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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1997
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 February 17, 1998, there were 26,780,778 shares of the Registrant's
common stock, $.01 par value, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1 of the Form 10-Q for the quarterly period ended October 31, 1997
previously filed by ValueVision International, Inc. (the "10-Q") is hereby
amended and restated in its entirety as follows. Except as set forth herein, all
other items of the 10-Q remain in full force and effect.
ITEM 1. FINANCIAL STATEMENTS
VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
OCTOBER 31, JANUARY 31,
1997 1997
-------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,189,366 $ 28,618,943
Short-term investments 27,529,673 24,239,840
Accounts receivable, net 11,713,784 6,488,094
Inventories, net 27,286,121 28,109,081
Prepaid expenses and other 15,899,879 11,483,394
Deferred taxes 392,000 416,000
------------- ------------
Total current assets 101,010,823 99,355,352
PROPERTY AND EQUIPMENT, NET 21,851,045 24,283,108
FEDERAL COMMUNICATIONS COMMISSION LICENSES, NET 5,706,239 6,934,546
MONTGOMERY WARD OPERATING AGREEMENT AND LICENSES, NET 14,085,016 15,052,935
INVESTMENT IN PAXSON COMMUNICATIONS CORPORATION 9,448,373 -
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 12,297,802 10,764,011
INVESTMENTS AND OTHER ASSETS, NET 8,928,066 10,022,718
------------- ------------
$ 173,327,364 $166,412,670
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations $ 415,915 $ 392,921
Accounts payable 22,336,546 24,887,904
Accrued liabilities 13,928,325 12,398,041
Income taxes payable 2,875,291 45,008
------------- ------------
Total current liabilities 39,556,077 37,723,874
LONG-TERM OBLIGATIONS 1,086,493 1,443,189
------------- ------------
Total liabilities 40,642,570 39,167,063
------------- ------------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized;
28,035,778 and 28,842,198 shares issued and outstanding 280,358 288,422
Common stock purchase warrants;
3,842,143 and 5,368,557 18,386,927 26,984,038
Additional paid-in capital 81,714,115 83,309,455
Net unrealized holding gains (losses) on investments available-for-sale (2,922,382) 69,437
Retained earnings 35,225,776 16,594,255
------------- ------------
Total shareholders' equity 132,684,794 127,245,607
------------- ------------
$ 173,327,364 $166,412,670
============= ============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated balance sheets.
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
--------------------------------------- ------------------------------------
1997 1996 1997 1996
------------------ ------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
NET SALES $ 58,325,336 $ 47,118,078 $ 157,887,155 $ 94,246,499
COST OF SALES 32,599,365 28,457,339 89,542,591 56,469,049
------------ ------------ ------------- ------------
Gross profit 25,725,971 18,660,739 68,344,564 37,777,450
------------ ------------ ------------- ------------
Margin % 44.1% 39.6% 43.3% 40.1%
OPERATING EXPENSES:
Distribution and selling 23,325,866 15,953,996 64,707,697 31,048,673
General and administrative 2,251,383 1,953,837 7,611,520 4,723,006
Depreciation and amortization 1,833,658 1,513,321 5,542,272 4,243,711
------------ ------------ ------------- ------------
Total operating expenses 27,410,907 19,421,154 77,861,489 40,015,390
------------ ------------ ------------- ------------
OPERATING LOSS (1,684,936) (760,415) (9,516,925) (2,237,940)
------------ ------------ ------------- ------------
OTHER INCOME (EXPENSE):
Gain on sale of broadcast stations - - 38,850,000 27,050,000
Equity (loss) in earnings of affiliates (17,037) 763,741 (347,612) 668,617
Interest income 599,310 955,198 1,475,103 3,113,255
Other, net (34,111) 54,212 1,295 63,658
------------ ------------ ------------- ------------
Total other income 548,162 1,773,151 39,978,786 30,895,530
------------ ------------ ------------- ------------
INCOME (LOSS) BEFORE PROVISION (BENEFIT)
FOR INCOME TAXES (1,136,774) 1,012,736 30,461,861 28,657,590
PROVISION (BENEFIT) FOR INCOME TAXES (471,000) 404,000 11,830,340 11,450,000
------------ ------------ ------------- ------------
NET INCOME (LOSS) $ (665,774) $ 608,736 $ 18,631,521 $ 17,207,590
============ ============ ============= ============
NET INCOME (LOSS) PER COMMON AND
DILUTIVE COMMON EQUIVALENT SHARE $ (0.02) $ 0.02 $ 0.58 $ 0.55
============ ============ ============= ============
Weighted average number of common and
common equivalent shares outstanding 32,064,428 33,627,770 32,375,370 31,206,974
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Nine Months Ended October 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
NET
UNREALIZED
HOLDING
COMMON STOCK COMMON GAINS (LOSSES)
-------------------------- STOCK ADDITIONAL ON INVESTMENTS
NUMBER PAR PURCHASE PAID-IN AVAILABLE-
OF SHARES VALUE WARRANTS CAPITAL FOR-SALE
------------ ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1997 28,842,198 $ 288,422 $ 26,984,038 $ 83,309,455 $ 69,437
Exercise of stock options and warrants 1,611,080 16,111 - 241,786 -
Common stock repurchases (2,417,500) (24,175) - (10,434,237) -
Value transferred from common stock
purchase warrants - - (8,597,111) 8,597,111 -
Unrealized holding loss on
investments available-for-sale - - - - (2,991,819)
Net income - - - - -
----------- --------- ------------ ------------ -----------
BALANCE, OCTOBER 31, 1997 28,035,778 $ 280,358 $ 18,386,927 $ 81,714,115 $(2,922,382)
=========== ========= ============ ============ ===========
<CAPTION>
TOTAL
RETAINED SHAREHOLDERS'
EARNINGS EQUITY
----------- --------------
<S> <C> <C>
BALANCE, JANUARY 31, 1997 $16,594,255 $ 127,245,607
Exercise of stock options and warrants - 257,897
Common stock repurchases - (10,458,412)
Value transferred from common stock
purchase warrants - -
Unrealized holding loss on
investments available-for-sale - (2,991,819)
Net income 18,631,521 18,631,521
----------- -------------
BALANCE, OCTOBER 31, 1997 $35,225,776 $ 132,684,794
=========== =============
</TABLE>
The accompanying notes are an integral part
of this condensed consolidated finacial statement.
