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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 31, 2001
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 INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1673770
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6740 Shady Oak Road, Minneapolis, MN 55344
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(Address of principal executive offices)
952-943-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of September 10, 2001, there were 38,784,090 shares of the Registrant's
common stock, $.01 par value per share, outstanding.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
JULY 31, 2001
PAGE OF FORM
10-Q
-------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
-- Condensed Consolidated Balance Sheets as of July 3
31, 2001 and January 31, 2001
-- Condensed Consolidated Statements of Operations for 4
the Three and Six Months Ended July 31, 2001 and 2000
-- Condensed Consolidated Statement of Shareholders' 5
Equity for the Six Months Ended July 31, 2001
-- Condensed Consolidated Statements of Cash Flows for 6
the Six Months Ended July 31, 2001 and 2000
-- Notes to Condensed Consolidated Financial 7
Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
JULY 31, JANUARY 31,
2001 2001
-------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 85,005 $136,045
Short-term investments 154,875 108,678
Accounts receivable, net 55,249 61,173
Inventories, net 32,379 34,960
Prepaid expenses and other 10,033 9,298
Income taxes receivable 16,195 13,417
Deferred income taxes 3,965 3,965
--------- --------
Total current assets 357,701 367,536
PROPERTY & EQUIPMENT, NET 33,631 33,982
NBC TRADEMARK LICENSE AGREEMENT, NET 29,981 58,386
CABLE DISTRIBUTION AND MARKETING AGREEMENT, NET 6,444 5,701
INVESTMENTS AND OTHER ASSETS, NET 42,439 44,753
DEFERRED INCOME TAXES 397 339
--------- --------
$ 470,593 $510,697
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 46,891 $ 56,033
Accrued liabilities 20,860 19,338
--------- --------
Total current liabilities 67,751 75,371
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$.01 PER SHARE PAR VALUE, 5,339,500 SHARES AUTHORIZED;
5,339,500 SHARES ISSUED AND OUTSTANDING 42,040 41,900
SHAREHOLDERS' EQUITY:
Common stock, $.01 per share par value, 100,000,000 shares
authorized; 38,733,096 and 38,578,401 shares issued
and outstanding 387 386
Warrants to purchase 8,198,485 and 7,854,760 shares of
common stock 47,467 73,170
Additional paid-in capital 286,692 286,258
Accumulated other comprehensive losses (904) (813)
Note receivable from officer (3,946) (3,863)
Retained earnings 31,106 38,288
--------- --------
Total shareholders' equity 360,802 393,426
--------- --------
$ 470,593 $510,697
========= ========
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share data)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JULY 31, JULY 31,
------------------------------- --------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
NET SALES $ 104,784 $ 89,511 $ 216,763 $ 175,166
COST OF SALES 63,498 55,777 133,208 108,647
------------ ------------ ------------ ------------
Gross profit 41,286 33,734 83,555 66,519
------------ ------------ ------------ ------------
Margin % 39.4% 37.7% 38.5% 38.0%
OPERATING EXPENSES:
Distribution and selling 36,308 25,997 70,289 52,137
General and administrative 3,935 4,074 8,260 7,886
Depreciation and amortization 2,944 1,390 6,081 2,717
------------ ------------ ------------ ------------
Total operating expenses 43,187 31,461 84,630 62,740
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) (1,901) 2,273 (1,075) 3,779
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Loss on sale of property and
investments (23) (1) (415) (6)
Unrealized loss on security
holdings (56) (19) (270) (63)
Write-down of investments (1,560) (583) (7,566) (583)
Equity in losses of affiliates (2,879) (405) (4,616) (407)
Interest income 2,493 3,703 5,343 7,464
------------ ------------ ------------ ------------
Total other income (expense) (2,025) 2,695 (7,524) 6,405
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES (3,926) 4,968 (8,599) 10,184
Income tax provision (benefit) (2,236) 1,732 (1,886) 3,768
------------- ------------ ------------- ------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE (1,690) 3,236 (6,713) 6,416
Cumulative effect of accounting
change -- -- (329) --
------------ ------------ ------------ ------------
NET INCOME (LOSS) (1,690) 3,236 (7,042) 6,416
Accretion of redeemable preferred
stock (70) (69) (140) (139)
------------ ------------ ------------ ------------
NET INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS $ (1,760) $ 3,167 $ (7,182) $ 6,277
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
Before cumulative effect of
accounting change $ (0.05) $ 0.08 $ (0.18) $ 0.16
Cumulative effect of accounting
change -- -- (0.01) --
------------ ------------ ------------ ------------
Net income (loss) $ (0.05) $ 0.08 $ (0.19) $ 0.16
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE:
- ASSUMING DILUTION:
Before cumulative effect of
accounting change $ (0.05) $ 0.07 $ (0.18) $ 0.14
Cumulative effect of accounting
change -- -- (0.01) --
------------ ------------ ------------ ------------
Net income (loss) $ (0.05) $ 0.07 $ (0.19) $ 0.14
============ ============ ============ ============
Weighted average number of common
shares outstanding:
Basic 38,624,727 38,566,364 38,574,919 38,490,124
============ ============ ============ ============
Diluted 38,624,727 47,126,102 38,574,919 47,439,565
============ ============ ============ ============
</Table>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JULY 31, 2001
(Unaudited)
(In thousands, except share data)
<Table>
<Caption>
COMMON STOCK COMMON
----------------------------- STOCK ADDITIONAL
COMPREHENSIVE NUMBER PAR PURCHASE PAID-IN
INCOME (LOSS) OF SHARES VALUE WARRANTS CAPITAL
------------- ---------- ----- -------- ----------
BALANCE, JANUARY 31, 2001 38,578,401 $ 386 $ 73,170 $ 286,258
Comprehensive loss:
Net loss $(7,042) -- -- -- --
Other comprehensive income (loss),
net of tax:
Unrealized losses on securities,
net of tax of $291 (473)
Gains on securities included
in net loss, net of tax
of $109 177
Cumulative effect of accounting
change, net of tax of $124 205
-------
Other comprehensive income (loss) (91) -- -- -- --
-------
Comprehensive loss $(7,133)
=======
Revaluation of NBC common stock
purchase warrants -- -- (26,878) --
Value assigned to common stock
