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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 October 1, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File number 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 20, 1999 based on the closing
price of the common stock on the New York Stock Exchange on such date,
was approximately $45,500,000.
Indicated below is the number of outstanding shares of each class
of the registrant's common stock, as of December 20, 1999.
Title of Each Class of Common Stock Number Outstanding
----------------------------------- ------------------
Common Stock, $.01 par value 7,263,879
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of the Form 10-K
-------------------------------------------- ---------------------
Proxy Statement for Annual Meeting of
Stockholders to be held on February 25, 2000 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........................... 12
7 Management's Discussion and Analysis of
Financial Condition and Results of Operations .. 14
8 Financial Statements and Supplementary Data....... 21
9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.......... 41
PART III
10 Directors and Executive Officers of the Registrant 42
11 Executive Compensation............................ 42
12 Security Ownership of Certain Beneficial Owners and
Management...................................... 42
13 Certain Relationships and Related Transactions.... 42
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................. 43
-- Signatures........................................ 44
-- Index to Exhibits.................................. 45
PART I.
Item 1. Business.
General
Sport Supply Group, Inc. (the "Company" or "SSG") believes it is
one of the largest direct mail marketers of sports related equipment
and leisure products to the institutional market in the United States.
The Company serves the institutional market, which is generally
comprised of: schools, colleges, universities, government agencies,
military facilities, athletic clubs, athletic teams and dealers, youth
sports leagues and recreational organizations. SSG offers a broad line
of institutional-grade equipment and provides customer service and
sales efforts using sales personnel strategically located in certain
large metropolitan areas, toll-free telephone sales and service
personnel and nine internet sites. The Company believes that prompt
delivery of a broad range of institutional-grade products at
competitive prices differentiates it from the retail sporting goods
stores that primarily serve the consumer market. See Item 1. --
"Business - Sales and Marketing". The Company markets approximately
8,000 sports related equipment products to its over 100,000
institutional, retail, mass merchant and team dealer customers and
maintains over 250,000 names in its mailing lists.
The Company's net revenues have increased from $65 million in
fiscal year 1995 to $107 million for the fiscal year ended October 1,
1999. The Company attributes its high level of growth to strategic
acquisitions and the successful development of an extensive mail order
marketing program and competitive pricing programs.
During fiscal year 1999, the Company successfully completed the
implementation of its new, Year 2000 compliant SAP/AS400 ERP
Information Technology (IT) platform. This new system fully integrates
all of the Company's business, operational and accounting applications.
On September 2, 1999, the Company announced that its initial
launch of nine Internet websites was functional and that such websites
enable the Company's customers to transact business by way of the
Internet. In addition to placing orders, customers can access account
balances, order information, shipment information and a series of other
customer related data on a real time basis with a direct connection to
the Company via the Internet. The nine Internet websites enable the
Company's customers to do business with the Company seven days a week,
twenty-four hours a day. The Company believes the majority of its
customers have access to the Internet and view the placing of orders
and accessing their account information over the Internet as a
significant benefit. The Company expects that in time, a large portion
of its customer base will look to the Internet and E-Commerce as the
predominant method of quoting, ordering, and procuring its products,
along with servicing customer needs. The Company's sourcing,
warehousing, distribution and fulfillment capabilities, in addition to
its new integrated SAP/AS400 ERP system, provide the necessary
capacities, logistics and information technological support to meet the
demands and growth potential of E-Commerce. The Company views the
continued expansion of customer connectivity via the Internet as vital
to its future growth.
The nine marketing Internet website addresses are as follows:
bsnsports.com
leaguedirect.com
us-games.com
esportsonline.com
championbarbell.com
bsngsanaf.com
newenglandcamp.com
portapit.com
atec-sports.com
The Company is a Delaware corporation incorporated in 1982 and in
1988 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 the Company's common stock in April 1991, the Company was a
wholly owned subsidiary of Aurora. The Company has two wholly-owned
subsidiaries: 1) Athletic Training Equipment Company, Inc., a Delaware
corporation ("ATEC"), acquired in December, 1997, which was previously
named Sport Supply Group International Holdings, Inc. and 2) Conlin
Bros., Inc., a California corporation ("Conlin"), acquired in January,
1999.
The Company's executive offices are located at 1901 Diplomat
Drive, Farmers Branch, Texas 75234-8914 and its telephone number is
(972) 484-9484. The Company's Internet website (sportsupplygroup.com)
provides certain information about the Company.
Products
The Company believes it manufactures and distributes one of the
broadest lines of sports related equipment and leisure products to the
institutional market. SSG offers approximately 10,000 sporting goods
and sports and recreational leisure products, over 3,000 of which it
manufactures. The product lines offered by SSG 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, exercise equipment, outdoor
playground equipment, and early childhood development products.
The Company believes brand recognition is important to the
institutional market. Most of SSG's products are marketed under trade
names or trademarks owned or licensed by the Company. SSG believes
many of its trade names and trademarks are well recognized among
institutional purchasers of sports related equipment. SSG intends to
continue to expand its product and brand name offerings by actively
pursuing product, trademark and trade name licensing arrangements and
acquisitions. The Company's 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 -- 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 the Company 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. The Company is 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. SSG is permitted to use the Voit
trademark through December 31, 2004.
The Huffy sublicense permits the Company to use the Huffy[R]
trademark in connection with the manufacturing, advertising, selling
and distribution of certain sports related products and equipment to
institutional customers. The Company is required to pay annual
royalties under the sublicense. The term of the sublicense expires
September 30, 2003, subject to earlier termination as provided in the
sublicense.
In February 1992, the Company acquired two separate licenses to
use several trade names, styles, and trademarks (including, but not
limited to, MacGregor[R]). Each license permits the Company to
manufacture, promote, sell, and distribute to institutional sporting
goods customers (subject to certain exceptions) in the United States,
Canada, and Mexico, specified institutional sports related equipment
and products relating to baseball, softball, basketball, soccer,
football, volleyball, and general exercise. Each license is royalty-
free and exclusive with respect to certain customers and non-exclusive
with respect to others. Each license is perpetual provided the Company
generates a predetermined minimum amount of revenues each year from the
sale of products bearing the MacGregor trademark, maintains certain
quality standards for such products and services, and does not commit
any default under the license agreements that remains uncured for a
period of 30 days after the Company receives notice of such default.
The Company has converted a substantial portion of its 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, the Company 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. The Company is 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. SSG is
permitted to use the AMF name through December 31, 2001.
On December 15, 1995, the Company entered into a three year
agreement with Little League Baseball, Incorporated that, among other
things, names the Company as the "Official Factory Direct Equipment
Supplier of Little League Baseball". On August 15, 1997, the Company
and Little League Baseball extended the expiration of this agreement to
December 31, 2001. The Company is required to pay an annual fee to
keep the agreement in effect each year.
In addition to the foregoing, the Company has acquired (or had
issued) a number of patents relating to products sold by the Company.
The following is a list of some of the patents owned by the Company:
(i.) two separate patents relating to a Power Squat/Weight Lifting
Apparatus (expire May 20, 2003 and June 23, 2004, respectively), (ii.)
Baseball Hitting Practice Device (expires May 9, 2006), (iii.) two
separate patents relating to Football Digital Display Markers (expire
June 27, 2006 and November 28, 2006, respectively), (iv.) Tennis Net
and Method of Making (expires October 1, 2008), (v.) Rotator Cuff
Exercise Machine (expires January 29, 2008), (vi.) Portable Balance
Beam (expires July 28, 2009) and (vii.) Holder for Beverage Containers
(expires August 16, 2002).
Sales and Marketing
Sport Supply Group believes it is 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.
The Company solicits and sells its products through 13 different
direct mail catalogs, an inside sales and customer service staff of
over 130 people, an outside sales force of over 60 people traveling in
significant metropolitan sales territories, and nine internet sites.
The Company mailed over 2,000,000 million catalogs during fiscal 1999.
During the past year, the Company has more than doubled its outside
sales force and launched all nine Internet sites.
The Company has 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. Sport Supply Group believes it is
also a brand leader in the institutional sporting goods and sports
leisure market, marketing its 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], Mitre[R] AMF[R] and Flag-A-Tag[R]. The Company maintains its
mailing list of over 250,000 customer and target prospects as one of
its most valuable intangible assets.
Sport Supply Group also has licenses and marketing alliances with
national organizations including Little League Baseball, Major League
Baseball, YMCA, Hershey Chocolate USA, American Airlines, and Amway
Corp. SSG is the "Exclusive Official Factory Direct Equipment Supplier
of Little League Baseball". This affiliation allows SSG direct
marketing rights several times each year to the 7,700 chartered Little
Leagues in the USA, representing more than 2.0 million participants.
In 1996, SSG entered into a five-year advertising and distribution
agreement with Hershey Chocolate USA. Pursuant to this agreement, SSG
markets and distributes promotional fund raising literature and
programs to its customers, and services the fund raising needs of many
nontraditional customers.
In an effort to maximize the performance of the catalogs and
increase market penetration, the Company has 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 will focus on the promotion of
product to the institutional and youth sports markets that SSG
currently targets.
During fiscal year 1999, SSG expanded its local team sales hubs by
acquiring two local team dealers. These local team sales hub
acquisitions will continue to service the local institutional customers
and teams with a full line of athletic products. SSG will also use
this local presence to expand SSG 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. Subsequent
to SSG's fiscal year end, SSG further expanded its 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 SSG's existing facility in California. The Company
will continue to target strategic acquisitions to expand its local
market presence when such acquisitions offer SSG the opportunity to
further penetrate the institutional sporting goods market.
During fiscal year 1998, the Company 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 year, SSG made a significant investment in launching
the nine 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 recreational and game table 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
These Internet sites are designed to be aligned with specific SSG
catalogs targeted at customers connected to specific sports or
activities. The current Internet websites are integrated with the
Company's SAP IT platform. SSG's initial approach to the internet has
been a business to business strategy to offer customers that have a
catalog the opportunity to place an order, check order status and
confirm shipping information. In the future, the Company hopes to
expand its websites to include catalog product pictures, product and
other information, including stock availability.
Over the years, the Company believes it has established a market
leader position by constantly updating and expanding its product lines
and targeting selling efforts to specific customer profiles. The
Company targets one market, institutional sporting goods. Sales growth
is the result of strengthening its marketing and selling expertise and
constantly updating its product lines while expanding its selling and
distribution channels.
Customers
The Company's revenues are not dependent upon any single customer.
Instead, the Company enjoys a very large and diverse customer base.
The Company's customers include all levels of public and private
schools, colleges, universities and military academies, municipal and
governmental agencies, military facilities, churches, clubs, camps,
hospitals, youth sports leagues, non-profit organizations, team dealers
and certain large retail sporting goods chains. SSG believes its
customer base in the United States is the largest in the institutional
direct mail market for sports related equipment. The Company's
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 7% of the Company's sales in each of the last three
years were to the United States Government, a majority of which were
sales to military installations. SSG has a contract with the General
Services Administration (the "GSA Contract") that grants the Company an
"approved" status when attempting to make sales to military
installations or other governmental agencies. The existing GSA
Contract expires December 31, 2001. Under the GSA Contract, the
Company agrees to sell approximately 750 products to United States
Government agencies and departments at catalog prices or at prices
consistent with any discount provided to other customers of the
Company. Products sold to the United States Government under the GSA
Contract are always sold at the Company's lowest offered price.
