SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended March 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 Number 0-25226
EMERSON(R) RADIO CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-3285224
(State or other jurisdiction (I.R.S. Employer
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
Securities registered pursuant to Section 12(g) of the Act: 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-affiliates of the registrant at June 20, 2001 (computed by reference to the
last reported sale price of the Common Stock on the American Stock Exchange on
such date): $23,969,039.
Number of Common Shares outstanding at June 20, 2001: 31,343,978
DOCUMENTS INCORPORATED BY REFERENCE:
Document 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
The Company
Emerson Radio Corp. 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 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. Emerson also licenses its trademark for a variety
of products domestically and internationally to certain licensees. Emerson
distributes its products primarily through mass merchants, discount retailers,
toy retailers, distributors and specialty catalogers leveraging the strength of
its "EMERSON(R)" and "H.H. Scott(R)" trademarks, recognized trade names 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. See "Business-Licensing and Related Activities".
Emerson believes it possesses an advantage over its competitors due to the
combination of (i) the "EMERSON(R)" brand recognition, (ii) its distribution
base and established customer relations, (iii) its sourcing expertise and
established vendor relations, (iv) an infrastructure with personnel experienced
in servicing and providing logistical support to the domestic mass merchant
distribution 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 leveraging its core competencies to offer a broad variety of
current and new consumer products to customers. In addition, Emerson has in the
past, and intends in the future, to form joint ventures and enter into
additional inward and outward licensing and distribution agreements that take
advantage of its trademarks and utilize the logistical and sourcing advantages
for products that are more efficiently marketed with the assistance of these
partners.
The consumer electronics segment's core business consists of selling,
distributing and licensing various low to moderately priced categories of
consumer electronic products. The majority of Emerson's marketing and sales
efforts are concentrated in the United States and, to a lesser extent, certain
other international regions. Major competitors in these markets are
foreign-based manufacturers and distributors. See "Business - Competition."
Sporting Goods
SSG is a leading direct mail marketer of sports related equipment and
leisure products primarily to the institutional market in the United States. The
institutional market is generally comprised of schools, colleges, universities,
government agencies, military facilities, athletic clubs, athletic teams and
dealers, youth sports leagues and recreational organizations.
Products
Consumer Electronics
Emerson's current product categories consist of the following:
Video Products Audio Products Other
Color televisions CD stereo systems Home office
Color specialty televisions Digital clock radios Home theater
Digital video disc (DVD) Portable audio, cassette & CD systems Microwave ovens
Specialty video cassette players Personal audio, cassette & CD systems Multi-media
Video cassette recorders (VCR) Shelf systems Hello Kitty(R) products
Specialty clock radios
All of the consumer 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. Emerson has entered into a license agreement for
use of the Hello Kitty(R) logo on selected products. The Company's H. H.
Scott(R) division markets home theater products and 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 are 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 institutional market. Most of SSG's
products are marketed under trade names or trademarks owned or licensed by SSG
and include 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 home office products and
products utilizing popular theme characters and logos such as Hello Kitty(R);
(iii) capitalize on opportunities to license the "EMERSON(R)" and "H.H.
Scott(R)" trademarks; (iv) leverage and exploit its sourcing capabilities,
buying power and logistics expertise in the Far East either for itself or on
behalf of third parties; (v) expand international sales and distribution
channels; (vi) further develop its direct to consumer sales channel; and (vii)
expand through strategic mergers and acquisitions. In connection with Emerson's
strategic focus, Emerson may from time to time take an equity position in
various corporate entities.
Emerson believes that the "EMERSON(R)" trademark is recognized in many
countries. A principal component of Emerson's growth strategy is to utilize this
global brand name recognition together with its 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. Emerson believes
that 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 consumer electronics
current product line and augmenting its product line with complementary
products. Emerson intends to pursue such plans either independently or by
forging new relationships, including license arrangements, distributorship
agreements and joint ventures. See "Business-Licensing and Related Activities."
Sporting 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
continued 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, and a
domestic program. Under its direct import program, products bearing the
"EMERSON(R)" trademark are imported directly by Emerson's customers. In Fiscal
2001 and Fiscal 2000, products representing approximately 80% and 83% of net
consumer electronics revenues, respectively, were earned under this program. If
a larger proportion of Emerson's sales were made pursuant to its domestic
program, Emerson would require increased working capital that may affect its
liquidity. See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
Emerson has an integrated system to coordinate the purchasing, sales and
distribution aspects of its operations. Emerson receives orders from its major
accounts electronically, via facsimile, telephone or mail. Emerson does not have
long-term contracts with any of its customers, but rather receives orders on an
ongoing basis. Products imported by Emerson (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. All inventory is monitored by
Emerson's electronic inventory system. As a purchase order is received and
filled, warehoused product is labeled and prepared for outbound shipment to
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 necessary 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, Emerson markets its products primarily through mass
merchandisers, discount retailers, and specialty toy distributors. Wal-Mart
Stores accounted for approximately 41% and 56%, and Target Stores accounted for
approximately 14% and 21% of the Company's consolidated net revenues in fiscal
2001 and 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 results of operations.
Approximately 34% and 38% of the net consumer electronics revenues in
fiscal 2001 and fiscal 2000, respectively, were made through sales
representative organizations that receive sales commissions and work closely
with Emerson's sales personnel. The sales representative organizations sell, in
addition to the Emerson 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. Emerson utilizes approximately 30 sales representative organizations,
including one through which approximately 21% and 25% of the net consumer
electronics revenues were made in fiscal 2001 and fiscal 2000, respectively. No
other sales representative organization accounted for more than 10% of the
consumer electronics net revenues in either year. The remainder of Emerson's
sales are serviced by its sales personnel.
