UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996
Commission File Number 0-20243
VALUEVISION INTERNATIONAL, 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)
612-947-5200
(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 ____
As of September 12, 1996, there were 29,888,298 shares of the Registrant's
Common Stock, $.01 par value, outstanding.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
JULY 31, 1996
PART I: FINANCIAL INFORMATION Page of
Form 10-Q
Item 1. Financial Statements
* Condensed Consolidated Balance Sheets as of July 31, 1996 and 3
January 31, 1996
* Condensed Consolidated Statements of Operations for the Three 4
and Six Months Ended July 31, 1996 and 1995
* Condensed Consolidated Statement of Shareholders' Equity for 5
the Six Months Ended July 31, 1996
* Condensed Consolidated Statements of Cash Flows for the Six 6
Months Ended July 31, 1996 and 1995
* Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 9
Results of Operations
PART II: OTHER INFORMATION 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Part I. Financial Information
Item 1. Financial Statements
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
JULY 31, JANUARY 31,
1996 1996
-------------- -------------
CURRENT ASSETS:
Cash and cash equivalents $ 26,372,637 $ 20,063,901
Short-term investments 48,036,705 26,387,426
Accounts receivable, net 8,234,328 5,130,502
Inventories 10,326,167 8,889,426
Prepaid expenses and other 4,505,336 4,882,453
Deferred taxes 250,000 250,000
------------- -------------
Total current assets 97,725,173 65,603,708
PROPERTY AND EQUIPMENT, NET 12,011,779 13,813,347
FEDERAL COMMUNICATIONS COMMISSION LICENSES, NET 7,083,808 9,312,437
MONTGOMERY WARD OPERATING AGREEMENT AND LICENSES, NET 15,712,553 16,621,255
INVESTMENTS AND OTHER ASSETS, NET 11,234,288 11,918,470
------------- -------------
$ 143,767,601 $ 117,269,217
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 200,00 $ 200,000
Accounts payable 12,141,425 8,770,685
Accrued liabilities 5,225,688 4,197,963
Income taxes payable 4,766,117 350,000
------------- -------------
Total current liabilities 22,333,230 13,518,648
LONG-TERM OBLIGATIONS 305,745 447,430
------------- -------------
Total liabilities 22,638,975 13,966,078
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized;
29,888,298 and 29,343,748 shares issued and outstanding 298,883 293,437
Montgomery Ward common stock purchase warrants;
26,295,349 and 25,770,461 17,500,000 17,500,000
Additional paid-in capital 88,332,038 87,189,939
Net unrealized holding loss on investments available-for-sale (105,682) (184,770)
Retained earnings (deficit) 15,103,387 (1,495,467)
------------- -------------
Total shareholders' equity 121,128,626 103,303,139
------------- -------------
$ 143,767,601 $ 117,269,217
============= =============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JULY 31, JULY 31,
-------------------------------- --------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
NET SALES $ 24,340,754 $ 20,467,094 $ 47,128,421 $ 39,726,033
COST OF SALES 14,612,379 12,043,973 28,011,710 23,323,676
------------ ------------ ------------ ------------
Gross profit 9,728,375 8,423,121 19,116,711 16,402,357
------------ ------------ ------------ ------------
Margin 40.0% 41.2% 40.6% 41.3%
OPERATING EXPENSES:
Distribution and selling 7,690,723 7,204,705 15,094,677 13,493,457
General and administrative 1,460,663 1,231,532 2,769,169 2,155,976
Depreciation and amortization 1,371,673 963,274 2,730,390 1,877,272
------------ ------------ ------------ ------------
Total operating expenses 10,523,059 9,399,511 20,594,236 17,526,705
------------ ------------ ------------ ------------
OPERATING LOSS (794,684) (976,390) (1,477,525) (1,124,348)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Gain on sale of broadcast stations -- -- 27,050,000 --
Litigation costs -- (17,000) -- (68,000)
Equity in (losses) earnings of affiliates (95,124) -- (95,124) --
Interest income 1,085,670 441,138 2,158,057 877,704
Other, net 45,582 (19,191) 9,446 (39,057)
------------ ------------ ------------ ------------
Total other income 1,036,128 404,947 29,122,379 770,647
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 241,444 (571,443) 27,644,854 (353,701)
