-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hccn4wk8iA5Y7cUEb2AhjuTzjQAb7ZmdbqhlI1JUyf5PakH9eSPDf7/xibt5kISd gO07E4fkbXIK2mN65iMoNQ== 0000905718-01-500112.txt : 20010809 0000905718-01-500112.hdr.sgml : 20010809 ACCESSION NUMBER: 0000905718-01-500112 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMERSON RADIO CORP CENTRAL INDEX KEY: 0000032621 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD AUDIO & VIDEO EQUIPMENT [3651] IRS NUMBER: 223285224 STATE OF INCORPORATION: DE FISCAL YEAR END: 0402 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07731 FILM NUMBER: 1701364 BUSINESS ADDRESS: STREET 1: NINE ENTIN RD STREET 2: PO BOX 430 CITY: PARSIPPANY STATE: NJ ZIP: 07054-0430 BUSINESS PHONE: 9738845800 MAIL ADDRESS: STREET 1: NINE ENTIN RD CITY: PARSIPPANY STATE: NJ ZIP: 07054 FORMER COMPANY: FORMER CONFORMED NAME: MAJOR ELECTRONICS CORP DATE OF NAME CHANGE: 19770921 10-Q 1 june10q2001.txt 10-Q FOR EMERSON RADIO SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _________________________ Commission file number 0-25226 EMERSON RADIO CORP. (Exact name of registrant as specified in its charter) DELAWARE 22-3285224 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9 Entin Road Parsippany, New Jersey 07054 (Address of principal executive offices) (Zip code) (973)884-5800 ________________________________________________________________________________ (Registrant's telephone number, including area code) ________________________________________________________________________________ (Former name, former address, and former fiscal year, if changed since last report) 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. [X] Yes [ ] No Indicate the number of shares outstanding of common stock as of July 31, 2001: 31,343,978. PART I - FINANCIAL INFORMATION Item 1. Financial Statements.
EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except earnings per share data) Three Months Ended -------------------------------------- June 30, 2001 June 30, 2000 ------------------ --------------- Net revenues $ 77,079 $113,318 Costs and expenses: Cost of sales 61,755 93,500 Other operating costs and expenses 1,345 1,730 Selling, general & administrative Expenses 11,323 14,217 ------------- ------------- 74,423 109,447 ------------- ------------ Operating income 2,656 3,871 Interest expense, net (874) (965) Minority interest in net loss of consolidated subsidiary 164 217 ------------ ------------ Income before income taxes 1,946 3,123 Provision (benefit) for income taxes (247) 78 ------------ ------------ Net income $ 2,193 $ 3,045 ============ ============ Net income per common share Basic $ .07 $ .07 ============ ============ Diluted $ .06 $ .06 ============ ============ Weighted average shares outstanding Basic 31,344 43,853 ============ ============ Diluted 34,948 50,037 ============ ============
The accompanying notes are an integral part of the interim consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) June 30, 2001 March 31, 2001 ------------------- ----------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 3,749 $ 7,987 Accounts receivable (less allowances of $4,019 and $4,498, respectively) 27,457 26,552 Other receivables 1,474 781 Inventories 50,394 44,477 Prepaid expenses and other current assets 3,467 3,611 Deferred tax assets 1,585 1,419 ------------- ---------- Total current assets 88,126 84,827 Property and equipment - (net of accumulated depreciation and amortization of $4,215 and $3,594, respectively) 12,130 12,718 Deferred catalog expenses 1,656 2,437 Goodwill and other intangible assets 12,985 13,388 Deferred tax assets 4,081 4,081 Other assets 1,426 1,555 ------------- ---------- Total Assets $120,404 $119,006 ============= ========== LIABILITIES AND SHAREHOLDER'S EQUITY Current Liabilities: Short-term borrowings $ 6,496 $ 5,094 Current maturities of long-term borrowings 128 139 Accounts payable and other current Liabilities 37,269 34,703 Accrued sales returns 4,274 4,913 Income taxes payable 204 481 ------------- ---------- Total current liabilities 48,371 45,330 Long-term borrowings 35,601 38,257 Minority interest 19,398 20,288 Shareholders' Equity: Preferred shares - 10,000,000 shares authorized, 3,677 shares issued and outstanding 3,310 3,310 Common shares - $.01 par value, 75,000,000 shares authorized; 51,475,511 shares issued; 31,343,978 shares outstanding 515 515 Capital in excess of par value 113,459 113,459 Accumulated other comprehensive losses (114) (118) Accumulated deficit (86,394) (88,843) Treasury stock, at cost 20,131,533 and 20,131,533 shares, respectively (13,742) (13,192) ------------- ------------ Total shareholders' equity 17,034 15,131 ------------- ------------ Total Liabilities and Shareholders' Equity $120,404 $119,006 ============= ============