Sporting Goods
SSG offers products directly to the institutional 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 Internet. SSG's marketing efforts are supported 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 is the largest in the institutional direct mail market
for sports related equipment.
Foreign Marketing
Approximately 3% of the consumer electronics segment net revenues in fiscal
2001 and 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 Item 8 -
"Financial Statements and Supplementary 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
Consumer Electronics
Emerson has several license agreements in place that allow licensees to use
the "EMERSON(R)" and "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, Emerson has entered into several
sourcing and inspection agreements that require Emerson to provide these
services in exchange for a fee. License revenues recognized and earned in fiscal
2001, 2000, and 1999 were approximately $3,930,000, $3,143,000, and $3,633,000,
respectively. Emerson records a majority of licensing revenues as earned over
the term of the related agreements.
In October 2000, Emerson entered into 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"). The Video License Agreement provides that Funai manufacture, market,
sell and distribute specified products bearing the "EMERSON(R)" trademark to
customers in North America. Under the terms of the agreement, the Company will
receive non-refundable minimum annual royalty payments of approximately $4.3
million for calendar years 2001 and 2002, as well as 2003 unless terminated
pursuant to the terms of the License Agreement. The minimums are credited
against royalties earned for the sale of products. During fiscal 2001, revenues
of $1,075,000 were recorded under this Video License Agreement.
Throughout various parts of the world, Emerson maintains distribution and
license agreements that provide for the distribution of Emerson's products into
defined geographic areas.
Emerson intends to pursue additional licensing and distribution
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."
Sporting 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 licensed 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 Emerson's specifications. These manufacturers are primarily
located in Hong Kong, South Korea, China, Malaysia and Thailand.
Emerson's design team is responsible for product development and works
closely with its suppliers. Emerson'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 products reflect
Emerson's judgment of current styles and consumer preferences. Emerson's designs
are tailored to meet the consumer preferences of the local market, particularly
in the case of its international markets.
During fiscal 2001 and fiscal 2000, 100% of Emerson's purchases consisted
of imported finished goods.
The following summarizes Emerson's purchases from its major 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 Emerson's total purchases
in fiscal 2001 or fiscal 2000. Emerson considers its relationships with its
suppliers to be satisfactory and believes that, barring any unusual shortages or
economic conditions Emerson could develop, as it already has alternative sources
for the products it currently purchases. Emerson has a contractual agreement
with one supplier to provide future raw materials totaling approximately
$240,000. No assurance can be given that ample supply of product would be
available at current prices if Emerson 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. See 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 most 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 Philippines,
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
Emerson's customers return product to Emerson for a variety of reasons,
including retailer return policies with their customers, damage to goods in
transit and occasional cosmetic imperfections and mechanical failures.
To reduce the costs associated with product returns, Emerson has entered
into agreements with the majority of its suppliers. For a fee, Emerson returns
defective returned product to the supplier and in exchange receives a unit. The
return to vendor agreements have 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 are not
considered a significant factor in SSG's operations.
Backlog
The Company believes that backlog is not a significant factor in its
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
Emerson owns the EMERSON(R)", "Emerson Research(TM)", "Emerson Interactive
(sm)", "H.H. Scott(R)" and "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 Emerson, those
registered in the United States must be renewed at various times through 2011
and those registered in Canada must be renewed at various times through 2014.
Emerson's trademarks are also registered on a worldwide basis in various
countries, which registrations must be renewed at various times. Emerson intends
to renew all trademarks necessary for its business. Emerson considers the
"EMERSON(R)" trademark to be of material importance to its business and owns
several other trademarks, none of which is currently considered by Emerson to be
of material importance to its business. Emerson outward licenses the
"EMERSON(R)" trademark on a limited product and geographic basis for a
definitive period of time. See Item 1 "Business - Licensing and Related
Activities."
SSG 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 Emerson
competes generates approximately $14 billion of factory sales annually and is
highly fragmented, cyclical and very competitive. The industry is characterized
by the short life cycle of products, which requires continuous design and
development efforts.
Emerson primarily competes in the low to medium-priced sector of the
consumer electronics market. Management estimates that Emerson has several dozen
competitors that are manufacturers and/or distributors, many of which are much
larger and have greater financial resources than Emerson. Emerson competes
primarily on the basis of its products' reliability, quality, price, design,
consumer acceptance of the "EMERSON(R)" trademark, and quality service to
retailers and their customers. Emerson's products also compete at the retail
level for shelf space and promotional displays, all of which have an impact on
its established and proposed distribution channels.
Sporting 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 providers of sporting goods on the Internet. SSG has
identified approximately 15 other direct mail companies in the institutional
market most of which it believes are competitors substantially smaller than SSG
in terms of geographic coverage, products, E-Commerce capability and revenues.
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, but during the
last several years this revenue pattern has been less prevalent due to the
retailers need to plan earlier for the Christmas selling season and management's
ability to obtain additional orders during the slower times of the year. The
seasonality of Emerson is counterbalanced by SSG which has historically
experienced strong revenues during the March quarter primarily due to volume
generated by spring and summer sports, favorable outdoor weather conditions and
school needs before summer closings, and weak revenues during the December
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.
Many 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 11, 2001, the Company had approximately 570 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 believes its
labor relations to be generally satisfactory.
Item 2. PROPERTIES
The following table sets forth the material properties owned or leased by
the 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 sales from each
respective location.
