SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): SEPTEMBER 27, 1996
VALUEVISION INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
MINNESOTA
(State or Other Jurisdiction of Incorporation)
0-20243 41-1673770
(Commission File Number) (IRS Employer Identification No.)
6740 SHADY OAK ROAD, MINNEAPOLIS, MN 55344-3433
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (612) 947-5200
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
Page 1 of 4
1 Exhibit
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On September 27, 1996 the Registrant ("ValueVision"), through its
wholly-owned subsidiary, ValueVision Direct Marketing Company, Inc., a Minnesota
corporation, closed on the acquisition of substantially all of the assets of
Montgomery Ward Direct, L.P., a Delaware limited partnership, the four-year-old
catalog business of Montgomery Ward & Co., Incorporated ("Montgomery Ward"). The
effective date of the transaction was July 27, 1996. Certain wholly-owned
subsidiaries of Montgomery Ward are the sole partners of Montgomery Ward Direct,
L.P. ValueVision issued 1,484,993 new vested warrants, with an exercise price of
$0.01 per share, to Montgomery Ward and assumed certain liabilities as full
consideration for the acquisition of Montgomery Ward Direct. ValueVision
received approximately $4.7 million in net assets of Montgomery Ward Direct,
including cash, inventory, furniture, fixtures and equipment, and accounts
receivable.
Concurrently with such acquisition, ValueVision and Montgomery Ward
entered into amended operating, license and other agreements which grant
ValueVision the right to use the Montgomery Ward Direct(sm) service mark and
extend the use of certain other service marks, expand Montgomery Ward's
advertising support and increase ValueVision's sales promotion rights.
ValueVision issued 1,484,467 new vested warrants exercisable at $0.01 per share
to Montgomery Ward in exchange for 18,000,000 unvested ValueVision warrants from
a grant in August 1995 of 25,000,000 warrants exercisable at prices ranging from
$7.00 to $17.00. On September 28, 1996, ValueVision issued an additional
2,200,000 new vested warrants, with an exercise price of $0.01 per share, to
Montgomery Ward in exchange for the remaining 7,000,000 vested ValueVision
warrants granted in August 1995, which had exercise prices ranging from $6.50 to
$6.75.
The terms of the asset acquisition and the establishment of the
purchase price were arrived at as a result of arm's length negotiations between
ValueVision management and the management of Montgomery Ward. Montgomery Ward
owns 1,280,000 shares of ValueVision Common Stock and an aggregate of 5,169,460
vested warrants to acquire shares of ValueVision Common Stock at an exercise
price of $0.01 per share. John Workman, an executive officer of Montgomery Ward,
is a director of ValueVision.
(b) The assets acquired had been used by Montgomery Ward in direct mail
marketing operations. ValueVision intends to incorporate such assets into its
telemarketing and fulfillment operations to support the growth of its own direct
mail business.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
MONTGOMERY WARD DIRECT L.P.
FINANCIAL STATEMENTS AS OF
DECEMBER 29, 1995 AND DECEMBER 30, 1994
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Montgomery Ward Direct L.P.:
We have audited the accompanying balance sheets of Montgomery Ward Direct L.P.
(a Delaware limited partnership) as of December 29, 1995 and December 30, 1994,
and the related statements of operations, changes in partners' investment
(deficit) and cash flows for the three years in the period ended December 29,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Montgomery Ward Direct L.P. as
of December 29, 1995 and December 30, 1994, and the results of its operations
and its cash flows for the three years in the period ended December 29, 1995, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Minneapolis, Minnesota,
March 8, 1996
(except with respect
to the matter discussed
in Note 9, as to which
the date is July 27, 1996)
<TABLE>
<CAPTION>
MONTGOMERY WARD DIRECT L.P.
