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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 May 6, 2006
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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large Accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
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 June 12, 2006, there were 37,415,798 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
MAY 6, 2006
PAGE OF
FORM 10-Q
---------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
-Condensed Consolidated Balance Sheets as of May 6, 2006
and February 4, 2006 3
-Condensed Consolidated Statements of Operations for the
Three Month Periods Ended May 6, 2006 and April 30, 2005 4
-Condensed Consolidated Statement of Shareholders' Equity
for the Three Month Period Ended May 6, 2006 5
-Condensed Consolidated Statements of Cash Flows for the
Three Month Periods Ended May 6, 2006 and April 30, 2005 6
-Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
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 6. Exhibits 24
Signatures 25
Exhibit Index 26
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)
MAY 6, FEBRUARY 4,
2006 2006
----------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 42,224 $ 43,143
Short-term investments 34,237 39,207
Accounts receivable, net 80,140 87,478
Inventories 69,426 67,844
Prepaid expenses and other 8,457 8,357
--------- ---------
Total current assets 234,484 246,029
PROPERTY & EQUIPMENT, NET 45,700 46,958
FCC BROADCASTING LICENSE 31,943 31,943
NBC TRADEMARK LICENSE AGREEMENT, NET 14,654 15,461
CABLE DISTRIBUTION AND MARKETING AGREEMENT, NET 2,431 2,654
OTHER ASSETS 4,320 4,094
--------- ---------
$ 333,532 $ 347,139
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 52,753 $ 60,597
Accrued liabilities 36,062 40,223
--------- ---------
Total current liabilities 88,815 100,820
LONG-TERM CAPITAL LEASE OBLIGATIONS 136 130
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$.01 PER SHARE PAR VALUE, 5,339,500 SHARES AUTHORIZED;
5,339,500 SHARES ISSUED AND OUTSTANDING 43,390 43,318
SHAREHOLDERS' EQUITY:
Common stock, $.01 per share par value, 100,000,000
shares authorized; 37,727,173 and 37,643,676 shares
issued and outstanding 377 376
Warrants to purchase 6,380,583 shares of common stock 34,029 34,029
Additional paid-in capital 278,522 278,266
Deferred compensation -- (154)
Accumulated deficit (111,737) (109,646)
--------- ---------
Total shareholders' equity 201,191 202,871
--------- ---------
$ 333,532 $ 347,139
========= =========
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
---------------------------------
MAY 6, APRIL 30,
2006 2005
----------- -----------
Net sales $ 178,724 $ 153,476
Cost of sales (exclusive of depreciation and
amortization shown below) 115,522 102,178
----------- -----------
Gross profit 63,202 51,298
----------- -----------
OPERATING EXPENSE:
Distribution and selling 54,909 49,888
General and administrative 6,806 6,248
Depreciation and amortization 5,376 5,105
Asset impairments and write offs 29 --
Employee termination costs -- 82
----------- -----------
Total operating expense 67,120 61,323
----------- -----------
OPERATING LOSS (3,918) (10,025)
----------- -----------
OTHER INCOME:
Other income 350 255
Interest income 946 662
----------- -----------
Total other income 1,296 917
----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (2,622) (9,108)
Equity in income of affiliates 546 --
Income tax provision (15) (6)
----------- -----------
LOSS FROM CONTINUING OPERATIONS (2,091) (9,114)
DISCONTINUED OPERATIONS:
Loss from discontinued FanBuzz operations,
net of tax (Note 13) -- (1,583)
----------- -----------
NET LOSS (2,091) (10,697)
Accretion of redeemable preferred stock (72) (72)
----------- -----------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS $ (2,163) $ (10,769)
=========== ===========
NET LOSS PER COMMON SHARE:
Continuing operations $ (0.06) $ (0.25)
Discontinued operations -- (0.04)
----------- -----------
Net loss $ (0.06) $ (0.29)
=========== ===========
NET LOSS PER COMMON SHARE - ASSUMING DILUTION:
Continuing operations $ (0.06) $ (0.25)
Discontinued operations -- (0.04)
----------- -----------
Net loss $ (0.06) $ (0.29)
=========== ===========
Weighted average number of common shares
outstanding:
Basic 37,679,102 37,077,473
=========== ===========
Diluted 37,679,102 37,077,473
=========== ===========
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 MONTH PERIOD ENDED MAY 6, 2006
(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, FEBRUARY 4, 2006 37,643,676 $376 $34,029 $278,266 $(154) $(109,646) $202,871
Net loss $(2,091) -- -- -- -- -- (2,091) (2,091)
=======
Exercise of stock options and
common stock issuances 83,497 1 -- 62 -- -- 63
Share-based payment compensation -- -- -- 420 -- -- 420
Effect of accounting change
(SFAS 123R) -- -- -- (154) 154 -- --
Accretion on redeemable
preferred stock -- -- -- (72) -- -- (72)
---------- ---- ------- --------- ----- --------- --------
BALANCE, MAY 6, 2006 37,727,173 $377 $34,029 $278,522 $ -- $(111,737) $201,191
========== ==== ======= ======== ===== ========= ========
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 THREE MONTH PERIODS ENDED
---------------------------------
MAY 6, APRIL 30,
2006 2005
-------- ---------
OPERATING ACTIVITIES:
Net loss $ (2,091) $(10,697)
Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:
Depreciation and amortization 5,376 5,291
Share-based payment compensation 420 --
Common stock issued to employees 2 4
Amortization of deferred compensation -- 49
Asset impairments and write offs 179 400
Equity in earnings of affiliates (546) --
Gain on sale of property and investments (500) (5)
Changes in operating assets and liabilities:
Accounts receivable, net 7,338 6,395
Inventories (1,582) (4,405)
Prepaid expenses and other (81) (59)
Accounts payable and accrued liabilities (11,053) 8,295
-------- --------
Net cash (used for) provided by operating
activities (2,538) 5,268
-------- --------
INVESTING ACTIVITIES:
Property and equipment additions (3,774) (2,426)
Purchase of short-term investments (2,965) (31,924)
Proceeds from sale of short-term investments 7,935 30,139
Proceeds from sale of investments 500 --
-------- --------
Net cash provided by (used for) investing
activities 1,696 (4,211)
-------- --------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options 61 152
Payment of long-term obligation (138) (167)
-------- --------
Net cash used for financing activities (77) (15)
-------- --------
Net (decrease) increase in cash and cash
equivalents (919) 1,042
BEGINNING CASH AND CASH EQUIVALENTS 43,143 62,640
-------- --------
ENDING CASH AND CASH EQUIVALENTS $ 42,224 $ 63,682
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 7 $ 33
======== ========
Income taxes paid $ 8 $ 6
======== ========
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:
Restricted stock forfeited $ -- $ 9
======== ========
Property and equipment purchases included in
accounts payable $ 75 $ --
======== ========
Accretion of redeemable preferred stock $ 72 $ 72
======== ========
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
MAY 6, 2006
(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 and fulfillment services.
