Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________
Form 10-K
þ
o
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 2012
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20243
____________________________________________
ValueVision Media, Inc.
(Exact name of Registrant as Specified in Its Charter)
Minnesota
(State or Other Jurisdiction of Incorporation or Organization)
6740 Shady Oak Road, Eden Prairie, MN
(Address of Principal Executive Offices)
41-1673770
(I.R.S. Employer Identification No.)
55344-3433
(Zip Code)
952-943-6000
(Registrant’s Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Common Stock, $0.01 par value
Name of exchange on which registered: Nasdaq Global Market
Securities registered under Section 12(g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o
No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
Indic ate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No þ
As of April 2, 48,561,305 shares of the registrant’s common stock were outstanding. The aggregate market value of the common stock held
by non-affiliates of the registrant on July 30, 2011 , based upon the closing sale price for the registrant’s common stock as reported by the
Nasdaq Global Market on July 30, 2011 was approximately $290,612,285 . For purposes of determining such aggregate market value, all officers
and directors of the registrant are considered to be affiliates of the registrant, as well as shareholders holding 10% or more of the outstanding
common stock as reflected on Schedules 13D or 13G filed with the registrant. This number is provided only for the purpose of this annual report
on Form 10-K and does not represent an admission by either the registrant or any such person as to the status of such person.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A
not later than 120 days after the close of its fiscal year ended January 28, 2012 are incorporated by reference in Part III of this annual report
on Form 10-K.
1
VALUEVISION MEDIA, INC.
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended
January 28, 2012
TABLE OF CONTENTS
PART I
PART II
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Item 13.
Item 14.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART III
Exhibits and Financial Statement Schedule
PART IV
Item 15.
Signatures
EX-10.25
EX-21
EX-23
EX-31.1
EX-31.2
EX-32
2
Page
4
15
20
20
20
20
21
23
24
36
37
60
60
62
63
63
63
63
63
64
65
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This annual report on Form 10-K, as well as other materials filed by us with the Securities and Exchange Commission, and information
included in oral statements or other written statements made or to be made by us, contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements
regarding guidance, industry prospects or future results of operations or financial position made in this report are forward-looking.
We often use words such as anticipates, believes, expects, intends and similar expressions to identify forward-looking statements. These
statements are based on management’s current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual
results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): consumer
preferences, spending and debt levels; the general economic and credit environment; interest rates; seasonal variations in consumer purchasing
activities; changes in the mix of products sold by us; competitive pressures on sales; pricing and gross profit margins; the level of cable and
satellite distribution for our programming and the associated fees; our ability to establish and maintain acceptable commercial terms with third-
party vendors and other third parties; our ability to successfully manage and maintain our brand name and marketing initiatives; our ability to
manage our operating expenses successfully and our working capital levels; our management and information systems infrastructure; challenges
to our data and information security; changes in governmental or regulatory requirements; litigation or governmental proceedings affecting our
operations; the other risks identified under Item 1A (“Risk Factors”) in this annual report on Form 10-K; significant public events that are
difficult to predict, such as widespread weather catastrophes or other significant television-covering events causing an interruption of television
coverage or that directly compete with the viewership of our programming; and our ability to obtain and retain key executives and employees.
Investors are cautioned that all forward-looking statements involve risk and uncertainty. The facts and circumstances that exist when any
forward-looking statements are made and on which those forward-looking statements are based may significantly change in the future, thereby
rendering the forward-looking statements obsolete. We are under no obligation (and expressly disclaim any obligation) to update or alter our
forward-looking statements whether as a result of new information, future events or otherwise.
3
Table of Contents
Item 1. Business
PART I
When we refer to “we,” “our,” “us” or the “Company,” we mean ValueVision Media, Inc. and its subsidiaries unless the context indicates
otherwise. ValueVision Media, Inc. is a Minnesota corporation with principal and executive offices located at 6740 Shady Oak Road, Eden
Prairie, Minnesota 55344-3433. ValueVision Media, Inc. was incorporated on June 25, 1990. Our fiscal year ended January 28, 2012 is
designated fiscal 2011 , our fiscal year ended January 29, 2011 is designated fiscal 2010 , and our fiscal year ended January 30, 2010 is
designated fiscal 2009 .
A. General
We are a multichannel electronic retailer that markets, sells and distributes products to consumers through TV, telephone, online, mobile
and social media. Our primary form of product exposure is our 24-hour television shopping network, ShopNBC, which is distributed primarily
through cable and satellite affiliation agreements, and markets brand name and private label products in the categories of Jewelry & Watches;
Home and Electronics; Beauty, Health & Fitness; and Fashion & Accessories. We also operate ShopNBC.com, a comprehensive e-commerce
platform that sells products appearing on our television shopping channel as well as an extended assortment of online-only merchandise. Our
programming and products are also marketed via mobile devices - including smartphones and tablets such as the iPad, and through the leading
social media channels.
ShopNBC is distributed into approximately 81.5 million homes, primarily through cable and satellite affiliation agreements and the
purchase of month-to-month full- and part-time lease agreements of cable and broadcast television time. ShopNBC programming is also
streamed live on the Internet at www.ShopNBC.com and www.ShopNBC.tv . We also distribute our programming through a company-owned
full power television station in Boston, Massachusetts and through leased carriage on a full power television station in Seattle, Washington.
We have an exclusive trademark license from NBCUniversal Media, LLC, formerly known as NBC Universal, Inc., (“NBCU”) for the
worldwide use of an NBC-branded name through May 2012. Additionally, the agreement provides for a one-year extension to May 2013 upon
the mutual agreement of both parties. Pursuant to the license, we operate our television home shopping network and our Internet websites,
ShopNBC.com and ShopNBC.tv.
Multi-media Retailing
Our primary form of multi-media retailing is our live 24-hour television shopping network. ShopNBC is the third largest television
shopping channel in the United States. ShopNBC.com is a comprehensive e-commerce website with complementary and web-only products. Net
sales, including shipping and handling revenues, totaled $558.4 million , $562.3 million and $527.9 million for fiscal 2011 , fiscal 2010 and
fiscal 2009 , respectively. Shoppers can interact and shop via a toll-free telephone number and place orders directly with us or enter an order on
the ShopNBC.com website. Our television programming is produced at our Eden Prairie, Minnesota headquarters facility and is transmitted
nationally via satellite to cable system operators, direct-to-home satellite providers, broadcast television station operators and to our owned full
power broadcast television station WWDP TV in Boston, Massachusetts.
Products and Product Mix
Products sold on our multi-media platforms include primarily jewelry & watches, home & electronics, beauty, health & fitness, and
fashion & accessories. Historically, jewelry and watches have been our largest merchandise categories. We are currently endeavoring to shift our
product mix to include a more diversified product assortment in order to grow our new and active customer base. The following table shows our
merchandise mix as a percentage of television home shopping and Internet net sales for the years indicated by product category group:
Category
Jewelry & Watches
Home & Electronics
Beauty, Health & Fitness
Fashion & Accessories
Fiscal 2011
53%
28%
12%
7%
Fiscal 2010
52%
32%
10%
6%
Fiscal 2009
55%
31%
7%
7%
Jewelry & Watches. Featuring an assortment of high-quality gold, sterling silver, and platinum jewelry, ShopNBC offers consumers the
latest in fine and fashion jewelry. Additionally, ShopNBC hosts an extensive collection of men’s and women’s watches from classic to modern
designs.
4
Table of Contents
Home & Electronics. ShopNBC features the latest in home décor, bed and bath textiles, kitchen appliances, mattresses, dining
accessories, and home furnishings that add functionality and style to any home. We give consumers access to some of the world's most
recognized electronic brands.
Beauty, Health & Fitness. ShopNBC's beauty, health and fitness assortment features products that inspire today's women to look and feel
great. ShopNBC offers a variety of skincare, cosmetics, and hair care products in addition to the latest nutritional supplements, exercise gear and
fitness accessories.
Fashion & Accessories. ShopNBC features fashionable looks that fit any style. Offering a wide assortment of apparel, outerwear,
handbags, accessories, and footwear, ShopNBC provides today's consumer with easy, affordable style.
B. Company Strategy
As a multichannel electronic retailer, our strategy is to offer our customers differentiated quality brands and products at a compelling value
proposition. We also seek to provide today's consumers with flexible programming formats and access that allows them to view and interact with
our content and products at their convenience - whenever and wherever they are able. Our merchandise positioning aims to make us a trusted
destination for quality and an authority in a broad category of merchandise. We focus on creating a customer experience that builds strong
loyalty and an active customer base.
In support of this strategy, we are pursuing the following actions to improve the operational and financial performance of our company:
(i) broaden and optimize our product mix to appeal to more customers and to encourage additional purchases per customer, (ii) increase new and
active customers and improve household penetration, (iii) increase our gross margin dollars by improving merchandise margins in key product
categories while prudently managing inventory levels, (iv) reduce our transactional operating expenses while managing our fixed operating
expenses, (v) grow our Internet business with expanded product assortments and Internet-only merchandise offerings, (vi) expand our Internet,
mobile and social media channels to attract and retain more customers, and (vii) maintain cable and satellite carriage contracts at appropriate
durations while seeking cost savings opportunities and improved channel positions.
C. Television Program Distribution and Internet Operations
Net sales from our television home shopping business, inclusive of shipping and handling revenues, totaled $307 million , $330 million ,
and $350 million , representing 55% , 59% , and 66% of consolidated net sales for fiscal 2011 , fiscal 2010 and fiscal 2009 , respectively. Net
sales from our internet website business, inclusive of shipping and handling revenues, totaled $251 million , $232 million and $178 million ,
representing 45% , 41% and 34% of consolidated net sales for fiscal 2011, fiscal 2010 and fiscal 2009 , respectively. Our internet sales
percentage is calculated based on sales orders that are generated from our shopnbc.com website and primarily ordered directly online. Our
television programming continues to be the most significant medium through which we reach our customers and we believe that our television
home shopping broadcast program is a key driver of traffic to our shopnbc.com website. Our internet business represents an important
component of our future growth opportunities, and we will continue to invest in and enhance our internet-based capabilities.
Television Home Shopping Network
Satellite Delivery of Programming. Our programming is presently distributed via a leased communications satellite transponder to cable
systems and direct-to-home satellite providers, a full power television station in Boston, one leased broadcast station in Seattle, and satellite dish
owners. In January 2005, we entered into a long-term satellite lease agreement with our present provider of satellite services. Pu rsuant to the
terms of this agreement, we distribute our programming through a satellite that was launched in August 2005. The agreement provides us, under
certain circumstances, with preemptible back-up services if satellite transmission is interrupted.
Television Distribution. As of January 28, 2012 , we have entered into affiliation agreements with parties representing approximately
1,530 cable systems allowing each operator to offer our television home shopping programming substantially on a full-time basis over their
systems. The terms of the affiliation agreements typically range from one to two years. During any fiscal year, certain agreements with cable,
satellite or other distributors may expire. Under certain circumstances, the television operators or we may cancel the agreements prior to their
expiration. The affiliation agreements generally provide that we will pay each operator a monthly access fee and in some cases marketing
support payments based on the number of homes receiving our programming. We frequently review distribution opportunities with cable system
operators and broadcast stations providing for full- or part-time carriage of our programming.
Cable operators serving a large majority of cable households offer cable programming on a digital basis. The use of digital compression
technology provides cable companies with greater channel capacity. While greater channel capacity increases the opportunity for distribution
and, in some cases, reduces access fees paid by us, it also may adversely impact our ability to compete
5
Table of Contents
for television viewers to the extent it results in a higher channel position for us, placement of our programming in separate programming tiers,
the broadcast of additional competitive channels or viewer fragmentation due to a greater number of programming alternatives.
During fiscal 2011 , there were approximately 111 million homes in the United States with at least one television set. Of those homes,
there were approximately 58 million basic cable television subscribers, approximately 34 million direct-to-home satellite subscribers and
approximately 7 million homes who receive programming through telephone service providers, such as AT&T and Verizon. Homes that receive
our television home shopping programming 24 hours per day are each counted as one full-time equivalent, or FTE, and homes that receive our
programming for any period less than 24 hours are counted based upon an analysis of time of day and day of week that programming is received.
We have continued to experience growth in the number of FTE subscriber homes that receive our programming.
Our programming is carried on direct-to-home satellite services DIRECTV and DISH Network. Carriage is full-time and we pay each
operator a monthly access fee based upon the number of subscribers receiving our programming. As of January 28, 2012 , our programming
reached approximately 34 million direct-to-home subscribers on a full-time basis which represents 100% of the total number of direct-to-home
satellite subscribers in the United States.
As of January 28, 2012 , we served approximately 81.5 million subscriber homes, or approximately 79.8 million average FTEs, compared
with approximately 78.3 million subscriber homes, or approximately 76.4 million average FTEs, as of January 29, 2011 .
Other Methods of Program Distribution. Our programming is also made available full-time to homes in the Boston and Seattle markets
over the air via television broadcast stations owned by us or where we lease the broadcast time. In fiscal 2011, fiscal 2010 and fiscal 2009 , our
Boston and leased Seattle station were responsible for approximately 3% , 5% and 5%, respectively, of our total consolidated net sales. As of
January 28, 2012 , we also have carriage agreements with companies primarily known for offering telephone services that offer video services
using internet protocol delivery. In addition, our programming is also available through our internet retailing websites, www.ShopNBC.com and
www.ShopNBC.tv.
Internet Websites
Our websites, ShopNBC.com and ShopNBC.tv, provide customers with a broad array of consumer merchandise, including all products
being featured on our television programming as well as other merchandise sold specifically on ShopNBC.com. The websites include a live
webcast feed of our television programming, an archive of recent past programming, videos of many individual products that the customer can
view on demand, an online program guide, customer-generated product reviews as well as additional information about our ShopNBC show
hosts and guest personalities.
Our e-commerce activities are subject to a number of general business regulations and laws regarding taxation and online commerce.
There have been continuing efforts to increase the legal and regulatory obligations and restrictions on companies conducting commerce through
the internet, primarily in the areas of taxation, consumer privacy and protection of consumer personal information. For example, the
Commonwealth of Massachusetts has promulgated regulations that took effect on March 1, 2010 that impose a number of data security
requirements on companies that collect certain types of information concerning Massachusetts residents. There are indications that other states
may adopt similar requirements in the future. A patchwork of state laws imposing differing security requirements depending on the residence of
our customers could impose added compliance costs without a compensating increase in income.
In November 2002, a number of states approved a multi-state agreement to simplify state sales tax laws by establishing one uniform
system to administer and collect sales taxes on traditional retailers and electronic commerce merchants. The agreement became effective on
October 3, 2005. To date, 24 of the 44 states that approved the agreement have passed conforming legislation. A number of states and the U.S.
Congress are considering other legislative initiatives that would impose tax collection obligations on sales made through the internet. No
prediction can be made as to whether individual states will enact legislation requiring retailers such as us to collect and remit sales taxes on
transactions that occur over the internet. On October 31, 2007, the United States enacted a seven-year moratorium on internet access taxes. This
moratorium is set to expire in 2014.
The federal Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003, or the CAN-SPAM Act, was signed into
law on December 16, 2003 and went into effect on January 1, 2004. The CAN-SPAM Act pre-empts similar laws passed by over thirty states,
some of which contain restrictions or requirements that are viewed as stricter than those of the CAN-SPAM Act. The CAN-SPAM Act is
primarily an opt-out type law; that is, prior permission to send e-mail solicitations to a recipient is not required, but a recipient may affirmatively
opt out of such future e-mail solicitations. The CAN-SPAM Act requires commercial e-mails to contain a clear and conspicuous identification
that the message is an advertisement or solicitation for goods or services (unless the sender obtains prior affirmative consent from the recipient to
receive such messages), as well as a clear and conspicuous unsubscribe function that allows recipients to alert the sender that they do not desire
to receive future e-mail solicitation messages. In addition, the CAN-SPAM Act requires that all commercial e-mail messages include a valid
physical postal address.
6
Table of Contents
The CAN-SPAM implementing regulations were amended in 2008 by the FTC to include, among other things, a prohibition that e-mail senders
make it difficult for a recipient to opt-out of receiving future emails from the sender. We believe the CAN-SPAM Act limits our ability to pursue
certain direct marketing activities, thus limiting our sales and potential customers.
Changes in consumer protection laws also may impose additional burdens on those companies conducting business online. The adoption of
additional laws or regulations may decrease the growth of the internet or other online services, which could, in turn, decrease the demand for our
products and services and increase our cost of doing business through the internet.
In addition, since our website is available over the internet in all states, various states may claim that we are required to qualify to do
business as a foreign corporation in such state, a requirement that could result in fees and taxes as well as penalties for the failure to qualify. Any
new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to our business or the
application of existing laws and regulations to the internet and other online services could have a material adverse effect on the growth of our
business in this area.
D. Relationship with NBCU and GE Equity
Alliance with GE Equity and NBCU
In March 1999, we entered into an alliance with GE Capital Equity Investments, Inc. (“GE Equity”) and NBCU, pursuant to which we
issued Series A redeemable convertible preferred stock and common stock warrants, and entered into a shareholder agreement, a registration
rights agreement, a distribution and marketing agreement and, the following year, a trademark license agreement. On February 25, 2009, the
Company entered into an exchange agreement with the same parties, pursuant to which GE Equity exchanged all outstanding shares of the
Company’s Series A preferred stock for (i) 4,929,266 shares of the Company’s Series B redeemable preferred stock, (ii) a warrant to purchase up
to 6,000,000 shares of the Company’s common stock at an exercise price of $0.75 per share and (iii) a cash payment in the amount of
$3.4 million. In connection with the exchange, the parties also amended and restated the 1999 shareholder agreement and registration rights
agreement. The outstanding agreements with GE Equity and NBCU are described in more detail below.
The shares of Series B redeemable preferred stock were redeemable by us at any time for an initial redemption amount of $40.9 million,
plus accrued dividends at a base rate of 12%, subject to adjustment. In addition, the Series B preferred stock provided GE Equity with class
voting rights and the rights to designate members of our board of directors. In April 2011, we redeemed all of the outstanding Series B preferred
stock for $40.9 million and paid accrued dividends of $6.4 million.
In January 2011, General Electric Company (“GE”) consummated a transaction with Comcast Corporation (“Comcast”) pursuant to which
GE contributed all of its holdings in NBCU to NBCUniversal, LLC, a newly formed entity beneficially owned 51% by Comcast and 49% by GE.
As a result of that transaction, NBCU became a wholly owned subsidiary of NBCUniversal, LLC.
As of February17, 2012, the direct equity ownership of GE Equity in the Company consisted of warrants to purchase up to
6,000,000 shares of common stock and as of May 16, 2011, (their most recent filed 13D), the direct ownership of NBCU in the Company
consisted of 7,141,849 shares of common stock and warrants to purchase 7,372 shares of common stock. The Company has a significant cable
distribution agreement with Comcast and believes that the terms of this agreement are comparable to those with other cable system operators.
In connection with the transfer of its ownership in NBCU, GE also agreed with Comcast that, for so long as GE Equity is entitled to
appoint two members of our board of directors, NBCU will be entitled to retain a board seat provided that NBCU beneficially owns at least 5%
of our adjusted outstanding common stock as computed under the amended and restated shareholders agreement described below. Furthermore,
GE agreed to obtain the consent of NBCU prior to consenting to our adoption of any shareholders rights plan or certain other actions that would
impede or restrict the ability of NBCU to acquire or dispose of shares of our voting stock or our taking any action that would result in NBCU
being deemed to be in violation of Federal Communications Commission multiple ownership regulations.
NBCU Trademark License Agreement
On November 16, 2000, we entered into a trademark license agreement with NBCU pursuant to which NBCU granted us an exclusive,
worldwide license for a term of ten years to use certain NBC trademarks, service marks and domain names to rebrand our business and corporate
name and website. We subsequently selected the names ShopNBC and ShopNBC.com.
Under the license agreement, we have agreed, among other things, to (i) certain restrictions on using trademarks, service marks, domain
names, logos or other source indicators owned or controlled by NBCU, (ii) the loss of our rights under the license with respect to specific
territories outside of the United States in the event we fail to achieve and maintain certain performance targets in such territories, (iii) not own,
operate, acquire or expand our business to include certain businesses without NBCU’s
7
Table of Contents
prior consent, (iv) comply with NBCU’s privacy policies and standards and practices, and (v) not own, operate, acquire or expand our business
such that one-third or more of our revenues or our aggregate value is attributable to certain services (not including retailing services similar to
our existing e-commerce operations) provided over the internet. The license agreement also grants to NBCU the right to terminate the license
agreement at any time upon certain changes of control of our Company, in certain situations upon the failure by NBCU to own a certain
minimum percentage of our outstanding capital stock on a fully diluted basis, and certain other situations. On March 28, 2007, we and NBCU
agreed to extend the term of the license by six months, such that the license would continue through May 15, 2011, and to provide that certain
changes of control involving a financial buyer would not provide the basis for an early termination of the license by NBCU.
On November 18, 2010, we announced a further extension of the license agreement to May 2012, an option to further extend the license
agreement to May 2013 upon the mutual agreement of both parties, and an agreement to enter into a separate transition agreement, on the terms
and subject to the conditions to be mutually agreed between the parties, relating to the twelve month period following the ultimate expiration of
the license agreement. On May 16, 2011, we issued 689,655 shares of our common stock as consideration for the one-year license agreement
extension entered into with NBCU in November 2010. Shares issued were valued at $6.04 per share, representing the fair market value of our
stock on the date of issuance.
Amended and Restated Shareholder Agreement
On February 25, 2009, we entered into an amended and restated shareholder agreement with GE Equity and NBCU, which provides for
certain corporate governance and standstill matters. The amended and restated shareholder agreement provides that GE Equity is entitled to
designate nominees for three out of nine members of the Company’s board of directors so long as the aggregate beneficial ownership of GE
Equity and NBCU (and their affiliates) is at least equal to 50% of their beneficial ownership as of February 25, 2009 (i.e., beneficial ownership
of approximately 8.75 million common shares, including for such purpose, shares of our common stock issuable to GE Equity upon exercise of
the warrant for 6,000,000 shares of our common stock), and two out of nine members so long as their aggregate beneficial ownership is at least
10% of the shares of “adjusted outstanding common stock,” as defined in the amended and restated shareholder agreement. In addition, the
amended and restated shareholder agreement provides that GE Equity may designate any of its director-designees to be an observer of the Audit,
Human Resources and Compensation, and Corporate Governance and Nominating Committees of our board of directors.
The amended and restated shareholder agreement requires the consent of GE Equity prior to our entering into any material agreements
with any of CBS, Fox, Disney, Time Warner or Viacom (and their respective affiliates), provided that this restriction will no longer apply when
either (i) our trademark license agreement with NBCU (described above) has terminated or (ii) GE Equity is no longer entitled to designate at
least two director nominees. In addition, the amended and restated shareholder agreement requires the consent of GE Equity prior to our
(i) exceeding certain thresholds relating to the issuance of securities, the payment of dividends, the repurchase or redemption of common stock,
acquisitions (including investments and joint ventures) or dispositions, and the incurrence of debt; (ii) entering into any business different than
what we and our subsidiaries are currently engaged; and (iii) amending our articles of incorporation to adversely affect GE Equity and NBCU (or
their affiliates); provided, however, that these restrictions will no longer apply when both (i) GE Equity is no longer entitled to designate three
director nominees and (ii) GE Equity and NBCU no longer hold any Series B preferred stock. We are also prohibited from taking any action that
would cause any ownership interest by us in television broadcast stations from being attributable to GE Equity, NBCU or their affiliates.
The amended and restated shareholder agreement further provides that during the “standstill period” (as defined in the amended and
restated shareholder agreement), subject to certain limited exceptions, GE Equity and NBCU are prohibited from: (i) any asset/business
purchases from us in excess of 10% of the total fair market value of our assets; (ii) increasing their beneficial ownership above 39.9% of our
shares, treating as outstanding and actually owned for such purpose shares of our common stock issuable to GE Equity upon exercise of the
warrant for 6,000,000 shares of our common stock; (iii) making or in any way participating in any solicitation of proxies; (iv) depositing any of
our securities in a voting trust; (v) forming, joining or in any way becoming a member of a “13D Group” with respect to any of our voting
securities; (vi) arranging any financing for, or providing any financing commitment specifically for, the purchase of any of our voting securities;
or (vii) otherwise acting, whether alone or in concert with others, to seek to propose to us any tender or exchange offer, merger, business
combination, restructuring, liquidation, recapitalization or similar transaction involving us, or nominating any person as a director of the
Company who is not nominated by the then incumbent directors, or proposing any matter to be voted upon by our shareholders. If, during the
standstill period, any inquiry has been made regarding a “takeover transaction” or “change in control,” each as defined in the amended and
restated shareholder agreement, that has not been rejected by our board of directors, or our board of directors pursues such a transaction, or
engages in negotiations or provides information to a third party and the board has not resolved to terminate such discussions, then GE Equity or
NBCU may propose to us a tender offer or business combination proposal.
In addition, unless GE Equity and NBCU beneficially own less than 5% or more than 90% of the adjusted outstanding shares of common
stock, GE Equity and NBCU shall not sell, transfer or otherwise dispose of any securities of our Company except for transfers: (i) to certain
affiliates who agree to be bound by the provisions of the amended and restated shareholder agreement, (ii) that have been consented to by us,
(iii) subject to certain exceptions, pursuant to a third-party tender offer, (iv) pursuant to a
8
Table of Contents
merger, consolidation or reorganization to which we are a party, (v) in an underwritten public offering pursuant to an effective registration
statement, (vi) pursuant to Rule 144 of the Securities Act of 1933, or (vii) in a private sale or pursuant to Rule 144A of the Securities Act of
1933; provided, that in the case of any transfer pursuant to clause (v), (vi) or (vii), the transfer does not result in, to the knowledge of the
transferor after reasonable inquiry, any other person acquiring, after giving effect to such transfer, beneficial ownership, individually or in the
aggregate with that person’s affiliates, of more than 10% (or 20% in the case of a transfer by NBCU) of the adjusted outstanding shares of the
common stock, as determined in accordance with the amended and restated shareholder agreement.
The standstill period will terminate on the earliest to occur of (i) the ten-year anniversary of the amended and restated shareholder
agreement, (ii) our entering into an agreement that would result in a “change in control” (subject to reinstatement), (iii) an actual “change in
control” (subject to reinstatement), (iv) a third-party tender offer (subject to reinstatement), or (v) six months after GE Equity can no longer
designate any nominees to our board of directors. Following the expiration of the standstill period pursuant to clause (i) above and two years in
the case of clause (v) above, GE Equity and NBCU’s beneficial ownership position may not exceed 39.9% of our adjusted outstanding shares of
common stock, except pursuant to issuances or exercises of any warrants or pursuant to a 100% tender offer for our Company.
Registration Rights Agreement
On February 25, 2009, we entered into an amended and restated registration rights agreement providing GE Equity, NBCU and their
affiliates and any transferees and assigns, an aggregate of four demand registrations and unlimited piggy-back registration rights. In addition,
NBCU was subsequently granted one additional demand registration right pursuant to the second amendment of the NBCU Trademark License
Agreement.
E. Marketing and Merchandising
Television and Internet Retailing
Our television and internet revenues are generated from sales of merchandise and services offered through our “ShopNBC Anywhere”
initiative, which includes cable and satellite television, online at www.ShopNBC.com, live streaming at www.ShopNBC.tv, mobile devices and
social media channels. Our television home shopping business utilizes live television 24 hours a day, seven days a week, to create an interactive
and entertaining atmosphere to describe and demonstrate our merchandise. Selected customers participate through live conversations with on-air
sales hosts and on-air guests. Our customers are primarily women between the ages of 30 and 60, married, with average annual household
incomes of $50,000 or more. We also have a strong presence of male customers of similar age and income range. Our customers make purchases
based on our unique products, quality merchandise and value. We are currently endeavoring to shift our product mix to include a more
diversified product assortment, which we believe will grow our new and active customer base and retain repeat customers. We schedule special
programming at different times of the day and week to appeal to specific viewer and customer profiles. We feature announced and unannounced
promotions to drive interest and incremental sales, including “Today’s Top Value,” a sales program that features one special offer every day. We
also feature other major and special promotional events and inventory-clearance sales.
Our merchandise is generally offered at or below comparable retail values. We continually introduce new products on our television home
shopping program and website. Inventory sources include manufacturers, wholesalers, distributors and importers. We intend to continue to
promote private label merchandise, which generally has higher margins than branded merchandise.