Balance Sheets
(In Thousands)
July 26, December 29, December 30,
1996 1995 1994
-------- ------------ ------------
<S> <C> <C> <C>
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and temporary investments $ 6,430 $ 13,697 $ 16,468
Accounts receivable, net of allowance for doubtful
accounts of $175, $533 and $143 813 1,473 2,755
Merchandise inventories 9,141 10,587 29,147
Promotional material 2,007 3,296 7,843
Prepaid expenses and other current assets 41 34 52
-------- -------- --------
Total current assets 18,432 29,087 56,265
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS, net (Note 3) 557 701 1,219
-------- -------- --------
$ 18,989 $ 29,788 $ 57,484
======== ======== ========
LIABILITIES AND PARTNERS' INVESTMENT
(DEFICIT)
CURRENT LIABILITIES:
Checks issued not yet presented for payment $ 666 $ 6,124 $ 9,891
Accounts payable 5,093 8,264 21,196
Payables to partners, net 3,777 5,874 11,959
Notes payable to partners -- 6,000 --
Accrued payroll and benefits 615 1,486 1,504
Other accrued liabilities 4,032 5,842 9,927
Current portion of leasehold obligations 128 19 19
-------- -------- --------
Total current liabilities 14,311 33,609 54,496
LEASEHOLD OBLIGATIONS -- 220 247
-------- -------- --------
Total liabilities 14,311 33,829 54,743
COMMITMENTS AND CONTINGENCIES
(Notes 6 and 7)
PARTNERS' INVESTMENT (DEFICIT) 4,678 (4,041) 2,741
-------- -------- --------
$ 18,989 $ 29,788 $ 57,484
======== ======== ========
The accompanying notes are an integral part of these balance sheets.
</TABLE>
<TABLE>
<CAPTION>
MONTGOMERY WARD DIRECT L.P.
Statements of Operations
(In Thousands)
For the Seven Months
Ended For the Years Ended
-------------------------- -----------------------------------------------
July 26, July 28, December 29, December 30, December 31,
1996 1995 1995 1994 1993
--------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
NET SALES:
Company and syndication (Note 2) $ 40,498 $ 99,748 $ 164,932 $ 187,908 $ 115,602
========= ========= ========= ========= =========
Company only $ 39,500 $ 96,807 $ 159,947 $ 180,573 $ 111,893
COST OF SALES 24,211 61,620 98,100 106,561 64,562
--------- --------- --------- --------- ---------
Gross profit 15,289 35,187 61,847 74,012 47,331
OPERATING EXPENSES:
Catalog 10,296 29,802 46,419 58,955 37,158
Selling, general and administrative 7,038 12,051 20,426 17,744 11,356
Restructuring charges (Note 8) -- 2,182 2,182 -- --
Other income, net (193) (238) (429) (505) (305)
--------- --------- --------- --------- ---------
Loss from operations (1,852) (8,610) (6,751) (2,182) (878)
INTEREST INCOME (EXPENSE) 189 (25) (31) (50) 158
--------- --------- --------- --------- ---------
Net loss $ (1,663) $ (8,635) $ (6,782) $ (2,232) $ (720)
========= ========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
MONTGOMERY WARD DIRECT L.P.
Statements of Changes in Partners' Investment (Deficit)
(In Thousands)
For the Seven Months
Ended For the Years Ended
------------------------ ---------------------------------------------
July 26, July 28, December 29, December 30, December 31,
1996 1995 1995 1994 1993
-------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
BALANCE, beginning of period $ (4,041) $ 2,741 $ 2,741 $ 4,973 $ 5,693
Capital contributions by partners 10,382 -- -- -- --
Net loss (1,663) (8,635) (6,782) (2,232) (720)
-------- -------- -------- -------- --------
BALANCE, end of period $ 4,678 $ (5,894) $ (4,041) $ 2,741 $ 4,973
======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements
</TABLE>
<TABLE>
<CAPTION>
MONTGOMERY WARD DIRECT L.P.
