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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 October 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 December 10, 2001, there were 37,864,406 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
OCTOBER 31, 2001
PAGE OF FORM
10-Q
------------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- Condensed Consolidated Balance Sheets as 3
of October 31, 2001 and January 31, 2001
- Condensed Consolidated Statements of 4
Operations for the Three and Nine Months
Ended October 31, 2001 and 2000
- Condensed Consolidated Statement of 5
Shareholders' Equity for the Nine Months
Ended October 31, 2001
- Condensed Consolidated Statements of Cash 6
Flows for the Nine Months Ended October 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 12
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
OCTOBER 31, JANUARY 31,
2001 2001
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 73,962 $136,045
Short-term investments 149,245 108,678
Accounts receivable, net 52,546 61,173
Inventories, net 35,642 34,960
Prepaid expenses and other 9,416 9,298
Income taxes receivable 17,951 13,417
Deferred income taxes 3,965 3,965
-------- --------
Total current assets 342,727 367,536
PROPERTY & EQUIPMENT, NET 34,958 33,982
NBC TRADEMARK LICENSE AGREEMENT, NET 29,174 58,386
CABLE DISTRIBUTION AND MARKETING AGREEMENT, NET 6,212 5,701
INVESTMENTS AND OTHER ASSETS, NET 40,843 44,753
DEFERRED INCOME TAXES 891 339
-------- --------
$454,805 $510,697
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 45,537 $ 56,033
Accrued liabilities 23,431 19,338
-------- --------
Total current liabilities 68,968 75,371
LONG-TERM CAPITAL LEASE OBLIGATIONS 456 --
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK,
$.01 PER SHARE PAR VALUE, 5,339,500 SHARES
AUTHORIZED; 5,339,500 SHARES ISSUED AND OUTSTANDING 42,110 41,900
SHAREHOLDERS' EQUITY:
Common stock, $.01 per share par value,
100,000,000 shares authorized; 37,837,656
and 38,578,401 shares issued and
outstanding 378 386
Warrants to purchase 8,198,485 and 7,854,760
shares of common stock 47,467 73,170
Additional paid-in capital 272,826 286,258
Accumulated other comprehensive losses (1,711) (813)
Note receivable from officer (3,982) (3,863)
Retained earnings 28,293 38,288
-------- --------
Total shareholders' equity 343,271 393,426
-------- --------
$454,805 $510,697
======== ========
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
3
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 NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------------ --------------------------
2001 2000 2001 2000
------------------------------ --------------------------
NET SALES $ 109,420 $ 99,437 $ 326,184 $ 274,603
COST OF SALES 69,008 61,972 202,216 170,619
--------- --------- --------- ---------
Gross profit 40,412 37,465 123,968 103,984
--------- --------- --------- ---------
Margin % 36.9% 37.7% 38.0% 37.9%
OPERATING EXPENSES:
Distribution and selling 37,710 27,071 107,998 79,209
General and administrative 3,729 4,258 11,989 12,143
Depreciation and amortization 3,096 1,948 9,177 4,666
--------- --------- --------- ---------
Total operating expenses 44,535 33,277 129,164 96,018
--------- --------- --------- ---------
OPERATING INCOME (LOSS) (4,123) 4,188 (5,196) 7,966
--------- --------- --------- --------
OTHER INCOME (EXPENSE):
Gain (loss) on sale of 3 (2) (413) (8)
property and investments
Unrealized loss on security (260) (30) (530) (94)
holdings
Write-down of investments (1) (54,564) (7,568) (55,147)
Equity in losses of affiliates (1,735) (1,288) (6,352) (1,694)
Interest income 1,630 3,837 6,973 11,301
--------- --------- --------- ---------
Total other income (expense) (363) (52,047) (7,890) (45,642)
--------- ---------- --------- ---------
LOSS BEFORE INCOME TAXES (4,486) (47,859) (13,086) (37,676)
Income tax benefit (1,743) (11,124) (3,629) (7,356)
--------- ---------- ---------- ---------
LOSS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (2,743) (36,735) (9,457) (30,320)
Cumulative effect of
accounting change -- -- (329) --
--------- --------- --------- ---------
NET LOSS (2,743) (36,735) (9,786) (30,320)
Accretion of redeemable (70) (70) (209) (208)
--------- --------- --------- ---------
preferred stock
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS $ (2,813) $ (36,805) $ (9,995) $ (30,528)
========= ========= ========= =========
NET LOSS PER COMMON SHARE:
Before cumulative effect of
accounting change $ (0.07) $ (0.95) $ (0.25) $ (0.79)
Cumulative effect of
