iMedia Brands Inc (IMBI) 2008 Q4 法說會逐字稿

Good morning and welcome to ShopNBC's Strategic Alternatives Review Process and Preliminary Results for Fourth Quarter and Full Fiscal Year 2008 Teleconference. Following today's presentation there will be a formal question-and-answer session. At that time, instructions will be given. Until that time all lines will remain in a listen-only mode.

At the request of ShopNBC, today's call will be recorded for instant replay. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Ms. [Nancy McGrath] of ShopNBC. You may begin.

Good morning. Today's conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Listeners are cautioned that these forward-looking statements may involve risks and uncertainties that could significantly affect actual results from those expressed in any such statements. More detailed information about these risks and uncertainties is contained in ShopNBC's filings with the Securities and Exchange Commission.

I would now like to turn the call over to Mr. John Buck, ShopNBC's Chairman of the Board.

Good morning and thank you for joining us and thank you, Nancy. I hope you've had a chance to review the multiple press releases issued this morning. Our series of communications may seem lengthy, but I'm sure you can appreciate this is a critical time at the Company and there are a number of important items that we want to review with you today and then we will take questions at the end.

When we last spoke, I said we would get back to you by the end of the fiscal year with an update on the strategic alternatives review process. With the timing being so close to the end of the quarter, we decided also to report preliminary results for the fourth quarter and fiscal full year 2008 as well.

Given that outcome of the review process, which we will plan to address in detail, we wanted to share with you the many initiatives under way at the Company to improve performance and build a roadmap for the future.

Let me begin by saying that fiscal '08 was very challenging and our preliminary financial results for the fourth quarter and full year are clearly unacceptable. We have gone to great lengths, implemented significant changes at the Company this past year in an effort to turn around this business.

As I announced in August, we embarked on two parallel paths to achieve these goals. One, explore strategic alternatives for the Company, and at the same time, manage the business on a go forward basis. While I am very, very disappointed that we were unable to find a buyer or a strategic partner for the Company at this time, I want you to know that we haven't closed the door on this option. And we will remain open to all opportunities.

I would also like to say that throughout the entire strategic alternatives review process, we remain fully engaged in running the business and implementing strategies to improve ShopNBC's operations, as well as develop new corporate strategies designed to grow the Company's EBITDA levels, increase revenues and rightsize our expense structure for '09, which we will talk about later in the call.

Part of these efforts include changes and additions to the leadership structure at ShopNBC, our Board of Directors and at a strategic planning levels at the Company.

As announced early this morning, I am pleased to report that the Board of Directors has promoted Keith Stewart to CEO of the Company. We hired keep back in August with the intent of naming him CEO following the transition period. The Board has been very impressed with how he has demonstrated his vast industry experience, decisive leadership skills, while achieving many organizational improvements at ShopNBC.

He quickly assessed the needs of the Company and swiftly implemented dramatic but necessary organizational changes to the fundamentals of our business that led to improve efficiencies and positive business metrics. He has a strong vision for this Company and great optimism for our future.

I am confident you'll find Keith's new '09 roadmap for ShopNBC to be quite compelling.

Concurrent with his promotion, I have voluntarily stepped down as CEO as part of the Company's succession planning and will remain Chairman of the Board. As we have endeavored to reconstitute the Board this past year, I am pleased to report that Randy Ronning, a retail and TV shopping veteran with over 30 years of leadership experience has joined our Board as a director.

Randy brings tremendous experience in TV shopping and e-commerce to our Board and we very much look forward to his contribution and insights.

When added to other recent Board appointments, we now have strengthened our Board comprised of five independent directors who have broad expertise in distribution, multichannel retailing and governance.

In addition, to assist us in all areas of strategic planning and implementation, the Company entered into a consulting agreement with Darlene Daggett. Darlene is also an expert in multichannel retailing, having 30 years of experience in this marketplace. We are excited about leveraging her highly relevant experience. Ms. Daggett will add incredible value to our Company by serving as a strategic adviser.

We are fortunate to now have three of the industry's best minds in Keith, Darlene and Randy helping guide us. People who have worked together in the past, people who are experts in multichannel electronic retailing and people who know how to get things done and succeed.

This is not to say our road to success hasn't been challenging or won't continue to be. The Board and management fully recognize the seriousness of our situation, and we're taking decisive action.

Despite our sales and EBITDA shortfall in the fourth quarter, meaningful improvements were made to our fundamentals in a number of key areas across the entire organization, while protecting our cash balance. This is encouraging and I would like to highlight a few.

Our biggest opportunity for saving at the Company is in our cable and satellite negotiations. I think all of you are aware that I have indicated in many phone calls that this has been our biggest, biggest operational issue. And in some ways we have been really handcuffed.

With negotiations relating to approximately 19 million households completed, we are able to preserve our distribution footprint at a much, much more competitive rate. We are halfway through the remaining negotiations, and we believe we will be able to retain a high percentage of our footprint while achieving a meaningful reduction in our cable and satellite feeds.

In addition, we continue to tightly manage our operating expenses in the quarter and reduce the Company's exposure to bad debt. We made a number of significant process and operational improvements while increasing both active and new customers. We aggressively managed our inventory, clearing out over $20 million worth with big reductions in the gem and gold categories.

Return rates and customer service calls went down and to broaden appeal and improve acceptance rate of our products among consumers, we continued to intentionally lower our average selling price by 33% while not sacrificing our premium lifestyle brand positioning.

