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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 July 30, 2005
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, Eden Prairie, MN 55344
(Address of principal executive offices)
952-943-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
As of September 6, 2005, there were 37,009,738 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
JULY 30, 2005
PAGE OF FORM
10-Q
------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
-Condensed Consolidated Balance Sheets as of
July 30, 2005 and January 31, 2005 3
-Condensed Consolidated Statements of Operations for
the Three and Six Month Periods Ended July 30, 2005
and July 31, 2004 4
-Condensed Consolidated Statement of Shareholders'
Equity for the Six Month Period Ended July 30, 2005 5
-Condensed Consolidated Statements of Cash Flows for
the Six Month Periods Ended July 30, 2005 and
July 31, 2004 6
-Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 23
Item 4. Controls and Procedures 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits 26
Signatures 27
Exhibit Index 28
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
JULY 30, JANUARY 31,
2005 2005
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 57,003 $ 62,640
Short-term investments 33,790 37,941
Accounts receivable, net 83,386 79,405
Inventories 67,869 54,903
Prepaid expenses and other 5,760 5,635
--------- --------
Total current assets 247,808 240,524
PROPERTY & EQUIPMENT, NET 48,639 52,725
FCC BROADCASTING LICENSE 31,943 31,943
NBC TRADEMARK LICENSE AGREEMENT, NET 17,074 18,687
CABLE DISTRIBUTION AND MARKETING AGREEMENT, NET 3,102 3,550
OTHER INTANGIBLE ASSETS, NET -- 68
OTHER ASSETS 2,797 2,799
--------- --------
$ 351,363 $350,296
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 59,194 $ 48,012
Accrued liabilities 42,996 41,062
--------- --------
Total current liabilities 102,190 89,074
LONG-TERM CAPITAL LEASE OBLIGATIONS 1,099 1,380
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$.01 PER SHARE PAR VALUE, 5,339,500 SHARES AUTHORIZED;
5,339,500 SHARES ISSUED AND OUTSTANDING 43,174 43,030
SHAREHOLDERS' EQUITY:
Common stock, $.01 per share par value, 100,000,000 shares authorized;
37,104,374 and 37,043,912 shares issued and outstanding 371 370
Warrants to purchase 7,630,583 shares of common stock 46,683 46,683
Additional paid-in capital 264,100 264,005
Deferred compensation (246) (353)
Accumulated deficit (106,008) (93,893)
--------- --------
Total shareholders' equity 204,900 216,812
--------- --------
$ 351,363 $350,296
========= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
FOR THE THREE MONTH PERIODS ENDED FOR THE SIX MONTH PERIODS ENDED
--------------------------------- -------------------------------
JULY 30, JULY 31, JULY 30, JULY 31,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales $ 171,668 $ 161,478 $ 327,831 $ 320,675
Cost of sales (exclusive of depreciation and
amortization shown below) 111,147 107,578 214,927 213,691
----------- ----------- ----------- -----------
Gross profit 60,521 53,900 112,904 106,984
----------- ----------- ----------- -----------
OPERATING EXPENSE:
Distribution and selling 51,766 52,275 102,911 103,077
General and administrative 6,394 5,107 13,004 10,782
Depreciation and amortization 5,102 4,918 10,393 9,702
Asset impairment -- -- 400 --
Employee termination costs -- -- 528 --
----------- ----------- ----------- -----------
Total operating expense 63,262 62,300 127,236 123,561
----------- ----------- ----------- -----------
OPERATING LOSS (2,741) (8,400) (14,332) (16,577)
----------- ----------- ----------- -----------
OTHER INCOME:
Other income (expense) (256) 250 (1) 250
Interest income 738 322 1,384 596
----------- ----------- ----------- -----------
Total other income 482 572 1,383 846
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (2,259) (7,828) (12,949) (15,731)
Equity in income of affiliates 14 -- 14 --
Income tax benefit 826 -- 820 --
----------- ----------- ----------- -----------
NET LOSS (1,419) (7,828) (12,115) (15,731)
Accretion of redeemable preferred stock (71) (71) (143) (142)
----------- ----------- ----------- -----------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (1,490) $ (7,899) $ (12,258) $ (15,873)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.04) $ (0.21) $ (0.33) $ (0.43)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE
- ASSUMING DILUTION $ (0.04) $ (0.21) $ (0.33) $ (0.43)
=========== =========== =========== ===========
Weighted average number of common shares outstanding:
Basic 37,102,001 36,809,884 37,089,737 36,725,181
=========== =========== =========== ===========
Diluted 37,102,001 36,809,884 37,089,737 36,725,181
=========== =========== =========== ===========
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 SIX MONTH PERIOD ENDED JULY 30, 2005
(Unaudited)
(In thousands, except share data)
COMMON STOCK COMMON
----------------- STOCK ADDITIONAL TOTAL
COMPREHENSIVE NUMBER PAR PURCHASE PAID-IN DEFERRED ACCUMULATED SHAREHOLDERS'
LOSS OF SHARES VALUE WARRANTS CAPITAL COMPENSATION DEFICIT EQUITY
------------- ---------- ----- -------- ---------- ------------ ----------- -------------
BALANCE, JANUARY 31, 2005 37,043,912 $370 $46,683 $264,005 $(353) $ (93,893) $216,812
Net loss $(12,115) -- -- -- -- -- (12,115) (12,115)
========
Exercise of stock options and
common stock issuances 60,462 1 -- 247 -- -- 248
Restricted stock forfeited -- -- -- (9) 9 -- --
Amortization of deferred
compensation -- -- -- -- 98 -- 98
Accretion on redeemable preferred
stock -- -- -- (143) -- -- (143)
---------- ---- ------- -------- ----- --------- --------
BALANCE, JULY 30, 2005 37,104,374 $371 $46,683 $264,100 $(246) $(106,008) $204,900
========== ==== ======= ======== ===== ========= ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
FOR THE SIX MONTH PERIODS ENDED
-------------------------------
JULY 30, JULY 31,
2005 2004
-------- --------
OPERATING ACTIVITIES:
Net loss $(12,115) $(15,731)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 10,393 9,702
Common stock issued to employees 13 11
Amortization of deferred compensation 98 146
Asset impairment 400 --
Gain on sale of investments (5) --
Equity in earnings of affiliates (14) --
Noncash tax benefit (832) --
Changes in operating assets and liabilities:
Accounts receivable, net (3,981) (12,529)
Inventories (12,967) 3,606
Prepaid expenses and other (517) (3,699)
Accounts payable and accrued liabilities 13,703 8,959
-------- --------
Net cash used for operating activities (5,824) (9,535)
-------- --------
INVESTING ACTIVITIES:
Property and equipment additions (3,879) (6,389)
Purchase of short-term investments (41,837) (92,697)
Proceeds from sale of short-term investments 45,993 52,124
-------- --------
Net cash provided by (used for) investing activities 277 (46,962)
-------- --------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 235 1,757
Payment of long-term obligation (325) (573)
-------- --------
Net cash (used for) provided by financing activities (90) 1,184
-------- --------
Net decrease in cash and cash equivalents (5,637) (55,313)
BEGINNING CASH AND CASH EQUIVALENTS 62,640 81,033
-------- --------
ENDING CASH AND CASH EQUIVALENTS $ 57,003 $ 25,720
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 59 $ 97
======== ========
Income taxes paid $ 8 $ 34
======== ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Exercise of common stock purchase warrants $ -- $ 955
======== ========
Restricted stock award $ -- $ 308
======== ========
Restricted stock forfeited $ 9 $ 115
======== ========
Property and equipment purchases included in accounts payable $ 291 $ --
======== ========
Accretion of redeemable preferred stock $ 143 $ 142
======== ========
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
JULY 30, 2005
(Unaudited)
(1) GENERAL
ValueVision Media, Inc. and its subsidiaries (the "Company") is an
integrated direct marketing company that markets, sells and distributes its
products directly to consumers through various forms of electronic media and
direct-to-consumer mailings. The Company's operating strategy incorporates
television home shopping, Internet e-commerce, vendor programming sales,
fulfillment services and outsourced e-commerce and fulfillment solutions.
The Company's television home shopping business uses on-air spokespersons
to market brand name merchandise and proprietary / private label consumer
products at competitive prices. The Company's live 24-hour per day television
home shopping programming is distributed primarily through long-term cable and
satellite affiliation agreements and the purchase of month-to-month full and
part-time block lease agreements of cable and broadcast television time. In
addition, the Company distributes its programming through one Company-owned full
power television station in Boston, Massachusetts and one low power television
station in Atlanta, Georgia. The Company also complements its television home
shopping business by the sale of a broad array of merchandise through its
Internet shopping website, www.shopnbc.com.