The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended ------------------------------------- June 30, 2001 June 30, 2000 ---------------- ---------------- Cash Flows from Operating Activities: Net cash provided (used) by operating Activities $(2,075) $ 6,308 ---------------- ---------------- Cash Flows from Investing Activities: Investment in affiliate, net of cash acquired of $161 (315) (641) Other ( 33) ( 87) ---------------- ---------------- Net cash used by investing activities (348) (728) Cash Flows from Financing Activities: Purchase of common stock and options (550) (6,075) Net repayments of borrowings (1,265) ( 751) ---------------- ---------------- Net cash used by financing activities (1,815) (6,826) Net decrease in cash and cash Equivalents (4,238) (1,246) Cash and cash equivalents at beginning of year 7,987 8,539 ---------------- ---------------- Cash and cash equivalents at end of period $3,749 $7,293 ================ ================
The accompanying notes are an integral part of the interim consolidated financial statements. EMERSON RADIO CORP. AND SUBSIDIARIES NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of Emerson Radio Corp. ("Emerson", consolidated - the "Company") and its majority-owned subsidiaries, including Sport Supply Group, Inc. ("SSG"). The Company operates in two business segments: consumer electronics and sporting goods. The consumer electronics segment designs, sources, imports and markets a variety of consumer electronic products and licenses the "EMERSON" trademark for a variety of products domestically and internationally to certain licensees. The sporting goods segment, which is operated through Emerson's 51.9% ownership of SSG, manufactures and markets sports related equipment and leisure products to institutional customers in the United States. The unaudited interim consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the Company's consolidated financial position as of June 30, 2001 and the results of operations for the quarters ended June 30, 2001 and 2000. The unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and accordingly do not include all of the disclosures normally made in the Company's annual consolidated financial statements. It is suggested that these unaudited interim consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended March 31, 2001 ("Fiscal 2001"), included in the Company's annual report on Form 10-K. The consolidated financial statements include the accounts of the Company and all of its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of the unaudited interim consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes; actual results could materially differ from those estimates. Due to the seasonal nature of the Company's consumer electronics segment and its sporting goods segment, the results of operations for the quarter ended June 30, 2001 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the full year ending March 31, 2002 ("Fiscal 2002"). Certain reclassifications were made to conform prior years financial statements to the current presentation. NOTE 2 - COMPREHENSIVE INCOME The Company's comprehensive income for the three months ended June 30, 2001 and 2000 are as follows (in thousands):
Three Months Ended --------------------------------- June 30, June 30, 2001 2000 ------------- ------------ Net income $ 2,193 $ 3,045 Currency translation adjustment -- (1) Unrealized gains (losses) on securities, net 4 (20) ------------- ----------- Comprehensive income $ 2,197 $ 3,024 ============= ===========
NOTE 3 - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
For the Three Months Ended ---------------------------------------- June 30, 2001 June 30, 2000 ------------------- --------------- Numerator: Net income $ 2,193 $ 3,045 Less: preferred stock dividends -- 13 ------------------ -------------- Numerator for basic earnings per share - income available to common stockholders 2,193 3,032 Add back to effect assumed conversions: Preferred stock dividends -- 13 ------------------ --------------- Numerator for diluted earnings per share $ 2,193 $ 3,045 ================== =============== Denominator: Denominator for basic earnings per share - weighted average shares 31,344 43,853 Effect of dilutive securities: Preferred shares 3,154 6,184 Options 450 -- ------------------ ----------------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed conversions 34,948 50,037 ================== ================= Basic earnings per share $ .07 $ .07 ================== ================= Diluted earnings per share $ .06 $ .06 ================== =================
