SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ]ANNUAL[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal yearFiscal Year ended April 2, 1999March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file numberFile Number 0-25226
EMERSONEMERSON(R) RADIO CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-3285224
(State or other jurisdiction of (I.R.S. Employer
Identification Number)of incorporation or organization) Identification Number)
Nine Entin Road, Parsippany, NJ 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 884-5800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.01 per share American Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: Series A Preferred
Stock and Warrants.None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. [X] YES [ ] NO.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock of the registrant held by
non-
affiliatesnon-affiliates of the registrant at June 23, 199920, 2001 (computed by reference to the
last reported sale price of the Common Stock on the American Stock Exchange on
such date): $9,917,000$23,969,039.
Number of Common Shares outstanding at June 23, 1999: 47,828,21520, 2001: 31,343,978
DOCUMENTS INCORPORATED BY REFERENCE:
NoneDocument Part of the Form 10-K
Proxy Statement for Annual Meeting of
Stockholders to be held on August 24,
2001 Part III
________________________________________________________________________________
PART I
Item 1. BUSINESS
GENERALThe Company
Emerson Radio Corp. ("Emerson" or the "Company"), aoperates in two business segments: consumer electronics
distributor, directly and through subsidiaries,sporting goods. The consumer electronics segment designs, sources, imports
and markets a variety of televisionsconsumer electronic products and otherlicenses its
trademarks for a variety of products globally. The sporting goods segment, which
is operated through Emerson's ownership of 50.1% of Sport Supply Group, Inc.,
distributes and markets sports related equipment and leisure products primarily
to institutional customers in the United States. The term (i) "Emerson" refers
to Emerson Radio Corp. and the Company's "consumer electronics" segment, (ii)
"SSG" refers to Sport Supply Group, Inc. and the Company's "sporting goods"
segment and (iii) the "Company" refers to Emerson and its subsidiaries,
including SSG.
Emerson was originally formed in the State of New York in 1956 under the
name Major Electronics Corp. In 1977, Emerson reincorporated in the State of New
Jersey and changed its name to Emerson Radio Corp. In 1994, Emerson was
reincorporated in Delaware. References to "Emerson" refer to Emerson Radio Corp.
and its predecessor and its consolidated subsidiaries, unless the context
otherwise indicates. Emerson's principal executive offices are located at Nine
Entin Road, Parsippany, New Jersey 07054-0430. Emerson's telephone number in
Parsippany, New Jersey, is (973) 884-5800.
For a detailed discussion of SSG's business and financial data, see SSG's
Form 10-K for the fiscal year ended March 30, 2001.
Emerson, directly and through several subsidiaries, designs, sources,
imports, markets, and licenses a variety of television, video products,
including digital video disc (DVD) and video cassette recorders (VCR), microwave
ovens, audio, home office, home theater, multi-media, specialty and other
consumer electronic products. The
CompanyEmerson also licenses the Emerson and G Clefits trademark for a variety
of
television, video, and other products domestically and internationally to certain non-affiliated entities (See "Business-Licensing and Related Activities"
for further discussion). The Companylicensees. Emerson
distributes its products primarily through mass merchants, discount retailers,
toy retailers, distributors and specialty catalogers leveraging the strength of
its Emerson"EMERSON(R)" and G Clef trademark, a nationally"H.H. Scott(R)" trademarks, recognized trade namenames in the
consumer electronics industry. The trade name "Emerson Radio" dates back to 1912
and is one of the oldest and most well respected names in the consumer
electronics industry. The CompanySee "Business-Licensing and Related Activities".
Emerson believes it possesses an advantage over its competitors due to the
combination of (i) the Emerson and G Clef"EMERSON(R)" brand recognition, (ii) its distribution
base and established customer relations, with customers in the mass merchant
and discount retail channels, (iii) its sourcing expertise and
established vendor relations, and (iv) an infrastructure with personnel experienced
in servicing and providing logistical support to the domestic mass merchant
distribution channel.channel and (v) its extensive experience in establishing license
and distributor agreements on a global basis for a variety of products. Emerson
intends to continue to leverageleveraging its core competencies to offer a broad variety of
current and new consumer products to retail customers. In addition, the CompanyEmerson has in the
past, and intends in the future, to form joint ventures and enter into
additional inward and outward licensing and distributordistribution agreements that take
advantage of the Company'sits trademarks and utilize the
Company's logistical and sourcing advantages
for products that are more efficiently marketed with the assistance of these
partners.
The Company'sconsumer electronics segment's core business consists of the distributionselling,
distributing and sale oflicensing various low to moderately priced product categories including home stereo
units, portable audio products, home theater products, microwave ovens and
various video products including color TVs, black & white TVs and VCRs.of
consumer electronic products. The majority of the Company'sEmerson's marketing efforts and sales
of these products isefforts are concentrated in the United States and, to a lesser extent, certain
other international regions. Emerson's majorMajor competitors in these markets are
foreign-based manufacturers and distributors. See "Business - Competition."
The Company was originally formedSporting Goods
SSG is a leading direct mail marketer of sports related equipment and
leisure products primarily to the institutional market in the StateUnited States. The
institutional market is generally comprised of New York in 1956 under
the name Majorschools, colleges, universities,
government agencies, military facilities, athletic clubs, athletic teams and
dealers, youth sports leagues and recreational organizations.
Products
Consumer Electronics
Corp. In 1977, the Company reincorporated in the
State of New Jersey and changed its name to Emerson Radio Corp., and on April 4,
1994, the Company was reincorporated in Delaware by merger of its predecessor
into its wholly-owned Delaware subsidiary formed for such purpose. References
to "Emerson" or the "Company" refer to Emerson Radio Corp. and its predecessor
and subsidiaries, unless the context otherwise indicates. The Company's
principal executive offices are located at Nine Entin Road, Parsippany, New
Jersey 07054-0430. The Company's telephone number in Parsippany, New Jersey, is
(973) 884-5800.
PRODUCTS
The Company directly and through subsidiaries designs, sources, imports and
markets a variety of audio, home theater, microwave ovens, televisions and other
video products, specialty and other consumer electronic products, primarily on
the strength of its Emerson and G Clef trademark, a nationally recognized symbol
in the consumer electronics industry. The Company'sEmerson's current product categories consist of the following core products:following:
VIDEO PRODUCTS AUDIO PRODUCTS OTHER
Video Products Audio Products Other
Color televisions Shelf systems Home theater
Black and white CD stereo systems Microwave ovensHome office
Color specialty televisions Digital clock radios Home theater
Digital video disc (DVD) Portable audio, cassette Color specialty & CD systems televisionsMicrowave ovens
Specialty video cassette players Personal audio, cassette Color TV/VCR combination & CD systems unitsMulti-media
Video cassette recorders Digital clock radios(VCR) Shelf systems Hello Kitty(R) products
Specialty video cassette Specialty clock radios
players
All of the Company'sconsumer electronics products offer various features. Microwave
ovens range in size from 0.6 cubic feet to 1.6 cubic feet containing features
such as key pad touch controls, multi-power levels, auto defrost and turntables.
The portable audio systems incorporate AM/FM radios and/or cassettes and/or CD
players in a variety of models. OneEmerson has entered into a license agreement for
use of Emerson's new products includes the SmartSet(TM) Clock, which is designed to automatically adjust to the correct
time, date and month regardless of time zone due to microprocessor technology.Hello Kitty(R) logo on selected products. The Company's H. H.
ScottScott(R) division markets Home Theaterhome theater products that
utilize proprietary CinemaSurround(registered) technologyand audio systems.
Sporting Goods
SSG manufactures and distributes one of the broadest lines of sports
related equipment and leisure products primarily to the institutional market.
SSG offers approximately 10,000 sporting goods and sports and recreational
leisure products, over 3,000 of which offer a
dynamic 3-dimensional sound from any stereo source, withoutare manufactured by SSG. Product lines
include: archery, baseball, softball, basketball, camping, football, tennis and
other racquet sports, gymnastics, indoor recreation, physical education, soccer,
field and floor hockey, lacrosse, track and field, volleyball, weight lifting,
fitness equipment, outdoor playground equipment, and early childhood development
products.
Brand recognition is important to the need for any
decoding electronics,institutional market. Most of SSG's
products are marketed under trade names or trademarks owned or licensed by SSG
and innovative sound speakers including multi-media
speakers.
GROWTH STRATEGY
The Company'sinclude the following:
Alumagoal(R) AMF(R) ATEC(R)
BSN(R) Fibersport Flag A Tag(R)
Gamecraft GSC Sports Hammett & Sons
Huffy(R) Maxpro(R) MacGregor(R)
New England Camp &Supply NorthAmerican Recreation(R) Passon's Sports
Pillo Polo(R) Port-A-Pit(R) Pro Base(R)
Pro Down(R) Pro Net Rol-Dri(R) and
Tidi-Court
Safe-Squat Toppleball(R) U.S. Games, Inc(R)
Voit(R)
Growth Strategy
Consumer Electronics
Emerson's strategic focus is to: (i) develop and expand its distribution of
consumer electronic products in the domestic marketplace to existing and new
customers; (ii) develop and sell new products, such as digital
video disc (DVD)home office products and
home theater;products utilizing popular theme characters and logos such as Hello Kitty(R);
(iii) capitalize on opportunities to license the Emerson"EMERSON(R)" and G Clef trademark;"H.H.
Scott(R)" trademarks; (iv) leverage and exploit its sourcing capabilities,
buying power and logistics expertise in the Far East either internallyfor itself or on
behalf of third parties; (v) expand international sales and distribution
channels; (vi) further develop its direct to consumer sales channel; and (vi)(vii)
expand through strategic mergers and acquisitions of, or controlling interests in, other companies.acquisitions. In connection with the Company'sEmerson's
strategic focus, the CompanyEmerson may from time to time take an equity position in
various corporate entities.
See Note 3 to the consolidated
financial statements included in Item 8 "Financial Statements and Supplementary
Data" regarding Emerson's investment in Sport Supply Group, Inc. ("SSG") as part
of its strategic plan to expand.
The CompanyEmerson believes that the Emerson and G Clef"EMERSON(R)" trademark is recognized in many
countries. A principal component of the Company'sEmerson's growth strategy is to utilize this
global brand name recognition together with the Company'sits reputation for quality and cost
competitive products to aggressively promote its product lines within the United
States and targeted geographic areas on an international basis. The Company's managementEmerson believes
the Companythat it will be able to compete more effectively in the highly competitive
consumer electronics and microwave oven industries, domestically and
internationally, by combining innovative approaches to the Company'sconsumer electronics
current product line and augmenting its product line with complimentarycomplementary
products. The CompanyEmerson intends to pursue such plans either on its own,independently or by
forging new relationships, including through license arrangements, distributorship
agreements and joint ventures. See "Business-Licensing and Related Activities."
SALES AND DISTRIBUTIONSporting Goods
SSG believes that the institutional sporting goods market is highly
fragmented and that most of its competitors lack the necessary capital, support
systems, and economies of scale to effectively exploit available opportunities
for growth. SSG also believes that it is well positioned to grow the business
due to its ability to process and fulfill a high capacity of orders; its
well-developed expertise in catalog design and merchandising; and its recently
implemented information technology system.
One of the most important contributions of SSG's information technology
system is the data that is available, which is channeled to a host of websites.
Each website is strategically targeted to a specific customer group or product
line. SSG's websites enable its customers to place orders, access account
information, track orders, and perform routine customer service inquiries on a
real-time basis, twenty-four hours a day, seven days a week. This functionality
allows for more convenience and added flexibility for SSG's customers. The
Companycontinued migration of SSG's customers to its websites is vital to SSG's growth
and success.
Sales and Distribution
Consumer Electronics
Emerson makes available to its customers a direct import program, pursuant to whichand a
domestic program. Under its direct import program, products bearing the
Emerson and G Clef"EMERSON(R)" trademark are imported directly by the Company'sEmerson's customers. In Fiscal
19992001 and Fiscal 1998,2000, products representing approximately 84%80% and 82%83% of net
consumer electronics revenues, respectively, were imported directly from manufacturersearned under this program. If
a larger proportion of Emerson's sales were made pursuant to the Company's customers. If the Company
experiences a decline in sales effected through direct imports and a
corresponding increase inits domestic
sales, the Company willprogram, Emerson would require increased working capital in order to purchase inventory to make such sales. This
increase in working capitalthat may affect the liquidity of the Company.its
liquidity. See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Forward-looking Information".
The CompanyCondition."
Emerson has an integrated system to coordinate the purchasing, sales and
distribution aspects of its operations. The CompanyEmerson receives orders from its major
accounts electronically, or by the conventional modes ofvia facsimile, telephone or mail. The CompanyEmerson does not have
long-term contracts with any of its customers, but rather receives orders on an
ongoing basis. Products imported by the CompanyEmerson (generally from the Far East) are
shipped by ocean and/or inland freight and then stored in contracted public
warehouse facilities for shipment to customers. This also includes the use of an Affiliate's
warehouse pursuant to a Management Services Agreement between the Company and
the Affiliate. (See Note 3 to the Consolidated Financial Statements included in
Item 8). All merchandise receivedinventory is monitored by
Emerson is automatically input into the
Company's on-lineEmerson's electronic inventory system. As a purchase order is received and
filled, warehoused product is labeled and prepared for outbound shipment to
Company
customers by common, contract or small package carriers for sales made from
inventory.
Sporting Goods
SSG's websites enable its customers to place orders, access account
information, track orders, and perform routine customer service inquiries on a
real-time basis, twenty-four hours a day, seven days a week. This functionality
allows for more convenience and added flexibility for its customers.
SSG's sourcing, warehousing, distribution and fulfillment capabilities and
its fully integrated information system, provide the Company's inventory.
DOMESTIC MARKETINGnecessary capacities,
logistics and information technological support to meet the demands and growth
potential of commerce via the Internet.
Domestic Marketing
Consumer Electronics
In the United States, the CompanyEmerson markets its products primarily through mass
merchandisers, discount retailers, and discount retailers.specialty toy distributors. Wal-Mart
Stores accounted for approximately 52%41% and 53%56%, and Target Stores accounted for
approximately 24%14% and 15%21% of the Company's consolidated net revenues in Fiscal 1999fiscal
2001 and Fiscal 1998,fiscal 2000, respectively. The decrease in the percentage of revenues
for these two customers for fiscal 2001 as compared to fiscal 2000, is primarily
due to the consolidation of SSG's net revenues with those of Emerson's for
fiscal 2001. No other customer accounted for more than 10% of the Company's
consolidated net revenues in either period. Management believes that any loss or
material reduction in sales from either of these customers would have a material
adverse affect on the Company's operating income.results of operations.
Approximately 39%34% and 34%38% of the Company's net consumer electronics revenues in
Fiscal 1999fiscal 2001 and Fiscal 1998,fiscal 2000, respectively, were made through sales
representative organizations that receive sales commissions and work closely
with the Company'sEmerson's sales personnel. The sales representative organizations sell, in
addition to the Company'sEmerson products, similar, but generally non-competitive,
products. In most instances, either party may terminate a sales representative
relationship on 30 days' prior notice in accordance with customary industry
practice. The CompanyEmerson utilizes approximately 4030 sales representative organizations,
including one through which approximately 26%21% and 16%25% of the Company's net consumer
electronics revenues were made in Fiscal 1999fiscal 2001 and Fiscal 1998,fiscal 2000, respectively. No
other sales representative organization accounted for more than 10% of the
Company'sconsumer electronics net revenues in either year. The remainder of the Company'sEmerson's
sales are made to retail customers serviced by the Company'sits sales personnel.
FOREIGN MARKETING
WhileSporting Goods
SSG offers products directly to the major portioninstitutional market primarily through:
(i) a variety of distinctive, information-rich catalogs; (ii) sales personnel
strategically located in certain large metropolitan areas; (iii) in-bound and
out-bound telemarketers; (iv) a team of experienced bid and quote personnel and
(v) the Company'sInternet. SSG's marketing efforts are madesupported by a customer database
of over 250,000 names, a call center, a custom- designed distribution center and
several manufacturing facilities, which currently offer approximately 10,000
sports related equipment products to over 100,000 customers.
SSG has a large and diverse customer base, and as a result, SSG's revenues
are not dependent upon any single customer. SSG's customers include all levels
of public and private schools, colleges, universities and military academies,
municipal and governmental agencies, military facilities, churches, clubs,
camps, hospitals, youth sports leagues, non-profit organizations, team dealers
and certain large retail sporting goods chains. SSG believes that its customer
base in the United States approximatelyis the largest in the institutional direct mail market
for sports related equipment.
Foreign Marketing
Approximately 3% and 2% of the Company'sconsumer electronics segment net revenues in Fiscal
1999fiscal
2001 and Fiscal 1998, respectively,fiscal 2000 were derived from customers based in foreign countries
through license and distribution agreements primarily in South America, Canada,
and Mexico. Less than 1% of the sporting goods segment net revenues in fiscal
2001 were derived from customers based in foreign countries. See Note 15 of notes to the consolidated financial statements
included in Item 8 -
"Financial Statements and Supplementary Data"Data - note 14 of Notes to the
Consolidated Financial Statements" and Item 7 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition."
LICENSING AND RELATED ACTIVITIES
The CompanyLicensing and Related Activities
Consumer Electronics
Emerson has several license agreements in place that allow licensees to use
the Emerson"EMERSON(R)" and G Clef trademark"H.H. Scott(R)" trademarks for the manufacture and/or the
sale of consumer electronics and other products. The license agreements cover
various countries throughout the world and are subject to renewal at the initial
expiration of the agreements. Additionally, the CompanyEmerson has entered into several
sourcing and inspection agreements that require the CompanyEmerson to provide these
services in exchange for a fee. License revenues recognized and earned in Fiscal
yearsfiscal
2001, 2000, and 1999 1998were approximately $3,930,000, $3,143,000, and 1997 were $3,633,000,
$5,597,000 and $5,040,000,
respectively. The decrease in licensing revenues was primarily attributable to
the expiration of the Agreement described in the next paragraph. The CompanyEmerson records a majority of licensing revenues as they are earned over
the term of the related agreements.
In February 1995, the Company and one of its largest Suppliers and certain
of the Supplier's affiliates (collectively, the "Supplier")October 2000, Emerson entered into two
mutually contingent agreements (the "Agreements"a three-year license agreement
("Video License Agreement") with Funai Corporation, Inc. ("Funai") effective
January 1, 2001 to replace a prior agreement with Daewoo Electronics Co. Ltd.
("Daewoo"). Effective March 31, 1995,The Video License Agreement provides that Funai manufacture, market,
sell and distribute specified products bearing the Company granted a license of certain trademarks to the Supplier for a three-
year term. The license permitted the Supplier to manufacture and sell certain
video products under the Emerson and G Clef"EMERSON(R)" trademark to
one of the Company's
largest customers (the "Customer") in the U. S. and Canada, and precluded the
Supplier from supplying product to the Customer other than under the Emerson and
G Clef trademark or the Supplier's other trademark. Further, the Agreements
provided that the Supplier would supply the Company with certain video products
for sale to other customers at preferred prices for a three-year term.North America. Under the terms of the Agreements,agreement, the Company receivedwill
receive non-refundable minimum annual royalties fromroyalty payments of approximately $4.3
million for calendar years 2001 and 2002, as well as 2003 unless terminated
pursuant to the Supplier to beterms of the License Agreement. The minimums are credited
against royalties earned from salesfor the sale of video cassette recorders and players, television/video cassette recorder and
player combinations, and color televisions to the Customer. In addition,
effective August 1, 1995, the Supplier assumed responsibility for returns and
after-sale and warranty services on all video products manufactured by the
Supplier and sold to the Customer, including similar video products sold by the
Company prior to April 1, 1995. Royalty income recognized by the Company
pursuant to the Agreement was $4,000,000 in Fiscal 1998 and 1997, and is
included in the balances provided above. The Agreements expired on March 31,
1998.
In anticipationproducts. During fiscal 2001, revenues
of the expiration of the Agreements, Emerson executed a
four-year agreement ("Daewoo Agreement") with Daewoo Electronics Co. Ltd.,
("Daewoo") in April 1997. This agreement provides that Daewoo will manufacture
and sell television and video products bearing the Emerson and G Clef trademark
to customers in the U.S. market. Daewoo is responsible for and assumes all
risks associated with, order processing, shipping, credit and collections,
inventory, returns and after-sale service. The Company will arrange sales and
provide marketing services and in return receive a commission for such services.
The Daewoo agreement does not contain minimum annual commissions and is entirely
dependent on the volume of sales made by the Company that are subject to the
Daewoo$1,075,000 were recorded under this Video License Agreement.
Either party upon 90 days' notice can terminate this
agreement without cause.
Additionally, the Company has several other licensing agreements in place
with Licensees primarily in the United States, Latin America and parts of
Europe.
Throughout manyvarious parts of the world, the CompanyEmerson maintains distributorship,
and/or sales supportdistribution and
assistancelicense agreements that allowprovide for the distribution of the Company's productEmerson's products into
defined geographic areas.
Currently the Company has
such agreements for India, Bangladesh, North Africa, Canada and the Middle East.
The CompanyEmerson intends to pursue additional licensing and distributordistribution
opportunities and believes that such activities have had and will continue to
have a positive impact on operating results by generating income with minimal
incremental costs, if any, and without the necessity of utilizing working
capital. See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Forward-Looking Information."
DESIGN AND MANUFACTURING
The majority ofSporting Goods
SSG inward licenses many well-known names and trademarks that allow it to
manufacture, sell, and distribute specified sport related products and equipment
to institutional customers using the Company'slicensed names for specified royalty fees
paid to licensors. See Item 1 - "Trademarks".
Design and Manufacturing
Consumer Electronics
Emerson's products are manufactured by original equipment manufacturers in
accordance with the Company'sEmerson's specifications. These manufacturers are primarily
located in Hong Kong, South Korea, China, Malaysia and Thailand.
The Company'sEmerson's design team is responsible for product development and works
closely with its suppliers. CompanyEmerson's engineers determine the detailed cosmetic,
electronic and other features for new products, which typically incorporate
commercially available electronic parts to be assembled according to its design.
Accordingly, the exterior designs and operating features of the Company's
products reflect
the Company'sEmerson's judgment of current styles and consumer preferences. The Company'sEmerson's designs
are tailored to meet the consumer preferences of the local market, particularly
in the case of the Company'sits international markets.
During Fiscal 1999fiscal 2001 and Fiscal 1998,fiscal 2000, 100% of the Company'sEmerson's purchases consisted
of imported finished goods.
The following summarizes the Company'sEmerson's purchases from its major suppliers.
FISCAL YEAR
SUPPLIER 1999 1998
Tonic Electronics 32% 20%
Daewoo 22% 42%
Imarflex 12%suppliers:
Fiscal Year
Supplier 2001 2000
Daewoo 21% 30%
Avatar Mfg 20% 17%
Tonic Electronics 17% 11%
Kysho 16% * %
Imarflex 12% 13%
- --------------------------------------------------------------------------------
* Less than 10%.
No other supplier accounted for more than 10% of the Company'sEmerson's total purchases
in Fiscal 1999fiscal 2001 or Fiscal 1998. The Companyfiscal 2000. Emerson considers its relationships with its
suppliers to be satisfactory and believes that, barring any unusual shortages or
economic conditions (See "Management's Discussion and
Analysis of Results of Operations and Financial Condition", "Inflation and
Foreign Currency" and "Forward-Looking Information" regarding the economic
crisis in Asia) the CompanyEmerson could develop, as it already has developed, alternative sources
for the products it currently purchases. The CompanyEmerson has a contractual agreement
with one supplier to provide future raw materials totaling approximately
$1.5 million.$240,000. No assurance can be given that certain shortagesample supply of product would not resultbe
available at current prices if the CompanyEmerson was required to seek alternative sources
of supply without adequate notice by a supplier or a reasonable opportunity to
seek alternate production facilities and component parts. WARRANTIES
On salesSee Item 7 -
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Forward - Looking Information", and Item 7A - "Inflation and
Foreign Currency".
Sporting Goods
SSG manufactures, assembles and distributes many of its products at its
facilities. See Item 2 -- "Properties".
Certain products manufactured by SSG are custom-made; such as tumbling mats
ordered in color or size specifications, while others are standardized. The
principal raw materials used by SSG in manufacturing are, for the Company makes to customers withinmost part,
readily available from several different sources, while no one supplier accounts
for more than 10 percent of the total raw materials supplied. Such raw materials
include foam, vinyl, nylon thread, steel and aluminum tubing, wood, slate and
cloth.
Items not manufactured by SSG are purchased from various suppliers
primarily located in the United States, Taiwan, Australia, the CompanyPhilippines,
Thailand, the People's Republic of China, Pakistan, Sweden and Canada. SSG has
no significant purchase contracts with any major supplier of finished products,
and most products purchased from suppliers are readily available from other
sources. Purchases of most finished products are made in U.S. dollars and are,
therefore, not subject to direct foreign exchange rate differences.
Warranties
Emerson offers limited warranties for its consumer electronics, comparable
to those offered to consumers by its competitors in the United States. Such
warranties typically consist of a 90 day period for audio products and one year
period for microwave products, under which Emerson will pay for labor and parts,
or offer a new or similar unit in exchange for a non-performing unit. SSG
typically offers limited 30 day warranties for its sporting goods, comparable to
its competitors.
RETURNED PRODUCTS
CustomersReturned Products
Emerson's customers return product to the CompanyEmerson for a variety of reasons,
including
liberal retailer return policies with their customers, damage to goods in
transit and occasional cosmetic imperfections and mechanical failures.
The Company has an agreement with Hi Quality International (U.S.A.) Inc.
("Hi Quality") as an outlet for the Company's returned products pursuant to
which Hi Quality has agreed to purchase from the Company returned consumer
electronics products in the United States that are not subject to the return-to-
vendor agreements discussed below. Hi Quality will refurbish them, if feasible,
and sell them as either refurbished or "As-Is" product.
To further reduce the costs associated with product returns, the CompanyEmerson has entered
into return- to-vendor agreements with the majority of its suppliers. For a fee, the CompanyEmerson returns
defective returned product to the supplier and in exchange receives a unit. The
return to vendor agreements cover certain
microwave oven, home theater, audiohave resulted in significant cost savings.
In most instances, SSG's customers have the right to return product within
30 days if they are not completely satisfied. Returned products are not returned
to the same degree as they are in the consumer products segment, and video products.are not
considered a significant factor in SSG's operations.
Backlog
The Company has
realized and expects to continue to realize significant cost savings from such
agreements.
BACKLOG
From time-to-time, the Company has substantial orders from customers on
hand. Management believes however, that backlog is not a significant factor in its
operations.consumer electronics or sporting goods segments. The ability of management to
correctly anticipate and provide for inventory requirements is essential to the
successful operation of the Company's business.
TRADEMARKS
The CompanyTrademarks
Emerson owns the Emerson and G Clef,EMERSON(R)", "Emerson Research(TM)", "Emerson Interactive
(sm)", "H.H. Scott (registered)Scott(R)" and "Scott
(registered)"Scott(R)" trademarks for certain of its home
entertainment and consumer electronic products in the United States, Canada,
Mexico and various other countries. Of the trademarks owned by the Company,Emerson, those
registered in the United States must be renewed at various times through 20092011
and those registered in Canada must be renewed at various times through 2013. The Company's2014.
Emerson's trademarks are also registered on a worldwide basis in various
countries, which registrations must be renewed at various times. The CompanyEmerson intends
to renew all such trademarks. The Companytrademarks necessary for its business. Emerson considers the
Emerson and G Clef
"EMERSON(R)" trademark to be of material importance to its business. The Companybusiness and owns
several other trademarks, none of which is currently considered by the CompanyEmerson to be
of material importance to its business. The Company has licensed certain
applications ofEmerson outward licenses the
Emerson and G Clef"EMERSON(R)" trademark to several licensees on a limited product and geographic basis and for a
definitive period of time. See "Item 1 "Business - Licensing and Related
Activities."
COMPETITIONSSG inward licenses many well known names and trademarks, such as Voit(R),
Huffy(R), MacGregor(R), Maxpro(R) and AMF(R). These licenses allow SSG to
manufacture, sell, and distribute specified sport related products and equipment
to institutional customers using these names for specified royalty fees. These
license agreements have expiration dates ranging from December 31, 2001 through
2040, in some cases with renewable terms.
Competition
Consumer Electronics
The market segment of the consumer electronics industry in which the
CompanyEmerson
competes generates approximately $15$14 billion of factory sales annually and is
highly fragmented, cyclical and very competitive, supporting major
American, Japanese and Korean companies, as well as numerous small importers.competitive. The industry is characterized
by the short life cycle of products, which requires continuous design and
development efforts.
The CompanyEmerson primarily competes in the low to medium-priced sector of the
consumer electronics market. Management estimates that the CompanyEmerson has several dozen
competitors that are manufacturers and/or distributors, many of which are much
larger and have greater financial resources than the Company. The CompanyEmerson. Emerson competes
primarily on the basis of its products' reliability, quality, price, design,
consumer acceptance of the Emerson and G Clef"EMERSON(R)" trademark, and quality service to
retailers and their customers. The Company'sEmerson's products also compete at the retail
level for shelf space and promotional displays, all of which have an impact on
the Company'sits established and proposed distribution channels.
See
"Management's DiscussionSporting Goods
SSG competes in the institutional sporting goods market principally with
local sporting goods dealers, retail sporting goods stores, other direct mail
catalog marketers and Analysisproviders of Resultssporting goods on the Internet. SSG has
identified approximately 15 other direct mail companies in the institutional
market most of Operationswhich it believes are competitors substantially smaller than SSG
in terms of geographic coverage, products, E-Commerce capability and Financial
Condition."
SEASONALITY
The Companyrevenues.
SSG competes in the institutional market principally on the basis of brand,
price, product availability and customer service, which it believes it has an
advantage in the institutional market over traditional sporting goods retailers
and team dealers because its selling prices do not include comparable price
markups attributable to traditional multi-distribution channel markups. In
addition, the ability to control the availability of goods which SSG
manufactures enables it to respond more rapidly to customer demand.
Seasonality
Emerson generally experiences stronger demand from its customers for its
products in the fiscal quarters ending September and December. Accordingly,
to accommodate such increased demand, the Company generally is required to place
higher orders with its vendorsDecember, but during the
quarters ending Junelast several years this revenue pattern has been less prevalent due to the
retailers need to plan earlier for the Christmas selling season and September,
thereby increasing the Company's need for working capital during such periods.
