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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 29, 2000.
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 1-10704
Sport Supply Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-2241783
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Diplomat Drive, Farmers Branch, Texas 75234 - 8914
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 484-9484
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
----------------------------- ------------------------
Common Stock, $ .01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X 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. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on December 22, 2000 based on the closing price of the
common stock on the New York Stock Exchange on such date, was approximately
$8,000,000.
Indicated below is the number of outstanding shares of each class of
the registrant's common stock, as of December 22, 2000.
Title of Each Class of Common Stock Number Outstanding
----------------------------------- ------------------
Common Stock, $.01 par value 7,279,165
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of the Form 10-K
-------------------------------------------- ---------------------
Proxy Statement for Annual Meeting of
Stockholders to be held on January 26, 2001 Part III
TABLE OF CONTENTS
Item Page
---- ----
PART I
1 Business.......................................... 3
2 Properties........................................ 10
3 Legal Proceedings................................. 10
4 Submission of Matters to a Vote of Security Holders 11
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters............................. 12
6 Selected Financial Data........................... 13
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 14
8 Financial Statements and Supplementary Data....... 20
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. 39
PART III
10 Directors and Executive Officers of the Registrant 40
11 Executive Compensation............................ 40
12 Security Ownership of Certain Beneficial Owners
and Management.................................. 40
13 Certain Relationships and Related Transactions.... 40
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................. 41
15 Signatures........................................ 42
16 Index to Exhibits.................................. 43
PART I.
Item 1. Business.
General
Sport Supply Group, Inc. is a leading direct mail marketer of sports
related equipment and leisure products to the institutional market in the
United States. The institutional market is generally comprised of schools,
colleges, universities, government agencies, military facilities, athletic
clubs, athletic teams and dealers, youth sports leagues and recreational
organizations. We offer products directly to the institutional market
primarily through: (i.) a variety of distinctive, information-rich catalogs;
(ii.) sales personnel strategically located in certain large metropolitan
areas; (iii.) in-bound and out-bound telemarketers; (iv.) a team of
experienced bid and quote personnel and (v.) the Internet. Our marketing
efforts are supported by a customer database of over 250,000 names, a call
center at our headquarters located in Farmers Branch, Texas, a custom-
designed 180,000 square foot distribution center and several manufacturing
facilities. We currently offer approximately 10,000 sports related
equipment products to our over 100,000 customers.
In recent years, we believe sales of sports related equipment in the
United States has been characterized by a rapidly growing shift in non-store
sales through media such as printed catalogs, broadcast and cable
infomercials, home shopping channels, and the Internet. This growth is due
to the convenience of home shopping for the time constrained dual-career
consumer households and the increasingly high level of customer service
offered by leading direct marketing firms.
We believe the institutional sporting goods market is highly fragmented
and that most of our competitors lack the necessary capital, support
systems, and economies of scale to effectively exploit available
opportunities for growth. We believe that we are well positioned to grow
our business because of our high capacity order-taking, processing and
fulfillment, our well-developed expertise in catalog design and
merchandising and our recently implemented SAP/AS400 ERP Information
Technology platform.
One of the most important contributions of SAP is that the data
available in the system is channeled to a host of websites. Each website is
strategically targeted to a specific customer group or product line. Our
websites enable our customers to place orders, access account information,
track orders, and perform routine customer service inquires on a real-time
basis, twenty-four hours a day, seven days a week. This functionality
allows for more convenience and added flexibility for our customers, many of
whom are part-time coaches with day jobs and parenting responsibilities.
We believe the majority of customers have access to the Internet and
view placing orders and accessing their account information over the
Internet as a significant benefit. We also believe that, in the future, a
large portion of our customer base will use the Internet as the predominant
method of quoting, ordering, and procuring their products, along with
performing customer service inquiries.
Our sourcing, warehousing, distribution and fulfillment capabilities
and our fully integrated SAP information system, provide the necessary
capacities, logistics and information technological support to meet the
demands and growth potential of E-Commerce. We view the continued migration
of our customers to our websites as vital to our future growth and success
We are a Delaware corporation incorporated in 1982. In 1988 we became
the successor of an operating division of Aurora Electronics, Inc. (f/k/a
BSN Corp. and referred to herein as "Aurora"). Before the completion of the
initial public offering of 3,500,000 shares of our common stock in April
1991, we were a wholly-owned subsidiary of Aurora. As of September 29, 2000,
we had two wholly-owned subsidiaries. We acquired substantially all of the
assets of Athletic Training Equipment Company, Inc, ("ATEC"), a Delaware
corporation in December, 1997. On September 25, 2000, we acquired the stock
of Sport Supply Group Asia, Ltd., a Hong Kong corporation. SSG Asia was
acquired for US $1,267 from Emerson Radio Corporation. (See Item 13 --
"Certain Relationships and Related Transactions").
Our executive offices are located at 1901 Diplomat Drive, Farmers
Branch, Texas 75234-8914 and our telephone number is (972) 484-9484. Our
Internet website, sportsupplygroup.com, provides certain additional
information about us.
Products
We believe we manufacture and distribute one of the broadest lines of
sports related equipment and leisure products to the institutional market.
We offer approximately 10,000 sporting goods and sports and recreational
leisure products, over 3,000 of which we manufacture. Our product lines
include, but are not limited to: archery, baseball, softball, basketball,
camping, football, tennis and other racquet sports, gymnastics, indoor
recreation, physical education, soccer, field and floor hockey, lacrosse,
track and field, volleyball, weight lifting, fitness equipment, outdoor
playground equipment, and early childhood development products.
We believe brand recognition is important to the institutional market.
Most of our products are marketed under trade names or trademarks owned or
licensed to us. We believe many of our trade names and trademarks are well
recognized among institutional purchasers of sports related equipment. We
intend to continue to expand our product and brand name offerings by
actively pursuing product, trademark and trade name licensing arrangements
and acquisitions. Our trademarks, servicemarks, and trade names include,
but are not limited to, the following:
* Official Factory Direct Equipment Supplier of Little League Baseball --
(see discussion below).
* Voit[R] -- institutional sports related equipment and products,
including inflated balls and baseball and softball products --
(licensed from Voit Sports, Inc. - see discussion below).
* MacGregor[R] -- certain equipment and accessories relating to baseball,
softball, basketball, soccer, football, volleyball, and general
exercise (e.g., dumbbells, curling bars, etc.) (licensed from MacMark
Corporation - see discussion below). See also Part I. Item 1. -"Sales
and Marketing" and- Item 3. "Legal Proceedings".
* Huffy[R] -- early childhood development products (sublicensed from
Huffy Corporation (see discussion below)).
* Alumagoal[R] -- track and field equipment, including starting blocks,
hurdles, pole vault and high jump standards and crossbars.
* AMF[R] -- gymnastics equipment (licensed from AMF Bowling, Inc. - (see
discussion below)).
* ATEC [R] -- pitching machines and related baseball and softball
training equipment.
* BSN[R] -- sport balls
* Champion -- barbells, dumbbells and weight lifting benches and
machines.
* Curvemaster[R] -- baseball and softball pitching machines.
* Fibersport -- pole vaulting equipment.
* Flag A Tag[R] -- flag football belts.
* Gamecraft -- field and floor hockey equipment, soccer equipment,
scorebooks, coaching equipment and table tennis equipment.
* GSC Sports -- gymnastics equipment.
* Hammett & Sons -- indoor table-top games.
* Maxpro[R] -- products include, among others, football practice dummies,
baseball, and other protective helmets and pads (other than football
protective equipment), baseball chest protectors and baseball mitts and
gloves (licensed from Proacq Corp., a subsidiary of Riddell Sports
Inc.).
* New England Camp and Supply -- camping and outdoor recreational
equipment and accessories.
* North American Recreation[R] -- billiard, table tennis and other game
tables.
* Passon's Sports -- mail order catalogs.
* Pillo Polo[R] -- recreational polo and hockey games.
* Port-A-Pit[R] -- high jump and pole-vault landing pits.
* Pro Base[R] -- baseball bases.
* Pro Down[R] -- football down markers.
* Pro Net -- nets, net assemblies and frames and practice cages.
* Rol-Dri[R] and Tidi-Court -- golf course and tennis court maintenance
equipment.
* Safe-Squat -- specialty weight lifting squat machines.
* Toppleball[R] -- recreational ball games.
* U.S. Games, Inc.[R] -- goals, nets, and playing equipment for physical
exercise games and mail order catalogs.
The Voit license permits us to use the Voit[R] trademark in connection
with the manufacture, advertisement, and sale to certain institutional
customers of specified sports related equipment and products, including
inflated balls for all sports and baseball and softball products. We are
required to pay annual royalties under the license. The initial term of the
Voit license expired on December 31, 1989, and was subject to three renewal
options for consecutive terms of five years each. Subject to the terms of
the license agreement, we are permitted to use the Voit trademark through
December 31, 2004.
The Huffy sublicense permits us to use the Huffy[R] trademark in
connection with manufacturing, advertising, selling and distributing certain
sports related products and equipment to institutional customers. We are
required to pay annual royalties under the sublicense subject to the
terms of the sublicense agreement. The term of the sublicense expires
September 30, 2003.
In February 1992, we acquired two separate licenses to use several
trade names, styles, and trademarks (including, but not limited to,
MacGregor[R]). On December 21, 2000, the license relating to the use of the
MacGregor[R] trademark was amended and restated in its entirety. The
amended and restated license permits us to manufacture, promote, sell,
and distribute designated customers throughout the world, specified
institutional sports related equipment and products relating to baseball,
softball, basketball, soccer, football, volleyball, and general exercise.
The amended and restated license requires us to pay an annual royalty based
upon sales of MacGregor branded products, with the minimum annual royalty
set at $100,000. The amended and restated license is exclusive with respect
to certain customers and non-exclusive with respect to others. The amended
and restated license has an original term of forty (40) years, but will
automatically renew for successive forty (40) year periods unless terminated
in accordance with the terms of the license. We have converted a substantial
portion of our products to the MacGregor[R] brand, which is believed to be a
widely recognized trade name in the sporting goods industry. See Part I.
Item 1. -- "Business - Sales and Marketing" and Item 3. -- "Legal
Proceedings".
On August 19, 1993, we entered into an exclusive license agreement with
AMF Bowling, Inc. to use the AMF name in connection with the promotion and
sale of certain gymnastics equipment in the United States and Canada. We
are required to pay an annual royalty under the license. The minimum
royalty increases by a predetermined percentage each year the license
agreement is in effect. Subject to the terms of the AMF license, we are
permitted to use the AMF name through December 31, 2001.
On December 15, 1995, we entered into an agreement with Little League
Baseball, Incorporated that, among other things, names us as the "Official
Factory Direct Equipment Supplier of Little League Baseball". This
agreement is scheduled to expire on April 15, 2001. We have an option to
extend the agreement through December 31, 2001, in exchange for a fee, but
do not know at this time if we will extend this agreement.
In addition to the foregoing, we have acquired (or had issued) a number
of patents relating to products sold by us. We also have a number of patent
applications pending before the U.S. Patent and Trademark Office.
Sales and Marketing
We believe we are the largest seller of sporting goods and sports
leisure products to the institutional market in the United States. The
institutional market is made up of well over 500,000 potential customers,
most clearly defined as: 1) Out-of-School Customers including youth sports
leagues, recreational departments and organizations, churches and private
athletic organizations; 2) In-School Customers including all levels of
public and private schools and their related athletic and recreational
departments; 3) Government Customers including federal, state and local
agencies; and 4) Resale and Specialty Customers including sporting goods
resellers and specialty organizations.
We solicit and sell our products through 10 different direct mail
catalogs, an inside sales and customer service staff of over 100 people, an
outside sales force of over 30 people traveling in significant metropolitan
sales territories, and ten internet sites. We mailed approximately 1,700,000
million catalogs during fiscal 2000.
We have marketing efforts directed towards the following athletic and
leisure activities: Football, Baseball, Basketball, Soccer, Track and Field,
Training and Fitness, Camping, Outdoor Recreation, Early Childhood
Development, Table Games, Playground Recreation, Tennis and Volleyball. We
believe we are also a brand leader in the institutional sporting goods and
sports leisure market, marketing our products under a variety of private
label and well recognized name brands including: BSN Sports, MacGregor[R],
Reebok Team Uniforms, Spaulding, PortaPit, Champion Barbell, Voit[R],
Huffy[R], AMF[R] and Flag-A-Tag[R]. We believe our mailing list of over
250,000 customer and target prospects is one of our most valuable intangible
assets.
