarily due to first quarter promotional activity in the
form of discounting and shipping and handling promotions which were implemented
by the Company in an effort to maintain sales levels during the Iraq conflict
when viewership was decreased and general uncertainty had an adverse impact on
retail merchants. Also, during the first quarter of fiscal 2002, gross margins
were favorably impacted by the sale of high margin Winter Olympics merchandise.
15
OPERATING EXPENSES
Total operating expenses for the three months ended April 30, 2003 were
$57,328,000 (excluding the gain on sale of television stations) versus
$49,834,000 for the comparable prior year period. Distribution and selling
expense increased $5,325,000 or 13% to $47,677,000 or 33% of net sales during
the first quarter of fiscal 2003 compared to $42,352,000 or 32% of net sales for
the comparable prior-year period. Distribution and selling expense increased
primarily as a result of increases in net cable access fees due to a 16%
year-to-date increase in the number of average FTE subscribers over the prior
year, increased costs associated with new merchandising personnel, additional
distribution and selling costs associated with FanBuzz resulting from its
partnership with the National Hockey League and increased costs associated with
credit card processing resulting from increased sales, offset by decreased costs
associated with the fulfillment and support for the NBC Experience Store in New
York City and direct-to-consumer products sold on NBC's website following the
Winter Olympics in the first quarter of fiscal 2002. Distribution and selling
expense increased as a percentage of net sales over the prior year primarily as
a result of the Company's fixed cable access fee expense base growing at a
faster rate than the related incremental increase in television home shopping
and Internet sales, which is to be expected from the increased subscriber
carriage over the prior year.
General and administrative expense for the three months ended April 30,
2003 increased $1,237,000 or 30% to $5,398,000 or 4% of net sales compared to
$4,161,000 or 3% of net sales for the three months ended April 30, 2002. General
and administrative expense increased over prior year as a result of increased
consulting fees associated with the Company's systems conversion effort, the
establishment of a $451,000 reserve for a pending litigation settlement and the
write-off of approximately $500,000 of legal fees incurred in connection with a
discontinued business development initiative. These increases were offset by a
decrease in accrued bonuses and a decrease in rent expense which resulted from
the termination of the Company's long-term property lease following the
Company's acquisition of the leased property in the first quarter of fiscal
2003.
Depreciation and amortization expense for the three months ended April
30, 2003 was $4,253,000 versus $3,321,000, representing an increase of $932,000
or 28% from the comparable prior-year period. Depreciation and amortization
expense as a percentage of net sales for the three months ended April 30, 2003
and 2002 were 3% and 2% respectively. The dollar increase is primarily due to
increased depreciation and amortization as a result of assets placed in service
in connection with the Company's ERP systems conversion and implementation
offset by decreased depreciation associated with VVIFC fixed assets which were
written down in the fourth quarter of fiscal 2002 following the Company's
restructuring of its customer care and fulfillment services agreement with RLM.
OPERATING INCOME
For the three months ended April 30, 2003, the Company reported
operating income of $178,000 compared to operating income of $1,985,000 for the
three months ended April 30, 2002, a decrease of $1,807,000. Operating income
decreased for the three months ended April 30, 2003 from prior year primarily as
a result of the Company's decrease in gross margins, as described above under
"Gross Profits." Also contributing to the decrease in operating income were
increases in distribution and selling expenses, particularly net cable access
fees for which the expense of adding approximately 7.4 million new FTE homes
since April 2002 is being incurred but the future revenue benefit and
productivity of these additional homes is yet to be fully realized, increased
general and administrative expenses recorded in connection with pending
litigation and the write off of a discontinued business development initiative
and increases in depreciation and amortization as a result of assets placed in
service in connection with the Company's ERP systems conversion and
implementation. These expense increases were somewhat offset by the increase in
net sales and gross profits reported by the Company's television home shopping
and other businesses and the recording of a $4,417,000 pre-tax gain following
the sale of ten low power television stations in the first quarter.