ShopNBC Private Label Consumer Credit Card Program
The Company has a private label consumer credit card program (the “Program”). The Program is made available to all qualified consumers
for the financing of purchases of products from ShopNBC. The Program provides a number of benefits to customers including deferred billing
options and free or reduced shipping promotions throughout the year. During fiscal 2011 and fiscal 2010 , customer use of the private label
consumer credit card accounted for approximately 15% of our television and internet sales. We believe that the use of the ShopNBC credit card
furthers customer loyalty and reduces our overall bad debt exposure since the credit card issuing bank bears the risk of bad debt on ShopNBC
credit card transactions that do not utilize our ValuePay installment payment program.
Purchasing Terms
We obtain products for our multichannel electronic retailing businesses from domestic and foreign manufacturers and/or their suppliers
and are often able to make purchases on favorable terms based on the volume of products purchased or sold. Some of our purchasing
arrangements with our vendors include inventory terms that allow for return privileges for a portion of the order or stock balancing. We
generally do not have long-term commitments with our vendors, and a variety of sources are available for each category of merchandise sold.
During fiscal 2011 , products purchased from one vendor accounted for approximately 15%
9
Table of Contents
of our consolidated net sales. We believe that we could find alternative sources for this vendor’s products if this vendor ceased supplying
merchandise; however, the unanticipated loss of any large supplier could impact our sales and earnings on a temporary basis.
F. Order Entry, Fulfillment and Customer Service
Our products are available for purchase via toll-free telephone numbers or on our websites. We maintain agreements with West
Corporation, 24-7 INtouch as well as other call surge providers to support us with telephone order-entry operators and automated order-
processing services for the taking of customer orders. We process orders with our own home-based phone agents and with agents at our Bowling
Green, Kentucky and Eden Prairie, Minnesota facilities. At the present time, we do not utilize any call center services based overseas.
We own a 262,000 square foot distribution facility in Bowling Green, Kentucky, which we use for the fulfillment of all merchandise
purchased and sold by us and for certain call center operations. We also lease approximately 176,000 square feet of additional warehouse space
in Bowling Green, Kentucky under a month-to-month lease agreement, which allows for additional capacity of up to approximately 400,000
square feet, if needed.
The majority of customer purchases are paid by credit or debit cards. As discussed above, we maintain a private label credit card program
using the ShopNBC name. Purchases and installment charges made with the ShopNBC private label credit card are non-recourse to us. We also
utilize an installment payment program called ValuePay, which entitles customers to pay by credit card for certain merchandise in two or more
equal monthly installments. We intend to continue to sell merchandise using the ValuePay program due to its significant promotional value. It
does, however, create a credit collection risk for us from the potential inability to collect outstanding balances.
We maintain a product inventory, which consists primarily of consumer merchandise held for resale. The product inventory is valued at the
lower of average cost or realizable value. As of January 28, 2012 and January 29, 2011 , we had inventory balances of $43.5 million and $39.8
million , respectively. We do not have any material amounts of backlog orders.
Merchandise is shipped to customers by the United States Postal Service, UPS, Federal Express or other recognized carriers. We also have
arrangements with certain vendors who ship merchandise directly to our customers after an approved customer order is processed.
We perform all customer service functions at our Eden Prairie, Minnesota and Bowling Green, Kentucky facilities.
Our return policy allows a standard 30-day refund period from the date of invoice for all customer purchases. Our return rate was 23% in
fiscal 2011 compared to 20% in fiscal 2010 . We attribute the increase in the fiscal 2011 return rate primarily to changes in the product mix as
well as greater sales of higher price point items, primarily jewelry, which historically have higher return rates. We continue to monitor our return
rates in an effort to keep our overall return rates in line and commensurate with our current product sales mix and our average selling price
levels.
G. Competition
The direct marketing and retail businesses are highly competitive. In our television home shopping and e-commerce operations, we
compete for customers with other television home shopping and e-commerce retailers; infomercial companies; other types of consumer retail
businesses, including traditional “brick and mortar” department stores, discount stores, warehouse stores and specialty stores; catalog and mail
order retailers; and other direct sellers.
In the competitive television home shopping sector, we compete with QVC Network, Inc. and HSN, Inc., both of whom are substantially
larger than we are in terms of annual revenues and customers, and whose programming is carried more broadly to U.S. households than our
programming. The American Collectibles Network, which operates Jewelry Television, also competes with us for television home shopping
customers in the jewelry category. In addition, there are a number of smaller niche players and startups in the television home shopping arena
who compete with our Company. We believe that our major competitors incur cable and satellite distribution fees representing a significantly
lower percentage of their sales attributable to their television programming than do we; and that their fee arrangements are substantially on a
commission basis (in some cases with minimum guarantees) rather than on the predominantly fixed-cost basis that we currently have. At our
current sales level, our distribution costs as a percentage of total consolidated net sales are higher than our competition. However, one of our key
strategies is to maintain our distribution fixed cost structure in order to leverage profitability as we grow our business.
The e-commerce sector also is highly competitive, and we are in direct competition with numerous other internet retailers, many of whom
are larger, better financed and/or have a broader customer base than we do.
We anticipate continuing competition for viewers and customers, for experienced home shopping personnel, for distribution agreements
with cable and satellite systems and for vendors and suppliers — not only from television home shopping companies,
10
Table of Contents
but also from other companies that seek to enter the home shopping and internet retail industries, including telecommunications and cable
companies, television networks, and other established retailers. We believe that our ability to be successful in the television home shopping and
e-commerce sectors will be dependent on a number of key factors, including (i) increasing the number of customers who purchase products from
us and (ii) increasing the dollar value of sales per customer from our existing customer base.
H. Federal Regulation
The cable television industry and the broadcasting industry in general are subject to extensive regulation by the Federal Communications
Commission, or FCC. The following does not purport to be a complete summary of all of the provisions of the Communications Act of 1934, as
amended, known as the Communications Act; the Cable Television Consumer Protection Act of 1992, known as the Cable Act; the
Telecommunications Act of 1996, known as the Telecommunications Act; or other laws and FCC rules or policies that may affect our
operations.
Cable Television
The cable industry is regulated by the FCC under the Cable Act and FCC regulations promulgated thereunder, as well as by state or local
governments with respect to certain franchising matters.
Must Carry. In general, the FCC's “must carry” rules entitle full power television stations to mandatory carriage of the primary video and
program-related material in their signals, at no charge, to all cable and direct broadcast satellite homes located within each station's broadcast
market provided that the signal is of adequate strength, and, in the case of cable systems, the must carry signals occupy no more than one-third
of the cable system's capacity. The cable must carry rules requires cable systems to make must carry signals "viewable" on all sets connected to
their systems, whether the set is analog or digital. That portion of the rules will "sunset" in June 2012, and the FCC has asked for comments on
whether the requirement of cable operators to continue to carry viewable signals to analog sets should be extended. The requirement of cable
operators to continue to carry viewable signals to digital sets would not be impacted by this sunset provision. If the requirement to continue to
carry viewable signals to analog sets is not extended, we do not believe it will have a material impact on our business as our
programming distributed via the two full-power broadcast television stations in Boston and Seattle would still be viewable by a vast majority of
the cable homes in those markets.
Broadcast Television
General. Our acquisition and operation of television stations is subject to FCC regulation under the Communications Act. The
Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC. The statute empowers
the FCC, among other things, to issue, revoke and modify broadcasting licenses, adopt regulations to carry out the provisions of the
Communications Act and impose penalties for violation of such regulations. Such regulations impose certain obligations with respect to the
programming and operation of television stations, including requirements for carriage of children’s educational and informational programming,
programming responsive to local problems, needs and interests, advertising upon request by legally qualified candidates for federal office, closed
captioning, and other matters. In addition, FCC rules prohibit foreign governments, representatives of foreign governments, aliens,
representatives of aliens and corporations and partnerships organized under the laws of a foreign nation from holding broadcast licenses. Aliens
may own up to 20% of the capital stock of a licensee corporation, or generally up to 25% of a U.S. corporation, which, in turn, has a controlling
interest in a licensee.
Full Power Television Stations. In April 2003, one of our wholly owned subsidiaries acquired a full power television station serving the
Boston, Massachusetts market. On April 11, 2007, the FCC granted our application for renewal of the station’s license. We also distribute our
programming via leased carriage on a full power television station in Seattle, Washington. Our Boston market station, WWDP TV, currently
broadcasts in a digital format primarily on channel 10.
The FCC has begun proceedings to consider reclaiming portions of the electro-magnetic spectrum now used for broadcast television
service with the goal of reallocating some of that spectrum for wireless broadband service. The FCC has proposed to use “incentive auctions”
that would permit broadcasters on a voluntary basis to agree to give up some or all of their spectrum and obtain a portion of the proceeds the
FCC would collect from auctioning that spectrum. The FCC would also consider “repacking” broadcast television channels to clear spectrum.
Congress passed legislation in February 2012 authorizing a single incentive auction of television spectrum and an associated repacking of the
television band. That legislation requires the FCC to make a reasonable effort to preserve stations' coverage areas in the repacking process. The
legislation also allows two stations to agree to share one channel and allow the remaining channel to be returned to the FCC for auction. The
legislation allows $1.75 billion dollars for the expenses of repacking. It is not possible to predict what the value of particular television channels
may be, or whether the amounts set aside for relocation expenses will be sufficient.
11
Table of Contents
Telephone Companies’ Provision of Programming Services
The Telecommunications Act eliminated the previous statutory restriction forbidding the common ownership of a cable system and
telephone company. Verizon, AT&T, and a number of other local telephone companies are planning to provide or are providing video services
through fiber to the home or fiber to the neighborhood technologies, while other local exchange carriers are using video digital subscriber loop
technology, known as VDSL, to deliver video programming, high-speed internet access and telephone service over existing copper telephone
lines or new fiber optic lines. In March 2007 and November 2007, the FCC released orders designed to streamline entry by carriers by
preempting the imposition by local franchising authorities of unreasonable conditions on entry. A number of parties have requested that the FCC
reconsider various aspects of the March 2007 and November 2007 orders, and those requests remain pending. A number of states have also
enacted franchise reform legislation to make it easier for telephone companies to provide video services. Both Verizon and AT&T have deployed
video delivery systems in many markets across the country, and other telephone companies are also entering the market as a result of these FCC
and state decisions. No prediction can be made as to their further deployment or success in attracting customers.
Regulations Affecting Multiple Payment Transactions
The antitrust settlement between MasterCard, VISA and approximately 8 million retail merchants raises certain issues for retailers who
accept telephonic orders that involve consumer use of debit cards for multiple or continuity payments. A condition of the settlement agreement
provided that the code numbers or other means of distinguishing between debit and credit cards be made available to merchants by VISA and
MasterCard. Under Federal Reserve Board regulations, this may require merchants to obtain consumers’ written consent for preauthorized
transfers where the merchant is aware that the method of payment is a debit card as opposed to a credit card. We believe that debit cards are
currently being offered through Visa and Mastercard as the payment vehicle in approximately 38% of our transactions. Effective February 9,
2006, the Federal Reserve Board amended language in its official commentary to Regulation E by removing an express prohibition on the use of
taped verbal authorization from consumers as evidence of a written authorization for purposes of the regulation. There can be no assurance that
compliance with the authorization procedures under this regulation will not adversely affect the customer experience in placing orders or
adversely affect sales.
Fair and Accurate Credit Transactions Act
In an attempt to combat identity theft, in 2003, Congress enacted the Fair and Accurate Credit Transactions Act (“FACTA”). In 2008, the
federal bank regulatory agencies and the Federal Trade Commission finalized a joint rule implementing FACTA. Compliance with the rule
became mandatory on June 1, 2010. FACTA requires companies to take steps to prevent, detect and mitigate the occurrences of identity theft.
Pursuant to FACTA, covered companies are required to, among other things, develop an identity theft prevention program to identify and
respond appropriately to “red flags” that may be indicative of possible identity theft. We adopted our FACTA policy on May 14, 2009.
I. Seasonality and Economic Sensitivity
Our business is subject to seasonal fluctuation, with the highest sales activity normally occurring during our fourth fiscal quarter of the
year, namely November through January. Our business is also sensitive to general economic conditions and business conditions affecting
consumer spending. Additionally, our television audience (and therefore sales revenue) can be significantly impacted by major world or
domestic events which attract television viewership and divert audience attention away from our programming.
J. Employees
At January 28, 2012 , we had approximately 920 employees, the majority of whom are employed in customer service, order fulfillment and
television production. Approximately 14% of our employees work part-time. We are not a party to any collective bargaining agreement with
respect to our employees.
12
Table of Contents
K. Executive Officers of the Registrant
Set forth below are the names, ages and titles of the persons serving as our executive officers.
Name
Keith R. Stewart
Robert Ayd
William McGrath
Carol Steinberg
Annette Repasch
Jean-Guillaume Sabatier
Teresa Dery
Nancy Kunkle
Michael A. Murray
Kelly Thorp
Nicholas J. Vassallo
Beth K. McCartan
Ashish G. Akolkar
Age
Position(s) Held
48 Chief Executive Officer and Director
63 President
54 Executive Vice President — Chief Financial Officer
52 Executive Vice President — Internet, Marketing & Human Resources
46 Chief Merchandising Officer
42 Senior Vice President — Sales & Product Planning and Programming
45 Senior Vice President and General Counsel
48
Senior Vice President — Customer Experience & Business Process
Engineering
53 Senior Vice President — Operations
42 Senior Vice President — Human Resources
48 Vice President — Corporate Controller
42 Vice President — Financial Planning & Analysis
39 Vice President — IT Operations
Keith R. Stewart was named our President and Chief Executive Officer in January 2009 after having joined ShopNBC as President and
Chief Operating Officer in August 2008. Mr. Stewart retired from QVC in July 2007 where he served the majority of his retail career, most
recently as Vice President — Merchandising of QVC (USA), and Vice President — Global Sourcing of QVC (USA) from April 2004 to June
2007. Previously, Mr. Stewart was General Manager of QVC’s large and profitable German business unit from 1998 to March 2004. Mr. Stewart
first joined QVC as a consumer electronics buyer in 1992 and through a series of progressively responsible positions developed expertise in all
areas of TV shopping, including merchandising, programming, cable distribution, strategic planning, organizational development, and
international sourcing.
Robert Ayd joined ShopNBC in February 2010 as President, overseeing Merchandising, Planning, Programming, Broadcast Operations,
and On-Air Talent. Mr. Ayd brings an extensive background and a track record of success to ShopNBC, including executive leadership roles at
QVC and Macy’s. Most recently, Mr. Ayd served as Executive Vice President and Chief Merchandising Officer at QVC (USA) from 2006 to
2008. During his tenure at QVC, Mr. Ayd also served as Senior Vice President, Design Development & Global Sourcing and Brand
Development from 2005 to 2006, and Senior Vice President of Jewelry and Fashion from 2000 to 2004. Prior to joining QVC in 1995 as Vice
President of Fashion, Mr. Ayd held numerous executive leadership positions for Macy’s, culminating with Senior Vice President in Women’s
Sportswear from 1991 to 1995. Mr. Ayd began his career at Macy’s in 1975 as a buyer of handbags, bodywear and footwear.
William McGrath was named Senior Vice President and Chief Financial Officer in August 2010 after having joined ShopNBC in January
2010 as Vice President of Quality Assurance and being named interim Chief Financial Officer in February 2010. Most recently, Mr. McGrath
served as Vice President Global Sourcing Operations and Finance at QVC in 2008. During his tenure at QVC, he also served as Vice President
Corporate Quality Assurance and Quality Control from 1999 — 2008; Vice President Merchandise Operations and Inventory Control from
1995-1999; Vice President Market Research and Sales Analysis from 1992 — 1995; and Director Financial Planning and Analysis from 1990-
1992. Prior to QVC, Mr. McGrath held a variety of leadership positions at Subaru of America from 1983-1990 and Arthur Andersen from 1979-
1983. He holds an MBA in finance from Drexel University and a BS in Accounting from Saint Joseph’s University.
Carol Steinberg was named Executive Vice President, Internet, Marketing & Human Resources in June 2011 after having joined
ShopNBC as Senior Vice President, E-Commerce, Marketing and Business Development in June 2009. Previously, she was Vice President at
David’s Bridal from September 2006 to June 2009 where she expanded its internet presence by designing
13
Table of Contents
and implementing marketing and merchandising strategies that drove traffic in store and online. Prior to this position, Ms. Steinberg spent
12 years at QVC from July 1994 to September 2006, most recently having served as the Director of Online Marketing and Business
Development.
Annette Repasch was named Chief Merchandising Officer in October 2011 after having joined ShopNBC as Vice President of Softlines in
May, 2011. Previously, she served as Senior Vice President and General Merchandise Manager of Stage Stores from February 2008 to April
2011. Prior to this position, she was Vice President and General Merchandise Manager at QVC (USA) from January 2001 to February 2008. Ms.
Repasch has also held senior merchandising roles in both specialty and departments stores, including Layne Bryant, Saks and Bon-Ton. She
holds a business degree from the Philadelphia College of Art.
Jean-Guillaume Sabatier joined ShopNBC as Senior Vice President, Sales & Product Planning and Programming in November 2008.
Most recently, Mr. Sabatier served as Director, Sales and Product Planning for QVC, Inc., from July 2007 to October 2008. Prior to that time,
Mr. Sabatier held various positions in QVC’s German business unit, including Director, Programming and Planning from July 2003 to July
2007. He began his QVC career as a sales and product planner in June 1997.
Teresa Dery was appointed Senior Vice President and General Counsel in June 2011 and Corporate Secretary in February 2011. Ms. Dery
has 18 years of corporate law experience and joined ShopNBC in 2004 as Senior Corporate Counsel. She was appointed Associate General
Counsel in 2006. Prior to joining ShopNBC, she served as an officer of Net Perceptions and between 2000 and 2004 held roles of Corporate
Counsel and Corporate Secretary. Previously, she served as Corporate Secretary and Vice President of Finance and Legal for national restaurant
franchise 1 Potato 2 from 1993 to 2000.
Nancy Kunkle joined ShopNBC in April 2011 as a strategic adviser and was later appointed Senior Vice President of Customer Experience
in October 2011. Ms Kunkle has over 27 years of experience in process-engineering and multichannel customer experience management. Prior
to joining ShopNBC, Ms. Kunkle was Program Manager, Logistics at The Boeing Company from April 2010 to April 2011. Prior to that, Ms.
Kunkle spent over a decade at QVC where she served in multiple leadership roles within commerce, customer advocacy and customer service
including Director, Customer Advocacy from April, 2008 to March 2010 and Director, Commerce Project Management from February 2006 to
March 2008. Ms. Kunkle began her career in 1985 at The Boeing Company, providing program management for supply chain processes and
product development.
Michael A. Murray was named Senior Vice President of Operations in September 2009 after having joined ShopNBC as Vice President of
Operations in May 2004. Mr. Murray has over 25 years of operations and business management experience. Prior to joining ShopNBC,
Mr. Murray was Senior Vice President of Operations for the Fingerhut Companies and Federated Department Stores direct to consumer divisions
primarily from May 1991 to October 2002. While at Fingerhut, Mr. Murray also led FBSI operations, Fingerhut’s 3rd party direct to consumer
arm serving Walmart.com, Intuit, Levi’s, Wet Seal and others. Mr. Murray has held executive leadership positions in various direct to consumer
and retail companies including Merrill Corporation, Lieberman Enterprises, and Associated Wholesale Grocers. Mr. Murray began his career
with John Deere as an Industrial Engineer.
Kelly Thorp joined ShopNBC in March 2004 as a Human Resource Recruiter and was later appointed Director of Human Resources in
2007. She has 15 years of experience in talent acquisition, team member relations, compensation and benefit management within a human
resource setting. Prior to joining ShopNBC, Ms. Thorp held various human resource positions at Children's Hospital, SafeNet Consulting and
Target Corporation.
Nicholas J. Vassallo has served as Vice President and Corporate Controller since 2000. He first joined ValueVision Media as director of
financial reporting in October 1996. During that time he also had responsibility for direct-mail acquisitions and other corporate business
development ventures. Mr. Vassallo was named corporate controller in 1999 and the following year was promoted to vice president. Prior to
ValueVision, he served as corporate controller for Fourth Shift Corporation, a software development company. Mr. Vassallo began his career
with Arthur Anderson, LLP where he spent eight years in their audit practice group. Mr. Vassallo is a CPA and holds a BS in Accounting from
Saint John’s University in New York.
Beth K. McCartan has served as Vice President Financial Planning & Analysis since 2006. She first joined ValueVision Media as Finance
Manager in January 2001. She was promoted to Finance Director in 2003 and to Vice President three years later. Prior to ValueVision, she
worked for The Pillsbury Company in several finance positions including Sr. Financial Analyst for Green Giant and Progresso brands and as a
plant controller. She began her career with Pillsbury in February 1993. Ms. McCartan holds an MBA in finance from the University of
Minnesota and has undergraduate degrees in Finance, Marketing and Advertising from The University of St. Thomas.
Ashish G. Akolkar has served as Vice President of IT Operations since June 2007. Mr. Akolkar joined ShopNBC in November 2000 and
has held director and managerial positions at ShopNBC overseeing enterprise architecture, software development, application support &
maintenance and technology infrastructure functions. Prior to joining ShopNBC, Mr. Akolkar served as a technology consultant for ERP
applications while working for companies including netbriefings.com and Sunflower Information Technologies. Mr. Akolkar has an MBA in
finance and BS in electronics engineering from Mumbai University, India.
14
Table of Contents
L. Available Information
Our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to these reports if
applicable, are available, without charge, on our Investor Relations website as soon as reasonably practicable after they are filed electronically
with the Securities and Exchange Commission. Copies also are available, without charge, by contacting the General Counsel, ValueVision
Media, Inc., 6740 Shady Oak Road, Eden Prairie, Minnesota 55344-3433.
Our Investor Relations internet address is www.valuevisionmedia.com. The information contained on and connected to our Investor
Relations website is not incorporated into this report.
Item 1A. Risk Factors
In addition to the general investment risks and those factors set forth throughout this document, including those set forth under the caption
“Cautionary Statement Concerning Forward-Looking Information,” the following risks should be considered regarding our Company.
We have a history of losses and a high fixed cost operating base and may not be able to achieve or maintain profitable operations in the
future.
We experienced operating losses of approximately $16.8 million , $15.5 million and $41.2 million in fiscal 2011, fiscal 2010 and fiscal
2009 , respectively. We reported a net loss available to common shareholders of $48.1 million , $25.9 million and $14.7 million in fiscal 2011,
fiscal 2010 and fiscal 2009 , respectively. There is no assurance that we will be able to achieve or maintain profitable operations in future fiscal
years.
Our television home shopping business operates with a high fixed cost base, primarily driven by fixed fees under distribution agreements
with cable and direct-to-home satellite providers to carry our programming. In order to operate on a profitable basis, we must reach and maintain
sufficient annual sales revenues to cover our high fixed cost base and/or negotiate a reduction in this cost structure. If our sales levels are not
sufficient to cover our operating expenses, our ability to reduce operating expenses in the near term will be limited by the fixed cost base. In that
case, our earnings, cash balance and growth prospects could be materially and adversely affected.
If we do not reverse our current trend of operating losses, we could reduce our operating cash resources to the point where we will not
have sufficient liquidity to meet the ongoing cash commitments and obligations to continue operating our business.
As of January 28, 2012 , we had approximately $33.0 million in unrestricted cash, with an additional $2.1 million of restricted cash and
investments used to secure letters of credit. We expect to use our cash to finance our working capital requirements and to make necessary capital
expenditures in order to operate our business and to fund any further operating losses. If we do not reverse our current trend of operating losses,
we could reduce our operating cash resources to the point where we would not be able to adequately fund working capital requirements or
necessary capital expenditures. In February 2012, we secured a $40 million revolving credit facility with PNC Bank, National Association. The
new facility bears an interest rate of LIBOR plus 3% and was used to fund the retirement of our $25 million 11% term loan and to pay a $12.4
million deferred payment obligation to a television distribution provider. We still have significant future commitments for our cash, which
primarily includes payments for cable and satellite program distribution obligations and the eventual repayment of our new three-year credit
facility. Based on our current projections for fiscal 2012 , we believe that our existing cash balances will be sufficient to maintain liquidity to
fund our normal business operations over the next twelve months. However, our amended and restated shareholder agreement with GE Equity
and NBCU requires the consent of GE Equity in order for us to issue new equity securities and to incur indebtedness above certain thresholds,
and there can be no assurance that we would receive such consent if we made a request. Furthermore, our new credit facility includes certain
restrictions on our ability to incur additional debt, as well as restrictions on our ability to make material changes in the nature of our business,
both of which may be necessary in times of liquidity constraints. Therefore, there can be no assurance that, if required, we would be able to raise
additional capital or reduce spending to have sufficient liquidity to meet our ongoing cash commitments and obligations to continue operating
our business. Any issuances of additional equity, which could include GE Equity’s exercise of its warrant for six million shares of our common
stock, may be dilutive to our existing shareholders.
The failure to secure suitable placement for our television programming and the use of digital technology to expand the number of
channels and services available on cable, direct broadcast satellite and internet protocol TV-based video distribution systems could adversely
affect our ability to attract and retain television viewers and could result in a decrease in revenue.
We are dependent upon our ability to compete for television viewers. Effectively competing for television viewers is
15
Table of Contents
dependent, in part, on our ability to secure placement of our television programming within a suitable programming tier at a desirable channel
position. The majority of multi-video programming distributors now offer programming on a digital basis. While the growth of digital cable and
these other systems may over time make it possible for our programming to be more widely distributed, there are several risks as well. The
primary risks associated with the growth of digital cable and alternative digital platforms are demonstrated by the following:
• we could experience further declines in sales per digital tier subscriber because of the increased number of channels offered on digital
systems competing for the same number of viewers and the higher channel location we typically are assigned in digital tiers;
• more competitors may enter the marketplace as additional channel capacity is added; and
• more programming options being available to the viewing public in the form of new television networks and time-shifted viewing ( e.g.
, personal video recorders, video-on-demand, interactive television and streaming video over broadband internet connections).
Failure to adapt to these risks will result in lower revenue and may harm our results of operations. In addition, failure to anticipate and
adapt to technological changes in a cost-effective manner that meets customer demands and evolving industry standards will also reduce our
revenue, harm our results of operations and financial condition and have a negative impact on our business.
We may not be able to expand or could lose some of our existing programming distribution if we cannot negotiate profitable distribution
agreements.
We are seeking to continue to reduce the costs associated with our cable and satellite distribution agreements. However, while we were
able to achieve reductions in such costs since 2008 and other reductions starting in 2013 without a loss in households, there can be no assurance
that we will achieve comparable cost reductions in the future or that we will be able to maintain or grow our households on financial terms that
are profitable to us. It is possible that we may need to reduce our programming distribution in certain systems if we are unable to obtain
appropriate financial terms. Failure to successfully renew agreements covering a material portion of our existing cable and satellite households
on acceptable financial and other terms could adversely affect our future growth, sales revenues and earnings unless we are able to arrange for
alternative means of broadly distributing our television programming.
NBCU, GE Equity and Comcast as the majority owner of NBCU, have the ability to exert significant influence over us and have the right
to disapprove of certain actions by us.
As a result of their equity ownership in our Company, NBCU (and Comcast, as the majority owner of NBCU) and GE Equity together are
currently our largest shareholders and have the ability to exert significant influence over actions requiring shareholder approval, including the
election of directors, adoption of equity-based compensation plans and approval of mergers or other significant corporate events. Through the
provisions in the amended and restated shareholder agreement, NBCU (and Comcast, as the majority owner of NBCU) and GE Equity also have
the right to block us from taking certain actions that our Board of Directors might otherwise determine to be in the interests of our other
shareholders (as discussed in greater detail under “Business — Strategic Relationships — Amended and Restated Shareholder Agreement”
above).
Expiration or termination of the NBC branding license would require us to pursue a new branding strategy that may not be successful.
We have branded our television home shopping network and internet site as ShopNBC and ShopNBC.com, respectively, under an
exclusive, worldwide licensing agreement with NBCU for the use of NBC trademarks, service marks and domain names. The license agreement
continues through May 2012, with an option to extend the term another year through May 2013 upon the mutual agreement of both parties. We
do not have the right to automatic renewal at the end of the extension period, this most recent amendment provided for year to year renewals, and
consequently we may choose or be required to pursue a new branding strategy in the next 12 months, which may not be as successful as the NBC
brand with current or potential customers. NBCU also has the right to terminate the license prior to the end of the license term in certain
circumstances, including without limitation in the event of a breach by us of the terms of the license agreement, upon certain changes of control,
upon our inability to pay our debts as they become due, and upon NBCU’s failure to own a certain percentage of our outstanding capital stock on
a fully diluted basis (as discussed in greater detail under “Business — Strategic Relationships — NBCU Trademark License Agreement” above).