INCOME TAX PROVISION 96,000 -- 11,046,000 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 145,444 $ (571,443) $ 16,598,854 $ (353,701)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON AND
DILUTIVE COMMON EQUIVALENT SHARE $ 0.00 $ (0.02) $ 0.55 $ (0.01)
============ ============ ============ ============
Weighted average number of common shares
and common equivalent shares outstanding 29,576,724 28,001,426 29,996,576 27,996,730
============ ============ ============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 31, 1996
NET
MONTGOMERY UNREALIZED
WARD HOLDING
COMMON STOCK COMMON GAIN (LOSS)
--------------------- STOCK ADDITIONAL ON INVESTMENTS RETAINED TOTAL
NUMBER PAR PURCHASE PAID-IN AVAILABLE- EARNINGS SHAREHOLDERS'
OF SHARES VALUE WARRANTS CAPITAL FOR-SALE (DEFICIT) EQUITY
---------- --------- ----------- ----------- -------------- ----------- ------------
BALANCE, JANUARY 31, 1996 29,343,748 $ 293,437 $17,500,000 $87,189,939 $ (184,770) $(1,495,467) $103,303,139
Exercise of stock options and
warrants 544,550 5,446 -- 1,142,099 -- -- 1,147,545
Unrealized holding gain on
investments available-for-sale -- -- -- -- 79,088 -- 79,088
Net income -- -- -- -- -- 16,598,854 16,598,854
---------- --------- ----------- ----------- ---------- ----------- ------------
BALANCE, JULY 31, 1996 29,888,298 $ 298,883 $17,500,000 $88,332,038 $ (105,682) $15,103,387 $121,128,626
========== ========= =========== =========== ========== =========== ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE SIX MONTHS ENDED JULY 31,
---------------------------------
1996 1995
------------- -------------
OPERATING ACTIVITIES:
Net income (loss) $ 16,598,854 $ (353,701)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities-
Depreciation and amortization 2,730,390 1,877,272
Gain on sale of broadcast stations (27,050,000) --
Changes in operating assets and liabilities:
Accounts receivable, net (3,103,826) (198,498)
Inventories (1,436,741) 811,609
Prepaid expenses and other 304,091 (1,367,068)
Accounts payable and accrued liabilities 4,267,757 882,328
Income taxes payable 4,416,117 --
------------ ------------
Net cash provided by (used for) operating activities (3,273,358) 1,651,942
------------ ------------
INVESTING ACTIVITIES:
Property and equipment additions, net of retirements (2,724,410) (893,870)
Purchase of broadcast station, including acquisition costs (4,618,743) --
Proceeds from sale of broadcast stations 40,000,000 --
Purchase of short-term investments (60,660,703) (21,785,781)
Proceeds from sale of short-term investments 39,011,424 6,108,042
Payment for investments and other assets (2,141,355) (255,954)
Advance on financing agreement -- (450,000)
Payments of cable launch fees (571,175) --
Proceeds from escrow deposits and claims 281,196 200,000
------------ ------------
Net cash provided by (used for) investing activities 8,576,234 (17,077,563)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 1,147,545 37,969
Payment of offering costs -- (370,361)
Payment of long-term obligations (141,685) (130,500)
------------ ------------
Net cash provided by (used for) financing activities 1,005,860 (462,892)
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,308,736 (15,888,513)
BEGINNING CASH AND CASH EQUIVALENTS 20,063,901 21,655,954
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 26,372,637 $ 5,767,441
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 58,315 $ 69,500
============ ============
Income taxes paid $ 6,638,000 $ --
============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1996
(UNAUDITED)
(1) GENERAL
ValueVision International, Inc. ("the Company") is a television home
shopping network which uses recognized on-air television home shopping
personalities to market brand name merchandise and proprietary and private label
consumer products at competitive or discount prices. The Company's 24-hour per
day television home shopping programming is distributed primarily through
long-term cable 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 Company owned or
affiliated full-power Ultra-High Frequency (UHF) broadcast television stations,
low-power television (LPTV) stations and to satellite dish owners.
