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 January 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 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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of common stock as of February 10,
1999: 47,828,215.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
January 1, December 31, January 1, December 31,
1999 1997 1999 1997
<S> <C> <C> <C> <C>
Net revenues $31,588 $ 48,295 $137,476 $ 123,838
Costs and expenses:
Cost of sales 26,949 42,157 121,110 109,343
Other operating costs
and expenses 990 799 3,153 2,302
Selling, general &
administrative
expenses 2,527 4,184 10,024 11,338
30,466 47,140 134,287 122,983
Operating income 1,122 1,155 3,189 855
Equity in earnings of
Affiliate (196) (31) 595 1,006
Write-down of investment in
Joint Venture -- -- (370) --
Interest expense, net (620) (619) (1,740) (2,018)
Income (loss) before income
taxes 306 505 1,674 (157)
Provision (benefit) for
income taxes (4) 12 17 53
Net income (loss) $ 310 $ 493 $ 1,657 $ (210)
Net income (loss) per
common share
Basic $ .01 $ .01 $ .02 $ (.01)
Diluted $ .01 $ .01 $ .02 $ (.01)
Weighted average number of
common shares outstanding
Basic 48,601 47,394 49,935 43,463
Diluted 59,010 65,869 62,157 43,463
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<CAPTION>
January 1, April 3,
1999 1998
ASSETS (Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 5,189 $ 2,608
Available for sale securities (net fair
value adjustment of ($890) and $0,
respectively) 1,146 --
Accounts receivable (net allowances of
$5,726 and $4,884, respectively) 6,776 8,094
Other receivables 6,421 6,474
Inventories 10,359 11,759
Prepaid expenses and other current assets 2,143 2,119
Total current assets 32,034 31,054
Property and equipment - (net of
accumulated depreciation and amortization
of $3,100 and $3,152, respectively) 1,275 1,381
Investment in Affiliate and Joint Venture 18,117 17,522
Other assets 4,017 4,810
Total Assets $ 55,443 $ 54,767
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C>
Notes payable $ 1,068 $ --
Current maturities of long-term debt 58 85
Accounts payable and other current
liabilities 17,624 15,103
Accrued sales returns 4,454 4,511
Income taxes payable 96 191
Total current liabilities 23,300 19,890
Long-term debt, net of current maturities 20,750 20,750
Other non-current liabilities 199 179
Shareholders' Equity:
Preferred shares - 10,000,000
shares authorized, 3,714 and 5,237
shares issued and outstanding, respectively 3,343 4,713
Common shares - $.01 par value, 75,000,000
shares authorized, 51,331,615 and 51,044,730
shares issued; 48,164,215 and 51,044,730
shares outstanding, respectively 513 510
Treasury stock, at cost, 3,167,400 shares and 0
shares respectively. (1,701) --
Capital in excess of par value 113,287 113,201
Unrealized losses on securities (890) --
Accumulated deficit (103,555) (104,673)
Cumulative translation adjustment 197 197
Total shareholders' equity 11,194 13,948
Total Liabilities and Shareholders' Equity $ 55,443 $ 54,767
</TABLE>
The accompanying notes are an integral part of the interim consolidated
financial statements.
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands of dollars)
<CAPTION>
Nine Months Ended
January 1, December 31,
1999 1997
Cash Flows from Operating Activities:
<S> <C> <C>
Net cash provided by operating
activities $ 7,037 $ 5,387
Cash Flows from Investing Activities:
Net cash used by investing
activities. (2,036) (14)
Cash Flows from Financing Activities:
Net borrowings (repayments) under line of
credit facility 1,068 (5,027)
Purchase of shares for treasury
and retirement (3,481) --
Other (7) (74)
Net cash used by financing
activities (2,420) (5,101)
Net increase in cash and cash
equivalents 2,581 272
Cash and cash equivalents at beginning
of year 2,608 2,640
Cash and cash equivalents at end of
period(a) $ 5,189 $ 2,912
Supplemental disclosure of cash flow information:
Interest paid $ 1,484 $ 1,622
Income taxes paid $ 0 $ 51
</TABLE>
(a) Includes $1.0 million of cash and cash equivalents, pledged to assure the
availability of certain letter of credit facilities.
