UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
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
VALUEVISION INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1673770
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6740 Shady Oak Road, Minneapolis, MN 55344
(Address of principal executive offices)
612-947-5200
(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 11, 1996, there were 28,884,498 shares of the Registrant's Common
Stock, $.01 par value, outstanding.
<TABLE>
<CAPTION>
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q TABLE OF CONTENTS
OCTOBER 31, 1996
PART I FINANCIAL INFORMATION Page of
Form 10-Q
---------
Item 1. Financial Statements
<S> <C>
* Condensed Consolidated Balance Sheets as of October 31, 1996 and 3
January 31, 1996
* Condensed Consolidated Statements of Operations for the Three 4
and Nine Months Ended October 31, 1996 and 1995
* Condensed Consolidated Statement of Shareholders' Equity for 5
the Nine Months Ended October 31, 1996
* Condensed Consolidated Statements of Cash Flows for the Nine 6
Months Ended October 31, 1996 and 1995
* Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and 11
Results of Operations
PART II OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
Part I - Financial Information
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
OCTOBER 31, JANUARY 31,
1996 1996
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 19,100,896 $ 20,063,901
Short-term investments 46,916,960 26,387,426
Accounts receivable, net 8,809,550 5,130,502
Inventories 24,586,394 8,889,426
Prepaid expenses and other 9,410,470 4,882,453
Deferred taxes 250,000 250,000
------------- -------------
Total current assets 109,074,270 65,603,708
PROPERTY AND EQUIPMENT, NET 16,915,524 13,813,347
FEDERAL COMMUNICATIONS COMMISSION LICENSES, NET 7,009,177 9,312,437
MONTGOMERY WARD OPERATING AGREEMENT AND LICENSES, NET 15,382,744 16,621,255
INVESTMENTS AND OTHER ASSETS, NET 20,119,075 11,918,470
------------- -------------
$ 168,500,790 $ 117,269,217
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term obligations $ 200,000 $ 200,000
Accounts payable 20,162,448 8,770,685
Accrued liabilities 15,201,108 4,197,963
Income taxes payable 2,576,187 350,000
Deferred taxes payable 71,000 --
------------- -------------
Total current liabilities 38,210,743 13,518,648
LONG-TERM OBLIGATIONS 305,745 447,430
------------- -------------
Total liabilities 38,516,488 13,966,078
------------- -------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized;
29,618,898 and 29,343,748 shares issued and outstanding 296,189 293,437
Common stock purchase warrants;
5,368,552 and 25,770,461 26,815,595 17,500,000
Additional paid-in capital 86,760,987 87,189,939
Net unrealized holding gains (losses) on investments available-for-sale 399,408 (184,770)
Retained earnings (deficit) 15,712,123 (1,495,467)
------------- -------------
Total shareholders' equity 129,984,302 103,303,139
------------- -------------
$ 168,500,790 $ 117,269,217
============= ==============
The accompanying notes to condensed consolidated financial statements are an
integral part of these balance sheets.
</TABLE>
<TABLE>
<CAPTION>
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------------------ ------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 47,118,078 $ 22,017,237 $ 94,246,499 $ 61,743,270
COST OF SALES 28,457,339 12,725,919 56,469,049 36,049,595
------------ ------------ ------------ ------------
Gross profit 18,660,739 9,291,318 37,777,450 25,693,675
------------ ------------ ------------ ------------
Margin % 39.6% 42.2% 40.1% 41.6%
OPERATING EXPENSES:
Distribution and selling 15,953,996 7,040,124 31,048,673 20,533,579
General and administrative 1,953,837 1,142,202 4,723,006 3,298,178
Depreciation and amortization 1,513,321 1,440,025 4,243,711 3,317,297
------------ ------------ ------------ ------------
Total operating expenses 19,421,154 9,622,351 40,015,390 27,149,054
------------ ------------ ------------ ------------
OPERATING LOSS (760,415) (331,033) (2,237,940) (1,455,379)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Gain on sale of investment in
National Media Corporation -- 8,480,453 -- 8,480,453
Gain on sale of broadcast stations -- -- 27,050,000 --
Litigation costs -- (549,000) -- (617,000)
Equity in earnings of affiliates 763,741 -- 668,617 --
Interest income 955,198 545,058 3,113,255 1,422,760
Other, net 54,212 (14,100) 63,658 (53,157)
------------ ------------ ------------ ------------
Total other income 1,773,151 8,462,411 30,895,530 9,233,056
------------ ------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,012,736 8,131,378 28,657,590 7,777,677
PROVISION FOR INCOME TAXES 404,000 -- 11,450,000 --
------------ ------------ ------------ ------------
NET INCOME $ 608,736 $ 8,131,378 $ 17,207,590 $ 7,777,677
============ ============ ============ ============
NET INCOME PER COMMON AND DILUTIVE
COMMON EQUIVALENT SHARE $ 0.02 $ 0.28 $ 0.55 $ 0.27
============ ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 33,627,770 29,193,596 31,206,974 28,400,069
============ ============ ============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 31, 1996
(Unaudited)
NET
UNREALIZED
HOLDING
COMMON STOCK COMMON GAINS (LOSSES)
------------------------ STOCK ADDITIONAL ON INVESTMENTS RETAINED TOTAL
