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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, 2002
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
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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)
ValueVision International, Inc.
-------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 June 10, 2002, there were 38,297,298 shares of the Registrant's common
stock, $.01 par value per share, outstanding.
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VALUEVISION MEDIA, INC. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
APRIL 30, 2002
PAGE OF FORM
10-Q
-------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
- Condensed Consolidated Balance Sheets as of April 30, 2002 3
and January 31, 2002
- Condensed Consolidated Statements of Operations for the 4
Three Months Ended April 30, 2002 and 2001
- Condensed Consolidated Statement of Shareholders' Equity 5
for the Three Months Ended April 30, 2002
- Condensed Consolidated Statements of Cash Flows for the 6
Three Months Ended April 30, 2002 and 2001
- Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 12
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
APRIL 30, JANUARY 31,
2002 2002
---------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 47,311 $ 66,144
Short-term investments 186,939 165,723
Accounts receivable, net 43,343 54,104
Inventories, net 52,132 40,383
Prepaid expenses and other 5,096 5,189
Deferred income taxes 4,943 4,943
--------- --------
Total current assets 339,764 336,486
PROPERTY & EQUIPMENT, NET 39,770 35,972
NBC TRADEMARK LICENSE AGREEMENT, NET 27,561 28,367
CABLE DISTRIBUTION AND MARKETING AGREEMENT, NET 5,823 6,038
GOODWILL 7,442 --
OTHER INTANGIBLE ASSETS, NET 1,899 --
INVESTMENTS AND OTHER ASSETS, NET 46,454 42,827
DEFERRED INCOME TAXES 1,118 --
--------- --------
$ 469,831 $449,690
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 53,657 $ 43,489
Accrued liabilities 22,440 18,564
Income tax payable 452 144
--------- --------
Total current liabilities 76,549 62,197
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,762 395
DEFERRED INCOME TAXES -- 98
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$.01 PER SHARE PAR VALUE, 5,339,500 SHARES AUTHORIZED;
5,339,500 SHARES ISSUED AND OUTSTANDING 42,250 42,180
SHAREHOLDERS' EQUITY:
Common stock, $.01 per share par value, 100,000,000 shares
authorized; 38,261,615 and 38,061,455 shares issued
and outstanding 383 381
Warrants to purchase 8,198,485 shares of common stock 47,466 47,466
Additional paid-in capital 276,156 273,505
Accumulated other comprehensive income (losses) 232 (1,045)
Note receivable from officer (4,025) (4,006)
Retained earnings 29,058 28,519
--------- --------
Total shareholders' equity 349,270 344,820
--------- --------
$ 469,831 $449,690
========= ========
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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,
--------------------------------------
2002 2001
------------ ------------
NET SALES $ 132,849 $ 111,979
COST OF SALES 81,030 69,710
------------ ------------
Gross profit 51,819 42,269
------------ ------------
OPERATING EXPENSES:
Distribution and selling 42,352 33,981
General and administrative 4,161 4,325
Depreciation and amortization 3,321 3,137
------------ ------------
Total operating expenses 49,834 41,443
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OPERATING INCOME 1,985 826
------------ ------------
OTHER INCOME (EXPENSE):
Loss on sale of investments (6) (392)
Unrealized gain (loss) on security holdings 1,021 (215)
Write-down of investments (985) (6,006)
Equity in losses of affiliates (2,098) (1,737)
Interest income 1,035 2,851
------------ ------------
Total other income (expense) (1,033) (5,499)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 952 (4,673)
Income tax provision 343 350
------------ ------------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 609 (5,023)
Cumulative effect of accounting change -- (329)
------------ ------------
NET INCOME (LOSS) 609 (5,352)
Accretion of redeemable preferred stock (70) (70)
------------ ------------
NET INCOME ( LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ 539 $ (5,422)
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Before cumulative effect of accounting change $ 0.01 $ (0.13)
Cumulative effect of accounting change -- (0.01)
------------ ------------
Net income (loss) $ 0.01 $ (0.14)
============ ============
NET INCOME (LOSS) PER COMMON SHARE:
- ASSUMING DILUTION:
Before cumulative effect of accounting
change $ 0.01 $ (0.13)
Cumulative effect of accounting change -- (0.01)
------------ ------------
Net income (loss) $ 0.01 $ (0.14)
============ ============
