EVINE LIVE INC., 10-K filed on 3/31/2014
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Feb. 1, 2014
Feb. 2, 2013
Mar. 20, 2014
Aug. 2, 2013
Document Information [Line Items]
 
 
 
 
Entity Registrant Name
VALUEVISION MEDIA INC 
 
 
 
Entity Central Index Key
0000870826 
 
 
 
Current Fiscal Year End Date
--02-01 
 
 
 
Entity Filer Category
Accelerated Filer 
 
 
 
Document Type
10-K 
 
 
 
Document Period End Date
 
Feb. 01, 2014 
 
 
Document Fiscal Year Focus
 
2013 
 
 
Document Fiscal Period Focus
 
FY 
 
 
Amendment Flag
 
false 
 
 
Entity Common Stock, Shares Outstanding
 
 
49,836,253 
 
Entity Well-known Seasoned Issuer
No 
 
 
 
Entity Voluntary Filers
No 
 
 
 
Entity Current Reporting Status
Yes 
 
 
 
Entity Public Float
 
 
 
$ 240,646,613 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Feb. 1, 2014
Feb. 2, 2013
Current assets:
 
 
Cash and cash equivalents
$ 29,177 
$ 26,477 
Restricted cash and investments
2,100 
2,100 
Accounts receivable, net
107,386 
98,360 
Inventories
51,162 
37,155 
Prepaid expenses and other
6,032 
6,620 
Total current assets
195,857 
170,712 
Property and equipment, net
24,952 
24,665 
FCC broadcasting license
12,000 
12,000 
NBC trademark license agreement, net
3,997 
Other assets
896 
725 
Total Assets
233,705 
212,099 
Current liabilities:
 
 
Accounts payable
77,296 
65,719 
Accrued liabilities
38,535 
30,596 
Deferred revenue
85 
85 
Total current liabilities
115,916 
96,400 
Capital lease liability
88 
Deferred revenue
335 
420 
Deferred tax liability
1,158 
Long term credit facility
38,000 
38,000 
Total liabilities
155,497 
134,820 
Commitments and Contingencies
   
   
Shareholders' equity:
 
 
Common stock, $.01 per share par value, 100,000,000 shares authorized; 48,472,205 and 37,781,688 shares issued and outstanding
498 
491 
Warrants to purchase 6,007,372 shares of common stock
533 
533 
Additional paid-in capital
410,681 
407,244 
Accumulated deficit
(333,504)
(330,989)
Total shareholders’ equity
78,208 
77,279 
Total Liabilities and Equity
$ 233,705 
$ 212,099 
Consolidated Balance Sheets (Parentheticals) (USD $)
Feb. 1, 2014
Feb. 2, 2013
Stockholders' Equity:
 
 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
49,844,253 
49,139,361 
Warrants, Outstanding
 
6,000,000 
Common stock, par value
$ 0.01 
$ 0.01 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Feb. 1, 2014
Feb. 2, 2013
Jan. 28, 2012
Net sales
$ 640,489 
$ 586,820 
$ 558,394 
Cost of sales
410,465 
374,448 
354,299 
Gross profit
230,024 
212,372 
204,095 
Operating expense:
 
 
 
Distribution and selling
191,695 
193,037 
188,813 
General and administrative
25,932 
18,297 
19,542 
Depreciation and amortization
12,320 
13,224 
12,578 
FCC license impairment
11,111 
Total operating expense
229,947 
235,669 
220,933 
Operating loss
77 
(23,297)
(16,838)
Other income (expense):
 
 
 
Interest income
18 
11 
64 
Interest expense
(1,437)
(3,970)
(5,527)
Gain on sale of assets
100 
Gains (Losses) on Extinguishment of Debt
500 
25,679 
Total other expense
(1,419)
(4,359)
(31,142)
Loss before income taxes
(1,342)
(27,656)
(47,980)
Income tax (provision) benefit
(1,173)
(20)
(84)
Net loss
$ (2,515)
$ (27,676)
$ (48,064)
Net loss per common share
$ (0.05)
$ (0.57)
$ (1.03)
Net loss per common share — assuming dilution
$ (0.05)
$ (0.57)
$ (1.03)
Weighted average number of common shares outstanding:
 
 
 
Basic
49,504,892 
48,874,842 
46,451,262 
Diluted
49,504,892 
48,874,842 
46,451,262 
Consolidated Statement of Shareholders' Equity (USD $)
Total
Common Stock [Member]
Warrant [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit
Total Shareholders' Equity period beginning at Jan. 29, 2011
$ 83,152,000 
$ 378,000 
$ 602,000 
$ 337,421,000 
$ (255,249,000)
Common Stock, Shares, Outstanding period beginning at Jan. 29, 2011
 
37,781,688 
 
 
 
Net loss
(48,064,000)
 
 
 
(48,064,000)
Common stock issuances pursuant to equity compensation plans, Shares
 
601,362 
 
 
 
Common stock issuances pursuant to equity compensation plans, Value
1,828,000 
6,000 
 
1,822,000 
 
Common stock purchase warrants forfeited
 
(35,000)
35,000 
 
Share-based compensation
5,007,000 
 
 
5,007,000 
 
Stock Issued During Period, Shares, New Issues
 
9,487,500 
 
 
 
Stock Issued During Period, Value, New Issues
55,500,000 
95,000 
 
55,405,000 
 
Stock Issued During Period, Shares, Other
 
689,655 
 
 
 
Stock Issued During Period, Value, Other
4,166,000 
7,000 
 
4,159,000 
 
Total Shareholders' Equity period end at Jan. 28, 2012
101,589,000 
486,000 
567,000 
403,849,000 
(303,313,000)
Common Stock, Shares, Outstanding period end at Jan. 28, 2012
 
48,560,205 
 
 
 
Net loss
(27,676,000)
 
 
 
(27,676,000)
Common stock issuances pursuant to equity compensation plans, Shares
 
579,156 
 
 
 
Common stock issuances pursuant to equity compensation plans, Value
109,000 
5,000 
 
104,000 
 
Common stock purchase warrants forfeited
 
(34,000)
34,000 
 
Share-based compensation
3,257,000 
 
 
3,257,000 
 
Stock Issued During Period, Value, Other
 
 
 
 
Total Shareholders' Equity period end at Feb. 02, 2013
77,279,000 
491,000 
533,000 
407,244,000 
(330,989,000)
Common Stock, Shares, Outstanding period end at Feb. 02, 2013
 
49,139,361 
 
 
 
Net loss
(2,515,000)
 
 
 
(2,515,000)
Common stock issuances pursuant to equity compensation plans, Shares
 
704,892 
 
 
 
Common stock issuances pursuant to equity compensation plans, Value
227,000 
7,000 
 
220,000 
Share-based compensation
 
 
 
 
Share-based compensation
3,217,000 
3,217,000 
Stock Issued During Period, Value, Other
 
 
 
 
Total Shareholders' Equity period end at Feb. 01, 2014
$ 78,208,000 
$ 498,000 
$ 533,000 
$ 410,681,000 
$ (333,504,000)
Common Stock, Shares, Outstanding period end at Feb. 01, 2014
 
49,844,253 
 
 
 
Consolidated Statements of Cash Flows (USD $)
12 Months Ended
Feb. 1, 2014
Feb. 2, 2013
Jan. 28, 2012
OPERATING ACTIVITIES:
 
 
 
