EVINE LIVE INC., 10-K filed on 3/26/2015
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Jan. 31, 2015
Mar. 20, 2015
Aug. 2, 2014
Document Information [Line Items]
 
 
 
Entity Registrant Name
EVINE Live Inc. 
 
 
Entity Central Index Key
0000870826 
 
 
Current Fiscal Year End Date
--01-31 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Document Type
10-K 
 
 
Document Period End Date
Jan. 31, 2015 
 
 
Document Fiscal Year Focus
2014 
 
 
Document Fiscal Period Focus
FY 
 
 
Amendment Flag
false 
 
 
Entity Common Stock, Shares Outstanding
 
56,560,609 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Public Float
 
 
$ 197,088,722 
Consolidated Balance Sheets (USD $)
Jan. 31, 2015
Feb. 1, 2014
Current assets:
 
 
Cash and cash equivalents
$ 19,828,000 
$ 29,177,000 
Restricted cash and investments
2,100,000 
2,100,000 
Accounts receivable, net
112,275,000 
107,386,000 
Inventories
61,456,000 
51,162,000 
Prepaid expenses and other
5,284,000 
6,032,000 
Total current assets
200,943,000 
195,857,000 
Property and equipment, net
42,759,000 
24,952,000 
FCC broadcasting license
12,000,000 
12,000,000 
Other assets
1,989,000 
896,000 
Total Assets
257,691,000 
233,705,000 
Current liabilities:
 
 
Accounts payable
81,457,000 
77,296,000 
Accrued liabilities
36,683,000 
38,535,000 
Line of Credit, Current
1,736,000 
Deferred revenue
85,000 
85,000 
Total current liabilities
119,961,000 
115,916,000 
Capital lease liability
36,000 
88,000 
Deferred revenue
249,000 
335,000 
Deferred tax liability
1,946,000 
1,158,000 
Long term credit facility
50,971,000 
38,000,000 
Total liabilities
173,163,000 
155,497,000 
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
564,000 
498,000 
Warrants to purchase 6,007,372 shares of common stock
533,000 
Additional paid-in capital
418,846,000 
410,681,000 
Accumulated deficit
(334,882,000)
(333,504,000)
Total shareholders’ equity
84,528,000 
78,208,000 
Total Liabilities and Equity
257,691,000 
233,705,000 
2014 Line Of Credit Amendment - PNC Bank, N.A. [Member]
 
 
Current liabilities:
 
 
Line of Credit, Current
$ 1,736,000 
$ 0 
Consolidated Balance Sheets (Parentheticals) (USD $)
Jan. 31, 2015
Feb. 1, 2014
Stockholders' Equity:
 
 
Common stock, shares authorized
100,000,000 
100,000,000 
Common stock, shares issued
56,448,663 
49,844,253 
Warrants, Outstanding
 
6,000,000 
Common stock, par value
$ 0.01 
$ 0.01 
Consolidated Statements of Operations (USD $)
12 Months Ended
Jan. 31, 2015
Feb. 1, 2014
Feb. 2, 2013
Document Period End Date
Jan. 31, 2015 
 
 
Net sales
$ 674,618,000 
$ 640,489,000 
$ 586,820,000 
Cost of sales
429,570,000 
410,465,000 
374,448,000 
Gross profit
245,048,000 
230,024,000 
212,372,000 
Operating expense:
 
 
 
Distribution and selling
202,579,000 
191,695,000 
193,037,000 
General and administrative
23,983,000 
23,799,000 
18,297,000 
Depreciation and amortization
8,445,000 
12,320,000 
13,224,000 
Severance Costs
5,520,000 
Activist Shareholder Costs
3,518,000 
2,133,000 
FCC license impairment
11,111,000 
Total operating expense
244,045,000 
229,947,000 
235,669,000 
Operating loss
1,003,000 
77,000 
(23,297,000)
Other income (expense):
 
 
 
Interest income
10,000 
18,000 
11,000 
Interest expense
(1,572,000)
(1,437,000)
(3,970,000)
Gain on sale of assets
100,000 
Gains (Losses) on Extinguishment of Debt
500,000 
Total other expense
(1,562,000)
(1,419,000)
(4,359,000)
Loss before income taxes
(559,000)
(1,342,000)
(27,656,000)
Income tax (provision) benefit
(819,000)
(1,173,000)
(20,000)
Net loss
$ (1,378,000)
$ (2,515,000)
$ (27,676,000)
Net loss per common share
$ (0.03)
$ (0.05)
$ (0.57)
Net loss per common share — assuming dilution
$ (0.03)
$ (0.05)
$ (0.57)
Weighted average number of common shares outstanding:
 
 
 
Basic
53,458,662 
49,504,892 
48,874,842 
Diluted
53,458,662 
49,504,892 
48,874,842 
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. 28, 2012
$ 101,589,000 
$ 486,000 
$ 567,000 
$ 403,849,000 
$ (303,313,000)
Common Stock, Shares, Outstanding period beginning at Jan. 28, 2012
 
48,560,205 
 
 
 
Stock Issued During Period, Value, Acquisitions
 
 
 
 
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 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
3,257,000 
 
 
3,257,000 
 
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 
 
 
 
Stock Issued During Period, Value, Acquisitions
 
 
 
 
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 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
3,217,000 
 
 
3,217,000 
 
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 
 
 
 
Debt Conversion, Converted Instrument, Warrants or Options Issued
5,058,741 
 
 
 
 
Adjustments to Additional Paid in Capital, Warrant Issued
51,000 
 
482,000 
Stock Issued During Period, Shares, Acquisitions
178,842 
 
 
 
 
Stock Issued During Period, Value, Acquisitions
1,044,000 
2,000 
1,042,000 
Stock and Warrants Issued During Period, Value, Preferred Stock and Warrants
 
 
(533,000)
 
 
Net loss
(1,378,000)
 
 
 
(1,378,000)
Share-based compensation
 
 
 
 
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition
3,860,000 
3,860,000 
Stock Issued During Period, Shares, New Issues
 
1,366,827 
 
 
 
Stock Issued During Period, Value, New Issues
2,794,000 
13,000 
2,781,000 
Total Shareholders' Equity period end at Jan. 31, 2015
$ 84,528,000 
$ 564,000 
$ 0 
$ 418,846,000 
$ (334,882,000)
Common Stock, Shares, Outstanding period end at Jan. 31, 2015
 
