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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Fiscal Year ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
Delaware 22-3285224
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
Nine Entin Road, Parsippany, NJ 07054
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 884-5800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirement for the past 90 days. [X] YES [ ] NO.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at July 8, 2002 (computed by reference to the
last reported sale price of the Common Stock on the American Stock Exchange on
such date): $30,487,404.
Number of Common Shares outstanding at July 8, 2002: 26,907,169
DOCUMENTS INCORPORATED BY REFERENCE:
Document
Part of the Form 10-K
Proxy Statement for Annual Meeting of
Stockholders expected to be held on or about September 25, 2002
Part III
PART I
Item 1. BUSINESS
The Company
We operate in two business segments:
o consumer electronics; and
o 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 world wide. The sporting goods segment, which is operated
through our 53% ownership of Sport Supply Group, Inc., distributes and markets
sports related equipment and leisure products primarily to institutional
customers in the United States.
Emerson was originally formed in the State of New York in 1956 under the
name Major Electronics Corp. In 1977, we reincorporated in the State of New
Jersey and changed our name to Emerson Radio Corp. In 1994, we were
reincorporated in Delaware. Our principal executive offices are located at Nine
Entin Road, Parsippany, New Jersey 07054-0430. Our telephone number in
Parsippany, New Jersey, is (973) 884-5800.
Unless the context otherwise requires, the term:
o "Emerson" refers to our "consumer electronics" segment which is
operated through Emerson Radio Corp. and its subsidiaries, other than
SSG;
o "SSG" refers to our "sporting goods" segment which is operated through
Sport Supply Group, Inc. and its subsidiaries; and
o "we", "us" and "our" refers to both Emerson and SSG.
For a more detailed discussion of SSG's business and financial data, see
SSG's Form 10-K for the fiscal year ended March 29, 2002.
Consumer Electronics Segment
General
Emerson, directly and through several subsidiaries, designs, sources,
imports, markets, sells and licenses to certain licensees a variety of
consumer electronics both domestically and internationally under the
Emerson(R) and HH Scott(R) brand names. These products include :
o video products - Televisions, combination television/VCR/DVD, digital
video disc (DVD), video cassette recorders (VCR) and set top boxes;
o microwave ovens; and
o audio, clocks and clock radios, home theater systems and multi-media;
o house ware products;
o video accessories, telecommunication equipment, certain computer
accessories, specialty and other consumer electronic products.
Emerson also licenses a variety of specialty themed logos and marks from
third parties for use on audio products that bear these various names. We refer
to these as inbound licenses.
The trade name "Emerson Radio" dates back to 1912 and is one of the oldest
and most well respected names in the consumer electronics industry. See
"Licensing and Related Activities."
Emerson believes it possesses an advantage over its competitors due to the
combination of:
o the "EMERSON(R)" brand recognition;
o its distribution base and established customer relations;
o its sourcing expertise and established vendor relations;
o an infrastructure with personnel experienced in servicing and
providing logistical support to the domestic mass merchant
distribution channel; and
o its extensive experience in establishing license and distribution
agreements on a global basis for a variety of products.
Emerson intends to continue leveraging its core competencies to offer a
broad variety of current and new consumer electronic products to customers. In
addition, Emerson has in the past, and intends to form in the future, joint
ventures and enter into additional inward formed and outward licensing and
distribution agreements that take advantage of its trademarks and utilize the
logistical and sourcing advantages for products that are more efficiently
marketed through these arrangements.
The consumer electronics segment's core business consists of selling,
distributing and licensing various low to moderately priced categories of
consumer electronic products. The majority of Emerson's marketing and sales
efforts are concentrated in the United States and, to a lesser extent, certain
other international regions. Major competitors in these markets are
foreign-based manufacturers and distributors. See "-Competition."
Products
Emerson's current product and branded categories consist of the following:
Video Products Audio Products Other
Color televisions CD stereo systems House wares
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
Specialty clock radios
Growth Strategy
Emerson's strategic focus is to:
o develop and expand its distribution of consumer electronic products in
the domestic marketplace to existing and new customers;
o develop and sell new products, such as home office products and
products utilizing popular theme characters and logos through the use
of various inbound license agreements:
o capitalize on opportunities to license the "EMERSON(R)" and "H.H.
Scott(R)" trademarks;
o leverage and exploit its sourcing capabilities, buying power and
logistics expertise in the Far East either for itself or on behalf of
third parties;
o expand international sales and distribution channels;
o further develop its direct to consumer sales channel; and
o expand through strategic mergers and acquisitions.
In connection with Emerson's strategic focus, Emerson may from time to time
take an equity position in various corporate entities.
Emerson believes that the "EMERSON(R)" trademark is recognized in many
countries. A principal component of Emerson's growth strategy is to utilize this
global brand name recognition together with its reputation for quality and cost
competitive products to aggressively promote its product lines within the United
States and targeted geographic areas on an international basis. Emerson believes
that it will be able to compete more effectively in the highly competitive
consumer electronics and microwave oven industries, domestically and
internationally, by combining innovative approaches to the consumer electronics
current product line and augmenting its product line with complementary
products. Emerson intends to pursue such plans either independently or by
forging new relationships, including license arrangements, distributorship
agreements and joint ventures. See "-Licensing and Related Activities."
Sales and Distribution
Emerson makes a direct import program and a domestic program available to
its customers. Under its direct import program, products bearing the
"EMERSON(R)" trademark are imported directly by Emerson's customers. In fiscal
2002 and 2001, products representing approximately 63% and 80% of net consumer
electronics revenues, respectively, were earned under this direct import
program. See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition."
Emerson has an integrated system to coordinate the purchasing, sales and
distribution aspects of its operations. Emerson receives orders from its major
accounts electronically, via facsimile, telephone or mail. Emerson does not have
long-term contracts with any of its customers, but rather receives orders on an
ongoing basis. Products imported by Emerson, generally from the Far East, are
shipped by ocean and/or inland freight and then stored in contracted public
warehouse facilities for shipment to customers. All inventory is monitored by
Emerson's electronic inventory system. As a purchase order is received and
filled from inventory, warehoused product is labeled and prepared for outbound
shipment to customers by common, contract or small package carriers for sales
made from inventory.
Domestic Marketing
In the United States, Emerson markets its products primarily through:
o mass merchandisers;
o discount retailers;
o toy retailers; and
o distributors and specialty catalogers.
Wal-Mart Stores accounted for approximately 22% and 41% and Target Stores
accounted for approximately 19% and 14% of our consolidated net revenues in
fiscal 2002 and 2001, respectively. No other customer accounted for more than
10% of our consolidated net revenues in either period. Management believes that
a loss of either of these customers would have a material adverse affect on our
business and results of operations.
Approximately 55% and 34% of the net consumer electronics revenues in
fiscal 2002 and 2001, respectively, were made through sales representative
organizations that receive sales commissions and work closely with Emerson's
sales personnel. The sales representative organizations sell, in addition to
Emerson products, similar, but generally non-competitive, products. In most
instances, either party may terminate a sales representative relationship on 30
days' prior notice in accordance with customary industry practice. Emerson
utilizes approximately 25 sales representative organizations, including two
through which approximately 29% and 11% of the net consumer electronics revenues
were made in fiscal 2002. For fiscal 2001 one sales organization accounted for
approximately 21% of the net consumer electronics revenues. No other sales
representative organization accounted for more than 10% of the consumer
electronics net revenues in either year. The remainder of Emerson's sales are
serviced by its sales personnel. Management believes that the loss of one or
more sales representative organizations would not have a material adverse affect
on our business and results of operations.
Foreign Marketing
Approximately 2% and 3% of the consumer electronics segment net revenues in
fiscal 2002 and 2001, respectively, were derived from customers based in foreign
countries through license and distribution agreements primarily in South
America, Canada, and Mexico.
Licensing and Related Activities
Emerson has several license agreements 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 and are referred to as outbound
licenses. These license agreements cover various countries throughout the world
and are subject to renewal at the initial expiration of the agreements. License
revenues recognized and earned in fiscal 2002, 2001, and 2000 were approximately
$6,952,000, $3,930,000, and $3,143,000, respectively. Emerson records a majority
of licensing revenues as earned over the term of the related agreements.
Additionally, Emerson has entered into several sourcing and inspection
agreements that require Emerson to provide these services in exchange for a fee.
In October 2000, Emerson entered into a three-year license agreement
("Video License Agreement") with Funai Corporation, Inc. ("Funai") effective
January 1, 2001, which was amended to extend the Video License Agreement for an
additional year. The Funai agreement replaced a prior agreement with Daewoo
Electronics Co. Ltd. ("Daewoo"). The Video License Agreement with Funai provides
that Funai will manufacture, market, sell and distribute specified products
bearing the "EMERSON(R)" trademark to customers in U.S. and Canadian markets.
Under the terms of the agreement, Emerson will receive non-refundable minimum
annual royalty payments of $4.3 million each calendar year and a license fee on
sales of products subject to the Video License Agreement in excess of the
minimum annual royalties. The minimums are credited against royalties earned for
the sale of products. During fiscal 2002 and 2001, license revenues of
$5,624,000 and $1,075,000, respectively, were recorded under this agreement.
Throughout various parts of the world, Emerson maintains distribution and
license agreements for the distribution of Emerson's products into defined
geographic areas.
Emerson intends to pursue additional licensing and distribution
opportunities and believes that such activities have had and will continue to
have a positive impact on operating results by generating income with minimal
incremental costs, if any, and without the necessity of utilizing working
capital. See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Forward-Looking Information."
Design and Manufacturing
Emerson's products are manufactured by several original equipment
manufacturers in accordance with Emerson's specifications. During fiscal 2002
and 2001 100% of Emerson's purchases consisted of imported finished goods from
manufacturers primarily located in:
o South Korea;
o China;
o Malaysia; and
o Thailand.
Emerson's design team is responsible for product development and works
closely with Emerson's suppliers and design teams. Emerson's engineers determine
the detailed cosmetic, electronic and other features for new products, which
typically incorporate commercially available electronic parts to be assembled
according to their design. Accordingly, the exterior designs and operating
features of the products reflect Emerson's judgment of current styles and
consumer preferences. Emerson's designs are tailored to meet the consumer
preferences of the local market, particularly in the case of its international
markets.
The following summarizes Emerson's purchases from its major suppliers:
Fiscal Year
Supplier 2002 2001
Avatar Mfg 29% 20%
Tonic Electronics 17% 17%
Daewoo 16% 21%
Kysho * % 16%
Imarflex * % 12%
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No other supplier accounted for more than 10% of Emerson's total purchases
in fiscal 2002 or 2001. Emerson considers its relationships with its suppliers
to be satisfactory and believes that, barring any unusual material or part
shortages or economic, fiscal or monetary conditions Emerson could develop, as
it already has, alternative suppliers. No assurance can be given that ample
supply of product would be available at current prices if Emerson was required
to seek alternative sources of supply without adequate notice by a supplier or a
reasonable opportunity to seek alternate production facilities and component
parts. See Item 7 - "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and "Forward - Looking Information," and
Item 7A - "Inflation and Foreign Currency."
Warranties
Emerson offers limited warranties for its consumer electronics, comparable
to those offered to consumers by its competitors in the United States. Such
warranties typically consist of a 90 day period for audio products and one year
period for microwave products, under which Emerson will pay for labor and parts,
or offer a new or similar unit in exchange for a non-performing unit.
Returned Products
Emerson's customers return product to Emerson for a variety of reasons,
including:
o retailer return policies with their customers;
o damage to goods in transit and cosmetic imperfections; and
o mechanical failures.
Emerson has entered into agreements with the majority of its suppliers that
require the supplier to accept returned defective product. Emerson pays a fee to
the supplier and in exchange receives a unit. The return to vendor agreements
have resulted in significant cost savings.
Backlog
We do not believe that backlog is a significant factor in our consumer
electronics segment. The ability of management to correctly anticipate and
provide for inventory requirements is essential to the successful operation of
our consumer electronics business.
Trademarks
Emerson owns the:
o "EMERSON(R)";
o "Emerson Research(R)";
o "Emerson Interactive sm";
o "H.H. Scott(R)"; and
o "Scott(R)"
trademarks for certain of its home entertainment and consumer electronic
products in the United States, Canada, Mexico and various other countries. Of
the trademarks owned by Emerson, those registered in the United States must be
renewed at various times through 2011 and those registered in Canada must be
renewed at various times through 2014. Emerson's trademarks are also registered
in various countries, which registrations must be renewed at various times.
Emerson intends to renew all trademarks necessary for its business. Emerson
considers the "EMERSON(R)" trademark to be of material importance to its
business, but does not consider the other trademarks that it owns to be of
material importance to its business. Emerson licenses the "EMERSON(R)" trademark
to third parties, the scope of which is on a limited product and geographic
basis and for a period of time. See "Licensing and Related Activities."
Competition
The market segment of the consumer electronics industry in which Emerson
competes generates approximately $14 billion of factory sales annually and is
highly fragmented, cyclical and very competitive. The industry is characterized
by the short life cycle of products, which requires continuous design and
development efforts.
