SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[ X ][X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended March 31, 20002001
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
EMERSONEMERSON(R) RADIO CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-3285224
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
Identification Number)of incorporation or organization) Identification Number)
Nine Entin Road, Parsippany, NJ 07054
- --------------------------------------- ----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 884-5800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on - ------------------- ------------------------
which registered
- ----------------
Common Stock, par value $.01 per share American Stock Exchange
Securities registered pursuant to Series A Preferred Stock and Warrants
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 22, 200020, 2001 (computed by reference to the
last reported sale price of the Common Stock on the American Stock Exchange on
such date): $12,919,000.$23,969,039.
Number of Common Shares outstanding at June 22, 2000: 39,377,615
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 10,
200024,
2001 Part III
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PART I
Item 1. BUSINESS
GeneralThe Company
Emerson Radio Corp. ("Emerson" or the "Company"), aoperates in two business segments: consumer electronics
distributor,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 marketslicenses a variety of television, video products,
including digital video disc (DVD) and video cassette recorders (VCR), microwave
ovens, audio, home office, home theater, multi-media, specialty and other
consumer electronic products. The CompanyEmerson also licenses the "[OBJECT OMITTED]"its trademark for a variety
of products domestically and internationally to certain licensees (See
"Business-Licensing and Related Activities"). The Companylicensees. Emerson
distributes its products primarily through mass merchants, discount retailers,
toy retailers, distributors and specialty catalogers leveraging the strength of
its "[OBJECT OMITTED]"EMERSON(R)" trademark, a nationallyand "H.H. Scott(R)" trademarks, recognized trade namenames in the
consumer electronics industry. The trade name "Emerson Radio" dates back to 1912
and is one of the oldest and most well respected names in the consumer
electronics industry. The CompanySee "Business-Licensing and Related Activities".
Emerson believes it possesses an advantage over its competitors due to the
combination of (i) the "[OBJECT OMITTED]"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 with licensees on a global basis for a variety of products. Emerson
intends to continue to leverageleveraging its core competencies to offer a broad variety of
current and new consumer products to retail customers. In addition, the CompanyEmerson has in the
past, and intends in the future, to form joint ventures and enter into
additional inward and outward licensing and distributordistribution agreements that take
advantage of the Company'sits trademarks and utilize the Company's logistical and sourcing advantages
for products that are more efficiently marketed with the assistance of these
partners.
The Company'sconsumer electronics segment's core business consists of the distributionselling,
distributing and sale oflicensing various low to moderately priced product categories of
consumer electronic products. The majority of the Company'sEmerson's marketing and sales
efforts isare concentrated in the United States and, to a lesser extent, certain
other international regions. Emerson's majorMajor competitors in these markets are
foreign-based manufacturers and distributors. (SeeSee "Business - Competition.")
The Company was originally formed
Sporting Goods
SSG is a leading direct mail marketer of sports related equipment and
leisure products primarily to the institutional market in the StateUnited States. The
institutional market is generally comprised of New York in 1956 under
the name Majorschools, colleges, universities,
government agencies, military facilities, athletic clubs, athletic teams and
dealers, youth sports leagues and recreational organizations.
Products
Consumer Electronics
Corp. In 1977, the Company reincorporated in the
State of New Jersey and changed its name to Emerson Radio Corp. In 1994, the
Company was reincorporated in Delaware. References to "Emerson" or the "Company"
refer to Emerson Radio Corp. and its predecessor and its consolidated
subsidiaries, unless the context otherwise indicates. The Company's principal
executive offices are located at Nine Entin Road, Parsippany, New Jersey
07054-0430. The Company's telephone number in Parsippany, New Jersey, is (973)
884-5800.
Products
The Company directly and through subsidiaries designs, sources, imports
and markets a variety of video, audio and other consumer electronic products,
primarily on the strength of its "[OBJECT OMITTED]" trademark, an
internationally recognized symbol in the consumer electronics industry. The
Company'sEmerson's current product categories consist of the following core products:following:
Video Products Audio Products Other
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 Company'sconsumer electronics products offer various features. Microwave
ovens range in size from 0.6 cubic feet to 1.6 cubic feet containing features
such as key pad touch controls, multi-power levels, auto defrost and turntables. The
newly developed Omni Wave Cooking System(TM) microwaves feature quicker and
more concentrated cooking. The Pop & Sizzle(TM) line of microwaves are specially
colored to match any kitchen design imaginable including the sophisticated
stainless steel look.
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 specialty clock radios include the SmartSet(TM) clock, which is designed to
automatically convert to the correct time, date and month regardless of time
zone due to microprocessor technology that also allows it to reset itself after
a power failure, thus eliminating the "blinking light". The Company's H. H.
ScottScott(R) division markets Home Theaterhome theater products that utilize proprietary
CinemaSurround(R) technology thatand 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 a dynamic 3-dimensional sound supplied
from any stereo source, withoutapproximately 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 need for any decoding electronics,institutional market. Most of SSG's
products are marketed under trade names or trademarks owned or licensed by SSG
and innovative sound speakers including multi-media speakers.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
The Company'sConsumer 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 "[OBJECT
OMITTED]"EMERSON(R)" trademark;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 of full or controlling interests in other
companies.acquisitions. In connection with the Company'sEmerson's
strategic focus, the CompanyEmerson may from time to time take an equity position in
various corporate entities.
(See
Item 8 - "Financial Statements and Supplementary Data - Note 3 of Notes
to the Consolidated Financial Statements.")
The CompanyEmerson believes that the "[OBJECT OMITTED]"EMERSON(R)" trademark is recognized in many
countries. A principal component of the Company'sEmerson's growth strategy is to utilize this
global brand name recognition together with the
Company'sits reputation for quality and cost
competitive products to aggressively promote its product lines within the United
States and targeted geographic areas on an international basis. The Company's managementEmerson believes
the Companythat it will be able to compete more effectively in the highly competitive
consumer electronics and microwave oven industries, domestically and
internationally, by combining innovative approaches to the Company'sconsumer electronics
current product line and augmenting its product line with complementary
products. The CompanyEmerson intends to pursue such plans either independently or by
forging new relationships, including license arrangements, distributorship
agreements and joint ventures. (SeeSee "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
The CompanyConsumer Electronics
Emerson makes available to its customers a direct import program, pursuant to whichand a
domestic program. Under its direct import program, products bearing the
"[OBJECT OMITTED]"EMERSON(R)" trademark are imported directly by the Company'sEmerson's customers. In Fiscal
20002001 and Fiscal 1999,2000, products representing approximately 82%80% and 84%83% of net
consumer electronics revenues, respectively, were imported directly from manufacturersearned under this program. If
a larger proportion of Emerson's sales were made pursuant to the Company's customers. If the Company
experiences a decline in sales effected through direct imports and a
corresponding increase inits domestic
sales, the Company willprogram, Emerson would require increased working capital in order to purchase inventory to fulfill such sales. This
increase in working capitalthat may affect the liquidity of the Company. (Seeits
liquidity. See Item 7
- - "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Forward-Looking Information.Condition.")
The Company
Emerson has an integrated system to coordinate the purchasing, sales and
distribution aspects of its operations. The CompanyEmerson receives orders from its major
accounts electronically, via facsimile, telephone or mail. The
CompanyEmerson does not have
long-term contracts with any of its customers, but rather receives orders on an
ongoing basis. Products imported by the CompanyEmerson (generally from the Far East) are
shipped by ocean and/or inland freight and then stored in contracted public
warehouse facilities for shipment to customers. This also
includes the use of an affiliate's warehouse pursuant to a Management Services
Agreement between the Company and the affiliate. (See Item 8 - "Financial
Statements and Supplementary Data - Note 3 of Notes to the Consolidated
Financial Statements.") All inventory is monitored by
the Company'sEmerson'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, the CompanyEmerson markets its products primarily through mass
merchandisers, discount retailers, and discount retailers.specialty toy distributors. Wal-Mart
Stores accounted for approximately 55%41% and 52%56%, and Target Stores accounted for
approximately 21%14% and 24%21% of the Company's consolidated net revenues in Fiscalfiscal
2001 and fiscal 2000, and Fiscal 1999, 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 38%34% and 39%38% of the Company's net consumer electronics revenues in
Fiscalfiscal 2001 and fiscal 2000,
and Fiscal 1999, respectively, were made through sales
representative organizations that receive sales commissions and work closely
with the Company'sEmerson's sales personnel. The sales representative organizations sell, in
addition to the Company'sEmerson products, similar, but generally non-competitive,
products. In most instances, either party may terminate a sales representative
relationship on 30 days' prior notice in accordance with customary industry
practice. The CompanyEmerson utilizes approximately 30 sales representative organizations,
including one through which approximately 25%21% and 26%25% of the Company's net consumer
electronics revenues were made in Fiscalfiscal 2001 and fiscal 2000, and Fiscal 1999, respectively. No
other sales representative organization accounted for more than 10% of the
Company'sconsumer electronics net revenues in either year. The remainder of the Company'sEmerson's
sales is made to retail customersare serviced by the Company'sits 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 Company'sconsumer electronics segment net revenues in Fiscalfiscal
2001 and fiscal 2000 and
Fiscal 1999 were derived from customers based in foreign countries
through license and distribution agreements primarily in South America, Canada,
and Canada. (SeeMexico. 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 - Notenote 14 of Notes to the
Consolidated Financial Statements" and Item 7 - "Management's Discussion and
Analysis of Results of Operations and Financial Condition.")
Licensing and Related Activities
The CompanyConsumer Electronics
Emerson has several license agreements in place that allow licensees to use
the "[OBJECT OMITTED]"EMERSON(R)" trademarkand "H.H. Scott(R)" trademarks for the manufacture and/or the
sale of consumer electronics and other products. The license agreements cover
various countries throughout the world and are subject to renewal at the initial
expiration of the agreements. Additionally, the CompanyEmerson has entered into several
sourcing and inspection agreements that require the CompanyEmerson to provide these
services in exchange for a fee. License revenues recognized and earned in Fiscalfiscal
2001, 2000, and 1999 were approximately $3,930,000, $3,143,000, and 1998 were $3,143,000, $3,633,000,
and $5,597,000, respectively,
including $4,000,000 in Fiscal 1998 fromrespectively. Emerson records a major supplier whose licensing
agreement expired March 31, 1998. The Company recordsmajority of licensing revenues as earned over
the term of the related agreements.
In April 1997 in anticipation of the expiration of theOctober 2000, Emerson entered into a three-year license agreement
Emerson executed("Video License Agreement") with Funai Corporation, Inc. ("Funai") effective
January 1, 2001 to replace a marketingprior agreement ("Marketing Agreement") with Daewoo Electronics Co. Ltd.,
("Daewoo"). This MarketingThe Video License Agreement providedprovides that DaewooFunai manufacture, market,
sell and distribute television and videospecified products bearing the "[OBJECT OMITTED]"EMERSON(R)" trademark to
customers in North America. Under the U.S. market. The Company
arranged sales and provided marketing services, and in return received a
commission for such services. Daewoo was responsible for and assumed all risks
associated with, order processing, shipping, credit and collections, inventory,
returns and after-sale service. The commissions earned byterms of the agreement, the Company was
entirely dependent upon the volume of sales made that were subject to the
Marketing Agreement. Effective as of October 29, 1999, Emerson and Daewoo
entered into a three year License Agreement ("License Agreement") which replaced
the Marketing Agreement. The License Agreement includes, among other items,
minimum production quotas and subject to certain conditions,will
receive non-refundable minimum annual royalty payments each year, which in Fiscalof approximately $4.3
million for calendar years 2001
amountsand 2002, as well as 2003 unless terminated
pursuant to $4,500,000. All other material aspectsthe terms of the License Agreement
remain substantially similar toAgreement. The minimums are credited
against royalties earned for the terms set forth in the superceded Marketingsale of products. During fiscal 2001, revenues
of $1,075,000 were recorded under this Video License Agreement.