Weighted average number of common shares outstanding:
Basic 38,153,172 38,525,111
============ ============
Diluted 46,558,647 38,525,111
============ ============
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, 2002
(Unaudited)
(In thousands, except share data)
COMMON STOCK COMMON
-------------------------------------- STOCK
COMPREHENSIVE NUMBER PAR PURCHASE
INCOME OF SHARES VALUE WARRANTS
-------------- ------------------ ------------------ ----------------
BALANCE, JANUARY 31, 2002 38,061,455 $ 381 $ 47,466
Comprehensive income:
Net income $ 609 -- -- --
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of tax of $ 507 824
Losses on securities included in net
income, net of tax of $277 453
-------
Other comprehensive income 1,277 -- -- --
-------
Comprehensive income $ 1,886
=======
Repurchases of common stock (25,000) -- --
Increase in note receivable from officer -- -- --
Exercise of stock options and common stock issuances 225,160 2 --
Accretion on redeemable preferred stock -- -- --
---------- ----- --------
BALANCE, APRIL 30, 2002 38,261,615 $ 383 $ 47,466
========== ===== ========
ACCUMULATED NOTE
ADDITIONAL OTHER RECEIVABLE TOTAL
PAID-IN COMPREHENSIVE FROM RETAINED SHAREHOLDERS'
CAPITAL INCOME (LOSSES) OFFICER EARNINGS EQUITY
------------ --------------- ------------- ------------- ---------
BALANCE, JANUARY 31, 2002 $ 273,505 $(1,045) $(4,006) $ 28,519 $ 344,820
Comprehensive income:
Net income -- -- -- 609 609
Other comprehensive income, net of tax:
Unrealized gains on securities, net
of tax of $ 507
Losses on securities included in net
income, net of tax of $277
Other comprehensive income -- 1,277 -- -- 1,277
Comprehensive income
Repurchases of common stock (419) -- -- -- (419)
Increase in note receivable from officer -- -- (19) -- (19)
Exercise of stock options and common stock issuances 3,070 -- -- -- 3,072
Accretion on redeemable preferred stock -- -- -- (70) (70)
--------- ------- ------- -------- ---------
BALANCE, APRIL 30, 2002 $ 276,156 $ 232 $(4,025) $ 29,058 $ 349,270
========= ======= ======= ======== =========
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,
-------------------------------------------------------
2002 2001
---------------------- ----------------------
OPERATING ACTIVITIES:
Net income (loss) $ 609 $ (5,352)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 3,321 3,137
Common stock issued to employees 8 --
Loss on sale of investments 6 392
Unrealized loss (gain) on security holdings (1,021) 215
Equity in losses of affiliates 2,098 1,737
Write-down of investments 985 6,006
Cumulative effect of accounting change -- 329
Changes in operating assets and liabilities, net
of businesses acquired:
Accounts receivable, net 11,241 3,531
Inventories, net (10,171) 107
Prepaid expenses and other (2,098) 199
Accounts payable and accrued liabilities 10,821 (3,061)
Income taxes payable (receivable) 308 (542)
--------- ----------
Net cash provided by operating activities 16,107 6,698
--------- ---------
INVESTING ACTIVITIES:
Property and equipment additions (2,509) (2,842)
Proceeds from sale of investments and property 2 68
Purchase of short-term investments (58,076) (40,799)
Proceeds from sale of short-term investments 36,859 54,778
Payment for investments and other assets (1,434) (5,484)
Acquisition of FanBuzz, Inc., net of cash acquired (12,307) --
---------- ---------
Net cash provided by (used for) investing activities (37,465) 5,721
---------- ---------
FINANCING ACTIVITIES:
Payments for repurchases of common stock (419) (1,275)
Proceeds from exercise of stock options 3,064 112
Payment of long-term obligation (120) --
---------- ---------
Net cash provided by (used for) financing activities 2,525 (1,163)
--------- ----------
Net increase (decrease) in cash and cash equivalents (18,833) 11,256
BEGINNING CASH AND CASH EQUIVALENTS 66,144 136,045
--------- ---------
ENDING CASH AND CASH EQUIVALENTS $ 47,311 $ 147,301
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 32 $ 11
========= =========
Income taxes paid $ 35 $ 908
========= =========
SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of 343,725 warrants in connection with NBC
Distribution and Marketing Agreement $ -- $ 1,175
========= =========
Accretion of redeemable preferred stock $ 70 $ 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, 2002
(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 Company-owned low
power television ("LPTV") stations. The Company also complements its television
home shopping business by the sale of merchandise through its Internet shopping
website (www.shopnbc.com) which sells a broad array of merchandise and
simulcasts its television home shopping show live 24 hours a day, 7 days a week.