Lastly, one of the biggest overhangs at the Company has been the uncertainty surrounding the status of the redemption of the GE preferred stock. As mentioned this morning, we are pleased with our progress in our negotiations to restructure, and extend our obligations to date which, if ultimately successful, would extend the payment of this security and provide ShopNBC considerable time to complete the turnaround of our business by significantly improving our cash outlook and flexibility.

We are close to reaching an agreement with GE. We have agreed on a framework for a deal that meets our business needs going forward, with terms and conditions for both parties to be finalized in the next few days.

In summary, with improved processes in place, a cleaner inventory position, and a debt free balance sheet, ShopNBC is geared up to enter fiscal '09 and continue executing the turnaround of our business under Keith's leadership. Despite the headwinds, we remain positive and confident about the future of our multichannel electronic retailing business. We are being careful with our cash. We are improving ongoing business operations to restore financial performance and we remain open, as I said earlier, to exploring a full range of opportunities to rebuild shareholder value.

With that, our remarks today will focus on three key strategic areas, beginning with a very detailed overview on the outcome of the strategic alternatives review, processed by George Vandeman, who is a member of the Board of Directors and Chairman of the Special Committee leading the review process.

We will follow George's report then with Frank Elsenbast, our CFO, who will provide a detailed financial review of the fourth quarter and fiscal year '08. And then Keith will shed more light on our operational improvements in the most recent quarter, talk about the initiatives we are pursuing to improve performance, and conclude by elaborating on our new roadmap for future success.

Now I would like to turn the call over to George Vandeman.

Thank you, John. Good morning, everybody. On the Company's last earnings call in September, I discussed the fact that a Special Committee of independent ShopNBC directors had been created and I had been appointed as Chairman. The other members of the Committee are Joe Berardino and Bob Korkowski.

The Committee's mandate was to explore a full range of strategic alternatives to maximize value for the Company stockholders.

As we announced this morning, after an extensive review process working with Piper Jaffray, our outside financial adviser, the Special Committee has concluded its formal strategic alternatives review process. And we have recommended to the Board that the best option for the Company at this time is to continue to operate ShopNBC as an independent entity.

We went through a very comprehensive and thorough process that resulted in this recommendation. I would like to take a minute to walk you through the past few months and how we reached that conclusion.

Beginning on September 10, 2008, we began to explore a wide range of alternatives and held discussions with a number of interested parties. As part of its role, Piper Jaffray initially contacted a total of 137 parties and executed confidentiality agreements with 39 of those. Of the 39, we received initial preliminary indications of interest from 13 parties.

Based upon the credibility of their financing plans, we invited four of those parties into the second round of the process. Two of them were strategic parties and the other two were financial sponsors.

The second round of the process included in-depth meetings and discussions with the Company's management; and with access to an extensive electronic data room, each of the parties was given an opportunity to do full and complete due diligence for their bid.

We had hoped, of course, to find a viable transaction through this process. Ultimately, however, in spite of the effort that we put into this, the process did not result in our receiving any final bid.

Piper Jaffray reported to us a number of the concerns and factors that prospective bidders cited to them. These included current market conditions and economic circumstances, difficult retail and credit environments, the Company's most recent operating performance and cost structure, the uncertainty at that time surrounding the status of the GE preferred, as well as the uncertainty surrounding the early stage of our cable and satellite distribution negotiations.

Now concurrently with the discussions with those parties, the Special Committee evaluated several other strategic options, such as a distribution to shareholders through a sale of assets and liquidation of the Company. However, we concluded that a liquidation of ShopNBC would not likely result in any distribution to our shareholders.

While the Company has considerable assets, we also have approximately $90 million in current liabilities and considerable future cash obligations. These future commitments are primarily contracts with our cable and satellite providers which total currently approximately $185 million. Payment of those liabilities and obligations plus the prior claim, of course, of the preferred stock in a liquidation scenario would have exhausted all of the proceeds from the liquidation of the company leaving nothing for the common stockholders. Therefore we've recommended against taking any such action.

Although the Special Committee has concluded the form of strategic alternatives review process, as John mentioned, we remain open to transactions in the future and we are committed to undertaking the best possible actions to enhance stockholder value.

With that report, I will turn the call over to Frank. Thank you very much.

Thanks, George. Today I would like to provide our estimated results for the fourth quarter and full year 2008 that ends this Saturday, January 31st. In addition, I will provide a review of our forecasted cash balance and an update on other key balance sheet items.

Based on preliminary estimates, fourth quarter revenues are expected to be approximately $142 million, a 35% decrease compared with revenues of $219 million in the fourth quarter of last year. The shortfall in the quarter was due to an approximate 33% decline in the average selling price and a 2% decline in shipped units. The sales shortfall versus last year was driven by weakness in our fine jewelry and laptop computer categories, as consumers reduced their purchases in these higher ticket categories.

For the full year, net sales are expected to be approximately $565 million, a decrease of 28% over the previous year. Gross margin in the fourth quarter is expected to be approximately 29% which is down from 33.3% in last year's same period. The decline in gross margin was driven by a significant level of clearance activity in the quarter as the Company focused on reducing its existing inventory before bringing in new inventory for 2009.

On a full year basis, our gross margins will be approximately 32% versus 34.7% in 2007. The Company remains focused on tight control of our operating expenses. In the fourth quarter, total operating expenses are expected to be down 14% versus the prior year, driven by lower variable costs, lower payroll costs and reduced marketing spending.

Selling and distribution expenses are expected to be down 16% and G&A is estimated to be down approximately 10%. Please remember that these estimates exclude the impact of equity compensation.

EBITDA as adjusted is expected to be a loss of approximately $15 million in the fourth quarter, compared with an EBITDA profit of $5 million in the year ago period, driven by the sales decline and lower gross margins. This was partially offset by the $10 million reduction in operating expenses at the Company.