On November 16, 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc., currently known as NBC
Universal, Inc. ("NBC"), pursuant to which NBC granted the Company worldwide use
of an NBC-branded name and the Peacock image for a ten-year period. The Company
rebranded its growing home shopping network and companion Internet shopping
website as "ShopNBC" and "ShopNBC.com", respectively, in fiscal 2001. This
rebranding was intended to position the Company 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.
The Company, through its wholly owned subsidiary, VVI Fulfillment Center,
Inc. ("VVIFC"), provides fulfillment, warehousing, customer service and
telemarketing services to Ralph Lauren Media, LLC ("RLM"), an entity in which
the Company holds a minority equity interest. VVIFC also provides fulfillment
and warehousing services for the NBC Experience Store in New York City and
direct-to-consumer products sold on NBC's website, fulfillment of certain
non-jewelry merchandise sold on the Company's television home shopping program
and Internet website and fulfillment to the Company's FanBuzz, Inc. subsidiary
("FanBuzz").
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles in the United States of America have been
condensed or omitted in accordance with such rules and regulations. The
information furnished in the interim condensed consolidated financial statements
includes normal recurring accruals and reflects all adjustments which, in the
opinion of management, are necessary for a fair presentation of such financial
statements. Although management believes the disclosures and information
presented are adequate, it is suggested that these interim condensed
consolidated financial statements be read in conjunction with the Company's most
recent audited financial statements and notes thereto included in its fiscal
2004 Annual Report on Form 10-K. Operating results for the six month period
ended July 30, 2005 are not necessarily indicative of the results that may be
expected for the fiscal year ending February 4, 2006.
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation.
7
FISCAL YEAR
The Company's most recently completed fiscal year ended on January 31, 2005
and this year is designated "fiscal 2004". On April 29, 2005, the Company
elected to change its fiscal year from a fiscal year ending January 31 to a
52/53 week fiscal year ending on the first Saturday in February of each calendar
year. This is effective for the Company's current fiscal year, which will end on
February 4, 2006 and is designated "fiscal 2005". The Company is making this
change in order to align its fiscal year more closely to its retail seasonal
merchandising plan. The change will also enhance the weekly and monthly
comparability of sales results relating to the Company's television
home-shopping business. The Company does not expect this change to have a
significant impact on its consolidated financial statements.
(3) STOCK-BASED COMPENSATION
At July 30, 2005, the Company had a number of stock-based compensation
plans. The Company accounts for these plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. No
stock-based employee compensation cost is reflected in the net loss, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The following table
illustrates the effect on net loss and net loss per share if the Company had
applied the fair value recognition provisions of Statement of Financial
Accounting Standards No. 123,"Accounting for Stock-Based Compensation", to
stock-based employee compensation:
THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
-------------------------- ---------------------------
JULY 30, JULY 31, JULY 30, JULY 31,
2005 2004 2005 2004
----------- ------------ ------------ ------------
Net loss available to common shareholders:
As reported ............................................... $(1,490,000) $ (7,899,000) $(12,258,000) $(15,873,000)
Deduct: Total stock-based employee compensation
expense determined under fair value based method for all
awards, net of related tax effects ........................ (1,824,000) (4,410,000) (6,858,000) (6,712,000)
----------- ------------ ------------ ------------
Pro forma ................................................. $(3,314,000) $(12,309,000) $(19,116,000) $(22,585,000)
=========== ============ ============ ============
Net loss per share:
Basic:
As reported ............................................ $ (0.04) $ (0.21) $ (0.33) $ (0.43)
Pro forma .............................................. (0.09) (0.33) (0.52) (0.61)
Diluted:
As reported ............................................ $ (0.04) $ (0.21) $ (0.33) $ (0.43)
Pro forma .............................................. (0.09) (0.33) (0.52) (0.61)
(4) NET 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 MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
------------------------- ---------------------------
JULY 30, JULY 31, JULY 30, JULY 31,
2005 2004 2005 2004
----------- ----------- ------------ ------------
Net loss available to common shareholders ............... $(1,490,000) $(7,899,000) $(12,258,000) $(15,873,000)
=========== =========== ============ ============
Weighted average number of common shares outstanding -
Basic ................................................ 37,102,000 36,810,000 37,090,000 36,725,000
Dilutive effect of convertible preferred stock .......... -- -- -- --
Dilutive effect of stock options and warrants ........... -- -- -- --
----------- ----------- ------------ ------------
Weighted average number of common shares outstanding -
Diluted .............................................. 37,102,000 36,810,000 37,090,000 36,725,000
=========== =========== ============ ============
Net loss per common share ............................... $ (0.04) $ (0.21) $ (0.33) $ (0.43)
=========== =========== ============ ============
Net loss per common share- assuming dilution ............ $ (0.04) $ (0.21) $ (0.33) $ (0.43)
=========== =========== ============ ============
8
In accordance with SFAS No. 128, for the three month periods ended July 30,
2005 and July 31, 2004, approximately 514,000 and 900,000, respectively,
in-the-money potentially dilutive common share stock options and warrants and
5,340,000 shares of convertible preferred stock have been excluded from the
computation of diluted earnings per share, as the effect of their inclusion
would be antidilutive. For the six month periods ended July 30, 2005 and July
31, 2004, approximately 687,000 and 1,216,000, respectively, in-the-money
potentially dilutive common share stock options and warrants and 5,340,000
shares of convertible preferred stock have been excluded from the computation of
diluted earnings per share, as the effect of their inclusion would be
antidilutive.
(5) COMPREHENSIVE LOSS
The Company reports comprehensive 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 loss
includes net loss and other comprehensive income (loss). Total comprehensive
loss was $(1,419,000) and $(7,828,000) for the three month periods ended July
30, 2005 and July 31, 2004, respectively. Total comprehensive loss was
$(12,115,000) and $(15,731,000) for the six month periods ended July 30, 2005
and July 31, 2004, respectively. As of January 31, 2004, the Company no longer
had any long-term equity investments classified as "available-for-sale".
(6) SEGMENT DISCLOSURES
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), requires
the disclosure of certain information about operating segments in financial
statements. The Company's reportable segments are based on the Company's method
of internal reporting. The Company's primary business segment is its electronic
media segment, which consists of the Company's television home shopping business
and Internet shopping website business. Management has reviewed the provisions
of SFAS No. 131 and has determined that the Company's television and internet
home shopping businesses meet the aggregation criteria as outlined in SFAS No.
131 since these two business channels have similar customers, products, economic
characteristics and sales processes. Products sold through the Company's
electronic media segment primarily include jewelry, computers and other
electronics, housewares, apparel, health and beauty aids, fitness products,
giftware, collectibles, seasonal items and other merchandise. The Company's
segments primarily operate in the United States and no one customer represents
more than 5% of the Company's overall revenue. There are no material
intersegment product sales. Segment information as of and for the three and six
month periods ended July 30, 2005 and July 31, 2004 are as follows:
SHOPNBC & ALL
THREE MONTH PERIODS ENDED (IN THOUSANDS) SHOPNBC.COM FANBUZZ OTHER (A) TOTAL
- ---------------------------------------- ----------- ------- --------- --------
JULY 30, 2005
Revenues ............................... $166,425 $ 2,176 $3,067 $171,668
Operating (loss) income ................ (2,533) (488) 280 (2,741)
Depreciation and amortization .......... 4,781 76 245 5,102
Interest income (expense) .............. 743 (5) -- 738
Income tax benefit ..................... 826 -- -- 826
Net income (loss) ...................... (837) (615) 33 (1,419)
Identifiable assets .................... 339,422 2,127 9,814 351,363
-------- ------- ------ --------
JULY 31, 2004
Revenues ............................... $154,652 $ 5,017 $1,809 $161,478
Operating (loss) income ................ (7,476) (1,073) 149 (8,400)
Depreciation and amortization .......... 4,415 316 187 4,918
Interest income (expense) .............. 345 (23) -- 322
Income taxes ........................... -- -- -- --
Net loss ............................... (6,513) (1,217) (98) (7,828)
Identifiable assets .................... 365,627 18,871 6,662 391,160
-------- ------- ------ --------
9
SHOPNBC & ALL
SIX MONTH PERIODS ENDED (IN THOUSANDS) SHOPNBC.COM FANBUZZ OTHER (A) TOTAL
- -------------------------------------- ----------- ------- --------- --------
JULY 30, 2005
Revenues ............................. $317,640 $ 4,863 $5,328 $327,831
Operating (loss) income .............. (12,573) (2,054) 295 (14,332)
Depreciation and amortization ........ 9,638 261 494 10,393
Interest income (expense) ............ 1,406 (22) -- 1,384
Income tax benefit ................... 820 -- -- 820
Net loss ............................. (9,593) (2,321) (201) (12,115)
Identifiable assets .................. 339,422 2,127 9,814 351,363
-------- ------- ------ --------
JULY 31, 2004
Revenues ............................. $305,779 $11,142 $3,754 $320,675
Operating (loss) income .............. (14,885) (2,051) 359 (16,577)
Depreciation and amortization ........ 8,692 657 353 9,702
Interest income (expense) ............ 643 (47) -- 596
Income taxes ......................... -- -- -- --
Net loss ............................. (13,252) (2,344) (135) (15,731)
Identifiable assets .................. 365,627 18,871 6,662 391,160
-------- ------- ------ --------
(a) Revenue from segments below quantitative thresholds are attributable to
VVIFC, which provides fulfillment, warehousing and telemarketing services
primarily to RLM, the Company and the NBC Experience Store.