56,448,663 
 
 
 
Consolidated Statements of Cash Flows (USD $)
12 Months Ended
Jan. 31, 2015
Feb. 1, 2014
Feb. 2, 2013
OPERATING ACTIVITIES:
 
 
 
Net loss
$ (1,378,000)
$ (2,515,000)
$ (27,676,000)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
 
 
 
Depreciation and amortization
8,872,000 
12,585,000 
13,424,000 
Share-based compensation
3,860,000 
3,217,000 
3,257,000 
Write-off of deferred financing costs
2,306,000 
Amortization of deferred revenue
(86,000)
(85,000)
(87,000)
Amortization of deferred finance costs
231,000 
178,000 
249,000 
Asset impairments and write-offs
11,111,000 
Increase (Decrease) in Income Taxes Payable
788,000 
1,158,000 
Gains (Losses) on Extinguishment of Debt
500,000 
Gain on the disposal of equipment
(102,000)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable, net
(4,889,000)
(9,026,000)
(18,086,000)
Inventories, net
(10,294,000)
(14,007,000)
6,321,000 
Prepaid expenses and other
815,000 
649,000 
(2,066,000)
Accounts payable and accrued liabilities
766,000 
21,799,000 
2,367,000 
Net cash provided by (used for) operating activities
(1,315,000)
13,953,000 
(8,482,000)
INVESTING ACTIVITIES:
 
 
 
Property and equipment additions
(25,119,000)
(8,247,000)
(6,157,000)
Purchase of NBC Trademark License
(2,830,000)
(4,000,000)
payments to acquire intangible assets - EVINE
(59,000)
Proceeds from disposal of equipment
102,000 
Net cash used for investing activities
(25,178,000)
(11,077,000)
(10,055,000)
FINANCING ACTIVITIES:
 
 
 
Payments for deferred issuance costs
(307,000)
(390,000)
(552,000)
Proceeds from Issuance of Other Long-term Debt
12,152,000 
Proceeds from Issuance of Long-term Debt
2,700,000 
38,215,000 
Repayments of Long-term Debt
(145,000)
(25,715,000)
Payments on capital leases
(50,000)
(13,000)
Proceeds from exercise of stock options
2,794,000 
227,000 
109,000 
Net cash provided by (used for) financing activities
17,144,000 
(176,000)
12,057,000 
Net increase (decrease) in cash and cash equivalents
(9,349,000)
2,700,000 
(6,480,000)
BEGINNING CASH AND CASH EQUIVALENTS
29,177,000 
26,477,000 
32,957,000 
ENDING CASH AND CASH EQUIVALENTS
$ 19,828,000 
$ 29,177,000 
$ 26,477,000 
The Company
The Company
The Company
EVINE Live Inc. (formerly ValueVision Media, Inc.) and its subsidiaries ("we," "our," "us," or the "Company") is a digital commerce company that markets, sells and distributes products to consumers through TV, online, mobile and social media. The Company operates a 24-hour television shopping network, EVINE Live, which is distributed primarily on cable and satellite systems, through which it offers 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 88 million homes, primarily through cable and satellite affiliation agreements and agreements with telecommunications companies such as AT&T and Verizon. Programming is also streamed live online at evine.com and is also available on all mobile channels. 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 evine.com, a comprehensive digital commerce platform that sells products which appear on its television shopping network 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.
On November 18, 2014, the Company announced that it had changed its corporate name to EVINE Live Inc. from ValueVision Media, Inc. Effective November 20, 2014, the Company's NASDAQ trading symbol also changed to EVLV from VVTV at that time. The Company transitioned from doing business as "ShopHQ" to "EVINE Live" and evine.com on February 14, 2015.
In May 2013, the Company previously announced a rebranding of its 24-hour television shopping network and digital commerce internet website from ShopNBC and ShopNBC.com to ShopHQ and ShopHQ.com, respectively.
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 2014, ended on January 31, 2015, and consisted of 52 weeks. Fiscal 2013 ended on February 1, 2014 and consisted of 52 weeks. Fiscal 2012 ended on February 2, 2013 and consisted of 53 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 $6,706,000 at January 31, 2015 and $6,446,000 at February 1, 2014. The Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. As of January 31, 2015 and February 1, 2014, the Company had approximately $106,678,000 and $101,658,000, 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 $13,007,000, $12,762,000 and $11,792,000 for fiscal 2014, fiscal 2013 and fiscal 2012, 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 $10,984,000, $10,112,000 and $9,348,000 for fiscal 2014, fiscal 2013 and fiscal 2012, 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
Cash consists 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.
Restricted Cash and Investments
The Company had restricted cash and investments of $2,100,000 for each of fiscal 2014 and fiscal 2013. 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 at the lower of average cost or net realizable value, giving consideration to obsolescence provision write downs of $3,838,000, $3,776,000 and $3,787,000 for fiscal 2014, fiscal 2013 and fiscal 2012, 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 online advertising, including amounts paid to online search engine operators, customer mailings and traffic-driving affiliate websites. Total marketing and advertising costs and online search marketing fees totaled $1,946,000, $1,827,000 and $1,843,000 for fiscal 2014, fiscal 2013 and fiscal 2012, 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 the EVINE trademark and brand name and prior to its expiration in January 2014, 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
 
 
January 31,
2015
 
February 1,
2014
 
February 2,
2013
Net loss (a)
 
$
(1,378,000
)
 
$
(2,515,000
)
 
$
(27,676,000
)
Weighted average number of common shares outstanding — Basic
 
53,458,662

 
49,504,892

 
48,874,842

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

 

 

Weighted average number of common shares outstanding — Diluted
 
53,458,662

 
49,504,892

 
48,874,842

 
 
 
 
 
 
 
Net loss per common share
 
$
(0.03
)
 
$
(0.05
)
 
$
(0.57
)
Net loss per common share — assuming dilution
 
$
(0.03
)
 
$
(0.05
)
 
$
(0.57
)