The Company 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
As previously reported, Emerson has resolved substantially all of the
litigation against it and accrued the net cost thereof as an expense prior to
its fiscal year ended March 31, 2001. All that remains is litigation arising in
the ordinary course of business, which in the opinion of management, will not
have a material adverse effect on the Company's consolidated financial position
if resolved on unfavorable terms to the Company 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 Company's Chairman, three of his creditors, the Company, and certain other
parties. While such implementation may have a material adverse effect on Mr.
Jurick, it is the opinion of management of the Company that termination of the
Stipulation will not adversely affect the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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 2001 Fiscal 2000
------------------------------- -------------------------------
High Low High Low
First Quarter $ .938 $ .625 $ .875 $ .500
Second Quarter 2.938 .750 .750 .500
Third Quarter 2.813 1.125 .688 .438
Fourth Quarter 2.050 1.000 1.000 .500
There is no established trading market for the Company's Series A
Convertible Preferred Stock.
(b) Holders
At May 23, 2001, there were approximately 444 stockholders of record
of the Company's Common 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 not 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
Emerson'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 1.4% dividend rate. 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, no additional dividends
will accrue on the Series A Preferred Stock. See Item 7 - "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
(d) Unregistered Securities
During the fourth quarter of fiscal 2001, 68,896 warrants were
exercised and 68,896 shares of common stock of the Company were issued upon such
exercise. On March 31, 2001, approximately 680,000 outstanding warrants to
purchase shares of the Company's common stock expired unexercised.
The above transactions were private transactions not involving a
public offering and were exempt from the registration provision of the
Securities 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 restrictive legend permitting the transfer thereof
only upon registration of the shares or an 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 March 31, 2001. For the years 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. Beginning in
fiscal 2001, the Company changed its financial reporting year to end on March
31. The selected consolidated financial data should be read in conjunction with
the Company's Consolidated Financial Statements, including the notes thereto,
and Item 7 - "Management's Discussion and Analysis of Results of Operations and
Financial Condition".
------------- ------------- --------------- -------------- ---------------
March 31, March 31, April 2, April 3, March 31,
2001 (1) 2000 1999 1998 1997
------------- ------------- --------------- -------------- ---------------
(In thousands, except per share data)
Summary of Operations:
Net Revenues $ 377,410 $ 203,701 $ 160,554 $ 162,730 $ 178,708
Operating Income (Loss) $ 13,493 $ 5,334 $ 3,278 $ 524 $ (20,243)
Net Income (Loss) $ 12,653 $ 3,620 $ 289 $ (1,430) $ (23,968)
Balance Sheet Data at Period End:
Total Assets $ 119,006 $ 63,511 $ 60,872 $ 58,762 $ 61,151
Current Liabilities 45,330 30,057 29,828 23,885 24,043
Long-Term Debt 38,257 20,891 20,847 20,929 21,079
Shareholders' Equity 15,131 12,563 10,197 13,948 16,029
Working Capital 39,497 9,854 6,859 9,610 13,258
Current Ratio 1.9 to 1 1.3 to 1 1.2 to 1 1.4 to 1 1.6 to 1
Per Common Share: (2)
Net Income (Loss) Per Common Share -
Basic $ .36 $ .07 $ (.01) $ (.04) $ (0.61)
Net Income (Loss) Per Common Share -
Diluted $ .33 $ .07 $ (.01) $ (.04) $ (0.61)
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
Common Shareholders' Equity per
Common Share (3) $ 0.33 $ 0.19 $ 0.13 $ 0.19 $ 0.15
(1) Prior to March 23, 2001, the Company accounted for its investment in SSG
using the equity method of accounting. On March 23, 2001, Emerson obtained
a majority 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. 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, 2001.
(2) For fiscal 2001 and 2000, dilutive securities include 3,066,000 and
5,876,000 shares, respectively, assuming conversion 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, 2001, and 2000. For
fiscal 2001, dilutive securities also include 437,000 shares assuming
conversion of 1,658,000 options. Per common share data is based on the net
income or loss and deduction of preferred stock dividend requirements
(resulting in a loss attributable to common stockholders for fiscal
1999-1997) and the weighted average of Common Stock outstanding during each
fiscal year. Loss per share does not include potentially dilutive
securities assumed outstanding since the effects of such conversion would
be anti-dilutive.
(3) Calculated based on common shareholders' equity divided by the basic
weighted average shares of Common Stock outstanding. Common shareholders'
equity for fiscal years 2001 through 1997, is equal to total shareholders'
equity less $3,677,000, $3,677,000, $3,714,000, $5,237,000, and
$10,000,000, respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
During 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 following table sets forth, for the periods indicated, certain
items related to the consolidated statements of operations as a percentage 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 revenues from the consumer electronics segment.
Cost of Sales - Cost of sales, as a percentage of consolidated net
revenues, decreased from 86.8% in fiscal 2000 to 81.1% 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 lower inventory carrying expenses and a
higher revenue base.
Selling, General and Administrative Expenses ("S,G&A") - S,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 fiscal 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
(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
(30%) as compared to fiscal 2000. The increase in net revenues resulted
primarily from increases in unit sales of audio products, microwave ovens
products, and Hello Kitty(R) branded products. Additionally, Emerson's HH
Scott(R) brand continued to expand. Licensing revenues were $3.9 million for
fiscal 2001 as compared to $3.1 million for fiscal 2000. The increase is
attributable to the following 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 increasing license
revenues is expected to continue.
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.
