SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)10-Q (Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 19981, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3285224
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
(Address of principal executive offices) (Zip code)
(973)884-5800
(Registrant's telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of common stock as of November
9, 1998: 48,621,815.
The undersigned registrant hereby amends the following
items, financial statements, exhibits or other portions of its
Quarterly Report on Form 10-Q pursuant to the Securities and
Exchange Act of 1934, as amended, for the quarterly period
ended October 2, 1998, as set forth in the pages attached
hereto: Part I, Item 1 and Part II, Item 6, as they pertain to
earnings per share data.5, 1999: 47,828,215.
PART I - FINANCIAL INFORMATION
ITEMItem 1. FINANCIAL STATEMENTSFinancial Statements
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except earnings per share amounts)data)
Three Months Ended Six MonthsEndedMonths Ended
October 1, October 2, September 30,October 1, October 2,
September 30,1999 1998 19971999 1998 1997
NET REVENUESNet revenues $55,531 $ 46,762 $ 45,100$98,978 $105,888 $ 75,543
Costs and expenses:
Cost of sales 49,409 42,273 38,78787,680 94,161 67,186
Other operating costs and
expenses 877 897 6371,650 2,163 1,503
Selling, general &
administrative expenses 3,563 2,599 3,5277,427 7,497
7,15453,849 45,769 42,95196,757 103,821
75,843
OPERATING INCOME (LOSS)Operating income 1,682 993 2,1492,221 2,067 (300)
Equity in earnings of
Affiliate 42 348 528501 791 1,037
Write-down of investment in Joint Venture-- (185) -- (370)
--
Interest expense, net (619) (551) (658)(1,193) (1,120)
(1,399)
INCOME (LOSS) BEFORE INCOME
TAXESIncome before income taxes 1,105 605 2,0191,529 1,368
(662)
PROVISION FOR INCOME TAXESProvision for income taxes 250 22 --259 21
41
NET INCOME (LOSS)Net income $ 855 $ 583 $ 2,0191,270 $ 1,347
$ (703)
NET INCOME (LOSS) PER COMMON
SHARENet income per common share
Basic $ .00 $ .05 $ .02 $ (.02)
Diluted $ .00 $ .03 $ .02
Diluted $ (.02)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING.02 $ .00 $ .02 $ .02
Weighted average number of
common shares outstanding
Basic 47,828 50,037 42,37247,828 50,625
41,486
Diluted 55,916 50,037 61,63055,916 62,078 41,486
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)thousands)
October 1, April 2,
April 3,
1998 19981999 1999
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 6,6242,047 $ 2,6083,100
Available for sale securities (net of fair
value adjustment of ($770)$1,665 and $0,$1,298,
respectively) 1,040 --370 738
Accounts receivable (net(less allowances of
$5,862$4,480 and $4,884,$3,907, respectively) 7,381 6,2879,675 5,143
Other receivables 6,554 6,4746,888 6,782
Inventories 11,472 11,37512,362 11,608
Prepaid expenses and other current assets 2,541 2,503
TOTAL CURRENT ASSETS 35,612 29,2472,241 2,839
Total current assets 33,583 30,210
Property and equipment - (net of
accumulated depreciation and amortization
of $3,069$3,033 and $3,152,$2,777, respectively) 1,200 1,3811,264 1,211
Investment in Affiliate and Joint Venture 18,357 17,52220,016 19,525
Other assets 4,155 4,810
TOTAL ASSETS $59,3243,010 3,449
Total Assets $ 52,96057,873 $54,395
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 5,1344,096 $ --2,216
Current maturities of long-term debt 58 8575 50
Accounts payable and other current
liabilities 16,220 13,29616,834 16,759
Accrued sales returns 5,552 4,5114,561 3,926
Income taxes payable 109 191
TOTAL CURRENT LIABILITIES 27,073 18,083394 400
Total current liabilities 25,960 23,351
Long-term debt, net ofless current maturities 20,750 20,750
Other non-current liabilities 166 179109 97
Shareholders' Equity:
Preferred shares - 10,000,000
shares authorized, 3,714
and 5,237
shares issued and outstanding,
respectivelyoutstand 3,343 4,7133,343
Common shares - $.01 par value, 75,000,000
shares authorized, 51,331,615 and
51,044,730 shares issued;
48,701,015
and 51,044,73047,828,215 shares outstanding respectively 513 510
Treasury stock, at cost, 2,630,600 shares
and 0 shares respectively. (1,409) --513