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)
(In thousands, except earnings per share data)
NOTE 1 - BUSINESS
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 Emerson Radio Corp.'s (the "Company" or "Emerson")
consolidated financial position as of January 1, 1999 and the results of
operations for the three and nine month periods ended January 1, 1999 and
December 31, 1997. 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 April 3, 1998 ("Fiscal 1998"), 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 business,
the results of operations for the three and nine month periods ended January 1,
1999 are not necessarily indicative of the results of operations that may be
expected for the full year ending April 2, 1999 ("Fiscal 1999").
Beginning in Fiscal 1998, the Company changed its financial reporting year
to a 52-53 week year ending on the Friday closest to March 31. Accordingly, the
current fiscal year will end on April 2, 1999. Such change in the Company's
financial reporting year will not have a material effect on the Company's
results of operations.
Certain amounts in the prior period's consolidated financial statements
have been reclassified to conform to the current period's presentation.
NOTE 2 - ACCOUNTING POLICY
Effective as of April 4, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". This statement requires that all items recognized under
accounting standards as components of comprehensive earning be reported in an
annual financial statement that is displayed with the same prominence as other
annual financial statements. This statement also requires that an entity
classify items of other comprehensive earnings by their nature in an annual
financial statement. For the Company, other comprehensive earnings include
foreign currency translations adjustments and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. The Company's
total comprehensive earnings for the three months and the nine months ended
January 1, 1999 and December 31, 1997 were as follows (in thousands):
<TABLE>
Three Months Ended Nine Months Ended
January 1, December 31, January 1, December 31,
1999 1997 1999 1997
<S> <C> <C> <C> <C>
Net income (loss) $ 310 $ 493 $ 1,657 $ (210)
Unrealized losses on
securities, net (120) -- (890) 0
Comprehensive income
(loss) $ 190 $ 493 $ 767 $ (210)
</TABLE>
NOTE 3 - EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share amounts):
<TABLE>
For the Three For the Nine
Months Ended Months Ended
January 1, December 31, January 1, December 31,
1999 1997 1999 1997
Numerator:
<S> <C> <C> <C> <C>
Net income (loss) $ 310 $ 493 $ 1,657 $ (210)
Less: preferred stock
dividends 39 82 539 327
Numerator for basic earnings
per share - income available
to common stockholders 271 411 1,118 (537)
Add back to effect assumed
conversions:
Preferred stock dividends 39 82 132 --
Numerator for diluted earnings
(loss) per share $ 310 $ 493 $ 1,250 $ (537)
Denominator:
Denominator for basic earnings
per share - weighted
average shares 48,601 47,394 49,985 43,463
Effect of dilutive securities:
Preferred shares 10,409 18,475 12,222 --
Denominator for diluted
earnings per share - adjusted
weighted average shares
and assumed conversions 59,010 65,869 62,157 43,463
Basic earnings (loss) per
share $ .01 $ .01 $ .02 $ (.01)
Diluted earnings (loss) per
share $ .01 $ .01 $ .02 $ (.01)
</TABLE>
NOTE 4 - CAPITAL STRUCTURE
The outstanding capital stock of the Company at January 1, 1999 consisted
of common stock and Series A convertible preferred stock. The preferred shares
are convertible into common shares until March 31, 2002.
During the quarter ended December 31, 1997, 2,129 shares of Series A
Preferred Stock were converted into 5,134,831 shares of common stock. There
were no conversions of Series A Preferred Stock for the quarter ended January 1,
1999. If all existing outstanding preferred shares were converted at January 1,
1999, an estimated 10.4 million additional common shares would be issuable.