On a corresponding basis, the Company also is subjectmanagement's
ability to increased returnsobtain additional orders during the quarters endingslower times of the year. The
seasonality of Emerson is counterbalanced by SSG which has historically
experienced strong revenues during the March and June, which adversely affects the Company's
collection activities and liquidity during such periods. Operating results may
fluctuatequarter primarily due to other factors such asvolume
generated by spring and summer sports, favorable outdoor weather conditions and
school needs before summer closings, and weak revenues during the timing of the introduction of new
products, price changes by the Company and its competitors, demand for the
Company's products, product mix, delay, available inventory levels, fluctuation
in foreign currency exchange rates relative to the United States dollar,
seasonal cost increases, and general economic conditions.
GOVERNMENT REGULATIONDecember
quarter.
Government Regulation
Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and
regulations promulgated thereunder, the United States government charges tariff
duties, excess charges, assessments and penalties on many imports. These
regulations are subject to constant change and revision by government agencies
and by action by the United States Trade Representative and may have the effect
of increasing the cost of goods purchased by the Company or limiting quantities
of goods available to the Company from its overseas suppliers. A number of
states have adopted statutes regulating the manner of determining the amount of
payments to independent service centers performing warranty service on products
such as those sold by the Company. Additional Federal legislation and
regulations regarding the importation of consumer electronics products,
including the products marketed by the Company, have been proposed from
time-to-time and, if enacted into law, could adversely affect the Company's
results of operations.
EMPLOYEESMany products sold by the sporting goods segment are subject to 15 U.S.C.A.
Sections 2051-2084 (1998 and Supp. 1998), among other laws, which empowers the
Consumer Product Safety Commission (the "CPSC") to protect consumers from
hazardous sporting goods and other articles. The CPSC has the authority to
exclude from the market certain articles that are found to be hazardous and can
require a manufacturer to refund the purchase price of products that present a
substantial product hazard. CPSC determinations are subject to court review.
Similar laws exist in some states and cities in the United States.
Product Liability and Insurance
Because of the nature of the products sold by SSG, SSG is periodically
subject to product liability claims resulting from personal injuries. SSG may
become involved in various lawsuits incidental to the business. Additionally,
significantly increased product liability claims continue to be asserted
successfully against manufacturers and distributors of sports equipment
throughout the United States resulting in general uncertainty as to the nature
and extent of manufacturers' and distributors' liability for personal injuries.
There can be no assurance that Emerson's and SSG's general product
liability insurance will be sufficient to cover any successful product liability
claims made. It is the opinion of both companies that any ultimate liability
arising out of currently pending product liability claims will not have a
material adverse effect on their financial condition or results of operations.
However, any claims substantially in excess of the insurance coverage, or any
substantial claim not covered by insurance, could have a material adverse effect
on the Company's financial condition and results of operations.
Employees
As of June 7, 1999,11, 2001, the Company had approximately 112 employees. The570 employees, of which
110 were employed by Emerson, and 460 were employed by SSG. None of the
Company's employees are represented by unions, and the Company considersbelieves its
labor relations to be generally satisfactory.
The Company
has no union employees.
Item 2. PROPERTIES
The Company leases warehouse and office space in New Jersey, Texas, and
Hong Kong under leases expiring at various times.
Lease agreements for 10,132 square feet of office space in Hong Kong expire
July 31, 2000. A lease for office space at its Corporate offices in New Jersey
for 21,509 square feet expires on October 1, 2003. There is also 29,000 square
feet of warehouse and office space rented from an Affiliate pursuant to a
Management Services Agreement which can be terminatedfollowing table sets forth the material properties owned or leased by
either party upon 60
days' notice.
The Companythe Company:
Approximate
Square Footage Lease
Facility Purpose Location Expires
or is Owned
Consumer electronics segment:
Corporate headquarters 22,000 Parsippany, NJ October, 2003
Hong Kong office 10,000 Hong Kong, China July, 2003
Sporting goods segment:
Manufacturing and corporate headquarters 135,000 Farmers Branch, TX December, 2004
Warehouse and fulfillment processing 181,000 Farmers Branch, TX December, 2004
Sub-leased to a third party 45,000 Cerritos, CA December, 2001
Manufacturing 62,500 Sparks, NV July, 2004
Manufacturing 35,000 Anniston, AL Owned
Manufacturing 45,000 Anniston, AL Owned
Manufacturing 38,500 Anniston, AL November, 2001
Emerson utilizes public warehouse space. Such public warehouse commitments
are evidenced by contracts with terms of up to one year. The cost for the public
warehouse space is primarily based on a fixed percentage of the
Company's sales from each
respective location.
The Company does not presently
own any real property.believes that the facilities used in its operations are in
satisfactory condition and adequate for its present and anticipated future
operations. In addition to the facilities listed above, the Company leases space
in various locations, primarily for use as sales offices.
Item 3. LEGAL PROCEEDINGS
CERTAIN OUTSTANDING COMMON STOCK
Pursuant to the Company's bankruptcy restructuring plans on March 31, 1994,
30 million shares of the Company's Common Stock were issued to GSE Multimedia
Technologies Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN")
and Elision International, Inc. ("Elision"). GSE, FIN and Elision (the
"Affiliated Entities") are all affiliates of Geoffrey P. Jurick, the Company's
Chairman of the Board, Chief Executive Officer and President. On June 11, 1996,
a Stipulation of Settlement and Order (the "Settlement Agreement") was
executed in proceedings before the United States District Court for the District
of New Jersey, which settled various legal proceedings in Switzerland, the
Bahamas and the United States. The Settlement Agreement provides for, among
other things, the payment by Mr. Jurick and his Affiliated Entities of $49.5
million to various claimants of Mr. Jurick and the Affiliated Entities (the
"Creditors"), to be paid from the proceeds of the sale of certain of the 29.2
million shares of Emerson common stock (the "Settlement Shares") owned by the
Affiliated Entities. In addition, Mr. Jurick is to be paid the sum of $3.5
million from the sale of the Settlement Shares. The Settlement Shares are to be
sold over an indeterminate period of time by a financial advisor, TM Capital
(the "Advisor") pursuant to marketing plan taking into consideration (i) the
interests of Emerson's minority stockholders, and (ii) the goal of generating
sufficient proceeds to pay the Creditors and Mr. Jurick as quickly as possible.
The Settlement Shares have been divided into two pools. The Pool A Shares
currently consist of 15.3 million shares of Emerson's common stock. The Pool B
Shares currently consist of the number of Emerson shares with respect to which
Mr. Jurick must retain beneficial ownership of voting power to avoid an event of
default arising out of a change of control pursuant to the terms of the
Company's Loan and Security agreement ("Senior Secured Credit Facility") with a
U.S. financial institution (the "Lender") and/or the Indenture governing the
Company's 8-1/2% Senior Subordinated Convertible Debentures Due 2002 (the
"Debentures"). Sales of the Settlement Shares may be made pursuant to a
registered offering if the sales price is not less than 90% of the average of
the three most recent closing prices (the "Average Closing Price"), or, other
than in a registered offering, of up to 1% per quarter of the Emerson common
stock outstanding, if the sales price is not less than 90% of the Average
Closing Price. Any other attempted sales are subject to the consent of the
Company, Mr. Jurick, the Creditors, and, if necessary, the United States
District Court in Newark, New Jersey.
All of the Settlement Shares secure payment of the $49.5 million owed to
the Creditors on a first priority basis. Any Creditor may apply to the Court
for an order to terminate the Settlement Agreement if certain events occur.
Such events include, without limitation, delisting of the Settlement Shares from
a national securities exchange or a determination that there is no reasonable
prospect that the goals contemplated by the Settlement Agreement can be
achieved. In November 1997, Petra Stelling and Barclays Bank filed a motion with
the Court for an order (i) terminating the Settlement Agreement on the ground
that there is no reasonable prospect that the goals contemplated by the
Settlement Agreement can be accomplished, and (ii) granting the Creditors
authorization to exercise all the rights and remedies provided by the Settlement
and Pledge Agreements in the event of termination including authorizing the
Collateral Agent to sell the Emerson Shares to fund payment of the Settlement
Amount and to vote the Emerson Shares pending such sale, directing the entry and
release of the Consent Judgments, authorizing Petra Stelling to enforce the
Swiss Judgment and for such other relief as the Court deems appropriate. The
Company and Mr. Jurick responded, the Creditors replied and a hearing on the
motion concluded in July 1998. No decision has been rendered by the Court.
If the Court enters an order terminating the Settlement Agreement, the
Creditors may take any action permitted by law to execute the Consent Judgments
given to them in connection with the Settlement Agreement to collect the unpaid
balance (including, without limitation, foreclosing on the Settlement Shares).
If the Creditors foreclose on the Settlement Shares and such foreclosure results
in a change of control (as defined in the Senior Secured Credit Facility), such
foreclosure will be deemed an event of default under the Company's Senior
Secured Credit Facility entitling the holders to accelerate payment of such
indebtedness. In addition, if a change of control (as defined in the Indenture
governing the Debentures) occurs, each of the holders of the Debentures, subject
to the right of the Senior Secured Creditors to impose a 120 day payment block,
has the right to require the Company to repurchase its Debentures at the par
value thereof plus accrued but unpaid interest. Such repurchases may have a
material adverse effect on the Company's future business activities.
Furthermore, a change of control will severely limit the Company's ability to
utilize existing tax net operating losses (NOL's) affecting loss and foreign
tax credit limitations provided by the Internal Revenue Codes.
SWISS PROCEEDING INVOLVING CERTAIN DIRECTORS
In 1994, Petra and Donald Stelling ("the Stellings"), two of the Creditors
filed a complaint with the Swiss Authorities alleging that Messrs. Jurick and
Jerome H. Farnum ("Farnum"), directors of the Company, had conducted banking
operations in Switzerland without appropriate licenses and that Messrs. Jurick,
Farnum, and Peter G. Bunger ("Bunger"), also a director of the Company, engaged
in improper activities in the financing of the Company's Plan of Reorganization.
The Company is not a party to these proceedings. Although, as part of the
settlement discussed above, the Stellings and other affected parties requested
the discontinuance of the criminal investigations of these individuals, this
matter remains open and a hearing commenced in mid-May 1999. It is believed
that hearings on all charges will be concluded no earlier than September 1999.
The Swiss authorities are seeking monetary penalties from Messrs. Jurick and
Farnum. The Federal Banking Commission of SwitzerlandAs previously issued a
decree purporting to determine that certain entities affiliated with Messrs.
Jurick and Farnum were subject to Swiss banking laws and had engaged in banking
activities without a license.
OTAKE
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr., (collectively, the "Otake Defendants") seeking damages and alleging breach
of contract, breach of covenant of good faith and fair dealing, unfair
competition, interference with prospective economic gain, and conspiracy in
connection with certain activities of the Otake Defendants under certain
agreements between the Company and the Otake Defendants. The Court has
scheduled a September 28, 1999 trial date.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the United States District Court, Southern
District of Indiana, Evansville Division, subsequently amended, alleging various
breaches of certain agreements by the Company, including breaches of the
confidentiality provisions, certain payment breaches, breaches of provisions
relating to product returns, and other alleged breaches of those agreements, and
seeking declaratory and injunctive relief and damages in the amount of $3.2
million, together with interest thereon, attorneys' fees, and certain other
costs. The Company is presently owed the sum of $5 million from Orion
representing royalty payments past due and owing pursuant to a certain License
Agreement dated February 22, 1995 by and between the Company and Orion. In the
context of the action pending in the Southern District of Indiana (the "District
Court"), Orion has executed a pre-judgment garnishment of these funds and
deposited them with the Clerk of the District Court pursuant to an Order of the
District Court. Orion has not contested the Company's entitlement to these
royalty payments. Orion has also posted a bond with the District Court
sufficient to compensate Emerson for any and all damages that may result from
the pre-judgment garnishment.
The Company withheld payment of the sum of $3.2 million for certain
consumer electronic products that Orion and its affiliates sold and delivered to
Emerson pursuant to a certain Agreement dated February 22, 1995 by and between
Emerson on the one hand and Orion, Otake Trading Co., Inc. and Technos
Development Limited on the other (the "Supply Agreement").reported, Emerson has vigorously contested Orion and its affiliates' entitlement to the $3.2 million
payment.
On December 11, 1998, the District Court in the Southern District of
Indiana granted Emerson Partial Summary Judgment in the amount of $2,956,604
plus additional costs as a result of Orion having refused to accept returns
pursuant to the License Agreement (the "Returns"). The Court also granted Orion
Summary Judgment in the amount of $3,202,023 with interest for product
previously purchased. On or about May 7, 1999 the Court amended its order dated
December 11, 1998 awarding Emerson Partial Summary Judgment against Orion
concerning liability for the "Returns" and set a trial date of July 19, 1999.
At the same time, that Court also issued an order determining that OEA was
entitled to interest at the lesser rate of eight percent (8%) (OEA sought an
award of interest at eighteen percent (18%)) on the December 11, 1998 summary
judgment award to OEA in the amount of $3,202,023 for that certain consumer
electronic product that Emerson had ordered and received from OEA. The parties
have since agreed that the Returns issue is to be decided in the District Court
of New Jersey.
The Company believes that it has a meritorious claim against the Otake
Defendants, meritorious affirmative defenses in response to Orion's claim
concerning liability for the Returns and believes that the resultsresolved substantially all of the
litigation should not have a material adverse effect onagainst it and accrued the financial condition
of the Company or onnet cost thereof as an expense prior to
its operations.
BANKRUPTCY CLAIMS
The Company is presently engaged in litigation regarding a bankruptcy claim
that has not been resolved since the restructuring of the Company's debt onfiscal year ended March 31, 1994. This claim was filed on or about July 25, 1994, with the United
States Bankruptcy Court for the District of New Jersey, in connection with the
rejection of certain executory contracts with two Brazilian entities, Cineral
Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively,
"Cineral"). The amount currently claimed2001. All that remains is for $93.6 million, of which $86.8
million represents a claim for lost profits. The claim will be satisfied, to the
extent the claim is allowed by the Bankruptcy Court, in the manner other allowed
unsecured claims were satisfied. The Company has objected to and vigorously
contested the claim and believes it has meritorious defenses to the highly
speculative portion of the claim for lost profits and the portion of the claim
for actual damages for expenses incurred prior to the execution of the
contracts. An adverse final ruling on the Cineral claim could have a material
adverse effect on the Company, even though it would be limited to 18.3% of the
final claim determined by a court of competent jurisdiction; however, with
respect to the claim for lost profits, the Company believes the chances for
recovery for lost profits are remote.
TAX CLAIM
A wholly owned subsidiary of the Company, Emerson Radio (Hong Kong) Ltd.
was assessed $858,000 by the Hong Kong Inland Revenue Department (the "IRD") in
May 1998. The assessment relates to the Fiscal 1993 to Fiscal 1998 tax years
and asserts that certain revenues reported as non taxable by Emerson Radio (Hong
Kong) Ltd. are subject to a profits tax. In May 1999, the Company proposed a
compromise offer to the IRD in which the Company and the IRD without prejudice
will settle the assessment for $256,000. The Company has recorded a tax reserve
in the current period for the assessment in anticipation of the IRD accepting
the compromise offer. Should the proposed settlement be accepted by the IRD,
the Company expects its foreign taxes to increase in future periods.
Emerson Radio (Hong Kong) Ltd. is also in litigation with the IRD regarding
a separate assessment of $547,000 pertaining to the deduction of certain
expenses that relate to the taxable years Fiscal 1992 to Fiscal 1999. During
February 1999, the Company received a favorable appellate ruling in regards to
the assessment, which has been further appealed by the IRD to the final court
of appeals of the IRD. The Company believes that it will prevail in this case.
EISENBACH
On January 19, 1998, the Company was served with a lawsuit filed in June
1997 in the German Regional Court Frankfurt Am Main, filed by Professor Gerhard
Eisenbach against the Company, Geoffrey P. Jurick, the Company's Chairman, Chief
Executive Officer and President, Fidenas International Ltd. LLC, an affiliate of
Mr. Jurick, and Eugene I. Davis, a former executive officer of the Company,
jointly and severally, alleging breach of contractual duty, tort and investment
fraud arising from Eisenbach's $1,000,000 investment in the Company, on or about
March 31, 1994, in conjunction with the Company's reorganization in the
Bankruptcy Court. While the outcome of this action is not certain at this time,
the Company believes it has meritorious defenses to the claims made and intends
to vigorously defend this action.
EUGENE DAVIS
On September 24, 1997, pursuant to the terms of his Employment Agreement,
as amended, Mr. Davis was requested to resign as a director. On September 25,
1997 the Company terminated Mr. Davis' employment for cause. The circumstances
surrounding such termination of employment are the subject of two proceedings
filed on September 30, 1997 and October 2, 1997, respectively, in the Superior
Court of the State of New Jersey ("Superior Court") seeking injunctive relief
and money damages, respectively, in which the Company, SSG, and certain
directors and officers of the Company and SSG and Mr. Davis are parties. The
two lawsuits have been consolidated and a trial date has been scheduled for
September 28, 1999. While the outcome of these actions is not certain at this
time, the Company believes the results of the litigation should not have a
material adverse effect on the financial condition of the Company or on its
results of operations.
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
On September 22, 1998, Connecticut General Life Insurance Company (CGLIC)
filed suit against the Company in the United States District Court for the
District of New Jersey seeking damages related to the Company's insurance
contract with CGLIC. In April 1999, the Company favorably settled the action
and the suit was dismissed with prejudice.
The Company is involved in other legal proceedings and claims of various
types in
the ordinary course of business. While any such litigation tobusiness, which in the Company is a party contains an elementopinion of uncertainty, management, presently
believes that the outcome of each such proceeding or claim which is pending or
known to be threatened, or all of them combined, will not
have a material adverse effect on the Company's consolidated financial position.
TANASHIN
On March 10, 1999,position
if resolved on unfavorable terms to the Company was served with a complaint filed by
Tanashin Denki Co., Ltd.and the implementation, as to
Petra Stelling only, of the Court ordered termination of the Stipulation of
Settlement entered into in 1996 (the "Stipulation") among Geoffrey P. Jurick,
the United States District Court for the Eastern
DistrictCompany's Chairman, three of Virginia (Alexandria Division) alleging that various products
sold byhis creditors, the Company, infringe various patents owned by Tanashin and seeking
injunctive and monetary relief. In April, 1999,certain other
parties. While such implementation may have a material adverse effect on Mr.
Jurick, it is the District Court granted
the Company's motion for a changeopinion of venue and the suit is now pending
in the United States District Court for the Districtmanagement of New Jersey.
While the outcome of this action is not certain at this time, the Company believes it has meritorious defenses and is indemnified through various
indemnification agreements with its vendors.that termination of the
Stipulation will not adversely affect the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.The Annual Meeting of the Company's shareholders was held on August 10,
2000, at which time the shareholders elected the following slate of nominees to
remain on the Board of Directors: Peter G. Bunger, Robert H. Brown, Jr., Jerome
H. Farnum, Stephen H. Goodman, and Geoffrey P. Jurick. Election of the Board of
Directors was the only matter submitted for shareholder vote. There were
39,377,615 shares of outstanding capital stock of the Company entitled to vote
at the record date for this meeting. After the record date and prior to the
meeting, the Company repurchased 8,177,533 shares of its outstanding stock.
Accordingly, there were 31,200,082 shares entitled to vote at the meeting and
there were present at such meeting, in person or by proxy, stockholders holding
28,455,403 shares of the Company's Common Stock which represented 91.2% of the
total capital stock outstanding and entitled to vote. There were 28,455,403
shares voted on the matter of the election of directors. The result of the votes
cast regarding each nominee for office was:
Nominee for Director Votes For Votes Withheld
Robert H. Brown, Jr. 28,150,646 304,757
Peter G. Bunger 28,162,646 292,757
Jerome H. Farnum 28,162,646 292,757
Stephen H. Goodman 28,156,597 298,806
Geoffrey P. Jurick 28,152,646 292,757
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock has traded on the American Stock Exchange
since December 22, 1994 under the symbol MSN. The following table sets forth the
range of high and low sales prices for the Company's Common Stock as reported by
the American Stock Exchange during the last two fiscal years.
FISCAL 1999 FISCAL 1998
HIGH LOW HIGH LOWFiscal 2001 Fiscal 2000
------------------------------- -------------------------------
High Low High Low
First Quarter $ 5/8 3/8 $1-1/16 $1/2.938 $ .625 $ .875 $ .500
Second Quarter 11/16 3/8 3/4 7/162.938 .750 .750 .500
Third Quarter 5/8 1/4 3/4 3/82.813 1.125 .688 .438
Fourth Quarter 7/8 7/16 9/16 3/82.050 1.000 1.000 .500
There is no established trading market for the Company's Common Stock
Purchase Warrants.Series A
Convertible Preferred Stock.
(b) Holders
At June 7, 1999,May 23, 2001, there were approximately 621444 stockholders of record
of the Company's Common Stock and 13 holders of the Warrants.Stock.
(c) Dividends
The Company's policy has been to retain all available earnings, if
any, for the development and growth of its business. The Company has nevernot paid
cash dividends on its Common Stock. In deciding whether to pay dividends on the
Common Stock in the future, the Company's Board of Directors will consider
factors it deems relevant, including the Company's earnings and financial
condition and its working capital and anticipated capital expenditures. The
Company's United StatesEmerson's credit facility and the Indenture governing Emerson's subordinated
debentures contain certain dividend payment restrictions on the Company's Common
Stock. Additionally, the Company's Certificate of Incorporation, defining the
rights of the Series A Preferred Stock (as more fully described below),
prohibits Common Stock dividends unless the Series A Preferred Stock dividends
are paid or put aside. The Series A Preferred Stock accrues dividends, payable
on a quarterly basis, at a 7% dividend rate through March 31,
1997, then declining by a 1.4% dividend rate each succeeding year untilrate. The Company is in compliance with
the default provisions of its Series A Preferred Stock, and currently owes
dividends in arrears of $977,000. As of March 31, 2001, when no furtheradditional dividends
are payable. The Company is currently in
arrearswill accrue on $840,000 of dividends of the Company's Series A Preferred Stock. See Item 7 - "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
(d) Unregistered Securities
The Company authorized 10 million sharesDuring the fourth quarter of fiscal 2001, 68,896 warrants were
exercised and issued 10,00068,896 shares of Series
A Convertible Preferred Stock ("Series A Preferred Stock") oncommon stock of the Company were issued upon such
exercise. On March 31, 1994.
As of April 2, 1999, there were 3,714 shares outstanding.
The Series A Preferred Stock is convertible into2001, approximately 680,000 outstanding warrants to
purchase shares of the Company's common stock at any time duringexpired unexercised.
The above transactions were private transactions not involving a
public offering and were exempt from the period beginning on March 31, 1997 and
ending on March 31, 2002. The conversion rate is equal to 80% times the averageregistration provision of the
daily market pricesSecurities Act of 1933, as amended, pursuant to Section 4(2) thereof. The sale
of securities was without the use of an underwriter, and the certificates
evidencing this now bear a share ofrestrictive legend permitting the Company's common stock for the 60
consecutive days immediately preceding the conversion date.
During the year ended April 2, 1999, the Company issued a total of 286,885
shares of the common stock,transfer thereof
only upon conversion of 100 shares of Series A Preferred
Stock. No consideration was received by the Company for the issuanceregistration of the shares of common stock. The shares of common stock were issued by the Company
to certain of its existing holders of Series A Preferred Stock where no
commission or other remuneration was paid or given directly or indirectly for
soliciting such exchange. The shares of common stock were issued pursuant to
Section 3(a) (9) ofan exemption under the Securities Act of
1933, as amended.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company for the five years ended April 2, 1999.March 31, 2001. For the yearyears ended April
3, 1998 through March 31, 2000, the Company changed its financial reporting year
to a 52/53 week year ending on the Friday closest to March 31. Accordingly,Beginning in
fiscal 2001, the current fiscalCompany changed its financial reporting year endedto end on April 2, 1999.March
31. The selected consolidated financial data should be read in conjunction with
the Company's consolidated financial statements,Consolidated Financial Statements, including the notes thereto,
and Item 7 - "Management's Discussion and Analysis of Results of Operations and
Financial Condition" set forth elsewhere in this Form 10-K..
------------- ------------- --------------- -------------- ---------------
March 31, March 31, April 2, April 3, March 31,
March 31, March 31,2001 (1) 2000 1999 1998 1997
1996 1995
SUMMARY OF OPERATIONS:------------- ------------- --------------- -------------- ---------------
(In thousands, except per share data)
Summary of Operations:
Net Revenues (1) $158,730 $162,730 $178,708 $245,667 $654,671$ 377,410 $ 203,701 $ 160,554 $ 162,730 $ 178,708
Operating Income (Loss) $ 13,493 $ 5,334 $ 3,278 $ 524 $ (20,243)
Net EarningsIncome (Loss) (2)$ 12,653 $ 3,620 $ 289 $ (1,430) $(23,968) $(13,389) $ 7,375
BALANCE SHEET DATA
AT PERIOD END:(23,968)
Balance Sheet Data at Period End:
Total Assets $ 54,395119,006 $ 54,76763,511 $ 58,76860,872 $ 96,576 $113,96958,762 $ 61,151
Current Liabilities 23,351 19,890 21,660 35,008 59,78245,330 30,057 29,828 23,885 24,043
Long-Term Debt 38,257 20,891 20,847 20,929 21,079
20,886 214
Shareholders' Equity 15,131 12,563 10,197 13,948 16,029
40,382 53,651
Working Capital 39,497 9,854 6,859 9,610 13,258
48,434 42,598
Current Ratio 1.9 to 1 1.3 to 1 1.51.2 to 1 1.4 to 1 1.6 to 1
2.4 to 1 1.7 to 1
PER COMMON SHARE:Per Common Share: (2)
Net Income (Loss) Per Common Share -
Basic $ .36 $ .07 $ (.01) $ (.04) $ (0.61) $ (0.35) $ 0.25
Net Income (Loss) Per Common Share -
Diluted $ .33 $ .07 $ (.01) $ (.04) $ (0.61)
$ (0.35) $ 0.19
Weighted Average Shares Outstanding:
Basic 35,066 47,632 49,398 45,167 40,292
40,253 36,530
Diluted 38,569 53,508 49,398 45,167 40,292 40,253 47,900
Common Shareholders' Equity per
Common Share (3) $ 0.120.33 $ 0.180.19 $ 0.150.13 $ 0.750.19 $ 1.080.15
(1) The declinePrior to March 23, 2001, the Company accounted for its investment in net direct revenuesSSG
using the equity method of accounting. On March 23, 2001, Emerson obtained
a majority interest in SSG and is accounting for Fiscal 1995 through 1999 was due
primarilythis interest as a partial
purchase to the implementationextent of a license agreement effectivethe change in control. The assets and liabilities
of SSG have been revalued to fair value to the extent of Emerson's 50.1%
interest in SSG. SSG's results of operations and the minority interest
related to those results have been included in the Company's results of
operations as though it had been acquired at the beginning of the year
ended March 31, 1995. Prior to entering into this license agreement, the Company
reported the full dollar value of such sales. Subsequent to entering
into this license agreement the Company reported royalty and commission
revenue from the licensing agreement. Net Revenues for Fiscal 1995
included $340,465,000 of sales of video products subsequently covered
under this license agreement. See "Business- Licensing and Related
Activities".2001.
(2) For Fiscal 1995 potentiallyfiscal 2001 and 2000, dilutive securities include 4,664,0003,066,000 and
5,876,000 shares, respectively, assuming conversion of $10 million of Series A Preferred
Stock at a price equal to 80% of the weighted average market value of a
share of Common Stock, determined as of March 31, 1995. Since the Series A Preferred Stock was not
convertible into Common Stock until March 31, 1997, the number2001, and 2000. For
fiscal 2001, dilutive securities also include 437,000 shares assuming
conversion of shares
issuable upon conversion may differ significantly.1,658,000 options. Per common share data for
Fiscal 1996 through Fiscal 1999 areis based on the net
earningsincome or loss and deduction of preferred stock dividend requirements
(resulting in additionala loss attributable to common stockholders for Fiscal 1996-1999)fiscal
1999-1997) and the weighted average of new Common Stock outstanding during each
fiscal year. Loss per share does not include potentially dilutive
securities assumed outstanding since they arethe effects of such conversion would
be anti-dilutive.
(3) Calculated based on common shareholders' equity divided by actualthe basic
weighted average shares of Common Stock outstanding. Common shareholders'
equity at April 2, 1999 and
April 3, 1998,for fiscal years 2001 through 1997, is equal to total shareholders'
equity less $4,343,000$3,677,000, $3,677,000, $3,714,000, $5,237,000, and
$5,713,000, respectively, for the liquidation preference of the Series A
Preferred Stock. Common shareholders' equity at March 31, 1997, 1996 and
1995 is equal to total shareholders' equity less $10 million for the
liquidation preference of the Series A Preferred Stock.$10,000,000, respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERALDuring fiscal 2001, Emerson increased its ownership in SSG to 50.1%.
Accordingly, Emerson's and SSG's results of operations are consolidated for the
current year compared to being reported on the equity method for prior years
based upon the percentages of SSG's equity owned by Emerson. See Item 8 -
"Financial Statements and Supplementary Data - Note 1 and Note 3 of Notes to the
Consolidated Financial Statements".
Management's Discussion and Analysis of Results of Operation is
presented in three parts: consolidated operations, the consumer electronics
segment and the sporting goods segment.
In the following discussions, most percentages and dollar amounts have
been rounded to aid presentation. As a result, all figures are approximations.
Consolidated Operations:
The Company reportedfollowing table sets forth, for the periods indicated, certain
items related to the consolidated statements of operations as a declinepercentage of
net revenues.
For the Years Ended March 31, 2001, March 31, 2000, and April 2, 1999
2001 2000 1999
Net revenues (in thousands) $ 377,410 $203,701 $160,554
100.0% 100.0% 100.0%
Cost of sales 81.1% 86.8% 87.4%
Other operating costs and expenses 1.1% 2.2% 2.5%
Selling, general and administrative
Expenses 14.2% 8.4% 8.1%
Operating income 3.6% 2.6% 2.0%
Equity in earnings of affiliate -- % 0.1% 0.9%
Minority interest in net loss of
consolidated subsidiary 0.6% --% --%
Net income 3.4% 1.8% 0.2%
Results of Consolidated Operations - fiscal 2001 compared with fiscal 2000
Net Revenues - Net revenues for fiscal 2001 increased $173.7 million
(85.3%) as compared to fiscal 2000. The increase was a result of this being the
first year of consolidation with SSG ($113 million net revenue increase) and an
increase of $61 million in itsrevenues from the consumer electronics segment.