Net loss
$ (2,515,000)
$ (27,676,000)
$ (48,064,000)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization
12,585,000 
13,424,000 
12,827,000 
Share-based compensation
3,217,000 
3,257,000 
5,007,000 
Write-off of deferred financing costs
2,306,000 
Amortization of deferred revenue
(85,000)
(87,000)
(1,061,000)
Amortization of debt discount
575,000 
Amortization of deferred finance costs
178,000 
249,000 
609,000 
Asset impairments and write-offs
11,111,000 
Increase (Decrease) in Income Taxes Payable
1,158,000 
Gains (Losses) on Extinguishment of Debt
500,000 
25,679,000 
Gain on the disposal of equipment
(102,000)
(416,000)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(9,026,000)
(18,086,000)
9,909,000 
Inventories, net
(14,007,000)
6,321,000 
(3,676,000)
Prepaid expenses and other
649,000 
(2,066,000)
(460,000)
Deferred Revenue
500,000 
Accounts payable and accrued liabilities
21,799,000 
2,367,000 
(15,447,000)
Accrued dividends payable — Series B Preferred Stock
1,069,000 
Net cash provided by (used for) operating activities
13,953,000 
(8,482,000)
(12,949,000)
INVESTING ACTIVITIES:
 
 
 
Property and equipment additions
(8,247,000)
(6,157,000)
(11,096,000)
Change in restricted cash and investments
2,861,000 
Purchase of NBC Trademark License
(2,830,000)
(4,000,000)
Proceeds from disposal of equipment
102,000 
416,000 
Net cash used for investing activities
(11,077,000)
(10,055,000)
(7,819,000)
FINANCING ACTIVITIES:
 
 
 
Payment for Series B Preferred stock redemption
(40,853,000)
Payment for Series B Preferred stock dividend
(8,915,000)
Payments for deferred issuance costs
(390,000)
(552,000)
(306,000)
Proceeds from Issuance of Long-term Debt
38,215,000 
Repayments of Long-term Debt
(25,715,000)
Payments on capital leases
(13,000)
Proceeds from exercise of stock options
227,000 
109,000 
1,828,000 
Procceeds from issuance of common stock, net
55,500,000 
Net cash provided by (used for) financing activities
(176,000)
12,057,000 
7,254,000 
Net increase (decrease) in cash and cash equivalents
2,700,000 
(6,480,000)
(13,514,000)
BEGINNING CASH AND CASH EQUIVALENTS
26,477,000 
32,957,000 
46,471,000 
ENDING CASH AND CASH EQUIVALENTS
$ 29,177,000 
$ 26,477,000 
$ 32,957,000 
The Company
The Company
The Company
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. The Company operates a 24-hour television shopping network, ShopHQ, which is distributed primarily through cable and satellite affiliation agreements, through which we offer brand name and private label products in the categories of jewelry & watches; home & consumer electronics; beauty, health & fitness; and fashion & accessories. Orders are fulfilled via telephone, online and mobile channels. The television network is distributed into approximately 87 million homes, primarily through cable and satellite affiliation agreements, agreements with telecommunications companies such as AT&T and Verizon and the purchase of month-to-month full- and part-time lease agreements of cable and broadcast television time. Programming is also streamed live on the internet at ShopHQ.com. Programming is also distributed 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 ShopHQ.com, a comprehensive e-commerce platform that sells products which appear on its television shopping channel as well as an extended assortment of online-only merchandise. The live programming and products are also marketed via mobile devices, including smartphones and tablets, and through the leading social media channels.
In May 2013, the Company announced its intention to rebrand its 24-hour television shopping network, ShopNBC, and its companion e-commerce internet website, ShopNBC.com and on January 31, 2014, the Company officially transitioned to its new brand, ShopHQ and ShopHQ.com, to reinforce its positioning as the shopping headquarters for customers.
Summary of Significant Accounting Policies
Significant Accounting Policies
Summary of Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31. References to years in this report relate to fiscal years, rather than to calendar years. The Company’s most recently completed fiscal year, fiscal 2013, ended on February 1, 2014, and consisted of 52 weeks. Fiscal 2012 ended on February 2, 2013 and consisted of 53 weeks. Fiscal 2011 ended on January 28, 2012 and consisted of 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 generally accepted accounting principles ("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 $6,446,000 at February 1, 2014 and $6,214,000 at February 2, 2013. 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 February 1, 2014 and February 2, 2013, the Company had approximately $101,658,000 and $92,571,000, 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 $12,762,000, $11,792,000 and $11,876,000 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
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 $10,112,000, $9,348,000 and $8,245,000 for fiscal 2013, fiscal 2012 and fiscal 2011, 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 for each of fiscal 2013 and fiscal 2012. The restricted cash and investments primarily collateralize the Company’s issuances of commercial letters of credit. The Company’s restricted cash and investments consist of certificates of deposit. 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 provision write downs of $3,776,000, $3,787,000 and $2,208,000 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
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 $1,893,000, $1,074,000 and $892,000 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively. Total marketing and advertising costs and internet search marketing fees, after reflecting allowances given by vendors, totaled $1,827,000, $1,843,000 and $2,115,000 for fiscal 2013, fiscal 2012 and fiscal 2011, 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.
Income Taxes
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 loss per share is computed by dividing reported loss by the weighted average number of common shares outstanding for the reported period. Diluted net 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 net loss per share calculations and the number of shares used in the calculation of basic net loss per share and diluted net loss per share is as follows:
 
 
For the Years Ended
 
 
February 1,
2014
 
February 2,
2013
 
January 28,
2012
Net loss (a)
 
$
(2,515,000
)
 
$
(27,676,000
)
 
$
(48,064,000
)
Weighted average number of common shares outstanding — Basic
 
49,504,892

 
48,874,842

 
46,451,262

Dilutive effect of stock options, non-vested shares and warrants
 

 

 

Weighted average number of common shares outstanding — Diluted
 
49,504,892

 
48,874,842

 
46,451,262

 
 
 
 
 
 
 
Net loss per common share
 
$
(0.05
)
 
$
(0.57
)
 
$
(1.03
)
Net loss per common share — assuming dilution
 
$
(0.05
)
 
$
(0.57
)
 
$
(1.03
)

(a) The net loss for fiscal 2013 includes activist shareholder response charges of approximately $2.1 million. The net loss for fiscal 2012 includes an $11.1 million non-cash intangible asset impairment charge related to the Company's FCC broadcasting license. In addition, the net losses for fiscal 2012 and fiscal 2011 also include charges totaling $500,000 and $25.7 million, respectively, related to losses on debt extinguishment made during the first quarters of those respective years.
For fiscal 2013, fiscal 2012 and fiscal 2011, approximately 6,247,000, 3,920,000 and 5,563,000, 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 $38 million long term credit facility is estimated based on rates available to the Company for issuance of debt. As of February 1, 2014, the Company's long term credit facility had a carrying amount and an estimated fair value of $38 million.
Fair Value Measurements on a Nonrecurring Basis
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to the Company's tangible fixed assets and intangible FCC broadcasting license asset, which are remeasured when estimated fair value is below carrying value on the consolidated balance sheets. For these assets, the Company does not periodically adjust its carrying value to fair value except in the event of impairment. If the Company determines that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded as a loss within operating income in the consolidated statement of operations. During fiscal 2012, the Company recorded an $11.1 million million non-cash impairment charge to reduce the carrying value of its intangible FCC broadcasting license asset to fair value in the accompanying fiscal 2012 consolidated balance sheet. The Company had no remeasurements of such assets or liabilities to fair value during fiscal 2013.
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 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 for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards. Non-vested share awards are recorded as compensation cost over the requisite service periods based on the fair value on the date of grant.
Property and Equipment
Property, Plant and Equipment Disclosure [Text Block]
Property and Equipment
Property and equipment in the accompanying consolidated balance sheets consisted of the following:
 