NUMBER PAR PURCHASE PAID-IN AVAILABLE- EARNINGS SHAREHOLDERS'
OF SHARES VALUE WARRANTS CAPITAL FOR-SALE (DEFICIT) EQUITY
------------- --------- ----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1996 29,343,748 $ 293,437 $17,500,000 $ 87,189,939 $ (184,770) $ (1,495,467) $103,303,139
Exercise of stock options and warrants 545,150 5,452 -- 1,144,943 -- -- 1,150,395
Common stock repurchases (270,000) (2,700) -- (1,573,895) -- -- (1,576,595)
Value assigned to common stock
purchase warrants upon issuance -- -- 9,315,595 -- -- -- 9,315,595
Unrealized holding gain on
investments available-for-sale -- -- -- -- 584,178 -- 584,178
Net income -- -- -- -- -- 17,207,590 17,207,590
------------- --------- ----------- ------------ ---------- ------------ ------------
BALANCE, OCTOBER 31, 1996 29,618,898 $ 296,189 $26,815,595 $ 86,760,987 $ 399,408 $ 15,712,123 $129,984,302
============= ========= =========== ============ ========== ============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE NINE MONTHS ENDED OCTOBER 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 17,207,590 $ 7,777,677
Adjustments to reconcile net income to net cash
provided by (used for) operating activities-
Depreciation and amortization 4,243,711 3,317,297
Gain on sale of broadcast stations (27,050,000) --
Gain on sale of investment in National Media Corporation -- (8,480,453)
Reserve for litigation costs -- 500,000
Changes in operating assets and liabilities, net of effects from
acquisition of direct-mail companies:
Accounts receivable, net (3,099,859) (791,478)
Inventories (5,731,221) (4,521,480)
Prepaid expenses and other (2,015,553) (1,360,491)
Accounts payable and accrued liabilities 7,211,981 4,018,408
Income taxes payable 2,102,992 --
------------ ------------
Net cash provided by (used for) operating activities (7,130,359) 459,480
------------ ------------
INVESTING ACTIVITIES:
Property and equipment additions, net of retirements (7,718,975) (2,081,007)
Purchase of broadcast station, including acquisition costs (4,618,743) --
Acquisition of direct-mail companies, net of cash acquired 1,789,875 --
Proceeds from sale of broadcast stations 40,000,000 --
Proceeds from sale of investment in National Media Corporation -- 16,438,979
Purchase of short-term investments (76,667,392) (43,354,549)
Proceeds from sale of short-term investments 56,137,858 17,963,128
Payment for investments and other assets (2,406,472) (2,168,402)
Proceeds from escrow deposits and claims 219,088 200,000
------------ ------------
Net cash provided by (used for) investing activities 6,735,239 (13,001,851)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 1,150,395 74,469
Payments for repurchases of common stock (1,576,595) --
Proceeds from sale of common stock -- 8,000,000
Payment of offering costs -- (424,766)
Payment of long-term obligations (141,685) (130,500)
------------ ------------
Net cash provided by (used for) financing activities (567,885) 7,519,203
------------ ------------
Net decrease in cash and cash equivalents (963,005) (5,023,168)
BEGINNING CASH AND CASH EQUIVALENTS 20,063,901 21,655,954
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 19,100,896 $ 16,632,786
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 58,315 $ 69,500
============ ============
Income taxes paid $ 9,598,000 $ --
============ ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
The Company issued 1,484,993 warrants with a fair market
value of $8,353,000 in connection with the acquisition
of substantially all assets of Montgomery Ward Direct, L.P. $ 8,353,000 $ --
============ ============
The Company issued 199,097 warrants with a fair market
value of $963,000 as part of a long-term investment contribution $ 963,000 $ --
============ ============
Issuance of warrants to Montgomery Ward & Co., Incorporated $ -- $ 17,500,000
============ ============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
</TABLE>
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1996
(Unaudited)
(1) GENERAL
ValueVision International, Inc. and its subsidiaries ("the Company") is an
integrated direct-marketing company which markets its products directly to
consumers through electronic and print media.
The Company's television home shopping network uses recognized on-air
television home shopping personalities to market brand name merchandise and
proprietary and private label consumer products at competitive or discount
prices. The Company's 24-hour per day television home shopping programming is
distributed primarily through long-term cable 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 or affiliated full-power Ultra-High Frequency
(UHF) broadcast television stations, low-power television (LPTV) stations and to
satellite dish owners.
The Company also, through its wholly-owned subsidiary, ValueVision Direct
Marketing Company, Inc., is a direct-mail marketer of a broad range of quality
general merchandise which is sold to consumers through direct-mail catalogs and
other direct marketing solicitations. Products offered include domestics,
housewares, home accessories, electronics and various apparel wear. The Company
also manufactures and markets woman's foundation undergarments through its
subsidiary Beautiful Images, Inc.