Capital in excess of par value 113,287 113,201113,288 113,288
Cumulative translation adjustment (73) (78)
Unrealized lossesloss on marketable securities (770)(367) --
Accumulated deficit (103,826) (104,673)
Cumulative translation adjustment 197 197
TOTAL SHAREHOLDERS' EQUITY 11,335 13,948
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY(103,743) (104,962)
Treasury stock, at cost 3,503,400 shares (1,907) (1,907)
Total shareholders' equity 11,054 10,197
Total Liabilities and Shareholders' Equity $ 59,324 $ 52,96057,873 $54,395
The accompanying notes are an integral part of the interim
consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)(Unaudited)
(In thousands of dollars)thousands)
Six Months Ended
October 1, October 2,
September 30,1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating
activities $ 3,965 $ 2,005
CASH FLOWS FROM INVESTING ACTIVITIES:Cash Flows from Operating Activities:
Net cash provided (used) by investing
activities. (1,854) 13
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of
credit facility 5,134 (1,859)
Other (3,229) (73)operating
activities $ (2,268) $ 3,965
Cash Flows from Investing Activities:
Net cash used(used) by investing
activities (676) (1,854)
Cash Flows from Financing Activities:
Net cash provided by financing
activities 1,891 1,905 (1,932)
Net increase (decrease) in cash and cash
equivalents (1,053) 4,016 86
Cash and cash equivalents at beginning
of year 2,608 2,640period 3,100 1,208
Cash and cash equivalents at end of period(a)period $ 6,6242,047 $ 2,7265,224
Supplemental disclosure of cash flow information:
Interest paid $ 5511,088 $ 1,3991,092
Income taxes paid $ 1210 $ 3112
(a) Includes $1.4 million and $1.7 million as of October 2, 1998
and September 30, 1997, respectively, of cash and cash
equivalents, pledged to assure the availability of certain letter
of credit facilities.
The accompanying notes are an integral part of the interim consolidated
financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(In thousands, except earnings per share data)(Unaudited)
NOTE 1 - BUSINESS
The unaudited interim consolidated financial statements reflect all
normal and recurring adjustments that are, in the opinion of management,
necessary to present a fair statement of Emerson Radio Corp.'s (the
"Company" or "Emerson") consolidated financial position as of October 2, 19981,
1999 and the results of operations for the three and six month periods
ended October 1, 1999 and October 2, 1998 and September 30, 1997.1998. The unaudited interim
consolidated financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission and accordingly
do not include all of the disclosures normally made in the Company's annual
consolidated financial statements. It is suggested that these unaudited
interim consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto for the fiscal year
ended April 3,
19982, 1999 ("Fiscal 1998"1999"), included in the Company's annual
report on Form 10-K.
The consolidated financial statements include the accounts of the
Company and all of its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The preparation of the unaudited interim consolidated
financial statements 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.
Due to the seasonal nature of the Company's consumer electronics
business, the results of operations for the three and six month periods
ended October 2 19981, 1999 are not necessarily indicative of the results of
operations that may be expected for any other interim period or for the
full year ending April 2, 1999March 31, 2000 ("Fiscal 1999"2000").
Beginning in Fiscal 1998,The management of the Company changed its financial
reporting yearconsiders the Company to have one
reportable segment, consumer electronics, and assesses performance on a
52/53 week year ending on the Friday closest to
March 31. Accordingly, the current fiscal year will end on April
2, 1999. Such change in the Company's financial reporting year
will not have a material effect on the Company's results of
operations.single segment basis.
Certain amounts in the prior period's consolidated financial
statements have been reclassified to conform to current periodsperiod's
presentation.