Dividends for the preferred stock accrued and were payable quarterly at a 7%
annual rate until March 31, 1997; dividend rates decline by 1.4% each succeeding
year until March 31, 2001 when no further dividends are payable. The dividend
rates at January 1, 1999 and December 31, 1997 were 4.2% and 5.6%, with $801,000
and $727,000 of dividends in arrears respectively.
At January 1, 1999, the Company had outstanding approximately 1.2 million
options with exercise prices ranging from $1.00 to $1.10. Approximately 986,000
outstanding warrants are convertible into approximately 986,000 shares of common
stock at conversion prices ranging between $1.20 and $4.00.
The Company also has outstanding approximately $20.8 million of Senior
Subordinated Convertible Debentures due in 2002. See "Note 8 - Long Term Debt."
NOTE 5 - INCOME TAXES
Income tax provisions and benefits for the quarterly periods ended January
1, 1999 and December 31, 1997 consist of taxes related to international
operations. The Company does not recognize tax benefits for losses incurred by
its domestic operations.
NOTE 6 - INVENTORY
Inventories are comprised primarily of finished goods which are stated at
the lower of cost (first-in, first-out) or market.
NOTE 7 - AVAILABLE-FOR-SALE SECURITIES
Available-for-sale securities are stated at fair value, with the unrealized
gains and losses reported in a separate component of shareholders' equity.
Realized gains and losses, and declines in value judged to be other-than-
temporary are included in earnings.
The following is a summary of available-for-sale equity securities at
January 1, 1999 (in thousands):
<TABLE>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Equity Securities $2,036 $32 $922 $1,146
</TABLE>
As of April 2, 1998 there were no securities held as available-for-sale.
NOTE 8 - INVESTMENT IN SPORT SUPPLY GROUP, INC.
The Company owns 2,269,500 (31% of the outstanding) shares of common stock
of Sport Supply Group, Inc. ("SSG") which it purchased in 1996 at an aggregate
cost of $15,728,000 or $ 6.92 per share. In addition, the Company owns warrants
to purchase an additional 1 million shares of SSG's common stock for $7.50 per
share ("SSG Warrants") which the Company purchased in 1996 at an aggregate cost
of $500,000 or $.50 per SSG warrant. If the Company exercises all of the SSG
Warrants, it will beneficially own approximately 39% of the SSG common shares.
The investment in and results of operations of SSG are accounted for by the
equity method. In January 1997, SSG changed its financial reporting year end
from October 31 to September 30. This change in accounting period resulted in
the Company now recording its share of SSG earnings on a concurrent basis.
Previously, the Company recorded its share of SSG's earnings on a two month
delay. The Company's investment in SSG includes goodwill of $3,973,000 which is
being amortized on a straight line basis over 40 years. At January 1, 1999, the
aggregate market value quoted on the New York Stock Exchange of Emerson's shares
of SSG common shares was approximately $21 million. Summarized financial
information derived from SSG's financial reports to the Securities and Exchange
Commission was as follows (in thousands):
<TABLE>
January 1, 1999 April 3, 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Current assets $ 35,250 $ 37,282
Property, plant and
equipment and other assets 22,295 19,878
Current liabilities 9,126 8,395
Long-term debt 10,431 7,498
</TABLE>
<TABLE>
(Unaudited)
For the 9 Months For the 8 Months
Ended Ended
January 1, 1999 September 26,
1997
<S> <C> <C>
Net sales $ 65,477 $ 64,530
Gross profit 25,703 25,499
Net income 2,434 3,933
</TABLE>
In July 1997, the Company entered into a Management Services Agreement with
SSG, under which SSG provides various managerial and administrative services to
the Company.
