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, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file number 0-25226
EMERSON RADIO CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3285224
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
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(Address of principal executive offices) (Zip code)
(973)884-5800
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(Registrant's telephone number, including area code)
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(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 August 3,
2000: 31,200,082.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<PAGE>
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except earnings per share data)
<CAPTION>
Three Months Ended
----------------------------------------
June 30, July 2,
2000 1999
------------------ -----------------
<S> <C> <C>
Net revenues $ 81,827 $ 43,447
Costs and expenses:
Cost of sales 71,410 38,271
Other operating costs and expenses 1,730 773
Selling, general & administrative
expenses 4,689 3,864
----------------- -----------------
77,829 42,908
----------------- -----------------
Operating income 3,998 539
Equity in (loss) earnings of
affiliate (157) 459
Interest expense, net (518) (574)
------------------ -----------------
Income before income taxes 3,323 424
Provision for income taxes 278 9
------------------ -----------------
Net income $ 3,045 $ 415
================== =================
Net income per common share
Basic $ .07 $ .01
================== =================
Diluted $ .06 $ .01
================== =================
Weighted average number of common
shares outstanding
Basic 43,853 47,828
================== =================
Diluted 50,037 55,197
================== =================
</TABLE>
The accompanying notes are an integral part of the interim
consolidated financial statements.
<PAGE>
<TABLE>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, March 31,
2000 2000
------------------- -----------------
(Unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 7,132 $ 8,539
Available for sale securities 17 37
Accounts receivable (less allowances of
$4,021 and $3,977, respectively) 3,433 4,756
Other receivables 1,701 4,027
Inventories 15,412 14,384
Prepaid expenses and other current assets 1,820 2,653
------------------- -----------------
Total current assets 29,515 34,396
Property and equipment - (net of
accumulated depreciation and amortization
of $3,515 and $3,402, respectively) 988 1,034
Investment in affiliates and joint venture 20,920 20,277
Other assets 2,122 2,289
------------------- -----------------
Total Assets $ 53,545 $ 57,996
=================== =================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Notes payable $ 2,209 $ 2,914
Current maturities of long-term debt 93 97
Accounts payable and other current
liabilities 15,137 16,499
Accrued sales returns 5,363 4,897
Income taxes payable 395 135
------------------- -----------------
Total current liabilities 23,197 24,542
Long-term debt, less current maturities 20,750 20,750
Other non-current liabilities 99 141
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; 51,331,615 shares
issued; 39,377,615 and 46,477,615 shares
outstanding 513 513
Capital in excess of par value 113,289 113,289
Cumulative translation adjustment (77) (76)
Unrealized loss on marketable securities (20) --
Accumulated deficit (98,413) (101,445)
Treasury stock, at cost 11,954,000 and
4,854,000 shares, respectively (9,103) (3,028)
------------------- -----------------
Total shareholders' equity 9,499 12,563
------------------- -----------------
Total Liabilities and Shareholders' Equity $ 53,545 $ 57,996
=================== =================
The accompanying notes are an integral part of the interim consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
-------------------------------------
June 30, July 2,
2000 1999
---------------- ----------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net cash provided (used) by operating
activities $ 6,308 $(1,805)
---------------- ----------------
Cash Flows from Investing Activities:
Investment in Affiliate (802) --
Other ( 87) (385)
---------------- ----------------
Net cash used by investing activities (889) (385)
Cash Flows from Financing Activities:
Purchase of Common Stock (6,075) --
Net (borrowings)repayments under Line of Credit ( 705) 609
Other ( 46) ( 50)
---------------- ----------------
Net cash (used) provided by financing
activities (6,826) 559
Net decrease in cash and cash
equivalents (1,407) (1,631)
Cash and cash equivalents at beginning
of year 8,539 3,100
---------------- ----------------
Cash and cash equivalents at end of period $7,132 $1,469
================ ================
The accompanying notes are an integral part of the interim consolidated financial statements.
</TABLE>
<PAGE>
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 June 30, 2000
and the results of operations for the quarters ended June 30, 2000 and July
2, 1999. 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, 2000 ("Fiscal 2000"), 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 quarter ended June 30, 2000 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,
2001 ("Fiscal 2001").