NOTE 2 - EARNINGSCOMPREHENSIVE INCOME (LOSS)
The Company's total comprehensive income (loss) for the three and six
month periods ended October 1, 1999 and October 2, 1998 are as follows (in
thousands):
Three Months Six Months Ended
Ended
October October October October
1,1999 2,1998 1,1999 2,1998
Net income $ 855 $ 583 $1,270 $1,347
Currency translation adjustment 4 -- 4 --
Unrealized losses on securities,
net (119) (770) (367) (770)
Comprehensive income (loss) $ 740 $ (187) $ 907 $ 577
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
For the Three For the Six
Months Ended Months Ended
October 2, September 30,1, October 2, September 30,October 1, October 2,
1999 1998 19971999 1998 1997
NUMERATOR:
Numerator:
Net income (loss)$ 855 $ 583 $ 2,019 $1,3471,270 $ (703)1,347
Less: preferred stock
dividends 26 446 10952 500 245
Numerator for basic earnings
per share-incomeshare - income available
to common stockholders 829 137 1,9101,218 847 (948)
Add back to effect assumed
conversions:
Preferred stock dividends 26 -- 10952 93 --
Numerator for diluted
earnings (loss) per share $ 855 $ 137 $ 2,0191,270 $ 940
$ (948)
DENOMINATOR:Denominator:
Denominator for basic earnings
per share - weighted
average shares 47,828 50,037 42,37247,828 50,625 41,486
Effect of dilutive securities:
Preferred shares 8,088 -- 19,2588,088 11,453 --
Denominator for diluted earnings
per share - adjusted
weighted average shares and
assumed conversions 55,916 50,037 61,63055,916 62,078 41,486
Basic earnings (loss) per share $ .00 $ .05 $ .02 $ (.02)
Diluted earnings (loss)
per $ .00 $ .03 $ .02
Diluted earnings per share $ (.02).02 $ .00 $ .02 $ .02
NOTE 3-4 - CAPITAL STRUCTURE
The outstanding capital stock of the Company at October 2,
19981, 1999
consisted of common stock and Series A convertible preferred stock. The
preferred shares are convertible to common shares until March 31, 2002.
During the quarterquarters ended September 30, 1997, 1,434 shares
of Series A Preferred Stock were converted into 2,990,011 shares
of common stock. There wereOctober 1, 1999 and October 2, 1998, no
conversions of Series A Preferred Stock for the quarter ended October 2, 1998.were made. During August 1998, the
Company repurchased directly 1,423 preferred shares. If all existing
outstanding preferred shares were converted at October 2,
1998, an estimated 9.11, 1999,
approximately 8.1 million additional common shares would be issuable. Dividends for the preferred stock accrued and were
payable quarterly at a 7% annual rate until March 31, 1997;The
dividend rates declineon the Series A Preferred Stock at October 1, 1999 and
October 2, 1998 were 2.8% and 4.2%, with $879,000 and $762,000 of dividends
in arrears, respectively. The dividend rate declines by 1.4% each
succeeding year until March 31, 2001, when no further dividends are
payable.
The dividend
rates at October 2, 1998 and September 30, 1997 were 4.2% and
5.6%, with $762,000 and $615,000 of dividends in arrears
respectively.
At October 2, 1998,1, 1999, the Company had outstanding approximately 1.21.1
million options with exercise prices ranging from $1.00 to $1.10.
Approximately 737,000987,000 outstanding warrants are convertible into approximately 670,000an equal
number of shares of common stock at conversion prices ranging between $1.20$1.30
and $4.00.
The Company also has outstanding approximately $20.8 million of Senior
Subordinated Convertible Debentures due in 2002. See "Note 89 - Long Term
Debt."Debt" and "Note 11 - Letter of Intent".
NOTE 45 - INCOME TAXES
Income tax provisions and benefits for the quarterly periods ended October 1, 1999
and October 2, 1998 and September 30, 1997 consist of taxes related to international operations.
The Company does not recognize tax benefits for losses incurred by its
domestic operations.
NOTE 56 - INVENTORY
Inventories are comprised primarily of finished goods.
Spare parts inventories, netgoods which are stated
at the lower of reserves, aggregating $281,000 and
$384,000 at October 2, 1998 and April 3, 1998, respectively,
are included in "Prepaid expenses and other current assets."cost (first-in, first-out) or market.
NOTE 67 - 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 value
judged to be other-than temporaryother-than-temporary are included in earnings.
The following is a summary of available-for-sale equity securities at
October 1, 1999 and October 2, 1998 (in thousands):
Gross Gross EstimatedEstimate
Unrealized Unrealized Fair
Cost Gains Losses Value
Equity Securities $1,810 $Securities:
October 1,1999 $2,035 $-- $1,665 $370
October 2,1998 1,810 -- $770 $1,040770 1,040
NOTE 78 - INVESTMENT IN SPORT SUPPLY GROUP, INC.