For the full year, the Company's EBITDA loss as adjusted is expected to be approximately $51 million compared to an EBITDA profit of $7 million last year.

Estimated net loss for the fourth quarter is expected to be approximately $40 million compared to a net loss for the same quarter last year of $1 million.

For the fiscal year 2008, the Company expects to record a net loss of $94 million compared to net income of $22 million in the prior year. The Q4 net loss estimate reflects the impact of two non-cash charges. First, the Company has concluded that the $6.4 million impairment on our Auction Rate Securities which had previously been classified as temporary should be changed to Permanent.

This change is due to the continued illiquidity of these securities and uncertainty regarding their ultimate value.

In addition, the Company also recorded a $9 million non-cash charge related to its full powered TV station in Boston, Massachusetts. The station was deemed to be impaired from its current carrying value of $32 million, due to the depressed market conditions for TV stations. Both of these charges are reflected in the $40 million net loss estimate for the quarter.

Now I'll give you a quick update on our balance sheet. Despite the challenging results recorded this quarter, we have worked hard to protect our balance sheet. The fourth quarter is expected to end with an approximately $75 million balance in cash and securities. This balance is a $7 million reduction from the prior quarter, driven by the $15 million EBITDA loss, offset by continued working capital management.

As John mentioned, inventory declined by over $20 million in the quarter as the Company aggressively cleared its existing inventory in anticipation of new product introductions and merchandise expansion in fiscal 2009. Capital spending for the quarter is expected to be approximately $2 million.

Again, I would remind everyone that these are forecasted results as our quarter has not yet ended. We expect to release our final financial statement in the third week of March after we have closed the books and completed our work with outside auditors.

That concludes my update. Now I will turn the call over to Keith.

Thanks, Frank, and hello, everyone. It is very good to be with you today. Let me begin by saying thank you to John for his service and commitment as CEO these past weeks and months. Working with him has been a real pleasure. Listening to his keen thoughts about the business has been insightful and helpful as part of the Company's succession planning. His continued support as Chairman of the Board is much appreciated.

As I assume the new role as CEO, and manage responsibilities, I remain fully committed to turn the business around. I am 150% engaged, along with the rest of our talented workforce, to rebuild shareholder confidence and get you excited about the future of our business.

To turn around the Company's financial results in 2009 and achieve sustained profitability, the business will be significantly repositioned in the next 12 months by focusing on improving components of the business that are more within our control. We will work towards delivering a clear and compelling consumer proposition to drive further progress within a solid business model. We'll also significantly reduce our cost structure of this business to a level that allows this Company to achieve a consistent profitability and reverse the losses experienced in fiscal 2008.

These are our corporate priorities going forward in '09.

To date, the Company has taken numerous actions to significantly improve our financial performance for fiscal '09. And as I said, reduce the organization's cost structure and cost of sales.

While we are not providing '09 financial guidance at this time, I would like to share with you the initiatives that outline our roadmap for the coming year. Then we will take your questions.

John earlier touched on the cable and satellite part of the cost structure. In the approximately 19 million homes negotiated to date, we have been successful in preserving virtually all of the homes in these contracts. The continuation of these agreements ensure that we will have the broad footprint to sell from and grow during the next fiscal year.

Maintaining our distribution footprint is key, but it is not enough.

Reducing table and satellite operating expenses also needs to happen. As you know, cable and satellite fees represent approximately 50% of the Company's operating expenses. With a majority of these agreements expiring, it's critical to reset these at competitive rates in fiscal '09.

All the negotiations are ongoing. I am highly encouraged with the progress of meaningful rate reductions and improvements to our channel positioning. I would like to go into much more detail on this part, but I also don't want to jeopardize our ongoing negotiations. I appreciate your understanding.

In addition to reducing our cable and satellite cost structure, we are highly focused on reducing other costs that are within our control. At a high level, operating expenses over the past two years have been reduced by $23 million. This is a result of several difficult but necessary reductions in the Company's salaried workforce, continued reductions in cable and satellite distribution fees, and significant decreases in all nine revenue-related discretionary spending.

Other cost structure items within our control include improving product return rates, call center efficiencies and warehouse processing. Reducing our transactional costs are central to becoming more competitive in the marketplace and restoring ShopNBC to profitability.

In fact we have already significantly decreased transactional costs pertaining to customer service contact rates in September of '08. This decrease has been driven by faster and more accurate delivery times. With respect to our improved return rates, delivery times, customer service and product quality, we expect to report a return rate of 27% for the quarter, a reduction of 400 basis points compared to last year.

Next to our cable and satellite fees, transactional costs are our next biggest opportunity for savings. To the extent that we complete an order faster, shift order processing to the voice response system or dotcom, improve product quality and reduce return rates, we will continue to improve customer satisfaction and reduce the cost of each and every transaction.

With meaningful improvements in this part of the business, you can quickly sate how we can improve our EBITDA levels. We said we would significantly increase our gross margins as new merchandise is made available to customers. We've started to make progress in the third quarter on this area with gross margins increasing from 33.7% in Q2 to 34.5% in Q3. But in Q4, gross margins were 29%.

Let me explain. First, it was necessary to clear slow selling, high-priced jewelry in the quarter. Next, it was important to eliminate the pricing flexibility, allowed to drive short-term sales. We increased product margin requirements in all categories. And all pricing is now formula based. In short, all science and no art.

Finally, we will be placing greater focus on unique products and offshore sourcing. As new products come in, we will continue to aggressively managed our inventory.