NOTE 9 - LONG TERM DEBT
As of January 1, 1999 and April 3, 1998 long-term debt consisted of the
following (in thousands of dollars):
<TABLE>
January 1, April 3,
1999 1998
<S> <C> <C>
8-1/2% Senior Subordinated Convertible
Debentures Due 2002 $20,750 $20,750
Equipment notes and other 58 85
20,808 20,835
Less current obligations 58 85
Long term debt $20,750 $20,750
</TABLE>
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures") were
issued in August 1995, 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 a conversion price of $3.9875 per share, subject to adjustment under certain
circumstances. Beginning August 15, 1998, at the option of the Company, the
Debentures are redeemable in whole or in part at an initial redemption price of
104% of principal, decreasing by 1% per year until maturity. The Debentures are
subordinated to all existing and future senior indebtedness (as defined in the
Indenture governing the Debentures). The Debentures restrict, among other
things, the amount of senior indebtedness and other indebtedness that the
Company and, in certain instances, its subsidiaries, may incur. Each Debenture
holder has the right to cause the Company to redeem the Debentures if certain
designated events (as defined) should occur.
Note 10 - LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings and claims of
various types, the most significant of which are described in "Part I - Item 3.
Legal Proceedings" of the Company's Form 10-K for the fiscal year ended April 3,
1998 and "Part II -- Other Information Item 1. Legal Proceedings" of this
Quarterly Report on Form 10-Q. While any such litigation contains an element of
uncertainty, management presently believes that the outcome of such proceedings
and claims 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
GENERAL
The Company's operating results and liquidity are impacted by the
seasonality of its business. The Company records the majority of its annual
sales in the fiscal quarters ending in September and December and receives the
largest amount of customer returns in the fiscal quarters ending in March and
June. Therefore, the results of operations discussed below are not necessarily
indicative of the Company's prospective annual results. The Company expects its
United States sales for the fiscal quarter ended April 2, 1999 to be lower than
the fourth quarter of Fiscal 1998. As a result, Management expects a net loss in
the Company's fourth quarter of Fiscal 1999.
RESULTS OF OPERATIONS
NET REVENUES Consolidated net revenues for the three and nine month
periods ended January 1, 1999 decreased $16.7 million or 34.6% and increased
$13.6 million or 11.0% as compared to the same periods in the prior fiscal year.
("Fiscal 1998"), respectively. The decrease in revenues for the three months
ended January 1, 1999 resulted primarily from decreases in unit sales of audio
and microwave oven products. This decrease in product sales was partially offset
by a significant reduction in returned product as compared to the same period in
the prior year resulting from an overall more restrictive return policy by the
Company's customers. It is expected that this trend will continue. The
increase in revenues for the nine months ended January 1, 1999 resulted
primarily from increased unit sales of audio products offset by a unit decrease
in microwave oven products, combined with a significant reduction in returned
product. Revenues earned from the licensing of the Emerson and G-Clef trademark
were $1 million and $2.6 million in the three and nine month periods ended
January 1, 1999 as compared to $1.3 million and $3.8 million in the same periods
in Fiscal 1998, respectively. The decrease is attributable to the first year
transition of a marketing agreement with Daewoo Electronics, Ltd. implemented to
replace a previous license agreement. This decline is expected to be temporary
as the new program becomes fully implemented in Fiscal 2000. The Company
expects its United States sales for the fiscal quarter ended April 2, 1999 to be
lower than the fourth fiscal quarter of Fiscal 1998.
COST OF SALES Cost of sales, as a percentage of consolidated revenues, was
85% and 88% for the three and nine month periods ended January 1, 1999 as
compared to 87% and 88% for the same periods in Fiscal 1998, respectively. The
decrease in cost of sales as a percent of sales for the three month period ended
January 1, 1999 as compared to the same period in the prior fiscal year was
primarily attributable to higher margins in audio and microwave oven products,
and a decrease in returned product, which was partially offset by a decrease in
licensing revenues and marketing fees.
The Company's gross profit margins continue to be subject to competitive
pressures arising from pricing strategies associated with the category of the
consumer electronics market in which the Company competes. The Company's
products are generally placed in the low-to-medium priced categories of the
market, which tend to be the most competitive and generate the lowest profit
margins. The Company believes that its marketing agreements, its licensing
agreements in the United States and various foreign countries, and its
distribution agreements in Canada, Europe and parts of Asia will have a
favorable impact on the Company's gross profit. The Company continues to
promote its direct import programs to reduce working capital risks. In addition,
the Company continues to focus on its higher margin products and continually
reviews new products that can generate higher margins than its current business,
either through license arrangements, acquisitions, joint ventures or on its own.