In addition, the Company has several other licensing agreements in
place with licensees primarily in the United States, Canada, Latin America,
Mexico, Eastern Asia and parts of Europe.
Throughout manyvarious parts of the world, the CompanyEmerson maintains distributorship, and/or sales supportdistribution and
assistancelicense agreements that allowprovide for the distribution of the Company's productEmerson's products into
defined geographic areas.
Currently
the Company has such agreements covering the Sub-Asian Continent, North Africa,
Canada and the Middle East.
The CompanyEmerson intends to pursue additional licensing and distributordistribution
opportunities and believes that such activities have had and will continue to
have a positive impact on operating results by generating income with minimal
incremental costs, if any, and without the necessity of utilizing working
capital. (SeeSee 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
The Company'sConsumer Electronics
Emerson's products are manufactured by original equipment manufacturers in
accordance with the Company'sEmerson's specifications. These manufacturers are primarily
located in Hong Kong, South Korea, China, Malaysia and Thailand.
The Company'sEmerson's design team is responsible for product development and works
closely with its suppliers. CompanyEmerson's engineers determine the detailed cosmetic,
electronic and other features for new products, which typically incorporate
commercially available electronic parts to be assembled according to its design.
Accordingly, the exterior designs and operating features of the Company's products reflect
the Company'sEmerson's judgment of current styles and consumer preferences. The Company'sEmerson's designs
are tailored to meet the consumer preferences of the local market, particularly
in the case of the Company'sits international markets.
During Fiscalfiscal 2001 and fiscal 2000, and Fiscal 1999, 100% of the Company'sEmerson's purchases consisted
of imported finished goods.
The following summarizes the Company'sEmerson's purchases from its major suppliers.suppliers:
Fiscal Year
Supplier 2001 2000
1999
Daewoo 21% 30% 22%
Avatar Mfg 20% 17% *
Imarflex 13% 12%
Tonic Electronics 17% 11%
32%
================Kysho 16% * %
Imarflex 12% 13%
- --------------------------------------------------------------------------------
* Less than 10%.
No other supplier accounted for more than 10% of the Company'sEmerson's total purchases
in Fiscal 2000fiscal 2001 or Fiscal 1999. The Companyfiscal 2000. Emerson considers its relationships with its
suppliers to be satisfactory and believes that, barring any unusual shortages or
economic conditions (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"), the CompanyEmerson could develop, as it already has developed, alternative sources
for the products it currently purchases. The CompanyEmerson has a contractual agreement
with one supplier to provide future raw materials totaling approximately
$700,000.$240,000. No assurance can be given that ample supply of product would be
available at current prices if the CompanyEmerson was required to seek alternative sources
of supply without adequate notice by a supplier or a reasonable opportunity to
seek alternate production facilities and component parts. 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
The CompanyEmerson 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 the CompanyEmerson 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
CustomersEmerson's customers return product to the CompanyEmerson for a variety of reasons,
including liberal retailer return policies with their customers, damage to goods in
transit and occasional cosmetic imperfections and mechanical failures.
To reduce the costs associated with product returns, the CompanyEmerson has entered
into agreements with the majority of its suppliers. For a fee, the
CompanyEmerson returns
defective returned product to the supplier and in exchange receives a unit. The
return to vendor agreements cover certain microwave ovens, audiohave resulted in significant cost savings.
In most instances, SSG's customers have the right to return product within
30 days if they are not completely satisfied. Returned products are not returned
to the same degree as they are in the consumer products segment, and video
products.are not
considered a significant factor in SSG's operations.
Backlog
The Company has realized and expects to continue to realize
significant cost savings from such agreements.
In addition, the Company has an agreement with Hi Quality International
(U.S.A.) Inc. ("Hi Quality") as an outlet for much of the Company's returned
products pursuant to which Hi Quality has agreed to purchase from the Company
certain returned products in the United States that are not subject to the
vendor agreements discussed previously. Hi Quality will refurbish them, if
feasible, and sell them as either refurbished or "As-Is" product.
Backlog
From time-to-time, the Company has substantial orders from customers on
hand. Management believes however, that backlog is not a significant factor in its
operations.consumer electronics or sporting goods segments. The ability of management to
correctly anticipate and provide for inventory requirements is essential to the
successful operation of the Company's business.
Trademarks
The CompanyEmerson owns the "[OBJECT OMITTED]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 the Company,Emerson, those
registered in the United States must be renewed at various times through 20102011
and those registered in Canada must be renewed at various times through 2014.
The Company'sEmerson's trademarks are also registered on a worldwide basis in various
countries, which registrations must be renewed at various times. The CompanyEmerson intends
to renew all trademarks necessary for its business. The CompanyEmerson considers the
"[OBJECT OMITTED]
"EMERSON(R)" trademark to be of material importance to its business and owns
several other trademarks, none of which is currently considered by the CompanyEmerson to be
of material importance to its business. The Company has licensed certain applications ofEmerson outward licenses the
" [OBJECT
OMITTED]"EMERSON(R)" trademark to several licensees on a limited product and geographic basis and for a
definitive period of time. (SeeSee 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 the
CompanyEmerson
competes generates approximately $15$14 billion of factory sales annually and is
highly fragmented, cyclical and very competitive, supporting major
American, Japanese and Korean companies, as well as numerous small importers.competitive. The industry is characterized
by the short life cycle of products, which requires continuous design and
development efforts.
The CompanyEmerson primarily competes in the low to medium-priced sector of the
consumer electronics market. Management estimates that the CompanyEmerson has several dozen
competitors that are manufacturers and/or distributors, many of which are much
larger and have greater financial resources than the Company. The
CompanyEmerson. Emerson competes
primarily on the basis of its products' reliability, quality, price, design,
consumer acceptance of the "[OBJECT OMITTED]"EMERSON(R)" trademark, and quality service to
retailers and their customers. The Company'sEmerson's products also compete at the retail
level for shelf space and promotional displays, all of which have an impact on
the Company'sits established and proposed distribution channels.
(See Item 7 - "Management's DiscussionSporting Goods
SSG competes in the institutional sporting goods market principally with
local sporting goods dealers, retail sporting goods stores, other direct mail
catalog marketers and Analysisproviders of Resultssporting goods on the Internet. SSG has
identified approximately 15 other direct mail companies in the institutional
market most of Operationswhich it believes are competitors substantially smaller than SSG
in terms of geographic coverage, products, E-Commerce capability and Financial Condition.")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
The CompanyEmerson 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. On a corresponding basis, the Company still experiences increased returnsThe
seasonality of Emerson is counterbalanced by SSG which has historically
experienced strong revenues during the quarters ending March and June, which adversely affects the Company's
collection activities and liquidity during such periods. Operating results may
fluctuatequarter primarily due to other factors such asvolume
generated by spring and summer sports, favorable outdoor weather conditions and
school needs before summer closings, and weak revenues during the timing of the introduction of new
products, price changes by the Company and its competitors, demand for the
Company's products, product mix, delay, available inventory levels, seasonal
cost increases and general economic conditions.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 22, 2000,11, 2001, the Company had approximately 104 employees. The570 employees, of which
110 were employed by Emerson, and 460 were employed by SSG. None of the
Company's employees are represented by unions, and the Company considersbelieves its
labor relations to be generally satisfactory.
The Company
has no union employees.
Item 2. PROPERTIES
The Company leases warehouse and office space in New Jersey, Hong Kong,
and Texas under leases expiring at various times.
A lease for office space at its Corporate offices in New Jersey for
21,509 square feet expires on October 31, 2003. Lease agreements for 10,132
square feet of office space in Hong Kong expire July 31, 2003. There is also
34,000 square feet of warehouse and office space in Texas, rented from an
affiliate pursuant to a Management Services Agreement which can be terminatedfollowing table sets forth the material properties owned or leased by
either party upon 60 days notice.
The Companythe Company:
Approximate
Square Footage Lease
Facility Purpose Location Expires
or is Owned
Consumer electronics segment:
Corporate headquarters 22,000 Parsippany, NJ October, 2003
Hong Kong office 10,000 Hong Kong, China July, 2003
Sporting goods segment:
Manufacturing and corporate headquarters 135,000 Farmers Branch, TX December, 2004
Warehouse and fulfillment processing 181,000 Farmers Branch, TX December, 2004
Sub-leased to a third party 45,000 Cerritos, CA December, 2001
Manufacturing 62,500 Sparks, NV July, 2004
Manufacturing 35,000 Anniston, AL Owned
Manufacturing 45,000 Anniston, AL Owned
Manufacturing 38,500 Anniston, AL November, 2001
Emerson utilizes public warehouse space. Such public warehouse commitments
are evidenced by contracts with terms of up to one year. The cost for the public
warehouse space is primarily based on a fixed percentage of the
Company's sales from each
respective location.
The Company does not presently
own any real property.
believes that the facilities used in its operations are in
satisfactory condition and adequate for its present and anticipated future
operations. In addition to the facilities listed above, the Company leases space
in various locations, primarily for use as sales offices.
Item 3. LEGAL PROCEEDINGS
As previously reported, the CompanyEmerson has resolved substantially all of the
litigation against it and has accrued the net cost thereof as an expense inprior to
its fiscal year ended March 31, 2000.2001. All that remains is a previously reported
claim by Gerhard Eisenbach, which has remained dormant during the year and as to
which the Company believes it has meritorious defenses, 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 February
24,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, Jerome H. Farnum and Geoffrey P. Jurick. Election of the Board of
Directors was the only matter submitted for shareholder vote. There were
47,828,21539,377,615 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
44,427,42828,455,403 shares of the Company's Common Stock which represented 92.88%91.2% of the
total capital stock outstanding and entitled to vote. There were 44,427,42828,455,403
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. 44,203,390 224,038
Peter G. Bunger 44,203,390 224,038
Jerome H. Farnum 44,203,742 223,686
Stephen H. Goodman 44,178,290 249,138
Geoffrey P. Jurick 43,428,094 999,334
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 2000 Fiscal 1999
------------------------- --------------------
High Low High Low
First Quarter $ 7/8 $ 1/2 $ 5/8 $ 3/8
Second Quarter 3/4 1/2 11/16 3/8
Third Quarter 11/16 7/16 5/8 1/4
Fourth Quarter 1 1/2 7/8 7/16
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 Common Stock
Purchase Warrants or Series A
Convertible Preferred Stock.
(b) Holders
At June 22, 2000,May 23, 2001, there were approximately 458444 stockholders of record
of the Company's Common Stock and 12 holders of the Warrants.Stock.
(c) Dividends
The Company's policy has been to retain all available earnings, if
any, for the development and growth of its business. The Company has 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
Company's United StatesEmerson's credit facility and the Indenture governing Emerson's subordinated
debentures contain certain dividend payment restrictions on the Company's Common
Stock. Additionally, the Company's Certificate of Incorporation, defining the
rights of the Series A Preferred Stock (as more fully described below),
prohibits Common Stock dividends unless the Series A Preferred Stock dividends
are paid or put aside. The Series A Preferred Stock accrues dividends, payable
on a quarterly basis, at a 2.8% dividend rate and declines by a 1.4% dividend rate each year until March
31, 2001 when no further dividends are payable.rate. The Company is in compliance with
the default provisions of its Series A Preferred Stock, and currently owes
dividends in arrears of $925,000. (See$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
The Company authorized 10 million sharesDuring the fourth quarter of fiscal 2001, 68,896 warrants were
exercised and issued 10,00068,896 shares of Series
A Convertible Preferred Stock ("Series A Preferred Stock") oncommon stock of the Company were issued upon such
exercise. On March 31, 1994. As
of March 31, 2000, there were 3,677 shares of Series A Preferred Stock
outstanding.