accounting change -- -- (0.01) --
--------- --------- --------- ---------
Net loss $ (0.07) $ (0.95) $ (0.26) $ (0.79)
========= ========= ========= =========
NET LOSS PER COMMON SHARE:
- ASSUMING DILUTION:
Before cumulative effect of
accounting change $ (0.07) $ (0.95) $ (0.25) $ (0.79)
Cumulative effect of
accounting change -- -- (0.01) --
--------- --------- --------- ---------
Net loss $ (0.07) $ (0.95) $ (0.26) $ (0.79)
========= ========= ========= =========
Weighted average number of common
shares outstanding:
Basic 38,317,044 38,643,778 38,488,961 38,541,342
========== ========== ========== ==========
Diluted 38,317,044 38,643,778 38,488,961 38,541,342
========== ========== ========== ==========
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 31, 2001
(Unaudited)
(In thousands, except share data)
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 $ (9,786) -- -- -- --
Other comprehensive income
(loss), net of tax:
Unrealized losses on
securities, net of tax of
$785 (1,280)
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) (898) -- -- -- --
--------
Comprehensive loss $(10,684)
========
Revaluation of NBC common stock
purchase warrants -- -- (26,878) --
Value assigned to common stock
purchase warrants -- -- 1,175 --
Repurchases of common stock (1,091,600) (11) (15,691)
Increase in note receivable from -- -- -- --
officer
Exercise of stock options 350,855 3 -- 2,259
Accretion on redeemable preferred
stock -- -- -- --
---------- ----- ------- --------
BALANCE, OCTOBER 31, 2001 37,837,656 $ 378 $47,467 $272,826
---------- ----- ------- --------
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 -- -- (9,786) (9,786)
Other comprehensive income
(loss), net of tax:
Unrealized losses on
securities, net of tax of
$785
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) (898) -- -- (898)
Comprehensive loss
Revaluation of NBC common stock
purchase warrants -- -- -- (26,878)
Value assigned to common stock
purchase warrants -- -- -- 1,175
Repurchases of common stock -- -- -- (15,702)
Increase in note receivable from -- (119) -- (119)
officer
Exercise of stock options -- -- -- 2,262
Accretion on redeemable preferred
stock -- -- (209) (209)
------- ------- ------- --------
BALANCE, OCTOBER 31, 2001 $(1,711) $(3,982) $28,293 $343,271
------- ------- ------- --------
The accompanying notes are an integral part of
these condensed consolidated financial statements.
5
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except share data)
FOR THE NINE MONTHS ENDED OCTOBER 31,
-------------------------------------
2001 2000
---------- ---------
OPERATING ACTIVITIES:
Net loss $(9,786) $(30,320)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Depreciation and amortization 9,177 4,666
Loss on sale of property and investments 413 8
Unrealized loss on security holdings 530 94
Equity in losses of affiliates 6,352 1,694
Write-down of investments 7,568 55,147
Cumulative effect of accounting change 329 --
Changes in operating assets and liabilities:
Accounts receivable, net 8,570 (10,071)
Inventories, net (682) (8,990)
Prepaid expenses and other (786) (3,326)
Accounts payable and accrued liabilities (6,919) 19,146
Income taxes receivable (4,533) (2,378)
------- -------
Net cash provided by operating
activities 10,233 25,670
------- -------
INVESTING ACTIVITIES:
Property and equipment additions (9,710) (20,380)
Proceeds from sale of investments and property 928 335
Purchase of short-term investments (203,395) (166,992)
Proceeds from sale of short-term investments 162,827 152,374
Payment for investments and other assets (9,526) (36,336)
Issuance of note receivable from officer -- (500)
Proceeds from notes receivable -- 325
------- -------
Net cash used for investing activities (58,876) (71,174)
------- -------
FINANCING ACTIVITIES:
Payments for repurchases of common stock (15,702) --
Proceeds from exercise of stock options
and warrants 2,262 3,778
------- -------
Net cash provided by (used for)
financing activities (13,440) 3,778
------- -------
Net decrease in cash and cash
equivalents (62,083) (41,726)
BEGINNING CASH AND CASH EQUIVALENTS 136,045 138,221
------- -------
ENDING CASH AND CASH EQUIVALENTS $73,962 $96,495
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 34 $ 34
======= =======
Income taxes paid $ 920 $ 22
======= =======
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 $ 209 $ 208
======= =======
Equipment purchases under capital lease $ 747 $ --
======= =======
The accompanying notes are an integral part of
these condensed consolidated financial statements.