The Company also has a separate contract with the General Services
Administration for the sale of approximately 40 camp related products
with terms similar to the GSA Contract. This contract is scheduled to
expire August 31, 2002.
SSG also sells 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
in September 30, 2001.
Seasonal Factors and Backlog
Historically, SSG's revenues are lowest in the first fiscal
quarter and peak in the second fiscal quarter. SSG's 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.
SSG had a backlog of approximately $2,458,000 at October 1, 1999
and $2,433,000 at October 2, 1998.
Manufacturing and Suppliers
The Company manufactures, assembles and distributes many of its
products from six of its facilities. See Item 2. -- "Properties" for
details. Game tables, gym mats, netting, and tennis and baseball field
equipment are manufactured in the Company's two Anniston, Alabama
plants. Gymnastics equipment is manufactured at SSG's facility in
Cerritos, California. Baseball and softball pitching machines are
manufactured at SSG's subsidiary in Sparks, Nevada. Items of steel and
aluminum construction, such as soccer field equipment and weight
equipment, are principally manufactured at SSG's facilities in Farmers
Branch, Texas.
Certain products manufactured by the Company are custom-made (such
as tumbling mats ordered in color or size specifications), while others
are standardized. The principal raw materials used by the Company 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 SSG are purchased from various suppliers
primarily located in the United States, the Republic of China (Taiwan),
Australia, the Philippines, Thailand, the People's Republic of China,
Pakistan, Sweden and Canada. SSG has no significant purchase contracts
with any major supplier of finished products, and most products
purchased from suppliers are readily available from other sources. The
Company purchases most of its finished product in U.S. dollars and is
therefore not subject to direct foreign exchange rate differences.
Competition
SSG competes in the institutional sporting goods market
principally with local sporting goods dealers, retail sporting goods
stores and other direct mail catalog marketers. The Company has
identified approximately 15 other direct mail companies in the
institutional market. SSG believes that most of these competitors are
substantially smaller than SSG in terms of geographic coverage,
products, E-Commerce capability and revenues.
The Company competes in the institutional market principally on
the basis of: brand, price, product availability and customer service.
SSG believes it has an advantage in the institutional market over
traditional sporting goods retailers and team dealers because its
selling prices do not include comparable price markups attributable to
traditional multi-distribution channel markups. In addition, the
Company's ability to control the availability of goods it manufactures
enables it to respond more rapidly to customer demand. SSG believes
its direct mail competitors operate primarily as wholesalers and
distributors, with little or no manufacturing capability.
Government Regulation
Many of the Company's 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 the Company's products, SSG is
periodically subject to product liability claims resulting from
personal injuries. The Company from time to time may become involved
in various lawsuits incidental to the Company's business, some of which
will relate to claims of injuries 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 the Company's general product
liability insurance will be sufficient to cover any successful product
liability claims made against the Company. In management's opinion,
any ultimate liability arising out of currently pending product
liability claims will not have a material adverse effect on the
Company's financial condition or results of operations. However, any
claims substantially in excess of the Company's insurance coverage, or
any substantial claim not covered by insurance, could have a material
adverse effect on the Company's results of operations and financial
position.
Employees
On December 3, 1999, SSG had approximately 543 full-time
employees, of whom 183 were involved in the Company's manufacturing
operations. SSG also hires part-time and temporary employees primarily
during the summer months. None of the Company's employees are
represented by a union, and the Company believes its relations with
employees are good.
EXECUTIVE OFFICERS OF THE COMPANY
(As of December 20, 1999)
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 36 President 1996
Terrence M. Babilla 37 Chief Operating Officer, 1995
Executive Vice President,
General Counsel and Secretary
Robert K. Mitchell 47 Chief Financial Officer 2000
Douglas E. Pryor 43 Vice President, Operations 1999
Eugene J.P. Grant 52 Vice President, Corporate 1999
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 its subsidiaries:
Approximate Lease
Facility Purpose Square Location Expires
Footage or is Owned
---------------- ------- -------- -----------
Manufacturing and corporate 135,000 Farmers July, 2001
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
The Company believes that the facilities used in its operations
are in satisfactory condition and adequate for its present and
anticipated future operations. In addition to the facilities listed
above, the Company leases space in various locations, primarily for use
as sales offices.
Item 3. Legal Proceedings.
The Company from time to time becomes involved in various claims
and lawsuits incidental to its business. In management's opinion, any
ultimate liability arising out of currently pending product liability
claims will not have a material adverse effect on the Company's
financial condition or results of operations. However, any claims
substantially in excess of the Company's insurance coverage, or any
substantial claim not covered by insurance (such as the claims
described below), could have a material adverse effect on the Company's
results of operations and financial condition. See Item 1. --
"Business -- Product Liability and Insurance".
On September 29, 1997, the Company terminated Mr. Eugene Davis as
Vice Chairman and a Consultant and requested that Mr. Davis resign as a
director of the Company. On September 30, 1997, the Company filed a
complaint in the United States District Court for the Northern District
of Texas, Dallas Division, seeking a declaration as to the existence of
an alleged consulting agreement and as to the Company's continuing
obligations to make payments to Mr. Davis. Thereafter, Mr. Davis filed
a complaint in the Law Division of the Superior Court of New Jersey,
against the Company for breach of an alleged consulting agreement and
against certain officers of the Company for tortious interference with
contractual relationships. The Company intends to vigorously defend
itself and the individual defendants against Mr. Davis' complaint.
On June 18, 1999 the Company 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, the Company added Riddell Sports, Corp. as a defendant.
The lawsuit arises out of a notice delivered by MacMark purportedly
terminating the Company's rights under its license to use the
MacGregor[R] trademark. The license is perpetual and royalty free
subject to certain limited termination rights. MacMark stated in its
notice that it considers there to be continuing and material breaches
of the license agreement and that such breaches are incurable, all of
which the Company disputes. Because the Company has converted a
substantial portion of its products to the MacGregor brand, termination
of the license agreement could have a material adverse effect on the
Company's results of operations and its financial position. The
Company believes MacMark has no reasonable basis to terminate this
license agreement. The Company intends to vigorously protect its
rights under the license agreement and pursue any other rights
available against any and all parties, including the Company's right to
prevent any tortious interference with its business relationships.
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.
SSG's common stock, par value $.01 per share (the "Common Stock")
is traded on the New York Stock Exchange, Inc. ("NYSE") under the
symbol GYM. As of December 20, 1999, there were 3,847 holders of the
Common Stock (including individual security position listings). The
following table sets forth the high/low sales range, adjusted for all
stock splits, for the periods indicated.
Common Stock
Fiscal Fiscal High Low
Year Quarter
---- ------- ------ -----
1998 First 8.500 6.125
Second 9.875 7.250
Third 10.250 8.125
Fourth 9.938 6.875
1999 First 9.313 5.875
Second 11.875 7.750
Third 10.750 8.750
Fourth 10.313 8.125
The Company has not declared dividends in the past two fiscal
years and currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends on its
capital stock in the foreseeable future.
On May 28, 1997, the Company's Board of Directors approved the
repurchase of up to 1,000,000 shares of its issued and outstanding
common stock in the open market and/or privately negotiated
transactions. On October 28, 1998, the Company approved a second
repurchase program of up to an additional 1,000,000 shares of its
issued and outstanding common stock in the open market and/or privately
negotiated transactions. As of October 1, 1999, the Company had
repurchased approximately 1,317,000 shares of its 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 of the Company. The Company will
evaluate purchases of Common Stock based upon day to day market
conditions.
On January 14, 1998, the Company issued 50,000 shares of
restricted stock to John P. Walker, President and a Director of the
Company, 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. The Company 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
for the Company. The data has been derived from the audited financial
statements of the Company. 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 the Company's
financial statements and notes thereto included in Item 8. --
"Financial Statements and Supplementary Data".
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED) (See Note 3 Below)
( Amounts in thousands, except for per share data )
Fiscal Fiscal Eleven Fiscal Ten Month
Year Year Months Year Months
Ended Ended Ended Ended Ended
Oct 1, Oct 2, Sep 26, Nov 1, Oct 31,
Statement of Earnings Data: 1999 1998 1997 (3) 1996 1995 (3)
------- ------ ------ ------- ------
Net revenues $107,069 $97,292 $79,109 $ 80,521 $65,134
Gross profit 40,884 37,726 31,404 29,955 25,259
Operating profit (loss) 7,552 7,157 4,226 (65) 3,894
Interest expense 1,196 474 757 1,372 1,126
Other income (expense), net 955 841 83 38 209
Earnings (loss) from continuing operations 4,623 4,964 2,576 (964) 1,847
Earnings (loss) from discontinued
operations (2) -- -- (2,574) (17,773) (457)
Net earnings (loss) $ 4,623 $ 4,964 $ 2 $(18,737) $ 1,390
======= ====== ====== ======= ======
Earnings (loss) per common share and
common equivalent share: (notes 1 and 3)
Net earnings (loss) per common share
from continuing operations $ 0.63 $ 0.62 $ 0.32 $ (0.14) $ 0.27
Net earnings (loss) per common share
from discontinued operation -- -- (0.32) (2.64) (0.07)
------- ------ ------ ------- ------
Net earnings (loss) per common share $ 0.63 $ 0.62 $ 0.00 $ (2.78) $ 0.20
======= ====== ====== ======= ======
Net earnings (loss) per common share
from continuing operations -
assuming dilution $ 0.60 $ 0.60 $ 0.32 $ (0.14) $ 0.27
Net earnings (loss) per common share
from discontinued operations -
assuming dilution -- -- (0.32) (2.63) (0.07)
------- ------ ------ ------- ------
Net earnings (loss) per common share -
assuming dilution $ 0.60 $ 0.60 $ 0.00 $ (2.77) $ 0.20
======= ====== ====== ======= ======
Weighted average common and common
equivalent shares: (note 1)
Weighted average common shares outstanding 7,390 8,026 8,146 6,747 6,941
Weighted average common shares outstanding -
assuming dilution 7,728 8,237 8,151 6,768 6,950
Cash dividends declared per common
share (note 1) -- -- -- -- $ 0.12
At At At At At
Oct 1, Oct 2, Sep 26 Nov 1, Oct 31
Balance Sheet Data: 1999 1998 1997 1996 1995
------- ------ ------ ------- ------
Working capital $31,873 $25,245 $24,006 $21,322 $42,231
Total assets 73,249 54,804 50,484 70,009 86,355
Long-term obligations, net 18,426 5,161 4,418 24,338 29,199
Total liabilities 31,141 13,626 11,527 40,846 38,745
Stockholders equity 42,108 41,178 38,957 29,163 47,610
NOTES TO SELECTED FINANCIAL DATA (UNAUDITED)
(1) Dividends declared in 1995 consisted of a $0.03 per share dividend
for each of the four quarters.