The Series A Preferred Stock is convertible into2001, approximately 680,000 outstanding warrants to
purchase shares of the Company's common stock at any time duringexpired unexercised.
The above transactions were private transactions not involving a
public offering and were exempt from the period beginning on March 31, 1997 and
ending on March 31, 2002. The conversion rate is equal to 80% times the averageregistration provision of the
daily market pricesSecurities Act of 1933, as amended, pursuant to Section 4(2) thereof. The sale
of securities was without the use of an underwriter, and the certificates
evidencing this now bear a sharerestrictive legend permitting the transfer thereof
only upon registration of the Company's common stock forshares or an exemption under the 60
consecutive days immediately preceding the conversion date.
During the year ended March 31, 2000, the Company repurchased 37 sharesSecurities Act of
its Series A Preferred Stock. There were no conversions of the Company's Series
A Preferred Stock into common stock for the year ended March 31, 2000.
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, 2000.2001. 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. Accordingly,Beginning in
fiscal 2001, the current fiscalCompany changed its financial reporting year endedto end on March
31, 2000.31. 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,
March 31,2001 (1) 2000 1999 1998 1997
1996
------------- ------------- --------------- -------------- ---------------
(In thousands, except per share data)
Summary of Operations:
Net Revenues $ 204,956377,410 $ 158,730 $162,730203,701 $ 160,554 $ 162,730 $ 178,708
$ 245,667
Operating Income (Loss) $ 13,493 $ 5,334 $ 3,278 $ 524 $ (20,243)
$ (10,088)
Net Income (Loss) $ 12,653 $ 3,620 $ 289 $ (1,430) $ (23,968) $ (13,389)
Balance Sheet Data at Period End:
Total Assets $ 57,996119,006 $ 54,39563,511 $ 54,76760,872 $ 58,76858,762 $ 96,57661,151
Current Liabilities 24,542 23,351 19,890 21,660 35,00845,330 30,057 29,828 23,885 24,043
Long-Term Debt 38,257 20,891 20,847 20,929 21,079
20,886
Shareholders' Equity 15,131 12,563 10,197 13,948 16,029
40,382
Working Capital 39,497 9,854 6,859 9,610 13,258
48,434
Current Ratio 1.41.9 to 1 1.3 to 1 1.51.2 to 1 1.4 to 1 1.6 to 1
2.4 to 1
Per Common Share: (1)(2)
Net Income (Loss) Per Common Share -
Basic $ .36 $ .07 $ (.01) $ (.04) $ (0.61) $ (0.35)
Net Income (Loss) Per Common Share -
Diluted $ .33 $ .07 $ (.01) $ (.04) $ (0.61)
$ (0.35)
Weighted Average Shares Outstanding:
Basic 35,066 47,632 49,398 45,167 40,292
40,253
Diluted 38,569 53,508 49,398 45,167 40,292 40,253
Common Shareholders' Equity per
Common Share (2)(3) $ 0.33 $ 0.19 $ 0.13 $ 0.19 $ 0.13 $ 0.19 $ 0.15 $ .75
(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 Fiscalfiscal 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 1999-1996)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.
(2)(3) Calculated based on common shareholders' equity divided by actualthe basic
weighted average shares of Common Stock outstanding. Common shareholders'
equity for Fiscal Years
2000, 1999, and 1998fiscal years 2001 through 1997, is equal to total shareholders'
equity less $3,677,000, $3,677,000, $3,714,000, $5,237,000, and
5,237,000, respectively, and for Fiscal Years
1997 and 1996 is equal to total shareholders' equity less $10 million for
the liquidation preference of the Series A Preferred Stock.$10,000,000, respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
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 2000fiscal 2001 compared with Fiscal 1999fiscal 2000
Net Revenues - Net revenues for Fiscal 2000fiscal 2001 increased $46.2$173.7 million
(29%(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 Fiscalfiscal 2000, resulting from continuinga continuation of a more
restrictive return policy by the Company'sEmerson's customers. Revenues earned from the
licensing of the "[OBJECT
OMITTED]"EMERSON(R)" trademark were $3.1 million for Fiscalfiscal 2000 as
compared to $3.6 million for Fiscalfiscal 1999. The decrease iswas attributable to the
continued transition towards the Daewoo License Agreement.
For Fiscal 2001, this trend is
expected to reverse because Emerson entered into a new Licensing Agreement with
Daewoo which provides for minimum royalty payments which exceeds the royalty
revenue recorded for Fiscal 2000.
The Company reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories, in lieu of
reporting the full dollar value of such sales and associated costs.
The Company
expects its U.S. gross sales on its core products to increase and its margins on
such sales to also improve due to the change in product mix to higher margin
products, a reduction in returned product and through the continued introduction
of theme products through the use of current and newly developed license
agreements such as Hello Kitty(R) .
Cost of Sales - Cost of sales, as a percentage of consolidated net
revenues, was 86.9%86.8% and 87.3%87.4% in Fiscalfiscal 2000 and Fiscalfiscal 1999, respectively.
The Company's gross profit margins continue to be subject to
competitive pressures arising from pricing strategies associated with the
category of the consumer electronics market in which the Company competes. The
Company's products are generally placed in the low-to-medium priced category of
the market, which has a tendency to be the most competitive and generate the
lowest profits. The Company believes that the combination of its (i) Daewoo
License Agreement; (ii) various other license agreements; (iii) the introduction
of higher margin products and (iv) use of license agreements such as Hello
Kitty(R) and (v) reduced product returns will have a favorable impact on the
Company's gross profit. The Company continues to promote its direct import
programs to limit its working capital risks. In addition, the Company continues
to focus on its higher margin products and is reviewing new products that can
generate higher margins than its current business, either through license
arrangements, acquisitions and joint ventures or on its own.
Other Operating Costs and Expenses - Other operating costs and
expenses as a percentage of net revenues decreased from 2.5% in Fiscalfiscal 1999 to
2.2% in Fiscalfiscal 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 Fiscalfiscal 2000 as compared to 8.2%8.1% in
Fiscalfiscal 1999. The increase iswas primarily due to increased litigation and
cooperative advertising costs, offset somwehatsomewhat by the effect of a higher sales
base.
Equity In Earnings Of Affiliate The Company's- Emerson's 33% shareinvestment in the
earnings of an AffiliateSSG amounted to $277,000 for Fiscalfiscal 2000 and $1.5 million for Fiscalfiscal
1999. The Company's ownershipEmerson's investment in the Affiliate increased to 33% from 31% in Fiscalfiscal 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.
Write-down ofOther Investment in and Advances to Joint Ventures Write-down
ofLosses - Other investment in and advances to Joint Ventures was $135,000losses were $284,000 for
Fiscalfiscal 2000 as compared to $900,000$2,009,000 for Fiscalfiscal 1999. ThisThe decrease in other
investment losses between fiscal 2000 and fiscal 1999 was attributable to a
reduction in the finalization
of the Joint Ventureloss resulting from write-downs on investments and advances to
joint ventures from $900,000 in Fiscalfiscal 1999 to $135,000 in fiscal 2000. Loss on Marketable Securities The lossIn
addition, losses on marketable securities results
from the sale of marketable securities which arewere 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
Fiscalfiscal 1999 to Fiscalfiscal 2000. The Company'sEmerson's reduced average borrowings were offset by
higher borrowing costs.
Provision for Income Taxes The Company's- Emerson's income tax benefit was $577,000
for Fiscalfiscal 2000 as compared to a provision of $207,000 for Fiscalfiscal 1999. The
income tax benefit recorded for Fiscalfiscal 2000 was the result of a favorable
resolution of a tax claim and the acceptance of a compromise offer in Hong Kong.
(SeeSee Item 8-8 - "Financial Statements and Supplementary Data - Note 7 of Notes to
the Consolidated Financial Statements".)
Net Income - As a result of the foregoing factors, the CompanyEmerson generated
net income of $3.6 million for Fiscalfiscal 2000 as compared to $289,000 for Fiscalfiscal
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 19992001 compared with Fiscal 19982000
Net Revenues Consolidated net- Net revenues for Fiscal 1999fiscal 2001 decreased $4.0$3.5 million
(2.5%(3%) as compared to Fiscal 1998.fiscal 2000. The decrease in net revenues resultedwas primarily from decreasesa
result of competitive pressures in unit sales of microwave ovensthe marketplace, a decline in youth baseball
registrations, unusually cold and home theater
products. The reduced revenues were offset by increased sales of audio products,
particularly CD/radio/cassette products and CD shelf systems. This decreasewet weather in product sales was partially offset bywarm weather states delaying
spring sports, a significant reduction in returned
product resulting from an overall more restrictive return policy bySSG's sales force, a reduction in the Company's customers. Revenues earned fromnumber of
catalogs mailed, and a general slow-down in the licensing of the "[OBJECT
OMITTED]" trademark were $3.6 million for Fiscal 1999 as compared to $5.6
million for Fiscal 1998. The decrease is attributable to the first year
transition of a marketing agreement with Daewoo Electronics, Ltd. implemented to
replace a previous license agreement.
The Company reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories. (See Item 1 -
Business - "Licensing and Related Activities").economy.
Cost of Sales - Cost of Sales,sales, as a percentage of consolidated net revenues,
was 87.3%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 87.5%pricing
pressure in Fiscal 1999 and Fiscal 1998.
Other Operating Costs and Expenses Other operating costs and expenses
decreased $344,000 in Fiscal 1999the institutional sporting goods marketplace. SSG expects to
continue to experience a higher cost of sales as a percentage of net revenues as
compared to Fiscal 1998, primarily as a
result of reduced freight costs on returns, offset by increased return-to-vendor
program fees as this program was fully implemented this fiscal year.prior results due to these factors.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A
as a
percentage of net revenues, were 8.2% in Fiscal 1999expenses for fiscal 2001 increased by approximately $2.8 million (8.4%) as
compared to 9.5%fiscal 2000. The increase in Fiscal 1998. In absolute terms, S,G&A decreased by $2.5 million in Fiscal 1999
as compared to Fiscal 1998. The decrease in S,G&A as a percentage of net
revenues and in absolute termsexpenses was primarily attributabledue to a reduction in
co-op advertising and a reduction in charges related to bad debts, partially
offset by an
increase in professionalpayroll, computer related costs, depreciation and consulting fees.
Equity In Earnings Of Affiliate The Company's 31% share in the earnings
of an Affiliate amounted to $1.5 million for Fiscal 1999, which was
approximately the same as for Fiscal 1998.
Write-down of Investment In And Advances to Joint Ventures Write-down
of investment inamortization,
promotional and advances to Joint Ventures was $900,000 for Fiscal 1999 as
compared to $714,000 for Fiscal 1998. For Fiscal 1999 the write-down consisted
of a charge of $230,000 for the continuing liquidation of a joint venture and a
$670,000 charge for the write-down of a foreign investment. For Fiscal 1998 the
charge of $714,000 was entirely for the joint venture.
Loss on Marketable Securities Loss on marketable securities is due to
the write-down of marketable securities which are classified as
"available-for-sale", net of gains on completed sales.facility costs.
Interest Expense, net - Interest expense, decreased by $238,000net increased from $1.6
million in Fiscal 1999
as comparedfiscal 2000 to Fiscal 1998.$2.0 million in fiscal 2001. The decreaseincrease was
attributable primarily to the amortizationincreased overall levels of closing costs associated with a borrowing which were fully amortized in the
prior year, along with a reduction in short-term average borrowings due to a
reduction in working capital requirements.borrowing.
Provision for Income Taxes The Company's provision- SSG recorded a tax benefit of $2.1
million for income taxes was
$207,000 for Fiscal 1999fiscal 2001 as compared to $254,000a tax provision of $1.1 million for
Fiscal 1998.fiscal 2000. The provisiontax benefit for fiscal 2001 resulted from the utilization of
net operating loss carryforwards.