This past quarter, as John said, we successfully cleared over $20 million of inventory across all product categories with the largest reductions in high-priced gem and gold categories. This has allowed us to reduce our inventory levels by 35% compared to last year.

We'll also develop a predictable margin formula and profitable sales result model by testing new product and rely on reordered goods. This approach will allow us to learn more quickly about what products appeal to the customers at lowered inventory risk to the Company while maintaining competitive margins, as well as significantly reducing merchandise markdowns. This new pricing and merchandise model will also significantly improve our merchandise margins across all categories.

Our inventory has never been cleaner. This has put our merchants in a very unique position. We are willing and have the ability to buy fresh and compelling new products for (technical difficulties). To make good on these plans and initiatives, we need to increase active and new customers, but a good plan is only as good as its execution. And I am pleased to report that customer accounts on both of these fronts reversed trend in the fourth quarter.

For example, in December, new customers increased by 23%. Active customers increased by 10%. To broaden the appeal and improve acceptance rates of our products among customers next year, we will improve our merchandise mix by beginning to broaden our product offerings into more home, apparel, accessories, and beauty products.

This broader mix will continue the intentional decrease in the average selling price which drives new and active customer growth, essential to long-term sales and profits. Good execution is also dependent upon improved sales and inventory planning. During the quarter we made significant process improvements to our merchandising, broadcasting, planning, and programming teams by restructuring these key business units to bring greater focus, focus on profitability, focus on accountability and efficiency.

As John mentioned, we have added two of the best minds in the industry to our leadership structure at the Company. Darlene Daggett as a strategic adviser and Randy Ronning as a Board member. I have worked with both of them in the past and support the guidance going forward. Their guidance going forward will be invaluable.

In alignment with our focused on reducing the Company's cost structure, our focus on the customer is second to none. From ShopNBC's on-air and online presentation to its product delivery, every aspect of the customer experience is in focus with the goal to exceed their expectations. This spotlight on the customer experience is intended to drive new growth and current customer loyalty.

Already we are implementing weekly measurements to reduce customer service contract rates. To improve on this metric we will redesign the automated ordering process and call center process. Through every touch point with our customer, we will communicate a value proposition that is unique and differentiated. Our value proposition will embody a consistent flow in new products and concepts to keep ShopNBC programming fresh.

On-air hosts and team members will also strive to improve the social community of our customer base, and develop ways to interact with them on a direct relationship basis in ways that surprise and delight them.

In summary, we are making meaningful progress with these operational improvements and efficiencies. Positive results are taking form. And we are laying a solid foundation to support our well-planned and proven roadmap for a new ShopNBC in '09.

With that, let me conclude. 2009 will definitely be a year of opportunity and change at ShopNBC. Our goals and plans turn this Company around and achieve sustained profitability are all very clear. The majority of the big changes to our infrastructure are complete.

I strongly believe that we are headed in the right direction. I am confident that we are taking the right actions, that we are headed in the right direction. And I am confident in our go-forward execution capability.

We certainly appreciate your time this morning and hope you are as excited about ShopNBC's future as I am.

We will now take your questions.

(Operator Instructions). Jaime Lester. Soundpost.

Can you discuss how NBC shaped the process? I mean, we've heard from various people at NBC basically didn't let certain parties bid. You mentioned in your press release and in the comments that the NBC preferred was a big overhang for people.

Why was NBC allowed to determine the fate of the Company and basically guide its preference when obviously they are not the controlling shareholder?

And my understanding is under Minnesota law that the preferred really doesn't have very much in the rights, in the sense of voting rights or the ability to force the Company into bankruptcy or financial distress. Can you just talk about what -- why the balance was struck so heavily towards GE's and NBC's concerns and not towards the rest of the public shareholders?

Yes. At least in so far as the auction process went, I can only answer it your questions with respect to that, but they did not -- to our knowledge, they did not shape or affect anything. I think we indicated that they were in the process as a bidder. And we also were aware of how they planned on approaching a bid.

I don't want to go into too many non-public details, but nonetheless, they were a bidder. They showed up with a couple of companies that they wanted to partner with and they were an active bidder throughout the whole process until the very end when -- as I indicated -- we received no final bid from anyone, including NBC.

Now as far as we were concerned at the Committee level and at the Piper Jaffray level, they were nothing more than a member, one of the two strategic parties at the end of the process.

All right. I would say that that report is from various parties involvement process would indicate otherwise. (multiple speakers)

That may well be, but if you are asking from our perspective as the Special Committee and as our financial adviser, we were not privy to those. Now we have also, the Board has also heard about -- fairly recently -- some of those stories that you referred to.

Can you also discuss, you kind of painted it as well if you look right at the Company and you have to pay off all the distribution agreements, there's nothing left for shareholders. It's obviously -- that is the case, but there is an alternative, which is sell assets and distribute capital to shareholders now and keep running the business going forward and put the burden of those liabilities either on the distribution partners or on the GE preferred, or any of those parties that should be receiving it.

Why not dividend out cash, why not monetize some of the assets and take a half step towards showing some concern for the common equity in this Company?

The problem is and maybe Nathan could speak to this further, but the problem is that we are under the strictures of Minnesota law in terms of distributions to stockholders. And we cannot -- we are not permitted to make any distributions which the Board would determine might impair the solvency of the Company.

So if you take a look at the cash, and how much of the cash is in the Auction Rate Securities and the upcoming obligations that we are facing, basically is there would be -- we talk about selling assets to bolster our cash position, to face the future, but not --. But it would not enable us, as I understand it, to just start kicking out funds to stockholders if it would jeopardize our future solvency.