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 lease agreements of cable and broadcast television time. In addition,
the Company distributes its programming through one Company-owned full power
television station in Boston, Massachusetts. The Company also complements its
television home shopping business by the sale of a broad array of merchandise
through its Internet shopping website, www.shopnbc.com.
The Company has an exclusive license agreement with 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 television 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"), the operator of the
Polo.com e-commerce business in which the Company holds a minority equity
interest. VVIFC also provides fulfillment and warehousing services for the
fulfillment of merchandise sold on the Company's television home shopping
program and Internet website.
(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
2005 Annual Report on Form 10-K. Operating results for the three month period
ended May 6, 2006 are not necessarily indicative of the results that may be
expected for the fiscal year ending February 3, 2007.
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 February 4, 2006
and is designated "fiscal 2005". The Company's fiscal year ending February 3,
2007 is designated "fiscal 2006". 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
change was effective beginning with the Company's 2005 fiscal year. The Company
made this change in order to align its fiscal year more closely to its retail
seasonal merchandising plan. The change also enhanced the weekly and monthly
comparability of sales results relating to the Company's television
home-shopping business. The change did not have a significant impact on the
Company's fiscal 2005 annual consolidated financial statements.
(3) STOCK-OPTION COMPENSATION
Effective February 5, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123(R) (revised 2004), "Share-Based Payment", which
revised SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). This
standard requires compensation costs related to share-based payment transactions
to be recognized in the financial statements. The Company adopted the standard
using the modified prospective transition method, which requires the application
of the accounting standard to all share-based awards issued on or after the date
of adoption and any outstanding share-based awards that were issued but not
vested as of the date of adoption. Accordingly, the Company did not restate the
financial statements for periods prior to the first quarter of fiscal 2006 as a
result of the adoption.
Stock-based compensation expense from continuing operations in the first
quarter of fiscal 2006 and the first quarter of fiscal 2005 related to stock
option awards was $400,000 and $-0-, respectively. The adoption of 123(R) in
fiscal 2006 resulted in the recognition of incremental pre-tax stock based
compensation expense and an increase in net loss of $400,000 and a $.01 negative
impact on basic and fully diluted loss per share. The Company has not recorded
any income tax benefit from the exercise of stock options due to the uncertainty
of realizing income tax benefits in the future. Additionally, the Company
reclassified unearned compensation on restricted stock awards of $154,000 to
additional paid in capital. The cumulative effect adjustment for forfeitures
related to non-vested stock-based awards was not material.
At May 6, 2006, the Company had two active Omnibus Stock Plans for which
stock awards can be currently granted, namely the 2004 Omnibus Stock Plan which
provides for the issuance of up to 2,000,000 shares of the Company's common
stock and the 2001 Omnibus Stock Plan which provides for the issuance of up to
3,000,000 shares of the Company's stock. These plans are administered by the
Company's Compensation Committee and have two basic components, (a)
discretionary awards for employees, directors and consultants and (b) automatic
option grants for outside directors. All employees of the Company or its
affiliates are eligible to receive awards under the plans. The types of awards
that may be granted under these plans include restricted (unvested shares) and
unrestricted stock, incentive and nonstatutory stock options, stock appreciation
rights, performance units and other stock-based awards. Incentive stock options
may be granted to employees at such exercise prices as the Compensation
Committee may determine but not less than 100% of the fair market value of the
underlying stock as of the date of grant. No incentive stock option may be
granted more than ten years after the effective date of the respective plan's
inception or be exercisable more than ten years after the date of grant. Options
granted to outside directors are nonstatutory stock options with an exercise
price equal to 100% of the fair market value of the underlying stock as of the
date of grant. Options granted under these plans are exercisable and generally
vest over 3 years and have ten year contractual terms. Previous to the adoption
of the 2004 and 2001 Plans, the Company had other incentive stock option plans
in place in which stock options were granted to employees under similar vesting
terms. The Company no longer makes any further grants from these plans. The
Company has also granted non-qualified stock options to current and former
directors and certain employees with similar vesting terms.
The fair value of each option award is estimated on the date of grant using
the Black-Scholes option pricing model that uses assumptions noted in the
following table. Expected volatilities are based on the historical volatility of
the Company's stock. Expected term is calculated using the simplified method
taking into consideration the option's contractual life and vesting terms. The
risk-free interest rate for periods within the contractual life of the option is
based on the U.S. Treasury yield curve in effect at the time of grant. Expected
dividend yields were not used in the fair value computations as the Company has
never declared or paid dividends on its common stock and currently intends to
retain earnings for use in operations.