The Company owns 2,274,500 (29%2,269,500 (approximately 31% of the outstanding)
shares of common stock of Sport Supply Group, Inc. ("SSG") whichthat it
purchased in 1996 at an aggregate cost of $15,728,000 or $ 6.92 per
share.$15,728,000. In addition, the
Company owns warrants, acquired in 1996 for $500,000 to purchase an
additional 1 million shares of SSG's common stock forSSG at $7.50 per share ("SSG Warrants") which the Company purchased in 1996 at an
aggregate cost of $500,000 or $.50 per SSG warrant.. If
the Company exercises all of the SSG Warrants, it will beneficially own
approximately 42%40% of the SSG common shares. 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 in and results of operations of 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
$3,973,000$6,530,000 which is being amortized on a straight line basis over 40 years.
At October 2, 1998,1, 1999, the aggregate market value quoted on the New York Stock
Exchange of Emerson's shares of SSG common shares equivalent in number to those owned by
Emerson was approximately $16.2$18.7 million. Summarized financial information
derived from SSG's financial reports to the Securities and Exchange
Commission was as follows (in thousands):
October 1, 1999 April 2, 1998 April 3,19981999
(Audited) (Unaudited)
Current assets $ 33,71044,587 $ 37,28244,322
Property, plant and
equipment and other assets 21,094 19,87826,560 30,252
Current liabilities 8,465 8,3958,083 14,966
Long-term debt 5,161 7,49820,956 19,045
Stockholders' Equity 42,108 40,563
(Unaudited)
For the 6 Months For the 6 Months
Ended Ended
October 1, 1999 October 2, 1998 August 1, 1997
Net sales $ 50,60756,722 $ 51,53650,607
Gross profit 21,744 19,950 20,239
Net income 2,163 2,994 3,950
In July 1997, the Company entered into a Management Services
Agreement with SSG, under which SSG provides various managerial and
administrative services to the Company.See "Note 11 - Letter of Intent".
NOTE 8 -LONG9 - LONG TERM DEBT
As of October 2, 19981, 1999 and April 3, 19982, 1999, long-term debt consisted of
the following (in thousands of dollars):
October 1, April 2,
April 3,
1998 19981999 1999
8-1/8 1/2% Senior Subordinated Convertible
Debentures Due 2002 $20,750 $20,750
Equipment notes and other 58 85
20,808 20,83575 50
20,825 20,800
Less current obligations 58 8575 50
Long term debt $20,750 $20,750
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures")
were issued in August 1995, bear interest at the rate of 8-1/8 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 a conversion price of $3.9875 per share, subject
to adjustment under certain circumstances. Beginning August 15, 1998, at
the option of the Company, the Debentures are redeemable in whole or in
part at an initial redemption price of 104% 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 subsidiaries, may incur. Each Debenture holder has
the right to cause the Company to redeem the Debentures if certain
designated events (as defined) should occur. Note 9 --LEGALSee "Note 11 - Letter of
Intent".
NOTE 10 - LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings and claims of
various types, the most significant of which are described in "Part I
- Item 3. Legal Proceedings" of the Company's Form 10-K for the fiscal year
ended April 3, 19982, 1999 and "Part II -
- - Other Information Item 1. Legal Proceedings" of this Quarterly
Report on Form 10-Q.8-K dated August 6, 1999. While any such
litigation contains an element of uncertainty, management presently
believes that the outcome of such proceedings and claims will not have a
material adverse effect on the Company's consolidated financial position.
ITEMNOTE 11 - LETTER OF INTENT
On August 3, 1999, the Company and Geoffrey P. Jurick, the Company's
Chairman of the Board, Chief Executive Officer and President, entered into
a letter of intent with Oaktree Capital Management Corp. and certain of its
affiliated entities ("Oaktree"). The letter of intent sets forth a
proposed series of transactions which, if consummated, would result in the
following:
- - The Company would sell its entire ownership in SSG to Oaktree. Under
the terms of the letter of intent, Oaktree would purchase from Emerson
2,269,500 shares of SSG common stock and warrants to purchase one million
shares for a purchase price consisting of $15 million in cash, the
surrender of approximately $13.9 million face amount of Emerson's
convertible debentures presently owned by Oaktree and an exit consent
amending certain provisions of the Indenture governing the Company's
convertible debentures.
- - The Company would purchase up to $23 million of
its outstanding common stock through a self-tender
offer at a price of not less than $1.00 per share.
The $15 million cash proceeds from the sale of the
SSG securities would be utilized by Emerson to fund,
in part, a partial tender offer. The remainder of
the $23 million would come from additional
borrowings.
- - The resolution of litigation between Mr. Jurick, Emerson's Chairman
and largest shareholder, and certain of his creditors.