6
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 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 is being promoted as part of a
marketing campaign that the Company launched 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 nine-month period ended
October 31, 2001 are not necessarily indicative of the results that may be
expected for the fiscal year ending January 31, 2002.
7
(3) 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 MONTHS ENDED OCTOBER 31, NINE MONTHS ENDED OCTOBER 31,
--------------------------------- -------------------------------
2001 2000 2001 2000
---------------- --------------- --------------- ---------------
Net loss available to
common shareholders $ (2,813,000) $ (36,805,000) $ (9,995,000) $(30,528,000)
============ ============= ============ ============
Weighted average number of
common shares outstanding -
Basic 38,317,000 38,644,000 38,489,000 38,541,000
Dilutive effect of convertible
preferred stock -- -- -- --
Dilutive effect of stock
options and warrants -- -- -- --
------------ ------------- ------------ ------------
Weighted average number of
common shares outstanding -
Diluted 38,317,000 38,644,000 38,489,000 38,541,000
============ ============= ============ ============
Net loss per common share $ (0.07) $ (0.95) $ (0.26) $ (0.79)
============ ============= ============ ============
Net loss per common share -
assuming dilution $ (0.07) $ (0.95) $ (0.26) $ (0.79)
============ ============= ============ ============
For the quarters ended October 31, 2001 and 2000, respectively, 7,342,000 and
8,439,000 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
($3,551,000) and ($26,742,000) for the three months ended October 31, 2001 and
2000, respectively. Total comprehensive loss was ($10,684,000) and ($39,900,000)
for the nine months ended October 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.
8
(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. 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 October 31, 2001, the Company had equity investments totaling
approximately $38,956,000 of which $32,784,000 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 October 31, 2001, investments in the
accompanying consolidated balance sheet also include approximately $4,161,000
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 October 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
$43.4 million has been funded through October 31, 2001. Currently, the Company's
investment in RLM is $32,784,000 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 will continue to reevaluate the realizability of its RLM investment, as
it does with all of its investments, in conjunction with the continued
development and forecast of the entity's operations.
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. During fiscal 2001,
the Company recorded pre-tax investment losses totaling $7,568,000 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.
9
(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 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 October 31, 2001 the Company held a note receivable totaling $3,982,000,
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) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities", establishes
accounting and reporting standards requiring that derivative instruments, as
defined in the standard, be 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 nine-month period ended October 31, 2001, the Company also
recorded unrealized losses on security holdings of ($530,000) relating to fair
value adjustments made with respect to derivative common stock purchase warrants
held by the Company.
On June 30, 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 requires all business combinations initiated after June
30, 2001 to use the purchase method of accounting. SFAS No. 142 addresses how
intangibles assets that are acquired individually or with a group of other
assets (but not those acquired in a business combination) should be accounted
for in financial statements upon their acquisition. SFAS No. 142 also addresses
how goodwill and other intangible assets should be accounted for after they have
been initially recognized in the financial statements. The Company does not
anticipate any significant impact from the adoption of SFAS Nos. 141 and 142.
(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.