Statements of Cash Flows
(In Thousands)
For the Seven Months Ended For the Year Ended
-------------------------- -------------------------------------------
July 26, July 28, December 29, December 30, December 31,
1996 1995 1995 1994 1993
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
OPERATING ACTIVITIES:
Net loss $ (1,663) $ (8,635) $ (6,782) $ (2,232) $ (720)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities-
Depreciation and amortization 126 140 498 264 181
Changes in other operating items-
Accounts receivable 660 1,346 1,282 (1,091) (1,388)
Merchandise inventories 1,446 12,906 18,560 (6,911) (12,989)
Promotional material 1,289 2,955 4,547 (1,185) (5,568)
Prepaid expenses and other (7) 10 18 (12) 10
Checks issued not yet presented for
payment (5,458) (7,965) (3,767) 3,576 4,336
Accounts payable (3,171) (14,432) (12,932) 9,094 1,609
Payables to partners, net (2,097) 1,078 (6,085) 9,230 3,108
Accrued liabilities (2,299) (4,560) (4,103) 3,867 4,580
-------- -------- -------- -------- --------
Net cash provided by (used for)
operating activities (11,174) (17,157) (8,764) 14,600 (6,841)
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Net property, plant and equipment
disposals (purchases) 18 20 20 (458) (438)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Capital contribution by partner 4,000 -- -- -- --
Borrowings from partners -- 6,000 6,000 8,000 6,000
Repayments on borrowings from partners -- -- -- (8,000) (6,000)
Payments on leasehold obligations (111) (20) (27) (47) (45)
-------- -------- -------- -------- --------
Net cash provided by (used for)
financing activities 3,889 5,980 5,973 (47) (45)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
temporary investments (7,267) (11,157) (2,771) 14,095 (7,324)
CASH AND TEMPORARY INVESTMENTS:
Beginning of period 13,697 16,468 16,468 2,373 9,697
-------- -------- -------- -------- --------
End of period $ 6,430 $ 5,311 $ 13,697 $ 16,468 $ 2,373
======== ======== ======== ======== ========
NONCASH INVESTING AND
FINANCING ACTIVITIES:
Noncash capital contributions $ 6,382 $ -- $ -- $ -- $ --
======== ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements
</TABLE>
MONTGOMERY WARD DIRECT L.P.
Notes to Financial Statements
December 29, 1995 and December 30, 1994
(Including Data Applicable to Unaudited Periods)
(In Thousands)
1. DESCRIPTION OF BUSINESS AND FUNDING OF OPERATIONS:
Montgomery Ward Direct L.P. (MWD or the Company) is a Delaware limited
partnership of affiliates of Fingerhut Companies, Inc. (Fingerhut) and
Montgomery Ward & Co., Incorporated (Montgomery Ward). MWD is a direct marketer
of retail consumer products through the mailing of specialty and general
merchandise catalogs. The catalogs are targeted mainly to Montgomery Ward credit
card account holders. Fingerhut's distribution facilities and computer systems
are used to operate the business. The Company purchases products independently
from suppliers but relies on vendor relationships and terms, in many instances,
that have been developed by its partners. The Company's fiscal year is the
52-53-week period ending on the Friday closest to the calendar year-end.
Operations for fiscal 1995 and 1994 include 52 weeks.
Since inception, the Company has been financed through cash flow from
operations, the initial funding by the partners and operating loans from the
partners during peak inventory seasons. Loans outstanding as of the end of 1995
were $6,000 (see Note 5). There were no loans outstanding as of the end of 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL STATEMENTS
The balance sheet as of July 26, 1996 and the related statements of operations,
changes in partners' investment (deficit) and cash flows for the seven-month
periods ended July 26, 1996 and July 28, 1995 are unaudited. However, in the
opinion of management, these interim financial statements include all
adjustments (consisting of only normal recurring adjustments) which are
necessary for the fair presentation of the results for the interim periods
presented. The results of operations for the unaudited seven-month period ended
July 26, 1996 are not necessarily indicative of the results which may be
expected of the entire 1996 fiscal year.