(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 have been condensed or omitted pursuant to such
rules and regulations. The information furnished in the interim condensed
consolidated financial statements includes normal recurring adjustments 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 to make the information
not misleading, 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 1996
Annual Report on Form 10-K. Operating results for the six month period ended
July 31, 1996, are not necessarily indicative of the results that may be
expected for the fiscal year ending January 31, 1997.
Certain amounts in the fiscal 1996 financial statements have been
reclassified to conform to the fiscal 1997 presentation with no impact on
previously reported net income (loss) or shareholders' equity.
(3) NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share based on the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding, if any, during the period. The difference between primary and fully
diluted net income (loss) per share and weighted average number of shares
outstanding was not material or was antidilutive, and therefore not presented
separately.
(4) MONTGOMERY WARD
On June 7, 1996, the Company signed a non-binding Memorandum of
Understanding with Montgomery Ward & Co., Incorporated ("Montgomery Ward"),
pursuant to which the companies agreed to the expansion and restructuring of
their ongoing operating and license agreements as well as the Company's
acquisition of Montgomery Ward Direct, a four year old catalog business.
Effective July 27, 1996 the companies reached definitive agreements and closing
is subject to receipt of government approval and the delivery of a Disclosure
Schedule which does not contain any exceptions to the representations and
warranties set forth in the Agreement. Pursuant to the provisions of the
agreements, the Company's sales promotion rights will be expanded beyond
television home shopping to include the full use of the service mark of
Montgomery Ward for direct mail catalogs and ancillary promotions. In addition,
the strategic alliance between the companies will be restructured and amended
such that (i) 18,000,000 unvested warrants held by Montgomery Ward will be
terminated, (ii) the Company will acquire substantially all of the assets and
assume certain obligations of Montgomery Ward Direct, (iii) Montgomery Ward will
commit to providing $20.0 million in supplemental advertising support, (iv) the
Montgomery Ward operating and licenses agreements will be amended and expanded,
as defined in the agreements, and be extended to July 31, 2008 and (v) the
Company will issue to Montgomery Ward new warrants to purchase approximately 3.0
million shares of the Company's common stock at an exercise price of $.01 per
share.
(5) INCOME TAXES
As of January 31, 1996, the Company had net operating loss
carryforwards of approximately $1.8 million for income tax reporting purposes.
The carryforwards were fully realized during the six month period ended July 31,
1996 as an offset to taxable income.
Item 2.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
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
thereto included elsewhere herein and the audited consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1996.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
DOLLAR AMOUNTS AS A DOLLAR AMOUNTS AS A
PERCENTAGE OF NET SALES PERCENTAGE OF NET SALES
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
----------------------- -----------------------
1996 1995 1996 1995
----- ----- ----- -----
NET SALES 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
GROSS MARGIN 40.0% 41.2% 40.6% 41.3%
----- ----- ----- -----
Operating Expenses:
Distribution and selling 31.6% 35.2% 32.0% 34.0%
General and administrative 6.0% 6.0% 5.9% 5.4%
Depreciation and Amortization 5.6% 4.7% 5.8% 4.7%
----- ----- ----- -----
43.2% 45.9% 43.7% 44.1%
----- ----- ----- -----
Operating Loss (3.3%) (4.8%) (3.1%) (2.8%)
===== ===== ===== =====
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
PROGRAM DISTRIBUTION
The Company's programming was available to approximately 13.5 million
cable homes as of July 31, 1996, as compared to 13.6 million cable homes as of
January 31, 1996 and to 12.6 million cable homes as of July 31, 1995. The
Company's programming is currently available through affiliation and time-block
purchase agreements with approximately 250 cable systems and three wholly owned
full- power television broadcast stations. In addition, the Company's
programming is broadcast full-time over nine owned or affiliated low-power
television stations in major markets, and is available unscrambled to homes
equipped with satellite dishes. As of July 31, 1996 and 1995, the Company's
programming was available to approximately 10.8 million and 9.4 million
full-time equivalent cable homes ("FTE"), respectively, an approximate 14%
increase. As of January 31, 1996, the Company's programming was available to
10.5 million FTE cable homes. Approximately 7.6 million and 6.0 million cable
homes at July 31, 1996 and 1995, 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.