purchase warrants -- -- 1,175 --
Repurchases of common stock (105,000) (1) (1,274)
Increase in note receivable from
officers -- -- -- --
Exercise of stock options 259,695 2 -- 1,708
Accretion on redeemable preferred
stock -- -- -- --
---------- ----- -------- ---------
BALANCE, JULY 31, 2001 38,733,096 $ 387 $ 47,467 $ 286,692
---------- ----- -------- ---------
<Table>
<Caption>
ACCUMULATED NOTE
OTHER RECEIVABLE TOTAL
COMPREHENSIVE FROM RETAINED SHAREHOLDERS'
LOSSES OFFICER EARNINGS EQUITY
------------- ---------- --------- ------------
BALANCE, JANUARY 31, 2001 $(813) $(3,863) $ 38,288 $ 393,426
Comprehensive loss:
Net loss -- -- (7,042) (7,042)
Other comprehensive income (loss),
net of tax:
Unrealized losses on securities,
net of tax of $ 291
Gains on securities included
in net loss, net of tax
of $109
Cumulative effect of accounting
change, net of tax of $124
Other comprehensive income (loss) (91) -- -- (91)
Comprehensive loss
Revaluation of NBC common stock
purchase warrants -- -- -- (26,878)
Value assigned to common stock
purchase warrants -- -- -- 1,175
Repurchases of common stock -- -- -- (1,275)
Increase in note receivable from
officers -- (83) -- (83)
Exercise of stock options -- -- -- 1,710
Accretion on redeemable preferred
stock -- -- (140) (140)
----- ------- -------- ---------
BALANCE, JULY 31, 2001 $(904) $(3,946) $ 31,106 $ 360,802
----- ------- -------- ---------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share data)
FOR THE SIX MONTHS ENDED JULY 31,
--------------------------------------------
2001 2000
--------- ---------
OPERATING ACTIVITIES:
Net income (loss) $ (7,042) $ 6,416
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation and amortization 6,081 2,717
Loss on sale of property and investments 415 6
Unrealized loss on security holdings 270 63
Equity in losses of affiliates 4,616 407
Write-down of investments 7,566 583
Cumulative effect of accounting change 329 --
Changes in operating assets and liabilities:
Accounts receivable, net 5,867 (1,529)
Inventories, net 2,581 (2,320)
Prepaid expenses and other (1,362) (2,436)
Accounts payable and accrued liabilities (7,790) 5,190
Income taxes payable (receivable), net (2,778) 8,757
--------- ---------
Net cash provided by operating activities 8,753 17,854
--------- ---------
INVESTING ACTIVITIES:
Property and equipment additions (7,350) (10,024)
Proceeds from sale of investments and property 928 362
Purchase of short-term investments (147,399) (89,389)
Proceeds from sale of short-term investments 101,202 119,779
Payment for investments and other assets (7,609) (32,983)
Issuance of note receivable from officer -- (500)
Proceeds from notes receivable -- 324
--------- ---------
Net cash used for investing activities (60,228) (12,431)
--------- ---------
FINANCING ACTIVITIES:
Payments for repurchases of common stock (1,275) --
Proceeds from exercise of stock options and warrants 1,710 2,311
--------- ---------
Net cash provided by financing activities 435 2,311
--------- ---------
Net increase (decrease) in cash and cash
equivalents (51,040) 7,734
BEGINNING CASH AND CASH EQUIVALENTS 136,045 138,221
--------- ---------
ENDING CASH AND CASH EQUIVALENTS $ 85,005 $ 145,955
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 23 $ 23
========= =========
Income taxes paid $ 908 $ 11
========= =========
SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Revaluation of common stock purchase warrants $ 26,878 $ --
========= =========
Issuance of 343,725 warrants in connection with NBC
Distribution and Marketing Agreement $ 1,175 $ --
========= =========
Accretion of redeemable preferred stock $ 140 $ 139
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 2001
(Unaudited)
(1) GENERAL
ValueVision International, Inc. and its Subsidiaries ("ValueVision" or the
"Company") is an integrated direct marketing company that markets its products
directly to consumers through various forms of electronic media. The Company's
operating strategy incorporates television home shopping, Internet e-commerce,
vendor programming sales and fulfillment services.
The Company's television home shopping business uses on-air television home
shopping personalities to market brand name merchandise and proprietary /
private label consumer products at competitive prices. The Company's live
24-hour per day television home shopping programming is distributed primarily
through long-term cable and satellite affiliation agreements and the purchase of
month-to-month full and part-time block lease agreements of cable and broadcast
television time. In addition, the Company distributes its programming through
Company-owned low power television ("LPTV") stations. The Company also
complements its television home shopping business by the sale of merchandise
through its Internet shopping website (www.shopnbc.com) which sells a broad
array of merchandise and simulcasts its television home shopping show live 24
hours a day, 7 days a week.
The Company rebranded its growing home shopping network and companion
Internet shopping website as "ShopNBC" and "ShopNBC.com", respectively, in
fiscal 2001 as part of a wide-ranging direct marketing strategy the Company is
pursuing in conjunction with certain of its strategic partners. This rebranding
is intended to position ValueVision as a multimedia retailer, offering consumers
an entertaining, informative and interactive shopping experience, and position
the Company as a leader in the evolving convergence of television and the
Internet. On November 16, 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc. ("NBC") pursuant to which NBC
granted ValueVision worldwide use of an NBC-branded name and the Peacock image
for a ten-year period. The new ShopNBC name will be promoted as part of a
wide-ranging marketing campaign that the Company intends to launch in the second
half of 2001. ValueVision's original intent was to re-launch its television
network and companion Internet website under the SnapTV and SnapTV.com brand
names, respectively, in conjunction with NBC Internet, Inc. ("NBCi"). On June
12, 2000, NBCi announced a strategy to integrate all of its consumer properties
under the single NBCi.com brand, effectively abandoning the Snap name. This led
to ValueVision's search for an alternative rebranding strategy culminating in
the license agreement with NBC. In mid-1999, the Company founded ValueVision
Interactive, Inc. as a wholly-owned subsidiary of the Company to manage and
develop the Company's Internet e-commerce initiatives.