Cost of Sales - Cost of sales, as a percentage of consolidated net
revenues, for Fiscal 1997 through
Fiscal 1999 primarily due to a decline of video, T.V., home theater and car
stereos, partially offset by increasesdecreased from 86.8% in audio product sales. The decline in
revenues was attributable to management's decision to change the product mix due
to competitive reasons. The Company expects its sales in the United States for
Fiscalfiscal 2000 to increase81.1% in fiscal 2001. The
decrease was primarily the result of the consolidation with SSG whose operations
achieve higher gross margins than those of the consumer electronics segment.
Other Operating Costs and Expenses - Other operating costs and
expenses are associated with the consumer electronics segment. As a percent of
net revenues other operating costs declined from 2.2% in fiscal 2000 to 1.1% in
fiscal 2001, primarily as a result of additional product offerings.
RESULTS OF OPERATIONSlower inventory carrying expenses and a
higher revenue base.
Selling, General and Administrative Expenses ("S,G&A") - FISCAL 1999 COMPARED WITH FISCAL 1998
NET REVENUES ConsolidatedS,G&A, as a
percentage of net revenues, were 14.2% in fiscal 2001 as compared to 8.4% in
Fiscal 2000, and in absolute terms were $53.5 million for Fiscalfiscal 2001 and $17.0
million for fiscal 2000. The increase in S,G&A was the result of the
consolidation with SSG whose operations require a higher level of S,G&A costs
than those of the consumer electronics segment.
Equity In Earnings Of Affiliate and Minority Interest in Net Loss of
Consolidated Subsidiary - During fiscal 2001, Emerson's investment in SSG
increased to 50.1%. Accordingly, SSG's results of operations and the minority
interest related to those results have been included in the Company's results of
operations as though it had been acquired at the beginning of fiscal 2001. For
fiscal 2000, Emerson's 33% investment in SSG was accounted for under the equity
method of accounting. See Item 8 - "Financial Statements and Supplementary Data
- - Note 3 of Notes to the Consolidated Financial Statements."
Net Income - As a result of the foregoing factors, the Company earned
net income of $12.7 million for fiscal 2001 as compared to $3.6 million for
fiscal 2000.
Consumer Electronics Segment:
The following table summarizes certain financial information relating
to the consumer electronics segment for the fiscal years 2001, 2000, and 1999
decreased $4.0(in thousands):
2001 2000 1999
----------------- ----------------- -------------------
Net revenues $ 264,349 $203,701 $160,554
================= ================= ===================
Cost of sales 225,291 176,870 140,326
Other operating costs 4,318 4,501 4,007
Selling, general & administrative 17,418 16,996 12,943
================= ================ ===================
Operating income 17,322 5,334 3,278
Equity in earnings of affiliate -- 277 1,499
Other investment losses -- (284) (2,009)
Interest expense, net (2,051) (2,284) (2,272)
------------------ ---------------- --------------------
Income before income taxes 15,271 3,043 496
Provision (benefit) for income taxes 1,142 (577) 207
================= ================= ===================
Net income $14,129 $ 3,620 $289
================= ================= ===================
Results of Consumer Electronics Operations - fiscal 2001 compared with fiscal
2000
Net Revenues - Net revenues for fiscal 2001 increased $60.6 million
(2.5%(30%) as compared to Fiscal 1998.fiscal 2000. The decreaseincrease in net revenues resulted
primarily from decreasesincreases in unit sales of audio products, microwave ovens
products, and home theaterHello Kitty(R) branded products. The reducedAdditionally, Emerson's HH
Scott(R) brand continued to expand. Licensing revenues were offset by increased sales of audio
products, particularly CD/radio/cassette products and CD shelf systems. This
decrease in product sales was partially offset by a significant reduction in
returned product resulting from an overall more restrictive return policy by the
Company's customers. It is expected that this trend of declining revenues will
not continue. Revenues earned from the licensing of the Emerson and G Clef
trademark were $3.6$3.9 million for
Fiscal 1999fiscal 2001 as compared to $5.6$3.1 million for Fiscal 1998.fiscal 2000. The decreaseincrease is
attributable to the first year transitionfollowing three factors: (i) new licensing arrangements
being implemented in the current fiscal year; (ii) license agreements
implemented in previous years becoming fully operational; (iii) certain licenses
being modified and expanded. For fiscal 2002, this trend of a
marketing agreement with Daewoo Electronics, Ltd. implemented to replace a
previousincreasing license
agreement. This declinerevenues is expected to be temporary as the new
program becomes fully implemented in Fiscal 2000.
The Companycontinue.
Emerson reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories, in lieu of
reporting the full dollar value of such sales and associated costs.
(See
"Business-Licensing and Related Activities"). The Company expects its U.S. gross
sales on its Core Products to improve and its margins on such sales to also
improve due to the change in product mix to higher margin products.
COST OF SALES Cost of Sales - Cost of sales, as a percentage of consolidated net
revenues, was 87.3%85.2% and 87.5%86.8% in Fiscal 1999fiscal 2001 and Fiscal 1998.fiscal 2000, respectively. The
Company'sdecrease in cost of sales was primarily attributable to lower product returns
and a higher product margin due to product mix.
The consumer electronics segment gross profit margins continue to be
subject to competitive pressures arising from pricing strategies associated with
the categoryprice categories of the consumer electronics market in which the CompanyEmerson
competes. The Company'sEmerson's products are generally placed in the low-to-medium priced
category of the market, that tendwhich has a tendency to be the most competitive and generate the lowest profits. The
Companyhighly competitive. Emerson
believes that the combination of theits (i) Daewoo Agreement;direct import program; (ii) various
license agreements; and (iii) the continued introduction of higher margin productsproducts;
(iv) use of inward license agreements such as Hello Kitty(R) and (v) further
reduction in product return rates will have a
favorablecontinue to favorably impact on the Company'sits gross
profit. The Company continues to
promote its direct import programs to limit its working capital risks. In
addition, the Company continues to focus on its higher margin productsprofit margins.
Other Operating Costs and is
reviewing new products that can generate higher margins than its current
business, either through license arrangements, acquisitions and joint ventures
or on its own.
OTHER OPERATING COSTS AND EXPENSESExpenses - Other operating costs and
expenses decreased $344,000 in Fiscal 1999 as compared to Fiscal 1998, primarily as a resultpercentage of reduced freight costs on returns, offset by increased return-to-vendor
program fees as this programnet revenues decreased from 2.2% in fiscal 2000 to
1.6% in fiscal 2001. The decrease was fully implemented this fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSESprimarily due to the effect of a higher
sales base combined with a reduction in inventory carrying costs.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A, as a
percentage of net revenues, were 8.2%decreased to 6.6% of net revenues in Fiscal 1999 as compared to 9.5%fiscal 2001
from 8.3% of net revenues in Fiscal 1998. In absolute terms, S,G&A decreased by $2.5 million in Fiscal 1999
as compared to Fiscal 1998.fiscal 2000. The decrease in S,G&A between fiscal
2001 and 2000 as a percentage of net revenues and in absolute terms was primarily attributable to continued cost
containment programs and the effect of a reductionhigher sales base.
Equity In Earnings Of Affiliate - During fiscal 2001, Emerson's
investment in co-
op advertisingSSG increased to 50.1%. Accordingly, SSG's results of operations
and a reduction in chargesthe minority interest related to bad debts, partially offset
by an increase in professional and consulting fees.
EQUITY IN EARNINGS OF AFFILIATE The Company's 31% sharethose results have been included in the
earningsCompany's results of an Affiliate amounted to $1.5 million for Fiscal 1999, which was approximatelyoperations as though it had been acquired at the same as for Fiscal 1998.
WRITE-DOWN OF INVESTMENT IN AND ADVANCES TO JOINT VENTURES Write-downbeginning
of fiscal 2001. For fiscal 2000, Emerson's 33% investment in SSG was accounted
for under the equity method of accounting. See Item 8 - "Financial Statements
and advancesSupplementary Data - Note 3 of Notes to Joint Ventures was $900,000the Consolidated Financial
Statements."
Other Investment Losses - There were no losses for Fiscal 1999fiscal 2001 as
compared to $714,000$284,000 for Fiscal 1998. For Fiscal 1999 the write-down consisted
of a charge of $230,000 for the continuing liquidation of afiscal 2000. The loss in fiscal 2000 was due to
write-downs in investments in joint ventureventures, and a
$670,000 charge for the write-down of a foreign investment. For Fiscal 1998 the
charge of $714,000 was entirely for the joint venture.
LOSS ON MARKETABLE SECURITIES Due to the write-down oflosses on marketable
securities which arewere classified as "available-for-sale",.
Interest Expense, net of gains on
completed sales.
INTEREST EXPENSE- Interest expense decreased by $238,000from $2.3 million
in Fiscal 1999 as
comparedfiscal 2000 to Fiscal 1998.$2.1 million in fiscal 2001. The decrease was attributable
primarily to the amortization of
closing costs associated with a borrowing which were fully amortizedan increase in the
prior year, along with a reduction in short-term average borrowings due to a
reduction in working capital requirements.
PROVISION FOR INCOME TAXES The Company'sinterest income.
Provision for Income Taxes - Emerson's provision for income taxes was
$207,000$1.1 million for Fiscal 1999fiscal 2001 as compared to $254,000a benefit of $577,000 for Fiscal 1998.fiscal
2000. The provision for income taxesof $1.1 million consisted primarily of foreign and Federal
AMT taxes. The income tax benefit recorded for both years.
NET INCOMEfiscal 2000 was the result of a
favorable resolution of a tax claim and the acceptance of a compromise offer in
Hong Kong. See Item 8 - "Financial Statements and Supplementary Data - Note 7 of
Notes to the Consolidated Financial Statements".
Net Income - As a result of the foregoing factors, the Company generated
net income of $289,000 for Fiscal 1999$14.1
million was earned in fiscal 2001 as compared to a net loss$3.6 million in fiscal 2000.
Results of approximately $1.4 million for Fiscal 1998.
RESULTS OF OPERATIONSConsumer Electronics Operations - FISCAL 1998 COMPARED WITH FISCAL 1997
NET REVENUES Consolidated netfiscal 2000 compared with fiscal
1999
Net Revenues - Net revenues for Fiscal 1998 decreased $16.0fiscal 2000 increased $43.1 million
(8.9%(27%) as compared to Fiscal 1997.fiscal 1999. The decreaseincrease in net revenues resulted
primarily from decreasesincreases in unit sales of video cassette recorders, televisionsmicrowave ovens and television/video cassette recorder combination units due to the Company's
licensing agreement with Daewoo and the Supplier. The decrease also resulted
from decreases in unit sales of (i) home theater products, due to a reduction in
the variety of products offered, and (ii) car audio products which were
discontinued in Fiscal 1998, and the transfer of the Company's Canadian sales to
a local distributor. The reduced revenues were partially offset by increased
sales of microwave ovens attributable to a broader product line, byas
well as the introduction of the Company's CinemaSurround(Registered)DVD and home office product andcategory. In
addition, the favorable trend of declining returned product as a percentage of
sales continued for fiscal 2000, resulting from a continuation of a more
restrictive return policy by the sales of home audio products into foreign markets as well as the
U.S. market.Emerson's customers. Revenues recognizedearned from the
licensing of the Emerson and
G Clef"EMERSON(R)" trademark were $5.6$3.1 million in Fiscal 1998for fiscal 2000 as
compared to $5.0$3.6 million for Fiscal 1997.fiscal 1999. The Companydecrease was attributable to the
continued transition towards the Daewoo License Agreement.
Emerson reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories, in lieu of
reporting the full dollar value of such sales and associated costs.
(See
"Business-Licensing and Related Activities").
COST OF SALES Cost of Sales - Cost of sales, as a percentage of consolidated net
revenues, was 86.8% and 87.4% in fiscal 2000 and fiscal 1999, respectively.
Other Operating Costs and Expenses - Other operating costs and
expenses as a percentage of net revenues decreased from 2.5% in fiscal 1999 to
2.2% in fiscal 2000. The decrease was 87% in
Fiscal 1998 as compared to 97% in Fiscal 1997. Cost of sales in Fiscal 1998 was
significantly improvedprimarily due to the changedecreases in the product mix to higher margin
productsfreight
charges.
Selling, General and the reduction of inventory overhead costs due to the Company's
successful efforts to shift a higher proportion of its sales to a direct import
basis. For Fiscal 1998, products representing approximately 84% of net revenues
were directly imported from manufacturers to the Company's customers as compared
to 46% for Fiscal 1997.
OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses
increased $1.3 million in Fiscal 1998 as compared to Fiscal 1997, primarily as a
result of the Company's implementation of its return-to-vendor program.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSESAdministrative Expenses ("S,G&A") - S,G&A, as a
percentage of net revenues, were 9.5%8.3% in Fiscal 1998fiscal 2000 as compared to 10.5%8.1% in
Fiscal 1997. In absolute terms, S,G&A decreased by $3.2 million in Fiscal 1998
as compared to Fiscal 1997.fiscal 1999. The decrease in S,G&A as a percentage of net
revenues and in absolute termsincrease was primarily attributabledue to increased litigation and
cooperative advertising costs, offset somewhat by the following: (i)effect of a decrease in salary expense associated with the Company's reduced staffing
levels; (ii) a decrease in professional fees; and (iii) a decrease in
depreciation expense.
RESTRUCTURING AND OTHER NONRECURRING CHARGES The Company did not record
any restructuring charges in Fiscal 1998, compared to charges of $3.0 million in
Fiscal 1997. The charges recorded in Fiscal 1997 includes charges for the
closure of the Company's local Canadian office; employee severance; asset write-
downs; and $1.9 million of non-recurring charges relating to the proposed but
unsuccessful acquisition of International Jensen Incorporated.
EQUITY IN EARNINGS OF AFFILIATE The Company's 28% sharehigher sales
base.
Equity In Earnings Of Affiliate - Emerson's 33% investment in the
earnings of an AffiliateSSG amounted to $277,000 for fiscal 2000 and $1.5 million for Fiscal 1998fiscal
1999. Emerson's investment increased to 33% from 31% in fiscal 1999 due to an
additional investment by Emerson of SSG's shares and through a reduction of SSG
shares outstanding resulting from a SSG stock buyback program.
Other Investment Losses - Other investment losses were $284,000 for
fiscal 2000 as compared to $2,009,000 for fiscal 1999. The decrease in other
investment losses between fiscal 2000 and fiscal 1999 was attributable to a
reduction in the loss resulting from write-downs on investments and advances to
joint ventures from $900,000 in fiscal 1999 to $135,000 in fiscal 2000. In
addition, losses on marketable securities which were classified as
"available-for-sale" securities, decreased from $1,109,000 for fiscal 1999 to
$149,000 in fiscal 2000.
Interest Expense - Interest expense did not change significantly from
fiscal 1999 to fiscal 2000. Emerson's reduced average borrowings were offset by
higher borrowing costs.
Provision for Income Taxes - Emerson's income tax benefit was $577,000
for fiscal 2000 as compared to a lossprovision of $66,000$207,000 for Fiscal 1997. During Fiscal 1998, fourteen monthsfiscal 1999. The
income tax benefit recorded for fiscal 2000 was the result of earnings were
includeda favorable
resolution of a tax claim and the acceptance of a compromise offer in Hong Kong.
See Item 8 - "Financial Statements and Supplementary Data - Note 7 of Notes to
the Consolidated Statement of Operations, compared to Fiscal 1997
when only two months of operations were included in the Statement of Operations
due to the acquisition of the Affiliate's stock on December 10, 1996 and a
change in the Affiliate's fiscal year.
WRITE-DOWN OF INVESTMENT IN AND ADVANCES TO JOINT VENTURES Write-down of
investment in and advances to Joint Ventures was $714,000 for Fiscal 1998 as
compared to $0 for Fiscal 1997. For Fiscal 1998 the write-down consisted of
$714,000 for the liquidation of a 50% investment in a joint venture.
INTEREST EXPENSE Interest expense decreased by $919,000 in Fiscal 1998
as compared to Fiscal 1997. The decrease was attributable to a significant
reduction in borrowings on the U.S. revolving line of credit facility primarily
due to the reduction in trade accounts receivable and inventory.
PROVISION FOR INCOME TAXES The Company's provision for income taxes was
$254,000 for Fiscal 1998 as compared to $230,000 for Fiscal 1997. The provision
for income taxes consisted primarily of foreign tax for both years.
NET LOSSFinancial Statements".
Net Income - As a result of the foregoing factors, Emerson generated
net income of $3.6 million for fiscal 2000 as compared to $289,000 for fiscal
1999.
Sporting Goods Segment:
The following table summarizes certain financial information relating
to the Companysporting goods segment for the fiscal years ended March 31, 2001, and
March 31, 2000. The results of operations of SSG for fiscal 2000 were not
consolidated with Emerson's results of operations for fiscal 2000, but are
presented for comparative purposes (in thousands):
2001 2000
--------------- -------------
(Unaudited)
Net revenues $ 113,061 $ 116,521
============== ============
Cost of sales 80,809 78,602
Selling, general & administrative 35,880 33,114
============== ============
Operating income (loss) (3,628) 4,805
Interest expense, net (2,017) (1,595)
============== ============
Income (loss) before income
Taxes (5,645) 3,210
Provision (benefit) for income (2,086) 1,127
--------------- ------------
Taxes
Net (loss) income $ (3,559) $ 2,083
=============== ===========
Results of Sporting Goods Operations - Fiscal 2001 compared with Fiscal 2000
Net Revenues - Net revenues for fiscal 2001 decreased $3.5 million
(3%) as compared to fiscal 2000. The decrease in net revenues was primarily a
result of competitive pressures in the marketplace, a decline in youth baseball
registrations, unusually cold and wet weather in warm weather states delaying
spring sports, a reduction in SSG's sales force, a reduction in the number of
catalogs mailed, and a general slow-down in the economy.
Cost of Sales - Cost of sales, as a percentage of net revenues,
increased from 67.5% for fiscal 2000 to 71.5% for fiscal 2001. Cost of sales
increased as a percentage of net revenues due to product mix shifts and pricing
pressure in the institutional sporting goods marketplace. SSG expects to
continue to experience a higher cost of sales as a percentage of net revenues as
compared to prior results due to these factors.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A
expenses for fiscal 2001 increased by approximately $2.8 million (8.4%) as
compared to fiscal 2000. The increase in expenses was primarily due to an
increase in payroll, computer related costs, depreciation and amortization,
promotional and facility costs.
Interest Expense, net - Interest expense, net increased from $1.6
million in fiscal 2000 to $2.0 million in fiscal 2001. The increase was
attributable primarily to increased overall levels of borrowing.
Provision for Income Taxes - SSG recorded a tax benefit of $2.1
million for fiscal 2001 as compared to a tax provision of $1.1 million for
fiscal 2000. The tax benefit for fiscal 2001 resulted from the utilization of
net operating loss carryforwards.
Net (loss) income - As a result of the foregoing factors, SSG
generated a net loss of $1.4$3.6 million for Fiscal 1998fiscal 2001 as compared to a net lossincome
of approximately $24.0$2.1 million for Fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCESfiscal 2000, of which approximately a $1.3 million loss was
reflected in the Company's consolidated statements of operations for fiscal
2001.
Liquidity and Capital Resources
Net cash provided by operating activities was $5,286,000$9.8 million for Fiscal 1999.fiscal
2001. Cash was primarily provided by the reduction in accounts receivables, thean increase in accounts payable and other current liabilities, combined with
increasedthe profitability of the
Company. The decreaseCompany, a reduction of accounts receivables and other receivables partially
offset by an increase in accounts receivable is
due primarily to the change in the nature of the Company's sales to a direct
shipment basis.inventory.
Net cash utilizedused by investing activities was $2,299,000$2.5 million for Fiscal 1999.fiscal
2001. Cash was utilized primarily for additional purchases of shares of common
stock of SSG. See Item 8 - "Financial Statements and Supplementary Data - Note 3
of Notes to the purchase of marketable securities.Consolidated Financial Statements."
Net cash used for financing activities was $1,495,000$7.8 million for fiscal
2001. Cash was primarily utilized for the purchase of the Company's stock for
treasury, partially offset by increased borrowings.
Emerson and retirement.
The Company maintains anSSG maintain asset-based credit facilities of $10 million
U. S. line of credit. The
facility providesand $25 million, respectively. These facilities provide for revolving loans and
letters of credit, subject to certain limits which, in the aggregate, cannot
exceed the lesser of $10 million and $25 million for Emerson and SSG,
respectively, or a "Borrowing Base" amount based on specified percentages of
eligible accounts receivable and inventories. The Company isEmerson and SSG are required to
maintain a certain net worth level, and islevels, which they were both in compliance with this requirement.as of
March 31, 2001. At April 2, 1999,March 31, 2001, there was $2,216,000were approximately $5.1 million and
$17.1 million of borrowings under the facility,these facilities by Emerson and no outstandingSSG,
respectively. No letters of credit issued for inventory purchases.were outstanding by either Emerson or SSG as
of March 31, 2001.
The Company's Hong Kong subsidiary currently maintains various credit
facilities, as amended, aggregating $28.5$40.0 million with a bank in Hong Kong
consisting of the following: (i) a $3.5$5.0 million credit facility which is
generally used for letters of credit for a foreign subsidiary's direct import
business and affiliates' inventory purchases and (ii) a $25$35
million credit facility, for the benefit of a foreign subsidiary, which is for
the establishment of back-to-back letters of credit. At April 2, 1999,March 31, 2001, the
Company's Hong Kong subsidiary pledged $1$1.75 million in certificates of deposit
to this bank to assure the availability of thesethe $5.0 million credit facilities.facility. At
April 2,
1999,March 31, 2001, there were $2,124,000approximately $3.8 million and $5,000,000$7.3 million,
respectively, of letters of credit outstanding under these credit facilities.
The Company has continued to enter into outward licensing agreements for existing
core business products and new products,
and intends to pursue additional licensing opportunities. The Company believes
that such licensing activities will have a continued positive impact on net
operating results by generating royalty income with minimal costs, if any, and
without the necessity of utilizing working capital or accepting customer
returns. (See "Business-LicensingSee Item 1 - Business - "Licensing and Related Activities").
SHORT-TERM LIQUIDITY.Short-Term Liquidity. Cash decreased to $8.0 million as of March 31,
2001 from $8.5 million as of March 31, 2000. Cash generated from operations was
offset by Emerson's repurchase of shares of its outstanding common stock, its
increased investment in SSG, and increased inventory levels. At present,
management believes that future cash flow from operations and the institutional
financing noted above will be sufficient to fund all of the Company's cash
requirements for the next fiscal year. During Fiscal 1999, the Company reduced accounts receivable by 33% and
continued to gain the benefit of previously implemented cost-reduction programs.
The Company intends to maintain these reduced accounts receivable levels and to
continue the sale of its products on a direct basis. In Fiscal 1999,fiscal 2001, products representing
approximately 84%80% of net revenues of the consumer electronics segment were
directly imported from
manufacturersdirectly to the Company's customers. The direct import program implemented
by the Company is
critical in providing sufficient working capitalessential to meet itsEmerson's liquidity objectives. If the Company is unable to maintain its existing level
of direct sales volume, it may not have sufficient working capital to finance
its operating plan.
The Company is currently in arrears on $840,000$977,000 of dividends on the
Company'sits
Series A Preferred Stock which bears a dividend rate of 4.2% for
Fiscal 1999.Stock.
The Company's liquidity for its consumer electronics segment is
impacted by the seasonality of its business. The Companyconsumer electronics segment
generally records the majority of its annual sales in the quarters ending
September and December. This requires the Companyconsumer goods segment to openmaintain
higher amounts of letters of creditinventory levels during the quarters ending June and September, therefore
increasing the Company's working capital needs during these periods. Additionally, the
Companyconsumer electronics segment receives the largest percentage of customerproduct returns
in the quartersquarter ending March and June.March. The higher level of returns during these
periodsthis period
adversely impacts the Company'sEmerson's collection activity, and therefore its liquidity.
The CompanyManagement believes that the license agreements as discussed above, and the
arrangements it has implemented concerningpolicies in place for returned merchandise,products, should continue to favorably impact its
cash flow.
The Company's liquidity for its sporting goods segment is also
impacted by the Company's cash flow over their respective terms.
LONG-TERM LIQUIDITY.seasonality of its business. The sporting goods segment
generally records the majority of its annual sales in the March quarter, with
the weakest quarter being the December quarter. This requires the sporting goods
segment to maintain higher amounts of inventory during the quarters ending March
and June, therefore increasing the working capital needs during these periods.
Long-Term Liquidity. The Company continues to be subject to
competitive pressures arising from pricing strategies. SSG has discontinued
certain lower margin linesproducts in favor of products andhigher margin replacement products.
Management believes that this, together with the Daewoo Agreementits various license agreements and
the continued introduction of higher margin product lines can continue the profitability
achievedproducts in Fiscal 1999, and reverse the trend of losses reportedboth segments, will
result in prior
fiscal years. Thecontinued profitability. Both senior secured credit facility with the Lender was amended in
March 1998facilities for
Emerson and extended to March 31, 2001 and imposes aSSG impose financial covenant on
the Company. Non compliancecovenants. Non-compliance of the covenantcovenants
could materially affect the Company's future liquidity. Management believes that its direct import program
and the
anticipated cash flow from operations and the financing noted above will provide
sufficient liquidity to meet the Company's operating and debt service cash
requirements on a long-term basis.
As of April 2, 1999 the Company hadThere were no materialsubstantial commitments for capital
expenditures.
INFLATION AND FOREIGN CURRENCY
Neither inflation nor currency fluctuations had a significant effectpurchase orders outside the
normal purchase orders used to secure product as of March 31, 2001.
Recently-Issued Financial Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended, which we adopted on September 30, 2000. SFAS
133 requires that all derivatives be recorded on the Company's resultsbalance sheet at fair
value. Changes in derivatives that are not hedges are adjusted to fair value
through income. Changes in derivatives that meet the Statement's hedge criteria
will either be offset through income, or recognized in other comprehensive
income until the hedged item is recognized in earnings. The adoption of operations during Fiscal 1999. The Company's exposure to
currency fluctuations has been minimized by the use of U.S. dollar denominated
purchase orders, and by sourcing production in more than one country. The
Company purchases virtually all of its products from manufacturers located in
various Asian countries. These countries are emerging from an economic and
financial market crisis that, to date, hasSFAS 133
for fiscal 2001 did not adversely affected the Company's
ability to purchase product. If the economic recovery currently in progress
should reverse its trend it could adversely affect the Company's relationship
with its suppliers and its ability to acquire products for resale. Additional
financial turmoil in the South American economies may have an adverseany impact on the Company's South American Licensee.
YEAR 2000
The Year 2000 issue is primarily the result of computer programs or
databases using a two-digit format, as opposed to four digits, to represent a
calendar year. Some computer systems will be unable to correctly interpret
dates beyond the year 1999, which could cause a system failure or other computer
errors, leading to a disruption in the operation or accuracy of such systems.
The Company has undertaken a company-wide study and testing program to locate
and cure any Year 2000 issues in the products or systems on which it relies and
in the products it offers for sale. This phase of the Company's Year 2000 study
is completed. The Company believes its internal systems, as of the end of its
second calendar quarter of 1999 will be Year 2000 compliant. The specific costs
of achieving Year 2000 compliance are approximately $500,000 of which
approximately $350,000 has been expended to date. The Company has been and
anticipates continuing to work jointly with strategic vendors and business
partners to identify any Year 2000 issues that may impact the Company. The
Company anticipates that evaluation and corrective actions, if any, will be
ongoing throughout 1999. To date, the Company has not identified any such
problems requiring corrective action that will result in a material adverse
impact on the Company. However, there can be no assurance that the companies
with which the Company does business will achieve Year 2000 compliance in a
timely fashion, or that such failure to comply by another company will not have
a material adverse effect on the Company. The Company believes the products it
currently offers for sale or license are all Year 2000 compliant, and that the
cost to remediate any previously sold product that is not Year 2000 compliant
will not be material. The Company has and will incur internal staff costs
related to the above initiative.
Based on the assessment effort to date, the Company does not believe that
the Year 2000 issue will have a material adverse effect on itsour financial condition, results of
operations or cash flows.
This representsIn December 1999, the Securities and Exchange Commission staff
released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB No. 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements. The Company
adopted SAB No. 101 in the fourth quarter of fiscal 2001. SAB No. 101 requires
the Company to report its estimated sales return on a forward-
looking statement undergross basis rather than on
a previously utilized net basis. SAB No. 101 required prior year
reclassifications to conform with the Private Securities Litigation Reform Actnew presentation, which resulted in
offsetting reclassifications in net revenues and cost of 1995.
Actual results could differ materially fromsales, but did not
impact operating income as reported on the Company's beliefConsolidated Statements of
Operations. Accordingly, for fiscal 2001, fiscal 2000, and expectations, which are based on certain assumptionsfiscal 1999, net
revenues were increased by $1.3 million, decreased by $1.3 million, and
expectationsincreased by $1.8 million, respectively.
During fiscal 2001, the Company adopted the provisions of EITF 00-10,
Accounting for Shipping and Handling Fees and Costs. Prior to fiscal 2001, SSG
netted shipping fees against shipping costs. The net difference was included in
cost of sales in the consolidated statements of operations. The provisions of
EITF 00-10 provide that ultimately may proveall amounts billed to be inaccurate. Potential sources of risk include (a)
the inability of principal suppliers to be Year 2000 ready, which could resulta customer in delays in product deliveries from such suppliers; (b) disruption of the
distribution channel, including transportation vendors; (c) customer problems
that could affect revenue demand; and (d) undiscovered issuesa sale transaction
related to Year
2000 compatibility which could have a material adverse impact. The Company's
Year 2000 assessment is ongoingshipping and the consideration of contingency plans will
continue to be evaluated as new information becomes available. At this stage,
however, the Company has not developed a comprehensive contingency plan to
address situations that may resulthandling, if any, of the third parties upon which the
Company is dependent is unable to achieve Year 2000 compliance. The need for
such a contingency plan will be evaluated throughout 1999.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which will be effectiverepresent revenues earned for the
Companygoods provided and should be classified as revenue. Accordingly, for Fiscalfiscal
2001, approximately $5.6 million of shipping and handling fees was reclassified
in the consolidated statement of operations. The fiscal 2000 establishes accounting and reporting standardsfiscal 1999
were not restated because this EITF only affected the sporting goods segment
which was not included in the consolidated statement of operations for derivative instruments,
including certain derivative instruments embedded in other contracts,
and hedging activities. The Company has not yet determined the effects,
if any, of implementing SFAS No. 133 on its reporting of
financial information.