The management of the Company considers the Company to have one
reportable segment, consumer electronics, and assesses performance on a
single segment basis.
For Fiscal 2000,and prior year, the Company's financial reporting
periods ended the Friday closest to the calendar quarter. Beginning in
Fiscal 2001, the Company changed its financial reporting year to end March
31 and the quarters to end on the last day of the month. Such change in the
Company's financial reporting year will not have a material effect on the
Company's results of operations.
<PAGE>
NOTE 2 - COMPREHENSIVE INCOME
The Company's comprehensive income for the three months ended June 30, 2000
and July 2, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
<S> <C> <C>
June 30, July 2,
2000 1999
---------------- ------------------
Net income $ 3,045 $ 415
Currency translation adjustment (1) --
Unrealized losses on securities, net (20) (248)
---------------- ------------------
Comprehensive income $ 3,024 $ 167
================ ==================
</TABLE>
<TABLE>
<CAPTION>
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, July 2,
2000 1999
----------------- ------------------
Numerator:
<S> <C> <C>
Net income $ 3,045 $ 415
Less: preferred stock dividends 13 26
---------------------- ---------------
Numerator for basic earnings per
share - income available to
common stockholders 3,032 389
Add back to effect assumed conversions:
Preferred stock dividends 13 26
---------------------- ---------------
Numerator for diluted earnings
per share $ 3,045 $ 415
====================== ===============
Denominator:
Denominator for basic earnings
per share - weighted average
shares 43,853 47,828
Effect of dilutive securities:
Preferred shares 6,184 7,369
---------------------- ---------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 50,037 55,197
====================== ===============
Basic earnings per share $ .07 $ .01
====================== ===============
Diluted earnings per share $ .06 $ .01
====================== ===============
</TABLE>
NOTE 4- CAPITAL STRUCTURE
The outstanding capital stock of the Company at June 30, 2000 consisted of
common stock and Series A convertible preferred stock. The preferred shares are
convertible in to common shares until March 31, 2002.
During the quarters ended June 30, 2000 and July 2, 1999 there were no
conversions of Series A Preferred Stock. If all existing outstanding preferred
shares were converted at June 30, 2000, approximately 6.2 million additional
common shares would be issuable. The dividend rates on the Series A Preferred
Stock at June 30, 2000 and July 2, 1999 were 1.4% and 2.8%, with $951,000 and
$879,000 of dividends in arrears, respectively. The dividend rate is 1.4% until
March 31, 2001 at which time no further dividends are payable.
At June 30, 2000, the Company had outstanding approximately 1.4 million
options with exercise prices ranging from $1.00 to $1.10. Approximately 1.5
million outstanding warrants are convertible into an equal number of shares of
common stock at conversion prices ranging from $1.30 to $4.00.
The Company also has outstanding approximately $20.8 million of Senior
Subordinated Convertible Debentures due in 2002. See "Note 9 - Long Term Debt".
NOTE 5 - INCOME TAXES
Income tax provisions for the quarterly periods ended June 30, 2000 and
July 2, 1999 primarily consisted of taxes related to international operations.
As of March 31, 2000 the Company had a federal net operating loss
carryforward of approximately $130.8 million that expire between 2006 and 2019.
The utilization of such losses are limited based on Sections 382 and 383 of the
Internal Revenue Code.
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.
<PAGE>
The following is a summary of available-for-sale equity securities at
June 30, 2000 and March 31, 2000 (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Gross Fair
Cost Gains Losses Losses Value
------------- ------------------ -------------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
June 30, 2000 $ 37 $-- $ 20 $ -- $ 17
March 31, 2000 37 -- -- -- 37
</TABLE>
NOTE 8 - INVESTMENT IN SPORT SUPPLY GROUP, INC.