OTHER OPERATING COSTS AND EXPENSES Other operating costs and expenses
increased $191,000 and $851,000 in the three and nine month periods ended
January 1, 1999 as compared to the same periods in Fiscal 1998, respectively,
primarily as a result of the Company's increased use of the return-to-vendor
program. Under the return-to-vendor program, the Company, by paying a fee, is
able to return defective product to its suppliers and, to receive in exchange, a
replacement unit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("S,G&A") S,G&A, as a
percentage of revenues, was 8.0% and 7.3% for the three and nine month periods
ended January 1, 1999, as compared to 8.6% and 9.2% for the same periods in
Fiscal 1998, respectively. In absolute terms, S,G&A decreased by $1,657,000 for
the three month period ended January 1, 1999, and for the nine month period
ended January 1, 1999 decreased by $1,314,000 as compared to the same periods in
Fiscal 1998. The decrease in S,G&A for the three month period ended January 1,
1999 was primarily attributable to reduced co-op advertising costs, reduced
charges related to bad debts and a reduction in professional fees. The decrease
of $1,314,000 in S,G&A for the nine month ended January 1, 1999 period was
primarily attributable to reduced co-op advertising costs and a decrease in the
charges incurred in the prior year for relocation costs of the Company's back
office operations from New Jersey to Texas, partially offset by an increase in
professional fees.
OPERATING INCOME The Company reported operating income of $1.1 million and
$3.2 million for the three and nine months ended January 1, 1999, as compared to
operating income of $1.2 million and $.9 million for the same periods in Fiscal
1998, respectively. Operating income for the nine month period ended January 1,
1999 as compared to the same period in the prior year is higher by $2.3 million
primarily due to a higher revenue base of approximately $10 million and a
reduction in S,G&A expenses, offset in part by higher return-to-the vendor
costs.
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATE The Company's share in the
earnings of SSG amounted to a loss of $196,000 and income of $595,000 in the
three and nine month periods ended January 1, 1999 as compared to a loss of
$31,000 and income of $1.0 million for the same periods in the prior fiscal
year, respectively. See Note 8 - Investment in Sport Supply Group, Inc.
INTEREST EXPENSE Interest expense was substantially unchanged for the
three months ended January 1, 1999 and decreased by $278,000 for the nine months
ended January 1, 1999 as compared to the same periods in Fiscal 1998. The
decrease for the nine month period was attributable to a significant reduction
in short-term average borrowings due to a reduction in working capital
requirements.
NET EARNINGS As a result of the foregoing factors, the Company generated
net earnings of $310,000 and $1,657,000 for the three and nine month periods
ended January 1, 1999, as compared to net earnings of $493,000 and a net loss
of $210,000 for the same periods in Fiscal 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities, was $7.0 million for the
nine months ended January 1, 1999. Cash was provided primarily by an increase in
accounts payable, increased borrowings, a reduction in inventory partially
offset by an increase in accounts receivable, combined with increased
profitability of the Company.
Net cash utilized by investing activities was $2.0 million for the nine
months ended January 1, 1999, which consisted of marketable securities held as
available-for-sale.
In the nine months ended January 1, 1999, the Company's financing
activities utilized $2.4 million of cash. The Company increased its borrowings
under its U.S. line of credit facility by $1.1 million to partially fund $3.5
million for the purchase of the Company's stock for treasury and retirement.
The Company maintains an asset-based $10 million U.S. line of credit
facility. In addition, the Company maintains 2 credit facilities with a Hong
Kong based bank: a $3.5 million letter of credit facility which was fully
utilized at January 1, 1999 and a $25 million back-to-back letter of credit
facility of which $7.9 million was utilized at January 1, 1999.