We also have licenses and marketing alliances with national
organizations including Little League Baseball[TM], Major League Baseball[R]
YMCA, Hershey Chocolate USA, Antigua[R], and Amway Corp. We are the
"Exclusive Official Factory Direct Equipment Supplier of Little League
Baseball". This affiliation allows us direct marketing rights through April
15, 2001 to the 7,700 chartered Little Leagues in the USA, representing more
than 2.0 million participants. In 1996, we entered into a five-year
advertising and distribution agreement with Hershey Chocolate USA. We are
currently in discussions with Hershey to extend this agreement. Pursuant to
this agreement, we market and distribute promotional fund raising literature
and programs to our customers, and service the fund raising needs of many
nontraditional customers.
In an effort to maximize the performance of the catalogs and increase
market penetration, we have begun the process of opening "Team Hubs" in key
underperforming markets. The purpose of these hubs is to provide a local
presence and allow field sales representatives to make live presentations to
customers and potential customers. These local team sales hubs focus on
promoting product to the institutional and youth sports markets.
During fiscal year 1999, we expanded our local team sales hubs by
acquiring two local team dealers. These local team sales hub acquisitions
continue to service the local institutional customers and teams with a full
line of athletic products. We will also use this local presence to expand
our product sales to the local institutional customer base. Conlin Bros.,
Inc., located in Southern California, was acquired in January 1999. Larry
Black Sporting Goods, Inc. in Oklahoma and Kansas, was acquired in February
1999. During October 1999, we further expanded our local team sales hubs by
acquiring two more local team dealers: Spaulding Athletic, located in Little
Rock Arkansas, and LAKCO Team Sports, located in Southern California.
Conlin and LAKCO Team Sports have been consolidated with our existing
facility in California.
During fiscal year 1998, we acquired Athletic Training Equipment
Company, Inc. ("ATEC"). ATEC manufactures and markets pitching machines and
other baseball training equipment to sporting goods dealers and other
sporting goods institutions. These products are marketed using catalogs and
outside sales representatives to service the dealers. ATEC has one of the
broadest and most versatile lines of pitching machines in the market today.
With the use of the latest technology, ATEC has continued to meet the
training needs of professional, college, high school and youth baseball and
softball leagues.
During the past two years, we have made a significant investment in
launching the ten Internet sites listed below:
bsnsports.com -- targets the longstanding customer of SSG who
recognizes the BSN sports name
leaguedirect.com -- targets Little League and other league sports
us-games.com -- targets the early childhood development buyer
championbarbell.com -- targets fitness
bsngsanaf.com -- targets the government
newenglandcamp.com -- targets camping and outdoor leisure
portapit.com -- targets track and field
esportsonline.com -- targets all customers
atec-sports.com -- website for ATEC
officialfundraising.com -- targets all customers interested in fundraising
Each website is strategically targeted to a specific customer group or
product line. Our websites enable our customers to place orders, access
account information, track orders, and perform routine customer service
inquires on a real-time basis, twenty-four hours a day, seven days a week.
This functionality allows for more convenience and added flexibility for our
customers.
Over the years, we believe we have established a market leader position
by constantly updating and expanding our product lines and targeting selling
efforts to specific customer profiles. We have historically targeted one
market-- institutional sporting goods customers. We are beginning to target
individual consumers on our esportsonline.com website. Sales growth is the
result of strengthening our marketing and selling expertise and constantly
updating our product lines while expanding our selling and distribution
channels.
Customers
Our revenues are not dependent upon any single customer. Instead, we
enjoy a very large and diverse customer base. Our customers include all
levels of public and private schools, colleges, universities and military
academies, municipal and governmental agencies, military facilities,
churches, clubs, camps, hospitals, youth sports leagues, non-profit
organizations, team dealers and certain large retail sporting goods chains.
We believe our customer base in the United States is the largest in the
institutional direct mail market for sports related equipment. Many of our
institutional customers typically receive annual appropriations for sports
related equipment, which appropriations are generally spent in the period
preceding the season in which the sport or athletic activity occurs.
Approximately 9%, 7% and 7% of our sales in fiscal years 2000, 1999,
and 1998 respectively, were to the United States Government, a majority of
which were sales to military installations. We have a contract with the
General Services Administration (the "GSA Contract") that grants us an
"approved" status when attempting to make sales to military installations or
other governmental agencies. The existing GSA Contract expires December 31,
2001. Although we intend to extend the expiration date of this contract, no
assurance can be made that it will be extended. Under the GSA Contract,
we agree to sell approximately 750 products to United States Government
agencies and departments at catalog prices or at prices consistent with any
discount provided to our other customers. Products sold to the United
States Government under the GSA Contract are always sold at our lowest
offered price.
We also have a separate contract with the General Services
Administration for the sale of approximately 10 camp related products with
terms similar to the GSA Contract. This contract is scheduled to expire
August 31, 2002. Although we intend to extend the expiration date of this
contract, no assurance can be made that it will be extended.
We also sell products not covered by the GSA Contract to United States
Government customers, although the appropriation process for purchases of
these products differs. These sales are made through an U.S. Government
non-appropriated fund contract. This contract is administered by the United
States Air Force and is scheduled to expire on September 30, 2001.
Seasonal Factors and Backlog
Historically, our revenues are lowest in the first fiscal quarter and
peak in the second fiscal quarter. Our revenues reflect a level cycle
during the third and fourth fiscal quarters. The peak in revenues in the
second fiscal quarter is primarily due to the volume generated by spring and
summer sports, favorable outdoor weather conditions and school needs before
summer closing.
We had a backlog of approximately $2,329,000 at September 29, 2000 and
$2,458,000 at October 1, 1999.
Manufacturing and Suppliers
We manufacture, assemble and distribute many of our products from seven
of our facilities. See Item 2. -- "Properties" for details. Game tables,
gym mats, netting, and tennis and baseball field equipment are manufactured
in our three Anniston, Alabama plants. Gymnastics equipment is manufactured
at our facility in Cerritos, California. Baseball and softball pitching
machines are manufactured at our ATEC subsidiary in Sparks, Nevada. Items
of steel and aluminum construction, such as soccer field equipment and
weight equipment, are principally manufactured at our facilities in Farmers
Branch, Texas.
Certain products manufactured by us are custom-made (such as tumbling
mats ordered in color or size specifications), while others are
standardized. The principal raw materials used by us in manufacturing are,
for the most part, readily available from several different sources. Such
raw materials include foam, vinyl, nylon thread, steel and aluminum tubing,
wood, slate and cloth.
Items not manufactured by us are purchased from various suppliers
primarily located in the United States, Taiwan, Australia, the Philippines,
Thailand, the People's Republic of China, Pakistan, Sweden and Canada. We
have no significant purchase contracts with any major supplier of finished
products, and most products purchased from suppliers are readily available
from other sources. We purchase most of our finished product in U.S.
dollars and are, therefore, not subject to direct foreign exchange rate
differences.
Competition
We compete in the institutional sporting goods market principally with
local sporting goods dealers, retail sporting goods stores, other direct
mail catalog marketers and providers of sporting goods on the Internet. We
have identified approximately 15 other direct mail companies in the
institutional market. We believe that most of these competitors are
substantially smaller than us in terms of geographic coverage, products,
E-Commerce capability and revenues.
We compete in the institutional market principally on the basis of:
brand, price, product availability and customer service. We believe we have
an advantage in the institutional market over traditional sporting goods
retailers and team dealers because our selling prices do not include
comparable price markups attributable to traditional multi-distribution
channel markups. In addition, our ability to control the availability of
goods we manufacture enables us to respond more rapidly to customer demand.
We believe our direct mail competitors operate primarily as wholesalers and
distributors, with little or no manufacturing capability.
Government Regulation
Many of our products are subject to 15 U.S.C.A. SS 2051-2084 (1998 and
Supp. 1998), among other laws, which empowers the Consumer Product Safety
Commission (the "CPSC") to protect consumers from hazardous sporting goods
and other articles. The CPSC has the authority to exclude from the market
certain articles that are found to be hazardous and can require a
manufacturer to refund the purchase price of products that present a
substantial product hazard. CPSC determinations are subject to court
review. Similar laws exist in some states and cities in the United States.
Product Liability and Insurance
Because of the nature of our products, we are periodically subject to
product liability claims resulting from personal injuries. We may become
involved in various lawsuits incidental to our business, some of which
relate to claims allegedly resulting in substantial permanent paralysis.
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. See Item 3. -- "Legal Proceedings".
There can be no assurance that our general product liability insurance
will be sufficient to cover any successful product liability claims made
against us. In our opinion, any ultimate liability arising out of currently
pending product liability claims will not have a material adverse effect on
our financial condition or results of operations. However, any claims
substantially in excess of our 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
On November 17, 2000, we had approximately 551 full-time employees, of
whom 176 were involved in our manufacturing operations. We also hire part-
time and temporary employees primarily during the summer months. None of
our employees are represented by unions, and we believe our relations with
employees are good.
EXECUTIVE OFFICERS OF THE COMPANY
(As of December 27, 2000)
First Fiscal
Year Became
Name Age Present Position Officer
---- --- ----------------- -------
Geoffrey P. Jurick 59 Chairman of the Board and 1996
Chief Executive Officer
John P. Walker 37 President 1996
Terrence M. Babilla 38 Chief Operating Officer, 1995
Executive Vice President, General
Counsel and Secretary
Robert K. Mitchell 48 Chief Financial Officer 2000
Douglas E. Pryor 44 Vice President, Manufacturing 1999
and Purchasing
Eugene J.P. Grant 53 Vice President, Strategic 1999
Planning
Kenneth A. Corby 39 Vice President, Corporate 1998
Development
All officers are elected for terms of one year, or until their
successors are duly elected.
Item 2. Properties.
The following table sets forth the material properties owned or leased
by the Company or our subsidiaries:
Approximate
Square Lease Expires
Facility Purpose Footage Location or is Owned
---------------- ------- -------- --------------
Manufacturing and corporate 135,000 Farmers December, 2004
headquarters Branch, TX
Warehouse and fulfillment 181,000 Farmers December, 2004
processing Branch, TX
Gymnastic equipment 45,000 Cerritos, CA December, 2001
manufacturing
Pitching equipment 62,500 Sparks, NV July, 2004
manufacturing
Foam and netting product 35,000 Anniston, AL Owned
manufacturing
Game table manufacturing 45,000 Anniston, AL Owned
Foam Manufacturing 38,500 Anniston, AL November, 2001
We believe the facilities used in our operations are in satisfactory
condition and adequate for our present and anticipated future operations.
In addition to the facilities listed above, we lease space in various
locations, primarily for use as sales offices.
Item 3. Legal Proceedings.
Periodically, we become involved in various claims and lawsuits
incidental to our business. In management's opinion, any ultimate liability
arising out of currently pending claims will not have a material adverse
effect on our financial condition or results of operations. However, any
claims substantially in excess of our insurance coverage, or any substantial
claim that may not be covered by insurance (such as the claim described
below) or any significant monetary settlement, could have a material adverse
effect on our financial condition or results of operations.
On June 18, 1999 we filed a lawsuit for declaratory relief in the
United States District Court for the Northern District of Texas against
MacMark Corporation ("MacMark") and Equilink Licensing Corp., both of which
are controlled by Riddell Sports, Inc. Subsequently, we added Riddell Sports
Corp. as a defendant. The lawsuit arose out of a notice delivered by
MacMark purportedly terminating our rights under our license to use the
MacGregor[R] trademark. The license was perpetual and royalty free subject
to certain limited termination rights. MacMark stated in it's notice that
it considered there to be continuing and material breaches of the license
agreement and that such breaches were incurable, all of which we disputed.
On December 21, 2000, the parties settled this lawsuit by entering into
an Amended and Restated License Agreement. The Amended and Restated License
Agreement clarifies and expands many of our rights regarding the use of the
MacGregor trademark, including additional product offerings, use of the
Internet and a broader geographic scope. The Amended and Restated License
Agreement also requires us to pay an annual royalty based upon sales of
MacGregor branded products, with the minimum annual royalty set at $100,000.
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.
Our common stock, par value $.01 per share (the "Common Stock") is
traded on the New York Stock Exchange, Inc. ("NYSE") under the symbol GYM.
The NYSE recently adopted new continued listing requirements that require a
listed company to have both $50 million of stockholders' equity and $50
million of market capitalization. Since we do not meet the NYSE's newly
adopted continued listing requirements, the NYSE notified us that trading of
our common stock on the NYSE will be suspended. We have requested that a
Committee of the Board of Directors of the NYSE review this decision. We
anticipate a hearing with the NYSE on or before January 31, 2001. We have
also applied for listing of our common stock on the American Stock Exchange
("AMEX"). The AMEX has declined our application because we do not meet the
$3.00 minimum price requirement and because of the default under our bank
agreement (which has subsequently been favorably resolved) as more fully
described in Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations: Liquidity and Capital Resources".
We have appealed the AMEX ruling and expect a hearing in January 2001. No
assurance can be made that the NYSE will continue to list our common stock
or that the AMEX will approve our application to list our shares of common
stock. As of November 8, 2000, there were 1,713 holders of the Common
Stock (including individual security position listings). The following table
sets forth the high/low sales range for the periods indicated.