Nathan, do you want to elaborate on that?

Yes, George, I think that's an accurate summary that, given the cash needs of the Company now, the Directors need to look at the ability to operate the business and pay its debts as they become due going forward. So to see assets such as the TV station or something, the Board's first duty would be to make sure that it could pay its debts in that going-forward basis. So it's -- Jaime, that would not right now be a source of dividend opportunities for shareholders, at least until we get through some of these other near-term issues.

And when you say [paid] that -- to which parties are you referring? My understanding is preferreds don't have the ability to have any impact on that consideration.

Yes. But that's what we'll be talking about our operating liabilities mostly to our cable and satellite distributors, but also to our vendors. Most very important to our vendors.

Yes payment on the preferred is subject to the same legal considerations that I described in terms of dividends to the (inaudible).

Can you discuss the current Board of Directors? My sense and I'm sure you'll hear this from a lot of other people is that none of the shareholders would support the current Board if given the choice, given the enormous destruction of value you guys have presided over.

Can you discuss any plans to change the Board? Any plans to certainly change the leadership of the Board? And if you want to maybe make a halfhearted defense of why you should be given the right to run this Company after what has happened over the last few years, then be my guest.

I will take a shot at that and then my colleagues can join in. Certainly not to be defensive, to be very open here as we are, as I said we have been just handcuffed as you know by the fixed cost structure. And in '08, we finally have an opportunity with 65% of those contracts expiring, I think as you know those contracts were all signed six, eight, 10 years ago and looking at all of the options, we just could not find a way to get out of those doggone things.

And so, we have been really handcuffed. That has been the biggest biggest business challenge for us is the cost structure and the revenue structure that does not support the cost structure.

Now as it relates to the Board, I hear you. I understand. I can show you I've shared this with the Board. As we announced today we are bringing on a gentleman, Randy Ronning, who has got 30 years of -- as I said -- retail and home shopping and Internet experience. He and Keith have worked together. He was at QVC, his last assignment, for several years.

We are bringing on Darlene Daggett as an adviser to Keith and to the Board. We recently brought on Joe Berardino as a new Board member and so we are listening to our owners. We're trying to respond.

This is a very difficult time for this Company, for sure. But again, I would just tell you I think today, there should be hopefully more hope than there has been in the past. And it is presently because of this cost structure, the cost structure we are able to deal with.

Not to say that we aren't going to have some tough times going forward this year with the economy and consumer spending. But I think with the plan that we put forward and the Board has approved and we continue to get these kinds of new negotiations rates, I personally think better days are ahead.

Now do we want to turn the Board over and start over with a new learning curve? I don't know if that would be a good move, to be honest. This Board, certainly for Keith and myself, we are so aligned with the shareholders. I think you know we've taken everything in stock. I think my tax liability is a multiple of what the value of the stock is today.

So this is not some sand box that I'm having a lot of fun playing in and I am enriching myself. We are doing the absolute best. I will tell you this Board meets by phone or in person almost weekly, has been for the last several months, and we are working as hard as we can. And we got this very difficult problem that, for the first time, we have hopefully an opportunity. So I will leave that with you.

George, I don't know if you have a comment or -- ?

The only thing I can add to that, John and Jaime, from the standpoint of my role as the Chairman of the Nominating and Governance Committee. We are actively engaged in a review of new Board candidates that A., have television home shopping experience like Randy and one other candidate we are in the process of interviewing.

We are also looking for women who have relevant experience. And so we are actively engaged in looking for new Board candidates that have the requisite experience. And as John pointed out, we have -- two brand-new directors, neither of which can we paint with the past (inaudible).

Bob Evans. Craig-Hallum Capital.

Good morning, everyone. First, can you clarify the strategic process? Does that remain open as it relates to further discussions or do you view it closed right now?

No. We do not view it as closed. As I think we said in the press release and in my remarks and in John's remarks, we remain open to any transactions that may come along.

Will there be a -- maybe you could elaborate on, given there were no final offers, the hurdle, the biggest hurdles if you will. And for example, if it's the GE preferred, it sounds like they're close to having some renegotiation there, you are also relatively close to having your distribution costs more firmly set so that a potential buyer would know what they're getting into.

Is it a situation where having those questions answered opens up new interest? Or if you could elaborate, please.

Yes, I certainly -- having those two issues resolved would -- there were internal and external factors that impacted the results of the process. The internal factors you just put your finger on two of the major ones. The third major one was our operating performance. The external factors, obviously, was the financial meltdown which I think occurred right around the start of our process. And that was the primary external factors.

There were other situations where one of our best strategic, potential buyers, one of our very best, had an unexpected internal development which took them out of the running, but they could well come back.

So yes, there's no question that as these internal issues are addressed and resolved and those -- the overhang of those concerns are gone, and the external economy and financing and the whole financial system starts to get righted, we could well see interest again.

And I know it's difficult to give any type of guidance right now, but could you give us any sense on a quarterly basis, how much you are -- given what you've done thus far, how much your cost structure has done with distribution costs and other G&A cuts per quarter? I mean, are we talking $5 million lower as we look into '09, relative to the end of '08?

We expect the cost structure to be down double digits next year. So that is going to be approximately in excess of $25 million. And the changes in the cost structure will probably be relatively uniform throughout the year because most of the reductions in the cost structures are coming from cable negotiations that have reduced rates that are effective today. The reduction in force that we did earlier this month. The piece that Keith talked about that will evolve a bit this year is as we continue to reduce our transaction costs and lower our return rates.

But I think you are going to see the majority of its spread fairly evenly through the year.