 
Estimated Useful Life (In Years)
 
February 1, 2014
 
February 2, 2013
Land and improvements
 
 
$
3,437,000

 
$
3,437,000

Buildings and improvements
 
5-40
 
23,737,000

 
23,261,000

Transmission and production equipment
 
5-10
 
6,216,000

 
5,907,000

Office and warehouse equipment
 
3-15
 
9,039,000

 
8,611,000

Computer hardware, software and telephone equipment
 
3-7
 
88,930,000

 
86,602,000

Leasehold improvements
 
3-5
 
2,681,000

 
2,681,000

Less — Accumulated depreciation
 
 
 
(109,088,000
)
 
(105,834,000
)
 
 
 
 
$
24,952,000

 
$
24,665,000

Depreciation expense in fiscal 2013, fiscal 2012 and fiscal 2011 was $8,589,000, $9,376,000 and $8,949,000, respectively.
Intangible Assets
Intangible Assets
Intangible Assets
Intangible assets in the accompanying consolidated balance sheets consisted of the following:
 
 
Weighted
Average
Life
(Years)
 
February 1, 2014
 
February 2, 2013
 
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
  NBCU trademark license - second renewal
 
 
$
6,830,000

 
$
(6,830,000
)
 
$
6,830,000

 
$
(2,833,000
)
 
 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
  FCC broadcast license
 
 
 
$
12,000,000

 
 
 
$
12,000,000

 
 

The Company annually reviews its FCC television broadcast license for impairment in the fourth quarter, or more frequently if an impairment indicator is present. As of February 1, 2014 the Company had an intangible FCC broadcasting license with a carrying value and fair value of $12,000,000 and $13,100,000, respectively. As of February 2, 2013 the Company had an intangible FCC broadcasting license with a carrying value and fair value of $12,000,000. The Company estimates the fair value of its FCC television broadcast license primarily by using income-based discounted cash flow models with the assistance of an independent outside fair value consultant. The Company also considers comparable asset market and sales data for recent comparable market transactions for standalone television broadcasting stations to assist in determining fair value.
During the Company's annual fiscal 2012 fair value assessment and utilizing independent market data, assumptions in the Company's discounted cash flow models reflected declines in independent television station industry revenues and operating margins due to television station rating declines and reduced advertising purchases on local broadcast television stations. As a result, cash flows from our discounted cash flow model did not support recovery of the asset's carrying value and the Company recorded an $11.1 million non-cash impairment charge in the fourth quarter of fiscal 2012. The discounted cash flow models utilize a range of assumptions including revenues, operating profit margin, projected capital expenditures and an unobservable discount rate of 10%-10.5%. The Company concluded that the inputs used in its intangible FCC broadcasting license valuation at February 2, 2013 are Level 3 inputs related to this valuation.
While the Company believes that its 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, the Company's valuation for this license could be materially different if it were to decide to sell it in the short term which, upon revaluation, could result in a future impairment of this asset.
On January 31, 2014, ShopNBC and ShopNBC.com officially transitioned to its new brand, ShopHQ and ShopHQ.com to reinforce its positioning as the shopping headquarters for customers. On May 11, 2012, the Company amended its trademark license agreement for the use of the ShopNBC brand name with NBCU, extending the term of the license agreement through January 2014. As consideration for the amendment, the Company paid NBCU $4,000,000 upon execution and paid an additional $2,830,000 on May 15, 2013. On May 16, 2011, the Company issued 689,655 shares of the Company's common stock as consideration for a one-year renewal of the same trademark license agreement. 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 2013, fiscal 2012 and fiscal 2011 was $3,997,000, $4,048,000 and $3,879,000, respectively. As of February 1, 2014, the Company's trademark license asset was fully amortized.
Accrued Liabilities
Accrued Liabilities, Current [Abstract]
Accrued Liabilities
Accrued liabilities in the accompanying consolidated balance sheets consisted of the following:
 
 
February 1, 2014
 
February 2, 2013
Accrued cable access fees
 
$
15,861,000

 
$
15,156,000

Accrued salaries and related
 
10,679,000

 
2,377,000

NBCU license agreement
 

 
2,830,000

Reserve for product returns
 
4,894,000

 
5,854,000

Other
 
7,101,000

 
4,379,000

 
 
$
38,535,000

 
$
30,596,000

ShopHQ Private Label Consumer Credit Card Program
ShopNBC Private Label Consumer Credit Card Program
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 ShopHQ. 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 ShopHQ credit card furthers customer loyalty, reduces total credit card expense and reduces the Company’s overall bad debt exposure since the credit card issuing bank bears the risk of loss on ShopHQ credit card transactions that do not utilize the Company's 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. As of March 28, 2014, GE Equity has an approximate 11% beneficial ownership in the Company and has the right to select three members of the Company’s board of directors.
Fair Value Measurements
Fair Value Measurements
Fair Value Measurements
GAAP utilizes 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 (Level 1 measurement), then priority to quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
As of February 1, 2014 and February 2, 2013 the Company had $2,100,000 in Level 2 investments in the form of bank certificates of deposit which are used as cash collateral for the issuance of commercial and standby letters of credit. The Company's investments in certificates of deposits were measured using inputs based upon quoted prices for similar instruments in active markets and, therefore, were classified as Level 2 investments. As of February 1, 2014 and February 2, 2013 the Company also had a long-term variable rate bank credit loan with a carrying value of $38,000,000. The fair values of the variable rate bank loan approximates and is based on its carrying value. The Company has no Level 3 investments that use significant unobservable inputs.
Non Financial Assets Measured at Fair Value - Nonrecurring Basis
As of February 1, 2014 and February 2, 2013 the Company had an intangible FCC broadcasting license asset with a carrying values of $12,000,000. The Company estimates the fair value of its FCC television broadcast license asset primarily by using income-based discounted cash flow models with the assistance of an independent outside fair value consultant. The discounted cash flow models utilize a range of assumptions including revenues, operating profit margin, projected capital expenditures and an unobservable input discount rates of 10% - 10.5%. The Company concluded that the inputs used in its intangible FCC broadcasting license asset valuation are Level 3 inputs.
The following table provides a reconciliation of the beginning and ending balances of non-financial assets measured at fair value on a nonrecurring basis that use significant unobservable inputs (Level 3):
 
 
February 1,
2014
 
February 2,
2013
Intangible FCC Broadcasting License Asset:
 
 
 
 
Beginning balance
 
$
12,000,000

 
$
23,111,000

Losses included in earnings (asset impairment)
 