Common Stock
Fiscal Year Fiscal Quarter High Low
----------- -------------- ------ -----
1999 First 9.313 5.875
Second 11.875 7.750
Third 10.750 8.750
Fourth 10.313 8.125
2000 First 8.438 5.688
Second 8.250 5.938
Third 6.125 3.875
Fourth 4.875 2.188
We have not declared dividends in the past three fiscal years and
currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends on our capital stock in the foreseeable
future.
On May 28, 1997, the Board of Directors approved the repurchase of up
to 1,000,000 shares of our issued and outstanding common stock in the open
market and/or privately negotiated transactions. On October 28, 1998, the
Board of Directors approved a second repurchase program of up to an
additional 1,000,000 shares of our issued and outstanding common stock in
the open market and/or privately negotiated transactions. As of September
29, 2000, we repurchased approximately 1,333,000 shares of our issued and
outstanding common stock in the open market and privately negotiated
transactions. Any future purchases will be subject to price and
availability of shares, working capital availability and any alternative
capital spending programs. Our bank agreement currently prohibits the
repurchase of any additional shares without the bank's prior consent.
On January 14, 1998, we issued 50,000 shares of restricted stock to
John P. Walker, President and a Director of Sport Supply Group, Inc., in a
privately negotiated transaction pursuant to Section 4(2) of the Securities
Act of 1933, as amended (i.e. a transaction by an issuer not involving a
public offering). These shares vested over a two-year period. We did not
receive any cash proceeds from the issuance of these shares.
Item 6. Selected Financial Data (Unaudited).
The following sets forth selected historical financial information.
The data has been derived from our audited financial statements. The
amounts are in thousands, except for per share data. The historical
information should be read in conjunction with Item 7. -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and our financial statements and notes thereto included in Item 8. --
"Financial Statements and Supplementary Data".
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
( Amounts in thousands, except for per share data )
Fiscal Fiscal Fiscal Eleven Fiscal
Year Year Months Year Months
Ended Ended Ended Ended Ended
Sept 29, Oct 1, Oct 2, Sep 26, Nov 1,
Statement of Earnings Data: 2000 1999 1998 1997 (1) 1996
------- ------- ------- ------- -------
Net revenues $113,334 $107,069 $ 97,292 $ 79,109 $ 80,521
Gross profit 36,170 37,283 32,303 26,811 25,001
Operating profit (loss) (437) 8,445 7,782 4,226 (65)
Interest expense 2,022 1,196 474 757 1,372
Other income, net 17 63 215 83 38
Earnings (loss) from continuing operations (1,518) 4,623 4,964 2,576 (964)
Loss from discontinued operations (2) -- -- -- (2,574) (17,773)
Net earnings (loss) $ (1,518) $ 4,623 $ 4,964 $ 2 $(18,737)
======= ======= ======= ======= =======
Earnings (loss) per common share and
common equivalent share: (notes 1 and 2)
Net earnings (loss) per common share
from continuing operations $ (0.21) $ 0.63 $ 0.62 $ 0.32 $ (0.14)
Net loss per common share from
discontinued operations -- -- -- (0.32) (2.64)
------- ------- ------- ------- -------
Net earnings (loss) per common share $ (0.21) $ 0.63 $ 0.62 $ 0.00 $ (2.78)
======= ======= ======= ======= =======
Net earnings (loss) per common share from
continuing operations - assuming dilution $ (0.21) $ 0.60 $ 0.60 $ 0.32 $ (0.14)
Net loss per common share from discontinued
operations - assuming dilution -- -- -- (0.32) (2.63)
------- ------- ------- ------- -------
Net earnings (loss) per common share
- assuming dilution $ (0.21) $ 0.60 $ 0.60 $ 0.00 $ (2.77)
======= ======= ======= ======= =======
Weighted average common and common
equivalent shares: (note 1)
Weighted average common shares outstanding 7,273 7,390 8,026 8,146 6,747
Weighted average common shares outstanding 7,273 7,728 8,237 8,151 6,768
- assuming dilution
Cash dividends declared per common share -- -- -- -- --
At At At At At
Sept 29, Oct 1, Oct 2, Sep 26 Nov 1,
Balance Sheet Data: 2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Working capital $ 30,771 $ 31,873 $ 25,245 $ 24,006 $ 21,322
Total assets 73,687 73,249 54,804 50,484 70,009
Long-term obligations, net 19,034 18,426 5,161 4,418 24,338
Total liabilities 33,150 31,141 13,626 11,527 40,846
Stockholders equity 40,537 42,108 41,178 38,957 29,163
NOTES TO SELECTED FINANCIAL DATA (UNAUDITED)
(1) During 1997, we changed our financial reporting year-end from October 31
to September 30. Therefore, the fiscal year ended September 26, 1997
is a transition period consisting of eleven calendar months.
(2) On May 20, 1996 we disposed of substantially all of the assets (other
than cash and accounts receivable) of the Gold Eagle Division to a
privately held corporation.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following table sets forth, for the periods indicated, certain
items related to our continuing operations as a percentage of net revenues.
For the For the For the
12 Months 12 Months 12 Months
Ended Sept. 29, Ended Oct. 1, Ended Oct. 2,
2000 1999 1998
---- ---- ----
Net revenues (in thousands) $113,333 $107,069 $97,292
100.0% 100.0% 100.0%
Cost of sales 68.1% 65.2% 66.8%
Selling, general and
administrative expenses 30.8% 26.9% 24.0%
Internet 1.0% -- --
Non-Recurring Charges 0.5% -- 1.2%
Operating profit (loss) (0.4%) 7.9% 8.0%
2000 Compared to 1999
The following table summarizes certain financial information relating
to our results of operations for the fiscal years ended September 29, 2000
and October 1, 1999:
2000 1999
----------- -----------
Net Revenues $113,333,785 $107,068,508
Gross Profit $36,169,949 $37,282,908
SG&A $34,865,452 $28,838,366
Internet expenses $1,136,149 --
Non-recurring charges $605,000 --
Net Earnings (loss) $(1,517,606) $4,622,839
Net Revenues. Net revenues for the fiscal year ended September 29, 2000
("fiscal 2000") increased by approximately $6.3 million (5.9%) as compared
to the fiscal year ended October 1, 1999 ("fiscal 1999"). The increase in
net revenues reflects increases in revenues associated primarily with our
team dealers, fund-raising product sales and in-school and out-of-school
sales increases.
Gross Profit. Gross profit for fiscal 2000 decreased by approximately $1.1
million (3.0%) as compared to fiscal 1999. As a percentage of net revenues,
gross profit decreased to 31.9% in fiscal 2000 from 34.8% for fiscal 1999.
A portion of the decrease in gross profit is due to $500,000 in one-time
vendor rebates that were recorded during fiscal 1999. We expect to continue
to experience a lower gross profit as a percentage of net revenue as
compared to the previous year due to expected increases in bid-related, fund
raising products and team dealer sales, because revenues associated with
such customer groups have lower margins than those we have historically
experienced.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 2000 increased by approximately $6.0
million (20.9%) as compared to fiscal 1999. As a percentage of net
revenues, selling, general and administrative expenses increased to 30.8%
for fiscal year 2000 as compared to 26.9% for fiscal 1999. The increase in
these expenses as a percentage of net revenues was primarily due to the
following factors:
(i.) An increase in payroll and related costs of approximately $3.3 million
for fiscal year 2000 as compared to fiscal year 1999. This increase
was primarily a result of the increased number of outside sales
employees, the employees of companies acquired during the second
quarter of the prior year and first quarter of fiscal year 2000 and
temporary help related to increased receivable collection efforts.
(ii.) An increase in computer related expenses of approximately $1.1 million
for fiscal year 2000 as compared to fiscal year 1999. This is
primarily the result of higher operating costs of maintaining the
SAP/AS400 system and support after the system was implemented.
(iii.) An increase in depreciation and amortization expense of approximately
$771,000 for fiscal year 2000 as compared to fiscal year 1999. This is
primarily the result of hardware and software acquisitions related to
our successful implementation of the SAP/AS400 ERP information system.
Currently, the depreciation for the SAP/AS400 is approximately $1.0
million annually.
(iv.) An increase in selling and promotional expense of approximately
$539,000 for fiscal year 2000 as compared to fiscal year 1999. This is
primarily a result of higher catalog expense.
(v.) An increase in facility related expense of $448,000 for fiscal year
2000 as compared to fiscal year 1999. This is primarily due to the
full year impact of the additional facilities acquired during the
second quarter of the prior year and the additional facilities acquired
in first quarter of fiscal year 2000.
We are attempting to reduce future operating expenses by migrating customers
to our fully integrated websites, reducing catalog and other marketing
expenditures, renegotiating certain leases and contracts, consolidating
operations and reducing manufacturing overhead.
Internet Expense. We incurred Internet related expenses of approximately
$1.1 million for the year ended September 29, 2000. These expenses are
related to significant enhancements, including the creation of shopping cart
capabilities and full integration with our SAP system. Internet expenses
are expected to decrease in fiscal year 2001 because additional significant
enhancements are not planned.
Non-recurring Charges. We successfully negotiated the settlement of two
lawsuits. Consequently, in fiscal year 2000, we recorded a non-recurring
charge related to these claims in the amount of $605,000.
Operating Profit. Operating profit decreased from a profit of $8.4 million
in 1999 to a loss of $437,000 in fiscal 2000. The decrease in operating
profit is due to reduced margins and increased SG&A expenses, as described
above.
Interest Expense. Interest expense increased in fiscal 2000 by
approximately $826,000 (69.0%) to $2.0 million compared to $1.2 million in
fiscal 1999. The increase in interest expense resulted from increased
overall levels of borrowing. The higher borrowing levels are a result of
the: (i.) cash payments for the acquisitions of Spaulding and LAKCO in
October 1999; (ii.) stock repurchased under our stock buyback program;
(iii.) cash paid for the SAP/AS400 ERP, Internet system implementation
and Internet development; and (iv.) funding the growth of inventories. In
addition, our borrowing rates have increased as a result of the amendments
to our credit agreement. Assuming interest rates stay the same, we expect
interest expense in fiscal year 2001 to be similar to fiscal year 2000.
Other Income, Net. Other income decreased approximately $46,000 in fiscal
2000 as compared to fiscal 1999.
Provision (Benefit) for Income Taxes. The benefit for income taxes
increased approximately $3.6 million to a benefit of $924,000 in fiscal 2000
from a provision of $2.7 million in fiscal 1999. Our effective tax rate
increased to 37.8% in fiscal 2000 from 36.8% in fiscal 1999. We have a
net operating loss carryforward that can be used to offset future
taxable income and can be carried forward for 15 to 20 years. No valuation
allowance has been recorded for our deferred tax assets because we believe
it is more likely than not such assets will be realized. We believe the
deferred tax assets will be realized by future profitable operating results.
Realization of our net deferred tax asset is dependent on generating
sufficient taxable income prior to expiration of loss carryforwards.
Although realization is not assured, we believe it is more likely than not
that all of the deferred tax asset will be realized. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if estimates of future taxable income during the carryforward
period are reduced.
See Note 4 to the consolidated financial statements included in Item 8
-- "Financial Statements and Supplementary Data".
Net Earnings (Loss). Net earnings decreased approximately $6.1 million to a
net loss of $1.5 million in fiscal 2000 from net earnings of $4.6 million in
fiscal 1999. As a percentage of the net revenues, net earnings decreased to
(1.4%) in fiscal 2000 from 4.3% in fiscal 1999. Earnings per share before
dilution from continuing operations decreased to $(0.21) per share in fiscal
2000 from $0.63 per share in fiscal 1999. Fiscal year 2000 includes a
decrease of approximately 5.9% in weighted average shares outstanding. The
weighted average shares outstanding is expected to increase during fiscal
2001 as a result of the issuance of approximately 1,630,000 of our shares of
common stock to Emerson Radio Corp on or before January 15, 2001. See Item
7. - "Management's Discussion and Analysis of Financial Condition and
Results of Operations: Liquidity and Capital Resources".
1999 Compared to 1998
The following table summarizes certain financial information relating
to our results of operations for the fiscal years ended October 1,1999 and
October 2, 1998:
1999 1998
----------- -----------
Net Revenues $107,068,508 $97,291,991
Gross Profit $37,282,908 $32,303,198
SG&A $28,838,366 $23,336,972
Net Earnings $4,622,839 $4,964,311
Net Revenues. Net revenues for the fiscal year ended October 1, 1999
("fiscal 1999") increased by approximately $9.8 million (10.1%) as compared
to the fiscal year ended October 2, 1998 ("fiscal 1998"). The increase in
net revenues reflects increases in revenues associated primarily with the
acquisitions of Larry Black Sporting Goods and Conlin Brothers and increased
ATEC sales.