The Company rebranded its growing home shopping network and companion
Internet shopping website as "ShopNBC" and "ShopNBC.com", respectively, in
fiscal 2001 as part of a wide-ranging direct marketing strategy the Company is
pursuing in conjunction with certain of its strategic partners. 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. 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 new ShopNBC name is being promoted as part of a
marketing campaign that the Company launched in the second half of 2001.
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 on a cost plus basis to Ralph Lauren Media, LLC ("RLM").
VVIFC's services agreement was entered into in conjunction with the execution of
the Company's investment and electronic commerce alliance entered into with Polo
Ralph Lauren Corporation, NBC and other NBC affiliates. VVIFC also provides
fulfillment and support services for the NBC Experience Store in New York and
direct to consumer products sold on NBC's website. Through its wholly owned
subsidiary, FanBuzz, Inc., the Company is also 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.
(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 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 2001 Annual Report on Form 10-K. Operating
results for the three-month period ended April 30, 2002 are not necessarily
indicative of the results that may be expected for the fiscal year ending
January 31, 2003.
7
The accompanying consolidated financial statements include the accounts of
ValueVision and its wholly owned subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation. The accompanying
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) NET INCOME (LOSS) PER COMMON SHARE
The Company calculates earnings per share ("EPS") in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). Basic EPS is computed by dividing reported earnings 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,
-------------------------------
2002 2001
------------ ------------
Net income (loss) available to
common shareholders $ 539,000 $ (5,422,000)
============ ============
Weighted average number of common
shares outstanding - Basic 38,153,000 38,525,000
Dilutive effect of convertible preferred
stock 5,340,000 --
Dilutive effect of stock options and
warrants 3,066,000 --
------------ ------------
Weighted average number of common
shares outstanding - Diluted 46,559,000 38,525,000
============ ============
Net income (loss) per common share $ 0.01 $ (0.14)
============ ============
Net income (loss) per common share-
assuming dilution $ 0.01 $ (0.14)
============ ============
In accordance with SFAS No. 128, for the quarter ended April 30, 2001,
approximately 7,292,000 in-the-money dilutive common shares have been excluded
from the computation of diluted earnings per share, as the effect of their
inclusion would be antidilutive.
(4) COMPREHENSIVE INCOME (LOSS)
The Company reports comprehensive income (loss) in accordance with Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting in the
financial statements all changes in equity during a period, except those
resulting from investments by and distributions to owners. For the Company,
comprehensive income (loss) includes net income (loss) and other comprehensive
income (loss), which consists of unrealized holding gains and losses from equity
investments classified as "available-for-sale". Total comprehensive income
(loss) was $1,886,000 and ($5,087,000) for the three months ended April 30, 2002
and 2001, respectively.
(5) 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 current business units are categorized as
electronic media and consist primarily of the Company's television home shopping
business and Internet shopping website business. Management has reviewed the
provisions of SFAS No. 131 and determined that the Company meets the aggregation
criteria
8
as outlined in the Statement since the Company's current business units have
similar customers, products and sales processes. As a result, the Company
reports as a single business segment.