Emerson primarily competes in the low to medium-priced sector of the
consumer electronics market. Management estimates that Emerson has several dozen
competitors that are manufacturers and/or distributors, many of which are much
larger and have greater financial resources than Emerson. Emerson competes
primarily on the basis of:
o its reliability;
o quality;
o price;
o design;
o consumer acceptance of the "EMERSON(R)" trademark; and
o quality service and support to retailers and their customers.
Emerson also competes at the retail level for shelf space and promotional
displays, all of which have an impact on its established and proposed
distribution channels.
Seasonality
Emerson generally experiences stronger demand from its customers for its
products in the fiscal quarters ending September and December. But during the
last several years this revenue pattern has been less prevalent due to the need
for retailers to plan earlier for the Christmas selling season and our
management's ability to obtain additional orders to meet additional product
demand during the March and June fiscal quarters.
Sporting Goods Segment
General
Management believes SSG to be a leading direct mail marketer of sports
related equipment and leisure products for sale primarily to the institutional
market in the United States.
Products
SSG manufactures and distributes one of the broadest lines of sports
related equipment and leisure products primarily to the institutional market.
SSG offers approximately 10,000 sporting goods and sports and recreational
leisure products, over 3,000 of which are manufactured by SSG. The SSG product
lines include: archery; baseball; softball; basketball; camping; football;
tennis and other racquet sports; gymnastics; indoor recreation and physical
education; soccer; field and floor hockey; lacrosse; track and field;
volleyball; weight lifting; fitness equipment; outdoor playground equipment; and
early childhood development products.
Brand recognition is important to the institutional market. Most of SSG's
products are marketed under trade names or trademarks owned or licensed by SSG
and include the following:
Alumagoal(R) AMF(R) ATEC(R)
Blastball(R) BSN(R) Champion
Curvemaster(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
SSG believes:
o the institutional sporting goods market is highly fragmented;
o that most of SSG's competitors lack the necessary capital, support
systems, and economies of scale to effectively exploit available
opportunities for growth; and
o it is well positioned to grow the business due to:
o its ability to process and fulfill a high capacity of orders;
o its well-developed expertise in catalog design and merchandising;
and
o its information technology system and its internet platform.
One of the most important contributions of SSG's information technology
system is that the data is available to a host of websites. Each website is
strategically targeted to a specific customer group or product line. The
continued migration of SSG's customers to its websites is vital to SSG's growth
and success.
Sales and Distribution
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
SSG offers products directly to the institutional market primarily through:
o a variety of distinctive, information-rich catalogs;
o sales personnel strategically located in certain large
metropolitan areas;
o in-bound and out-bound telemarketers;
o a team of experienced bid and quote personnel; and
o the Internet.
SSG's marketing efforts are supported by a database of over 250,000
customers, a call center, a custom-designed distribution center and several
manufacturing facilities. SSG currently offers approximately 10,000 sports
related equipment products to over 100,000 customers, which include: 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.
Licensing and Related Activities
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 "-Trademarks."
Design and Manufacturing
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. No one supplier accounts for
more than 10% of the total raw materials supplied to SSG. Such raw materials
include: foam; vinyl; nylon thread; steel and aluminum tubing; wood.
Items not manufactured by SSG are purchased from various suppliers
primarily located in the United States, Taiwan, Australia, the Philippines,
Thailand, 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
SSG typically offers limited warranties for its sporting goods, which are
comparable to its competitors.
Returned Products
In most instances, SSG's customers have the right to return product within
30 days. Returned products in the sporting goods segment are less frequent than
the consumer products segment, and are not considered a significant factor in
SSG's operations.
Backlog
We believe that backlog is not a significant factor in our sporting goods
segment. The ability of management to correctly anticipate and provide for
inventory requirements is essential to the successful operation of SSG's
business.
Trademarks
SSG licenses many well known names and trademarks, such as:
o Voit(R);
o Huffy(R);
o MacGregor(R);
o Maxpro(R); and
o 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, 2002 through 2040, in some cases with renewable terms.
Competition
SSG competes in the institutional sporting goods market principally with:
o local sporting goods dealers;
o retail sporting goods stores;
o other direct mail catalog marketers; and
o providers of sporting goods on the Internet.
SSG has identified several direct mail companies in the institutional
market most of whom it believes are competitors substantially smaller than SSG
in terms of geographic coverage, products, E-Commerce capability and revenues.
SSG competes in the institutional market principally on the basis of brand,
price, product availability and customer service, which it believes it has an
advantage in the institutional market over traditional sporting goods retailers
and team dealers because its selling prices do not include comparable price
markups attributable to traditional multi-distribution channel markups. In
addition, the ability to control the availability of goods which SSG
manufactures enables it to respond more rapidly to customer demand.
Seasonality
The seasonality of Emerson is counterbalanced by SSG which has historically
experienced strong revenues during the March quarter primarily due to volume
generated by spring and summer sports, favorable outdoor weather conditions and
school needs before summer closings, and weak revenues during the December
quarter.
Government Regulation
Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and
regulations promulgated there under, 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 us or limiting quantities of goods
available to us from our 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 us. Additional Federal legislation and regulations regarding the
importation of consumer electronics products, including the products marketed by
us, have been proposed from time-to-time and, if enacted into law, could
adversely affect our financial condition and results of operations.
Many of our products are subject to 15 U.S.C.A. ss.ss. 2051-2084 (1998 and
Supp. 2002), 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 us, particularly those
products sold by SSG, we are periodically subject to product liability claims
resulting from personal injuries. We may become involved in various lawsuits
incidental to our 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.
Since September 11, 2001, product liability insurance has become much more
expensive, more restrictive and more difficult to obtain. Accordingly, there can
be no assurance that our general product liability insurance will be sufficient
to cover any successful product liability claims made. It is our opinion that
any ultimate liability arising out of currently pending product liability claims
will not have a material adverse effect on the 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 our financial condition and results of operations.
Employees
As of May 24, 2002, we had approximately 500 employees, of which 127 were
employed by Emerson, and 373 were employed by SSG. None of our employees are
represented by unions, and we believe our labor relations are generally
satisfactory.
Item 2. PROPERTIES
The following table sets forth the material properties owned or leased by
us:
Approximate Lease Expires
Facility Purpose Square Footage Location 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
Manufacturing 62,500 Sparks, NV July 2004
Manufacturing 35,000 Anniston, AL Owned
Manufacturing 45,000 Anniston, AL Owned
Emerson also utilizes public warehouse space. Such public warehouse
commitments are evidenced by contracts with terms of up to one year. Public
warehouse expenses for Emerson varies based on a percentage of sold products
shipped from the location.
We believe that the properties used for our operations are in satisfactory
condition and adequate for our present and anticipated future operations. In
addition to the facilities listed above, SSG leases space in various locations,
primarily for use as sales offices.
Item 3. LEGAL PROCEEDINGS
As previously reported, Emerson has resolved substantially all of the
litigation against it and accrued the net cost thereof as an expense prior to
its fiscal year ended March 31, 2002. All that remains is litigation arising in
the ordinary course of business, which in the opinion of management, will not
have a material adverse effect on our financial condition or results of
operations if resolved on unfavorable terms to us, 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,
our Chairman, three of his creditors, us, and certain other parties.
On June 10, 2002 the Company exercised an option to purchase 4.1 million
shares from two of Mr. Jurick's institutional creditors. As a result of this
transaction, the outstanding litigation between Mr. Jurick and the two creditors
has been resolved. While the implementation of the Stipulation as to Petra
Stelling may have a material adverse effect on Mr. Jurick, it is the opinion of
our management that such termination of the Stipulation will not materially
adversely affect us.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
Our common stock has traded on the American Stock Exchange under the symbol
MSN since December 22, 1994. The following table sets forth the range of high
and low sales prices for our common stock as reported by the American Stock
Exchange during the last two fiscal years.
Fiscal 2002 Fiscal 2001
----------------------- --------------------------
High Low High Low
First Quarter $ 1.69 $ 1.16 $ .938 $ .625
Second Quarter 2.00 1.00 2.938 .750
Third Quarter 1.59 1.13 2.813 1.125
Fourth Quarter 1.74 1.15 2.050 1.000
There is no established trading market for our Series A convertible
preferred stock, whose conversion feature has expired as of March 31, 2002.
(b) Holders
At May 24, 2002, there were approximately 431 stockholders of record of our
common stock.
(c) Dividends
Our policy has been to retain all available earnings, if any, for the
development and growth of our business. We have not paid cash dividends on our
common stock. In deciding whether to pay dividends on the common stock in the
future, our board of directors will consider factors it deems relevant,
including our earnings and financial condition and our working capital and
anticipated capital expenditures. Our credit facility and the Indenture
governing our subordinated debentures prohibit dividend payments on our common
stock.
(d) Unregistered Securities
Not applicable.
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth our selected consolidated financial data for
the five years ended March 31, 2002. For the years ended April 3, 1998 through
March 31, 2000, we changed our financial reporting year to a 52/53 week year
ending on the Friday closest to March 31. Beginning in fiscal 2001, we changed
our financial reporting year to end on March 31. The selected consolidated
financial data should be read in conjunction with our 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, March 31, April 2, April 3,
2002 2001 (1) 2000 1999 1998
------------- --------------- ------------- -------------- ---------------
(In thousands, except per share data)
Summary of Operations:
Net Revenues $ 318,451 $ 377,410 $ 203,701 $ 160,554 $ 162,730
Operating Income (Loss) $ 10,314 $ 13,493 $ 5,334 $ 3,278 $ 524
Net Income (Loss) $ 19,407 $ 12,653 $ 3,620 $ 289 $ (1,430)
Balance Sheet Data at Period End:
Total Assets $ 135,839 $ 119,006 $ 63,511 $ 60,872 $ 58,762
Current Liabilities 54,723 45,330 30,057 29,828 23,885
Long-Term Debt 29,046 38,257 20,891 20,847 20,929
Shareholders' Equity 34,740 15,131 12,563 10,197 13,948
Working Capital 49,290 39,497 9,854 6,859 9,610
Current Ratio 1.9 to 1 1.9 to 1 1.3 to 1 1.2 to 1 1.4 to 1
Per Common Share: (2)
Net Income (Loss) Per Common Share - Basic $ .62 $ .36 $ .07 $ (.01) $ (.04)
Net Income (Loss) Per Common Share - Diluted $ .52 $ .33 $ .07 $ (.01) $ (.04)
Weighted Average Shares Outstanding:
Basic 31,298 35,066 47,632 49,398 45,167
Diluted 40,485 38,569 53,508 49,398 45,167
Common Shareholders' Equity per
Common Share (3) $ .99 $ .33 $ .19 $ .13 $ .19
(1) Prior to March 23, 2001, the investment in SSG was accounted for under the
equity method of accounting. On March 23, 2001, a majority interest in SSG
was reached and required this interest be accounted for 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 our results of operations as
though it had been acquired at April 1, 2000.
(2) For fiscal 2002, 2001 and 2000, dilutive securities include 3,531,000,
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, 2002, 2001,
and 2000. For fiscal 2002 and 2001, dilutive securities also include
452,000 and 437,000 shares assuming conversion of 1,645,000 and 1,658,000
options, respectively. For fiscal 2002 dilutive securities also included
5,204,000 shares assuming the conversion of convertible debentures. 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 1999-1998) and the weighted average of
common stock outstanding during each fiscal year. Loss per share does not
include potentially dilutive securities assumed outstanding since the
effects of such conversion would be anti-dilutive.
(3) Calculated based on common shareholders' equity divided by the basic
weighted average shares of common stock outstanding. Common shareholders'
equity for fiscal years 2002 through 1998, is equal to total shareholders'
equity less the Series A preferred stock equity of $3,677,000, $3,677,000,
$3,677,000, $3,714,000, $5,237,000, 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
fiscal 2002 and 2001 compared to being reported on the equity method for prior
years based on Emerson's ownership percentages of SSG. 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 our consolidated statements of operations as a percentage of net
revenues for the fiscal years ended March 31.
2002 2001 2000
---- ---- ----
Net revenues (in thousands) $ 318,451 $ 377,410 $203,701
100.0% 100.0% 100.0%
Cost of sales 79.7% 81.1% 86.8%
Other operating costs and expenses 1.5% 1.1% 2.2%
Selling, general and administrative
Expenses 15.6% 14.2% 8.4%
Operating income 3.2% 3.6% 2.6%
Litigation settlement, net 0.9% -- % --%
Equity in earnings of affiliate -- % -- % 0.1%
Minority interest in net loss of
consolidated subsidiary 0.5% 0.6% --%
Net income 6.1% 3.4% 1.8%
Results of Consolidated Operations - Fiscal 2002 compared with Fiscal 2001
Net Revenues - Net revenues for fiscal 2002 were $318.4 million as compared
to $377.4 million for fiscal 2001. The decrease in net revenues was primarily
due to a decrease of approximately $49 million in the consumer electronics
segment and approximately a $10 million decrease in the sporting goods segment.
During fiscal 2002 and 2001, license revenues of $7.0 million and $3.9 million,
respectively, were recorded by the consumer electronics segment.