Cost of Sales - Cost of sales, as a percentage of consolidated net
revenues, was 85.2% and 86.8% in fiscal 2001 and fiscal 2000, respectively. The
decrease 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 price categories of the consumer electronics market in which Emerson
competes. Emerson's products are generally placed in the low-to-medium priced
category of the market, which has a tendency to be highly competitive. Emerson
believes that the combination of its (i) direct import program; (ii) various
license agreements; (iii) the continued introduction of higher margin products;
(iv) use of inward license agreements such as Hello Kitty(R) and (v) further
reduction in product return rates will continue to favorably impact its gross
profit margins.
Other Operating Costs and Expenses - Other operating costs and
expenses as a percentage of net revenues decreased from 2.2% in fiscal 2000 to
1.6% in fiscal 2001. The decrease was primarily 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, decreased to 6.6% of net revenues in fiscal 2001
from 8.3% of net revenues in fiscal 2000. The decrease in S,G&A between fiscal
2001 and 2000 as a percentage of net revenues was attributable to continued cost
containment programs and the effect of a higher sales base.
Equity In Earnings Of Affiliate - 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."
Other Investment Losses - There were no losses for fiscal 2001 as
compared to $284,000 for fiscal 2000. The loss in fiscal 2000 was due to
write-downs in investments in joint ventures, and losses on marketable
securities which were classified as "available-for-sale".
Interest Expense, net - Interest expense decreased from $2.3 million
in fiscal 2000 to $2.1 million in fiscal 2001. The decrease was attributable
primarily to an increase in interest income.
Provision for Income Taxes - Emerson's provision for income taxes was
$1.1 million for fiscal 2001 as compared to a benefit of $577,000 for fiscal
2000. The provision of $1.1 million consisted primarily of foreign and Federal
AMT taxes. The income tax benefit recorded for fiscal 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, net income of $14.1
million was earned in fiscal 2001 as compared to $3.6 million in fiscal 2000.
Results of Consumer Electronics Operations - fiscal 2000 compared with fiscal
1999
Net Revenues - Net revenues for fiscal 2000 increased $43.1 million
(27%) as compared to fiscal 1999. The increase in net revenues resulted
primarily from increases in unit sales of microwave ovens and audio products as
well as the introduction of the DVD and home office product category. 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 Emerson's customers. Revenues earned from the
licensing of the "EMERSON(R)" trademark were $3.1 million for fiscal 2000 as
compared to $3.6 million for fiscal 1999. The decrease 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.
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 primarily due to decreases in freight
charges.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A, as a
percentage of net revenues, were 8.3% in fiscal 2000 as compared to 8.1% in
fiscal 1999. The increase was primarily due to increased litigation and
cooperative advertising costs, offset somewhat by the effect of a higher sales
base.
Equity In Earnings Of Affiliate - Emerson's 33% investment in the
earnings of SSG amounted to $277,000 for fiscal 2000 and $1.5 million for fiscal
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 provision of $207,000 for fiscal 1999. The
income tax benefit recorded for fiscal 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, 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 sporting 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 $3.6 million for fiscal 2001 as compared to net income
of $2.1 million for fiscal 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 $9.8 million for fiscal
2001. Cash was primarily provided by an increase in the profitability of the
Company, a reduction of accounts receivables and other receivables partially
offset by an increase in inventory.
Net cash used by investing activities was $2.5 million for 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 Consolidated Financial Statements."
Net cash used for financing activities was $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 SSG maintain asset-based credit facilities of $10 million
and $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. Emerson and SSG are required to
maintain certain net worth levels, which they were both in compliance with as of
March 31, 2001. At March 31, 2001, there were approximately $5.1 million and
$17.1 million of borrowings under these facilities by Emerson and SSG,
respectively. No letters of credit 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 $40.0 million with a bank in Hong Kong
consisting of the following: (i) a $5.0 million credit facility which is
generally used for letters of credit for inventory purchases and (ii) a $35
million credit facility, for the benefit of a foreign subsidiary, which is for
the establishment of back-to-back letters of credit. At March 31, 2001, the
Company's Hong Kong subsidiary pledged $1.75 million in certificates of deposit
to this bank to assure the availability of the $5.0 million credit facility. At
March 31, 2001, there were approximately $3.8 million and $7.3 million,
respectively, of letters of credit outstanding under these credit facilities.
The Company has continued to enter into outward licensing agreements
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 Item 1 - Business - "Licensing and Related Activities".
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. In fiscal 2001, products representing
approximately 80% of net revenues of the consumer electronics segment were
imported directly to the Company's customers. The direct import program is
essential to Emerson's liquidity objectives.
The Company is currently in arrears on $977,000 of dividends on its
Series A Preferred Stock.
The Company's liquidity for its consumer electronics segment is
impacted by the seasonality of its business. The consumer electronics segment
generally records the majority of its annual sales in the quarters ending
September and December. This requires the consumer goods segment to maintain
higher inventory levels during the quarters ending June and September, therefore
increasing the working capital needs during these periods. Additionally, the
consumer electronics segment receives the largest percentage of product returns
in the quarter ending March. The higher level of returns during this period
adversely impacts Emerson's collection activity, and therefore its liquidity.
Management believes that the license agreements as discussed above, and the
policies in place for returned products, should continue to favorably impact its
cash flow.
The Company's liquidity for its sporting goods segment is also
impacted by the 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 products in favor of higher margin replacement products.
Management believes that this, together with its various license agreements and
the continued introduction of higher margin products in both segments, will
result in continued profitability. Both senior secured credit facilities for
Emerson and SSG impose financial covenants. Non-compliance of the covenants
could materially affect the Company's future liquidity. Management believes that
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.