REVENUE RECOGNITION
The Company recognizes sales and the related cost of sales at the time products
are shipped to the customer. Collections for unshipped orders are reflected as a
component of accrued liabilities in the accompanying balance sheets. The Company
allows for merchandise returns at the customer's discretion. There is no stated
time limit for acceptance of returns. Returns are estimated and provided for at
the time of sale based on historical experience. A reserve for returns
approximating related gross profit on expected returns is included in accrued
liabilities. Shipping and handling fees collected from customers are recognized
as product is shipped and are offset against actual shipping expenses as a
component of selling, general and administrative expenses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
SYNDICATION ARRANGEMENTS
The Company has contracted with various other mail-order catalogers to prepare
and mail catalogs to MWD customers. This occurs with catalogs that have
noncompetitive offers with MWD's base media, in the interest of giving the MWD
customer a wide range of products to choose from. The Company collects
negotiated fees for resulting sales by the catalogers, and recognized other
income of $181, $485, $535 and $309 as a result of these arrangements for the
seven months ended July 26, 1996, and for fiscal years 1995, 1994 and 1993,
respectively. These amounts are classified as a component of other expense
(income) in the accompanying statements of operations.
CASH AND TEMPORARY INVESTMENTS
Cash and temporary investments consist principally of money market instruments
with original maturities of three months or less.
MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost, determined on a
first-in, first-out basis, or net realizable value.
PROMOTIONAL MATERIAL AND ADVERTISING COSTS
Print, paper, postage, separations and other advertising-related costs
associated directly with the catalog formation are capitalized and amortized
over the period(s) in which the related revenues are generated, generally three
months from the date the catalog is mailed.
DEPRECIATION AND AMORTIZATION
For financial reporting purposes, the Company provides for depreciation using
the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized over the shorter of the lease period or the
useful life of the related asset.
INCOME TAXES
As a partnership, the taxable income or loss of MWD is allocated to its general
partners. Accordingly, the Company has not recorded a provision for income
taxes.
3. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Property, equipment and leasehold improvements are recorded at cost (less
accumulated depreciation and amortization) and are composed of the following:
<TABLE>
<CAPTION>
July 26, December 29, December 30,
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Furniture and fixtures $ 769 $ 769 $ 769
Leasehold improvements 371 371 371
Computer equipment and software 362 416 436
Machinery and equipment 177 177 177
Accumulated depreciation and amortization (1,122) (1,032) (534)
------- ------- -------
$ 557 $ 701 $ 1,219
======= ======= =======
4. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
July 26, December 29, December 30,
1996 1995 1994
------- ------- -------
Merchandise returns $ 1,499 $ 3,305 $ 5,008
Promotional material 1,182 537 3,095
Customer refunds 11 604 765
Telephone charges 159 445 354
Syndication charges 386 218 --
Deferred revenue 160 101 228
Other 635 632 477
------- ------- -------
$ 4,032 $ 5,842 $ 9,927
======= ======= =======
</TABLE>
5. RELATED-PARTY TRANSACTIONS:
In accordance with terms of the partnership agreement, the Company purchases
goods and services from Fingerhut, including inventory. This allows the Company
to operate with minimal capital investment. Fingerhut supplies paper purchasing,
order processing, fulfillment, customer service, systems support, insurance,
legal and other operational services and facilities. Purchases from Fingerhut
under these agreements aggregated $33,265, $33,404 and $19,057 during 1995, 1994
and 1993, respectively. The Company began renting its customer list to certain
mail-order businesses in the fourth quarter of 1993. This service is managed by
Fingerhut.