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. However, the
adequacy of future cash flow from operations is dependent upon the Company
achieving its operating plan.
As of January 1, 1999, the Company had no material commitments for capital
expenditures.
INFLATION AND FOREIGN CURRENCY
Neither inflation nor currency fluctuations had a significant effect on the
Company's results of operations during the first nine months of Fiscal 1999. 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 Company purchases virtually all of its products from
manufacturers located in various Asian countries. The economic crises in these
countries and its related impact on their financial markets has not impacted the
Company's ability to purchase product. Should these crises continue, they could
have a material adverse effect on the Company by inhibiting the Company's
relationship with its suppliers and its ability to acquire products for resale.
Additional financial turmoil in the Mexican and South American economies may
have an impact on the licensees with whom the Company has entered licenses.
YEAR 2000
The Company has in place detailed programs to address Year 2000 readiness
in its internal computer systems and its key customers and suppliers. The
Company's Year 2000 readiness team includes both internal personnel and
external consultants. The team's activities are designed to ensure that there
will be no material adverse effects on the Company's business operations and
that transactions with customers, suppliers, and financial institutions will be
fully supported. The specific costs of achieving Year 2000 compliance are
expected to be $500,000, of which approximately $160,000 has been expended to
date.
The Company has converted a significant portion of its operational
software, with testing to be performed during the first half of calendar year
1999. The balance of the Company's software is to be updated from an outside
vendor, which the Company expects to take place in the first quarter of Calendar
1999. The Company expects that all critical systems will be compliant by June
1999 and fully tested by September 1999. The Company is also in the process of
ensuring that its significant suppliers, customers and financial institutions
have appropriate plans to ensure that they are Year 2000 compliant. Risk
assessment, readiness evaluation, action plans and contingency plans related to
third parties have been analyzed. The Company does not have a contingency plan
in place should they not be Year 2000 compliant.
While the Company believes its planning efforts are adequate to address its
Year 2000 concerns, there can be no guarantee that all internal systems, as well
as those of third parties on which the Company relies, will be converted on a
timely basis and will not have a material adverse affect on the Company's
operations.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Effective as of April 4, 1998 the Company adopted "Financial Accounting
Standards No. 130 (FAS 130), "Reporting Comprehensive Income." FAS 130
establishes standards for the reporting and displaying of comprehensive income
and its components in a full set of general purpose financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for the Company
beginning April 4, 1998. This statement establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that these enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. As this statement only requires certain disclosure, its adoption
will not have any impact on the consolidated financial position, consolidated
results of operations or cash flows of the Company.
SFAS No. 132, "Employers Disclosures about Pension and other Postretirement
Benefits," revises disclosures about pension and other postretirement benefit
plans. This new standard standardizes the disclosure requirements for pension
and other postretirement benefits to the extent practicable and requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis. This new standard, which
will be effective for Fiscal 1999, will not have a significant impact on the
Company's financial statements based on the current financial structure and
operations of the Company.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which will be effective for the Company for Fiscal 2000,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The Company has not yet determined the effects, if any, of
implementing SFAS No. 133 on its reporting of financial information.
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", "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 Company to continue
selling products to its largest customers whose net revenues represented 58% and
16% of Fiscal 1998 net revenues; (ii) competitive factors such as competitive
pricing strategies utilized by retailers in the domestic marketplace that
negatively impacts product gross margins; (iii) the ability of the Company to
maintain its suppliers, primarily all of whom are located in the Far East; (iv)
the Company's ability to replace the licensing income from the Supplier with
commission revenues from Daewoo; (v) the outcome of litigation, as more fully
described in the Company's most recent annual report on form 10-K and below;
(vi) the availability of sufficient capital to finance the Company's operating
plans; (vii) the ability of the Company to comply with the restrictions imposed
upon it by its outstanding indebtedness; (viii) the effect of the worldwide
volatility in the financial markets and its effect, among other things, on the
Company's investment portfolio; and (ix) general economic conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
EMERSON RADIO CORP. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
During July 1998, testimony concluded on the Creditors'
motion to terminate the Settlement Agreement in the Stelling
litigation. No decision has been rendered by the Court.