(2) See Note 10 to the consolidated financial statements included in
Item 8. - "Financial Statements and Supplementary Data".
(3) During 1995, the Company changed its financial reporting year-end
from December 31 to October 31. Consequently, the fiscal year ended
October 31, 1995 is a transition period consisting of ten calendar
months. During 1997, the Company changed its 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.
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 the Company's continuing operations as a percentage of
net revenues. During 1997, the Company changed its 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. See Note 1 to the consolidated financial statements
included in Item 8. - "Financial Statements and Supplementary Data".
For the For the For the
12 Months 12 Months 11 Months
Ended Ended Ended
Oct. 1, Oct. 2, Sep. 26,
1999 1998 1997
---- ---- ----
Net revenues (in thousands) $107,069 $97,292 $79,109
100.0% 100.0% 100.0%
Cost of sales 61.8% 61.2% 60.3%
Selling, general and
administrative expenses 31.1% 30.2% 32.7%
Non-Recurring Charges -- 1.2% 1.6%
Operating profit (loss) 7.1% 7.4% 5.4%
In March 1997, the Company sold its remaining golf related
operations. See Note 10 to the consolidated financial statements
included in Item 8. - "Financial Statements and Supplementary Data".
Consequently, the accompanying consolidated financial statements
present SSG's golf related operations as a discontinued operation
through the date of disposal. Due to the change in the Company's
fiscal year end from October 31 to September 30, the fiscal year ended
September 26, 1997 is comprised only of an eleven-month period.
Therefore, certain financial data for 1998 and 1997 presented within
this section also includes (where indicated) comparative information
relative to the twelve months ended September 26, 1997 (which
information is unaudited) to provide a more meaningful discussion of
comparable operating results.
The following discussion regarding 1999 as compared to 1998 and
1998 as compared to 1997, unless otherwise indicated, relates to the
Company's continuing operations only.
1999 Compared to 1998
The following table summarizes certain financial information
relating to the Company's results of continuing operations for the
twelve-month period ended October 1, 1999 and the comparable twelve-
month period of 1998 ended on October 2, 1998:
1999 1998
----------- ----------
Net Revenues $107,068,508 $97,291,991
Gross Profit $40,884,447 $37,726,176
SG&A $33,332,486 $29,385,623
Net Earnings $4,622,839 $4,964,311
Net Revenues. Net revenues for the twelve month fiscal year ended
October 1, 1999 ("fiscal 1999") increased by approximately $9.8 million
(10.1%) as compared to the prior twelve month 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. The Company is constantly reviewing its marketing methods to
maximize revenue growth and minimize expenses. As a result of the
acquisitions of Larry Black, Conlin Bros., Spaulding and LAKCO Team
Sports, the Company expects to experience an increase in sales. In
addition, the Company expects revenues associated with Hershey fund
raising to increase in fiscal year 2000 versus fiscal year 1999 due to
SSG's increased marketing efforts related to fund raising. SSG
generated approximately $1.6 million in revenues from Hershey fund
raising in fiscal year 1999. The Company also expects its revenues to
increase as a result of hiring approximately 25 new sales
representatives from August 1999 to December 1999.
Gross Profit. Gross profit for fiscal 1999 increased by approximately
$3.2 million (8.4%) as compared to the fiscal 1998. As a percentage
of net revenues, gross profit decreased to 38.2% in fiscal 1999 from
38.8% for fiscal 1998. This decrease was a result of increased
sales related to ATEC and the Team Dealer acquisitions because such
sales have lower margins than other sales within the Company's
business. In the event that revenues related to ATEC, Team Dealers and
fund raising continue to represent a larger percentage of total
revenues, the Company may experience a decrease in gross profit as a
percentage of net revenues in future periods.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1999 increased by approximately $3.9
million (13.4%) as compared to fiscal 1998. As a percentage of net
revenues, operating expenses increased to 31.1% for fiscal year 1999 as
compared to 30.2% 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. As many of
these new employees were hired in the second half of fiscal 1999,
and additional hiring is planned for fiscal 2000, payroll costs
are expected to continue to increase in fiscal 2000.
(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 has increased. Management believes the Company is not
assuming an increase in the credit exposure. It believes the
increase in days sales outstanding has been impacted by the staff
time demands of implementing and training on the new SAP IT
system. Nevertheless, the Company has increased the reserve
for doubtful accounts because of this increase in days sales
outstanding. The Company has also increased collection efforts
to improve the accounts receivable outstanding.
(iv.) An increase in depreciation and amortization expense is
primarily the result of hardware and software acquisitions related
to the Company's successful Year 2000 compliant SAP/AS400 ERP
information system implementation and Internet technology. The
depreciation of the IT system began in May 1999. Therefore an
increase in depreciation and amortization expense is expected for
fiscal year 2000 because of the full twelve-months of
depreciation.
These increases were partially offset by decreases in the
Company's freight differential and insurance expenses.
During fiscal years 1998 and 1999 the Company 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. Since the
old system was fully depreciated, the ongoing incremental depreciation
for the new system is expected to be approximately $1,000,000 a
year. MIS department operating expenses during fiscal 1998 and fiscal
1999 totaled over $1,700,000. The Company anticipates its MIS
operating expenses to be approximately $2,000,000 in the coming fiscal
year. The future MIS depreciation and operating expenses will be
significantly higher than in the past.
Operating Profit. Operating profit increased by approximately $395,000
(5.5%) to a profit of $7.6 million in fiscal 1999, as compared to $7.2
million in fiscal 1998. As a percentage of net revenues, operating
profit decreased to 7.1% in fiscal 1999 from 7.4% 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 the Company's 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. Interest expense is expected to continue to increase in
fiscal year 2000 as the Company experiences the full twelve-month
impact of increased borrowing levels.
Other Income, Net. Other income increased approximately $115,000 in
fiscal 1999 as compared to fiscal 1998. The increase in the other
income resulted primarily from vendor rebates. Other income included
services provided to Emerson such as human resources, advertising,
warehousing, distribution and banking functions as provided in a
Management Services Agreement between the Company and Emerson effective
May 1997. See Item 13 - "Certain Relationships and Related
Transactions". The Company anticipates a reduction in other income in
the future due to a lower level of expected vendor rebates.
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. The Company's
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. The Company anticipates the effective
income tax rates to remain at approximately 36.8% during fiscal year
2000. 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.
1998 Compared to 1997
The following table summarizes certain financial information relating
to the Company's results of continuing operations for the twelve-month
period ended October 2, 1998 and the comparable twelve-month period of
1997:
1997
1998 (unaudited)
---------- ----------
Net Revenues $97,291,991 $86,025,581
Gross Profit $37,726,176 $33,248,371
SG&A $29,385,623 $29,482,847
Net Earnings $4,964,311 $1,306,699
Net Revenues. Net revenues for the fiscal year ended October 2, 1998
increased by approximately $18.2 million (23.0%) as compared to the
eleven month period ended September 26, 1997. Net revenues for the
fiscal year ended October 2, 1998 increased by approximately $11.3
million (13.1%) as compared to the twelve month comparable period ended
September 26, 1997. The increase in net revenues reflects increases in
revenues associated primarily with the Company's Youth, U.S. Games, and
track and field products as well as the Company's ATEC subsidiary,
which was acquired on December 1, 1997. These increases were partially
offset by a decrease in Government sales. Net revenues were also
adversely impacted because the Company mailed significantly fewer
catalogs to its customers after consolidating the BSN, GSC, and
Passons' catalogs into one catalog. The benefits from reducing catalog
and postage expenses are reflected in the "Selling, General and
Administrative Expenses."
Gross Profit. Gross profit for the fiscal year ended October 2, 1998
increased by approximately $6.3 million (20.1%) as compared to the
eleven month period ended September 26, 1997 and $4.5 million (13.5%)
as compared to the twelve month period ended September 26, 1997. As a
percentage of net revenues, gross profit decreased to 38.8% in 1998
from 39.7% for the fiscal year ended September 26, 1997 as a result of
sales related to ATEC sales and the Youth league sales, as such sales
have lower margins than other sales within the Company's business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the fiscal year ended October 2, 1998
increased by approximately $3.5 million (13.6%) as compared to the
eleven month period ended September 26, 1997 and decreased $97,000
(0.3%) as compared to the twelve month period ended September 26, 1997.
As a percentage of net revenues, operating expenses decreased from
32.7% to 30.2% for the fiscal year ended October 2, 1998 as compared to
the fiscal year ended September 26, 1997. The decrease in these
expenses as a percentage of net revenues was primarily due to the
following factors:
(i.) A decrease in catalog expenses associated with the Company's
consolidation of the BSN, GSC, and Passons' catalogs.
(ii.) A decrease in bad debt expense associated with the Company's
successful collection efforts and better credit evaluations of
potential customers.
The decrease in operating expenses, as discussed above, was partially
offset by the additional operating expenses associated with Company's
acquisition of ATEC.
Nonrecurring Charges. The Company recorded a nonrecurring pre-tax
charge of approximately $1.2 million in the fourth quarter of the
fiscal year ended October 2, 1998 for compensation payments and a
consulting agreement relating to the retirement of Peter Blumenfeld,
President and Chief Operating Officer of the Company. The severance
payments were paid upon his retirement, and the consulting agreement
will be paid through July 2000.
Operating Profit. Operating profit increased by approximately $2.9
million (69.3%) to a profit of $7.2 million in fiscal year 1998 as
compared to the eleven month period ended September 26, 1997 and
increased by $4.7 million as compared to the twelve month period ended
September 26, 1997. As a percentage of net revenues, operating profit
increased to 7.4% in fiscal 1998 from 5.3% for the fiscal year ended
September 26, 1997. The increase in operating profit reflects the
impact of the (i) increase in gross profit dollars and (ii) the
decrease in operating expenses as a percentage of revenues as discussed
above.
Interest Expense. Interest expense decreased approximately $283,000
(37.4%) to $474,000 in fiscal 1998 from $757,000 for the fiscal year
ended September 26, 1997 and by $399,000 (45.7%) as compared to the
twelve month period ended September 26, 1997. The decrease in interest
expense resulted from reduced interest rates and overall reduced levels
of borrowings.
Other Income, Net. Other income increased approximately $758,000 in
fiscal 1998 as compared to the fiscal year ended September 26, 1997 and
$759,000 as compared to the twelve-month period ended September 26,
1997. The increase in other income resulted from promotional
agreements entered into between the Company and certain corporate
sponsors. Other income also included services provided to Emerson such
as human resources, advertising, warehousing/distribution, and banking
functions as provided in a Management Services Agreement between the
Company and Emerson effective May 1997. See Item 13 - "Certain
Relationships and Related Transactions".
Provision for Income Taxes. The provision for income taxes increased
approximately $1.6 million to a provision of $2.6 million in fiscal
1998 from a provision of $976,000 in fiscal 1997. The Company's
effective tax rate increased to 34.0% in fiscal 1998 from 27.5% in
fiscal 1997.