Information on net sales by significant product groups are as follows (in
thousands):
THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED
------------------------- -----------------------
JULY 30, JULY 31, JULY 30, JULY 31,
2005 2004 2005 2004
-------- -------- -------- --------
Jewelry .......................... $ 90,056 $101,269 $166,882 $198,591
Electronics ...................... 36,725 22,006 66,631 40,075
Home ............................. 19,754 16,114 36,686 31,709
All others, less than 10% each ... 25,133 22,089 57,632 50,300
-------- -------- -------- --------
Total ......................... $171,668 $161,478 $327,831 $320,675
======== ======== ======== ========
(7) RELATED PARTY TRANSACTION
In conjunction with its services agreement with RLM, the Company records
revenue for amounts billed to RLM for customer service and fulfillment services.
Revenues recorded from these services were $2,479,000 and $1,809,000 for the
quarters ended July 30, 2005 and July 31, 2004, respectively and were $4,263,000
and $3,754,000 for the six month periods ended July 30, 2005 and July 31, 2004,
respectively. Amounts due from RLM were $757,000 and $850,000, as of July 30,
2005 and January 31, 2005, respectively.
In July 2004, the Company entered into an agreement with Right Now
Technologies, Inc. ("Right Now") under which the Company paid Right Now
approximately $150,000 during fiscal year 2004 to utilize certain customer
services technologies developed by Right Now. The Company's President and Chief
Executive Officer, William J. Lansing, serves on the board of directors of Right
Now. The Company pays Right Now approximately $17,000 for annual software
maintenance fees relating to this technology.
(8) RESTRICTED STOCK
On February 1, 2003, the Company awarded 114,170 shares of restricted stock
from the Company's 2001 Omnibus Stock Plan (as amended) to certain executive
officers. The restricted stock vests one third on each of the next three
anniversary dates of the grant so long as the recipient is still employed with
the Company. The aggregate market value of the restricted stock at the date of
award was $1,491,000 and has been recorded as deferred compensation, a separate
component of shareholders' equity, and is being amortized as compensation
expense over the three-year vesting period. In the second quarter of fiscal
2004, the Company awarded an additional 25,000 shares of restricted stock to
certain employees. The restricted stock vests over different periods ranging
from 17 to 53 months
10
so long as the recipient is still employed with the Company. The aggregate
market value of the restricted stock at the award dates was $308,000 and has
been recorded as deferred compensation, a separate component of shareholders'
equity, and is being amortized as compensation expense over the respective
vesting periods.
(9) COMMON STOCK REPURCHASE PROGRAM
In November 2002, 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 July 30, 2005, the Company had repurchased a total of
398,000 shares of its common stock under the stock repurchase program for a
total net cost of $4,322,000 at an average price of $10.86 per share. The
Company did not repurchase any shares under its repurchase program during the
six month periods ended July 30, 2005 or July 31, 2004.
(10) GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"), 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. Goodwill has been recorded by the Company as a result of the
acquisition of FanBuzz in the fiscal 2002.
During the third quarter of fiscal 2004, the Company wrote off goodwill
totaling $9,442,000 attributable to the FanBuzz acquisition as the Company had
determined that the goodwill was impaired following FanBuzz's loss of its
National Hockey League contract in September 2004.
Intangible assets have been recorded by the Company as a result of the
acquisition of FanBuzz in fiscal 2002 and television station WWDP TV-46 in
fiscal 2003. The components of amortized and unamortized intangible assets in
the accompanying condensed consolidated balance sheets consist of the following:
JULY 30, 2005 JANUARY 31, 2005
-------------------------- --------------------------
AVERAGE GROSS GROSS
LIFE CARRYING ACCUMULATED CARRYING ACCUMULATED
(YEARS) AMOUNT AMORTIZATION AMOUNT AMORTIZATION
------- ----------- ------------ ----------- ------------
Amortized intangible assets:
Website address .............. 3 $ 1,000,000 $(1,000,000) $ 1,000,000 $ (945,000)
Partnership contracts ........ 2 280,000 (280,000) 280,000 (280,000)
Non-compete agreements ....... 3 230,000 (230,000) 230,000 (217,000)
Favorable lease contracts .... 13 200,000 (200,000) 200,000 (200,000)
Other ........................ 2 290,000 (290,000) 290,000 (290,000)
----------- ----------- ----------- -----------
Total ..................... $ 2,000,000 $ 2,000,000) $ 2,000,000 $(1,932,000)
=========== =========== =========== ===========
Unamortized intangible assets:
FCC broadcast license ........ $31,943,000 $31,943,000
=========== ===========
Amortization expense for intangible assets for the six months ended July
30, 2005 and July 31, 2004 was $68,000 and $224,000, respectively. During the
third quarter of fiscal 2004, the Company wrote off approximately $160,000 of
intangible assets in connection with the FanBuzz asset impairment. As of July
30, 2005, intangible assets relating to the FanBuzz acquisition have a remaining
carrying value of $-0-.
(11) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued a revision to Statement of Financial
Accounting Standards No. 123, "Share-Based Payment" ("SFAS No. 123(R)"). The
revision requires all entities to recognize compensation expense in an amount
equal to the fair value of share-based payments granted to employees. The
statement eliminates the alternative method of accounting for employee
share-based payments previously available under Accounting Principles Board
Opinion No. 25. The statement will be effective for public companies for fiscal
years beginning after June 15, 2005. The Company has not completed the process
of evaluating the full financial
11
statement impact that will result from the adoption of SFAS No. 123(R). See Note
3, "Stock-Based Compensation", for the Company's disclosure regarding the pro
forma effect of the adoption of SFAS No. 123(R) on the Company's consolidated
financial statements.
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 153, "Exchange of Nonmonetary Assets" ("SFAS No. 153"), an
amendment of APB Opinion No. 29. SFAS No. 153 requires all nonmonetary exchanges
to be recorded at fair value, unless the assets exchanged do not have commercial
substance. A nonmonetary exchange has commercial substance under SFAS No. 153 if
future cash flows are expected to change significantly as a result of the
exchange. SFAS No. 153 will be effective for all nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company does not
expect the adoption of SFAS No. 153 to have a significant impact on its
financial statements.
(12) ASSET IMPAIRMENT AND EMPLOYEE TERMINATION COSTS
During the quarter ended April 30, 2005, a number of FanBuzz customers had
notified the Company that they had elected to not renew the term of their
e-commerce services agreement with FanBuzz or had decided to terminate their
agreement as permitted in the agreement. Following these notifications, the
Company assessed whether there had been an impairment of the FanBuzz long-lived
assets in accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No.
144"). The Company performed a cash flow analysis and concluded that the book
value of certain long-lived assets at FanBuzz was significantly higher than
their probability-weighted expected future cash flows and that an impairment had
occurred. Accordingly, the Company recorded a non-cash impairment loss and
related charge of $400,000 in the first quarter of fiscal 2005.
During the quarter ended April 30, 2005, the Company also recorded an
additional $528,000 charge to earnings and established a related accrual
primarily in connection with the downsizing of the Company's FanBuzz operations.
The charge consisted primarily of severance pay and related benefit costs
associated with the elimination of approximately twelve positions. The severance
is expected to be paid out over periods ranging from one to twelve months.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with 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, 2005.
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 that represent management's expectations or beliefs
concerning future events. These statements are based on management's current
expectations and are accordingly subject to uncertainty and changes in
circumstances. Actual results may vary materially from the expectations
contained herein due to various important factors, including (but not limited
to): changes in consumer spending habits and debt levels; changes in interest
rates; seasonal variations in consumer purchasing activities; changes in the mix
of products sold by the Company; competitive pressures on sales; changes in
pricing and gross profit margins; changes in the level of cable, satellite and
other distribution for the Company's programming and fees associated therewith;
the success of the Company's strategic alliances and relationships; the ability
of the Company to manage its operating expenses successfully; risks associated
with acquisitions; changes in governmental or regulatory requirements;
litigation or governmental proceedings involving or otherwise affecting the
Company's operations; significant public events which are difficult to predict,
such as widespread weather catastrophes or other significant television-covering
events causing an interruption of television coverage or that directly competes
with the viewership of our programming, and the ability of the Company to obtain
and retain key executives, on-air hosts and other key 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, 2005, specifically under the captions
entitled "Risk Factors" and "Critical Accounting Policies and Estimates,"
provide information that 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. 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.