So at least $6 million a quarter? Perhaps more?

Yes.

John, can you comment on distribution costs for the $19 million homes that you've done thus far? John or Frank. As how much are we -- can you give us some sense of magnitude? Are we -- the savings thus far, is it double-digit millions, is it -- you've still got, I think, more than half of homes yet to be renegotiated. Can you give us some sense of magnitude?

Yes, thank you. And we do, we are right in the middle of continuing negotiations as we've extended some of the contracts in a month-by-month basis. But those that we have negotiated, we have significantly reduced. And I think I told everybody, we were running in the high teens as a percent of revenue. Now where the revenue is that it is in the low 20s. QVC is in that 4, 5, 6%. HSN is in that 8, 9, 10% and I think on earlier calls, I always said we want to be closer to where HSN is.

I would say to you, we are achieving that goal. I would say the contracts that we signed are below our breakeven point by a double-digit percent.

And it's that classic scene. Sometimes you are strongest when you are weakest and we have an opportunity here. And this is the one opportunity we have and we have to really take advantage of it, and that is to be very strong in these negotiations.

I will tell you the one with double-digit million homes, that went right up till 10:30 New Year's Eve night. We were doing it 6:30, 7:00. That is the nature of this business, but as I said earlier, we have been handcuffed because we've never even have the opportunity to negotiate these contracts that were put in place 10, eight years ago.

And just to piggyback on your earlier question, based on the announcements today and going forward, I just think this Company is a lot more attractive going forward now than less attractive for sure.

So I think that is going to create some opportunities for us.

All right. Thank you.

[Michelle Graff], National Jeweler Magazine.

Hello. I know you mentioned a couple of times in the call about jewelry, having to discount jewelry, jewelry being one of the reasons for your sales losses. Are there any plans to eliminate jewelry sales on ShopNBC and what are your plans for jewelry as a category going forward?

Michelle, thank you. The reason for the discounts in the jewelry was pertaining to the very high average selling price, relative to what was selling in the marketplace. Customers are looking for, as you know, more classic traditional looks. They aren't looking for things that are edgier and higher price points. Customers are acting more conservative rather than bullish.

It's not specific to the jewelry industry. It is pretty widespread throughout.

So it was necessary to take the inventory that we had that was well above the average selling price of what was working or selling in the marketplace, and reduce that to sell that through. That in itself had a large impact on our gross margins in the quarter.

Moving forward, we still continue to focus on the jewelry world, but in a very different way than what we have in the past. We are looking for more moderate, conservative type looks. I won't get into too much detail, but things that are more broadly accepted.

Our average selling price in gems last year was over $550. You as an expert in the industry will certainly concur. I'm certain you will concur that that is not what the customer was looking to buy.

That average selling price must come down. It must come down just to create broader appeal and some of that more moderate or conservative jewelry creates more, new, and active customers than the higher price jewelry.

And, finally, the return rates are much lower. So that equates to a heftier customer. It equates to lower transactional costs as a company which -- those are something that we need to and will reduce in '09.

So you are looking to go with lower price point jewelry?

Yes. We are not going to throw the baby out with the bathwater. The things that are selling well and the customer is telling us that it is working, we will continue with that.

But those things that aren't working as well, we are taking a very very objective view. It is not subjective anymore and I must say it has been in the past. It is all about financial metrics. It is all about productivity per minute. Acceptable return rates and other metrics that we look at.

So the customer will help guide us in the future.

But you can't get into what particular pieces you are talking about?

Not in detail at this time. I can't say that I have everything in front of me right now. If you would like to have a separate conversation in the future, I would be delighted to have that conversation.

Okay. Thank you so much.

[Bruce Garbarisek] with [GTI].

Good morning. Can you tell us, elaborate on what gives you leverage as you go to cable operators to negotiate the type of reductions that you mentioned in the call? Thank you.

Thank you. Very, very good question. You know, what gives us a leverage is, one, we are still the third-largest home shopping business. Two, the cable operators are, they are not necessarily interested in walking away from a good, good customer. Three -- and by the way a good customer and a good paying customer and an ongoing customer. Three, we obviously share with them our belief on what is going on in the marketplace and where the competitive rates are. And four, we're also not interested in these long-term contracts which I think can be beneficial for both.

Some of these contracts that we recently negotiated are shorter term, two-year, three-year type contracts.

By the way I forgot to mention, in addition to getting significant reductions and below breakeven for us, we are also improving our channel placement and that is a big deal. Instead of being in the outer space with some of these other nonshoppings, we are now within -- right next door to our competitors.

So that's a piece of the negotiations I neglected to mention. It is not only the rate, but it is also the channel placement. I am going to let Keith also add on to my comments.

Thanks. The world is different today. It is not just the economy and everything else that is going on out there. It is very, very different for the cable and satellite operators.

One, compared to eight, 10 years ago where these agreements were signed on an analog basis, the capacity was very, very low. So with a small amount of real estate if you will, those costs per channel were very, very high.

Two, today there is a large migration towards digital. Digital has a broad, broad capacity. Despite all the other technical issues for high-definition and those types of things, there are more and more options for content providers. So with more real estate, obviously the same. There is a greater opportunity for cost reductions.

Three, it is not about our footprint. It is about the productivity per household and the EBITDA and overall profitability per household. The way we are looking at this today as an organization, I am certain, is very different from the past.

And finally, cable and satellite partners -- although our friends and we will continue to work with them in the future, their world has changed. There is Internet protocol. There's other -- there's phone companies. There are other things that have emerged as a competitive thing -- force in the marketplace for them that is something that we need to be sensitive to in our negotiations.