Results of operations for the three and nine months ended October 31, 1996
include the direct-mail operations of Montgomery Ward Direct, effective July
27, 1996 and Beautiful Images, Inc., effective October 22, 1996, which were
acquired by the Company in the third quarter ended October 31, 1996.
(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 pursuant to such
rules and regulations. The information furnished in the interim condensed
consolidated financial statements includes normal recurring adjustments 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 1996
Annual Report on Form 10-K. Operating results for the nine month period ended
October 31, 1996, are not necessarily indicative of the results that may be
expected for the fiscal year ending January 31, 1997.
Certain amounts in the fiscal 1996 financial statements have been
reclassified to conform to the fiscal 1997 presentation with no impact on
previously reported net income or shareholders' equity.
(3) NET INCOME PER SHARE
The Company computes net income per share based on the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding, if any, during the period. The difference between primary and fully
diluted net income per share and weighted average number of shares outstanding
was not material or was antidilutive, and therefore not presented separately.
(4) ACQUISITIONS
Montgomery Ward Direct
On June 7, 1996, the Company signed a non-binding Memorandum of
Understanding with Montgomery Ward & Co., Incorporated ("Montgomery Ward"),
pursuant to which the companies agreed to the expansion and restructuring of
their ongoing operating and license agreements as well as the Company's
acquisition of Montgomery Ward Direct ("MWD"), a four year old catalog business.
Effective July 27, 1996 the companies reached definitive agreements and closed
the transaction in the third quarter ended October 31, 1996. Pursuant to the
provisions of the agreements, the Company's sales promotion rights were expanded
beyond television home shopping to include the full use of the service mark of
Montgomery Ward for direct mail catalogs and ancillary promotions. In addition,
the strategic alliance between the companies has been restructured and amended
such that (i) 18,000,000 unvested warrants granted to Montgomery Ward in August
1995 and exercisable at prices ranging from $7.00 - $17.00 were terminated in
exchange for the issuance by the Company of 1,484,467 new vested warrants
exercisable at $0.01 per share, (ii) the Company issued 1,484,993 new vested
warrants, valued at $5.625 per share and exercisable at $0.01 per share, to
Montgomery Ward as full consideration for the acquisition of approximately $4.7
million in net assets, representing substantially all of the assets and the
assumption of certain liabilities, of MWD, (iii) Montgomery Ward has committed
to provide $20.0 million in supplemental advertising support over a five year
period, (iv) the Montgomery Ward operating agreements and licenses' have been
amended and expanded, as defined in the agreements, and extended to July 31,
2008 and (v) the Company issued to Montgomery Ward new vested warrants to
purchase 2.2 million shares of the Company's common stock at an exercise price
of $.01 per share in exchange for 7,000,000 vested warrants granted to
Montgomery Ward in August 1995 which were exercisable at prices ranging from
$6.50 - $6.75 per share.
The Company's acquisition of MWD was made through its wholly-owned
subsidiary, ValueVision Direct Marketing Company, Inc., for an aggregate
purchase price of $8,497,000, including acquisition costs of $144,000, and has
been accounted for using the purchase method of accounting. Accordingly, the net
assets of MWD are included in the accompanying condensed consolidated balance
sheet at their estimated fair values, based upon a preliminary allocation of the
purchase price to such net assets. The preliminary purchase price allocations
are subject to change upon receipt of additional information relative to asset
and liability valuations. Therefore, the final allocation may differ from the
preliminary allocation. The preliminary allocation is summarized as follows:
Cash $ 5,764,000
Inventories 9,140,000
Other current assets 2,861,000
Property and equipment 557,000
Intangible assets 4,531,000
Liabilities assumed (14,356,000)
------------
$ 8,497,000
============
The excess of the purchase price over the net assets acquired was
$4,531,000 and has been recorded as intangible assets which are being amortized
on a straight-line basis over 5-12 years. Total intangible asset amortization of
$151,000 related to the acquisition has been recorded through October 31, 1996.
The operating results of MWD have been included in the fiscal 1997 consolidated
statement of operations from the date of acquisition. The unaudited pro forma
consolidated net sales of the Company for the nine-month period ended October
31, 1996 and 1995, as if the acquisition has occurred as of the beginning of the
respective periods were $129,052,000 and $177,952,000 respectively. The
unaudited pro forma net income and net income per share for the same periods
were $16,269,000 ( $.51 per share) in fiscal 1997 and $425,000 ($.01 per share),
in fiscal 1996. Such pro forma amounts are not necessarily indicative of what
the actual consolidated results of operations might have been if the acquisition
had been effective at the beginning of the respective periods.
Beautiful Images, Inc.
On October 22, 1996, the Company, through its wholly-owned subsidiary,
ValueVision Direct Marketing Company, Inc., acquired all of the outstanding
shares of Beautiful Images, Inc. ("BII"), a manufacturer and direct marketer of
woman's foundation undergarments. The Company paid $4,538,000 in cash, which
included $500,000 relating to a non-compete agreement and acquisition costs of
approximately $75,000, and assumed certain obligations totaling $109,000. The
acquisition has been accounted for using the purchase method of accounting and,
accordingly, the purchase price has been allocated to the assets purchased and
the liabilities assumed based upon the fair values at the date of acquisition.