NOTE 4- CAPITAL STRUCTURE The outstanding capital stock of the Company at June 30, 2001 consisted of common stock and Series A convertible preferred stock. The preferred shares are convertible into common shares until March 31, 2002. During the quarters ended June 30, 2001 and 2000 there were no conversions of Series A Preferred Stock. If all existing outstanding preferred shares were converted at June 30, 2001, approximately 3.2 million additional common shares would be issued. The Preferred Stock accrued dividends, on a cumulative basis at 1.4% through March 31, 2001. No further dividends are accruable on the Preferred Stock. At June 30, 2001, the Company was in compliance with the default provisions and owed dividends in arrears of $990,000. At June 30, 2001, Emerson had outstanding approximately 1.7 million options with exercise prices ranging from $1.00 to $1.50. At June 30, 2001, SSG had outstanding approximately 926,000 options with exercise prices ranging from $1.38 to $9.44. At June 30, 2001, the Company also had outstanding approximately $20.8 million of Senior Subordinated Convertible Debentures due in 2002. See "Note 9 - Long Term Debt". NOTE 5 - INVENTORY Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for the consumer electronics segment and for the sporting goods segment, weighted-average cost method for items manufactured and for items purchased for resale. As of June 30, 2001 and March 31, 2001, inventories consisted of the following:
June 30, 2001 March 31, 2001 ------------------ -------------------- (In thousands) Raw materials $3,132 $3,728 Work-in-process 411 377 Finished 49,386 42,643 ------------------ ----------------- 52,929 46,748 Less inventory allowances (2,535) (2,271) ------------------ ----------------- $ 50,394 $ 44,477 ================== =================
NOTE 6 - INVESTMENT IN SPORT SUPPLY GROUP, INC. - ----------------------------------------------- As of June 30, 2001 and March 31, 2001, Emerson owned 4,623,023 and 4,463,223 (51.9% and 50.1% of the issued and outstanding) shares of common stock of SSG, respectively. Accordingly, since fiscal 2001 Emerson accounted for its investment in SSG by consolidating SSG under the purchase method of accounting. Prior to fiscal 2001, Emerson accounted for its investment in SSG under the equity method. SSG's results of operations and the minority interest related to those results have been included in the Company's quarterly results of operations as though it had been acquired at the beginning of the year ended March 31, 2001. Effective March 1997, Emerson entered into a Management Services Agreement with SSG, under which SSG provides various managerial and administrative services to Emerson for a fee. Management believes that the transactions under the management services agreement are reflective of arms length transactions. NOTE 7 - LONG-TERM BORROWINGS As of June 30, 2001 and March 31, 2001 long-term borrowings consisted of the following:
June 30, 2001 March 31, 2001 -------------- -------------- 8 1/2% Senior Subordinated Convertible Debentures Due 2002 $20,750 $20,750 Notes payable under revolving line of credit 14,625 17,088 Equipment notes and other 354 558 ------------- ---------- 35,729 38,396 Less current maturities 128 139 ------------- ---------- Long term debt and notes payable $35,601 $38,257 ============= ==========
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures") were issued by Emerson in August 1995. The Debentures bear interest at the rate of 8 1/2% per annum, payable quarterly, and mature on August 15, 2002. The Debentures are convertible into shares of the Company's common stock at any time prior to redemption or maturity at an initial conversion price of $3.9875 per share, subject to adjustment under certain circumstances. The Debentures are redeemable in whole or in part at the Company's option at a redemption price of 102% of principal until August 15, 2001, and thereafter at 101% until maturity. The Debentures are subordinated to all existing and future senior indebtedness (as defined in the Indenture governing the Debentures). The Debentures restrict, among other things, the amount of senior indebtedness and other indebtedness that the Company and, in certain instances, its consolidated subsidiaries, may incur. Each holder of Debentures has the right to cause the Company to redeem the Debentures if certain designated events (as defined) should occur. The Debentures are subject to certain restrictions on transfer, although the Company has registered the offer and sale of the Debentures and the underlying common stock. Notes payable under a revolving line of credit (Revolver) were issued by SSG in March 2001, replacing a prior facility. The facility provides for a three-year $25 million revolving line of credit, and provides for revolving loans and is subject to individual maximums which, in the aggregate, cannot exceed the lesser of $25 million or a "Borrowing Base" amount based upon specified percentages of eligible accounts receivables and inventories. Amounts outstanding under the senior credit facility are secured by substantially all the assets of SSG and its subsidiaries. At June 30, 2001, the interest