NET SALES
Net sales for the three months ended July 31, 1996 (fiscal 1997), were
$24,341,000 compared with net sales of $20,467,000 for the three months ended
July 31, 1995 (fiscal 1996), an 18.9% increase. The increase in net sales is
primarily attributed to the increase in full-time equivalent cable homes able to
receive the Company's programming, which increased approximately 1.4 million or
14.2% from 9.4 million at July 31, 1995 to 10.8 million at July 31, 1996. During
the 12-month period ended July 31, 1996 the Company added approximately 1.6
million full time cable homes. In addition to new homes, sales increased due to
the continued addition of new customers from households already receiving the
Company's television home shopping programming, offset by a slight decline in
repeat sales to existing customers. The slight decline in repeat sales to
existing customers experienced during the first six months of fiscal 1997 was
due, in part, to the effects of continued testing of certain merchandising and
programming strategies during the first quarter of fiscal 1997. Certain changes
were made to the Company's merchandising and programming strategies in the
latter part of the first quarter and during the second quarter, which
contributed to an improvement in sales. The Company intends to continue to test
and change its merchandising and programming strategies with the intent of
improving sales results. However, while the Company is optimistic that results
will continue to improve, there can be no assurance that such changes in
strategy will achieve intended results. As a result of the increased number of
households able to receive the Company's programming, as well as seasonality
factors, the Company anticipates net sales and operating expenses will continue
to increase for the balance of fiscal 1997.
GROSS MARGINS
Gross profit margins for the three and six months ended July 31, 1996
were 40.0% and 40.6%, respectively, compared with 41.2% and 41.3% for the same
periods last year. The gross margins between comparable periods declined
slightly, primarily as a result of increased sales in the second quarter of
traditionally lower margin electronic merchandising categories, such as
computers. The slight decline in gross margins was partially offset by an
increase in gross margin percentages in the jewelry and giftware product
categories, a greater proportion of higher margin non-jewelry products, such as
housewares and seasonal products, offset by a decline in volume of higher margin
jewelry products. During the first six months of fiscal 1997 the Company
continued to broaden its merchandise mix as compared to the same period last
year by expanding the range and quantity of non-jewelry items. As part of the
ongoing shift in merchandise mix, the Company continued to devote program air
time to non-jewelry merchandise. Jewelry products accounted for approximately
70% of air time during the first six months of fiscal 1997, compared with 71%
for the same period last year.
OPERATING EXPENSES
Total operating expenses for the three and six months ended July 31, 1996
were $10,523,000 and $20,594,000, respectively, versus $9,400,000 and
$17,527,000 for the comparable prior-year periods. Distribution and selling
expenses increased $486,000 or 6.7% and $1,601,000 or 11.9% for the three and
six months ended July 31, 1996 over the comparable prior-year periods.
Distribution and selling expenses as a percentage of net sales for the three and
six months ended July 31, 1996 were 31.6% and 32.0%, respectively, versus 35.2%
and 34.0% for the comparable prior-year periods. Distribution and selling costs
increased primarily due to increases in cable access fees resulting from the
growth in the number of cable homes receiving the company's programming,
additional personnel costs associated with increased staffing levels and
additional costs associated with handling increased sales volume. Distribution
and selling expenses declined as a percentage of net sales as the company
continued to leverage its existing operating infrastructure.
General and administrative expenses increased $229,000 or 18.6% and
$613,000 or 28.4% for the second quarter and the six month periods ended July
31, 1996 over the comparable prior-year periods. General and administrative
expenses as a percentage of net sales for the three and six months ended July
31, 1996 were 6.0% and 5.9%, respectively, versus 6.0% and 5.4% for the
comparable prior-year periods. General and administrative costs rose as a result
of increased personnel in support of expanded operations, increased costs
associated with operating broadcast television station WAKC-TV, Akron, Ohio,
prior to its sale, as compared to the same period last year and additional legal
costs incurred relative to clarification of certain cable regulations.
Depreciation and amortization costs for the three and six months ended
July 31, 1996 were $1,372,000 and $2,730,000 versus $963,000 and $1,877,000 for
the comparable prior-year periods. Depreciation and amortization costs increased
$408,000 or 42.4% and $853,000 or 45.4% for the second quarter and the six month
period ended July 31, 1996 over the comparable prior-year periods. Depreciation
and amortization costs as a percentage of net sales for the three and six months
ended July 31, 1996 were 5.6% and 5.8%, respectively, versus 4.7% for the
comparable prior-year periods. The increase in depreciation and amortization is
primarily due to amortization of approximately $900,000 due to the Montgomery
Ward operating agreement and licenses entered into in August 1995 and
amortization of prepaid cable launch fees offset by a reduction associated with
the sale of WAKC and WHAI in February 1996.