 
11,111,000

Ending balance
 
$
12,000,000

 
$
12,000,000

Preferred Stock
Preferred Stock and Long-Term Payables
Preferred Stock
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, reducing 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.
Credit Agreements
Credit Agreements
Credit Agreement
On February 9, 2012, the Company entered into a 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. On January 31, 2014, the Company entered into a third amendment to its revolving credit and security agreement with PNC, as previously amended that, among other things, increased the size of the revolving line of credit from $50 million to $60 million and provides for a $15 million term loan on which the Company may draw to fund potential improvements at the Company's distribution facility in Bowling Green, Kentucky.
The revolving line of credit under the Credit Facility, as amended, bears interest at LIBOR plus 3% per annum. All borrowings under the amended Credit Facility mature and are payable on May 1, 2018. 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 $18.5 million, provides liquidity for working capital and general corporate purposes.
Maximum borrowings and available capacity under the amended revolving Credit Facility are equal to the lesser of $60 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 properties located in Eden Prairie, Minnesota and 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 Credit Facility is subject to mandatory prepayment in certain circumstances. In addition, if the total Credit Facility is terminated prior to maturity, the Company would be required to pay an early termination fee of 3% of the total Credit Facility if terminated in year one; 1.0% if terminated in year two; 0.5% if terminated in year three; and no fee if terminated in years four or five. Interest expense recorded under the Credit Facility's revolving line of credit was $1,435,000 and $1,503,000 for fiscal 2013 and fiscal 2012, respectively.
If drawn, the term loan shall bear interest at either (i) a fixed rate based on the LIBOR Rate for interest periods of one, two, three or six months, or (ii) a daily floating alternate base rate (the “Base Rate”), plus a margin of 5% on the Base Rate and 6% on the LIBOR Rate until January 31, 2015, at which time the margin shall adjust each fiscal year to a rate consisting of between 4% and 5% on Base Rate term loans and 5% to 6% on LIBOR Rate term loans based on the Company’s leverage ratio as demonstrated in its audited financial statements. Principal borrowings under the term loan are to be payable in monthly installments over an 84 month amortization period commencing six months after the initial term loan advance and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, if the outstanding borrowings are more than the borrowing base and upon receipt of certain proceeds from dispositions of collateral. The third amendment also provides that borrowings under the term loan, if made, are subject to mandatory prepayment starting in the fiscal year ending January 31, 2016 in an amount equal to fifty percent (50%) of excess cash flow for such fiscal year, with any such payment not to exceed $3,750,000 in any such fiscal year. As of February 1, 2014, there were no borrowings under the Credit Facility term loan.
The amended Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus facility availability of $10 million at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the Credit Facility) and minimum fixed charge coverage ratio, become applicable only if unrestricted cash plus facility availability falls below $16 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.
Costs incurred to obtain amendments to the Credit Facility of approximately $410,000 and unamortized costs incurred to obtain the original Credit Facility totaling $466,000 have been deferred and are being expensed as additional interest over the five-year term of the Credit Facility. In connection with a previous term loan refinancing, the Company was required to pay an early termination fee of $500,000, which was recorded as a loss on debt extinguishment in the accompanying statement of operations for the year ending February 2, 2013. Additionally, the Company recorded an additional non-cash interest charge totaling $2.3 million in the first quarter of fiscal 2012 relating to the write-off of unamortized term loan financing costs.
Shareholders' Equity
Shareholders' Equity
Shareholder's Equity
Common Stock
The Company currently has authorized 100,000,000 shares of undesignated capital stock, of which 49,844,253 shares were issued and outstanding as common stock as of February 1, 2014. 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 Credit Facility.
Warrants
As of February 1, 2014, 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.
Stock-Based Compensation
Compensation is recognized for all share-based compensation arrangements by the Company. Stock-based compensation expense for fiscal 2013, fiscal 2012 and fiscal 2011 related to stock option awards was $2,405,000, $1,682,000 and $2,647,000, respectively. The Company has not recorded any income tax benefit from the exercise of stock options due to the uncertainty of realizing income tax benefits in the future.
As of February 1, 2014, the Company had two omnibus stock plans for which stock awards can be currently granted: the 2011 Omnibus Incentive Plan that provides for the issuance of up to 6,000,000 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 10 years after the effective date of the respective plan's inception or be exercisable more than 10 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. With the exception of market-based options, 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 have contractual terms of 10 years from the date of grant.
The fair value of each time-based vesting 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 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.
 
Fiscal 2013
 
Fiscal 2012
 
Fiscal 2011
Expected volatility
98% - 100%
 
97% - 99%
 
88% - 96%
Expected term (in years)
5 - 6 years
 
6 years
 
6 years
Risk-free interest rate
1.1% - 2.1%
 
1.0% - 1.4%
 
1.3% - 2.7%

Market-Based Stock Option Awards
On October 3, 2012, the Company granted 2,125,000 non-qualified market-based stock options to its executive officers as part of the Company's long-term executive compensation program. The options were granted with an exercise price of $4.00 and each option will become exercisable in three tranches, as follows, on the dates when the Company's average closing stock price for 20 consecutive trading days equals or exceeds the following prices: Tranche 1 (50% of the shares subject to the option at $6.00 per share); Tranche 2 (25% at $8.00 per share); and Tranche 3 (25% at $10.00 per share). On August 14, 2013, 50% of this stock option grant (Tranche 1) vested and as a result, the vesting of the second and third tranches can occur any time on or before the fifth anniversary of the grant date. Net shares issued upon the exercise of these market-based stock options (after shares are potentially withheld to cover the exercise price and applicable withholding taxes) may not be sold for a period of one year from the date of exercise. As of February 1, 2014, all 2,125,000 market-based stock option awards were outstanding. The total grant date fair value was estimated to be $1,998,000 and is being amortized over the derived service periods for each tranche. Grant date fair values and derived service periods for each tranche were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of 0.38%, a weighted average expected life of 3.3 years and an implied volatility of 78% and were as follows for each tranche:
 
Fair Value (Per Share)
 
Derived Service Period
Tranche 1 ($6.00/share)
$0.93
 
15
months
Tranche 2 ($8.00/share)
$0.95
 
20
months
Tranche 3 ($10.00/share)
$0.95
 
24
months

A summary of the status of the Company’s stock option activity as of February 1, 2014 and changes during the year then ended is as follows:
 
 
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
Balance outstanding,
February 2, 2013
 
2,500,000

 
$
3.73

 
2,098,000

 
$
6.23

 
1,169,000

 
$
5.88

 
525,000

 
$
4.12

Granted
 
591,000

 
$
5.17

 
50,000

 
$
3.73

 

 
$

 

 
$

Exercised
 
(8,000
)
 
$
1.97

 
(42,000
)
 
$
2.14

 
(40,000
)
 
$
1.92

 
(25,000
)
 
$
1.69

Forfeited or canceled
 

 
$

 
(2,000
)
 
$
10.41

 
(8,000
)
 
$
2.95

 

 
$

Balance outstanding,
February 1, 2014
 
3,083,000

 
$
4.03

 
2,104,000

 
$
6.25

 
1,121,000

 
$
6.05

 
500,000

 
$
4.24

Options Exercisable at:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
February 1, 2014
 
1,229,000

 
$
3.78

 
2,037,000

 
$
6.21

 
1,121,000

 
$
6.05

 
397,000

 
$
4.11

February 2, 2013
 
50,000

 
$
2.29

 
1,965,000

 
$
6.14

 
1,151,000

 
$
5.69

 
363,000

 
$
3.90

January 28, 2012
 

 
$

 
2,015,000

 
$
6.18

 
1,029,000

 
$
6.35

 
143,000

 
$
3.60


The following table summarizes information regarding stock options outstanding at February 1, 2014:
 
 
Options Outstanding
 
Options Vested or Expected to Vest
Option Type
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
2011 Incentive:
 