The excess of the purchase price over the fair values of the net assets acquired
was $3,310,000 of which $2,810,000 has been recorded as goodwill, which is being
amortized on a straight-line basis over 15 years and $500,000 has been assigned
to the non-compete agreement which is being amortized on a straight-line basis
over the 6 year term of the agreement. The operating results of BII have been
included in the fiscal 1997 consolidated statement of operations from the date
of acquisition. Pro forma results of operations have not been presented because
the effects were not significant.
(5) INCOME TAXES
As of January 31, 1996, the Company had net operating loss carryforwards of
approximately $1.8 million for income tax reporting purposes. The carryforwards
were fully realized during the nine month period ended October 31, 1996 as an
offset to taxable income.
(6) SUBSEQUENT EVENTS
Effective November 1, 1996, the Company, through a wholly-owned subsidiary,
acquired substantially all of the assets and assumed certain obligations of
Catalog Ventures, Inc. ("CVI") and Mitchell & Webb, Inc. ("Webb"), two direct
marketing companies which together publish five consumer specialty catalogs with
annual revenues of approximately $30 million. The purchase price of the
acquisition was approximately $7.2 million and will be accounted for using the
purchase method of accounting.
On November 22, 1996, the Company announced that an agreement had been reached
with Paxson Communications Corporation for the sale of its television broadcast
station, WVVI-TV, Channel 66, which serves the Washington, D.C. market, for
approximately $30 million. Under the terms of the agreement, Paxson will pay the
Company $20 million in cash and $10 million in Paxson common stock valued at the
average closing price during the 60-day period following the signing of the
agreement. As part of the agreement, Paxson Communications Corporation will be
required to pay an additional $10 million to the Company in the event the U.S.
Supreme Court upholds the "must carry" provision of the 1992 Cable Act. In the
event that "must-carry" is not affirmed, the Company may exchange the Paxson
stock it receives for $10 million in cash. WVVI-TV carries the Company's
television home shopping programming and was acquired by the Company in March
1994 for $5,650,000. The transaction is anticipated to close by the end of the
second quarter of 1997 and is subject to regulatory approvals. The effects of
the disposition will be reflected in the financial statements at the date of
closing. Management believes that the sale will not have a significant impact on
the operations of the Company.
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 thereto included
elsewhere herein and the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1996.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
DOLLAR AMOUNTS AS A DOLLAR AMOUNTS AS A
PERCENTAGE OF NET SALES PERCENTAGE OF NET SALES
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
----------------------- -----------------------
1996 1995 1996 1995
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Gross margin 39.6% 42.2% 40.1% 41.6%
----- ----- ----- -----
Operating expenses:
Distribution and selling 33.9% 32.0% 33.0% 33.3%
General and administrative 4.1% 5.2% 5.0% 5.3%
Depreciation and amortization 3.2% 6.5% 4.5% 5.4%
----- ----- ----- -----
41.2% 43.7% 42.5% 44.0%
----- ----- ----- -----
Operating loss (1.6%) (1.5%) (2.4%) (2.4%)
===== ===== ===== =====
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Results of operations for the three and nine months ended October 31, 1996
include the direct-mail operations of Montgomery Ward Direct ("MWD"), effective
July 27, 1996 and Beautiful Images, Inc. ("BII"), effective October 22, 1996,
which were acquired by the Company in the third quarter ended October 31, 1996.
NET SALES
Net sales for the three months ended October 31, 1996 (fiscal 1997), were
$47,118,000 compared with net sales of $22,017,000 for the three months ended
October 31, 1995 (fiscal 1996), a 114% increase. The increase in total net sales
is primarily attributed to net sales associated with the Company's newly
acquired direct marketing businesses, primarily MWD. Sales attributed to direct
marketing operations totaled $22,290,000 for the quarter ended October 31, 1996.
The increase in net sales is also attributable to the increase in full-time
equivalent cable homes able to receive the Company's television home-shopping
programming, which increased approximately 1.4 million or 15% from 9.6 million
at October 31, 1995 to 11.0 million at October 31, 1996. During the 12-month
period ended October 31, 1996 the Company added approximately 1.6 million full
time cable homes. In addition to new homes, television home-shopping sales
increased due to the continued addition of new customers from households already
receiving the Company's television home shopping programming, offset by a slight
decline in repeat sales to existing customers. The slight decline in repeat
sales to existing customers experienced during the first nine months of fiscal
1997 was due, in part, to the effects of continued testing of certain
merchandising and programming strategies during the first and third quarters of
fiscal 1997. Certain changes were made to the Company's merchandising and
programming strategies in the latter part of the first quarter and during the
second quarter, which contributed to an improvement in sales. The Company
intends to continue to test and change its merchandising and programming
strategies with the intent of improving its television home-shopping sales
results. However, while the Company is optimistic that results will continue to
improve, there can be no assurance that such changes in strategy will achieve
intended results. As a result of the increased number of households able to
receive the Company's programming, the recent direct-mail company acquisitions
and seasonality factors, the Company anticipates net sales and operating
expenses will continue to increase for the balance of fiscal 1997.