(6) EQUITY INVESTMENTS
As of April 30, 2002, the Company had equity investments totaling
approximately $41,984,000 of which $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, 2002, investments in the
accompanying consolidated balance sheet also include approximately $8,209,000
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 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 to the
Company's investment in RLM, investments at April 30, 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 has committed to provide up to $50 million of
cash for purposes of financing RLM's operating activities of which approximately
$47 million has been funded through April 30, 2002. Currently, the Company's
investment in RLM is $31,764,000 after adjusting for the Company's equity share
of RLM's losses under the equity method of accounting. The RLM joint venture is
still considered a start-up venture and to date has incurred significant
operating losses since it commenced operations in November 2000. The Company
does not have direct control over management's decisions affecting the strategic
operational direction of this joint venture. The Company periodically evaluates
the carrying value of its RLM investment by evaluating the current and
forecasted financial condition of the entity, its liquidity prospects, its cash
flow forecasts and by comparing its operational results to plan. The Company
will record an impairment loss if events and circumstances indicate that its RLM
investment has been impaired and a decline in value is deemed other than
temporary. No assurance can be given that this alliance will be successful or
that the Company will be able to ultimately realize any return on its ownership
interest in RLM. The Company has also committed and spent significant resources
totaling over $12 million to develop facilities to allow the Company to fulfill
its service obligations to RLM. There can be no assurance that the Company will
recover its costs for developing and constructing these facilities and, if the
alliance were not successful, the Company would have limited ability to recover
such costs. The Company will continue to reevaluate its RLM investment, as it
does with all of its investments, in conjunction with the continued development
and forecast of RLM's operations.
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. For
the three months ended April 30, 2001, the Company recorded a pre-tax investment
loss of $6,006,000 relating to the write-off of the Company's investment in
Internet company Wine.com pursuant to its announced employee layoff, sale of
assets to eVineyard.com and subsequent dissolution. The declines in fair value
of such investments were determined by the Company to be other than temporary.
(7) RELATED PARTY TRANSACTION
At April 30, 2002, the Company held a note receivable totaling $4,025,000,
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 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.
(8) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities", establishes
accounting and reporting standards requiring that derivative instruments, as
defined in the standard, be
9
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires changes in the derivative's fair value to be
recognized currently in earnings unless specific hedge accounting criteria are
met. The Company adopted the provisions of SFAS No. 133, as amended, effective
February 1, 2001. The impact of the initial adoption of SFAS No. 133 was
($329,000) and was reflected in the consolidated statement of operations for the
three months ended April 30, 2001 as a cumulative effect of change in accounting
principle.
In August 2001, the Financial Accounting Standards Board ( the "FASB")
issued Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" and the accounting and
reporting provisions of APB Opinion No. 30. The changes required by SFAS No. 144
resolve significant implementation issues related to SFAS No. 121 and improve
financial reporting by requiring that one accounting model be used for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. The requirements of SFAS No. 144 also broaden the presentation
of discontinued operations to include more disposal transactions. The Company
adoption of SFAS No. 144 in fiscal 2002 did not have an effect on its financial
position or results of operations.
(9) 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. 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, 2002, the Company had
repurchased 1,002,000 shares of its common stock under the new stock repurchase
program for a total net cost of $14,636,000 at an average price of $14.61 per
share. During the quarter ended April 30, 2002, the Company had repurchased
25,000 shares of its common stock at an average price of $16.76 per share.
(10) ACQUISITION OF FANBUZZ, INC.
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, Inc. ("FanBuzz"), 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, CNN/Sports Illustrated, the Salt Lake 2002 Winter Games, the Chicago Bears
and many other professional sports teams, leagues and colleges. FanBuzz, with
expected annualized revenues of approximately $20 million, has focused its
business model of operating online stores for already-established brands and
destinations. As a result of the acquisition, the Company has further positioned
itself to become a provider of outsourcing solutions to companies wishing to add
on-line/on-air commerce to their existing business models. The Company also
expects to reduce FanBuzz's costs through economies of scale. 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
Statement of Financial Accounting Standards No. 141, "Business Combinations,"
("SFAS No. 141"). The results of operations of FanBuzz have been included in the
accompanying consolidated financial statements as of March 8, 2002, the date of
acquisition. 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 FanBuzz on the date of acquisition:
Current assets $ 3,965,000
Property and equipment 3,305,000
Other assets 2,078,000
Intangible assets 2,000,000
Goodwill 7,442,000
-----------
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
===========
10
Total amortizable intangible assets acquired was $2,000,000 (4-year weighted
average useful life) and were assigned as follows: registered website 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 $7,442,000 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.