OPERATING LOSS
The operating loss was $795,000 and $976,000 for the three months ended
July 31, 1996 and 1995, respectively, and $1,478,000 and $1,124,000 for the six
months ended July 31, 1996 and 1995, respectively. The decrease in operating
loss for the three months ended July 31, 1996 resulted primarily from increased
sales volumes and a corresponding increase in gross profits offset by a rise in
distribution and selling costs due to expanded operations and the Company
continuing to leverage its operating infrastructure. The increase in the
operating loss for the six months ended July 31, 1996 resulted primarily from a
rise in general and administrative and depreciation and amortization expenses as
a result of expanded operations.
NET INCOME (LOSS)
For the three months ended July 31, 1996, net income was $145,000
(break-even on a per share basis on 29,577,000 weighted average shares
outstanding) compared with a net loss of $571,000, or $.02 per share on
28,001,000 weighted average shares outstanding for the second quarter of the
previous fiscal year.
For the six months ended July 31, 1996, net income was $16,599,000 or
$0.55 per share on 29,997,000 weighted average common and common-equivalent
shares outstanding compared with a net loss of $354,000, or $.01 per share on
27,997,000 weighted average shares outstanding for the prior-year period.
Results for the first quarter of fiscal 1997 included a gain of $27,050,000 from
the sale of television stations WAKC and WHAI in February 1996. For the six
months ended July 31, 1996, excluding the gain on the sale of the two television
stations, the Company had net income of $369,000, or $.01 per share. Net income
also reflects an income tax provision of $11,046,000, which results in an
effective tax rate of 40%.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of July 31, 1996, cash and cash equivalents and short-term investments
were $74,409,000, compared to $46,451,000 as of January 31, 1996, a $27,958,000
increase. For the six months ended July 31, 1996, working capital increased
$23,307,000 to $75,392,000. The current ratio was 4.4 at July 31, 1996 compared
to 4.9 at January 31, 1996. At July 31, 1996 all short-term investments and cash
equivalents were invested in debt securities with original maturity dates of
less than two hundred and seventy (270) days.
Total assets at July 31, 1996 were $143,768,000, compared to $117,269,000
at January 31, 1996. Shareholders' equity was $121,129,000 at July 31, 1996,
compared to $103,303,000 at January 31, 1996, a $17,826,000 increase. The
increase in shareholders' equity resulted from net income of $16,599,000 for the
six month period ended July 31, 1996, proceeds received on the exercise of stock
options and warrants of $1,148,000 and an unrealized holding gain on investments
available-for-sale.
For the six month period ended July 31, 1996 net cash used by operating
activities totaled $3,273,000 compared to net cash provided by operating
activities of $1,652,000 for the six-month period ended July 31, 1995. Cash
flows provided by operations before consideration of changes in working capital
items and investing and financing activities was $1,253,000 for the six months
ended July 31, 1996, compared to $753,000 for the same prior-year period. Net
cash used by operating activities for the six months ended July 31, 1996
reflects net income, as adjusted for depreciation and amortization and gain on
sale of broadcast stations, increased accounts payable and accrued liabilities,
offset by funding required to support higher levels of accounts receivable and
inventory. Accounts receivable primarily increased due to timing relative to
receipt of funds from credit card companies, increased sales volume and
increased receivables due from customers for merchandise sales made pursuant to
the "Value Pay" installment pay program. Inventories increased from year end to
support increased sales volume and changes in merchandise mix.
Net cash provided by investing activities totaled $8,576,000 for the six
months ended July 31, 1996 compared to net cash used of $17,078,000 for the same
period of fiscal 1996. For the six months ended July 31, 1996 and 1995,
expenditures for property and equipment were $2,724,000 and $894,000,
respectively. Expenditures for property and equipment during the periods ended
July 31, 1996 and 1995 include (i) the upgrade of broadcast station and
production equipment, studios and transmission equipment and (ii) the upgrade of
computer software and related equipment. Principal future capital expenditures
will be for upgrading television production and transmission equipment, studio
expansions and order fulfillment equipment in support of expanded operations.