3,083,000

 
$
4.03

 
7.4
 
$
6,597,000

 
2,580,000

 
$
3.76

 
8.8
 
$
6,208,000

2004 Incentive:
 
2,104,000

 
$
6.25

 
4.9
 
$
2,793,000

 
2,097,000

 
$
6.25

 
4.9
 
$
2,793,000

2001 Incentive:
 
1,121,000

 
$
6.05

 
4.5
 
$
1,475,000

 
1,121,000

 
$
6.05

 
4.5
 
$
1,475,000

Non-Qualified:
 
500,000

 
$
4.24

 
6.4
 
$
981,000

 
490,000

 
$
4.23

 
6.4
 
$
965,000


The weighted average grant-date fair value of options granted in fiscal 2013, fiscal 2012 and fiscal 2011 was $3.96, $1.03 and $4.31, respectively. The total intrinsic value of options exercised during fiscal 2013, fiscal 2012 and fiscal 2011 was $469,000, $146,000 and $1,856,000, respectively. As of February 1, 2014, total unrecognized compensation cost related to stock options was $2,898,000 and is expected to be recognized over a weighted average period of approximately 1.3 year.
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 $174,000, $52,000 and $691,000 in fiscal 2013, fiscal 2012 and fiscal 2011, 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 2013, fiscal 2012 and fiscal 2011 relating to restricted stock grants was $812,000, $1,575,000 and $2,360,000, respectively. As of February 1, 2014, there was $2,455,000 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 1.5 years. The total fair value of restricted stock vested during fiscal 2013, fiscal 2012 and fiscal 2011 was $2,800,000, $874,000 and $316,000, respectively.
On November 25, 2013, the Company granted a total of 436,000 shares of restricted stock to certain key employees as part of the Company's long-term incentive program. The restricted stock will vest in three equal annual installments beginning November 25, 2014. The aggregate market value of the restricted stock at the date of the award was $2,426,000 and is being amortized as compensation expense over the three-year vesting period.
During the first half of fiscal 2013, the Company granted a total of 44,000 shares of restricted stock to six non-management board members as part of the Company's annual director compensation program. Each restricted stock award 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 $228,000 and is being amortized as director compensation expense over the twelve-month vesting period.
On October 3, 2012, the Company granted 300,000 shares of market-based restricted stock to certain key employees as part of the Company's long-term incentive program. Each restricted stock award will vest in three tranches, as follows, on the dates when the Company's average closing stock price for 20 consecutive trading days equals or exceeds the following prices: Tranche 1 (50% of the shares subject to the award at $6.00 per share); Tranche 2 (25% at $8.00 per share); and Tranche 3 (25% at $10.00 per share). On August 14, 2013, 50% of this restricted stock grant (Tranche 1) vested and as a result, the vesting of the second and third tranches can occur any time on or before the fifth anniversary of the grant date. Net shares received upon the vesting of these market-based stock restricted awards (after shares are potentially withheld to cover applicable withholding taxes) may not be sold for a period of one year from the date of vesting. As of February 1, 2014, 150,000 market-based restricted stock awards were outstanding. The total grant date fair value was estimated to be $425,000 and is being amortized over the derived service periods for each tranche.
Grant date fair values and derived service periods for each tranche were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of 0.32%, a weighted average expected life of 2.8 years and an implied volatility of 78% and were as follows for each tranche:
 
Fair Value
(Per Share)
 
Derived Service
Period
Tranche 1 ($6.00/share)
$1.48
 
15
months
Tranche 2 ($8.00/share)
$1.39
 
20
months
Tranche 3 ($10.00/share)
$1.31
 
24
months

On June 13, 2012, the Company granted a total of 50,000 shares of restricted stock to five non-management board members as part of the Company's annual director compensation program. These restricted stock awards vested on June 18, 2013. The aggregate market value of the restricted stock at the date of the award was $85,000 and was amortized as director compensation expense over the twelve-month vesting period.
A summary of the status of the Company’s non-vested restricted stock activity as of February 1, 2014 and changes during the twelve-month period then ended is as follows:
 
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 2, 2013
 
772,000

 
$3.00
Granted
 
480,000

 
$5.53
Vested
 
(588,000
)
 
$3.49
Forfeited
 
(23,000
)
 
$1.96
Non-vested outstanding, February 1, 2014
 
641,000

 
$4.49
Sales by Product Group
Sales by Product Group
Sales by Product Group
The Company has only one reporting segment, which encompasses multichannel electronic retailing. The Company markets, sells and distributes its products to consumers primarily through its electronic multichannel mediums of television and internet website ShopHQ.com. The Company's multichannel electronic television shopping and internet online operations have similar economic characteristics with respect to products, product sourcing, vendors, marketing and promotions, gross margins, customers, and methods of distribution. In addition, the Company believes that its television shopping program is a key driver of traffic to the ShopHQ website whereby many of the internet sales originate from customers viewing the Company's television program and then place their orders online. All of the Company's sales are made to customers residing in the United States. The chief operating decision maker is the Chief Executive Officer of the Company.
Information on net sales by significant product groups are as follows (in thousands):
 
 
 
For the Years Ended
 
 
 
February 1,
2014
 
February 2,
2013
 
January 28,
2012
Jewelry & Watches
 
 
$
253,359

 
$
282,275

 
$
272,689

Home & Consumer Electronics
 
 
193,601

 
146,838

 
146,917

Beauty, Health & Fitness
 
 
75,132

 
73,247

 
61,160

Fashion & Accessories
 
 
62,465

 
42,240

 
34,947

All other (primarily shipping & handling revenue)
 
 
55,932

 
42,220

 
42,681

Total
 
 
$
640,489

 
$
586,820

 
$
558,394

Income Taxes
Income Taxes
Income Taxes
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 February 1, 2014 and February 2, 2013 were as follows (in thousands):

 
 
February 1, 2014
 
February 2, 2013
Accruals and reserves not currently deductible for tax purposes
 
$
5,066

 
$
5,365

Inventory capitalization
 
966

 
719

Differences in depreciation lives and methods
 
2,811

 
2,885

Differences in basis of intangible assets
 
(1,180
)
 
(392
)
Differences in investments and other items
 
(141
)
 
442

Net operating loss carryforwards
 
113,229

 
111,276

Valuation allowance
 
(121,909
)
 
(120,295
)
Net deferred tax liability
 
$
(1,158
)
 
$


The provision from income taxes consisted of the following (in thousands):
 
 
For the Years Ended
 
 
February 1, 2014
 
February 2, 2013
 
January 29, 2011
Current
 
$
(15
)
 
$
(20
)
 
$
(84
)
Deferred
 
(1,158
)
 

 

 
 
$
(1,173
)
 
$
(20
)
 
$
(84
)


A reconciliation of the statutory tax rates to the Company’s effective tax rate is as follows:
 
 
For the Years Ended
 
 
February 1, 2014
 
February 2, 2013
 
January 29, 2011
Taxes at federal statutory rates
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal tax benefit
 
(5.3
)
 
1.8

 
0.4

Non-cash stock option vesting expense
 
(43.3
)
 
(3.8
)
 
(0.9
)
Non-deductible interest
 

 

 
(1.2
)
Non-deductible loss on debt extinguishment
 

 

 
(18.7
)
Other
 
(0.6
)
 
0.1

 
0.1

FCC license deferred tax liability
 
(81.5
)
 

 