Our directors, executive officers and principal shareholders have substantial control over us and could delay or prevent a change in
corporate control.
Our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, beneficially
16
Table of Contents
own, in the aggregate, approximately 48% of our outstanding common stock. As a result, these shareholders, acting together, would have the
ability to control the outcome of matters submitted to our shareholders for approval, including the election of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition, these shareholders, acting together, would have the ability to control the
management and affairs of our Company. Accordingly, this concentration of ownership might harm the market price of our common stock by:
• delaying, deferring or preventing a change in corporate control;
•
• discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
impeding a merger, consolidation, takeover or other business combination involving us; or
Competition in the general merchandise retailing industry and particularly the live home shopping and e-commerce sectors could limit
our growth and reduce our profitability.
As a general merchandise retailer, we compete for consumers with other forms of retail businesses, including other television home
shopping and e-commerce retailers, infomercial companies, other types of consumer retail businesses, including traditional “brick and mortar”
department stores, discount stores, warehouse stores, specialty stores, catalog and mail order retailers and other direct sellers. In the competitive
television home shopping sector, we compete with QVC Network, Inc., HSN, Inc. and Jewelry Television, as well as a number of smaller
“niche” home shopping competitors. QVC Network, Inc. and HSN, Inc. both are substantially larger than we are in terms of annual revenues and
customers, their programming is more broadly available to U.S. households than is our programming and in many markets they have more
favorable channel locations than we have. The internet retailing industry is also highly competitive, with numerous e-commerce websites
competing in every product category we carry, in addition to the websites operated by the other television home shopping companies. This
competition in the internet retailing sector makes it more challenging and expensive for us to attract new customers, retain existing customers
and maintain desired gross margin levels.
We may not be able to maintain our satellite services in certain situations, beyond our control, which may cause our programming to go
off the air for a period of time and cause us to incur substantial additional costs.
Our programming is presently distributed to cable systems, full power television stations and satellite dish operators via a leased
communications satellite transponder. Satellite service may be interrupted due to a variety of circumstances beyond our control, such as satellite
transponder failure, satellite fuel depletion, governmental action, preemption by the satellite service provider, solar activity and service failure.
Our satellite transponder agreement provides us with preemptible back-up service if satellite transmission is interrupted under certain conditions.
In the event of a serious transmission interruption where back-up service is not available, we may need to enter into new arrangements, resulting
in substantial additional costs and the inability to broadcast our signal for some period of time.
The FCC could limit must-carry rights, which would impact distribution of our television home shopping programming and might impair
the value of our Boston FCC license.
The FCC issued a public notice on May 4, 2007 stating that it was updating the public record for a petition for reconsideration filed in
1993 and still pending before the FCC. The petition challenges the FCC’s prior determination to grant the same mandatory cable carriage (or
“must-carry”) rights for TV broadcast stations carrying home shopping programming that the FCC’s rules accord to other TV stations. The time
period for comments and reply comments regarding the reconsideration closed in August 2007, and we submitted comments supporting the
continuation of must-carry rights for home shopping stations. If the FCC decides to change its prior determination and withdraw must-carry
rights for home shopping stations as a result of this updating of the public record, we could lose our current carriage distribution on cable
systems in two markets: Boston and Seattle, which currently constitute approximately 3.7 million full-time equivalent households, or FTE’s,
receiving our programming. We own our Boston television station and have a carriage contract with the third party Seattle television station. In
addition, if must-carry rights for home shopping stations are withdrawn, it may not be possible to replace these FTE’s on commercially
reasonable terms and the carrying value of our Boston FCC license ( $23.1 million as of January 28, 2012 ) may become impaired.
We may be subject to product liability claims for on-air misrepresentations or if people or properties are harmed by products sold by us.
Products sold by us and representations related to these products may expose us to potential liability from claims by purchasers of such
products, subject to our rights, in certain instances, to seek indemnification against this liability from the suppliers or manufacturers of the
products. In addition to potential claims of personal injury, wrongful death or damage to personal property, the live unscripted nature of our
television broadcasting may subject us to claims of misrepresentation by our customers, the Federal Trade Commission and state attorneys
general. We maintain, and have generally required the manufacturers and vendors of these products to carry, product liability and errors and
omissions insurance. There can be no assurance that we will maintain
17
Table of Contents
this coverage or obtain additional coverage on acceptable terms, or that this insurance will provide adequate coverage against all potential claims
or even be available with respect to any particular claim. There also can be no assurance that our suppliers will continue to maintain this
insurance or that this coverage will be adequate or available with respect to any particular claims. Product liability claims could result in a
material adverse impact on our financial performance. Our Company is also subject to two FTC consent decrees, one issued in 2001 and one
issued in 2003; both have a duration of 20 years. They consist of claims involving recordkeeping, compliance policies, and attention to detail on
claim substantiation. Violations of these decrees could result in significant civil fines and penalties.
Our ValuePay installment payment program could lead to significant unplanned credit losses if our credit loss rate was to materially
deteriorate.
We utilize an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the
merchandise in two or more equal monthly installments. Our ValuePay installment program is a key element of our promotional strategy. As of
January 28, 2012 , we had approximately $72.4 million due from customers under the ValuePay installment program. We maintain allowances
for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. There is no guarantee that we
will continue to experience the same credit loss rate that we have in the past or that losses will be within current provisions. A significant
increase in our credit losses above what we have been experiencing could result in a material adverse impact on our financial performance.
Failure to comply with existing laws, rules and regulations applicable to our Company, or to obtain and maintain required licenses and
rights, could subject us to additional liabilities.
We market and provide a broad range of merchandise through multiple channels. As a result, we are subject to a wide variety of statutes,
rules, regulations, policies and procedures in various jurisdictions which are subject to change at any time, including laws regarding consumer
protection, privacy, the regulation of retailers generally, the importation, sale and promotion of merchandise and the operation of warehouse
facilities, as well as laws and regulations applicable to the internet and businesses engaged in e-commerce. Although we undertake to monitor
changes in these laws, if these laws change without our knowledge, or are violated by importers, designers, vendors, manufacturers or
distributors or other third-parties we do business with, we could experience delays in shipments and receipt of goods or be subject to fines or
other penalties under the controlling regulations, any of which could adversely affect our business. In addition, if we fail to comply with these
laws and regulations could result in fines and proceedings against us by governmental agencies and consumers, which could adversely affect our
business, financial condition and results of operations. Moreover, unfavorable changes in the laws, rules and regulations applicable to us could
decrease demand for merchandise offered by us, increase costs and subject us to additional liabilities. Finally, certain of these regulations impact
our marketing efforts.
We may be subject to claims by consumers and state and federal authorities for security breaches involving customer information, which
could materially harm our reputation and business.
In order to operate our business, which includes multiple retail channels, we take orders for our products from customers. This requires us
to obtain personal information from these customers including, but not limited to, credit card numbers. Although we take reasonable and
appropriate security measures to protect customer information, there is still the risk that external or internal security breaches could occur,
including cyber incidents. In addition, new tools and discoveries by third parties in computer or communications technology or software or other
developments may facilitate or result in a future compromise or breach of our computer systems. Such compromises or breaches could result in
data loss and/or identity theft leading to significant liability or costs to us from consumer lawsuits for monetary redress, state and federal
authorities for fines and penalties, and could also lead to interruptions in our operations and negative publicity causing damage to our reputation
and limiting customers’ willingness to purchase products from us. Theft of credit card numbers of consumers could result in multi-million dollar
fines and consumer settlement costs, FTC audit requirements, and significant internal administrative costs.
Nearly all of our sales are paid for by customers using credit or debit cards and the increasingly heightened Payment Card Industry
(“PCI”) standards regarding the storage and security of customer information could potentially impact our ability to accept card brands
Nearly all of ShopNBC’s customers pay for purchases via a credit or debit card. Credit and debit card brand issuers continue to heighten
PCI standards that are applicable to all merchants who accept these cards. These standards primarily pertain to the processes and procedures for
secure storage of customer data. Effective in 2012, ShopNBC is considered a Level 1 merchant which will require the completion of a formal
Record of Compliance (ROC) by a Qualified Security Assessor. Failure to comply with PCI standards, as required by card issuers, could result in
card brand fines and/or the possible inability for us to accept a card brand. Our inability to accept one or all card brands could materially affect
sales in a negative manner.
18
Table of Contents
We depend on relationships with numerous domestic and foreign manufacturers and suppliers; a decrease in product quality or an
increase in product cost, or the unanticipated loss of several of our larger suppliers, could impact our sales.
We procure merchandise from numerous domestic and foreign manufacturers and suppliers generally pursuant to short-term contracts and
purchase orders. Our ability to identify and establish relationships with these parties, as well as access quality merchandise in a timely and
efficient manner on acceptable terms and at acceptable costs, can be challenging. We depend on the ability of these parties in the U.S. and
abroad to timely produce and deliver goods that meet applicable quality standards, which is impacted by a number of factors not within the
control of these parties, such as political or financial instability, trade restrictions, tariffs, currency exchange rates and transport capacity and
costs, among others, and to deliver products that meet or exceed our customers’ expectations.
Our failure to identify new vendors and manufacturers, maintain relationships with a significant number of existing vendors and
manufacturers and/or access quality merchandise in a timely and efficient manner could cause us to miss customer delivery dates or delay
scheduled promotions, which would result in the failure to meet customer expectations and could cause customers to cancel orders or cause us to
be unable to source merchandise in sufficient quantities, which could result in lost sales.
It is possible that one or more of our larger suppliers could experience financial difficulties, including bankruptcy, or otherwise could
determine to cease doing business with us. During fiscal 2011 , products purchased from one vendor accounted for approximately 15% of our
consolidated net sales. While we have periodically experienced the loss of a major vendor, if a number of our larger vendors ceased doing
business with us, this could materially and adversely impact our sales and profitability on a short term basis.
Many of our key functions are concentrated in a single location, and a natural disaster could seriously impact our ability to operate.
Our television broadcast studios, internet operations, IT systems, merchandising team, inventory control systems, executive offices and
finance/accounting functions, among others, are centralized in our adjacent offices at 6740 and 6690, Shady Oak Road in Eden Prairie,
Minnesota. In addition, our only fulfillment and distribution facility is centralized at a location in Bowling Green, Kentucky. A natural disaster,
such as a tornado, could seriously disrupt our ability to continue or resume normal operations for some period of time. While we have certain
business continuity plans in place, no assurances can be given as to how quickly we would be able to resume operations and how long it may
take to return to normal operations. We could incur substantial financial losses above and beyond what may be covered by applicable insurance
policies, and may experience a loss of customers, vendors and employees during the recovery period.
We could be subject to additional sales tax collection obligations and claims for uncollected amounts.
A number of states have adopted new legislation that would require the collection of state and/or local taxes on transactions originating on
the internet or by other out-of-state retailers, such as home shopping, infomercial and catalog companies. In some cases these new laws seek to
establish grounds for asserting “nexus” by the out-of-state retailer in the applicable state, and are being challenged by internet and other retailers
under federal constitutional grounds. Adding sales tax to our internet transactions could negatively impact consumer demand. ShopNBC partners
with numerous affiliate companies across the country to publicize links from different websites to our website, ShopNBC.com. In 2008, the state
of New York enacted legislation which required certain sellers like us to collect sales tax on our New York sales if we utilized New York
“resident representatives”, which term was intended to include internet companies that publicize e-commerce retailers through links from
different websites to the e-commerce retailer’s website. Court challenges to this tax have, to date, been unsuccessful. North Carolina and Rhode
Island have passed similar laws and several other state legislatures, including California, are considering similar legislation. As a result of this
legislation as well as other legislation passed, we registered and started collecting sales tax in New York, North Carolina and Colorado. If this
trend continues and the laws are upheld after legal challenges, we could be required to collect additional state and local taxes which could
negatively impact sales as well as creating an additional administrative burden which could be costly to the business. We believe we comply
with current state sales tax regulations.
We place a significant reliance on technology and information management tools to run our existing businesses, the failure of which
could adversely impact our operations.
Our businesses are dependent, in part, on the use of sophisticated technology, some of which is provided to us by third parties. These
technologies include, but are not necessarily limited to, satellite based transmission of our programming, use of the internet in relation to our on-
line business, new digital technology used to manage and supplement our television broadcast operations and a network of complex computer
hardware and software to manage an ever increasing need for information and information management tools. The failure of any of these
technologies, or our inability to have this technology supported, updated, expanded or integrated into other technologies, could adversely impact
our operations. Although we have, when possible, developed alternative sources of technology and built redundancy into our computer networks
and tools, there can be no assurance that these
19
Table of Contents
efforts to date would protect us against all potential issues or disaster occurrences related to the loss of any such technologies or their use.
Our inability to recruit and retain key employees may adversely impact our ability to sustain growth.
Our continued growth is contingent, in part, on our ability to retain and recruit employees that have the distinct skills necessary for a
business that demands knowledge of the general retail industry, merchandising and product sourcing, television production, televised and
internet-based marketing and fulfillment. The marketplace for such employees is very competitive and limited. Our growth may be adversely
impacted if we are unable to attract and retain these key employees.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We own two commercial buildings occupying approximately 209,000 square feet in Eden Prairie, Minnesota (a suburb of Minneapolis).
These buildings are used for office space including executive offices, television studios, broadcast facilities and administrative offices. We own a
262,000 square foot distribution facility on a 34-acre parcel of land in Bowling Green, Kentucky, which is currently pledged as collateral under
our bank credit facility. We also lease approximately 176,000 square feet of additional warehouse space in Bowling Green, Kentucky under a
month-to-month lease agreement, which allows for additional capacity of up to approximately 400,000 square feet, if needed. Additionally, we
rent transmitter site and studio locations in Boston, Massachusetts for our full power television station. We have granted a security interest in our
Eden Prairie, Minnesota headquarters facility and our Boston television station to one of our larger television distribution service providers until
January 2013.
We believe that our existing facilities are adequate to meet our current needs and that suitable additional alternative space will be available
as needed to accommodate expansion of operations.
Item 3. Legal Proceedings
We are involved from time to time in various claims and lawsuits in the ordinary course of business. In the opinion of management, these
claims and suits individually and in the aggregate will not have a material adverse effect on our operations or consolidated financial statements.
In the third quarter of fiscal 2009, the U.S. Customs and Border Protection agency commenced an investigation into an undervaluation and
corresponding underpayment of the customs duty owed by one of our vendors relating to a particular shipment of goods to the United States. We
notified the vendor and have withheld certain funds from the vendor under contractual indemnification obligations to cover any potential costs,
penalties or fees that may result from the investigation. We made a formal request for indemnification from the vendor but the request was
refused. As a result, in December 2009, through the U.S. District Court of Minnesota, we commenced litigation against the vendor for breach of
contract. The vendor filed counterclaims for payments it claims were owed by us. The case has been stayed by the district court pending the
outcome of the U.S. Customs investigation. We believe that the funds we are withholding from the vendor will be sufficient to cover any costs or
possible liabilities against us that may result from the investigation.
Item 4. Mine Safety Disclosures
Not Applicable.
20
Table of Contents
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our common stock is traded on the Nasdaq Global Market under the symbol “VVTV.” The following table sets forth the range of high and
low sales prices of our common stock as quoted by the Nasdaq Global Market for the periods indicated.
Fiscal 2011
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2010
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
$
High
Low
7.67 $
8.73
7.74
3.37
4.77
3.09
2.69
7.24
5.00
5.85
1.91
1.43
2.96
1.45
1.41
2.15
As of March 15, 2012, we had approximately 510 common shareholders of record.
Dividends
We have never declared or paid any dividends with respect to our common stock. Pursuant to the amended and restated shareholder
agreement with GE Equity and NBCU, we are prohibited from paying dividends on our common stock without GE Equity’s prior consent. We
currently expect to retain our earnings for the development and expansion of our business and do not anticipate paying cash dividends on the
common stock in the foreseeable future. The Company is further restricted from paying dividends on its common stock by its bank credit
facility. Any future determination by us to pay cash dividends on our common stock will be at the discretion of our board of directors and will be
dependent upon our results of operations, financial condition, any contractual restrictions then existing and other factors deemed relevant at the
time by the board of directors.
Issuer Purchases of Equity Securities
As of January 28, 2012 , all authorizations for repurchase programs have expired.
Stock Performance Graph
The graph below compares the cumulative five-year total return to our shareholders (based on appreciation or depreciation of the market
price of our common stock) on an indexed basis with (i) a broad equity market index and (ii) two published industry indices. The presentation
compares the common stock price in the period from February 3, 2007 to January 28, 2012 to the Nasdaq Composite Index, the S&P 500
Retailing Index and the Morningstar Specialty Retail Index. The cumulative return is calculated assuming an investment of $100 on February 3,
2007, and reinvestment of all dividends. You should not consider shareholder return over the indicated period to be indicative of future
shareholder returns.
21
Table of Contents
ValueVision Media, Inc.
NASDAQ Composite Index
S&P 500 Retailing Index
Morningstar Specialty Retail Index
Equity Compensation Plan Information
ASSUMES $100 INVESTED ON FEBRUARY 3, 2007
ASSUMES DIVIDENDS REINVESTED
FISCAL YEAR ENDING JANUARY 28, 2012
February 3,
2007
100.00 $
100.00 $
100.00 $
100.00 $
$
$
$
$
February 2,
2008
January 31,
2009
January 30,
2010
January 29,
2011
January 28,
2012
49.40 $
98.13 $
81.61 $
95.45 $
2.01 $
60.55 $
50.83 $
56.99 $
33.20 $
88.95 $
79.07 $
97.71 $
51.97 $
112.35 $
100.74 $
129.09 $
12.41
118.94
114.44
137.32
The following table provides information as of January 28, 2012 for our compensation plans under which securities may be issued:
Plan Category
Equity Compensation Plans Approved by
Security holders
Equity Compensation Plans Not
Approved by Security holders (2)
Total
_______________________________________
Number of Securities to be
Issued Upon Exercise of
Options, Warrants and
Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation Plans
3,731,000
657,000 (2)
4,388,000
$5.91
$4.43
$5.68
3,357,000 (1)
—
3,357,000
(1) Includes securities available for future issuance under shareholder approved compensation plans other than upon the exercise of
outstanding options, warrants or rights, as follows: 517,000 shares under the 2004 Omnibus Stock Plan and 2,840,000 shares under the
2011 Omnibus Stock Plan.
(2) Reflects 7,372 shares of common stock issuable upon exercise of warrants held by NBCU and 650,000 shares of common stock
issuable upon exercise of nonstatutory employee stock options granted at exercise prices equal to the fair market value of a share of
common stock on the date of grant. Nonstatutory employee stock options have historically been granted to new employees as
inducement grants when shareholder approved equity compensation plan shares have been depleted. Each of these options expires
10 years from the grant date and vests over three years.
22
Table of Contents
Item 6. Selected Financial Data
The selected financial data for the five years ended January 28, 2012 have been derived from our audited consolidated financial statements.
The selected financial data presented below are qualified in their entirety by, and should be read in conjunction with, the financial statements and
notes thereto and other financial and statistical information referenced elsewhere herein including the information referenced under the caption
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
January 28,
2012(a)
January 29,
2011(b)
Year Ended
January 30,
2010(c)
January 31,
2009(d)
February 2,
2008(e)
(In thousands, except per share data)
Statement of Operations Data:
Net sales
Gross profit
Operating loss
Net income (loss)
Per Share Data:
Net income (loss) from continuing
operations per common share
Net income (loss) from continuing
operations per common share —
assuming dilution
Weighted average shares outstanding:
Basic
Diluted
Balance Sheet Data:
Cash and cash equivalents
Restricted cash and investments
Current assets
Long-term investments
Property, equipment and other assets
Total assets
Current liabilities
Series B redeemable preferred stock
Other long-term obligations
Series A redeemable preferred stock
Shareholders’ equity
Other Data:
Gross profit
Working capital
Current ratio
Adjusted EBITDA (as defined)(f)
Cash Flows:
Operating
$ 558,394 $ 562,273 $ 527,873 $ 567,510 $ 781,550
271,015
(23,052 )
22,452
204,095
(16,838 )
(48,064 )
182,749
(88,458 )
(97,793 )
173,772
(41,171 )
(41,998 )
199,529
(15,466 )
(25,868 )
$
(1.03 ) $
(0.78 ) $
(0.45 ) $
(2.92 ) $
$
(1.03 ) $
(0.78 ) $
(0.45 ) $
(2.92 ) $
0.53
0.53
46,451
46,451
33,326
33,326
32,538
32,538
33,598
33,598
41,992
42,011
January 28,
2012
January 29,
2011
January 30,
2010
January 31,
2009
February 2,
2008
(In thousands)
$
32,957 $
2,100
163,271
—
55,189
218,460
91,364
—
25,507
—
101,589
46,471 $
4,961
185,357
—
53,002
238,359
103,798
14,599
36,810
—
83,152
17,000 $
5,060
139,361
—
56,853
196,214
85,992
11,243
10,675
—
88,304
53,845 $
1,589
161,469
15,728
64,303
241,500
95,988
—
—
44,191
99,472
59,078
—
252,183
26,306
80,591
359,080
118,350
—
—
43,898
194,510
January 28,
2012
January 29,
2011
Year Ended
January 30,
2010
January 31,
2009
February 2,
2008
(In thousands, except statistical data)
36.6 %
35.5 %
32.9 %
32.2 %
34.7 %
$
$
71,907
1.8
996
$
$
81,559
1.8
2,351
$
$
$
53,369
1.6
(19,411 ) $
65,481
1.7
(51,421 ) $
$ 133,833
2.1
6,850
$
(12,949 ) $
327
$
(37,896 ) $
7,100
$
11,189
Investing
Financing
________________
$
$
(7,819 ) $
$
7,254
(7,430 ) $
$
36,574
$
8,307
(7,256 ) $
$
24,557
(3,417 ) $
(475 )
(26,605 )
(a) Results of operations for fiscal 2011 includes a $25.7 million total charge related to the early preferred stock debt
23
Table of Contents
extinguishment. See Note 9 to the consolidated financial statements.
(b) Results of operations for fiscal 2010 include the following: (i) a $1.2 million charge due to early payment of preferred stock obligations
and (ii) a $1.1 million charge related to incremental restructuring charges incurred in fiscal 2010 . See Notes 9 and 18 to the
consolidated financial statements.
(c) Results of operations for fiscal 2009 include the following: (i) a $3.6 million gain on the sale of auction rate securities, (ii) a
$2.3 million charge related to the restructuring of certain company operations and (iii) a $1.9 million charge related to costs associated
with our chief executive officer transition. See Notes 7, 18 and 19 to the consolidated financial statements.
(d) Results of operations for fiscal 2008 include the following: (i) an $11.1 million auction rate securities write down, (ii) an $8.8 million
FCC license intangible asset impairment, (iii) a $4.3 million charge related to the restructuring of certain company operations and (iv) a
$2.7 million charge related to costs associated with our chief executive officer transition.
(e) Results of operations for fiscal 2007 include the following: (i) a $40.2 million gain on the sale of Ralph Lauren Media, LLC, (ii) a
$5.0 million charge related to the restructuring of certain company operations and (iii) a $2.5 million charge related to costs associated
with our chief executive officer transition.
(f) EBITDA as defined for this statistical presentation represents net income (loss) for the respective periods excluding depreciation and
amortization expense, interest income (expense) and income taxes. We define Adjusted EBITDA as EBITDA excluding debt
extinguishment; non-operating gains (losses); non-cash impairment charges and write downs; restructuring and CEO transition costs;
and non-cash share-based compensation expense. Management has included the term Adjusted EBITDA in its EBITDA reconciliation
in order to adequately assess the operating performance of our “core” television and internet businesses and in order to maintain
comparability to our analyst’s coverage and financial guidance, when given. Management believes that Adjusted EBITDA allows
investors to make a meaningful comparison between our core business operating results over different periods of time with those of
other similar companies. In addition, management uses Adjusted EBITDA as a metric measure to evaluate operating performance under
its management and executive incentive compensation programs. Adjusted EBITDA should not be construed as an alternative to
operating income (loss), net income (loss) or to cash flows from operating activities as determined in accordance with generally
accepted accounting principles and should not be construed as a measure of liquidity. Adjusted EBITDA may not be comparable to
similarly entitled measures reported by other companies.
A reconciliation of Adjusted EBITDA to its comparable GAAP measurement, net income (loss), follows:
Adjusted EBITDA
Less:
Loss on debt extinguishment
Non-operating gains (losses) and equity in income
of Ralph Lauren Media, LLC
Write-down of auction rate investments
FCC license impairment
Restructuring costs
CEO transition costs
Non-cash share-based compensation expense
EBITDA (as defined)
A reconciliation of EBITDA to net income (loss) is
as follows:
EBITDA, as defined
Adjustments:
Depreciation and amortization
Interest income
Interest expense
Income tax (provision) benefit
Net income (loss)
January 28,
2012
January 29,
2011
Year Ended
January 30,
2010
(In thousands)
January 31,
2009
February 2,
2008
$
996 $
2,351 $
(19,411 ) $
(51,421 ) $
6,850
(25,679 )
(1,235 )
—
—
—
—
—
—
—
—
(5,007 )
(29,690 )
—
—
—
(1,130 )
—
(3,350 )
(3,364 )
3,628
—
—
(2,303 )
(1,932 )
(3,205 )
(23,223 )
(969 )
(11,072 )
(8,832 )
(4,299 )
(2,681 )
(3,928 )
(83,202 )
40,663
—
—
(5,043 )
(2,451 )
(2,415 )
37,604
(29,690 )
(3,364 )
(23,223 )
(83,202 )
37,604
(12,827 )
64
(5,527 )
(84 )
(48,064 ) $
(13,337 )
51
(9,795 )
577
(25,868 ) $
(14,320 )
382
(4,928 )
91
(41,998 ) $
(17,297 )
2,739
—
(33 )
(97,793 ) $
(19,993 )
5,680
—
(839 )
22,452
$
Item 7. 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 is qualified by reference to and should
24
Table of Contents
be read in conjunction with our audited consolidated financial statements and notes thereto included elsewhere in this annual report.
Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
This Annual Report on Form 10-K, including the following Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other materials we file with the Securities and Exchange Commission (as well as information included in oral statements or other
written statements made or to be made by us) contain certain forward-looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects or future
results of operations or financial position, made in this annual report on Form 10-K are forward looking. We often use words such as anticipates,
believes, expects, intends and similar expressions to identify forward-looking statements. These statements are based on management’s current
expectations and are accordingly subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations
contained herein due to various important factors, including (but not limited to): consumer preferences, spending and debt levels; the general
economic and credit environment; interest rates; seasonal variations in consumer purchasing activities; changes in the mix of products sold by
us; competitive pressures on sales; pricing and sales margins; the level of cable and satellite distribution for our programming and the associated
fees; our ability to establish and maintain acceptable commercial terms with third-party vendors and other third parties; our ability to
successfully manage and maintain our brand name and marketing initiatives; our ability to manage our operating expenses successfully and our
working capital levels; our management of our information systems infrastructure; challenges to our data and information security; changes in
governmental or regulatory requirements; litigation or governmental proceedings affecting our operations; the risks identified under “Risk
Factors” in this report; significant public events that are difficult to predict, such as widespread weather catastrophes or other significant
television-covering events causing an interruption of television coverage or that directly compete with the viewership of our programming; and
our ability to obtain and retain key executives and employees. Investors are cautioned that all forward-looking statements involve risk and
uncertainty. The facts and circumstances that exist when any forward-looking statements are made and on which those forward-looking
statements are based may significantly change in the future, thereby rendering the forward-looking statements obsolete. We are under no
obligation (and expressly disclaim any obligation) to update or alter our forward-looking statements whether as a result of new information,
future events or otherwise.