(11) GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued SFAS No. 141 which requires all business
combinations initiated after June 30, 2001 to use the purchase method of
accounting and addresses the initial recognition and measurement of goodwill and
other intangible assets acquired in a business combination. The Company's
adoption of SFAS No. 141 in fiscal 2001 did not have a material effect on its
financial position or results of operations.
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. The
Company's adoption of SFAS No. 142 in fiscal 2002 did not have a material effect
on its financial position or results of operations.
Changes in the carrying amount of goodwill for the three months ended April
30, 2002 is as follows:
Balance as of January 31, 2002 $ -
Goodwill acquired during the period 7,442,000
Impairment losses -
-----------
Balance as of April 30, 2002 $7,442,000
===========
Intangible assets have been recorded by the Company as a result of the
acquisition of FanBuzz in the first quarter of fiscal 2002. The components of
amortized intangible assets in the accompanying consolidated balance sheets
consists of the following:
April 30, 2002
-----------------------------
Average Gross
Life Carrying Accumulated
(Years) Amount Amortization
------- ------ ------------
Amortized intangible assets:
Website address 3 $ 1,000,000 $ (28,000)
Partnership contracts 2 280,000 (19,000)
Non-compete agreements 3 230,000 (6,000)
Favorable lease contracts 13 200,000 (2,000)
Other 1 290,000 (46,000)
----------- -----------
Total $ 2,000,000 $ (101,000)
=========== ===========
Amortization expense for intangible assets for the three months ended April
30, 2002 was $101,000. Estimated amortization expense for fiscal 2002 and the
succeeding five years is as follows: $699,000 in fiscal 2002, $590,000 in fiscal
2003, $431,000 in fiscal 2004, $108,000 in fiscal 2005, $5,000 in fiscal 2006
and $5,000 in fiscal 2007.
11
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, 2002.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
DOLLAR AMOUNT AS A
PERCENTAGE OF NET SALES FOR
THE
THREE MONTHS
ENDED APRIL 30,
2002 2001
---- ----
NET SALES 100.0% 100.0%
===== =====
GROSS MARGIN 39.0% 37.7%
----- -----
Operating expenses:
Distribution and selling 31.9% 30.3%
General and administrative 3.1% 3.9%
Depreciation and amortization 2.5% 2.8%
----- -----
37.5% 37.0%
----- -----
Operating income 1.5% 0.7%
===== =====
12
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 television
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 Company-owned
low power television ("LPTV") stations. The Company also complements its
television home shopping business by the sale of merchandise through its
Internet shopping website (www.shopnbc.com) which sells a broad array of
merchandise and simulcasts its television home shopping show live 24 hours a
day, 7 days a week.
The Company rebranded its growing home shopping network and companion
Internet shopping website as "ShopNBC" and "ShopNBC.com", respectively, in
fiscal 2001 as part of a wide-ranging direct marketing strategy the Company is
pursuing in conjunction with certain of its strategic partners. 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. 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 new ShopNBC name is being promoted as part of a
marketing campaign that the Company launched in the second half of 2001.
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 on a cost plus basis to Ralph Lauren Media, LLC ("RLM").
VVIFC's services agreement was entered into in conjunction with the execution of
the Company's investment and electronic commerce alliance entered into with Polo
Ralph Lauren Corporation, NBC and other NBC affiliates. VVIFC also provides
fulfillment and support services for the NBC Experience Store in New York and
direct to consumer products sold on NBC's website. Through its wholly owned
subsidiary, FanBuzz, Inc., the Company is also 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.