The Company, through its wholly-owned subsidiary, VVI Fulfillment Center,
Inc. ("VVIFC"), provides fulfillment, warehousing and telemarketing services on
a cost plus basis to Ralph Lauren Media, LLC ("RLM"). VVIFC's services agreement
was entered into in conjunction with the execution of the Company's investment
and electronic commerce alliance entered into with Polo Ralph Lauren
Corporation, NBC and other NBC affiliates.
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted in accordance with
such rules and regulations. The information furnished in the interim condensed
consolidated financial statements includes normal recurring accruals and
reflects all adjustments which, in the opinion of management, are necessary for
a fair presentation of such financial statements. Although management believes
the disclosures and information presented are adequate to make the information
not misleading, it is suggested that these interim condensed consolidated
financial statements be read in conjunction with the Company's most recent
audited financial statements and notes thereto included in its fiscal 2000
Annual Report on Form 10-K. Operating results for the six-month period ended
July 31, 2001 are not necessarily indicative of the results that may be expected
for the fiscal year ending January 31, 2002.
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(3) NET INCOME (LOSS) PER COMMON SHARE
The Company calculates earnings per share ("EPS") in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). Basic EPS is computed by dividing reported earnings by
the weighted average number of common shares outstanding for the reported
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock of the Company during reported periods.
A reconciliation of EPS calculations under SFAS No. 128 is as follows:
THREE MONTHS ENDED JULY 31, SIX MONTHS ENDED JULY 31,
---------------------------------------- ---------------------------------
2001 2000 2001 2000
-------------------- ------------------ ------------------- ------------------
Net income (loss) available to
common shareholders $ (1,760,000) $ 3,167,000 $ (7,182,000) $ 6,277,000
==================== =================== =================== ==================
Weighted average number of common
shares outstanding - Basic 38,625,000 38,566,000 38,575,000 38,490,000
Dilutive effect of convertible
preferred stock -- 5,340,000 -- 5,340,000
Dilutive effect of stock options and
warrants -- 3,220,000 -- 3,610,000
-------------------- ------------------- ------------------- ------------------
Weighted average number of common
shares outstanding - Diluted 38,625,000 47,126,000 38,575,000 47,440,000
==================== =================== =================== ==================
Net income (loss) per common share $ (0.05) $ 0.08 $ (0.19) $ 0.16
==================== =================== =================== ==================
Net income (loss) per common share -
assuming dilution $ (0.05) $ 0.07 $ (0.19) $ 0.14
==================== =================== =================== ==================
For the quarters ended July 31, 2001 and 2000, respectively, 11,192,000 and
1,755,000 potentially dilutive common shares have been excluded from the
computation of diluted earnings per share, as required under SFAS No. 128, as
the effect of their inclusion would be antidilutive.
(4) COMPREHENSIVE INCOME (LOSS)
The Company reports comprehensive income (loss) in accordance with Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting in the
financial statements all changes in equity during a period, except those
resulting from investments by and distributions to owners. For the Company,
comprehensive income (loss) includes net income (loss) and other comprehensive
income (loss), which consists of unrealized holding gains and losses from equity
investments classified as "available-for-sale". Total comprehensive loss was
($2,046,000) and ($1,692,000) for the three months ended July 31, 2001 and 2000,
respectively. Total comprehensive loss was ($7,133,000) and ($13,158,000) for
the six months ended July 31, 2001 and 2000, respectively.
(5) SEGMENT DISCLOSURES
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"), requires
the disclosure of certain information about operating segments in financial
statements. The Company's reportable segments are based on the Company's method
of internal reporting, which through fiscal 2000 segregated the strategic
business units into two segments: electronic media and print media. In fiscal
1999, the Company sold its remaining direct-mail catalog subsidiaries and exited
from the print media business segment. The Company's remaining business units,
which are categorized as the electronic media segment, consist primarily of the
Company's television home shopping business and Internet shopping website
business. Management has reviewed the provisions of SFAS No. 131 and determined
that the Company meets the aggregation criteria as outlined in the Statement
since the Company's remaining business units have similar customers, products
and sales processes. As a result, the Company now reports as a single business
segment.
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(6) NBC TRADEMARK LICENSE AGREEMENT
In November 2000, the Company entered into a Trademark License Agreement
with NBC pursuant to which NBC granted the Company an exclusive, worldwide
license for a term of 10 years to use certain NBC trademarks, service marks and
domain names to rebrand the Company's business and corporate name on terms and
conditions set forth in the License Agreement. In connection with the License
Agreement, the Company issued to NBC warrants to purchase 6,000,000 shares of
the Company's common stock at an exercise price of $17.375 per share. The
original fair value assigned to the NBC License Agreement and related warrants
was determined pursuant to an independent appraisal. At the date of the
agreement, a measurement date had not yet been established and the Company
revalued the Trademark License and warrants to $59,629,000, the estimated fair
value as of January 31, 2001, including professional fees. The Trademark License
asset is being amortized on a straight-line basis over the ten-year term of the
agreement. In March 2001, the Company established a measurement date with
respect to the NBC Trademark License Agreement by amending the agreement, and
fixed the fair value of the Trademark License asset at $32,837,000, which is
being amortized over the remaining term of the Trademark License Agreement.
(7) EQUITY INVESTMENTS
As of July 31, 2001, the Company had equity investments totaling
approximately $40,334,000 of which $32,602,000 related to the Company's
investment in RLM after adjusting for the Company's equity share of RLM losses
under the equity method of accounting. At July 31, 2001, investments in the
accompanying consolidated balance sheet also include approximately $5,721,000
related to equity investments made in companies whose shares are traded on a
public exchange. Investments in common stock are classified as
"available-for-sale" investments and are accounted for under the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No.115"). Investments in the
form of stock purchase warrants are accounted for under the provisions of
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No.133") as discussed in Note 10. In
addition to the Company's investment in RLM, investments at July 31, 2001
include certain other nonmarketable equity investments in private and other
enterprises totaling approximately $2,011,000 which are carried at the lower of
cost or net realizable value.