OVERVIEW
Company Description
ValueVision Media, Inc. is an integrated direct marketing company that
markets its products directly to consumers through various forms of electronic
media and direct-to-consumer mailings. The Company's principal line of business
is its television home shopping business, ShopNBC, and companion Internet
shopping website, ShopNBC.com, which sells 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.
Products and Customers
Products sold on the Company's television home shopping network and
Internet shopping website include jewelry, computers and other electronics,
housewares, apparel, cosmetics, fitness products, giftware, collectibles,
seasonal items and other merchandise. Jewelry represents the Company's largest
single category of merchandise, representing 57% and 56% of television home
shopping and Internet net sales for the three and six month respective periods
ended July 30, 2005 and 67% of television and Internet net sales for the three
and six month respective periods ended July 31, 2004. After jewelry, the second
largest product category of merchandise sold is electronics, representing 23%
and 22% of television home shopping and Internet net sales for the three and six
month respective periods ended July 30, 2005 and 15% and 14% of television and
Internet net sales for the three and six month respective periods ended July 31,
2004. The Company believes that product diversification appeals to a broader
segment of potential customers and is important to growing the Company's
business. The Company's product diversification strategy is to
13
continue to develop new product offerings primarily in the home, apparel and
accessories, cosmetics, fitness and consumer electronics categories to
supplement the existing jewelry and computer business. The Company continued to
make progress on its strategic objective of diversifying the merchandise mix
offered to consumers during fiscal 2005, growing product categories outside of
jewelry and electronics in the first half of fiscal 2005 from 19% to 22% of
total television home shopping and Internet sales as compared to the first half
of fiscal 2004. The Company believes that its customers are primarily women
between the ages of 35 and 55 with annual household incomes between $50,000 and
$75,000 and believes its customers make purchases based primarily on
convenience, unique product offerings, value and quality of merchandise.
Strategy
The Company's mission is to be a leader in innovative multimedia retailing,
offering consumers an entertaining, informative and interactive shopping
experience. The following business strategies are intended to continue the
growth of the Company's television home shopping business and complementary
website: (i) leverage the strong brand recognition of the NBC name and
associated peacock symbol to achieve greater brand recognition with the ShopNBC
television channel and ShopNBC.com website; (ii) diversify the types of products
offered for sale outside of the historical categories of jewelry and computers;
(iii) increase program distribution in the United States through new or expanded
broadcast agreements with cable and satellite operators and other creative means
for reaching consumers such as webcasting on ShopNBC.com; (iv) increase average
net sales per home by increasing penetration within the existing audience base
and by attracting new customers through a broadening of its merchandise mix and
targeted marketing efforts; (v) continue to grow the Company's Internet business
through the innovative use of marketing and technology, such as advanced search
strategies, personalization, webcasting and unique auction capabilities; (vi)
upgrade the overall quality of the Company's network, programming and customer
support infrastructure consistent with expectations associated with the NBC
brand name; and (vii) increase the average order size through various sales
initiatives including add-on sales, continuity programs and warranty sales.
Challenge
The Company's television home shopping business operates with a high fixed
cost base, which is primarily due to fixed contractual fees paid to cable and
satellite operators to carry the Company's programming. In addition, the Company
has invested in new initiatives intended to sustain sales growth that has
required significant up-front investment. These new initiatives include
increased marketing support, improved customer experience, enhanced on-air
quality and improved business intelligence. In order to attain profitability,
the Company must achieve sufficient sales volume through the acquisition of new
customers and the increased retention of existing customers to cover its high
fixed costs and the cost of these new initiatives. The Company's growth and
profitability could be adversely impacted if sales volume does not meet
expectations, as the Company will have limited immediate capability to reduce
its fixed cable and satellite distribution operating expenses to mitigate any
potential sales shortfall.
Competition
The direct marketing and retail businesses are highly competitive. In its
television home shopping and Internet operations, the Company competes for
consumer expenditures with other forms of retail businesses, including
traditional "brick and mortar" department, discount, warehouse and specialty
stores, other mail order, catalog and television home shopping companies,
infomercial companies and other direct sellers. The television home shopping
industry is also highly competitive and is dominated by two companies, QVC
Network, Inc. and HSN, Inc., both of which are larger, more diversified and have
greater financial and distribution resources than the Company. In 2002, Shop at
Home, Inc. ("SATH") and E.W. Scripps Company ("Scripps") announced the
completion of a transaction that resulted in Scripps owning a controlling
interest in the SATH television network, which also directly competes with the
Company. In addition, the American Collectibles Network ("ACN"), which
broadcasts the Jewelry Television home shopping channel, competes with the
Company in the jewelry sector of the television home shopping industry. There
are also a number of other small niche players and start-ups competing in the
television home shopping industry. The Company further competes with retailers
who sell and market their products through the highly competitive Internet
medium. Many companies sell products over the Internet that are competitive with
the Company's products. As the use of the Internet and other online services
increase, larger, well-established and well-financed entities may continue to
acquire, invest in or form joint ventures with providers of e-commerce and
direct marketing solutions, and existing providers of e-commerce and direct
marketing solutions may continue to consolidate. The Company expects increasing
competition for viewers and customers and for experienced home shopping
personnel from major cable systems, television networks, e-commerce and other
retailers that may seek to enter the television home shopping industry. The
continued evolution and consolidation of retailers on the Internet, together
with strategic alliances being formed by other television home shopping networks
and providers of e-commerce and direct marketing solutions, will also result in
increased competition. The Company also competes to lease cable television time
and enter into cable affiliation agreements. The Company
14
believes that its ultimate success in the television home shopping industry is
dependent upon several key factors, one of which is obtaining carriage on
additional cable systems and obtaining additional sales penetration from the
Company's existing customer base.
Results for the Second Quarter of Fiscal 2005
Consolidated net sales for the quarter ended July 30, 2005 were
$171,668,000 compared to $161,478,000 for the quarter ended July 31, 2004, a 6%
increase. The increase in consolidated net sales is directly attributable to the
continued improvement in and increased net sales from the Company's television
home shopping and Internet operations offset by a decrease in sales from the
Company's FanBuzz operations following the loss of its National Hockey League
("NHL") contract in September 2004. Net sales attributed to the Company's
television and Internet operations increased to $166,425,000 for the quarter
ended July 30, 2005 from $154,652,000 for the quarter ended July 31, 2004.
Consolidated gross margins were 35.3% for the quarter ended July 30, 2005
compared to 33.4% for the quarter ended July 31, 2004. The Company reported an
operating loss of $2,741,000 and a net loss of $1,419,000 for the second quarter
of fiscal 2005 compared to an operating loss of $8,400,000 and a net loss of
$7,828,000 for the second quarter of fiscal 2004.
ASSET IMPAIRMENT AND EMPLOYEE TERMINATION COSTS
During the quarter ended April 30, 2005, a number of FanBuzz customers
notified the Company that they had elected to not renew the term of their
e-commerce services agreement with FanBuzz or had decided to terminate their
agreement as permitted in the agreement. Following these notifications, the
Company assessed whether there had been an impairment of the FanBuzz long-lived
assets in accordance with SFAS No. 144. The Company performed a cash flow
analysis and concluded that the book value of certain long-lived assets at
FanBuzz was significantly higher than their probability-weighted expected future
cash flows and that an impairment had occurred. Accordingly, the Company
recorded a non-cash impairment loss and related charge of $400,000 in the first
quarter of fiscal 2005.
During the quarter ended April 30, 2005, the Company also recorded an
additional $528,000 charge to earnings and established a related accrual in
connection with the downsizing of the FanBuzz operations and the decision to
eliminate a number of positions within the Company in an effort to streamline
the corporate organization and reduce operating expenses. The charge consisted
primarily of severance pay and related benefit costs associated with the
elimination of approximately twelve positions. The severance is expected to be
paid out over periods ranging from one to twelve months.
WIND DOWN OF FANBUZZ OPERATIONS
In the second quarter of fiscal 2005, the Company made the decision to wind
down its FanBuzz operations. FanBuzz is an e-commerce and fulfillment solutions
provider for a number of sports, media, entertainment and retail companies
acquired by the Company in fiscal 2001. The decision to wind down FanBuzz was
made after continued operating losses were experienced following the loss of its
National Hockey League contract in September 2004 and after a number of other
FanBuzz customers notified the Company in the first quarter of fiscal 2005 that
they had elected not to renew the term of their e-commerce services agreements.