Gross Profit. Gross profit for fiscal 1999 increased by approximately $5.0
million (15.4%) as compared to fiscal 1998. As a percentage of net
revenues, gross profit increased to 34.8% in fiscal 1999 from 33.2% for
fiscal 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1999 increased by approximately $5.5
million (23.6%) as compared to fiscal 1998. As a percentage of net
revenues, operating expenses increased to 26.9% for fiscal year 1999 as
compared to 24.0% for fiscal 1998. The increase in these expenses as a
percentage of net revenues was primarily due to the following factors:
(i.) An increase in payroll costs associated with the additional employees
hired during the fiscal year. The number of employees increased by
approximately 100 full-time employees.
(ii.) An increase in operating expenses, including catalog and advertising
expense, and rent and utilities related to acquisition facilities.
(iii.) An increase in the allowance for doubtful accounts receivable.
During the year the accounts receivable days sales outstanding
increased.
(iv.) An increase in depreciation and amortization expense is primarily
the result of hardware and software acquisitions related to our
successful Year 2000 compliant SAP/AS400 ERP information system
implementation and Internet technology. The depreciation of the IT
system began in May 1999.
These increases were partially offset by decreases in our insurance
expenses.
During fiscal years 1998 and 1999 we embarked on a significant computer
conversion, Year 2000 project and made capital expenditures of over
$8,800,000, plus operating leases and maintenance agreements for the IBM
AS/400 and NT office network hardware. MIS department operating expenses
during fiscal 1998 and fiscal 1999 totaled over $1,700,000.
Operating Profit. Operating profit increased by approximately $662,000
(8.5%) to a profit of $8.4 million in fiscal 1999, as compared to $7.8
million in fiscal 1998. As a percentage of net revenues, operating profit
decreased to 7.9% in fiscal 1999 from 8.0% for fiscal 1998.
Interest Expense. Interest expense increased in fiscal 1999 by
approximately $722,000 (152.4%) to $1.2 million compared to $474,000 in
fiscal 1998. The increase in interest expense resulted from increased
overall levels of borrowing. The increase in borrowings under the senior
credit facility reflects: (i.) cash payments for the Larry Black, Conlin and
Flag- A-Tag acquisitions; (ii.) stock repurchased under our stock buyback
program; (iii.) cash paid for the Year 2000 project, SAP/AS400 ERP system
implementation and Internet technology development; and (iv.) funding the
growth of receivables and inventories.
Other Income, Net. Other income decreased approximately $152,000 in fiscal
1999 as compared to fiscal 1998.
Provision for Income Taxes. The provision for income taxes increased
approximately $129,000 to a provision of $2.7 million in fiscal 1999 from a
provision of $2.6 million in fiscal 1998. Our effective tax rate increased
to 36.8% in fiscal 1999 from 34.0% in fiscal 1998. The increase in the tax
rate from fiscal 1998 to fiscal 1999 is the result of a reduction in Net
Operating Loss carryforward benefit and state income taxes. See Note 4 to
the consolidated financial statements included in Item 8 -- "Financial
Statements and Supplementary Data".
Net Earnings. Net Earnings decreased approximately $341,000 to $4.6 million
in fiscal 1999 from $5.0 million in fiscal 1998. As a percentage of the
net revenues, net earnings decreased to 4.3% in fiscal 1999 from 5.1% in
fiscal 1998. Earnings per share before dilution from continuing operations
increased to $0.63 per share in fiscal 1999 from $0.62 per share in fiscal
1998. Fiscal year 1999 includes a decrease of approximately 6.2% in
weighted average shares outstanding.
Liquidity and Capital Resources
Our working capital decreased approximately $1.1 million during the
fiscal year ended September 29, 2000, from $31.9 million at fiscal year
ended October 1, 1999 to $30.8 million at September 29, 2000. The decrease
in working capital is primarily a result of an increase in trade payables
and a decrease in trade receivables. The decrease in working capital was
partially offset by an increase in inventories.
We have a credit agreement with Comerica Bank-Texas to finance our
working capital requirements. The credit agreement provides for a revolving
credit facility and a term loan. As of September 29, 2000, we had total
borrowings under our senior credit facility of approximately $20.3 million.
This balance included a term loan of $2.5 million and loans outstanding
under the revolving credit facility of $17.8 million. The net increase from
1999 to 2000 of approximately $260,000 in borrowings under the revolving
credit facility was a result of increased working capital needs.
On September 13, 2000, we entered into an amendment to the credit
agreement. Several changes were made to the credit agreement, including
reducing the credit facility from $40 million to $27.5 million and amending
the fixed charge coverage ratio. At fiscal year end, we were not in
compliance with the revised fixed charge coverage ratio and were, therefore,
in default.
Comerica Bank-Texas agreed to waive this default and eliminate the
fixed charge coverage ratio pursuant to an amendment to the credit agreement
including, among other terms, our pay off of the term loan by January 15,
2001. The term loan currently has an outstanding balance of approximately
$2.2 million.
On December 22, 2000, Emerson Radio Corp., our largest stockholder,
offered to purchase 1,629,629 shares of our common stock from us for $1.35
per share in cash, for a total purchase price of $2.2 million. The $1.35
per share purchase price represented a 20% premium to the closing price of
our common stock on December 22, 2000. Emerson's offer was contingent on
Comerica making certain amendments to the senior secured credit facility
before December 28, 2000, including eliminating the fixed charge coverage
ratio. Emerson agreed to finalize this purchase on or before January 15,
2001. Our Board agreed that selling additional shares to Emerson for $1.35
per share and using the proceeds to pay off the term loan was in our best
interests and approved Emerson's offer. Emerson will own 4,303,329 shares,
or approximately 48.3%, of our issued and outstanding shares as a result of
such purchase. Emerson also owns warrants to purchase an additional 1
million shares of our common stock for $7.50 per share.
On December 27, 2000, we entered into an amendment to the credit
agreement whereby we agreed to (i) pay off the term loan by January 15, 2001
with the proceeds from the Emerson transaction mentioned above, (ii) pay
Comerica a $15,000 waiver fee, (iii) delete the fixed charge coverage ratio
and add an interest coverage ratio and (iv) pay Comerica a $250,000 fee
if the credit facility is not refinanced by March 30, 2001.
Based on Emerson's agreement to purchase shares of common stock for
$2.2 million and our intent to use these proceeds to pay off the term loan
by January 15, 2001, and Comerica waving existing defaults and modifying
financial statement covenants, we have classified our Comerica credit
facility as long term. We believe we will meet all of our new credit
facility covenants at least through September 29, 2001.
Although the maturity date on our revolving note is October 2, 2002, it
is our intent to refinance our credit facility with a different lender prior
to March 30, 2001. We are currently negotiating proposals from other
lenders. We do not have a commitment for replacing our current lender.
There can be no assurance that such financing will be available prior to
March 30, 2001 or that, if available, such financing will be available on
acceptable terms. If we are able to refinance the credit facility on
acceptable terms, then we will incur fees and expenses associated with such
refinancing, including writing off approximately $150,000 in unamortized
loan fees on our balance sheet. If we are unable to refinance the credit
facility on acceptable terms, then we will retain Comerica as our senior
lender and incur a $250,000 payment obligation.
We believe we can satisfy our short-term and long-term working capital
requirements to support our current operations for at least the next 12
months from borrowings under a credit facility (whether it is our existing
credit facility or a replacement credit facility) and cash flows from
operations.
On May 28, 1997, the Board of Directors approved the repurchase of up
to 1,000,000 shares of our issued and outstanding common stock in the open
market and/or privately negotiated transactions. On October 28, 1998, the
Board of Directors approved a second repurchase program of up to an
additional 1,000,000 shares of our issued and outstanding common stock in
the open market and/or privately negotiated transactions. As of September
29, 2000, the Company repurchased approximately 1,333,000 shares of our
issued and outstanding common stock in the open market and privately
negotiated transactions. Any future purchases will be subject to price and
availability of shares, working capital availability and any alternative
capital spending programs. Our bank agreement currently prohibits the
repurchase of any additional shares without the bank's prior consent. The
refinancing proposals we are currently negotiating will similarly restrict
stock repurchases.
During October 1999, we acquired certain assets of LAKCO, Inc. and
Spaulding, Inc., both distributors of sporting goods equipment to the
institutional market. We have accounted for these acquisitions using the
purchase method and, as such, our results of operations are combined with
the results of operations of the acquired companies subsequent to the
acquisition date. No proforma information is presented herein because the
proforma information would not materially differ from actual results.
We do not currently have any material commitments for capital
expenditures.
Certain Factors that May Affect the Company's Business or Future Operating
Results
This report contains various forward looking statements and information
that are based on our beliefs as well as assumptions made by and information
currently available to us. When used in this report, the words
"anticipate", "believe", "estimate", "expect", "predict", "intend",
"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 may have a direct bearing on our results are set forth below.
Future trends for revenues and profitability remain difficult to
predict. We continue to face many risks and uncertainties, including:
1. general and specific market and economic conditions;
2. reduced sales to the United States Government due to
a reduction in Government spending;
3. unanticipated disruptions or slowdowns;
4. high fixed costs;
5. competitive factors;
6. risk of nonpayment of accounts receivable;
7. foreign supplier related issues;
The general economic condition in the U.S. could affect pricing on raw
materials such as metals and other commodities used in the manufacturing of
certain products as well as finished goods. Any material price increases to
the customer could have an adverse effect on revenues and any price
increases from vendors could have an adverse effect on our costs.
Approximately 9% of our fiscal year 2000 sales were made to the U.S.
Government, a majority of which were made to military installations.
Anticipated reductions in U.S. Government spending could reduce funds
available to various government customers for sports related equipment,
which could adversely affect our results of operations.
Our ability to provide high quality customer service, process and
fulfill orders and manage inventory depends on: (i.) the efficient and
uninterrupted operation of our call center, distribution center and
manufacturing facilities and our management information systems and (ii.)
the timely performance of vendors, catalog printers and shipping companies.
Any material disruption or slowdown in the operation of our call center,
distribution center, manufacturing facilities or management information
systems, or comparable disruptions or slowdowns suffered by our principal
service providers, could cause delays in our ability to receive, process and
fulfill customer orders and may cause orders to be canceled, lost or
delivered late, goods to be returned or receipt of goods to be refused.
We ship approximately 50% of our products using United Parcel Service
("UPS"). As experienced in 1997, a strike by UPS or any of our other major
carriers could adversely affect our results of operations due to not being
able to deliver our products in a timely manner and using other more
expensive freight carriers. Although we have analyzed the cost benefit
effect of using other carriers, we continue to utilize UPS for the majority
of our small package shipments.
Operations and maintenance of our call center, distribution center,
manufacturing facilities and management information systems involve
substantial fixed costs. Catalog mailings entail substantial paper,
postage, merchandise acquisition and human resources costs, including costs
associated with catalog development. If net sales are substantially below
expectations, our results of operations may be adversely affected.
Paper and postage are significant components of our operating costs.
Paper stock represents the largest element of the cost of printed
merchandise. Paper-based packaging products, such as shipping cartons,
constitute a significant element of distribution expense. Paper prices have
been historically volatile. Future price increases could have a material
adverse affect on our results of operations. Postage for catalog mailings
is also a significant element of our operating expense. Postage rates
increase periodically and can be expected to increase in the future. There
can be no assurance that future increases will not adversely impact our
operating margins. We will be able to reduce our paper and postage costs if
we successfully migrate a significant portion of our business to the
Internet because we will be less reliant on paper catalogs.
The institutional market for sporting goods and leisure products is
highly competitive and there are no significant barriers to enter this
market. The recent growth in this market has encouraged the entry of many
new competitors as well as increased competition from established companies.
We are facing significant competitors and new competition from new entrants.
These competitors include large retail operations that also sell to the
institutional market, other catalog and direct marketing companies, team
dealers, and Internet sellers. Increased competition could result in
pricing pressures, increased marketing expenditures and loss of market share
and could have a material adverse effect on our results of operations
We continue to closely monitor orders and the creditworthiness of our
customers. We have not experienced abnormal increases in losses associated
with accounts receivable; however, we have experienced an increase in days
sales outstanding. We have made allowances for the amount we believe to be
adequate to properly reflect the risk to accounts receivable; however,
unforeseen market conditions may compel us to increase the allowances.
We derive a significant portion of our revenues from sales of products
purchased directly from foreign suppliers located primarily in the Far East.