FISCAL FISCAL
2006 2005
------- -------
Expected volatility ....... 33% 36%
Expected term (in years) .. 6 years 6 years
Risk-free interest rate ... 4.7% 4.7%
8
A summary of the status of the Company's stock option activity as of May 6,
2006 and changes during the quarter then ended is as follows:
2004 2001 1990 OTHER 1994
INCENTIVE WEIGHTED INCENTIVE WEIGHTED INCENTIVE WEIGHTED NON- WEIGHTED EXECUTIVE WEIGHTED
STOCK AVERAGE STOCK AVERAGE STOCK AVERAGE QUALIFIED AVERAGE STOCK AVERAGE
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE STOCK EXERCISE OPTION EXERCISE
PLAN PRICE PLAN PRICE PLAN PRICE OPTIONS PRICE PLAN PRICE
--------- -------- --------- -------- --------- -------- --------- -------- --------- --------
Balance outstanding,
February 4, 2006 ....... 1,776,000 $12.03 2,124,000 $14.78 900,000 $18.16 2,551,000 $16.50 648,000 $16.68
Granted ................ 3,000 14.10 -- -- -- -- -- -- -- --
Exercised .............. (1,000) 10.54 -- -- (31,000) 10.68 -- -- (100,000) 3.38
Forfeited or canceled .. (27,000) 12.57 (91,000) 15.40 (1,000) 11.44 (225,000) 21.64 -- --
--------- ------ --------- ------ ------- ------ --------- ------ -------- ------
Balance outstanding,
May 6, 2006 ............ 1,751,000 $12.03 2,033,000 $14.76 868,000 $18.43 2,326,000 $16.01 548,000 $19.11
========= ====== ========= ====== ======= ====== ========= ====== ======== ======
Options exercisable at:
May 6, 2006 ............ 1,297,000 $12.38 2,016,000 $14.78 868,000 $18.43 2,276,000 $16.11 548,000 $19.11
========= ====== ========= ====== ======= ====== ========= ====== ======== ======
The following table summarizes information regarding stock options
outstanding at May 6, 2006:
WEIGHTED WEIGHTED
AVERAGE AVERAGE
WEIGHTED REMAINING WEIGHTED REMAINING
AVERAGE CONTRACTUAL AGGREGATE AVERAGE CONTRACTUAL AGGREGATE
OPTIONS EXERCISE LIFE INTRINSIC OPTIONS EXERCISE LIFE INTRINSIC
OPTION TYPE OUTSTANDING PRICE (YEARS) VALUE EXERCISABLE PRICE (YEARS) VALUE
- ----------- ----------- -------- ----------- ---------- ----------- -------- ----------- ----------
2004 Incentive: ....... 1,751,000 $12.03 8.5 $1,978,000 1,297,000 $12.38 8.5 $1,012,000
========= ========== ========= ==========
2001 Incentive: ....... 2,033,000 $14.76 5.4 $ 374,000 2,016,000 $14.78 5.4 $ 347,000
========= ========== ========= ==========
1990 Incentive: ....... 868,000 $18.43 2.0 $ 84,000 868,000 $18.43 2.0 $ 84,000
========= ========== ========= ==========
Other Non-qualified: .. 2,326,000 $16.01 5.2 $ 195,000 2,276,000 $16.11 5.1 $ 98,000
========= ========== ========= ==========
1994 Executive: ....... 548,000 $19.11 3.0 $1,873,000 548,000 $19.11 3.0 $1,873,000
========= ========== ========= ==========
The weighted average grant date fair value of options granted in the first
quarters of fiscal 2006 and 2005 was $5.80 and $6.82, respectively. The total
intrinsic value of options exercised during the first quarters of fiscal 2006
and 2005 was $981,000 and $25,000, respectively. As of May 6, 2006, total
unrecognized compensation cost related to stock options was $2,183,000 and is
expected to be recognized over a weighted average period of approximately 1.0
years.
Prior to fiscal 2006, the Company accounted for its stock option plans
under the recognition and measurement principles of APB No. 25, and the
disclosure-only provisions of SFAS 123. No employee stock option compensation
cost was reflected in the net loss, as all options granted under those plans had
an exercise price equal to the market value of the underlying common stock on
the date of grant. The following table illustrates the effect on net loss and
net loss per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation:
THREE MONTHS
ENDED
APRIL 30,
2005
------------
Net loss available to common
shareholders:
As reported ............................................... $(10,769,000)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects ................................ (5,033,000)
------------
Pro forma .................................................... $(15,802,000)
============
Net loss per share:
Basic:
As reported ............................................ $ (0.29)
Pro forma .............................................. (0.43)
Diluted:
As reported ............................................ $ (0.29)
Pro forma .............................................. (0.43)
In December 2005, the Company's board of directors approved the
acceleration and vesting of approximately 1,200,000 outstanding unvested stock
options with an exercise price greater than $11.78 per share as of December 19,
2005 under the Company's stock-based incentive compensation plans. The options
affected are held by executive officers, directors and employees
9
of the Company and had a range of exercise prices between $11.80 and $19.26 per
share and a weighted average exercise price of $15.06 per share. The board
accelerated the vesting period to eliminate the Company's future recognition of
compensation expense associated with these out-of-the money stock options
required under SFAS No. 123(R), which became effective for the Company beginning
in the first quarter of fiscal 2006.
(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
--------------------------
MAY 6, APRIL 30,
2006 2005
----------- ------------
Net loss available to common shareholders ....... $(2,163,000) $(10,769,000)
=========== ============
Weighted average number of common shares
outstanding - Basic .......................... 37,679,000 37,077,000
Dilutive effect of convertible preferred stock .. -- --
Dilutive effect of stock options, non-vested
shares and warrants .......................... -- --
----------- ------------
Weighted average number of common shares
outstanding - Diluted ........................ 37,679,000 37,077,000
=========== ============
Net loss from continuing operations per
common share ................................. $ (0.06) $ (0.25)
=========== ============
Net loss from continuing operations per common
share- assuming dilution ..................... $ (0.06) $ (0.25)
=========== ============
In accordance with SFAS No. 128, for the three month periods ended May 6,
2006 and April 30, 2005, approximately 275,000 and 860,000, respectively,
in-the-money potentially dilutive common share stock options, non-vested shares
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 $2,091,000 and $10,697,000 for the three month periods ended May 6,
2006 and April 30, 2005, respectively. The Company no longer has 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 businesses 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,
10
collectibles, seasonal items and other merchandise. The Company's segments
currently 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 month periods ended May 6,
2006 and April 30, 2005 are as follows:
ALL
SHOPNBC & OTHER CORPORATE CONTINUING FANBUZZ, INC.