(a) The net losses for fiscal 2014 and fiscal 2013 includes activist shareholder response charges of approximately $3.5 million and $2.1 million, respectively. In addition, the net loss for fiscal 2014 also includes executive transition costs of $5.5 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 loss for fiscal 2012 also include charges totaling $500,000 related to losses on debt extinguishment made during that fiscal year.
For fiscal 2014, fiscal 2013 and fiscal 2012, approximately 3,118,000, 6,247,000 and 3,920,000, respectively, incremental in-the-money potentially dilutive common share stock options and, with respect to fiscal 2013 and fiscal 2012, 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, 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 $53 million Credit Facility is estimated based on rates available to the Company for issuance of debt. As of January 31, 2015, the Company's Credit Facility had a carrying amount and an estimated fair value of $53 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 non-cash impairment charge to reduce the carrying value of its intangible FCC broadcasting license asset to fair value. The Company had no remeasurements of such assets or liabilities to fair value during fiscal 2014 and 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.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Revenue from Contracts with Customers, Topic 606 (Accounting Standards Update (ASU) No. 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. This guidance, which includes additional disclosure requirements regarding revenue, cash flows and obligations related to contracts with customers, will be effective for interim and annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of adopting ASU 2014-09 on our consolidated financial statements.
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)
 
January 31, 2015
 
February 1, 2014
Land and improvements
 
 
$
3,394,000

 
$
3,437,000

Buildings and improvements
 
5-40
 
24,215,000

 
23,737,000

Transmission and production equipment
 
5-10
 
5,424,000

 
6,216,000

Office and warehouse equipment
 
3-15
 
9,298,000

 
9,039,000

Computer hardware, software and telephone equipment
 
3-7
 
89,615,000

 
88,930,000

Distribution Center Expansion - Construction in Process
 
3-40
 
16,151,000

 

Leasehold improvements
 
3-5
 
2,681,000

 
2,681,000

Less — Accumulated depreciation
 
 
 
(108,019,000
)
 
(109,088,000
)
 
 
 
 
$
42,759,000

 
$
24,952,000

Depreciation expense in fiscal 2014, fiscal 2013 and fiscal 2012 was $8,854,000, $8,589,000 and $9,376,000, respectively.
Intangible Assets
Intangible Assets
Intangible Assets
Intangible assets in the accompanying consolidated balance sheets consisted of the following:
 
 
Weighted
Average
Life
(Years)
 
January 31, 2015
 
February 1, 2014
 
 
 
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
)
  EVINE trademark
 
15
 
1,103,000

 
(18,000
)
 

 

Total finite-lived intangible assets
 
 
 
$
1,103,000

 
$
(18,000
)
 
$
6,830,000

 
$
(6,830,000
)
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 January 31, 2015 and 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. 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 9.5%-10.5%. The Company concluded that the inputs used in its intangible FCC broadcasting license valuation at January 31, 2015 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 November 18, 2014, the Company entered into an asset purchase agreement with Dollars Per Minute, Inc., a Delaware corporation ("DPM") to purchase certain assets of DPM, including the EVINE Live trademark. As consideration for the purchase of this trademark, the Company issued 178,842 unregistered shares of our common stock, which represented an aggregate value of $1,044,000 based on the closing price of our common stock on November 13, 2014, $20,000 in cash consideration and incurred $39,000 in professional fees associated with acquiring the asset.
On January 31, 2014, ShopNBC and ShopNBC.com officially transitioned to the brand, ShopHQ and ShopHQ.com. 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.
Amortization expense in fiscal 2014, fiscal 2013 and fiscal 2012 was $18,000, $3,997,000 and $3,879,000, respectively. As of February 1, 2014, the Company's trademark license agreement with NBCU was fully amortized.
Accrued Liabilities
Accrued Liabilities, Current [Abstract]
Accrued Liabilities
Accrued liabilities in the accompanying consolidated balance sheets consisted of the following:
 
 
January 31, 2015
 
February 1, 2014
Accrued cable access fees
 
$
14,669,000

 
$
15,861,000

Accrued salaries and related
 
10,089,000

 
10,679,000

Reserve for product returns
 
5,585,000

 
4,894,000

Other
 
6,340,000

 
7,101,000

 
 
$
36,683,000

 
$
38,535,000

EVINE 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 EVINE. 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 EVINE 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 EVINE 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 Synchrony Financial, formerly known as 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.
Synchrony Financial, the issuing bank for the Program, is indirectly majority-owned by the General Electric Company ("GE"), which is also the parent company of GE Equity. As of March 20, 2015, GE Equity has an approximate 7% beneficial ownership in the Company and has certain rights as further described in footnote 18, "Relationship with NBCU and GE Equity".
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 January 31, 2015 and February 1, 2014 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 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 January 31, 2015 and February 1, 2014 the Company also had a long-term variable rate Credit Facility with carrying values of $52,707,000 and $38,000,000, respectively. As of January 31, 2015 and February 1, 2014, $1,736,000 and $0 was classified as current. The fair value of the variable rate Credit Facility 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 January 31, 2015 and February 1, 2014 the Company had an intangible FCC broadcasting license asset with a carrying value 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 9.5% - 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):
 
 
January 31,
2015
 
February 1,
2014
Intangible FCC Broadcasting License Asset:
 
 
 
 
Beginning balance
 
$
12,000,000

 
$
12,000,000

Losses included in earnings (asset impairment)
 

 

Ending balance
 
$
12,000,000

 
$
12,000,000

Credit Agreements Credit Agreements (Notes)
Debt Disclosure [Text Block]
Credit Agreement
The Company's long-term credit facility consists of:
 
 
January 31, 2015
 
February 1, 2014
Credit Facility
 
 
 
 
  Revolving loan
 
$
40,700,000

 
$
38,000,000

  Term loan
 
12,007,000

 

Total long-term credit facility
 
52,707,000

 
38,000,000

Less current portion of long-term credit facility
 
(1,736,000
)
 