rate charged under this facility was a combination of LIBOR plus 2.5% and the prime rate of interest ranging from minus .25% to prime plus 1.0%. Pursuant to the Loan and Security Agreement, the Company is restricted from, among other things, paying cash dividends and entering into certain transactions without the lender's prior consent. (c) Note 8 - SEGMENT INFORMATION The following table presents certain operating segment information for each of the three month periods ended June 30, 2001 and 2000 (in thousands): Consumer Sporting Electronics Goods June 30, 2001: Net revenues from external customers $49,124 $27,955 Income (loss) before income taxes $2,392 ($446) Segment assets $55,264 $65,140 June 30, 2000: Net revenues from external customers $82,561 $30,757 Income (loss) before income taxes $3,480 ($357) Segment assets $32,625 $74,585 Note 9 - LEGAL PROCEEDINGS The Company is involved in legal proceedings and claims of various types in the ordinary course of its business. While any such litigation to which the Company is a party contains an element of uncertainty, management presently believes that the outcome of each such proceeding or claim which is pending or known to be threatened, or all of them combined, will not have a material adverse effect on the Company's consolidated financial position. Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Management's Discussion and Analysis of Results of Operation is presented in three parts: consolidated operations, the consumer electronics segment and the sporting goods segment. In the following discussions, most percentages and dollar amounts have been rounded to aid presentation. As a result, all figures are approximations. Consolidated Operations: The following table sets forth, for the periods indicated, certain items related to the consolidated statements of operations as a percentage of net revenues. For the quarters ended June 30, 2001 and 2000 2001 2000 -------------- -------------- (Unaudited) Net revenues (in thousands) $77,079 $113,318 100.0% 100.0% Cost of sales 80.1% 82.5% Other operating costs and expenses 1.7% 1.5% Selling, general and administrative expenses 14.7% 12.6% Operating income 3.5% 3.4% Provision (benefit) for income taxes (0.3%) 0.1% Net income 2.8% 2.7% Results of Consolidated Operations - Quarter ended June 30, 2001 compared with Quarter ended June 30, 2000 Net Revenues - Net revenues for the three month period ended June 30, 2001 decreased $36.2 million (32.0%) as compared to the same period ended June 30, 2000. The decrease was primarily from the consumer electronics segment which experienced higher than normal revenues in the June 30, 2000 quarter, and customer ordering patterns returning to a more traditional pattern for the June 30, 2001 quarter. Full year revenues for the consumer electronics segment for fiscal 2002 are expected to approximate the full year revenues for the consumer electronics segment as reported for fiscal 2001. Cost of Sales - Cost of sales, as a percentage of consolidated net revenues, decreased from 82.5% for the three months ended June 30, 2000 to 80.1% for the same period in fiscal 2002. The decrease was primarily from lower cost of sales as a percentage of net revenue in the consumer electronics segment, partially offset by a higher cost of sales as a percentage of sales in the sporting goods segment. Other Operating Costs and Expenses - Other operating costs and expenses are associated with the consumer electronics segment. As a percent of consolidated net revenues, other operating costs increased from 1.5% for the three months ended June 30, 2000 to 1.7% for the same period in fiscal 2002, primarily as a result of a lower revenue base. Selling, General and Administrative Expenses ("S,G&A") - S,G&A, as a percentage of consolidated net revenues, were 14.7% for the three months ended June 30, 2001 as compared to 12.6% for the three months ended June 30, 2000. The increase in S,G&A as a percentage of consolidated net revenues was higher due to a lower revenue base for fiscal 2002. In absolute terms SG&A decreased from $14.2 million for the first three months of fiscal 2001 as compared to $11.3 for the first three months of fiscal 2002. The decrease in absolute terms was due to both the consumer electronics and sporting goods segments reducing their S,G&A costs during the three months ended June 30, 2001. Provision (benefit) for Income Taxes - The benefit for income taxes for the three months ended June 30, 2001 of $247,000 was the result of a foreign tax benefit in the consumer electronics segment, partially offset by a Federal tax provision, and a Federal tax benefit in the sporting goods segment. Net Income - As a result of the foregoing factors, the Company earned net income of $2.2 million for the three months ended June 30, 2001 as compared to $3.0 million for the three months ended June 30, 2000. Consumer Electronics Segment: The following table summarizes certain financial information relating to the consumer electronics segment for the three months ending June 30, 2001 and 2000(in thousands):