Most customers of the Company utilize the Montgomery Ward revolving charge plan
to pay for purchases. The Company is licensed to use the plan and sells all
related receivables, without recourse, to Montgomery Ward. Balances due the
Company under this arrangement totaled $465 and $1,127 at December 29, 1995 and
December 30, 1994, respectively, and are included in accounts receivable in the
accompanying balance sheets. The Company is obligated to pay its pro rata share
of servicing support fees that Montgomery Ward is required to pay. There were no
such charges to MWD in 1995, 1994 or 1993. The Company was charged $1,281,
$1,249 and $475 by Montgomery Ward to cover related bad debt losses during 1995,
1994 and 1993, respectively. Overstock apparel inventory is sold to Montgomery
Ward Outlet stores at the Company's cost. The Company is charged back by the
outlet stores for actual costs to sell product which include labor, markdowns
and incidental store costs. These charge-backs totaled $142, $185 and $289 in
1995, 1994 and 1993.
MWD has notes payable to its partners as of December 29, 1995 totaling $6,000.
These notes bear interest at prime and are payable on demand.
6. FINANCING:
The Company has a letter-of-credit agreement which provides for a $10,000 credit
line with Norwest Bank Minnesota, National Association. As of December 29, 1995
and December 30, 1994, letters of credit of $1,592 and $6,105, respectively,
were outstanding under the line, generally related to purchases of inventory
from foreign suppliers.
7. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases its administrative office facility under a renewable lease
agreement. The initial lease term expires in 1997. During 1994, the Company
expanded into additional space as part of a master lease arrangement. The
Company obtained a letter of credit payable to the lessor as required under this
agreement. The amount required decreases over the life of the lease and was $134
and $219 at December 29, 1995 and December 30, 1994, respectively. Related lease
expense for 1995, 1994 and 1993 was $238, $219 and $189, respectively. Future
minimum lease payments for the years ending December 31 are as follows:
1996 $328
1997 137
USE TAX ON SALES
The Company's principal direct marketing operations are conducted from
Minnesota. It also distributes inventory out of a facility in Tennessee. State
taxes are collected solely from customers who reside in those two states.
Several states have taken initiatives to impose sales tax collection and
remittance obligations on companies which sell into their jurisdictions by means
of direct mail or shipment. The Company believes it is not obligated for the
collection and remittance of sales tax in those circumstances and that such
state initiatives will not be sustained.
RETIREMENT PLAN AND DEFERRED COMPENSATION
The Company has a 401(k) plan for which all associates are eligible. The 401(k)
plan provides for a matching Company contribution and immediate vesting to
encourage participation. The Company charged $94, $103 and $73 to expense in
1995, 1994 and 1993, respectively, for contributions to the plan. A deferred
compensation plan was also established in order to attract and retain former
Fingerhut employees to key positions. The Company charged $71, $107 and $66 to
expense in 1995, 1994 and 1993, respectively, for contributions to this plan.
LITIGATION
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the Company's financial
position or results of operations.
8. RESTRUCTURING CHARGES:
In February 1995, MWD began to phase out its apparel line. Apparel net sales for
1994 were approximately $16,000 with a gross margin of 39%. Termination and
other exit costs of $2,182 were charged to 1995 operations. Included in these
costs are certain lease payments referred to in Note 7.
9. SALE OF NET ASSETS OF PARTNERSHIP:
In July 1996, the Company entered into an agreement with ValueVision
International, Inc. (ValueVision) for the acquisition of the net assets of the
Company, as defined. In connection with this transaction, the partners agreed to
forgive the Company's notes payable to the partners and accrued interest,
totaling $6,382. In addition, Fingerhut contributed $4,000 in capital to MWD, in
consideration for its withdrawal from the partnership. ValueVision assumed
effective control of MWD as of July 27, 1996.
(b) PRO FORMA FINANCIAL INFORMATION
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma unaudited consolidated financial information for
ValueVision International, Inc. (ValueVision, or the Company) consists of Pro
Forma Unaudited Statements of Operations for the year ended January 31, 1996,
and for the six months ended July 31, 1996 and a Pro Forma Unaudited
Consolidated Balance Sheet as of July 31, 1996. The Pro Forma Unaudited
Consolidated Statements of Operations give effect to the acquisition of
Montgomery Ward Direct L.P. (the Transaction) as if it had occurred on the first
day of the respective periods. The Pro Forma Unaudited Consolidated Balance
Sheet gives effect to the Transaction as if it had occurred on July 31, 1996.