Long-term credit facility, excluding current portion
 
$
50,971,000

 
$
38,000,000

On February 9, 2012, the Company entered into a credit and security agreement (as amended to date, the "Credit Facility") with PNC Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc., as lender and agent which was most recently amended on March 6, 2015. The Credit Facility, which added The Private Bank to the facility, provides a revolving line of credit of $75 million and provides for a $15 million term loan on which the Company has drawn and may continue to draw to fund improvements at the Company's distribution facility in Bowling Green, Kentucky. The amended Credit Facility also provides an accordion feature that would allow the Company to expand the size of the revolving line of credit by another $15 million upon certain conditions being met.
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. Maximum borrowings and available capacity under the revolving line of credit under the Credit Facility are equal to the lesser of $75 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 revolving line of credit under the Credit Facility bears interest at LIBOR plus 3% per annum. The term loan bears 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 until January 31, 2015, a margin of 5% on the Base Rate and 6% on the LIBOR Rate and then the margin adjusts 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 financial statements. As of January 31, 2015, the Company had borrowings of $40.7 million under its revolving credit facility. Remaining capacity under the revolving credit facility as of January 31, 2015 is $19.3 million, of which $7.3 million is earmarked for our distribution facility expansion, provides liquidity for working capital and general corporate purposes. The Credit Facility also provides for a $15 million term loan on which the Company draws to fund an expansion at the Company's distribution facility in Bowling Green, Kentucky. As of January 31, 2015, there were $12.0 million of borrowings under the Credit Facility term loan of which $1.7 million was classified as current in the accompanying balance sheet.
Principal borrowings under the term loan are to be payable in monthly installments over an 84 month amortization period commencing on January 1, 2015 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also 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 $2,000,000 in any such fiscal year. 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 1.0% if terminated on or before May 1, 2015; 0.5% if terminated on or before May 1, 2016; and no fee if terminated after May 1, 2016. Interest expense recorded under the Credit Facility's revolving line of credit was $1,554,000, $1,435,000 and $1,503,000 for fiscal 2014, fiscal 2013 and fiscal 2012, respectively.
The 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. As our unused line availability is greater than $10 million at January 31, 2015, no additional cash is required to be restricted. Certain financial covenants, including minimum EBITDA levels (as defined in the Credit Facility) and a 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 $718,000 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.
The aggregate maturities of the Company's long-term Credit Facility is as follows:
 
 
Credit Facility
 
 
Fiscal year
 
Term loan
 
Revolving loan
 
Total
2015
 
$
1,736,000

 
$

 
$
1,736,000

2016
 
1,736,000

 

 
1,736,000

2017
 
1,736,000

 

 
1,736,000

2018
 
6,799,000

 
40,700,000

 
47,499,000

2019
 

 

 

 
 
$
12,007,000

 
$
40,700,000

 
$
52,707,000

Shareholders' Equity
12 Months Ended
Jan. 31, 2015
Feb. 2, 2013
Shareholders' Equity
Shareholder's Equity
Common Stock
The Company currently has authorized 100,000,000 shares of undesignated capital stock, of which 56,448,663 shares were issued and outstanding as common stock as of January 31, 2015. 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
In June 2014, GE Equity exercised its common stock warrants in a cashless exercise acquiring 5,058,741 shares of our common stock. The warrants were issued in connection with the issuance of the Company’s Series B Redeemable Preferred Stock in February 2009. As of January 31, 2015, the Company had no outstanding warrants.
Stock-Based Compensation - Stock Options
Compensation is recognized for all stock-based compensation arrangements by the Company. Stock-based compensation expense for fiscal 2014, fiscal 2013 and fiscal 2012 related to stock option awards was $2,537,000, $2,405,000 and $1,682,000, 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 January 31, 2015, the Company had one omnibus stock plan 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. The 2004 Omnibus Stock Plan expired on June 22, 2014. No further awards may be made under the 2004 Omnibus Plan, but any award granted under the 2004 Omnibus Plan and outstanding on June 22, 2014 will remain outstanding in accordance with its terms. The 2001 Omnibus Stock Plan expired on June 21, 2011. The 2011 plan is administered by the human resources and compensation committee of the board of directors and provides for awards for employees, directors and consultants. All employees and directors of the Company and its affiliates are eligible to receive awards under the plan. The types of awards that may be granted under this plan include restricted and unrestricted stock, restricted stock units, 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 2014
 
Fiscal 2013
 
Fiscal 2012
Expected volatility
88% - 98%
 
98% - 100%
 
97% - 99%
Expected term (in years)
5 - 6 years
 
5 - 6 years
 
6 years
Risk-free interest rate
1.5% - 2.2%
 
1.1% - 2.1%
 
1.0% - 1.4%

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. As of January 31, 2015, 1,715,000 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 January 31, 2015 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 1, 2014
 
3,083,000

 
$
4.03

 
2,104,000

 
$
6.25

 
1,121,000

 
$
6.05

 
500,000

 
$
4.24

Granted
 
232,000

 
$
4.65

 
107,000

 
$
5.66

 

 
$

 

 
$

Exercised
 
(222,000
)
 
$
2.89

 
(665,000
)
 
$
2.50

 
(260,000
)
 
$
2.34

 
(50,000
)
 
$
1.82

Forfeited or canceled
 
(630,000
)
 
$
4.43

 
(340,000
)
 
$
11.76

 
(35,000
)
 
$
13.67

 

 
$

Balance outstanding,
January 31, 2015
 
2,463,000

 
$
4.09

 
1,206,000

 
$
6.71

 
826,000

 
$
6.89

 
450,000

 
$
4.51

Options Exercisable at:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
January 31, 2015
 
1,322,000

 
$
4.05

 
1,179,000

 
$
6.76

 
826,000

 
$
6.89

 
380,000

 
$
4.60

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


The following table summarizes information regarding stock options outstanding at January 31, 2015:
 
 
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:
 
2,463,000

 
$
4.09

 
8.1
 
$
5,228,000

 
2,424,000

 
$
4.14

 
8.1
 
$
5,161,000

2004 Incentive:
 
1,206,000

 
$
6.71

 
4.6
 
$
493,000

 
1,203,000

 
$
6.67

 
4.6
 
$
489,000

2001 Incentive:
 
826,000

 
$
6.89

 
3.5
 
$
518,000

 
826,000

 
$
6.89

 
3.5
 
$
518,000

Non-Qualified:
 