Cost of Sales - Cost of sales, as a percentage of consolidated net
revenues, decreased from 81.1% in fiscal 2001 to 79.7% in fiscal 2002. The
decrease in cost of sales was primarily the result of higher margins in the
consumer electronics segment in the current fiscal year, and the benefit of
higher license revenues in fiscal 2002 by the consumer electronics segment.
Other Operating Costs and Expenses - Other operating costs and expenses are
associated with the consumer electronics segment. As a percentage of net
revenues, other operating costs increased from 1.1% in fiscal 2001 to 1.5% in
fiscal 2002, primarily as a result of an increase in costs related to inventory
carrying expenses and a lower sales base.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A, as a
percentage of net revenues, were 15.6% in fiscal 2002 as compared to 14.2% in
fiscal 2001, and in absolute terms were $49.5 million for fiscal 2002 as
compared to $53.5 million for fiscal 2001. The decrease in S,G&A in absolute
terms was primarily the result of decreases in S,G&A in the sporting goods
segment.
Litigation Settlement, net - Litigation settlement is the result of the
consumer electronics segment settling litigation in the amount of $2.9 million,
net of legal costs with a former trademark licensee.
Minority Interest in Net Loss of Consolidated Subsidiary - Minority
interest in net loss of consolidated subsidiary represents that portion of the
sporting goods segment loss for the fiscal year that was not included in the
consolidated statements of operations.
Net Income - As a result of the foregoing factors, we earned net income of
$19.4 million (6.1% of net revenues) for fiscal 2002 as compared to $12.7
million (3.4% of net revenues) for fiscal 2001.
Results of Consolidated Operations - Fiscal 2001 compared with Fiscal 2000
Net Revenues - Net revenues for fiscal 2001 increased $173.7 million
(85.3%) as compared to fiscal 2000. The increase was a result of the
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, our 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 our results of operations as
though it had been acquired at the beginning of fiscal 2001. For fiscal 2000,
our 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, we 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 ended March 31 (in
thousands):
2002 2001 2000
----------------- ----------------- -------------------
Net revenues $214,906 $264,349 $203,701
----------------- ----------------- -------------------
Cost of sales 179,833 225,291 176,870
Other operating costs 4,797 4,318 4,501
Selling, general & administrative 16,815 17,418 16,996
----------------- ----------------- -------------------
Operating income 13,461 17,322 5,334
Litigation settlement, net 2,933 -- --
Equity in earnings of affiliate -- -- 277
Other investment losses -- -- (284)
Interest expense, net (2,420) (2,051) (2,284)
----------------- ----------------- -------------------
Income before income taxes 13,974 15,271 3,043
Provision (benefit) for income taxes (7,661) 1,142 (577)
----------------- ----------------- -------------------
Net income $21,635 $14,129 $3,620
================= ================= ===================
Results of Consumer Electronics Operations - Fiscal 2002 compared with Fiscal
2001
Net Revenues - Net revenues for fiscal 2002 decreased $49.4 million (18.7%)
to $214.9 million as compared to $264.3 million for fiscal 2001. The decrease in
net revenues was a result of a general slow-down in the economy and a reduction
in unit sales of microwave oven products and audio products. Such decreases were
partially offset by revenues earned from the licensing of Emerson's trademarks
increasing by $3.0 million for the twelve months ended March 31, 2002 as
compared to the same period in the prior fiscal year. Emerson reports royalty
and commission revenues earned from its licensing arrangements, covering various
products and territories, and not the full sales value of product subject to
such arrangements.
Cost of Sales - Cost of sales, as a percentage of consolidated net
revenues, decreased from 85.2% in fiscal 2001 to 83.7% in fiscal 2002. The
decrease in cost of sales was primarily due to higher margins on product sales
and an increase in licensing revenue.
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
o direct import program;
o various license agreements;
o the continued introduction of higher margin products;
o use of inward license agreements;
o 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 were 2.2% in fiscal 2002 as compared to 1.6% in
fiscal 2001. In absolute terms, other operating costs and expenses increased
$479,000 for fiscal 2002 as compared to the same period in fiscal 2001. The
increase was primarily due to an increase in inventory servicing costs.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A, in absolute
terms, decreased $603,000 in fiscal 2002 as compared to the prior fiscal year.
The decrease in S,G&A in absolute terms between fiscal 2002 and 2001 were
primarily due to recoveries of substandard receivables, a change in the estimate
related to co-operative advertising costs, which were partially offset by
increased professional fees.
Litigation Settlement, net - Litigation settlement is the result of a
settled litigation in the amount of $2.9 million, net of legal costs, with a
former trademark licensee. The license agreement with Emerson ceased in the year
ending March 31, 1998.
Interest Expense, net - Interest expense increased from $2.1 million in
fiscal 2001 to $2.4 million in fiscal 2002. The increase was attributable
primarily to increased borrowings partially offset by lower interest costs.
Provision for Income Taxes - Emerson's provision for income taxes was a
benefit of $7.7 million for fiscal 2002 as compared to $1.1 million provision
for fiscal 2001. The benefit of $7.7 million consisted primarily of the
reduction in the valuation reserve previously established against the deferred
tax assets relating to the accounts receivable and inventory temporary
differences, as well as the recognition of management's estimation of net
operating loss carryforwards subject to limitations under IRC Section 382. This
is partially offset by fore
ign and state taxes.
Net Income - As a result of the foregoing factors, the consumer electronics
segment generated net income of $21.6 million in fiscal 2002 as compared to
$14.1 million in fiscal 2001.
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 and microwave oven products. And to a
lesser extent HH Scott(R) branded products. Licensing revenues were $3.9 million
for fiscal 2001 as compared to $3.1 million for fiscal 2000. The increase was
attributable to the following three factors:
o new licensing arrangements being implemented in the current fiscal
year;
o license agreements implemented in previous years becoming fully
operational; and
o certain licenses being modified and expanded.
Emerson reports royalty and commission revenues earned from its licensing
arrangements, covering various products and territories, and not the full sales
value of product subject to such arrangements.
Cost of Sales - Cost of sales, as a percentage of consolidated net
revenues, were 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.
o The consumer electronics segment gross profit margins are 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.
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 our
consolidated results of operations as though it had been acquired on April 1,
2000. For fiscal 2000, the 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.
Sporting Goods Segment:
The following table summarizes certain financial information relating to
the sporting goods segment for the fiscal years 2002, 2001, and 2000. The
results of operations of SSG for fiscal 2000 were not consolidated with
Emerson's results of operations and are presented for comparative purposes (in
thousands):
2002 2001 2000
---- ---- ----
(Unaudited)
Net revenues $ 103,601 $ 113,061 $ 116,521
--------------- ------------------ ----------------
Cost of sales 74,106 80,809 78,602
Selling, general & administrative 32,285 35,880 33,114
--------------- ------------------ ----------------
Operating income (loss) (2,790) (3,628) 4,805
Interest expense, net ( 793) (2,017) (1,595)
--------------- ------------------ ----------------
Income (loss) before income
Taxes (3,583) (5,645) 3,210
Provision (benefit) for income
Taxes -- (2,086) 1,127
--------------- ------------------ ----------------
Net (loss) income $ (3,583) $ (3,559) $ 2,083
=============== ================== ================
Results of Sporting Goods Operations - Fiscal 2002 compared with Fiscal 2001
Net Revenues - Net revenues for fiscal 2002 decreased $9.5 million (8.4%)
as compared to fiscal 2001. The decrease in net revenues was primarily a result
of a general slow-down in the economy, reduced participation in traditional
youth sports, a reduced sales force and the discontinuation of certain
unprofitable and low margin product lines.
Cost of Sales - Cost of sales as a percentage of net revenues remained
primarily the same for fiscal 2002 and fiscal 2001 at 71.5%. In absolute terms,
cost of sales decreased in fiscal 2002 by $6.7 million as compared to fiscal
2001 due to decreases in net revenues.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A expenses for
fiscal 2002 decreased by $3.6 million as compared to fiscal 2001. The decrease
in expenses was primarily due to a decrease in payroll related costs,
promotional costs, depreciation and amortization and lower sales and use tax
expense.
Interest Expense, net - Interest expense, net decreased $1.2 million in
fiscal 2002 as compared to fiscal 2001. The decrease was attributable primarily
to decreased overall levels of borrowing and lower interest rates.
Provision (benefit) for Income Taxes - The benefit for income taxes
decreased approximately $2.1 million to a benefit of $0 in fiscal 2002 as
compared to fiscal 2001. The sporting goods segment has a net operating loss
carryforward included in net deferred tax assets that can be used to offset
future taxable income and can be carried forward for 15 to 20 years. As such,
realization of the sporting goods deferred tax asset is dependent on generating
sufficient taxable income, either through operations or tax planning strategies,
prior to the expiration of loss carryforwards. Based upon the operating results
of the sporting goods segment for fiscal 2002, the sporting goods segment has
not provided an income tax benefit related to its loss before income taxes. The
amount of the sporting goods segment existing net deferred tax assets considered
realizable could be reduced or eliminated if their use becomes more restricted
under the provisions of SFAS No. 109, "Accounting for Income Taxes".
Net loss - As a result of the foregoing factors, the sporting goods segment
generated a net loss of $3.6 million for each of fiscal 2002 and fiscal 2001.
Results of Sporting Goods Operations - Fiscal 2001 compared with Fiscal 2000
Net Revenues - Net revenues for fiscal 2001 decreased $3.5 million (3%) as
compared to fiscal 2000. The decrease in net revenues was primarily a result of
competitive pressures in the marketplace, a decline in youth baseball
registrations, unusually cold and wet weather in warm weather states delaying
spring sports, a reduction in SSG's sales force, a reduction in the number of
catalogs mailed, and a general slow-down in the economy.
Cost of Sales - Cost of sales, as a percentage of net revenues, increased
from 67.5% for fiscal 2000 to 71.5% for fiscal 2001. Cost of sales increased as
a percentage of net revenues due to product mix shifts and pricing pressure in
the institutional sporting goods marketplace.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A expenses for
fiscal 2001 increased by approximately $2.8 million (8.4%) as compared to fiscal
2000. The increase in expenses was primarily due to an increase in payroll,
computer related costs, depreciation and amortization, promotional and facility
costs.
Interest Expense, net - Interest expense, net increased from $1.6 million
in fiscal 2000 to $2.0 million in fiscal 2001. The increase was attributable
primarily to increased overall levels of borrowing.
Provision for Income Taxes - SSG recorded a tax benefit of $2.1 million for
fiscal 2001 as compared to a tax provision of $1.1 million for fiscal 2000. The
tax benefit for fiscal 2001 resulted from the utilization of net operating loss
carryforwards.
Net (loss) income - As a result of the foregoing factors, SSG generated a
net loss of $3.6 million for fiscal 2001 as compared to net income of $2.1
million for fiscal 2000, of which approximately a $1.3 million loss was
reflected in our consolidated statements of operations for fiscal 2001.
Liquidity and Capital Resources
Net cash provided by operating activities was $9.8 million for fiscal 2002.
Cash was primarily provided by our profitability, and a reduction of inventory
partially offset by an increase in accounts receivable and a decrease in
accounts payable and other current liabilities.
Net cash used by investing activities was $896,000 for fiscal 2002. Cash
was utilized for additions to property, plant and equipment.
Net cash provided by financing activities was $2.5 million for fiscal 2002.
Cash was primarily provided by increased borrowings, partially offset by
purchases of our stock from the public under our stock repurchase plan.
Emerson and SSG maintain asset-based credit facilities of $15 million and
$25 million, respectively. These facilities provide for revolving loans and
letters of credit, subject to certain limits which, in the aggregate, cannot
exceed the lesser of $15 million and $25 million for Emerson and SSG,
respectively, or a "Borrowing Base" amount based on specified percentages of
eligible accounts receivable and inventories. Both Emerson and SSG are required
to maintain certain net worth levels, with which they were both in compliance as
of March 31, 2002. At March 31, 2002, there were approximately $8.7 million and
$16.8 million of borrowings under these facilities by Emerson and SSG,
respectively. No letters of credit were outstanding by either Emerson or SSG as
of March 31, 2002.
On June 28, 2002, Emerson entered into a $40 million Revolving Credit and
Term Loan Agreement ("Loan Agreement") with several U.S. financial institutions.
The Loan Agreement provides for a $25 million revolving line of credit and a $15
million term loan. The $25 million revolving line of credit replaces Emerson's
existing $15 million senior secured facility and provides for revolving loans,
subject to individual maximums which, in the aggregate, not to exceed the lesser
of $25 million or a "Borrowing Base" amount based on specified percentages of
eligible accounts receivables and inventories and bears interest ranging from
Prime plus .5% to 1.25% or, at Emerson's election, LIBOR plus 2.00% to 2.75%
depending on certain financial covenants. The $15 million term loan combined
with cash earned from Emerson's operations will be used to retire all of
Emerson's 8.5% Senior Subordinated Convertible Debentures ("Debentures") in the
amount of $20.8 million due August 2002. The interest rate charged on the term
loan ranges from Prime plus 1.0% to 1.75% or, at Emerson's election, LIBOR plus
2.50% to 3.25% depending on certain financial covenants and amortizes over a
three year period. Pursuant to the Loan Agreement, we will be restricted from,
among other things, paying cash dividends other than on preferred shares,
repurchasing our common stock and entering into certain transactions without the
lender's prior consent and are subject to certain net worth and leverage
financial covenants. Amounts outstanding under the Loan Agreement are secured by
substantially all of Emerson's assets.