Net (loss) income taxes consisted primarily of foreign tax for both years.
Net Income- As a result of the foregoing factors, the CompanySSG
generated
net income of $289,000 for Fiscal 1999 as compared to a net loss of approximately $1.4$3.6 million for Fiscal 1998.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 $6.4$9.8 million for Fiscal
2000.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 $538,000$2.5 million for Fiscal 2000.fiscal
2001. Cash was utilized primarily for additional purchases of shares in its
unconsolidated Affiliate (Seeof common
stock of SSG. See Item 8 - "Financial Statements and Supplementary Data - Note 3
of Notes to the Consolidated Financial Statements."), and computer
related capital additions, partially offset by the sale of marketable
securities.
Net cash used for financing activities was $390,000$7.8 million for fiscal
2001. Cash was primarily utilized for the purchase of the Company's stock for
treasury, partially offset by increased borrowings.
The Company maintains anEmerson and SSG maintain asset-based credit facilities of $10 million
U. S. line of credit.
The facility providesand $25 million, respectively. These facilities provide for revolving loans and
letters of credit, subject to certain limits which, in the aggregate, cannot
exceed the lesser of $10 million and $25 million for Emerson and SSG,
respectively, or a "Borrowing Base" amount based on specified percentages of
eligible accounts receivable and inventories. The Company isEmerson and SSG are required to
maintain a certain net worth level, and islevels, which they were both in compliance with this requirement.as of
March 31, 2001. At March 31, 2000,2001, there was $2,914,000were approximately $5.1 million and
$17.1 million of borrowings under the facility,these facilities by Emerson and no outstandingSSG,
respectively. No letters of credit issued for inventory purchases.were outstanding by either Emerson or SSG as
of March 31, 2001.
The Company's Hong Kong subsidiary currently maintains various credit
facilities, as amended, aggregating $23.5$40.0 million with a bank in Hong Kong
consisting of the following: (i) a $3.5$5.0 million credit facility which is
generally used for letters of credit for inventory purchases and (ii) a $20$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. At March 31, 2000,2001, the
Company's Hong Kong subsidiary pledged $1$1.75 million in certificates of deposit
to this bank to assure the availability of the $3.5$5.0 million credit facility. At
March 31, 2000,2001, there were approximately $3,442,000$3.8 million and $24,566,000,$7.3 million,
respectively, of letters of credit outstanding under these credit facilities.
The Company has continued to enter into outward licensing agreements for
existing core business products and new products,
and intends to pursue additional licensing opportunities. The Company believes
that such licensing activities will have a continued positive impact on net
operating results by generating royalty income with minimal costs, if any, and
without the necessity of utilizing working capital or accepting customer
returns. (SeeSee Item 1 - Business -"Licensing- "Licensing and Related Activities").
ShortTermShort-Term Liquidity. Cash increaseddecreased to $8.0 million as of March 31,
2001 from $8.5 million as of March 31, 20002000. Cash generated from $3.1 million asoperations was
offset by Emerson's repurchase of April 2, 1999, primarily fromshares of its operations.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 2000,fiscal 2001, products representing
approximately 82%80% of net revenues of the consumer electronics segment were
directly imported from
manufacturersdirectly to the Company's customers. The direct import program implemented
by the Company is
critical in providing sufficient working capitalessential to meet itsEmerson's liquidity objectives. If the Company is unable to maintain its existing level of
direct sales volume, it may not have sufficient working capital to finance its
operating plan.
The Company is currently in arrears on $925,000$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 Companyconsumer electronics segment
generally records the majority of its annual sales in the quarters ending
September and December. This requires the Companyconsumer goods segment to openmaintain
higher amounts
of letters of creditinventory levels during the quarters ending June and September, therefore
increasing the Company's working capital needs during these periods. Additionally, the
Companyconsumer electronics segment receives the largest percentage of customerproduct returns
in the quarter ending March. The higher level of returns during this period
adversely impacts the Company'sEmerson's collection activity, and therefore its liquidity.
The CompanyManagement believes that the license agreements as discussed above, and the
arrangements it has implemented concerningpolicies in place for returned merchandise,products, should continue to favorably impact its
cash flow.
The Company's liquidity for its sporting goods segment is also
impacted by the Company's cash flow over their respective terms.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 product lines andproducts 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, thus reversing the trend of losses reported in prior
fiscal years. Theprofitability. Both senior secured credit facility with the Lender was amended in
March 1998facilities for
Emerson and extended to March 31, 2001 and imposes aSSG impose financial covenant on
the Company.covenants. Non-compliance of the covenantcovenants
could materially affect the Company's future liquidity. Management believes that its direct import program
and the
anticipated cash flow from operations and the financing noted above will provide
sufficient liquidity to meet the Company's operating and debt service cash
requirements on a longtermlong-term basis.
There were no substantial commitments for purchase orders outside the
normal purchase orders used to secure product as of March 31, 2000. See Item 8 -
"Financial Statements and Supplementary Data - Note 13 of Notes to the
Consolidated Financial Statements" for disclosure on material cash commitment
subsequent to March 31, 2000.
Year 2000
Emerson successfully completed its program to ensure Year 2000 readiness.
As a result, the Company had no Year 2000 problems that affected its business,
results of operations or financial condition. Emerson incurred expenses of
$400,000 related to its Year 2000 program.2001.
Recently-Issued Financial Accounting Pronouncements
During the second quarter ofIn June 1998, the Financial Accounting Standards Board (FASB)
issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities."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 JuneDecember 1999, the FASB
issued SFASSecurities and Exchange Commission staff
released Staff Accounting Bulletin No. 137101, "Revenue Recognition in Financial
Statements" ("SAB No. 101"), which deferredprovides guidance on the effective daterecognition,
presentation and disclosure of SFASrevenue in financial statements. The Company
adopted SAB No. 133101 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 one
year. SFAS No. 133 will be effective$1.3 million, decreased by $1.3 million, and
increased by $1.8 million, respectively.
During fiscal 2001, the Company adopted the provisions of EITF 00-10,
Accounting for Shipping and Handling Fees and Costs. Prior to fiscal 2001, SSG
netted shipping fees against shipping costs. The net difference was included in
cost of sales in the consolidated statements of operations. The provisions of
EITF 00-10 provide that all amounts billed to a customer in a sale transaction
related to shipping and handling, if any, represent revenues earned for the
Companygoods provided and should be classified as revenue. Accordingly, for Fiscalfiscal
2001, approximately $5.6 million of shipping and establishes accountinghandling fees was reclassified
in the consolidated statement of operations. The fiscal 2000 and reporting standardsfiscal 1999
were not restated because this EITF only affected the sporting goods segment
which was not included in the consolidated statement of operations for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The Company has not yet determined the effects, if any, of
implementing SFAS No. 133 on its reporting of financial information.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.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
Companyconsumer electronics segment to continue selling products to two of its largest
customers whose net revenues represented 55%41% and 21%14% of Fiscal 2000fiscal 2001 consolidated
net revenues; (ii) reduced sales to the United States Government by the sporting
goods segment, due to a reduction in Government spending; (iii) competitive
factors in the consumer electronics segment, such as competitive pricing
strategies utilized by retailers in the domestic marketplace that negatively
impacts product gross margins; (iii)(iv) the ability of the Companyconsumer electronics and
sporting goods segments to maintain its suppliers, primarily all of whom are
located in the Far East; (iv)East for the outcomeconsumer electronics segment; (v) the ability of
litigation; (v)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 (vi)(vii) general economic conditions.conditions and other risks. Due to these
uncertainties and risks, readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. For additional risk factors as they relate to the sporting goods
segment, see SSG's Form 10-K for the fiscal year ended March 31, 2001 Item 7 -
"Certain Factors that May Affect the Company's Business or Future Operating
Results".
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Inflation, and Foreign Currency, and Interest Rates
Neither inflation nor currency fluctuations had a significant effect
on the Company's results of operations during Fiscal 2000.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 Companyconsumer electronics segment purchases virtually all of its
products from manufacturers located in various Asian countries.
Financial turmoilThe interest on borrowings under the Company's credit facilities is
based on the prime rate. While a significant increase in the South American
economies mayinterest rates could
have an adverse impacteffect on the Company's South American Licensee.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, 20002001 and April 2, 1999,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, 2000.2001. 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, 20002001 and April 2, 1999,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, 2000,2001, 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
May 30, 2000June 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 and April 3, 1998
(In thousands, except per share data)
2001 2000 1999
1998
----------------- ------------- -------------
Net revenues $ 204,956 $ 158,730 $ 162,730
Costs and expenses:------------------ ----------------
Net revenues $ 377,410 $ 203,701 $ 160,554
Costs and expenses:
Cost of sales 178,125 138,502 142,372306,101 176,870 140,326
Other operating costs and expenses 4,318 4,501 4,007 4,351
Selling, general and administrative expenses 53,498 16,996 12,943
15,483
----------------- ------------ --------------
199,622 155,452 162,206------------------ ----------------
363,917 198,367 157,276
----------------- ------------ -------------------------------- ----------------
Operating income 13,493 5,334 3,278 524
Equity in earnings of affiliate -- 277 1,499
1,524
Write-down ofOther investment in and advances to joint
venture (135) (900) (714)
Loss on marketable securities, net (149) (1,109)losses -- (284) (2,009)
Interest expense, net (4,068) (2,284) (2,272)
(2,510)Minority interest in net loss of consolidated
subsidiary 2,284 -- --
----------------- ------------- -------------
3,043 496 (1,176)------------------ ----------------
Income (loss) before income taxes 11,709 3,043 496
Provision (benefit) for income taxes ( 577)(944) (577) 207 254
----------------- ------------------ ----------------
Net income (loss)$ 12,653 $ 3,620 $ 289 $ (1,430)
================= ================== ================
Net income (loss) per common share
Basic $ .36 $ .07 $ ( .01)
$ (.04)
Diluted .33 .07 ( .01) (.04)
Weighted average shares outstanding
Basic 35,066 47,632 49,398
45,167
Diluted 38,569 53,508 49,398 45,167
The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 20002001 and April 2, 19992000
(In thousands, except share data)
ASSETS 2001 2000 1999
----------------- ---------------
Current Assets:
Cash and cash equivalents $ 8,5397,987 $ 3,100
Available for sale securities 37 7388,539
Accounts receivable (less allowances of
$4,498 and $3,977, and $3,907, respectively) 4,756 5,14326,552 10,271
Other receivables 781 4,027
6,782
Inventories 44,477 14,384 11,608
Prepaid expenses and other current assets 2,653 2,839
---------- ------3,611 2,690
Deferred tax assets 1,419 --
----------------- ---------------
Total current assets 34,396 30,21084,827 39,911
Property, plant, and equipment 12,718 1,034
1,211Deferred catalog expenses 2,437 --
Investment in affiliatesaffiliate -- 20,133
Goodwill and joint venture 20,277 19,525other intangible assets 13,388 1,177
Deferred tax assets 4,081 --
Other assets 2,289 3,449
---------- --------1,555 1,256
----------------- ---------------
Total Assets $ 57,996119,006 $ 54,395
========== =========63,511
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payableShort-term borrowings $ 2,9145,094 $ 2,2162,914
Current maturities of long-term debtborrowings 139 97 50
Accounts payable and other current liabilities 16,499 16,75934,703 22,014
Accrued sales returns 4,913 4,897 3,926
Income taxes payable 481 135 400
----------------- ---------------
Total current liabilities 24,542 23,35145,330 30,057
Long-term debt, less current maturities 20,750 20,750
Other non-current liabilities 141 97borrowings 38,257 20,891
Minority interest 20,288 --
Shareholders' Equity:
Preferred shares --- 10,000,000 shares authorized; 3,677
and 3,714