There were no substantial commitments for purchase 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 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 offset 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 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
goods provided and should be classified as revenue. Accordingly, for fiscal
2001, approximately $5.6 million of shipping and handling fees was reclassified
in the consolidated statement of operations. The fiscal 2000 and fiscal 1999
were not restated because this EITF only affected the sporting goods segment
which was not included in the consolidated statement of operations for fiscal
2000 or fiscal 1999.
Forward-Looking Information
This report contains various forward-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", "believe", "estimate", "expect", "predict", "project", and
similar expressions are intended to identify forward-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
consumer electronics segment to continue selling products to two of its largest
customers whose net revenues represented 41% and 14% of fiscal 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; (iv) the ability of the consumer electronics and
sporting goods segments to maintain its suppliers, primarily all of whom are
located in the Far East for the consumer electronics segment; (v) the ability of
the sporting goods segment to 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;
and (vii) general economic 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.
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
Index to Financial Statements
Page No.
Report of Independent Auditors 27
Consolidated Statements of Operations for the years ended
March 31, 2001, March 31, 2000, and April 2, 1999 28
Consolidated Balance Sheets as of March 31, 2001 and 2000 29
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 2001, 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 31
Notes to Consolidated Financial Statements 32
Schedule VIII-Valuation and Qualifying Accounts and Reserves 61
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes 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 March 31, 2001 and 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 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 in the United States. Those standards require that we plan
and perform the audits to obtain reasonable assurance regarding 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 March 31, 2001 and March 31,
2000, and the consolidated results of its operations and cash flows for each of
the three years in the period ended March 31, 2001, in conformity with
accounting principles generally accepted 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
June 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
(In thousands, except per share data)
2001 2000 1999
----------------- ------------------ ----------------
Net revenues $ 377,410 $ 203,701 $ 160,554
Costs and expenses:
Cost of sales 306,101 176,870 140,326
Other operating costs and expenses 4,318 4,501 4,007
Selling, general and administrative expenses 53,498 16,996 12,943
----------------- ------------------ ----------------
363,917 198,367 157,276
----------------- ------------------ ----------------
Operating income 13,493 5,334 3,278
Equity in earnings of affiliate -- 277 1,499
Other investment losses -- (284) (2,009)
Interest expense, net (4,068) (2,284) (2,272)
Minority interest in net loss of consolidated
subsidiary 2,284 -- --
----------------- ------------------ ----------------
Income before income taxes 11,709 3,043 496
Provision (benefit) for income taxes (944) (577) 207
----------------- ------------------ ----------------
Net income $ 12,653 $ 3,620 $ 289
================= ================== ================
Net income (loss) per common share
Basic $ .36 $ .07 $ ( .01)
Diluted .33 .07 ( .01)
Weighted average shares outstanding
Basic 35,066 47,632 49,398
Diluted 38,569 53,508 49,398
The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2001 and 2000
(In thousands, except share data)
ASSETS 2001 2000
----------------- ---------------
Current Assets:
Cash and cash equivalents $ 7,987 $ 8,539
Accounts receivable (less allowances of
$4,498 and $3,977, respectively) 26,552 10,271
Other receivables 781 4,027
Inventories 44,477 14,384
Prepaid expenses and other current assets 3,611 2,690
Deferred tax assets 1,419 --
----------------- ---------------
Total current assets 84,827 39,911
Property, plant, and equipment 12,718 1,034
Deferred catalog expenses 2,437 --
Investment in affiliate -- 20,133
Goodwill and other intangible assets 13,388 1,177
Deferred tax assets 4,081 --
Other assets 1,555 1,256
----------------- ---------------
Total Assets $ 119,006 $ 63,511
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 5,094 $ 2,914
Current maturities of long-term borrowings 139 97
Accounts payable and other current liabilities 34,703 22,014
Accrued sales returns 4,913 4,897
Income taxes payable 481 135
----------------- ---------------
Total current liabilities 45,330 30,057
Long-term borrowings 38,257 20,891
Minority interest 20,288 --
Shareholders' Equity:
Preferred shares - 10,000,000 shares authorized; 3,677
shares issued and outstanding, 3,310 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 46,477,615
shares outstanding, respectively 515 513
Capital in excess of par value 113,459 113,289
Accumulated other comprehensive losses (118) (76)
Accumulated deficit (88,843) ( 101,445)
Treasury stock, at cost, 20,131,533 and 4,854,000 shares, respectively (13,192) (3,028)
----------------- ---------------
Total shareholders' equity 15,131 12,563
----------------- ---------------
Total Liabilities and Shareholders' Equity $ 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
(In thousands, except share data)
Accumulated 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-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)
(407) (1,687)
Preferred stock dividends
Declared (171) (171)
Comprehensive income:
Net income for the year 289 289
Currency translation
adjustment (275) (275)
---------
Comprehensive income 14
--------- ---------- ----- ----------- --------- ---------- --------- ---------
Balance - April 2, 1999 3,343 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 $ 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 The Years Ended March 31, 2001, March 31, 2000, and April 2, 1999
(In thousands)
2001 2000 1999
------------------ ------------------- ---------------
Cash Flows from Operating Activities:
Net income $ 12,653 $ 3,620 $ 289
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest (2,284) -- --
Depreciation and amortization 2,729 1,306 1,245
Equity in earnings of affiliate 1,476 (277) (1,499)
Write-down of investment in joint venture -- 153 900
Loss on marketable securities -- 149 1,298
Asset valuation and loss reserves (284) 626 ( 1,375)
Other (42) 2 (275)
Changes in assets and liabilities, net of acquisition of SSG:
Accounts receivable 3,966 917 160
Other receivables 3,534 2,755 (308)
Inventories (9,463) (2,970) 1,021
Prepaid expenses and other current assets (74) 186 (460)
Other assets 84 493 699
Accounts payable and other current liabilities (2,876) (328) 3,382
Income taxes payable 346 (265) 209
------------------ ------------------ ---------------
Net cash provided by operations 9,765 6,367 5,286
------------------ ------------------ ---------------
Cash Flows from Investing Activities:
Purchase of SSG, net of cash acquired of $1,271 (2,378) -- --
Proceeds from (investment in) marketable securities -- 552 (2,036)
Investment in affiliates -- (841) (91)
Additions to property and equipment (110) (462) (413)
Distributions from joint venture -- 213 241
------------------ ------------------ ---------------
Net cash (used) provided by investing activities (2,488) (538) (2,299)
------------------ ------------------ ---------------
Cash Flows from Financing Activities:
Net borrowings under line of credit facility 2,180 698 2,216
Long-term borrowings (retirement) (37) 47 (35)
Payment of dividend on preferred stock (13) (26) (407)
Purchase of preferred and common stock ( 10,164) (1,153) (3,187)
Exercise of stock options and warrants 172
Other 33 44 (82)
------------------ ------------------ ---------------
Net cash used by financing activities (7,829) (390) (1,495)
------------------ ------------------ ---------------
Net increase (decrease) in cash and cash equivalents ( 552) 5,439 1,492
Cash and cash equivalents at beginning of year 8,539 3,100 1,608
------------------ ------------------ ---------------
Cash and cash equivalents at end of year $ 7,987 $ 8,539 $ 3,100
================== ================== ===============
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
March 31, 2001
Note 1 -- Significant 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, 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 SSG by
$1.9 million and has 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 the Company'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.