Two of our foreign subsidiaries maintain various credit facilities, as
amended, aggregating $50.0 million with Hong Kong banks consisting of the
following:
o a $5.0 million letter of credit facility which is used for inventory
purchases; and
o two back-to-back letter of credit facilities totaling $45 million.
At March 31, 2002, our Hong Kong subsidiary pledged $1.8 million in
certificates of deposit to this bank to assure the availability of the $5.0
million credit facility. At March 31, 2002, there were approximately $9.3
million of letters of credit outstanding under these credit facilities. The
letter of credit facility requires a net worth covenant of the foreign
subsidiaries with which the company was in compliance at March 31, 2002.
We continue to enter into outward licensing agreements and intend to pursue
additional licensing opportunities. We believe that such licensing activities
will have a continued positive impact on net operating results by generating
royalty income with minimal costs, and without the necessity of utilizing
working capital or accepting customer returns. See Item 1 - Business -
"Licensing and Related Activities".
Short-Term Liquidity. Cash increased to $19.2 million as of March 31, 2002
from $8.0 million as of March 31, 2001. At present, management believes that
future cash flow from operations and the institutional financing noted above
will be sufficient to fund all of our cash requirements for the next fiscal
year. In fiscal 2002, products representing approximately 63% of net revenues of
the consumer electronics segment were imported directly to our customers. The
direct import program is essential to Emerson's liquidity objectives.
Liquidity for the consumer electronics segment is impacted by its
seasonality in that it generally records the majority of our annual sales in the
quarters ending September and December. This requires the consumer electronics
segment to maintain higher inventory levels during the quarters ending June and
September, therefore increasing the working capital needs during these periods.
Additionally, the consumer electronics segment receives the largest percentage
of product returns in the quarter ending March. The higher level of returns
during this period adversely impacts Emerson's collection activity, and
therefore its liquidity. Management believes that the license agreements as
discussed above, continued sales margin improvement and the policies in place
for returned products, should continue to favorably impact its cash flow.
Liquidity for the sporting goods segment is also impacted by its
seasonality in that its March quarter is its strongest sales 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. We continue to be subject to competitive pressures
arising from pricing strategies. SSG has discontinued certain lower margin
products in favor of higher margin replacement products. Management believes
that this, together with our various license agreements and the continued
introduction of higher margin products in both segments, the closure of certain
manufacturing locations at SSG and the related sourcing of less costly product
from foreign manufacturers will result in continued improved profitability. Both
senior secured credit facilities for Emerson and SSG impose financial covenants.
Non-compliance with the covenants could materially affect our future liquidity.
Management believes that anticipated cash flow from operations and the financing
noted above will provide sufficient liquidity to meet our operating and debt
service cash requirements on a long-term basis.
There were no substantial commitments for purchase orders outside the
normal purchase orders used to secure product as of March 31, 2002.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements require us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses. We consider certain accounting policies related to
inventories, trade accounts receivables, impairment of long lived assets,
valuation of deferred tax assets, sales return reserves and cooperative
advertising accruals to be critical policies due to the estimation processes
involved in each.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out basis for our consumer electronics segment, and a
first-in, first-out basis and weighted-average basis for our sporting goods
segment. We record inventory reserves to reduce the carrying value of inventory
for estimated obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required. Conversely, if market conditions improve,
such reserves are reduced.
Trade Accounts Receivable
We extend credit based upon evaluations of a customer's financial condition
and provide for any anticipated credit losses in our financial statements based
upon management's estimates and ongoing reviews of recorded allowances. If the
financial conditions of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required. Conversely, allowances are deducted to reflect credit and collection
improvements.
Intangible Assets
SSG has significant intangible assets related to goodwill and other
acquired intangibles. The determination of related estimated useful lives and
whether or not these assets are impaired involves management judgments. Changes
in strategy and/or market conditions could significantly impact these judgments
and require adjustments to recorded asset balances.
Income Taxes
We record a valuation allowance to reduce the amount of our deferred tax
assets to the amount that is more likely than not to be realized. While we have
considered future taxable income and ongoing tax planning strategies in
assessing the need for the valuation allowance, in the event that we determined
that we would not be able to realize our deferred tax assets in the future in
excess of the net recorded amount, an adjustment to the deferred tax asset would
increase income in the period such determination was made. Likewise, if it were
determined that we would not be able to realize all or part of the net deferred
tax asset in the future, an adjustment to the deferred tax asset would be
charged to income in the period such determination was made.
Sales Return Reserves
Our management must make estimates of potential future product returns
related to current period product revenue. Management analyzes historical
returns, current economic trends and changes in customer demand for our products
when evaluating the adequacy of the reserve for sales returns. Management
judgments and estimates must be made and used in connection with establishing
the sales returns in any accounting period.
Cooperative Advertising Accruals
We estimate expenses for cooperative advertising programs promotions and
other volume-based incentives and record such expense estimates at the time of
product sale. If market conditions were to decline, we may take actions to
increase customer incentive offerings possibly resulting in incremental expenses
at the time the incentive is offered. Conversely, strong product sell through
and successful product launches would reduce such accrual estimates.
Recently-Issued Financial Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of fiscal 2003. Application of the
non-amortization provisions of the Statement is expected to result in an
approximate increase in the net income of $255,000 ($.01 per share) per year.
During fiscal 2003, we will perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of April 1, 2002 and have
not yet determined what the effect of these tests will be on our earnings and
financial position. Any such valuation will be primarily associated with the
carrying value of SSG's goodwill.
During fiscal 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 will be effective for
us for fiscal 2003 and provides guidance on differentiating between assets held
and used, held for sale, and held for disposal other than by sale. We have not
yet determined the effects, if any, of implementing SFAS No. 144 on our
reporting of financial information.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 41, 44, and 62, Amendment of FASB
Statement No. 13, and Technical Corrections (Statement 145). For most companies,
Statement 145 will require gains and losses on extinguishments of debt to be
classified as income or loss from continuing operations rather than as
extraordinary items as previously required under Statement 4. Extraordinary
treatment will be required for certain extinguishments as provided in APB
Opinion No. 30. Statement 145 also amends Statement 13 to require certain
modifications to capital leases be treated as a sale-leaseback and modifies the
accounting for sub-leases when the original lessee remains a secondary obligor
(or guarantor). In addition, the FASB rescinded Statement 44 which addressed the
accounting for intangible assets of motor carriers and made numerous technical
corrections. We have not yet determined the effects, if any, of implementing
SFAS No. 145 on our reporting of financial information.
Forward-Looking Information
This report contains various forward-looking statements under the Private
Securities Litigation Reform Act of 1995 (the "Reform Act") and information that
is based on management's beliefs as well as assumptions made by and information
currently available to management. When used in this report, the words
"anticipate", "believe", "estimate", "expect", "predict", "project", and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
expected or projected. Among the key factors that could cause actual results to
differ materially are as follows:
o the ability of the consumer electronics segment to continue selling
products to two of its largest customers whose net revenues
represented 22% and 19% of fiscal 2002 consolidated net revenues;
o competitive factors in the consumer electronics segment, such as
competitive pricing strategies utilized by retailers in the domestic
marketplace that negatively impact product gross margins;
o the ability of the consumer electronics and sporting goods segments to
maintain their suppliers, primarily all of whom are located in the Far
East for the consumer electronics segment;
o the ability of the sporting goods segment to have an uninterrupted
shipping service from outside carriers, such as United Parcel Service;
o our ability to comply with the restrictions imposed upon us by our
outstanding indebtedness; and
o general economic conditions and other risks.
Due to these uncertainties and risks, readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this report. For additional risk factors as they relate to the sporting
goods segment, see SSG's Form 10-K for the fiscal year ended March 29, 2002 Item
7 - "Certain Factors that May Affect the Company's Business or Future Operating
Results".
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Inflation, Foreign Currency, and Interest Rates
Neither inflation nor currency fluctuations had a significant effect on our
results of operations during fiscal 2002. Our exposure to currency fluctuations
has been minimized by the use of U.S. dollar denominated purchase orders, and by
sourcing production in more than one country. The consumer electronics segment
purchases virtually all of its products from manufacturers located in various
Asian countries.
The interest on borrowings under our credit facilities is based on the
prime rate. While a significant increase in interest rates could have an adverse
effect on our financial condition and results of operations, 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 32
Consolidated Statements of Operations for the years ended
March 31, 2002, 2001, and 2000 33
Consolidated Balance Sheets as of March 31, 2002 and 2001 34
Consolidated Statements of Changes in Shareholders' Equity
for the years ended March 31, 2002, 2001, and 2000 35
Consolidated Statements of Cash Flows for the years ended
March 31, 2002, 2001, and 2000 36
Notes to Consolidated Financial Statements 37
Schedule II--Valuation and Qualifying Accounts and Reserves 66
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, 2002 and March 31, 2001, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended March 31, 2002. Our audits
also included the financial statement schedule listed in the Index at Item
14(a)(1). These consolidated 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, 2002 and March 31, 2001, and
the consolidated results of its operations and cash flows for each of the three
years in the period ended March 31, 2002, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
ERNST & YOUNG LLP
New York, New York
June 28, 2002
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended March 31, 2002, 2001, and 2000
(In thousands, except per share data)
2002 2001 2000
----------------- ------------------ ----------------
Net revenues $ 318,451 $ 377,410 $ 203,701
Costs and expenses:
Cost of sales 253,883 306,101 176,870
Other operating costs and expenses 4,797 4,318 4,501
Selling, general and administrative expenses 49,457 53,498 16,996
----------------- ------------------ ----------------
308,137 363,917 198,367
----------------- ------------------ ----------------
Operating income 10,314 13,493 5,334
Litigation settlement, net 2,933 -- --
Equity in earnings of affiliate - - -- 277
Other investment losses - - -- (284)
Interest expense, net (3,213) (4,068) (2,284)
Minority interest in net loss of consolidated
Subsidiary 1,712 2,284 --
----------------- ------------------ ----------------
11,746 11,709 3,043
Income before income taxes
Provision (benefit) for income taxes (7,661) (944) (577)
----------------- ------------------ ----------------
Net income $ 19,407 $ 12,653 $ 3,620
================= ================== ================
Net income per common share
Basic $ .62 $ .36 $ .07
Diluted .52 .33 .07
Weighted average shares outstanding
Basic 31,298 35,066 47,632
Diluted 40,485 38,569 53,508
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 31, 2002 and 2001
(In thousands, except share data)
ASSETS 2002 2001
----------------- ---------------
Current Assets:
Cash and cash equivalents $ 19,228 $ 7,987
Accounts receivable (less allowances of $5,320 and $4,471, respectively) 29,401 26,552
Other receivables 2,337 781
Inventories 41,657 44,477
Prepaid expenses and other current assets 3,719 3,611
Deferred tax assets 7,671 1,419
----------------- ---------------
Total current assets 104,013 84,827
Property, plant, and equipment 11,116 12,718
Deferred catalog expenses 2,017 2,437
Goodwill and other intangible assets (net of accumulated amortization of
$7,478 and $7,233, respectively) 11,678 13,388
Deferred tax assets 5,728 4,081
Other assets 1,287 1,555
----------------- ---------------
Total Assets $ 135,839 $ 119,006
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ 8,671 $ 5,094
Current maturities of long-term borrowings 8,853 139
Accounts payable and other current liabilities 33,279 34,703
Accrued sales returns 3,817 4,913
Income taxes payable 103 481
----------------- ---------------
Total current liabilities 54,723 45,330
Long-term borrowings 29,046 38,257
Minority interest 17,330 20,288
Shareholders' Equity:
Preferred shares - 10,000,000 shares authorized; 3,677
shares issued and outstanding, 3,310 3,310
Common shares -- $.01 par value, 75,000,000 shares authorized;
51,475,511 shares issued; 31,166,478 and 31,343,978
shares outstanding, respectively 515 515
Capital in excess of par value 114,451 113,459
Accumulated other comprehensive losses (122) (118)
Accumulated deficit (69,436) (88,843)
Treasury stock, at cost, 20,309,033 and 20,131,533 shares, respectively (13,978) (13,192)
----------------- ---------------
Total shareholders' equity 34,740 15,131
----------------- ---------------
Total Liabilities and Shareholders' Equity $ 135,839 $ 119,006
================= ===============
The accompanying notes are an integral part of the consolidated financial
statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000
(In thousands, except share data)
Common Shares Issued
---------------------- Capital Accumulated Other Total
Preferred Number Par Treasury In excess of Comprehensive Accumulated Shareholders
Stock of Shares Value Stock Par Value Losses Deficit Equity
--------- --------- ------ --------- ------------ ---------------- ---------- -------------
Balance - April 2, 1999 $ 3,343 51,331,615 $ 513 $ (1,907) $113,288 $ (78) $(104,962) $ 10,197
Purchase of treasury stock (1,121) (1,121)