450,000

 
$
4.51

 
5.4
 
$
798,000

 
443,000

 
$
4.52

 
5.4
 
$
782,000


The weighted average grant-date fair value of options granted in fiscal 2014, fiscal 2013 and fiscal 2012 was $3.92, $3.96 and $1.03, respectively. The total intrinsic value of options exercised during fiscal 2014, fiscal 2013 and fiscal 2012 was $6,099,000, $469,000 and $146,000, respectively. As of January 31, 2015, total unrecognized compensation cost related to stock options was $1,633,000 and is expected to be recognized over a weighted average period of approximately 2.0 years.
Stock Option Tax Benefit
The exercise of certain stock options granted under the Company’s stock option plans give rise to compensation, which is included 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 $1,129,000, $174,000 and $52,000 in fiscal 2014, fiscal 2013 and fiscal 2012, 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.
Shareholders' Equity
Restricted Stock
Compensation expense recorded in fiscal 2014, fiscal 2013 and fiscal 2012 relating to restricted stock grants was $1,323,000, $812,000 and $1,575,000, respectively. As of January 31, 2015, there was $2,616,000 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 2.1 years. The total fair value of restricted stock vested during fiscal 2014, fiscal 2013 and fiscal 2012 was $1,136,000, $2,800,000 and $874,000, respectively.
On November 17, 2014, the Company granted 199,790 shares of market-based restricted stock units to its chief executive officer and 79,916 shares of market-based restricted stock units to its chief strategy officer in conjunction with the hiring of these positions. As of January 31, 2015, these market-based restricted stock awards were outstanding. The total grant date fair value was estimated to be $1,373,000, or $4.91 per share, and is being amortized over the three-year performance period. Grant date fair values were determined using a Monte Carlo valuation model based on assumptions, which included a weighted average risk-free interest rate of 1.03%, a weighted average expected life of 3 years and an implied volatility of 60%. Each restricted stock award will vest if at any time during the three-year performance period the closing price of the Company's stock equals or exceeds, for ten consecutive trading days, the following cumulative total shareholder return ("TSR") thresholds:
Cumulative TSR Thresholds
Percentage of
Units Vested
Below 25%
0%
25% to 32%
25%
33% to 39%
50%
40% to 49%
75%
50% or Above
100%

On June 18, 2014, the Company granted a total of 56,000 shares of restricted stock to seven 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 $281,000 and is being amortized as director compensation expense over the twelve-month vesting period.
On March 13, 2014, the Company granted a total of 53,000 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 March 13, 2015. The aggregate market value of the restricted stock at the date of the award was $290,000 and is being amortized as compensation expense over the three-year vesting period. During the first quarter of fiscal 2014, the Company also granted a total of 4,000 shares of restricted stock to two new 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 $23,500 and was amortized as director compensation expense through June 2014.
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 was 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 January 31, 2015, 133,000 market-based restricted stock awards were outstanding. The total grant date fair value was estimated to be $425,000 and was 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 January 31, 2015 and changes during the twelve-month period then ended is as follows:
 
 
Shares
 
Weighted
Average
Grant Date
Fair Value
Non-vested outstanding, February 1, 2014
 
641,000

 
$4.49
Granted
 
392,000

 
$5.01
Vested
 
(205,000
)
 
$5.51
Forfeited
 
(124,000
)
 
$4.15
Non-vested outstanding, January 31, 2015
 
704,000

 
$4.54
Business Segments and Sales by Product Group
Sales by Product Group
Sales by Product Group
The Company has only one reporting segment, which encompasses digital commerce retailing. The Company markets, sells and distributes its products to consumers primarily through its digital commerce television and online website, evine.com, platforms. The Company's television shopping and 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 evine.com website whereby many of the online 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
 
 
 
January 31,
2015
 
February 1,
2014
 
February 2,
2013
Jewelry & Watches
 
 
$
256,217

 
$
253,358

 
$
282,275

Home & Consumer Electronics
 
 
179,221

 
193,601

 
146,838

Beauty, Health & Fitness
 
 
85,649

 
75,132

 
73,247

Fashion & Accessories
 
 
94,409

 
62,465

 
42,240

All other (primarily shipping & handling revenue)
 
 
59,122

 
55,933

 
42,220

Total
 
 
$
674,618

 
$
640,489

 
$
586,820

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 January 31, 2015 and February 1, 2014 were as follows (in thousands):

 
 
January 31, 2015
 
February 1, 2014
Accruals and reserves not currently deductible for tax purposes
 
$
7,420

 
$
5,066

Inventory capitalization
 
1,459

 
966

Differences in depreciation lives and methods
 
2,866

 
2,811

Differences in basis of intangible assets
 
(1,968
)
 
(1,180
)
Differences in investments and other items
 
215

 
(141
)
Net operating loss carryforwards
 
112,318

 
113,229

Valuation allowance
 
(124,258
)
 
(121,909
)
Net deferred tax liability
 
$
(1,948
)
 
$
(1,158
)

The provision from income taxes consisted of the following (in thousands):
 
 
For the Years Ended
 
 
January 31, 2015
 
February 1, 2014
 
February 2, 2013
Current
 
$
(31
)
 
$
(15
)
 
$
(20
)
Deferred
 
(788
)
 
(1,158
)
 

 
 
$
(819
)
 
$
(1,173
)
 
$
(20
)


A reconciliation of the statutory tax rates to the Company’s effective tax rate is as follows:
 
 
For the Years Ended
 
 
January 31, 2015
 
February 1, 2014
 
February 2, 2013
Taxes at federal statutory rates
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal tax benefit
 
(11.2
)
 
(5.3
)
 
1.8

Non-cash stock option vesting expense
 
(158.6
)
 
(43.3
)
 
(3.8
)
Other
 
(2.4
)
 
(0.6
)
 
0.1

FCC license deferred tax liability
 
(133.4
)
 
(81.5
)
 

Valuation allowance and NOL carryforward benefits
 
124.0

 
8.4

 
(33.2
)
Effective tax rate
 
(146.6
)%
 
(87.3
)%
 
(0.1
)%

Based on the Company’s recent history of losses, the Company has recorded a full valuation allowance for its net deferred tax assets as of January 31, 2015 and February 1, 2014 in accordance with GAAP, which places primary importance on the Company’s most recent operating results when assessing the need for a valuation allowance. The ultimate realization of these deferred tax assets depends on the ability of the Company to generate sufficient taxable income in the future, as well as the timing of such income. The Company intends to maintain a full valuation allowance for its net deferred tax assets until sufficient positive evidence exists to support reversal of the allowance. As of January 31, 2015, the Company has federal net operating loss carryforwards (NOL's) of approximately $298 million and state NOL's of approximately $188 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 January 31, 2015 and the year ended February 1, 2014, the income tax provision included non-cash tax charges of approximately $788,000 and $1,158,000, respectively, 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 January 31, 2015 and February 1, 2014, 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 2011, 2012, and 2013 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 2011.
Commitments and Contingencies
Contractual Obligation, Fiscal Year Maturity Schedule [Table Text Block]
Commitments and Contingencies
Cable and Satellite Affiliation Agreements
As of January 31, 2015, the Company has entered into affiliation agreements that represent approximately 1,854 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 2014, fiscal 2013 and fiscal 2012, respectively, the Company expensed approximately $98,581,000, $92,473,000 and $110,984,000 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 January 31, 2015 are as follows:
 