Certain 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 amounts for cash and cash equivalents, trade accounts
receivable, accounts payable and accrued liabilities approximate fair value due
to the immediate to short-term maturity of these financial instruments. The
carrying amounts of bank debt approximate this fair value due to their variable
rate interest features. The fair value of the preferred stock is based on the
fair value of the common stock into which the preferred stock is convertible.
The carrying value of the debentures approximate fair value.
Investments
The Company determines the appropriate classifications of securities
at the time of purchase. The investments held by the Company at March 31, 2001
and 2000 were classified as "available-for-sale securities", and are included in
prepaid expenses and other current assets. Realized gains and losses are
reported separately as a component of income. Declines in the market value of
securities deemed to be other than temporary are included in earnings.
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. The 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. The cost of maintenance and repairs is
charged to expense as incurred. Significant renewals and betterments are
capitalized and depreciated over the remaining estimated useful lives of the
related assets.
Depreciation of property, plant and equipment is provided by the
straight-line method 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 assesses the recoverability of the carrying
value of intangible assets. The carrying value of intangible assets would be
reduced to fair value if it is probable that management's best estimate of
future operating income before amortization of identifiable assets will be less
than the carrying value over the remaining amortization period.
Revenue 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.
The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations.
Advertising 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" (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 offset 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
goods provided and should be classified as revenue. Accordingly, for fiscal
2001, approximately $5.6 million of shipping and handling fees was reclassified
in the 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 reporting
year ended on the Friday closest to March 31. In fiscal 2001, the Company
changed its financial reporting year to end on March 31.
Note 2 - Inventories:
Inventories are stated at the lower of cost 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 consisted of the 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 2000, Emerson owned 4,463,223 and 2,386,000
(50.1% and 32.8% of the issued and outstanding) shares of common stock of SSG,
respectively. Accordingly, for fiscal 2001 Emerson accounted for its investment
in SSG by consolidating SSG under purchase method of accounting, while for
fiscal 2000 and fiscal 1999, Emerson accounted for its investment in SSG under
the equity method.
Pro-forma results of operations for Emerson, 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
were accounted for by the equity method. Summarized financial information
derived from the annual and quarterly financial reports as filed with the
Securities 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 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 for a fee. For the fiscal years 2001,
2000, and 1999, SSG billed Emerson pursuant to the management services agreement
fees of $401,000, $488,000, and $636,000, respectively. Management believes that
the transactions under the management services agreement are reflective of arms
length transactions.
Note 4 - Property, Plant, and Equipment
As of March 31, 2001 and 2000, property, plant, and equipment is
comprised of the following:
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 $2,729,000, $638,700, and $583,000 for the years ended March 31,
2001, March 31, 2000, and April 2, 1999, respectively.
Note 5 - 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 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 Emerson's U.S. and Canadian assets except for
trademarks, which are subject to a negative pledge covenant, and (ii) a portion
of its investment in SSG. At March 31, 2001 and 2000, the weighted average
interest rate on the outstanding borrowings was 10.42% and 9.36%, respectively.
The interest rate charged on this facility is the prime rate of interest plus
1.25%. 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 net worth levels. An event of default under the credit facility
would 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 March 31, 2001 and 2000, no
letters of credit for inventory purchases were issued. At March 31, 2001 the
carrying value of the credit facility approximates its fair value.