On September 22,1998, Connecticut General Life Insurance Company
(CGLIC) filed suit against the Company in the United States
District Court, for the District of New Jersey, alleging that
the Company entered into an insurance agreement and failed to
honor its obligation as stated in the agreement. CGLIC is
seeking damages in the amount of $785,890. While the outcome of
this action is not certain at this time, the Company believes it
has meritorious defenses.
On December 11, 1998 in the United States District Court in the
Southern District of Indiana, Evansville Division, in the matter
of Orion Sales, Inc. and Orion Electric (America), Inc. v.
Emerson Radio Corp. the court granted Emerson Partial Summary
Judgment in the amount of $2,956,604 plus additional costs as a
result of Orion having refused to accept returns pursuant to the
License Agreement. The court also granted Orion a Summary Judgment
in the amount of $3,202,023 with interest for product previously
purchased. The effect of the above awards, which are not final
judgments, should not have a material adverse effect on the
financial condition of the Company or on its operation. Orion
has filed a motion for reconsideration of the Partial Summary
Judgment granted to Emerson. Emerson is considering an appeal of
the Summary Judgment granted to Orion.
For further information on the Stelling litigation and other
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.
During the quarter ended January 1, 1999 the Company purchased 536,800
shares of its common stock that is being held as treasury stock.
ITEM 3. DEFAULT UPON SENIOR SECURITIES.
(a) None
(b) None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of the Company's shareholders was held on
January 28, 1999 at which time the shareholders elected the
following slate of nominees to the Board of Directors: Peter G.
Bunger, Jerome H. Farnum, Stephen H. Goodman, Geoffrey P. Jurick
and Raymond L. Steele. All nominees, other than Stephen H.
Goodman, had previously served as members of the Board. Election
of the Board of Directors was the only matter submitted for
shareholder vote. There were 48,557,715 shares of outstanding
common stock of the Company entitled to vote at the record date
for this meeting and there were present at such meeting, in
person or by proxy, stockholders holding 48,457,213 shares of the
Company's Common Stock which represented approximately 99.8% of
the total capital stock outstanding and entitled to vote. There
were 48,457,213 shares voted on the matter of the election of
directors. The result of the votes cast regarding each nominee
for office was:
<TABLE>
NOMINEE FOR DIRECTOR VOTES FOR VOTES WITHHELD
<S> <C> <C>
Peter G. Bunger 47,636,500 820,713
Jerome H. Farnum 47,637,000 820,213
Stephen H. Goodman 47,636,853 820,360
Geoffrey P. Jurick 47,636,409 820,804
Raymond L. Steele 47,636,500 820,713
</TABLE>
The annual meeting of the Company's Board of Directors was
held on January 28, 1999, immediately following the annual
meeting of the Company's Shareholders, at which time the Board
elected to expand the Board to consist of 6 members and elected
Robert H. Brown, Jr. to the sixth Board seat. Mr. Brown has been
a member of the Board since July 1992.
ITEM 5. OTHER INFORMATION.
(a) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
(27) Financial Data Schedule for quarter ended January 1, 1999.*
(b) Reports on Form 8-K: Current report on Form 8-K dated January 5,
1999, reporting a proposal for the acquisition of a majority
interest in the Company's common stock by Oaktree Capital
Management, LLC.
___________________________
*Filed herewith
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: February 16, 1999 /s/ Geoffrey P. Jurick
Geoffrey P. Jurick
Chairman, Chief Executive Officer and
President
Date: February 16, 1999 /s/ John P. Walker
John P. Walker
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
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<NAME> EMERSON RADIO CORP.
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-02-1999
<PERIOD-END> JAN-01-1999
<CASH> 5,189
<SECURITIES> 1,146
<RECEIVABLES> 12,502
<ALLOWANCES> 5,726
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0
3,343
<COMMON> 513
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