GROSS MARGINS
Gross profit margins for the three and nine months ended October 31, 1996
were 39.6% and 40.1%, respectively, compared with 42.2% and 41.6% for the same
periods last year. Gross margins declined primarily as a result of the addition
of MWD operations during the quarter. Television gross margins for the three and
nine months ended October 31, 1996 were 40.0% and 40.4%, respectively. Gross
margins for MWD operations were 39.0% for the current third quarter. Television
gross margins between comparable periods declined slightly, primarily as a
result of increased sales of traditionally lower margin electronic merchandising
categories, such as computers. The slight decline in gross margins was partially
offset by an increase in gross margin percentages in the jewelry, giftware and
apparel product categories, a greater proportion of higher margin non-jewelry
products, such as housewares and seasonal products, offset by a decline in
volume of higher margin jewelry products. During the first nine months of fiscal
1997 the Company continued to broaden its merchandise mix as compared to the
same period last year by expanding the range and quantity of non-jewelry items.
As part of the ongoing shift in merchandise mix, the Company continued to devote
program air time to non-jewelry merchandise. Jewelry products accounted for
approximately 68% of air time during the first nine months of fiscal 1997,
compared with 70% for the same period last year.
OPERATING EXPENSES
Total operating expenses for the three and nine months ended October 31,
1996 were $19,421,000 and $40,015,000, respectively, versus $9,622,000 and
$27,149,000 for the comparable prior-year periods. Total distribution and
selling expenses increased $8,914,000 or 127% and $10,515,000 or 51% for the
three and nine months ended October 31, 1996 over the comparable prior-year
periods. Distribution and selling expenses as a percentage of net sales for the
three and nine months ended October 31, 1996 were 33.9% and 33.0%, respectively,
versus 32.0% and 33.3% for the comparable prior-year periods. Distribution and
selling costs increased as a direct result of additional distribution and
selling expenses associated with the Company's newly acquired direct marketing
businesses, primarily MWD, and increases in cable access fees resulting from the
growth in the number of cable homes receiving the company's programming,
additional personnel costs associated with increased staffing levels and
additional costs associated with handling increased sales volume. Distribution
and selling expenses increased slightly as a percentage of net sales for the
quarter due to increases in cable access fees on a full-time equivalent basis
over the prior year.
General and administrative expenses increased $812,000 or 71% and
$1,425,000 or 43% for the three and nine month periods ended October 31, 1996
over the comparable prior-year periods. General and administrative expenses as a
percentage of net sales for the three and nine months ended October 31, 1996
were 4.1% and 5.0%, respectively, versus 5.2% and 5.3% for the comparable
prior-year periods. General and administrative costs rose as a result of
increased costs associated with the Company's acquired direct-mail operations,
increased personnel in support of expanded operations, increased costs
associated with operating broadcast television station WAKC-TV, Akron, Ohio,
prior to its sale, as compared to the same period last year and additional legal
costs incurred relative to clarification of certain cable regulations.
Depreciation and amortization costs for the three and nine months ended
October 31, 1996 were $1,513,000 and $4,244,000 versus $1,440,000 and $3,317,000
for the comparable prior-year periods. Depreciation and amortization costs
increased $73,000 or 5% and $927,000 or 28% for the third quarter and the nine
month period ended October 31, 1996 over the comparable prior-year periods.
Depreciation and amortization costs as a percentage of net sales for the three
and nine months ended October 31, 1996 were 3.2% and 4.5%, respectively, versus
6.5% and 5.4% for the comparable prior-year periods. The increase in
depreciation and amortization is primarily due to amortization of approximately
$1,239,000 due to the Montgomery Ward operating agreement and licenses entered
into in August 1995, amortization of intangible assets associated with the
acquisition of MWD and amortization of prepaid cable launch fees offset by a
reduction associated with the sale of WAKC and WHAI in February 1996.
OPERATING LOSS
The operating loss was $760,000 and $331,000 for the three months ended
October 31, 1996 and 1995, respectively, and $2,238,000 and $1,455,000 for the
nine months ended October 31, 1996 and 1995, respectively. The increase in the
operating loss for the three and nine months ended October 31, 1996 resulted
primarily from decreases experienced in gross margin percentages over prior
year, increases in distribution and selling costs due to expanded operations,
although the Company continues to leverage its operating infrastructure, and
increases in general and administrative and depreciation and amortization
expenses as a result of expanded operations offset by increased sales volumes
and a corresponding increase in gross profits.