In February 2000, the Company entered into a strategic alliance with Polo
Ralph Lauren, NBC, NBCi and CNBC.com and created RLM, a joint venture formed for
the purpose of bringing the Polo Ralph Lauren American lifestyle experience to
consumers via multiple platforms, including the Internet, broadcast, cable and
print. The Company owns a 12.5% interest in RLM. In connection with forming this
strategic alliance, the Company has committed to provide up to $50 million of
cash for purposes of financing RLM's operating activities of which approximately
$42 million has been funded through July 31, 2001. Currently, the Company's
investment in RLM is $32,602,000 after adjusting for the Company's equity share
of RLM's losses under the equity method of accounting. The RLM joint venture is
still considered a start-up venture and to date has incurred significant
operating losses since it commenced operations in November 2000. Being a
minority shareholder, the Company does not have direct control over the
strategic operational direction of this joint venture. No assurance can be given
that this alliance will be successful or that the Company will be able to
ultimately realize any return on its ownership interest in RLM. The Company has
also committed and spent significant resources totaling over $12 million to
develop facilities to allow the Company to fulfill its service obligations to
RLM. There can be no assurance that the Company will recover its costs for
developing and constructing these facilities and, if the alliance were not
successful, the Company would have limited ability to recover such costs.
The Company evaluates the carrying values of its investments using recent
financing and securities transactions, present value and other pricing models,
as well as by evaluating financial condition, liquidity prospects, cash flow
forecasts and comparing operating results to plan. Impairment losses are
recorded if events or circumstances indicate that such investments may be
impaired and the decline in value is other than temporary. In the first half of
fiscal 2001, the Company recorded pre-tax investment losses totaling $7,566,000
of which $6,006,000 related to the write-off of the Company's investment in
Internet company Wine.com pursuant to its announced employee layoff, sale of
assets to eVineyard.com and subsequent dissolution. The declines in fair value
were determined by the Company to be other than temporary.
(8) NBC DISTRIBUTION WARRANTS
In the first quarter ended April 30, 2001, the Company issued to NBC
warrants to purchase 343,725 shares of the Company's common stock at an exercise
price of $23.07 per share. The warrants were issued in connection with the
Company's Distribution and Marketing Agreement with NBC which provides that
warrants will be granted at current market prices upon the achievement of
specific goals in connection with distribution of the Company's television
programming with respect to FTE subscriber homes. The
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warrants are immediately exercisable, and have a term of 5 years. The fair value
assigned to the distribution warrants of $1,175,000, was determined using the
Black Scholes warrant valuation model and is being amortized over the seven-year
weighted average term of the new distribution agreements.
(9) RELATED PARTY TRANSACTION
At July 31, 2001 the Company held a note receivable totaling $3,946,000,
including interest (the "Note") from an officer of the Company for a loan made
in accordance with provisions set forth in such officer's employment agreement
with the Company. The Note is reflected as a reduction of shareholders' equity
in the accompanying consolidated balance sheet as the Note is collateralized by
a security interest in vested stock options and in shares of the Company's
common stock to be acquired by the officer upon the exercise of such vested
stock options.
(10) ADOPTION OF SFAS NO. 133
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", establishes accounting and reporting standards requiring that
derivative instruments, as defined in the standard, be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires changes in the derivative's fair value to be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company adopted
the provisions of SFAS No. 133, as amended, effective February 1, 2001. The
impact of the initial adoption of SFAS No. 133 was ($329,000) and is reflected
in the consolidated statement of operations as a cumulative effect of change in
accounting principle. For the six-month period ended July 31, 2001, the Company
also recorded unrealized losses on security holdings of ($270,000) relating to
fair value adjustments made with respect to derivative common stock purchase
warrants held by the Company.
(11) 2001 OMNIBUS STOCK PLAN
In June 2001, the shareholders of the Company voted to approve the 2001
Omnibus Stock Plan (the "2001 Plan"), which provides for the issuance of up to
3,000,000 shares of the Company's common stock. The 2001 Plan is administered by
the Company's Compensation Committee (the "Committee") and has two basic
components, discretionary options for employees and consultants and options for
outside directors. All employees of the Company or its affiliates are eligible
to receive awards under the 2001 Plan. The Committee may also award nonstatutory
stock options under the 2001 Plan to individuals or entities who are not
employees but who provide services to the Company in capacities such as
advisors, directors and consultants. The types of awards that may be granted
under the 2001 Plan include restricted 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 participants
at such exercise prices as the Committee may determine but not less than 100% of
the fair market value of the underlying stock as of the date of grant. With
respect to incentive stock options, no stock option may be granted more than ten
years after the effective date of the 2001 Plan or be exercisable more than ten
years after the date of grant. The 2001 Plan also provides for additional
restrictions on incentive stock options granted to an individual who
beneficially owns 10% or more of the outstanding shares of the Company. The 2001
Plan also provides for option grants on an annual basis to each outside director
of the Company. All options granted to outside directors pursuant to the 2001
Plan 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.
(12) COMMON STOCK REPURCHASE PROGRAM
In the second quarter of fiscal 2001, the Company's Board of Directors
authorized a $25 million common stock repurchase program whereby the Company may
repurchase shares of its common stock in the open market and through negotiated
transactions, at prices and times deemed to be beneficial to the long-term
interests of shareholders and the Company. The repurchase program is subject to
applicable securities laws and may be discontinued at any time without any
obligation or commitment by the Company to repurchase all or any portion of the
shares covered by the authorization. The Company initiated the purchasing of
shares under the new stock purchase program in late August 2001. In the first
quarter of fiscal 2001, the Company had repurchased 105,000 shares of its common
stock under a previously authorized stock repurchase program for a total net
cost of $1,275,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's accompanying
unaudited condensed consolidated financial statements and notes included herein
and the audited consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2001.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
DOLLAR AMOUNT AS A DOLLAR AMOUNT AS A
PERCENTAGE OF NET SALES FOR PERCENTAGE OF NET SALES FOR
THE THREE MONTHS THE SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
--------------------------- ---------------------------
2001 2000 2001 2000
---- ---- ---- ----
NET SALES 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
GROSS MARGIN 39.4% 37.7% 38.5% 38.0%
----- ----- ----- -----
Operating expenses:
Distribution and selling 34.6% 29.0% 32.4% 29.7%
General and administrative 3.8% 4.6% 3.8% 4.5%
Depreciation and amortization 2.8% 1.6% 2.8% 1.6%
----- ----- ----- -----
41.2% 35.2% 39.0% 35.8%
----- ----- ----- -----
Operating income (loss) (1.8)% 2.5% (0.5)% 2.2%
===== ===== ===== =====
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ValueVision International, Inc. and its Subsidiaries ("ValueVision" or the
"Company") is an integrated direct marketing company that markets its products
directly to consumers through various forms of electronic media. The Company's
operating strategy incorporates television home shopping, Internet e-commerce,
vendor programming sales and fulfillment services.