THREE MONTH PERIODS ENDED (IN THOUSANDS) SHOPNBC.COM (A) (B) OPERATIONS (DISCONTINUED) TOTAL
- ---------------------------------------- ----------- ------ --------- ---------- -------------- --------
MAY 6, 2006
Revenues ............................... $176,338 $2,386 $ -- $178,724 $ -- $
Operating (loss) income ................ (4,171) 253 -- (3,918) --
Depreciation and amortization .......... 5,197 179 -- 5,376 --
Interest income ........................ 946 -- -- 946 --
Income taxes ........................... 15 -- -- 15 --
Net income (loss) ...................... (2,816) 179 546 (2,091) -- (2,091)
Identifiable assets .................... 325,300 6,303 1,929 333,532 -- 333,532
-------- ------ ------ -------- ------- --------
APRIL 30, 2005
Revenues ............................... $151,692 $1,784 $ -- $153,476 $ 2,687 $
Operating (loss) income ................ (10,081) 56 -- (10,025) (1,566)
Depreciation and amortization .......... 4,873 232 -- 5,105 186
Interest income (expense) .............. 662 -- -- 662 (17)
Income taxes ........................... 6 -- -- 6 --
Net loss ............................... (8,922) (192) -- (9,114) (1,583) (10,697)
Identifiable assets, February 4, 2006 .. 338,939 6,461 1,383 346,783 356 347,139
-------- ------ ------ -------- ------- --------
(a) Revenue from segments below quantitative thresholds are attributable to
VVIFC, which provides fulfillment, warehousing and telemarketing services
primarily to RLM and the Company.
(b) Corporate assets and corporate net income consist of long-term investments
accounted for under the equity method of accounting and are not directly
assignable to a business unit.
Information on net sales from continuing operations by significant product
groups are as follows (in thousands):
THREE MONTH PERIODS ENDED
--------------------------
MAY 6, APRIL 30,
2006 2005
-------- ---------
Jewelry ......................... $ 97,510 $ 76,826
Electronics ..................... 32,562 29,906
Home ............................ 20,123 16,932
All others, less than 10% each .. 28,529 29,812
-------- --------
Total ........................ $178,724 $153,476
======== ========
(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 $2,386,000 and $1,784,000 for the
quarters ended May 6, 2006 and April 30, 2005, respectively. Amounts due from
RLM were $909,000 and $1,250,000, as of May 6, 2006 and April 30, 2005,
respectively. In November 2005, RLM notified the Company that it had elected to
extend the term of its existing services agreement with the Company to May 31,
2007.
The Company entered into an agreement with RightNow Technologies, Inc.
("RightNow") in 2005 under which the Company purchased software applications
which enable the Company to utilize certain customer services technologies
developed by RightNow. The Company's President and Chief Executive Officer,
William J. Lansing, serves on the board of directors of RightNow. The Company
made payments totaling approximately $146,000 during fiscal 2006 (as of May 6,
2006) and $48,000 during fiscal 2005, respectively, for this technology and
annual software maintenance fees relating to this technology and other services.
11
(8) RESTRICTED STOCK
In February 2003, the Company awarded 114,170 shares of restricted stock
from the Company's 2001 Omnibus Stock Plan to certain executive officers. The
restricted stock vested one third on each of the next three anniversary dates of
the grant. The aggregate market value of the restricted stock at the date of
award was $1,491,000 and was amortized as compensation expense over the
three-year vesting period. In the second quarter of fiscal 2004, the Company
awarded 25,000 shares of restricted stock to certain employees. This subsequent
grant of restricted stock vests over different periods ranging from 17 to 53
months. The aggregate market value of the restricted stock at the award dates
was $308,000 and is being amortized as compensation expense over the respective
vesting periods. Compensation expense recorded in the first quarter of fiscal
2006 and the first quarter of fiscal 2005 relating to restricted stock grants
was $20,000 and $49,000, respectively. As of May 6, 2006, there was $134,000 of
total unrecognized compensation cost related to non-vested restricted stock
granted. That cost is expected to be recognized over a weighted average period
of 1.9 years. The total fair value of restricted shares vested during the first
quarters of fiscal 2006 and 2005 was -0- and $464,000, respectively.
A summary of the status of the Company's non-vested restricted stock
activity as of May 6, 2006 and changes during the quarter then ended is as
follows:
WEIGHTED
AVERAGE
GRANT DATE
SHARES FAIR VALUE
------ ----------
Non-vested outstanding,
February 4, 2006.......... 23,000 $12.28
Granted................... -- --
Vested.................... -- --
Forfeited................. -- --
------ ------
Non-vested outstanding,
May 6, 2006............... 23,000 $12.28
====== ======
(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 was authorized to repurchase
shares of its common stock in the open market through negotiated transactions at
prices and times deemed beneficial to the long-term interests of shareholders
and the Company. The authorization expired in November 2005. As of May 6, 2006,
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 three month periods ended May 6, 2006 or April 30,
2005.
(10) GOODWILL AND OTHER INTANGIBLE ASSETS
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"), 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. The 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 annually or whenever an
event has occurred that would more likely than not reduce the fair value of the
asset below its carrying amount.
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:
12
MAY 6, 2006 FEBRUARY 4, 2006
-------------------------- --------------------------
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)
Partnership contracts........ 2 280,000 (280,000)
Non-compete agreements....... 3 230,000 (230,000)
Favorable lease contracts.... 13 200,000 (200,000)
Other........................ 2 290,000 (290,000)
----------- -----------
Total..................... $ 2,000,000 $(2,000,000)
=========== ===========
Unamortized intangible assets:
FCC broadcast license........ $31,943,000 $31,943,000
=========== ===========
Amortization expense for intangible assets for the three months ended April
30, 2005 was $68,000. As of May 6, 2006, intangible assets relating to FanBuzz
had a remaining carrying value of $-0-. The results of operations for FanBuzz
are classified as discontinued operations in the accompanying condensed
consolidated statements of operations. See Note 13 for a discussion of the
discontinued operations of FanBuzz.
The FCC broadcasting license, which relates to the Company's acquisition of
television station WWDP TV-46, is not subject to amortization as a result of its
indefinite useful life. The Company tests the FCC license asset for impairment
annually, or more frequently if events or changes in circumstances indicate that
the asset might be impaired.