Valuation allowance and NOL carryforward benefits
 
8.4

 
(33.2
)
 
(14.9
)
Effective tax rate
 
(87.3
)%
 
(0.1
)%
 
(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 February 1, 2014 and February 2, 2013 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 February 1, 2014, the Company has federal net operating loss carryforwards (NOL's) of approximately $304 million and state NOL's of approximately $140 million which are available to offset future taxable income. The Company's federal NOLs expire in varying amounts each year from 2023 through 2034 in accordance with applicable federal tax regulations and the timing of when the NOLs were incurred. During the first quarter of fiscal 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.
For the year ended February 1, 2014, the income tax provision included a non-cash tax charge of approximately $1,158,000 relating to changes in the Company's long-term deferred tax liability related to the tax amortization of the Company's indefinite-lived intangible FCC license asset that is not available to offset existing deferred tax assets in determining changes to the Company's income tax valuation allowance.
As of February 1, 2014 and February 2, 2013, there were no unrecognized tax benefits for uncertain tax positions. Accordingly, a tabular reconciliation from beginning to ending periods is not provided. Further, to date, there have been no interest or penalties charged or accrued in relation to unrecognized tax benefits. The Company will classify any future interest and penalties as a component of income tax expense if incurred. The Company does not anticipate that the amount of unrecognized tax benefits will change significantly in the next twelve months.
The Company is subject to U.S. federal income taxation and the taxing authorities of various states. The Company’s tax years for 2010, 2011, and 2012 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 2010.
Commitments and Contingencies
Contractual Obligation, Fiscal Year Maturity Schedule [Table Text Block]
Commitments and Contingencies
Cable and Satellite Affiliation Agreements
As of February 1, 2014, the Company has entered into affiliation agreements that represent approximately 1,722 cable systems along with the satellite companies DIRECTV and DISH that require each to offer the Company’s television shopping programming on a full-time basis over their systems. The terms of the affiliation agreements typically range from one to five years. During the fiscal year, certain agreements with cable, satellite or other distributors may expire. Under certain circumstances, the television operators or the Company may cancel the agreements prior to their expiration. Additionally, the Company may elect not to renew distribution agreements whose terms result in sub-standard or negative contribution margins. 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 the Company's programming. For fiscal 2013, fiscal 2012 and fiscal 2011, respectively, the Company expensed approximately $92,473,000, $110,984,000 and $106,658,000 under these affiliation agreements.
Over the past years, each of the material cable and satellite distribution agreements up for renewal has 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 the Company's ability to compete for television viewers to the extent it results in less desirable channel positioning for us, placement of the Company's 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 shopping programming.
Future cable and satellite affiliation cash commitments at February 1, 2014 are as follows:
 
 

Fiscal Year
Amount
 
 
2014
$
100,066,000

2015
66,189,000

2016
981,000

2017

2018 and thereafter

Employment Agreements
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 February 1, 2014 was approximately $2,846,000.
The Company has established internal guidelines 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 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 February 1, 2014 are as follows:
 
 

Future Minimum Lease Payments:
Amount
 
 
2014
$
1,941,000

2015
1,428,000

2016
793,000

2017
113,000

2018 and thereafter


Total rent expense under such agreements was approximately $2,015,000 in fiscal 2013, $1,715,000 in fiscal 2012 and $1,706,000 in fiscal 2011.
Capital Lease Commitments
The Company leases certain computer equipment and software licenses under noncancelable capital leases and includes these assets in property and equipment in the accompanying consolidated balance sheets. The capitalized cost of leased assets was approximately $155,000 at February 1, 2014. The Company did not have capital leases recorded during fiscal 2012.
Future minimum lease payments for assets under capital leases at February 1, 2014 are as follows:
Future Minimum Lease Payments:
Amount
 
 
2014
$
55,000

2015
55,000

2016
36,000

2017

2018 and thereafter

Total minimum lease payments
146,000

Less: Amounts representing interest
(7,000
)
 
139,000

Less: Current portion
(55,000
)
Long-term capital lease obligation
$
84,000

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. Starting in fiscal 2013, the Company elected to make matching contributions to the plan and matched $0.50 for every $1.00 contributed by eligible participants up to a maximum of 6% of eligible compensation. Company plan contributions totaling approximately $921,000 were accrued during fiscal 2013 and were made to the plan in February 2014. During fiscal 2012 and fiscal 2011, the Company did not make any matching contributions to the plan.
Litigation
Litigation
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.
Supplemental Cash Flow Information
Schedule of Cash Flow, Supplemental Disclosures [Table Text Block]
Supplemental Cash Flow Information
Supplemental cash flow information and noncash investing and financing activities were as follows:
 
 
For the Years Ended
 
 
February 1, 2014
 
February 2, 2013
 
January 28, 2012
Supplemental Cash Flow Information:
 
 

 
 

 
 

Interest paid
 
$
1,259,000

 
$
1,959,000

 
$
3,320,000

Income taxes paid
 
$
16,000

 
$
27,000

 
$
98,000

Supplemental non-cash investing and financing activities:
 
 
 
 

 
 