In addition, we believe foreign manufacturers produce many of the products
we purchase from domestic suppliers. We are subject to risks of doing
business abroad, including delays in shipments, adverse fluctuations in
foreign currency exchange rates, increases in import duties, decreases in
quotas, changes in custom regulations, acts of God (such as earthquakes) and
political turmoil. The occurrence of any one or more of the foregoing could
adversely affect our operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We own no marketable securities nor have investments that are subject
to market risk. The interest on borrowings under our senior credit facility
is based on the prime rate. As our borrowing levels have increased, a
significant increase in interest rates could have a material adverse effect
on our financial condition and results of operations. Assuming borrowing
levels remain constant for fiscal 2001 at the same level as at the end of
fiscal year 2000, a 3% increase in interest rates would increase interest
expense by more than $500,000. Most financial and economic experts are not
predicting a significant increase in prime borrowing rates during the coming
year.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements Page
----------------------------- ----
Report of Independent Auditors 21
Consolidated Balance Sheets as of September 29, 2000 and
October 1, 1999 22
Consolidated Statements of Operations for the Years Ended
September 29, 2000, October 1, 1999 and October 2, 1998 23
Consolidated Statements of Stockholders' Equity for the Years
Ended September 29, 2000, October 1, 1999 and October 2, 1998 24
Consolidated Statements of Cash Flows for the Years Ended
September 29, 2000, October 1, 1999, and October 2, 1998 25
Notes to Consolidated Financial Statements 26
Supplemental Financial Information (Unaudited) 38
Financial statement schedules are omitted as the required information is
presented in the consolidated financial statements or the notes thereto or
is not necessary.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Sport Supply Group, Inc.:
We have audited the accompanying consolidated balance sheets of Sport
Supply Group, Inc. and subsidiaries as of September 29, 2000 and October 1,
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three fiscal years in the period
ended September 29, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements 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 audit to obtain reasonable assurance about 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 Sport Supply Group, Inc. and subsidiaries as of September 29,
2000 and October 1, 1999, and the consolidated results of their operations
and their cash flows for each of the three fiscal years in the period
ended September 29, 2000 in conformity with accounting principles generally
accepted in the United States.
ERNST & YOUNG LLP
Dallas, Texas
November 20, 2000
except for Note 3, as to which the date is
December 27, 2000
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 29, October 1,
2000 1999
---------- ----------
CURRENT ASSETS :
Cash and equivalents $ 112,017 $ 201,911
Accounts receivable:
Trade, less allowance for doubtful accounts
of $836,000 at Sept. 29, 2000 and $465,000
at Oct. 1, 1999 21,699,695 22,926,169
Other 727,830 975,956
Inventories, net 19,853,059 18,509,262
Other current assets 1,152,639 911,972
Deferred tax assets 1,341,203 1,062,188
---------- ----------
Total current assets 44,886,443 44,587,458
---------- ----------
DEFERRED CATALOG EXPENSES 1,552,838 2,078,262
PROPERTY, PLANT AND EQUIPMENT :
Land 8,663 8,663
Buildings 1,605,102 1,605,102
Computer equipment and software 11,589,567 10,038,530
Machinery and equipment 6,402,708 6,192,272
Furniture and fixtures 1,521,374 1,286,745
Leasehold improvements 2,425,562 2,368,439
---------- ----------
23,552,976 21,499,751
Less--Accumulated depreciation and amortization (11,131,183) (8,889,925)
---------- ----------
12,421,793 12,609,826
---------- ----------
DEFERRED TAX ASSETS 2,866,910 2,101,239
COST IN EXCESS OF TANGIBLE NET ASSETS ACQUIRED,
less accumulated amortization of $1,745,000 at
Sept. 29, 2000 and $1,464,000 at Oct. 1, 1999 7,867,222 7,937,809
TRADEMARKS, less accumulated amortization of
$1,547,000 at Sept. 29, 2000 and $1,339,000
at Oct. 1, 1999 3,235,996 3,079,010
OTHER ASSETS, less accumulated amortization
of $451,000 at Sept. 29, 2000 and $1,058,000
at Oct. 1, 1999 855,613 855,375
---------- ----------
$73,686,815 $73,248,979
========== ==========
CURRENT LIABILITIES :
Accounts payable $ 9,871,068 $ 7,975,509
Other accrued liabilities 2,604,680 2,328,549
Notes payable and capital lease obligations,
current portion 1,639,458 2,410,839
---------- ----------
Total current liabilities 14,115,206 12,714,897
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS,
net of current portion 19,034,345 18,425,925
STOCKHOLDERS' EQUITY :
Preferred stock, par value $0.01, 100,000
shares authorized, no shares outstanding - -
Common stock, par value $0.01, 20,000,000 shares
authorized, 9,350,731 and 9,333,241 shares
issued at Sept. 29, 2000 and Oct. 1, 1999,
7,275,949 and 7,273,899 shares outstanding at
Sept. 29, 2000 and Oct. 1, 1999, respectively 93,507 93,332
Additional paid-in capital 59,785,587 59,743,384
Accumulated deficit (1,639,813) (122,207)
Treasury stock, at cost, 2,074,782 shares at Sept.
29, 2000 and 2,059,342 shares at Oct. 1, 1999 (17,702,017) (17,606,352)
---------- ----------
40,537,264 42,108,157
---------- ----------
$73,686,815 $73,248,979
========== ==========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended September 29, 2000, October 1, 1999, and October 2, 1998
------------ ------------ -----------
2000 1999 1998
------------ ------------ -----------
Net revenues $ 113,333,785 $ 107,068,508 $ 97,291,991
Cost of sales 77,163,836 69,785,600 64,988,793
------------ ------------ -----------
Gross profit 36,169,949 37,282,908 32,303,198
Selling, general and
administrative expenses 34,865,452 28,838,366 23,336,972
Internet expenses 1,136,149 - -
Nonrecurring charges 605,000 - 1,184,024
------------ ------------ -----------
Earnings (loss) before interest
other income, and taxes (436,652) 8,444,542 7,782,202
Interest expense (2,021,763) (1,196,112) (473,899)
Other income, net 16,924 62,738 215,090
------------ ------------ -----------
Earnings (loss) before provision
for income taxes (2,441,491) 7,311,168 7,523,393
Income tax provision (benefit) (923,885) 2,688,329 2,559,082
------------ ------------ -----------
Net earnings (loss) $ (1,517,606) $ 4,622,839 $ 4,964,311
============= ============ ===========
Earnings (loss) per share:
Net earnings (loss) - basic $ (0.21) $ 0.63 $ 0.62
------------ ------------ -----------
Net earnings (loss) - diluted $ (0.21) $ 0.60 $ 0.60
------------ ------------ -----------
Weighted average number of
common shares outstanding
- basic 7,272,570 7,390,274 8,025,606
============= ============ ===========
Weighted average number of
common shares outstanding
- diluted 7,272,570 7,727,777 8,236,530
============= ============ ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Year Ended September 29, 2000, The Year Ended October 1, 1999,
The Year Ended October 2, 1998
Additional Retained
Common Stock Paid in Earnings or Treasury Stock
Shares Amount Capital (Deficit) Shares Amount Total
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, September 26, 1997 9,158,749 $ 91,588 $58,574,218 $(9,709,357) 1,074,365 $ (9,999,130) $38,957,319
Issuances of common stock upon
exercises of outstanding options 73,387 734 502,370 503,104
Issuances of common stock 11,059 110 70,293 70,403
Purchase of treasury stock 433,725 (3,486,453) (3,486,453)
Reissuances of treasury shares (46,694) (19,598) 215,722 169,028
Net earnings (comprehensive income) 4,964,311 4,964,311
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, October 2, 1998 9,243,195 $ 92,432 $59,100,187 $(4,745,046) 1,488,492 $(13,269,861) $41,177,712
--------- ------- ---------- ---------- --------- ----------- ----------
Issuances of common stock upon
exercises of outstanding options 81,445 814 598,071 598,885
Issuances of common stock 8,601 86 73,036 73,122
Purchase of treasury stock 595,900 (4,603,987) (4,603,987)
Reissuances of treasury shares (27,910) (25,050) 267,496 239,586
Net earnings (comprehensive income) 4,622,839 4,622,839
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, October 1, 1999 9,333,241 $ 93,332 $59,743,384 $ (122,207) 2,059,342 $(17,606,352) $42,108,157
--------- ------- ---------- ---------- --------- ----------- ----------
Issuances of common stock upon
exercises of outstanding options 5,000 50 50
Issuances of common stock 12,490 125 51,503 51,628
Purchase of treasury stock 16,420 (112,437) (112,437)
Reissuances of treasury shares (9,300) (980) 16,772 7,472
Net loss (comprehensive loss) (1,517,606) (1,517,606)
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, September 29, 2000 9,350,731 $ 93,507 $59,785,587 $(1,639,813) $2,074,782 $(17,702,017) $40,537,264
========= ======= ========== ========== ========= =========== ==========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended September 29, 2000, October 1, 1999, and October 2, 1998
2000 1999 1998
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net earnings (loss) $(1,517,606) $ 4,622,839 $ 4,964,311
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,855,172 2,072,117 1,390,178
Provision for (recovery of) allowances for
accounts receivable 319,025 411,512 (428,756)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,902,706 (6,602,602) 346,687
(Increase) decrease in inventories (565,986) (3,039,248) (1,041,239)
(Increase) decrease in deferred catalog expenses
and other current assets 284,757 57,542 (1,125,628)
Increase (decrease) in accounts payable 1,161,798 602,636 1,221,250
(Increase) decrease in deferred taxes (279,015) (157,870) 1,165,360
Increase (decrease) in accrued liabilities 170,301 (1,012,097) (688,080)
(Increase) decrease in other assets (284,426) 132,638 (29,294)
(Increase) decrease in noncurrent deferred
tax assets (765,671) 2,557,950 1,179,706
Other - - (22,091)
---------- ---------- ----------
Net cash provided by (used in) operating activites 3,281,055 (354,583) 6,932,404
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisitions of property, plant & equipment (2,025,608) (6,438,359) (2,969,139)
Payments for acquisitions, net of cash acquired (854,093) (4,260,100) (1,500,682)
Proceeds from sale of investments - 23,891 14,044
---------- ---------- ----------
Net cash provided by (used in) investing activities (2,879,701) (10,674,568) (4,455,777)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from issuances of notes payable 2,205,620 21,099,089 2,916,984
Payments of notes payable and capital
lease obligation (2,643,581) (7,211,099) (2,217,006)
Proceeds from common stock issuances 59,150 911,593 742,535
Purchase of treasury stock (112,437) (4,603,987) (3,486,453)
---------- ---------- ----------
Net cash provided by (used in) financing activities (491,248) 10,195,596 (2,043,940)
---------- ---------- ----------
NET CHANGE IN CASH AND EQUIVALENTS (89,894) (833,555) 432,687
Cash and equivalents, beginning of period 201,911 1,035,466 602,779
---------- ---------- ----------
Cash and equivalents, end of period $ 112,017 $ 201,911 $ 1,035,466
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
Cash paid during the period for interest $ 2,169,859 $ 1,181,529 $ 502,414
========== ========== ==========
Cash paid during the period for income taxes $ 204,455 $ 160,000 $ 6,671
========== ========== ==========
The Company acquired the assets of certain entities.
In connection with these acquisitions, liabilities
were assumed as follows:
Fair value of assets acquired $ 1,968,685 $ 8,296,490 $ 2,388,750
Cash paid for the acquisitions, net (854,093) (4,260,100) (1,500,682)
Debt issued for the acquisitions (275,000) (700,000) (588,068)
---------- ---------- ----------
Liabilities assumed $ 839,592 $ 3,336,390 $ 300,000
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 29, 2000
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Background
Sport Supply Group, Inc. ("SSG") was incorporated in 1982. The assets
of the Sports & Recreation Division of Aurora Electronics, Inc. (f/k/a BSN
Corp., "Aurora") were contributed to us effective September 30, 1988. We
were a wholly-owned subsidiary of Aurora before our initial public offering
in April 1991. Our operations are all within one financial reporting
segment: manufacturing and marketing of sports related equipment and leisure
products to institutional customers in the United States. We manufacture
many of the products we sell. Manufactured items include, but are not
limited to: 1.) Tennis, volleyball, and other sports nets; 2.) Steel and
aluminum construction items, such as soccer and field hockey goals and
volleyball, pole vault, and high jump standards; 3.) track and field
equipment; 4.) Gymnastic equipment and exercise mats; 5.) Weight lifting
equipment; and 6.) Tabletop games and various plastic items.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of SSG and
our wholly owned subsidiaries, Athletic Training Equipment Company, Inc., a
Delaware corporation ("ATEC") and Sport Supply Group Asia Limited ("SSGA"),
a Hong Kong corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated
financial statements also include estimates and assumptions made by us that
affect the reported amounts of assets and liabilities, the reported amounts
of revenues and expenses, provisions for and the disclosure of contingent
assets and liabilities. Actual results could materially differ from those
estimates.