(11) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2005, the FASB, as part of an effort to conform to international
accounting standards, issued SFAS No. 154, "Accounting Changes and Error
Corrections ("SFAS No. 154"). SFAS No. 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. SFAS No. 154 requires that all voluntary changes in accounting principles
be retrospectively applied to prior financial statements as if that principle
had always been used, unless it is impracticable to do so. When it is
impracticable to calculate the effects on all prior periods, SFAS No. 154
requires that the new principle be applied to the earliest period practicable.
SFAS No. 154 also redefines "restatement" as the revising of previously issued
financial statements to reflect the correction of an error. The adoption of SFAS
No. 154 did not have a material effect on the Company's financial position or
results of operations.
(12) ASSET IMPAIRMENT AND EMPLOYEE TERMINATION COSTS
During the quarter ended April 30, 2005, a number of FanBuzz customers
notified the Company that they elected not to renew the term of their e-commerce
services agreements with FanBuzz or decided to terminate their agreements 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. The impairment
charge is included in loss from discontinued operations in the accompanying
consolidated statement of operations for the three month period ended April 30,
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 FanBuzz operations. The
charge consisted primarily of severance pay and related benefit costs associated
with the elimination of approximately twelve positions. The severance was paid
out over periods ranging from one to twelve months. Of this charge, $446,000 is
included in loss from discontinued operations in the accompanying consolidated
statement of operations for the three month period ended April 30, 2005.
(13) DISCONTINUED FANBUZZ OPERATIONS
In the second quarter of fiscal 2005, the Company decided to close its
FanBuzz subsidiary operations. The shut down was completed in the third quarter
of fiscal 2005. FanBuzz was an e-commerce and fulfillment solutions provider for
a number of sports, media, entertainment and retail companies. The decision to
shut down FanBuzz was made after continued operating losses were experienced
following the loss of its NHL contract in September 2004 and after a number of
other FanBuzz customers notified the Company in the first quarter of fiscal 2005
that they elected not to renew the term of their e-commerce services agreements.
FanBuzz
13
ceased business operations as of October 29, 2005 and was a reportable segment
under SFAS No. 131. The results of operations for FanBuzz have been classified
as discontinued operations in the accompanying condensed consolidated statements
of operations for all applicable periods presented. Net sales from discontinued
operations were $2,687,000 for the three month period ended April 30, 2005.
Losses from discontinued operations were $1,583,000 for the three month period
ended April 30, 2005. The Company's consolidated balance sheet as of May 6, 2006
includes $100,000 in current assets, $189,000 in current liabilities and $-0- in
long-term assets and long-term liabilities related to FanBuzz. The Company's
consolidated balance sheet as of February 4, 2006 included $356,000 in current
assets, $276,000 in current liabilities and $-0- in long-term assets and
long-term liabilities related to FanBuzz.
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 February 4, 2006.
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): consumer spending and debt levels; interest rates; seasonal variations in
consumer purchasing activities; changes in the mix of products sold by the
Company; competitive pressures on sales; pricing and gross profit margins; the
level of cable and satellite distribution for the Company's programming and the
associated fees; the success of the Company's e-commerce and branding
initiatives; 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 affecting the Company's
operations; the risks identified under "Business Risk Factors" in the Company's
Form 10-K for the fiscal year ended February 4, 2006; significant public events
that are difficult to predict, such as widespread weather catastrophes or other
significant television-covering events causing an interruption of television
coverage or that directly competes with the viewership of the Company's
programming; 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 February 4, 2006, 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.
14
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 59% and 58% of television home
shopping and Internet net sales for the three month periods ended May 6, 2006
and April 30, 2005, respectively. Home products, including electronics product
categories, represented approximately 33% and 33% of television home shopping
and Internet net sales for the three month periods ended May 6, 2006 and April
30, 2005, respectively. Apparel, health and beauty product categories
represented approximately 8% and 9% of television home shopping and Internet net
sales for the three month periods ended May 6, 2006 and April 30, 2005,
respectively. 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 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 businesses. 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.
Company Strategy
The Company is a leader in multichannel retailing, offering consumers an
entertaining, informative and interactive shopping experience. The following
business strategies are intended to continue the growth and maximize gross
margin dollars per hour of the Company's television home shopping business and
complementary website: (i) diversify the types of products offered for sale
outside of the historic categories of jewelry and computers; (ii) 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; (iii) increase average
net sales per home by increasing penetration within existing homes receiving the
Company's programming and by attracting new customers through a broader
merchandise mix and targeted marketing efforts; (iv) 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; (v) upgrade the overall quality of the Company's
network, programming and customer support infrastructure consistent with
expectations associated with the NBC brand name; (vi) increase the average order
size through various sales initiatives including add-on sales, continuity
programs and warranty sales; and (vii) 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.
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. The two largest competitors are QVC
Network, Inc. and HSN, Inc., both of which are larger, more diversified and have
greater financial and distribution resources than the Company. Recently, E.W.
Scripps Company announced the shut down of the Shop at Home, Inc. television
network in June, 2006, in which it owned a controlling interest. 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 channel. As the
use of the Internet and other online services increase, larger, more
well-established and more well-financed entities may continue to acquire, invest
in or form joint ventures with providers of e-commerce and direct marketing
solutions. Recently the parent company
15
of HSN purchased a number of web-based businesses including the search engine
company, Ask Jeeves (now known as Ask.com); Scripps acquired Shopzilla, a
shopping search engine; and Liberty Media (parent company of QVC) acquired
Provide Commerce, an operator of retail websites featuring brands such as
Proflowers and Cherry Moon Farms. The Company expects increasing competition for
viewers and customers and for experienced home shopping personnel from major
cable systems, television networks and from e-commerce and other retailers that
may seek to enter the television home shopping industry. The continued growth
and evolution 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, may also result in increased
competition. The Company also competes to lease cable television time and enter
into cable affiliation agreements. The Company believes that its success in the
television home shopping industry is dependent upon several key factors,
including (i) obtaining carriage on additional cable systems on favorable terms;
(ii) increasing the number of households receiving the Company's programming who
purchase products from the Company (termed "household penetration"); and (iii)
increasing the dollar value of sales per customer to its existing customer base.