So our laser focus is on profitability and EBITDA, on each one of those households, in each one of those markets that we operate in.

I do want to say that although 65% of these were up at the end of the year and the extension John mentioned is very, very true, we still have 35% of those subs or households where we have opportunity. Albeit the contracts have not extended, it does not mean -- or not up for extension, it does not mean or prohibit us from going to renegotiate improved channel positioning in each one of those marketplaces.

Improved channel positioning clearly positively affects productivity. There are other terms in the agreements that we are negotiating to protect our Company, protect our positioning in the future during the short term. And in finally I will offer that this channel positioning issue that John had brought up is very, very important.

And so we had to take a look at the entire package and we are doing it on a short-term basis because of the digital marketplace.

[Bill Briggs], Internet Retailer Magazine.

Good morning. My question is twofold. Can you tell me what percentage of Q4 and fiscal year '08 sales came from the Internet? And then following on that, what role e-commerce will play in 2009.

Yes, for the full year it is about 32%. That is our estimate on where we will land on a full year basis as the Internet, as a percentage of our merchandise business. I'll let Keith address the other issues.

Thanks. The Internet will continue to be a growing aspect of our business. Let me put it in context of our overall business.

We are one of a select few in the United States that have a true, multichannel electronic platform. Our television distribution has a single strength of making one item very very special. In itself its context is highly linear. It drives interest, amongst consumers regarding products, but its most significant weakness is its lack of breadth.

Conversely the most significant strength of dotcom in the context of our business is the breadth and the assortment of product. And to the extent that we can leverage our distribution and advertising on air to drive our dotcom sales and interest in dotcom, we will be serving our customer in a much better fashion and certainly much better than many other retail competitors in the space.

So a multichannel platform has a very large strategic aspect in our platform. And I will close by saying that dotcom television or any technology therefore in the future is merely a portal. Our strategy is to make sure that we can serve our customer any possible way in where she wants to be served. Through dotcom, through television or where she tells us that she wants ShopNBC service.

Thank you.

Debra Fine. Fine Capital Partners.

Good morning. John, are you giving up your salary now that you're no longer CEO?

Absolutely. And I wasn't really taking the salary. As CEO I was taking the stock, but not the salary.

Okay. Could you -- and I'm curious when you in response to one of the prior questions, you seem to blame the majority of the problems that ValueVision has had on the cable contracts. And I'm wondering how you see the Board's responsibility towards the CEO turnover, the hirings and firings, the impact that may have had on morale, the inventory management policies, the pricing policies, the mix issues. And if you feel that those have not been issues that have impacted ValueVision's performance and if the Board had no responsibility to manage any of those issues?

Wow. Okay let's -- in terms of the footprint, I don't want to go back and necessarily blame previous management because at the time eight, 10 years ago when we were at 4.5 million homes, I think strategically there was a belief that if we could increase the number of homes, the sales will come along.

So I think probably back then that probably was a good decision. The right decision. We grew it from 4.5 million up to where today? 71 million. Hindsight is always 20/20. You know they signed contracts that are 10 years in duration.

That is an awfully, awfully long time to have contracts that grow uncontrollably from X number of homes to five, six X number of homes without any control on our side and the impact on productivity. I mean those are -- but if you go back, you know what? Back in those days that one could argue and understand why they did what they did.

But I will say it has been -- we have been handcuffed with the footprint. I think we, as you and I have talked in the past and other shareholders have talked, we've really taken as much cost out of here as we possibly can. We are continuing looking at it.

But the footprint has been a big, big anchor for us. And that is the reason I'm so optimistic.

In terms of the CEO turnover, I think you've got to lay that at the Board's feet. I wouldn't run away from that. I think if you go back in time, we've not had as much CEO turnover. I think, prior to me being interim, a person was in place for three, four, five years. Previous to that it was five years.

It has been this past year where I served as interim. We made a hire. I think you can put that right at the Board's footsteps. That was a mistake. And what would have been probably the easiest is to not do anything.

So that was a tough decision and quite frankly that was unanimous. And as a Board we came to that conclusion. We came quickly to the conclusion.

In terms of the officer turnover, I would say that you've had less officer turnover in the last year than prior two. I mean the previous two I think when I became interim CEO as I remember now and don't call me to precise numbers here, but directionally I think we had 18 officers turned over in a period of 18 months, something like that.

So yes if you go back to be '05, '06 timeframe there was a lot of officer turnover. I would say in the last year, I'm trying to recall here, but I don't -- I'm not -- I don't think we've had any voluntary -- I don't think we've had any turnover on this. Just this recent workforce reduction we did.

In terms of the mix, the product mix -- gosh, I would just tell you that this has been an ongoing struggle for this Company. We've had the average price at around $[225]. I think you, everybody would agree there is a correlation between average price and return rates and that has really -- that has been an issue for us.

Are we trying to get down to the QVC level and HSN level, HSN in that $40, $50? No. Are we trying to reduce from $225 to someplace down in the $100 range that supports our lifestyle branding position? Yes.

So that's been and then let's face it, we hit a very, very difficult economy and consumer spending. I'm not giving any of that excuses, but that has been what we been dealing with and, again, I don't want to go back. I'm not trying to the critical of past leadership. It is what it is. It's what we have.

We were very aggressive under George's direction and looking out in the marketplace. I again come back and I think with what you're hearing today and the decisions we've made, I personally think this business is more attractive, growing more attractively and than less. I don't know, did I cover all of your items?

My understanding is that the Board's job is to maximize shareholder value and I assume that you have been receiving strategic plans from the last several CEOs and reviewing them and endorsing them or not and getting rid of the CEOs.