The Company's television home shopping business uses on-air television home
shopping personalities to market brand name merchandise and proprietary /
private label consumer products at competitive prices. The Company's live
24-hour per day television home shopping programming is distributed primarily
through long-term cable and satellite affiliation agreements and the purchase of
month-to-month full and part-time block lease agreements of cable and broadcast
television time. In addition, the Company distributes its programming through
Company-owned low power television ("LPTV") stations. The Company also
complements its television home shopping business by the sale of merchandise
through its Internet shopping website (www.shopnbc.com) which sells a broad
array of merchandise and simulcasts its television home shopping show live 24
hours a day, 7 days a week.
The Company rebranded its growing home shopping network and companion
Internet shopping website as "ShopNBC" and "ShopNBC.com", respectively, in
fiscal 2001 as part of a wide-ranging direct marketing strategy the Company is
pursuing in conjunction with certain of its strategic partners. This rebranding
is intended to position ValueVision as a multimedia retailer, offering consumers
an entertaining, informative and interactive shopping experience, and position
the Company as a leader in the evolving convergence of television and the
Internet. On November 16, 2000, the Company entered into an exclusive license
agreement with National Broadcasting Company, Inc. ("NBC") pursuant to which NBC
granted ValueVision worldwide use of an NBC-branded name and the Peacock image
for a ten-year period. The new ShopNBC name will be promoted as part of a
wide-ranging marketing campaign that the Company intends to launch in the second
half of 2001. ValueVision's original intent was to re-launch its television
network and companion Internet website under the SnapTV and SnapTV.com brand
names, respectively, in conjunction with NBC Internet, Inc. ("NBCi"). On June
12, 2000, NBCi announced a strategy to integrate all of its consumer properties
under the single NBCi.com brand, effectively abandoning the Snap name. This led
to ValueVision's search for an alternative rebranding strategy culminating in
the license agreement with NBC. In mid-1999, the Company founded ValueVision
Interactive, Inc. as a wholly-owned subsidiary of the Company to manage and
develop the Company's Internet e-commerce initiatives.
The Company, through its wholly-owned subsidiary, VVI Fulfillment Center,
Inc. ("VVIFC"), provides fulfillment, warehousing and telemarketing services on
a cost plus basis to Ralph Lauren Media, LLC ("RLM"). VVIFC's services agreement
was entered into in conjunction with the execution of the Company's investment
and electronic commerce alliance entered into with Polo Ralph Lauren
Corporation, NBC and other NBC affiliates.
WRITE-DOWN OF INVESTMENTS
In the first half of fiscal 2001, the Company recorded pre-tax investment
losses totaling $7,566,000, of which $6,006,000 related to the write-off of the
Company's investment in Internet company Wine.com pursuant to its announced
employee layoff, sale of assets to eVineyard.com and subsequent dissolution. The
declines in fair value were determined by the Company to be other than
temporary.
RESULTS OF OPERATIONS
NET SALES
Consolidated net sales, inclusive of shipping and handling revenue
(reclassified effective January 31, 2001 per EITF Issue No. 00-10) for the three
months ended July 31, 2001 (fiscal 2001) were $104,784,000 compared with net
sales of $89,511,000 for the three months ended July 31, 2000 (fiscal 2000), a
17% increase. Consolidated net sales, inclusive of shipping and handling revenue
for the six months ended July 31, 2001 were $216,763,000 compared with
$175,166,000 for the six months ended July 31, 2000, a 24% increase. The
increase in net sales is directly attributable to the continued improvement in
and increased sales from the Company's television home shopping and Internet
operations, as well as a result of amounts billed for fulfillment services
provided in connection with the Company's service agreement with Ralph Lauren
Media. Net sales attributed to the Company's television home shopping and
Internet businesses increased 17% to $102,676,000 for the quarter ended July 31,
2001 from $88,107,000 for the comparable prior year period. On a year-to-date
basis, net sales attributed to the Company's television home shopping and
Internet businesses increased
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22% to $212,171,000 for the six months ended July 31, 2001 from $173,370,000 for
the comparable prior year period. The challenging retail economic environment
currently being experienced by the Company and other merchandise retailers has
had a negative affect on total net sales growth for the quarter and year-to-date
periods. The growth in home shopping net sales is primarily attributable to the
growth in FTE homes receiving the Company's television programming which
increased by 9 million homes since December 2000, however, the complete net
sales impact and productivity from these additional homes is still to be
realized as these additional new homes have yet to mature. During the 12-month
period ended July 31, 2001, the Company added approximately 12.0 million FTE
subscriber homes, a 43% increase. In addition to new FTE subscriber homes,
television home shopping and Internet sales increased due to the continued
addition of new customers from households already receiving the Company's
television home shopping programming, an increase in the average order size and
a 283% year-to-date increase in Internet sales over the prior year. The Company
intends to continue to test and change its merchandising and programming
strategies with the goal of improving its television home shopping and Internet
sales results. However, while the Company is optimistic that television home
shopping and Internet sales results will continue to improve, there can be no
assurance that such changes in strategy will achieve the intended results.
GROSS PROFITS
Gross profits for the second quarter ended July 31, 2001 and 2000 were
$41,286,000 and $33,734,000, respectively, an increase of $7,552,000 or 22%.