Overview
Company Description
We are a multichannel electronic retailer that markets, sells and distributes products to consumers through TV, telephone, online, mobile
and social media. Our principal form of product exposure is our 24-hour television shopping network, ShopNBC, which is distributed primarily
through cable and satellite affiliation agreements, and markets brand name and private label products in the categories of jewelry & watches;
home & electronics; beauty, health & fitness; and fashion & accessories. We also operate ShopNBC.com, a comprehensive e-commerce
platform that sells products appearing on our television shopping channel as well as an extended assortment of online-only merchandise. Our
programming and products are also marketed via mobile devices - including smartphones and tablets such as the iPad, and through the leading
social media channels. We have an exclusive trademark license from NBCUniversal Media, LLC, formerly known as NBC Universal, Inc.
(“NBCU”), for the worldwide use of an NBC-branded name for a period ending in May 2012. Additionally, the agreement allows for a one-year
extension to May 2013 upon the mutual agreement of both parties. Pursuant to the license, we operate our television home shopping network and
our Internet websites, ShopNBC.com and ShopNBC.tv.
Products and Customers
Products sold on our multi-media platforms include primarily jewelry & watches, home & electronics, beauty, health & fitness, and fashion
& accessories. Historically jewelry and watches have been our largest merchandise categories. We are currently endeavoring to shift our product
mix to include a more diversified product assortment in order to grow our new and active customer base. The following table shows our
merchandise mix as a percentage of television home shopping and internet net sales for the years indicated by product category group:
Merchandise Mix
Jewelry & Watches
Home & Electronics
Beauty, Health & Fitness
Fashion & Accessories
January 28,
2012
Year Ended
January 29,
2011
January 30,
2010
53%
28%
12%
7%
52%
32%
10%
6%
55%
31%
7%
7%
25
Table of Contents
Our product strategy is to continue to develop new product offerings across multiple merchandise categories as needed in response to both
customer demand and in order to maximize margin dollars per minute in our television and internet shopping operations. Our multichannel
customers are primarily women between the ages of 30 and 60, married, with average annual household incomes of $50,000 or more. We also
have a strong presence of male customers of similar age and income range. We believe our customers make purchases based on our unique
products, quality merchandise and value.
Company Strategy
As a premium multichannel electronic retailer, our strategy is to offer our customers differentiated quality brands and products at a
compelling value proposition. We also seek to provide today's consumers with flexible programming formats and access that allows them to
view and interact with our content and products at their convenience - whenever and wherever they are able. Our merchandise positioning aims
to make us a trusted destination for quality and an authority in a broad category of merchandise. We focus on creating a customer experience that
builds strong loyalty and an active customer base.
In support of this strategy, we are pursuing the following actions to improve the operational and financial performance of our Company:
(i) broaden and optimize our product mix to appeal to more customers and to encourage additional purchases per customer, (ii) increase new and
active customers and improve household penetration, (iii) increase our gross margin dollars by improving merchandise margins in key product
categories while prudently managing inventory levels, (iv) reduce our transactional operating expenses while managing our fixed operating
expenses, (v) grow our Internet business with expanded product assortments and Internet-only merchandise offerings, (vi) expand our Internet,
mobile and social media channels to attract and retain more customers, and (vii) maintain cable and satellite carriage contracts at appropriate
durations while seeking cost savings opportunities and improved channel positions.
Our Competition
The direct marketing and retail businesses are highly competitive. In our television home shopping and e-commerce operations, we
compete for customers with other television home shopping and e-commerce retailers; infomercial companies; other types of consumer retail
businesses, including traditional “brick and mortar” department stores, discount stores, warehouse stores and specialty stores; catalog and mail
order retailers and other direct sellers.
In the competitive television home shopping sector, we compete with QVC Network, Inc. and HSN, Inc., both of whom are substantially
larger than we are in terms of annual revenues and customers, and whose programming is carried more broadly to U.S. households than our
programming. The American Collectibles Network, which operates Jewelry Television, also competes with us for television home shopping
customers in the jewelry category. In addition, there are a number of smaller niche players and startups in the television home shopping arena
who compete with us. We believe that our major competitors incur cable and satellite distribution fees representing a significantly lower
percentage of their sales attributable to their television programming than do we; and that their fee arrangements are substantially on a
commission basis (in some cases with minimum guarantees) rather than on the predominantly fixed-cost basis that we currently have. At our
current sales level, our distribution costs as a percentage of total consolidated net sales are higher than our competition. However, one of our key
strategies is to maintain our distribution fixed cost structure in order to leverage profitability as we grow our business.
The e-commerce sector also is highly competitive, and we are in direct competition with numerous other internet retailers, many of whom
are larger, better financed and/or have a broader customer base than we do.
We anticipate continuing competition for viewers and customers, for experienced home shopping personnel, for distribution agreements
with cable and satellite systems and for vendors and suppliers — not only from television home shopping companies, but also from other
companies that seek to enter the home shopping and internet retail industries, including telecommunications and cable companies, television
networks, and other established retailers. We believe that our ability to be successful in the television home shopping and e-commerce sectors
will be dependent on a number of key factors, including increasing the number of customers who purchase products from us and increasing the
dollar value of sales per customer from our existing customer base.
Results for Fiscal 2011, 2010 and 2009
Consolidated net sales in fiscal 2011 were $558.4 million compared to $562.3 million in fiscal 2010 , a 1% decrease. Consolidated net
sales in fiscal 2010 were $562.3 million compared to $527.9 million in fiscal 2009 , a 7% increase. We reported an operating loss of $16.8
million and a net loss of $48.1 million for fiscal 2011 . Our net loss in fiscal 2011 included a $25.7 million non-cash debt extinguishment charge.
We reported an operating loss of $15.5 million and a net loss of $25.9 million for fiscal 2010 . Operating expenses in fiscal 2010 included $1.1
million of restructuring charges and a $1.2 million debt extinguishment charge. We reported an operating loss of $41.2 million and a net loss of
$42.0 million for fiscal 2009 , which included a pretax
26
Table of Contents
gain of $3.6 million from the sale of our auction rate securities. Operating expenses in fiscal 2009 included $2.3 million of restructuring charges
and CEO transition costs of $1.9 million .
New Credit Facility
On February 9, 2012, we entered into a $40 million new credit and security agreement (the “Credit Facility”) with PNC Bank, N.A.
(“PNC”), a member of The PNC Financial Services Group, Inc., as lender and agent. The Credit Facility has a three-year maturity and bears
interest at LIBOR plus 3% per annum. Maximum borrowings under the Credit Facility are equal to the lesser of $40 million or a calculated
borrowing base comprised of eligible accounts receivable and eligible inventory. The initial net proceeds of borrowing of approximately $38.2
million were primarily used to retire our existing 11%, $25 million term loan with Crystal Financial LLC and to pay a $12.4 million deferred
payment obligation to a television distribution provider. Subject to certain conditions, the Credit Facility also provides for the issuance of letters
of credit in an aggregate amount up to $6 million which, upon issuance, would be deemed advances under the credit facility. Remaining capacity
under the Credit Facility will provide liquidity for working capital and general corporate purposes. Borrowings under the Credit Facility mature
and are payable in February 2015.
The Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted
cash plus credit availability of $6 million at all times and limiting annual capital expenditures. Certain financial covenants including minimum
EBITDA levels (as defined in the Credit Facility agreement) and minimum fixed charge coverage ratio become applicable only if unrestricted
cash plus credit availability falls below $12 million or upon an event of default. In addition, the Credit Facility places restrictions on our ability
to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to
merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.
Preferred Stock Redemption
In F e bruary 2011, we made a $2.5 million payment to GE Capital Equity Investments, Inc. ("GE Equity"), in connection with obtaining a
consent for the execution of a common stock equity offering in December 2010, reducing the outstanding accrued dividend payable on the
Series B preferred stock and recorded a $1.2 million charge to income related to the early preferred stock debt extinguishment. In April 2011, we
redeemed all of our outstanding Series B preferred stock for $40.9 million, paid accrued Series B preferred dividends of $6.4 million and
recorded a $24.5 million charge related to the early preferred stock debt extinguishment.
Results of Operations
The following table sets forth, for the periods indicated, certain statement of operations data expressed as a percentage of net sales.
Year Ended
Net sales
Gross margin
Operating expenses:
Distribution and selling
General and administrative
Depreciation and amortization
Restructuring costs
CEO transition costs
Total operating expenses
Operating loss
Interest expense, net
Other income (loss), net
Loss before income taxes
Income taxes
Net loss
January 28, 2012 January 29, 2011 January 30, 2010
100.0 %
100.0 %
100.0 %
36.6
35.5
32.9
33.8
3.5
2.3
—
—
39.6
(3.0 )
(1.0 )
(4.6 )
(8.6 )
—
(8.6 )%
32.3
3.4
2.3
0.2
—
38.2
(2.7 )
(1.7 )
(0.2 )
(4.6 )
0.1
(4.5 )%
33.7
3.5
2.7
0.4
0.4
40.7
(7.8 )
(0.9 )
0.7
(8.0 )
—
(8.0 )%
27
Table of Contents
Key Performance Metrics
Program Distribution, (in thousands)
Total Homes (Average 000's)
For the Twelve Months Ended
January 28,
2012
Change
January 29,
2011
Change
January 30,
2010
79,822
4 %
76,437
4 %
73,576
Merchandise Metrics
Gross Margin %
Net Shipped Units (in thousands)
Average Selling Price
Return Rate
Internet Net Sales % (a)
_______________________________________
(a) Internet sales percentage is calculated based on sales orders that are generated from our shopnbc.com website and primarily ordered directly
online.
19.8 % (120) bps
750 bps
41.2 %
35.5 %
5,175
$101
36.6 %
4,947
$104
32.9 %
4,537
$108
280 bps
370 bps
22.6 %
44.9 %
14 %
(6 )%
21.0 %
33.7 %
(4 )%
3 %
260 bps
110 bps
Program Distribution
Average homes reached, or full time equivalent ("FTE") subscribers, grew 4% in fiscal 2011 , resulting in a 3.4 million increase in average
homes reached compared to fiscal 2010 . Average FTE subscribers grew 4% in fiscal 2010 , resulting in a 2.8 million increase in average homes
reached compared to fiscal 2009 . The annual increases were driven primarily by increases in our footprint as we expand onto lower digital tiers
of service as well as by continued growth in satellite and internet protocol television. We anticipate that our cable programming distribution will
increasingly shift towards a greater mix of digital with continued improvement in channel positioning and channel adjacencies, which we believe
may result in increased subscriber viewership. Nonetheless, because of the broader universe of programming choices available for viewers in
digital systems and the higher channel placements commonly associated with digital tiers, the shift towards digital systems may adversely impact
our ability to compete for television viewers even if our programming is available in more homes. Our television home shopping programming is
also simulcast live 24 hours per day, 7 days per week through our internet websites, www.ShopNBC.com and www.ShopNBC.TV, which is not
included in the foregoing data on homes reached.
Cable and Satellite Distribution Agreements
We have entered into cable and direct-to-home satellite distribution agreements that require each operator to offer our television home
shopping programming substantially on a full-time basis over their systems. The terms of these existing agreements typically range from one to
two years. Under certain circumstances, the cable or satellite operators or we may cancel the agreements prior to their expiration. If certain of
these agreements are terminated, the termination may materially or adversely affect our business. Failure to maintain our cable agreements
covering a material portion of our existing cable households on acceptable financial and other terms could materially and adversely affect our
future growth, sales revenues and earnings unless we are able to arrange for alternative means of broadly distributing our television
programming.
Net Shipped Units
The number of units shipped during fiscal 2011 decreased 4% from fiscal 2010 to 4.9 million from 5.2 million . The number of units
shipped during fiscal 2010 increased 14% from fiscal 2009 to 5.2 million from 4.5 million . We believe the 2011 decrease in units shipped is
primarily due to our lower than expected sales growth and the increase in average selling price, both discussed below.
Average Selling Price
Our average selling price, or ASP, per net unit was $104 in fiscal 2011 , a 3% increase over fiscal 2010 . The increase in the fiscal 2011
ASP was driven primarily by unit selling price increases within our jewelry category as well as an increased sales mix of jewelry items within
the combined jewelry and watches product category. For fiscal 2010 , the average selling price per net
28
Table of Contents
unit was $101 , a 6% decrease over fiscal 2009 . The decrease in the 2010 ASP was driven primarily by unit selling price decreases within
almost all product categories.
Return Rates
Our return rate was 22.6% in fiscal 2011 compared to 19.8% in fiscal 2010 , a 280 bps basis point increase. We attribute the increase in
the 2011 return rate primarily to changes in the product sales mix as well as greater sales of higher price point items, primarily jewelry, which
historically have higher return rates. Our return rate was 19.8% in fiscal 2010 compared to 21.0% in fiscal 2009 , a (120) bps basis point
decrease. We attributed the decrease in the fiscal 2010 return rate primarily to lower price points during fiscal 2010 and operational
improvements in delivery time and customer service, product and quality control enhancements. We continue to monitor our return rates in an
effort to keep our overall return rates in line and commensurate with our current product sales mix and our average selling price levels.
Net Sales
Consolidated net sales, inclusive of shipping and handling revenue, for fiscal 2011 were $558.4 million compared to $562.3 million for
fiscal 2010 , a 1% decrease. The slight decrease in consolidated net sales from the prior year reflects the impact of a 24% sales decrease in our
consumer electronics product category. Our jewelry & watches product category sales were flat for the year, while our beauty & fitness and
fashion categories realized double digit growth. Net sales shortfalls in our consumer electronics category during the year were primarily related
to organizational turnover, a limited product assortment and overall execution, which negatively impacted our performance within the consumer
electronics product category. While we have taken specific actions to address the organizational and execution challenges within consumer
electronics, we anticipate continued weakness in this category into the first half of 2012. Our internet net sales increased 8% over the prior fiscal
year and our e-commerce sales penetration was 45% during fiscal 2011 compared to 41% for fiscal 2010 driven primarily by strong cross-
channel promotions from our core television channel, online marketing efforts, unique internet only product offerings and mobile and social
media platforms.
Consolidated net sales, inclusive of shipping and handling revenue, for fiscal 2010 were $562.3 million compared to $527.9 million for
fiscal 2009 , a 7% increase. The increase in consolidated net sales was primarily attributed to higher net sales in the categories of jewelry,
health & beauty and home related to modifications made in our product mix during fiscal 2010. Consolidated net sales also increased as a result
of higher shipping and handling revenues due to fewer free shipping promotions offered.
Gross Profit
Gross profit for fiscal 2011 was $204.1 million compared to $199.5 million for fiscal 2010 , an increase of 2% . Gross profit for fiscal
2010 was $199.5 million compared to $173.8 million for fiscal 2009 , an increase of 15% . The increase in the gross profits experienced during
2011 was driven primarily by shifts in our sales mix to higher margin product categories, particularly jewelry and health & beauty. Gross profits
during fiscal 2011 also increased as a result of increased shipping and handling margins as a result of product mix changes.
Gross margin as a percentage of sales (sales margin) for fiscal 2011, fiscal 2010 and fiscal 2009 was 36.6% , 35.5% and 32.9% ,
respectively, representing a 110 basis point increase from fiscal 2010 to fiscal 2011, and a 260 basis point increase from fiscal 2009 to fiscal
2010. The increase in the gross margin percentages experienced during 2011 was driven primarily by a higher sales mix of higher margin
product categories such as jewelry and health and beauty, improved shipping and handling margins and a lower sales mix of lower margin
consumer electronics and a decrease in our inbound inventory freight costs. The increase in gross margins experienced during fiscal 2010 was
driven primarily by merchandise margin improvements targeted in a majority of our key product categories, increased shipping and handling
margins resulting from fewer promotions and due to the impact of having a lower consumer electronics product mix during fiscal 2010 , offset
partially by increased cost of inventory liquidations during fiscal 2010 .
Operating Expenses
Total operating expenses were $220.9 million , $215.0 million and $214.9 million for fiscal 2011, fiscal 2010 and fiscal 2009 ,
respectively, representing an increase of $5.9 million , or 3% from fiscal 2010 to fiscal 2011 , and an increase of $0.1 million , or less than 1%
from fiscal 2009 to fiscal 2010 . Fiscal 2010 total operating expenses included $1.1 million of restructuring charges. Fiscal 2009 total operating
expenses included $2.3 million of restructuring charges and $1.9 million of chief executive officer transition costs.
Distribution and selling expense for fiscal 2011 increased $7.3 million , or 4% , to $188.8 million , or 34% of net sales compared to $181.5
million , or 32% of net sales in fiscal 2010 . Distribution and selling expense increased from fiscal 2010 primarily due to increased program
distribution fees of $4.2 million related to a 4% increase in average homes during the year and improved
29
Table of Contents
channel positions obtained in certain markets. Distribution and selling expense also increased during fiscal 2011 as a result of increased credit
card fees and bad debt expense of $3.0 million, increased salary and consulting costs of $1.4 million and increased share based compensation
expense of $1.2 million. These distribution and selling expense increases during the year were offset by decreases in advertising and promotion
expense of $1.8 million and decreases in customer service and telecommunication expenses of $300,000. Distribution and selling expense for
fiscal 2010 increased $3.5 million , or 2% , to $181.5 million , or 32% of net sales compared to $178.0 million , or 34% of net sales, in fiscal
2009 primarily due to a $2.6 million increase in cable and satellite fees resulting from an increase in the number of homes broadcasted to during
fiscal 2010 and certain contractual rate increases, partially offset by retroactive billing adjustments from certain carriers. Distribution and selling
expense also increased during fiscal 2010 as a result of increased credit card fees and bad debt expense of $3.8 million due to the overall increase
in net sales and order transactions over fiscal 2009 and increased salaries, bonuses and consulting costs of $400,000. Distribution and selling
expense increases were offset by decreases in customer service and telecommunication expenses of $2.0 million, decreases in advertising and
promotion expense of $1.7 million and a decrease in third-party cable affiliation fees of $100,000.
General and administrative expense for fiscal 2011 increased $371,000 , or 2% , to $19.5 million of net sales compared to $19.2 million or
3.4% of net sales in fiscal 2010 . General and administrative expense increased from fiscal 2010 primarily due to increased share-based
compensation of $296,000 and board of directors fees of $399,000, offset by a $412,000 gain recorded on the disposal of a piece of operational
equipment. General and administrative expense for fiscal 2010 increased $798,000 , or 4% , to $19.2 million , or 3.4% of net sales compared to
$18.4 million , or 3.5% of net sales in fiscal 2009 . General and administrative expense increased from fiscal 2009 primarily as a result of an
increase in salaries and related benefits and consulting fees totaling $1.0 million, increased share-based compensation expense of $220,000 and
decreased cash payment discounts received of $246,000, offset by decreases in legal expenses of $708,000.
Depreciation and amortization expense was $12.6 million , $13.2 million and $14.3 million for fiscal 2011, fiscal 2010 and fiscal 2009 ,
respectively, representing a decrease of $0.6 million , or 4% , from fiscal 2010 to fiscal 2011 and a decrease of $1.1 million , or 8% , from fiscal
2009 to fiscal 2010 . Depreciation and amortization expense as a percentage of net sales was 2.3% , 2.3% , and 2.7% for fiscal 2011, fiscal 2010
and fiscal 2009 , respectively. The 2011 decrease in depreciation and amortization expense is due to a reduction in our depreciable asset base
year over year which resulted from our Oracle11i upgrade becoming fully depreciated during fiscal 2010 , offset by increased amortization
expense attributable to our renewed NBC trademark license. The 2010 decrease in depreciation and amortization expense relates to reduced
capital spending and the timing of fully depreciated assets year over year and reduced amortization of our NBC distribution agreement due to the
expiration of this agreement.
Restructuring Costs
As a result of a number of restructuring initiatives taken by us in order to simplify and streamline our organizational structure, reduce
operating costs and pursue and evaluate strategic alternatives, we recorded restructuring charges of $1.1 million in fiscal 2010 and $2.3 million
in fiscal 2009 . Restructuring costs primarily include employee severance costs associated with streamlining the Company's organizational
structure, incremental costs associated with the refinancing of our debt facilities, restructuring advisory service fees and costs associated with
strategic alternative initiatives.
Chief Executive Officer Transition Costs
During fiscal 2009 , we recorded a $1.9 million charge relating primarily to settlement and legal costs associated with the termination of
our former chief executive officer.
Operating Loss
We reported an operating loss of $16.8 million for fiscal 2011 compared with an operating loss of $15.5 million for fiscal 2010 , an
increase of $1.3 million. Our operating loss increased slightly during fiscal 2011 primarily as a result of increased distribution and selling
expenses, which resulted from increased cable and satellite fees and increased credit card fees and bad debt expense, as noted above. These
increased costs were partially offset by increased gross profit dollars achieved from shifts in our product mix to higher margin product
categories, particularly jewelry and health & beauty.
We reported an operating loss of $15.5 million for fiscal 2010 compared with an operating loss of $41.2 million for fiscal 2009 , a decrease
of $25.7 million . Our operating loss decreased during fiscal 2010 primarily as a result of increased gross profit dollars achieved, which resulted
from increased sales and improved margins attained during the year and reduced CEO transition costs. The increased gross profit dollars were
offset by a slight increase in our overall operating expenses year over year, particularly our cable and satellite fees within our distribution and
selling expenses as a result of increased subscriber homes.
Net Loss
For fiscal 2011 , we reported a net loss available to common shareholders of $48.1 million , or $1.03 per basic and dilutive
30
Table of Contents
share, on 46,451,000 weighted average common shares outstanding. For fiscal 2010 , we reported a net loss available to common shareholders of
$25.9 million , or $0.78 per basic and dilutive share, on 33,326,000 weighted average common shares outstanding. For fiscal 2009 , we reported
a net loss available to common shareholders of $14.7 million , or $0.45 per basic and dilutive share, on 32,538,000 weighted average common
shares outstanding. Net loss available to common shareholders for fiscal 2011 includes a $25.7 million non-cash charge related to our early
preferred stock debt extinguishment, interest expense of $5.5 million relating primarily to interest and debt discount amortization on our Series B
preferred stock, bank term loan expense and the amortization of fees paid to obtain our bank credit facility and interest income totaling $64,000
earned on our cash and investments. Net loss available to common shareholders for fiscal 2010 includes interest expense of $9.8 million, relating
primarily to accrued interest and debt discount amortization on our Series B preferred stock, bank term loan interest expense and the
amortization of fees paid to obtain our bank credit facilities. Net loss available to common shareholders for fiscal 2010 also included a
$1.2 million debt extinguishment charge relating to a $2.5 million Series B preferred stock dividend payment made in the fourth quarter in
connection with the execution of our Crystal term loan and interest income totaling $51,000 earned on our cash and investments. Net loss
available to common shareholders for fiscal 2009 included a $27.4 million addition to earnings related to the recording of the excess of the
carrying amount of our then outstanding Series A preferred stock over the fair value of our Series B preferred stock. Other factors affecting our
net loss during fiscal 2009 include interest expense of $4.9 million primarily related to the Series B preferred stock, the recording of a pre-tax
gain of $3.6 million from the sale of our auction rate investments and interest income totaling $382,000 earned on our cash and investments.
For fiscal 2011, net loss reflects an income tax provision of $84,000 relating to state income taxes payable on certain income for which
there is no loss carryforward benefit available. For fiscal 2010 , net loss reflects an income tax benefit of $577,000 relating to a federal income
tax carryback refund claim filed and received during fiscal 2010 , offset in part by state income tax expense on certain income for which there is
no loss carryforward benefit available. For fiscal 2009 , net loss reflects an income tax benefit of $91,000 relating to certain amended state
returns for which tax refunds have been received, offset by the recording of state income taxes payable on income for which there is no loss
carryforward benefit available.
We have not recorded any income tax benefit on the losses recorded during fiscal 2011, fiscal 2010 and fiscal 2009 due to the uncertainty
of realizing income tax benefits in the future as indicated by our recording of an income tax valuation allowance. Based on our recent history of
losses, a full valuation allowance has been recorded and was calculated in accordance with GAAP, which places primary importance on our most
recent operating results when assessing the need for a valuation allowance. We will continue to maintain a valuation allowance against our net
deferred tax assets, including those related to net operating loss carryforwards, until we believe it is more likely than not that these assets will be
realized in the future.
31
Table of Contents
Quarterly Results
The following summarized unaudited results of operations for the quarters in fiscal 2011 and 2010 have been prepared on the same basis as
the annual financial statements and reflect normal recurring adjustments that we consider necessary for a fair presentation of results of operations
for the periods presented. Our results of operations have varied and may continue to fluctuate significantly from quarter to quarter. Results of
operations in any period should not be considered indicative of the results to be expected for any future period.
Fiscal 2011
Net sales
Gross profit
Gross profit margin
Operating expenses
Operating loss
Other loss, net
Net loss (a)
Net loss per share
Net loss per share — assuming dilution
Weighted average shares outstanding:
Basic
Diluted
Fiscal 2010
Net sales
Gross profit
Gross profit margin
Operating expenses
Operating income (loss)
Other loss, net
Net loss
Net loss per share
Net loss per share — assuming dilution
Weighted average shares outstanding:
Basic
Diluted
_______________________________________
$
$
$
$
$
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Total
(In thousands, except percentages and per share amounts)
$
143,533
53,392
37.2 %
54,022
(630 )
(28,281 )
(28,930 ) $
$
132,137
51,268
$
135,187
50,242
$
147,537
49,193
558,394
204,095
38.7 %
54,807
(3,539 )
(900 )
(4,456 ) $
37.2 %
55,611
(5,369 )
(965 )
(6,350 ) $
33.3 %
56,493
(7,300 )
(996 )
(8,328 ) $
36.6 %
220,933
(16,838 )
(31,142 )
(48,064 )
(0.71 ) $
(0.71 ) $
(0.09 ) $
(0.09 ) $
(0.13 ) $
(0.13 ) $
(0.17 ) $
(0.17 ) $
(1.03 )
(1.03 )
40,655
40,655
48,131
48,131
48,272
48,272
48,546
48,546
46,451
46,451
$
124,977
45,737
36.6 %
54,876
(9,139 )
(1,808 )
(10,971 ) $
$
126,177
47,156
$
132,283
47,049
$
178,836
59,587
562,273
199,529
37.4 %
53,393
(6,237 )
(2,086 )
(7,693 ) $
35.6 %
50,645
(3,596 )
(2,203 )
(5,814 ) $
33.3 %
56,081
3,506
(4,882 )
(1,390 ) $
35.5 %
214,995
(15,466 )
(10,979 )
(25,868 )
(0.34 ) $
(0.34 ) $
(0.24 ) $
(0.24 ) $
(0.18 ) $
(0.18 ) $
(0.04 ) $
(0.04 ) $
(0.78 )
(0.78 )
32,680
32,680
32,703
32,703
32,781
32,781
35,141
35,141
33,326
33,326
(a) Net loss for the first quarter of fiscal 2011 includes a $25.7 million charge related to an early preferred stock debt extinguishment.
Financial Condition, Liquidity and Capital Resources
As of January 28, 2012 , we had cash and cash equivalents of $33.0 million and had restricted cash and investments of $2.1 million
pledged as collateral for our issuances of standby and commercial letters of credit. Our restricted cash and investments is generally restricted for
a period ranging from 30-60 days and/or to the extent that commercial letters of credit remain outstanding. In addition, under our new $40
million credit facility, we are required to maintain a minimum of $6.0 million of unrestricted cash and unused line availability at all times. As of
January 29, 2011 , we had cash and cash equivalents of $46.5 million and had restricted cash and investments of $5.0 million pledged as
collateral for our issuances of standby and commercial letters of credit. During fiscal 2011 , working capital decreased $9.7 million to $71.9
million compared to working capital of $81.6 million for fiscal 2010 . The current ratio (our total current assets over total current liabilities) was
1.8 at January 28, 2012 and 1.8 at January 29, 2011 .
Sources of Liquidity
Our principal source of liquidity is our available cash and cash equivalents of $33.0 million as of January 28, 2012 . Our
32
Table of Contents
$2.1 million restricted cash and investments balance is used as collateral for our issuances of commercial letters of credit and is expected to
fluctuate in relation to the level of our seasonal overseas inventory purchases. At January 28, 2012 , our cash and cash equivalents were held in
bank depository accounts primarily for the preservation of cash liquidity.
On February 9, 2012, we entered into a $40 million new credit facility with PNC Bank, N.A., a member of The PNC Financial Services
Group, Inc., as lender and agent. The credit facility has a three-year maturity and bears interest at LIBOR plus 3% per annum. The initial net
proceeds of borrowing of approximately $38.2 million were primarily used to retire our existing 11%, $25 million term loan with Crystal
Financial LLC and to pay a $12.4 million deferred payment obligation to a television distribution provider. Remaining capacity under the credit
facility, currently $1.8 million, will provide liquidity for working capital and general corporate purposes.