shares issued and outstanding, respectively 3,310 3,3433,310
Common shares -- $.01 par value, 75,000,000 shares authorized;
51,475,511 and 51,331,615 shares issued; 46,477,61531,343,978 and 47,828,21546,477,615
shares outstanding, respectively 513515 513
Capital in excess of par value 113,459 113,289
113,288
Cumulative translation adjustmentAccumulated other comprehensive losses (118) (76) (78)
Accumulated deficit (88,843) ( 101,445) (104,962)
Treasury stock, at cost, 4,854,00020,131,533 and 3,503,4004,854,000 shares, respectively (13,192) (3,028) (1,907)
----------------- ---------------
Total shareholders' equity 15,131 12,563 10,197
----------------- ---------------
Total Liabilities and Shareholders' Equity $ 57,996119,006 $ 54,39563,511
================= ===============
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 MARCHFor The Years Ended March 31, 2001, March 31, 2000 APRILand April 2, 1999 AND APRIL 3, 1998
(In thousands, except share data)
Accumulated Unrealized
Common Shares Issued Capital CumulativeOther Loss Total
Preferred Number Par Treasury In excess of TranslationComprehensive Accumulated Shareholders
Stock of Shares Value Stock Par Value AdjustmentLosses Deficit Equity
--------- ----------- ------- -------- ------------ ------------ ------------ ------------
Balance--March 31, 1997Balance-April 3, 1998 $ 9,000 40,335,6424,713 51,044,730 $ 403510 $ -- $ 109,278113,201 $ 191197 $ (102,843)(104,673) $ 16,029
Issuance of common stock
upon conversion of
preferred stock (4,287) 10,709,088 107 4,180
Cancellation of common
stock warrants (257) (257)
Preferred stock dividends
declared (400) (400)
Comprehensive loss:
Net loss for the year (1,430) (1,430)
Currency translation
adjustment 6 6
Comprehensive loss (1,424)
------ ---------- --- ------- ------ ---- -------- -------
Balance--April 3, 1998 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
declaredDeclared (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
declaredDeclared
(103) ( 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 51,331,615 $513 $(3,028) $113,28951,475,511 515 $(13,192) $ (76) $(101,445) $12,563113,459 $ (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
and April 3, 1998
(In thousands)
2001 2000 1999 1998
------------------ ------------------- ---------------
Cash Flows from Operating Activities:
Net income (loss)$ 12,653 $ 3,620 $ 289
$ (1,430)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Minority interest (2,284) -- --
Depreciation and amortization 2,729 1,306 1,245 1,759
Equity in earnings of affiliate 1,476 (277) (1,499) (1,524)
Write-down of investment in joint venture -- 153 900 714
Loss on marketable securities -- 149 1,298 --
Asset valuation and loss reserves (284) 626 (1,375) (3,092)( 1,375)
Other (42) 2 (275) (251)
Changes in assets and liabilities:liabilities, net of acquisition of SSG:
Accounts receivable (45) 2,642 4,5433,966 917 160
Other receivables 3,534 2,755 (308)
(4,357)
Inventories (9,463) (2,970) 1,021 4,505
Prepaid expenses and other current assets (74) 186 (460)
(241)
Other assets 84 493 699 (71)
Accounts payable and other current liabilities 634 900 2,739(2,876) (328) 3,382
Income taxes payable 346 (265) 209
88
------------------ ------------------ -------------------------------
Net cash provided by operations 9,765 6,367 5,286 3,382
------------------ ------------------ ---------------
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) 2,709
Additions to property and equipment (110) (462) (413) (27)
Distributions from joint venture -- 213 241 --
------------------ ------------------ ---------------
Net cash (used) provided by investing activities (2,488) (538) (2,299) 2,682
------------------ ------------------ ---------------
Cash Flows from Financing Activities:
Net borrowings (repayments) under line of credit facility 2,180 698 2,216
(5,689)
Retirement of long-term debtLong-term borrowings (retirement) (37) 47 (35) (106)
Payment of dividend on preferred stock (13) (26) (407) (257)
Purchase of preferred and common stock ( 10,164) (1,153) (3,187)
--Exercise of stock options and warrants 172
Other 33 44 (82)
(44)
------------------ ------------------ -------------------------------
Net cash used by financing activities (7,829) (390) (1,495) (6,096)
------------------ ------------------ ---------------
Net increase (decrease) in cash and cash equivalents ( 552) 5,439 1,492 (32)
Cash and cash equivalents at beginning of year 8,539 3,100 1,608 1,640
------------------ ------------------ ---------------
Cash and cash equivalents at end of year $ 7,987 $ 8,539 $ 3,100 $ 1,608
================== ================== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2734,102 $ 2032,137 $ 3162,109
================== ================== ===============
Cash paid for income taxes $ 784 $ 11 $ 32
$ 152
================== ================== ===============
The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 20002001
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 majorityownedmajority-owned
subsidiaries, (the "Company").including SSG. All significant intercompany transactions and
balances have been eliminated.
The Company operates in two business segments: consumer electronics
and sporting goods. The consumer electronics segment, designs, sources, imports
and markets a variety of consumer electronic products and licenses the "EMERSON"
trademark for a variety of products domestically and internationally to certain
licensees. The sporting goods segment, which is operated through Emerson's 50.1%
ownership of Sport Supply Group, Inc. ("SSG"), manufactures and markets sports
related equipment and leisure products to institutional customers in the United
States.
Prior to March 23, 2001, Emerson accounted for its investment in SSG
using the equity method of accounting. On March 23, 2001, Emerson obtained a
controlling interest in SSG and is accounting for this interest as a partial
purchase to the extent of the change in control. The assets and liabilities of
SSG have been revalued to fair value to the extent of Emerson's 50.1% interest
in SSG. The Company's 50.1% interest in the fair value of identifiable assets
acquired less liabilities assumed exceeded the Company's investment in an affiliateSSG by
$1.9 million and ownershiphas been recorded as a reduction of acquired goodwill to be
amortized using the straight-line method over 20 years. SSG's results of
operations and the minority interest related to those results have been included
in a joint venture are accounted for by
the equity method.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 and
Cash Equivalents
ShorttermShort-term investments with original maturities of three months or
less at the time of purchase are considered to be cash equivalents.
The carrying amount
reported in the balance sheet for cash and cash equivalents approximates fair
value.
Fair Values of Financial Instruments
The estimated fair values of financial instruments have been determined by the
Company using available market information, including current interest rates,
and the following valuation methodologies:
Cash and cash equivalents and accounts receivable -- the carrying amounts
reported in the balance sheet for cash and cash equivalents, trade accounts
receivable, accounts payable and accrued liabilities approximate their
fair values because ofvalue due
to the shortimmediate 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 other receivablesthe preferred stock is estimatedbased on the basis of discounted cash
flow analyses, using appropriate interest rates for similar instruments.
Notes payable and long-term debt -- the
fair value of the common stock into which the preferred stock is estimated onconvertible.
The carrying value of the basis of
rates available to the Company for debt of similar maturities.
Inventories
Inventories are stated at the lower of cost (first in, first out) or
market.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, 20002001
and April 2, 19992000 were classified as "available-for-sale.""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 (See
Note 10 - Available-for-Sale Securities).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
straightlinestraight-line method over their estimated useful lives. Leasehold improvements
are amortized on a straightlinestraight-line basis over the shorter of the useful life of
the improvement or the term of the lease. Goodwill (resulting fromThe cost of maintenance and repairs is
charged to expense as incurred. Significant renewals and betterments are
capitalized and depreciated over the investment in an affiliate)remaining estimated useful lives of the
related assets.
Depreciation of property, plant and trademarks are
amortized usingequipment is provided by the
straight-line method principally over 40 years.as follows:
Buildings Thirty to forty years
Machinery and Equipment Five years to ten years
Computer Equipment and Software Three years to ten years
Furniture & Fixtures and Office Equipment Five years to seven years
Intangible Assets
Goodwill and other intangible assets relates to acquisitions.
Trademarks and servicemarks relate to costs incurred in connection with the
licensing agreements for the use of certain trademarks and service marks in
conjunction with the sale of our products. Other items classified as goodwill
and other intangible assets consist of patents, websites, customer base, and
workforce.
Amortization of intangible assets is provided by the straight-line
method as follows:
Cost in excess of identifiable net assets acquired Principally thirty to forty
years
Trademarks and servicemarks Five to forty years
Patents Seven to eleven years
Management periodically evaluatesassesses the recoverability of goodwill and trademarks.the carrying
value of intangible assets. The carrying value of goodwill and trademarksintangible assets would be
reduced to fair value if it is probable that management's best estimate of
future operating income before amortization of goodwill and trademarksidentifiable assets will be less
than the carrying value over the remaining amortization period.
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.
Recently Issued AccountingAdvertising 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
During the second quarter ofIn June 1998, the Financial Accounting Standards Board (FASB)
issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities."Activities" (SFAS 133), as amended, which the Company adopted during fiscal
2001. SFAS 133 requires that all derivatives be recorded on the balance sheet at
fair value. Changes in derivatives that are not hedges are adjusted to fair
value through income. Changes in derivatives that meet the Statement's hedge
criteria will either be 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 JuneDecember 1999, the FASB
issued SFASSecurities and Exchange Commission staff
released Staff Accounting Bulletin No. 137101, "Revenue Recognition in Financial
Statements" ("SAB No. 101"), which deferredprovides guidance on the effective daterecognition,
presentation and disclosure of SFASrevenue in financial statements. The Company
adopted SAB No. 133101 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 one
year. SFAS No. 133 will be effective$1.3 million, decreased by $1.3 million, and
increased by $1.8 million, respectively.
During fiscal 2001, the Company adopted the provisions of EITF 00-10,
"Accounting for Shipping and Handling Fees and Costs". Prior to fiscal 2001, SSG
netted shipping fees against shipping costs. The net difference was included in
cost of sales in the consolidated statements of operations. The provisions of
EITF 00-10 provide that all amounts billed to a customer in a sale transaction
related to shipping and handling, if any, represent revenues earned for the
Companygoods provided and should be classified as revenue. Accordingly, for Fiscalfiscal
2001, approximately $5.6 million of shipping and establishes accountinghandling fees was reclassified
in the consolidated statement of operations. The fiscal 2000 and reporting standardsfiscal 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 derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The Company has not yet determined the effects, if any, of
implementing SFAS No. 133 on its reporting of financial information.fiscal
2000 or fiscal 1999.
Change in Accounting Period
TheFor the fiscal years 1999 and 2000, the Company's financial reporting
year ended on the Friday closest to March 31. Accordingly, the currentIn fiscal year ended on March 31, 2000. Beginning in
Fiscal 2001, the Company
is changingchanged its financial reporting year to end on March 31.
Note 2 --- Inventories:
Inventories are comprised primarilystated at the lower of finished goods.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 -- Investment in Unconsolidated- Acquisition of Affiliate:
The Company ownsAs of March 31, 2001 and 2000, Emerson owned 4,463,223 and 2,386,000
(33%(50.1% and 32.8% of the issued and outstanding) shares of common stock of Sport Supply Group, Inc. ("SSG") ,SSG,
respectively. Accordingly, for fiscal 2001 Emerson accounted for its investment
in SSG by consolidating SSG under purchase method of which 2,269,500 shares
were purchasedaccounting, while for
fiscal 2000 and fiscal 1999, Emerson accounted for its investment in 1996, andSSG under
the balance was purchased in Fiscalequity method.
Pro-forma results of operations for Emerson, reflecting the
consolidation with SSG for the fiscal year ended March 31, 2000 at a total
cost of $ 16,569,000. In addition, the Company owns warrants to purchase an
additional 1 million shares of SSG's common stock for $7.50are as follows
(in thousands, except per share ("data):
For the 12 Months
Ended
March 31, 2000
-----------------------
(Unaudited)
Net revenues - pro forma $ 320,222
Cost of sales - pro forma 255,472
Net income - pro forma 3,620
Net income per common share - basic and
diluted - pro forma $ .07
For fiscal 2000, the investment in and results of operations of SSG
Warrants") whichwere accounted for by the Company purchased in 1996 at an aggregate cost of $500,000.