Pursuant to the terms of the letter of intent and an option agreement,
Oaktree would acquire all claims held by certain creditors of Mr. Jurick
for $20 million. The claims to be acquired by
Oaktree have been the subject of litigation in the
U.S. District Court for the District of New Jersey.
Under the terms of the transactions, Mr. Jurick
would use amounts received by him pursuant to
Emerson's self-tender, together with certain other
funds, to acquire those claims from Oaktree,
thereby eliminating the need for him to sell his
Emerson shares. Subject to approval by SSG's
Board, Mr. Jurick also intends to assign options
to acquire 300,000 shares of SSG's common stock to
Oaktree.
Completion of the transaction described is contingent upon a number of
conditions being satisfied. No assurances can be made that this
transaction will be consummated.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITIONManagement's Discussion and Analysis ofResults of
Operations and Financial Condition
GENERAL
The Company's operating results and
liquidity are impacted by the seasonality of its
business. The Company records the majority of its
annual sales in the fiscal quarters ending in
September and December and receives the largest
amount of customer returns in the fiscal quarters
ending in March and June. Therefore, the results of
operations discussed below are not necessarily
indicative of the Company's prospective annual results.results for any
subsequent periods or for the year ending March 31,
2000. The Company expects its United States sales
for the fiscal quarter ended December 199831, 1999 to be lower thanincrease
as compared to the third fiscal quarter of Fiscal
1998ended January 1, 1999
due to reducedincreased product sales.
RESULTS OF OPERATIONS
NET REVENUES Consolidated net revenues
for the three and six month periods ended October
2, 19981, 1999 increased $1.7$8.8 million (3.7%(18.8%) and $30.3decreased
$6.9 million (40.2%(6.5%) as compared to the same periods in
the fiscal year ended March 31, 1998April 2, 1999 ("Fiscal 1998"1999"),
respectively. The increase in revenues for the three
months ended October 1,1999 resulted primarily from
increases in unit sales of microwave ovens and
Digital Video Disc (DVD) products, partially offset
by a reduction in audio products. The decrease in
revenues for the six months ended October 1, 1999
resulted primarily from decreased unit sales of
audio products, partially offset by reductions inthe increased
unit sales of microwave ovens. Additionally, a significant reduction in returnedovens and the introduction of
the DVD product was recorded in the current period as compared to the same
period in the prior year resulting from an overall more
restrictive return policy by the Company's customers.line. Revenues earned from the
licensing of the Emerson and G Clef trademark were
$1 million$878,000 and $1.6 million in the three and six month
periods ended October 2, 19981, 1999 as compared to $1.5 million$978,000
and $2.5$1.6 million in the same periods in Fiscal 1998,1999,
respectively.
The Company 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.
COST OF SALES Cost of Sales,sales, as a percentage
of consolidated net revenues, was 90%89.0% and 89%88.6%
for the three and six month periods ended
October 2, 19981, 1999 as compared to 86%90.4% and 89%88.9%
for the same periods in Fiscal 1998,1999, respectively.
The increasedecrease in the cost of sales as a percentpercentage
of sales for the three month periodmonths ended October 2, 19981, 1999, as compared
to the same period in the prior fiscal year, was primarily attributable
to lower margins
in audio products, and a decrease in licensing revenues and
marketing fees.
The Company's gross profit margins continue to be subject to
competitive pressures arising from pricing strategies associated
with the category of the consumer electronics market in which
the Company competes. The Company's products are generally
placedchange in the low-to-medium priced categories of the market
which tendproduct mix to be the most competitive and generate the lowest
profit margins. The Company believes that its marketing
agreements, its licensing agreements in the United States and
various foreign countries and its distribution
agreements in Canada, Europe and parts of Asia
will have a favorable impact on the Company's gross profit.
The Company continues to promote its direct import programs to
reduce its inventory levels and working capital risks thereby
reducing its inventory overhead costs. In addition, the
Company continues to focus on its higher margin
products and
continually reviews new products that can generate higher margins
than its current business, either through license arrangements,
acquisitions, joint ventures or on its own.products.
OTHER OPERATING COSTS AND EXPENSES Other
operating costs and expenses increased $260,000 and $660,000 infor the three and six
month
periodsperiod ended October 2,19981, 1999 as compared to the
same periodsperiod in Fiscal 1998, respectively,1999 were substantially
unchanged in absolute dollars. For the six month
period ended October 1, 1999 as compared to the same
period in the prior year, other operating costs
decreased by approximately $513,000 due primarily asto
a result of the
Company's return-to-vendor program. Under the return-tovendor
program, the Company, by paying a fee, is able to return
defective product to its suppliers and, to receivereduction in exchange, a
replacement unit.handling charges on returns.