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. In the first
quarter ended April 30, 2001, the Company recorded a pre-tax investment loss of
$6,006,000 relating to the write-off of the Company's investment in Internet
company Wine.com pursuant to its announced employee layoff, sale of assets to
eVineyard.com and subsequent dissolution. The declines in fair values were
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, 2002 (fiscal 2002) were $132,849,000 compared with
net sales of $111,979,000 for the three months ended April 30, 2001 (fiscal
2001), a 19% 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 17%
to $127,887,000 for the quarter ended April 30, 2002 from $109,495,000 for the
comparable prior year period. The still challenging retail economic environment
experienced by the Company and other merchandise retailers has continued to have
a negative affect on total net sales growth for the quarter as compared to the
prior year. Despite the challenging economic
13
situation, the continued growth in home shopping net sales is primarily
attributable to the growth in FTE homes receiving the Company's television
programming which increased by approximately 11 million homes since January
2001; 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. During the 12-month period ended April 30, 2002, the
Company added approximately 8 million FTE subscriber homes, a 22% increase. 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 a 72% 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's 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. However, 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 first quarter ended April 30, 2002 and 2001 were
$51,819,000 and $42,269,000, respectively, an increase of $9,550,000 or 23%.
Gross margins for the three months ended April 30, 2002 and 2001 were 39.0% and
37.7%, respectively. The principal reason for the increase in gross profits was
the increased sales volume from the Company's television home shopping and
Internet businesses. In addition, gross profit for the first quarter of fiscal
2002 included positive contributions as a result of the Company's acquisition of
FanBuzz, Inc. Overall, year-to-date television and Internet gross margins
between comparable periods improved over prior year primarily as a result of an
increase in the mix and gross margin percentages of higher margin jewelry
merchandise categories.
OPERATING EXPENSES
Total operating expenses for the three months ended April 30, 2002 were
$49,834,000 versus $41,443,000 for the comparable prior year period.
Distribution and selling expense increased $8,371,000 or 25% to $42,352,000 or
32% of net sales during the first quarter of fiscal 2002 compared to $33,981,000
or 30% 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 25% year-to-date increase in the number of average FTE subscribers
over the prior year, additional costs associated with the fulfillment and
support for the NBC Experience Store in New York and direct-to-consumer products
sold on NBC's website, increased costs associated with new celebrities,
additional distribution and selling costs associated with the acquisition of
FanBuzz, Inc. and increased costs associated with credit card processing
resulting from increased sales. 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 net 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, 2002
decreased $164,000 or 4% to $4,161,000 or 3% of net sales compared to $4,325,000
or 4% of net sales for the three months ended April 30, 2001. Overall, general
and administrative expense decreased from the prior year due to tight management
controls over spending resulting in decreases in personnel costs, travel and
information systems costs, consulting and placement fees offset by increases in
general and administrative costs associated with the acquisition of FanBuzz,
Inc. General and administrative expense as a percentage of net sales decreased
over prior year's first quarter as a result of expenses growing at a slower rate
than the increase in television home shopping and Internet net sales over the
prior year.
Depreciation and amortization expense for the three months ended April 30,
2002 was $3,321,000 versus $3,137,000, representing an increase of $184,000 or
6% from the comparable prior-year period. Depreciation and amortization expense
as a percentage of net sales for the three months ended April 30, 2002 and 2001
were 2% and 3%, each, respectively. The dollar increase is primarily due to
increased depreciation and amortization incurred in the first quarter of fiscal
2002 associated with the Company's acquisition of FanBuzz, Inc. in March 2002.
14
OPERATING INCOME
For the three months ended April 30, 2002, the Company reported operating
income of $1,985,000 compared to operating income of $826,000 for the three
months ended April 30, 2001, an increase of $1,159,000. Operating income
increased from prior year primarily as a result of the increase in net sales and
gross profits reported by the Company's television home shopping and Internet
businesses and a decrease in overall general and administrative expense as
management controls spending. These increases were reduced by increased
distribution and selling expenses, particularly net cable access fees for which
the expense of adding approximately 11 million new homes since January 2001 is
being incurred but the future revenue benefit and productivity of these
additional homes is yet to be fully realized.