Gross margins for the three months ended July 31, 2001 and 2000 were 39.4% and
37.7%, respectively. Gross profits for the six months ended July 31, 2001 and
2000 were $83,555,000 and $66,519,000, respectively, an increase of $17,036,000
or 26%. Gross margins for the six months ended July 31, 2001 and 2000 were 38.5%
and 38.0%, respectively. The principal reason for the increase in gross profits
was the increased sales volume from the Company's television home shopping and
Internet businesses. In addition, gross profits increased from amounts billed
for fulfillment services to Ralph Lauren Media. Overall, second quarter and
year-to-date television and Internet gross margins between comparable periods
improved over prior year primarily as a result of improved and favorable vendor
pricing on jewelry merchandise and increases in the gross margin percentages in
the electronics/computer product category.
OPERATING EXPENSES
Total operating expenses for the three and six months ended July 31, 2001
were $43,187,000 and $84,630,000, respectively, versus $31,461,000 and
$62,740,000 for the comparable prior year periods. Distribution and selling
expense increased $10,311,000 or 40% to $36,308,000 or 35% of net sales during
the second quarter of fiscal 2001 compared to $25,997,000 or 29% of net sales
for the comparable prior-year period. Distribution and selling expense increased
$18,152,000 or 35% to $70,289,000 or 32% of net sales for the six months ended
July 31, 2001 compared to $52,137,000 or 30% of net sales for the comparable
prior-year period. Distribution and selling expense increased primarily as a
result of increases in net cable access fees due to a 41% year-to-date increase
in the number of average FTE subscribers over the prior year, increased
marketing and advertising fees, and increased costs associated with credit card
processing and telemarketing primarily resulting from increased sales.
Distribution and selling expense increased as a percentage of net sales over the
prior year primarily as a result of the Company's fixed cable access fee expense
base growing at a faster rate than the related incremental increase in
television home shopping net sales, which is to be expected from the increased
subscriber carriage over the prior year.
General and administrative expense for the three months ended July 31, 2001
decreased $139,000 or 3% to $3,935,000 or 4% of net sales compared to $4,074,000
or 5% of net sales for the three months ended July 31, 2000. For the six months
ended July 31, 2001, general and administrative expense increased $374,000 or 5%
to $8,260,000 or 4% of net sales compared to $7,886,000 or 5% of net sales for
the six months ended July 31, 2000. On a year to date basis, general and
administrative expense increased from the prior year primarily as a result of
increases in personnel costs, travel and information systems costs, including
increased consulting and placement fees. General and administrative expense as a
percentage of net sales decreased over prior year as a result of expenses
growing at a slower rate than the increase in television home shopping and
Internet net sales over the prior year due to tight management control over
spending.
Depreciation and amortization expense for the three months ended July 31,
2001 was $2,944,000 versus $1,390,000, representing an increase of $1,554,000 or
112% from the comparable prior-year period. Depreciation and amortization
expense for the six months ended July 31, 2001 was $6,081,000 versus $2,717,000,
representing an increase of $3,364,000 or 124% from the comparable prior-year
period. Depreciation and amortization expense as a percentage of net sales for
the three and six months ended July 31, 2001 and 2000 were 3% and 2%, each,
respectively. The dollar increase is primarily due to additional amortization
incurred in fiscal 2001 in connection with the Company's NBC Trademark License
Agreement and increased depreciation associated with the Company's fixed assets
and fulfillment service obligations with RLM.
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OPERATING INCOME (LOSS)
For the three months ended July 31, 2001, the Company reported an operating
loss of $1,901,000 compared to operating income of $2,273,000 for the three
months ended July 31, 2000, a decrease of $4,174,000. For the six months ended
July 31, 2001, the Company reported an operating loss of $1,075,000 compared to
operating income of $3,779,000, a decrease of $4,854,000. Operating income
decreased from prior year primarily as a result of the Company achieving less
than expected sales levels in the second quarter coupled with increased
distribution and selling expenses, particularly net cable access fees for which
the expense of adding approximately 9 million new homes over the last six months
is being incurred but the future revenue benefit and productivity of these
additional homes is yet to be realized. The net sales shortfall has been a
direct result of the challenging economic environment in general and soft retail
market in particular. In addition, operating income also decreased as a result
of increased amortization expense associated with the Company's Trademark
License Agreement with NBC and increases in depreciation associated with the
Company's fixed assets and fulfillment obligations with RLM. Second quarter and
year to date operating expense increases were offset by the increase in net
sales and gross profits reported by the Company's television home shopping and
Internet businesses.
NET INCOME (LOSS)
For the three months ended July 31, 2001, the Company reported a net loss
available to common shareholders of $1,760,000 or $.05 per share on 38,625,000
weighted average common shares outstanding, compared with net income available
to common shareholders of $3,167,000 or $.07 per share on 47,126,000 diluted
weighted average common shares outstanding ($.08 per share on 38,566,000 basic
shares) for the quarter ended July 31, 2000. The net loss available to common
shareholders for the quarter ended July 31, 2001 includes a pre-tax loss of
$1,560,000 related to the write off of certain pre-2000 investments whose
decline in fair value was determined to be other than temporary and pre-tax
losses totaling $79,000 recorded on the sale and holdings of the Company's
property and other investments. For the quarter ended July 31, 2001, the net
loss available to common shareholders also included a pre-tax loss of $2,879,000
related to the Company's equity interest in RLM and interest income totaling
$2,493,000 earned on the Company's cash and short-term investments. Net income
available to common shareholders for the quarter ended July 31, 2000 includes
pre-tax losses totaling $603,000 recorded on the sale and holdings of the
Company's property and investments. For the quarter ended July 31, 2000, net
income available to common shareholders also included a pre-tax loss of $405,000
related to the Company's equity interest in RLM and interest income totaling
$3,703,000.
Excluding the net one-time gains/losses on the sale and holdings of property
and investments and other one-time charges/benefits, the net loss available to
common shareholders for the quarter ended July 31, 2001 totaled $1,464,000, or
$.04 per share compared to net income available to common shareholders of
$3,540,000, or $.08 per diluted share ($.09 per basic share) for the quarter
ended July 31, 2000.