10
(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. As of October 31, 2001, the Company had
repurchased 977,000 shares of its common stock under the new stock repurchase
program for a total net cost of $14,260,000 at an average price of $14.60 per
share. The Company also repurchased 115,000 shares of its common stock under a
previously authorized stock repurchase program for a total net cost of
$1,442,000.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's accompanying
unaudited condensed consolidated financial statements and notes included herein
and the audited consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 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 THE
THREE MONTHS NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
---------------------------- ---------------------------
2001 2000 2001 2000
------ ------ ------ ------
NET SALES 100.0% 100.0% 100.0% 100.0%
===== ===== ====== ======
GROSS MARGIN 36.9% 37.7% 38.0% 37.9%
----- ----- ----- -----
Operating expenses:
Distribution and selling 34.5% 27.2% 33.1% 28.9%
General and administrative 3.4% 4.3% 3.7% 4.4%
Depreciation and
amortization 2.8% 2.0% 2.8% 1.7%
----- ----- ----- -----
40.7% 33.5% 39.6% 35.0%
----- ----- ----- -----
Operating income (loss) (3.8)% 4.2% (1.6)% 3.0%
===== ===== ===== =====
12
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 is being promoted as part of a
marketing campaign that the Company launched 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
During fiscal 2001, the Company recorded pre-tax investment losses totaling
$7,568,000, 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 October 31, 2001 (fiscal 2001) were $109,420,000 compared with net
sales of $99,437,000 for the three months ended October 31, 2000 (fiscal 2000),
a 10% increase. Consolidated net sales, inclusive of shipping and handling
revenue for the nine months ended October 31, 2001 were $326,184,000 compared
with $274,603,000 for the nine months ended October 31, 2000, a 19% 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. Net sales attributed to the Company's television home shopping and
Internet businesses increased 11% to $107,461,000 for the quarter ended October
31, 2001 from $97,151,000 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 18% to $319,632,000 for the nine
months ended October 31, 2001 from $270,521,000 for the comparable prior year
13
period. The challenging retail economic environment currently being experienced
by the Company and other merchandise retailers along with the economic effect
following the dramatic and tragic events of September 11, 2001 has had a
negative affect on total net sales growth for the quarter and year-to-date
periods. Despite the challenging economic situation, the continued growth in
home shopping net sales is primarily attributable to the growth in FTE homes
receiving the Company's television programming which increased by 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
October 31, 2001, the Company added approximately 13.3 million FTE subscriber
homes, a 48% 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 200%
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 third quarter ended October 31, 2001 and 2000 were
$40,412,000 and $37,465,000, respectively, an increase of $2,947,000 or 8%.
Gross margins for the three months ended October 31, 2001 and 2000 were 36.9%
and 37.7%, respectively. Gross profits for the nine months ended October 31,
2001 and 2000 were $123,968,000 and $103,984,000, respectively, an increase of
$19,984,000 or 19%. Gross margins for the nine months ended October 31, 2001 and
2000 were 38.0% and 37.9%, 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. Overall, year-to-date television and
Internet gross margins between comparable period slightly 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 nine months ended October 31, 2001
were $44,535,000 and $129,164,000, respectively, versus $33,277,000 and
$96,018,000 for the comparable prior year periods. Distribution and selling
expense increased $10,639,000 or 39% to $37,710,000 or 34% of net sales during
the third quarter of fiscal 2001 compared to $27,071,000 or 27% of net sales for
the comparable prior-year period. Distribution and selling expense increased
$28,789,000 or 36% to $107,998,000 or 33% of net sales for the nine months ended
October 31, 2001 compared to $79,209,000 or 29% 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 43% year-to-date increase
in the number of average FTE subscribers over the prior year, increased
marketing and advertising fees primarily associated with rebranding the ShopNBC
name, 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 October 31,
2001 decreased $529,000 or 12% to $3,729,000 or 3% of net sales compared to
$4,258,000 or 4% of net sales for the three months ended October 31, 2000. For
the nine months ended October 31, 2001, general and administrative expense
decreased $154,000 or 1% to $11,989,000 or 4% of net sales compared to
$12,143,000 or 4% of net sales for the nine months ended October 31, 2000. On a
quarter and year to date basis, general and administrative expense decreased
from the prior year due to tight management controls over spending resulting in
decreases in personnel costs, travel and information systems costs, consulting
and placement fees. General and administrative expense as a percentage of net
sales decreased over prior year's third quarter as a result of expenses growing
at a slower rate than the increase in television home shopping and Internet net
sales over the prior year. General and administrative expense as a percentage of
net sales remained flat for the comparable nine-month periods.
14
Depreciation and amortization expense for the three months ended October 31,
2001 was $3,096,000 versus $1,948,000, representing an increase of $1,148,000 or
59% from the comparable prior-year period. Depreciation and amortization expense
for the nine months ended October 31, 2001 was $9,177,000 versus $4,666,000,
representing an increase of $4,511,000 or 97% from the comparable prior-year
period. Depreciation and amortization expense as a percentage of net sales for
the three and nine months ended October 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.