FORWARD-LOOKING INFORMATIONfiscal
2000 or fiscal 1999.
Forward-Looking Information
This report contains various forward lookingforward-looking statements under the
Private Securities Litigation Reform Act of 1995 (the "Reform Act'Act") and
information that areis based on Management's beliefs as well as assumptions made by
and information currently available to Management.management. When used in this report, the
words "anticipate", "believe", "estimate", "expect", "intend", "predict", "project", and
similar expressions are intended to identify forward lookingforward-looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected or projected. Among the key factors that could cause
actual results to differ materially are as follows: (i) the ability of the
Companyconsumer electronics segment to continue selling large quantities of products to two of its largest
customers whose net revenues represented 52%41% and 24%14% of Fiscal 1999fiscal 2001 consolidated
net revenues; (ii) reduced sales to the United States Government by the sporting
goods segment, due to a reduction in Government spending; (iii) competitive
factors in the consumer electronics segment, such as competitive pricing
strategies utilized by retailers in the domestic marketplace that negatively
impacts product gross margins; (iii)(iv) the ability of the Companyconsumer electronics and
sporting goods segments to maintain its suppliers, primarily all of whom are
located in the Far East; (iv)East for the outcomeconsumer electronics segment; (v) the ability of
the litigation (See "Legal Proceedings"); (v) the availability of sufficient
capitalsporting goods segment to finance the Company's operating plans;have an uninterrupted shipping service from
outside carriers, such as United Parcel Service; (vi) the ability of the Company
to comply with the restrictions imposed upon it by its outstanding indebtedness;
(vii) the Year 2000 Issue (as described above); and (viii)(vii) general economic conditions.conditions and other risks. Due to these
uncertainties and risks, readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. For additional risk factors as they relate to the sporting goods
segment, see SSG's Form 10-K for the fiscal year ended March 31, 2001 Item 7 -
"Certain Factors that May Affect the Company's Business or Future Operating
Results".
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Not material.Inflation, Foreign Currency, and Interest Rates
Neither inflation nor currency fluctuations had a significant effect
on the Company's results of operations during fiscal 2001. The Company's
exposure to currency fluctuations has been minimized by the use of U.S. dollar
denominated purchase orders, and by sourcing production in more than one
country. The consumer electronics segment purchases virtually all of its
products from manufacturers located in various Asian countries.
The interest on borrowings under the Company's credit facilities is
based on the prime rate. While a significant increase in interest rates could
have an adverse effect on the financial condition and results of operations of
the Company, management believes that given the present economic climate,
interest rates are not expected to increase significantly during the coming
year.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this Item 8 are
set forth at the pages indicated in Item 14(a) below.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
MANAGEMENT
OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the Officers
and Directors of the Company as of the date hereof:
NAME AGE POSITION
Geoffrey P. Jurick (3) 58 Chairman of the Board, Chief Executive
(3) Officer, President and Director
John P. Walker 36 Executive Vice President and Chief
Financial Officer
Marino Andriani 51 President, Emerson Radio Consumer
Products Corporation
John J. Raab 63 Senior Vice President - International
Elizabeth J. Calianese 41 Vice President - Human Resources,
Deputy General Counsel and Secretary
Christina A. Iatrou 36 Assistant Secretary and Assistant
General Counsel
Robert H. Brown, Jr.
(1)(2)(3)(4) 45 Director
Peter G. Bunger
(2)(3) 58 Director
Jerome H. Farnum
(1)(2)(3) 63 Director
Stephen H. Goodman
(1)(3)(4) 55 Director
_______________________________
(1) Member of Audit Committee
(2) Member of Compensation and Personnel Committee
(3) Member of Executive Committee (Mr. Goodman is an alternate member of the
Executive Committee)
(4) Member of Special Committee
GEOFFREY P. JURICK has served as Director since September 1990, Chief Executive
Officer since July 1992, Chairman since December 1993 and President since April
1997. Mr. Jurick also previously served as President from July 1993Index to October
1994. From March 1990 until approximately 1994, he was President and Director
of Fidenas Investment Limited. Since December 1993, Mr. Jurick has served as a
Director of Fidenas International Limited, L.L.C. and its predecessor ("FIN")
and, since May 1994, as an officer and general manager of Fidenas International.
Mr. Jurick has served as a Director and Chairman of GSE Multimedia Technologies
Corporation ("GSE"), which is traded in the over-the-counter market, since May
1994. Since March 1996, Mr. Jurick has served as Chairman of Elision
International Ltd. ("Elision"). For more than the past five years, Mr. Jurick
has held a variety of senior executive positions with several of the entities
comprising the Fidenas group of companies ("Fidenas Group"). Since December
1996, Mr. Jurick has served as a Director and Chairman of the Board and since
January 23, 1997 as Chief Executive Officer of Sport Supply Group, Inc. ("SSG"),
whose securities are traded on the New York Stock Exchange. The Company owns
31% of the outstanding common shares of SSG. See "Item 13. - Certain
Relationships and Related Transactions".
JOHN P. WALKER has served as Executive Vice President and Chief Financial
Officer since April 1996 and was Senior Vice President from April 1994 until
March 1996. Mr. Walker was Vice President-Finance from February 1993 to April
1994 and Assistant Vice President-Finance from June 1991 to January 1993. Since
December 1996, Mr. Walker has served as a Director and Chief Financial Officer
of SSG. Effective July 1998, Mr. Walker became the President and Chief Operating
Officer of SSG in addition to his positions as Director and Chief Financial
Officer. See "Item 13. - Certain Relationships and Related Transactions".
MARINO ANDRIANI has served as President of Emerson Radio Consumer Products
Corporation since February 1996. From December 1994 until February 1996, Mr.
Andriani was President of Appliance Corp. of America, a Welbilt Consumer
Products Company. From March 1993 to December 1994, Mr. Andriani was President
of Orient Express Marketing. Prior to March 1993, Mr. Andriani was Executive
Vice President-Sales of the Company from September 1990 to March 1993.
JOHN J. RAAB has served as Senior Vice President - International since October
1997, Senior Vice President-Operations from October 1995 until September 1997
and was Vice President-Far East Operations from May 1995 until September 1995.
Prior to May 1995 he was President and Chief Operating Officer of Robeson
Industries Corp. from March 1990 to March 1995. Robeson Industries Corp. filed
for relief under Chapter 11 of the United States Bankruptcy Code and emerged
from Bankruptcy and was sold in the end of 1994.
ELIZABETH J. CALIANESE has served as Secretary since January 1996, as Vice
President-Human Resources since May 1995 and as Deputy General Counsel since May
1995. From April 1991 to May 1995, Ms. Calianese served as Assistant General
Counsel.
CHRISTINA A. IATROU has served as Assistant Secretary since August 1996 and as
Assistant General Counsel since May 1995. From October 1987 to May 1995, Ms.
Iatrou was a senior associate with the law firm of Crocco & De Maio, P.C. in New
York City.
ROBERT H. BROWN, JR. has been a Director since July 1992. Since January 1999,
Mr. Brown has been President and Chief Executive Officer of Frost Securities,
Inc., an investment banking firm. From July 1998 to January 1999, Mr. Brown was
President of RHB Capital, LLC. From January 1998 to July 1998, he was Executive
Vice President of Dain Rauscher, formerly Rauscher Pierce Refsnes, Inc.
("Rauscher"). From February 1994 to January 1998, Mr. Brown was Executive Vice
President of Capital Markets of Rauscher, in Dallas, Texas. From January 1990
until February 1994, Mr. Brown was Senior Vice President and Director of the
Corporate Finance Department of Rauscher. From May 1993 through March 1999, Mr.
Brown served as a Director of Stevens Graphics Corp., which is traded on the
American Stock Exchange.
PETER G. BUNGER has been a Director since July 1992. Presently, he is a
consultant with Savarina AG. Since October 1992, Mr. Bunger has served as
Director of Savarina AG, engaged in the business of portfolio management
monitoring in Zurich, Switzerland, and since 1992, as Director of ISCS, a
computer software company. Since December 1996, Mr. Bunger has served as a
Director of SSG. See "Item 13. - Certain Relationships and Related
Transactions".
JEROME H. FARNUM has been a Director since July 1992. Since July 1994, Mr.
Farnum has been an independent consultant. From 1979 until 1994, Mr. Farnum
served as a senior executive with several of the entities comprising the Fidenas
Group, in charge of legal and tax affairs, accounting, asset and investment
management, foreign exchange relations, and financial affairs.
STEPHEN H. GOODMAN has been a Director since January 1999. Since January 1998,
he has been President, Chief Executive Officer and a Director of the Singer
Company, N.V. ("Singer"), an international manufacturer and distributor of
consumer and industrial sewing machines and a global retailer and distributor of
other consumer durable product, the common stock of which is listed on the New
York Stock Exchange. From March 1986 to December 1997, Mr. Goodman held a
variety of positions with Bankers Trust Company, including Managing Director,
Corporate Strategy, New York and Managing Director, Strategic Advisory and
Mergers & Acquisitions Business, Asia. Mr. Goodman is a Director of Singer, a
member of the Supervisory Board of GM Pfaff A. G., a Frankfurt Stock Exchange
listed subsidiary of Singer, and a director of a number of Singer affiliates and
subsidiaries.
Item 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
COMPENSATION OF EXECUTIVE OFFICERS
The following executive compensation disclosures reflect all plan and non-
plan compensation awarded to, earned by, or paid to the named executive officers
of the Company. The "named executive officers" are the Company's Chief
Executive Officer (the "CEO"), regardless of compensation level, and the four
most highly compensated executive officers, other than the CEO, serving as such
on April 2, 1999. Where a named executive officer has served during any part of
the Company's fiscal year ended April 2, 1999 ("Fiscal 1999"), the disclosures
reflect compensation for the full year in each of the periods presented.
SUMMARY COMPENSATION TABLE
The following table summarizes for the years indicated the compensation
awarded to, earned by, or paid to the named executives for services rendered in
all capacities to the Company:
OTHER SECURI- ALL
ANNUAL TIES OTHER
Name and COMPEN- UNDER- COMPEN-
Principal FISCAL SATION LYING SATION
Position(s) YEAR SALARY BONUS (1) OPTIONS (2)
GEOFFREY P. JURICK 1999 $411,600 $ - $108,145 - $4,844
CHAIRMAN OF THE 1998 321,407 - 125,208 - 13,059
BOARD, CHIEF 1997 443,473 38,500 121,646 - 2,207
EXECUTIVE OFFICER
AND PRESIDENT (3)
JOHN P. WALKER 1999 100,000 50,000 - - 2,400
EXECUTIVE VICE 1998 107,692 50,000 - - 2,721
PRESIDENT AND 1997 179,166 40,000 18,816 - 7,089
CHIEF FINANCIAL
OFFICER (4)
MARINO ANDRIANI 1999 385,000 - 8,400 75,000 14,032
PRESIDENT, 1998 385,000 - 8,400 - 11,656
EMERSON 1997 387,100 - 9,808 75,000 11,352
RADIO CONSUMER
PRODUCTS
CORPORATION(5)
JOHN J. RAAB 1999 210,000 - 8,400 50,000 10,100
SENIOR VICE 1998 210,000 - 8,400 - 7,780
PRESIDENT- 1997 212,100 - 8,638 - 11,237
INTERNATIONAL (5)
ELIZABETH J. CALIANESE 1999 125,000 25,000 8,400 - 7,110
VICE PRESIDENT- 1998 102,503 10,000 8,400 30,000 1,687
HUMAN RESOURCES, 1997 95,000 - 8,400 30,000 1,425
SECRETARY, AND
DEPUTY GENERAL
COUNSEL(5)
(1) Consists of (i) car allowance and auto expenses afforded to the listed
Company executive officers, including $13,063 paid to Mr. Walker in
Fiscal 1997, and $8,400 to Mr. Andriani, Mr. Raab and Ms. Calianese, in
Fiscal 1999, 1998 and 1997, respectively, (ii) temporary lodging expenses
and associated tax gross-ups in the amount of $108,145, $125,208 and
$120,573 for Mr. Jurick, for Fiscal 1999, 1998 and 1997, respectively.
(2) Consists of the Company's contribution to its 401(k) employee savings plan,
group health, life insurance and disability insurance. Includes $7,170 in
premiums paid in Fiscal 1998 for a life insurance policy for Mr. Jurick.
(3) Includes reimbursement of salary from SSG of $135,414 and $46,527 for Mr.
Jurick in Fiscal 1998 and 1997, respectively. Pursuant to the Management
Services Agreement, between SSG and the Company (the "Management Services
Agreement"), effective October 18, 1997, the Company reduced Mr. Jurick's
salary by $80,000 and will no longer be reimbursed by SSG for a portion of
Mr. Jurick's salary. See "Item 13. - Certain Relationships and Related
Transactions".
(4) Effective January 15, 1998, the Company no longer pays Mr. Walker's salary
directly. However, pursuant to the Management Services Agreement by and
between SSG and the Company, the Company began reimbursing SSG for Mr.
Walker's salary and bonus that on an annualized basis is equivalent to
$100,000 and $50,000 respectively during Fiscal 1999 and 1998. See "Item
13. - Certain Relationships and Related Transactions".
(5) In November 1995, Mr. Raab was granted a stock option to purchase 50,000
shares of common stock at an exercise price of $2.875 per share. In April
1996, Mr. Andriani was granted a stock option to purchase 75,000 shares of
common stock at an exercise price of $2.563 per share and in October 1996,
Ms. Calianese was granted a stock option to purchase 30,000 shares of
common stock at an exercise price of $ 2.25 per share. Ms. Calianese's
options were repriced in Fiscal 1998 to $1.00 per share. Mr. Raab's and
Mr. Andriani's options were repriced in Fiscal 1999 to $1.00 per share.
The options vest in annual increments of one-third, commencing one year
from the date of grant, and their exercise is contingent on continued
employment with the Company. Repriced options are reported as compensation
in the fiscal year they are repriced. See "Board Report on Option
Repricing".
OPTION GRANTS DURING 1999 FISCAL YEAR
There were no options granted to the named executives identified in the
Summary Compensation table.
OPTION EXERCISES AND HOLDINGS
The following table provides information related to options exercised by
the named executive officers during Fiscal 1999 and the number and value of
options held at fiscal year end. The Company does not have any outstanding
stock appreciation rights.
OPTION EXERCISES DURING 1999 FISCAL YEAR AND FISCAL YEAR - END OPTION VALUES
Number
of
Securi-
ties
Under-
lying Value of
Un- Unexercised
exercised In-the-
Options Money
/SARS Options
at FY-End /SARS
Shares Value (#) at FY-End
Acquired Real- Exercisable ($)(1)
on Exercise ized /Un- Exercisable
Name (#) ($) exercisable Unexercisable
Geoffrey P. Jurick --- --- 600,000/0 $ 0/$ 0
John P. Walker --- --- 200,000/0 $ 0/$ 0
Marino Andriani --- --- 75,000/0 $ 0/$ 0
John J. Raab --- --- 50,000/0 $ 0/$ 0
Elizabeth J. Calianese --- --- 20,000/10,000 $ 0/$ 0
(1) The closing price for the Company's Common Stock as reported by the
American Stock Exchange on April 2, 1999 was $ .81. Value is calculated on the
basis of the difference between the closing price and the option exercise price
of "in the money" options, multiplied by the number of shares of Common Stock
underlying the option.
BOARD REPORT ON OPTION REPRICING
The Board believes that the Company has taken constructive steps to improve
its performance and believes that hiring and retaining key employees is central
to implementing these measures. In furtherance of these goals, in May 1998, the
Board reduced the per share exercise price of options previously granted to Mr.
Andriani and Mr. Raab. The Board concluded that the results achieved by these
two executives were basis for repricing of options granted to them. No other
provisions of these options were altered.
In accordance with the rules of the SEC, this Option Repricing Report of
the Board of Directors is not intended to be "filed" or "soliciting Material"
or subject to Regulations 14A or 14C or Section 18 of the Exchange Act, or
incorporated into any other filing by the Company with the SEC.
The following table summarizes certain information concerning the repricing
of options to buy the Company's Common Stock held by all executive officers:
TEN YEAR OPTION REPRICING
Length
Number of
of Original
Secur- Option
ities Market Term Re-
Under- Price of Exercise New maining
lying Stock at Price at Exer- At
Date of Options Time of Time of cise Date of
Name Repricing Repriced Repricing Repricing Price Repricing
ELIZABETH J.
CALIANESE 05/13/97 30,000 $0.438 $2.25 $1.00 9.4 years
MARINO ANDRIANI 05/01/98 75,000 $0.438 $2.563 $1.00 7.9 years
JOHN J. RAAB 05/01/98 50,000 $0.438 $2.875 $1.00 7.5 years
CERTAIN EMPLOYMENT CONTRACTS
On August 13, 1992, Geoffrey P. Jurick, Chairman, Chief Executive Officer
and President of the Company, entered into five-year employment agreements
("Jurick Employment Agreements") with the Company and two of its wholly-owned
subsidiaries, Emerson Radio (Hong Kong) Ltd. and Emerson Radio International
Ltd. (formerly Emerson Radio (B.V.I.) Ltd.) (hereinafter, collectively the
"Companies"), providing for an aggregate annual compensation of $490,000 as of
April 1, 1995. Effective October 18, 1997, Mr. Jurick's employment agreement
with the Company (but not the wholly-owned subsidiaries) was amended and Mr.
Jurick's annual salary under the Jurick Employment Agreements was reduced to
$410,000. In addition to his base salary, the Jurick Employment Agreements
provide that Mr. Jurick is entitled to an annual bonus upon recommendation by
the Compensation and Personnel Committee of the Company's Board of Directors,
subject to the final approval of the Company's Board of Directors. By letter
agreement dated April 16, 1997, the terms of the Jurick Employment Agreements
were extended until March 31, 2000. However, pursuant to the Settlement
Agreement, hereinafter defined, Mr. Jurick's cash compensation from the Company
and all subsidiaries and affiliates is limited to a total of $750,000 annually
until the Settlement Amount is paid. See "Certain Relationships and Related
Transactions." Pursuant to the Management Services Agreement, SSG reimbursed
the Company for $0, $125,444 and $46,527 in salary payments made to Mr. Jurick
in Fiscal 1999, 1998 and 1997, respectively, for the benefit of SSG. The
Management Services Agreement was amended as of October 18, 1997 to provide that
SSG will no longer reimburse the Company for any of Mr. Jurick's salary
payments, but will pay Mr. Jurick directly. See "Item 13. - Certain
Relationships and Related Transactions - Management Services Agreement".
Subject to certain conditions, each of the Jurick Employment Agreements
grants to Mr. Jurick severance benefits, through expiration of the respective
terms of each of such agreements, commensurate with Mr. Jurick's base salary, in
the event that his employment with the Companies terminates due to permanent
disability, without cause or as a result of constructive discharge (as defined
therein). In the event that Mr. Jurick's employment with the Companies
terminates due to termination for "cause", because Mr. Jurick unilaterally
terminates the agreements or for reasons other than constructive discharge or
permanent disability, Mr. Jurick shall only be entitled to base salary earned
through the applicable date of termination. If Mr. Jurick were to be terminated
due to permanent disability, without cause or as a result of constructive
discharge, the estimated dollar amount to be paid after April 2, 1999, based on
the terms of the employment contract, would be $410,000. However, the estimated
amounts to be paid is subject to certain limitations under the Settlement
Agreement. See "Item 13. - Certain Relationships and Related Transactions -
Certain Outstanding Common Stock".
As of April 1, 1994, John P. Walker, Executive Vice President and Chief
Financial Officer, entered into a three-year employment agreement with the
Company providing for an annual compensation of $165,000 as of April 1, 1995 and
increased to $210,000 effective April 1, 1996 ("Walker Employment Agreement").
Effective January 15, 1998, the Walker Employment Agreement was terminated and
the Management Services Agreement with SSG was amended to provide that the
Company will reimburse SSG for a portion of Mr. Walker's salary and bonus, if
any, thus reducing that portion paid directly by the Company to Mr. Walker to
$0.
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
There are no employment agreements deemed to have an anti-takeover effect.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Personnel Committee, which is presently comprised of
Messrs. Brown, Bunger and Farnum, (i) makes recommendations to the full Board
concerning remuneration arrangements for executive management; (ii) administers
the Company's 1994 Stock Compensation Program; and (iii) makes such reports and
recommendations, from time to time, to the Board of Directors upon such matters
as the committee may deem appropriate or as may be requested by the Board.
Geoffrey P. Jurick serves as Chairman of the Board and Chief Executive
Officer of the Company and SSG. John P. Walker serves as Executive Vice
President and Chief Financial Officer of the Company and as President, Chief
Operating Officer, Chief Financial Officer and Director of SSG. Mr. Bunger, who
is a Director of the Company and SSG, serves on the Compensation Committees of
the Company and SSG. Geoffrey Jurick was also a member of the Company's Board
of Directors during Fiscal 1999 and participated in deliberations concerning
executive officer compensation.
REPORT OF COMPENSATION AND PERSONNEL COMMITTEE
The Compensation and Personnel Committee of the Board of Directors (the
"Compensation Committee"), which contains three non-employee Director,
oversees the Company's executive compensation strategy. The strategy is
implemented through policies designed to support the achievement of the
Company's business objectives and the enhancement of stockholder value. The
Compensation Committee reviews, on an ongoing basis, all aspects of executive
compensation.
The Compensation Committee's executive compensation policies support the
following objectives:
-The reinforcement of management's concern for enhancing stockholder value.
-The attraction and retention of qualified executives.
-The provision of competitive compensation opportunities for exceptional
performance.
The basic elements of the Company's executive compensation strategy are:
BASE SALARY. Base salaries for the executive managers of the
Company represent compensation for the performance of defined functions
and assumption of defined responsibilities. The Compensation
Committee reviews each executive's base salary on an annual basis.
In determining salary adjustments, the Compensation Committee
considers the Company's growth in earnings and revenues and
the executive's performance level, as well as other factors
relating to the executive's specific responsibilities. Also considered are
the executive's position, experience, skills, potential for advancement,
responsibility, and current salary in relation to the expected level of pay
for the position. The Compensation Committee exercises its judgment based
upon the above criteria and does not apply a specific formula or assign a
weight to each factor considered.
ANNUAL INCENTIVE COMPENSATION. At the beginning of
each year, the Board of Directors establishes performance
goals of the Company for that year, which may include target increases in
sales, net income and earnings per share, as well as more subjective goals
with respect to marketing, product introduction and expansion of customer
base.
LONG-TERM INCENTIVE COMPENSATION. The Company's long-term
incentive compensation for management and employees consists of
the 1994 Stock Compensation Program.
The Compensation Committee views the granting of stock options as a
significant method of aligning management's long-term interests with those of
the stockholders. The Compensation Committee determines awards to executives
based on its evaluation of criteria that include responsibilities, compensation,
past and expected contributions to the achievement of the Company's long-term
performance goals. Stock options are designed to focus executives on the long-
term performance of the Company by enabling executives to share in any increases
in value of the Company's stock.
The Compensation Committee encourages executives, individually and
collectively, to maintain a long-term ownership position in the Company's stock.
The Compensation Committee believes this ownership, combined with a significant
performance-based incentive compensation opportunity, forges a strong linkage
between the Company's executives and its stockholders.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Geoffrey P. Jurick is the Chief Executive Officer, Chairman of the
Board of Directors and President of the Company. The Compensation Committee
considered the Company's results in all aspects of its business, and the terms
of his employment agreement with the Company, in its review of Mr. Jurick's
performance during Fiscal 1999.
Mr. Jurick's annual compensation, comprised of annual base salary of
$411,600, is consistent with the Committee's targeted annual compensation level
and with the limitations established by the Settlement Agreement (See "Item 13.
- - Certain Relationships and Related Transactions - Certain Outstanding Common
Stock"). Mr. Jurick reduced his salary by $80,000 in Fiscal 1998 as a result of
SSG paying Mr. Jurick directly (See "Item 13. - Certain Relationships and
Related Transactions - Management Services Agreement"). The terms and
conditions of Mr. Jurick's employment agreement are discussed in detail
beginning on page 27 (See "Item 11. - Executive Compensation and Other
Information - Certain Employment Contracts").
POLICY ON QUALIFYING COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), for tax years beginning on or after January 1, 1994, provides that
public companies may not deduct in any year compensation in excess of $1 million
paid to any of the individuals named in the Summary Compensation Table that is
not, among other requirements, "performance based," as defined in Section
162(m). None of the named individuals received compensation in excess of $1
million during Fiscal 1999, 1998 or 1997. The Company's policy is to qualify, to
the extent reasonable, its executive officers' compensation for deductibility
under applicable tax laws. However, the Board of Directors believes that its
primary responsibility is to provide a compensation program that will attract,
retain and reward the executive talent necessary to the Company's success.
Consequently, the Board of Directors recognizes that the loss of a tax deduction
could be necessary in some circumstances.
COMPENSATION AND PERSONNEL COMMITTEE
Robert H. Brown, Jr., Chairman
Peter G. Bunger
Jerome H. Farnum
BOARD OF DIRECTORS AND COMMITTEES
The business of the Company is managed under the direction of the Board of
Directors. The Board meets during the Company's fiscal year to review
significant developments affecting the Company and to act on matters requiring
Board approval. The Board of Directors held six formal meetings and acted by
unanimous written consent five times during the fiscal year ended April 2, 1999.
During Fiscal 1999, each member of the Board participated in at least 75% of all
Board meetings and at least 50% of all committee meetings held during the period
for which he served as a Director and/or committee member.
During Fiscal 1999, the Board of Directors had an Audit Committee a
Compensation and Personnel Committee an Executive Committee and a Special
Committee to devote attention to specific subjects and to assist the Board in
the discharge of its responsibilities. The functions of these committees and
their current members are described below.
AUDIT COMMITTEE. The Company's Audit Committee is presently comprised of
Messrs. Farnum (Chairman), Brown and Goodman. The Audit Committee recommends to
the Board of Directors the appointment of a firm of certified public accountants
to conduct audits of the Company's consolidated financial statements and
monitors the performance of such firm, reviews accounting objectives and
procedures of the Company and the findings and reports of the independent
certified public accountants, and makes such reports and recommendations to the
Board of Directors as it deems appropriate. During Fiscal 1999, the Audit
Committee met two times.
COMPENSATION AND PERSONNEL COMMITTEE. The Compensation and Personnel
Committee, which is presently comprised of Messrs. Brown (Chairman), Bunger and
Farnum (i) makes recommendations to the full Board concerning remuneration
arrangements for executive management; (ii) administers the Company's 1994 Stock
Compensation Program; and (iii) makes such reports and recommendations, from
time to time, to the Board of Directors upon such matters as the committee may
deem appropriate or as may be requested by the Board. During Fiscal 1999, the
Compensation Committee met two times. See "Item 11. - Executive Compensation and
Other Information--Report of Compensation and Personnel Committee".
EXECUTIVE COMMITTEE. The Executive Committee is presently comprised by
Messrs. Brown, Bunger, Farnum and Jurick. Mr. Goodman is an alternate member of
the Committee. Subject to the provisions of the Company's By-Laws, the
Executive Committee has all of the power and authority of the full Board of
Directors except the following; 1.) declare or pay dividends; 2.) make, alter or
repeal any By-Law of the Company; 3.) elect, appoint or remove any Directors;
4.) submit to shareholders any action that requires shareholder approval; 5.)
amend or repeal any resolution adopted by the Board; and 6.) take any material
action affecting the Company's operations including, but not limited to,
approval of mergers and acquisitions, purchase or disposal of major Company
assets, etc. During Fiscal 1999, the Executive Committee met one time.
SPECIAL COMMITTEE. The Special Committee, presently comprised of Messrs.
Brown and Goodman, was formed as part of the Settlement Agreement with the
Creditors to evaluate any offer to purchase the Emerson Shares which would
result in a Change of Control of the Company as defined in the Senior Secured
Credit Facility and the Indenture. During Fiscal 1999, the Committee did not
meet. See Part I, Item 3, Legal Proceedings-Certain Outstanding Common Stock.
The Board of Directors did not have a standing nominating committee, or any
other committee performing similar functions during Fiscal 1999. The functions
customarily attributable to a nominating committee were performed by the Board
of Directors as a whole.
COMPENSATION OF DIRECTORS
Directors of the Company who are employees do not receive compensation for
serving on the Board. Non-employee Directors are paid $10,000 per annum in
quarterly installments. Non-employee Directors that are on the Compensation and
Personnel Committee are paid $5,000 per annum; Directors of the Executive
Committee are paid $5,000 per annum; Directors of the Audit Committee are $7,500
per annum; and Special Committee Directors are paid $2,500 per annum.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 7, 1999, the beneficial
ownership of (i) each current Director; (ii) each Officer named in the Summary
Compensation Table; (iii) the Directors and Executive Officers as a group and
(iv) each stockholder known to management of the Company to own beneficially
more than 5% of the Company's outstanding shares of Common Stock.
For purposes of this Form 10-K, beneficial ownership of securities is
defined in accordance with the rules of the Securities and Exchange Commission
("SEC") and means generally that the power to vote or exercise investment
discretion with respect to securities regardless of any economic interests
therein. Except as otherwise indicated and based upon the Company's review of
information as filed with the SEC, the Company believes that the beneficial
owners of the securities listed below have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
Name and Address Of
Beneficial Amount and Nature
Owners of Beneficial Ownership (1) Percent of Class
Geoffrey P. Jurick (2)(3) 29,752,642 60.9%
Fidenas International 29,152,542 59.6%
Limited, L. L. C.
831 Route 10
Suite 38, #113
Whippany, NJ 07981 (2)
Oaktree Capital Management 3,483,135 7.1%
550 South Hope St., 22nd Fl
Los Angeles, CA 90071 (7)
Robert H. Brown, Jr. (4) 50,000 *
Peter G. Bunger (4) 25,000 *
Jerome H. Farnum (4) 25,000 *
John P. Walker (5) 200,000 *
Marino Andriani (5) 75,000 *
John J. Raab (5) 50,000 *
Elizabeth J. Calianese (5) 20,000 *
All Directors and Officers 30,197,642 61.8%
as a Group ((8) persons)(6)
_________________
(*) Less than one percent
(1) Based on 47,828,215 shares of Common Stock outstanding as of June 23, 1999,
plus shares of Common Stock under option of any Director or executive
officer, exercisable within 60 days. Except as otherwise indicated, does
not include (i) shares of Common Stock issuable upon conversion of 3,714
shares of Series A Preferred Stock, (ii) Common Stock issuable upon
conversion of certain warrants issued to the Company's former creditors,
(iii) Common Stock issuable upon exercise of outstanding options, which are
not currently exercisable within 60 days, (iv) Common Stock issuable upon
conversion of the Company's 8-1/2% Senior Subordinated Convertible
Debentures Due 2002 (the "Debentures"), or (v) Common Stock issuable upon
the exercise of warrants granted to (a) Dresdner Securities (USA) Inc., or
(b) First Cambridge Securities Corporation ("First Cambridge"), and/or
representatives of First Cambridge it so designates or its beneficiaries.