NET INCOME
For the three months ended April 30, 2003, the Company reported net
income available to common shareholders of $461,000 or $.01 per share on
42,501,000 diluted weighted average common shares outstanding ($.01 per share on
35,981,000 basic shares) compared with net income available to common
shareholders of $539,000 or $.01 per share on 46,559,000 diluted weighted
average common shares outstanding ($.01 per share on 38,153,000 basic shares)
for the quarter ended April 30, 2002, a decrease of $78,000. Net income
available to common shareholders for the quarter ended April 30, 2003 includes
interest income totaling $354,000 earned on the Company's cash and short-term
investments. Net income available to common shareholders for the quarter ended
April 30, 2002 includes a net pre-tax loss of $985,000 related to the write-down
of an investment made in 1997 whose decline in fair value was determined to be
other than temporary and a net pre-tax unrealized gain of $1,015,000 recorded
resulting primarily from market price
16
increases on the holdings of the Company's warrant investments. For the quarter
ended April 30, 2002, net income available to common shareholders also included
a pre-tax loss of $2,098,000 related to the Company's equity interest in RLM and
interest income totaling $1,035,000 earned on the Company's cash and short-term
investments. The Company has not recorded a tax provision in the quarter ended
April 30, 2003 as such provision is offset fully by the reversal of the income
tax valuation allowance recorded in fiscal 2002 that was applied against capital
loss carryforwards that can now be utilized. The Company's effective tax rate
for the quarter ended April 30, 2002 was 36%.
PROGRAM DISTRIBUTION
The Company's television home-shopping programming was available to
approximately 58.6 million homes as of April 30, 2003, as compared to 55.1
million homes as of January 31, 2003 and to 53.0 million homes as of April 30,
2002. The Company's programming is currently available through affiliation and
time-block purchase agreements with approximately 972 cable or satellite
systems. Beginning in April 2003, the Company's programming was also made
available full-time to homes in the Boston, Massachusetts market via a
full-power television broadcast station that a subsidiary of the Company
acquired. As of April 30, 2003 and 2002, the Company's programming was available
to approximately 52.6 million and 45.2 million FTE households, respectively. As
of January 31, 2003, the Company's programming was available to 50.1 million FTE
households. Approximately 45.8 million and 37.7 million households at April 30,
2003 and 2002, respectively, received the Company's programming on a full-time
basis. Homes that receive the Company's television home shopping programming 24
hours per day are counted as one FTE each and homes that receive the Company's
programming for any period less than 24 hours are counted based upon an analysis
of time of day and day of week. The Company's television home shopping
programming is also simulcast live 24 hours a day, 7 days a week through its
Internet shopping website (www.shopnbc.com) which is not included in total FTE
households.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
A discussion of the critical accounting policies related to accounting
estimates and assumptions is contained in the Company's 2002 Annual Report on
Form 10-K.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2003, cash and cash equivalents and short-term
investments were $138,065,000, compared to $168,634,000 as of January 31, 2003,
a $30,569,000 decrease primarily related to the Company's acquisition of
television station WWDP TV-46 in Boston, Massachusetts. For the three months
ended April 30, 2003, working capital decreased $47,769,000 to $178,797,000. The
current ratio was 3.1 at April 30, 2003 compared to 3.6 at January 31, 2003. At
April 30, 2003, short-term investments and cash equivalents were invested
primarily in money market funds, high quality commercial paper with original
maturity dates of less than 270 days and investment grade corporate and
municipal bonds and other tax advantaged certificates with tender option terms
ranging from one month to one year. The Company's principal source of liquidity
is its cash, cash equivalents and short-term investments as well as its
operating cash flows. Although management believes the Company's short-term
investment policy is very conservative in nature, certain short-term investments
in commercial paper can be exposed to the credit risk of the underlying
companies to which they relate. The average maturity of the Company's investment
portfolio ranges from 30 to 60 days.
Total assets at April 30, 2003 were $399,849,000, compared to
$406,274,000 at January 31, 2003, a $6,425,000 decrease. Shareholders' equity
was $269,544,000 at April 30, 2003, compared to $274,646,000 at January 31,
2003, a $5,102,000 decrease. The decrease in shareholders' equity for the
three-month period ended April 30, 2003 resulted primarily from the repurchase
of 567,000 common shares totaling $6,195,000 under the Company's authorized
stock repurchase plan, $17,000 relating to accrued interest on a note receivable
from an officer and accretion on redeemable preferred stock of $71,000. These
decreases were offset by increases in shareholders' equity of $241,000 from
proceeds received related to the exercise of stock options, the recording of net
income of $532,000, unrealized gains on investments classified as
"available-for-sale" totaling $284,000 and vesting of deferred compensation of
$124,000.
For the three-month period ended April 30, 2003, net cash provided by
operating activities totaled $18,063,000 compared to net cash provided by
operating activities of $16,107,000 for the three-month period ended April 30,
2002, a $1,956,000 increase. Net cash provided by operating activities for the
three-month periods ended April 30, 2003 and 2002 reflects net income, as
adjusted for depreciation and amortization, common stock issued to employees,
vesting of deferred compensation, gain on sale of television stations,
write-down of investments, unrealized gains on security holdings, equity in
losses of affiliates and losses on the sale and conversion of investments. In
addition, net cash provided by operating activities for the three months ended
April 30, 2003 reflects a decrease in accounts receivable, inventories and
prepaid expenses, offset by decreases in accounts payable and accrued
liabilities and
17
income taxes payable. Accounts receivable decreased primarily due to the first
quarter receipt of $11.0 million from RLM resulting from VVIFC's agreement to
amend the RLM customer care and fulfillment services agreement in fiscal 2002.
