<PAGE> 1
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 31, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________.
Commission File Number 1-10704
SPORT SUPPLY GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2241783
- --------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Diplomat Drive, Farmers Branch, Texas 75234
- -------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 484-9484
Not Applicable
- --------------------------------------------------------------------------------
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 preceeding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-------- --------
Indicated below is the number of shares outstanding of each class of
the registrant's common stock as of March 14, 1997.
Title of Each Class of Common Stock Number Outstanding
- ------------------------------------ -----------------------------
Common Stock, $0.01 par value 8,364,834 shares
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Page
----
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
2
<PAGE> 3
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
January 31, November 1,
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS :
Cash $ 501,327 $ 435,213
Accounts receivable --
Trade, less allowance for doubtful accounts of
$811,000 in 1997 and $552,000 in 1996 8,536,971 11,836,173
Other 91,272 138,994
Income taxes receivable 4,137,807 1,343,579
Inventories, net 19,678,763 15,320,505
Other current assets 1,020,180 899,588
Deferred tax assets 5,883,341 5,883,341
----------- -----------
Total current assets 39,849,661 35,857,393
----------- -----------
DEFERRED CATALOG EXPENSES 2,822,142 2,367,875
PROPERTY, PLANT AND EQUIPMENT :
Land 8,663 8,663
Buildings 1,551,723 1,551,723
Machinery and equipment 6,058,250 6,029,845
Furniture and fixtures 2,920,204 2,900,870
Leasehold improvements 2,378,368 2,365,821
----------- -----------
12,917,208 12,856,922
Less -- Accumulated depreciation and amortization (7,015,893) (6,779,589)
----------- -----------
5,901,315 6,077,333
----------- -----------
DEFERRED TAX ASSETS 4,492,847 4,492,847
COST IN EXCESS OF TANGIBLE NET ASSETS ACQUIRED,
less accumulated amortization of $1,062,000 in 1997 and
$1,036,000 in 1996 3,027,961 3,053,780
TRADEMARKS, less accumulated amortization of $800,000 in
1997 and $748,000 in 1996 3,499,821 3,551,801
OTHER ASSETS, less accumulated amortization of $1,115,000
in 1997 and $1,078,000 in 1996 733,697 761,826
NET NONCURRENT ASSETS OF DISCONTINUED OPERATIONS 16,270,654 16,365,572
----------- -----------
$76,598,098 $72,528,427
CURRENT LIABILITIES :
Accounts payable $ 8,887,297 $ 9,993,049
Accrued property taxes 139,197 370,789
Other accrued liabilities 1,532,711 1,806,334
Notes payable and capital lease obligations, current portion 18,523,616 696,955
Net current liabilities of discontinued operations 9,927,855 6,329,927
----------- -----------
Total current liabilities 39,010,676 19,197,054
----------- -----------
DEFERRED GAIN 30,124 33,137
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS, net of
current portion 324,097 24,135,267
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock, par value $0.01, 100,000 shares
authorized, no shares outstanding in 1997 or 1996 - -
Common stock, par value $0.01, 20,000,000 shares
authorized, 9,151,899 and 7,551,899 shares issued in
1997 and 1996, 8,364,834 and 6,764,834 shares
outstanding in 1997 and 1996 91,519 75,519
Paid-in capital 58,527,193 46,543,193
Retained deficit (13,641,125) (9,711,357)
Treasury stock, at cost, 787,065 shares in 1997
and 1996 (7,744,386) (7,744,386)
----------- -----------
37,233,201 29,162,969
----------- -----------
$76,598,098 $72,528,427
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For The Three Months Ended
---------------------------------------------------------
January 31, 1997 February 2, 1996
--------------------- ---------------------
<S> <C> <C>
Net revenues $ 14,579,808 $ 13,215,994
Cost of sales 8,675,018 8,103,770
--------------------- ---------------------
Gross profit 5,904,790 5,112,224
Selling, general and
administrative expenses 6,538,108 6,145,918
Nonrecurring charges 1,300,000 -
--------------------- ---------------------
Operating loss (1,933,318) (1,033,694)
Interest expense (196,331) (457,813)
Other income, net 7,129 24,635
--------------------- ---------------------
Loss from continuing operations
before benefit from income taxes (2,122,520) (1,466,872)
Benefit from income taxes (766,752) (534,092)
--------------------- ---------------------
Loss from continuing operations (1,355,768) (932,780)
--------------------- ---------------------
Discontinued operations:
Loss from operations, net - (151,384)
Loss on disposal, net (2,574,000) -
--------------------- ---------------------
Loss from discontinued
operations (2,574,000) (151,384)
--------------------- ---------------------
Net loss $ (3,929,768) $ (1,084,164)
===================== =====================
Loss per common and common
equivalent share:
Continuing operations (0.18) (0.14)
Discontinued operations (0.33) (0.02)
--------------------- ---------------------
Net loss $ (0.51) $ (0.16)
===================== =====================
Weighted average number of
common and common
equivalent shares outstanding 7,697,826 6,736,983
===================== =====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
For The Three Months Ended
------------------------------------------
January 31, 1997 February 2,
-------------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net loss $ (3,929,768) $ (1,084,164)
Adjustments to reconcile net loss
to net cash used in operating activities --
Loss on disposal of discontinued operations 2,574,000 -
Depreciation and amortization 347,289 402,819
Provision for allowances for accounts
receivable 103,845 126,997
Changes in assets and liabilities
Decrease in receivables 448,851 3,843,111
Increase in inventories (4,358,258) (4,067,680)
Increase in deferred catalogs and
other current assets (574,859) (666,206)
Increase (decrease) in payables (1,105,752) 587,799
Decrease in accrued liabilities (505,215) (383,026)
Decrease in other assets 16,698 314,393
Other (3,013) (36,888)
Discontinued operations - noncash charges and
working capital changes 1,120,503 764,747
-------------------- ---------------
Total adjustments (1,935,911) 886,066
-------------------- ---------------
Net cash used in operating activities (5,865,679) (198,098)
-------------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisitions of property, plant & equipment (92,041) (142,056)
Proceeds from sale of investments 10,000 --
Investing activities of discontinued operations (1,657) (468,758)
-------------------- ---------------
Net cash used in investing activities (83,698) (610,814)
-------------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from issuances of notes payable 6,151,918 2,568,360
Payments of notes payable and capital lease
obligations (12,136,427) (1,378,350)
Proceeds from common stock issuances 12,000,000 3,878
Dividends paid to stockholders - (201,650)
Financing activities of discontinued operations - (685,973)
-------------------- ---------------
Net cash provided by financing activities 6,015,491 306,265
-------------------- ---------------
Net change in cash 66,114 (502,647)
Cash, beginning of period 435,213 570,467
-------------------- ---------------
Cash, end of period $ 501,327 $ 67,820
==================== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
UNAUDITED
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
<TABLE>
<CAPTION>
For The Three Months Ended
-----------------------------------------------
January 31, 1997 February 2, 1996
--------------------- -----------------
<S> <C> <C>
Cash paid during the period for interest $ 537,097 $ 677,751
===================== =================
Cash paid during the period for income taxes $ 9,500 $ 67,000
===================== =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
These consolidated financial statements reflect all normal and recurring
adjustments that are, in the opinion of management, necessary to present a fair
statement of Sport Supply Group, Inc.'s (the "Company" or "SSG") consolidated
financial position as of January 31, 1997 and the results of its operations for
the three month periods ended January 31, 1997 and February 2, 1996. In
January 1997, the Company changed its financial reporting year end from October
31 to September 30. Accordingly, fiscal year 1997 is a transition period
consisting of eleven months. The Company is currently operating on a 52/53
week year ending on the Friday closest to September 30. Operating results for
the interim period ending January 31, 1997 are not necessarily indicative of
the results that may be expected for the eleven month period ending September
30, 1997.
The consolidated financial statements include the accounts of SSG and its
wholly-owned subsidiary, Sport Supply Group International Holdings, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The consolidated financials also include estimates and
assumptions made by management which affect the reported amounts of assets and
liabilities, the reported amounts of revenues and expenses, provisions for and
the disclosure of contingent assets and liabilities. Actual results could
materially differ from those estimates.