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ("S,G&A") S,G&A as a percentage of revenues, was 5.6% and 7.1% for the
three and six month periods ended October 2, 1998, as compared to
7.8% and 9.5% for the same periods in Fiscal 1998,
respectively. In absolute terms, S,G&A decreasedincreased by $930,000$964,000 for
the three month period ended October 2, 1998,1, 1999, and for
the six month period ended October 2,1998 increased1, 1999 decreased
by $340,000$70,000 as compared to the same period in
Fiscal 1998.1999. The decreaseincrease of $930,000$964,000 in S,G&A
for the three month period was primarily attributable
to a decrease
in advertising costs and rent expense, offset by an increase in advertising costs; an increase
in charges related to bad debts and professional
fees. The increasedecrease of $340,000$70,000 in S,G&A for the
six month period was primarily attributable to increased professional
fees,a
decrease in charges related to bad debts, offset
by a decreasean increase in advertising costs and a decrease in
the charges incurred in the prior year for relocation costs of the
Company's back office operations from New Jersey to Texas.
OPERATING INCOME (LOSS) The Company reported operating
income of $1.0 million and $2.0 million for the three and six
months ended October 2, 1998, as compared to operating income of
$2.1 million and an operating loss of $.3 million
for the same periods in Fiscal 1998, respectively. Operating
income for the three month period ended October 2,1998 as
compared to the same period in the prior year is lower by $1.1
million mainly due to a higher cost of sales in the current
period, offset by a reduction in S,G&A expenses. Operating income
for the six month period ended October 2, 1998 as compared to the
same period in the prior year is higher by $2.3 million primarily
due to a higher revenue base of approximately $30 million.professional fees.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATE
The Company's share in the earnings of SSG amounted
to $348,000$42,000 and $791,000$501,000 in the three and six month
periods ended October 2,19981,1999 as compared to $528,000$348,000
and $1.0 million$791,000 for the same periods in the prior Fiscalfiscal
year, respectively.
INTEREST EXPENSE Interest expense decreasedincreased by
$107,000$68,000 and $279,000$73,000 in the three and six month
periods ended October 2, 19981, 1999 as compared to
the same periods in Fiscal 1998,1999, respectively.
The decreaseincrease was attributable to a significant reductionan increase in short term average
borrowings.borrowings and interest rate increases. The
decreaseincrease in short term borrowings was due to a reductionan
increase in working capital requirements.
NET EARNINGS (LOSS)INCOME As a result of the foregoing
factors, the Company generated net earningsincome of
$583,000$855,000 and $1,347,000$1,270,000 for the three and six month periods ended
October 2, 1998,1, 1999, as compared to net earnings of
$2,019,000$583,000 and a net loss of $703,000$1,347,000 for the same periods in Fiscal
1998,1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash providedutilized by operating activities was
$4.0$2.3 million for the six months ended October 2, 1998.1,
1999. Cash was providedutilized primarily by an increaseincreases in
accounts payable, increased
borrowings,receivable and inventory, partially offset by
an increase in accounts
receivable, combined with increasedthe profitability of the Company.
Net cash utilized by investing activities was
$1.9 million$676,000 for the six months ended October 2, 1998.1, 1999.
In the six months ended October 2, 1998,1, 1999, the
Company's financing activities provided $1.9
million of cash. The Companyprimarily from the increased its borrowings under
itsthe Company's U.S. line of credit facility by $5.1 million
and utilized $3.2 million for the purchase of the Company's
preferred and common stock to be held in treasury.facility.
The Company maintains an asset-based $10
million U.S. line of credit facility. In addition,
the Company maintains 2 credit facilities with a
Hong Kong based bank: a $4.2$3.5 million letter of credit
facility and a $25 million backto-backback-to-back letter of
credit facility. At October 2, 1998, there was $315,000 and $18.0 million
of letters of credit outstanding under1, 1999, the $4.2$3.5
million letter of credit facility was fully utilized
and $17.5 million was outstanding under the $25
million letter of credit facility,
respectively.facility.