 

Fiscal Year
Amount
 
 
2015
$
81,626,000

2016
53,106,000

2017
41,288,000

2018

2019 and thereafter

Employment Agreements
The Company has entered into employment agreements with its on-air hosts with original terms of 12 months with auto annual renewals and its chief executive officer of the Company with an original term of 36 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 related to these agreements at January 31, 2015 was approximately $3,501,000.
On November 17, 2014, the Company entered into an executive employment and severance agreement with Mr. Bozek, the Company's Chief Executive Officer. Among other things, the employment agreement provides for a three-year initial term, followed by automatic one-year renewals, an initial base salary of $625,000, annual bonus stipulations, a temporary living expense allowance and participation in the Company's executive relocation program. In conjunction with the employment agreement, the Company granted Mr. Bozek an award of performance restricted stock units under the Company's 2011 Omnibus Incentive Plan with a fair value of $1.0 million. The chief executive officer’s employment agreement also provides for severance in the event of employment termination of 1.5 times the sum of his (i) base salary plus (ii) the average of the annual cash incentive plan payments made in the three fiscal years immediately preceding the fiscal year in which the termination date occurs. In the event of a change of control, as defined in the agreement, the multiplier shall be 2 times.
The Company has established guidelines regarding severance for its senior executive officers, whereby, up to 12 months of the executive's highest annual rate of base salary plus 1 times the target annual incentive bonus determined from such base salary may become payable in the event of terminations without cause under specified circumstances. Senior executive officers are also eligible for 1.5 times the executive's highest annual rate of base salary, plus 1.5 times the target annual incentive bonus determined from such base salary if, within a two-year period commencing on the date of a change in control, the senior executive is terminated without cause 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 January 31, 2015 are as follows:
 
 

Future Minimum Lease Payments:
Amount
 
 
2015
$
1,456,000

2016
793,000

2017
113,000

2018

2019 and thereafter


Total rent expense under such agreements was approximately $2,140,000 in fiscal 2014, $2,015,000 in fiscal 2013 and $1,715,000 in fiscal 2012.
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 January 31, 2015.
Future minimum lease payments for assets under capital leases at January 31, 2015 are as follows:
Future Minimum Lease Payments:
Amount
 
 
2015
$
55,000

2016
36,000

2017

2018

2019 and thereafter

Total minimum lease payments
91,000

Less: Amounts representing interest
(3,000
)
 
88,000

Less: Current portion
(52,000
)
Long-term capital lease obligation
$
36,000

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 2014, 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 $1,062,000 and $921,000 were accrued during fiscal 2014 and fiscal 2013, respectively, and were contributed to the plan in February of the following fiscal year. The Company did not make any matching contributions to the plan during fiscal 2012.
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, none of the claims and suits, either individually or in the aggregate will 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
 
 
January 31, 2015
 
February 1, 2014
 
February 2, 2013
Supplemental Cash Flow Information:
 
 

 
 

 
 

Interest paid
 
$
1,470,000

 
$
1,259,000

 
$
1,959,000

Income taxes paid
 
$
30,000

 
$
16,000

 
$
27,000

Supplemental non-cash investing and financing activities:
 
 
 
 

 
 