(2) Consists of 15,552,542, 1,600,000 and 12,000,000 shares of Common Stock
which were held by FIN, Elision, and GSE, respectively. FIN is record
holder of an additional 847,458 shares of Common Stock and formerly held
such shares as nominee. The nominee relationship has been terminated and
FIN and Mr. Jurick disclaim beneficial ownership of such additional shares.
Mr. Jurick indirectly owns, through a controlled holding company
approximately 95% of FIN. In addition, Mr. Jurick is the manager of FIN.
FIN owns approximately 14.3% of Elision. Mr. Jurick indirectly owns,
through certain holding companies and beneficial interests in affiliates, a
controlling interest in each of GSE and Elision. In accordance with a
Stipulation and Order of Settlement, dated June 11, 1996 (the
"Stipulation"), the shares of Common Stock held by Elision and GSE were
transferred and registered in the name of FIN. All of the shares owned by
FIN, GSE and Elision are subject to certain restrictions. See "Item 13. -
Certain Relationships and Related Transactions - Certain Outstanding Common
Stock".
(3) Includes options to purchase 600,000 shares of Common Stock.
(4) Comprised of options issued pursuant to the Company's 1994 Non-Employee
Director Stock Option Plan. See "Security Ownership of Certain Beneficial
Owners and Management--Compensation of Directors."
(5) In July 1994, the Company granted stock options to purchase 200,000 shares
of Common Stock to Mr. Walker exercisable at an exercise price of $1 per
share. In November 1995, Mr. Raab was granted stock options to purchase
50,000 shares of Common Stock at an exercise price of $2.875 per share.
In April 1996, Mr. Andriani was granted stock options to purchase 75,000
shares of Common Stock at an exercise price of $2.563 per share and in
October 1996, Ms. Calianese was granted stock options to purchase 30,000
shares of Common Stock at an exercise price of $2.25 per share.
In May 1998, the options granted to Mr. Raab and Mr. Andriani
were repriced to $1.00 per share. In May 1997, the options granted to
Ms. Calianese were repriced to $1.00 per share. The options vest in annual
increments of one-third, commencing one year from the date of grant, and
their exercise is contingent on continued employment with the Company.
(6) Includes 1,045,000 shares of Common Stock subject to unexercised stock
options which were exercisable within 60 days under the Company's Stock
Compensation Program. Does not include options to purchase an aggregate of
10,000 shares of Common Stock not currently exercisable within 60 days.
(7) Based on information set forth in Schedule 13D, dated May 22, 1998, filed
with the SEC by Oaktree Capital Management LLC, ("Oaktree"),
Kenneth Grossman and OCM Principal Opportunities Fund, L. P. as
amended by Amendment No. 1, dated December 15, 1998 and
Amendment No. 2, dated February 10, 1999. Consists of common
shares issuable upon conversion of the owner's holdings of the Company's
Debentures if such holdings were converted into shares of the Company's
Common Stock. The percentage of beneficial ownership assumes that the
common shares that would be issued upon conversion are outstanding.
COMPARISON OF CUMULATIVE TOTAL RETURN
PERFORMANCE GRAPH
The graph below compares the cumulative total stockholders' return on the
Company's Common Stock for the period December 22, 1994 (the date on which the
Company's Common Stock began trading on the American Stock Exchange) to April 2,
1999, with the cumulative total return over the same period of the American
Stock Exchange and a peer group of companies. Companies used to construct the
peer group index are Cobra Electronics Corp., Matsushita Electric Industrial Co.
Ltd., Recoton Corp. and Sony Corp. Philips Electronics NV and Zenith
Electronics Corp. were deleted from the peer group because their stocks were no
longer traded. Recoton Corp. was added to the peer group. In selecting
companies to be part of the peer group, the Company focuses on publicly traded
companies that design electronic products, which have characteristics similar to
the Company's in terms of one or more of the following: type of product,
distribution channels, sourcing or sales volume. The peer group assumes the
investment of $100 in the Company's Common Stock, on December 22, 1994 and
reinvestment of all dividends. The information in the graph was provided by
Media General Financial Services ("MGFS"). The comparison of the returns are as
follows:
COMPARISON OF CUMULATIVE TOTAL RETURN OF
EMERSON RADIO CORP., PEER GROUP INDEX
AND BROAD MARKET INDEX
FISCAL YEAR ENDING
COMPANY/INDEX/MARKET 1994 1995 1996 1997 1998 1999
Emerson Radio Corp. 100 135.14 110.81 45.95 18.92 35.14
Peer Group Index 100 95.11 106.39 108.68 122.39 141.70
NASDAQ Market Index 100 102.95 138.47 154.92 234.12 305.95
The Customer Selected Stock List is made up of the following securities:
COBRA ELECTRONICS CORP.
MATSUSHITA ELECTRIC INDUSTRIES CO.
RECOTON CORP.
SONY CORP.
The stock price performance depicted in the above graph is not necessarily
indicative of future price performance. The Corporate Performance Graph will
not be deemed to be incorporated by reference in any filing by the Company under
the Securities Act or the Exchange Act except to the extent that the Company
specifically incorporates the graph by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SPORT SUPPLY GROUP, INC.
On August 1, 1996, the Company and Emerson Radio (Hong Kong) LTD. ("Emerson
HK"), filed a Schedule 13D with the SEC. Pursuant to the Schedule 13D, Emerson
HK reported that it acquired 669,500 shares of SSG's Common Stock (the "Initial
Shares").
On December 10, 1996, the Company acquired directly from SSG (i) an
additional 1,600,000 shares of newly-issued SSG Common Stock (the "New Shares")
for an aggregate consideration of $11,500,000, or approximately $7.19 per share,
and (ii) 5-year warrants to acquire an additional 1,000,000 shares of SSG
Common Stock at an exercise price of $7.50 per share, subject to standard anti-
dilution adjustments (the "Emerson Warrants") for an aggregate consideration of
$500,000 ("Emerson Agreement").
Prior to the exercise of any of the Emerson Warrants, the Company and
Emerson HK own approximately 31% of the issued and outstanding shares of SSG
Common Stock. If all of the Emerson Warrants are exercised by the Company, the
Company will own approximately 39% of the issued and outstanding shares of SSG
Common Stock.
Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement"), SSG granted to the Company and Emerson HK certain demand and
incidental registration rights with respect to the resale of the shares of SSG
Common Stock they own, as well as on the exercise and resale of the shares of
SSG Common Stock the Company may acquire under the Warrant Agreement governing
the Emerson Warrants.
The total consideration paid by the Company pursuant to the Emerson
Agreement was $12 million, of which $11,500,000 was attributable to the
1,600,000 New Shares and $500,000 was attributable to the Emerson Warrants. The
$12,000,000 purchase price was borrowed by the Company from Congress Financial
Corporation ("Congress"), the Company's United States senior secured lender,
under the terms of the Company's existing credit facility and in accordance with
the terms of the consent obtained from Congress. Pursuant to a Pledge and
Security Agreement as amended, the Company has pledged to Congress 500,000 of
the New Shares together with all proceeds thereof and all dividends and other
income and distributions thereon or with respect thereto and all rights of the
Company to have such New Shares registered under the Registration Rights
Agreement.
Pursuant to the Emerson Agreement, SSG also caused a majority of the
members of its Board of Directors to consist of the Company's designees. SSG's
Board of Directors now includes the following people that are associated with
the Company: Geoffrey P. Jurick, Chairman, and Chief Executive Officer of
Emerson and SSG; John P. Walker, Executive Vice President and Chief Financial
Officer of Emerson and President, Chief Operating Officer and Chief Financial
Officer of SSG; and Peter G. Bunger, a Director of both companies and member of
the Compensation Committee of each Company. Mr. Jurick has employment
agreements with the Company and SSG. Messrs. Jurick and Walker split their time
between the two companies.
MANAGEMENT SERVICES AGREEMENT
During Fiscal 1997, SSG and the Company entered into a Management Services
Agreement, which was amended in Fiscal 1998, in an effort to utilize SSG's
excess capacity and to enable the Company to reduce certain costs. The
Management Services Agreement implements a program whereby SSG performs certain
services for the Company in exchange for a fee. The services include payroll,
banking, computer/management information systems, payables processing, warehouse
services (including subleasing warehouse storage space), provision of office
space, design services and financial management services. The Management
Services Agreement may be terminated by either party upon sixty (60) days' prior
notice. Termination of the Management Services Agreement could have a material
adverse effect on the Company and its results of operations. The Company was
billed $636,000, $272,000 and $3,000 for services provided with respect to the
above mentioned agreement during Fiscal 1999, 1998 and 1997 respectively.
Effective October 18, 1997, SSG began paying Mr. Jurick directly for his
services. Effective January 15, 1998, the Company began reimbursing SSG for
base salary and bonus paid to Mr. Walker for the Company's benefit in lieu of
paying Mr. Walker directly. The Company billed SSG approximately $135,000 and
$47,000 towards Mr. Jurick's salary during Fiscal 1998 and 1997, respectively.
CERTAIN OUTSTANDING COMMON STOCK
For information on this matter, reference is made to "Part I - Item 3. -
Legal Proceedings".
FUTURE TRANSACTIONS AND LOANS
The Company has adopted a policy that all future affiliated transactions
and loans will be made or entered into on terms no less favorable to the Company
than those that can be obtained from unaffiliated third parties. In addition,
all future affiliated transactions and loans, and any forgiveness of loans, must
be approved by a majority of the independent outside members of the Company's
Board of Directors who do not have an interest in the transactions.
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)") requires the Company's Officers and Directors, and persons who own more
than 10% of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the SEC and the American
Stock Exchange. Officers, Directors and greater than 10% stockholders are
required by certain regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that, during the year ended April 2, 1999, its Officers,
Directors and greater than 10% beneficial owners have complied with all
applicable filing requirements with respect to the Company's equity securities.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) Financial Statements
and Schedule:Page No.
Report of Independent Auditors F- 127
Consolidated Statements of Operations for the years ended
March 31, 2001, March 31, 2000, and April 2, 1999 April 3, 1998 and March 31, 1997 F- 228
Consolidated Balance Sheets as of April 2, 1999March 31, 2001 and April 3, 1998 F- 32000 29
Consolidated Statements of Changes in Shareholders' Equity
for the years ended April 2, 1999, April 3, 1998
and March 31, 1997 F- 42001, March 31, 2000,
and April 2,1999 30
Consolidated Statements of Cash Flows for the years ended
March 31, 2001, March 31, 2000, and April 2, 1999 April 3, 1998 and
March 31 1997 F- 5
Notes to Consolidated Financial Statements F- 632
Schedule VIII-Valuation and Qualifying Accounts and Reserves F- 26
ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED
INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
(b) Reports on Form 8-K: Current report on Form 8-K dated
January 5, 1999, reporting a proposal for61
All other schedules are omitted because they are not
applicable or the acquisition
of a majority interestrequired information is shown in the
Company's common stock by
Oaktree Capital Management, LLC.
(c) Exhibits
(2) Confirmation Order and Fourth Amended Joint Plan of Reorganization of
Emerson Radio Corp. ("Old Emerson") and certain subsidiaries under
Chapter 11 of the United States Bankruptcy Code, dated March 31, 1994
(incorporated by reference to Exhibit (2) of Emerson's Registration
Statement on Form S-1, Registration No. 33-53621, declared effective
by the Securities and Exchange Commission ("SEC") on August 9, 1994).
(3) (a) Certificate of Incorporation of Emerson (incorporated by reference to
Exhibit (3) (a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (b) Certificate of Designation for Series A Preferred Stock (incorporated
by reference to Exhibit (3) (b) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and between Old
Emerson and Emerson Radio (Delaware) Corp. (incorporated by reference
to Exhibit (3) (c) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (d) Certificate of Merger of Old Emerson with and into Emerson Radio
(Delaware) Corp. (incorporated by reference to Exhibit (3) (d) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(3) (e) Amendment dated February 14, 1996 to the Certificate of Incorporation
of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(3) (f) By-Laws of Emerson adopted March 1994 (incorporated by reference to
Exhibit (3) (e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
(3) (g) Amendment dated November 28, 1995 to the By-Laws of Emerson adopted
March 1994 (incorporated by reference to Exhibit (3) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares of Common Stock, dated as
of March 31, 1994 (incorporated by reference to Exhibit (4) (a) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(4) (b) Indenture, dated as of August 17, 1995 between Emerson and Bank One,
Columbus, NA, as Trustee (incorporated by reference to Exhibit (1) of
Emerson's Current Report on Form 8-K filed with the SEC on September
8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase 50,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Michael
Metter (incorporated by reference to Exhibit (10) (e) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (d) Common Stock Purchase Warrant Agreement to purchase 200,000 shares of
Common Stock, dated as of December 8, 1995 between Emerson and Kenneth
A. Orr (incorporated by reference to Exhibit (10) (f) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (a) Form of Promissory Note issued to certain Pre-Petition Creditors
(incorporated by reference to Exhibit (10) (e) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(10) (b) Loan and Security Agreement, dated March 31, 1994, by and among
Emerson, Majexco Imports, Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to Exhibit (10) (f) of
Emerson's Registration Statement on Form S-1, Registration No. 33-
53621, declared effective by the SEC on August 9, 1994).
(10) (c) Amendment No. 1 to Financing Agreements, dated as of August 24, 1995,
among Emerson, Majexco Imports, Inc. and Congress (incorporated by
reference to Exhibit (2) of Emerson's Current Report on Form 8-K filed
with the SEC on September 8, 1995).
(10) (d) Amendment No. 2 to Financing Agreements, dated as of February 13, 1996
(incorporated by reference to Exhibit (10) (c) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
(10) (e) Amendment No. 3 to Financing Agreements, dated as of August 20, 1996
(incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
(10) (f) Amendment No. 4 to Financing Agreements, dated as of
November 14, 1996 (incorporated by reference to
Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996).
(10) (g) Amendment No. 5 to Financing Agreements, dated as of February 18, 1997
(incorporated by reference to Exhibit (10) (e) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996).
(10) (h) Stipulation of Settlement and Order dated June 11, 1996 by and among
the Official Liquidator of Fidenas International Bank Limited, Petra
Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas
Investment Limited, Geoffrey P. Jurick, Fidenas International Limited,
L.L.C., Elision International, Inc., GSE Multimedia Technologies
Corporation and Emerson. (incorporated by reference to Exhibit 10(ae)
of Emerson's Annual Report on Form 10-K for the year ended March 31,
1996.)
(10) (i) Pledge Agreement dated as of February 4, 1997 by Fidenas International
Limited, L.L.C. ("FIN") in favor of TM Capital Corp. (incorporated by
reference to Exhibit (10) (a) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1996).
(10) (j) Registration Rights Agreement dated as of February 4, 1997 by and
among Emerson, FIN, the Creditors, FIL and TM Capital Corp.
(incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996).
(10) (k) License and Exclusive Distribution Agreement with Cargil International
Corp. dated as of February 12, 1997 (incorporated by reference to
Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996).
(10) (l) Agreement dated April 10, 1997 between Emerson and Daewoo Electronics
Co., Ltd. (incorporated by reference to Exhibit (ak) of Emerson's
Annual Report on Form 10-K for the year ended March 31, 1997).
(10) (m) Securities Purchase Agreement dated as of November 27, 1996, by and
between Sport Supply Group, Inc. ("SSG") and Emerson (incorporated by
reference to Exhibit (2)(a) of Emerson's Current Report on Form 8-K
dated November 27, 1996).
(10) (n) Form of Warrant Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(a) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (o) Form of Registration Rights Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(b) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (p) Consent No. 1 to Financing Agreements among Emerson, certain of its
subsidiaries, and Congress (incorporated by reference to Exhibit
(10)(b) of Emerson's Current Report on Form 8-K dated November 27,
1996).
(10) (q) Form of Termination of Employment Agreement between Emerson and John
Walker dated as of January 15, 1998. (incorporated by reference to
Exhibit (10) (q) of Emerson's Annual Report on Form 10-K for the year
ended April 3, 1998).
(10) (r) License Agreement dated as of March 30, 1998 by and between Tel-Sound
Electronics, Inc. and Emerson. (incorporated by reference to Exhibit
(10) (s) of Emerson's Annual Report on Form 10-K for the year ended
April 3, 1998).
(10) (s) License Agreement dated as of March 31, 1998 by and between WW
Mexicana, S. A. de C. V. and Emerson. (incorporated by reference to
Exhibit (10) (s) of Emerson's Annual Report on Form 10-K for the year
ended April 3, 1998).
(10) (t) Amendment No. 6 to Financing Agreements, dated as of August 14,
1997 (incorporated by reference to Exhibit (10 (g) of Emerson's
Quarterly Report on Form 10-Q for quarter ended September 30, 1997.
(10) (u) Amendment No. 7 to Financing Agreements, dated as of March 31, 1998.
(incorporated by reference to Exhibit (10) (t) of Emerson's Annual
Report on Form 10-K for the year ended April 3, 1998).
(10) (v) Amendment No. 1 to Pledge and Security Agreement dated as of March 31,
1998. (incorporated by reference to Exhibit (10) (u) of Emerson's
Annual Report on Form 10-K for the year ended April 3, 1998).
(10) (w) Second Lease Modification dated as of May 15, 1998 between Hartz
Mountain, Parsippany and Emerson. (incorporated by reference to
Exhibit (10) (v) of Emerson's Annual Report on Form 10-K for the year
ended April 3, 1998).
(10) (x) Amendment No. 8 to Financing Agreements, dated as of November 13,
1998. (incorporated by reference to Exhibit (10) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended October 2, 1998).
(10) (y) Third Lease Modification made the 26 day of October, 1998 between
Hartz Mountain Parsippany and Emerson. (incorporated by reference to
Exhibit (10) (b) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended October 2, 1998).
(10) (z) Purchasing Agreement, dated June 30, 1998, between AFG-Elektronik GmbH
and Emerson Radio International Ltd. (incorporated by reference to
Exhibit (10) (c) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended October 2, 1998).
(10) (aa) Purchasing Agreement, dated March 5, 1999, between AFG-Elektronik GmbH
and Emerson Radio International Ltd.*
(10) (ab) Amendment No. 9 to Financing Agreements, dated June 16, 1999.*
(12) Computation of Ratio of Earnings (Loss) to Combined Fixed Charges and
Preferred Stock Dividends. *
(21) Subsidiaries of the Company as of April 2, 1999.*
(23) Consent of Independent Auditors.*
(27) Financial Data Schedule for the fiscal year ended April 2, 1999.*
___________________
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13financial statements or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board
Dated: June 24, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Geoffrey P. Jurick Chairman of the June 24, 1999
Geoffrey P. Jurick Board, Chief Executive
Officer and President
/s/ John P. Walker Executive Vice June 24, 1999
John P. Walker President, Chief
Financial Officer
/s/ Robert H. Brown, Jr. Director June 24, 1999
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director June 24, 1999
Peter G. Bunger
/s/ Jerome H. Farnum Director June 24, 1999
Jerome H. Farnum
/s/ Stephen H. Goodman Director June 24, 1999
Stephen H. Goodmannotes thereto.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of Emerson Radio Corp.
We have audited the accompanying consolidated balance sheets of
Emerson Radio Corp. and Subsidiaries as of April 2, 1999March 31, 2001 and April 3, 1998,March 31, 2000,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended April 2, 1999.March 31, 2001. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a)(1). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted auditing
standards.in the United States. Those standards require that we plan
and perform the audits to obtain reasonable assurance aboutregarding whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Emerson Radio Corp. and Subsidiaries at April 2, 1999March 31, 2001 and April 3, 1998,March 31,
2000, and the consolidated results of its operations and cash flows for each of
the three years in the period ended April 2, 1999,March 31, 2001, in conformity with
accounting principles generally accepted accounting principles.in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
May 28, 1999June 11, 2001
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended March 31, 2001, March 31, 2000, and April 2, 1999 April 3, 1998 and March 31, 1997
(In thousands, except per share data)
2001 2000 1999
1998 1997----------------- ------------------ ----------------
NET REVENUES $158,730 $162,730 $178,708Net revenues $ 377,410 $ 203,701 $ 160,554
Costs and expenses:
Cost of sales 138,502 142,372 174,184306,101 176,870 140,326
Other operating costs and expenses 4,318 4,501 4,007 4,351 3,079
Selling, general and administrative expenses 53,498 16,996 12,943
15,483 18,716
Restructuring and other charges -- -- 2,972
155,452 162,206 198,951
OPERATING INCOME (LOSS)----------------- ------------------ ----------------
363,917 198,367 157,276
----------------- ------------------ ----------------
Operating income 13,493 5,334 3,278 524 (20,243)
Equity in earnings (loss) of Affiliateaffiliate -- 277 1,499
1,524 (66)
Write-down ofOther investment in and advances
to Joint Venture (900) (714)losses -- Loss on marketable securities (1,109) -- --(284) (2,009)
Interest expense, net (4,068) (2,284) (2,272)
(2,510) (3,429)
INCOME (LOSS) BEFORE INCOME
TAXESMinority interest in net loss of consolidated
subsidiary 2,284 -- --
----------------- ------------------ ----------------
Income before income taxes 11,709 3,043 496
(1,176) (23,738)
Provision (benefit) for income taxes (944) (577) 207
254 230
NET INCOME (LOSS)----------------- ------------------ ----------------
Net income $ 12,653 $ 3,620 $ 289
$(1,430) $(23,968)
NET LOSS PER COMMON SHARE================= ================== ================
Net income (loss) per common share
Basic $ (.01).36 $ (.04).07 $ (.61)( .01)
Diluted (.01) (.04) (.61)
WEIGHTED AVERAGE SHARES OUTSTANDING.33 .07 ( .01)
Weighted average shares outstanding
Basic 35,066 47,632 49,398
45,167 40,292
Diluted 38,569 53,508 49,398 45,167 40,292
The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of April 2, 1999March 31, 2001 and April 3, 19982000
(In thousands, except share data)
1999 1998
ASSETS 2001 2000
----------------- ---------------
Current Assets:
Cash and cash equivalents $ 3,1007,987 $ 1,608
Available for sale securities (net of fair
value adjustment of $1,298) 738 --8,539
Accounts receivable (less allowances of
$3,907$4,498 and $4,384,$3,977, respectively) 5,143 7,28026,552 10,271
Other receivables 6,782 6,474781 4,027
Inventories 11,608 11,75944,477 14,384
Prepaid expenses and other current assets 2,839 2,379
TOTAL CURRENT ASSETS 30,210 29,5003,611 2,690
Deferred tax assets 1,419 --
----------------- ---------------
Total current assets 84,827 39,911
Property, plant, and equipment (net of accumulated
depreciation of $2,777 and $3,152, respectively) 1,211 1,38112,718 1,034
Deferred catalog expenses 2,437 --
Investment in Affiliatesaffiliate -- 20,133
Goodwill and Joint Venture 19,525 19,076other intangible assets 13,388 1,177
Deferred tax assets 4,081 --
Other assets 3,449 4,8101,555 1,256
----------------- ---------------
Total Assets $54,395 $54,767$ 119,006 $ 63,511
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payableShort-term borrowings $ 2,2165,094 $ --2,914
Current maturities of long-term debt 50 85borrowings 139 97
Accounts payable and other current liabilities 16,759 15,10334,703 22,014
Accrued sales returns 3,926 4,5114,913 4,897
Income taxes payable 400 191
TOTAL CURRENT LIABILITIES 23,351 19,890481 135
----------------- ---------------
Total current liabilities 45,330 30,057
Long-term debt, less current maturities
20,750 20,750
Other non-current liabilities 97 179borrowings 38,257 20,891
Minority interest 20,288 --
Shareholders' Equity:
Preferred shares --- 10,000,000 shares authorized; 3,714 and 5,2373,677
shares issued and outstanding, respectively 3,343 4,7133,310 3,310
Common shares -- $.01 par value, 75,000,000 shares authorized;
51,475,511 and 51,331,615 shares issued; 31,343,978 and 51,044,730
shares issued, 47,828,215 and 51,044,73046,477,615
shares outstanding, respectively 515 513 510
Capital in excess of par value 113,288 113,201
Cumulative translation adjustment (78) 197113,459 113,289
Accumulated other comprehensive losses (118) (76)
Accumulated deficit (104,962) (104,673)(88,843) ( 101,445)
Treasury stock, at cost, 3,503,40020,131,533 and 4,854,000 shares, (1,907) --
TOTAL SHAREHOLDERS' EQUITY
10,197 13,948respectively (13,192) (3,028)
----------------- ---------------
Total shareholders' equity 15,131 12,563
----------------- ---------------
Total Liabilities and Shareholders' Equity $54,395 $ 54,767
119,006 $ 63,511
================= ===============
The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For The Years Ended March 31, 2001, March 31, 2000 and April 2, 1999 April 3, 1998 and March 31, 1997
(In thousands, except share data)
ComonAccumulated Unrealized
Common Shares Issued Capital Other Loss Total
Preferred Number Par Treasury In excess of Comprehensive Accumulated Shareholders
Stock of Shares Value Stock Par Value Losses Deficit Equity
--------- ----------- ------- -------- ------------ ------------ ------------ ------------
Balance-March 31, 1996 $ 9,000 40,252,772 $ 403 $ --
Issuance of common stock
warrants
Exercise of stock options
and warrants 82,870
Preffered stock dividends
declared
Other
Comprehensive loss:
Net loss for the year
Currency translation
adjustment
Comprehensive loss
Balance-March 31, 1997 9,000 40,335,642 403
Issuance of common stock
upon conversion of
preferred stock (4,287) 10,709,088 107
Cancellation of common
stock warrants
Preferred stock dividends
declared
Comprehensive loss:
Net loss for the year
Currency translation
adjustment
Comprehensive loss
Balance-April 3, 1998 $ 4,713 51,044,730 $ 510 $ -- $ 113,201 $ 197 $ (104,673) $ 13,948
Issuance of common stock
upon conversion of
preferred stock (90) 286,885 3 87
Purchase of treasury stock
(1,907) (1,907)
Purchase of preferred stock (1,280)
Preferred stock dividends
declared
Comprehensive income:
Net income for the year
Currency translation
adjustment
Comprehensive income
Balance-April 2, 1999 $3,343 51,331,615 $513 $ (1,907)
[TABLE CONTINUED FROM ABOVE]
Capital Total
In Cumulative Accumu- Share
excess of Translation lated holders
Par Value Adjustment Deficit Equity
Balance-March 31, 1996 $108,991 $ 163 $ (78,175) $ 40,382
Issuance of common stock
warrants 257 257
Exercise of stock options
and warrants 40 40
Preferred stock dividends
declared (700) (700)
Other (10) (10)
Comprehensive loss:
Net loss for the year (23,968) (23,968)
Currency translation
adjustment 28 28
Comprehensive loss (23,968)
Balance-March 31, 1997 109,278 191 (102,843) 16,029
Issuance of common stock
upon conversion of
preferred stock 4,180 --
Cancellation of common
stock warrants (257) (257)
Preferred stock dividends
declared (400) (400)
Comprehensive loss:
Net loss for the year (1,430) (1,430)
Currency translation
adjustment 6 6
Comprehensive loss (1,424)
Balance-April 3, 1998 113,201 197 (104,673) 13,948
Issuance of common stock
upon conversion of
preferred stock 87 --
Purchase of treasury stock (1,907)
Purchase of preferred stock (407) (1,687)
Preferred stock dividends
declaredDeclared (171) (171)
Comprehensive income:
Net income for the year 289 289
Currency translation
adjustment (275) (275)
---------
Comprehensive income 14
Balance-April--------- ---------- ----- ----------- --------- ---------- --------- ---------
Balance - April 2, 1999 $113,2883,343 51,331,615 513 (1,907) 113,288 (78) (104,962) 10,197
Purchase of treasury stock
(1,121) (1,121)
Purchase of preferred stock (33) 1 (32)
Preferred stock dividends
Declared
(103) (103)
Comprehensive income:
Net income for the year 3,620 3,620
Currency translation
adjustment 2 2
-------
Comprehensive income 3,622
--------- ---------- ----- ----------- -------- ---------- ---------- ---------
Balance - March 31, 2000 3,310 51,331,615 513 (3,028) 113,289 (76) (101,445) 12,563
Purchase of treasury stock (10,164) (10,164)
Exercise of stock options
and warrants 143,896 2 170 172
Preferred stock dividends
Declared ( 51) ( 51)
Comprehensive income:
Net income for the year 12,653 12,653
Currency translation adjustment (5) (5)
Unrealized loss
(37) (37)
Comprehensive income --------
12,611
--------- ---------- ------ --------- --------- -------- ---------- ----------
Balance - March 31, 2001 $ (78) $(104,962) $10,197
3,310 51,475,511 515 $(13,192) $ 113,459 $ (118) $ (88,843) $ 15,131
========= ========== ====== ========= ========= ======== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For theThe Years Ended March 31, 2001, March 31, 2000, and April 2, 1999
April 3, 1998 and March 31, 1997
(In thousands)
2001 2000 1999
1998 1997------------------ ------------------- ---------------
Cash Flows from Operating Activities:
Net income (loss)$ 12,653 $ 3,620 $ 289 $ (1,430) $(23,968)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Minority interest (2,284) -- --
Depreciation and amortization 2,729 1,306 1,245 1,759 2,844
Equity in earnings of affiliate 1,476 (277) (1,499)
(1,524) 66
Restructuring and other
nonrecurring chargesWrite-down of investment in joint venture -- 153 900
Loss on marketable securities -- 2,782149 1,298
Asset valuation and loss reserves 823 (2,378) (752)(284) 626 ( 1,375)
Other (42) 2 (275) (251) 1,048
Changes in assets and liabilities:liabilities, net of acquisition of SSG:
Accounts receivable 2,642 4,543 (981)3,966 917 160
Other receivables 3,534 2,755 (308)
(4,357) (2,117)
Inventories (9,463) (2,970) 1,021 4,505 21,328
Prepaid expenses and other current assets (74) 186 (460) (241) 6,283
Other assets 84 493 699 (71) (896)
Accounts payable and other current liabilities 900 2,739 2,149(2,876) (328) 3,382
Income taxes payable 346 (265) 209
88 (98)------------------ ------------------ ---------------
Net cash provided by operations 9,765 6,367 5,286
3,382 7,688------------------ ------------------ ---------------
Cash Flows from Investing Activities:
Investment inPurchase of SSG, net of cash acquired of $1,271 (2,378) -- --
Proceeds from (investment in) marketable securities (2,036) -- --552 (2,036)
Investment in affiliates -- (841) (91) 2,709 (5,480)
Additions to property and equipment (110) (462) (413)
(27) (255)
Redemption of certificates of depositDistributions from joint venture -- -- 100
Other213 241
-- 12------------------ ------------------ ---------------
Net cash used(used) provided by investing activities (2,488) (538) (2,299)
2,682 (5,623)------------------ ------------------ ---------------
Cash Flows from Financing Activities:
Net borrowings (repayments) under line of credit facility 2,180 698 2,216
(5,689) (15,462)
Retirement of long-term debtLong-term borrowings (retirement) (37) 47 (35) (106) (118)
Payment of dividend on preferred stock (13) (26) (407) (257) (231)
Purchase of preferred and common stock ( 10,164) (1,153) (3,187)
-- --Exercise of stock options and warrants 172
Other 33 44 (82)
(44) 253------------------ ------------------ ---------------
Net cash used by financing activities (7,829) (390) (1,495)
(6,096) (15,558)------------------ ------------------ ---------------
Net increase (decrease) in cash and cash equivalents ( 552) 5,439 1,492 (32) (13,493)
Cash and cash equivalents at beginning of year 8,539 3,100 1,608
1,640 15,133------------------ ------------------ ---------------
Cash and cash equivalents at end of year $ 7,987 $ 8,539 $ 3,100
$1,608 $1,640
================== ================== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4,102 $ 2,137 $ 2,109
================== ================== ===============
Cash paid for income taxes $ 784 $ 11 $ 32
================== ================== ===============
The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 2, 1999
NOTEMarch 31, 2001
Note 1 -- SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATIONSignificant Accounting Policies:
Background and Basis of Presentation
The consolidated financial statements include the accounts of Emerson
Radio Corp. ("Emerson", consolidated - the "Company") and its majority-owned
subsidiaries, (the "Company").including SSG. All significant intercompany transactions and
balances have been eliminated.