2001 2000 ------------------------ --------------------- (Unaudited) Net revenues $ 49,124 $82,561 ------------------------ -------------------- Cost of sales 41,739 72,144 Other operating costs 1,345 1,730 Selling, general & administrative 3,031 4,689 ------------------------ -------------------- Operating income 3,009 3,998 Interest expense, net 617 518 ------------------------ -------------------- Income before income taxes 2,392 3,480 Provision (benefit) for income taxes (57) 278 ------------------------ -------------------- Net income $ 2,449 $ 3,202 ======================== ====================
Results of Consumer Electronics Operations - Quarter ended June 30, 2001 compared with Quarter ended June 30, 2000 Net Revenues - Net revenues for the three months ended June 30, 2001 decreased $33.4 million (40.5%) as compared to the same period ended June 30, 2000. The decrease in net revenues resulted primarily from higher than normal revenues in the June 30, 2000 quarter, and customer ordering patterns returning to a more traditional pattern for the June 30, 2001 quarter. The decrease in net revenues was comprised of decreases in unit sales of audio products and microwave ovens products. Licensing revenues were $1.3 million for the first three months of fiscal 2002 as compared to $1.2 million for the first three months of fiscal 2001. Cost of Sales - Cost of sales, as a percentage of consumer electronics net revenues decreased from 87.4% for the three months ended June 30, 2000 to 85.0% for the three months ended June 30, 2001. The decrease in cost of sales as a percentage of consumer electronics net revenues was primarily attributable to lower product returns and a greater impact of licensing revenue which have no direct associated costs on a lower revenue base. The consumer electronics segment gross profit margins continue to be subject to competitive pressures arising from pricing strategies associated with the price categories of the consumer electronics market in which it competes. Other Operating Costs and Expenses - Other operating costs and expenses as a percentage of consumer electronics net revenues increased from 2.1% for the three months ended June 30, 2000 to 2.7% for the three months ended June 30, 2001. The increase as a percentage of consumer electronics net revenues was primarily due to the effect of a lower revenue base, while in absolute terms the decrease of $385,000 between fiscal 2001 and 2002 was primarily due to reduced returns processing fees. Selling, General and Administrative Expenses ("S,G&A") - S,G&A, as a percentage of consumer electronics net revenues, increased to 6.2% for the three months ended June 30, 2001 from 5.7% in fiscal 2001. The increase in S,G&A between fiscal 2002 and 2001 as a percentage of consumer electronics net revenues was attributable to a lower net revenue base. In absolute terms, S,G&A decreased by approximately $1.7 million for the three months of fiscal 2002 as compared to the same period in fiscal 2001 primarily due to recoveries of prior period provisions related to substandard receivables, a reduction in co-operative advertising costs, and lower professional fees. Interest Expense, net - Interest expense increased from $518,000 for the three months of fiscal 2001 to $617,000 for the three months of fiscal 2002. The increase was attributable primarily to an increase in borrowings and lower interest income. Provision for Income Taxes - Emerson's benefit for income taxes was $57,000 for the three months ended June 30, 2001 as compared to a provision of $278,000 for the first three months of fiscal 2000. The benefit of $57,000 consisted primarily of a foreign benefit partially offset by a Federal tax provision. Net Income - As a result of the foregoing factors, net income of $2.5 million was earned for the three months ended June 30, 2001 as compared to $3.2 million for the three months ended June 30, 2000. Sporting Goods Segment: Management monitors the sporting goods segment based on the results reported by SSG using their historical basis. The difference between SSG's reported net loss of $333,000 for the three months ended June 30, 2001 and the net loss included in the consolidated net income of the Company of $256,000, resulted from minority interest in the net loss of SSG of $164,000, reduced by additional purchase price related depreciation and amortization of $87,000. The following table summarizes certain financial information relating to the sporting goods segment as reported by SSG for the three months ended June 30, 2001 and 2000 (in thousands): 2001 2000 ------------------- ------------------- Net revenues $ 27,955 $ 30,757 ------------------- ------------------- Cost of sales 20,016 21,356 Selling, general & administrative 8,205 9,482 ------------------- ------------------- Operating loss (266) (81) Interest expense, net 257 448 ------------------- ------------------- Loss before income taxes (523) (529) Benefit for income taxes 190 200 ------------------- ------------------- Net loss $(333) $(329) =================== =================== Results of Sporting Goods Operations - Quarter ended June 30, 2001 compared with Quarter ended June 30, 2000 Net Revenues - Net revenues decreased approximately $2.8 million (9.1%) for the three month period ended June 30, 2001 as compared to the three month period ended June 30, 2000. The decrease in sporting goods net revenues was primarily a result of competitive pressures in the marketplace, a decline in youth baseball registrations, and a general slow-down in the economy. Cost of Sales - Cost of sales, as a percentage of sporting goods net revenues, increased from 69.4% for the three month period ended June 30, 2000 to 71.6% for the three month period ended June 30, 2001. Cost of sales increased as a percentage of sporting goods net revenues due to product mix shifts and pricing pressure in the institutional sporting goods marketplace. SSG expects to continue to experience a higher cost of sales as a percentage of sporting goods net revenues as compared to the previous year due to these factors. Selling, General and Administrative Expenses ("S,G&A") - S,G&A expenses decreased approximately $1.3 million for the three month period ended June 30, 2001 as compared to the three month period ended June 30, 2000. As a percentage of sporting goods net revenues, S,G& A decreased to 29.4% from 30.8% for the three month period ended June 30, 2001 as compared to the three month period ended June 30, 2000. The decrease as a percentage of sporting goods net revenues in S,G&A expenses was primarily a result of a reduction of promotional expenses of approximately $414,000; a decrease in payroll related expenses of approximately $403,000, which was the result of a reduced headcount, primarily in the sales and sales administration areas; and certain cost reduction programs implemented to reduce future operating expenses. Interest Expense, net - Interest expense, decreased by approximately $190,000 for the three month period ended June 30, 2001 as compared to the three month period ended June 30, 2000, due primarily to lower overall borrowing levels. Benefit for Income Taxes - SSG recorded a tax benefit of approximately $190,000 for the three months ended June 30, 2001 as compared to a tax benefit of $200,000 for the same period in fiscal 2001. The tax benefits resulted from the utilization of net operating loss carryforwards. Liquidity and Capital Resources Net cash utilized by operating activities was $2.1 million for the three months ended June 30, 2001. Cash was primarily utilized as a result of an increase in inventories, trade and other receivables, and was partially offset by the profitability of the Company and an increase in accounts payable. Net cash used by investing activities was $348,000 for the three months ended June 30, 2001. Cash was utilized primarily for additional purchases of shares of common stock of SSG. Net cash used for financing activities was $1.8 million for the three months ended June 30, 2001. Cash was primarily utilized for the extension of an option to purchase the Company's stock and a decrease in borrowings. Emerson and SSG maintain asset-based credit facilities of $10 million and $25 million, respectively. These facilities provide for revolving loans and letters of credit, subject to certain limits which, in the aggregate, cannot exceed the lesser of $10 million and $25 million for Emerson and SSG, respectively, or a "Borrowing Base" amount based on specified percentages of eligible accounts receivable and inventories. Emerson and SSG are required to maintain certain net worth levels, which they were both in compliance with as of June 30, 2001. At June 30, 2001, there were approximately $6.5 million and $14.6 million of borrowings outstanding under these facilities by Emerson and SSG, respectively. No letters of credit were outstanding by either Emerson or SSG as of June 30, 2001. The Company's Hong Kong subsidiary currently maintains various credit facilities, as amended, aggregating $40.0 million with a bank in Hong Kong consisting of the following: (i) a $5.0 million credit facility which is generally used for letters of credit for inventory purchases and (ii) a $35 million credit facility, for the benefit of a foreign subsidiary, which is for the establishment of back-to-back letters of credit. At June 30, 2001, the Company's Hong Kong subsidiary pledged $1.75 million in certificates of deposit to this bank to assure the availability