Certain financial information for previous fiscal years has been
reclassified to conform to the fiscal 2000 presentation.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and weighted-average cost methods
for items manufactured by us and weighted-average cost for items purchased
for resale. As of September 29, 2000 and October 1, 1999 inventories
(excluding inventories related to discontinued operations) consisted of the
following:
Inventory Data: Sept. 29, 2000 Oct. 1, 1999
----------- -----------
Raw materials $ 3,300,001 $ 3,209,581
Work-in-process 536,550 435,904
Finished and purchased goods 17,148,643 15,928,680
----------- -----------
Inventory, Gross 20,985,194 19,574,165
Less inventory allowance for
obsolete or slow moving items (1,132,135) (1,064,903)
----------- -----------
Inventory, Net $ 19,853,059 $ 18,509,262
=========== ===========
The inventory allowance for obsolete or slow moving items is determined
based upon our periodic assessment of the net realizable value of our
inventory. As of September 29, 2000 and October 1, 1999, approximately
28% and 27%, respectively, of total ending inventories were products
manufactured by us with the balance being products purchased from outside
suppliers. Sales of products manufactured by us accounted for approximately
31% and 36% of total net revenues in fiscal 2000 and 1999, respectively.
Advertising and Deferred Catalog Expenses
We expense the production costs of advertising as incurred, except for
production costs related to direct-response advertising activities, which
are capitalized. Direct response advertising consists primarily of catalogs
that include order forms for our products. 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. Our advertising expenses for the fiscal years ended
September 29, 2000, October 1, 1999 and October 2, 1998 were approximately
$4,122,000, $3,571,000 and $2,864,000, respectively.
Internet Expenses
We expense the operating and development costs of our Internet websites
as incurred. Hardware and related software modules that interface with our
SAP AS\400 system are capitalized over the remaining estimated useful life
of the assets.
Property, Plant, and Equipment
Property, plant and equipment is stated at cost and depreciated over
the estimated useful lives of the related assets using the straight-line
method. Leasehold improvements and property and equipment leased under
capital lease obligations are amortized over the terms of the related leases
or their estimated useful lives, whichever is shorter. 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 and Fixtures Five years
Intangible Assets
Cost in excess of tangible net assets acquired relates to acquisitions
made by us. Trademarks and servicemarks relate to costs incurred in
connection with the licensing agreements for the use of certain trademarks
and servicemarks in conjunction with the sale of our products. Other
intangible assets are classified as other assets and consist principally of
patents.
Amortization of intangible assets is provided by the straight-line
method as follows:
Cost in excess of tangible net Principally thirty
assets acquired to forty years
Trademarks and servicemarks Five to forty years
Patents Seven to eleven years
We periodically assess the recoverability of the carrying value of
intangible assets in relation to projected earnings and projected
undiscounted cash flows. Based on our assessment, we believe our
investments in intangible assets are fully realizable as of September 29,
2000.
The cost of intangible assets and related accumulated amortization are
removed from our accounts during the year in which they become fully
amortized.
Income Taxes
Deferred tax assets and liabilities are determined annually based upon
the estimated future tax effects of the differences in the tax bases of
existing assets and liabilities and the related financial statement carrying
amounts, using currently enacted tax laws and rates in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (See Note 4).
Net Earnings (Loss) Per Share of Common Stock
Net earnings (loss) per share of common stock are based upon the
weighted average number of common and common equivalent shares outstanding.
Outstanding stock options and common stock purchase warrants are treated as
common stock equivalents when dilution results from their assumed exercise.
Revenue Recognition
Our policy is to recognize revenue upon shipment of inventory and
record an estimate against revenues for possible returns based upon our
historical return rate. Subject to certain limitations, customers have the
right to return product within 30 days if they are not completely satisfied.
We believe sales are final upon shipment of inventory based upon the
following criteria under SFAS 48 and SAB 101:
- Our price to our customers is fixed at the time an order is placed.
- The customers have paid, or are obligated to pay, us.
- The customers' obligation to pay does not change in the event of theft,
damaged product, etc. (A claim must be filed to issue credit.)
- Customers are verified through credit investigations for economic
substance before products are shipped.
- We are not obligated for future performance to any of our customers.
- Future returns can be reasonably estimated based on historical data.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS 133), as amended, which we were required to adopt on September 30,
2000. SFAS 133 requires that all derivatives be recorded on the balance
sheet at fair value. Changes in derivatives that are not hedges are adjusted
to fair value through income. Changes in derivatives that meet the
Statement's hedge criteria will either be offset through income, or
recognized in other comprehensive income until the hedged item is recognized
in earnings. The adoption of SFAS 133 on September 30, 2000 did not have
any impact on our financial condition, results of operations or cash flows.
2. STOCKHOLDERS' EQUITY:
Stock Options
We maintain 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. Under the stock option plan, the exercise price of
options will not be less than: (i.) the fair market value of the common
stock at the date of grant; or (ii.) 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 the Company (or a Stock Option
Committee comprised of members of the Board of Directors).
The following table contains transactional data for the Company's stock
option plan.
Exercise Price or
Stock Option Plan Shares Weighted Avg. Price
----------------- --------- -------------------
Outstanding at September 26, 1997 1,040,573 $7.26
Granted 286,675 $7.65
Exercised (73,387) $6.86
Forfeited (393,575) $8.06
---------
Outstanding at October 2, 1998 860,286 $7.30
Granted 328,625 $8.52
Exercised (81,445) $6.63
Forfeited (19,667) $6.75
---------
Outstanding at October 1, 1999 1,087,799 $7.695
Granted 44,375 $7.43
Exercised (5,000) $6.50
Forfeited (199,308) $7.90
---------
Outstanding at September 29, 2000 927,866 $7.64
=========
Stock Options Outstanding Stock Options Exercisable
as of Sept 29, 2000 as of Sept. 29, 2000
-------------------------------------------------- --------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Range of Remaining Exercise Exercise
Exercise Prices Shares Life Price Shares Price
--------------- --------- --------- ------ ------- -----
$6.125 - $9.44 927,866 7.1 years $7.64 875,781 $7.46
All options granted under the stock option plan during the fiscal years
ended on September 29, 2000, October 1, 1999, October 2, 1998 and the eleven
month period ended on September 26, 1997 were at exercise prices equal to or
greater than the fair market value of our stock on the date of the grant. On
January 23, 1997, certain officers' options were repriced to $7.50 which was
above the current fair market value.
In addition to options granted pursuant to the stock option plan, we
periodically grant options to purchase shares of our common stock that are
not reserved for issuance under the stock option plan ("non-plan options").
Such exercise prices were equal to or greater than the fair market value of
our common stock on the dates of grant. There are currently options to
acquire 100,000 shares of common stock for $6.88 per share that were issued
outside the plan. These options are scheduled to expire on May 3, 2001.
As of September 29, 2000, there were a total of 1,027,866 options
(including non-plan options) outstanding with exercise prices ranging from
$6.125 per share to $9.44 per share. As of September 29, 2000, 875,781 of
the total options outstanding were fully vested with 152,085 options vesting
through November 2002. As of October 1, 1999, there were 1,187,799 options
(including non-plan options) outstanding with exercise prices ranging from
$6.125 per share to $9.44 per share. As of October 1, 1999, 630,712 of the
total options outstanding were fully vested with 557,087 options vesting
through July 2002. As of October 2, 1998, there were 960,286 options
(including non-plan options) outstanding with exercise princes ranging from
$5.60 per share to $8.38 per share. As of October 2, 1998, 505,284 of the
total options outstanding were fully vested with 455,002 options vesting
through January 2001.
Pro forma information regarding net income and net income per share has
been determined as if we had accounted for employee stock options subsequent
to December 31, 1995 under the fair value method. The fair value for those
options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions: (i.) risk-
free interest rates of 5.93%, 5.63% and 5.34% in 2000, 1999 and 1998
respectively; (ii.) dividend yield of 0% for all years; (iii.) expected
volatility of 49%, 30% and 25% in 2000, 1999 and 1998, respectively; and
(iv.) weighted average expected life for each option of 3 years. The
weighted average fair value of employee stock options granted in 2000, 1999
and 1998 are $2.41, $2.34 and $1.81, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period; therefore, our
proforma effect will not be fully realized until the completion of one full
vesting cycle. Our pro forma information is as follows:
For the Fiscal For the Fiscal For the Fiscal
Year Ended Year Ended Year Ended
Sept. 29, 2000 Oct, 1, 1999 Oct. 2, 1998
-------------- ------------ ------------
Net income (loss):
As reported $(1,517,606) $4,622,839 $4,964,311
Pro forma $(1,988,647) $4,119,255 $4,526,870
Earnings (loss) per share:
As reported $(0.21) $0.63 $0.62
As reported - with dilution $(0.21) $0.60 $0.60
Pro forma earnings (loss) $(0.27) $0.56 $0.56
Pro forma dilutive $(0.27) $0.53 $0.53
Dividends
During January 1996, we terminated our annual cash dividend policy.
Common Stock Purchase Warrants
Pursuant to a Securities Purchase Agreement dated November 27, 1996
between Emerson Radio Corp. ("Emerson") and us, Emerson acquired directly
from us 5-year warrants to acquire 1,000,000 shares of Common Stock at an
exercise price of $7.50 per share, subject to standard antidilution
adjustments, for an aggregate cash consideration of $500,000. The warrants
are scheduled to expire on December 10, 2001.
Repurchase of Common Stock
On May 28, 1997, we approved the repurchase of up to 1,000,000 shares
of our issued and outstanding common stock in the open market and/or
privately negotiated transactions. On October 28, 1998, we approved a
second repurchase program of up to an additional 1,000,000 shares of
our issued and outstanding common stock in the open market and/or
privately negotiated transactions. As of September 29, 2000, we repurchased
approximately 1,333,000 shares of our issued and outstanding common stock in
the open market and privately negotiated transactions. Any future purchases
will be subject to price and availability of shares, working capital
availability and any of our alternative capital spending programs. Our bank
agreement currently prohibits the repurchase of any additional shares
without the bank's prior consent.
Net Earnings Per Common Share
The following table sets forth the computation of basic and diluted
earnings per share:
For the For the For the
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Sept. 29, Oct. 1, Oct. 2,
2000 1999 1998
---------- --------- ---------
Numerator:
----------
Net earnings (loss) $(1,517,606) $4,622,839 $4,964,311
========== ========= =========
Denominator:
-----------
Weighted average shares outstanding 7,272,570 7,390,274 8,025,606
Effect of dilutive securities:
Warrants 0 148,577 94,884
Employee stock options 0 188,926 116,040
---------- --------- ---------
Adjusted weighted average shares
and assumed conversions 7,272,570 7,727,777 8,236,530
========== ========= =========
Per Share Calculations:
----------------------
Basic earnings (loss) per share $(0.21) $0.63 $0.62
========== ========= =========
Diluted earnings (loss) per share $(0.21) $0.60 $0.60
========== ========= =========
Securities excluded from weighted
average shares diluted because their
effect would be antidilutive 2,027,866 0 6,250
3. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS:
As of fiscal years ended September 29, 2000 and October 1, 1999, notes
payable and capital lease obligations consisted of the following:
2000 1999
---------- ----------
Note payable under revolving line of credit,
interest ranging from prime minus 0.25% to
prime plus 1.0% (8.53% - 10.50% at Sept. 29,
2000, and 7.75% at Oct. 1, 1999) due Oct. 2,
2002 and collateralized by substantially
all assets. $17,804,126 $11,044,264
Term loan, interest at prime plus 2% (11.50%) at
Sept. 29, 2000 and 7.13% at Oct. 1, 1999) ,
payable in monthly installments of $125,000
plus accrued interest through Oct. 2, 2002 and
collateralized by substantially all assets. 2,500,000 9,000,000
Promissory note, interest at 7.75%, payable in
monthly installments of $29,167 plus accrued
interest through February 2001. 79,214 466,667
Capital lease obligation, interest at 9%, payable
in annual installments of principal and
interest totaling $55,000 through August 2005. 196,038 230,311
Other 94,425 95,522
---------- ----------
Total 20,673,803 20,836,764
Less - current portion (1,639,458) (2,410,839)
---------- ----------
Long-term debt and capital lease obligations, net $19,034,345 $18,425,925
========== ==========
Credit Facilities
We have a credit agreement with Comerica Bank-Texas to finance our
working capital requirements. The credit agreement provides for a revolving
credit facility and a term loan. As of September 29, 2000, we had total
borrowings under our senior credit facility of approximately $20.3 million.
This balance included a term loan of $2.5 million and loans outstanding
under the revolving credit facility of $17.8 million.
On September 13, 2000, we entered into an amendment to the credit
agreement. Several changes were made to the credit agreement, including
reducing the credit facility from $40 million to $27.5 million and amending
the fixed charge coverage ratio to provide that we were not permitted to
have a fixed charge coverage ratio less than .95 to 1.00 in any two
consecutive months. Our fixed charge coverage ratio was less than .95 to
1.00 at the end of September 2000. Consequently, we were in default.