Purchase of preferred stock (33) 1 (32)
Preferred stock dividends
Declared (103) ( 103)
Comprehensive income:
Net income for the year 3,620 3,620
Currency translation
adjustment 2 2
Comprehensive income ------
3,622
----- ---------- --- -------- ------- ---- -------- --------
Balance - March 31, 2000 3,310 51,331,615 513 (3,028) 113,289 (76) (101,445) 12,563
Purchase of treasury stock (10,164) (10,164)
Exercise of stock options
and warrants 143,896 2 170 172
Preferred stock dividends
Declared ( 51) ( 51)
Comprehensive income:
Net income for the year 12,653 12,653
Currency translation adjustment (5) (5)
Unrealized loss (37) (37)
-------------
Comprehensive income 12,611
------ ---------- ----- -------- ------ --------- --------- -------------
Balance - March 31, 2001 3,310 51,475,511 515 (13,192) 113,459 (118) (88,843) 15,131
Purchase of treasury stock (786) (786)
Preferred dividend cancellation 992 992
Comprehensive income:
Net income for the year 19,407 19,407
Currency translation adjustment (1) (1)
Unrealized loss (3) (3)
-------
Comprehensive income 19,403
------- ---------- ----- --------- ----------- ------ ---------- ----------
Balance - March 31, 2002 $3,310 51,475,511 $515 $(13,978) $ 114,451 $(122) $ (69,436) $ 34,740
====== ========== ===== ========= ========= ========= =========== ==========
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, 2002, 2001, and 2000
(In thousands)
2002 2001 2000
------------------ ------------------- ---------------
Cash Flows from Operating Activities:
Net income $ 19,407 $ 12,653 $ 3,620
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest (2,958) (2,284) --
Depreciation and amortization 3,601 2,729 1,306
Deferred tax assets (7,899) -- --
Equity in earnings of affiliate -- 1,476 (277)
Write-down of investment in joint venture -- -- 153
Loss on marketable securities -- -- 149
Asset valuation and loss reserves 1,634 (284) 626
Other (4) (42) 2
Changes in assets and liabilities, net of acquisition of SSG:
Accounts receivable (3,363) 3,966 917
Other receivables (1,556) 3,534 2,755
Inventories 2,806 (9,463) (2,970)
Prepaid expenses and other current assets 312 (74) 186
Other assets ( 231) 84 493
Accounts payable and other current liabilities (1,528) (2,876) (328)
Income taxes payable (378) 346 (265)
------------------ ------------------ ---------------
Net cash provided by operations 9,843 9,765 6,367
------------------ ------------------ ---------------
Cash Flows from Investing Activities:
Purchase of SSG, net of cash acquired of $1,271 -- (2,378) --
Proceeds from marketable securities -- -- 552
Investment in affiliates -- -- (841)
Additions to property and equipment (896) (110) (462)
Distributions from joint venture -- -- 213
------------------ ------------------ ---------------
Net cash used by investing activities (896) (2,488) (538)
------------------ ------------------ ---------------
Cash Flows from Financing Activities:
Net borrowings under line of credit facility 3,577 2,180 698
Long-term borrowings (retirement) (497) (37) 47
Payment of dividend on preferred stock -- (13) (26)
Purchase of preferred and common stock (786) (10,164) (1,153)
Exercise of stock options and warrants -- 172 --
Other -- 33 44
------------------ ------------------ ---------------
Net cash provided (used) by financing activities 2,294 (7,829) (390)
------------------ ------------------ ---------------
Net increase (decrease) in cash and cash equivalents 11,241 ( 552) 5,439
Cash and cash equivalents at beginning of year 7,987 8,539 3,100
------------------ ------------------ ---------------
Cash and cash equivalents at end of year $ 19,228 $ 7,987 $ 8,539
================== ================== ===============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,391 $ 4,102 $ 2,137
================== ================== ===============
Cash paid for income taxes $ 1,278 $ 784 $ 11
================== ================== ===============
The accompanying notes are an integral part of the consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002
Note 1 -- Significant Accounting Policies:
Background and Basis of Presentation
The consolidated financial statements include the accounts of Emerson Radio
Corp. ("Emerson", consolidated - the "Company") and its majority-owned
subsidiaries, including Sport Supply Group, Inc. ("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(R)"
trademark for a variety of products domestically and internationally to certain
licensees. The sporting goods segment, which is operated through Emerson's 53.2%
ownership of 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 step
acquisition. The assets and liabilities of SSG have been revalued to fair value
to the extent of Emerson's 50.1% interest in SSG as of March 23, 2001. The
Company's 50.1% interest in the fair value of identifiable assets acquired less
liabilities assumed exceeded the Company's investment in SSG by $1.9 million and
has been recorded as a reduction of
acquired goodwill. For fiscal 2001, SSG's results of operations and the minority
interest related to those results have been included in the Company's results of
operations as though it had been acquired at the beginning of the year ended
March 31, 2001.
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could materially differ from those estimates.
Cash Equivalents
Short-term investments with original maturities of three months or less at
the time of purchase are considered to be cash equivalents.
Fair Values of Financial Instruments
The carrying amounts for cash and cash equivalents, trade accounts
receivable, accounts payable and accrued liabilities approximate fair value due
to short-term maturity of these financial instruments. The carrying amounts of
bank debt approximate this fair value due to their variable rate interest
features. The fair value of the preferred stock is based on the fair value of
the common stock into which the preferred stock is convertible. The carrying
value of the debentures approximate fair value.
Investments
The Company determines the appropriate classifications of securities at the
time of purchase. The investments held by the Company at March 31, 2002 and 2001
were classified as "available-for-sale securities", and are included in prepaid
expenses and other current assets. Realized gains and losses are reported
separately as a component of income. Declines in the market value of securities
deemed to be other than temporary are included in earnings.
Concentrations of Credit Risk
Certain financial instruments potentially subject the Company to
concentrations of credit risk. Accounts receivable for the consumer electronics
segment represent sales to retailers and distributors of consumer electronics
throughout the United States and Canada. Accounts receivable for the sporting
goods segment represent sales to all levels of public and private schools,
colleges, universities, and military academies, municipal and governmental
agencies, military facilities, churches, clubs, camps, hospitals, youth sports
leagues, non-profit organizations, team dealers and certain large retail
sporting goods chains. The Company periodically performs credit evaluations of
its customers but generally does not require collateral. The Company provides
for any anticipated credit losses in the financial statements based upon
management's estimates and ongoing reviews of recorded allowances.
Depreciation, Amortization and Valuation of Property
Property and equipment, stated at cost, are being depreciated by the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized on a straight-line basis over the shorter of the useful life of
the improvement or the term of the lease. The cost of maintenance and repairs is
charged to expense as incurred. Significant renewals and betterments are
capitalized and depreciated over the remaining estimated useful lives of the
related assets.
Depreciation of property, plant and equipment is provided by the
straight-line method as follows:
Buildings Thirty to forty years
Machinery and Equipment Five years to ten years
Computer Equipment and Software Three years to ten years
Furniture & Fixtures and Office Equipment Five years to seven years
Intangible Assets
Goodwill and other intangible assets relates to acquisitions. Trademarks
and servicemarks relate to costs incurred in connection with the licensing
agreements for the use of certain trademarks and service marks in conjunction
with the sale of our products. Other items classified as goodwill and other
intangible assets consist of patents, websites, customer base, and workforce.
Amortization of intangible assets is provided by the straight-line method
as follows:
Cost in excess of identifiable net assets acquired Principally thirty to forty years
Trademarks and servicemarks Five to forty years
Patents Seven to eleven years
Management periodically assesses the recoverability of the carrying value
of intangible assets. The carrying value of intangible assets would be reduced
to fair value if it is probable that management's best estimate of future
operating income before amortization of identifiable assets will be less than
the carrying value over the remaining amortization period.
Revenue Recognition
Revenues are recognized upon shipment of inventory and an estimate against
revenues for possible returns based upon historical return rates is recorded.
Subject to certain limitations, customers have the right to return a product
within a set period if they are not completely satisfied.
Foreign Currency
The assets and liabilities of foreign subsidiaries have been translated at
current exchange rates, and related revenues and expenses have been translated
at average rates of exchange in effect during the year. Related translation
adjustments are reported as a separate component of shareholders' equity. Losses
resulting from foreign currency transactions are included in the Consolidated
Statements of Operations.
The Company does not enter into foreign currency exchange contracts to
hedge its exposures related to foreign currency fluctuations.
Advertising and Deferred Catalog Expenses
Advertising expenses are charged to operations as incurred, except for
production costs related to direct-response advertising activities, which are
capitalized. Direct response advertising pertains to the sporting goods segment
of the Company, which consists primarily of catalogs. Production costs,
primarily printing and postage, associated with catalogs are amortized using the
straight-line method over twelve months which approximates average usage of the
catalogs produced. Advertising expenses for the fiscal 2002, 2001 and 2000 were
approximately $5,766,000, $7,347,000, and $3,077,000, respectively.
Internet Expenses
The Company expenses the operating and development costs of it's Internet
websites.
Income Taxes
Deferred income taxes are provided for the tax effects of differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Valuation reserves are
provided for the deferred tax assets when realization of the assets is not
reasonably assured. See Note 6.
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 fair value method under SFAS 123. The fair value of
these options was estimated at the date of grant using the Black- Scholes
option-pricing model. See Note 8.
Recent Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2003. Application of
the nonamortization provisions of the Statement is expected to result in an
approximate increase in the net income of $255,000 ($.01 per share) per year.
During fiscal 2003, the Company will perform the first of the required
impairment tests of goodwill and indefinite life intangible assets as of April
1, 2002 and has not yet determined what the effect of these tests will be on the
earnings and financial position of the Company.
During fiscal 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 will be effective for
the Company for Fiscal 2003 and provides guidance on differentiating between
assets held and used, held for sale, and held for disposal other than by sale.
The Company has not yet determined the effects, if any, of implementing SFAS No.
144 on its reporting of financial information.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB
Statement No. 13, and Technical Corrections (Statement 145). For most companies,
Statement 145 will require gains and losses on extinguishments of debt to be
classified as income or loss from continuing operations rather than as
extraordinary items as previously required under Statement 4. Extraordinary
treatment will be required for certain extinguishments as provided in APB
Opinion No. 30. Statement 145 also amends Statement 13 to require certain
modifications to capital leases be treated as a sale-leaseback and modifies the
accounting for sub-leases when the original lessee remains a secondary obligor
(or guarantor). In addition, the FASB rescinded Statement 44 which addressed
the accounting for intangible assets of motor carriers and made numerous
technical corrections. The Company has not yet determined the effects, if any,
of implementing SFAS No. 145 on our reporting of financial information.
Reclassifications
Certain reclassifications were made to conform prior years financial
statements to the current presentation.
Note 2 -- Inventories:
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out for the consumer electronics segment and for the
sporting goods segment, weighted-average cost methods for items manufactured and
weighted-average cost for items purchased for resale. As of March 31, 2002 and
2001, inventories consisted of the following:
March 31, 2002 March 31, 2001
----------------- -----------------
(In thousands)
Raw materials $ 2,153 $ 3,728
Work-in-process 258 377
Finished 41,531 42,643
----------------- -----------------
43,942 46,748
Less inventory allowances (2,285) (2,271)
----------------- -----------------
$ 41,657 $ 44,477
================= =================
Note 3 -- Acquisition of Affiliate:
As of March 31, 2001 and 2000, Emerson owned 4,463,223 and 2,386,000 (50.1%
and 32.8% of the issued and outstanding) shares of common stock of SSG,
respectively. Accordingly, for fiscal 2001 Emerson accounted for its investment
in SSG by consolidating SSG under purchase method of accounting, while for
fiscal 2000, Emerson accounted for its investment in SSG under the equity
method.
Pro-forma results of operations for Emerson, reflecting the consolidation
with SSG for the fiscal year ended March 31, 2000 are as follows (in thousands,
except per share data):
For the 12 Months
Ended
March 31, 2000
--------------------
(Unaudited)
Net revenues $ 320,222
Cost of sales 255,472
Net income 3,620
Net income per common share - basic and
diluted $ .07
For fiscal 2000, the investment in and results of operations of SSG were
accounted for by the equity method. Summarized financial information derived
from the annual and quarterly financial reports of SSG as filed with the
Securities and Exchange Commission for fiscal 2000 are as follows (in
thousands):
March 31, 2000
-----------------------
(Unaudited)
Current assets $ 50,488
Property, plant and equipment and
other assets 30,158
Current liabilities 38,450
Long-term debt 252
Stockholders' Equity 41,945
For the 12 Months
Ended
March 31, 2000
-----------------------
(Unaudited)
Net sales $ 116,521
Gross profit 37,919
Net income 2,083
Effective March 1997, the Company entered into a Management Services
Agreement with SSG, under which each company provides various managerial and
administrative services to the other for a fee at terms reflected in an arms
length transaction. For the fiscal years 2002, 2001, and 2000, SSG billed
Emerson pursuant to the management services agreement fees of $539,000,
$401,000, and $488,000, 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, 2002 and 2001, property, plant, and equipment was comprised
of the following:
2002 2001
-------- --------
(In thousands)
Land $ 9 $ 9
Buildings 1,024 1,024
Computer Equipment & Software 10,476 10,948
Furniture and fixtures 1,617 1,570
Machinery and equipment 2,432 2,465
Leasehold improvements 246 296
----------- --------
15,804 16,312
Less accumulated depreciation and amortization 4,688 3,594
----------- --------
$ 11,116 $ 12,718
=========== ==========
Depreciation and amortization of property, plant, and equipment amounted to
$2,352,000, $2,729,000, and $638,700 for the years ended March 31, 2002, 2001
and 2000, respectively.