The Company operates in two business segments: consumer electronics
and sporting goods. The consumer electronics segment, designs, sources, imports
and markets a variety of consumer electronic products and licenses the "EMERSON"
trademark for a variety of products domestically and internationally to certain
licensees. The sporting goods segment, which is operated through Emerson's 50.1%
ownership of Sport Supply Group, Inc. ("SSG"), manufactures and markets sports
related equipment and leisure products to institutional customers in the United
States.
Prior to March 23, 2001, Emerson accounted for its investment in SSG
using the equity method of accounting. On March 23, 2001, Emerson obtained a
controlling interest in SSG and is accounting for this interest as a partial
purchase to the extent of the change in control. The assets and liabilities of
SSG have been revalued to fair value to the extent of Emerson's 50.1% interest
in SSG. The Company's 50.1% interest in the fair value of identifiable assets
acquired less liabilities assumed exceeded the Company's investment in an affiliateSSG by
$1.9 million and ownershiphas been recorded as a reduction of acquired goodwill to be
amortized using the straight-line method over 20 years. SSG's results of
operations and the minority interest related to those results have been included
in a joint venture are accounted for by
the equity method.
USE OF ESTIMATESCompany's results of operations as though it had been acquired at the
beginning of the year ended March 31, 2001.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could materially differ from those estimates.
CASH AND CASH EQUIVALENTSCertain reclassifications were made to conform prior years financial
statements to the current presentation.
Cash Equivalents
Short-term investments with original maturities of three months or
less at the time of purchase are considered to be cash equivalents.
Fair Values of Financial Instruments
The carrying amount
reported in the balance sheetamounts for cash and cash equivalents, approximates fair
value.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments have been determined by
the Company using available market information, including current interest
rates, and the following valuation methodologies:
Cash and cash equivalent andtrade accounts
receivable, --accounts payable and accrued liabilities approximate fair value due
to the carrying amounts
reported in the balance sheet for cash and cash equivalents approximate their
fair values because of the shortimmediate to short-term maturity of these financial instruments. The
carrying amountamounts of accounts receivablebank debt approximate this fair value due to their variable
rate interest features. The fair value.
Other receivables --value of the preferred stock is based on the
fair value of the common stock into which the preferred stock is estimated onconvertible.
The carrying value of the basis of discounted
cash flow analyses, using appropriate interest rates for similar instruments.
Notes payable and long-term debt -- thedebentures approximate fair value is estimated on the
basis of rates available to the Company for debt of similar maturities.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
INVESTMENTSvalue.
Investments
The Company determines the appropriate classifications of securities
at the time of purchase. The investments held by the Company at April 2, 1999March 31, 2001
and 2000 were classified as "available-for-sale." Unrealized"available-for-sale securities", and are included in
prepaid expenses and other current assets. Realized gains and losses which are
deemed to be other than temporary have been
reported separately as a component of other comprehensive income. Declines in the market value of
securities deemed to be other than temporary are included in earnings (See Note 11 - Available-
for-Sale Securities).
CONCENTRATIONS OF CREDIT RISKearnings.
Concentrations of Credit Risk
Certain financial instruments potentially subject the Company to
concentrations of credit risk. Accounts receivable for the consumer electronics
segment represent sales to retailers and distributors of consumer electronics
throughout the United States and Canada. Accounts receivable for the sporting
goods segment represent sales to all levels of public and private schools,
colleges, universities, and military academies, municipal and governmental
agencies, military facilities, churches, clubs, camps, hospitals, youth sports
leagues, non-profit organizations, team dealers and certain large retail
sporting goods chains. The Company periodically performs credit evaluations of
its customers but generally does not require collateral. DEPRECIATION AND AMORTIZATION AND VALUATION OF INTANGIBLESThe Company provides
for any anticipated credit losses in the financial statements based upon
management's estimates and ongoing reviews of recorded allowances.
Depreciation, Amortization and Valuation of Property and Intangibles
Property and equipment, stated at cost, are being depreciated by the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized on a straight-line basis over the shorter of the useful life of
the improvement or the term of the lease. Goodwill (resulting fromThe cost of maintenance and repairs is
charged to expense as incurred. Significant renewals and betterments are
capitalized and depreciated over the investment in an Affiliate)remaining estimated useful lives of the
related assets.
Depreciation of property, plant and trademarks are
amortized usingequipment is provided by the
straight-line method principally over 40 years.as follows:
Buildings Thirty to forty years
Machinery and Equipment Five years to ten years
Computer Equipment and Software Three years to ten years
Furniture & Fixtures and Office Equipment Five years to seven years
Intangible Assets
Goodwill and other intangible assets relates to acquisitions.
Trademarks and servicemarks relate to costs incurred in connection with the
licensing agreements for the use of certain trademarks and service marks in
conjunction with the sale of our products. Other items classified as goodwill
and other intangible assets consist of patents, websites, customer base, and
workforce.
Amortization of intangible assets is provided by the straight-line
method as follows:
Cost in excess of identifiable net assets acquired Principally thirty to forty
years
Trademarks and servicemarks Five to forty years
Patents Seven to eleven years
Management periodically evaluatesassesses the recoverability of goodwill and trademarks.the carrying
value of intangible assets. The carrying value of goodwill and trademarksintangible assets would be
reduced to fair value if it is probable that management's best estimate of
future operating income before amortization of goodwill and trademarksidentifiable assets will be less
than the carrying value over the remaining amortization period.
FOREIGN CURRENCYRevenue Recognition
Revenues are recognized upon shipment of inventory and an estimate
against revenues for possible returns based upon historical return rates is
recorded. Subject to certain limitations, customers have the right to return a
product within a set period if they are not completely satisfied. The Company
believes sales are final upon shipment of inventory.
Foreign Currency
The assets and liabilities of foreign subsidiaries have been
translated at current exchange rates, and related revenues and expenses have
been translated at average rates of exchange in effect during the year. Related
translation adjustments are reported as a separate component of shareholders'
equity. Losses resulting from foreign currency transactions are included in the
Consolidated Statements of Operations and amounted to a loss of $45,000, $34,000
and $79,000 for the years ended April 2, 1999, April 3, 1998 and March 31, 1997,
respectively.Operations.
The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations.
ACCOUNTING PRONOUNCEMENTS
SFASAdvertising and Deferred Catalog Expenses
Advertising expenses are charged to operations as incurred, except for
production costs related to direct-response advertising activities, which are
capitalized. Direct response advertising pertains to the sporting goods segment
of the Company, which consists primarily of catalogs. Production costs,
primarily printing and postage, associated with catalogs are amortized using the
straight-line method over twelve months which approximates average usage of the
catalogs produced.
Advertising expenses for the fiscal 2001, 2000 and 1999 were approximately
$7,347,000, $3,077,000, and $1,459,000, respectively.
Internet Expenses
We expense the operating and development costs of our Internet
websites as incurred.
Income Taxes
Deferred tax assets and liabilities are determined annually based upon
the estimated future tax effects of the differences in the tax bases of existing
assets and liabilities and the related financial statement carrying amounts,
using currently enacted tax laws and rates.
Net Earnings Per Common Share
Net earnings per share of common share are based upon the weighted
average number of common and common equivalent shares outstanding. Outstanding
stock options are treated as common stock equivalents when dilution results from
their assumed exercise.
Stock- Based Compensation
The Company and its subsidiaries have chosen to account for
stock-based compensation plans using the intrinsic value method. Accordingly,
the compensation cost for stock options is measured as the excess, if any, of
the quoted market prices of the respective stock at the date of grant over the
amount an employee must pay to acquire the stock. See Note 9.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities,"Activities" (SFAS 133), as amended, which the Company adopted during fiscal
2001. SFAS 133 requires that all derivatives be recorded on the balance sheet at
fair value. Changes in derivatives that are not hedges are adjusted to fair
value through income. Changes in derivatives that meet the Statement's hedge
criteria will either be effectiveoffset through income, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
adoption of SFAS 133 for fiscal 2001 did not have any impact on our financial
condition, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission staff
released Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB No. 101"), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements. The Company
adopted SAB No. 101 in the fourth quarter of fiscal 2001. SAB No. 101 requires
the Company to report its estimated sales return on a gross basis rather than on
a previously utilized net basis. SAB No. 101 required prior year
reclassifications to conform with the new presentation, which resulted in
offsetting reclassifications in net revenues and cost of sales, but did not
impact the operating income as reported on the Consolidated Statements of
Operations. Accordingly, for fiscal 2001, fiscal 2000, and fiscal 1999, net
revenues were increased by $1.3 million, decreased by $1.3 million, and
increased by $1.8 million, respectively.
During fiscal 2001, the Company adopted the provisions of EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs". Prior to fiscal 2001, SSG
netted shipping fees against shipping costs. The net difference was included in
cost of sales in the consolidated statements of operations. The provisions of
EITF 00-10 provide that all amounts billed to a customer in a sale transaction
related to shipping and handling, if any, represent revenues earned for the
Companygoods provided and should be classified as revenue. Accordingly, for Fiscal 2000,
establishes accountingfiscal
2001, approximately $5.6 million of shipping and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The Company has not yet determined the effects, if any, of
implementing SFAS No. 133 on its reporting of financial information.
RECLASSIFICATION
Certain amountshandling fees was reclassified
in the prior period's consolidated statement of operations. The fiscal 2000 and fiscal 1999
were not restated because EITF 00-10 only affected the sporting goods segment
which was not included in the consolidated statement of operations for fiscal
2000 or fiscal 1999.
Change in Accounting Period
For the fiscal years 1999 and 2000, the Company's financial statements
have been reclassifiedreporting
year ended on the Friday closest to conform to current period's presentation.
CHANGE IN ACCOUNTING PERIOD
Beginning in Fiscal 1998,March 31. In fiscal 2001, the Company
changed its financial reporting year to a 52/53 week year endingend on the Friday closest to March 31.
Accordingly, the
current fiscal year ended on AprilNote 2 1999.
NOTE 2 -- INVENTORIES:- Inventories:
Inventories are comprised primarilystated at the lower of finished goods. Spare partscost or market. Cost is
determined using the first-in, first-out for the consumer electronics segment
and for the sporting goods segment, weighted-average cost methods for items
manufactured and weighted-average cost for items purchased for resale. As of
March 31, 2001 and 2000, inventories netconsisted of reserves, were $121,000the following:
March 31, 2001 March 31, 2000
----------------- ----------------
(In thousands)
Raw materials $ 3,728 $ --
Work-in-process 377 --
Finished 42,643 14,963
------------- ---------------
46,748 14,963
Less inventory allowances (2,271) (579)
------------- ---------------
$ 44,477 $ 14,384
============= ===============
Note 3 - Acquisition of Affiliate:
As of March 31, 2001 and $384,000 at April 2, 19992000, Emerson owned 4,463,223 and April 3, 1998, respectively.
NOTE 3 -- INVESTMENT IN UNCONSOLIDATED AFFILIATE:
The Company owns 2,269,500 (31%2,386,000
(50.1% and 32.8% of the issued and outstanding) shares of common stock of Sport
Supply Group, Inc. ("SSG") which it purchasedSSG,
respectively. Accordingly, for fiscal 2001 Emerson accounted for its investment
in 1996 at an aggregate costSSG by consolidating SSG under purchase method of $15,728,000 or $6.92 per share. In addition,accounting, while for
fiscal 2000 and fiscal 1999, Emerson accounted for its investment in SSG under
the Company owns warrants to
purchase an additional 1 million sharesequity method.
Pro-forma results of SSG's common stockoperations for $7.50Emerson, reflecting the
consolidation with SSG for the fiscal year ended March 31, 2000 are as follows
(in thousands, except per share ("data):
For the 12 Months
Ended
March 31, 2000
-----------------------
(Unaudited)
Net revenues - pro forma $ 320,222
Cost of sales - pro forma 255,472
Net income - pro forma 3,620
Net income per common share - basic and
diluted - pro forma $ .07
For fiscal 2000, the investment in and results of operations of SSG
Warrants") whichwere accounted for by the Company purchased in 1996 at an aggregate cost
of $500,000. Ifequity method. Summarized financial information
derived from the Company exercises all ofannual and quarterly financial reports as filed with the
SSG Warrants, it will
beneficially own approximately 39% ofSecurities and Exchange Commission for fiscal 2000 are as follows (in
thousands):
March 31, 2000 April 2, 1999
-------------- -------------
(Unaudited) (Unaudited)
Current assets $ 50,488 $ 44,322
Property, plant and equipment and
other assets 30,158 30,252
Current liabilities 38,450 14,965
Long-term debt 252 19,045
Stockholders Equity 41,945 40,563
For the SSG common shares.12 Months For the 12 Months
Ended Ended
March 31, 2000 April 2, 1999
-------------------- -----------------
(Unaudited) (Unaudited)
Net sales $ 116,521 $ 100,953
Gross profit 37,919 39,090
Net income 2,083 5,454
Effective March 1997, the Company entered into a Management Services
Agreement with SSG, under which SSG provides various managerial and
administrative services to the Company.
The investment inCompany for a fee. For the fiscal years 2001,
2000, and results of operations of1999, SSG are accounted for by the
equity method. In January 1997, SSG changed its financial reporting year end
from October 31 to September 30. This change in accounting period resulted in
the Company now recording its share of SSG earnings on a concurrent basis.
Previously, the Company recorded its share of SSG's earnings on a two month
delay. The Company's investment in SSG includes goodwill of $6,530,000 which is
being amortized on a straight line basis over 40 years. At April 2, 1999, the
aggregate market value quoted on the New York Stock Exchange of SSG common
shares equivalent in number to those owned bybilled Emerson was approximately $20
million. Summarized financial information derived from SSG's financial reportspursuant to the Securitiesmanagement services agreement
fees of $401,000, $488,000, and Exchange Commission was as follows (in thousands):
Unaudited
April 2, 1999 April 3, 1998
Current assets $ 44,322 $ 37,282
Property, plant and
equipment and
other assets 30,252 19,878
Current Liabilities 14,965 8,395
Long-term debt 19,045 7,498
Stockholders' Equity 40,563 41,251
Unaudited
For the 12 Months For the 14 Months
Ended Ended
April 2, 1999 April 3, 1998
Net sales $100,953 $ 111,214
Gross profit 39,090 43,275
Net income 5,454 5,903
NOTE$636,000, respectively. Management believes that
the transactions under the management services agreement are reflective of arms
length transactions.
Note 4 -- PROPERTY AND EQUIPMENT:- Property, Plant, and Equipment
As of April 2, 1999March 31, 2001 and April 3, 19982000, property, plant, and equipment is
comprised of the following:
1999 1998
(In thousands)
Furniture and fixtures. . . . . . . $3,228 $3,745
Machinery and equipment . . . . . . 493 532
Leasehold improvements . . . . . . 267 256
3,988 4,533
Less accumulated depreciation and
amortization . . . . . . . . . . 2,777 3,152
$1,211 $1,381
2001 2000
----------- ---------
(In thousands)
Land $ 9 $ --
Buildings 1,024 --
Computer Equipment & Software 10,948 2,306
Furniture and fixtures. . . . . . . . . . . . . 1,570 1,249
Machinery and equipment . . . . . . . . . . . . 2,465 614
Leasehold improvements . . . . . . . . . . . . . 296 267
----------- ----------
16,312 4,436
Less accumulated depreciation and amortization . 3,594 3,402
----------- ----------
$ 12,718 $ 1,034
=========== ==========
Depreciation and amortization of property, plant, and equipment
amounted to $583,000, $776,000$2,729,000, $638,700, and $1,631,000$583,000 for the years ended March 31,
2001, March 31, 2000, and April 2, 1999, April 3,
1998 and March 31, 1997, respectively.
NOTENote 5 -- CREDIT FACILITY:
On March 31, 1998, the Company amended its- Short-Term Borrowings:
Emerson has an existing Loan and Security Agreement (the "Loan and Security
Agreement"), which includes a senior secured credit facility in the amount of
$10 million with a U.S. financial institution. The amendment to the
facility reduced the facility to $10 million from $35 million and amended
certain financial covenants as defined below. The facility provides for
revolving loans and letters of credit, subject to individual maximums which, in
the aggregate, cannot exceed the lesser of $10 million or a "Borrowing Base"
amount based on specified percentages of eligible accounts receivable and
inventories. Amounts outstanding under the senior credit facility are secured by
(i) substantially all of the Company'sEmerson's U.S. and Canadian assets except for
trademarks, which are subject to a negative pledge covenant, and (ii) a minority interestportion
of its investment in an unconsolidated
Affiliate.SSG. At April 2, 1999March 31, 2001 and April 3, 1998,2000, the weighted average
interest rate on the outstanding borrowings was 9.36%10.42% and 9.75%9.36%, respectively, whichrespectively.
The interest rate charged on this facility is the prime rate of interest plus
1.25%. Interest paid totaled $203,000,
$316,000 and $1,494,000 for the years ended April 2, 1999, April 3, 1998 and
March 31, 1997, respectively. Pursuant to the Loan and Security Agreement, the Company is restricted
from, among other things, paying cash dividends (other than on the Series A
Preferred Stock), redeeming stock in certain instances, and entering into
certain transactions without the lender's prior consent and is required to
maintain certain working capital and
equitynet worth levels. An event of default under the credit facility
maywould trigger a default under the Company's 8-1/2% Senior Subordinated
Convertible Debentures Due 2002. As of March 31, 2000, approximately $2.9
million was outstanding under this facility. At April 2, 1999, there were $2,216,000 outstanding borrowings under
the facility,March 31, 2001 and 2000, no outstanding
letters of credit issued for inventory purchases.purchases were issued. At April 3, 1998, there were no outstanding borrowings and no
outstanding lettersMarch 31, 2001 the
carrying value of credit.
NOTEthe credit facility approximates its fair value.
Note 6 -- LONG-TERM DEBT:- Long-Term Borrowings:
As of April 2, 1999March 31, 2001 and April 3, 1998,2000, long-term debtborrowings consisted of the
following:
1999 1998
(In thousands)
8-1/2% Senior Subordinated
Convertible Debentures Due 2002 . . . . . . $20,750 $20,750
Equipment notes and other . . . . . . . . 50 85
20,800 20,835
Less current obligations. . . . . . . . . . 50 85
Long-term debt $20,750 $20,750
2001 2000
------------ -----------
(In thousands)
8-1/2% Senior Subordinated Convertible
Debentures Due 2002 $ 20,750 $ 20,750
Notes payable under revolving line of credit 17,088 --
Equipment notes and other 558 238
------------ -----------
38,396 20,988
Less current maturities 139 97
------------ -----------
Long-term debt and notes payable $ 38,257 $ 20,891
============ ===========
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures")
were issued by Emerson in August 1995. The Debentures bear interest at the rate
of 8-1/2% per annum, payable quarterly, and mature on August 15, 2002. The
Debentures are convertible into shares of the Company's common stock at any time
prior to redemption or maturity at an initial conversion price of $3.9875 per
share, subject to adjustment under certain circumstances. Beginning August 15, 1998, at the
option of the Company, theThe Debentures are
presently redeemable in whole or in part at an initialthe Company's option at a redemption
price of 104%102% of principal, decreasing by 1% per year until maturity. The
Debentures are subordinated to all existing and future senior indebtedness (as
defined in the Indenture governing the Debentures). The Debentures restrict,
among other things, the amount of senior indebtedness and other indebtedness
that the Company, and, in certain instances, its consolidated subsidiaries, may
incur. Each holder of Debentures has the right to cause the Company to redeem
the Debentures if certain designated events (as defined) should occur. The
Debentures are subject to certain restrictions on transfer, although the Company
has registered the offer and sale of the Debentures and the underlying common
stock. NOTEAt March 31, 2001 the carrying value of the debentures approximated fair
value.
Notes payable under a revolving line of credit (Revolver) were issued
by SSG in March 2001, replacing a prior facility. The facility provides for a
three-year $25 million revolving line of credit, and provides for revolving
loans and is subject to individual maximums which, in the aggregate, cannot
exceed the lesser of $25 million or a "Borrowing Base" amount based upon
specified percentages of eligible accounts receivables and inventories. Amounts
outstanding under the senior credit facility are secured by substantially all
the assets of the Sport Supply Group, Inc. and subsidiaries. At March 31, 2001,
the weighted average interest rate on the outstanding borrowings was 8.5%. The
interest rate charged under this facility at March 31, 2001 was the prime rate
of interest plus .5%. Pursuant to the Loan and Security Agreement, the Company
is restricted from, among other things, paying cash dividends, and entering into
certain transactions without the lender's prior consent. At March 31, 2001 the
carrying value of the note payable approximates its fair value.
Maturities of long-term borrowings as of March 31, 2001, by fiscal
year and in the aggregate are as follows (in thousands):
2002 $ 139
2003 20,955
2004 17,203
2005 74
2006 25
Thereafter 0
------------------
Total 38,396
Less current portion (139)
------------------
Total long term portion $ 38,257
==================
Note 7 -- INCOME TAXES:- Income Taxes:
The income tax (benefit) provision for the years ended March 31, 2001,
March 31, 2000, and April 2, 1999 April 3, 1998
and March 31, 1997 consisted of the following:
1999 1998 1997
(In thousands)
Current:
Federal $ -- $ 13 $ --
Foreign, state and other 207 241 230
$207 $254 $230
2001 2000 1999
-------------- --------------- ---------
Current: (In thousands)
Federal $ 475 $ 47 $ --
Foreign, state and other 848 (624) 207
Deferred federal (2,267) -- --
-------------- --------------- ---------
$ (944) $ (577) $ 207
============== =============== =========
The Company, with the exception of SSG, files a consolidated federal
and certain state and local income tax returns.
The difference between the effective rate reflected in the provision
for income taxes and the amounts determined by applying the statutory U.S. rate
of 34% to earnings (loss)income before income taxes for the years ended March 31, 2001, March
31, 2000, and April 2, 1999 April 3,
1998 and March 31, 1997 are analyzed below:
2001 2000 1999
1998 1997--------------- ---------------- ---------------
(In thousands)
Statutory provision (benefit) $169 $(400) $(8,071)
Change$ 3,981 $ 1,035 $ 169
Decrease in valuation allowance (177) 454 8,098(5,246) (1,306) (207)
Foreign income taxes 478 (642) 207
223 248State taxes 723 183 30
Minority interest (1,211) - -
Alternative minimum tax 305 47 -
Other, net 26 106 8
(23) (45)--------------- ---------------- ---------------
Total income tax (benefit)
provision $207 $ 254(944) $ 230(577) $ 207
=============== ================ ===============
Emerson Radio (Hong Kong) Ltd., was assessed $858,000 by the Hong Kong
Inland Revenue Department (the "IRD") in May 1998. The assessment related to the
fiscal 1993 through fiscal 1998 tax years and asserted that certain revenues
reported as non-taxable by Emerson Radio (Hong Kong) Ltd. were subject to a
profits tax. In fiscal 1999, the Company accrued $256,000 equaling its
compromise offer, and in June 1999, the IRD accepted the offer in which the
Company and the IRD settled, without prejudice, the assessment for $256,000.
Emerson Radio (Hong Kong) Ltd. was also in litigation with the IRD
regarding the deductibility of certain expenses that related to the fiscal 1992
through fiscal 1999 tax years. In December 1999, the Company received a
favorable ruling from the Hong Kong Court of Final Appeals regarding this matter
and a tax credit of $619,000 was recorded in the Company's financial results for
Fiscal 2000.
As of April 2, 1999March 31, 2001 and April 3, 19982000, the significant components of the
Company's deferred tax assets and liabilities are as follows:
1999 1998
2001 2000
-------------- -----------
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 4,6995,345 $ 5,0035,243
Inventory reserves 2,243 2,332
Federal1,359 235
Net operating loss carryforwards 16,207 15,469
State net operating loss
carryforwards 5,257 6,75928,066 29,717
Other 1,016 1,0501,311 491
-------------- --------------
Total deferred tax assets 29,422 30,61336,081 35,686
Valuation allowance for deferred tax assets (28,054) (29,844)(26,452) (33,844)
-------------- --------------
Net deferred tax assets 1,368 7699,629 1,842
Deferred tax liabilities (1,368) (769)liabilities:
Intangible assets (2,921) --
Investment in affiliate (969) (1,479)
Other (239) (363)
-------------- --------------
Net deferred taxes $ --5,500 $ --
============== ==============
Total deferred tax assets offor the Companyconsumer electronics segment at
April 2, 1999March 31, 2001 and April 3, 1998
represent2000 include the tax-effected net operating loss
carryforwards subject to annual limitations (as discussed below), and
tax-effected deductible temporary differences. The CompanyA valuation reserve has been
established a valuation reservefor the consumer electronics segment against any expected future
benefits.
Cash paidbenefits as management believes it is not more likely than not that such benefit
will be realized in the future.
The sporting goods segment has net operating loss carryforwards that
can be used to offset future taxable income and can be carried forward for income taxes was $32,000, $152,000 and $125,00015 to
20 years. No valuation allowance has been recorded for the years
ended April 2, 1999, April 3, 1998 and March 31, 1997, respectively.deferred tax assets
because management believes it is more likely than not such assets will be
realized by future profitable operating results.
Income (loss) of foreign subsidiaries before taxes was $1,194,000,
$3,065,000$7,486,000,
$1,578,000, and ($2,512,000)$1,492,000 for the years ended March 31, 2001, March 31, 2000,
and April 2, 1999, April 3, 1998 andrespectively.
As of March 31, 1997, respectively. It is the policy of2001, the Company to permanently
reinvest all the earnings from its foreign subsidiaries.
As of April 3, 1998, the Company hashad a federal net operating loss
carryforward of approximately $133,800,000, of$115,500,000, which $29,160,000, $13,385,000,
$50,193,000, $20,575,000, $18,952,000, $800,000 and $735,000 will expire in 2006 2007, 2009, 2011, 2012, 2013 and 2019, respectively.through
2019. The utilization of these net operating losses are limited based on the effects of a Plan of
Reorganization consummated on March 31, 1994. Pursuantsubject to the Plan, an
ownership change occurred with respect to the Company and subjected the
Company'slimitations
under IRC section 382. In addition, SSG has federal net operating loss
and foreign tax credit carryforwards to limitations
provided in Sections 382 and 383, respectively, of the Internal Revenue Code.
Subject to special rules regarding increasesapproximately $20,044,000, which will expire in the annual limitation for the
recognition of net unrealized built-in gains, the Company's annual limitation is
approximately $2.2 million.
NOTEyears 2011
through 2021.
Note 8 -- COMMITMENTS AND CONTINGENCIES:
LEASES:Commitments and Contingencies:
Leases:
The Company leases warehouse and office space with annual commitments
as follows (in thousands):
Fiscal
Years Amount
2000 $995
2001 582
2002 384
2003 384
2004 128
Fiscal Years Amount
2002 $ 2,768
2003 2,513
2004 1,590
2005 960
2006 12
Rent expense, net of rental income, aggregated $3,064,000, $1,326,000,
and $1,304,000 $1,570,000for fiscal 2001, 2000, and $1,790,000 for the years ended April 2, 1999, April 3, 1998 and March 31, 1997,
respectively.
Rental income from the subleaseLetters of warehouse and office space
aggregated $0, $238,000 and $256,000 in the years ended April 2, 1999, April 3,
1998 and March 31, 1997, respectively.
LETTERS OF CREDIT:Credit:
There were no letters of credit outstanding under the Loan and
Security Agreement (See Note 5) as of April 2, 1999March 31, 2001, or April 3, 1998.2000. The Company's
Hong Kong subsidiary also currently maintains various credit facilities
aggregating $28.5$40.0 million with a bank in Hong Kong subject to annual review
consisting of the following: (i) a $3.5$5.0 million credit facility which is
generally used for letters of credit for a foreign subsidiary's direct import business and an
affiliates' inventory purchases, and (ii) a $25$35
million credit facility with seasonal over - advances, for the benefit of a
foreign subsidiary, which is for the establishment of back-to-back letters of
credit with the Company's largest customer. At April 2, 1999,March 31, 2001, the Company's
Hong Kong subsidiary had pledged $1$1.75 million in certificates of deposit to
this bank to assure the availability of thesethe $5.0 million credit facilities.facility. At
April 2,
1999,March 31, 2001, there were $2,124,000$3,801,000 and $5,000,000$7,279,000 of letters of credit
outstanding under these credit facilities, respectively.