Results for the First Quarter of Fiscal 2006
Consolidated net sales from continuing operations for the quarter ended May
6, 2006 were $178,724,000 compared to $153,476,000 for the quarter ended April
30, 2005, a 16% increase. The increase in consolidated net sales from continuing
operations is directly attributable to the continued improvement in and
increased net sales from the Company's television home shopping and Internet
operations. Effective in the third quarter of fiscal 2005, the results of
operations of FanBuzz have been presented as loss from discontinued operations
in the accompanying consolidated statements of operations for all applicable
periods presented. Net sales attributed to the Company's television home
shopping and Internet operations increased to $176,338,000 for the quarter ended
May 6, 2006 from $151,692,000 for the quarter ended April 30, 2005. Consolidated
gross margins from continuing operations were 35.4% for the quarter ended May 6,
2006 compared to 33.4% for the quarter ended April 30, 2005. The Company
reported an operating loss of $3,918,000 from continuing operations and a net
loss of $2,091,000 for the first quarter of fiscal 2006. The Company reported an
operating loss of $10,025,000 from continuing operations and a net loss of
$10,697,000, which included a net loss of $1,583,000 from discontinued
operations, for the first quarter of fiscal 2005.
DISCONTINUED FANBUZZ OPERATIONS
In the second quarter of fiscal 2005, the Company decided to wind down its
FanBuzz subsidiary operations and finalized the shut down in the third fiscal
quarter of 2005. FanBuzz, acquired by the Company in fiscal 2002, was an
e-commerce and fulfillment solutions provider for a number of sports, media,
entertainment and retail companies. The decision to shut down FanBuzz was made
after continued operating losses were experienced following the loss of its NHL
contract in September 2004 and after a number of other FanBuzz customers
notified the Company in the first quarter of fiscal 2005 that they elected not
to renew the term of their e-commerce services agreements. FanBuzz ceased
business operations as of October 29, 2005 and was a reportable segment under
SFAS No. 131. The results of operations for FanBuzz have been classified as
discontinued operations in the accompanying consolidated statements of
operations for all applicable periods presented. See Note 13 to the condensed
consolidated financial statements.
ASSET IMPAIRMENT AND EMPLOYEE TERMINATION COSTS
During the quarter ended April 30, 2005, a number of FanBuzz customers
notified the Company that they elected not to renew the term of their e-commerce
services agreements with FanBuzz or decided to terminate their agreements 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. The impairment charge is included in loss from discontinued
operations in the accompanying consolidated statement of operations for the
three month period ended April 30, 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 FanBuzz operations. The
charge consisted primarily of severance pay and related benefit costs associated
with the elimination of approximately twelve positions. The severance was paid
out over periods ranging from one to twelve months. Of this charge, $446,000 is
included in loss from discontinued operations in the accompanying condensed
consolidated statement of operations for the three month period ended April 30,
2005.
16
RESULTS OF OPERATIONS
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
CONTINUING OPERATIONS
(UNAUDITED)
DOLLAR AMOUNT AS A
PERCENTAGE OF NET
SALES FOR THE
THREE MONTH
PERIODS ENDED
------------------
MAY 6, APRIL 30,
2006 2005
------ ---------
NET SALES 100.0% 100.0%
===== =====
GROSS MARGIN 35.4% 33.4%
----- -----
Operating expenses:
Distribution and selling 30.8% 32.5%
General and administrative 3.8% 4.1%
Depreciation and amortization 3.0% 3.3%
----- -----
37.6% 39.9%
----- -----
Operating loss from continuing operations (2.2)% (6.5)%
===== =====
KEY PERFORMANCE METRICS*
(UNAUDITED)
FOR THE THREE MONTH
PERIODS ENDED
--------------------
MAY 6, APRIL 30,
2006 2005 %
-------- --------- ---
PROGRAM DISTRIBUTION
Cable FTE's (Average 000's) 38,329 37,510 2%
Satellite FTE's (Average 000's) 25,211 23,325 8%
-------- -------- ---
Total FTEs (Average 000's) 63,540 60,835 4%
Net Sales per FTE (Annualized) $ 11.10 $ 9.97 11%
Active Customers -12 month rolling 804,044 770,348 4%
% New Customers -12 month rolling 56% 58%
% Reactivated & Retained -12 month rolling 44% 42%
Customer Penetration - 12 month rolling 1.3% 1.3%
MERCHANDISE MIX
Jewelry 59% 58%
Apparel, Health & Beauty 8% 9%
Home and All Other 33% 33%
Shipped Units (000's) 1,291 1,196 8%
Average Selling Price - Shipped Units $ 193 $ 183 5%
* Includes television home shopping and Internet sales only.
17
PROGRAM DISTRIBUTION
The Company's television home shopping programming was available to
approximately 63.5 million average full time equivalent ("FTE") households for
the three months ended May 6, 2006 and approximately 60.8 million average FTE
households for the three months ended April 30, 2005. Average FTE subscribers
grew 4% in the first quarter ended May 6, 2006, resulting in a 2,705,000
increase in average FTE's versus the prior year comparable quarter. The increase
was driven by continued strong growth in satellite distribution of the Company's
programming and increased penetration of the Company's programming on digital
cable.
NET SALES PER FTE
Net sales per FTE for the first quarter ended May 6, 2006 increased 11%, or
$1.13 per FTE, compared to the prior year comparable quarter. The increase in
the first quarter net sales per FTE was primarily the result of strong first
quarter television home shopping and Internet sales growth over the prior year
first quarter.
CUSTOMERS
The Company added 33,696 active customers over the twelve-month period
ended May 6, 2006, a 4% 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
Customer 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 1.3% for both of the three month
periods ended May 6, 2006 and April 30, 2005.
MERCHANDISE MIX
During the quarter ended May 6, 2006, jewelry net sales increased to 59% of
total television home shopping and Internet net sales from 58% during the prior
year comparable quarter. Net sales from home products, including electronics
categories, remained at 33% of total television home shopping and Internet net
sales as compared to the prior year first quarter and net sales from apparel and
health and beauty product categories decreased to 8% of total television home
shopping and Internet net sales from 9% as compared to the prior year first
quarter. The Company's merchandise mix overall has been 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 electronic 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
customer penetration.