Note 5 -- Borrowings:
As of March 31, 2002 Emerson had an existing Loan and Security Agreement
(the "Loan and Security Agreement"), which includes a senior secured credit
facility in the amount of $15 million with a U.S. financial institution. The
facility provided for revolving loans and letters of credit, subject to
individual maximums which, in the aggregate, could not exceed the lesser of $15
million or a "Borrowing Base" amount based on specified percentages of eligible
accounts receivable and inventories. Amounts outstanding under the senior credit
facility are secured by (i) substantially all of Emerson's U.S. and Canadian
assets except for trademarks, which are subject to a negative pledge covenant,
and (ii) a portion of its investment in SSG. At March 31, 2002 and 2001, the
weighted average interest rate on the outstanding borrowings was 7.43% and
10.42%, respectively. The interest rate charged on this facility is the prime
rate of interest plus 1.25%. Pursuant to the Loan and Security Agreement, the
Company was 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 was
required to maintain certain net worth levels. An event of default under the
credit facility would trigger a default under the Company's 8 1/2% Senior
Subordinated Convertible Debentures Due 2002. As of March 31, 2002,
approximately $8.7 million was outstanding under this facility. At March 31,
2002 and 2001, no letters of credit for inventory purchases were issued. At
March 31, 2002 the carrying value of the credit facility approximated its fair
value.
On June 28, 2002, Emerson entered into a $40 million Revolving Credit and
Term Loan Agreement ("Loan Agreement") with several U.S. financial institutions.
The Loan Agreement provides for a $25 million revolving line of credit and a $15
million term loan. The $25 million revolving line of credit replaces Emerson's
existing $15 million senior secured facility and provides for revolving loans,
subject to individual maximums which, in the aggregate, not to exceed the lesser
of $25 million or a "Borrowing Base" amount based on specified percentages of
eligible accounts receivables and inventories and bears interest ranging from
Prime plus .5% to 1.25% or, at Emerson's election, LIBOR plus 2.00% to 2.75%
depending on certain financial covenants. The $15 million term loan combined
with cash earned from Emerson's operations will be used to retire all of
Emerson's 8.5% Senior Subordinated Convertible Debentures ("Debentures") in the
amount of $20.8 million due August 2002. The interest rate charged on the term
loan ranges from Prime plus 1.0% to 1.75% or, at Emerson's election, LIBOR plus
2.50% to 3.25% depending on certain financial covenants and amortizes over a
three year period. Pursuant to the Loan Agreement, we will be restricted from,
among other things, paying cash dividends other than on preferred shares,
repurchasing our common stock and entering into certain transactions without the
lender's prior consent and are subject to certain net worth and leverage
financial covenants. Amounts outstanding under the Loan Agreement are secured by
substantially all of Emerson's assets.
As of March 31, 2002 and 2001, long-term borrowings consisted of the
following:
2002 2001
--------- -----------
(In thousands)
8-1/2% Senior Subordinated Convertible
Debentures Due 2002 $ 20,750 $ 20,750
Notes payable under revolving line of credit 16,839 17,088
Equipment notes and other 310 558
--------- ---------
37,899 38,396
Less current maturities 8,853 139
---------- ---------
Long-term debt and notes payable $ 29,046 $ 38,257
========= =========
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures") were
issued by Emerson in August 1995. The Debentures bear interest at the rate of 8
1/2% per annum, payable quarterly, and are scheduled to mature on August 15,
2002, which are scheduled for repayment on or before August 15, 2002. As
discussed previously, the Company intends to use the new $15 million term loan,
combined with cash from Emerson's operations, to retire all of the Debentures.
Accordingly, long-term borrowings include that portion of the loan to be
amortized beyond one year. 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 101% 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. At March 31, 2002 the carrying value of the debentures approximated
their 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, 2002
and 2001, the weighted average interest rate on the outstanding borrowings was
4.9% and 8.5%, respectively. The interest rate charged under this facility at
March 31, 2002 was 4.75%. 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, 2002 the carrying value of the note payable approximated its fair value.
Maturities of long-term borrowings as of March 31, 2002, by fiscal year and
in the aggregate are as follows (in thousands):
2003 $ 8,853
2004 20,956
2005 6,315
2006 1,775
2007 0
Thereafter 0
-----------
Total 37,899
Less current portion ( 8,853)
-----------
Total long term portion $29,046
===========
Note 6 -- Income Taxes:
2002 2001 2000
-------------- --------------- --------------
Current: (In thousands)
Federal $ (160) $ 475 $ 47
Foreign, state and other 398 848 (624)
Deferred federal (7,899) (2,267) --
----------- -------------- --------------
$ (7,661) $ (944) $ (577)
============== =============== ==============
The Company, with the exception of SSG, files a consolidated federal and
certain state and local income tax returns.
The difference between the effective rate reflected in the provision for
income taxes and the amounts determined by applying the statutory U.S. rate of
34% to income before income taxes for the years ended March 31, 2002, 2001, and
2000 are analyzed below:
2002 2001 2000
--------------- ---------------- ---------------
(In thousands)
Statutory provision $ 4,089 $ 3,981 $ 1,035
Decrease in valuation allowance (12,057) (5,246) (1,306)
Foreign income taxes 254 478 (642)
State taxes 302 723 183
Minority interest (606) (1,211) --
Alternative minimum tax -- 305 47
Other, net 357 26 106
--------------- ---------------- ---------------
Total income tax (benefit)
provision $ (7,661) $ (944) $ (577)
=============== ================ ===============
In December 1999, Emerson Radio (Hong Kong) Limited received a favorable
ruling from the Hong Kong Court of Final Appeals regarding litigation with the
IRD related to the deductibility of certain expenses for fiscal 1992 through
fiscal 1999 tax years. A tax credit of $619,000 was recorded by the Company in
fiscal 2000 as a result of this ruling.
As of March 31, 2002 and 2001, the significant components of the Company's
deferred tax assets and liabilities are as follows:
2002 2001
-------------- --------------
(In thousands)
Deferred tax assets:
Accounts receivable reserves $ 5,751 $ 5,345
Inventory reserves 1,913 1,359
Net operating loss carryforwards 24,250 28,066
Other 965 1,311
-------------- --------------
Total deferred tax assets 32,879 36,081
Valuation allowance for deferred tax assets (14,395) (26,452)
-------------- --------------
Net deferred tax assets 18,484 9,629
Deferred tax liabilities:
Intangible assets (3,173) (2,921)
Investment in affiliate (1,699) (969)
Other (213) (239)
-------------- --------------
Net deferred taxes $ 13,399 $ 5,500
============== ==============
Total deferred tax assets for the consumer electronics segment at March 31,
2002 and 2001 include the tax-effected net operating loss carry forwards subject
to annual limitations (as discussed below) and tax-effected deductible temporary
differences. The portion of the previous valuation reserve established against
the deferred tax assets relating to the accounts receivable and inventory
temporary differences has been reduced by $ 6,011,775 to $0, as management
believes it is more likely than not that such benefit will be realized in the
future. The portion of the previous valuation reserve related to the recognition
of management's estimation of net operating loss carryforwards has been reduced
by $2,744,531 to $ 11,351,935. The remaining valuation reserve remains for the
consumer electronics segment against any expected future benefits relating to
net operating loss carryforwards as management believes it is not more likely
than not that such benefit will be realized in the future due to the annual
limitations on the utilization of such carryforwards.
The sporting goods segment has net operating loss carryforwards that can be
used to offset future taxable income and can be carried forward for 15 to 20
years. A valuation allowance for approximately $2.2 million has been established
as realization of the deferred tax assets is dependent on the successful outcome
of certain tax planning strategies, as well as the Company's ability to generate
sufficient taxable income to fully utilize net operating loss carryforwards.
Income of foreign subsidiaries before taxes was $2,808,000, $7,486,000, and
$1,578,000 for the years ended March 31, 2002, 2001, and 2000, respectively.
As of March 31, 2002, the Company had a federal net operating loss
carryforward of approximately $110,000,000, which will expire in the years 2006
through 2019. The utilization of these net operating losses are subject to
limitations under IRC section 382. In addition, SSG has federal net operating
loss carryforwards of approximately $23,516,000, which will expire in the years
2011 through 2021.
Note 7 -- Commitments and Contingencies:
Leases:
The Company leases warehouse and office space with annual commitments as
follows (in thousands):
Fiscal Years Amount
------------ ------
2003 $ 2,886
2004 2,241
2005 1,387
2006 160
2007 1
Rent expense which includes month-to-month leases, aggregated $3,413,000,
$3,064,000, and $1,326,000 for fiscal 2002, 2001, and 2000, respectively.
Letters of Credit:
There were no letters of credit outstanding under the Loan and Security
Agreement (See Note 5) as of March 31, 2002 or 2001. The Company's Hong Kong
subsidiary also currently maintains various credit facilities aggregating $50.0
million with banks in Hong Kong subject to annual review consisting of the
following: (i) a $5.0 million credit facility which is generally used for
letters of credit for inventory purchases, and (ii) two credit facilities
totaling $45 million 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 customers. At March 31, 2002, the Company's Hong Kong
subsidiary had pledged $1.75 million in certificates of deposit to this bank to
assure the availability of the $5.0 million credit facility. At March 31, 2002,
there were $2,920,000 and $6,429,000 of letters of credit outstanding under
these credit facilities, respectively. The credit facility requires a net worth
covenant of the foreign subsidiary which the Company was in compliance with at
March 31, 2002.
Note 8 -- Stock Based Compensation:
Consumer Electronics Segment:
In July 1994, Emerson adopted a Stock Compensation Program ("Program"). The
maximum aggregate number of shares of common stock available pursuant to the
Program is 2,000,000 shares and the Program is comprised of four parts--the
Incentive Stock Option Plan, the Supplemental Stock Option Plan, the Stock
Appreciation Rights Plan and the Stock Bonus Plan. A summary of transactions
during the last three years is as follows:
Number of Weighted Average
Shares Exercise Price
------------------- --------------------------
Outstanding--April 2, 1999 1,040,000 $ 1.06
Granted 300,000 1.00
Canceled (18,000) 1.00
------------------- --------------------------
Outstanding - March 31, 2000 1,322,000 1.05
Granted 248,000 1.00
Exercised (75,000) 1.00
Canceled (11,666) 1.00
------------------- --------------------------
Outstanding - March 31, 2001 1,483,334 1.04
Granted 26,000 1.50
Canceled (13,334) 1.00
------------------- --------------------------
Outstanding - March 31, 2002 1,496,000 $ 1.05
=================== ==========================
Subject to the terms set forth in each option agreement, generally, the
term of each option is ten years, except for options issued to any person who
owns more than 10% of the voting power of all classes of capital stock, for
which the term is five years. Options may not be exercised during the first year
after the date of the grant. Thereafter, each option becomes exercisable on a
pro rata basis on each of the first through third anniversaries of the date of
the grant. The exercise price of options granted must be equal to, or greater
than the fair market value of the shares on the date of the grant, except that
the option price with respect to an option granted to any person who owns more
than 10% of the voting power of all classes of capital stock shall not be less
than 110% of the fair market value of the shares on the date of the grant. As of
March 31, 2002, there were a total of 1,496,000 options outstanding with
exercise prices ranging from $1.00 per share to $1.50 per share. As of March 31,
2002, 1,221,334 of the total options outstanding were fully vested with 274,666
options vesting through April 2004. At March 31, 2002, 2001, and 2000, the
weighted average exercise price of exercisable options under the Program was
$1.05, $1.04, and $1.05, respectively.
In October 1994, Emerson's Board of Directors adopted, and the stockholders
subsequently approved, the 1994 Non-Employee Director Stock Option Plan. The
maximum number of shares of Common Stock available under such plan is 300,000
shares. A summary of transactions under the plan for the three years ending
March 31, 2002 is as follows:
Number of Weighted Average
Shares Exercise Price
------------------- -------------------------
Outstanding--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, and March, 2002 175,000 $ 1.00
=================== =========================
All options granted under the stock option plan during the fiscal years
ending March 31, 2000, 2001 and 2002 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, 2002, there were a total of 175,000 options outstanding
with exercise prices at $1.00 per share. As of March 31, 2002, 125,000 of the
total options outstanding were fully vested with 50,000 options vesting through
July 2003.