The Company owns 2,555,000 (35% of the outstanding) shares of common stock
of Sport Supply Group, Inc. ("SSG") at a total cost of $17,371,000, of which
2,269,500 shares were purchased in 1996. 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. If the Company exercises all of the SSG Warrants, it will
beneficially own approximately 43% of the SSG common shares. The warrants are
scheduled to expire in December 2001. Effective March 1997, the Company entered
into a Management Services Agreement with SSG, under which SSG provides various
managerial and administrative services to the Company for a fee.
The investment in, and results of operations of, SSG are accounted for by
the equity method. The Company's investment in SSG includes goodwill of
$7,355,000 which is being amortized on a straight line basis over 40 years. At
June 30, 2000, the aggregate market value quoted on the New York Stock Exchange
of SSG common shares equivalent in number to those owned by Emerson was
approximately $12 million. Summarized financial information derived from the
annual and quarterly financial reports as filed by SSG with the Securities and
Exchange Commission was as follows (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
------------------------------------------------------------------
June 30, 2000 March 31, 2000
----------------------------- ---------------------------------
<S> <C> <C>
Current assets $ 46,482 $ 50,488
Property, plant and equipment and other assets
28,103 30,158
Current liabilities 12,920 38,450
Long-term debt 20,033 252
Stockholders' Equity 41,632 41,945
(Unaudited)
------------------------------------------------------------------
For the 3 Months Ended For the 3 Months Ended
June 30, 2000 July 2, 1999
----------------------------- ---------------------------------
Net sales $ 29,045 $ 26,310
Gross profit 9,400 10,717
Net (loss) income (329) 1,759
</TABLE>
NOTE 9 - LONG-TERM DEBT
As of June 30, 2000 and March 31, 2000 long-term debt consisted of the
following (in thousands of dollars):
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
----------------- -----------------
8 1/2% Senior Subordinated Convertible
<S> <C> <C> <C>
Debentures Due 2002 $20,750 $20,750
Equipment notes and other 93 97
----------------- -----------------
20,843 20,847
Less current obligations 93 97
----------------- -----------------
Long term debt $20,750 $20,750
================= =================
</TABLE>
The Senior Subordinated Convertible Debentures Due 2002 ("Debentures")
were issued 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 presently redeemable in whole or in part at the Company's
option at a redemption price of 103% of principal, decreasing by 1% per
year until maturity. The Debentures are subordinated to all existing and
future senior indebtedness (as defined in the Indenture governing the
Debentures). The Debentures restrict, among other things, the amount of
senior indebtedness and other indebtedness that the Company and, in certain
instances, its consolidated subsidiaries, may incur. Each Debenture holder
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.
Note 10 - 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.
Note 11 - SUBSEQUENT EVENT
On July 31, 2000 the Company purchased 8,177,533 shares of outstanding
Common Stock for approximately $4.1 million. The Company used cash
generated from operations and required no additional borrowings to complete
the transaction.
<PAGE>
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Net Revenues Consolidated net revenues for the three month period ended
June 30, 2000 increased $38.4 million (88.3%) as compared to the same period
ended July 2, 1999. The increase in net revenues resulted primarily from
increased unit sales of audio product and microwave oven product category,
partially offset by a decrease in unit sales of the Digital Video Disc (DVD)
product line. The increase in audio products was primarily attributable to the
introduction of new audio products, combined with customers ordering products
earlier in the year. Revenues earned from the licensing of the "[OBJECT
OMITTED]" trademark were $1,233,000 and $704,000 in the three month period ended
June 30, 2000 and July 2,1999, respectively. The increase in licensing revenue
is primarily attributable to the License Agreement with Daewoo.
The Company reports royalty and commission revenues earned from its
licensing arrangements, covering various products and territories, in lieu of
reporting the full dollar value of such sales and associated costs.
Cost of Sales Cost of Sales, as a percentage of consolidated net revenues
was 87.3% for the three months ended June 30, 2000 as compared to 88.1% for the
same period in Fiscal 2000. The decrease in the cost of sales as a percentage of
sales was primarily attributable to a change in the product mix and an increase
in license revenues.
Other Operating Costs and Expenses Other operating costs and expenses for
the three month period ended June 30, 2000 as compared to the same period in
Fiscal 2000 increased from 1.8% to 2.1% of net revenues primarily due to
increased activity with its return to vendor programs.