Note 6 - Long-Term Borrowings:
As of March 31, 2001 and 2000, long-term borrowings consisted of the
following:
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. The Debentures are
presently redeemable in whole or in part at the Company's option at a redemption
price of 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. At 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:
The income tax (benefit) provision for the years ended March 31, 2001,
March 31, 2000, and April 2, 1999 consisted of the following:
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 income before income taxes for the years ended March 31, 2001, March
31, 2000, and April 2, 1999 are analyzed below:
2001 2000 1999
--------------- ---------------- ---------------
(In thousands)
Statutory provision $ 3,981 $ 1,035 $ 169
Decrease in valuation allowance (5,246) (1,306) (207)
Foreign income taxes 478 (642) 207
State taxes 723 183 30
Minority interest (1,211) - -
Alternative minimum tax 305 47 -
Other, net 26 106 8
--------------- ---------------- ---------------
Total income tax (benefit)
provision $ (944) $ (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 March 31, 2001 and 2000, the significant components of the
Company's deferred tax assets and liabilities are as follows:
2001 2000
-------------- -----------
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 5,345 $ 5,243
Inventory reserves 1,359 235
Net operating loss carryforwards 28,066 29,717
Other 1,311 491
-------------- --------------
Total deferred tax assets 36,081 35,686
Valuation allowance for deferred tax assets (26,452) (33,844)
-------------- --------------
Net deferred tax assets 9,629 1,842
Deferred tax liabilities:
Intangible assets (2,921) --
Investment in affiliate (969) (1,479)
Other (239) (363)
-------------- --------------
Net deferred taxes $ 5,500 $ --
============== ==============
Total deferred tax assets for the consumer electronics segment at
March 31, 2001 and 2000 include the tax-effected net operating loss
carryforwards subject to annual limitations (as discussed below) and
tax-effected deductible temporary differences. A valuation reserve has been
established for the consumer electronics segment against any expected future
benefits 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 15 to
20 years. No valuation allowance has been recorded for the deferred tax assets
because management believes it is more likely than not such assets will be
realized by future profitable operating results.
Income of foreign subsidiaries before taxes was $7,486,000,
$1,578,000, and $1,492,000 for the years ended March 31, 2001, March 31, 2000,
and April 2, 1999, respectively.
As of March 31, 2001, the Company had a federal net operating loss
carryforward of approximately $115,500,000, which will expire in 2006 through
2019. The utilization of these net operating losses are subject to limitations
under IRC section 382. In addition, SSG has federal net operating loss
carryforwards of approximately $20,044,000, which will expire in the years 2011
through 2021.
Note 8 -- Commitments and Contingencies:
Leases:
The Company leases warehouse and office space with annual commitments
as follows (in thousands):
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 for fiscal 2001, 2000, and 1999, respectively.
Letters of Credit:
There were no letters of credit outstanding under the Loan and
Security Agreement (See Note 5) as of March 31, 2001, or 2000. The Company's
Hong Kong subsidiary also currently maintains various credit facilities
aggregating $40.0 million with a bank in Hong Kong subject to annual review
consisting of the following: (i) a $5.0 million credit facility which is
generally used for letters of credit for inventory purchases, and (ii) a $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 March 31, 2001, the Company's
Hong Kong subsidiary had pledged $1.75 million in certificates of deposit to
this bank to assure the availability of the $5.0 million credit facility. At
March 31, 2001, there were $3,801,000 and $7,279,000 of letters of credit
outstanding under these credit facilities, respectively.
Purchase Contracts:
The Company has a contractual agreement with one supplier to provide
future raw materials totaling approximately $240,000.
Note 9 - Stock Based Compensation:
Consumer Electronics Segment:
In July 1994, Emerson adopted a Stock Compensation Program
("Program"). 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 - 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
------------------- ------------------------
Outstanding - April 3, 1998 1,017,000 $ 1.06
Granted 23,000 1.00
------------------- ------------------------
Outstanding - April 2, 1999 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 $ 1.04
=================== ========================
Subject 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 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 $1.06, respectively.
In October 1994, Emerson'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 Stock available under such plan is
300,000 shares. A summary of transactions under the plan for the three years
ending March 31, 2001 is as follows:
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.
Sporting 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, 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 and outstanding 3,677 shares of Series A Convertible
Preferred Stock, ("Preferred Stock") $.01 par value, with a face value of
$3,677,000 and an estimated fair market value of approximately $3,986,000. The
Preferred Stock is non-voting and convertible into Common Stock through March
31, 2002, at a price per share of Common Stock equal to 80% of the defined
average market value of a share of Common Stock on the date of conversion. The
Preferred Stock bears dividends, on a cumulative basis currently at 1.4% through
March 31, 2001. No further dividends are accruable under the Preferred Stock. At
March 31, 2001, the Company is in compliance with the default provisions and
currently owes dividends in arrears of $977,000.
During the year ended March 31, 2001, there were no conversions of the
Company's Series A Preferred Stock. For the year ended March 31, 2000, the
Company repurchased 37 shares of its Series A Preferred Stock. During the year
ended April 2, 1999, the Company issued a total of 286,885 shares of the common
stock, upon conversion of 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 68,896 shares of common stock. On March 31, 2001 approximately
680,000 warrants expired unexercised.
During August 2000 warrants that were issued in August 1995 for the
purchase of 500,000 shares of Common Stock at an 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 250,000 shares of Common Stock at an exercise price of $4.00 per
share, all expired unexercised.
Note 11 -- 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-temporary, are included in earnings. During the fourth quarter of
fiscal 1999, the Company recorded a 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 Estimated
Cost Gains Losses Fair Value
---------- ----------- ---------- ----------
March 31, 2001 $ 41 $ -- $ 37 $ 4
March 31, 2000 37 -- -- 37
April 2, 1999 2,036 -- 1,298 738
Note 12 -- 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:
(In thousands, except per share amount)
2001 2000 1999
--------------- ---------------- -----------------
Numerator:
Net income $ 12,653 $ 3,620 $ 289
Less: preferred stock dividends,
and repurchase Costs 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 earnings
(loss) per share $ 12,653 $ 3,620 $ (289)
============== =============== =================
Denominator:
Denominator for basic earnings
per share - weighted average shares 35,066 47,632 49,398
Effect 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 income (loss) per share $ .36 $ .07 $ (.01)
=============== =============== =================
Diluted income (loss) per share $ .33 $ .07 $ (.01)
=============== =============== =================
Options and warrants to purchase 2,899,000, and 2,667,000 shares of Common
Stock were not included in computing diluted earnings per share for Fiscal 2000
and 1999, respectively, because the effect would be antidilutive.