For the six months ended July 31, 2001, the Company reported a net loss
available to common shareholders of $7,182,000 or $.19 per share on 38,575,000
weighted average common shares outstanding, compared with net income available
to common shareholders of $6,277,000 or $.14 per share on 47,440,000 diluted
weighted average common shares outstanding ($.16 per share on 38,490,000 basic
shares) for the six months ended July 31, 2000. The net loss available to common
shareholders for the six months ended July 31, 2001 includes a pre-tax loss of
$7,566,000 related primarily to the write-down of the Company's investment in
Internet retailer Wine.com and other investments whose decline in fair values
were determined by the Company to be other than temporary and pre-tax losses
totaling $685,000 recorded on the sale and holdings of the Company's property
and other investments. For the six months ended July 31, 2001, the net loss
available to common shareholders also included a pre-tax loss of $4,616,000
related to the Company's equity interest in RLM, a loss of $329,000 relating to
the cumulative effect of adopting SFAS No. 133 and interest income totaling
$5,343,000 earned on the Company's cash and short-term investments. Net income
available to common shareholders for the six months ended July 31, 2000 includes
pre-tax losses totaling $652,000 recorded on the sale and holdings of the
Company's property and investments. For the six months ended July 31, 2000, net
income available to common shareholders also included a pre-tax loss of $407,000
related to the Company's equity interest in RLM and interest income totaling
$7,464,000.
Excluding the net one-time gains/losses on the sale and holdings of property
and investments and other one-time charges/benefits, the net loss available to
common shareholders for the six months ended July 31, 2001 totaled $195,000, or
$.01 per share compared to net income available to common shareholders of
$6,648,000, or $.14 per diluted share ($.17 per basic share) for the six months
ended July 31, 2000.
The Company's year-to-date effective tax rate is lower than its historical
effective tax rate as a result of the timing of future tax benefits relating to
certain investments written down during the first half of fiscal 2001 and an
increase in the mix of interest income
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generated from tax-free, short-term investments over prior year offset by a tax
benefit recorded in the second quarter relating to a previously written off
capital investment.
PROGRAM DISTRIBUTION
The Company's television home-shopping programming was available to
approximately 47.6 million homes as of July 31, 2001, as compared to 42.6
million homes as of January 31, 2001 and to 36.0 million homes as of July 31,
2000. The Company's programming is currently available through affiliation and
time-block purchase agreements with approximately 560 cable or satellite
systems. In addition, the Company's programming is available unscrambled to
homes equipped with satellite dishes and is broadcast full-time over eleven
Company-owned, low-power television stations in major markets. As of July 31,
2001 and 2000, the Company's programming was available to approximately 39.7
million and 27.7 million FTE households, respectively. As of January 31, 2001,
the Company's programming was available to 34.2 million FTE households.
Approximately 33.9 million and 18.7 million households at July 31, 2001 and
2000, respectively, received the Company's programming on a full-time basis.
Homes that receive the Company's television home shopping programming 24 hours
per day are counted as one FTE each and homes that receive the Company's
programming for any period less than 24 hours are counted based upon an analysis
of time of day and day of week. The Company's television home shopping
programming is also broadcast live 24 hours a day, 7 days a week through its
Internet shopping website (www.shopnbc.com) which is not included in total FTE
households.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 2001, cash and cash equivalents and short-term investments
were $239,880,000, compared to $244,723,000 as of January 31, 2001, a $4,843,000
decrease. For the six months ended July 31, 2001, working capital decreased
$2,215,000 to $289,950,000 driven primarily from the reduction in cash and cash
equivalents and short-term investments. The current ratio was 5.3 at July 31,
2001 compared to 4.9 at January 31, 2001. At July 31, 2001, short-term
investments and cash equivalents were invested primarily in money market funds,
high quality commercial paper with original maturity dates of less than two
hundred and seventy (270) days and investment grade corporate and municipal
bonds and other tax advantaged certificates with original maturity dates and/or
tender option terms ranging from one month to one year. The average maturity of
the Company's investment portfolio is approximately 30 days.
Total assets at July 31, 2001 were $470,593,000, compared to $510,697,000 at
January 31, 2001. Shareholders' equity was $360,802,000 at July 31, 2001,
compared to $393,426,000 at January 31, 2001, a $32,624,000 decrease. The
decrease in shareholders' equity and total assets for the six-month period ended
July 31, 2001 resulted primarily from the $26,878,000 revaluation of common
stock purchase warrants granted to NBC in connection with the Company's NBC
Trademark License Agreement pursuant to the establishment of a fixed measurement
date. Shareholders' equity also decreased as a result of recording a $7,042,000
net loss for the six-month period primarily attributable to write downs of
historical investments. In addition, shareholders' equity also decreased
$1,275,000 in connection with the Company's first quarter repurchase of 105,000
common shares under a previously authorized stock repurchase plan, $83,000
relating to increased notes receivable from officers, the recording of net
unrealized losses on investments classified as "available-for-sale" totaling
$91,000 and accretion on redeemable preferred stock of $140,000. These decreases
were offset by increases in shareholders' equity relating to the issuance of
343,725 common stock purchase warrants valued at $1,175,000 to NBC and by
proceeds received of $1,710,000 related to the exercise of stock options.
For the six-month period ended July 31, 2001, net cash provided by operating
activities totaled $8,753,000 compared to net cash provided by operating
activities of $17,854,000 for the six-month period ended July 31, 2000. Cash
flows from operations after adding back depreciation and amortization expense,
which the Company defines as EBITDA, was a positive $5,006,000 for the six
months ended July 31, 2001, compared to a positive $6,496,000 for the same
prior-year period. Net cash provided by operating activities for the six months
ended July 31, 2001 reflects a net loss, as adjusted for depreciation and
amortization, write-down of investments, unrealized losses on security holdings,
equity in losses of affiliates, the cumulative effect of adopting SFAS No. 133
and losses on the sale of property and investments. In addition, net cash
provided by operating activities for the six months ended July 31, 2001 reflects
decreases in accounts receivable and inventories, offset by an increase in
income taxes receivable, prepaid expenses and a decrease in accounts payable and
accrued liabilities. Accounts receivable decreased primarily due to the timing
of customer collections made pursuant to the "ValuePay" installment program, a
reduction in sales made utilizing extended payment terms, decreased vendor
airtime receivables and decreased interest receivable resulting from lower
interest rates driven by reductions in federal funds rates. Inventories
decreased from year-end due to the timing of merchandise receipts, typical lower
inventory levels during the second quarter summer season and aggressive
management of inventory. The decrease in accounts payable and accrued
liabilities is a direct result of the decrease in inventory levels and the
timing of vendor payments.