Earnings from Continuing Operations. Earnings from continuing
operations increased approximately $2.4 million to $5.0 million in 1998
from $2.6 million in fiscal 1997 and increased approximately $3.7
million as compared to the twelve month period ended September 26,
1997. As a percentage of the net revenues, net earnings increased to
5.1% in 1998 from 3.3% in fiscal 1997. Earnings per share before
dilution from continuing operations increased to $0.62 per share in
1998 from $0.32 per share in fiscal 1997. The fiscal year ended
October 2, 1998 includes a decrease of approximately 1.5% in weighted
average shares outstanding.
Liquidity and Capital Resources
The Company's working capital increased approximately $6.6 million
during the fiscal year ended October 1, 1999, from $25.2 million at
fiscal year ended October 2, 1998 to $31.9 million at October 1, 1999.
The increase in working capital is primarily a result of: (i.) the
inventory acquired from the acquisition of Conlin in January 1999 and
Larry Black in February 1999 and (ii.) a $6.0 million increase in trade
receivables due to higher revenues, acquisitions and an increase in the
days sales outstanding. This increase was partially offset by: (i.)
a $1.8 million increase in trade payables, (ii.) a $1.2 million
increase in accrued liabilities, and (iii.) a $1.3 million increase
in current notes payable.
On April 26, 1999, the Company replaced its existing senior credit
facility with a new credit facility. The new credit facility includes
a revolving line of credit of up to $30 million and a term loan of $10
million with a maturity date of April 26, 2002. The Agreement provides
for lower interest rates and fees as well as fewer reporting
requirements as compared to the Company's prior credit facility. The
credit agreement also contains borrowing base restrictions, financial
and net worth covenants in addition to limits on capital expenditures.
Except for continued functionality advancement of the SAP/AS400 system,
the Company does not currently have any material commitments for
capital expenditures.
As of October 1, 1999, the Company had total borrowings under its
senior credit facility of approximately $20.0 million. This balance
included a term loan of $9.0 million and revolver balance (including
open letters of credit) of $11.0 million. The term loan is payable in
monthly installments of $167,000 principal plus accrued interest. The
term loan becomes due in full on April 26, 2002. The net increase from
1998 to 1999 of approximately $14.6 million in borrowings under the
senior credit facility is a result of: (i.) cash payments for
the Conlin, Larry Black and Flag A Tag acquisitions, (ii.) stock
repurchased for cash under the Company's stock buyback program and
(iii.) cash paid for the SAP/AS400 ERP system implementation, Internet
technology development and Year 2000 remediation efforts.
The Company believes it will satisfy its short-term and long-term
liquidity needs from borrowings under its senior credit facility and
cash flows from operations.
On May 28, 1997, the Company's Board of Directors approved the
repurchase of up to 1,000,000 shares of its issued and outstanding
common stock in the open market and/or privately negotiated
transactions On October 28, 1998, the Company's Board of Directors
approved a second repurchase program of up to an additional 1,000,000
shares of its issued and outstanding common stock in the open market
and/or privately negotiated transactions. As of October 1, 1999, the
Company had repurchased approximately 1,317,000 shares of its 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 of the Company.
During October 1999, the Company acquired, for cash (approximately
$1 million) and the assumption of certain liabilities, certain assets
of LAKCO, Inc. and Spaulding, Inc., both distributors of sporting goods
equipment to the institutional market. The Company has accounted for
these acquisitions using the purchase method and, as such, its results
of operations are combined with the Company's results of operations
subsequent to the acquisition date. No proforma information is
presented herein because the proforma information would not materially
differ from actual results.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four digits to define the
applicable year. The Company's computer equipment and software and
devices with imbedded technology that are time-sensitive may recognize
a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculation causing disruptions
of operations, including, among other things, a temporary inability to
process transactions, ship products, send invoices, or engage in
similar normal business activities.
The Company has undertaken significant initiatives intended to
ensure that its computer equipment and software will function properly
with respect to dates in the Year 2000 and thereafter. For this
purpose, the term "computer equipment and software" includes systems
that are commonly thought of as IT systems, including accounting, data
processing, logistics, telephone/PBX systems, cash registers, hand-held
terminals, scanning equipment, and other miscellaneous systems, as well
as systems that are not commonly thought of as IT systems, such as
alarm systems, fax machines, postage machines, and other equipment and
systems. Both IT and non-IT systems may contain imbedded technology,
which complicates the Company's Year 2000 identification, assessment,
remediation, and testing efforts.
Based upon its identification, assessments, equipment replacement,
systems conversions, systems updates and subsequent testing, the
Company believes that it has taken the necessary steps to bring the IT
and non-IT systems within the Company to become Year 2000 compliant.
The Company's Year 2000 project began in fiscal 1998. It was
decided early in the project that the Company's existing 10 year old
system was not Year 2000 compliant, and would require significant
hardware changes and total reprogramming of the old software. The
Company decided this was not a viable solution. The Company decided to
do a complete hardware and software conversion. In June 1998 the
Company selected SAP as the software vendor and ordered an IBM AS400 to
begin the conversion project. The Company also decided to install an
NT server-based Microsoft Office network. The SAP software was
installed in July 1998 and in May 1999 the Company "went live" on the
new SAP/AS400 IT Platform. The Company has continued and will continue
functionality advancement of the SAP/AS400 system.
The Company's Year 2000 compliance is also dependent on the
compliance of third parties such as vendors, service providers and
customers. The Company has mailed letters to its significant vendors
and service providers, and has received written certification from its
bank, UPS, IBM, SAP and other significant service providers that they
are Year 2000 compliant. The Company has also relied on certifications
available on vendor websites. Due to the diversity and volume of
customers, service providers and vendors, the Company cannot determine
the full extent to which the Company may be affected if such Year 2000
Issues are not resolved by third parties.
The Company has engaged, and relied upon, independent experts and
suppliers to assist in the Year 2000 evaluation, assessment,
remediation, implementation and testing of IT and non-IT systems.
Based on the services and testing by these experts, the Company
presently believes that it has taken all necessary internal measures to
ensure internal Year 2000 issues are satisfactorily resolved, and that
the Year 2000 Issue will not pose significant operational problems for
the Company. Year 2000 Issues could be significantly impacted by IT
and non-IT suppliers such as IBM, Lucent Technologies, SAP, telephone
and utility companies, transportation companies and financial
institutions. There can be no assurances that all Year 2000 Issues are
resolved. There is an element of risk relating to significant Year
2000 deficiencies being exposed in the future. Should Year 2000
deficiencies occur in the future, the Company would be reliant on the
availability of expert support to resolve such issues. The Company has
no way of assessing the magnitude of such risks. There are no
guarantees that the Year 2000 Issue is universally resolved. If the
Year 2000 Issue should expose deficiencies in critical business systems
and processes, there will be a negative and potentially material
operational and financial impact on the Company.
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 Management's beliefs as well as
assumptions made by and information currently available to Management.
When used in this report, the words "anticipate", "believe",
"estimate", "expect", "predict", "project" and similar expressions are
intended to identify forward looking statements. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from
those anticipated, expected or projected. Among the key factors that
may have a direct bearing on the Company's results are set forth below.
Future trends for revenues and profitability remains difficult to
predict. The Company continues to face many risks and uncertainties,
including: general and specific market economic conditions, reduced
sales to the United States Government due to reduction in Government
spending, risk of nonpayment of accounts receivable, competitive
factors, foreign supplier related issues, risks associated with the
Year 2000 Issue and litigation risks.
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 the Company's costs.
Approximately 7% of the Company's fiscal year 1999 sales where
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 the Company's results
of operations.
The Company ships approximately 50% of its products using United
Parcel Service ("UPS"). As experienced in 1997, a strike by UPS or
any of the Company's other major carriers could adversely affect the
Company's results of operations due to not being able to deliver its
products in a timely manner and using other more expensive freight
carriers. Although the Company has analyzed the cost benefit effect
of using other carriers, the Company continues to utilize UPS for the
majority of its small package shipments.
Management continues to closely monitor orders and the
creditworthiness of its customers. The Company has not experienced
abnormal increases in losses associated with accounts receivable;
however, it has experienced an increase in days sales outstanding. The
Company has made allowances for the amount it believes to be adequate
to properly reflect the risk to accounts receivable; however,
unforeseen market conditions may compel the Company to increase the
allowances.
The sports related equipment market in which the Company
participates is highly competitive and there are no significant
barriers to enter this market. SSG competes principally in the
institutional market with local sporting goods dealers, as well as
other direct mail companies.
The Company derives a significant portion of its revenues from
sales of products purchased directly from foreign suppliers located
primarily in the Far East. In addition, the Company believes foreign
manufacturers produce many of the products it purchases from domestic
suppliers. The Company is 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 the Company's operations.
Advances and changes in available technology can significantly
impact the Company. The Year 2000 Issue and SAP/AS400 ERP system
implementation project (as described above) involves risks for the
Company from unforeseen problems in its own computer systems and from
outside third parties, both customers and vendors, with whom the
Company deals on a daily basis. Such failures of the Company's, and/or
outside third parties', computer systems could have a material adverse
impact on the Company's ability to conduct its business and adversely
affect the Company's results of operations.
Although the Company intends to vigorously defend itself in the
legal proceedings described in "Item 3. - Legal Proceedings", an
adverse outcome in such proceedings (such as a termination of the
MacGregor License Agreement) could have a material adverse effect on
the Company's results of operations and its financial position.
On December 7, 1999, the Company's Board of Directors retained
Paine Webber, Inc.to explore strategic alternatives, after the Company
was notified that Oaktree Capital Management would not be exercising
its option to acquire the Company's common stock held by Emerson Radio
Corp. under a letter of intent previously reported in August 1999.
Emerson Radio, who beneficially owns approximately 40% of the Company's
issued and outstaqnding common stock, has indicated that it agrees
with the decision of the Company to explore alternatives. No assurance
can be made that any transaction or strategic alternative will be
consummated by the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As the Company's borrowing levels have increased, an increase in
interest rates and the resulting increase in interest expense could
have an adverse effect on the Company's results of operations and its
financial position.
Item 8. Financial Statements and Supplementary Data.
Sport Supply Group, Inc.