Comerica Bank-Texas agreed to waive this default and eliminate the
fixed charge coverage ratio pursuant to an amendment to the credit agreement
including, among other terms, the pay off of the term loan by January 15,
2001. The term loan currently has an outstanding balance of approximately
$2.2 million.
On December 22, 2000, Emerson Radio Corp., our largest stockholder,
offered to purchase 1,629,629 shares of our common stock from us for $1.35
per share in cash, for a total purchase price of $2.2 million. The $1.35
per share purchase price represented a 20% premium to the closing price of
our common stock on December 22, 2000. Emerson's offer was contingent on
Comerica making certain amendments to the senior secured credit facility
before December 28, 2000, including eliminating the fixed charge coverage
ratio. Emerson agreed to finalize this purchase on or before January 15,
2001. Our Board agreed that selling additional shares to Emerson for $1.35
per share and using the proceeds to pay off the term loan was in our best
interests and approved Emerson's offer. Emerson will own 4,303,329 shares,
or approximately 48.3%, of our issued and outstanding shares as a result of
such purchase. Emerson also owns warrants to purchase an additional 1
million shares of our common stock for $7.50 per share.
On December 27, 2000, we entered into an amendment to the credit
agreement whereby we agreed to (i) pay off the term loan by January 15, 2001
with the proceeds from the Emerson transaction mentioned above, (ii) pay
Comerica a $15,000 waiver fee, (iii) delete the fixed charge coverage ratio
and add an interest coverage ratio and (iv) agree to pay Comerica a $250,000
fee if the credit facility is not refinanced by March 30, 2001. We believe
we will meet all future terms and conditions, including covenants, of our
credit facility through the end of fiscal 2001.
Although the maturity date on our revolving note is October 2, 2002, it
is our intent to refinance our credit facility with a different lender prior
to March 30, 2001. We are currently negotiating proposals from other
lenders. We do not have a commitment for replacing our current lender.
There can be no assurance that such financing will be available prior to
March 30, 2001 or that, if available, such financing will be available on
acceptable terms. If we are able to refinance the credit facility on
acceptable terms, then we will incur fees and expenses associated with such
refinancing, including writing off approximately $150,000 in unamortized
loan fees on our balance sheet. If we are unable to refinance the credit
facility on acceptable terms, then we will retain Comerica as our senior
lender and incur a $250,000 payment obligation.
Based on Emerson's agreement to purchase shares of common stock for
$2.2 million and our intent to use these proceeds to pay off the term loan
by January 15, 2001, and Comerica waving existing defaults and modifying
financial statement covenants, we have classified our Comerica credit
facility as long term. We believe we will meet all of our new credit
facility covenants at least through September 29, 2001.
Maturities of our capital lease obligations and borrowings under the
senior credit facility as of September 29, 2000, by fiscal year and in the
aggregate, are as follows:
2001 $ 1,639,458
2002 1,065,461
2003 17,871,436
2004 72,246
2005 25,202
Thereafter 0
----------
Total 20,673,803
Less Current Portion (1,639,458)
----------
Total Long term Portion $19,034,345
==========
As of September 29, 2000 the carrying value of our long term debt
approximates its fair value.
4. INCOME TAXES:
As of the fiscal years ended September 29, 2000 and October 1, 1999,
the components of the net deferred tax assets and liabilities are as
follows:
2000 1999
--------- ---------
Current deferred tax assets
(liabilities):
Allowances for doubtful accounts $ 389,000 $ 239,696
Inventories 897,767 817,890
Other accrued liabilities 54,436 4,602
--------- ---------
Total $1,341,203 $1,062,188
========= =========
Noncurrent deferred tax assets
(liabilities):
Cost in excess of tangible net $ (218,807) $ (216,222)
assets acquired
Other intangible assets (2,892,670) (2,687,228)
Net operating loss carryforward 5,492,151 4,504,802
Minimum tax credit carryforward 486,236 499,887
--------- ---------
Total $2,866,910 $2,101,239
========= =========
We have a net operating loss carryforward that can be used to offset
future taxable income and can be carried forward for 15 to 20 years. No
valuation allowance has been recorded for our deferred tax assets because we
believe it is more likely than not such assets will be realized. We
believe the deferred tax assets will be realized by future profitable
operating results. Realization of our net deferred tax asset is dependent
on generating sufficient taxable income prior to expiration of loss
carryforwards. Although realization is not assured, we believe it is more
likely than not that all of the deferred tax asset will be realized. The
amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.
The income tax provision (benefit) in the accompanying statements of
operations for the fiscal years ended September 29, 2000, October 1, 1999
and October 2, 1998 consisted of the following:
2000 1999 1998
--------- --------- ---------
Current $ 118,115 $ 288,249 $ 214,016
Deferred (1,042,000) 2,400,080 2,345,066
--------- --------- ---------
Income tax provision
(benefit) $ (923,885) $2,688,329 $2,559,082
========= ========= =========
The provision (benefit) for income taxes related to continuing
operations in the accompanying statements of operations for the fiscal years
ended September 29, 2000, October 1, 1999 and October 2, 1998, differ from
the statutory federal rate as follows:
2000 1999 1998
-------- --------- ---------
Income tax provision (benefit)
at statutory federal rate $(830,107) $2,485,797 $2,557,954
State income taxes, net
of federal effect (75,865) 124,964 --
Other (17,913) 77,568 1,128
-------- --------- ---------
Total provision (benefit)
for Income taxes $(923,885) $2,688,329 $2,559,082
======== ========= =========
5. ACQUISITIONS:
During October 1999, we acquired, for cash and the assumption of
certain liabilities, certain assets of LAKCO, Inc. and Spaulding, Inc., both
distributors of sporting goods equipment to the institutional market. On
September 25, 2000, we acquired the stock of Sports Supply Group Asia
Limited, a shell corporation, from Emerson Radio. We have accounted for
these acquisitions using the purchase method and, as such, our results of
operations are combined with the acquired company's results of operations
subsequent to the acquisition date.
No proforma information for the above acquisitions is presented herein
because the proforma information, individually or in aggregate, would not
materially differ from actual results.
6. MAJOR CUSTOMERS AND CONCENTRATION OF BUSINESS RISK:
Our customers include all levels of public and private schools,
colleges, universities, and military academies, municipal and governmental
agencies, military facilities, churches, clubs, camps, hospitals, youth
sports leagues, non-profit organizations, team dealers and certain large
retail sporting goods chains.
We did not have any individual customers that accounted for more than
10% of net revenues for the fiscal years ended September 29, 2000, October
1, 1999, and October 2, 1998.
The majority of our sales are to publicly funded institutional
customers. We extend credit based upon an evaluation 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.
7. COMMITMENTS AND CONTINGENCIES:
Leases
We lease a portion of our office, warehouse, distribution, fulfillment,
computer equipment and manufacturing locations under noncancelable operating
leases with terms ranging from one to five years. The majority of our
leases contain renewal options that extend the leases beyond the current
lease terms.
Future minimum lease payments under noncancelable operating leases for
office, warehouse, computer equipment and manufacturing locations, with
remaining terms in excess of one year are as follows:
2001 $1,970,732
2002 1,745,807
2003 1,578,912
2004 1,460,689
2005 305,372
---------
Total $7,061,512
=========
Rent expense was approximately $1,935,000, $1,815,000 and $1,645,000
for fiscal years 2000, 1999 and 1998, respectively.
Severance Agreements
In July 1998, an officer retired and we recorded a nonrecurring pre-tax
charge for the year ended October 2, 1998 for $1.2 million relating to the
retirement.
Product Liability and Other Claims
Because of the nature of our products, we are periodically subject to
product liability claims resulting from personal injuries. From time to
time we may become involved in various lawsuits incidental to our business,
some of which may relate to injuries allegedly resulting in substantial
permanent paralysis. Significantly increased product liability claims
continue to be asserted successfully against manufacturers throughout the
United States resulting in general uncertainty as to the nature and extent
of manufacturers' and distributors' liability for personal injuries. See
Part I. Item 3. - "Legal Proceedings".
There can be no assurance that our general product liability insurance
will be sufficient to cover any successful claim made against us. In our
opinion, any ultimate liability arising out of currently pending product
liability and other claims will not have a material adverse effect on
our financial condition or results of operations. However, any claims
substantially in excess of our insurance coverage, or any substantial claim
not covered by insurance, could have a material adverse effect on our
results of operations and financial condition.
During 2000, we successfully negotiated the settlement of two outstanding
lawsuits. Consequently, we recorded a nonrecurring charge related to these
claims in the amount of $605,000, which is included in Nonrecurring Charges
on the Consolidated Income Statement.
8. EMPLOYEES' SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN:
Effective June 1, 1993, we established a defined contribution profit
sharing plan (the "401(k) Plan") for the benefit of eligible employees. All
employees with one year of service and who have attained the age of 21 are
eligible to participate in the 401(k) Plan. Beginning January 1, 2001, the
one year waiting period will be reduced to 90 days. Employees may contribute
up to 20% of their compensation, subject to certain limitations, which
qualifies under the compensation deferral provisions of Section 401(k) of
the U.S. Internal Revenue Code.
The 401(k) Plan contains provisions that allow us to make discretionary
contributions during each plan year. Employer contributions for the fiscal
years ended September 29, 2000, October 1, 1999 and October 2, 1998 were
approximately $89,000, $84,000 and $78,000 respectively. We pay all
administrative expenses of the 401(k) Plan.
Effective July 1, 1997, we established an Employee Stock Purchase Plan
for the benefit of eligible employees. All eligible employees are allowed
to purchase shares of SSG Common Stock at a 15% discount from the market
price.
9. UNAUDITED QUARTERLY STATEMENT OF OPERATIONS
The following table sets forth certain information regarding our
results of operations for each full quarter within the fiscal years ended
September 29, 2000 and October 1, 1999, with amounts in thousands, except
for per share data. Due to rounding, quarterly amounts may not fully sum to
yearly amounts.
2000 Fiscal Year 1999 Fiscal Year
------------------------------------------- -------------------------------------------
Statement of 1st 2nd 3rd 4th 1st 2nd 3rd 4th
Earnings Data: Year Qtr Qtr Qtr Qtr Year Qtr Qtr Qtr Qtr(1)
------- ------ ------ ------ ------ ------- ------ ------ ------ ------
Net revenues $113,334 $19,035 $34,794 $29,045 $30,460 $107,069 $14,870 $35,476 $26,310 $30,412
Gross profit 36,170 6,341 11,514 9,400 8,915 37,283 5,079 12,139 10,025 10,040
Operating
profit or
(loss)(note 1) (437) (1,330) 2,110 (81) (1,136) 8,445 (751) 5,172 3,179 845
Interest
expense 2,022 414 519 445 644 1,196 165 334 371 326
Other income
(expense), net 17 (6) 8 (2) 17 63 18 13 21 11
Net earnings
(loss) $(1,518) $(1,107) $1,027 $(329) $(1,108) $4,623 $(560) $3,020 $1,759 $404
------- ------ ------ ------ ------ ------- ------ ------ ------ ------
Net earnings
(loss) per
Common Share $(0.21) $(0.15) $0.14 $(0.05) $(0.15) $0.63 $(0.07) $0.41 $0.24 $0.06
Net earnings
(loss) per
Common Share
-assuming
dilution $(0.21) $(0.15) $0.14 $(0.05) $(0.15) $0.60 $(0.07) $0.39 $0.22 $0.05
Weighted average
Common Shares
outstanding 7,273 7,270 7,270 7,273 7,273 7,390 7,607 7,388 7,360 7,281
Weighted average
Common Shares
outstanding
- assuming
dilution 7,273 7,270 7,273 7,273 7,273 7,728 7,607 7,748 7,826 7,673
(1) The 2nd quarter of fiscal year 2000 includes $605,000 of nonrecurring charges.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
See the discussion under the captions "Election of Directors" and
"Executive Compensation and Other Information" contained in the Proxy
Statement for the Annual Meeting of Stockholders to be held January 26,
2001, which information is incorporated herein by reference, and Item 1. --
"Business - Executive Officers of the Company".
Item 11. Executive Compensation.
See the discussion under the caption "Executive Compensation and Other
Information" contained in the Proxy Statement for the Annual Meeting of
Stockholders to be held January 26, 2001, which information, except the
Performance Graph and the Report of the Compensation Committee and Stock
Option Committee on Executive Compensation, is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See the discussion under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the Proxy Statement for the
Annual Meeting of Stockholders to be held January 26, 2001, which
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
See the discussion under the caption "Certain Relationships and Related
Transactions" contained in the Proxy Statement for the Annual Meeting of
Stockholders to be held on January 26, 2001, which information is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements. See Item 8.
(a) (2) Supplemental Schedule Supporting Financial Statements. See
Item 8.
(a) (3) Management Contract or Compensatory Plan. [See Index].