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Net cash used for investing activities totaled $60,228,000 for the six
months ended July 31, 2001, which was primarily offset by an increase in
short-term investments of $46,197,000, compared to net cash used for investing
activities of $12,431,000 for the six months ended July 31, 2000. For the six
months ended July 31, 2001 and 2000, expenditures for property and equipment
were $7,350,000 and $10,024,000, respectively. Expenditures for property and
equipment during the periods ended July 31, 2001 and 2000 primarily include
capital expenditures made for the upgrade and conversion of new computer
software, related computer equipment and other office equipment, warehouse
equipment, production equipment and expenditures on leasehold improvements.
Principal future capital expenditures include the upgrade of television
production and transmission equipment and the upgrade and replacement of
computer software, systems and related computer equipment associated with the
expansion of the Company's home shopping business and e-commerce initiatives. In
the first six months of fiscal 2001, the Company invested $147,399,000 in
various short-term investments, received proceeds of $101,202,000 from the sale
of short-term investments, received proceeds of $928,000 from the sale of
property and investments and made disbursements of $7,609,000 for certain
investments and other long-term assets primarily related to the Company's equity
interest in RLM. In the first six months of fiscal 2000, the Company invested
$89,389,000 in various short-term investments, received proceeds of $119,779,000
from the sale of short-term investments, made disbursements of $32,983,000 for
certain investments and other assets, made a $500,000 loan to an officer of the
Company, received proceeds of $362,000 from the sale of property and investments
and received proceeds of $324,000 in connection with the repayment of
outstanding notes receivable.
Net cash provided by financing activities totaled $435,000 for the six
months ended July 31, 2001 and related primarily to cash proceeds received
totaling $1,710,000 from the exercise of stock options offset by payments made
of $1,275,000 in conjunction with the repurchase of 105,000 shares of the
Company's common stock in the first quarter at an average price of $12.14 per
share. Net cash provided by financing activities totaled $2,311,000 for the six
months ended July 31, 2000 and related to proceeds received from the exercise of
stock options.
Management believes that funds currently held by the Company will be
sufficient to fund the Company's operations, anticipated capital expenditures,
strategic investments and cable launch fees over the next twelve months.
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 various "forward-looking statements" within the meaning of
federal securities laws which represent management's expectations or beliefs
concerning future events. These statements are based on management's current
expectations and are accordingly subject to uncertainty and changes in
circumstances. Actual results may vary materially from the expectations
contained herein due to various important factors, including (but not limited
to): consumer spending and debt levels; interest rates; seasonal variations in
consumer purchasing activities; competitive pressures on sales; pricing and
gross profit margins; the level of cable and satellite distribution for the
Company's programming and fees associated therewith; the success of the
Company's e-commerce and rebranding initiatives; the performance of the
Company's equity investments; the success of the Company's strategic alliances
and relationships; the performance of Ralph Lauren Media and the Company's
ultimate return on this investment; the ability of the Company to manage its
operating expenses successfully; risks associated with acquisitions; changes in
governmental or regulatory requirements; litigation or governmental proceedings
affecting the Company's operations; and the ability of the Company to obtain and
retain key executives and employees. Investors are cautioned that all
forward-looking statements involve risk and uncertainty and the Company is under
no obligation (and expressly disclaims any such obligation to) update or alter
its forward-looking statements whether as a result of new information, future
events or otherwise.
In addition to any specific risks and uncertainties discussed in this Form
10-Q, the risks and uncertainties discussed in detail in the Company's Form 10-K
for the fiscal year ended January 31, 2001, specifically under the caption
entitled "Risk Factors", provide information which should be considered in
evaluating any of the Company's forward-looking statements. In addition, the
facts and circumstances that exist when any forward-looking statements are made
and on which those forward-looking statements are based may significantly change
in the future, thereby rendering obsolete the forward-looking statements on
which such facts and circumstances were based.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of ValueVision International, Inc.
pursuant to due call by the Board of Directors was held on June 21, 2001.
Shareholders holding 40,818,786 shares (common and preferred shares), or
approximately 92.94% 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 in 2002
or until such time as a successor may be elected:
Shares Shares
Voted For Withheld
---------- ---------
Gene McCaffery 37,477,383 3,341,403
Marshall S. Geller 40,484,814 333,972
Robert J. Korkowski 40,574,978 243,808
Paul D. Tosetti 40,355,439 463,347
Mark W. Begor* 5,339,500 --
John L. Flannery, Jr.* 5,339,500 --
* Messrs. Begor and Flannery are the representatives of the holders of the
Company's Series A Redeemable Convertible Preferred stock.
(b) Adoption of the ValueVision International, Inc. 2001 Omnibus Stock Plan
Shareholders approved the adoption of the ValueVision International, Inc. 2001
Omnibus Stock Plan providing for the issuance of 3,000,0000 shares thereunder by
a vote of 22,618,233 shares in favor, 9,631,045 shares against, and 59,043
shares abstained.
(c) Ratification of current fiscal year independent auditor
Shareholders ratified the appointment of Arthur Andersen LLP as independent
auditors for the fiscal year ending January 31, 2002 by a vote of 40,796,139
shares in favor, 14,303 shares against, and 8,344 shares abstained.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 ValueVision International, Inc. 2001 Omnibus Stock Plan
(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
/s/ Gene McCaffery
-------------------------------------------
Gene McCaffery
Chief Executive Officer
(Principal Executive Officer)
/s/ Richard D. Barnes
-------------------------------------------
Richard D. Barnes
Executive Vice President, Chief Financial
Officer (Principal Financial and
Accounting Officer), Chief Operating Officer
September 13, 2001
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