Index to Financial Statements Page
----------------------------- ----
Reports of Independent Auditors 22
Consolidated Balance Sheets as of October 1, 1999 and
October 2, 1998 23
Consolidated Statements of Operations for the Year Ended
October 1, 1999, October 2, 1998 and the Eleven Month
Period Ended September 26, 1997 24
Consolidated Statements of Stockholders' Equity for the Year
Ended October 1, 1999, October 2, 1998, and the Eleven Month
Period Ended September 26, 1997 25
Consolidated Statements of Cash Flows for the Year Ended
October 1, 1999, October 2, 1998, and the Eleven Month
Period Ended September 26, 1997 26
Notes to Consolidated Financial Statements 28
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 October 1, 1999 and
October 2, 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flow for the years ended October 1,
1999, October 2, 1998, and the eleven month period ended September 26,
1997. 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 generally accepted
auditing standards. 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 it's subsidiaries as
of October 1, 1999 and October 2, 1998, and the consolidated results of
its operations and its cash flow for the year ended October 1, 1999 and
the year ended October 2, 1998 and the eleven month period ended
September 26, 1997 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Dallas, Texas
November 5, 1999
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 1, 1999 AND OCTOBER 2, 1998
October 1, October 2,
1999 1998
---------- ----------
CURRENT ASSETS :
Cash and equivalents $ 201,911 $ 1,035,466
Accounts receivable:
Trade, less allowance for doubtful accounts
of $465,000 in 1999, and $372,000 in 1998. 22,926,169 16,151,371
Other 975,956 572,234
Inventories, net 18,509,262 14,102,837
Other current assets 911,972 943,521
Deferred tax assets 1,062,188 904,318
---------- ----------
Total current assets 44,587,458 33,709,747
---------- ----------
DEFERRED CATALOG EXPENSES 2,078,262 1,916,035
PROPERTY, PLANT AND EQUIPMENT :
Land 8,663 8,663
Buildings 1,605,102 1,595,228
Machinery and equipment 14,033,236 7,985,507
Furniture and fixtures 3,484,311 2,683,122
Leasehold improvements 2,368,439 2,764,385
---------- ----------
21,499,751 15,036,905
Less -- Accumulated depreciation and amortization (8,889,925) (7,574,024)
---------- ----------
12,609,826 7,462,881
---------- ----------
DEFERRED TAX ASSETS 2,101,239 4,659,189
COST IN EXCESS OF TANGIBLE NET ASSETS ACQUIRED,
less accumulated amortization of $1,464,000
in 1999, and $1,240,000 in 1998. 7,937,809 3,174,725
TRADEMARKS, less accumulated amortization of
$1,339,000 in 1999, and $1,136,000 in 1998. 3,079,010 3,163,290
OTHER ASSETS, less accumulated amortization of
$1,058,000 in 1999, and $994,000 in 1998. 855,375 717,748
---------- ----------
$73,248,979 $54,803,615
========== ==========
CURRENT LIABILITIES :
Accounts payable $ 7,975,509 $ 6,178,080
Income taxes payable 12,177 87,250
Accrued property taxes 173,107 218,201
Other accrued liabilities 2,143,265 893,598
Notes payable and capital lease obligations,
current portion 2,410,839 1,087,809
---------- ----------
Total current liabilities 12,714,897 8,464,938
---------- ----------
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS, net
of current portion 18,425,925 5,160,965
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock, par value $0.01, 100,000 shares
authorized, with no shares outstanding in 1999,
and 1998. -- --
Common stock, par value $0.01, 20,000,000 shares
authorized, with 9,333,241 and 9,243,195 shares
issued in 1999 and 1998, 7,273,899 and 7,754,703
shares outstanding in 1999 and 1998. 93,332 92,432
Additional paid-in capital 59,743,384 59,100,187
Retained earnings or (deficit) (122,207) (4,745,046)
Treasury stock, at cost, with 2,059,342 shares
in 1999 and 1,488,482 shares in 1998. (17,606,352) (13,269,861)
---------- ----------
42,108,157 41,177,712
---------- ----------
$73,248,979 $54,803,615
========== ==========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended October 1, 1999, The Year Ended October 2, 1998,
The Eleven Month Period Ended September 26, 1997 (See Note 1)
1999 1998 1997
----------- ---------- ----------
NET REVENUES $107,068,508 $97,291,991 $79,109,063
COST OF SALES 66,184,061 59,565,815 47,705,408
----------- ---------- ----------
GROSS PROFIT 40,884,447 37,726,176 31,403,655
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE 33,332,486 29,385,623 25,877,428
NONRECURRING CHARGES 0 1,184,024 1,300,000
----------- ---------- ----------
Operating Profit 7,551,961 7,156,529 4,226,227
OTHER INCOME (EXPENSE):
Interest Expense (1,196,112) (473,899) (757,181)
Other Income, net 955,319 840,763 82,523
----------- ---------- ----------
(240,793) 366,864 (674,658)
Earnings from continuing
operations before income taxes 7,311,168 7,523,393 3,551,569
INCOME TAXES (2,688,329) (2,559,082) (975,569)
----------- ---------- ----------
EARNINGS FROM CONTINUING OPERATIONS 4,622,839 4,964,311 2,576,000
DISCONTINUED OPERATIONS:
Loss from operations, net of
income tax benefit -- -- --
Loss on disposal, net of
income tax benefit -- -- (2,574,000)
----------- ---------- ----------
Loss from dsicontinued operations -- -- (2,574,000)
----------- ---------- ----------
NET EARNINGS $ 4,622,839 $ 4,964,311 $ 2,000
=========== ========== ==========
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE
Continuing operations $ 0.63 $ 0.62 $ 0.32
Discontinued operations -- -- (0.32)
----------- ---------- ----------
Net earnings $ 0.63 $ 0.62 $ --
=========== ========== ==========
Continuing operations -
assuming dilution $ 0.60 $ 0.60 $ 0.32
Discontinued operations -
asuming dilution -- -- (0.32)
----------- ---------- ----------
Net earnings - assuming dilution $ 0.60 $ 0.60 $ --
=========== ========== ==========
WEIGHTED AVERAGE NUMBER OF:
COMMON SHARES OUTSTANDING 7,390,274 8,025,606 8,146,074
=========== ========== ==========
COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING - ASSUMING DILUTION 7,727,777 8,236,530 8,151,414
=========== ========== ==========
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 October 1, 1999, The Year Ended October 2, 1998,
The Eleven Month Period Ended September 26, 1997 (See Note 1)
Additional Retained Unrealized
Common Stock Preferred Stock Paid in Earnings or Treasury Stock Holding
Shares Amount Shares Amount Capital (Deficit) Shares Amount Period Total
Gain (loss)
--------- ------- ------ ------ ----------- ---------- ------- ------------ ------- -----------
Balance, November 1, 1996 7,551,899 $75,519 -- $ -- $46,543,193 $(9,711,357) 787,065 $(7,744,386) $ -- $29,162,969
--------- ------- ------ ------ ----------- ---------- ------- ------------ ------- -----------
Issuances of common stock
upon exercises of
outstanding options 6,850 69 47,025 47,094
Issuances of common stock 1,600,000 16,000 11,984,000 12,000,000
Purchase of treasury stock 287,300 (2,254,744) (2,254,744)
Net earnings 2,000 2,000
--------- ------- ------ ------ ----------- ---------- ------- ------------ ------- -----------
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 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 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
--------- ------- ------ ------ ----------- ---------- ------- ------------ ------- -----------
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended October 1, 1999, The Year Ended October 2, 1998,
The Eleven Month Period Ended September 26, 1997 (See Note 1)
1999 1998 1997
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net earnings $ 4,622,839 $ 4,964,311 $ 2,000
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Loss on disposal of discontinued operations -- -- 2,574,000
Depreciation and amortization 2,072,117 1,390,178 1,284,156
Provision for (recovery of) allowances for
accounts receivable 411,512 (428,756) (244,730)
Changes in assets and liabilities:
(Increase) decrease in receivables (6,602,602) 346,687 (2,010,346)
(Increase) decrease in inventories (3,039,248) (1,041,239) 3,036,080
(Increase) decrease in deferred catalogs and
other current asset 57,542 (1,125,628) 1,533,535
(Increase) decrease in current deferred tax assets (157,870) 1,165,360 3,813,663
Increase (decrease) in accounts payable 602,636 1,221,250 (5,036,219)
Increase (decrease) in accrued liabilities (1,012,097) (688,080) (589,994)
(Increase) decrease in other assets 132,638 (29,294) (64,547)
(Increase) decrease in noncurrent deferred
tax assets 2,557,950 1,179,706 (1,346,048)
Other -- (22,091) (11,046)
Discontinued operations -- noncash items &
working capital change -- -- (697,524)
---------- ---------- ----------
Net cash provided by (used in) operating activities (354,583) 6,932,404 2,242,980
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisitions of property, plant and equipment (6,438,359) (2,969,139) (155,439)
Proceeds from sale of investments 23,891 14,044 --
Payments for acquisitions, net of cash acquired (4,260,100) (1,500,682) --
Investing activities of discontinued operations -- -- (1,657)
Proceeds from sale of discontinued operations -- -- 8,160,826
---------- ---------- ----------
Net cash provided by (used in) investing activities (10,674,568) (4,455,777) 8,003,730
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from issuances of notes payable 21,099,089 2,916,984 1,159,560
Payments of notes payable and capital
lease obligations (7,211,099) (2,217,006) (21,031,054)
Proceeds from common stock issuances 911,593 742,535 12,047,094
Dividends paid to stockholders -- -- --
Purchase of treasury stock (4,603,987) (3,486,453) (2,254,744)
Financing activities of discontinued operations -- -- --
---------- ---------- ----------
Net cash provided by (used in) financing activities 10,195,596 (2,043,940) (10,079,144)
---------- ---------- ----------
NET CHANGE IN CASH AND EQUIVALENTS (833,555) 432,687 167,566
Cash and Equivalents, beginning of period 1,035,466 602,779 435,213
---------- ---------- ----------
Cash and Equivalents, end of period $ 201,911 $ 1,035,466 $ 602,779
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
For The Year Ended October 1, 1999, The Year Ended October 2, 1998,
The Eleven Month Period Ended September 26, 1997 (See Note 1)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
1999 1998 1997
---------- ---------- ----------
Cash paid during the period for interest $ 1,181,529 $ 502,414 $ 1,297,675
========== ========== ==========
Cash paid during the period for income taxes $ 160,000 $ 6,671 $ 10,825
========== ========== ==========
During fiscal 1999 and 1998, the Company acquired the
assets of certain entities. In connection with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired $8,296,490 $2,388,750 --
Cash paid for the acquisition, net (4,260,100) (1,500,682) --
Debt issued for the acquisition (700,000) (588,068) --
---------- ---------- ----------
Liabilities assumed $ 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
October 1, 1999
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Background
Sport Supply Group, Inc. (the "Company" or "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 the
Company effective September 30, 1988. Before its initial public
offering completed in April 1991, the Company was a wholly owned
subsidiary of Aurora. The Company, whose operations are all within one
financial reporting segment, is engaged principally in the manufacture
and marketing of sports related equipment and leisure products to
institutional customers in the United States. The Company
manufactures many of the products it sells. This includes, but is 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.) Other track
and field equipment; 4.) Gymnastic 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 its wholly owned subsidiaries, Athletic Training Equipment Company,
Inc., a Delaware corporation ("ATEC") and Conlin Bros., Inc. ("Conlin")
a California corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated
financial statements also include estimates and assumptions made by
management 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.
During May 1996, the Company sold substantially all of the assets
(other than cash and accounts receivable) of its Gold Eagle
Professional Golf Products Division (the "Gold Eagle Division").