The Company expects that FanBuzz will cease business operations before the end
of October 2005. Annual sales for FanBuzz were approximately $26 million in
fiscal 2004 and fiscal 2003. The winding down of FanBuzz is not expected to have
a significant impact on the ongoing operations or financial results of the
Company. The Company expects that the eventual shut down of FanBuzz's operations
will be accounted for as a discontinued operation in accordance with SFAS No.
144 starting in the third quarter of fiscal 2005.
15
RESULTS OF OPERATIONS
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
DOLLAR AMOUNT AS A DOLLAR AMOUNT AS A
PERCENTAGE OF NET SALES FOR PERCENTAGE OF NET SALES FOR
THE THE
THREE MONTH PERIODS SIX MONTH PERIODS
ENDED ENDED
--------------------------- ---------------------------
JULY 30, JULY 31, JULY 30, JULY 31,
2005 2004 2005 2004
-------- -------- -------- --------
NET SALES 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
GROSS MARGIN 35.3% 33.4% 34.4% 33.4%
----- ----- ----- -----
Operating expenses:
Distribution and selling 30.2% 32.4% 31.4% 32.2%
General and administrative 3.7% 3.2% 4.0% 3.4%
Depreciation and amortization 3.0% 3.0% 3.2% 3.0%
Asset impairment --% --% 0.1% --%
Employee termination costs --% --% 0.1% --%
----- ----- ----- -----
36.9% 38.6% 38.8% 38.6%
----- ----- ----- -----
Operating loss (1.6)% (5.2)% (4.4)% (5.2)%
===== ===== ===== =====
KEY PERFORMANCE METRICS*
(UNAUDITED)
FOR THE THREE MONTH FOR THE SIX MONTH
PERIODS ENDED PERIODS ENDED
------------------------- -------------------------
JULY 30, JULY 31, JULY 30, JULY 31,
2005 2004 % 2005 2004 %
-------- -------- --- -------- -------- ---
PROGRAM DISTRIBUTION
Cable FTE's (Average 000's) 37,990 36,192 5% 37,759 36,046 5%
Satellite FTE's (Average 000's) 23,956 20,942 14% 23,615 20,544 15%
-------- -------- --- ------- ------- ---
Total FTEs (Average 000's) 61,946 57,134 8% 61,374 56,590 8%
Net Sales per FTE (Annualized) $ 10.78 $ 10.83 0% $ 10.39 $ 10.81 (4)%
Active Customers -12 month rolling 773,210 753,453 3% n/a n/a
% New Customers -12 month rolling 58% 62% n/a n/a
% Reactivated & Retained -12 month rolling 42% 38% n/a n/a
Customer Penetration - 12 month rolling 1.2% 1.3% n/a n/a
MERCHANDISE MIX
Jewelry 57% 67% 56% 67%
Electronics 23% 15% 22% 14%
Home 12% 11% 12% 11%
Apparel 4% 3% 5% 4%
Health & Beauty 4% 3% 4% 3%
Fitness 0% 1% 1% 1%
Shipped Units (000's) 1,159 1,233 (6)% 2,355 2,549 (8)%
Average Selling Price - Shipped Units $ 205 $ 186 10% $ 194 $ 177 10%
* Includes television home shopping and Internet sales only.
16
PROGRAM DISTRIBUTION
Average full time equivalent ("FTE") subscribers grew 8% in the second
quarter ended July 30, 2005, resulting in a 4,812,000 increase in average FTE's
compared to the prior year comparable quarter. For the six month period ended
July 30, 2005, average FTE's grew 8%, an increase of 4,784,000 versus the prior
year comparable period. The increases were driven by continued strong growth in
satellite distribution of the Company's programming and increased penetration of
digital cable.
NET SALES PER FTE
Net sales per FTE for the second quarter ended July 30, 2005 decreased
slightly, or $0.05 per FTE, compared to the prior year comparable quarter. For
the six month period ended July 30, 2005, net sales per FTE decreased 4%, or
$0.42 per FTE versus the prior year comparable period. The decreases were
primarily due to television home shopping and Internet sales increasing at a
slower rate than the 8% increase in average FTE's for both the quarter and six
month periods.
CUSTOMERS
The Company added 19,757 active customers over the twelve-month period
ended July 30, 2005, a 3% increase over active customers added in the prior year
comparable twelve-month period. The increase in active customers resulted from
the increase in household distribution, product diversification efforts and
increases in marketing and promotional efforts aimed at attracting new
customers.
CUSTOMER PENETRATION
Penetration measures the total number of customers who purchased from the
Company over the past twelve months divided by the Company's average FTE's for
that same period. This measure was 1.2% for the twelve months ended July 30,
2005 and 1.3% for the twelve months ended July 31, 2004.
MERCHANDISE MIX
During the quarter ended July 30 2005, jewelry net sales decreased to 57%
of total television home shopping and Internet net sales from 67% during the
prior year comparable quarter. Computer and electronic net sales as a percentage
of total merchandise mix increased from 15% to 23% and all other merchandise
categories increased from 18% to 20% versus the comparable prior year quarter.
During the six month period ended July 30, 2005 versus the comparable prior year
period, jewelry net sales decreased to 56% of total television home shopping and
Internet net sales from 67%. Computer and electronic net sales increased from
14% to 22%. All other merchandise categories increased from 19% to 22%. The
Company's merchandise mix is evolving away from its historical reliance on
jewelry and computers to a broader mix that also includes apparel, health and
beauty, fitness, home and other product lines. The evolution of the merchandise
mix is a key component of the Company's strategy to appeal to a broader
audience, attract new customers and increase household penetration. Computer and
electronic net sales as a percentage of total television home shopping and
Internet net sales increased during the second quarter and first half of fiscal
2005 primarily due to increased sales associated with liquid crystal display
(LCD) television sets, which are very popular with the Company's customers.
SHIPPED UNITS
The number of units shipped during the second quarter ended July 30, 2005
decreased 6% from the prior year comparable quarter to 1,159,000 from 1,233,000.
For the six month period ended July 30, 2005, shipped units decreased 8% from
the prior year comparable period to 2,355,000 from 2,549,000. The decrease in
shipped units for the quarter and six month periods ended July 30, 2005 was due
primarily to a shift in the product mix in the second quarter and first half of
fiscal 2005 to higher priced merchandise in the computer and electronics
categories driven primarily by sales of LCD television sets.
AVERAGE SELLING PRICE
The Average Selling Price ("ASP") per unit for the Company was $205 in the
second quarter ended July 30, 2005, a 10% increase from the comparable prior
year quarter. For the six month period ended July 30, 2005, the average per unit
selling price was $194, a 10% increase from the comparable prior year period.
The increase in the ASP during the second quarter and first half of fiscal 2005
was driven by increases in price points associated with gems, gold, apparel and
home merchandise categories as well as a shift in merchandise mix from jewelry
to sales of LCD television sets which have higher average selling prices.
17
NET SALES
Consolidated net sales for the three month period ended July 30, 2005 were
$171,668,000 compared with net sales of $161,478,000 for the three month period
ended July 31, 2004, a 6% increase. Consolidated net sales for the six month
period ended July 30, 2005 were $327,831,000 compared with net sales of
$320,675,000 for the six month period ended July 31, 2004, a 2% increase. The
increase in consolidated net sales is directly attributable to the continued
improvement in net sales from the Company's television home shopping and
Internet operations offset by a decrease in sales from the Company's FanBuzz
operations. The Company continues to wind down FanBuzz's remaining business
operations following the loss of its National Hockey League ("NHL") contract in
September 2004. Decreases in consolidated net sales due to FanBuzz were
$2,841,000 and $6,279,000 for the three and six month periods ended July 30,
2005, respectively. Net sales attributed to the Company's television home
shopping and Internet operations increased 8% to $166,425,000 for the quarter
ended July 30, 2005 from $154,652,000 for the quarter ended July 31, 2004. Net
sales attributed to the Company's television home shopping and Internet
operations increased 4% to $317,635,000 for the six month period ended July 30,
2005 from $305,779,000 for the comparable prior year period. The growth in the
quarter and year-to-date television home shopping and Internet net sales is
primarily attributable to increased shipping and handling revenue as a result of
fewer shipping promotions in the first half of fiscal 2005 compared to fiscal
2004 and the growth in FTE homes receiving the Company's television programming.
During the twelve-month period ended July 30, 2005, the Company added
approximately 4.8 million FTE subscriber homes, an 8% increase. In addition,
television home shopping and Internet sales increased due to the 10% increase in
the average per unit selling prices experienced during fiscal 2005. The Company
intends to continue to develop its merchandising and programming strategies,
including the continuation of its strategy of product diversification and
increased marketing spending with the goal of improving its television home
shopping and Internet sales results. While the Company is optimistic that
television home shopping and Internet sales results will continue to improve,
there can be no assurance that such changes in strategy will achieve the
intended results.