During May 1996, the Company sold substantially all of the assets (other than
cash and accounts receivable) of its Gold Eagle Professional Golf Products
Division (the "Gold Eagle Division"). Subsequent to the sale of the Gold Eagle
Division, the Company adopted a formal plan to dispose of its remaining retail
segment operations (which previously included the Gold Eagle Division). As a
result, the Company's retail segment is being reported as a discontinued
operation in the accompanying consolidated financial statements. Accordingly,
certain prior year amounts have been reclassified to conform to the current
year presentation.
Note 1 - Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for items manufactured by the Company and
weighted-average cost for items purchased for resale. As of January 31, 1997
and November 1, 1996, inventories (excluding inventories related to
discontinued operations) consisted of the following:
<TABLE>
<CAPTION>
January 31, November 1,
1997 1996
------------ ------------
<S> <C> <C>
Raw Materials......................... $ 2,653,089 $ 2,255,675
Work-in-progress...................... 238,379 146,751
Finished and purchased goods.......... 16,787,295 12,918,079
------------ ------------
$ 19,678,763 $ 15,320,505
============ ============
</TABLE>
Note 2 - Stockholders' Equity
The Company maintains a stock option plan that provides up to 1,325,000 shares
of common stock for awards of incentive and non-qualified stock options to
directors and employees of the Company. Under the stock option plan, the
exercise price of options will not be less than the fair market value of the
common stock at the date of grant or not less than 110% of fair market value
for incentive stock options granted to certain employees, as more fully
described in the Stock Option Plan. Options expire 10 years from the grant
date, or 5 years from the grant date for incentive stock options granted to
certain employees, or such earlier date as determined by the Board of Directors
of the Company.
7
<PAGE> 8
During the three months ended January 31, 1997, the Company granted a total of
591,250 options under the stock option plan at exercise prices of $6.88 - $7.50
per share. 585,000 of these options were granted to key executive officers and
a consultant of the Company. The exercise price of these options was $7.50 per
share. The following table summarizes transactions under the plan for the
three months ended January 31, 1997 and February 2, 1996:
<TABLE>
<CAPTION>
Three Months Ended
------------------
January 31, 1997 February 2, 1996
------------------- ------------------
<S> <C> <C>
Options outstanding- beginning of period 685,473 811,772
Options granted 591,250 5,000
Options exercised -- (562)
Options forfeited (140,975) (12,250)
------------------- ------------------
Options outstanding - end of period 1,135,748 803,960
=================== ==================
Range of exercise prices $4.80 - $13.125 $4.80 - $14.25
=================== ==================
</TABLE>
As of January 31, 1997 there were 245,130 non-qualified options outstanding
that were issued outside the plan. Such options have exercise prices ranging
from $6.88 to $15.00 per share.
Note 3 - Notes Payable and Capital Lease Obligations
As of January 31, 1997 and November 1, 1996, notes payable and capital lease
obligations consisted of the following:
<TABLE>
<CAPTION>
January 31, November 1,
1997 1996
--------------- ---------------
<S> <C> <C>
Note payable under revolving line of credit,
interest at prime plus 3/4% (9.0% at
January 31, 1997) or LIBOR plus 2-3/4% (8-1/4% at
January 31, 1997), due November 14, 1997,
collateralized by substantially all assets 15,963,088 21,811,339
Term loan, interest at LIBOR plus 3.0% (8-1/2% at
January 31, 1997), payable in quarterly installments
plus accrued interest of $125,000 through November 14,
1997, collateralized by substantially all assets 2,500,000 2,628,126
Capital lease obligation, interest at 7.4%, payable
in monthly installments of principal and
interest totaling $3,159 through December 1998 67,562 75,694
Capital lease obligation, interest at 9.0%, payable
in annual installments of principal and
interest totaling $55,000 through August 2005 317,063 317,063
--------------- ---------------
Total 18,847,713 24,832,222
Less - current portion (18,523,616) (696,955)
--------------- ---------------
Long-term debt and capital lease obligations, net $ 324,097 $ 24,135,267
=============== ===============
</TABLE>
The Company has a senior secured credit facility to finance its working capital
requirements. The Company's ability to borrow funds under its revolving credit
facility is based upon certain percentages of eligible trade accounts
8
<PAGE> 9
receivable and eligible inventories. On November 27, 1996, SSG's lenders
amended certain provisions of the senior credit facility including reducing the
credit facility, changing the maturity date, reducing the number of financial
covenants and modifying the remaining covenants. At January 31, 1997, the
Company was in compliance with the terms of the senior credit facility as
amended. The Company is currently negotiating with its senior lender to extend
the maturity date of the senior credit facility to October 31, 1999. The
Company believes such extension will be granted by the senior lender. However,
until such time the extension is granted, the Company has classified such
borrowings under the senior credit facility as current because such borrowings
become due and payable on November 14, 1997.