Subsequent to the sale of the Gold Eagle Division, the Company adopted
a formal plan to dispose of the remaining operations of the Company's
golf related operations (which previously included the Gold Eagle
Division) and therefore has classified these operations as
discontinued. On March 28, 1997, SSG disposed of substantially all of
the remaining assets of the discontinued operation to a privately held
corporation. Consequently, the Company's golf related operation is
reported as a discontinued operation through the date of disposal in
the accompanying consolidated financial statements.
Change in Fiscal Year
In January 1997, the Company changed its financial reporting year-
end from October 31 to September 30. Accordingly, the 1997 fiscal year
ended September 26, 1997 is a transition period consisting of eleven
months. The Company now operates on a 52/53 week reporting fiscal year
ending on the Friday closest to September 30.
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 the Company and weighted-average cost
for items purchased for resale. As of October 1, 1999 and October 2,
1998 inventories consisted of the following:
Inventory Data: Oct. 1, 1999 Oct. 2, 1998
---------- ----------
Raw materials $ 3,209,581 $ 2,761,885
Work-in-process 435,904 236,466
Finished and purchased goods 15,928,680 11,530,406
---------- ----------
19,574,165 14,528,757
Less inventory allowance for
obsolete or slow moving items (1,064,903) (425,920)
---------- ----------
Inventory, Net $18,509,262 $14,102,837
========== ==========
The inventory allowance reflects management's periodic assessment
of the carrying value of the Company's inventory. For the fiscal year
ended October 1, 1999 the Company increased the provision by
approximately $639,000. For the fiscal year ended October 2, 1998 the
Company recorded approximately $284,000 against the inventory allowance
for the disposal of certain obsolete or slow-moving items. As of
October 1, 1999 and October 2, 1998 approximately 27%, and 33%
respectively of total ending inventories were products manufactured by
the Company with the balance being products purchased from outside
suppliers. Sales of products manufactured by SSG accounted for
approximately 36% and 31% of total net revenues in fiscal 1999 and
1998, respectively. Costs included in products manufactured by SSG
include raw materials, direct labor and manufacturing overhead.
Advertising and Deferred Catalog Expenses
The Company expenses 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
the Company's products. Production costs, primarily printing and
postage, associated with catalogs are amortized over twelve months.
The Company's advertising expenses for the fiscal years ended October
1, 1999, October 2, 1998 and the eleven month period ended September
26, 1997 were approximately $3,571,000, $2,864,000 and $3,776,000,
respectively.
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
Furniture and Fixtures Five years
Intangible Assets
Cost in excess of tangible net assets acquired relates to
acquisitions made by the Company. 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 the Company's 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 assets acquired Principally thirty
to forty years
Trademarks and servicemarks Five to forty years
Patents Seven to eleven years
Management periodically assesses the recoverability of the
carrying value of intangible assets in relation to current and
anticipated net earnings and cash flows. Based on management's
assessment, the Company believes its investments in intangible assets
are fully realizable as of October 1, 1999.
The cost of intangible assets and related accumulated amortization
are removed from the Company's 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
The Company's policy is to recognize revenue upon shipment of
inventory and record an estimate against revenues for possible returns
based upon the historical return rate of the Company. Customers do not
have the right to return product unless the product is damaged or
defective or the wrong product is shipped. The Company believes sales
are final upon shipment of inventory based upon the following criteria
under SFAS 48:
- The Company's price to our customers is fixed at the time an order
is placed.
- The customers have paid, or are obligated to pay, the Company.
- 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.
- The Company is not obligated for future performance to any of its
customers.
- Future returns can be reasonably estimated based on historical data.
2. STOCKHOLDERS' EQUITY:
Stock Options
The Company maintains 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 of the Company.
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 10 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 November 1, 1996 685,473 $8.85
Granted 594,375 $7.49
Exercised (6,850) $6.88
Forfeited (232,425) $7.92
---------
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
=========
Stock Options Outstanding Stock Options Exercisable
as of Oct. 1, 1999 as of Oct. 1, 1999
------------------------------------------------- -------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Range of Remaining Exercise Exercise
Exercise Prices Shares Life Price Shares Price
--------------- --------- --------- ------ ------- -----
$6.125 - $9.44 1,087,799 5.7 years $7.695 530,712 $7.30
All options granted under the stock option plan during the fiscal
years ended on October 1, 1999, October 2, 1998, the eleven month
period ended on September 26, 1997 and the fiscal year ended on
November 1, 1996 were at exercise prices equal to or greater than the
fair market value of the Company's stock on the date of the grant. On
May 13, 1996, the Company repriced the exercise price to the current
fair market value of certain employees' (excluding officers and
directors) stock options that were granted pursuant to the stock option
plan and that had an original exercise price in excess of the fair
market value of the common stock on May 13, 1996 of $6.875. The
exercise price of these options was lowered to $6.875. On January 23,
1997, certain officers' options were repriced to an amount above the
current fair market value. The exercise price of these options was
reduced to $7.50 per share.
In addition to options granted pursuant to the stock option plan,
the Company periodically grants options to purchase shares of SSG's
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 the Company's common stock on the
dates of grant.
As of October 1, 1999, there were a total of 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
prices 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. As of September 26,
1997, 735,703 of the total options outstanding were fully vested with
550,000 options vesting in January 2000.
Pro forma information regarding net income and net income per
share has been determined as if the Company 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 ranging
from 5.63% to 5.85%; (ii.) dividend yield of 0%; (iii.) expected
volatility of 30%; and (iv.) weighted average expected life for each
option of 3 years. The weighted average exercise prices and the
weighted average fair values of employee stock options are as follows:
For the Fiscal For the Fiscal For the 11 Month
Year Ended Year Ended Period Ended
Oct. 1, 1999 Oct. 2, 1998 Sep. 26, 1997
-------------- -------------- ---------------
Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Fair Exercise Fair Exercise Fair
Price Value Price Value Price Value
----- ----- ----- ----- ----- -----
Exercise price
of stock
option on
grant date:
Equals market
value - $8.52 $2.34 $7.65 $1.81 $ - $ -
Exceeds market
value - $ - $ - $ - $ - $7.49 $3.01
For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the vesting period; therefore,
its proforma effect will not be fully realized until the completion of
one full vesting cycle. The Company's pro forma information is as
follows:
For the Fiscal For the Fiscal For the 11 Month
Year Ended Year Ended Period Ended
Oct. 1, 1999 Oct, 2, 1998 Sep. 26, 1997
------------- ------------- --------------
Net income (loss):
As reported $4,622,839 $4,964,311 $ 2,000
Pro forma $4,119,255 $4,526,870 $(804,809)
Earnings (loss) per
share:
As reported $0.63 $0.62 $ 0.00
As reported -
with dilution $0.60 $0.60 $ 0.00
Pro forma earnings $0.56 $0.56 $(0.10)
Pro forma dilutive $0.53 $0.53 $(0.10)
Dividends
During January 1996, the Company terminated its annual cash
dividend policy.
Common Stock Purchase Warrants
Pursuant to a Securities Purchase Agreement dated November 27,
1996 between Emerson Radio Corp. ("Emerson") and the Company, Emerson
acquired directly from the Company 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.
Repurchase of Common Stock
On May 28, 1997, the Company approved the repurchase of up to
1,000,000 shares of its issued and outstanding common stock in the open
market and/or privately negotiated transactions. On October 28,
1998, the Company's Board of Directors approved a second repurchase
program of up to an additional 1,000,000 shares of its issued and
outstanding common stock in the open market and/or privately negotiated
transactions. As of October 1, 1999, the Company had repurchased
approximately 1,317,000 shares of its 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 of the Company. The Company will evaluate purchases of common
stock based upon day to day market conditions.
Net Earnings Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share". Statement No. 128 replaced
the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share exclude any dilutive effects of
options, warrants and convertible securities. Diluted earnings per
share are very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods
have been presented and, where necessary, restated to conform with
these requirements.
The following table sets forth the computation of basic and
diluted earnings per share:
For the Fiscal For the Fiscal For the 11 Month
Year Ended Year Ended Period Ended
Oct. 1, 1999 Oct. 2, 1998 Sep. 26, 1997
------------ ------------ -------------
Numerator:
----------
Net earnings from
continuing operations $4,622,839 $4,964,311 $2,576,000
Income available to
common shareholders $4,622,839 $4,964,311 $2,576,000
========= ========= =========
Denominator:
------------
Weighted average
shares outstanding 7,390,274 8,025,606 8,146,074
Effect of dilutive
securities:
Warrants 148,577 94,884 --
Employee stock options 188,926 116,040 5,340
--------- --------- ---------
Adjusted weighted
average shares and
assumed conversions 7,727,777 8,236,530 8,151,414
========= ========= =========
Per Share Calculations:
----------------------
Basic earnings per share $0.63 $0.62 $0.32
========= ========= =========
Diluted earnings per share $0.60 $0.60 $0.32
========= ========= =========
3. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS:
As of fiscal years ended October 1, 1999 and October 2, 1998 ,
notes payable and capital lease obligations consisted of the following:
1999 1998
---------- ---------
Note payable under revolving line of
credit, interest at prime minus 1/2%
(7.75% at Oct 1, 1999, and 8.75%
at Oct 2, 1998), or LIBOR plus 1-1/4%
(6.52%, 6.96%, 6.44% and 7.13% at
Oct 1, 1999 and 7.78% at Oct 2, 1998),
due Apr. 26, 2002 and collateralized
by substantially all assets. $11,044,264 $4,411,967
Term loan, interest at LIBOR plus 1-
1/4% (6.52%, 6.96%, 6.44%, and
7.13% at Oct 1, 1999 and 7.78% at
Oct 2, 1998), Payable in monthly
installments of $166,667 plus
accrued interest through Apr. 26,
2002 and collateralized by
substantially all assets. 9,000,000 1,000,000
Promissory note, noninterest bearing,
due June 30,1999. -- 525,000
Promissory note, interest at 7.75%,
payable in monthly installments of
$29,167 plus accrued interest
through February 2001. 466,667 --
Capital lease obligation, interest at
7.4%, payable in monthly installments
of principal and interest totaling
$3,159 through December 1998. -- 9,357
Capital lease obligation, interest at
9%, payable in annual installments
of principal and interest totaling
$55,000 through August 2005. 230,311 261,753
Other 95,522 40,697
---------- ---------
Total 20,836,764 6,248,774
Less - current portion (2,410,839) (1,087,809)
---------- ---------
Long-term debt and capital lease
obligations, net $18,425,925 $5,160,965
========== =========
Credit Facilities
The Company has a senior secured credit facility to finance its
working capital requirements. The Company's ability to borrow funds
under its revolving credit facility is based upon certain percentages
of eligible trade accounts receivable and eligible inventories. As of
October 1, 1999, the Company was in compliance with the covenants in
its senior credit facility.
On April 26, 1999, the Company replaced its existing senior credit
facility with a new credit facility. The Credit Agreement
("Agreement") under the new credit facility includes a revolving line
of credit of up to $30 million and a term loan of $10 million with a
maturity date of April 26, 2002. The Agreement provides for reduced
interest rates and fees as well as reduced reporting requirements. The
Agreement also contains financial and net worth covenants in addition
to limits on capital expenditures.