Common stock purchase warrants forfeited
 
$

 
$
34,000

 
$
35,000

Deferred issuance costs included in accrued liabilities
 
$
20,000

 
$

 
$
53,000

Property and equipment purchases included in accounts payable
 
$
521,000

 
$
48,000

 
$
156,000

Issuance of 689,655 shares of common stock for license agreement
 
$

 
$

 
$
4,166,000

Intangible asset purchase included in accrued liabilities
 
$

 
$
2,830,000

 
$

Relationship with NBCU and GE Equity (Notes)
Relationship with NBCU and GE Equity
Relationship with NBCU, Comcast and GE Equity
Alliance with GE Equity and NBCU
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.
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, whose common equity was initially 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. In March 2013, GE sold its remaining 49% common equity interest in NBCUniversal, LLC to Comcast pursuant to an agreement reached in February 2013. As of February 1, 2014, 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 the direct ownership of NBCU in the Company consists of 7,141,849 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 January 2011 transfer of its ownership in NBCU to NBCUniversal, LLC, GE also agreed with Comcast that, for so long as GE Equity is entitled to appoint two members of the Company's board of directors, NBCU will be entitled to retain a board seat provided that NBCU beneficially owns at least 5% of the Company's 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 the Company's 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 the Company's 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.
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 NBCU 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.
On May 16, 2011, the Company issued 689,655 shares of the Company's common stock to NBCU as consideration for a one-year extension of the same trademark license agreement. Shares issued were valued at $6.04 per share, representing the fair market value of the Company's stock on the date of issuance.
On May 11, 2012, the Company amended its trademark license agreement for the use of the ShopNBC brand name with NBCU, extending the term of the license agreement through January 31, 2014. As consideration for the amendment, the Company paid NBCU $4,000,000 upon execution of the amendment and paid an additional $2,830,000 on May 15, 2013.
The license agreement expired on its own terms on January 31, 2014. The Company is now using the brand name ShopHQ (a registered trademark) and ShopHQ.com.
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 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 the Company's common stock issuable to GE Equity upon exercise of the warrant for 6,000,000 shares of the Company's common stock), and two members of the Company's board of directors 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 the Company's board of directors.
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 (1) GE Equity is no longer entitled to designate three director nominees and (2) 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) making 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 the Company's shares, treating as outstanding and actually owned for such purpose shares of the Company's common stock issuable to GE Equity upon exercise of the warrant for 6,000,000 shares of the Company's 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.
Related Party Transactions
Related Party Transactions
Related Party Transactions
Relationship with Creative Commerce and International Commerce
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. Edwin Garrubbo, who was formerly a member of the Company's board of directors, is the majority owner of both Creative Commerce and International Commerce. The Company paid Creative Commerce and International Commerce approximately $988,000, $752,000 and $1,384,000 for the years ended February 1, 2014, February 2, 2013 and January 28, 2012, respectively, relating to these services. Mr. Garrubbo has not been a director of the Company since June 13, 2012.
Relationship with GE Equity 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. In March 2013, GE sold its remaining 49% common equity interest in NBCUniversal, LLC to Comcast pursuant to an agreement reached in February 2013. As of February 1, 2014, 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. 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 January 2011 transfer of its ownership in NBCU to NBCUniversal, LLC, GE also agreed with Comcast that, for so long as GE Equity is entitled to appoint two members of the Company's board of directors, NBCU will be entitled to retain a board seat provided that NBCU beneficially owns at least 5% of the Company's adjusted outstanding common stock. Furthermore, GE agreed to obtain the consent of NBCU prior to consenting to he Company's adoption of any shareholders right 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 the Federal Communications Commission multiple ownership regulations. For additional information regarding the Company's arrangements with Comcast, GE, GE Equity and NBCU, see the Company's definitive Proxy Statement on Schedule 14A, filed with the SEC on May 9, 2013.
Summary of Significant Accounting Policies Level 2 (Policies)
Fiscal Year
The Company's fiscal year ends on the Saturday nearest to January 31. References to years in this report relate to fiscal years, rather than to calendar years. The Company’s most recently completed fiscal year, fiscal 2013, ended on February 1, 2014, and consisted of 52 weeks. Fiscal 2012 ended on February 2, 2013 and consisted of 53 weeks. Fiscal 2011 ended on January 28, 2012 and consisted of 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 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 generally accepted accounting principles ("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 $6,446,000 at February 1, 2014 and $6,214,000 at February 2, 2013. 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 February 1, 2014 and February 2, 2013, the Company had approximately $101,658,000 and $92,571,000, 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 $12,762,000, $11,792,000 and $11,876,000 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
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 $10,112,000, $9,348,000 and $8,245,000 for fiscal 2013, fiscal 2012 and fiscal 2011, 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 for each of fiscal 2013 and fiscal 2012. The restricted cash and investments primarily collateralize the Company’s issuances of commercial letters of credit. The Company’s restricted cash and investments consist of certificates of deposit. 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 provision write downs of $3,776,000, $3,787,000 and $2,208,000 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.
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 $1,893,000, $1,074,000 and $892,000 for fiscal 2013, fiscal 2012 and fiscal 2011, respectively. Total marketing and advertising costs and internet search marketing fees, after reflecting allowances given by vendors, totaled $1,827,000, $1,843,000 and $2,115,000 for fiscal 2013, fiscal 2012 and fiscal 2011, 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.
Income Taxes
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.
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 $38 million long term credit facility is estimated based on rates available to the Company for issuance of debt. As of February 1, 2014, the Company's long term credit facility had a carrying amount and an estimated fair value of $38 million.
Fair Value Measurements on a Nonrecurring Basis
Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to the Company's tangible fixed assets and intangible FCC broadcasting license asset, which are remeasured when estimated fair value is below carrying value on the consolidated balance sheets. For these assets, the Company does not periodically adjust its carrying value to fair value except in the event of impairment. If the Company determines that impairment has occurred, the carrying value of the asset is reduced to fair value and the difference is recorded as a loss within operating income in the consolidated statement of operations. During fiscal 2012, the Company recorded an $11.1 million million non-cash impairment charge to reduce the carrying value of its intangible FCC broadcasting license asset to fair value in the accompanying fiscal 2012 consolidated balance sheet. The Company had no remeasurements of such assets or liabilities to fair value during fiscal 2013.
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 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 for time-based vesting awards and a Monte Carlo valuation model for market-based vesting awards. Non-vested share awards are recorded as compensation cost over the requisite service periods based on the fair value on the date of grant.
Net Loss Per Common Share
Basic loss per share is computed by dividing reported loss by the weighted average number of common shares outstanding for the reported period. Diluted net 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 net loss per share calculations and the number of shares used in the calculation of basic net loss per share and diluted net loss per share is as follows:
 
 
For the Years Ended
 
 
February 1,
2014
 
February 2,
2013
 
January 28,
2012
Net loss (a)
 
$
(2,515,000
)
 
$
(27,676,000
)
 
$
(48,064,000
)
Weighted average number of common shares outstanding — Basic
 
49,504,892

 
48,874,842

 
46,451,262

Dilutive effect of stock options, non-vested shares and warrants
 

 

 

Weighted average number of common shares outstanding — Diluted
 
49,504,892

 
48,874,842

 
46,451,262

 
 
 
 
 
 
 
Net loss per common share
 
$
(0.05
)
 
$
(0.57
)
 
$
(1.03
)
Net loss per common share — assuming dilution
 
$
(0.05
)
 
$
(0.57
)
 
$
(1.03
)

(a) The net loss for fiscal 2013 includes activist shareholder response charges of approximately $2.1 million. The net loss for fiscal 2012 includes an $11.1 million non-cash intangible asset impairment charge related to the Company's FCC broadcasting license. In addition, the net losses for fiscal 2012 and fiscal 2011 also include charges totaling $500,000 and $25.7 million, respectively, related to losses on debt extinguishment made during the first quarters of those respective years.
For fiscal 2013, fiscal 2012 and fiscal 2011, approximately 6,247,000, 3,920,000 and 5,563,000, 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.
Summary of Significant Accounting Policies Level 3 (Tables)
Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]
A reconciliation of net loss per share calculations and the number of shares used in the calculation of basic net loss per share and diluted net loss per share is as follows:
 
 
For the Years Ended
 
 
February 1,
2014
 
February 2,
2013
 
January 28,
2012
Net loss (a)
 
$
(2,515,000
)
 
$
(27,676,000
)
 
$
(48,064,000
)
Weighted average number of common shares outstanding — Basic
 
49,504,892

 
48,874,842

 
46,451,262

Dilutive effect of stock options, non-vested shares and warrants
 

 

 

Weighted average number of common shares outstanding — Diluted
 
49,504,892

 
48,874,842

 
46,451,262

 
 
 
 
 
 
 
Net loss per common share
 
$
(0.05
)
 
$
(0.57
)
 
$
(1.03
)
Net loss per common share — assuming dilution
 
$
(0.05
)
 
$
(0.57
)
 
$
(1.03
)
Property and Equipment Property, Plant and Equipment (Tables)
Property, Plant and Equipment [Table Text Block]
Property and equipment in the accompanying consolidated balance sheets consisted of the following:
 
 
Estimated Useful Life (In Years)
 
February 1, 2014
 
February 2, 2013
Land and improvements
 
 
$
3,437,000

 
$
3,437,000

Buildings and improvements
 
5-40
 
23,737,000

 
23,261,000

Transmission and production equipment
 
5-10
 
6,216,000

 
5,907,000

Office and warehouse equipment
 
3-15
 
9,039,000

 
8,611,000

Computer hardware, software and telephone equipment
 
3-7
 
88,930,000

 
86,602,000

Leasehold improvements
 
3-5
 
2,681,000

 
2,681,000

Less — Accumulated depreciation
 
 
 