The provisions for the 1994 Non-Employee Director Stock Option Plan for
exercise price, term and vesting schedule are the same as noted above for the
Stock Compensation Program.
Sporting Goods Segment:
SSG has a stock option plan that provides up to 2,000,000 shares of common
stock for awards of incentive and non-qualified stock options to directors and
employees (the "SSG Plan"). Under the SSG Plan, the exercise price of options
will not be less than: the fair market value of the common stock at the date of
grant; or not less than 110% of the fair market value for incentive stock
options granted to certain employees, as more fully described in the Amended and
Restated Stock Option Plan. Options expire ten years from the grant date, or
five years from the grant date for incentive stock options granted to certain
employees, or such earlier date as determined by the Board of Directors of SSG
(or a Stock Option Committee comprised of members of the Board of Directors).
A summary of transactions under the SSG Plan for the fiscal year ending
March 31, 2002 is as follows:
Number of Weighted Average
Shares Exercise 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
Granted 29,375 1.30
Canceled (10,125) 8.09
------------------- --------------------------
Outstanding - March 31, 2002 926,179 $ 7.45
=================== ==========================
All options granted under the SSG Plan during the fiscal year ending March
31, 2002 were at exercise prices equal to or greater than the fair market value
of SSG's stock on the date of the grant.
As of March 31, 2002, there were a total of 926,179 options outstanding
with exercise prices ranging from $0.95 per share to $9.44 per share. As of
March 31, 2002, 896,178 of the total options outstanding were fully vested with
30,001 options vesting through April 2003. As of March 31, 2002, the weighted
average exercise price of exercisable options under the SSG Plan was $7.57.
Consumer Electronics and Sporting Good Segments:
The weighted average fair values of employee stock options granted under
the Emerson plan in fiscal 2002, 2001 and 2000 are $1.18, $0.84 and $0.35,
respectively. The fair values were estimated using the following assumptions and
the Black-Scholes option valuation model:
2002 2001 2000
-------------- --------------- --------------
Risk-free interest rate 5.91% 5.29% 5.00%
Expected life 10 years 10 years 10 years
Expected volatility .98 .99 .57
Expected dividend yield 0.00% 0.00% 0.00%
SSG's fair values were calculated using the following: (i) a risk free
interest rate of 4.15% and 4.29% for fiscal 2002 and 2001, respectively; (ii) a
weighted average expected life of 3 years for fiscal 2002 and 2001; (iii) an
expected volatility of 39% and 55% for fiscal 2002 and 2001, respectively; and
(iv) a dividend yield of 0.00% for fiscal 2002 and 2001. The weighted average
fair value of employee stock options granted for the SSG Plan in fiscal 2002 and
2001 was $0.41 and $0.59, respectively.
Emerson and SSG have elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees: ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals or
exceeds the market price of the underlying stock on date of grant, no
compensation expense is recognized. Emerson and SSG have adopted the
disclosure-only provisions under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). For the purposes of
SFAS 123 pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting periods. The Company's pro forma
information for fiscal 2002, 2001 and 2000 follows:
2002 2001 2000
-------------- ------------ --------------
Net income: (in thousands)
As reported $19,407 $12,653 $ 3,620
Pro forma $19,283 $12,058 $ 3,601
Net income (loss) per common share:
Basic - as reported $ .62 $ .36 $ .07
Basic - pro forma $ .62 $ .34 $ .07
Diluted - as reported $ .52 $ .33 $ .07
Diluted - pro forma $ .52 $ .31 $ .07
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 9 -- Shareholder's Equity:
Common Shares:
Authorized common shares consists of 75,000,000 shares of common shares,
par value $.01 per share, of which 31,166,478 shares were outstanding and
20,309,033 shares were held in treasury at March 31, 2002, and 31,343,978 shares
were outstanding and 20,131,533 shares were held in treasury at March 31, 2001.
Common Stock Repurchase Program:
In January 2000 Emerson's Board authorized a share repurchase program for 5
million shares and in September 2001 a 1 million share repurchase program was
approved by the Board superceding the previous program. In fiscal 2002 the
Company repurchased 177,500 shares for $236,000, and for fiscal 2001,
repurchased 100,000 shares for $75,000, pursuant to the programs. The shares
were repurchased in the open market and were funded by working capital.
Additional Common Stock Repurchases:
On May 25, 2000, the Company entered into a Termination, Settlement,
Redemption and Option Agreement, (the "Agreement") with Geoffrey P. Jurick, its
Chairman, Chief Executive Officer and President, and two of Mr. Jurick's
institutional creditors, resolving outstanding litigation between Mr. Jurick and
two of his three outside creditors. In accordance with the Agreement, the
Company, on May 25, 2000, purchased 7.0 million shares of Common Stock from the
two institutional creditors for $6.0 million. On July 31, 2000, the Company
purchased 8,177,533 shares of Common Stock for approximately $4.1 million in a
private transaction as part of the terms of the Agreement. Additionally under
the terms of the Agreement, the Company was granted an 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"). On
May 25, 2001, the Company extended the option term for one additional year by
making a $550,000 payment. On June 10, 2002 the Company exercised the 4.1
million share option for $5.5 million. The Company used cash generated from
operations and required no additional borrowings to complete this transaction.
Series A Convertible Preferred Stock:
The Company has issued and outstanding 3,677 shares of Series A Convertible
Preferred Stock, ("Preferred Stock") $.01 par value, with a face value of
$3,677,000 and an estimated fair market value of approximately $4,520,000 as of
March 31, 2002. Effective March 31, 2002 the conversion feature of the Preferred
shares expired. Dividends accrued through March 31, 2002 were reversed into
shareholder's equity. The Preferred Stock is non-voting and was 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. Effective March 31, 2001, dividends were no longer accrued
on these shares.
During the years ended March 31, 2002 and March 31, 2001, there were no
conversions of the Company's Series A Preferred Stock. For the year ended March
31, 2000, the Company repurchased 37 shares of its Series A Preferred Stock.
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. As of March 31, 2002 there are no
outstanding warrants.
Note 10 -- Net Earnings per Share:
The following table sets forth the computation of basic and diluted
earnings per share for the years ended March 31, 2002, March 31, 2001, and March
31, 2000:
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
March 31, 2002
(In thousands, except per share amount)
2002 2001 2000
--------------- ----------------- -----------------
Numerator:
Net income $ 19,407 $ 12,653 $ 3,620
Less: preferred stock dividends, and repurchase
Costs -- 51 103
--------------- ----------------- -----------------
Numerator for basic earnings
per share - income available to
common stockholders 19,407 12,602 3,517
Add back to effect assumed conversions:
Preferred stock dividends -- 51 103
Interest on convertible debentures 1,764 -- --
--------------- ----------------- -----------------
Numerator for diluted earnings
per share $ 21,171 $ 12,653 $ 3,620
=============== ================= =================
Denominator:
Denominator for basic earnings per share -
weighted average shares 31,298 35,066 47,632
Effect of dilutive securities:
Preferred shares 3,531 3,066 5,876
Options 452 437 --
Convertible debentures 5,204 -- --
--------------- ----------------- -----------------
Denominator for diluted earnings per share -
weighted average shares and assumed conversions 40,485 38,569 53,508
=============== ================= =================
Basic income per share $ .62 $ .36 $ .07
===============
================= =================
Diluted income per share $ .52 $ .33 $ .07
=============== ================= =================
Options and warrants to purchase 2,899,000 shares of Common Stock were not
included in computing diluted earnings per share for Fiscal 2000 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, and 2000, because the effect would be antidilutive.
Note 11 -- License Agreements:
Emerson has several license agreements 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. These license agreements cover various
countries throughout the world and are subject to renewal at the initial
expiration of the agreements. License revenues recognized and earned in fiscal
2002, 2001, and 2000 were approximately $6,952,000, $3,930,000, and $3,143,000,
respectively. Emerson records a majority of licensing revenues as earned over
the term of the related agreements.
In October 2000, Emerson entered into a three-year license agreement
("Video License Agreement") with Funai Corporation, Inc. ("Funai"), effective
January 1, 2001, which was amended on February 19, 2002 which extended the Video
License Agreement for an additional year. The Video License Agreement with Funai
provides that Funai will manufacture, market, sell and distribute specified
products bearing the "EMERSON(R)" trademark to customers in the U.S. and
Canadian markets. Under the terms of the agreement, Emerson will continue to
receive non-refundable minimum annual royalty payments of $4.3 million for
calendar years 2002, 2003, and 2004, unless the agreement is terminated pursuant
to the terms of the License Agreement. The minimums are credited against
royalties earned for the sale of products. During fiscal 2002 and 2001, revenues
of $5,624,000 and $1,075,000, respectively, were recorded under this Video
License Agreement.
Note 12-- Legal Proceedings:
The Company is involved in legal proceedings and claims of various types in
the ordinary course of business. While any such litigation to which the Company
is a party contains an element of uncertainty, management presently believes
that the outcome of each such proceeding or claim which is pending or known to
be threatened, or all of them combined, will not have a material adverse effect
on the Company's consolidated financial position or results of operations.
Note 13 --Business Segment Information and Major Customers:
The Company has two business segments, the consumer electronics business
and the sporting goods segment. Operations in these business segments are
summarized below by geographic area (in thousands):
Year Ended March 31, 2002
U.S. Foreign Consolidated
---------------------------------------------
Sales to unaffiliated customers - consumer
electronics $ 210,530 $ 4,320 $ 214,850
Sales to unaffiliated customers - sporting
goods 103,010 591 103,601
---------------------------------------------
Total sales to unaffiliated customers $ 313,540 $ 4,911 $ 318,451
=============================================
Income (loss) before income taxes -
consumer electronics $ 15,330 $ (1) $ 15,329
Loss before income taxes - sporting goods (3,583) -- (3,583)
---------------------------------------------
Total income (loss) before income taxes $ 11,747 $ (1) $ 11,746
=============================================
Identifiable assets - consumer electronics $ 46,395 $ 22,137 $ 68,532
Identifiable assets - sporting goods 67,307 -- 67,307
---------------------------------------------
Total identifiable assets $ 113,702 $ 22,137 $ 135,839
=============================================
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
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 - consumer electronics $ 197,810 $ 5,891 $ 203,701
=============================================
Income (loss) before income
Taxes - consumer electronics $ 3,075 $ (32) $ 3,043
=============================================
Identifiable assets - consumer electronics $ 60,780 $ 2,731 $ 63,511
=============================================
Identifiable assets are those assets used in operations in each geographic
area. In addition to operating assets, at March 31, 2002, 2001, and 2000, there
were non-operating assets of $9,136,000, $9,282,000 and $8,297,000,
respectively, located in foreign countries.
The Company's net sales to one customer aggregated approximately 22%, 41%
and 56% of consolidated net revenues for the years ended March 31, 2002, 2001,
and 2000, respectively. The Company's net sales to another customer aggregated
19%, 14%, and 21% for the years ended March 31, 2002, 2001, and 2000,
respectively. The trade accounts receivable balance, net of specific reserves
was not material as of March 31, 2002. The Company's net sales to a third
customer aggregated less than 10% for the years ended March 31, 2002, 2001 and
2000. The trade accounts receivable balance, net of specific reserves for this
customer approximated 15% of consolidated trade accounts receivable as of March
31, 2002.
Note 14 - - 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, 2002 and March 31, 2001, with amounts in thousands, except for per share
data. Due to rounding, quarterly amounts may not fully sum to yearly amounts.
(In thousands, except per share data).
Fiscal 2002 Fiscal 2001
----------- ------------
Consolidated Statement
of Operations 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- ------- ------- ------- ------- -------
Net revenues $77,079 $111,503 $ 70,611 $59,144 $ 113,318 $128,101 $80,010 $56,075
Operating income 2,656 5,568 1,107 983 3,871 5,608 2,536 1,478
Net income 2,193 4,739 4,131 8,344 3,045 5,118 3,708 782
Net income per
common share - basic .07 .15 .13 .27 0.07 0.15 0.12 0.02
Net income per
common share - diluted .06 .13 .11 .22 0.06 0.13 0.10 0.02
Weighted average shares
Outstanding - basic 31,344 31,343 31,274 31,233 43,853 33,867 31,272 31,284
Weighted average shares
Outstanding - diluted 34,948 40,099 40,253 40,357 50,037 42,277 39,955 34,852
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required is incorporated herein by reference to Emerson's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before July 29, 2002.
Item 11. EXECUTIVE COMPENSATION
The information required is incorporated herein by reference to Emerson's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before July 29, 2002.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required is incorporated herein by reference to Emerson's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before July 29, 2002.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required is incorporated herein by reference to Emerson's
definitive Proxy Statement to be filed with the Securities and Exchange
Commission on or before July 29, 2002.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, STATEMENT SCHEDULE AND REPORTS ON FORM
8-K
(a) Financial Statements and Schedules. See Item 8
(b) Reports on Form 8-K - Current report on Form 8-K, dated June 10, 2002
reporting the exercise of the option to purchase 4.1 million shares under
the Termination, Settlement, Redemption and Option Agreement.