Receivables also decreased as a result of decreases in sales made utilizing
extended payment terms and the timing of customer collections made pursuant to
the "ValuePay" installment program. Inventories decreased from year-end as a
result of management efforts to reduce inventory levels and the timing of
merchandise receipts. Although the Company believes it will be able to reduce
current inventory quantities to more normal historic levels, there remains the
risk of inventory obsolescence and/or markdowns should this prove unsuccessful.
Prepaid expenses decreased primarily as a result of the timing of long-term
cable access fee payments, decreases in prepaid insurance and deferred
acquisition costs, offset by an increase in prepaid payroll taxes. The decrease
in accounts payable and accrued liabilities is a result of the decrease in
inventory levels and the timing of cable and satellite affiliation vendor
payments.
Net cash provided by investing activities totaled $7,881,000 for the
three months ended April 30, 2003 compared to net cash used for investing
activities of $37,465,000 for the three months ended April 30, 2002. For the
three months ended April 30, 2003 and 2002, expenditures for property and
equipment were $13,863,000 and $2,509,000, respectively. Expenditures for
property for the three months ended April 30, 2003 included the Company's
$11,300,000 property and commercial building purchase in February 2003 where the
Company maintains its corporate administrative, television production and
jewelry distribution operations. Included as part of the acquisition, was a
second commercial building, which the Company leases out to third parties. Other
expenditures for property and equipment during the periods ended April 30, 2003
and 2002 primarily include capital expenditures made for the upgrade,
stabilization and replacement of computer software and front-end ERP and
merchandising systems, related computer equipment, digital broadcasting
equipment and other office equipment, warehouse equipment, production equipment
and expenditures on leasehold improvements. Principal future capital
expenditures include the upgrade, stabilization and replacement of computer
software and front-end merchandising systems, the upgrade and digitalization of
television production and transmission equipment and related computer equipment
associated with the expansion of the Company's home shopping business and
e-commerce initiatives. In the first three months of fiscal 2003, the Company
invested $28,316,000 in various short-term investments, received proceeds of
$78,526,000 from the sale of short-term investments and received proceeds of
$5,000,000 in connection with the sale of ten low power television stations.
Also during the first quarter of fiscal 2003, the Company invested $33,466,000,
net of cash acquired, in connection with the acquisition of television station
WWDP TV-46 in Boston, Massachusetts. In the first three months of fiscal 2002,
the Company invested $58,076,000 in various short-term investments, received
proceeds of $36,859,000 from the sale of short-term investments, made
disbursements of $1,434,000 for certain investments and other assets, and
received proceeds of $2,000 from the sale of investments and property. Also
during the first quarter of fiscal 2002, the Company invested $12,307,000, net
of cash acquired, in connection with the acquisition of FanBuzz, Inc.
Net cash used for financing activities totaled $6,304,000 for the three
months ended April 30, 2003 and related primarily to payments made of $6,195,000
in conjunction with the repurchase of 567,000 shares of the Company's common
stock at an average price of approximately $10.90 per share and payments of
long-term capital lease obligations of $346,000, offset by cash proceeds
received of $237,000 from the exercise of stock options. Net cash provided by
financing activities totaled $2,525,000 for the three months ended April 30,
2002 and related primarily to cash proceeds received of $3,064,000 from the
exercise of stock options offset by payments made of $419,000 in conjunction
with the repurchase of 25,000 shares of the Company's common stock at an average
price of $16.76 per share and payments of long-term capital lease obligations of
$120,000.
Management believes that funds currently held by the Company should be
sufficient to fund the Company's operations, anticipated capital expenditures,
strategic investments and cable launch fees through at least the next twelve
months. A discussion of the nature and amount of future cash commitments is
contained in the Company's 2002 Annual Report on Form 10-K.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Information contained in this Form 10-Q and in other materials filed by
the Company with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company) contain certain "forward-looking statements" within the meaning of
federal securities laws which represent management's expectations or beliefs
concerning future events. These statements are based on management's 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): changes in consumer spending habits and debt levels; changes in interest
rates; seasonal variations in consumer purchasing activities; competitive
pressures on sales; changes in pricing and gross profit margins; changes in the
level of cable and satellite distribution for the Company's programming and fees
associated therewith; the success of the Company's strategic alliances and
relationships; the ability of the Company to manage its operating expenses
successfully; risks associated with acquisitions; changes in governmental or
regulatory requirements; litigation or governmental proceedings involving or
18
otherwise affecting the Company's operations; and the ability of the Company to
obtain and retain key executives and employees. Investors are cautioned that all
forward-looking statements involve risk and uncertainty and the Company is under
no obligation (and expressly disclaims any such obligation) to update or alter
its forward-looking statements whether as a result of new information, future
events or otherwise.