Another potential source of near-term liquidity is our ability to increase our cash flow resources by reducing the percentage of our sales
offered under our ValuePay installment program or by decreasing the length of time we extend credit to our customers under this installment
program. We are also currently exploring strategic alternatives in connection with the monetization of our Boston television station assets.
On April 4, 2011, we completed a public offering of 9,487,500 common shares at a price to the public of $6.25 per share. Net proceeds
from the offering were approximately $55.5 million after deducting underwriting discount and other offering expenses. Cash proceeds from the
offering were used to redeem all of the outstanding 12% Series B redeemable preferred stock for $40.9 million and pay all accrued Series B
preferred dividends, amounting to $6.4 million. The remaining $8.3 million in proceeds were made available for working capital and general
corporate purposes.
Cash Requirements
Currently, our principal cash requirements are to fund our business operations, which consist primarily of purchasing inventory for resale,
funding accounts receivable growth through the use of our ValuePay installment program, in support of sales growth, funding our basic
operating expenses, particularly our contractual commitments for cable and satellite programming, brand licensing and, to a lesser extent, the
funding of necessary capital expenditures. We are closely managing our cash resources and our working capital in an effort to preserve our cash
resources as we continue to grow our business. We attempt to manage our inventory receipts and reorders in order to ensure our inventory
investment levels remain commensurate with our current sales trends. We also monitor the collection of our credit card and ValuePay installment
receivables and manage our vendor payment terms in order to more effectively manage our working capital which includes matching cash
receipts from our customers, to the extent possible with related cash payments to our vendors. We utilize an installment payment program called
"ValuePay" which entitles customers to purchase merchandise and generally make payments in two or more equal monthly credit card
installments. We continue to make strategic use of our ValuePay program in an effort to increase sales and to respond to similar competitive
programs. ValuePay remains a cost effective promotional tool that helps us manage and control our level of discounts and other markdown
promotions.
We also have significant future commitments for our cash, primarily payments for cable and satellite program distribution obligations and
the eventual repayment of our $40 million bank credit facility. Based on our current projections for fiscal 2012 , we believe that our existing cash
balances will be sufficient to maintain liquidity to fund our normal business operations over the next twelve months. We currently have total
contractual cash obligations and commitments primarily with respect to our cable and satellite agreements, term loan and operating leases
totaling approximately $226 million over the next five fiscal years.
For fiscal 2011 , net cash used for operating activities totaled $12.9 million compared to net cash provided by operating activities of
$327,000 in fiscal 2010 and net cash used for operating activities of $37.9 million in fiscal 2009 . Net cash used for operating activities for fiscal
2011 reflects a net loss, as adjusted for depreciation and amortization, share-based compensation, loss on debt extinguishment, gain from
equipment disposal and the amortization of deferred revenue, debt discount and other financing costs. In addition, net cash used for operating
activities for 2011 reflects a decrease in accounts receivable offset by an increase in inventories and a decrease in accounts payable and accrued
liabilities. Accounts receivable decreased due to lower sales levels, primarily in the fourth quarter as well as due to lower utilization of our
ValuePay installment payment program during the fourth quarter. Inventories increased as a result of our merchandise mix shift towards product
categories held in our inventory versus products drop-shipped directly by our vendors. Inventory levels were also impacted by our fourth quarter
sales shortfall. Accounts payable and accrued liabilities, inclusive of long-term payables, decreased in 2011 due primarily to the making of our
first scheduled $12 million deferred distribution payment in February 2011 related to a television distribution provider, partially offset by
additional deferrals made in fiscal 2011 under the same agreement, and due to lower overall inventory receipts during the fourth quarter of fiscal
2011 compared to the fourth quarter of fiscal 2010 .
Net cash provided by operating activities for fiscal 2010 reflects a net loss, as adjusted for depreciation and amortization, share-based
payment compensation, amortization of deferred revenue, amortization of debt discount, debt extinguishment and
33
Table of Contents
asset write-offs. In addition, net cash provided by operating activities for fiscal 2010 reflects primarily an increase in accounts receivable, offset
by an increase in accounts payable and accrued liabilities, an increase in accrued dividends, a decrease in inventories and a decrease in prepaid
expenses and other. Accounts receivable increased primarily as a result of our increased use of our ValuePay extended credit program as a
promotional tool to stimulate fourth quarter 2010 sales. Accounts payable and accrued liabilities increased primarily due to deferred payments
for accrued cable and satellite fees, increases in accrued salaries due to merit increases and accrued dividends related to the Series B preferred
stock. Inventories decreased primarily as a result of our strong fourth quarter 2010 sales activity and our effort to manage inventory levels and
our product assortments as we continued to introduce new merchandise categories to improve sales performance and to ensure our inventory
levels remain commensurate with our sales levels.
Net cash used for operating activities for fiscal 2009 reflects a net loss, as adjusted for depreciation and amortization, share-based payment
compensation, amortization of deferred revenue, amortization of debt discount, gain on sale of investments and asset impairments and write-offs.
In addition, net cash used for operating activities for fiscal 2009 reflects primarily an increase in accounts receivable and prepaid expenses and
other, a decrease in accounts payable and accrued liabilities, offset by a decrease in inventories and an increase in accrued dividends payable.
Accounts receivable increased primarily as a result of our increased use of our ValuePay extended credit as a promotional tool to stimulate sales.
Accounts payable and accrued liabilities decreased primarily due to decreased inventory purchases, decreased cable and satellite accruals
resulting from lower cable and satellite rates effective in fiscal 2009 , decreases in accrued salaries and 401(k) payable due to reduced vacation
accruals and the cessation of our 401(k) matching policy in fiscal 2009 and payments made in connection with our restructuring liability.
Inventories decreased primarily as a result of our strong fiscal 2009 fourth quarter sales activity and management’s focused effort to aggressively
manage our inventory balance down as we introduced new merchandise categories and reinvested in new jewelry inventory in an effort to
reposition our merchandise offerings to improve sales performance.
Net cash used for investing activities totaled $7.8 million in fiscal 2011 compared to net cash used for investing activities of $7.4 million in
fiscal 2010 and net cash provided by investing activities of $8.3 million in fiscal 2009 . Expenditures for property and equipment were $11.1
million in fiscal 2011 compared to $7.6 million in fiscal 2010 and $7.6 million in fiscal 2009 . Expenditures for property and equipment during
fiscal 2011, fiscal 2010 and fiscal 2009 primarily include capital expenditures made for the development, upgrade and replacement of computer
software, order management and merchandising systems, related computer equipment, digital broadcasting equipment and other office
equipment, warehouse equipment and production equipment. Principal future capital expenditures are expected to include the development,
upgrade and replacement of various enterprise software systems, the expansion of warehousing capacity and security in our fulfillment network,
the upgrade and digitalization of television production and transmission equipment and related computer equipment associated with the
expansion of our home shopping business and e-commerce initiatives. During fiscal 2011 , we also received proceeds of $416,000 relating to the
disposal of equipment and decreased our restricted cash and investments by $2.9 million . During fiscal 2010 , we decreased our restricted cash
and investments by $99,000 and received net cash proceeds totaling $55,000 in connection with the sale of property and equipment. During
fiscal 2009 , we increased our restricted cash and investments by $3.5 million and received net cash proceeds totaling $19.4 million in
connection with the sale of auction rate securities.
Net cash provided by financing activities totaled $7.3 million in fiscal 2011 and related primarily to cash proceeds received of $55.5
million received from our common stock equity offering and cash proceeds of $1.8 million from the exercise of stock options, offset by
payments of $40.9 million for the repurchase of all our outstanding Series B redeemable preferred stock and $8.9 million for all accrued Series B
preferred dividends and payment of deferred issuance costs of $306,000 . Net cash provided by financing activities totaled $36.6 million in fiscal
2010 and related primarily to proceeds from the issuance of a $25.0 million long-term debt agreement, net proceeds of $17.0 million as a result
of our common stock equity offering and cash proceeds received of $357,000 from the exercise of stock options, offset by deferred debt issuance
payments totaling $3.3 million made in connection with obtaining our debt facilities and a $2.5 million Series B preferred stock dividend
payment made in connection with the execution of the Crystal term loan. Net cash used for financing activities totaled $7.3 million in fiscal 2009
and related primarily to a $3.4 million cash payment made in conjunction with our Series A preferred stock redemption, payments made totaling
$937,000 in conjunction with the purchase of 1,622,000 shares of our common stock and payments of $3.6 million made in conjunction with
obtaining a secured bank line of credit, the Series B preferred stock issuance, and an equity offering initiative, offset by cash proceeds received
of $729,000 from the exercise of stock options.
34
Table of Contents
Contractual Cash Obligations and Commitments
The following table summarizes our obligations and commitments as of January 28, 2012 , and the effect these obligations and
commitments are expected to have on our liquidity and cash flow in future periods:
Cable and satellite agreements (a)
Term loan
Operating leases
Employment agreements
Purchase order obligations
Total
_______________________________________
Payments Due by Period
Total
Less than
1 Year
1-3 Years
3-5 Years
(In thousands)
More than
5 Years
$
$
167,113 $
25,000
4,842
2,679
26,765
226,399 $
97,782 $
25,000
1,657
2,668
26,765
153,872 $
69,331 $
—
2,665
11
—
72,007 $
— $
—
520
—
—
520 $
—
—
—
—
—
—
(a) Future cable and satellite payment commitments are based on subscriber levels as of January 28, 2012 and commitments entered into as
of the date of this report. Future payment commitment amounts could increase or decrease as the number of cable and satellite
subscribers increase or decrease. Under certain circumstances, operators or we may cancel the agreements prior to expiration.
Impact of Inflation
We believe that inflation has not had a material impact on our results of operations for each of the fiscal years in the three-year period
ended January 28, 2012 . We cannot assure you that inflation will not have an adverse impact on our operating results and financial condition in
future periods.
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting periods. On an on-going basis, management evaluates its estimates and assumptions, including those related to the realizability of
accounts receivable, inventory, product returns, intangible assets and deferred tax assets. Management bases its estimates and assumptions on
historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no
assurance that actual results will not differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies affect the more significant assumptions and estimates used in the
preparation of the consolidated financial statements:
• Accounts receivable. We utilize an installment payment program called ValuePay that entitles customers to purchase merchandise and
generally pay for the merchandise in two or more equal monthly credit card installments in which we bear the risk of collection. As of
January 28, 2012 and January 29, 2011 , we had approximately $72.4 million and $82.7 million respectively, due from customers under
the ValuePay installment program. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of
our customers to make required payments. Estimates are used in determining the provision for doubtful accounts and are based on
historical rates of actual write offs and delinquency rates, historical collection experience, credit policy, current trends in the credit
quality of our customer base, average length of ValuePay offers, average selling prices, our sales mix and accounts receivable aging.
The provision for doubtful accounts receivable, which is primarily related to our ValuePay program, for fiscal 2011, fiscal 2010 and
fiscal 2009 were $11.9 million , $9.3 million and $6.8 million , respectively. Based on our fiscal 2011 bad debt experience, a one-half
point increase or decrease in our bad debt experience as a percentage of total television home shopping and internet net sales would
have an impact of approximately $2.8 million on consolidated distribution and selling expense.
•
Inventory. We value our inventory, which consists primarily of consumer merchandise held for resale, principally at the
35
Table of Contents
lower of average cost or net realizable value. As of January 28, 2012 and January 29, 2011 , we had inventory balances of $43.5 million
and $39.8 million , respectively. We regularly review inventory quantities on hand and record a provision for excess and obsolete
inventory based primarily on a percentage of the inventory balance as determined by its age and specific product category. In
determining these percentages, we look at our historical write off experience, the specific merchandise categories on hand, our historic
recovery percentages on liquidations, forecasts of future product television shows, historic show pricing and the current market value of
gold. Provision for excess and obsolete inventory for fiscal 2011, fiscal 2010 and fiscal 2009 were $2.2 million , $1.7 million and $1.7
million , respectively. Based on our fiscal 2011 inventory write down experience, a 10% increase or decrease in inventory write downs
would have had an impact of approximately $221,000 on consolidated gross profit.
• Product returns. We record a reserve as a reduction of gross sales for anticipated product returns at each month-end and must make
estimates of potential future product returns related to current period product revenue. Our return rates on our television and internet
sales were 23% in fiscal 2011 , 20% in fiscal 2010 and 21% in fiscal 2009 . We estimate and evaluate the adequacy of our returns
reserve by analyzing historical returns by merchandise category, looking at current economic trends and changes in customer demand
and by analyzing the acceptance of new product lines. Assumptions and estimates are made and used in connection with establishing
the sales returns reserve in any accounting period. Reserves for product returns for fiscal 2011, fiscal 2010 and fiscal 2009 were $4.5
million , $4.5 million and $2.7 million , respectively. Based on our fiscal 2011 sales returns, a one-point increase or decrease in our
television and internet sales returns rate would have had an impact of approximately $2.9 million on gross profit.
• FCC broadcasting license. As of January 28, 2012 and January 29, 2011 , we have recorded an intangible FCC broadcasting license
asset totaling $23.1 million as a result of our acquisition of Boston television station WWDP TV in fiscal 2003. We have granted a
security interest in our FCC broadcast license to one of our larger television service providers until January 2013. The Company
annually reviews its FCC broadcast license for impairment in the fourth quarter, or more frequently if an impairment indicator is
present. The Company estimated the fair value of its FCC broadcast license in fiscal 2011 and fiscal 2010 by using an income-based
discounted cash flow model with the assistance of an independent outside fair value appraiser. The discounted cash flow model includes
certain assumptions including revenues, operating profit and a discount rate. While we believe that our estimates and assumptions
regarding the valuation of the license are reasonable, different assumptions or future events could materially affect its valuation. For
instance, a one-half point increase in the discount rate used would decrease our valuation by $1.7 million and a one-half point decrease
in the market share revenue percentage assumption would decrease our valuation by $2.2 million. In addition, due to the illiquid nature
of this asset, our valuation for this license could be also materially different if we were to decide to sell it in the short term which, upon
revaluation, could result in a future impairment of this asset.
• Deferred taxes. We account for income taxes under the liability method of accounting whereby income taxes are recognized during the
fiscal year in which transactions enter into the determination of financial statement income (loss). Deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary differences between the financial statement and tax basis of assets
and liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment
of such laws. We assess the recoverability of our deferred tax assets in accordance with GAAP. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning
strategies in making this assessment. In accordance with that standard, as of January 28, 2012 and January 29, 2011 , we recorded a
valuation allowance of approximately $114.5 million and $107.3 million , respectively, for our net deferred tax assets, including net
operating and capital loss carryforwards. Based on our recent history of losses, a full valuation allowance was recorded in fiscal 2011,
fiscal 2010 and fiscal 2009 and was calculated in accordance with GAAP, which places primary importance on our most recent
operating results when assessing the need for a valuation allowance. We intend to maintain a full valuation allowance for our net
deferred tax assets until sufficient positive evidence exists to support reversal of allowances.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We do not enter into financial instruments for trading or speculative purposes and do not currently utilize derivative financial instruments
as a hedge to offset market risk. Our operations are conducted primarily in the United States and are not subject to foreign currency exchange
rate risk. Some of our products are sourced internationally and may fluctuate in cost as a result of foreign currency swings; however, we believe
these fluctuations have not been significant. We currently have a bank credit facility that has exposure to interest rate risk, changes in market
interest rates could impact the level of interest expense and income earned on our cash and cash equivalents portfolio.
36
Table of Contents
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF VALUEVISION MEDIA, INC.
AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of January 28, 2012 and January 29, 2011
Consolidated Statements of Operations for the Years Ended January 28, 2012, January 29, 2011 and January 30, 2010
Consolidated Statements of Shareholders’ Equity for the Years Ended January 28, 2012, January 29, 2011 and January 30, 2010
Consolidated Statements of Cash Flows for the Years Ended January 28, 2012, January 29, 2011 and January 30, 2010
Notes to Consolidated Financial Statements
Financial Statement Schedule — Schedule II — Valuation and Qualifying Accounts
37
Page
38
39
40
41
42
43
65
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
ValueVision Media, Inc. and Subsidiaries
Eden Prairie, Minnesota
We have audited the accompanying consolidated balance sheets of ValueVision Media, Inc. and subsidiaries (the “Company”) as of January 28,
2012 and January 29, 2011 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years
in the period ended January 28, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15. These consolidated
financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
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, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of ValueVision
Media, Inc. and subsidiaries as of January 28, 2012 and January 29, 2011, and the results of their operations and their cash flows for each of the
three years in the period ended January 28, 2012, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's
internal control over financial reporting as of January 28, 2012, based on criteria established in Internal Control - Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 5, 2012 , expressed an unqualified
opinion on the Company's internal control over financial reporting.
Minneapolis, Minnesota
April 5, 2012
/s/ DELOITTE & TOUCHE LLP
38
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash and investments
Accounts receivable, net
Inventories
Prepaid expenses and other
Total current assets
Property and equipment, net
FCC broadcasting license
NBC trademark license agreement, net
Other assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Deferred revenue
Current portion of accrued dividends
Total current liabilities
Deferred revenue
Long-term payable
Term loan
Accrued dividends — Series B redeemable preferred stock
Series B redeemable preferred stock, $.01 par value, 0 and 4,929,266 shares authorized; 0 and
4,929,266 shares issued and outstanding
Total liabilities
Commitments and contingencies (Notes 14 and 15)
Shareholders’ equity:
Common stock, $.01 par value, 100,000,000 shares authorized; 48,560,205 and 37,781,688 shares issued and
outstanding
Warrants to purchase 6,007,372 and 6,014,744 shares of common stock
Additional paid-in capital
Accumulated deficit
Total shareholders’ equity
January 28,
2012
January 29,
2011
(In thousands, except share and
per share data)
$
$
$
32,957 $
2,100
80,274
43,476
4,464
163,271
27,992
23,111
1,215
2,871
218,460 $
53,437 $
37,842
85
—
91,364
507
—
25,000
—
—
116,871
46,471
4,961
90,183
39,800
3,942
185,357
25,775
23,111
928
3,188
238,359
58,310
43,405
728
1,355
103,798
425
4,894
25,000
6,491
14,599
155,207
486
567
403,849
(303,313 )
101,589
218,460 $
378
602
337,421
(255,249 )
83,152
238,359
$
The accompanying notes are an integral part of these consolidated financial statements.
39
Table of Contents
Net sales
Cost of sales
Gross profit
Operating expenses:
Distribution and selling
General and administrative
Depreciation and amortization
Restructuring costs
CEO transition costs
Total operating expenses
Operating loss
Other income (expense):
Gain on sale of investments
Loss on debt extinguishment
Interest expense
Interest income
Total other expense
Loss before income taxes
Income tax benefit (provision)
Net loss
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
January 28, 2012 January 29, 2011 January 30, 2010
$
$
$
$
(In thousands, except share and per share data)
558,394 $
354,299
204,095
562,273 $
362,744
199,529
527,873
354,101
173,772
188,813
19,542
12,578
—
—
220,933
(16,838 )
—
(25,679 )
(5,527 )
64
(31,142 )
(47,980 )
(84 )
(48,064 )
—
—
181,536
19,171
13,158
1,130
—
214,995
(15,466 )
—
(1,235 )
(9,795 )
51
(10,979 )
(26,445 )
577
(25,868 )
—
—
(48,064 ) $
(25,868 ) $
178,015
18,373
14,320
2,303
1,932
214,943
(41,171 )
3,628
—
(4,928 )
382
(918 )
(42,089 )
91
(41,998 )
27,362
(62 )
(14,698 )
(1.03 ) $
(1.03 ) $
(0.78 ) $
(0.78 ) $
(0.45 )
(0.45 )
46,451,262
46,451,262
33,326,200
33,326,200
32,537,849
32,537,849
Excess of preferred stock carrying value over redemption value
Accretion of redeemable Series A preferred stock
Net loss available to common shareholders
Net loss per common share
Net loss per common share — assuming dilution
Weighted average number of common shares outstanding:
Basic
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
40
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended January 28, 2012 , January 29, 2011 and January 30, 2010
Common Stock
Comprehensive
Loss
Number of
Shares
Par
Value
Common
Stock
Purchase
Warrants
Additional
Paid-In
Capital
Total
Accumulated
Deficit
Shareholders’
Equity
Balance, January 31, 2009
Net loss
$
(41,998 )
(In thousands, except share data)
33,690,266 $ 337 $
138 $
286,380 $
Value assigned to common stock purchase warrants
Repurchases of common stock
Common stock issuances pursuant to equity compensation plans
Stock purchase warrants forfeited
Share-based payment compensation
Excess of Series A preferred stock carrying value over redemption value
Accretion on Series A redeemable preferred stock
Balance, January 30, 2010
Net loss
Common stock issuances pursuant to equity compensation plans
Stock purchase warrants forfeited
Share-based payment compensation
Common stock issuances
Balance, January 29, 2011
Net loss
Common stock issuances pursuant to equity compensation plans
Stock purchase warrants forfeited
Share-based payment compensation
Common stock issuances
Common Stock Issuances - NBCU
Balance, January 28, 2012
—
(1,622,168 )
604,637
—
—
—
—
32,672,735
208,953
—
—
4,900,000
37,781,688
601,362
—
—
9,487,500
689,655
—
(16 )
6
—
—
—
—
327
2
—
—
49
378
6
—
—
95
7
48,560,205 $ 486 $
533
—
—
(34 )
—
—
—
637
—
(35 )
—
—
602
—
(921 )
723
34
3,205
27,362
(62 )
316,721
355
35
3,350
16,960
337,421
—
(35 )
—
—
—
567 $
1,822
35
5,007
55,405
4,159
403,849 $
$
(25,868 )
$
(48,064 )
(187,383 ) $
(41,998 )
—
—
—
—
—
—
—
(229,381 )
(25,868 )
—
—
—
—
(255,249 )
(48,064 )
—
—
—
—
—
(303,313 ) $
99,472
(41,998 )
533
(937 )
729
—
3,205
27,362
(62 )
88,304
(25,868 )
357
—
3,350
17,009
83,152
(48,064 )
1,828
—
5,007
55,500
4,166
101,589
The accompanying notes are an integral part of these consolidated financial statements.
41
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
$
(48,064 ) $
(25,868 ) $
(41,998 )
For the Years Ended
January 28,
2012
January 29,
2011
January 30,
2010
(In thousands)
Depreciation and amortization
Share-based payment compensation
Amortization of deferred revenue
Amortization of debt discount
Amortization of deferred financing costs
Gain on sale of investments
Gain from disposal of equipment
Asset impairments and write offs
Loss on debt extinguishment
Changes in operating assets and liabilities:
Accounts receivable
Inventories
Prepaid expenses and other
Deferred revenue
Accounts payable and accrued liabilities
Accrued dividends payable — Series B preferred stock
Net cash provided by (used for) operating activities
INVESTING ACTIVITIES:
Property and equipment additions
Proceeds from sale of short and long-term investments
Proceeds from disposal of equipment
Change in restricted cash and investments
Net cash provided by (used for) investing activities
FINANCING ACTIVITIES:
Payments for repurchases of common stock
Payment on redemption of Series A preferred stock
Payment for Series B preferred stock and other issuance costs
Payment for deferred issuance costs
Payment for Series B preferred stock dividends
Payments for Series B preferred stock redemption
Proceeds from exercise of stock options
Proceeds from issuance of term loan
Proceeds from issuance of common stock, net
Net cash provided by (used for) financing activities
Net increase (decrease) in cash and cash equivalents
BEGINNING CASH AND CASH EQUIVALENTS
ENDING CASH AND CASH EQUIVALENTS
12,827
5,007
(1,061 )
575
609
—
(416 )
—
25,679
9,909
(3,676 )
(460 )
500
(15,447 )
1,069
(12,949 )
(11,096 )
—
416
2,861
(7,819 )
13,337
3,350
(728 )
2,121
305
—
—
809
1,235
(21,292 )
4,277
348
—
16,768
5,665
327
(7,584 )
—
55
99
(7,430 )
—
—
—
(306 )
(8,915 )
(40,853 )
1,828
—
55,500
7,254
(13,514 )
46,471
32,957 $
—
—
—
(3,292 )
(2,500 )
—
357
25,000
17,009
36,574
29,471
17,000
46,471 $
$
14,320
3,205
(715 )
181
—
(3,628 )
—
1,446
—
(17,581 )
6,980
(493 )
31
(4,325 )
4,681
(37,896 )
(7,578 )
19,356
—
(3,471 )
8,307
(937 )
(3,400 )
(3,648 )
—
—
—
729
—
—
(7,256 )
(36,845 )
53,845
17,000
The accompanying notes are an integral part of these consolidated financial statements.
42
Table of Contents
(1) The Company
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended January 28, 2012 , January 29, 2011 and January 30, 2010
ValueVision Media, Inc. and its subsidiaries (the “Company”) is a multichannel electronic retailer that markets, sells and distributes
products to consumers through TV, telephone, online, mobile and social media. Our principal form of product exposure is our 24-hour television
shopping network, ShopNBC, which markets brand name and private label products in the categories of jewelry & watches; home & electronics;
beauty, health & fitness; and fashion & accessories. Orders are fulfilled via telephone, online and mobile channels. ShopNBC is distributed into
approximately 82 million homes, primarily through cable and satellite affiliation agreements and the purchase of month-to-month full- and part-
time lease agreements of cable and broadcast television time. ShopNBC programming is also streamed live on the Internet at
www.ShopNBC.com and www.ShopNBC.tv . We also distribute our programming through a company-owned full power television station in
Boston, Massachusetts and through leased carriage on a full power television station in Seattle, Washington.
The Company also operates ShopNBC.com, a comprehensive e-commerce platform that sells products appearing on our television
shopping channel as well as an extended assortment of online-only merchandise. Its programming and products are also marketed via mobile
devices — including smartphones and tablets, such as the iPad, and through the leading social media channels.
The Company has an exclusive trademark license from NBCUniversal Media, LLC, formerly known as NBC Universal, Inc. (“NBCU”),
for the worldwide use of an NBC-branded name through May 2012. Additionally, the agreement allows for a one-year extension to May 2013
upon the mutual agreement of both parties. Pursuant to the license, we operate our television home shopping network and our Internet websites,
ShopNBC.com and ShopNBC.tv.
(2) Summary of Significant Accounting Policies
Fiscal Year
The Company’s most recently completed fiscal year ended on January 28, 2012 and is designated fiscal 2011 . The year ended January 29,
2011 is designated fiscal 2010 and the year ended January 30, 2010 is designated fiscal 2009 . The Company reports on a 52/53 week fiscal year
which ends on the Saturday nearest to January 31. The 52/53 week fiscal year allows for the weekly and monthly comparability of sales results
relating to the Company’s television home-shopping and internet business. Each of fiscal 2011, fiscal 2010 and fiscal 2009 contained 52 weeks.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.
Revenue Recognition and Accounts Receivable
Revenue is recognized at the time merchandise is shipped or when services are provided. Shipping and handling fees charged to customers
are recognized as merchandise is shipped and are classified as revenue in the accompanying statements of operations in accordance with GAAP.
The Company classifies shipping and handling costs in the accompanying statements of operations as a component of cost of sales. Revenue is
reported net of estimated sales returns and excludes sales taxes. Sales returns are estimated and provided for at the time of sale based on
historical experience. Payments received for unfilled orders are reflected as a component of accrued liabilities.
Accounts receivable consist primarily of amounts due from customers for merchandise sales and from credit card companies, and are
reflected net of reserves for estimated uncollectible amounts of $5,638,000 at January 28, 2012 and $5,643,000 at January 29, 2011 . The
Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the
merchandise in two or more equal monthly credit card installments. As of January 28, 2012 and January 29, 2011 , the Company had
approximately $72,415,000 and $82,659,000 , respectively, of net receivables due from customers under the ValuePay installment program. The
Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required
payments. Provision for doubtful accounts receivable primarily related to the Company’s ValuePay program were $11,876,000 , $9,321,000 and
$6,813,000 for fiscal 2011, fiscal 2010 and fiscal 2009 , respectively.