Selling, General and Administrative Expenses ("S,G&A") S,G&A decreased from
8.9% of net revenues for the three months ended July 2, 1999 to 5.7% for the
same period in Fiscal 2001. The decrease in S,G&A was primarily attributable to
the effect of a higher sales base.
Equity In (Loss) Earnings Of Unconsolidated Affiliate The Company's 35%
share in the earnings of an affiliate amounted to a loss of $157,000 for the
three month period ended June 30, 2000 as compared to earnings of $459,000 for
the same period in the prior year.
Interest Expense Interest expense decreased from $574,000 in Fiscal 2000 to
$518,000 in Fiscal 2001 primarily due to reduced average borrowings, which were
primarily offset by higher borrowing costs.
Provision for Income Taxes Provision for income taxes was $278,000 for the
three month period ended June 30, 2000 as compared to $9,000 for the same period
in the same period in Fiscal 2000.
<PAGE>
Net Income As a result of the foregoing factors, the Company recorded net
income of $3,045,000 for the three months ended June 30, 2000, as compared to
$415,000 for the three months ended July 2, 1999.
Liquidity and Capital Resources
Net cash provided by operating activities was $6.3 million for the three
months ended June 30, 2000. Cash was primarily provided by an increase in the
profitability of the Company, a reduction of accounts and other receivables,
partially offset by an increase in inventory and a decrease in accounts payable
and other current liabilities.
Net cash utilized by investing activities was $889,000 for the three months
ended June 30, 2000. Cash was utilized primarily for additional purchases of
shares in its unconsolidated affiliate.
Net cash used for financing activities was $6,826,000 primarily for the
purchase of the Company's stock for treasury and the repayment of borrowing.
The Company maintains two credit facilities with a Hong Kong based bank: a
$3.5 million letter of credit facility and a $20 million back-to-back letter of
credit facility with seasonal over-advances. At June 30, 2000, there was $3.5
million and $27.5 million, respectively, of letters of credit outstanding under
these 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.
As of June 30, 2000, the Company had no material commitments for capital
expenditures. See Note 11 - Subsequent Event regarding cash commitment and stock
purchase made subsequent to June 30, 2000.
Inflation and Foreign Currency
Neither inflation nor currency fluctuations had a significant effect on the
Company's results of operations during the first quarter of Fiscal 2001. 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.
Recent Pronouncements of the Financial Accounting Standards Board
During the second quarter of 1998 the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." In June 1999,
the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133
by one year. SFAS No. 133 will be effective for the Company for Fiscal 2001 and
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
<PAGE>
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", "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 Company to continue
selling products to its largest customers whose net revenues represented 55% and
21% of Fiscal 2000 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 outcome of litigation; (v) the ability of the Company to comply with the
restrictions imposed upon it by its outstanding indebtedness; and (vi) general
economic conditions. 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not material.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.
The circumstances surrounding the termination of Eugene Davis'
employment were the subject of two proceedings filed on September 30, 1997 and
October 2, 1997, in the Superior Court of the State of New Jersey. Emerson
modifies its disclosure about the circumstances surrounding Mr. Davis'
termination and this litigation to state that Emerson and Mr. Davis have settled
this litigation based on their mutual determination that it was in the best
interest of the parties to terminate their business relationship.
For further 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, and on Form 8-K dated May 25, 2000.
ITEM 2. Changes in Securities and Use of Proceeds.
None.
<PAGE>
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:
(27) Financial Data Schedule for quarter ended June 30, 2000.*
(b) Reports on Form 8-K - Current report on Form 8-K, dated May 25,
2000, reporting the settlement of certain of the Company's
outstanding litigation.
----------------------------
*Filed herewith.
<PAGE>
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 14, 2000 /s/ Geoffrey P. Jurick
----------------------
Geoffrey P. Jurick
Chairman, Chief Executive Officer and
President
Date: August 14, 2000 /s/ John P. Walker
------------------
John P. Walker
Executive Vice President and
Chief Financial Officer