TAX ASSESSMENTS:
A wholly owned subsidiary of the Company, Emerson Radio (Hong Kong) Ltd.
was assessed $858,000 by the Hong Kong Inland Revenue Department (the "IRD") in
May 1998. The assessment relates to the Fiscal 1993 to Fiscal 1998 tax years
and asserts that certain revenues reported as non taxable by Emerson Radio (Hong
Kong) Ltd. are subject to a profits tax. In May 1999, the Company proposed a
compromise offer to the IRD in which the Company and IRD, without prejudice will
settle the assessment for $256,000.Purchase Contracts:
The Company has recorded a tax reserve in
the current period for the assessment in anticipation of the IRD accepting the
compromise offer. Should the proposed settlement be accepted by the IRD, the
Company expects its foreign taxescontractual agreement with one supplier to increase inprovide
future periods.
Emerson Radio (Hong Kong) Ltd. is also in litigation with the IRD regarding
a separate assessment of $547,000 pertaining to the deduction of certain
expenses that relate to the taxable years Fiscal 1992 to Fiscal 1999. During
February 1999, the Company received a favorable appellate ruling in regards to
the assessment, which has been further appealed by the IRD to the final court of
appeals of the IRD. The Company believes that it will prevail in this case.
NOTEraw materials totaling approximately $240,000.
Note 9 -- SHAREHOLDERS' EQUITY:- Stock Based Compensation:
Consumer Electronics Segment:
In July 1994, the CompanyEmerson adopted a Stock Compensation Program
("Program")
intended to secure for the Company and its stockholders the benefits arising
from ownership of the Company's common stock by those selected directors,
officers, other key employees, advisors and consultants of the Company who are
most responsible for the Company's success and future growth.. The maximum aggregate number of shares of common stock available
pursuant to the Program is 2,000,000 shares and the Program is comprised of four
parts-theparts - the Incentive Stock Option Plan, the Supplemental Stock
Option Plan, the Stock Appreciation Rights Plan and the Stock Bonus Plan. A
summary of transactions during the last three years is as follows:
Exercise Price or
Number of Weighted Avg.
Shares Price
Aggregate
Shares Per Share Price------------------- ------------------------
Outstanding-March 31, 1996 1,668,000 $1.00-$2.88 $1,944,000
Granted 50,000 $2.25-$2.56 119,000
Exercised (69,000) $1.00 (69,000)
Canceled (59,000) $1.00-$2.56 (67,000)
Outstanding-March 31, 1997 1,590,000 $1.00-$2.88 1,927,000
Granted 207,000 $1.00 207,000
Canceled (790,000) $1.00-$2.88 (1,067,000)
Outstanding-AprilOutstanding - April 3, 1998 1,007,000 $1.00-1,017,000 $1.10 1,067,000 1.06
Granted 18,000 $1.00 18,000
Outstanding-April23,000 1.00
------------------- ------------------------
Outstanding - April 2, 1999 1,025,000 $1.00-1,040,000 1.06
Granted 300,000 1.00
Canceled (18,000) 1.00
------------------- ------------------------
Outstanding - March 31, 2000 1,322,000 1.05
Granted 248,000 1.00
Exercised (75,000) 1.00
Canceled (11,666) 1.00
------------------- ------------------------
Outstanding - March 31, 2001 1,483,334 $1.10 $1,085,000 1.04
=================== ========================
TheSubject to the terms set forth in each option agreement, generally,
the term of each option is ten years, except for options issued to any person
who owns more than 10% of the voting power of all classes of capital stock, for
which the term is five years. Options may not be exercised during the first year
after the date of the grant. Thereafter, each option becomes exercisable on a
pro rata basis on each of the first through third anniversaries of the date of
the grant. The exercise price of options granted must be at
least equal to, or greater
than the fair market value of the shares on the date of the grant, except that
the option price with respect to an option granted to any person who owns more
than 10% of the voting power of all classes of capital stock shall not be less
than 110% of the fair market value of the shares on the date of the grant. As of
March 31, 2001, there were a total of 1,483,334 options outstanding with
exercise prices ranging from $1.00 per share to $1.10 per share. As of March 31,
2001, 1,052,002 of the total options outstanding were fully vested with 431,332
options vesting through July 2003. At March 31, 2001, March 31, 2000, and April
2, 1999, the weighted average exercise price of exercisable options under the
Program was $1.05, $1.06, and April 3, 1998, approximately 964,000 and 895,000
options were exercisable,$1.06, respectively.
The Company has elected to follow APB25 and related interpretations for
stock-based compensation and accordingly has recognized no compensation expense.
Had compensation cost been determined based upon the fair value at grant
date for awards consistent with the methodology prescribed by Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), the Company's net income would have
decreased approximately $25,000, for the year ended April 2, 1999
and the net loss would have increased approximately $21,000 and $45,000
for the years ended April 3, 1998 and March 31, 1997, respectively.
The fair value of these options, and all other options and warrants of the
Company, was estimated at the date of grant using a Black-Scholes option
pricing model with the following assumptions for the years ended April 2, 1999,
April 3, 1998 and March 31, 1997; risk-free interest rate of 5%, an expected
life of 10 years and a dividend yield of zero. For the years ended April 2,
1999, April 3, 1998 and March 31, 1997, volatility was 15%, 56% and 73%,
respectively. The effects of applying FAS 123 and the results obtained are not
likely to be representative of the effects on future pro-forma income.
In October 1994, the Company'sEmerson's Board of Directors adopted, and the
stockholders subsequently approved, the 1994 Non-Employee Director Stock Option
Plan. The maximum number of shares of common stockCommon Stock available under such plan is
300,000 shares. A summary of transactions since inception ofunder the plan for the three years
ending March 31, 2001 is as follows:
Number Price
of Per Aggregate
Shares Share Price
Outstanding-March 31, 1996,
March 31, 1997,
April 3, 1998 and
April 2, 1999 150,000 $1.00 $150,000
Exercise Price or
Number of Weighted Avg.
Shares Price
---------------- --------------------
Outstanding -April 3, 1998 and April 2,
1999 150,000 $ 1.00
Canceled (50,000) 1.00
---------------- ----------------
Outstanding - March 31, 2000 100,000 1.00
Granted 75,000 1.00
---------------- ----------------
Outstanding - March 31, 2001 175,000 $ 1.00
================ ================
All options granted under the stock option plan during the fiscal
years ending April 2, 1999, March 31, 2000, and March 31, 2001 were at exercise
prices equal to or greater than the fair market value of Emerson's stock on the
date of the grant.
As of March 31, 2001, there were a total of 175,000 options
outstanding with exercise prices at $1.00 per share. As of March 31, 2001,
100,000 of the total options outstanding were fully vested with 75,000 options
vesting through July 2003.
The provisions for the 1994 Non-Employee Director Stock Option Plan
for exercise price, term and vesting schedule are the same as noted above for
the Stock Compensation Program.
OnSporting Goods Segment:
SSG has a stock option plan that provides up to 2,000,000 shares of
common stock for awards of incentive and non-qualified stock options to
directors and employees (the "SSG Plan"). Under the SSG Plan, the exercise price
of options will not be less than: the fair market value of the common stock at
the date of grant; or not less than 110% of the fair market value for incentive
stock options granted to certain employees, as more fully described in the
Amended and Restated Stock Option Plan. Options expire ten years from the grant
date, or five years from the grant date for incentive stock options granted to
certain employees, or such earlier date as determined by the Board of Directors
of SSG (or a Stock Option Committee comprised of members of the Board of
Directors).
A summary of transactions under the SSG Plan for the fiscal year
ending March 31, 1994,2001 is as follows:
Exercise Price or
Number of Weighted Avg.
Shares Price
------------------- ------------------------
Outstanding - March 31, 2000 1,097,199 $ 7.76
Granted 9,375 1.46
Canceled (199,645) 7.95
------------------- ------------------------
Outstanding - March 31, 2001 906,929 $ 7.65
=================== ========================
All options granted under the SSG Plan during the fiscal year ending March
31, 2001 were at exercise prices equal to or greater than the fair market value
of SSG's stock on the date of the grant.
As of March 31, 2001, there were a total of 1,006,929 options (including
non-plan options) outstanding with exercise prices ranging from $1.38 per share
to $9.44 per share. As of March 31, 2001, 921,094 of the total options
outstanding were fully vested with 85,835 options vesting through November 2002.
As of March 31, 2001, the weighted average exercise price of exercisable options
under the SSG Plan was $7.59.
Consumer Electronics and Sporting Good Segments:
The weighted average fair values of employee stock options granted under
the Emerson plan in fiscal 2001, 2000 and 1999 are $0.84, $0.35 and $0.25,
respectively. The fair values were estimated using the following assumptions and
the Black-Scholes option valuation model:
2001 2000 1999
-------------- ----------- ----------
Risk-free interest rate 5.29% 5.00% 5.00%
Expected life 10 years 10 years 10 years
Expected volatility .99 .57 .15
Expected dividend yield 0.00% 0.00% 0.00%
For fiscal 2001 , SSG's fair values were calculated using the following:
(i) a risk free interest rate of 4.29%; (ii) a weighted average expected life of
3 years; (iii) an expected volatility of 55%; and (iv) a dividend yield of
0.00%. The weighted average fair value of employee stock options granted for the
SSG Plan in fiscal 2001 was $0.59.
Emerson and SSG have elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees: ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on date of grant, no
compensation expense is recognized. Emerson and SSG have adopted the
disclosure-only provisions under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). For the purposes of
SFAS 123 pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting periods. The Company's pro forma
information for fiscal 2001, 2000 and 1999 follows:
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
March 31, 2001
2001 2000 1999
--------- ----------- --------
Net income: (in thousands)
As reported $12,653 $ 3,620 $ 289
Pro forma $12,058 $ 3,601 $ 264
Net income (loss) per common
share:
Basic - as reported $ .36 $ .07 $(.01)
Basic - pro forma $ .34 $ .07 $(.01)
Diluted - as reported $ .33 $ .07 $(.01)
Diluted - pro forma $ .31 $ .07 $(.01)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because Emerson's and SSG's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its employee
stock options.
Note 10 - Shareholder's Equity:
Common Shares:
Authorized common shares consists of 75,000,000 shares of common shares,
par value $.01 per share, of which 31,343,978 shares were outstanding and
20,131,533 shares were held in treasury at March 31, 2001, and 46,477,615 shares
were outstanding and 4,854,000 shares were held in treasury at March 31, 2000.
Common Stock Repurchase Program:
In May 1998, the Company modified its existing stock repurchase program to
permit the repurchase of up to $2 million of common shares, from time to time,
in the open market. Pursuant to this plan, the Company repurchased 3,503,400
shares in Fiscal 1999 for $ 1,907,000, completing the repurchase program. The
Board authorized a second repurchase program in January 2000 for an additional 5
million shares. In fiscal 2001 the Company repurchased 100,000 shares for
$75,000, and for fiscal 2000, repurchased 1,350,600 shares for $1,121,000,
pursuant to this program. The shares repurchased during Fiscal 2001 and Fiscal
2000 were funded by working capital.
Additional Common Stock Repurchases:
On May 25, 2000, the Company entered into a Termination, Settlement,
Redemption and Option Agreement, (the "Agreement") with Geoffrey P. Jurick, its
Chairman, Chief Executive Officer and President, and two of Mr. Jurick's
institutional creditors, resolving outstanding litigation between Mr. Jurick and
two of his three outside creditors. In accordance with the Agreement, the
Company, on May 25, 2000, purchased 7.0 million shares of Common Stock from the
two institutional creditors for $6.0 million. The purchase price was paid by the
Company using cash generated from operations. In addition, under the terms of
the Agreement, the Company was granted a one year option to purchase from the
two institutional creditors the remaining 4.1 million shares of Common Stock
owned by them for approximately $5.5 million (the "Option Purchase Price"). The
option term may be extended by the Company for one additional year upon making a
non-refundable payment of $550,000 to the two institutions and for a second
additional year upon making a payment of $2,550,000, of which $1.9 million will
be credited against the Option Purchase Price. On May 25, 2001, the Company
extended the option term for one additional year by making a $550,000 payment.
On July 31, 2000, the Company purchased 8,177,533 shares of Common Stock for
approximately $4.1 million. The Company used cash generated from operations and
required no additional borrowings to complete the transaction.
In the event that the Company or its assignees do not purchase the
approximately 4.1 million shares of Common Stock owned by such institutions,
these institutions will continue to have claims against Mr. Jurick.
Implementation of the termination of the Settlement Agreement with Mr. Jurick's
remaining creditor (by settlement or court order) has not been finalized.
Series A Convertible Preferred Stock:
The Company has issued 10,000and outstanding 3,677 shares of Series A Convertible
Preferred Stock, ("Preferred Stock") $.01 par value, with a face value of
$10 million$3,677,000 and an estimated fair market value of approximately $9 million.$3,986,000. The
preferred stockPreferred Stock is non-voting and convertible into Common Stock at any time during the period beginning onthrough March
31, 1997 and ending on March 31, 2002; the preferred stock is convertible into
common stock2002, at a price per share of common stockCommon Stock equal to 80% of the defined
average market value of a share of common stockCommon Stock on the date of conversion. The
preferred stockPreferred Stock bears dividends, on a cumulative basis currently at 4.2% and
declines by 1.4% each June 30th until nothrough
March 31, 2001. No further dividends are payable.
The preferred stockaccruable under the Preferred Stock. At
March 31, 2001, the Company is non-voting. However,in compliance with the termsdefault provisions and
currently owes dividends in arrears of $977,000.
During the year ended March 31, 2001, there were no conversions of the
preferred
stock provide that holders shall haveCompany's Series A Preferred Stock. For the right to appoint two directors to the
Company's Board of Directors if the preferred stock dividends are in default for
six consecutive quarters. At April 2, 1999,year ended March 31, 2000, the
Company was in arrears
$840,000 of dividends.
Pursuant to the Plan of Reorganization the Noteholders received warrants
for the purchase of 750,000repurchased 37 shares of common stock. The warrants are
exercisable for a period of seven years from March 31, 1994 and provide for an
exercise price of $1.00 per share for the first three years, escalating by $.10
per share per annum thereafter until expiration of the warrants.
In connection with the Debentures offering, the Company in August 1995,
issued to the placement agent and its authorized dealers warrants for the
purchase of 500,000 shares of common stock. The warrants are exercisable for a
period of four years from August 24, 1996 and provide for an exercise price of
$3.9875 per share, subject to adjustment under certain circumstances.
In connection with a consulting agreement, the Company in December 1995,
issued warrants for the purchase of 250,000 shares of common stock at an
exercise price of $4.00 per share. The warrants may be exercised until December
8, 2000, when such warrants shall expire.
In November 1995, the Company filed a shelf registration statement covering
5,000,000 shares of common stock owned by FIN to finance a settlement of the
Litigation Regarding Certain Outstanding CommonSeries A Preferred Stock. The shares covered by
the shelf registration are subject to certain contractual restrictions and may
be offered for sale or sold only by means of an effective prospectus following
registration under the Securities Act of 1933, as amended.
In November 1995, the Company's Board of Directors approved a plan to
repurchase up to two million of its common shares, from time to time in the open
market. In May 1998, the plan was modified to approve the repurchase of up to
$2 million of common shares. Although there are 47,828,215 shares outstanding,
approximately 29.2 million shares are held directly or indirectly by affiliated
entities of Geoffrey Jurick, Chairman, Chief Executive Officer and
President of the Company. The Company agreed with Mr. Jurick that such
shares would not be subject to repurchase under the Plan approved in 1995 and
modified in 1998. During the year
ended April 2, 1999, the Company repurchased
3,503,400issued a total of 286,885 shares of the common
stock, at a costupon conversion of $1,907,000. No stock was
repurchased for the years ended April 3, 1998 or March 31, 1997. The shares
repurchased during the year ended April 2, 1999 were funded by working capital.
NOTE 10 -- CAPITAL STRUCTURE:
The outstanding capital stock of the Company at April 2, 1999 consisted of
common stock and Series A convertible preferred stock. The preferred shares are
convertible to common shares at any time beginning March 31, 1997 until March
31, 2002.
During the year ended April 2, 1999, 100 shares of Series A Preferred Stock.
Warrants:
The Company issued warrants on March 31, 1994 for the purchase of
approximately 750,000 shares of Common Stock exercisable at $1.40 per share
during fiscal 2001. During fiscal 2001, 68,896 warrants were exercised and
converted into 286,88568,896 shares of common stock. If all existing outstanding
Preferred shares were issuable. Dividends for the Preferred Stock accrue and
are payable quarterly at 7% up to March 31, 1997 then decline by 1.4% each
succeeding year untilOn March 31, 2001 when no further dividends are payable. The
dividend rate at April 2, 1999 was 4.2% and $840,000approximately
680,000 warrants expired unexercised.
During August 2000 warrants that were issued in August 1995 for the
purchase of dividends were in
arrears. Preferred shareholders have liquidation rights subordinated to the
Company's Senior Secured Lender and 8-1/2% Senior Subordinated
Convertible Debentures.
The Company has outstanding approximately 1.2 million options with exercise
prices ranging from $1.00 to $1.10. If the options were exercised, the holders
would have rights similar to common shareholders. Approximately 986,000
outstanding warrants are convertible into approximately 986,000500,000 shares of common
stockCommon Stock at conversion prices ranging between $1.20 and $4.00. If the warrants were
exercised, the holders would have rights similar to common shareholders.
The Company has outstanding $20.8 million of Senior Subordinated
Convertible Debentures due in 2002 and pay interest quarterly. The Debentures
are redeemable, in whole or in part, at the Company's option at the following
redemption prices beginning August 15, 1998 of 104% and declining by 1% per year
until maturity.
Holders may convert the Debentures at any time at a conversionan exercise price of $3.9875 per
share, all expired unexercised.
On December 8, 2000 warrants that were issued in December 1995, for the
purchase of common stock, subject to certain adjustments which would
result in 5.2 million additional common250,000 shares being issued. The Debentures are
subordinated toof Common Stock at an exercise price of $4.00 per
share, all existing and future senior indebtedness.
NOTEexpired unexercised.
Note 11 -- AVAILABLE-FOR-SALE SECURITIES:Available-For-Sale Securities:
Available-for-sale securities are stated at fair value, with the unrealized
gains and losses reported in a separate component of shareholders' equity.
Realized gains and losses, and declines in market value judged to be
other-than-
temporaryother-than-temporary, are included in earnings. During the fourth quarter of
Fiscalfiscal 1999, the Company recorded an unrealizeda loss of $1,298,000 in earnings for
securities whose decline in value was deemed to be other-than-temporary. During
fiscal 2000, the Company recorded a realized loss of $149,000 from the sale of
securities for less than their carrying value. During fiscal 2001, no charges
were made to the consolidated statement of operations for available-for-sale
securities.
The following is a summary of available-for-sale equity securities at March
31, 2001, March 31, 2000 and April 2, 1999 (in thousands):
Gross Gross Esti-
Unreal- Un- mated
ized realized Fair
Cost Gains Losses Value
Equity Securities $2,036 $ -- $1,298 $738
As ofGross Gross Estimated
Cost Gains Losses Fair Value
---------- ----------- ---------- ----------
March 31, 2001 $ 41 $ -- $ 37 $ 4
March 31, 2000 37 -- -- 37
April 3, 1998, there were no securities held as available-for-sale.
NOTE2, 1999 2,036 -- 1,298 738
Note 12 -- NET EARNINGS (LOSS) PER SHARE:Net Earnings (Loss) per Share:
The following table sets forth the computation of basic and diluted
earnings (loss) per share for the years ended March 31, 2001, March 31, 2000,
and April 2, 1999, April 3, 1998 and
March 31, 1997:1999:
(In thousands, except per share amount)
2001 2000 1999
1998 1997--------------- ---------------- -----------------
Numerator:
Numerator:
Net income (loss)$ 12,653 $ 3,620 $ 289 $(1,430) $(23,968)
Less: preferred stock dividends,
and repurchase costs 577 400 700Costs 51 103 578
--------------- ---------------- -----------------
Numerator for basic earnings
(loss) per share - income available
to common stockholders 12,602 3,517 (289)
Add back to effect assumed conversions:
Preferred stock dividends 51 103 --
--------------- ---------------- -----------------
Numerator for diluted lossearnings
(loss) per share $(288) (1,830) (24,668)$ 12,653 $ 3,620 $ (289)
============== =============== =================
Denominator:
Denominator for basic earnings
per share - weighted average shares 35,066 47,632 49,398
45,167 40,292Effect of dilutive securities:
Preferred shares 3,066 5,876 --
Options 437 -- --
--------------- --------------- -----------------
Denominator for diluted earnings
per share - weighted average
shares and assumed conversions
38,569 53,508 49,398
=============== =============== =================
Basic lossincome (loss) per share $ .36 $ .07 $ (.01)
(.04) (.61)=============== =============== =================
Diluted lossincome (loss) per share $ .33 $ .07 $ (.01)
(.04) (.61)=============== =============== =================
Options and warrants to purchase 1,844,000, 1,826,0002,899,000, and 2,410,0002,667,000 shares of common stockCommon
Stock were not included in computing diluted earnings per share for Fiscal 1999, 19982000
and 1997,1999, respectively, because the effect would be antidilutive.
Preferred stockStock convertible into 8,680,000 14,700,000 and 9,000,000 shares of common stock wereCommon Stock was not
included in computing diluted earnings per share for Fiscal 1999 1998 and 1997, respectively, because the
effect would be antidilutive.
Senior subordinated debenturesSubordinated Debentures convertible into 5,204,000 shares of common
stock if converted were not included in computing diluted earnings per share for
Fiscal 1999, 19982001, 2000, and 1997, respectively,1999, because the effect would be antidilutive.
NOTENote 13 -- LICENSE AGREEMENTS:
The CompanyLicense Agreements:
Emerson has several license agreements in place that allow licensees to
use the Emerson"EMERSON(R)" and G Clef trademarkH.H. Scott(R) trademarks for the manufacture and/or
the sale of consumer electronics and other products. The license agreements
cover various countries throughout the world and are subject to renewal at the
initial expiration of the agreements. Additionally, the CompanyEmerson has entered into
several sourcing and inspection agreements that require the CompanyEmerson to provide these
services in exchange for a fee. License revenues recognized and earned in Fiscal
years2001, 2000, and 1999 1998were $3,930,000, $3,143,000, and 1997 were $3,633,000, $5,597,000 and $5,040,000,
respectively.
The decrease in licensing revenues was primarily attributable to
the expiration of the agreement described in the next paragraph. The CompanyEmerson records a majority of licensing revenues as they are earned over the term of the related
agreements.
In February 1995, the Company and one of its largest Suppliers and certain
of the Supplier's affiliates (collectively, the "Supplier")October 2000, Emerson entered into two
mutually contingent agreements (the "Agreements"a three-year license agreement
("Video License Agreement") with Funai Corporation, Inc., ("Funai") effective
January 1, 2001 to replace a prior agreement with Daewoo Electronics Co. Ltd.
("Daewoo"). Effective March 31, 1995,The Video License Agreement provides that Funai will manufacture,
market, sell and distribute specified products bearing the Company granted a license of certain trademarks to the Supplier for a three-
year term. The license permitted the Supplier to manufacture and sell certain
video products under the Emerson and G Clef"EMERSON" trademark
to one of the Company's
largest customers (the "Customer") in the U.S. and Canada, and precluded the
Supplier from supplying product to the Customer other than under the Emerson and
G Clef trademark or the Supplier's other trademark. Further, the Agreements
provided that the Supplier would supply the Company with certain video products
for sale to other customers at preferred prices for a three-year term.North America. Under the terms of the Agreements, the Company receivedagreement, Emerson
receives non-refundable minimum annual royalties fromroyalty payments of $4.3 million for
calendar years 2001 and 2002, as well as 2003 unless terminated pursuant to the
Supplier to beterms of the agreement. The minimums are credited against royalties earned from salesfor
the sale of video cassette recorders and players, television/video cassette recorder and
player combinations, and color televisions to the Customer. In addition,
effective August 1, 1995, the Supplier assumed responsibility for returns and
after-sale and warranty services on all video products manufactured by the
Supplier and sold to the Customer, including similar video products sold by the
Company prior to April 1, 1995. Royalty income recognized by the Company
pursuant to the Agreements was $4,000,000 inproducts. For Fiscal 1998 and 1997, and are
included in the balances provided above. The Agreements expired on March 31,
1998.
In anticipation2001, revenues of the expiration of the Agreements, Emerson executed a
four-year agreement ("Daewoo Agreement") with Daewoo Electronics Co. Ltd.,
("Daewoo") in April 1997. This agreement provides that Daewoo will manufacture
and sell television and video products bearing the Emerson and G Clef trademark
to customers in the U. S. market. Daewoo is responsible for and assumes all
risks associated with, order processing, shipping, credit and collections,
inventory, returns and after-sale service. The Company will arrange sales and
provide marketing services and in return receive a commission for such services.
The Daewoo agreement does not contain minimum annual commissions and is entirely
dependent on the volume of sales made by the Company that are subject to the
Daewoo$1,075,000 were recorded
under this License Agreement.
Either party upon 90 days notice can terminate this agreement
without cause.
Additionally, the Company has several other licensing agreements in place
with Licensees primarily in the United States, Latin America and parts of
Europe.
Throughout manyvarious parts of the world, the Company maintains distributorshipdistribution
and license agreements that allowprovide for the Distributor to distributedistribution of the Company's
productproducts into defined geographic areas.
Currently the Company has distributors in Spain,
India, China, Canada and South Africa.
NOTENote 14 -- LEGAL PROCEEDINGS:
CERTAIN OUTSTANDING COMMON STOCK
Pursuant to the Company's bankruptcy restructuring plans on March 31, 1994,
30 million shares of the Company's Common Stock were issued to GSE Multimedia
Technologies Corporation ("GSE"), Fidenas International Limited, L.L.C. ("FIN")
and Elision International, Inc. ("Elision"). GSE, FIN and Elision (the
"Affiliated Entities") are all affiliates of Geoffrey P. Jurick, the Company's
Chairman of the Board, Chief Executive Officer and President. On June 11, 1996,
a Stipulation of Settlement and Order (the "Settlement Agreement") was
executed in proceedings before the United States District Court for the District
of New Jersey, which settled various legal proceedings in Switzerland, the
Bahamas and the United States. The Settlement Agreement provides for, among
other things, the payment by Mr. Jurick and his Affiliated Entities of $49.5
million to various claimants of Mr. Jurick and the Affiliated Entities (the
"Creditors"), to be paid from the proceeds of the sale of certain of the 29.2
million shares of Emerson common stock (the "Settlement Shares") owned by the
Affiliated Entities. In addition, Mr. Jurick is to be paid the sum of $3.5
million from the sale of the Settlement Shares. The Settlement Shares are to be
sold over an indeterminate period of time by a financial advisor, TM Capital
(the "Advisor") pursuant to marketing plan taking into consideration (i) the
interests of Emerson's minority stockholders, and (ii) the goal of generating
sufficient proceeds to pay the Creditors and Mr. Jurick as quickly as possible.
The Settlement Shares have been divided into two pools. The Pool A Shares
currently consist of 15.3 million shares of Emerson's common stock. The Pool B
Shares currently consist of the number of Emerson shares with respect to which
Mr. Jurick must retain beneficial ownership of voting power to avoid an event of
default arising out of a change of control pursuant to the terms of the
Company's Loan and Security agreement ("Senior Secured Credit Facility") with a
U.S. financial institution (the "Lender") and/or the Indenture governing the
Company's 8-1/2% Senior Subordinated Convertible Debentures Due 2002
(the "Debentures"). Sales of the Settlement Shares may be
made pursuant to a registered offering if the sales price is not
less than 90% of the average of the three most recent closing
prices (the "Average Closing Price"), or, other than in a registered
offering, of up to 1% per quarter of the Emerson common stock
outstanding, if the sales price is not less than 90% of the Average
Closing Price. Any other attempted sales are subject to the consent of the
Company, Mr. Jurick, the Creditors, and, if necessary, the United States
District Court in Newark, New Jersey.
All of the Settlement Shares secure payment of the $49.5 million owed to
the Creditors on a first priority basis. Any Creditor may apply to the Court
for an order to terminate the Settlement Agreement if certain events occur.
Such events include, without limitation, delisting of the Settlement Shares from
a national securities exchange or a determination that there is no reasonable
prospect that the goals contemplated by the Settlement Agreement can be
achieved. In November 1997, Petra Stelling and Barclays Bank filed a motion with
the Court for an order (i) terminating the Settlement Agreement on the ground
that there is no reasonable prospect that the goals contemplated by the
Settlement Agreement can be accomplished, and (ii) granting the Creditors
authorization to exercise all the rights and remedies provided by the Settlement
and Pledge Agreements in the event of termination including authorizing the
Collateral Agent to sell the Emerson Shares to fund payment of the Settlement
Amount and to vote the Emerson Shares pending such sale, directing the entry and
release of the Consent Judgments, authorizing Petra Stelling to enforce the
Swiss Judgment and for such other relief as the Court deems appropriate. The
Company and Mr. Jurick responded, the Creditors replied and a hearing on the
motion concluded in July 1998. No decision has been rendered by the Court.
If the Court enters an order terminating the Settlement Agreement, the
Creditors may take any action permitted by law to execute the Consent Judgments
given to them in connection with the Settlement Agreement to collect the unpaid
balance (including, without limitation, foreclosing on the Settlement Shares).
If the Creditors foreclose on the Settlement Shares and such foreclosure results
in a change of control (as defined in the Senior Secured Credit Facility), such
foreclosure will be deemed an event of default under the Company's Senior
Secured Credit Facility entitling the holders to accelerate payment of such
indebtedness. In addition, if a change of control (as defined in the Indenture
governing the Debentures) occurs, each of the holders of the Debentures, subject
to the right of the Senior Secured Creditors to impose a 120 day payment block,
has the right to require the Company to repurchase its Debentures at the par
value thereof plus accrued but unpaid interest. Such repurchases may have a
material adverse effect on the Company's future business activities.
Furthermore, a change of control will severely limit the Company's ability to
utilize existing tax net operating losses (NOL's) affecting loss and foreign tax
credit limitations provided by the Internal Revenue Codes.
OTAKE
On December 20, 1995, the Company filed suit in the United States District
Court for the District of New Jersey against Orion Sales, Inc., Otake Trading
Co. Ltd., Technos Development Limited, Shigemasa Otake, and John Richard Bond,
Jr., (collectively, the "Otake Defendants") seeking damages and alleging breach
of contract, breach of covenant of good faith and fair dealing, unfair
competition, interference with prospective economic gain, and conspiracy in
connection with certain activities of the Otake Defendants under certain
agreements between the Company and the Otake Defendants. The Court has
scheduled a September 28, 1999 trial date.