SHIPPED UNITS
The number of units shipped during the first quarter ended May 6, 2006
increased 8% from the prior year's comparable quarter to 1,291,000 from
1,196,000. The increase in shipped units for the three month period ended May 6,
2006 was due primarily to the increase in net sales over the comparable prior
year period.
AVERAGE SELLING PRICE
The average selling price ("ASP") per unit for the Company was $193 in the
first quarter ended May 6, 2006, a 5% increase from the comparable prior year
quarter. The increase in the ASP during the first quarter of fiscal 2006 was
driven by increases in price points associated primarily with gold, watches and
apparel merchandise categories.
18
NET SALES
Consolidated net sales from continuing operations for the three month
period ended May 6, 2006 were $178,724,000 compared with consolidated net sales
of $153,476,000 for the three month period ended April 30, 2005, a 16% increase.
The increase in consolidated net sales from continuing operations is directly
attributable to the continued improvement in net 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 16% to
$176,338,000 for the quarter ended May 6, 2006 from $151,692,000 for the quarter
ended April 30, 2005. The growth in television home shopping and Internet net
sales during the quarter is primarily attributable to increased merchandise
sales driven by the growth in the number of homes receiving the Company's
television programming and higher productivity from existing homes due to
increased sales per hour results achieved in the jewelry, apparel and home
merchandise categories. In addition, television and Internet net sales increased
due to increased shipping and handling revenue resulting from increased sales in
the first three months of fiscal 2006 compared to fiscal 2005. During the
twelve-month period ended May 6, 2006, the Company added approximately 2.7
million average FTE homes, a 4% increase. 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 the Company's
sales strategy will achieve the intended results.
GROSS PROFIT
Gross profit from continuing operations for the three months ended May 6,
2006 and April 30, 2005 was $63,202,000 and $51,298,000, respectively, an
increase of $11,904,000. The increase in gross profit from continuing operations
is directly attributable to increased sales volume from the Company's television
home shopping and Internet businesses and increases in gross profit margins of
2.0 percentage points. Gross margins for the three month periods ended May 6,
2006 and April 30, 2005 were 35.4% and 33.4%, respectively. Of the gross margin
improvement for the three months ended May 6, 2006 over the comparable prior
year period 1.8 percentage points was due to the achievement of higher
merchandise margins on television and Internet merchandise in substantially all
major product categories during the first quarter of fiscal 2006. Gross margins
may not be comparable to those of other retailers, since some retailers include
all of the costs related to their product distribution network in cost of sales
while 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 from continuing operations for the three months
ended May 6, 2006 were $67,120,000 compared to $61,323,000 for the comparable
prior year period. Total operating expenses from continuing operations for the
three month period ended April 30, 2005 included a charge of $82,000 recorded in
connection with employee terminations. Distribution and selling expense
increased $5,021,000, or 10%, to $54,909,000, or 31% of net sales from
continuing operations, during the first quarter of fiscal 2006 compared to
$49,888,000, or 33% of net sales from continuing operations, for the comparable
prior year period. Distribution and selling expense increased on a year-to-date
basis over the prior year primarily due to an increase in net cable and
satellite access fees of $588,000 as a result of a 4% year-to-date increase in
the number of average FTE subscribers over the comparable prior year period;
increased costs associated with hiring and retaining primarily merchandising and
show management personnel and on-air talent of $2,045,000 during fiscal 2006;
increased credit card and net collection fees of $741,000 due to the overall
increase in net sales; increased direct-mail and marketing expenses of $699,000
as the Company attempts to acquire additional customers and increase its overall
penetration; increased telemarketing and customer service costs of $531,000
associated with increased sales volumes and the Company's commitment to improve
its customer service; and increased share-based compensation expense of
$200,000.
General and administrative expense for the three months ended May 6, 2006
increased $558,000, or 9%, to $6,806,000, or 4% of net sales from continuing
operations, compared to $6,248,000, or 4% of net sales from continuing
operations, for the three months ended April 30, 2005. General and
administrative expense increased over the prior year primarily as a result of
compensation recorded related to share-based payments of $200,000, increased
salaries of $256,000, information systems service fees of $122,000 and accrued
bonuses of $179,000, offset by proceeds received from a litigation settlement
totaling $300,000.
19
Depreciation and amortization expense for the three months ended May 6,
2006 was $5,376,000 compared to $5,105,000 for the three months ended April 30,
2005, representing an increase of $271,000, or 5%, from the comparable prior
year period. Depreciation and amortization expense as a percentage of net sales
from continuing operations for the three months ended May 6, 2006 and April 30,
2005 was 3% for each period. The increases are 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 May 6, 2006, the Company reported an operating
loss from continuing operations of $3,918,000 compared to an operating loss from
continuing operations of $10,025,000 for the three months ended April 30, 2005.
The Company's operating loss from continuing operations improved for the three
month period ended May 6, 2006 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 additional costs associated primarily with merchandising, show
management personnel and on-air talent, net cable access fees, direct-mail and
marketing expenses and credit card and net collection fees, increases in general
and administrative expenses recorded in connection with salaries, accrued
bonuses and information system service 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.
NET LOSS
For the three months ended May 6, 2006, the Company reported a net loss
available to common shareholders of $2,163,000 or $.06 per share on 37,679,000
weighted average common shares outstanding, compared with a net loss available
to common shareholders of $10,769,000 or $.29 per share on 37,077,000 weighted
average common shares outstanding for the quarter ended April 30, 2005. The net
loss available to common shareholders for the three months ended May 6, 2006
includes the recording of $546,000 of equity in earnings from RLM, a $500,000
gain on the sale of an investment, a $150,000 write-down of a non-operating real
estate asset held for sale and interest income totaling $946,000 earned on the
Company's cash and short-term investments. For the quarter ended April 30, 2005,
the net loss available to common shareholders included a net loss of $1,583,000
from discontinued operations, a $250,000 cash dividend received from RLM, a
$5,000 gain on the sale of investments and interest income totaling $662,000
earned on the Company's cash and short-term investments.