NET INCOME (LOSS)
For the three months ended April 30, 2002, the Company reported 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) compared with a net loss available to common shareholders of
$5,422,000 or $.14 per share on 38,525,000 weighted average common shares
outstanding for the quarter ended April 30, 2001. 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
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 net loss available to common shareholders for the quarter ended
April 30, 2001 includes a pre-tax loss of $6,006,000 related to the write-down
of the Company's investment in Internet retailer Wine.com, whose decline in fair
value were determined by the Company to be other than temporary and pre-tax
realized and unrealized losses totaling $607,000 recorded on the sale and
holdings of the Company's other investments. For the quarter ended April 30,
2001, the net loss available to common shareholders also included a pre-tax loss
of $1,737,000 related to the Company's equity interest in RLM, a loss of
$329,000 relating to the cumulative effect of adopting SFAS No. 133 and interest
income totaling $2,851,000 earned on the Company's cash and short-term
investments.
Excluding the net one-time gains/losses on the sale and holdings of the
Company's investments and other one-time charges, net income available to common
shareholders for the quarter ended April 30, 2002 totaled $1,174,000, or $.03
per diluted share ($.03 per basic share) compared to net income available to
common shareholders of $1,017,000, or $.02 per diluted share ($.03 per basic
share) for the quarter ended April 30, 2001.
PROGRAM DISTRIBUTION
The Company's television home-shopping programming was available to
approximately 53.0 million homes as of April 30, 2002, as compared to 51.9
million homes as of January 31, 2002 and to 45.5 million homes as of April 30,
2001. The Company's programming is currently available through affiliation and
time-block purchase agreements with approximately 710 cable or satellite
systems. In addition, the Company's programming is available unscrambled to
homes equipped with satellite dishes and is broadcast full-time over eleven
Company-owned, low-power television stations in major markets. As of April 30,
2002 and 2001, the Company's programming was available to approximately 45.2
million and 37.2 million FTE households, respectively. As of January 31, 2002,
the Company's programming was available to 44.0 million FTE households.
Approximately 37.7 million and 31.6 million households at April 30, 2002 and
2001, 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 broadcast 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 2001 Annual Report on
Form 10-K.
15
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of April 30, 2002, cash and cash equivalents and short-term investments
were $234,250,000, compared to $231,867,000 as of January 31, 2002, a $2,383,000
increase. For the three months ended April 30, 2002, working capital decreased
$11,074,000 to $263,215,000. The current ratio was 4.4 at April 30, 2002
compared to 5.4 at January 31, 2002. At April 30, 2002, short-term investments
and cash equivalents were invested primarily in money market funds, high quality
commercial paper with original maturity dates of less than two hundred and
seventy (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 30-60
days.
Total assets at April 30, 2002 were $469,831,000, compared to $449,690,000
at January 31, 2002. Shareholders' equity was $349,270,000 at April 30, 2002,
compared to $344,820,000 at January 31, 2002, a $4,450,000 increase. The
increase in shareholders' equity for the three-month period ended April 30, 2002
resulted primarily from the recording of net income of $609,000 for the quarter,
the recording of unrealized gains on investments classified as
"available-for-sale" totaling $1,277,000 and from proceeds received of
$3,072,000 related to the exercise of stock options. These increases were offset
by decreases in shareholders' equity of $419,000 relating to the repurchase of
25,000 common shares under its authorized stock repurchase plan, $19,000
relating to an increased note receivable from an officer and accretion on
redeemable preferred stock of $70,000.
For the three-month period ended April 30, 2002, net cash provided by
operating activities totaled $16,107,000 compared to net cash provided by
operating activities of $6,698,000 for the three-month period ended April 30,
2001. Cash flows from operations after adding back depreciation and amortization
expense (which the Company defines as EBITDA) was a positive $5,306,000 for the
three months ended April 30, 2002, compared to a positive $3,963,000 for the
same prior-year period. Net cash provided by operating activities for the three
months ended April 30, 2002 reflects net income, as adjusted for depreciation
and amortization, common stock issued to employees, write-down of investments,
unrealized gains on security holdings, equity in losses of affiliates and losses
on the sale of investments. In addition, net cash provided by operating
activities for the three months ended April 30, 2002 reflects decreases in
accounts receivable, increases in accounts payable and accrued liabilities and
income taxes payable, offset by an increase in inventories and prepaid expenses.