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VALUEVISION INTERNATIONAL, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED OCTOBER 31,
------------------------------------------
1997 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 18,631,521 $ 17,207,590
Adjustments to reconcile net income to net cash
provided by (used for) operating activities-
Depreciation and amortization 5,542,272 4,243,711
Deferred taxes 24,000 -
(Equity) loss in earnings of affiliates 347,612 (668,617)
Gain on sale of broadcast stations (38,850,000) (27,050,000)
Changes in operating assets and liabilities:
Accounts receivable, net (4,622,488) (3,099,859)
Inventories, net 822,960 (5,731,221)
Prepaid expenses and other (4,468,695) (2,015,553)
Accounts payable and accrued liabilities (2,535,819) 7,211,981
Income taxes payable 2,830,283 2,102,992
------------ ------------
Net cash used for operating activities (22,278,354) (7,798,976)
------------ ------------
INVESTING ACTIVITIES:
Property and equipment additions, net of retirements (3,148,495) (7,718,975)
Purchase of broadcast stations - (4,618,743)
Proceeds from sale of broadcast stations 30,000,000 40,000,000
Acquisition of direct-mail companies, net of cash acquired - 1,789,875
Purchase of short-term investments (38,534,148) (76,667,392)
Proceeds from sale of short-term investments 36,555,220 56,137,858
Payment for investments and other assets (5,474,773) (1,518,767)
Proceeds from sale of investments 1,369,006 -
Proceeds from long-term notes receivable 1,603,439 -
------------ ------------
Net cash provided by investing activities 22,370,249 7,403,856
------------ ------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants 257,897 1,150,395
Payments for repurchases of common stock (10,458,412) (1,576,595)
Payment of long-term obligations (320,957) (141,685)
------------ ------------
Net cash used for financing activities (10,521,472) (567,885)
------------ ------------
Net decrease in cash and cash equivalents (10,429,577) (963,005)
BEGINNING CASH AND CASH EQUIVALENTS 28,618,943 20,063,901
------------ ------------
ENDING CASH AND CASH EQUIVALENTS $ 18,189,366 $ 19,100,896
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 68,000 $ 58,000
============ ============
Income taxes paid $ 8,993,000 $ 9,598,000
============ ============
SUPPLEMENTAL NON-CASH INVESTING
AND FINANCING ACTIVITIES:
The Company received 1,197,892 shares of Paxson
Communications Corporation common stock as partial
consideration from the sale of a broadcast television station $ 14,284,862 $ -
============ ============
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
============ ============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Unaudited)
(1) GENERAL
ValueVision International, Inc. and its subsidiaries ("ValueVision" or the
"Company") is an integrated direct marketing company which markets its products
directly to consumers through electronic and print media.
The Company's principal electronic media activity is its television home
shopping network which 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, through its wholly-owned subsidiary, ValueVision Direct
Marketing Company, Inc., d/b/a Montgomery Ward Direct ("VVDM"), 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 and
electronics. Through its wholly-owned subsidiary, Catalog Ventures, Inc.
("CVI"), the Company sells a variety of fashion jewelry, health and beauty aids,
books, audio and video cassettes and other related consumer merchandise through
the publication of five consumer specialty catalogs. The Company also
manufactures and markets, via direct-mail, women's foundation undergarments
through its wholly-owned subsidiary Beautiful Images, Inc. ("BII").
Results of operations for the three and nine months ended October 31, 1997
include the direct- mail operations of VVDM, BII, and CVI, which were acquired
by the Company effective July 27, 1996, October 22, 1996 and November 1, 1996,
respectively.
(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 1997
Annual Report on Form 10-K. Operating results for the nine-month period
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Unaudited)
ended October 31, 1997, are not necessarily indicative of the results that may
be expected for the fiscal year ending January 31, 1998.