OPERATING INCOME (LOSS)
For the three months ended October 31, 2001, the Company reported an
operating loss of $4,123,000 compared to operating income of $4,188,000 for the
three months ended October 31, 2000, a decrease of $8,311,000. For the nine
months ended October 31, 2001, the Company reported an operating loss of
$5,196,000 compared to operating income of $7,966,000, a decrease of
$13,162,000. Operating income decreased from prior year primarily as a result of
the Company achieving less than expected sales levels in the year-to-date period
coupled with increased distribution and selling expenses, particularly net cable
access fees for which the expense of adding approximately 9 million new homes
since December 2000 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, the soft retail market in particular and the economic effect following
the tragic events of September 11, 2001. 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.
Third quarter and year to date operating expense increases were partially offset
by the increase in net sales and gross profits reported by the Company's
television home shopping and Internet businesses and a decrease in overall
general and administrative expense as management attempts to control spending.
NET INCOME (LOSS)
For the three months ended October 31, 2001, the Company reported a net loss
available to common shareholders of $2,813,000 or $.07 per share on 38,317,000
weighted average common shares outstanding, compared with a net loss available
to common shareholders of $36,805,000 or $.95 per share on 38,644,000 weighted
average common shares outstanding for the quarter ended October 31, 2000. The
net loss available to common shareholders for the quarter ended October 31, 2001
includes net pre-tax losses totaling $257,000 recorded on the sale and holdings
of the Company's property and other investments. For the quarter ended October
31, 2001, the net loss available to common shareholders also included a pre-tax
loss of $1,735,000 related to the Company's equity interest in RLM and interest
income totaling $1,630,000 earned on the Company's cash and short-term
investments. The net loss available to common shareholders for the quarter ended
October 31, 2000, includes a pre-tax loss of $54,564,000 related to the
write-down of investments made primarily in a number of Internet retailers whose
decline in fair value was determined by the Company to be other than temporary
and pre-tax losses totaling $32,000 recorded on the sale and holdings of the
Company's property and other investments. For the quarter ended October 31,
2000, net loss available to common shareholders also included a pre-tax loss of
$1,288,000 related to the Company's equity interest in RLM and interest income
totaling $3,837,000.
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 October 31, 2001 totaled $2,813,000,
or $.07 per share compared to net income available to common shareholders of
$4,159,000, or $.09 per diluted share ($.11 per basic share) for the quarter
ended October 31, 2000.
For the nine months ended October 31, 2001, the Company reported a net loss
available to common shareholders of $9,995,000 or $.26 per share on 38,489,000
weighted average common shares outstanding, compared with a net loss available
to common shareholders of $30,528,000 or $.79 per share on 38,541,000 weighted
average common shares outstanding for the nine months ended October 31, 2000.
The net loss available to common shareholders for the nine months ended October
31, 2001 includes a pre-tax loss of $7,568,000 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 $943,000 recorded on the sale
and holdings of the Company's property and other investments. For the nine
months ended October 31, 2001, the net loss available to common shareholders
also included a pre-tax loss of $6,352,000 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 $6,973,000 earned on the
Company's cash and short-term investments. The net loss available to common
shareholders for the nine months ended October 31, 2000 includes a pre-tax loss
$55,147,000 related to the write-down of investments made primarily in a number
15
of Internet retailers whose decline in fair value was determined by the Company
to be other than temporary and pre-tax losses totaling $102,000 recorded on the
sale and holdings of the Company's property and investments. For the nine months
ended October 31, 2000, net loss available to common shareholders also included
a pre-tax loss of $1,694,000 related to the Company's equity interest in RLM and
interest income totaling $11,301,000.