Amounts outstanding under the senior credit facility are collateralized by
substantially all assets of the Company. As of January 31, 1997, the Company
had the option of electing the revolver to bear interest at the prevailing
LIBOR rate plus 2.75% (8.25% at January 31, 1997) or the Lender's prime rate
plus .75% (9.0% at January 31, 1997). The Company also had the option of
electing the term loan to bear interest at the prevailing LIBOR rate plus 3.0%
(8.5% at January 31, 1997) or the Lender's prime rate plus 1.0% (9.25% at
January 31, 1997). Historically, the Company has elected the lower of the
interest rates available under the facility.
As of January 31, 1997, the Company had borrowings of approximately $15,963,000
outstanding under the revolver, approximately $2,467,000 of letters of credit
outstanding for foreign purchases of inventory, and availability of
approximately $8,726,000. In addition, as of January 31, 1997, SSG had
borrowings of $2,500,000 under the term loan which is payable in quarterly
installments plus accrued interest of $125,000 through November 12, 1997.
Note 4 - Net Loss Per Common Share
Net loss per common share is based upon the weighted average number of common
and common equivalent shares outstanding during the three month periods ended
January 31, 1997 and February 2, 1996. Outstanding stock options and common
stock purchase warrants are considered common stock equivalents when dilution
results from their assumed exercise.
Note 5 - Change in Control of Management
On December 10, 1996, pursuant to a Securities Purchase Agreement dated
November 27, 1996 between Emerson Radio Corp. and SSG ("the Purchase
Agreement"), Emerson acquired directly from SSG 1,600,000 shares of
newly-issued Common Stock for an aggregate consideration of $11,500,000 and
five-year warrants to acquire an additional 1,000,000 shares of Common Stock at
an exercise price of $7.50 per share for an aggregate consideration of
$500,000. In addition, Emerson agreed to arrange for foreign trade credit
financing of $2.0 million for the benefit of SSG to supplement SSG's existing
credit facilities. Pursuant to the Purchase Agreement, SSG caused a majority
of the members of SSG's Board of Directors to consist of Emerson's designees.
Note 6 - Discontinued Operations
On May 20, 1996, SSG disposed of substantially all of the assets (other than
cash and accounts receivable) of the Gold Eagle Division to Morris Rosenbloom &
Co., Inc., a privately-held corporation. The sale of the Gold Eagle Division
resulted in a pretax loss of approximately $750,000.
Subsequent to the sale of the Gold Eagle Division, the Company adopted a formal
plan to dispose of the remaining operations of the Company's retail segment
(which previously included the Gold Eagle Division) and therefore has
classified these operations as discontinued. The following represents net
current liabilities as well as net noncurrent assets of discontinued operations
as of January 31, 1997 and November 1, 1996 and the results of operations for
the three month period ended January 31, 1997 and February 2, 1996:
9
<PAGE> 10
<TABLE>
<CAPTION>
January 31, November 1,
1997 1996
-------------------------------------------------------
<S> <C> <C>
Current assets $ 12,236,606 $ 14,188,152
Current liabilities (22,164,461) (20,518,079)
-------------------------------------------------------
Net current liabilities $ (9,927,855) $ (6,329,927)
=======================================================
Noncurrent assets $ 16,270,654 $ 16,365,572
Noncurrent liabilities -- --
=======================================================
Net noncurrent assets $ 16,270,654 $ 16,365,572
=======================================================
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended
January 31, 1997 February 2, 1996
-------------------------------------------------------
<S> <C> <C>
Net revenues $ 1,790,395 $ 4,770,248
Selling, general, and administrative expenses 1,235,398 975,849
Loss form operations, net of income taxes -- (151,384)
Loss on disposal, net of income taxes (2,574,000) --
</TABLE>
The net loss from discontinued operations for the three months ended January
31, 1997 includes allocated interest expense of approximately $193,000 related
to borrowings under the Company's senior credit facility. Interest expense
charged to discontinued operations is based upon the amount of borrowings that
are available based upon the asset eligibility formulas set forth in the senior
secured credit agreement.