On September 30, 1996, the Company executed an agreement pursuant to which it
would acquire the net assets of MWD, in exchange for 1,484,993 warrants to
purchase shares of ValueVision common stock at an exercise price of $.01 per
warrant, to be valued at the market price of the stock as defined. The Pro Forma
Unaudited Consolidated Financial Statements give effect to certain adjustments
related to the acquisition of MWD, including (i) issuance of the above-mentioned
warrants; (ii) the valuation of acquired net assets and liabilities at estimated
fair values at the date of the Transaction (including customer lists and related
amortization); (iii) goodwill created by the acquisition and related
amortization; (iv) estimated income tax effects of the Transaction.
The Pro Forma Unaudited Consolidated Financial Statements and accompanying notes
should be read in conjunction with the consolidated financial statements and
notes thereto incorporated by reference in this filing. The Pro Forma Unaudited
Consolidated Financial Statements do not purport to represent what the results
of operations or financial position of ValueVision would actually have been if
the aforementioned Transaction in fact had occurred on the dates indicated above
or at any future date.
<TABLE>
<CAPTION>
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1996
Pro Forma
ValueVision MWD Adjustments Pro Forma
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 88,909,853 $ 151,940,171 $ -- $ 240,850,024
Cost of sales 52,268,398 93,205,207 -- 145,473,605
------------- ------------- ------------- -------------
Gross profit 36,641,455 58,734,964 -- 95,376,419
------------- ------------- ------------- -------------
Operating expenses:
Distribution and selling 28,177,953 60,951,613 -- 89,129,566
General and administrative 4,421,924 3,345,762 -- 7,767,686
Depreciation and amortization 4,807,735 518,443 219,244 (7) 5,925,422
-- -- 380,000 (8)
------------- ------------- ------------- -------------
Total operating expenses 37,407,612 64,815,818 599,244 102,822,674
------------- ------------- ------------- -------------
Operating loss (766,157) (6,080,854) (599,244) (7,446,255)
------------- ------------- ------------- -------------
Other income (expense):
Gain on sale of investment in National Media Corporation 8,480,453 -- -- 8,480,453
Litigation costs (617,000) -- -- (617,000)
Equity in earnings of affiliates 1,983,226 -- -- 1,983,226
Interest income 2,137,720 430,741 -- 2,568,461
Other, net (98,677) (528,976) -- (627,653)
------------- ------------- ------------- -------------
Total other income (expense) 11,885,722 (98,235) -- 11,787,487
------------- ------------- ------------- -------------
Income (loss) before taxes 11,119,565 (6,179,089) (599,244) 4,341,232
Income tax provision 100,000 -- (100,000)(9) --
------------- ------------- ------------- -------------
Net income (loss) $ 11,019,565 (6,179,089) (499,244) $ 4,341,232
============= ============= ============= =============
Net income per common and common equivalent share $ 0.38 $ 0.14
============= =============
Weighted average number of common shares and common
equivalent shares outstanding 28,627,356 -- 1,484,993(10) 30,112,349
============= ============= ============= =============
The accompanying notes are an integral part of this pro forma consolidated
financial statement.