The Company has not recorded any income tax benefit on the losses recorded
in the quarters ended May 6, 2006 and April 30, 2005 due to the uncertainty of
realizing income tax benefits 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 is no loss carryforward benefit available. The Company
will continue to maintain a valuation reserve against its net deferred tax
assets until the Company believes it is more likely than not that these assets
will be realized in the future.
PROGRAM DISTRIBUTION
The Company's television home shopping programming was available to
approximately 63.5 million average FTE households for the three months ended May
6, 2006 and approximately 60.8 million average FTE households for the three
months ended April 30, 2005. 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. 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.
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 2005 Annual Report on Form 10-K under the
captions entitled "Risk Factors" and "Critical Accounting Policies and
Estimates."
20
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of May 6, 2006, cash and cash equivalents and short-term investments
were $76,461,000, compared to $82,350,000 as of February 4, 2006, a $5,889,000
decrease. For the three month period ended May 6, 2006, working capital
increased $460,000 to $145,669,000. The current ratio was 2.6 at May 6, 2006
compared to 2.4 at February 4, 2006.
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 had 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 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 May
6, 2006, 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 fluctuations. The maturities within the Company's investment
portfolio range 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 2006 and 2005 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 and 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 stock
repurchase programs but is under no obligation to do so if protection of
liquidity is desired. The Company has the discretion in the future to
reauthorize a stock repurchase program and 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 May 6, 2006 with cash and cash equivalents and short-term
investments of $76,461,000 and no debt and $136,000 of long-term capital lease
obligations. The Company expects future growth in working capital as revenues
grow beyond fiscal 2006 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 2005 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 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 investments while maintaining
sufficient liquidity for its normal business operations.
Total assets at May 6, 2006 were $333,532,000, compared to $347,139,000 at
February 4, 2006, a $13,607,000 decrease. Shareholders' equity was $201,191,000
at May 6, 2006, compared to $202,871,000 at February 4, 2006, a $1,680,000
decrease. The decrease in shareholders' equity for the three month period ended
May 6, 2006 resulted primarily from the net loss of $2,091,000 recorded during
the three month period and accretion on redeemable preferred stock of $72,000.
These decreases were offset by
21
increases in shareholders' equity of $420,000 related to the recording of
share-based compensation and $63,000 from proceeds received related to the
exercise of stock options.
For the three month period ended May 6, 2006, net cash used for operating
activities totaled $2,538,000 compared to net cash provided by operating
activities of $5,268,000 for the three month period ended April 30, 2005. Net
cash used for operating activities for the three month periods ended May 6, 2006
and April 30, 2005 reflects the net loss, as adjusted for depreciation and
amortization, share-based payment compensation, common stock issued to
employees, amortization of deferred compensation, asset impairments and write
off charges and gain on sale of property and investments, equity in earnings of
affiliates. In addition, net cash used for operating activities for the three
months ended May 6, 2006 reflects primarily an increase in inventories and
prepaid expenses and other assets and a decrease in accounts payable and accrued
liabilities, offset by a decrease in accounts receivable. Inventories increased
from year-end primarily as a result of increased sales, the Company's effort to
diversify its product mix offerings and the timing of merchandise receipts. The
decrease in accounts payable and accrued expenses is a direct result of the
timing of merchandise and accrued cable access payments. Accounts receivable
increased primarily due to an increase in receivables from sales utilizing
extended payment terms and the timing of customer collections under the
"ValuePay" installment program.
Net cash provided by investing activities totaled $1,696,000 for the three
months ended May 6, 2006 compared to net cash used for investing activities of
$4,211,000 for the three months ended April 30, 2005. For the three month
periods ended May 6, 2006 and April 30, 2005, expenditures for property and
equipment were $3,774,000 and $2,426,000, respectively. Expenditures for
property and equipment during the periods ended May 6, 2006 and April 30, 2005
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 are expected to include the
upgrade and replacement of various enterprise software systems, continued
improvements and 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 three months ended May 6, 2006, the Company invested
$2,965,000 in various short-term investments, received proceeds of $7,935,000
from the sale of short-term investments and received proceeds of $500,000 from
the sale of an Internet investment previously written off. In the three months
ended April 30, 2006, the Company invested $31,924,000 in various short-term
investments and received proceeds of $30,139,000 from the sale of short-term
investments.
Net cash used for financing activities totaled $77,000 for the three months
ended May 6, 2006 and related primarily to payments of long-term capital lease
obligations of $138,000, offset by cash proceeds received of $61,000 from the
exercise of stock options. Net cash used for financing activities totaled
$15,000 for the three months ended April 30, 2005 and related primarily to
payments of long-term capital lease obligations of $167,000, offset by cash
proceeds received of $152,000 from the exercise of stock options.
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
currently has no long-term debt, 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
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously described in our Annual Report on Form 10-K for the fiscal
year ended February 4, 2006, 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.
On November 15, 2005, the Company and Navarre agreed to settle the claims
made by the Company against Navarre and the counterclaims made by Navarre
against the Company. Under the settlement agreement finalized in April 2006,
Navarre made a cash payment to the Company and entered into an airtime agreement
with the Company whereby Navarre will purchase advertising time from the Company
during fiscal 2006.
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)
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.
24
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
June 15, 2006
/s/ William J. Lansing
----------------------------------------
William J. Lansing
Chief Executive Officer, President and
Director
(Principal Executive Officer)
June 15, 2006
/s/ Frank P. Elsenbast
----------------------------------------
Frank P. Elsenbast
Vice President Finance, Chief Financial
Officer
(Principal Financial Officer)
25
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT FILED BY
- ------- ------- --------
3.1 Sixth Amended and Restated Articles of Incorporation, as
Amended Incorporated by reference
3.2 Certificate of Designation of Series A Redeemable
Convertible Preferred Stock Incorporated by reference
3.3 Articles of Merger Incorporated by reference
3.4 Bylaws, as amended Incorporated by reference
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer Filed herewith
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer Filed herewith
32.1 Section 1350 Certification of Chief Executive Officer Filed herewith
32.2 Section 1350 Certification of Chief Financial Officer. Filed herewith
26