Preferred Stock convertible into 8,680,000 shares of Common Stock was not
included in computing diluted earnings per share for Fiscal 1999 because the
effect would be antidilutive.
Senior Subordinated Debentures convertible into 5,204,000 shares of common
stock if converted were not included in computing diluted earnings per share for
Fiscal 2001, 2000, and 1999, because the effect would be antidilutive.
Note 13 -- License Agreements:
Emerson has several license agreements in place that allow licensees to
use the "EMERSON(R)" and 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, Emerson has entered into
several sourcing and inspection agreements that require Emerson to provide these
services in exchange for a fee. License revenues recognized and earned in Fiscal
2001, 2000, and 1999 were $3,930,000, $3,143,000, and $3,633,000, respectively.
Emerson records licensing revenues as earned over the term of the related
agreements.
In October 2000, Emerson entered into 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"). The Video License Agreement provides that Funai will manufacture,
market, sell and distribute specified products bearing the "EMERSON" trademark
to customers in North America. Under the terms of the agreement, Emerson
receives non-refundable minimum annual royalty payments of $4.3 million for
calendar years 2001 and 2002, as well as 2003 unless terminated pursuant to the
terms of the agreement. The minimums are credited against royalties earned for
the sale of products. For Fiscal 2001, revenues of $1,075,000 were recorded
under this License Agreement.
Throughout various parts of the world, the Company maintains distribution
and license agreements that provide for the distribution of the Company's
products into defined geographic areas.
Note 14 -- Legal Proceedings:
The Company is involved in 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 or results of operations.
Note 15 -- Business Segment Information and Major Customers:
The Company's has two business segments, the consumer electronics business
and the sporting goods segment. Operations in these business segments are
summarized below by geographic area (in thousands):
Year Ended March 31, 2001
U.S. Foreign Consolidated
------------------------------------------------
Sales to unaffiliated customers - 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 $ 160,554
================================================
Loss before income taxes $ 472 $ 24 $ 496
================================================
Identifiable assets $ 50,974 $ 3,421 $ 54,395
================================================
Identifiable assets are those assets used in operations in each geographic
area. In addition to operating assets, at March 31, 2001, March 31, 2000, and
April 2, 1999, there were non-operating assets of $9,282,000, $8,297,000 and
$8,348,000, respectively, located in foreign countries.
The Company's net sales to one customer aggregated approximately 41%, 56%
and 52% of consolidated net revenues for the years ended March 31, 2001, March
31, 2000, and April 2, 1999, respectively. The trade accounts receivable balance
for this customer at March 31, 2001 was not material. The Company's net sales to
another customer aggregated 14%, 21%, and 24% for the years ended March 31,
2001, March 31, 2000, and April 2, 1999, respectively. Trade accounts receivable
from this customer were 10% of total trade receivables at March 31, 2001.
Note 16 - Quarterly Information (Unaudited):
The following table sets forth certain information regarding the Company's
results of operations for each full quarter within the fiscal years ended March
31, 2001 and March 31, 2000, with amounts in thousands, except for per share
data. Due to rounding, quarterly amounts may not fully sum to yearly amounts.
(In thousands, except per share data).
Fiscal 2001 (1)(2) Fiscal 2000 (2)
Consolidated Statement
of Operations 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Net revenues $ 113,318 $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
(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 Notes 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 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 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 8-K - Current report on Form 8-K, dated January
19, 2001, reporting the 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).
3.2 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).
3.5 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).
3.6 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).
3.7 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).
3.8 Amended and Restated Bylaws of Sport Supply Group, Inc.
(incorporated by reference to Exhibit 3.2 of Sport Supply's
Annual Report on Form 10-K for the year ended March 30, 2001).
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).
4.2 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).
10.1 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).
10.1.1 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).
10.1.2 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).
10.1.3 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).
10.1.4 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).
10.1.5 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) (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 Emerson.
(incorporated by reference to Exhibit 10(ae) of Emerson's Annual
Report on Form 10-K for the year ended March 31, 1996.)
10.5 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).
10.6 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).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 License Agreement dated as of October 29, 1999 by and between
Daewoo Electronics Co. Ltd and Emerson (incorporated by
reference to Exhibit (10) (b) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended October 1, 1999).
10.12 License Agreement effective as of January 1, 2001 by and between
Funai Corporation and Emerson (incorporated by reference to
Exhibit (10) (z) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended September 30, 2000).
10.13 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).
10.13.1 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).
10.14 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).
10.14.1 Purchasing Agreement, dated March 5, 1999, between
AFG-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. *
10.16 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. 1 to 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 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 Subsidiaries of the Company as of March 31, 2001.*
23 Consent of Independent Auditors.*
___________________
* 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
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
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 ended:
March 31, 2001 (D) $ 3,284 $ (14) $ 255(A) $ 3,015
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) $ 1,711 $ 1,222 $ 662(B) $ 2,271
March 31, 2000 385 708 514(B) 579
April 2, 1999 697 1,068 1,380(B) 385
(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 Consolidated Balance Sheets since they
are not valuation reserves.
(D) For fiscal 2001, the balances include both Emerson and SSG's accounts.