</TABLE>
<TABLE>
<CAPTION>
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1996
Pro Forma
ValueVision MWD Adjustments Pro Forma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 47,128,421 $ 34,805,661 $ -- $ 81,934,082
Cost of sales 28,011,710 21,432,683 -- 49,444,393
------------ ------------ ------------ ------------
Gross profit 19,116,711 13,372,978 -- 32,489,689
------------ ------------ ------------ ------------
Operating expenses:
Distribution and selling 15,094,677 13,552,616 -- 28,647,293
General and administrative 2,769,169 1,171,619 -- 3,940,788
Depreciation and amortization 2,730,390 108,002 109,622 (7) 3,138,014
190,000 (8)
------------ ------------ ------------ ------------
Total operating expenses 20,594,236 14,832,237 299,622 35,726,095
------------ ------------ ------------ ------------
Operating loss (1,477,525) (1,459,259) (299,622) (3,236,406)
------------ ------------ ------------ ------------
Other income (expense):
Gain on sale of broadcast stations 27,050,000 -- -- 27,050,000
Equity in losses of affiliates (95,124) -- -- (95,124)
Interest income 2,158,057 195,397 -- 2,353,454
Other, net 9,446 (743) -- 8,703
------------ ------------ ------------ ------------
Total other income 29,122,379 194,654 -- 29,317,033
------------ ------------ ------------ ------------
Income (loss) before taxes 27,644,854 (1,264,605) (299,622) 26,080,627
Income tax provision 11,046,000 -- (626,000) (9) 10,420,000
------------ ------------ ------------ ------------
Net income (loss) $ 16,598,854 $ (1,264,605) $ 326,378 $ 15,660,627
============ ============ ============ ============
Net income per common and common equivalent share $ 0.55 $ 0.50
============ ============
Weighted average number of common shares and common
equivalent shares outstanding 29,996,576 -- 1,484,993 (10) 31,481,569
============ ============ ============ ============
The accompanying notes are an integral part of this pro forma consolidated
financial statement.
</TABLE>
<TABLE>
<CAPTION>
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JULY 31, 1996
ASSETS
Pro Forma
ValueVision MWD Adjustments Pro Forma
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<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 26,372,637 $ 6,429,988 $ -- $ 32,802,625
Short-term investments 48,036,705 -- -- 48,036,705
Accounts receivable, net 8,234,328 813,204 -- 9,047,532
Inventories 10,326,167 9,140,298 -- 19,466,465
Prepaid expenses and other 4,505,336 2,048,053 -- 6,553,389
Deferred taxes 250,000 -- -- 250,000
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Total current assets 97,725,173 18,431,543 -- 116,156,716
Property and equipment, net 12,011,779 557,263 -- 12,569,042
Federal Communications Commission licenses, net 7,083,808 -- -- 7,083,808
Montgomery Ward operating agreement and licenses, net 15,712,553 -- -- 15,712,553
Investments and other assets, net 11,234,288 -- 1,900,000 (1) 15,765,158
2,630,870 (2)
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$ 143,767,601 $ 18,988,806 $ 4,530,870 $ 167,287,277
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 200,000 $ 127,446 $ (38,234)(3)$ 289,212
Accounts payable 12,141,425 9,536,314 -- 21,677,739
Accrued liabilities 5,225,688 4,647,104 750,000 (4) 10,622,792
Income taxes payable 4,766,117 -- -- 4,766,117
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Total current liabilities 22,333,230 14,310,864 711,766 37,355,860
Long-term obligations 305,745 -- -- 305,745
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Total liabilities 22,638,975 14,310,864 711,766 37,661,605
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Partners' investment -- 4,677,942 (4,677,942)(5) --
Shareholders' equity:
Common stock, $.01 par value, 100,000 shares authorized;
29,888,298 and 29,343,748 shares issued and outstanding 298,883 -- -- 298,883
Montgomery Ward common stock purchase warrants;
26,295,349 and 25,770,461 17,500,000 -- 8,497,046 (6) 25,997,046
Additional paid-in capital 88,332,038 -- -- 88,332,038
Net unrealized holding loss on investments available-for-sale (105,682) -- -- (105,682)
Retained earnings 15,103,387 -- -- 15,103,387
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Total shareholders' equity 121,128,626 4,677,942 3,819,104 129,625,672
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$ 143,767,601 $ 18,988,806 $ 4,530,870 $ 167,287,277
============= ============= ============= =============
The accompanying notes are an integral part of this pro forma consolidated
balance sheet.
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NOTES TO PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1996 AND
FOR THE YEAR ENDED JANUARY 31, 1996, AND THE SIX MONTHS ENDED JULY 31, 1996
1. Reflects the estimated fair value of certain customer lists acquired from
MWD in the Transaction.