NET INCOME
For the three months ended October 31, 1996, net income was $609,000, or
$.02 per share on 33,628,000 weighted average shares outstanding compared with
net income of $8,131,000, or $.28 per share on 29,194,000 weighted average
shares outstanding for the third quarter of the previous fiscal year. Results
for the third quarter of fiscal 1996 included a gain of $8,480,000 from the sale
of the Company's investment in National Media Corporation. For the quarter ended
October 31, 1995, excluding the gain relating to the National Media Corporation
sale, the Company had a net loss of $349,000, or $.01 per share.
For the nine months ended October 31, 1996, net income was $17,208,000 or
$.55 per share on 31,207,000 weighted average common and common-equivalent
shares outstanding compared with net income of $7,778,000, or $.27 per share on
28,400,000 weighted average shares outstanding for the prior-year period.
Results for the first quarter of fiscal 1997 included a gain of $27,050,000 from
the sale of television stations WAKC and WHAI in February 1996. For the nine
months ended October 31, 1996, excluding the gain on the sale of the two
television stations, the Company had net income of $978,000, or $.03 per share.
For the nine months ended October 31, 1995, excluding the gain on the sale of
the investment in National Media Corporation, the Company had a net loss of
$703,000, or $.02 per share. For the nine months ended October 31, 1996, net
income also reflects an income tax provision of $11,450,000, which results in an
effective tax rate of 40%.
PROGRAM DISTRIBUTION
The Company's programming was available to approximately 13.7 million cable
homes as of October 31, 1996, as compared to 13.6 million cable homes as of
January 31, 1996 and to 13.0 million cable homes as of October 31, 1995. The
Company's programming is currently available through affiliation and time- block
purchase agreements with approximately 250 cable systems and three wholly-owned
full-power television broadcast stations. In addition, the Company's programming
is broadcast full-time over nine owned or affiliated low-power television
stations in major markets, and is available unscrambled to homes equipped with
satellite dishes. As of October 31, 1996 and 1995, the Company's programming was
available to approximately 11.0 million and 9.6 million full-time equivalent
cable homes ("FTE"), respectively, an approximate 15% increase. As of January
31, 1996, the Company's programming was available to 10.5 million FTE cable
homes. Approximately 7.8 million and 6.2 million cable homes at October 31, 1996
and 1995, 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.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
GENERAL
As of October 31, 1996, cash and cash equivalents and short-term
investments were $66,018,000, compared to $46,451,000 as of January 31, 1996, a
$19,567,000 increase. For the nine months ended October 31, 1996, working
capital increased $18,778,000 to $70,864,000. The current ratio was 2.9 at
October 31, 1996 compared to 4.9 at January 31, 1996. At October 31, 1996 all
short-term investments and cash equivalents were invested in debt securities
with original maturity dates of less than two hundred and seventy (270) days.
Total assets at October 31, 1996 were $168,501,000, compared to
$117,269,000 at January 31, 1996. Shareholders' equity was $129,984,000 at
October 31, 1996, compared to $103,303,000 at January 31, 1996, a $26,681,000
increase. The increase in shareholders' equity resulted from net income of
$17,208,000 for the nine month period ended October 31, 1996, $9,316,000 of
value assigned to common stock purchase warrants issued in connection with the
acquisition of MWD and a long-term investment, proceeds received on the exercise
of stock options and warrants of $1,150,000 and an unrealized holding gain of
$584,000 on investments available-for-sale. The equity increases were offset by
$1,577,000 relating to the repurchase of 270,000 shares of Company stock made in
connection with the Company's stock repurchase program.
For the nine month period ended October 31, 1996 net cash used for
operating activities totaled $7,130,000 compared to net cash provided by
operating activities of $459,000 for the nine-month period ended October 31,
1995. Cash flows provided by operations before consideration of changes in
working capital items and investing and financing activities was $2,006,000 for
the nine months ended October 31, 1996, compared to $1,862,000 for the same
prior-year period. Net cash used for operating activities for the nine months
ended October 31, 1996 reflects net income, as adjusted for depreciation and
amortization and gain on sale of broadcast stations, increased accounts payable
and accrued liabilities, offset by funding required to support higher levels of
accounts receivable and inventory. Accounts receivable primarily increased due
to timing relative to receipt of funds from credit card companies, increased
sales volume and increased receivables due from customers for merchandise sales
made pursuant to the "Value Pay" installment pay program. Inventories increased
from year end to support increased sales volume, business seasonality and
changes in merchandise mix.
Net cash provided by investing activities totaled $6,735,000 for the nine
months ended October 31, 1996 compared to net cash used of $13,002,000 for the
same prior-year period. For the nine months ended October 31, 1996 and 1995,
expenditures for property and equipment were $7,719,000 and $2,081,000,
respectively. Expenditures for property and equipment during the periods ended
October 31, 1996 and 1995 include (i) the upgrade of broadcast station and
production equipment, studios and transmission equipment (ii) the upgrade of
computer software and related equipment and (iii) a $4.7 million land purchase
in fiscal 1997, which is being held for future expansion and investment
purposes. Principal future capital expenditures will be for upgrading television
production and transmission equipment, studio expansions and order fulfillment
equipment in support of expanded operations. During the third quarter of fiscal
1997, the Company assumed net cash of approximately $1,790,000 in connection
with the acquisition of two direct-mail companies. During the first quarter of
fiscal 1997, the Company received $40.0 million in proceeds from the sale of two
television stations; Akron ABC affiliate WAKC-TV and independent station
WHAI-TV. In addition, during the quarter ended April 30, 1996, the Company paid
approximately $3.8 million toward the acquisition of independent television
station KBGE (TV), including acquisition related costs and paid $800,000 at the
second closing relative to broadcast station WVVI (TV).