Ifequity method. Summarized financial information
derived from the Company exercises all ofannual and quarterly financial reports as filed with the
SSG Warrants, it will beneficially own
approximately 41% ofSecurities and Exchange Commission for fiscal 2000 are as follows (in
thousands):
March 31, 2000 April 2, 1999
-------------- -------------
(Unaudited) (Unaudited)
Current assets $ 50,488 $ 44,322
Property, plant and equipment and
other assets 30,158 30,252
Current liabilities 38,450 14,965
Long-term debt 252 19,045
Stockholders Equity 41,945 40,563
For the SSG common shares. The warrants are scheduled to expire
in December 2001.12 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. The investment in and results of operations of SSG are accounted for by the
equity method. The Company's investment in SSG includes goodwill of $7,355,000
which is being amortized on a straight line basis over 40 years. At March 31,
2000, the aggregate market value quoted on the New York Stock Exchange of SSG
common shares equivalent in number to those owned by Emerson was approximately
$14 million. Summarized financial information derived from the annual and
quarterly financial reports as filed with the Securities and Exchange Commission
was as follows (in thousands):
Unaudited
------------------- --------------------
March 31, 2000 April 2, 1999
------------------- --------------------
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
Unaudited
----------------------
For the 12 Months Forfiscal years 2001,
2000, and 1999, SSG billed Emerson pursuant to the 12 Months
Ended Ended
March 31, 2000 April 2, 1999
---------------------- -------------------
Net sales $ 110,552 $ 100,953
Gross profit 39,598 39,090
Net income 2,083 5,454management 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, and April 2, 1999, property, plant, and equipment is
comprised of the following:
2001 2000
1999
------------ ------------------------ ---------
(In thousands)
Land $ 9 $ --
Buildings 1,024 --
Computer Equipment & Software 10,948 2,306
Furniture and fixtures. . . . . . . . . . . . . $ 3,555 $ 3,2281,570 1,249
Machinery and equipment . . . . . . . . . . . . 2,465 614
493
Leasehold improvements.improvements . . . . . . . . . . . . . 296 267
267
------------ ------------------------- ----------
16,312 4,436 3,988
Less accumulated depreciation and amortization . 3,594 3,402
2,777
------------ ------------------------- ----------
$ 12,718 $ 1,034
$ 1,211
============ ========================= ==========
Depreciation and amortization of property, plant, and equipment
amounted to $2,729,000, $638,700, $583,000, and $776,000$583,000 for the years ended March 31,
2001, March 31, 2000, and April 2, 1999, and April 3, 1998, respectively.
Note 5 -- Credit Facility:
On March 31, 1998, the Company amended its- Short-Term Borrowings:
Emerson has an existing Loan and Security Agreement (the "Loan and Security
Agreement"), which includes a senior secured credit facility in the amount of
$10 million with a U.S. financial institution. The amendment to the facility
reduced the facility to $10 million from $35 million and amended certain
financial covenants as defined below. The facility provides for
revolving loans and letters of credit, subject to individual maximums which, in
the aggregate, cannot exceed the lesser of $10 million or a "Borrowing Base"
amount based on specified percentages of eligible accounts receivable and
inventories. Amounts outstanding under the senior credit facility are secured by
(i) substantially all of the Company'sEmerson's U.S. and Canadian assets except for
trademarks, which are subject to a negative pledge covenant, and (ii) a portion
of its minority interest of its
investment in an unconsolidated affiliate.SSG. At March 31, 20002001 and April 2, 1999,2000, the weighted average
interest rate on the outstanding borrowings was 10.42% and 9.36% for
both years, which, respectively.
The interest rate charged on this facility is the prime rate of interest plus
1.25%. Interest paid
totaled $273,000, $203,000, and $316,000 for the years ended March 31, 2000,
April 2, 1999, and April 3, 1998, respectively. Pursuant to the Loan and Security Agreement, the Company is restricted
from, among other things, paying cash dividends (other than on the Series A
Preferred Stock), redeeming stock in certain instances, and entering into
certain transactions without the lender's prior consent and is required to
maintain certain net worth levels. An event of default under the credit facility
would trigger a default under the Company's 8 1/8-1/2% Senior Subordinated
Convertible Debentures Due 2002. At March 31, 2000 and April 2,
1999, there were $2,914,000 and $2,216,000, respectively, outstanding borrowings
under the facility, and no outstanding letters of credit issued for inventory
purchases.
Note 6 -- Long-Term Debt:
As of March 31, 2000, approximately $2.9
million was outstanding under this facility. At March 31, 2001 and April 2, 1999,2000, 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 debtborrowings consisted of the
following:
2001 2000
1999
------------- -------------------------- -----------
(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 . . . . . . . . 97 50
------------- --------------
20,847 20,800558 238
------------ -----------
38,396 20,988
Less current obligations . . . . . . . .maturities 139 97
50
------------- -------------------------- -----------
Long-term debt and notes payable $ 20,75038,257 $ 20,750
============= ==============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 1/8-1/2% 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 103%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 and
April 3, 1998 consisted of the following:
2001 2000 1999
1998
---------- ---------- ------------------------ --------------- ---------
Current: (In thousands)
Current:
Federal $ 475 $ 47 $ --
$ 13
Foreign, state and other 848 (624) 207
241
---------- ----------- ----------Deferred federal (2,267) -- --
-------------- --------------- ---------
$ (944) $ (577) $ 207
$ 254
========== =========== ======================== =============== =========
The Company, with the exception of SSG, files a consolidated federal
and certain state and local income tax returns.
The difference between the effective rate reflected in the provision
for income taxes and the amounts determined by applying the statutory U.S. rate
of 34% to earnings (loss)income before income taxes for the years ended March 31, 2001, March
31, 2000, and April 2, 1999 and April 3, 1998 are analyzed below:
2001 2000 1999
1998
--------------- ------------------------------- ---------------
(In thousands)
Statutory provision (benefit)$ 3,981 $ 1,035 $ 169
$ (400)
FederalDecrease in valuation allowance (1,076) (177) 454(5,246) (1,306) (207)
Foreign income taxes 478 (642) 207
223State taxes 723 183 30
Minority interest (1,211) - -
Alternative minimum tax 305 47 -
Other, net 26 106 8
(23)
--------------- ------------------------------- ---------------
Total income tax (benefit)
provision $ (944) $ (577) $ 207
$ 254
=============== =============================== ===============
A wholly owned subsidiary of the Company,
Emerson Radio (Hong Kong) Ltd., was assessed $858,000 by the Hong Kong
Inland Revenue Department (the "IRD") in May 1998. The assessment related to the
Fiscalfiscal 1993 to Fiscalthrough 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 Fiscalfiscal 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 the amount accrued.$256,000.
Emerson Radio (Hong Kong) Ltd. was also in litigation with the IRD
regarding the deductibility of certain expenses that related to Fiscalthe fiscal 1992
to Fiscal 1999.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 has beenwas recorded in the Company's financial results for
Fiscal 2000.
As of March 31, 20002001 and April 2, 1999,2000, the significant components of the
Company's deferred tax assets and liabilities are as follows:
2000 1999
-------------- -----------
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 5,243 $ 4,699
Inventory reserves 235 2,243
Federal loss carryforwards 13,753 16,207
State loss carryforwards 4,746 5,257
Other 449 1,016
-------------- ------------
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 24,426 29,422
Valuation allowance for deferred tax assets (22,537) ( 28,054)
-------------- ------------
Net deferred tax assets 1,889 1,368
Deferred tax liabilities (1,889) (1,368)
-------------- ------------
Net deferred taxes $ -- $ --
============== ============
Total deferred tax assets of the Companyconsumer electronics segment at
March 31, 2000,2001 and April 2, 1999,2000 include the tax effectedtax-effected net operating loss
carryforwards subject to annual limitations (as discussed below), and
tax effectedtax-effected deductible temporary differences. The CompanyA valuation reserve has been
established a valuation reservefor the consumer electronics segment against any expected future
benefits.
Cash paidbenefits as management believes it is not more likely than not that such benefit
will be realized in the future.
The sporting goods segment has net operating loss carryforwards that
can be used to offset future taxable income and can be carried forward for income taxes was $11,400, $32,000, and $152,00015 to
20 years. No valuation allowance has been recorded for the years
ended March 31, 2000, April 2, 1999, and April 3, 1998, respectively.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, $1,492,000, and $3,065,000$1,492,000 for the years ended March 31, 2001, March 31, 2000,
and April 2, 1999, and April 3, 1998,
respectively. It is the policy of the Company to permanently reinvest all the
earnings of its foreign subsidiaries.
As of March 31, 2000,2001, the Company hashad a federal net operating loss
carry forwardcarryforward of approximately $130,813,000, of$115,500,000, which $29,160,000, $13,385,000, $50,193,000,
$18,201,000, $18,954,000 and $920,000 will expire in 2006 2007, 2009, 2011,
2012 and 2019, respectively.through
2019. The utilization of these net operating losses are limited based on Sections 382 and 383, respectively, of the Internal Revenue
Code. The Company's annual limitation is approximately $2.2 million forsubject to limitations
under IRC section 382. In addition, SSG has federal net operating lossesloss
carryforwards of approximately $20,044,000, which will expire in 2006, 2007 and 2009.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
------------ ------
20012002 $ 890
2002 8032,768
2003 8032,513
2004 2681,590
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 $1,570,000 for Fiscal 2000, 1999, and 1998, respectively. Rental income from the
sublease of warehouse and office space aggregated $238,000 in Fiscal 1998.
Letters of Credit:
There were no letters of credit outstanding under the Loan and
Security Agreement (See Note 5) as of March 31, 2000,2001, or April 2, 1999.2000. The Company's
Hong Kong subsidiary also currently maintains various credit facilities
aggregating $23.5$40.0 million with a bank in Hong Kong subject to annual review
consisting of the following: (i) a $3.5$5.0 million credit facility which is
generally used for letters of credit for inventory purchases, and (ii) a $20$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, 2000,2001, the Company's
Hong Kong subsidiary had pledged $1$1.75 million in certificates of deposit to
this bank to assure the availability of the $3.5$5.0 million credit facility. At
March 31, 2000,2001, there were $3,442,000$3,801,000 and $24,566,000$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 -- Shareholders' Equity:- Stock Based Compensation:
Consumer Electronics Segment:
In July 1994, the CompanyEmerson adopted a Stock Compensation Program
("Program")
intended to secure for the Company and its stockholders the benefits arising
from ownership of the Company's common stock by those selected directors,
officers, other key employees, advisors and consultants of the Company who are
most responsible for the Company's success and future growth.. The maximum aggregate number of shares of common stock available
pursuant to the Program is 2,000,000 shares and the Program is comprised of four
parts--theparts - the Incentive Stock Option Plan, the Supplemental Stock
Option Plan, the Stock Appreciation Rights Plan and the Stock Bonus Plan. A
summary of transactions during the last three years is as follows:
Exercise Price or
Number of Price AggregateWeighted Avg.