Common stock purchase warrants forfeited
 
$

 
$

 
$
34,000

Deferred issuance costs included in accrued liabilities
 
$

 
$
20,000

 
$

Property and equipment purchases included in accounts payable
 
$
2,016,000

 
$
521,000

 
$
48,000

Intangible asset purchase included in accrued liabilities
 
$

 
$

 
$
2,830,000

Non-cash warrant exercise
 
$
533,000

 
$

 
$

Issuance of 178,842 shares of common stock for trademark purchase
 
$
1,044,000

 
$

 
$

Distribution Facility Expansion (Notes)
Property, Plant and Equipment, Schedule of Significant Acquisitions and Disposals [Table Text Block]
 Distribution Facility Expansion
During fiscal 2014, we began a significant operational expansion initiative with respect to overall warehousing capacity and new equipment and system upgrades at our Bowling Green, Kentucky distribution facility. The expansion project includes the construction of a new building which, when completed, will expand our current 262,000 square foot facility to an approximately 600,000 square foot facility. The physical building expansion project is expected to be completed in the first half of fiscal 2015. The updated facilities will also include a new Intelligrated high-speed parcel shipping and item sortation system coupled with a new Manhattan Associates warehouse system to support our increased level of shipments and units and a new call center facility to better serve our customers. The new sortation and warehouse management system is expected to be phased into production during the summer and fall of fiscal 2015. Total cost of the expansion is estimated to be approximately $25 million and is being financed with our expanded PNC revolving line of credit and a $15 million PNC term loan. Construction started in the second quarter of fiscal 2014. As of January 31, 2015, we have expended approximately $15 million in cash relating to the Bowling Green expansion initiative with additional cash commitments of approximately $10 million expected during the first half of fiscal 2015 funded from our PNC Credit Facility.
Activist Shareholder Response Costs (Notes)
Other Operating Income and Expense [Text Block]
Activist Shareholder Response Costs
In October of 2013, the Company received a demand from an activist shareholder to call a special meeting of shareholders for the purpose, among other things, of voting on a new slate of directors and amending certain of the Company’s bylaws. The Company retained a team of advisers, including a financial adviser, proxy solicitor, investor relations firm and legal counsel, to assist in responding to the demand and the solicitation of proxies. In conjunction with such activities, the Company recorded charges to income in fiscal 2014 and fiscal 2013 totaling $3,518,000 and $2,133,000, respectively, which includes $750,000 as reimbursement for a portion of the activist shareholder’s expenses in fiscal 2014.  As previously disclosed, the activist shareholder requested that the Company reimburse it for certain of its expenses relating to the proxy contest.  In exchange for paying certain activist shareholder expenses, the Company obtained a customary standstill agreement from the activist shareholder. The process of responding to the initial demand concluded with the Company’s annual shareholder meeting on June 18, 2014.
Executive Transition Costs (Notes)
Executive Transition Costs [Text Block]
Executive Transition Costs
On June 22, 2014, Keith R. Stewart resigned as a member of the Company's board of directors and as Chief Executive Officer of the Company. In conjunction with Mr. Stewart's resignation and separation agreement, as well as other executive terminations made subsequent to June 22, 2014, the Company recorded charges to income of $5,520,000 in fiscal 2014, relating primarily to the following: severance payments which Mr. Stewart is entitled to receive in accordance with the terms of his employment agreement; severance payments related to the termination of our Chief Operating and Chief Merchandising Officers; and other direct costs associated with the Company's 2014 executive transition. Following Mr. Stewart's resignation, the Company's board of directors appointed Mr. Mark Bozek as Chief Executive Officer of the Company effective June 22, 2014. The Company filed an 8-K on June 25, 2014 disclosing the specific terms of the resignation, separation agreement and new appointment of its chief executive officer.
Relationship with NBCU and GE Equity (Notes)
Relationship with NBCU and GE Equity
Relationship with NBCU, Comcast and GE Equity
Relationship with GE Equity, Comcast and NBCU
In March 1999, we entered into an alliance with GE Capital Equity Investments, Inc. (“GE Equity”) and NBCUniversal Media, LLC ("NBCU"), pursuant to which we issued Series A redeemable convertible preferred stock and common stock warrants, and entered into a shareholder agreement, a registration rights agreement and certain other agreements. On February 25, 2009, we entered into an exchange agreement with the same parties, pursuant to which GE Equity exchanged all outstanding shares of our Series A preferred stock for (i) 4,929,266 shares of our Series B redeemable preferred stock, (ii) a warrant to purchase up to 6,000,000 shares of our 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 as further described below. In April 2011, we redeemed all of the outstanding Series B preferred stock for $40.9 million and paid accrued dividends of $6.4 million and in June 2014, GE Equity exercised its common stock warrant described above in a cashless exercise acquiring 5,058,741 shares of our common stock.
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 January 31, 2015, the direct equity ownership of GE Equity in the Company consisted of 3,718,767 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. As of March 20, 2015 GE Equity has an approximate 7% beneficial ownership in the Company and has certain rights as further described in this section.
On June 24, 2014, GE Equity exercised its common stock purchase warrant in a cashless exercise acquiring 5,058,741 shares of the Company's common stock. The warrant was issued in connection with the issuance of the Company's Series B Redeemable Preferred Stock in February 2009.
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 8.7 million common shares), 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. Neither GE Equity nor NBCU currently has any designees serving on our 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 described below), 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; (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" (as defined in the amended and restated shareholders agreement and 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 now expired NBCU trademark license agreement.
Related Party Transactions
Related Party Transactions
Related Party Transactions
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 January 31, 2015, the direct equity ownership of GE Equity in the Company consists of 3,718,767 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 the 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 Note 18 above.
Asset Acquisition of Dollars Per Minute, Inc.
On November 18, 2014, the Company entered into an asset purchase agreement with Dollars Per Minute, Inc., a Delaware corporation ("DPM") to purchase certain assets of DPM, including the EVINE brand and trademark.
The principal stockholders of DPM are Mark Bozek, the Company's Chief Executive Officer, and Russell Nuce, who became the Company's Chief Strategy Officer effective November 17, 2014. At the time of the transaction, DPM had debt outstanding under certain convertible bridge notes issued to several individuals, including Thomas Beers, one of the Company's directors and a trust for which Russell Nuce has a contingent pecuniary interest. As consideration for the purchase of these assets, primarily related to intellectual property, the Company issued 178,842 unregistered shares of our common stock, which represented an aggregate value of $1,044,000 based on the closing price of our common stock on November 13, 2014 and paid $20,000 in cash consideration and incurred $39,000 in professional fees associated with acquiring the asset.
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 2014, ended on January 31, 2015, and consisted of 52 weeks. Fiscal 2013 ended on February 1, 2014 and consisted of 52 weeks. Fiscal 2012 ended on February 2, 2013 and consisted of 53 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 $6,706,000 at January 31, 2015 and $6,446,000 at February 1, 2014. The Company utilizes an installment payment program called ValuePay that entitles customers to purchase merchandise and generally pay for the merchandise in two or more equal monthly credit card installments. As of January 31, 2015 and February 1, 2014, the Company had approximately $106,678,000 and $101,658,000, 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 $13,007,000, $12,762,000 and $11,792,000 for fiscal 2014, fiscal 2013 and fiscal 2012, 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 $10,984,000, $10,112,000 and $9,348,000 for fiscal 2014, fiscal 2013 and fiscal 2012, 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
Cash consists 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.
Restricted Cash and Investments
The Company had restricted cash and investments of $2,100,000 for each of fiscal 2014 and fiscal 2013. 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 at the lower of average cost or net realizable value, giving consideration to obsolescence provision write downs of $3,838,000, $3,776,000 and $3,787,000 for fiscal 2014, fiscal 2013 and fiscal 2012, 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 online advertising, including amounts paid to online search engine operators, customer mailings and traffic-driving affiliate websites. Total marketing and advertising costs and online search marketing fees totaled $1,946,000, $1,827,000 and $1,843,000 for fiscal 2014, fiscal 2013 and fiscal 2012, 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 the EVINE trademark and brand name and prior to its expiration in January 2014, 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, 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 $53 million Credit Facility is estimated based on rates available to the Company for issuance of debt. As of January 31, 2015, the Company's Credit Facility had a carrying amount and an estimated fair value of $53 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 non-cash impairment charge to reduce the carrying value of its intangible FCC broadcasting license asset to fair value. The Company had no remeasurements of such assets or liabilities to fair value during fiscal 2014 and 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
 
 
January 31,
2015
 
February 1,
2014
 
February 2,
2013
Net loss (a)
 
$
(1,378,000
)
 
$
(2,515,000
)
 
$
(27,676,000
)
Weighted average number of common shares outstanding — Basic
 
53,458,662

 
49,504,892

 
48,874,842

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

 

 