Net cash used for financing activities totaled $568,000 for the nine months
ended October 31, 1996 which primarily relates to repurchases of the Company's
common stock, under its stock repurchase program, and an installment payment
made under a five year non-compete obligation entered into upon the acquisition
of a broadcast television station. These uses were offset by proceeds received
from the exercise of stock options and warrants during the period. Net cash
provided by financing activities totaled $7,519,000 for the nine months ended
October 31, 1995, and was primarily due to common stock proceeds received from
Montgomery Ward for their initial investment of $8.0 million, offset by the
payment of related offering costs and the payment of the first installment due
under the five year non-compete obligation entered into upon the acquisition of
WAKC-TV, Akron, Ohio.
Management believes funds currently held by the Company will be sufficient
to fund the Company's operations, the repurchase of any Company common stock,
pursuant to an authorized repurchase plan, and anticipated capital expenditures
and cable launch fees through fiscal 1997. Additional capital may be required in
the event the Company is able to identify additional direct-mail company
acquisition targets and television stations in strategic markets at favorable
prices and if the Company decides to acquire up to the maximum of 12 full power
television stations it can own under current regulations.
FORWARD LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a
"Safe-Harbor" for forward looking statements. Certain information included in
this Form 10-Q and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in our
statements or other written statements made or to be made by the Company)
contains statements that are forward looking, such as statements relating to
increased revenue, operating income, revenue growth, capital spending
requirements, potential future acquisitions and the effects of regulation and
competition. There are certain important factors, such as consumer spending and
debt levels, interest rates, continuity of relationships with or purchases from
major vendors, product mix, competitive pressure on sales and pricing, the
ability of the Company to manage growth and expansion, increases in cable access
fees and the identification of acquisition targets that could cause results to
differ materially from those anticipated statements. Investors are cautioned
that all forward-looking statements involve risks and uncertainty.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Registrant's Press Release dated November 25, 1996, which is
filed as Exhibit 99 to this Form 10-Q is hereby incorporated by
reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Net Income Per Share
99 Press Release dated November 25, 1996
(b) Reports on Form 8-K
The Company filed a Form 8-K on October 10, 1996
(which was amended by a Form 8-K/A filed on December 12, 1996)
reporting the acquisition of substantially all of the assets
of Montgomery Ward Direct, L.P., a four-year old catalog
business of Montgomery Ward & Co., Incorporated, and a
restructuring agreement as of July 27, 1996 whereby the
Company and Montgomery Ward agreed to the expansion and
amendment of certain operating and license agreements.
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.
/s/ Robert L. Johander
--------------------------------------------
Robert L. Johander
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ Stuart R. Romenesko
--------------------------------------------
Stuart R. Romenesko
Senior Vice President Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
December 13, 1996
Exhibit 11
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
Computation of Net Income Per Share
Three Months Ended October 31,
1996 1995
----------- -----------
Net income $ 608,736 $ 8,131,378
=========== ===========
Weighted average number of common
shares outstanding 33,627,770 29,193,596
Shares assumed to be issued upon the
exercise of common stock options and
warrants under the treasury stock method -- --
----------- -----------
Weighted average number of common
shares and common equivalent shares
outstanding 33,627,770 29,193,596
=========== ===========
Net income per common and dilutive
common equivalent shares $ 0.02 $ 0.28
=========== ===========
Nine Months Ended October 31,
1996 1995
----------- -----------
Net income $17,207,590 $ 7,777,677
=========== ===========
Weighted average number of common
shares outstanding 30,852,210 28,400,069
Shares assumed to be issued upon the
exercise of common stock options and
warrants under the treasury stock method 354,764 --
----------- -----------
Weighted average number of common
shares and common equivalent shares
outstanding 31,206,974 28,400,069
=========== ===========
Net income per common and dilutive
common equivalent shares $ 0.55 $ 0.27
=========== ===========
EXHIBIT 99
VALUEVISION INTERNATIONAL
6740 SHADY OAK ROAD
MINNEAPOLIS, MN 55344-3433
TRADED: NASDAQ (VVTV)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
AT THE COMPANY: AT THE FINANCIAL RELATIONS BOARD:
STUART ROMENESKO DANIEL SAKS OR ART BENTLEY SUZY LYNDE STEVEN SEILER
CHIEF FINANCIAL OFFICER GENERAL INFO. ANALYST CONTACT MEDIA CONTACT
(612) 947-5207 (310) 442-0599 (312) 266-7800 (310) 442-0599
</TABLE>
FOR IMMEDIATE RELEASE
Monday, November 25, 1996
VALUEVISION ACQUIRES TWO DIRECT MARKETING COMPANIES
COMBINED ANNUAL REVENUES ARE ABOUT $30 MILLION
MINNEAPOLIS, Nov. 25, 1996...ValueVision Direct Marketing, Inc., a wholly-owned
subsidiary of ValueVision International, Inc. (NASDAQ:VVTV), today announced the
acquisition of two consistently profitable direct marketing companies which
together publish five consumer specialty catalogs and generate revenues of
approximately $30 million annually.