(109,088,000
)
 
(105,834,000
)
 
 
 
 
$
24,952,000

 
$
24,665,000

Depreciation expense in fiscal 2013, fiscal 2012 and fiscal 2011 was $8,589,000, $9,376,000 and $8,949,000, respectively.
Intangible Assets (Tables)
Schedule of Finite-lived and Infinite-lived Intangible Asset [Table Text Block]
Intangible assets in the accompanying consolidated balance sheets consisted of the following:
 
 
Weighted
Average
Life
(Years)
 
February 1, 2014
 
February 2, 2013
 
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Finite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
  NBCU trademark license - second renewal
 
 
$
6,830,000

 
$
(6,830,000
)
 
$
6,830,000

 
$
(2,833,000
)
 
 
 
 
 
 
 
 
 
 
 
Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
  FCC broadcast license
 
 
 
$
12,000,000

 
 
 
$
12,000,000

 
 
Accrued Liabilities (Tables)
Schedule of Accrued Liabilities [Table Text Block]
Accrued liabilities in the accompanying consolidated balance sheets consisted of the following:
 
 
February 1, 2014
 
February 2, 2013
Accrued cable access fees
 
$
15,861,000

 
$
15,156,000

Accrued salaries and related
 
10,679,000

 
2,377,000

NBCU license agreement
 

 
2,830,000

Reserve for product returns
 
4,894,000

 
5,854,000

Other
 
7,101,000

 
4,379,000

 
 
$
38,535,000

 
$
30,596,000

Shareholders' Equity (Tables)
 
Fiscal 2013
 
Fiscal 2012
 
Fiscal 2011
Expected volatility
98% - 100%
 
97% - 99%
 
88% - 96%
Expected term (in years)
5 - 6 years
 
6 years
 
6 years
Risk-free interest rate
1.1% - 2.1%
 
1.0% - 1.4%
 
1.3% - 2.7%
Grant date fair values and derived service periods for each tranche were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of 0.38%, a weighted average expected life of 3.3 years and an implied volatility of 78% and were as follows for each tranche:
 
Fair Value (Per Share)
 
Derived Service Period
Tranche 1 ($6.00/share)
$0.93
 
15
months
Tranche 2 ($8.00/share)
$0.95
 
20
months
Tranche 3 ($10.00/share)
$0.95
 
24
months
A summary of the status of the Company’s stock option activity as of February 1, 2014 and changes during the year then ended is as follows:
 
 
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
Balance outstanding,
February 2, 2013
 
2,500,000

 
$
3.73

 
2,098,000

 
$
6.23

 
1,169,000

 
$
5.88

 
525,000

 
$
4.12

Granted
 
591,000

 
$
5.17

 
50,000

 
$
3.73

 

 
$

 

 
$

Exercised
 
(8,000
)
 
$
1.97

 
(42,000
)
 
$
2.14

 
(40,000
)
 
$
1.92

 
(25,000
)
 
$
1.69

Forfeited or canceled
 

 
$

 
(2,000
)
 
$
10.41

 
(8,000
)
 
$
2.95

 

 
$

Balance outstanding,
February 1, 2014
 
3,083,000

 
$
4.03

 
2,104,000

 
$
6.25

 
1,121,000

 
$
6.05

 
500,000

 
$
4.24

Options Exercisable at:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
February 1, 2014
 
1,229,000

 
$
3.78

 
2,037,000

 
$
6.21

 
1,121,000

 
$
6.05

 
397,000

 
$
4.11

February 2, 2013
 
50,000

 
$
2.29

 
1,965,000

 
$
6.14

 
1,151,000

 
$
5.69

 
363,000

 
$
3.90

January 28, 2012
 

 
$

 
2,015,000

 
$
6.18

 
1,029,000

 
$
6.35

 
143,000

 
$
3.60

The following table summarizes information regarding stock options outstanding at February 1, 2014:
 
 
Options Outstanding
 
Options Vested or Expected to Vest
Option Type
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
 
Number of
Shares
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life
(Years)
 
Aggregate
Intrinsic
Value
2011 Incentive:
 
3,083,000

 
$
4.03

 
7.4
 
$
6,597,000

 
2,580,000

 
$
3.76

 
8.8
 
$
6,208,000

2004 Incentive:
 
2,104,000

 
$
6.25

 
4.9
 
$
2,793,000

 
2,097,000

 
$
6.25

 
4.9
 
$
2,793,000

2001 Incentive:
 
1,121,000

 
$
6.05

 
4.5
 
$
1,475,000

 
1,121,000

 
$
6.05

 
4.5
 
$
1,475,000

Non-Qualified:
 
500,000

 
$
4.24

 
6.4
 
$
981,000

 
490,000

 
$
4.23

 
6.4
 
$
965,000

Grant date fair values and derived service periods for each tranche were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of 0.32%, a weighted average expected life of 2.8 years and an implied volatility of 78% and were as follows for each tranche:
 
Fair Value
(Per Share)
 
Derived Service
Period
Tranche 1 ($6.00/share)
$1.48
 
15
months
Tranche 2 ($8.00/share)
$1.39
 
20
months
Tranche 3 ($10.00/share)
$1.31
 
24
months
A summary of the status of the Company’s non-vested restricted stock activity as of February 1, 2014 and changes during the twelve-month period then ended is as follows:
 
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 2, 2013
 
772,000

 
$3.00
Granted
 
480,000

 
$5.53
Vested
 
(588,000
)
 
$3.49
Forfeited
 
(23,000
)
 
$1.96
Non-vested outstanding, February 1, 2014
 
641,000

 
$4.49
Sales by Product Group (Tables)
Revenue from External Customers by Products and Services [Table Text Block]
Information on net sales by significant product groups are as follows (in thousands):
 
 
 
For the Years Ended
 
 
 
February 1,
2014
 
February 2,
2013
 
January 28,
2012
Jewelry & Watches
 
 
$
253,359

 
$
282,275

 
$
272,689

Home & Consumer Electronics
 
 
193,601

 
146,838

 
146,917

Beauty, Health & Fitness
 
 
75,132

 
73,247

 
61,160

Fashion & Accessories
 
 
62,465

 
42,240

 
34,947

All other (primarily shipping & handling revenue)
 
 
55,932

 
42,220

 
42,681

Total
 
 
$
640,489

 
$
586,820

 
$
558,394

Income Taxes (Tables)
12 Months Ended
Feb. 1, 2014
Feb. 2, 2013
Income Tax Disclosure [Abstract]
 
 
Schedule of Deferred Tax Assets and Liabilities
 
Schedule of Components of Income Tax Expense (Benefit)
 
Schedule of Effective Income Tax Rate Reconciliation
 
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 February 1, 2014 and February 2, 2013 were as follows (in thousands):

 
 
February 1, 2014
 
February 2, 2013
Accruals and reserves not currently deductible for tax purposes
 
$
5,066

 
$
5,365

Inventory capitalization
 
966

 
719

Differences in depreciation lives and methods
 
2,811

 
2,885

Differences in basis of intangible assets
 
(1,180
)
 
(392
)
Differences in investments and other items
 
(141
)
 
442

Net operating loss carryforwards
 
113,229

 
111,276

Valuation allowance
 
(121,909
)
 
(120,295
)
Net deferred tax liability
 
$
(1,158
)
 
$

The provision from income taxes consisted of the following (in thousands):