Weighted average number of common shares outstanding — Diluted
 
53,458,662

 
49,504,892

 
48,874,842

 
 
 
 
 
 
 
Net loss per common share
 
$
(0.03
)
 
$
(0.05
)
 
$
(0.57
)
Net loss per common share — assuming dilution
 
$
(0.03
)
 
$
(0.05
)
 
$
(0.57
)

(a) The net losses for fiscal 2014 and fiscal 2013 includes activist shareholder response charges of approximately $3.5 million and $2.1 million, respectively. In addition, the net loss for fiscal 2014 also includes executive transition costs of $5.5 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 loss for fiscal 2012 also include charges totaling $500,000 related to losses on debt extinguishment made during that fiscal year.
For fiscal 2014, fiscal 2013 and fiscal 2012, approximately 3,118,000, 6,247,000 and 3,920,000, respectively, incremental in-the-money potentially dilutive common share stock options and, with respect to fiscal 2013 and fiscal 2012, warrants have been excluded from the computation of diluted earnings per share, as the effect of their inclusion would be anti-dilutive.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Revenue from Contracts with Customers, Topic 606 (Accounting Standards Update (ASU) No. 2014-09), which provides a framework for the recognition of revenue, with the objective that recognized revenues properly reflect amounts an entity is entitled to receive in exchange for goods and services. This guidance, which includes additional disclosure requirements regarding revenue, cash flows and obligations related to contracts with customers, will be effective for interim and annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of adopting ASU 2014-09 on our consolidated financial statements.
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
 
 
January 31,
2015
 
February 1,
2014
 
February 2,
2013
Net loss (a)
 
$
(1,378,000
)
 
$
(2,515,000
)
 
$
(27,676,000
)
Weighted average number of common shares outstanding — Basic
 
53,458,662

 
49,504,892

 
48,874,842

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

 

 

Weighted average number of common shares outstanding — Diluted
 
53,458,662

 
49,504,892

 
48,874,842

 
 
 
 
 
 
 
Net loss per common share
 
$
(0.03
)
 
$
(0.05
)
 
$
(0.57
)
Net loss per common share — assuming dilution
 
$
(0.03
)
 
$
(0.05
)
 
$
(0.57
)
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)
 
January 31, 2015
 
February 1, 2014
Land and improvements
 
 
$
3,394,000

 
$
3,437,000

Buildings and improvements
 
5-40
 
24,215,000

 
23,737,000

Transmission and production equipment
 
5-10
 
5,424,000

 
6,216,000

Office and warehouse equipment
 
3-15
 
9,298,000

 
9,039,000

Computer hardware, software and telephone equipment
 
3-7
 
89,615,000

 
88,930,000

Distribution Center Expansion - Construction in Process
 
3-40
 
16,151,000

 

Leasehold improvements
 
3-5
 
2,681,000

 
2,681,000

Less — Accumulated depreciation
 
 
 
(108,019,000
)
 
(109,088,000
)
 
 
 
 
$
42,759,000

 
$
24,952,000

Depreciation expense in fiscal 2014, fiscal 2013 and fiscal 2012 was $8,854,000, $8,589,000 and $9,376,000, 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)
 
January 31, 2015
 
February 1, 2014
 
 
 
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
)
  EVINE trademark
 
15
 
1,103,000

 
(18,000
)
 

 

Total finite-lived intangible assets
 
 
 
$
1,103,000

 
$
(18,000
)
 
$
6,830,000

 
$
(6,830,000
)
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:
 
 
January 31, 2015
 
February 1, 2014
Accrued cable access fees
 
$
14,669,000

 
$
15,861,000

Accrued salaries and related
 
10,089,000

 
10,679,000

Reserve for product returns
 
5,585,000

 
4,894,000

Other
 
6,340,000

 
7,101,000

 
 
$
36,683,000

 
$
38,535,000

Shareholders' Equity (Tables)
12 Months Ended
Jan. 31, 2015
Feb. 2, 2013
Outstanding Options [Abstract]
 
 
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]
 
2012 Market Grant [Table Text Block]
 
Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]
 
Schedule of Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested and Expected to Vest, Outstanding [Table Text Block]
 
Schedule of Restricted Stock Fair Value [Table Text Block]
Schedule of Non-vested Restricted Stock Activity [Table Text Block]
 
 
Fiscal 2014
 
Fiscal 2013
 
Fiscal 2012
Expected volatility
88% - 98%
 
98% - 100%
 
97% - 99%
Expected term (in years)
5 - 6 years
 
5 - 6 years
 
6 years
Risk-free interest rate
1.5% - 2.2%
 
1.1% - 2.1%
 
1.0% - 1.4%
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 January 31, 2015 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 1, 2014
 
3,083,000

 
$
4.03

 
2,104,000

 
$
6.25

 
1,121,000

 
$
6.05

 
500,000

 
$
4.24

Granted
 
232,000

 
$
4.65

 
107,000

 
$
5.66

 

 
$

 

 
$

Exercised
 
(222,000
)
 
$
2.89

 
(665,000
)
 
$
2.50

 
(260,000
)
 
$
2.34

 
(50,000
)
 
$
1.82

Forfeited or canceled
 
(630,000
)
 
$
4.43

 
(340,000
)
 
$
11.76

 
(35,000
)
 
$
13.67

 

 
$

Balance outstanding,
January 31, 2015
 
2,463,000

 
$
4.09

 
1,206,000

 
$
6.71

 
826,000

 
$
6.89

 
450,000

 
$
4.51

Options Exercisable at:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
January 31, 2015
 
1,322,000

 
$
4.05

 
1,179,000

 
$
6.76

 
826,000

 
$
6.89

 
380,000

 
$
4.60

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

The following table summarizes information regarding stock options outstanding at January 31, 2015:
 
 
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:
 
2,463,000

 
$
4.09

 
8.1
 
$
5,228,000

 
2,424,000

 
$
4.14

 
8.1
 
$
5,161,000

2004 Incentive:
 
1,206,000

 
$
6.71

 
4.6
 
$
493,000

 
1,203,000

 
$
6.67

 
4.6
 
$
489,000

2001 Incentive:
 
826,000

 
$
6.89

 
3.5
 
$
518,000

 
826,000

 
$
6.89

 
3.5
 
$
518,000

Non-Qualified:
 
450,000

 
$
4.51

 
5.4
 
$
798,000