GROSS PROFIT
Gross profit for the three months ended July 30, 2005 and July 31, 2004 was
$60,521,000 and $53,900,000, respectively, an increase of $6,621,000. Gross
profit for the six months ended July 30, 2005 and July 31, 2004 was $112,904,000
and $106,984,000, respectively, an increase of $5,920,000. The increase in
consolidated gross profit is directly attributable to increases in gross profit
margins on shipping and handling and increased sales volume from the Company's
television home shopping and Internet businesses. The increases in consolidated
gross profit were offset by decreases in gross profit of $1,095,000 and
$2,770,000 for the respective three and six months ended July 30, 2005 relating
to the winding down of the Company's FanBuzz operations. Gross margins for the
three month periods ended July 30, 2005 and July 31, 2004 were 35.3% and 33.4%,
respectively. Gross margins for the six month periods ended July 30, 2005 and
July 31, 2004 were 34.4% and 33.4%, respectively. Gross margins for the three
and six months ended July 30, 2005 increased 1.7 percentage points and 1.9
percentage points, respectively, as compared to gross margins of the comparable
prior year periods primarily due to increases in television home shopping and
Internet shipping and handling margins. These increases reflect the negative
impact of the Company's fiscal 2004 free shipping loyalty club launched in
February 2004, and lower promotional discounting during the first half of fiscal
2005. In addition, gross margin also improved overall due to the achievement of
higher merchandise margins in primarily all major product categories which was
offset by a product mix shift that included greater sales in lower margin
electronic categories during fiscal 2005. These margin increases were offset by
a 1.0 percentage point second quarter and year-to-date decrease in margins
relating to the reduction in FanBuzz's operations. Gross margins may not be
comparable to those of other entities, since some entities include all of the
costs related to their product distribution network in cost of sales and others,
including the Company, exclude a portion of these costs from gross margin,
including them instead as a component of distribution and selling expense.
OPERATING EXPENSES
Total operating expenses for the three months ended July 30, 2005 were
$63,262,000 compared to $62,300,000 for the comparable prior year period. Total
operating expenses for the six months ended July 30, 2005 were $127,236,000
compared to $123,561,000 for the comparable prior year period. Total operating
expenses for the six month period ended July 30, 2005 included a non-cash charge
of $400,000 relating to impairments of long-lived assets associated with the
Company's FanBuzz subsidiary. Total operating expenses for the six month period
ended July 30, 2005 also included a charge of $528,000 recorded in connection
with the downsizing of the FanBuzz operations and management's decision to
eliminate a number of positions within the Company primarily related to FanBuzz.
Distribution and selling expense decreased $509,000, or 1%, to $51,766,000, or
30% of net sales, during the second quarter of fiscal 2005 compared to
$52,275,000, or 32% of net sales, for the comparable prior-year period.
Distribution and selling expense decreased $166,000 to $102,911,000, or 31% of
net sales, for the six month period ended July 30, 2005 compared to
$103,077,000, or 32% of net sales, for the comparable prior-year period.
Distribution and selling expense decreased on a year-to-date basis over prior
year
18
primarily due to decreases in distributing and selling expenses of $2,880,000
associated with the winding down of the FanBuzz operations, decreased
direct-mail and marketing expenses of $578,000 and decreased satellite rental
fees of $591,000. These decreases were offset by selling and distribution
expense increases associated with increased net cable access fees of $2,421,000
due to an 8% year-to-date increase in the number of average FTE subscribers over
the comparable prior year period, increased credit card fees of $839,000 due to
an overall decline in net sales made using the ShopNBC credit card, which
generally carries lower fees. In addition, distribution and selling expense also
increased over the comparable prior-year period as a result of increased costs
associated with the hiring of merchandising and programming personnel and on-air
talent of $843,000.
General and administrative expense for the three months ended July 30, 2005
increased $1,287,000, or 25%, to $6,394,000, or 4% of net sales, compared to
$5,107,000, or 3% of net sales, for the three months ended July 31, 2004.
General and administrative expense for the six months ended July 30, 2005
increased $2,222,000, or 21%, to $13,004,000, or 4% of net sales, compared to
$10,782,000, or 3% of net sales, for the six months ended July 30, 2004. General
and administrative expense increased on a year-to-date basis over the prior year
primarily as a result of increased information system personnel salaries and
consulting fees and software maintenance fees of $1,760,000 and increased legal
fees of $377,000.
Depreciation and amortization expense for the three months ended July 30,
2005 was $5,102,000 compared to $4,918,000 for the three months ended July 31,
2004, representing an increase of $184,000, or 4%, from the comparable prior
year period. Depreciation and amortization expense for the six months ended July
30, 2005 was $10,393,000 compared to $9,702,000 for the six months ended July
31, 2004, representing an increase of $691,000, or 7%, from the comparable prior
year period. Depreciation and amortization expense as a percentage of net sales
for the three and six months ended July 30, 2005 and July 31, 2004 was 3%,
respectively. The increase is primarily due to increased depreciation and
amortization as a result of assets placed in service in connection with the
Company's various application software development and functionality
enhancements.
OPERATING LOSS
For the three months ended July 30, 2005, the Company reported an operating
loss of $2,741,000 compared to an operating loss of $8,400,000 for the three
months ended July 31, 2004. For the six months ended July 30, 2005, the Company
reported an operating loss of $14,332,000 compared to an operating loss of
$16,577,000 for the six months ended July 31, 2004. The Company's operating loss
decreased for the six month period ended July 30, 2005 from the comparable prior
year period primarily as a result of the Company's increase in gross profit as
described above under "Gross Profit." Offsetting the increase in gross profit
over the comparable prior year period, were increases in distribution and
selling expenses, particularly net cable access fees, credit card fees and
additional costs associated with merchandising, production and on-air talent,
increases in general and administrative expenses recorded in connection with
information system personnel salaries, consulting fees and software maintenance
fees and increases in depreciation and amortization expense as a result of
assets placed in service in connection with the Company's various application
software development and functionality enhancements, the details of which are
discussed above. Additionally, the Company's operating loss was negatively
affected for the six month period ended July 30, 2005 from the comparable prior
year period due to a $400,000 asset impairment charge recorded in the first
quarter of fiscal 2005 and a charge of $528,000 recorded in connection with
costs incurred associated with first quarter employee terminations.
NET LOSS
For the three months ended July 30, 2005, the Company reported a net loss
available to common shareholders of $1,490,000 or $(.04) per share on 37,102,000
weighted average common shares outstanding compared with a net loss available to
common shareholders of $7,899,000 or $(.21) per share on 36,810,000 weighted
average common shares outstanding for the quarter ended July 31, 2004. The net
loss available to common shareholders for the three months ended July 30, 2005
includes a $256,000 write-down of a non-operating real estate asset held for
sale, the recording of $14,000 of equity in earnings from RLM, an $826,000
income tax benefit and interest income totaling $738,000 earned on the Company's
cash and short-term investments. For the quarter ended July 31, 2004, the net
loss available to common shareholders included a $250,000 cash dividend received
from RLM and interest income of $322,000 earned on the Company's cash and
short-term investments.
For the six months ended July 30, 2005, the Company reported a net loss
available to common shareholders of $12,258,000 or $(.33) per share on
37,090,000 weighted average common shares outstanding compared with a net loss
available to common shareholders of $15,873,000 or $(.43) per share on
36,725,000 weighted average common shares outstanding for the six months ended
July 31, 2004. The net loss available to common shareholders for the six months
ended July 30, 2005 includes a $250,000 cash dividend received from RLM, a
$256,000 write-down of a non-operating real estate asset held for sale, the
recording of $14,000 of equity in earnings from RLM, an $820,000 income tax
benefit and interest income totaling $1,384,000 earned on the Company's cash
19
and short-term investments. For the quarter ended July 31, 2004, the net loss
available to common shareholders included a $250,000 cash dividend received from
RLM and interest income of $596,000 earned on the Company's cash and short-term
investments.
The Company recorded an income tax benefit of $832,000 in the second
quarter of fiscal 2005 related to the reversal of an income tax contingency
reserve that expired in the second quarter and is no longer required. The
Company has not recorded any other income tax benefit on the losses recorded in
the quarters ended July 30, 2005 and July 31, 2004 due to the uncertainty of
such benefit's realization in the future as indicated by the Company's recording
of an income tax valuation reserve. The Company has recorded a quarterly income
tax provision relating to state income taxes payable on certain income for which
there was no loss carryforward benefit available. The Company will continue to
maintain a valuation reserve against its net deferred tax assets until such time
that the Company believes it is more likely than not that such assets will be
realized in the future.