of the $5.0 million credit facility. At June 30, 2001, there were approximately $4.2 million and $14.9 million, respectively, of letters of credit outstanding under these credit facilities. At present, management believes that future cash flow from operations and its existing institutional financing noted above will be sufficient to fund all of the Company's cash requirements for the next twelve months. There were no substantial commitments for purchase orders outside the normal purchase orders used to secure product as of June 30, 2001. Inflation, Foreign Currency, and Interest Rates Neither inflation nor currency fluctuations had a significant effect on the Company's results of operations during the first quarter of Fiscal 2002. The Company's exposure to currency fluctuations has been minimized by the use of U.S. dollar denominated purchase orders, and by sourcing production in more than one country. The consumer electronics segment purchases virtually all of its products from manufacturers located in various Asian countries. The interest on borrowings under the Company's credit facilities is based on the prime rate. While a significant increase in interest rates could have an adverse effect on the financial condition and results of operations of the Company, management believes that given the present economic climate, interest rates are not expected to increase significantly during the coming year. Recent Pronouncements of the Financial Accounting Standards Board In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2003. Application of the nonamortization provisions of the Statement is expected to result in an approximate increase in the net income of $250,000 ($.01 per share) per year. During fiscal 2003, the Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of April 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. Forward-looking Information This report contains various forward-looking statements under the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and information that is based on Management's beliefs as well as assumptions made by and information currently available to management. When used in this report, the words "anticipate", "believe", "estimate", "expect", "predict", "project", and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, expected or projected. Among the key factors that could cause actual results to differ materially are as follows: (i) the ability of the consumer electronics segment to continue selling products to two of its largest customers whose net revenues represented 41% and 14% of fiscal 2001 consolidated net revenues; (ii)reduced sales to the United States Government by the sporting goods segment, due to a reduction in Government spending; (iii) competitive factors in the consumer electronics segment, such as competitive pricing strategies utilized by retailers in the domestic marketplace that negatively impacts product gross margins; (iv) the ability of the consumer electronics and sporting goods segments to maintain their suppliers, primarily all of whom are located in the Far East for the consumer electronics segment; (v)the ability of the sporting goods segment to have an uninterrupted shipping service from outside carriers, such as United Parcel Service; (vi) the ability of the Company to comply with the restrictions imposed upon it by its outstanding indebtedness; and (vii) general economic conditions and other risks. Due to these uncertainties and risks, readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. For additional risk factors as they relate to the sporting goods segment, see SSG's Form 10-K for the fiscal year ended March 31, 2001 Item 7 - "Certain Factors that May Affect the Company's Business of Future Operating Results". Item 3. Quantitative and Qualitative Disclosures About Market Risk Not material. PART II OTHER INFORMATION ITEM 1. Legal Proceedings. For information on litigation to which the Company is a party, reference is made to Part 1 Item-3-Legal Proceedings in the Company's most recent annual report on Form 10-K. ITEM 2. Changes in Securities and Use of Proceeds. None. ITEM 3. Default Upon Senior Securities. (a) None (b) None ITEM 4. Submission of Matters to a Vote of Security Holders. Not Applicable. ITEM 5. Other Information. (a) None ITEM 6. Exhibits and Reports on Form 8-K. (a) Exhibits: None (b) Reports on Form 8-K - During the three month period ended June 30, 2001, no Form 8-K was filed. SIGNATURES Pursuant to the requirements 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. EMERSON RADIO CORP. (Registrant) Date: August 7, 2001 /s/ Geoffrey P. Jurick -------------------------------------- Geoffrey P. Jurick Chairman, Chief Executive Officer and President Date: August 7, 2001 /s/ Kenneth A. Corby --------------------- Kenneth A. Corby Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----