Reports on Form 8-K - Current report on Form 8-K, dated July 1, 2002
reporting the $40 million revolving credit and term loan agreement.
(c) Exhibits
Exhibit Number
3.1 Certificate of Incorporation of Emerson (incorporated by reference to
Exhibit (3) (a) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
3.2 Amended and Restated Certificate of Incorporation of Sport Supply
Group, Inc. (incorporated by reference to Exhibit 3.1 of Sport
Supply's Annual Report on Form 10-K for the year ended March 30,
2001).
3.3 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Sport Supply Group, Inc. (incorporated by reference
to Exhibit 3.1.1 of Sport Supply's Annual Report on Form 10-K for the
year ended March 30, 2001).
3.4 Certificate of Designation for Series A Preferred Stock (incorporated
by reference to Exhibit (3) (b) of Emerson's Registration Statement on
Form S-1, Registration No. 33-53621, declared effective by the SEC on
August 9, 1994).
3.5 Amendment dated February 14, 1996 to the Certificate of Incorporation
of Emerson (incorporated by reference to Exhibit (3) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
3.6 By-Laws of Emerson adopted March 1994 (incorporated by reference to
Exhibit (3) (e) of Emerson's Registration Statement on Form S-1,
Registration No. 33-53621, declared effective by the SEC on August 9,
1994).
3.7 Amendment dated November 28, 1995 to the By-Laws of Emerson adopted
March 1994 (incorporated by reference to Exhibit (3) (b) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
3.8 Amended and Restated Bylaws of Sport Supply Group, Inc. (incorporated
by reference to Exhibit 3.2 of Sport Supply's Annual Report on Form
10-K for the year ended March 30, 2001).
4.1 Indenture, dated as of August 17, 1995 between Emerson and Bank One,
Columbus, NA, as Trustee (incorporated by reference to Exhibit (1) of
Emerson's Current Report on Form 8-K filed with the SEC on September
8, 1995).
10.1 Loan and Security Agreement, dated March 31, 1994, by and among
Emerson, Majexco Imports, Inc. and Congress Financial Corporation
("Congress") (incorporated by reference to Exhibit (10) (f) of
Emerson's Registration Statement on Form S-1, Registration No.
33-53621, declared effective by the SEC on August 9, 1994).
10.1.1 Amendment No. 1 to Financing Agreements, dated as of August 24,
1995, among Emerson, Majexco Imports, Inc. and Congress (incorporated
by reference to Exhibit (2) of Emerson's Current Report on Form 8-K
filed with the SEC on September 8, 1995).
10.1.2 Amendment No. 2 to Financing Agreements, dated as of February 13,
1996 (incorporated by reference to Exhibit (10) (c) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1995).
10.1.3 Amendment No. 3 to Financing Agreements, dated as of August 20, 1996
(incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1995).
10.1.4 Amendment No. 4 to Financing Agreements, dated as of November 14,
1996 (incorporated by reference to Exhibit (10) (c) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996).
10.1.5 Amendment No. 5 to Financing Agreements, dated as of February 18,
1997 (incorporated by reference to Exhibit (10) (e) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended December 31,
1996).
10.1.6 Amendment No. 6 to Financing Agreements, dated as of August 14, 1997
(incorporated by reference to Exhibit (10) (g) of Emerson's Quarterly
Report on Form 10-Q for quarter ended September 30, 1997).
10.1.7 Amendment No. 7 to Financing Agreements, dated as of March 31, 1998
(incorporated by reference to Exhibit (10) (t) of Emerson's Annual
Report on Form 10-K for the year ended April 3, 1998).
10.1.8 Amendment No. 8 to Financing Agreements, dated as of November 13,
1998 (incorporated by reference to Exhibit (10) (a) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended October 2, 1998).
10.1.9 Amendment No. 9 to Financing Agreements, dated June 16, 1999
(incorporated by reference to Exhibit (10) (ab) of Emerson's Annual
Report on Form 10-K for the year ended April 2, 1999).
10.1.10 Amendment No. 10 to Financing Agreements, dated August 14, 2001
(incorporated by reference to Exhibit (10.1.10) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2001).
10.2 Consent No. 1 to Financing Agreements among Emerson, certain of its
subsidiaries, and Congress (incorporated by reference to Exhibit
(10)(b) of Emerson's Current Report on Form 8-K dated November 27,
1996).
10.3 Amendment No. 1 to Pledge and Security Agreement dated as of March 31,
1998 (incorporated by reference to Exhibit (10) (u) of Emerson's
Annual Report on Form 10-K for the year ended April 3, 1998).
10.4 Stipulation of Settlement and Order dated June 11, 1996 by and among
the Official Liquidator of Fidenas International Bank Limited, Petra
Stelling, Barclays Bank PLC, the Official Liquidator of Fidenas
Investment Limited, Geoffrey P. Jurick, Fidenas International Limited,
L.L.C., Elision International, Inc., GSE Multimedia Technologies
Corporation and Emerson. (incorporated by reference to Exhibit 10(ae)
of Emerson's Annual Report on Form 10-K for the year ended March 31,
1996.)
10.5 Pledge Agreement dated as of February 4, 1997 by Fidenas International
Limited, L.L.C. ("FIN") in favor of TM Capital Corp. (incorporated by
reference to Exhibit (10) (a) of Emerson's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996).
10.6 Registration Rights Agreement dated as of February 4, 1997 by and
among Emerson, FIN, the Creditors, FIL and TM Capital Corp.
(incorporated by reference to Exhibit (10) (b) of Emerson's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1996).
10.7 Securities Purchase Agreement dated as of November 27, 1996, by and
between Sport Supply Group, Inc. ("SSG") and Emerson (incorporated by
reference to Exhibit (2)(a) of Emerson's Current Report on Form 8-K
dated November 27, 1996).
10.9 Form of Registration Rights Agreement by and between SSG and Emerson
(incorporated by reference to Exhibit (4)(b) of Emerson's Current
Report on Form 8-K dated November 27, 1996).
10.10 License and Exclusive Distribution Agreement with Cargil
International Corp. dated as of February 12, 1997 (incorporated by
reference to Exhibit (10) (c) of Emerson's Quarterly Report on Form
10-Q for the quarter ended December 31, 1996).
10.12 License Agreement effective as of January 1, 2001 by and between
Funai Corporation and Emerson (incorporated by reference to Exhibit
(10) (z) of Emerson's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000).
10.12.1 First Amendment to License Agreement dated February 19, 2002 by and
between Funai Corporation and Emerson. *
10.13 Second Lease Modification dated as of May 15, 1998 between Hartz
Mountain, Parsippany and Emerson (incorporated by reference to
Exhibit (10) (v) of Emerson's Annual Report on Form 10-K for the
year ended April 3, 1998).
10.13.1 Third Lease Modification made the 26 day of October, 1998 between
Hartz Mountain Parsippany and Emerson (incorporated by reference
to Exhibit (10)(b) of Emerson's Quarterly Report on Form 10-Q for
the quarter ended October 2, 1998).
10.14.1 Purchasing Agreement, dated March 5, 1999, between AFG-Elektronik
GmbH and Emerson Radio International Ltd. (incorporated by
reference to Exhibit (10) (aa) of Emerson's Annual Report on Form
10-K for the year ended April 2, 1999).
10.15 Supplemental Letter of Employment for Marino Andriani, dated as of
October 11, 1999 (incorporated by reference to Exhibit (10) (a) of
Emerson's Quarterly Report on Form 10-Q for the quarter ended
October 1, 1999).
10.15.1 Supplemental Letter of Employment for Marino Andriani, effective
as of April 1, 2001 (incorporated by reference to Exhibit
(10.15.1) of Emerson's Annual Report on Form 10-K for the year
ended March 31, 2001).
10.16 Letter of Employment for Patrick Murray, dated May 3, 2001
(incorporated by reference to Exhibit (10.16) of Emerson's Annual
Report on Form 10-K for the year ended March 31, 2001).
10.17 Form of Indemnification Agreement entered into between the Sport
Supply and each of the directors of the Sport Supply and the Sport
Supply's General Counsel (incorporated by reference to Exhibit
10.11 of Sport Supply's Annual Report on Form 10-K for the year
ended March 30, 2001).
10.18 Sport Supply Group, Inc. Amended and Restated Stock Option Plan
(incorporated by reference to Exhibit 10.13 of Sport Supply's
Annual Report on Form 10-K for the year ended March 30, 2001).
10.19 Assignment and Assumption Agreement, dated to be effective as of
February 28, 1992, by and between Aurora and Sport Supply Group,
Inc. (incorporated by reference to Exhibit 10.24 of Sport Supply's
Annual Report on Form 10-K for the year ended March 30, 2001).
10.20 Amendment No. 1 to AMF Licensing Agreement (incorporated by
reference to Exhibit 10.25 of Sport Supply's Annual Report on Form
10-K for the year ended March 30, 2001).
10.21 License Agreement, dated as of September 23, 1991, by and between
Proacq Corp. and Sport Supply Group, Inc. (incorporated by
reference to Exhibit 10.30 of Sport Supply's Annual Report on Form
10-K for the year ended March 30, 2001).
10.22 Sport Supply Group Employees' Savings Plan dated June 1, 1993
(incorporated by reference to Exhibit 10.31 of Sport Supply's
Annual Report on Form 10-K for the year ended March 30, 2001).
10.23 Management Services Agreement dated July 1, 1997 to be effective
as of March 7, 1997 by and between Sport Supply Group, Inc. and
Emerson (incorporated by reference to Exhibit 10.32 of Sport
Supply's Annual Report on Form 10-K for the year ended March 30,
2001).
10.24 Non-Qualified Stock Option Agreement by and between the Company
and Geoffrey P. Jurick (incorporated by reference to Exhibit 10.4
of Sport Supply's Annual Report on Form 10-K for the year ended
March 30, 2001).
10.26 Employment between Emerson Radio Corp. and John J. Raab, effective
as of September 1, 2001 (incorporated by reference to Exhibit
(10.26) of Emerson's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).
10.26.1 Employment Agreement between Emerson Radio Corp. and Elizabeth J.
Calianese McPartland, effective as of September 1, 2001
(incorporated by reference to Exhibit (10.26.1) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).
10.26.2 Letter re Employment Agreement between Emerson Radio Corp.,
Emerson Radio International Ltd., Emerson Radio (Hong Kong)
Limited and Geoffrey P. Jurick, effective as of September 1, 2001
(incorporated by reference to Exhibit (10.26.2) of Emerson's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2001).
10.26.3 Employment Agreement between Emerson Radio Corp. and Kenneth A.
Corby, effective as of September 1, 2001 (incorporated by
reference to Exhibit (10.26.3) of Emerson's Quarterly Report on
Form 10-Q for the quarter ended December 31, 2001).
10.27 Revolving Credit and Term Loan Agreement dated June 28, 2002 among
Emerson Radio Corp., Majexco Imports, Inc., Emerson Radio (Hong
Kong) Ltd., and Emerson Radio International Ltd. Jointly and
Severally, and PNC Bank, National Association. *
10.35 Credit Agreement dated March 27, 2001 by and between Sport Supply
Group, Inc. and Congress Financial Corporation (incorporated by
reference to Exhibit 10.37 of Sport Supply's Annual Report on Form
10-K for the year ended March 30, 2001).
12 Computation of Ratio of Earnings (Loss) to Combined Fixed Charges
and Preferred Stock Dividends. *
21 Subsidiaries of the Company as of March 31, 2002.*
23 Consent of Independent Auditors.*
- -------------------
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
EMERSON RADIO CORP.
By: /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman of the Board
Dated: July 11, 2002
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, July 11, 2002
Geoffrey P. Jurick Chief Executive Officer and
President
/s/ Kenneth A. Corby Executive Vice President, July 11, 2002
Kenneth A. Corby Chief Financial Officer
/s/ Robert H. Brown, Jr. Director July 11, 2002
Robert H. Brown, Jr.
/s/ Peter G. Bunger Director July 11, 2002
Peter G. Bunger
/s/ Jerome H. Farnum Director July 11, 2002
Jerome H. Farnum
/s/ Stephen H. Goodman Director July 11, 2002
Stephen H. Goodman
EMERSON RADIO CORP. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(In thousands)
Column A Column B Column C Column D Column E
- ------------------------------------------------------------
Balance at Charged to Balance
Beginning costs and Deductions at end of
Description of year Expenses year (C)
- ------------------------------------------------------------
Allowance for doubtful accounts/chargebacks:
Year ended:
March 31, 2002 (D) $ 3,015 $ 1,543 $ 1,598(A) $ 2,960
March 31, 2001 (D) 3,284 (14) 255(A) 3,015
March 31, 2000 2,686 (100) 139(A) 2,447
- -----------------------------------------------------------
Inventory reserves:
Year ended:
March 31, 2002 (D) $ 2,271 $ 1,910 $ 1,896(B) $ 2,285
March 31, 2001 (D) 1,711 1,222 662(B) 2,271
March 31, 2000 385 708 514(B) 579
(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 2002 and 2001, the balances include both Emerson and SSG's
accounts.