Shares Per Share Price
------------------- --------------------- -----------------------------------------
Outstanding--March 31, 1997 1,590,000 $1.00Outstanding - $2.88 $1,927,000
Granted 207,000 $1.00 207,000
Canceled (790,000) $1.00 - $2.88 (1,067,000)
------------------- ---------------
Outstanding--AprilApril 3, 1998 1,007,000 $1.00 - $1.10 1,067,0001,017,000 $ 1.06
Granted 23,000 $1.00 23,0001.00
------------------- ---------------------------------------
Outstanding - April 2, 1999 1,030,000 $1.00 - $1.10 1,090,0001,040,000 1.06
Granted 300,000 $1.00 300,0001.00
Canceled (18,000) $1.00 (18,000)1.00
------------------- ----------------------------------------
Outstanding - March 31, 2000 1,312,000 $1.001,322,000 1.05
Granted 248,000 1.00
Exercised (75,000) 1.00
Canceled (11,666) 1.00
------------------- ------------------------
Outstanding - $1.10 $1,372,000March 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 at least equal to, or greater
than the fair market value of the shares on the date of the grant, except that
the option price with respect to an option granted to any person who owns more
than 10% of the voting power of all classes of capital stock shall not be less
than 110% of the fair market value of the shares on the date of the grant. As of
March 31, 2000 and
April 2, 1999, approximately 993,000 and 964,0002001, 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 exercisable,
respectively.
The Company has elected to follow APB25 and related interpretations for
stock-based compensation and accordingly has recognized no compensation expense.
Had compensation cost been determined based upon the fair value at grant date
for awards consistentfully vested with the methodology prescribed by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), the Company's net income would have decreased approximately $19,000 and
$25,000 for the years ended431,332
options vesting through July 2003. At March 31, 2001, March 31, 2000, and April
2, 1999, respectively,the weighted average exercise price of exercisable options under the
Program was $1.05, $1.06, and the net loss would have increased approximately $21,000 for the year ended April
3, 1998.
The fair value of these options, and all other options and warrants of the
Company, was estimated at the date of grant using a Black-Scholes option pricing
model with the following assumptions for the years ended March 31, 2000, April
2, 1999, and April 3, 1998: risk-free interest rate of 5%, an expected life of
10 years and a dividend yield of zero. For the years ended March 31, 2000, April
2, 1999 and April 3, 1998, volatility was 57%, 15%, and 56%,$1.06, respectively. The
effects of applying SFAS 123 and the results obtained are not likely to be
representative of the effects on future pro-forma income.
In October 1994, the Company'sEmerson's Board of Directors adopted, and the
stockholders subsequently approved, the 1994 Non-Employee Director Stock Option
Plan. The maximum number of shares of common stockCommon Stock available under such plan is
300,000 shares. A summary of transactions under the plan for the three years
ending March 31, 20002001 is as follows:
Number of Price Aggregate
Shares Per Share Price
----------------- ----------------- -----------------
Outstanding--March 31, 1997,
April 3, 1998, and April 2, 1999 150,000 $1.00 $ 150,000
Canceled (50,000) $1.00 (50,000)
----------------- -----------------
Outstanding - March 31, 2000 100,000 $1.00 $ 100,000
================= =================
Exercise Price or
Number of Weighted Avg.
Shares Price
---------------- --------------------
Outstanding -April 3, 1998 and April 2,
1999 150,000 $ 1.00
Canceled (50,000) 1.00
---------------- ----------------
Outstanding - March 31, 2000 100,000 1.00
Granted 75,000 1.00
---------------- ----------------
Outstanding - March 31, 2001 175,000 $ 1.00
================ ================
All options granted under the stock option plan during the fiscal
years ending April 2, 1999, March 31, 2000, and March 31, 2001 were at exercise
prices equal to or greater than the fair market value of Emerson's stock on the
date of the grant.
As of March 31, 2001, there were a total of 175,000 options
outstanding with exercise prices at $1.00 per share. As of March 31, 2001,
100,000 of the total options outstanding were fully vested with 75,000 options
vesting through July 2003.
The provisions for the 1994 Non-Employee Director Stock Option Plan
for exercise price, term and vesting schedule are the same as noted above for
the Stock Compensation Program.
The CompanySporting Goods Segment:
SSG has issued and outstanding 3,677a stock option plan that provides up to 2,000,000 shares of
Series A Convertible
Preferred Stock, ("Preferred Stock") $.01 par value, with a face valuecommon stock for awards of $3,677,000incentive and an estimatednon-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 approximately $3,309,000. The
Preferredthe 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 is convertible into CommonOption 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 throughOption Committee comprised of members of the Board of
Directors).
A summary of transactions under the SSG Plan for the fiscal year
ending March 31, 20022001 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 a
price per share of Common Stockexercise prices equal to 80% ofor greater than the defined averagefair market value
of a share of Common StockSSG's stock on the date of conversion. The preferred stock bears
dividends, on a cumulative basis currently at 2.8% and declines by 1.4% each
June 30th until no dividends are payable.
During the year endedgrant.
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 Company repurchased 37 sharesfollowing 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 Series A Preferred Stock. There were no conversionsemployee stock options. Under APB 25,
because the exercise price of the Company's Preferred
Stock intoemployee 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 Stock for the year endedShares:
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.
The Preferred Stock is non-voting. However, the terms of the Preferred
Stock provide that holders shall have the right to appoint two directors to the
Company's Board of Directors if the Preferred Stock dividends are in default for
six consecutive quarters. At March 31, 2000, the Company is in compliance with
these default provisions and currently owes dividends in arears of $925,000.
The Company issued warrants on March 31, 1994 for the purchase of approximately
750,000 shares of Common Stock which are exercisable at $1.30 per share and
expire on March 31, 2001.
The Company issued warrants in August 1995 for the purchase of 500,000 shares
of common stock that are exercisable through August 2000 at an exercise price of
$3.9875 per share, subject to adjustment under certain circumstances. In
December 1995, the Company issued warrants for the purchase of 250,000 shares of
Common Stock at an exercise price of $4.00 per share. The warrants may be
exercised until December 8, 2000, when such warrants shall expire.
In November 1995, the Company filed a shelf registration statement covering
5,000,000 shares of common stock owned by Fidenas International Limited, LLC to
finance a settlement of the litigation regarding certain outstanding common
stock. The shares covered by the shelf registration are subject to certain
contractual restrictions and may be offered for sale or sold only by means of an
effective prospectus following registration under the Securities Act of 1933, as
amended.
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 2000,2001 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 20002001 and Fiscal
19992000 were funded by working capital.
Of the 46,477,615 common shares outstanding at March 31, 2000, approximately
29.2 million shares were held directly or indirectly by affiliated entities of
Geoffrey P. Jurick, Chairman, Chief Executive Officer and President of the
Company. The Company agreed with Mr. Jurick that such shares would not be
subject to the repurchase plans. Subsequent thereto, Mr. Jurick's shareholdings
were reduced and so were the total number of outstanding common shares. (See
Item 8 - "Financial Statements and Supplementary Data - Note 13 of Notes to the
Consolidated Financial Statements".)
Note 10 -- 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.
The following is a summary of available-for-sale equity securities at March 31,
2000 and April 2, 1999 (in thousands):
Gross Gross Estimated
Cost Gains Losses Fair Value
March 31, 2000 $ 37 $ -- $ -- $ 37
April 2, 1999 2,036 -- 1,298 738
Note 11 -- 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, 2000, April 2, 1999, and April 3,
1998:
(In thousands, except per share amount)
2000 1999 1998
--------------- ---------- ---------
Numerator:
Net income (loss) $ 3,620 $ 289 $ (1,430)
Less: preferred stock dividends, and repurchase
costs 103 578 400
============== ========== ===========
Numerator for basic earnings
(loss) per share - income available
to common stockholders 3,517 (289) (1,830)
Add back to effect assumed conversions:
Preferred Stock dividends 103 -- --
-------------- ------------ ------------
Numerator for diluted earnings
(loss) per share $ 3,620 $ (289) $ (1,830)
=============== =========== ============
Denominator:
Denominator for basic earnings per share -
weighted average shares 47,632 49,398 45,167
Effect of dilutive securities:
Preferred shares 5,876 -- --
--------------- ------------- --------------
Denominator for diluted earnings per share -
weighted average shares and assumed conversions
53,508 49,398 45,167
=============== ============ =============
Basic income (loss) per share $ .07 $ (.01) $ (.04)
===============
============ =============
Diluted income (loss) per share $ .07 $ (.01) $ (.04)
=============== ============ =============
Options and warrants to purchase 2,899,000, 2,667,000, and 2,644,000 shares of
common stock were not included in computing diluted earnings per share for
Fiscal 2000, 1999, and 1998, respectively, because the effect would be
antidilutive.
Preferred Stock convertible into 8,680,000 and 21,864,000 shares ofAdditional Common Stock were not included in computing diluted earnings per share for Fiscal 1999 and
1998, respectively, 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 2000, 1999,and 1998, because the effect would be antidilutive.
Note 12 -- License Agreements:
The Company has several license agreements in place that allow licensees to use
the "[OBJECT OMITTED]" trademark for the manufacture and/or the sale of consumer
electronics and other products. The license agreements cover various countries
throughout the world and are subject to renewal at the initial expiration of the
agreements. Additionally, the Company has entered into several sourcing and
inspection agreements that require the Company to provide these services in
exchange for a fee. License revenues recognized in Fiscal 2000, 1999, and 1998
were $3,143,000, $3,633,000, and $5,597,000, respectively, including $4,000,000
in Fiscal 1998 from a major supplier whose licensing agreement expired March 31,
1998. The Company records licensing revenues as earned over the term of the
related agreements.
In April 1997, in anticipation of the expiration of the major supplier license
agreement, Emerson executed a marketing agreement ("Marketing Agreement") with
Daewoo Electronics Co. Ltd. ("Daewoo"). This Marketing Agreement provided that
Daewoo manufacture and distribute television and video products bearing the
"[OBJECT OMITTED]" trademark to customers in the U.S. market. The Company
arranged sales and provided marketing services, and in return received a
commission for such services. Daewoo was responsible for and assumed all risks
associated with, order processing, shipping, credit and collections, inventory,
returns and after-sale service. The commissions earned by the Company were
entirely dependent upon the volume of sales made that were subject to the
Marketing Agreement. Effective October 29, 1999, Emerson and Daewoo entered into
a three year License Agreement ("License Agreement") which replaced the
Marketing Agreement. The License Agreement includes, among other items, minimum
production quotas and subject to certain conditions, minimum annual royalty
payments each year, which in Fiscal 2001 amounts to $4,500,000. All other
material aspects of the License Agreement remain substantially similar to the
terms set forth in the superceded Marketing Agreement.
In addition, the Company has several other licensing agreements in place with
licensees primarily in the United States, Canada, Latin America, Mexico, Eastern
Asia and parts of Europe.
Throughout many parts of the world, the Company maintains distributorship and/or
sales support and assistance agreements that allow the distribution of the
Company's products into defined geographic areas. Currently the Company has such
agreements covering the Sub-Asian Continent, North Africa, Canada and the Middle
East.
Note 13 -- Legal Proceedings:
In the last few months, the Company settled substantially all of its
outstanding litigation.
Certain Outstanding Common StockRepurchases:
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 1996, Mr Jurick entered into a settlement agreement (the "Settlement
Agreement") pursuant to which he agreed to pay to an individual and two
institutions the sum of $49.5 million from the proceeds of the sale of
approximately 29.2 million shares of Common Stock of the Company (the "Common
Stock") beneficially owned by him. None of the shares of Common Stock was sold
and, in March 2000, at the request of Mr. Jurick's three creditors, the Court
terminated the Settlement Agreement. To implement such termination, the Court
divided the 29.2 million shares of Common Stock among Mr. Jurick and his three
creditors in a manner insuring that Mr. Jurick would retain at least 25% of the
outstanding shares of Common Stock as required by the Company's lending
agreements and approved the Agreement. Mr. Jurick received 9.9 million shares,
the two institutions received 11.1 million shares, and the individual received
8.2 million shares.
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. As a result of the purchase by the Company, the outstanding shares
of Common Stock of the Company were reduced to approximately 39.4 million
shares. 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.