Accounts receivable decreased primarily due to the net effect of increased usage
of the Company's ShopNBC private label credit card, a reduction in sales made
utilizing extended payment terms and the timing of customer collections made
pursuant to the "ValuePay" installment program offset by increased interest
receivable. Inventories increased from year-end primarily to support continued
sales growth. Inventories also increased due to a significant reduction in
"advance order" selling over prior year in an effort to improve customer
satisfaction through fewer stockouts and faster order fulfillment, the
acquisition of FanBuzz, Inc in March 2002 and the timing of merchandise
receipts. Prepaid expenses increased primarily as a result of the timing of
long-term cable launch fee extension renewals. The increase in accounts payable
and accrued liabilities is a direct result of the increase in inventory levels,
the timing of cable and satellite affiliation vendor payments and the
acquisition of FanBuzz, Inc.
Net cash used for investing activities totaled $37,465,000 for the three
months ended April 30, 2002, which was primarily offset by an increase in
short-term investments of $21,216,000, compared to net cash provided by
investing activities of $5,721,000 for the three months ended April 30, 2001.
For the three months ended April 30, 2002 and 2001, expenditures for property
and equipment were $2,509,000 and $2,842,000, respectively. Expenditures for
property and equipment during the periods ended April 30, 2002 and 2001
primarily include capital expenditures made for the upgrade and conversion of
new computer software, related computer equipment and other office equipment,
warehouse equipment, production equipment and expenditures on leasehold
improvements. Principal future capital expenditures include the upgrade of
television production and transmission equipment and the upgrade and replacement
of computer software, systems 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 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, received proceeds of $2,000 from the sale of
investments and property and made disbursements of $1,434,000 for certain
investments and other long-term assets primarily related to the Company's equity
interest in RLM. 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. In the first three months of fiscal 2001, the Company invested
$40,799,000 in various short-term investments, received proceeds of $54,778,000
from the sale of short-term investments, made disbursements of $5,484,000 for
certain investments and other assets, and received proceeds of $68,000 from the
sale of investments and property.
16
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. Net cash used for financing activities
totaled $1,163,000 for the three months ended April 30, 2001 and related
primarily to payments made of $1,275,000 in conjunction with the repurchase of
105,000 shares of the Company's common stock at an average price of $12.14 per
share offset by proceeds received of $112,000 from the exercise of stock
options.
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 2001 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 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 e-commerce and rebranding
initiatives; the performance of the Company's equity investments; the success of
the Company's strategic alliances and relationships; the performance of the
Ralph Lauren Media joint venture and the Company's ultimate return on this
investment; 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 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, 2002, 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 does hold certain
equity investments in the form of common stock purchase warrants in public
companies and accounts for these investments in accordance with the provisions
of SFAS No. 133. 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.
17
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Merger of the Registrant dated May 16, 2002.
10.1 Employment Agreement dated July 31, 2000 between the
Registrant and Roy Seinfeld. +
10.2 Amendment to Employment Agreement dated December 19,
2001 between the Registrant and Mr. Seinfeld. +
10.3 Employment Agreement dated February 12, 2001 between the
Registrant and Steven Goldsmith. +
10.4 Employment Agreement dated May 22, 2000 between the
Registrant and Howard F. Fox. +
+ Management compensatory plan / arrangement.
(b) Reports on Form 8-K
(i) The Registrant filed a Form 8-K on March 6, 2002
reporting under Item 5 that the Registrant announced
that it had signed a definitive agreement to acquire
Minneapolis-based FanBuzz, Inc.
(ii) The Registrant filed a Form 8-K on May 16, 2002
reporting under Item 4 that the Registrant decided to
discontinue the engagement of Arthur Andersen LLP as the
Registrant's independent auditors and to engage Deloitte
& Touche LLP as the Registrant's independent auditors
for the fiscal year ended January 31, 2003 and reporting
under Item 5 that the Registrant changed its corporate
name to ValueVision Media, Inc. from ValueVision
International, Inc.
18
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
Chief Executive Officer
(Principal Executive Officer)
/s/ Richard D. Barnes
-------------------------------------------
Richard D. Barnes
Executive Vice President, Chief Financial
Officer Chief Operating Officer
(Principal Financial and
Accounting Officer)
June 14, 2002
19