The sister companies -- Catalog Ventures, Inc. (CVI) and Mitchell & Webb,
Inc. (Webb), both of Boston -- create, merchandise, and publish Nature's
Jewelry, Pyramid Collection, Serengeti, NorthStyle and The Mind's Eye catalogs
with a total circulation of some 24 million annually.
Purchase price for the transaction, the third direct marketing company
acquisition for ValueVision in two months, totaled approximately $7.1 million.
CVI specializes in the acquisition and launch of consumer catalogs. Webb is
a full-service direct marketing and creative agency specializing in catalog
design, marketing services, and circulation planning for both CVI and other
clients. The businesses of both companies will be consolidated at CVI and
continue to operate in Boston under the direction of the four founding partners.
IMPETUS FOR DIRECT MARKETING EXPANSION
"CVI and Webb are well positioned to take advantage of the continuing
consolidation in the catalog industry and to exploit emerging channels of
distribution, such as electronic shopping," said Robert L. Johander, chairman
and chief executive officer of ValueVision. "They have demonstrated the ability
to identify acquisition opportunities with growth potential, negotiate favorable
purchases, integrate merchandising, marketing and fulfillment, and rapidly
expand these businesses."
On October 23, the company announced it had acquired Beautiful Images,
Inc., a leading direct marketer of women's undergarments with annual revenue of
approximately $6 million. As a result of that acquisition, William Fitzgerald,
owner of Beautiful Images, joined ValueVision as CEO of its MWD catalog
operations. Fitzgerald is a former president and chief executive officer of
Hanover House.
Nature's Jewelry, acquired by CVI in 1988, had sales of approximately $6.0
million in 1995. Pyramid Collection, acquired in 1992, generated sales of
approximately $7.0 million in 1995. Serengeti, acquired in 1993, produced
revenue of approximately $9.0 million in 1995. At the time they were acquired by
CVI, each of these catalogs had revenues of $2 million or less.
GROWTH OPPORTUNITIES
CVI recently acquired NorthStyle and The Mind's Eye catalogs. The company
plans continued future growth through the acquisition of new catalogs.
The partners of CVI and Webb are Jonathan L. Fleischmann, 40, chairman and
chief financial officer of CVI; Robert A. Piro, 42, president of CVI; Robert L.
Webb, 48, president of Webb; and R. Michael Landers, 48, vice president and
managing director of Webb. Under ValueVision's ownership, Fleischmann will be
CEO of the combined businesses. His partners will serve as vice presidents.
"This acquisition adds significant assets to our growing direct marketing
operations and will aid in our future acquisitions," Johander said. "The
management teams of these companies know how to buy catalogs, as well as run
catalog businesses, and we look forward to benefiting from their knowledge and
experience as we continue to expand our direct marketing operations."
For additional information on ValueVision International, Inc., by FAX at no
cost, dial 1-800-PRO-INFO, code #158.
(Note: The Private Securities Litigation Reform Act of 1995 provides a
"safe harbor" for forward-looking statements. Certain information included in
this news release contains statements that are forward-looking, such as
statements relating to increased revenue, operating income and potential future
acquisitions. There are certain important factors, such as consumer spending and
debt levels, interest rates, competitive pressure on sales and pricing, and
identification of acquisition targets that could cause results to differ
materially from those anticipated statements. Investors are cautioned that all
forward-looking statements involve risks and uncertainty. For more information
on the potential factors that could affect the Company's financial results,
investors should refer to the Company's filings with the Securities and Exchange
Commission, including the Company's annual report on Form 10-K and the
second-quarter 1996 report on Form 10-Q.)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 19,100,896
<SECURITIES> 46,916,960
<RECEIVABLES> 8,809,550
<ALLOWANCES> 0
<INVENTORY> 24,586,394
<CURRENT-ASSETS> 109,074,270
<PP&E> 16,915,524
<DEPRECIATION> 0
<TOTAL-ASSETS> 168,500,790
<CURRENT-LIABILITIES> 38,210,743
<BONDS> 0
0
0
<COMMON> 296,189
<OTHER-SE> 129,688,113
<TOTAL-LIABILITY-AND-EQUITY> 168,500,790
<SALES> 94,246,499
<TOTAL-REVENUES> 94,246,499
<CGS> 56,469,049
<TOTAL-COSTS> 40,015,390
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 28,657,590
<INCOME-TAX> 11,450,000
<INCOME-CONTINUING> 17,207,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,207,590
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