2. Reflects the cost exceeding the net identifiable assets acquired of MWD.
The final allocation of the purchase price will be determined as soon as
practicable after consummation of the Transaction.
3. Reflects the adjustment to reduce the assumed capital lease obligation to
its fair value.
4. Reflects the recording of estimated payments to be made to the former owner
of MWD pursuant to the Transaction. The final allocation of the purchase
price will be determined as soon as practicable after consummation of the
Transaction.
5. Reflects the elimination of MWD partners' investment as of July 31, 1996.
6. Reflects the value assigned to the 1,484,993 warrants granted to the former
owner of MWD and the related acquisition costs in connection with the
Transaction.
7. Reflects amortization expense relating to the goodwill arising from the
Transaction amortized on a straight-line basis over 12 years. The final
allocation of the purchase price will be determined as soon as practicable
after consummation of the Transaction.
8. Reflects amortization expense relating to the customer lists acquired from
MWD as part of the Transaction. These costs are being amortized on a
straight-line basis over 5 years.
9. Reflects the income tax effects of the assumed results of operations of
MWD, as well as the income tax effects of pro forma adjustments.
10. Reflects the issuance of 1,484,993 warrants for consideration in the
Transaction. Such warrants are considered to be common stock equivalents
for purposes of computing net income per share.
(c) EXHIBITS
10(1) Restructuring Agreement dated July 27, 1996 between
Montgomery Ward & Co., Incorporated and ValueVision International,
Inc., incorporated by reference to Exhibit 10(a) to the Company's
report on Form 10-Q for the quarterly period ended July 31, 1996.
10(2) Asset Purchase Agreement dated July 27, 1996 between
Montgomery Ward Direct, L.P. and ValueVision Direct Marketing Company,
Inc.*
10(3) Amended and Restated Operating Agreement dated July 27,
1996 between Montgomery Ward & Co., Incorporated and ValueVision
International, Inc.*
10(4) Agreement dated July 27, 1996 between Signature
Financial/Marketing, Inc. and ValueVision International, Inc.*
10(5) Amended and Restated Servicemark License Agreement dated
July 27, 1996 between Montgomery Ward & Co., Incorporated and
ValueVision International, Inc.*
10(6) Letter agreement between Montgomery Ward & Co.,
Incorporated and ValueVision International, Inc.*
10(7) Amended and Restated Warrant Agreement dated July 27,
1996 among ValueVision International, Inc., Montgomery Ward & Co.,
Incorporated and Montgomery Ward Direct, L.P.*
10(8) Amended and Restated Registration Rights Agreement dated
July 27, 1996 among ValueVision International, Inc., Montgomery Ward
Direct, L.P. and Montgomery Ward & Co., Incorporated.*
10(9) Agreement dated July 27, 1996 among Merchant Advisors,
Limited Partnership, Montgomery Ward & Co., Incorporated and
ValueVision International, Inc., incorporated by reference to Exhibit
10(b) to the Company's report on Form 10-Q for the quarterly period
ended July 31, 1996.*
23(1) Consent of Independent Public Accountants
* Previously filed.
SIGNATURE
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 on this 12th day of December, 1996.
VALUEVISION INTERNATIONAL, INC.
By: /s/ Stuart R. Romenesko
Stuart R. Romenesko
Senior Vice President - Finance and
Chief Financial Officer
EXHIBIT 23(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated March 8, 1996 (except with respect to the matter discussed in Note
9, as to which the date is July 27, 1996) on the financial statements of
Montgomery Ward Direct L.P. as of December 30, 1994 and December 29, 1995 and
for the three years in the period ended December 29, 1995, into this Form 8-K
and into the Company's previously filed registration statement File Nos.
33-68646, 33-68648, 33-86616 and 33-93006.
Arthur Andersen LLP
Minneapolis, Minnesota,
December 12, 1996