43
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Cost of Sales and Other Operating Expenses
Cost of sales includes primarily the cost of merchandise sold, shipping and handling costs, inbound freight costs, excess and obsolete
inventory charges and customer courtesy credits. Purchasing and receiving costs, including costs of inspection, are included as a component of
distribution and selling expense and were approximately $8,245,000 , $7,888,000 and $7,877,000 for fiscal 2011, fiscal 2010 and fiscal 2009 ,
respectively. Distribution and selling expense consist primarily of cable and satellite access fees, credit card fees, bad debt expense and costs
associated with purchasing and receiving, inspection, marketing and advertising, show production, website marketing and merchandising,
telemarketing, customer service, warehousing and fulfillment. General and administrative expense consists primarily of costs associated with
executive, legal, accounting and finance, information systems and human resources departments, software and system maintenance contracts,
insurance, investor and public relations and director fees.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on deposit. The Company maintains its cash balances at financial institutions in demand deposit
accounts that are federally insured. The Company has not experienced losses in such accounts and believes it is not exposed to any significant
credit risk on its cash and cash equivalents.
Restricted Cash and Investments
The Company had restricted cash and investments of $2,100,000 and $4,961,000 for fiscal 2011 and fiscal 2010 . The restricted cash and
investments primarily collateralizes the Company’s issuances of commercial letters of credit. The Company’s restricted cash and investments
consist of certificates of deposit. Dividends or interest income is recognized when earned.
Inventories
Inventories, which consists of consumer merchandise held for resale, are stated principally at the lower of average cost or net realizable
value, giving consideration to obsolescence write downs of $2,246,000 at January 28, 2012 and $2,292,000 at January 29, 2011 .
Marketing and Advertising Costs
Marketing and advertising costs are expensed as incurred and consist primarily of contractual marketing fees paid to certain cable
operators for cross channel promotions and internet advertising including amounts paid to online search engine operators, customer mailings and
traffic-driving affiliate websites. The Company receives vendor allowances for the reimbursement of certain advertising costs. Advertising and
other allowances received by the Company are recorded as a reduction of expense and were $892,000 , $630,000 and $1,203,000 for fiscal 2011,
fiscal 2010 and fiscal 2009 , respectively. Total marketing and advertising costs and internet search marketing fees, after reflecting allowances
given by vendors, totaled $2,115,000 , $5,662,000 and $7,799,000 for fiscal 2011, fiscal 2010 and fiscal 2009 , respectively. The Company
includes advertising costs as a component of distribution and selling expense in the Company’s consolidated statement of operations.
Property and Equipment
Property and equipment are stated at cost. Improvements and renewals that extend the life of an asset are capitalized and depreciated.
Repairs and maintenance are charged to expense as incurred. The cost and accumulated depreciation of property and equipment retired or
otherwise disposed of are removed from the related accounts, and any residual values are charged or credited to operations. Depreciation and
amortization for financial reporting purposes are provided on the straight-line method based upon estimated useful lives. Costs incurred to
develop software for internal use and the Company’s websites are capitalized and amortized over the estimated useful life of the software. Costs
related to maintenance of internal-use software and for the Company’s website are expensed as incurred.
Intangible Assets
The Company’s primary identifiable intangible assets include an FCC broadcast license and a trademark license agreement. Identifiable
intangibles with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets
that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events
warrant. The impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount.
44
Table of Contents
Income Taxes
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company accounts for income taxes under the liability method of accounting whereby deferred tax assets and liabilities are recognized
for the expected future tax consequences of temporary differences between financial statement and tax basis of assets and liabilities. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the enactment of such laws. The Company
assesses the recoverability of its deferred tax assets in accordance with GAAP.
The Company recognizes interest and penalties related to uncertain tax positions within income tax expense.
Net Loss Per Common Share
Basic earnings (loss) per share is computed by dividing reported earnings by the weighted average number of common shares outstanding
for the reported period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock of the Company during reported periods.
A reconciliation of loss per share calculations and the number of shares used in the calculation of basic loss per share and diluted loss per
share is as follows:
For the Years Ended
Net loss available to common shareholders (a)
Weighted average number of common shares outstanding using two-class
method — Basic
Dilutive effect of stock options, non-vested shares and warrants
Weighted average number of common shares outstanding — Diluted
January 28,
2012
January 29,
2011
$ (48,064,000 ) $ (25,868,000 ) $ (14,698,000 )
January 30,
2010
46,451,000
—
46,451,000
33,326,000
—
33,326,000
32,538,000
—
32,538,000
Net loss per common share
Net loss per common share — assuming dilution
$
$
(1.03 ) $
(1.03 ) $
(0.78 ) $
(0.78 ) $
(0.45 )
(0.45 )
(a) The net loss available to common shareholders for fiscal 2011 included a $25.7 million charge related to the early preferred stock debt
extinguishment made in the first quarter of fiscal 2011.
For fiscal 2011, fiscal 2010 and fiscal 2009 , approximately 5,563,000 , 4,719,000 and 3,107,000 , respectively, incremental in-the-money
potentially dilutive common share stock options and warrants have been excluded from the computation of diluted earnings per share, as the
effect of their inclusion would be anti-dilutive.
Fair Value of Financial Instruments
GAAP requires disclosures of fair value information about financial instruments for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. GAAP excludes certain financial instruments and all non-financial instruments from its disclosure
requirements.
The Company used the following methods and assumptions in estimating its fair values for financial instruments:
The carrying amounts reported in the accompanying consolidated balance sheets approximate the fair value for cash and cash equivalents,
short-term investments, accounts receivable, trade payables and accrued liabilities, due to the short maturities of those instruments. The fair
value of the Company’s $25 million term loan is estimated based on rates available to the Company for issuance of debt. As of January 28,
2012 , our bank term loan had a carrying amount of $25 million and an estimated fair value of $25.5 million.
Use of Estimates
The preparation of financial statements in conformity with GAAP in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
45
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during reporting periods. These estimates
relate primarily to the carrying amounts of accounts receivable and inventories, the realizability of certain long-term assets and the recorded
balances of certain accrued liabilities and reserves. Ultimate results could differ from these estimates.
Stock-Based Compensation
Compensation is recognized for all stock-based compensation arrangements by the Company, including employee and non-employee stock
options granted. The estimated grant date fair value of each stock-based award is recognized in income over the requisite service period, which is
generally the vesting period. The estimated fair value of each option is calculated using the Black-Scholes option-pricing model. Non-vested
share awards are recorded as compensation cost over the requisite service periods based on the market value on the date of grant.
(3) Property and Equipment
Property and equipment in the accompanying consolidated balance sheets consisted of the following:
Land and improvements
Buildings and improvements
Transmission and production equipment
Office and warehouse equipment
Computer hardware, software and telephone equipment
Leasehold improvements
Less — Accumulated depreciation
$
—
5-40
5-10
3-15
3-7
3-5
Estimated
Useful Life
(In Years) January 28, 2012 January 29, 2011
3,399,000
22,462,000
8,292,000
11,065,000
83,106,000
3,105,000
(105,654,000 )
25,775,000
3,399,000 $
23,283,000
8,416,000
9,818,000
90,447,000
2,733,000
(110,104,000 )
27,992,000 $
$
Depreciation expense in fiscal 2011, fiscal 2010 and fiscal 2009 was $8,949,000 , $10,111,000 and $10,937,000 , respectively.
(4) Intangible Assets
Intangible assets in the accompanying consolidated balance sheets consisted of the following:
Weighted
Average
Life
(Years)
January 28, 2012
January 29, 2011
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
Definite-lived intangible assets:
NBCU trademark license renewal
NBCU trademark license agreement
Indefinite-lived intangible assets:
FCC broadcast license
1.0
10.5
4,166,000 $
$
—
$ 34,437,000 $ (34,437,000 ) $ 34,437,000 $ (33,509,000 )
(2,951,000 ) $
— $
$ 23,111,000
$ 23,111,000
On May 16, 2011 the Company issued 689,655 shares of the Company's common stock as consideration for a one-year license agreement
renewal with NBCU for the use of the ShopNBC brand name in connection with its television shopping network and its e-commerce websites.
The renewed license agreement expires in May 2012 and allows for a one-year extension to May 2013 upon the mutual agreement of both
parties. Shares issued were valued at $6.04 per share, representing the fair market value of the Company's stock on the date of issuance.
Amortization expense in fiscal 2011, fiscal 2010 and fiscal 2009 was $3,879,000 , $3,226,000 and $3,383,000 , respectively. Estimated
amortization expense for fiscal 2012 is $1,215,000 .
The Company annually reviews its FCC broadcast license for impairment in the fourth quarter, or more frequently if an impairment
indicator is present. The Company estimates the fair value of its FCC broadcast license by using an income-based
46
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
discounted cash flow model with the assistance of an independent outside fair value consultant. The discounted cash flow model includes certain
assumptions including revenues, operating profit and a discount rate. While we believe that our estimates and assumptions regarding the
valuation of the license are reasonable, different assumptions or future events could materially affect its valuation. In addition, due to the illiquid
nature of this asset, our valuation for this license could be materially different if we were to decide to sell it in the short term which, upon
revaluation, could result in a future impairment of this asset.
In fiscal 2011, fiscal 2010 and fiscal 2009 , no impairment was indicated as a result of the annual fair value assessment.
(5) Accrued Liabilities
Accrued liabilities in the accompanying consolidated balance sheets consisted of the following:
Accrued cable access fees
Accrued salaries and related
Reserve for product returns
Other
January 28, 2012 January 29, 2011
$ 27,506,000 $ 28,730,000
2,093,000
4,522,000
8,060,000
$ 37,842,000 $ 43,405,000
1,343,000
4,544,000
4,449,000
(6) ShopNBC Private Label Consumer Credit Card Program
The Company has a private label consumer credit card program (the “Program”). The Program is made available to all qualified consumers
for the financing of purchases of products from ShopNBC. The Program provides a number of benefits to customers including deferred billing
options and free or reduced shipping promotions throughout the year. Use of the ShopNBC credit card furthers customer loyalty and reduces the
Company’s overall bad debt exposure since the credit card issuing bank bears the risk of bad debt on ShopNBC credit card transactions that do
not utilize our ValuePay installment payment program. In December 2011, the Company entered into a Private Label Consumer Credit Card
Program Agreement Amendment with GE Capital Retail Bank extending the Program for an additional seven years until 2019. The Company
received a $500,000 signing bonus as an incentive for the Company to extend the Program. The signing bonus has been recorded as deferred
revenue in the accompanying financial statements and is being recognized as revenue over the seven-year term of the agreement.
GE Capital Retail Bank, the issuing bank for the Program, is indirectly wholly-owned by the General Electric Company (“GE”), which is
also the parent company of GE Equity. GE Equity has a substantial percentage ownership in the Company and has the right to select three
members of the Company’s board of directors.
(7) Long-Term Investments
In the second quarter of fiscal 2009, the Company sold its long-term illiquid auction rate securities portfolio for net proceeds of
$19,356,000. The auction rate securities had a carrying value of $15,728,000 and the Company recorded a $3,628,000 non-operating gain in the
second quarter of fiscal 2009.
(8) Fair Value Measurements
GAAP uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The
fair value hierarchy gives the highest priority to observable quoted prices (unadjusted) in active markets for identical assets and liabilities and the
lowest priority to unobservable inputs.
As of January 28, 2012 and January 29, 2011 , the Company had $2,100,000 and $4,961,000 , respectively, in Level 2 investments in the
form of bank Certificates of Deposit which are used as cash collateral for the issuance of commercial letters of credit and had no Level 3
investments that used significant unobservable inputs.
47
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Measured at Fair Value - Nonrecurring Basis
During the fiscal quarter ended May 2, 2009, the Company measured the fair value of the Series B preferred stock issued in connection with a
preferred stock exchange. The Company originally estimated the fair value of the Series B preferred stock before issuance costs of $12,959,000
utilizing a discounted cash flow model estimating the projected future cash payments over the life of the five-year redemption term. The
assumptions used in preparing the discounted cash flow model include estimates for discount rate and expected timing of repayment of the Series
B preferred stock. The Company concluded that the inputs used in its Series B preferred stock valuation are Level 3 inputs.
The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a non-recurring basis
that use significant unobservable inputs (Level 3):
Series B preferred stock:
Beginning balance
Total gains or losses:
Included in earnings (interest expense)
Included in earnings (loss on debt extinguishment)
Purchases, issuances, and settlements
Ending balance
January 28, 2012
14,599,000 $
January 29, 2011
11,243,000
575,000
25,679,000
(40,853,000 )
— $
2,121,000
1,235,000
—
14,599,000
$
$
(9) Preferred Stock and Long-Term Payable
Series B preferred stock
Unamortized debt discount on Series B preferred stock
Series B preferred stock, carrying value
Long-Term payable
January 28, 2012 January 29, 2011
— $ 40,853,000
$
—
(26,254,000 )
— $ 14,599,000
4,894,000
— $
$
$
In February 2011, the Company made a $2.5 million payment to GE Capital Equity Investments, Inc. ("GE Equity"), in connection with
obtaining a consent for the execution of a common stock equity offering in December 2010, reduced the outstanding accrued dividends payable
on the Series B preferred stock and recorded a $1.2 million charge to income related to the early preferred stock debt extinguishment. In April
2011, the Company redeemed all of its outstanding Series B preferred stock for $40.9 million, paid accrued Series B preferred dividends of $6.4
million and recorded a $24.5 million charge related to the early preferred stock debt extinguishment.
In the third quarter of fiscal 2009, the Company entered into a long-term agreement with one of its larger service providers to defer a
material portion of its monthly contractual cash payment obligation over the next three fiscal years. All services under this arrangement are being
recognized as expense ratably over the term of the agreement. Amounts recognized as expense in excess of amounts paid, plus accrued interest at
5% annually totaled $12,347,000, and is included in accrued liabilities in the accompanying January 28, 2012 balance sheet. As of January 29,
2011 , the total deferred amount was $16,820,000, of which $11,926,000 was included in accrued liabilities and $4,894,000 and was reported as
a deferred long-term payable in the accompanying January 29, 2011 balance sheet. In February 2011, the Company made an $11,926,000
required payment under this agreement and subsequent to fiscal 2011 year end, in connection with securing a new $40 million credit facility on
February 9, 2012, the Company made an additional $12,365,000 payment, paying off all remaining deferred obligations under the agreement. In
connection with this deferral agreement, the Company has granted a security interest in its Eden Prairie, Minnesota headquarters facility and its
Boston television station to the service provider until January 2013.
48
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) Term Loan Credit Agreement
On November 17, 2010, the Company entered into a credit agreement with Crystal Financial LLC, as agent for the lending group, which
provides for a term loan of $25 million (the “Credit Agreement”). The Credit Agreement had a five-year maturity and bears interest on the
outstanding principal amount based on fixed interest rates and floating interest rates based on LIBOR plus variable margins. The interest rate
calculated for fiscal 2011 was 11% . The term loan is subject to a minimum borrowing base of $25 million and is based on eligible accounts
receivable, eligible inventory, certain real estate and certain eligible cash and is secured by substantially all of the Company’s personal property,
as well as the Company’s real property located in Bowling Green, Kentucky. Under certain circumstances, the borrowing base may be adjusted
if there were to be a significant deterioration in value of the Company’s accounts receivable and inventory. The term loan is subject to
mandatory prepayment in certain circumstances. In addition, any voluntary or mandatory prepayments made prior to November 18, 2013 would
require an early termination fee of the greater of the first year’s yield revenue or 3% if terminated in year one; 2% if terminated in year two; and
1% if terminated in year three. The $25 million term loan matures and is payable in November 2015. Interest paid in fiscal 2011 was
$2,788,000 .
The Credit Agreement contains customary covenants and conditions, including, among other things, maintaining a minimum of
unrestricted cash of $5,000,000 at all times. In addition, the Credit Agreement placed restrictions on the Company’s ability to incur additional
indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or
consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders. As of
January 28, 2012 , the Company was in compliance with the applicable covenants of the facility and was in compliance with its minimum
borrowing base requirement. Costs incurred to obtain the Credit Agreement totaling approximately $3,037,000 have been capitalized and are
being expensed as additional interest over the five-year term of the Credit Agreement.
On February 9, 2012, the Company refinanced its $25 million term loan and secured a new three-year $40 million new credit facility with
PNC Bank, National Association. See Note 21.
(11) Shareholder's Equity
Common Stock
The Company currently has authorized 100,000,000 shares of undesignated capital stock, of which approximately 48,560,000 shares were
issued and outstanding as common stock as of January 28, 2012 . The board of directors may establish new classes and series of capital stock by
resolution without shareholder approval; however, approval of GE Equity is required in certain circumstances.
Dividends
The Company has never declared or paid any dividends with respect to its capital stock. Under the terms of the amended and restated
shareholder agreement between the Company and GE Equity, the Company is prohibited from paying dividends on its common stock without
GE Equity’s prior consent. The Company is further restricted from paying dividends on its stock by its bank credit agreement.
Warrants
As of January 28, 2012 , the Company had outstanding warrants to purchase 6,000,000 shares of the Company’s common stock at an
exercise price of $0.75 per share issued to GE Equity. The warrants are fully vested and expire ten years from date of grant. The warrants were
issued in connection with the issuance of the Company’s Series B Redeemable Preferred Stock in February 2009. In addition, the Company also
has outstanding warrants to purchase 7,372 shares of the Company’s stock at an exercise price of $15.74 per share issued to NBCU. These
warrants are fully vested and expire in November 2012.
Stock-Based Compensation
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense for fiscal
2011, fiscal 2010 and fiscal 2009 related to stock option awards was $2,647,000 , $3,274,000 and $2,752,000 , respectively. The Company has
not recorded any income tax benefit from the exercise of stock options due to the uncertainty of
49
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
realizing income tax benefits in the future.
As of January 28, 2012 , the Company had two active omnibus stock plans for which stock awards can be currently granted: the 2011
Omnibus Incentive Plan that provides for the issuance of up to 3,000,000 shares of the Company's stock and the 2004 Omnibus Stock Plan (as
amended and restated in fiscal 2006) that provides for the issuance of up to 4,000,000 shares of the Company’s common stock. The 2001
Omnibus Stock Plan expired on June 21, 2011. These plans are administered by the human resources and compensation committee of the board
of directors and provide for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are
eligible to receive awards under the plans. The types of awards that may be granted under these plans include restricted and unrestricted stock,
incentive and nonstatutory stock options, stock appreciation rights, performance units, and other stock-based awards. Incentive stock options
may be granted to employees at such exercise prices as the human resources and compensation committee may determine but not less than 100%
of the fair market value of the underlying stock as of the date of grant. No incentive stock option may be granted more than ten years after the
effective date of the respective plan’s inception or be exercisable more than ten years after the date of grant. Options granted to outside directors
are nonstatutory stock options with an exercise price equal to 100% of the fair market value of the underlying stock as of the date of grant.
Options granted generally vest over three years in the case of employee stock options and vest immediately on the date of grant in the case of
director options, and generally have contractual terms of either five years from the date of vesting or ten years from the date of grant.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions
noted in the following table. Expected volatilities are based on the recent historical volatility of the Company’s stock. Expected term is
calculated using the simplified method taking into consideration the option’s contractual life and vesting terms. The Company uses the
simplified method in estimating its expected option term because it believes that historical exercise data cannot be accurately relied upon at this
time to provide a reasonable basis for estimating an expected term due to the extreme volatility of its stock price and the resulting
unpredictability of its stock option exercises. The risk-free interest rate for periods within the contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of grant. Expected dividend yields were not used in the fair value computations as the Company
has never declared or paid dividends on its common stock and currently intends to retain earnings for use in operations.
Expected volatility
Expected term (in years)
Risk-free interest rate
Fiscal 2011
Fiscal 2010
Fiscal 2009
88%-96%
6 years
1.3%-2.7%
80%-88%
6 years
1.9%-3.3%
66%-78%
6 years
2.3%-3.4%
A summary of the status of the Company’s stock option activity as of January 28, 2012 and changes during the year then ended is as
follows:
Balance outstanding,
January 29, 2011
Granted
Exercised
Forfeited or canceled
Balance outstanding,
January 28, 2012
Options exercisable at:
January 28, 2012
January 29, 2011
January 30, 2010
2011 Incentive
Stock Option
Plan
Weighted
Average
Exercise
Price
2004 Incentive
Stock Option Plan
Weighted
Average
Exercise
Price
2001 Incentive
Stock Option
Plan
Weighted
Average
Exercise
Price
Other Non-
Qualified Stock
Options
Weighted
Average
Exercise
Price
— $
160,000 $
— $
— $
—
2.25
—
—
2,374,000 $
285,000 $
(268,000 ) $
(46,000 ) $
5.72
7.52
4.31
9.48
1,746,000 $
— $
(283,000 ) $
(237,000 ) $
5.97
—
2.25
9.52
525,000 $
150,000 $
(8,000 ) $
(17,000 ) $
3.58
6.44
2.02
2.02
160,000 $
2.25
2,345,000 $
6.03
1,226,000 $
6.15
650,000 $
4.30
— $
— $
— $
—
—
—
2,015,000 $
1,735,000 $
1,342,000 $
6.18
6.65
8.79
1,029,000 $
1,192,000 $
969,000 $
6.35
7.03
8.32
143,000 $
— $
— $
3.60
—
—
50
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes information regarding stock options at January 28, 2012 :
Options
Weighted
Average
Exercise
Outstanding
Price
Weighted
Average
Remaining
Contractual
Life (Years)
160,000 $
2,345,000 $
1,226,000 $
2.25
6.03
6.15
650,000 $
4.30
9.9
6.7
6.4
8.5
$
$
$
$
Option Type
2011 Incentive:
2004 Incentive:
2001 Incentive:
Other Non-Qualified
Incentive:
Aggregate
Intrinsic
Value
—
188,000
—
Vest
144,000 $
2,280,000 $
1,204,000 $
—
599,000 $
Vested or
Expected to
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life (Years)
2.25
6.06
6.19
4.28
9.9
6.7
6.3
8.5
Aggregate
Intrinsic
Value
—
182,000
—
—
$
$
$
$
The weighted average grant date fair value of options granted in fiscal 2011, fiscal 2010 and fiscal 2009 was $4.31 , $2.26 and $1.17 ,
respectively. The total intrinsic value of options exercised during fiscal 2011, fiscal 2010 and fiscal 2009 was $1,856,000 , $355,000 and
$898,000 , respectively. As of January 28, 2012 , total unrecognized compensation cost related to stock options was $2,093,000 and is expected
to be recognized over a weighted average period of approximately 1.1 years.
Stock Option Tax Benefit
The exercise of certain stock options granted under the Company’s stock option plans give rise to compensation, which is includible in the
taxable income of the applicable employees and deductible by the Company for federal and state income tax purposes. Such compensation
results from increases in the fair market value of the Company’s common stock subsequent to the date of grant of the applicable exercised stock
options and these increases are not recognized as an expense for financial accounting purposes, as the options were originally granted at the fair
market value of the Company’s common stock on the date of grant. The related tax benefits will be recorded as additional paid-in capital if and
when realized, and totaled $691,000 , $121,000 and $332,000 in fiscal 2011, fiscal 2010 and fiscal 2009 , respectively. The Company has not
recorded any income tax benefit from the exercise of stock options through paid in capital in these fiscal years, due to the uncertainty of realizing
income tax benefits in the future. These benefits are expected to be recorded in the applicable future periods.
Restricted Stock
Compensation expense recorded in fiscal 2011, fiscal 2010 and fiscal 2009 relating to restricted stock grants was $2,360,000 , $76,000 and
$453,000 , respectively. As of January 28, 2012 , there was $2,001,000 of total unrecognized compensation cost related to non-vested restricted
stock granted. That cost is expected to be recognized over a weighted average period of 1.0 years. The total fair value of restricted stock vested
during fiscal 2011, fiscal 2010 and fiscal 2009 was $316,000 , $68,000 and $306,000 , respectively. On March 31, 2011, the Company granted a
total of 522,000 shares of restricted stock to employees in lieu of an annual cash bonus for fiscal 2010. The restricted stock vests in two equal
annual installments beginning March 31, 2012 and ending March 31, 2013. The aggregate market value of the restricted stock at the date of the
award was $3,323,000 and is being amortized as compensation expense over the one and two-year vesting periods. On June 15, 2011, the
Company granted a total of 50,000 shares of restricted stock to seven non-management board members as part of the Company's annual director
compensation program. The restricted stock vests on the day immediately preceding the next annual meeting of shareholders following the date
of grant. The aggregate market value of the restricted stock at the date of the award was $377,000 and is being amortized as director
compensation expense over the twelve-month vesting period. On November 18, 2011, the Company granted a total of 453,000 shares of
restricted stock to employees. The restricted stock vests in two equal annual installments beginning November 18, 2012 and ending November
18, 2013. The aggregate market value of the restricted stock at the date of the award was $816,000 and is being amortized as compensation
expense over the one and two-year vesting periods.
51
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A summary of the status of the Company’s non-vested restricted stock activity as of January 28, 2012 and changes during the twelve-
month period then ended is as follows:
Non-vested outstanding, January 29, 2011
Granted
Vested
Forfeited
Non-vested outstanding, January 28, 2012
Common Stock Repurchase Program
Shares
40,000
1,026,000
(42,000 )
(42,000 )
982,000
Weighted Average
Grant Date Fair
Value
$1.90
$4.40
$2.17
$4.49
$4.39
The Company’s board of directors had, in previous fiscal years, authorized common stock repurchase programs. During 2009, the
Company repurchased a total of 1,622,000 shares of common stock for a total investment of $937,000 at an average price of $0.58 per share. The
authorizations for repurchase programs have expired.
Equity Offering
On March 30, 2011, the Company completed a public equity offering of 9,487,000 common shares at a price to the public of $6.25 per share.
Net proceeds from the offering were approximately $55.5 million after deducting the underwriting discount and offering expenses.
(12) Sales by Product Group
The Company has only one reporting segment. Information on net sales by significant product groups is as follows (in thousands):
For the Years Ended
Jewelry & Watches
Home & Electronics
Beauty, Health & Fitness
Fashion & Accessories
All other
Total
(13) Income Taxes
January 28,
2012
January 30,
2010
January 29,
2011
$ 272,689 $ 272,151 $ 278,784
149,358
36,648
27,084
35,999
$ 558,394 $ 562,273 $ 527,873
146,917
61,160
34,947
42,681
170,714
46,612
30,815
41,981
The Company records deferred taxes for differences between the financial reporting and income tax bases of assets and liabilities,
computed in accordance with tax laws in effect at that time. The deferred taxes related to such differences as of January 28, 2012 and January 29,
2011 were as follows (in thousands):
52
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Accruals and reserves not currently deductible for tax purposes
Inventory capitalization
Basis differences in intangible assets
Differences in depreciation lives and methods
Differences in investments and other items
Net operating loss carryforwards
Valuation allowance
Net deferred tax asset
The (provision) benefit from income taxes consisted of the following:
Current
Deferred
January 28,
2012
January 29,
2011
$
4,663 $
763
(3,709 )
2,727
495
109,538
(114,477 )
$
— $
6,747
665
(2,881 )
2,617
1,900
98,270
(107,318 )
—
For the Years Ended
January 28,
2012
(84,000 ) $ 577,000 $
January 29,
2011
$
—
—
(84,000 ) $ 577,000 $
January 30,
2010
91,000
—
91,000
A reconciliation of the statutory tax rates to the Company’s effective tax rate is as follows:
$
Taxes at federal statutory rates
State income taxes, net of federal tax benefit
Non-cash stock option vesting expense
Non-deductible interest
Non-deductible loss on debt extinguishment
Other
Valuation allowance and NOL carryforward benefits
Effective tax rate
For the Years Ended
January 28,
2012
January 29,
2011
January 30,
2010
35.0 %
0.4
(0.9 )
(1.2 )
(18.7 )
0.1
(14.9 )
(0.2 )%
35.0 %
1.3
(3.7 )
(10.6 )
(1.6 )
0.5
(18.7 )
2.2 %
35.0 %
1.9
(1.6 )
(4.0 )
—
0.8
(31.9 )
0.2 %
Based on the Company’s recent history of losses, the Company has recorded a full valuation allowance for its net deferred tax assets as of
January 28, 2012 and January 29, 2011 in accordance with GAAP, which places primary importance on the Company’s most recent operating
results when assessing the need for a valuation allowance. The ultimate realization of these deferred tax assets depends on the ability of the
Company to generate sufficient taxable income in the future, as well as the timing of such income. The Company intends to maintain a full
valuation allowance for its net deferred tax assets until sufficient positive evidence exists to support reversal of the allowance. As of January 28,
2012 , the Company has federal net operating loss carryforwards (NOL's) of approximately $285 million which are available to offset future
taxable income. The Company's federal NOLs expire in varying amounts each year from 2023 through 2031 in accordance with applicable
federal tax regulations and the timing of when the NOLs were incurred. During the quarter ending April 30, 2011, the Company had a change in
ownership (as defined in Section 382 of the Internal Revenue Code) as a result of the issuance of common stock coupled with the redemption of
all the Series B preferred stock held by GE Equity. Sections 382 and 383 limit the annual utilization of certain tax attributes, including NOL
carryforwards incurred prior to a change in ownership. The limitations imposed by Sections 382 and 383 are not expected to impair the
Company's ability to fully realize its NOL's; however, the annual usage of NOL's incurred prior to the change in ownership will be limited. As of
January 28, 2012 and January 29, 2011 , there were no unrecognized tax benefits for uncertain tax positions.