And for you to say squarely that the response -- the biggest problem in the one that you really, your hands are tied was the cable contracts seems to advocate responsibility on the Board. And despite the fact that you are saying the Company is in a great position, I think it's a fact that 30 folks looked at the company and thought otherwise doesn't make a whole lot of sense to me. Thank you.

Well, I shared with you my disappointment. I'd say the Board's disappointment. I think you and I both can look at the market and we can come to some conclusions on that as you look across the spectrum of all industries.

John, the problems were there before the market turned. And I think for the amount of time that you've said the quarterly results are unacceptable, they predate this downturn.

I agree. Keep in mind I moved in November of '07, but I wouldn't disagree with you. I wouldn't disagree.

Thanks.

Richard Mansouri. [Delacamera] Capital.

Thank you. Just one question. There's been a lot of talk about strategic review process and the steps that you guys are planning to take which ostensibly should be positive if you are going to be able to get these rates down. But I don't think there has been any talk whatsoever, at least I haven't heard it on the phone, about the stock price.

Because when we talk about maximizing shareholder values as professional investors we measure value purely by the stock price. Secondarily, I suppose by distributions that we receive.

Now the stock is trading right now at $0.28 a share. And it says here the company has $75 million in cash and securities. And I'm hopeful unless you guys tell me otherwise if you are going to be able to deal with this whole preferred issue. So I guess my question is, will you guys at minimum commit to taking some of this cash and buying back stock because I can't see any other use of capital that could deliver as theoretically great a return as buying back stock at a discount. Especially a discount that is as disgraceful and as shocking as this one. Can you guys at least commit to do that?

I've heard you. We have the Board members on this call. They all heard you. The preferred as you mentioned -- we are very, very optimistic, confident that we will get that done in the next coming days. In fact the lawyers are meeting, I think it's tomorrow, Thursday, and Friday.

You heard earlier from George as it related to some of the issues we have with the onetime payment and the stock buy back. But I think reinforcing it the Board will take this and react to it.

I appreciate that, but let me just inject a notion here and again, we can speak about this. But just to be crystal clear, there is a difference.

I don't think anyone can argue that there is a difference between distributing out cash, dividending cash and actually buying back stock. Now you guys have had in the past share repurchase programs in place.

So I don't think that you guys could blame if you will the preferred or anything like that from tying your hands. So, again, please tell me if I am misunderstanding this, but is there anything to your direct knowledge that would prevent you guys from buying back stock?

I don't -- let me take that under advisement.

Okay. Could I ask you this and again this is in full disclosure. You have the investment community tuning into this. What is your opinion of the stock price at $0.28? Do you think it is shockingly undervalued?

Unbelievable. Yes. Incredibly undervalued.

Okay well would you say -- and, again, I know you can't speak for the Board, but do you think based on anecdotal discussions that you might have had with others that there is general feeling that the stock is undervalued? What I'm getting at by this, again, I don't mean to belabor this -- but what I'm getting at is if you believe it is unbelievably undervalued, presumably there might be others out there. Which, again, adds fuel to the fire why this Company should take advantage.

Because again, I agree, you have been saying that if you can get these rates down that could give you, that could optimally position you going forward. Well, if that is the case then I hope the Company can take advantage of -- in your opinion -- of unbelievably low valuation and reduced the share count.

Because if it is true and your turnaround works, that just makes every remaining share worth that much more. I just wanted to inject that notion. Thank you.

Thank you.

[George Tomassee], [Scott Makin].

A follow-up question on the cost structure, the $6 million savings a year or $25 -- I'm sorry $25 (inaudible) quarter. Does that include the distribution cost savings?

Yes, that does include the reductions in our cable and satellite distribution fees. That is the majority of it. The other main component is the reduction in our workforce that we took in the month of January. And then, there has also been slight year-on-year reductions in the marketing spend.

Well it -- I would like to -- could you possibly put a little more detail on that because if you pick up 5%, just 5% in the distribution costs times your current yearly revenue of [565], that's about $25 million. So I'm wondering what happened with all these other cost reductions? Personnel, 27% reduction and whatever over the last two years. If it's all coming from the distribution --?

Right. No. If you look at the cost, our cost structure from 2007 through what we were forecasted in 2009, we are expecting the cost structure to be down about 23% across that time span. So that is over a $60 million reduction.

So the pieces of that are the cable distribution case, reduction in our salaried workforce, reduction in marketing spend and all other discretionary spending.

Okay. Thank you.

Jaime Lester. Soundpost.

Just to be clear. If you had an offer to buy the Company today at $1.00 a share, is that something you would consider or would you exercise your discretion that that is not the best alternative for the shareholders?

As Chairman, I would say we would consider it. Obviously we would want to understand the nature of the offer, the buyer. But I don't think (multiple speakers) --.

Why would -- let's say someone said here's $1.00 a share in cash for your whole Company, no financing commitments. Why does it matter who the buyer is? Just so I understand that?

Again it is the profile of the buyer, the capability of the buyer, the capacity. I mean the finance (multiple speakers)

Capacity to do what, Sir?

The financing terms. But I -- you know, Jaime, I think the answer that I would give is we are very open to all opportunities here. (multiple speakers)

$1.00 share a cash bid with no financing contingencies is something that the Board would recommend?

We, the Board -- I wouldn't -- for me as one director I would say we would have an obligation to consider that offer. Yes.

Thanks.

There are no further questions at this time.

Thank you, everybody, and we will stay in touch. Bye.

This concludes today's conference call. You may disconnect at this time.