In addition to any specific risks and uncertainties discussed in this
Form 10-Q, the risks and uncertainties discussed in detail in the Company's Form
10-K for the fiscal year ended January 31, 2003, specifically under the captions
entitled "Risk Factors" and "Critical Accounting Policies and Estimates,"
provide information which should be considered in evaluating any of the
Company's forward-looking statements. In addition, the facts and circumstances
that exist when any forward-looking statements are made and on which those
forward-looking statements are based may significantly change in the future,
thereby rendering obsolete the forward-looking statements on which such facts
and circumstances were based.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into financial instruments for trading or
speculative purposes and does not currently utilize derivative financial
instruments as a hedge to offset market risk. The Company has 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. As of April 30, 2003, the Company no longer has investments in
the form of common stock purchase warrants. The operations of the Company are
conducted primarily in the United States and as such are not subject to foreign
currency exchange rate risk. However, some of the Company's products are sourced
internationally and may fluctuate in cost as a result of foreign currency
swings. The Company has no long-term debt other than fixed capital lease
obligations, and accordingly, is not significantly exposed to interest rate
risk, although changes in market interest rates do impact the level of interest
income earned on the Company's substantial cash and short-term investment
portfolio.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
The Company's Chief Executive Officer, Gene McCaffery, and Chief
Financial Officer, Richard D. Barnes, have reviewed the Company's disclosure
controls and procedures within 90 days prior to the filing of this report. Based
upon this review, these officers believe that the Company's disclosure controls
and procedures are effective in ensuring that material information related to
the Company is made known to them by others within the Company.
(b) Changes in Internal Controls.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
19
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Employment Agreement dated November 6, 2002
between the Registrant and Liz Haesler +
10.2 Separation Agreement dated April 14, 2003
between the Registrant and Steven Goldsmith
+
10.3 Limited Liability Company Interest Purchase
Agreement dated December 31, 2002 by and
among Norwell Television, LLC, the Members
of Norwell Television, LLC named therein and
the Registrant.
99.1 Certification Pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- Chief Executive Officer
99.2 Certification Pursuant to 18 U.S.C. 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
- Chief Financial Officer
+ Management compensatory plan/arrangement.
(b) Reports on Form 8-K
(i) The Registrant filed a Current Report on Form 8-K on March 20,
2003 reporting under Item 5, that the Registrant intends to
commence repurchases of its common stock on March 20, 2003
under previously authorized share buyback programs.
(ii) The Registrant filed a Current Report on Form 8-K on March 24,
2003 reporting under Item 5, that the Registrant issued a
press release dated March 17, 2003 disclosing its fourth
quarter and annual fiscal 2002 earnings.
(iii) The Registrant filed a Current Report on Form 8-K on May 23,
2003 reporting under Item 5, that the Registrant issued a
press release dated May 20, 2003 disclosing its first quarter
fiscal 2003 earnings.
(iv) The Registrant filed a Current Report on Form 8-K on May 23,
2003 reporting under Item 5, that the Registrant issued a
press release dated May 20, 2003 disclosing that the
Registrant's Chairman and Chief Executive Officer will be part
of a transition process to determine a successor as Chief
Executive Officer.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
/s/ Gene McCaffery
--------------------------------------------------
Gene McCaffery
Chairman of the Board, Chief Executive
Officer and President (Principal Executive Officer)
/s/ Richard D. Barnes
--------------------------------------------
Richard D. Barnes
Executive Vice President, Chief Financial
Officer and Chief Operating Officer
(Principal Financial and Accounting Officer)
June 16, 2003
21
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Gene McCaffery, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ValueVision Media,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a -14 and 15d -14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Gene McCaffery
-------------------------------
Gene McCaffery
Chairman of the Board, Chief
Executive Officer and President
June 16, 2003
22
CERTIFICATION PURSUANT TO
18 U.S.C. 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard D. Barnes, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ValueVision Media,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a -14 and 15d -14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Richard D. Barnes
-----------------------------------------
Richard D. Barnes
Executive Vice President, Chief Financial
Officer, Chief Operating Officer
June 16, 2003
23