[Each of the following Exhibits described on the Index to
Exhibits is a management contract or compensatory plan:
Exhibits 10.1, 10.1.1, 10.2, 10.2.1, 10.3, 10.4, 10.5,
10.5.1, 10.6, 10.7, 10.8, 10.9, 10.10 and 10.11.].
(b) Reports on Form 8-K. A report on Form 8-K was filed with
the Securities and Exchange Commission on December 13, 1999
to report our engagement of PaineWebber Incorporated. A
report on Form 8-K was filed with the Securities and
Exchange Commission on May 30, 2000 relating to a press
release concerning approval from the New York Stock
Exchange for continued listing of Sport Supply Group, Inc.
(c) Exhibits. See Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on our behalf by the undersigned, thereunto duly authorized.
Dated: December 27, 2000
SPORT SUPPLY GROUP, INC.
By: /s/ Geoffrey P. Jurick
----------------------
Geoffrey P. Jurick
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on December 27, 2000 by the following persons on
behalf of the registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ Geoffrey P. Jurick Chairman of the Board and
Geoffrey P. Jurick Chief Executive Officer
/s/ John P. Walker President
John P. Walker
/s/ Robert K. Mitchell Chief Financial Officer
Robert K. Mitchell
/s/ Johnson C. S. Ko Director
Johnson C. S. Ko
/s/ Peter G. Bunger Director
Peter G. Bunger
/s/ Thomas P. Treichler Director
Thomas P. Treichler
INDEX TO EXHIBITS
Exhibit
Nbr. Description of Exhibit
------- ----------------------------------------------------------------
2.1 Securities Purchase Agreement dated November 27, 1996 by and
between the Company and Emerson Radio Corp. ("Emerson")
(incorporated by reference from Exhibit 2 to the Company's
Report on Form 8-K filed on December 12, 1996).
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Registration No. 33-80028)).
3.1.1 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of the Company (incorporated by reference from
Exhibit 4.1 to the Company's Registration Statement on Form S-8
(Registration No. 33-80028)).
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference from Exhibit 3.2 to the Company's Report on Form 10-K
for the Fiscal Year ended November 1, 1996).
4.1 Specimen of Common Stock Certificate (incorporated by reference
from Exhibit 4.1 to the Company's Registration Statement on Form
S-1 (Registration No. 33-39218)).
4.2 Warrant Agreement entered into between the Company and Emerson
relating to the purchase of up to 1,000,000 shares of the
Company's common stock for $7.50 per share, which expires on
December 10, 2001 (incorporated by reference from Exhibit 4(a)
to the Company's Report on Form 8-K dated December 12, 1996).
10.1 Employment Agreement entered into by and between the Company and
Terrence M. Babilla (incorporated by reference from Exhibit 10.3
to the Company's Report on Form 10-Q for the quarter ended April
13, 1999).
10.1.1 Amendment Number One to Employment Agreement between the Company
and Terrence M. Babilla dated to be effective as of February 25,
2000 (incorporated by reference from Exhibit 10.1 to the
Company's Report on Form 10-Q for the quarter ended June 30,
2000).
10.2 Employment Agreement by and between the Company and
John P. Walker (incorporated by reference from Exhibit 10.4 to
the Company's Report on Form 10-Q for the quarter ended April
13, 1999).
10.2.1 Amendment Number One to Employment Agreement between the Company
and John P. Walker dated to be effective as of February 25,
2000 (incorporated by reference from Exhibit 10.2 to the
Company's Report on Form 10-Q for the quarter ended June 30,
2000).
10.3 Employment Agreement by and between the Company and Eugene Grant
(incorporated by reference from Exhibit 10.2 to the Company's
Report on Form 10-Q for the quarter ended April 3, 1998).
10.4 Non-Qualified Stock Option Agreement by and between the Company
and Geoffrey P. Jurick (incorporated by reference from Exhibit
10.5 to the Company's Report on Form 10-Q for the quarter ended
August 1,1997).
10.5 Non-Qualified Stock Option Agreement by and between the Company
and John P. Walker (incorporated by reference from Exhibit 10.6
to the Company's Report on Form 10-Q for the quarter ended
August 1, 1997).
10.5.1 Amendment No. 1 to Stock Option Agreement by and between the
Company and John P. Walker (incorporated by reference from
Exhibit 10.8 to the Company's Report on Form 10-Q for the
quarter ended April 3, 1998).
Exhibit
Nbr. Description of Exhibit
------- ----------------------------------------------------------------
10.6 Form of Non-Qualified Stock Option Agreement by and between the
Company and John P. Walker (incorporated by reference from
Exhibit 10.1 to the Company's Report on Form 10-Q for the
quarter ended July 2, 1999).
10.7 Restricted Stock Agreement by and between the Company and John
P. Walker (incorporated by reference from Exhibit 10.6 to the
Company's Report on Form 10-Q for the quarter ended April 3,
1998).
10.8 Consulting and Separation Agreement dated as of September 16,
1994 by and between the Company and Jerry L. Gunderson
(incorporated by reference from Exhibit 10.4 to the Company's
Report on Form 10-K for the year ended December 31, 1996).
10.9 Form of Severance Agreement entered into between the Company and
each of Messrs. John P. Walker and Terrence M. Babilla
(incorporated by reference from Exhibits 10.2 and 10.3 to the
Company's Report on Form 10-Q for the quarter ended April 12,
1999).
10.10 Form of Severance Agreement entered into between the Company and
Doug Pryor (incorporated by reference from Exhibit 10.7 to the
Company's Report on Form 10-Q for the quarter ended April 3,
1998).
10.11 Form of Indemnification Agreement entered into between the
Company and each of the directors of the Company and the
Company's General Counsel (incorporated by reference from
Exhibit 10.3 to the Company's Registration Statement on Form S-1
(Registration No. 33-39218)).
10.12 Sport Supply Group, Inc. Employee Stock Purchase Plan
(incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Registration No. 33-27191)).
10.13 Sport Supply Group, Inc. Amended and Restated Stock Option Plan
(incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Registration No. 33-27193)).
10.14 Registration Rights Agreement by and among the Company, Emerson
and Emerson Radio (Hong Kong) Limited (incorporated by reference
from Exhibit 4(b) to the Company's Report on Form 8-K filed on
December 12, 1996).
10.15 Assignment of Agreement and Inventory Purchase Agreement to
Affiliate by Aurora (incorporated by reference from Exhibit
10.10 to the Company's Registration Statement on Form S-1
(Registration No. 33-39218)).
10.16 Form of Tax Indemnity Agreement by and between the Company and
Aurora (incorporated by reference from Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (Registration No.
33-39218)).
10.17 Master Agreement, dated as of February 19, 1992, by and between
MacMark Corporation, MacGregor Sports Products, Inc. and Aurora
(incorporated by reference from Exhibit 10.21 to the Company's
Report on Form 10-K for the year ended 1991).
10.18 Perpetual License Agreement, dated as of February 19, 1992, by
and between MacMark Corporation, Equilink Licensing Corporation,
and Aurora (incorporated by reference from Exhibit 10.22 to the
Company's Report on Form 10-K for the year ended 1991).
Exhibit
Nbr. Description of Exhibit
------- ----------------------------------------------------------------
10.19 Perpetual License Agreement, dated as of February 19, 1992, by
and between MacGregor Sports Products, Inc. and Aurora
(incorporated by reference from Exhibit 10.23 to the Company's
Report on Form 10-K for the year ended 1991).
10.20 Trademark Maintenance Agreement, dated as of February 19, 1992,
by and between MacMark Corporation, Equilink Licensing
Corporation, and Aurora (incorporated by reference from Exhibit
10.24 to the Company's Report on Form 10-K for the year ended
1991).
10.21 Trademark Maintenance Agreement, dated as of February 19, 1992,
by and between MacGregor Sports Products, Inc. and Aurora
(incorporated by reference from Exhibit 10.25 to the Company's
Report on Form 10-K for the year ended 1991).
10.22 Trademark Security Agreement, dated as of February 19, 1992, by
and between MacGregor Sports Products, Inc. and Aurora
(incorporated by reference from Exhibit 10.26 to the Company's
Report on Form 10-K for the year ended 1991).
10.23 Amendment No. 1 to Perpetual License Agreement and Trademark
Maintenance Agreement dated as of November 1, 1992, by and
between MacMark Corporation, Equilink Licensing Corporation and
the Company (incorporated by reference from Exhibit 10.24 to the
Company's Report on Form 10-K for the year ended 1992).
10.23.1 Amendment No. 2 to Perpetual License Agreement and Trademark
Maintenance Agreement dated October 7, 1999 by and between
MacMark Corporation, Equilink Licensing Corporation and the
Company (incorporated by reference from Exhibit 10.1 to the
Company's Report on Form 10-Q for the quarter ended December 31,
1999).
10.24 Assignment and Assumption Agreement, dated to be effective as of
February 28, 1992, by and between Aurora and the Company
(incorporated by reference from Exhibit 10.27 to the Company's
Report on Form 10-K for the year ended 1991).
10.25 Amendment No. 1 to AMF Licensing Agreement (incorporated by
reference from Exhibit 10 to the Company's Report on Form 10-Q
for the quarter ended January 1, 1999).
10.26 Amended Lease Agreement entered into between the Company and
ACQUIPORT DFWIP, Inc., dated as of July 13, 1998 (incorporated
by reference from Exhibit 10 to the Company's Report on Form 10-
Q filed on August 14, 1998).
10.26.1 Amended Lease Agreement entered into between the Company and
ACQUIPORT DFWIP, Inc., dated as of July 30, 2000 (incorporated
by reference from Exhibit 10.3 to the Company's Report on Form
10-Q for the quarter ended June 30, 2000)..
10.27 Lease, dated July 28, 1989, by and between Merit Investment
Partners, L.P. and the Company (incorporated by reference from
Exhibit 10.14 to the Company's Registration Statement on Form S-
1 (Registration No. 33-39218)).
10.28 Industrial Lease Agreement, dated April 25, 1994, by and between
the Company and Centre Development Co. regarding the property at
13700 Benchmark (incorporated by reference from Exhibit 10.1 to
the Company's Report on Form 10-Q for the quarter ended June 30,
1994).
10.28.1 Amendment to Industrial Lease Agreement, dated July 8, 1994, by
and between the Company and Centre Development Co. regarding the
property at 13700 Benchmark (incorporated by reference from
Exhibit 10.19.1 to the Company's Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.29 Lease, dated December 2, 1991, by and between Injans Investments
and the Company regarding the property located in Cerritos. CA
(incorporated by reference from Exhibit 10.20 to the Company's
Report on Form 10-K for the year ended December 31, 1991).
Exhibit
Nbr. Description of Exhibit
------- ----------------------------------------------------------------
10.29.1 First Amendment to Standard Industrial Lease dated September 12,
1996 by and between Injans Investments and the Company regarding
the property located in Cerritos, CA (incorporated by reference
from Exhibit 10.23.1 to the Company's Report on Form 10-K for
the year ended November 1, 1996).
10.30 License Agreement, dated as of September 23, 1991, by and
between Proacq Corp. and the Company (incorporated by reference
from Exhibit 10.17 to the Company's Report on Form 10-K for the
year ended 1991).
10.31 Sport Supply Group Employees' Savings Plan dated June 1, 1993
(incorporated by reference from Exhibit 10.27 to the Company's
Report on Form 10-K for the year ended 1993).
10.32 Management Services Agreement dated July 1, 1997 to be effective
as of March 7, 1997 by and between the Company and Emerson
(incorporated by reference from Exhibit 10.2 to the Company's
Report on Form 10-Q for the quarter ended August 1, 1997).
10.32.1 Letter Agreement dated October 18, 1997 amending the Management
Services Agreement (incorporated by reference from Exhibit
10.31.1 to the Company's Report on Form 10-K for the year ended
September 26, 1997).
10.33 Credit Agreement dated April 26, 1999 by and between the Company
and Comerica Bank (incorporated by reference from Exhibit 10.1
to the Company's Report on Form 10-Q for the quarter ended April
2, 1999).
10.33.1(*) First Amendment to Credit Agreement dated September 13, 2000 by
and between the Company and Comerica Bank.
10.34 Lease Agreement by and between Athletic Training Equipment
Company, Inc. and The Northwestern Mutual Life Insurance
Company, dated January 29, 1999 regarding the property located
in Sparks, NV (incorporated by reference from Exhibit 10.4 to
the Company's Report on Form 10-Q for the quarter ended April 2,
1999).
21 (*) Subsidiaries of the Registrant
23.1 (*) Consent of Independent Auditors.
27.1 (*) Financial Data Schedule.
99 Pledge and Security Agreement, dated December 10, 1996 by
Emerson in favor of Congress Financial Corporation (incorporated
by reference from Exhibit 99 to the Company's Report on Form 8-K
filed on December 12, 1996.)
( * ) Filed Herewith