Amounts outstanding under the senior credit facility are
collateralized by substantially all assets of the Company. As of
October 1, 1999, the Company had the option of electing the revolving
credit facility, and the term loan, to bear interest at either of: (i.)
prevailing LIBOR rate plus 1-1/4% (6.52%, 6.96%, 6.44% and 7.13% at
October 1, 1999) or (ii.) lender's prime rate minus 1/2% (7.75% at
October 1, 1999). Historically, the Company has elected the lower of
the interest rates available under the facility.
As of October 1, 1999, the Company had borrowings of approximately
$11.0 million outstanding under the revolving credit facility, and
approximately $ 616,000 of letters of credit outstanding for foreign
purchases of inventory. In addition, as of October 1, 1999, SSG had
borrowings of approximately $9.0 million under the term loan; which is
payable in monthly installments of principal and accrued interest of
approximately $167,000 through April 26, 2002.
Maturities of the Company's capital lease obligations and
borrowings under the senior credit facility as of October 1, 1999, by
fiscal year and in the aggregate, are as follows:
2000 $ 2,410,839
2001 2,166,015
2002 16,100,874
2003 60,155
2004 73,690
Thereafter 25,191
----------
Total 20,836,764
Less Current Portion (2,410,839)
----------
Total Long term Portion $18,425,925
==========
4. INCOME TAXES:
As of the fiscal years ended October 1, 1999 and October 2, 1998 ,
the components of the net deferred tax assets and liabilities are as
follows:
1999 1998
--------- ---------
Current deferred tax assets (liabilities):
Allowances for doubtful accounts $ 239,696 $ 134,820
Inventories 817,890 567,005
Other accrued liabilities 4,602 202,493
--------- ---------
Total $1,062,188 $ 904,318
========= =========
Noncurrent deferred tax assets (liabilities):
Cost in excess of tangible
net assets acquired $ (216,222) $ (122,643)
Other intangible assets (2,687,228) (1,030,069)
Net operating loss carryforward 4,504,802 5,537,457
Minimum tax credit carryforward 499,887 274,444
--------- ---------
Total $2,101,239 $4,659,189
========= =========
The Company's net operating loss carryforward can be used to
offset future taxable income and can be carried forward for 15 years.
No valuation allowance has been recorded for the Company's deferred tax
assets because management believes it is more likely than not such
assets will be realized. Management believes that the deferred tax
assets will be realized by future profitable operating results.
Historically, the Company has been profitable.
The income tax provision (benefit) in the accompanying statements
of operations for the fiscal years ended October 1, 1999, October 2,
1998 and the eleven months ended September 26, 1997, consisted of the
following:
1999 1998 1997 (a)
--------- --------- ----------
Current $ 288,249 $ 214,016 $(2,074,117)
Deferred 2,400,080 2,345,066 1,723,686
--------- --------- ----------
Income tax provision
(benefit) $2,688,329 $2,559,082 $ (350,431)
========= ========= ==========
The provision (benefit) for income taxes related to continuing
operations in the accompanying statements of operations for the fiscal
years ended October 1, 1999, October 2, 1998 and the eleven months
ended September 26, 1997, differ from the statutory federal rate as
follows:
1999 1998 1997 (a)
--------- --------- ----------
Income tax provision
at statutory federal
rate $2,485,797 $2,557,954 $1,207,533
State income taxes,
net of Federal benefit 124,964 -- (306,611)
Other 77,568 1,128 74,647
--------- --------- ----------
Total provision (benefit)
for Income taxes $2,688,329 $2,559,082 $ 975,569
========= ========= =========
(a) The difference between the 1997 Balance Sheet tax (benefit)
amount of $(350,431) and the 1997 Income Tax Provision amount on the
Statement of Operations of $975,569 is that the Balance Sheet covers
both Continuing and Discontinued Operations, whereas the Statement of
Operations is for Continuing Operations only.
5. ACQUISITIONS:
During April 1999, the Company acquired certain assets of Flag A
Tag, Inc. ("Flag A Tag"), a manufacturer of flag football belts for
cash and the assumption of certain liabilities. The Company has
accounted for this acquisition using the purchase method and, as such,
its results of operations are combined with the Company's results of
operations subsequent to the acquisition date.
During February 1999, the Company acquired certain assets of Larry
Black Sporting Goods, Inc. ("Larry Black"), a team dealer, for cash, a
promissory note and the assumption of certain liabilities. The Company
has accounted for this acquisition using the purchase method and, as
such, its results of operations are combined with the Company's results
of operations subsequent to the acquisition date.
During January 1999, the Company paid cash for the stock of Conlin
Bros., Inc. ("Conlin"), a team dealer. The Company has accounted for
this acquisition using the purchase method and, as such, its results of
operations are combined with the 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.
During December 1997, the Company acquired certain assets of
Athletic Training Equipment Company, Inc. ("ATEC"), a manufacturer of
pitching machines for cash, a noninterest-bearing promissory note and
the assumption of certain liabilities. The Company has accounted for
this acquisition using the purchase method and, as such, its results of
operations are combined with the Company's results of operations
subsequent to the acquisition date. No pro forma information is
presented herein as it would not materially differ from actual results.
See Item 11. -- "Subsequent Events" for acquisitions that took
place in October 1999, after the close of fiscal year 1999.
6. MAJOR CUSTOMERS AND CONCENTRATION OF BUSINESS RISK:
The Company's customers include all levels of public and private
schools, colleges, universities, and military academies, municipal and
governmental agencies, military facilities, churches, clubs, camps,
hospitals, youth sports leagues, non-profit organizations, team dealers
and certain large retail sporting goods chains.
The Company did not have any individual customers that accounted
for more than 10% of net revenues for the fiscal years ended October 1,
1999, October 2, 1998, and the eleven month period ended September 27,
1997.
The majority of the Company's sales are to institutional customers
that are publicly funded. The Company extends credit based upon an
evaluation of a customer's financial condition and provides for any
anticipated credit losses in its financial statements based upon
management's estimates and ongoing reviews of recorded allowances.
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases a portion of its office, warehouse,
distribution, fulfillment, computer equipment and manufacturing
locations under noncancelable operating leases with terms ranging from
one to ten years. The majority of the Company's 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:
2000 $2,262,950
2001 2,070,969
2002 925,348
2003 787,931
2004 769,857
Thereafter 182,449
---------
Total $6,999,504
=========
Rent expense was approximately $1,815,000, $1,645,000 and
$1,485,000 for fiscal years 1999, 1998 and 1997, respectively.
Severance Agreements
In July 1998, an officer retired and the Company 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 the Company's products, SSG is
periodically subject to product liability claims resulting from
personal injuries. The Company from time to time may become involved
in various lawsuits incidental to the Company's business, some of which
may relate to claims of 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 manufacturer's and distributors' liability for personal
injuries.
There can be no assurance that the Company's general product
liability insurance will be sufficient to cover any successful product
liability made against the Company. In management's opinion, any
ultimate liability arising out of currently pending product liability
and other claims will not have a material adverse effect on the
Company's financial condition or results of operations. However, any
claims substantially in excess of the Company's insurance coverage, or
any substantial claim not covered by insurance, could have a material
adverse effect on the Company's results of operations and financial
condition.
8. EMPLOYEES' SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN:
Effective June 1, 1993, the Company 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. Employees may contribute up to 15% 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 the Company to make
discretionary contributions during each plan year. Employer
contributions for the fiscal years ended October 1, 1999 and October 2,
1998 were approximately $84,000 and $78,000 respectively. The Company
pays all administrative expenses of the 401(k) Plan.
Effective July 1, 1997, the Company 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. CHANGE IN CONTROL:
On December 10, 1996, pursuant to a Securities Purchase Agreement
dated November 27, 1996 between Emerson Radio Corp. and SSG ("the
Purchase Agreement"), Emerson acquired directly from SSG 1,600,000
shares of newly issued Common Stock for an aggregate consideration of
$11.5 million and five-year warrants to acquire an additional 1,000,000
shares of Common Stock at an exercise price of $7.50 per share for an
aggregate consideration of $500,000. In addition, Emerson agreed to
arrange for foreign trade credit financing of $2.0 million for the
benefit of SSG to supplement SSG's existing credit facilities. This
financing has not been utilized. Pursuant to the Purchase Agreement,
SSG caused a majority of the members of SSG's Board of Directors to
consist of Emerson's designees. A nonrecurring pre-tax charge of $1.3
million was recorded in the first quarter of the fiscal year ended
September 26, 1997 for compensation payments relating to the "change in
control" of the Company.
10. DISCONTINUED OPERATIONS:
On May 20, 1996, SSG disposed of substantially all of the assets
(other than cash and accounts receivable) of the Gold Eagle Division to
a privately held corporation. The sale of the Gold Eagle Division
resulted in a pretax loss of approximately $750,000.
Subsequent to the sale of the Gold Eagle Division, the Company
adopted a formal plan to dispose of the Company's remaining golf
related operations (which previously included the Gold Eagle Division)
and therefore has classified these operations as discontinued. On
March 28, 1997, SSG disposed of substantially all of the remaining
assets of the discontinued operations to a privately held corporation.
Pursuant to the Asset Acquisition Agreement, the total consideration
paid to SSG was approximately $8.2 million in cash. The following
represents net current assets and liabilities as well as net noncurrent
assets of discontinued operations as of November 1, 1996, and the
results of operations for the period from November 2, 1996 through
the disposal date of March 28, 1997 and the year ended November 1, 1996.
As of
Nov. 1, 1996
----------
Current assets $14,188,152
Current liabilities (20,518,079)
----------
Net current liabilities $(6,329,927)
==========
Noncurrent assets $16,365,572
Noncurrent liabilities --
----------
Net noncurrent assets $16,365,572
==========
For the
period from For the
Nov. 2, 1996 Year Ended
to March 28, November 1,
1997 1996
---------- ----------
Net revenues $ 1,790,395 $18,725,955
Earnings (loss) from operations,
net of income taxes - (2,242,143)
Loss on disposal, net of income taxes (2,574,000) (15,530,697)
The net loss from operations for the fiscal year ended November 1,
1996 includes allocated interest expense of approximately $1.1 million
related to borrowings under the Company's senior credit facility.
Interest expense charged to discontinued operations was based upon the
amount of borrowings that management estimated would be repaid from the
proceeds of the disposal of the Company's golf related operations.
The net loss on disposal includes a charge recorded during the
fiscal quarter ended May 3, 1996 of approximately $9.3 million ($5.9
million after estimated tax benefits) to record the net assets at
estimated realizable value based upon a proposed rights offering
pursuant to the Company's plan of disposal. During the fiscal quarter
ended May 3, 1996, the Company also recorded a reserve of approximately
$3.9 million ($2.5 million after estimated tax benefits) for
anticipated operating losses during the estimated twelve month disposal
period, including interest expense. As a result of several factors,
including but not limited to, management's assessment of the ultimate
success of the proposed rights offering and estimates of the time
required to effect such transaction, as well as the Company's projected
liquidity requirements, the Company determined that a private sale of
the remaining assets of its golf related operations was a preferable
and more expeditious method of disposal. Based upon management's
estimates of the net proceeds to be received pursuant to such disposal,
the Company recorded an additional charge of approximately $5.8 million
($3.7 million after estimated tax benefits) during the fiscal quarter
ended August 2, 1996 and a charge of approximately $5.2 million ($3.4
million after estimated tax benefits) during the fiscal quarter ended
November 1, 1996 to record the net assets at estimated net realizable
value.