PROGRAM DISTRIBUTION
The Company's television home shopping programming was available to
approximately 61.9 million average FTE households for the three months ended
July 30, 2005 and approximately 57.1 million average FTE households for the
three months ended July 31 2004. The Company's television home shopping
programming was available to approximately 61.4 million average FTE households
for the six month period ended July 30, 2005 and approximately 56.6 million
average FTE households for the six month period ended July 31, 2004. The
Company's television home shopping programming is currently available through
affiliation and time-block purchase agreements with approximately 1,300 cable or
satellite systems. The Company also owns and operates a full-power television
station in Boston, Massachusetts and a low power television station in Atlanta,
Georgia. 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 that programming is received. The
Company's television home shopping programming is also simulcast live 24 hours a
day, 7 days a week through its Internet shopping website, www.shopnbc.com, which
is not included in total FTE households.
TRANSACTIONS BY GE CAPITAL EQUITY INVESTMENTS, INC.
On July 8, 2005, GE Capital Equity Investments, Inc. ("GE"), the Company's
largest shareholder, entered into agreements to sell an aggregate of 2,604,932
shares of the Company's common stock in private negotiated transactions. In
connection with that transaction, the Company filed a Registration Statement on
Form S-3 on July 29, 2005 with respect to an aggregate of 4,604,932 shares of
the Company's common stock that had been sold by GE in private negotiated
transactions, including the transaction noted above. The Company will receive no
proceeds from the sale of the shares covered by the Registration Statement.
CRITICAL ACCOUNTING POLICIES, ESTIMATES AND RISK FACTORS
A discussion of the critical accounting policies related to accounting
estimates and assumptions and specific risks and uncertainties are discussed in
detail in the Company's fiscal 2004 Annual Report on Form 10-K under the
captions entitled "Risk Factors" and "Critical Accounting Policies and
Estimates."
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of July 30, 2005, cash and cash equivalents and short-term investments
were $90,793,000, compared to $100,581,000 as of January 31, 2005, a $9,788,000
decrease. For the six month period ended July 30, 2005, working capital
decreased $5,832,000 to $145,618,000. The current ratio was 2.4 at July 30, 2005
compared to 2.7 at January 31, 2005.
SOURCES OF LIQUIDITY
The Company's principal sources of liquidity are its available cash, cash
equivalents and short-term investments, accrued interest earned from its
short-term investments and its operating cash flow, which is primarily generated
from credit card receipts from sales transactions and the collection of
outstanding customer accounts receivables. The timing of customer collections
made pursuant to the Company's ValuePay installment program and the extent to
which the Company extends credit to its customers is important to the Company's
short-term liquidity and cash resources. A significant increase in the Company's
accounts receivable aging or credit losses could negatively impact the Company's
source of cash from operations in the short term. While credit losses have
historically been within the Company's estimates for such losses, there is no
guarantee that the Company will continue to experience the same credit loss rate
that it has in the past. Historically, the Company has also been able to
generate additional cash sources from the proceeds of stock option exercises and
from the sale of its equity investments and other properties; however, these
sources of cash are neither
20
relied upon nor controllable by the Company. The Company has no long-term debt
other than fixed capital lease obligations and believes it has the ability to
obtain additional financing if necessary. At July 30, 2005, all short-term
investments and cash equivalents were invested primarily in money market funds,
high quality commercial paper with original maturity dates of less than 270 days
and investment grade corporate and municipal bonds and other tax advantaged
certificates with tender option terms ranging from one month to one year.
Although management believes the Company's short-term investment policy is
conservative in nature, certain short-term investments in commercial paper can
be exposed to the credit risk of the underlying companies to which they relate
and interest earned on these investments are subject to interest rate market
fluctuations. The average maturity of the Company's investment portfolio ranges
from 30-180 days.
CASH REQUIREMENTS
The Company's principal use of cash is to fund its business operations,
which consist primarily of purchasing inventory for resale, funding account
receivables growth in support of sales growth and funding operating expenses,
particularly the Company's contractual commitments for cable and satellite
programming and the funding of capital expenditures. Expenditures made for
property and equipment in fiscal 2005 and 2004 and for expected future capital
expenditures include the upgrade and replacement of computer software and
front-end merchandising systems, expansion of capacity to support the Company's
growing business, continued improvements and modifications to the Company's
owned headquarter buildings, the upgrade and digitalization of television
production and transmission equipment and related computer equipment associated
with the expansion of the Company's home shopping business and e-commerce
initiatives. Historically, the Company has also used its cash resources for
various strategic investments and for the repurchase of stock under the
Company's stock repurchase program but is under no obligation to continue doing
so if protection of liquidity is desired. The Company has the discretion in the
future to continue its stock repurchase program and will make strategic
investments as opportunities present themselves or when cash investments are
determined to be beneficial to the long-term interests of its shareholders.
The Company ended July 30, 2005 with cash and cash equivalents and
short-term investments of $90,793,000, no long-term debt and $1,099,000 of
long-term capital lease obligations. The Company expects continued future growth
in working capital as revenues grow beyond fiscal 2005 but expects cash
generated from operations to partially offset the expected use. The Company
believes its existing cash balances and its ability to raise additional
financing will be sufficient to fund its obligations and commitments as they
come due on a long-term basis as well as fund potential foreseeable
contingencies. These estimates are subject to normal business risk factors as
identified under "Risk Factors" in the Company's fiscal 2004 Annual Report on
Form 10-K. In addition to these Risk Factors, a significant element of
uncertainty in future cash flows arises from potential strategic investments
which the Company may make, which are inherently opportunistic and difficult to
predict. The Company believes existing cash balances, its ability to raise
financing and the ability to structure transactions in a manner reflective of
capital availability will be sufficient to fund any such investments while
maintaining sufficient liquidity for its normal business operations.
Total assets at July 30, 2005 were $351,363,000, compared to $350,296,000
at January 31, 2005, a $1,067,000 increase. Shareholders' equity was
$204,900,000 at July 30, 2005, compared to $216,812,000 at January 31, 2005, a
$11,912,000 decrease. The decrease in shareholders' equity for the six month
period ended July 30, 2005 resulted primarily from the net loss of $12,115,000
recorded during the six month period and accretion on redeemable preferred stock
of $143,000. These decreases were offset by increases in shareholders' equity of
$248,000 from proceeds received related to the exercise of stock options and
vesting of deferred compensation of $98,000.
For the six month period ended July 30, 2005, net cash used for operating
activities totaled $5,824,000 compared to net cash used for operating activities
of $9,535,000 for the six month period ended July 31, 2004. Net cash used for
operating activities for the six month periods ended July 30, 2005 and July 31,
2004 reflects the net loss, as adjusted for depreciation and amortization,
common stock issued to employees, amortization of deferred compensation, gain on
sale of investments, equity in earnings of affiliates, an asset impairment
charge and a noncash tax benefit recorded in fiscal 2005. In addition, net cash
used for operating activities for the six months ended July 30, 2005 reflects
primarily an increase in inventories, accounts receivable and prepaid expenses
and other assets, offset by an increase in accounts payable and accrued
liabilities. Inventories increased from year-end primarily as a direct result of
the Company's effort to diversify its product mix offerings and the timing of
merchandise receipts as the Company prepares for its Fall season. Accounts
receivable increased primarily due to an increase in receivables from sales
utilizing extended payment terms and the timing of customer collections made
pursuant to the "ValuePay" installment program. Prepaid expenses and other
assets increased primarily as a result of an increase in prepaid insurance
following the Company's annual insurance renewal. The increase in accounts
payable and accrued expenses is a direct result of the increase in inventory
levels and the timing of merchandise receipts. In addition, accounts payable and
accrued expenses increased from year-end as a result of the timing of payments
made for accrued cable access
21
and marketing fees, the accrual recorded in connection with first quarter
employee termination costs, offset by a decrease in accrued salaries and a
decrease in amounts due to customers for returned merchandise.
Net cash provided by investing activities totaled $277,000 for the six
months ended July 30, 2005 compared to net cash used for investing activities of
$46,962,000 for the six months ended July 31, 2004. For the six month periods
ended July 30, 2005 and July 31, 2004, expenditures for property and equipment
were $3,879,000 and $6,389,000, respectively. Expenditures for property and
equipment during the periods ended July 30, 2005 and July 31, 2004 primarily
include capital expenditures made for the upgrade and replacement of computer
software and front-end ERP, customer care management and merchandising systems,
related computer equipment, digital broadcasting equipment and other office
equipment, warehouse equipment, production equipment and building improvements.
Principal future capital expenditures include the upgrade and replacement of
various enterprise software systems, continued improvements/modifications to the
Company's owned headquarter buildings, the expansion of warehousing capacity,
the upgrade and digitalization of television production and transmission
equipment and related computer equipment associated with the expansion of the
Company's home shopping business and e-commerce initiatives. In the six months
ended July 30, 2005, the Company invested $41,837,000 in various short-term
investments and received proceeds of $45,993,000 from the sale of short-term
investments. In the six months ended July 31, 2004, the Company invested
$92,697,000 in various short-term investments and received proceeds of
$52,124,000 from the sale of short-term investments.