At present, management believes that future cash
flow from operations and its existing institutional
financing noted above will be sufficient to fund all
of the Company's cash requirements for the next
twelve months. However, the adequacy of future cash
flow from operations is dependent upon the Company
achieving its operating plan. The Company's proposed
sale of its ownership interest in SSG would initially
reduce its existing long-term debt by approximately
$13.9 million. However, the Company would need an
additional facility of approximately $8 million to
fund the $23 million partial self-tender. See
"Note 11 - Letter of Intent".
As of October 2, 19981, 1999 the Company had no
material commitments for capital expenditures.
INFLATION AND FOREIGN CURRENCY
Neither inflation nor currency fluctuations had
a significant effect on the Company's results of
operations during the firstthree or six months of Fiscal 1999.ended
October 1,1999. 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.
TheThese countries are emerging from an economic crises in these countries and
its related
impact on their financial marketsmarket crisis that, to date, has not
impactedadversely affected the Company's ability to
purchase product. Should these
crises continue, theyIf the economic recovery
currently in progress should reverse its trend, it
could have a material adverse
effect on the Company by inhibitingadversely affect the Company's relationship
with its suppliers and its ability to acquire
products for resale.products. Additional financial turmoil in the South
American economies may have an adverse impact on the
Company's South American licensee.
YEAR 2000
The Company has in place detailed programs to address Year 2000 readiness in its internalissue 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 and its key customers
and suppliers. The Company's Year 2000 readiness team includes
both internal personnel and external consultants. The team's
activities are designed to ensure that there will be
no material
adverse effects onunable to correctly interpret dates beyond the Company's business operations and that
transactions with customers, suppliers, and financial institutions
will be fully supported. The specific costsyear
1999, which could cause a system failure or other
computer errors, leading to a disruption in the
operation or accuracy of achieving Year
2000 compliance are expected to be $300,000, of which
approximately $100,000 has been expended to date.such systems. The Company
has convertedrecently completed a significant portion of its
operational software, withcompany-wide study and
testing scheduledprogram to take placelocate and cure any Year 2000
issues in the last quarterproducts or systems on which it relies
and in the products it offers for sale at a cost of
calendar year 1998. The balance of the Company's
software is to be updated from an outside vendor, whichapproximately $500,000. To date, the Company expects to take placehas not
identified any such problems requiring corrective
action that will result in a material adverse impact
on the first quarter of Calendar
1999. The Company, expectsand believes that all critical systems will be
compliant by June 1999 and fully tested by September 1999. The
Companyit is also in the process of ensuring that its
significant suppliers, customers and financial institutions
have appropriate plans to ensure that they are Year 2000
compliant. Risk assessment, readiness evaluation, action
plans and contingency plans related to third
parties are expected to be completed during the first half of
Calendar 1999.
While the Company believes its planning efforts are adequate to
address its Year 2000 concerns,However, there can be no guaranteeassurance that
all
internal systems, as well as those of third parties onthe companies with which the company relies,Company does
business will be converted onachieve Year 2000 compliance in a
timely basis andfashion, or that such failure to comply by
another company will not have a material affectadverse
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 incurred and will incur internal but
not incremental staff costs related to the above
initiative.
Potential sources of risk include: (a) the
inability of principal suppliers to be Year 2000
ready, which could result 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 issues
related to Year 2000 compatibility which could
have a material adverse impact. The Company's operations.Year
2000 assessment is ongoing 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 result 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.
Based on the assessment effort to date, the
Company does not believe that the Year 2000 issue will
have a material adverse effect on its financial
condition, results of operations, or cash flows.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING
STANDARDS BOARD
Recent pronouncements to the Financial Accounting Standards
Board ("FASB") that are not required to be adopted (and that the
Company has not adopted as of October 2, 1998), include the
following Statements of Financial Accounting Standards ("SFAS"):
SFAS No. 130, "Reporting Comprehensive Income,"
establishes standards for reporting and display of
comprehensive income (all changes in equity during
a period except those resulting from investments
by and distributions to owners) and its components in the financial
statements. This new standard, which will be effective for the
Company's April 2, 1999 financial statements, is not currently
anticipated to have a significant impact on the Company's
financial statements based on the current financial structure and
operations of the Company.
SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information," which will be effective for the
Company for Fiscal 1999, establishes standards for reporting
information about operating segments in the annual financial
statements, selected information about operating segments in
interim financial reports and disclosures about products and
services, geographic areas and major customers. This new standard
requires the Company to report financial information on the basis
that is used internally for evaluating segment performance and
deciding how to allocate resources to segments, which may result
in more detailed information in the notes to the Company's financial
statements than is currently required and provided. The Company
has not yet determined the effects, if any, of implementing SFAS
No. 131 on its reporting of financial information.