On March 4, 1997, the Company signed a letter of intent for the
sale of the discontinued golf related operations. Based upon
management's estimates at that time of the net proceeds to be received
pursuant to such disposal, the Company recorded a pre-tax charge of
approximately $3.9 million ($2.6 million after estimated tax benefits)
during the fiscal quarter ended January 31, 1997. This charge was
provided to record the net assets at estimated net realizable value in
accordance with the purchase price set forth in the letter of intent.
On March 28, 1997, the Company sold the remaining assets of the
discontinued golf related operations for approximately $8.2 million and
used the sale proceeds to reduce the Company's outstanding debt.
11. SUBSEQUENT EVENTS:
During October 1999, the Company acquired for cash (approximately
$1 million) and the assumption of certain liabilities, certain assets
of LAKCO, Inc. and Spaulding, Inc., both distributors of sporting goods
equipment to the institutional market. The Company has accounted for
these acquisitions using the purchase method and, as such, its results
of operations are combined with the Company's results of operations
subsequent to the acquisition date. No proforma information is
presented herein because the proforma information would not materially
differ from actual results.
On December 7, 1999, the Company's Board of Directors retained
Paine Webber, Inc. to explore strategic alternatives, after the Company
was notified that Oaktree Capital Management would not be exercising
its option to acquire the Company's common stock held by Emerson Radio
Corp. under a letter of intent previously reported in August 1999.
Emerson Radio, who beneficially owns approximately 40% of the Company's
issued and outstanding common stock, has indicated that it agrees with
the decision of the Company to explore alternatives.
12. SELECTED FINANCIAL DATA (UNAUDITED)
The following sets forth selected historical financial information
for the Company. The data has been derived from the audited financial
statements of the Company. 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 the Company's
financial statements and notes thereto included in Item 8. --
"Financial Statements and Supplementary Data".
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED) (See Note 3 Below)
( Amounts in thousands, except for per share data )
Fiscal Fiscal Eleven Fiscal Ten Month
Year Year Months Year Months
Ended Ended Ended Ended Ended
Oct 1, Oct 2, Sep 26, Nov 1, Oct 31,
Statement of Earnings Data: 1999 1998 1997 (3) 1996 1995 (3)
------- ------ ------ ------- ------
Net revenues $107,069 $97,292 $79,109 $ 80,521 $65,134
Gross profit 40,884 37,726 31,404 29,955 25,259
Operating profit (loss) 7,552 7,157 4,226 (65) 3,894
Interest expense 1,196 474 757 1,372 1,126
Other income (expense), net 955 841 83 38 209
Earnings (loss) from continuing operations 4,623 4,964 2,576 (964) 1,847
Earnings (loss) from discontinued
operations (2) -- -- (2,574) (17,773) (457)
Net earnings (loss) $ 4,623 $ 4,964 $ 2 $(18,737) $ 1,390
======= ====== ====== ======= ======
Earnings (loss) per common share and
common equivalent share: (notes 1 and 3)
Net earnings (loss) per common share
from continuing operations $ 0.63 $ 0.62 $ 0.32 $ (0.14) $ 0.27
Net earnings (loss) per common share
from discontinued operation -- -- (0.32) (2.64) (0.07)
------- ------ ------ ------- ------
Net earnings (loss) per common share $ 0.63 $ 0.62 $ 0.00 $ (2.78) $ 0.20
======= ====== ====== ======= ======
Net earnings (loss) per common share
from continuing operations -
assuming dilution $ 0.60 $ 0.60 $ 0.32 $ (0.14) $ 0.27
Net earnings (loss) per common share
from discontinued operations -
assuming dilution -- -- (0.32) (2.63) (0.07)
------- ------ ------ ------- ------
Net earnings (loss) per common share -
assuming dilution $ 0.60 $ 0.60 $ 0.00 $ (2.77) $ 0.20
======= ====== ====== ======= ======
Weighted average common and common
equivalent shares: (note 1)
Weighted average common shares outstanding 7,390 8,026 8,146 6,747 6,941
Weighted average common shares outstanding -
assuming dilution 7,728 8,237 8,151 6,768 6,950
Cash dividends declared per common
share (note 1) -- -- -- -- $ 0.12
At At At At At
Oct 1, Oct 2, Sep 26 Nov 1, Oct 31
Balance Sheet Data: 1999 1998 1997 1996 1995
------- ------ ------ ------- ------
Working capital $31,873 $25,245 $24,006 $21,322 $42,231
Total assets 73,249 54,804 50,484 70,009 86,355
Long-term obligations, net 18,426 5,161 4,418 24,338 29,199
Total liabilities 31,141 13,626 11,527 40,846 38,745
Stockholders equity 42,108 41,178 38,957 29,163 47,610
NOTES TO SELECTED FINANCIAL DATA (UNAUDITED)
(1) Dividends declared in 1995 consisted of a $0.03 per share dividend
for each of the first four quarters.
(2) See Note 10 to the consolidated financial statements included in
Item 8. - "Financial Statements and Supplementary Data".
(3) During 1995, the Company changed its financial reporting year end
from December 31 to October 31. Consequently, the fiscal year ended
October 31, 1995 is a transition period consisting of ten calendar
months. During 1997, the Company changed its financial reporting
year end from Octobe 31 to September 30. Therefore, the fiscal
year ended September 26, 1997 is a transition period consisting of
eleven calendar months.
The following table sets forth certain information regarding the
Company's results of operations for each full quarter within the fiscal
years ended October 1, 1999 and October 2, 1998, with amounts in
thousands, except for per share data. Due to rounding, quarterly
amounts may not fully sum to yearly amounts.
1999 Fiscal Year 1998 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 $107,069 $14,870 $35,476 $26,310 $30,413 $97,292 $14,412 $32,273 $25,340 $25,267
Gross profit 40,884 5,753 13,387 10,717 11,027 37,726 5,627 12,149 9,840 10,110
Operating
profit or
(loss)(note 1) 7,552 (957) 5,110 2,617 782 7,157 (923) 3,794 2,600 1,686
Interest
expense 1,196 165 334 371 326 474 119 156 94 105
Other income, net 955 224 75 583 73 841 280 110 128 323
Net earnings
(loss) $ 4,623 $ (560) $ 3,020 $ 1,759 $ 404 $ 4,964 $ (503) $ 2,474 $ 1,739 $ 1,255
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net earnings
(loss) per
Common Share $0.63 $(0.07) $0.41 $0.24 $0.06 $0.62 $(0.06) $0.31 $0.22 $0.16
Net earnings
(loss) per
Common Share
- assuming $0.60 $(0.07) $0.39 $0.22 $0.05 $0.60 $(0.06) $0.30 $0.20 $0.16
dilution
Weighted average
Common Shares
outstanding 7,390 7,607 7,388 7,360 7,281 8,026 8,085 8,108 8,089 7,954
Weighted average
Common Shares
outstanding
- assuming
dilution 7,728 7,607 7,748 7,826 7,673 8,237 8,085 8,324 8,560 8,070
(1) The 4th quarter of fiscal year 1998 includes $1.2 million 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 February
25, 2000, 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 February 25, 2000, 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 February
25, 2000, 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 February 25, 2000, 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, 10.3, 10.4, 10.5, 10.6, 10.7,
10.8, 10.10, 10.11 and 10.30.].
(b) Reports on Form 8-K. None.
(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 its behalf by the undersigned, thereunto duly
authorized.
Dated: December 28, 1999
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 28, 1999 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 Description of Exhibit
Nbr.
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 Consulting Agreement entered into by and between the
Company and Peter S. Blumenfeld (incorporated by
reference from Exhibit 10.1 to the Company's Report on
Form 10-K for the fiscal year ended October 2, 1998).
10.2 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).
10.3 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).
10.4 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).
10.5 Employment Agreement by and between the Company and Adam
L. Blumenfeld (incorporated by reference from Exhibit
10.1 to the Company's Report on Form 10-Q for the
quarter ended April 3, 1998).
10.6 Employment Agreement by and between the Company and
Geoffrey P. Jurick (incorporated by reference from
Exhibit 10.4 to the Company's Report on Form 10-K for
the fiscal year ended September 26, 1997).
10.7 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).
10.8 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).
10.8.1 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
10.9 Non-Qualified Stock Option Agreement by and between the
Company and Terrence M. Babilla (incorporated by
reference from Exhibit 10.9 to the Company's Report on
Form 10-K for the fiscal year ended October 2, 1998).
10.9.1 Amendment No. 1 to Stock Option Agreement by and between
the Company and Terrence M. Babilla (incorporated by
reference from Exhibit 10.9 to the Company's Report on
Form 10-Q for the quarter ended April 3, 1998).
10.10 Form of Non-Qualified Stock Option Agreement by and
between the Company and each of John P. Walker and
Terrence M. Babilla (incorporated by reference from
Exhibit 10.1 to the Company's Report on Form 10-Q for
the quarter ended July 2, 1999).
10.11 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).
10.12 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).
10.13 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).
10.14 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).
10.15 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)).
10.16 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)).
10.17 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)).
10.18 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).
10.19 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)).
10.20 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)).
10.21 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).
10.22 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
10.23 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).
10.24 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).
10.25 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).
10.26 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).
10.27 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).
10.28 Amendment No. 1 to Perpetual License Agreement and
Trademark Maintenance Agreement dated as of November 1,
1992, by and between MacGregor Sports Products, Inc. and
the Company (incorporated by reference from Exhibit
10.25 to the Company's Report on Form 10-K for the year
ended 1992).
10.29 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).
10.30 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).
10.31 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).
10.32 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)).
10.33 Industrial Lease Agreement, dated April 25, 1994, by and
between the Company and Centre Development Co.
(incorporated by reference from Exhibit 10.1 to the
Company's Report on Form 10-Q for the quarter ended June
30, 1994).
10.33.1 Amendment to Industrial Lease Agreement, dated July 8,
1994, by and between the Company and Centre Development
Co. (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).
10.34 Lease, dated December 2, 1991, by and between Injans
Investments and the Company (incorporated by reference
from Exhibit 10.20 to the Company's Report on Form 10-K
for the year ended December 31, 1991).
10.34.1 First Amendment to Standard Industrial Lease dated
September 12, 1996 by and between Injans Investments and
the Company (incorporated by reference from Exhibit
10.23.1 to the Company's Report on Form 10-K for the
year ended November 1, 1996).
Exhibit
Nbr. Description of Exhibit
10.35 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).
10.36 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).
10.37 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).
10.37.1 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).
10.38 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).
10.39 Lease Agreement by and between Athletic Training
Equipment Company, Inc. and The Northwestern Mutual Life
Insurance Company, dated January 29, 1999 (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