The Company is subject to U.S. federal income taxation and the taxing authorities of various states. The Company’s tax
53
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
years for 2008, 2009, and 2010 are currently subject to examination by taxing authorities. With limited exceptions, the Company is no longer
subject to U.S. federal, state, or local examinations by tax authorities for years before 2008.
(14) Commitments and Contingencies
Cable and Satellite Affiliation Agreements
As of January 28, 2012 , the Company has entered into affiliation agreements that represent approximately 1,530 cable systems along with
the satellite companies DIRECTV and DISH that require each to offer the Company’s television home shopping programming on a full-time
basis over their systems. The terms of the affiliation agreements typically range from one to two years. During the fiscal year, certain agreements
with cable, satellite or other distributors may expire. Under certain circumstances, the television operators or we may cancel the agreements prior
to their expiration. The affiliation agreements generally provide that the Company will pay each operator a monthly access fee and in some cases
a marketing support payment based on the number of homes receiving our programming. For fiscal 2011, fiscal 2010 and fiscal 2009 ,
respectively, the Company expensed approximately $106,658,000 , $102,440,000 and $99,637,000 under these affiliation agreements.
Over the past years, each of the material cable and satellite distribution agreements up for renewal have been renegotiated and renewed
with no reduction to the Company’s distribution footprint. Failure to maintain the cable agreements covering a material portion of the
Company’s existing cable households on acceptable financial and other terms could adversely affect future growth, sales revenues and earnings
unless the Company is able to arrange for alternative means of broadly distributing its television programming. Cable operators serving a large
majority of cable households offer cable programming on a digital basis. The use of digital compression technology provides cable companies
with greater channel capacity. While greater channel capacity increases the opportunity for distribution and, in some cases, reduces access fees
paid by us, it also may adversely impact our ability to compete for television viewers to the extent it results in a higher channel position for us,
placement of our programming in separate programming tiers, the broadcast of additional competitive channels or viewer fragmentation due to a
greater number of programming alternatives.
The Company has entered into, and will continue to enter into, affiliation agreements with other television operators providing for full- or
part-time carriage of the Company’s television home shopping programming.
Future cable and satellite affiliation cash commitments at January 28, 2012 are as follows:
Fiscal Year
2012
2013
2014
2015
2016 and thereafter
Employment Agreements
$
Amount
97,782,000
26,726,000
22,255,000
20,350,000
—
The Company has entered into employment agreements with its on-air hosts and the chief executive officer of the Company with original
terms of 12 months. These agreements specify, among other things, the term and duties of employment, compensation and benefits, termination
of employment (including for cause, which would reduce the Company’s total obligation under these agreements), severance payments and non-
disclosure and non-compete restrictions. The aggregate commitment for future base compensation at January 28, 2012 was approximately
$2,679,000 .
The Company has a policy and practice regarding severance for its senior executive officers whereby up to 12 months of base salary could
become payable in the event of terminations without cause only under specified circumstances. Senior executive officers are also eligible for
12 months of base salary in the event of a change in control under specified circumstances. The chief executive officer’s employment agreement
provides for 12 months of base salary and his target bonus payment in the event of termination without cause and 24 months of base salary for
change of control severance under specified circumstances.
Operating Lease Commitments
The Company leases certain property and equipment under non-cancelable operating lease agreements. Property and
54
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
equipment covered by such operating lease agreements include offices and warehousing facilities at subsidiary locations, satellite transponder,
office equipment and certain tower site locations.
Future minimum lease payments at January 28, 2012 are as follows:
Fiscal Year
2012
2013
2014
2015
2016 and thereafter
Amount
$ 1,657,000
1,105,000
780,000
780,000
520,000
Total rent expense under such agreements was approximately $1,706,000 in fiscal 2011 , $1,971,000 in fiscal 2010 , and $2,180,000 in
fiscal 2009 .
Retirement and Savings Plan
The Company maintains a qualified 401(k) retirement savings plan covering substantially all employees. The plan allows the Company’s
employees to make voluntary contributions to the plan. The Company’s contribution, if any, is determined annually at the discretion of the board
of directors. During fiscal 2011, fiscal 2010 and fiscal 2009 , the Company did not make any matching contributions to the plan.
(15) Litigation
The Company is involved from time to time in various claims and lawsuits in the ordinary course of business. In the opinion of
management, the claims and suits individually and in the aggregate will not have a material adverse effect on the Company’s operations or
consolidated financial statements.
In the third quarter of fiscal 2009, the U.S. Customs and Border Protection agency commenced an investigation into an undervaluation and
corresponding underpayment of the customs duty owed by a vendor relating to a particular shipment of goods to the United States. The
Company notified the vendor and has withheld certain funds from the vendor under contractual indemnification obligations to cover any
potential costs, penalties or fees that may result from the investigation. The Company made a formal request for indemnification from the vendor
but the request was refused. As a result, in December 2009, through the U.S. District Court of Minnesota, the Company commenced litigation in
federal court against the vendor for breach of contract. The vendor filed counterclaims for payments it claims were owed by the Company. The
case has been stayed by the district court pending the outcome of the U.S. Customs investigation. The Company believes that the funds it is
withholding from the vendor will be sufficient to cover any costs or possible liabilities against us that may result from the investigation.
55
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(16) Supplemental Cash Flow Information
Supplemental cash flow information and noncash investing and financing activities were as follows:
Supplemental cash flow information:
Interest paid
Income taxes paid
Supplemental non-cash investing and financing activities:
Common stock purchase warrants forfeited
Deferred financing costs included in accrued liabilities
Property and equipment purchases included in accounts payable
Issuance of 689,655 shares of common stock for license agreement
Accretion of redeemable Series A preferred stock
Issuance of Series B preferred stock
Excess of preferred stock carrying value over redemption value
Redemption of Series A preferred stock
Issuance of 6,000,000 common stock warrants
(17) Relationship with NBCU and GE Equity
Alliance with GE Equity and NBCU
For the Years Ended
January 28, 2012 January 29, 2011 January 30, 2010
$
$
$
$
$
$
$
$
$
$
$
3,320,000 $
98,000 $
647,000 $
100,000 $
11,000
43,000
35,000 $
53,000 $
156,000 $
4,166,000 $
— $
— $
— $
— $
— $
34,000
35,000 $
414,000
4,000 $
72,000
87,000 $
—
— $
62,000
— $
— $ 12,959,000
— $ 27,362,000
— $ 40,854,000
533,000
— $
In March 1999, the Company entered into an alliance with GE Equity and NBCUniversal Media, LLC ("NBCU"), pursuant to which the
Company issued Series A redeemable convertible preferred stock and common stock warrants, and entered into a shareholder agreement, a
registration rights agreement, a distribution and marketing agreement and, the following year, a trademark license agreement. On February 25,
2009, the Company entered into an exchange agreement with the same parties, pursuant to which GE Equity exchanged all outstanding shares of
the Company’s Series A preferred stock for (i) 4,929,266 shares of the Company’s Series B redeemable preferred stock, (ii) a warrant to
purchase up to 6,000,000 shares of the Company’s common stock at an exercise price of $0.75 per share and (iii) a cash payment in the amount
of $3.4 million. In connection with the exchange, the parties also amended and restated the 1999 shareholder agreement and registration rights
agreement. The outstanding agreements with GE Equity and NBCU are described in more detail below.
The shares of Series B redeemable preferred stock were redeemable by the Company at any time for an initial redemption amount of $40.9
million, plus accrued dividends at a base annual rate of 12%, subject to adjustment. In addition, the Series B preferred stock provided GE Equity
with class voting rights and the rights to designate members of the Company's board of directors. In April, 2011, the Company redeemed all of
the outstanding Series B preferred stock for $40.9 million and paid accrued dividends of $6.4 million.
In January 2011, General Electric Company (“GE”) consummated a transaction with Comcast Corporation (“Comcast”) pursuant to which
GE contributed all of its holdings in NBCU to NBCUniversal, LLC, a newly formed entity beneficially owned 51% by Comcast and 49% by GE.
As a result of that transaction, NBCU became a wholly owned subsidiary of NBCUniversal, LLC.
As of February 17, 2012, the direct equity ownership of GE Equity in the Company consisted of warrants to purchase up to
6,000,000 shares of common stock and, as of May 16, 2011, (their most recent filed 13D), the direct ownership of NBCU in the Company
consisted of 7,141,849 shares of common stock and warrants to purchase 7,372 shares of common stock. The Company is currently making
arm’s length negotiated payments to Comcast for cable distribution under a pre-existing contract.
In connection with the transfer of its ownership in NBCU, GE also agreed with Comcast that, for so long as GE Equity is entitled to
appoint two members of our board of directors, NBCU will be entitled to retain a board seat provided that NBCU beneficially owns at least 5%
of our adjusted outstanding common stock as computed under the amended and restated shareholders agreement described below. Furthermore,
GE agreed to obtain the consent of NBCU prior to consenting to our adoption of any
56
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
shareholders rights plan or certain other actions that would impede or restrict the ability of NBCU to acquire or dispose of shares of the
Company's voting stock or taking any action that would result in NBCU being deemed to be in violation of Federal Communications
Commission multiple ownership regulations.
NBCU Trademark License Agreement
On November 16, 2000, the Company entered into a trademark license agreement with NBCU pursuant to which NBCU granted it an
exclusive, worldwide license for a term of ten years to use certain NBC trademarks, service marks and domain names to rebrand the Company’s
business and corporate name and website. The Company subsequently selected the names ShopNBC and ShopNBC.com.
Under the license agreement, the Company has agreed, among other things, to (i) certain restrictions on using trademarks, service marks,
domain names, logos or other source indicators owned or controlled by NBCU, (ii) the loss of its rights under the license with respect to specific
territories outside of the United States in the event it fails to achieve and maintain certain performance targets in such territories, (iii) not own,
operate, acquire or expand its business to include certain businesses without NBCU’s prior consent, (iv) comply with NBCU’s privacy policies
and standards and practices, and (v) not own, operate, acquire or expand its business such that one-third or more of our revenues or the
Company’s aggregate value is attributable to certain services (not including retailing services similar to our existing e-commerce operations)
provided over the internet. The license agreement also grants to NBCU the right to terminate the license agreement at any time upon certain
changes of control of the Company, in certain situations upon the failure by NBCU to own a certain minimum percentage of the Company’s
outstanding capital stock on a fully diluted basis, and certain other situations.
In connection with the license agreement, the Company issued to NBCU warrants to purchase 6,000,000 shares of the Company’s common
stock at an exercise price of $17.375 per share all of which have expired unexercised. In March 2001, the Company established a measurement
date with respect to the license agreement by amending the agreement, and fixed the fair value of the trademark license asset at $32,837,000,
which is being amortized over the remaining term of the license agreement. On March 28, 2007, the Company and NBCU agreed to extend the
term of the license by six months, such that the license would continue through May 15, 2011, and to provide that certain changes of control
involving a financial buyer would not provide the basis for an early termination of the license by NBCU. On November 18, 2010, the Company
announced a further extension of the license agreement to May 2012, an option to further extend the license agreement to May 2013 upon the
mutual agreement of both parties, and an agreement to enter into a separate transition agreement, on the terms and subject to the conditions to be
mutually agreed between the parties, relating to the twelve month period following the ultimate expiration of the license agreement. In
consideration for the license agreement extension, the Company issued 689,655 shares of the Company’s common stock to NBCU on May 16,
2011. Shares issued were valued at $6.04 per share, representing the fair market value of our stock on the date of issuance. As of January 28,
2012 and January 29, 2011 , accumulated amortization related to this asset totaled $37,388,000 and $33,509,000 respectively.
Amended and Restated Shareholder Agreement
On February 25, 2009, the Company entered into an amended and restated shareholder agreement with GE Equity and NBCU, which
provides for certain corporate governance and standstill matters. The amended and restated shareholder agreement provides that GE Equity is
entitled to designate nominees for three out of nine members of the Company’s board of directors so long as the aggregate beneficial ownership
of GE Equity and NBCU (and their affiliates) is at least equal to 50% of their beneficial ownership as of February 25, 2009 (i.e., beneficial
ownership of approximately 8.75 million common shares, including for such purpose, shares of our common stock issuable to GE Equity upon
exercise of the warrant for 6,000,000 shares of our common stock), and two out of nine members so long as their aggregate beneficial ownership
is at least 10% of the shares of “adjusted outstanding common stock,” as defined in the amended and restated shareholder agreement. In addition,
the amended and restated shareholder agreement provides that GE Equity may designate any of its director-designees to be an observer of the
Audit, Human Resources and Compensation, and Corporate Governance and Nominating Committees of our board of directors. The amended
and restated shareholder agreement requires the consent of GE Equity prior to the Company entering into any material agreements with any of
CBS, Fox, Disney, Time Warner or Viacom (and their respective affiliates), provided that this restriction will no longer apply when either (i) the
Company’s trademark license agreement with NBCU (described below) has terminated or (ii) GE Equity is no longer entitled to designate at
least two director nominees. In addition, the amended and restated shareholder agreement requires the consent of GE Equity prior to the
Company (i) exceeding certain thresholds relating to the issuance of securities, the payment of dividends, the repurchase or redemption of
common stock, acquisitions (including investments and joint ventures) or dispositions, and the incurrence of debt; (ii) entering into any business
different than what the Company and its subsidiaries are currently engaged; and (iii) amending the Company’s articles of incorporation to
adversely affect GE Equity and NBCU (or their affiliates); provided, however, that these restrictions will no longer apply when both (i) GE
Equity is no longer entitled to designate
57
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
three director nominees and (ii) GE Equity and NBCU no longer hold any Series B preferred stock. The Company is also prohibited from taking
any action that would cause any ownership interest by the Company in television broadcast stations from being attributable to GE Equity, NBCU
or their affiliates.
The amended and restated shareholder agreement further provides that during the “standstill period” (as defined in the amended and
restated shareholder agreement), subject to certain limited exceptions, GE Equity and NBCU are prohibited from: (i) any asset/business
purchases from the Company in excess of 10% of the total fair market value of the Company’s assets; (ii) increasing their beneficial ownership
above 39.9% of our shares, treating as outstanding and actually owned for such purpose shares of our common stock issuable to GE Equity upon
exercise of the warrant for 6,000,000 shares of our common stock; (iii) making or in any way participating in any solicitation of proxies;
(iv) depositing any securities of the Company in a voting trust; (v) forming, joining or in any way becoming a member of a “13D Group” with
respect to any voting securities of the Company; (vi) arranging any financing for, or providing any financing commitment specifically for, the
purchase of any voting securities of the Company; or (vii) otherwise acting, whether alone or in concert with others, to seek to propose to the
Company any tender or exchange offer, merger, business combination, restructuring, liquidation, recapitalization or similar transaction involving
the Company, or nominating any person as a director of the Company who is not nominated by the then incumbent directors, or proposing any
matter to be voted upon by the Company’s shareholders. If, during the standstill period, any inquiry has been made regarding a “takeover
transaction” or “change in control,” each as defined in the amended and restated shareholder agreement, that has not been rejected by the
Company’s board of directors, or the Company’s board of directors pursues such a transaction, or engages in negotiations or provides
information to a third party and the board of directors has not resolved to terminate such discussions, then GE Equity or NBCU may propose to
the Company a tender offer or business combination proposal.
In addition, unless GE Equity and NBCU beneficially own less than 5% or more than 90% of the adjusted outstanding shares of common
stock, GE Equity and NBCU shall not sell, transfer or otherwise dispose of any securities of the Company except for transfers: (i) to certain
affiliates who agree to be bound by the provisions of the amended and restated shareholder agreement, (ii) that have been consented to by the
Company, (iii) subject to certain exceptions, pursuant to a third-party tender offer, (iv) pursuant to a merger, consolidation or reorganization to
which the Company is a party, (v) in an underwritten public offering pursuant to an effective registration statement, (vi) pursuant to Rule 144 of
the Securities Act of 1933, or (vii) in a private sale or pursuant to Rule 144A of the Securities Act of 1933; provided, that in the case of any
transfer pursuant to clause (v), (vi) or (vii), the transfer does not result in, to the knowledge of the transferor after reasonable inquiry, any other
person acquiring, after giving effect to such transfer, beneficial ownership, individually or in the aggregate with that person’s affiliates, of more
than 10% (or 20% in the case of a transfer by NBCU) of the adjusted outstanding shares of the common stock, as determined in accordance with
the amended and restated shareholder agreement.
The standstill period will terminate on the earliest to occur of (i) the ten-year anniversary of the amended and restated shareholder
agreement, (ii) the Company entering into an agreement that would result in a “change in control” (subject to reinstatement), (iii) an actual
“change in control” (subject to reinstatement), (iv) a third-party tender offer (subject to reinstatement), or (v) six months after GE Equity can no
longer designate any nominees to the Company’s board of directors. Following the expiration of the standstill period pursuant to clause (i) above
and two years in the case of clause (v) above, GE Equity and NBCU’s beneficial ownership position may not exceed 39.9% of the Company’s
adjusted outstanding shares of common stock, except pursuant to issuances or exercises of any warrants or pursuant to a 100% tender offer for
the Company.
Registration Rights Agreement
On February 25, 2009, the Company entered into an amended and restated registration rights agreement providing GE Equity, NBCU and
their affiliates and any transferees and assigns, an aggregate of four demand registrations and unlimited piggy-back registration rights. In
addition, NBCU was subsequently granted one additional demand registration right pursuant to the second amendment of the NBCU Trademark
License Agreement.
(18) Restructuring Costs
As a result of a number of restructuring initiatives taken by the Company in order to simplify and streamline the Company’s organizational
structure, reduce operating costs and pursue and evaluate strategic alternatives, the Company recorded restructuring charges of $1,130,000 in
fiscal 2010 and $2,303,000 in fiscal 2009. Restructuring costs primarily include employee severance costs associated with the streamlining the
Company's organizational structure, incremental costs associated with the refinancing of our debt facilities, restructuring advisory service fees
and costs associated with strategic alternative initiatives. All restructuring costs were paid as of January 29, 2011 and no restructuring costs were
incurred during fiscal 2011.
58
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The table below sets forth for the year ended January 29, 2011, the significant components and activity under the restructuring program:
Severance and retention
Incremental restructuring charges
Balance at
January 30,
2010
$ 255,000 $
179,000
Charges
278,000 $
852,000
$ 434,000 $ 1,130,000 $ (1,564,000 ) $
(1,031,000 )
(533,000 ) $
Cash
Payments
Balance at
January 29,
2011
—
—
—
(19) Chief Executive Officer Transition Costs
During fiscal 2009, the Company recorded a $1.9 million charge relating primarily to settlement and legal costs associated with the
termination of the Company’s former chief executive officer.
(20) Related Party Transactions
The Company entered into marketing agreements with Creative Commerce and its subsidiary, International Commerce Agency, LLC
(“International Commerce”), under which Creative Commerce and International Commerce agreed to provide vendor sourcing and retailing
consulting services to the Company. One of the Company’s directors, Edwin Garrubbo, is the majority owner of both Creative Commerce and
International Commerce. The Company made payments totaling approximately $1,384,000 during fiscal 2011 and $787,000 during fiscal 2010
relating to these services.
Relationship with GE Equity, Comcast and NBCU
In January 2011, General Electric Company (“GE”) consummated a transaction with Comcast Corporation (“Comcast”) pursuant to which
GE contributed all of its holdings in NBCU to NBCUniversal, LLC, a newly formed entity beneficially owned 51% by Comcast and 49% by GE.
As a result of that transaction, NBCU is now a wholly owned subsidiary of NBCUniversal, LLC. As of October 29, 2011, the direct equity
ownership of GE Equity in the Company consists of warrants to purchase up to 6,000,000 shares of common stock and the direct ownership of
NBCU in the Company consists of 7,141,849 shares of common stock and warrants to purchase 7,372 shares of common stock. The Company
has a significant cable distribution agreement with Comcast and believes that the terms of this agreement are comparable to those with other
cable system operators.
In connection with the transfer of its ownership in NBCU, GE also agreed with Comcast that, for so long as GE Equity is entitled to
appoint two members of our board of directors, NBCU will be entitled to retain a board seat provided that NBCU beneficially owns at least 5%
of our adjusted outstanding common stock. Furthermore, GE agreed to obtain the consent of NBCU prior to consenting to our adoption of any
shareholders rights plan or certain other actions that would impede or restrict the ability of NBCU to acquire or dispose of shares of our voting
stock or taking any action that would result in NBCU being deemed to be in violation of the Federal Communications Commission multiple
ownership regulations.
(21) Subsequent Event
On February 9, 2012, the Company entered into a $40 million new credit and security agreement (the “Credit Facility”) with PNC Bank,
N.A. (“PNC”), a member of The PNC Financial Services Group, Inc., as lender and agent. The Credit Facility has a three-year maturity and
bears interest at LIBOR plus 3% per annum. The initial net proceeds of borrowing of approximately $38.2 million were primarily used to retire
the Company's existing 11%, $25 million term loan with Crystal Financial LLC and to pay a $12.4 million deferred payment obligation to a
television distribution provider. Subject to certain conditions, the Credit Facility also provides for the issuance of letters of credit in an aggregate
amount up to $6 million which, upon issuance, would be deemed advances under the Credit Facility. Remaining capacity under the Credit
Facility, currently $1.8 million, will provide liquidity for working capital and general corporate purposes.
Maximum borrowings under the Credit Facility are equal to the lesser of $40 million or a calculated borrowing base comprised of eligible
accounts receivable and eligible inventory. The Credit Facility is secured by substantially all of the Company’s personal property, as well as the
Company’s real property located in Bowling Green, Kentucky. Under certain circumstances, the borrowing base may be adjusted if there were to
be a significant deterioration in value of the Company’s accounts receivable and inventory. The term loan is subject to mandatory prepayment in
certain circumstances. In addition, if the total Credit Facility is terminated
59
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
prior to maturity, the Company would be required to pay an early termination fee of 2% of the total Credit Facility if terminated in year one; .5%
if terminated in year two; with no fee if terminated in year three. Borrowings under the Credit Facility mature and are payable in February 2015.
The Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted
cash plus facility availability of $6 million at all times and limiting annual capital expenditures. Certain financial covenants including minimum
EBITDA levels (as defined in the Credit Facility agreement) and minimum fixed charge coverage ratio become applicable only if unrestricted
cash plus credit availability falls below $12 million or upon an event of default. In addition, the Credit Facility places restrictions on the
Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise
dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to
common shareholders.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, management conducted an evaluation, under the supervision and with the participation
of our chief executive officer and chief financial officer of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15
(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, the chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we
file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by us in the reports we file or
submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosures.
60
Table of Contents
MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of ValueVision Media, Inc. is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rules 13a-15(f) under the Securities Exchange Act 1934. Our company’s internal control system was designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of our company’s internal control over financial reporting as of January 28, 2012 . In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control — Integrated Framework.
Based on management’s evaluation under the framework in Internal Control — Integrated Framework , management concluded that our
internal control over financial reporting was effective as of January 28, 2012 .
Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on our company’s internal
control over financial reporting as of January 28, 2012 . The Deloitte & Touche LLP attestation report is set forth below.
/s/ KEITH R. STEWART
Keith R. Stewart
Chief Executive Officer
(Principal Executive Officer)
/s/ WILLIAM MCGRATH
William McGrath
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
April 5, 2012
Changes in Internal Controls over Financial Reporting
Management, with the participation of the chief executive officer and chief financial officer, performed an evaluation as to whether any
change in the internal controls over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934)
occurred during the quarter ended January 28, 2012. Based on that evaluation, the chief executive officer and chief financial officer concluded
that no change occurred in the internal controls over financial reporting during the period covered by this report that materially affected, or is
reasonably likely to materially affect, the internal controls over financial reporting.
61
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
ValueVision Media, Inc. and Subsidiaries
Eden Prairie, Minnesota
We have audited the internal control over financial reporting of ValueVision Media, Inc. and subsidiaries (the "Company") as of January
28, 2012, based criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal
executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors,
management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets
that could have a material effect on the consolidated financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also,
projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 28, 2012,
based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement schedules as of and for the year ended January 28, 2012 of the Company and our report
dated April 5, 2012 expressed an unqualified opinion on those consolidated financial statements and financial statement schedules.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, MN
April 5, 2012
Item 9B. Other Information
None.
62
Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information in response to this item with respect to certain information relating to our executive officers is contained in Item 1 under the
heading “Executive Officers of the Registrant” and with respect to other information relating to our executive officers and directors and our audit
and other committees is incorporated herein by reference to the sections titled “Proposal 1 — Election of Directors,” “Corporate Governance”
and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement to be filed pursuant to Regulation 14A within
120 days after the end of the fiscal year covered by this Form 10-K.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics applicable to all of our directors and employees, including our principal executive
officer, principal financial officer, principal accounting officer, controller and other employees performing similar functions. A copy of this code
of business conduct and ethics is available on our website at www.shopnbc.com, under “Investor Relations — Business Ethics Policy.” In
addition, we have adopted a code of ethics policy for our senior financial management; this policy is also available on our website at
www.shopnbc.com, under “Investor Relations — Code of Ethics Policy for Chief Executive and Senior Financial Officers.”
We intend to satisfy the disclosure requirements under Form 8-K regarding an amendment to, or waiver from, a provision of our code of
business conduct and ethics by posting such information on our website at the address specified above.
Item 11. Executive Compensation
Information in response to this item is incorporated herein by reference to the sections titled “Director Compensation for Fiscal 2011 ,”
“Executive Compensation” and “Corporate Governance” in our definitive proxy statement to be filed pursuant to Regulation 14A within
120 days after the end of the fiscal year covered by this Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Information in response to this item is incorporated herein by reference to the section titled “Security Ownership of Principal Shareholders
and Management” in our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year
covered by this Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information in response to this item is incorporated herein by reference to the section titled “Certain Transactions” and “Corporate
Governance” in our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by
this Form 10-K.
Item 14. Principal Accountant Fees and Services
Information in response to this item is incorporated herein by reference to the section titled “Proposal 2 — Ratification of the Independent
Registered Public Accounting Firm” in our definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the
fiscal year covered by this Form 10-K.
63
Table of Contents
Item 15. Exhibits and Financial Statement Schedule
1. Financial Statements
PART IV
• Report of Independent Registered Public Accounting Firm
• Consolidated Balance Sheets as of January 28, 2012 and January 29, 2011
• Consolidated Statements of Operations for the Years Ended January 28, 2012 , January 29, 2011 and January 30, 2010
• Consolidated Statements of Shareholders’ Equity for the Years Ended January 28, 2012 , January 29, 2011 and January 30,
2010
• Consolidated Statements of Cash Flows for the Years Ended January 28, 2012 , January 29, 2011 and January 30, 2010
• Notes to Consolidated Financial Statements
2. Financial Statement Schedule
64
Table of Contents
VALUEVISION MEDIA, INC. AND SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Column B
Column C
Additions
Balances at
Charged to
Beginning of
Year
Costs and
Expenses
Column D
Deductions
Column E
Balance at
End of Year
$
$
$
$
$
$
5,643,000
4,522,000
11,876,000
64,503,000
(11,881,000 ) (1) $
(64,481,000 ) (2) $
5,638,000
4,544,000
4,819,000
2,742,000
9,321,000
49,335,000
(8,497,000 ) (1) $
(47,555,000 ) (2) $
5,643,000
4,522,000
6,063,000
2,770,000
6,813,000
49,276,000
(8,057,000 ) (1) $
(49,304,000 ) (2) $
4,819,000
2,742,000
Column A
For the year ended January 28, 2012:
Allowance for doubtful accounts
Reserve for returns
For the year ended January 29, 2011:
Allowance for doubtful accounts
Reserve for returns
For the year ended January 30, 2010:
Allowance for doubtful accounts
Reserve for returns
_______________________________________
(1) Write off of uncollectible receivables, net of recoveries.
(2) Refunds or credits on products returned.