Certain amounts in the fiscal 1997 financial statements have been
reclassified to conform to the fiscal 1998 presentation with no impact on
previously reported net income (loss) or shareholders' equity.
(3) NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) 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 (loss) per share and weighted average number of shares
outstanding was not material or was antidilutive, and therefore not presented
separately.
(4) SALE OF BROADCAST STATIONS
On July 31, 1997, the Company completed the sale of its television
broadcast station, WVVI (TV) Channel 66, which serves the Washington, D.C.
market, to Paxson Communications Corporation ("Paxson"). The station was sold
for approximately $30 million in cash and 1,197,892 shares of Paxson
Communications Corporation common stock valued at $11.92 per share as
determined pursuant to an independent financial appraisal. WVVI (TV) was
acquired by the Company in March 1994 for approximately $4,850,000. The pre-tax
gain recorded on the sale of this television station was $38,850,000 and was
recognized in the second quarter ended July 31, 1997.
On November 17, 1997, the Company signed a definitive agreement to sell to
Paxson Communications Corporation its television broadcast station, KBGE-TV,
Channel 33, which serves the Seattle, Washington market along with two of
ValueVision's non-cable, low-power stations in Portland, Oregon and
Indianapolis, Indiana and minority interests in entities which have applied for
two new full-power stations for a total of $35 million in cash. Under the terms
of the agreement, Paxson will pay the Company $25 million upon closing and the
remaining $10 million is to be paid when KBGE, which is currently operating at
reduced power from downtown Seattle, is able to relocate and increase its
transmitter/antenna power to a level at or near its licensed full power. The
transaction is anticipated to close in the Spring of 1998 and is subject to
obtaining certain consents and regulatory approval. ValueVision will retain and
continue to serve the Seattle market via its recently-launched low-power station
K58DP-TV, which transmits from downtown Seattle. 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.
The Company has filed applications for seven additional full-power stations, all
of which include multiple applicants, and expects to participate in
FCC-permitted private auctions to determine the grantee.
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VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Unaudited)
(5) MONTGOMERY WARD RESTRUCTURING
On October 23, 1997, the Company announced the restructuring of its
operating agreement with Montgomery Ward & Co., Incorporated
("Montgomery Ward" or "MW"), which governs the use of the Montgomery Ward name.
In exchange for Montgomery Ward's return to ValueVision of warrants covering
the purchase of 3.8 million shares of ValueVision common stock, the Company
will cede exclusive use of the Montgomery Ward name for catalog, mail order,
catalog "syndications" and television shopping programming back to Montgomery
Ward. Under the agreement, which requires the approval of the U.S. Bankruptcy
court of Delaware, the Company will cease the use of the Montgomery Ward name
in all outgoing catalog, syndication, and mail order communication by March 31,
1998, with a wind down of incoming orders and customer service permitted after
March 31, 1998. The agreement also includes the reduction of Montgomery Ward's
minimum commitment to support ValueVision's cable television spot advertising
purchases. Under the new terms, Montgomery Ward's commitment is reduced from $4
million to $2 million annually, and the time period decreased from five years
to three years commencing effective November 1, 1997. In addition, the
agreement limits the Company to offer the Montgomery Ward credit card only in
conjunction with its various television offers and subject to the normal
approvals by the credit card grantor. Upon the closing of the transaction in
its fiscal 1998 fourth quarter, the Company plans to account for the
transaction as an exchange or disposition of assets at fair value, in
accordance with the provisions of Accounting Principles Board Opinion No. 29.
The return of the warrants represents consideration given by MW for the assets
relinquished by the Company. The warrant return will be reflected as a
reduction in shareholders' equity for the fair value of the warrants, and the
intangible asset amounts reflecting the assets sold back to MW will be reduced
accordingly to their remaining estimated fair values as determined through
analysis of future cash flows and benefits to be received. To the extent that
any difference exists between the consideration given by the Company (the
assets sold back to MW) and the consideration received (the warrants returned
to the Company), such difference will be reflected in the Company's statement
of operations in the fourth quarter of fiscal 1998. The Company does not
currently anticipate that any such difference will be material. The agreement
also calls for the repurchase by the Company of 1,280,000 shares of its common
stock currently owned by Montgomery Ward, at a price of $3.80 per share.
Management does not anticipate that this restructuring will have any other
material impact on the Company's financial condition, results of operations or
liquidity.
(6) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128")
in February 1997. SFAS No. 128 establishes accounting standards for computing
and presenting earnings per share ("EPS") and is effective for reporting
periods ending after December 15, 1997. Management believes that the adoption
of SFAS No. 128 will not have a material impact on the Company's calculation of
EPS.
The FASB issued Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS No.
131") in June 1997. SFAS No. 131 requires that public business enterprises
report information about operating segments in annual financial statements and
requires selected information in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers and is effective
for fiscal years beginning after December 15, 1997.
9
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALUEVISION INTERNATIONAL, INC. AND SUBSIDIARIES
/s/ Stuart R. Romenesko
-------------------------------------------
Stuart R. Romenesko
Senior Vice President Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
February 20, 1998
19