Other LitigationSeries A Convertible Preferred Stock:
The Company has also entered into definitive agreements to resolve
otherissued and outstanding litigation. The Company reached agreements3,677 shares of Series A Convertible
Preferred Stock, ("Preferred Stock") $.01 par value, with Cineral
Electronica de Amazonia Ltda., a former Latin American distributor, which had
brought suit for approximately $93.6 million in damages; Tanashin Denkin
Company, which had brought suit for patent infringements seeking potential
damagesface value of
$3,677,000 and an estimated fair market value of approximately $12.0 million;$3,986,000. The
Preferred Stock is non-voting and two former officers who sought
damages for alleged wrongful termination. Also,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 received a jury
rulingis in its suit against a former supplier and won a favorable ruling from the
Hong Kong Court of Final Appeals regarding its prior year tax filings in Hong
Kong for its foreign subsidiary.
Costs of approximately $2.8 in excess of existing reserves associatedcompliance with the resolutiondefault provisions and
currently owes dividends in arrears of all of$977,000.
During the above mentioned litigation, including
settlement payments and legal fees, were expenses in the Company's fiscal year ended March 31, 2000.2001, 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 other legal proceedings and claims of various types in
the ordinary course of business. While any such litigation to which the Company
is a party contains an element of uncertainty, management presently believes
that the outcome of each such proceeding or claim which is pending or known to
be threatened, or all of them combined, will not have a material adverse effect
on the Company's consolidated financial position.position or results of operations.
Note 1415 -- Business Segment Information and Major Customers:
The Company's has two business segments, the consumer electronics business
isand the Company's only businesssporting goods segment. Operations in thisthese business segmentsegments are
summarized below by geographic area (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 $ 199,065197,810 $ 5,891 $ 204,956
======= ======= ============203,701
================================================
Income (loss) before income
taxesTaxes $ 3,075 $ (32) $ 3,043
================================================
Identifiable assets $ 55,26560,780 $ 2,731 $ 57,996
======== ======== =============63,511
================================================
Year Ended April 2, 1999
U.S. Foreign Consolidated
Sales to unaffiliated customers $ 154,282156,106 $ 4,448 $ 158,730
========== ========= =========
Income160,554
================================================
Loss before income taxes $ 472 $ 24 $ 496
========== ========= =========================================================
Identifiable assets $ 50,974 $ 3,421 $ 54,395
========== ========== =========
Year Ended April 3, 1998
U.S. Foreign Consolidated
Sales to unaffiliated customers $ 159,108 $ 3,622 $ 162,730
========== ========== =============
Loss before income taxes $ (1,163) $ (13) $ (1,176)
=========== ========== =============
Identifiable assets $ 53,885 $ 912 $ 54,767
=========== ========== ============================================================
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, and
April 3, 1998, there were non-operating assets of $9,282,000, $8,297,000 $8,348,000 and
$8,275,000,$8,348,000, respectively, located in foreign countries.
The Company's net sales to one customer aggregated approximately 55%41%, 52%56%
and 53%52% of consolidated net revenues for the years ended March 31, 2000, April
2, 1999, and April 3, 1998, respectively. This customer approximated 30% of the
Company's trade accounts receivable at2001, March
31, 2000, and hasApril 2, 1999, respectively. The trade accounts receivable balance
for this customer at March 31, 2001 was not been
collateralized.material. The Company's net sales to
another customer aggregated 21%14%, 24%21%, and 15%24% for the years ended March 31,
2001, March 31, 2000, and April 2, 1999, and April 3, 1998, respectively. Trade accounts receivable
from this customer were 27%10% of total trade receivables at March 31, 2000.
2001.
Note 1516 - 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, 20002001 and April 2, 1999,March 31, 2000, with amounts in thousands, except for per share
data. Due to rounding, quarterly amounts may not fully sum to yearly amounts.
Consolidated Statement(In thousands, except per share data).
Fiscal 2001 (1)(2) Fiscal 2000 Fiscal 1999(2)
Consolidated Statement
of Operations 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- ------- ------- ------- ------- -------
Net revenues $43,447 $55,531 $61,319 $44,659 $59,126 $46,762 $31,588 $21,254$ 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
1,074 993 1,122 89
Net income
(loss)3,045 5,118 3,708 782 415 855 1,127 1,223
764 583 310 (1,368)
Net income (loss) per
common share - basic $0.07 0.15 0.12 0.02 0.01 $ 0.02 $ 0.02 $ 0.03 $ 0.01 $ 0.00 $ 0.01 $ (0.03)
Net income (loss) per
common share - diluted $0.06 0.13 0.10 0.02 0.01 $ 0.02 $ 0.02 $ 0.02 $ 0.01 $ 0.00 $ 0.01 $ (0.03)
Weighted average shares
outstandingOutstanding - basic 43,853 33,867 31,272 31,284 47,828 47,828 47,828 47,056
51,220 50,037 48,601 47,844
Weighted average shares
outstandingOutstanding - diluted 55,197 55,916 55,609 52,932 64,253 50,037 59,010 47,84442,277 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 the
Company'sEmerson's
definitive Proxy Statement to be filed with the Securities Exchange Commission
on or before July 29, 2000.30, 2001.
Item 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to the
Company'sEmerson's
definitive Proxy Statement to be filed with the Securities Exchange Commission
on or before July 29, 2000.30, 2001.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated herein by reference to the
Company'sEmerson's
definitive Proxy Statement to be filed with the Securities Exchange Commission
on or before July 29, 2000.30, 2001.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to the
Company'sEmerson's
definitive Proxy Statement to be filed with the Securities Exchange Commission
on or before July 29, 2000.30, 2001.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON
FORM 8-K
(a) Financial Statements and Schedules:
Page No.
(1) Consolidated Statements of Operations for the years ended
March 31, 2000, April 2, 1999, and April 3, 1998 21
Consolidated Balance Sheets as of March 31, 2000 and April 2,1999 22
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 2000, April 2, 1999, and April 3,1998 23
Consolidated Statements of Cash Flows for the years ended 24
March 31, 2000, April 2, 1999 and April 3, 1998
Schedule VIII--Valuation and Qualifying Accounts and Reserves 49
(2) All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements
or notes thereto.
(3)(a) Financial Statements and Schedules. See (c) below.Item 8
(b) Reports on Form 8-K - Current report on Form 8-K, dated May 25, 2000,January
19, 2001, reporting the settlementpurchase of substantially all1,629,629 shares of the Company's
outstanding litigation.common
stock of Sport Supply Group, Inc..
(c) Exhibits
Exhibit Number
(3)(a)3.1 Certificate of Incorporation of Emerson (incorporated by
reference to Exhibit (3) (a) of Emerson's Registration Statement
on Form S-1, Registration No. 33-53621, declared effective by the
SEC on August 9, 1994).
(3)(b)3.2 Amended and Restated Certificate of Incorporation of Sport Supply
Group, Inc. (incorporated by reference to Exhibit 3.1of Sport
Supply's Annual Report on Form 10-K for the year ended March 30,
2001).
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Sport Supply Group, Inc. (incorporated by
reference to Exhibit 3.1.1 of Sport Supply's Annual Report on
Form 10-K for the year ended March 30, 2001).
3.4 Certificate of Designation for Series A Preferred Stock
(incorporated by reference to Exhibit (3) (b) of Emerson's
Registration Statement on Form S-1, Registration No. 33-53621,
declared effective by the SEC on August 9, 1994).
(3)(c)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)(d)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)(e)3.7 Amendment dated November 28, 1995 to the By-Laws of Emerson
adopted March 1994 (incorporated by reference to Exhibit (3) (b)
of Emerson's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995).
(4)(a) Warrant Agreement to Purchase 750,000 shares3.8 Amended and Restated Bylaws of Common Stock,
dated as of March 31, 1994Sport Supply Group, Inc.
(incorporated by reference to Exhibit (4)(a)3.2 of Emerson's Registration StatementSport Supply's
Annual Report on Form S-1,
Registration No. 33-53621, declared effective by10-K for the SEC on August
9, 1994)year ended March 30, 2001).
(4)(b)4.1 Indenture, dated as of August 17, 1995 between Emerson and Bank
One, Columbus, NA, as Trustee (incorporated by reference to
Exhibit (1) of Emerson's Current Report on Form 8-K filed with
the SEC on September 8, 1995).
(4)(c)4.2 Common Stock Purchase Warrant Agreement to purchase 200,000
shares of Common Stock, dated as of December 8, 1995 between
Emerson and Kenneth A. Orr (incorporated by reference to Exhibit
(10) (f) of Emerson's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995).
(10)(a)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)(b)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)(c)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)(d)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)(e)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)(f)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)(h)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)(i)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)(j) 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)(k)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)(l)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)(m)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)(n) Consent No. 1 to Financing Agreements among Emerson, certain10.10 License and Exclusive Distribution Agreement with Cargil
International Corp. dated as of its subsidiaries, and CongressFebruary 12, 1997 (incorporated
by reference to Exhibit (10)(b) of Emerson's Current Report on Form 8-K dated
November 27, 1996).
(10)(o) Amendment No. 6 to Financing Agreements, dated as of August 14,
1997 (incorporated by reference to Exhibit (10(g) (c) of Emerson's Quarterly Report
on Form 10-Q for the quarter ended September 30,
1997)December 31, 1996).
(10)(p) Amendment No. 7 to Financing Agreements,10.11 License Agreement dated as of March 31,
1998October 29, 1999 by and between
Daewoo Electronics Co. Ltd and Emerson (incorporated by
reference to Exhibit (10)(t) (b) of Emerson's AnnualQuarterly Report on
Form 10-K10-Q for the yearquarter ended April 3, 1998)October 1, 1999).
(10)(q) Amendment No. 1 to Pledge and Security10.12 License Agreement datedeffective as of March
31, 1998January 1, 2001 by and between
Funai Corporation and Emerson (incorporated by reference to
Exhibit (10) (u)(z) of Emerson's AnnualQuarterly Report on Form 10-K10-Q for
the yearquarter ended April 3,
1998)September 30, 2000).
(10)(r)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)(s) 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)(t)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)(u)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)(v)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)(w) 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)(x)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)(y)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 October 29, 1999September 23, 1991, by and
between Daewoo Electronics Co. LtdProacq 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)(b)10.32 of Emerson's QuarterlySport
Supply's Annual Report on Form 10-Q10-K for the quarteryear ended October 1, 1999)March 30,
2001).
(12)10.24 Non-Qualified Stock Option Agreement by and between the Company
and Geoffrey P. Jurick (incorporated by reference to Exhibit
10.4 of Sport Supply's Annual Report on Form 10-K for the year
ended March 30, 2001).
10.35 Credit Agreement dated March 27, 2001 by and between Sport
Supply Group, Inc. and Congress Financial Corporation
(incorporated by reference to Exhibit 10.37 of Sport Supply's
Annual Report on Form 10-K for the year ended March 30, 2001).
12 Computation of Ratio of Earnings (Loss) to Combined Fixed
Charges and Preferred Stock Dividends. *
(21)21 Subsidiaries of the Company as of March 31, 2000.2001.*
(23)23 Consent of Independent Auditors.*
(27) Financial Data Schedule for the fiscal year ended March 31, 2000.*
- -------------------___________________
* 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 28, 200025, 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 28, 2000
Geoffrey P. Jurick Chief Executive Officer and
President
/s/ John P. Walker Executive Vice President, June 28, 2000
John P. Walker Chief Financial Officer
/s/ Robert H. Brown, Jr. Director June 28, 2000
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director June 28, 2000
Peter G. B(nger
/s/ Jerome H. Farnum Director June 28, 2000/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 Director June 28, 2000
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 DeductionsExpenses 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) 177177(A) 2,686
April 3, 1998 2,686 666 337 3,015- -----------------------------------------------------------
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 1,3801,380(B) 385
April 3, 1998 2,161 1,507 2,971 697
(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.