SFAS No. 132, "Employers Disclosures about Pension and other
Postretirement Benefits," revises disclosures about pension and
other postretirement benefit plans. This new standard,
standardizes the disclosure requirements for pension and other
postretirement benefits to the extent practicable and requires
additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial
analysis. This new standard, which will be effective for Fiscal
1999, will not have a significant impact on the Company's
financial statements based on the current financial structure
and operations of the Company.
SFAS No. 133, "Accounting for Derivative
InstructmentsInstruments and Hedging
Activities," which will be effective for the
Company for Fiscal 2000,2001, establishes accounting
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.
FORWARD-LOOKING INFORMATION
This report contains various forward lookingforward-looking
statements under the Private Securities Litigation
Reform Act of 1995 (the "Reform Act") and
information that is based on Management's beliefs as
well as assumptions made by and information
currently available to Management. When used in this
report, the words "anticipate", "estimate",
"expect", "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 Company to continue selling products to its
largest customers whose net revenues represented 58%52%
and 16%24% of Fiscal 19981999 net revenues; (ii)
competitive factors such as competitive pricing
strategies utilized by retailers in the domestic
marketplace that negatively impacts product gross
margins; (iii) the ability of the Company to
maintain its suppliers, primarily all of whom are
located in the Far East; (iv) the Company's ability to replace the licensing income from the
Supplier with commission revenues from Daewoo; (v) the outcome of
litigation; (vi) the availability of sufficient capital to
finance the Company's operating plans; (vii)(v) the ability of the Company to comply with
the restrictions imposed upon it by its outstanding
indebtedness; (vi) the Year 2000 Issue (as described
above); (vii) general economic conditions; and
(viii) the effectability of the worldwide
volatilityCompany to execute its
proposed plan involving the sale of its ownership
interest in the financial marketsSSG and the partial self-tender for the
Company's securities
that are being held as available-for-sale; and (ix) general
economic conditions.shares of common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
EMERSON RADIO CORP. AND SUBSIDIARIESmaterial.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During July 1998, testimony concluded on the
Creditors' motion to terminate the Settlement
Agreement in the Stelling litigation. No decision
has been rendered by the Court.
In August 1998, the Company voluntarily dismissed
with prejudice its lawsuit against Grace Brothers,
Ltd.
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, alleging that the
Company entered into an insurance agreement and
failed to honor its obligation as stated in the
agreement. CGLIC is seeking damages in the amount
of $785,890. While the outcome of this action is
not certain at this time, the Company believes it
has meritorious defenses.
For further information on the Stelling litigation
and other
litigation to which the Company is a
party, reference is made to Part 1 Item-3-LegalItem-3-
Legal Proceedings in the Company's most
recent annual report on
Form 10-K.10-K, and on Form 8-K dated August
6,1999.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In August 1998, the Company repurchased and retired
1,423 shares of its outstanding Series A Preferred Stock.
During the quarter ended October 2, 1998 the
Company purchased 2,364,100 shares of its common stock
that is being held as treasury stock.None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
(a) None
(b) None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
(a) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS:Exhibits:
(10)(a) Amendment No. 8 to Financing Agreements,Supplemental Letter of Employment
for Marino Andriani, dated as of November 13, 1998.October 11, 1999.*
(10)(b) Third Lease Modification made the 26 dayLicense Agreement dated as of
October 199829, 1999 by and between
Hartz Mountain ParsippanyDaewoo Electronics Co. LTD and Emerson.
(10)(c) Purchasing Agreement, dated June 30, 1998,
between AFGElektronik GmbH and Emerson Radio
International Ltd.*
(27) Financial Data Schedule for quarter
ended October 2,
1998.1, 1999.*
(b) REPORTS ON FORMReports on Form 8-K - During the three month period
ended October 2, 1998, noCurrent report
on Form 8-K was filed.dated August 6, 1999,
reporting a letter of intent to
resolve certain litigation and
ownership issues.
____________________________
*Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERSON RADIO CORP.
(Registrant)
Date: February 23,November 5, 1999 /s/ Geoffrey P. JurickP.Jurick
Geoffrey P. Jurick
Chairman, Chief
Executive Officer and
President
Date: February 23,November 5, 1999 /s/John P. Walker
John P. Walker
Executive Vice President
and Chief Financial Officer