On December 21, 1995, Orion Sales, Inc. and Orion Electric (America), Inc.
filed suit against the Company in the United States District Court, Southern
District of Indiana, Evansville Division, subsequently amended, alleging various
breaches of certain agreements by the Company, including breaches of the
confidentiality provisions, certain payment breaches, breaches of provisions
relating to product returns, and other alleged breaches of those agreements, and
seeking declaratory and injunctive relief and damages in the amount of $3.2
million, together with interest thereon, attorneys' fees, and certain other
costs. The Company is presently owed the sum of $5 million from Orion
representing royalty payments past due and owing pursuant to a certain License
Agreement dated February 22, 1995 by and between the Company and Orion. In the
context of the action pending in the Southern District of Indiana (the "District
Court"), Orion has executed a pre-judgment garnishment of these funds and
deposited them with the Clerk of the District Court pursuant to an Order of the
District Court. Orion has not contested the Company's entitlement to these
royalty payments. Orion has also posted a bond with the District Court
sufficient to compensate Emerson for any and all damages that may result from
the pre-judgment garnishment.
The Company has withheld payment of the sum of $3.2 million for certain
consumer electronic products that Orion and its affiliates sold and delivered to
Emerson pursuant to a certain Agreement dated February 22, 1995 by and between
Emerson on the one hand and Orion, Otake Trading Co., Inc. and Technos
Development Limited on the other (the "Supply Agreement"). Emerson has
vigorously contested Orion and its affiliates' entitlement to the $3.2 million
payment.
On December 11, 1998, the District Court in the Southern District of
Indiana, granted Emerson Partial Summary Judgment in the amount of $2,956,604
plus additional costs as a result of Orion having refused to accept returns
pursuant to the License Agreement (the "Returns"). The Court also granted Orion
Summary Judgment in the amount of $3,202,023 with interest for product
previously purchased. On or about May 7, 1999 the Court amended its order dated
December 11, 1998 awarding Emerson Partial Summary Judgment against Orion
concerning liability for the "Returns" and set a trial date of July 19, 1999 for
purposes of determining whether Emerson or Orion is responsible for the Returns.
At the same time, that Court also issued an order determining that OEA was
entitled to interest at the lesser rate of eight percent (8%) (OEA sought an
award of interest at eighteen percent (18%)) on the December 11, 1998 summary
judgment award to OEA in the amount of $3,202,023 for certain consumer
electronic product that Emerson had ordered and received for OEA. The parties
have since agreed that the Returns issue is to be decided in the District Court
of New Jersey.
The Company believes that it has a meritorious claim against the Otake
Defendants, meritorious affirmative defenses in response to Orion's claim
concerning liability for the Returns and believes that the results of the
litigation should not have a material adverse effect on the financial condition
of the Company or on its operations.
BANKRUPTCY CLAIMS
The Company is presently engaged in litigation regarding a bankruptcy claim
that has not been resolved since the restructuring of the Company's debt on
March 31, 1994. This claim was filed on or about July 25, 1994, with the United
States Bankruptcy Court for the District of New Jersey, in connection with the
rejection of certain executory contracts with two Brazilian entities, Cineral
Electronica de Amazonia Ltda. and Cineral Magazine Ltda. (collectively,
"Cineral"). The amount currently claimed is for $93.6 million, of which $86.8
million represents a claim for lost profits. The claim will be satisfied, to the
extent the claim is allowed by the Bankruptcy Court, in the manner other allowed
unsecured claims were satisfied. The Company has objected to and contested the
claim and believes it has meritorious defenses to the highly speculative portion
of the claim for lost profits and the portion of the claim for actual damages
for expenses incurred prior to the execution of the contracts. An adverse final
ruling on the Cineral claim could have a material adverse effect on the Company,
even though it would be limited to 18.3% of the final claim determined by a
court of competent jurisdiction; however, with respect to the claim for lost
profits, the Company believes the chances for recovery for lost profits are
remote.Legal Proceedings:
The Company is involved in other legal proceedings and claims of various types in
the ordinary course of business. While any such litigation to which the Company
is a party contains an element of uncertainty, management presently believes
that the outcome of each such proceeding or claim which is pending or known to
be threatened, or all of them combined, will not have a material adverse effect
on the Company's consolidated financial position.
NOTEposition or results of operations.
Note 15 -- BUSINESS SEGMENT INFORMATION AND MAJOR CUSTOMERS:Business Segment Information and Major Customers:
The Company's has two business segments, the consumer electronics business
isand the Company's only businesssporting goods segment. Operations in thisthese business segmentsegments are
summarized below by geographic area:area (in thousands):
Year Ended April 2, 1999
(In thousands)March 31, 2001
U.S. Foreign Eliminations Consolidated
------------------------------------------------
Sales to unaffiliated customers $154,282- consumer
electronics $ 255,272 $ 9,077 $ 264,349
Sales to unaffiliated customers - sporting
Goods 112,653 408 113,061
--------------------------------------------
Total sales to unaffiliated customers $ 367,925 $ 9,485 $ 377,410
============================================
Income (loss) before income taxes -
consumer electronics $ 17,380 $ (25) $ 17,355
Income (loss) before income taxes -
sporting goods (5,646) -- (5,646)
--------------------------------------------
Total income (loss) before income taxes $ 11,734 $ (25) $ 11,709
============================================
Identifiable assets - consumer electronics $ 34,953 $ 8,504 $ 43,457
Identifiable assets - sporting goods 75,549 -- 75,549
--------------------------------------------
Total identifiable assets $ 110,502 $ 8,504 $ 119,006
============================================
Year Ended March 31, 2000
U.S. Foreign Consolidated
------------------------------------------------
Sales to unaffiliated customers $ 197,810 $ 5,891 $ 203,701
================================================
Income (loss) before income
Taxes $ 3,075 $ (32) $ 3,043
================================================
Identifiable assets $ 60,780 $ 2,731 $ 63,511
================================================
Year Ended April 2, 1999
U.S. Foreign Consolidated
Sales to unaffiliated customers $ 156,106 $ 4,448 $ -- $ 158,730
Income (loss)160,554
================================================
Loss before income taxes $ 472 $ 24 $ -- $ 496
================================================
Identifiable assets $ 50,974 $ 3,421 $ -- $ 54,395
================================================
Year Ended April 3, 1998
(In thousands)
U.S. Foreign Eliminations Consolidated
Sales to unaffiliated
customers $159,108 $ 3,622 $ -- $ 162,730
Income (loss) before
income taxes $ (1,163) $ (13) $ -- $ (1,176)
Identifiable assets $ 53,885 $ 912 $ -- $ 54,767
Year Ended March 31,
1997
U.S. Foreign Eliminations Consolidated
Sales to unaffiliated
customers $172,417 $ 6,291 $ -- $ 178,708
Transfers between
geographic areas $ 2,592 $ 581 $ (3,173) $ --
Total net revenues $175,009 $ 6,872 $ (3,173) $ 178,708
Income (loss) before
income taxes $(21,947) $(1,791) $ -- $ (23,738)
Identifiable assets $ 58,382 $ 386 $ -- $ 58,768
Transfers between geographic areas are accounted for on a cost basis.
Identifiable assets are those assets used in operations in each geographic
area. AtIn addition to operating assets, at March 31, 2001, March 31, 2000, and
April 2, 1999, April 3, 1998there were non-operating assets of $9,282,000, $8,297,000 and
March 31, 1997, total assets include,
$11,769,000, $9,187,000, and $10,657,000$8,348,000, respectively, of assets located in foreign countries.
The Company's net sales to one customer aggregated approximately 52%41%, 53%56%
and 36%52% of consolidated net revenues for the years ended March 31, 2001, March
31, 2000, and April 2, 1999, April
3, 1998 and March 31, 1997, respectively. This customer approximated 10% of the
Company'sThe trade accounts receivable balance
for this customer at April 2, 1999, and hasMarch 31, 2001 was not been
collateralized.material. The Company's net sales to
another customer aggregated 24%14%, 15%21%, and 13%24% for the years ended March 31,
2001, March 31, 2000, and April 2, 1999, April 3, 1998 and March 31, 1997, respectively. Trade accounts receivable
from this customer were less than 9%10% of total trade receivables.receivables at March 31, 2001.
Note 16 -- Investment in Joint Venture:- Quarterly Information (Unaudited):
The Company has a 50% investment in E & H Partners, a joint venture in
liquidation that refurbished and soldfollowing table sets forth certain ofinformation regarding the Company's
product returns.
The results of this joint venture were accountedoperations for byeach full quarter within the equity method and
the Company's equity in the earnings (loss) of the joint venture was reflected
as an increase or reduction of cost of sales. Summarized financial information
relating to the joint venture for thefiscal years ended April 2, 1999, April 3, 1998March
31, 2001 and March 31, 1997 is as follows:2000, with amounts in thousands, except for per share
data. Due to rounding, quarterly amounts may not fully sum to yearly amounts.
1999 1998 1997
(In thousands)
Activity between Company and E & H Partners
Accounts receivable from joint venture (a) $1,226 $1,438 $ 3,522
Investment in joint venture -- -- 440
Sales to joint venture -- -- 5,792
E & H Partners Summarized Financial
Information
Condensed balance sheet:
Current assets $ 323 $1,889 $ 7,947
Total $ 323 $1,889 $ 7,947
Current liabilities $1,318 $2,609 $ 7,476
Partnership equity (995) (720) 471
Total $ 323 $1,889 $ 7,947
Condensed income statement:
Net sales (b) $ 396 $1,772 $31,564
Net loss (275) (318) (2,058)
(a) Accounts receivable are secured by a shared lien on the partnership's
inventory with the other partner in the joint venture, and such lien had been
assigned to the Lender as collateral for the U.S. line of credit facility.
(b) Includes sales to the Company of $7,058,000 in Fiscal 1997.
Effective January 1, 1997, the partners to the E&H Partnership mutually
agreed to dissolve the joint venture and wind down its operations. The partners
have elected to extend such wind down in order to facilitate a more orderly
liquidation of the joint venture.
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Column A Column Column Column Column
B C D E
Balance Charged Balance
at to at
Beginn- costs end
ing andthousands, except per share data).
Fiscal 2001 (1)(2) Fiscal 2000 (2)
Consolidated Statement
of year
Description of year expenses Deductions (C)
Allowance for doubtful
accounts/chargebacks:
Year ended:Operations 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
April 2, 1999
Net revenues $ 3,015 $ (152) $ 177(A) $ 2,686
April 3, 1998 2,686 666 337 3,015
March 31, 1997 2,831 2,558 2,703 2,686
Inventory reserves:
Year ended:
April 2, 1999 $ 697 1,068 1,380(B) 385
April 3, 1998 2,161 1,507 2,971 697
March 31, 1997 1,222 4,560 3,621 2,161113,318 $128,101 $79,916 $56,075 $44,129 $55,077 $60,507 $43,988
Operating income
3,871 5,608 2,536 1,478 539 1,682 2,152 961
Net income
3,045 5,118 3,708 782 415 855 1,127 1,223
Net income per
common share - basic 0.07 0.15 0.12 0.02 0.01 0.02 0.02 0.03
Net income per
common share - diluted 0.06 0.13 0.10 0.02 0.01 0.02 0.02 0.02
Weighted average shares
Outstanding - basic 43,853 33,867 31,272 31,284 47,828 47,828 47,828 47,056
Weighted average shares
Outstanding - diluted 50,037 42,277 39,955 34,852 55,197 55,916 55,609 52,932
(A) Accounts written off,(1) Net revenues and operating income were restated from previously filed
quarterly information to reflect the consolidation of SSG for the full year
of fiscal 2001.
(2) Net revenues were restated to reflect estimated sales returns on a gross
basis rather than on a net basis in accordance with SAB 101. See Item 8 -
"Financial Statements and Supplementary Data - Note 1 - Recent
Pronouncements of recoveries.
(B) Net realizable value reserve removed from account when inventoryNotes to Consolidated Financial Statements"
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required is sold.
(C) Amounts do not include certain accounts receivable reserves that are
disclosed as "allowances" on the Consolidated Balance Sheets since they are
not valuation reserves.
INDEX TO EXHIBITS
PAGE NUMBER
IN
SEQUENTIAL
NUMBERING
EXHIBIT DESCRIPTION SYSTEM
(2) Confirmation Order and Fourth Amended Joint Plan of
Rorganization of Emerson Radio Corp. ("Old Emerson") and
certain subsidiaries under Chapter 11 of the United
States Bankruptcy Code, dated March 31, 1994
(incorporatedincorporated herein by reference to Exhibit (2) of Emerson's
Registrationdefinitive Proxy Statement to be filed with the Securities Exchange Commission
on or before July 30, 2001.
Item 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to Emerson's
definitive Proxy Statement to be filed with the Securities Exchange Commission
on or before July 30, 2001.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated herein by reference to Emerson's
definitive Proxy Statement to be filed with the Securities Exchange Commission
on or before July 30, 2001.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to Emerson's
definitive Proxy Statement to be filed with the Securities Exchange Commission
on or before July 30, 2001.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) Financial Statements and Schedules. See Item 8
(b) Reports on Form S-1, Registration No. 33-
53621, declared effective by8-K - Current report on Form 8-K, dated January
19, 2001, reporting the Securities and Exchange
Commission ("SEC") on August 9, 1994).
(3) (a)purchase of 1,629,629 shares of common
stock of Sport Supply Group, Inc..
(c) Exhibits
Exhibit Number
3.1 Certificate of Incorporation of Emerson (incorporated by
reference to Exhibit (3) (a) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(3) (b)3.2 Amended and Restated Certificate of Incorporation of Sport Supply
Group, Inc. (incorporated by reference to Exhibit 3.1of Sport
Supply's Annual Report on Form 10-K for the year ended March 30,
2001).
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Sport Supply Group, Inc. (incorporated by
reference to Exhibit 3.1.1 of Sport Supply's Annual Report on
Form 10-K for the year ended March 30, 2001).
3.4 Certificate of Designation for Series A Preferred Stock
(incorporated by reference to Exhibit (3) (b) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(3) (c) Plan of Reorganization and Agreement of Merger by and
between Old Emerson and Emerson Radio (Delaware) Corp.
(incorporated by reference to Exhibit (3) (c) of
Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC
on August 9, 1994).
(3) (d) Certificate of Merger of Old Emerson with and into
Emerson Radio (Delaware) Corp. (incorporated by reference
to Exhibit (3) (d) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621, declared
effective by the SEC on August 9, 1994).
(3) (e)3.5 Amendment dated February 14, 1996 to the Certificate of
Incorporation of Emerson (incorporated by reference to Exhibit
(3) (a) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(3) (f)3.6 By-Laws of Emerson adopted March 1994 (incorporated by reference
to Exhibit (3) (e) of Emerson's Registration Statement on Form
S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
(3) (g)3.7 Amendment dated November 28, 1995 to the By-Laws of Emerson
adopted March 1994 (incorporated by reference to Exhibit (3) (b)
of Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(4) (a) Warrant Agreement to Purchase 750,000 shares3.8 Amended and Restated Bylaws of Common
Stock, dated as of March 31, 1994Sport Supply Group, Inc.
(incorporated by reference to Exhibit (4) (a)3.2 of Emerson's Registration
StatementSport Supply's
Annual Report on Form S-1, Registration No. 33-53621,
declared effective by10-K for the SEC on August 9, 1994)year ended March 30, 2001).
(4) (b)4.1 Indenture, dated as of August 17, 1995 between Emerson and Bank
One, Columbus, NA, as Trustee (incorporated by reference to
Exhibit (1) of Emerson's Current Report on Form 8-K filed with
the SEC on September 8, 1995).
(4) (c) Common Stock Purchase Warrant Agreement to purchase
50,000 shares of Common Stock, dated as of December 8,
1995 between Emerson and Michael Metter (incorporated by
reference to Exhibit (10) (e) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31,
1995).
(4) (d)4.2 Common Stock Purchase Warrant Agreement to purchase 200,000
shares of Common Stock, dated as of December 8, 1995 between
Emerson and Kenneth A. Orr (incorporated by reference to Exhibit
(10) (f) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10) (a) Form of Promissory Note issued to certain Pre-Petition
Creditors (incorporated by reference to Exhibit (10)
(e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC
on August 9, 1994).
(10) (b)10.1 Loan and Security Agreement, dated March 31, 1994, by and among
Emerson, Majexco Imports, Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to Exhibit (10) (f) of
Emerson's Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9, 1994).
(10) (c)10.1.1 Amendment No. 1 to Financing Agreements, dated as of August 24,
1995, among Emerson, Majexco Imports, Inc. and Congress
(incorporated by reference to Exhibit (2) of Emerson's Current
Report on Form 8-K filed with the SEC on September 8, 1995).
(10) (d)10.1.2 Amendment No. 2 to Financing Agreements, dated as of February
13, 1996 (incorporated by reference to Exhibit (10) (c) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(10) (e)10.1.3 Amendment No. 3 to Financing Agreements, dated as of August 20,
1996 (incorporated by reference to Exhibit (10) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
(10) (f)10.1.4 Amendment No. 4 to Financing Agreements, dated as of November
14, 1996 (incorporated by reference to Exhibit (10) (c) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996).
(10) (g)10.1.5 Amendment No. 5 to Financing Agreements, dated as of February
18, 1997 (incorporated by reference to Exhibit (10) (e) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996).
10.1.6 Amendment No. 6 to Financing Agreements, dated as of August 14,
1997 (incorporated by reference to Exhibit (10) (h)(g) of Emerson's
Quarterly Report on Form 10-Q for quarter ended September 30,
1997).
10.1.7 Amendment No. 7 to Financing Agreements, dated as of March 31,
1998 (incorporated by reference to Exhibit (10) (t) of Emerson's
Annual Report on Form 10-K for the year ended April 3, 1998).
10.1.8 Amendment No. 8 to Financing Agreements, dated as of November
13, 1998 (incorporated by reference to Exhibit (10) (a) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
October 2, 1998).
10.1.9 Amendment No. 9 to Financing Agreements, dated June 16, 1999
(incorporated by reference to Exhibit (10) (ab) of Emerson's
Annual Report on Form 10-K for the year ended April 2, 1999).
10.2 Consent No. 1 to Financing Agreements among Emerson, certain of
its subsidiaries, and Congress (incorporated by reference to
Exhibit (10)(b) of Emerson's Current Report on Form 8-K dated
November 27, 1996).
10.3 Amendment No. 1 to Pledge and Security Agreement dated as of
March 31, 1998 (incorporated by reference to Exhibit (10) (u) of
Emerson's Annual Report on Form 10-K for the year ended April 3,
1998).
10.4 Stipulation of Settlement and Order dated June 11, 1996 by and
among the Official Liquidator of Fidenas International Bank
Limited, Petra Stelling, Barclays Bank PLC, the Official
Liquidator of Fidenas Investment Limited, Geoffrey P. Jurick,
Fidenas International Limited, L.L.C., Elision International,
Inc., GSE Multimedia Technologies Corporation and EmersonEmerson.
(incorporated by reference to Exhibit 10(ae) of Emerson's Annual
Report on Form 10-K for the year ended March 31, 1996).
(10) (i)1996.)
10.5 Pledge Agreement dated as of February 4, 1997 by Fidenas
International Limited, L.L.C. ("FIN") in favor of TM Capital
Corp. (incorporated by reference to Exhibit (10)(a) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996).
(10) (j)10.6 Registration Rights Agreement dated as of February 4, 1997 by
and among Emerson, FIN, the Creditors, FIL and TM Capital Corp.
(incorporated by reference to Exhibit (10) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996).
(10) (k) License and Exclusive Distribution Agreement with Cargil
International Corp. dated as of February 12, 1997
(incorporated by reference to Exhibit (10) (c) of
Emerson's Quarterly Report on Form 10-Q for the quarter
ended December 31, 1996).
(10) (l) Agreement dated April 10, 1997 between Emerson and
Daewoo Electronics Co., Ltd. (incorporated by reference
to Exhibit (ak) of Emerson's Annual Report on Form 10-K
of the year ended March 31, 1997).
(10) (m)10.7 Securities Purchase Agreement dated as of November 27, 1996, by
and between Sport Supply Group, Inc. ("SSG") and Emerson
(incorporated by reference to Exhibit (2)(a) of Emerson's
Current Report on Form 8-K dated November 27, 1996).
(10) (n)10.8 Form of Warrant Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(a) of Emerson's
Current Report on Form 8-K dated November 27, 1996).
(10) (o)10.9 Form of Registration Rights Agreement by and between SSG and
Emerson (incorporated by reference to Exhibit (4)(b) of
Emerson's Current Report on Form 8-K dated November 27, 1996).
(10) (p) Consent No. 1 to Financing Agreements among Emerson,
certain of its subsidiaries,10.10 License and Congress (incorporated
by reference to Exhibit (10)(b) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
(10) (q) Form of Termination of EmploymentExclusive Distribution Agreement between
Emerson and John Walkerwith Cargil
International Corp. dated as of January 15, 1998.
(incorporated by reference to Exhibit (10) (q) of
Emerson's Annual Report on Form 10-K for the year ended
April 3, 1998).
(10) (r) License Agreement dated as of March 30, 1998 by and
between Tel-Sound Electronics, Inc. and Emerson.
(incorporated by reference to Exhibit (10) (r) of
Emerson's
Annual Report on Form 10-K for the year ended April 3,
1998).
(10) (s) License Agreement dated as of March 31, 1998 by and
between WW Mexicana, S. A. de C. V. and Emerson.
(incorporated by Reference to Exhibit (10) (s) of
Emerson's Annual Report on Form 10-K for the year ended
April 3, 1998).
(10) (t) Amendment No. 6 to Financing Agreements, dated as
of August 14,February 12, 1997 (incorporated
by reference to Exhibit (10) (g)(c) of Emerson's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1997.
(10) (u) Amendment No. 7 to Financing Agreements,December 31, 1996).
10.11 License Agreement dated as of March 31, 1998.October 29, 1999 by and between
Daewoo Electronics Co. Ltd and Emerson (incorporated by
reference to Exhibit (10) (t)(b) of Emerson's AnnualQuarterly Report on
Form 10-K10-Q for the yearquarter ended April 3, 1998)October 1, 1999).
(10) (v) Amendment No. 1 to Pledge and Security10.12 License Agreement datedeffective as of March 31, 1998.January 1, 2001 by and between
Funai Corporation and Emerson (incorporated by reference to
Exhibit (10) (u)(z) of Emerson's AnnualQuarterly Report on Form 10-K10-Q for
the yearquarter ended April 3, 1998)September 30, 2000).
(10) (w)10.13 Second Lease Modification dated as of May 15, 1998 between Hartz
Mountain, Parsippany and Emerson.Emerson (incorporated by reference to
Exhibit (10) (v) of Emerson's Annual Report on Form 10-K for the
year ended April 3, 1998).
(10) (x) Amendment No. 8 to Financing Agreements, dated as of
November 13, 1998. (incorporated by reference to
Exhibit (10) (a) of Emerson's Quarterly Report on Form
10-Q for the quarter ended October 2, 1998).
(10) (y)10.13.1 Third Lease Modification made the 26 day of October, 1998
between Hartz Mountain Parsippany and Emerson.Emerson (incorporated by
reference to Exhibit (10) (b) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended October 2, 1998).
(10) (z)10.14 Purchasing Agreement, dated June 30, 1998, between
AFG-
ElecktronikAFG-Elektronik GmbH and Emerson Radio International Ltd.
(incorporated by reference to Exhibit (10) (c) of Emerson's
quarterly reportQuarterly Report on Form 10-Q for the quarter ended October 2,
1998).
(10) (aa)10.14.1 Purchasing Agreement, dated March 5, 1999, between
AFG-
ElecktronikAFG-Elektronik GmbH and Emerson Radio International Ltd.
(incorporated by reference to Exhibit (10) (aa) of Emerson's
Annual Report on Form 10-K for the year ended April 2, 1999).
10.15 Supplemental Letter of Employment for Marino Andriani, dated as
of October 11, 1999 (incorporated by reference to Exhibit (10)
(a) of Emerson's Quarterly Report on Form 10-Q for the quarter
ended October 1, 1999).
10.15.1 Supplemental Letter of Employment for Marino Andriani, effective
as of April 1, 2001. *
(10) (ab)10.16 Letter of Employment for Patrick Murray, dated May 3, 2001. *
10.17 Form of Indemnification Agreement entered into between the Sport
Supply and each of the directors of the Sport Supply and the
Sport Supply's General Counsel (incorporated by reference to
Exhibit 10.11 of Sport Supply's Annual Report on Form 10-K for
the year ended March 30, 2001).
10.18 Sport Supply Group, Inc. Amended and Restated Stock Option Plan
(incorporated by reference to Exhibit 10.13 of Sport Supply's
Annual Report on Form 10-K for the year ended March 30, 2001).
10.19 Assignment and Assumption Agreement, dated to be effective as of
February 28, 1992, by and between Aurora and Sport Supply Group,
Inc. (incorporated by reference to Exhibit 10.24 of Sport
Supply's Annual Report on Form 10-K for the year ended March 30,
2001).
10.20 Amendment No. 91 to Financing Agreements,AMF Licensing Agreement (incorporated by
reference to Exhibit 10.25 of Sport Supply's Annual Report on
Form 10-K for the year ended March 30, 2001).
10.21 License Agreement, dated as of September 23, 1991, by and
between Proacq Corp. and Sport Supply Group, Inc. (incorporated
by reference to Exhibit 10.30 of Sport Supply's Annual Report on
Form 10-K for the year ended March 30, 2001).
10.22 Sport Supply Group Employees' Savings Plan dated June 16,
1999.*
(12)1, 1993
(incorporated by reference to Exhibit 10.31 of Sport Supply's
Annual Report on Form 10-K for the year ended March 30, 2001).
10.23 Management Services Agreement dated July 1, 1997 to be effective
as of March 7, 1997 by and between Sport Supply Group, Inc. and
Emerson (incorporated by reference to Exhibit 10.32 of Sport
Supply's Annual Report on Form 10-K for the year ended March 30,
2001).
10.24 Non-Qualified Stock Option Agreement by and between the Company
and Geoffrey P. Jurick (incorporated by reference to Exhibit
10.4 of Sport Supply's Annual Report on Form 10-K for the year
ended March 30, 2001).
10.35 Credit Agreement dated March 27, 2001 by and between Sport
Supply Group, Inc. and Congress Financial Corporation
(incorporated by reference to Exhibit 10.37 of Sport Supply's
Annual Report on Form 10-K for the year ended March 30, 2001).
12 Computation of Ratio of Earnings (Loss) to Combined Fixed
Charges and Preferred Stock Dividends. *
(21)21 Subsidiaries of the Company as of April 2, 1999.March 31, 2001.*
(23)23 Consent of Independent Auditors.*
(27) Financial Data Schedule for the fiscal year ended April 2,1999.*
___________________
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board
Dated: June 25, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Geoffrey P. Jurick Chairman of the Board, June 25, 2001
Geoffrey P. Jurick Chief Executive Officer and
President
/s/ Kenneth A. Corby Executive Vice President, June 25, 2001
Kenneth A. Corby Chief Financial Officer
/s/ Robert H. Brown, Jr. Director June 25, 2001
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director June 25, 2001
Peter G. Bunger
/s/ Jerome H. Farnum Director June 25, 2001
Jerome H. Farnum
/s/ Stephen H. Goodman Director June 25, 2001
Stephen H. Goodman
EXHIBIT 12
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K
COMPUTATION OF RATIO OF EARNINGS (LOSS) TO COMBINED FIXED
CHARGESSCHEDULE VIII
VALUATION AND PREFERRED STOCK DIVIDENDSQUALIFYING ACCOUNTS AND RESERVES
(In thousands, except ratio data)
HISTORICALthousands)
Column A Column B Column C Column D Column E
- ------------------------------------------------------------ ----------- ------------ ---------- ----------
Balance at Charged to Balance
beginning costs and Deductions at end of
Description of year Expenses year (C)
- ------------------------------------------------------------
Allowance for doubtful accounts/chargebacks:
Year Year Year Year Year
Ended Ended Ended Ended Ended
Apr. 2, Apr. 3, Mar. 31, Mar. 31, Mar. 31,
1999 1998 1997 1996 1995ended:
Pretax earnings
(loss)
March 31, 2001 (D) $ 496 $(1,176) $(23,738)3,284 $ (13,363)(14) $ 7,642
Fixed charges:
Interest 1,925 1,833 2,789 2,788 2,582
Amortization of
debt expenses 347 677 640 487 300
2,272 2,510 3,429 3,275 2,882
Pretax earnings
(loss) before
fixed charges $2,768 $1,334 $(20,309) $(10,088) $10,524
Fixed charges:
Interest $1,925 $1,833255(A) $ 2,7893,015
March 31, 2000 2,686 (100) 139(A) 2,447
April 2, 1999 3,015 (152) 177(A) 2,686
- -----------------------------------------------------------
Inventory reserves:
Year ended:
March 31, 2001 (D) $ 2,7881,711 $ 2,582
Amortization of
debt expenses 347 677 640 487 300
Preferred stock
dividend
Requirements 171 400 700 700 725(a)
$2,443 $2,9101,222 $ 4,129662(B) $ 3,975 $3,607
Ratio of earnings
(loss) to combined
fixed charges and
preferred stock
dividends 1.13 .46 (4.92) (2.54) 2.92
Coverage deficiency -- $1,576 $4,129 $3,975 --2,271
March 31, 2000 385 708 514(B) 579
April 2, 1999 697 1,068 1,380(B) 385
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(a) The preferred stock dividend requirements have been adjusted to reflect(A) Accounts written off, net of recoveries.
(B) Net realizable value reserve removed from account when inventory is sold.
(C) Amounts do not include certain accounts receivable reserves that are
disclosed as "allowances" on the pretax earnings which would be required to cover such dividend requirements.
EXHIBIT 21
EMERSON RADIO CORP. AND SUBSIDIARIES
EXHIBIT TO FORM 10-K
SUBSIDIARIES OF THE REGISTRANT
Jurisdiction of Percentage
Name of Subsidiary Incorporation of Ownership
Emerson Radio (Hong Kong) Limited Hong Kong 100%*
Emerson Radio International Ltd. British Virgin Islands 100%
Sport Supply Group, Inc. Delaware 31%
* One share is owned by a resident director pursuant to local law.Consolidated Balance Sheets since they
are not valuation reserves.
(D) For fiscal 2001, the balances include both Emerson and SSG's accounts.