3. Exhibits
The exhibits filed with this report are set forth on the exhibit index filed as a part of this report immediately following the signatures to this
report.
65
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) 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 April 5, 2012 .
SIGNATURES
VALUEVISION MEDIA, INC.
(Registrant)
By:
/s/ KEITH R. STEWART
Keith R. Stewart
Chief Executive Officer
Each of the undersigned hereby appoints Keith R. Stewart and William McGrath, and each of them (with full power to act alone), as
attorneys and agents for the undersigned, with full power of substitution, for and in the name, place and stead of the undersigned, to sign and file
with the Securities and Exchange Commission under the Securities Act of 1934, any and all amendments and exhibits to this annual report on
Form 10-K and any and all applications, instruments, and other documents to be filed with the Securities and Exchange Commission pertaining
to this annual report on Form 10-K or any amendments thereto, with full power and authority to do and perform any and all acts and things
whatsoever requisite and necessary or desirable. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities indicated on April 5, 2012 .
66
Table of Contents
Name
Title
/s/ KEITH R. STEWART
Keith R. Stewart
/s/ WILLIAM MCGRATH
William McGrath
/s/ RANDY S. RONNING
Randy S. Ronning
/s/ JOSEPH F. BERARDINO
Joseph F. Berardino
/s/ JOHN D. BUCK
John D. Buck
Catherine Dunleavy
/s/ WILLIAM EVANS
William Evans
/s/ EDWIN GARRUBBO
Edwin Garrubbo
/s/ PATRICK KOCSI
Patrick Kocsi
/s/ SEAN ORR
Sean Orr
Chief Executive Officer and Director
(Principal Executive Officer)
Executive Vice President, Chief Financial Officer
(Principal Financial Officer)
Chairman of the Board
Director
Director
Director
Director
Director
Director
Director
67
Table of Contents
Exhibit No.
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
21
EXHIBIT INDEX
Description
Articles of Incorporation, as amended
Amended and Restated By-Laws, as amended through September 21, 2010
2001 Omnibus Stock Plan of the Registrant
Amendment No. 1 to the 2001 Omnibus Stock Plan of the Registrant
Form of Incentive Stock Option Agreement under the 2001 Omnibus Stock Plan of
the Registrant
Form of Nonstatutory Stock Option Agreement under the 2001 Omnibus Stock Plan
of the Registrant
Amended and Restated 2004 Omnibus Stock Plan
Form of Stock Option Agreement (Employees) under 2004 Omnibus Stock Plan
Form of Stock Option Agreement (Executive Officers) under 2004 Omnibus Stock
Plan
Form of Stock Option Agreement (Executive Officers) under 2004 Omnibus Stock
Plan
Form of Stock Option Agreement (Directors - Annual Grant) under 2004 Omnibus
Stock Plan
Form of Stock Option Agreement (Directors - Other Grants) under 2004 Omnibus
Stock Plan
Form of Restricted Stock Agreement (Directors) under 2004 Omnibus Stock Plan
2011 Omnibus Incentive Plan of the Registrant
Form of Incentive Stock Option Award Agreement under the 2011 Omnibus Incentive
Plan
Form of Non-Statutory Stock Option Award Agreement under the 2011 Omnibus
Incentive Plan
Form of Option Agreement between the Registrant and John D. Buck
Amended and Restated Employment Agreement between the Registrant and Keith R.
Stewart dated February 19, 2010
Description of Annual Cash Incentive Plan
Description of Director Compensation Program
Amended and Restated Shareholder Agreement dated February 25, 2009 between the
Registrant, GE Capital Equity Investments, Inc. and NBC Universal, Inc.
Common Stock Purchase Warrants issued on February 25, 2009 between the
Registrant, GE Capital Equity Investments, Inc. and NBC Universal, Inc.
Amended and Restated Registration Rights Agreement dated February 25, 2009
between the Registrant, GE Capital Equity Investments, Inc. and NBC Universal, Inc.
Trademark License Agreement, between NBC Universal, Inc. and the Registrant, as
amended through November 17, 2010
Revolving Credit and Security Agreement dated February 9, 2012 among the
Registrant, as the lead borrower, certain of its subsidiaries party thereto as borrowers,
PNC Bank National Association, as lender and agent
Form of Indemnification Agreement with Directors and Officers of the Registrant
Significant Subsidiaries of the Registrant
68
Method of Filing
Incorporated by reference(A)
Incorporated by reference(B)
Incorporated by reference(C)†
Incorporated by reference(D)†
Incorporated by reference(E)†
Incorporated by reference(F)†
Incorporated by reference(G)†
Incorporated by reference(H)†
Incorporated by reference(I)†
Incorporated by reference(J)†
Incorporated by reference(K)†
Incorporated by reference(L)†
Incorporated by reference(M)†
Incorporated by reference (N) †
Filed herewith†
Filed herewith†
Incorporated by reference(O)†
Incorporated by reference(P)†
Filed herewith†
Incorporated by reference(Q)†
Incorporated by reference(R)
Incorporated by reference(S)
Incorporated by reference(T)
Incorporated by reference (U)
Incorporated by reference(V)
Incorporated by reference(W)†
Filed herewith
Table of Contents
Description
Method of Filing
Exhibit No.
23
24
31.1
31.2
32
Filed herewith
Consent of Independent Registered Public Accounting Firm
Included with signature pages
Powers of Attorney
Filed herewith
Certification
Certification
Filed herewith
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
_______________________________________
69
Table of Contents
†
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
Management compensatory plan/arrangement.
Incorporated herein by reference to Exhibit 3.1 to the Registrant's Quarterly Report on Form 10-Q dated April 30,
2011 filed on June 7, 2011, File No. 0-20243.
Incorporated herein by reference to Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated
September 27, 2010, filed on September 27, 2010, File No. 0-20243.
Incorporated herein by reference to Exhibit 99(a) to the Registrant's Registration Statement on Form S-8 filed on
January 25, 2002, File No. 333-81438.
Incorporated herein by reference to Appendix B to the Registrant's Proxy Statement in connection with its annual
meeting of shareholders held on June 20, 2002, filed on May 23, 2002, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 2003, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 2003, File No. 0-20243.
Incorporated herein by reference to Annex A to the Registrant's Proxy Statement in connection with its annual
meeting of shareholders held on June 21, 2006, filed on May 23, 2006, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated January 14,
2005, filed on January 14, 2005, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated January 14,
2005, filed on January 14, 2005, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K dated January 14,
2005, filed on January 14, 2005, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K dated January 14,
2005, filed on January 14, 2005, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K dated January 14,
2005, filed on January 14, 2005, File No. 0-20243.
Incorporated herein by reference to Exhibit 10 to the Registrant's Current Report on Form 8-K dated June 21,
2006, filed on June 26, 2006, File No. 0-20243.
Incorporated herein by reference to Appendix A to the Registrant's Proxy Statement in connection with its annual
meeting of shareholders held on June 15, 2011, filed on May 5, 2011, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated August 25,
2008, filed on August 28, 2008, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K dated
February 19, 2010, filed on February 23, 2010, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.16 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 30, 2010, filed on April 15, 2010, File No. 0-20243.
Incorporated herein by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated February 25,
2009, filed on February 26, 2009, File No. 0-20243.
Incorporated herein by reference to Exhibit 4.2 to the Registrant's Current Report on Form 8-K dated February 25,
2009, filed on February 26, 2009, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.23 to the Registrant's Current Report on Form 8-K dated February
25, 2009, filed on February 26, 2009, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 29, 2011, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated February
10, 2012, filed on February 10, 2012, File No. 0-20243.
Incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated September
27, 2010, filed on September 27, 2010, File No. 0-20243.
70
VALUEVISION MEDIA, INC.
Incentive Stock Option Award Agreement
Under the 2011 Omnibus Incentive Plan
Exhibit 10.13
ValueVision Media, Inc. (the “Company”), pursuant to its 2011 Omnibus Incentive Plan (the “Plan”), hereby grants to you, the
Optionee named below, an Option to purchase the number of shares of the Company's common stock shown in the table below at the specified
exercise price per share. The terms and conditions of this Option Award are set forth in this Agreement, consisting of this cover page and the
Option Terms and Conditions on the following pages, and in the Plan document which is attached. To the extent any capitalized term used in this
Agreement is not defined, it shall have the meaning assigned to it in the Plan as it currently exists or as it is amended in the future.
Name of Optionee:**[_______________________]
No. of Shares Covered:**[_______]
Exercise Price Per Share:$**[______]
Vesting and Exercise Schedule:
Grant Date:__________, 20__
Expiration Date:__________, 20__
Number of Shares as to Which
Option Becomes Vested and Exercisable
Dates
B y signing below or otherwise evidencing your acceptance of this Agreement in a manner approved by the Company, you agree to all
of the terms and conditions contained in this Agreement and in the Plan document. You acknowledge that you have reviewed these documents
and that they set forth the entire agreement between you and the Company regarding your rights and obligations in connection with this Option
Award.
OPTIONEE: VALUEVISION MEDIA, INC.
By:________________________________
Title:_______________________________
ValueVision Media, Inc.
2011 Omnibus Incentive Plan
Incentive Stock Option Award Agreement
Option Terms and Conditions
1.
2.
Non-Qualified Stock Option . This Option is intended to be an “incentive stock option” within the meaning of Section 422 of the Code
and will be interpreted accordingly. If, to any extent, this Option fails to qualify as an “incentive stock option” for any reason, this
Option will, to that extent, be treated as a Non-Statutory or Non-Qualified Stock Option.
Vesting and Exercise Schedule . This Option will vest and become exercisable as to the portion of Shares and on the dates specified in
the Vesting and Exercise Schedule on the cover page to this Agreement, so long as your Service to the Company does not end. The
Vesting and Exercise Schedule is cumulative, meaning that to the extent the Option has not already been exercised and has not expired,
terminated or been cancelled, you or the person otherwise entitled to exercise the Option as provided in this Agreement may at any time
purchase all or any portion of the Shares that may then be purchased under that Schedule.
Vesting and exercisability of this Option may be accelerated during the term of the Option under the circumstances described
in Sections 12(b), (c) and (d) of the Plan, and at the discretion of the Committee in accordance with Section 3
(b)(2) of the Plan.
3.
Expiration . This Option will expire and will no longer be exercisable at 5:00 p.m. Central Time on the earliest of:
(a)
the Expiration Date specified on the cover page of this Agreement;
(b)
upon your termination of Service for Cause;
(c)
upon the expiration of any applicable period specified in Sections 6(e), which provides in part that upon termination of Service
for any reason other than Cause, death or Disability, the currently vested and exercisable portion of this Options may be
exercised for a period of three months after the date of such termination, and 12(b)(4) of the Plan during which this Option
may be exercised after your termination of Service; or
(d)
the date (if any) fixed for termination or cancellation of this Option pursuant to Sections 12(b)(2), (b)(3), (c) or (d) of the Plan.
4.
5.
Service Requirement . Except as otherwise provided in Sections 6(e) and 12(b)(4) of the Plan, this Option may be exercised only while
you continue to provide Service to the Company or any Affiliate, and only if you have continuously provided such Service since the
date this Option was granted.
Exercise of Option . Subject to Section 4, the vested and exercisable portion of this Option may be exercised by delivering written or
electronic notice of exercise to the Company at the principal executive office of the Company, to the attention of the Company's
Corporate Secretary or the party designated by such officer (which written or electronic notice will state the number of Shares to be
purchased, the manner in which the exercise price will be paid and the manner in which the Shares to be acquired are to be delivered,
and must be signed or otherwise authenticated by the person exercising this Option), or by such other means as the Committee may
approve. If the person exercising this Option is not the Optionee, he/she also must submit appropriate proof of his/her right to exercise
this Option.
6.
Payment of Exercise Price . When you submit your notice of exercise, you must include payment of the exercise price of the Shares
being purchased through one or a combination of the following methods:
(a) cash (including check, bank draft or money order payable to the Company);
(b) to the extent permitted by law, a broker-assisted cashless exercise in which you irrevocably instruct a broker to
deliver proceeds of a sale of all or a portion of the Shares for which the Option is being exercised (or proceeds of a loan
secured by such Shares) to the Company in payment of the purchase price of such Shares; or
(c) by delivery to the Company or its designated agent of unencumbered Shares having an aggregate Fair Market
Value on the date of exercise equal to the purchase price of the Shares for which the Option is being exercised.
However, if the Committee determines, in any given circumstance, that payment of the exercise price with Shares is
undesirable for any reason, you will not be permitted to pay any portion of the exercise price in that manner.
7.
8.
Tax Consequences . You hereby acknowledge that if any Shares received pursuant to the exercise of any portion of this Option are sold
within two years from the Grant Date or within one year from the effective date of exercise of this Option, or if certain other
requirements of the Internal Revenue Code are not satisfied, such Shares will be deemed under the Code not to have been acquired by
you pursuant to an “incentive stock option” as defined in the Code. You agree to promptly notify the Company if you sell any Shares
received upon the exercise of this Option within the time periods specified in the previous sentence. The Company shall not be liable to
you if this Option for any reason is deemed not to be an “incentive stock option” within the meaning of the Code.
Delivery of Shares . As soon as practicable after the Company receives the notice and exercise price provided for above, and
determines that all conditions to exercise, including Section 7 of this Agreement, have been satisfied, it will arrange for the delivery of
the Shares being purchased in accordance with the delivery instructions indicated in such notice. The Company will pay any original
issue or transfer taxes with respect to the issue and transfer of the Shares to you, and all fees and expenses incurred by it in connection
therewith. All Shares so issued will be fully paid and nonassessable.
9.
10.
11.
12.
13.
14.
15.
Notwithstanding anything to the contrary in this Agreement, the Company will not be required to issue or deliver any Shares prior to the
completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation as the Company
may determine to be necessary or desirable.
Transfer of Option . During your lifetime, only you (or your guardian or legal representative in the event of legal incapacity) may
exercise this Option except in the case of a transfer described below. You may not assign or transfer this Option other than a transfer
upon your death in accordance with your will, by the laws of descent and distribution or pursuant to a beneficiary designation submitted
in accordance with Section 6(d) of the Plan. Following any such transfer, this Option shall continue to be subject to the same terms and
conditions that were applicable to this Option immediately prior to its transfer and may be exercised by such permitted transferee as and
to the extent that this Option has become exercisable and has not terminated in accordance with the provisions of the Plan and this
Agreement.
No Shareholder Rights Before Exercise . Neither you nor any permitted transferee of this Option will have any of the rights of a
shareholder of the Company with respect to any Shares subject to this Option until an appropriate book entry in the Company's stock
register has been made or a certificate evidencing such Shares has been issued. No adjustments shall be made for dividends or other
rights if the applicable record date occurs before an appropriate book entry has been made or your stock certificate has been issued,
except as otherwise described in the Plan.
Discontinuance of Service . This Agreement does not give you a right to continued Service with the Company or any Affiliate, and the
Company or any such Affiliate may terminate your Service at any time and otherwise deal with you without regard to the effect it may
have upon you under this Agreement.
Governing Plan Document . This Agreement and Option are subject to all the provisions of the Plan, and to all interpretations, rules
and regulations which may, from time to time, be adopted and promulgated by the Committee pursuant to the Plan. If there is any
conflict between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.
Choice of Law . This Agreement will be interpreted and enforced under the laws of the state of Minnesota (without regard to its
conflicts or choice of law principles).
Binding Effect . This Agreement will be binding in all respects on your heirs, representatives, successors and assigns, and on the
successors and assigns of the Company.
Notices . Every notice or other communication relating to this Agreement shall be in writing and shall be mailed to or delivered to the
party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other
party as herein provided. Unless and until some other address is so designated, all notices or communications by you to the Company
shall be mailed or delivered to the Company at its office at 6740 Shady Oak Road, Eden Prairie, MN 55344, fax 952-943-6111, and all
notices or communications by the Company to you may be given to you personally or may be mailed to you at the address indicated in
the Company's records as your most recent mailing address.
By signing the cover page of this Agreement or otherwise accepting this Award in a manner approved by the Company, you agree to all the
terms and conditions contained in this Agreement and in the Plan document.
VALUEVISION MEDIA, INC.
Non-Statutory Stock Option Award Agreement
Under the 2011 Omnibus Incentive Plan
Exhibit 10.14
ValueVision Media, Inc. (the “Company”), pursuant to its 2011 Omnibus Incentive Plan (the “Plan”), hereby grants to you, the
Optionee named below, an Option to purchase the number of shares of the Company's common stock shown in the table below at the specified
exercise price per share. The terms and conditions of this Option Award are set forth in this Agreement, consisting of this cover page and the
Option Terms and Conditions on the following pages, and in the Plan document which is attached. To the extent any capitalized term used in this
Agreement is not defined, it shall have the meaning assigned to it in the Plan as it currently exists or as it is amended in the future.
Name of Optionee:**[_______________________]
No. of Shares Covered:**[_______]
Exercise Price Per Share:$**[______]
Vesting and Exercise Schedule:
Grant Date:__________, 20__
Expiration Date:__________, 20__
Number of Shares as to Which
Option Becomes Vested and Exercisable
Dates
By signing below or otherwise evidencing your acceptance of this Agreement in a manner approved by the Company, you agree to all
of the terms and conditions contained in this Agreement and in the Plan document. You acknowledge that you have reviewed these documents
and that they set forth the entire agreement between you and the Company regarding your rights and obligations in connection with this Option
Award.
OPTIONEE: VALUEVISION MEDIA, INC.
By:________________________________
Title:_______________________________
ValueVision Media, Inc.
2011 Omnibus Incentive Plan
Non-Statutory Stock Option Award Agreement
Option Terms and Conditions
1.
2.
Non-Qualified Stock Option . This Option is not intended to be an “incentive stock option” within the meaning of Section 422 of the
Code and will be interpreted accordingly.
Vesting and Exercise Schedule . This Option will vest and become exercisable as to the portion of Shares and on the dates specified in
the Vesting and Exercise Schedule on the cover page to this Agreement, so long as your Service to the Company does not end. The
Vesting and Exercise Schedule is cumulative, meaning that to the extent the Option has not already been exercised and has not expired,
terminated or been cancelled, you or the person otherwise entitled to exercise the Option as provided in this Agreement may at any time
purchase all or any portion of the Shares that may then be purchased under that Schedule.
Vesting and exercisability of this Option may be accelerated during the term of the Option under the circumstances described
in Sections 12(b), (c) and (d) of the Plan, and at the discretion of the Committee in accordance with Section 3(b)(2) of the Plan.
3.
Expiration . This Option will expire and will no longer be exercisable at 5:00 p.m. Central Time on the earliest of:
(a)
the Expiration Date specified on the cover page of this Agreement;
(b)
upon your termination of Service for Cause;
(c)
upon the expiration of any applicable period specified in Sections 6(e), which provides in part that upon termination of Service
for any reason other than Cause, death or Disability, the currently vested and exercisable portion of this Options may be
exercised for a period of three months after the date of such termination, and 12(b)(4) of the Plan during which this Option
may be exercised after your termination of Service; or
(d)
the date (if any) fixed for termination or cancellation of this Option pursuant to Sections 12(b)(2), (b)(3), (c) or (d) of the Plan.
4.
5.
Service Requirement . Except as otherwise provided in Sections 6(e) and 12(b)(4) of the Plan, this Option may be exercised only while
you continue to provide Service to the Company or any Affiliate, and only if you have continuously provided such Service since the
date this Option was granted.
Exercise of Option . Subject to Section 4, the vested and exercisable portion of this Option may be exercised by delivering written or
electronic notice of exercise to the Company at the principal executive office of the Company, to the attention of the Company's
Corporate Secretary or the party designated by such officer (which written or electronic notice will state the number of Shares to be
purchased, the manner in which the exercise price will be paid and the manner in which the Shares to be acquired are to be delivered,
and must be signed or otherwise authenticated by the person exercising this Option), or by such other means as the Committee may
approve. If the person exercising this Option is not the Optionee, he/she also must submit appropriate proof of his/her right to exercise
this Option.
6.
Payment of Exercise Price . When you submit your notice of exercise, you must include payment of the exercise price of the Shares
being purchased through one or a combination of the following methods:
(a) cash (including check, bank draft or money order payable to the Company);
(b) to the extent permitted by law, a broker-assisted cashless exercise in which you irrevocably instruct a broker to
deliver proceeds of a sale of all or a portion of the Shares for which the Option is being exercised (or proceeds of a loan
secured by such Shares) to the Company in payment of the purchase price of such Shares; or
(c) by delivery to the Company or its designated agent of unencumbered Shares having an aggregate Fair Market
Value on the date of exercise equal to the purchase price of the Shares for which the Option is being exercised.
However, if the Committee determines, in any given circumstance, that payment of the exercise price with Shares is
undesirable for any reason, you will not be permitted to pay any portion of the exercise price in that manner.
7.
8.
Withholding Taxes . You may not exercise this Option in whole or in part unless you make arrangements acceptable to the Company
for payment of any federal, state, local or foreign withholding taxes that may be due as a result of the exercise of this Option. You
hereby authorize the Company (or any Affiliate) to withhold from payroll or other amounts payable to you any sums required to satisfy
such withholding tax obligations, and otherwise agree to satisfy such obligations in accordance with the provisions of Section 14 of the
Plan. If you wish to satisfy some or all of such withholding tax obligations by delivering Shares you already own or by having the
Company retain a portion of the Shares being acquired upon exercise of the Option, you must make such a request which shall be
subject to approval by the Company. Delivery of Shares upon exercise of this Option is subject to the satisfaction of applicable
withholding tax obligations.
Delivery of Shares . As soon as practicable after the Company receives the notice and exercise price provided for above, and
determines that all conditions to exercise, including Section 7 of this Agreement, have been satisfied, it will arrange for the delivery of
the Shares being purchased in accordance with the delivery instructions indicated in such notice. The Company will pay any original
issue or transfer taxes with respect to the issue and transfer of the Shares to you, and all fees and expenses incurred by it in connection
therewith. All Shares so issued will be fully paid and nonassessable. Notwithstanding anything to the contrary in this Agreement, the
Company will not be required to issue or deliver any
9.
10.
11.
12.
13.
14.
15.
Shares prior to the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation
as the Company may determine to be necessary or desirable.
Transfer of Option . During your lifetime, only you (or your guardian or legal representative in the event of legal incapacity) may
exercise this Option except in the case of a transfer described below. You may not assign or transfer this Option other than (i) a transfer
upon your death in accordance with your will, by the laws of descent and distribution or pursuant to a beneficiary designation submitted
in accordance with Section 6(d) of the Plan, or (ii) pursuant to a qualified domestic relations order. Following any such transfer, this
Option shall continue to be subject to the same terms and conditions that were applicable to this Option immediately prior to its transfer
and may be exercised by such permitted transferee as and to the extent that this Option has become exercisable and has not terminated
in accordance with the provisions of the Plan and this Agreement.
No Shareholder Rights Before Exercise . Neither you nor any permitted transferee of this Option will have any of the rights of a
shareholder of the Company with respect to any Shares subject to this Option until an appropriate book entry in the Company's stock
register has been made or a certificate evidencing such Shares has been issued. No adjustments shall be made for dividends or other
rights if the applicable record date occurs before an appropriate book entry has been made or your stock certificate has been issued,
except as otherwise described in the Plan.
Discontinuance of Service . This Agreement does not give you a right to continued Service with the Company or any Affiliate, and the
Company or any such Affiliate may terminate your Service at any time and otherwise deal with you without regard to the effect it may
have upon you under this Agreement.
Governing Plan Document . This Agreement and Option are subject to all the provisions of the Plan, and to all interpretations, rules
and regulations which may, from time to time, be adopted and promulgated by the Committee pursuant to the Plan. If there is any
conflict between the provisions of this Agreement and the Plan, the provisions of the Plan will govern.
Choice of Law . This Agreement will be interpreted and enforced under the laws of the state of Minnesota (without regard to its
conflicts or choice of law principles).
Binding Effect . This Agreement will be binding in all respects on your heirs, representatives, successors and assigns, and on the
successors and assigns of the Company.
Notices . Every notice or other communication relating to this Agreement shall be in writing and shall be mailed to or delivered to the
party for whom it is intended at such address as may from time to time be designated by it in a notice mailed or delivered to the other
party as herein provided. Unless and until some other address is so designated, all notices or communications by you to the Company
shall be mailed or delivered to the Company at its office at 6740 Shady Oak Road, Eden Prairie, MN 55344, fax 952-943-6111, and all
notices or communications by the Company to you may be given to you personally or may be mailed to you at the address indicated in
the Company's records as your most recent mailing address.
By signing the cover page of this Agreement or otherwise accepting this Award in a manner approved by the Company, you agree to all the
terms and conditions contained in this Agreement and in the Plan document.
Annual Cash Incentive Plan of ValueVision Media, Inc.
Exhibit 10.17
Similar to prior years, our compensation committee has approved an annual cash incentive plan for fiscal year 2012 that covers executive
officers and certain other key employees. The plan is designed to encourage and reward our executive officers for making decisions that improve
performance as measured by EBITDA, as adjusted, operating cash flow and operating expense, as adjusted, as a percentage of net sales. The plan
is designed to produce sustained shareholder value by establishing a direct link between these measures and incentive compensation. This annual
incentive to the executive officers is administered by our compensation committee.
Targets are established annually for the company as a whole and are based on our prior performance. The plan design motivates
continuous improvement in order to achieve payouts at or above target over time. The company's performance determines the amount, if any, of
awards earned under the annual incentive compensation plan. The awards are based on performance relative to the established target.
For fiscal 2012, a payout at 100% of target annual incentive compensation is achieved when company performance achieves the
performance measures in the plan. Actual incentive payments each year can range from 0% to 200% of the targeted incentive opportunity.
This annual performance-based incentive opportunity is established each year as a percentage of an executive's annual base salary and is
targeted at approximately the 50th percentile of our previously determined competitive market with the opportunity to earn more for above-target
performance or less for below-target performance. For fiscal 2012, each executive officer may be eligible for a target cash incentive opportunity
equal to 30% to 75% of their respective base salary.
The decision to make cash incentive payments is made annually by our compensation committee. Payment amounts are determined by the
compensation committee and are usually made in cash in the first quarter of the following fiscal year. The compensation committee retains
authority to adjust performance goals to exclude the impact of charges, gains or other factors that the compensation committee believes are not
representative of the underlying financial or operational performance of our company.
All of the Company's subsidiaries listed below are wholly owned.
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
Name
ValueVision Interactive, Inc.
VVI Fulfillment Center, Inc.
ValueVision Media Acquisitions, Inc.
ValueVision Retail, Inc.
Iosota, Inc.
FanBuzz, Inc.
FanBuzz Retail, Inc.
Norwell Television, LLC
State of Incorporation or Organization
Minnesota
Minnesota
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-167396, 333-168312, and 333-173156 on Form S-3 and 333-
81438, 333-125183, 333-139597, 333-175319, and 333-175320 on Form S-8 of our reports dated April 5, 2012 relating to the consolidated
financial statements and financial statement schedule of ValueVision Media, Inc. and subsidiaries, and the effectiveness of ValueVision Media,
Inc. and subsidiaries' internal control over financial reporting, appearing in this Annual Report on Form 10-K of ValueVision Media Inc. and
subsidiaries for the year ended January 28, 2012.
Exhibit 23
DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
April 5, 2012
I, Keith R. Stewart, certify that:
CERTIFICATION
1. I have reviewed this report on Form 10-K of ValueVision Media, Inc.;
Exhibit 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls over financial reporting.
Date: April 5, 2012
/s/ Keith R. Stewart
Keith R. Stewart
Chief Executive Officer
(Principal Executive Officer)
I, William McGrath, certify that:
CERTIFICATION
1.
I have reviewed this report on Form 10-K of ValueVision Media, Inc.;
Exhibit 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent
functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls over financial reporting.
Date: April 5, 2012
/s/ William McGrath
William McGrath
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF THE PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report on Form 10-K of ValueVision Media, Inc., a Minnesota corporation (the “ Company ”), for the year ended
January 28, 2012 , as filed with the Securities and Exchange Commission on or about the date hereof (the “ Report ”), the undersigned officers of
the Company certify pursuant to 18 U.S.C. Section 1350, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to their knowledge:
•
•
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company
and furnished to the Securities and Exchange Commission or its staff upon request.
Date: April 5, 2012
Date: April 5, 2012
/s/ Keith R. Stewart
Keith R. Stewart
Chief Executive Officer
(Principal Executive Officer)
/s/ William McGrath
William McGrath
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)