During the first quarter of fiscal 1997, the Company received $40.0 million in
proceeds from the sale of two television stations; Akron ABC affiliate WAKC-TV
and independent station WHAI-TV. In addition, during the quarter ended April 30,
1996, the Company paid approximately $3.8 million toward the acquisition of
independent television station KBGE (TV), including acquisition related costs
and paid $800,000 at the second closing relative to broadcast station WVVI (TV).
Net cash provided by financing activities totaled $1,006,000 for the six
months ended July 31, 1996 which is primarily related to proceeds received from
the exercise of stock options and warrants partially offset by an installment
payment made under a five year noncompete obligation entered into upon the
acquisition of a broadcast television. Net cash used for financing activities
totaled $463,000 for the six months ended July 31, 1995, which is related to the
payment of offering costs associated with the Montgomery Ward initial investment
and the payment of the first installment due under the five year noncompete
obligation entered into upon the acquisition of WAKC-TV, Akron, Ohio, partially
offset by proceeds received from the exercise of stock options.
Management believes funds currently held by the Company will be
sufficient to fund the Company's operations, Company common stock repurchased,
if any, pursuant to an authorized repurchase plan, and anticipated capital
expenditures and cable launch fees through fiscal 1997. Additional capital may
be required in the event the Company is able to identify television stations in
strategic markets at favorable prices and determines to acquire up to the
maximum of 12 full power television stations it may own under current
regulations.
FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a
"safe-habor" for forward looking statements. Certain information included in
this Form 10-Q and other materials filed or to be 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)
contains statements that are forward looking, such as statements relating to
business development activities, capital spending and the effects of regulation
and competition. There are certain important factors that could cause results to
differ materially from those anticipated by such statements. Investors are
cautioned that all forward looking statements involve risks and uncertainty.
The factors, among others, that could cause actual results to differ materially
include: consumer spending and debt levels, interest rates, continuity of
relationships with or purchase from major vendors, product mix, competitive
pressure on sales and pricing, and increases in cable access fees and other
costs which cannot be recovered through improved pricing.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
Part II. Other Information
Item 5. Other Information
On June 7, 1996, the Company signed a non-binding Memorandum of
Understanding with Montgomery Ward & Co., Incorporated ("Montgomery
Ward"), pursuant to which the companies agreed to the expansion and
restructuring of their ongoing operating and license agreements as
well as the Company's acquisition of Montgomery Ward Direct, a four
year old catalog business. Effective July 27, 1996 the companies
reached definitive agreements and closing is subject to receipt of
government approval and the delivery of a Disclosure Schedule which
does not contain any exceptions to the representations and warranties
set forth in the Agreement. Pursuant to the provisions of the
agreements, the Company's sales promotion rights will be expanded
beyond television home shopping to include the full use of the service
mark of Montgomery Ward for direct mail catalogs and ancillary
promotions. In addition, the strategic alliance between the companies
will be restructured and amended such that (i) 18,000,000 unvested
warrants held by Montgomery Ward will be terminated, (ii) the Company
will acquire substantially all of the assets and assume certain
obligations of Montgomery Ward Direct, (iii) Montgomery Ward will
commit to providing $20.0 million in supplemental advertising support,
(iv) the Montgomery Ward operating and license agreements will be
amended and expanded, as defined in the agreements, and be extended to
July 31, 2008 and (v) the Company will issue to Montgomery Ward new
warrants to purchase approximately 3.0 million shares of the Company's
common stock at an exercise price of $.01 per share.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) Restructuring Agreement made as of July 27, 1996
between Montgomery Ward & Co., Incorporated and
the Company
10(b) Agreement made as of July 27, 1996 between
Merchant Advisors, Limited Partnership, Montgomery
Ward & Co., Incorporated and the Company
11 Computation of Net Income Per Share
(b) Reports on Form 8-K
None
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 INTERNATIONAL, INC.
/s/ Robert L. Johander
-------------------------------------------
Robert L. Johander
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ Stuart R. Romenesko
-------------------------------------------
Stuart R. Romenesko
Senior Vice President Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: September 13, 1996