Net cash used for financing activities totaled $90,000 for the six months
ended July 30, 2005 and related primarily to payments of long-term capital lease
obligations of $325,000, offset by cash proceeds received of $235,000 from the
exercise of stock options. Net cash provided by financing activities totaled
$1,184,000 for the six months ended July 31, 2004 and related primarily to cash,
proceeds received of $1,757,000 from the exercise of stock options, offset by
payments of long-term capital lease obligations of $573,000.
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not enter into financial instruments for trading or
speculative purposes and does not currently utilize derivative financial
instruments as a hedge to offset market risk. The Company has held certain
equity investments in the form of common stock purchase warrants in public
companies and accounted for these investments in accordance with the provisions
of SFAS No. 133. The Company no longer has investments in the form of common
stock purchase warrants. The operations of the Company are conducted primarily
in the United States and as such are not subject to foreign currency exchange
rate risk. However, some of the Company's products are sourced internationally
and may fluctuate in cost as a result of foreign currency swings. The Company
has no long-term debt other than fixed capital lease obligations, and
accordingly, is not significantly exposed to interest rate risk, although
changes in market interest rates do impact the level of interest income earned
on the Company's substantial cash and short-term investment portfolio.
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company's
management conducted an evaluation, under the supervision and with the
participation of the Company's chief executive officer and chief financial
officer, of the effectiveness of the Company's disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934). Based on this evaluation, the officers concluded that the
Company's disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
The Company's management, with the participation of the chief executive
officer and chief financial officer, performed an evaluation as to whether any
change in the internal controls over financial reporting (as defined in Rules
13a-15 and 15d-15 under the Securities Exchange Act of 1934) occurred during the
period covered by this report. Based on that evaluation, the chief executive
officer and chief financial officer concluded that no change occurred in the
internal controls over financial reporting during the period covered by this
report that materially affected, or were reasonably likely to materially affect,
the internal controls over financial reporting.
23
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On July 7, 2004, the Company commenced legal proceedings against Navarre
Corporation in state court in Minnesota seeking to enforce rights granted under
a Stock Purchase Agreement and Conversion Agreement entered in 1997 as an
inducement to obtain the Company's investment in NetRadio Corporation. The
Company contends that an event of default under the Conversion Agreement
occurred when NetRadio ceased operations in October 2001, giving the Company a
contractual right to obtain shares of Navarre stock or $3.5 million in cash from
Navarre. The Company brought the action after Navarre breached the terms of the
Conversion Agreement by failing to deliver stock or cash after due demand by the
Company in January 2002. In the lawsuit, the Company is seeking monetary
damages, restitution, and specific performance or such other remedies as the
court may order.
On August 9, 2004, Navarre filed its response to the Company's complaint,
denying liability and asserting various defenses. On December 17, 2004, Navarre
additionally commenced a third-party action against Gene McCaffery, the
Company's former Chief Executive Officer, alleging that Mr. McCaffery, while
acting as a Director of NetRadio, breached certain fiduciary duties to 75%
shareholder Navarre by failing to provide his unsolicited opinion regarding the
Company's continuing rights under the Conversion Agreement. Mr. McCaffery
responded to the complaint by denying any breach of duty or any liability to
Navarre. On January 26, 2005, Navarre further filed a counterclaim against the
Company alleging a breach of duty based on the same purported nondisclosure. The
Company has denied any liability to Navarre under the counterclaim. On August 2,
2005, the Company, Mr. McCaffery and Navarre each filed motions for summary
judgment with the court, and an oral argument was held on August 30, 2005. The
court took the issues under advisement.
The Company believes it has a legally enforceable claim against Navarre
with respect to its rights under the 1997 Conversion Agreement and intends to
pursue its claim through all appropriate court proceedings. Meanwhile, the
Company believes that Navarre's claim against the Company and against Mr.
McCaffery are entirely without merit and were brought to deflect attention from
the merits of the Company's case against Navarre. Given the uncertainties
associated with litigation, there can be no assurance that the Company will be
successful in enforcing its rights under the Conversion Agreement and the
Company cannot predict the eventual outcome of the various proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on June 23,
2005. Shareholders holding an aggregate of 35,407,102 shares (common and
preferred shares), or approximately 84% of the outstanding shares, were
represented at the meeting by proxy or in person. Matters submitted at the
meeting for vote by the shareholders were as follows:
(a) Election of Directors
The following nominees were elected with the following votes to serve as members
of the Board of Directors until the next annual meeting of shareholders or until
such time as a successor may be elected:
SHARES SHARES
VOTED FOR WITHHELD
---------- ---------
William J. Lansing 28,779,628 1,287,974
James J. Barnett 29,729,308 338,294
John D. Buck 29,077,668 989,934
Marshall S. Geller 29,645,884 421,718
Allen L. Morgan* 29,057,168 1,010,434
Robert J. Korkowski 28,997,762 1,069,840
Douglas V. Holloway ** 5,339,500 --
Ronald J. Herman, Jr.** 5,339,500 --
Jay Ireland** 5,339,500 --
24
* Mr. Morgan resigned from the Company's board effective August 24, 2005 and
was replaced by George A. Vandeman by a vote of the remaining board
members.
** Messrs. Holloway, Herman and Ireland are the representatives elected by the
holders of the Company's Series A Redeemable Convertible Preferred stock.
(b) Ratification of Deloitte & Touche LLP as independent auditors for the
current fiscal year.
Shareholders ratified the appointment of Deloitte & Touche LLP as independent
auditors for the fiscal year ending February 4, 2006 by a vote of 34,791,995
shares in favor and 605,047 shares against approval. There were 10,060 shares
that were voted to abstain and no broker non-votes.
25
ITEM 6. EXHIBITS
EXHIBIT NUMBER EXHIBIT
- -------------- -------
3.1 Sixth Amended and Restated Articles of Incorporation, as
Amended. (A)
3.2 Certificate of Designation of Series A Redeemable Convertible
Preferred Stock. (B)
3.3 Articles of Merger. (C)
3.4 Bylaws, as amended. (A)
10.1 Stock Purchase and Registration Agreements dated as of July 8,
2005 between GE Capital Equity Investments, Inc., on the one
hand, and Janus Investor Fund, Caxton International Limited,
Magnetar Investment Management, LLC, RCG Ambrose Master Fund,
Ltd., RCG Halifax Fund, Ltd., Ramius Securities, LLC, Starboard
Value and Opportunity Fund, LLC, Parche, LLC, and Ramius Master
Fund, Ltd., on the other. (D)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer.*
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer.*
32.1 Section 1350 Certification of Chief Executive Officer.*
32.2 Section 1350 Certification of Chief Financial Officer.*
- ----------
* Filed herewith.
(A) Incorporated herein by reference to the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended August 31, 1994, filed on September 13,
1994, File No. 0-20243.
(B) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated April 15, 1999, filed on April 29, 1999, File No. 0-20243.
(C) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated May 16, 2002, filed on May 17, 2002, File No. 0-20243.
(D) Incorporated herein by reference to the Registrant's Current Report on Form
8-K dated July 14, 2002, filed on July 14, 2005, File No. 0-20243.
26
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/ William J. Lansing
----------------------------------------
William J. Lansing
Chief Executive Officer, President and
Director (Principal Executive Officer)
/s/ Frank P. Elsenbast
----------------------------------------
Frank P. Elsenbast
Vice President Finance, Chief Financial
Officer (Principal Financial Officer)
September 7, 2005
27
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT FILED BY
- ------- ------- --------
3.1 Sixth Amended and Restated Articles of Incorporated by reference
Incorporation, as Amended
3.2 Certificate of Designation of Series A Incorporated by reference
Redeemable Convertible Preferred Stock
3.3 Articles of Merger Incorporated by reference
3.4 Bylaws, as amended Incorporated by reference
10.1 Stock Purchase and Registration Agreements Incorporated by reference
dated as of July 8, 2005 between GE
Capital Equity Investments, Inc., on the
one hand, and Janus Investor Fund, Caxton
International Limited, Magnetar Investment
Management, LLC, RCG Ambrose Master Fund,
Ltd., RCG Halifax Fund, Ltd., Ramius
Securities, LLC, Starboard Value and
Opportunity Fund, LLC, Parche, LLC, and
Ramius Master Fund, Ltd., on the other.
(D)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Filed herewith
Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Filed herewith
Chief Financial Officer
32.1 Section 1350 Certification of Chief Filed herewith
Executive Officer
32.2 Section 1350 Certification of Chief Filed herewith
Financial Officer.
28