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 nine months ended October 31, 2001 totaled
$2,800,000, or $.07 per share compared to net income available to common
shareholders of $10,804,000, or $.23 per diluted share ($.28 per basic share)
for the nine months ended October 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 nine months ended October 31, 2001
and an increase in the mix of interest income 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 50.1 million homes as of October 31, 2001, as compared to 42.6
million homes as of January 31, 2001 and to 35.5 million homes as of October 31,
2000. The Company's programming is currently available through affiliation and
time-block purchase agreements with approximately 620 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 October 31,
2001 and 2000, the Company's programming was available to approximately 41.2
million and 27.9 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 23.3 million households at October 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 October 31, 2001, cash and cash equivalents and short-term investments
were $223,207,000, compared to $244,723,000 as of January 31, 2001, a
$21,516,000 decrease. For the nine months ended October 31, 2001, working
capital decreased $18,406,000 to $273,759,000 driven primarily from the
reduction in cash and cash equivalents and short-term investments resulting
primarily from the repurchase of common stock under the Company's authorized
stock repurchase program. The current ratio was 5.0 at October 31, 2001 compared
to 4.9 at January 31, 2001. At October 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. Although the Company's short-term
investment policy is very conservative in nature, certain short-term investments
in commercial paper can be exposed to the credit risk of the underlying
companies to which they relate. The average maturity of the Company's investment
portfolio ranges from 30-60 days.
Total assets at October 31, 2001 were $454,805,000, compared to $510,697,000
at January 31, 2001. Shareholders' equity was $343,271,000 at October 31, 2001,
compared to $393,426,000 at January 31, 2001, a $50,155,000 decrease. The
decrease in shareholders' equity and total assets for the nine-month period
ended October 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
$9,786,000 net loss for the nine-month period primarily attributable to write
downs of historical investments. In addition, shareholders' equity also
decreased $15,702,000 in connection with the Company's repurchase of 1,091,600
common shares under its authorized stock repurchase plan, $119,000 relating to
increased notes receivable from officers, the recording of net unrealized losses
on investments classified as "available-for-sale" totaling $898,000 and
accretion on redeemable preferred stock of $209,000. 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
$2,262,000 related to the exercise of stock options.
16
For the nine-month period ended October 31, 2001, net cash provided by
operating activities totaled $10,233,000 compared to net cash provided by
operating activities of $25,670,000 for the nine-month period ended October 31,
2000. Cash flows from operations after adding back depreciation and amortization
expense, which the Company defines as EBITDA, was a positive $3,981,000 for the
nine months ended October 31, 2001, compared to a positive $12,632,000 for the
same prior-year period. Net cash provided by operating activities for the nine
months ended October 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 nine months ended October 31, 2001
reflects decreases in accounts receivable, offset by an increase in inventories,
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 slightly
increased from year-end to prepare for the fourth quarter holiday season
partially offset by third quarter aggressive management efforts to generally
reduce inventory levels. The decrease in accounts payable and accrued
liabilities is a direct result of management's inventory reduction efforts and
the timing of vendor payments.
Net cash used for investing activities totaled $58,876,000 for the nine
months ended October 31, 2001, which was primarily offset by an increase in
short-term investments of $40,567,000, compared to net cash used for investing
activities of $71,174,000 for the nine months ended October 31, 2000. For the
nine months ended October 31, 2001 and 2000, expenditures for property and
equipment were $9,710,000 and $20,380,000, respectively. Expenditures for
property and equipment during the periods ended October 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 nine months of fiscal 2001, the Company invested $203,395,000 in
various short-term investments, received proceeds of $162,827,000 from the sale
of short-term investments, received proceeds of $928,000 from the sale of
property and investments and made disbursements of $9,526,000 for certain
investments and other long-term assets primarily related to the Company's equity
interest in RLM. In the first nine months of fiscal 2000, the Company invested
$166,992,000 in various short-term investments, received proceeds of
$152,374,000 from the sale of short-term investments, made disbursements of
$36,336,000 for certain investments and other assets, made a $500,000 loan to an
officer of the Company, received proceeds of $335,000 from the sale of property
and investments and received proceeds of $325,000 in connection with the
repayment of outstanding notes receivable.
Net cash used for financing activities totaled $13,440,000 for the nine
months ended October 31, 2001 and related primarily to payments made of
$15,702,000 in conjunction with the repurchase of 1,092,000 shares of the
Company's common stock primarily in the third quarter at an average price of
$14.60 per share, offset by cash proceeds received totaling $2,262,000 from the
exercise of stock options. Net cash provided by financing activities totaled
$3,778,000 for the nine months ended October 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.
17
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.
18
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
19
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
December 13, 2001
20