On March 4, 1997, the Company signed a letter of intent for the sale of the
remaining assets of the discontinued retail segment. Based upon management's
estimates of the net proceeds to be received pursuant to such disposal, the
Company recorded a pre-tax charge of $3.9 million ($2.6 million after estimated
income tax benefit) during the quarter ended January 31, 1997. This charge was
provided to record the net assets at estimated net realizable value in
accordance with the purchase price set forth in the letter of intent. As of
January 31, 1997, total reserves related to discontinued operations were
approximately $18.0 million. The proceeds from the sale of the assets of the
discontinued retail segment will be used to reduce the Company's outstanding
debt.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased approximately $15.8 million during the
three months ended January 31, 1997, from $16.7 million at November 1, 1996 to
$839,000 at January 31, 1997. The decrease in working capital is primarily a
result of: (i) a $17.8 million increase in notes payable due to the
reclassification of debt to short-term based upon the current maturity date of
November 14, 1997; (ii) a $3.3 million decrease in trade receivables due to
higher revenues in the fourth fiscal quarter of 1996 as compared to the first
fiscal quarter of 1997, which reflects the seasonality of the Company's
business; and (iii) a $3.6 million increase in net current liabilities of
discontinued operations due to the noncash charge recorded as of January 31,
1997. This decrease in working capital was offset primarily by an increase of
approximately $4.4 million in inventories related to youth sports and team
dealer products associated with the seasonality of the Company's business and a
decrease of approximately $1.1 million in accounts payable.
As of January 31, 1997, the Company had total borrowings under its senior
credit facility of approximately $18.5 million including a term loan of
$2,500,000 which is payable in quarterly payments plus accrued interest of
$125,000 through November 14, 1997, outstanding letters of credit for foreign
purchases of inventory of approximately $2.5 million, and availability of
approximately $8.7 million. The net decrease of $5.8 million in borrowings
under the senior credit facility and the net decrease of $1.1 million in trade
payables compared to November 1, 1996 reflects a payment made of approximately
$12.0 million using the proceeds received by the Company from the sale of
1,600,000 shares of the Company's common stock to Emerson Radio Corp.
("Emerson").
On November 27, 1996, the Company entered into an agreement with its senior
lender whereby the senior lender amended certain provisions of the senior
secured credit agreement. The amendment included reducing the credit facility
to $25 million, extending the maturity date, and reducing the number of
financial covenants from seven to two as well as modifying the remaining
covenants to only include results from continuing operations. At January 31,
1997, the Company was in compliance with the debt covenants as amended and the
Company believes it will remain in compliance with the financial covenants
throughout 1997.
The Company is currently negotiating with its senior lender to extend the
maturity date of the senior credit facility to October 31, 1999. The Company
believes such extension will be granted by the senior lender. However, until
such time the extension is granted, the Company has reclassified such
borrowings under the senior credit facility as current.
The Company believes it will satisfy its short-term and long-term liquidity
needs from borrowings under its senior credit facility, cash flows from
operations and estimated proceeds from the disposal of its discontinued
operations. The estimated proceeds from the sale of the discontinued
operations will be used to reduce the Company's outstanding borrowings. As a
result, interest expense is expected to be less in future operating periods.
As of January 31, 1997, the Company had no material commitments for capital
expenditures. The Company believes it will be able to satisfy its projected
capital equipment requirements in the foreseeable future from borrowings under
the senior credit facility and cash flows from operations.
RESULTS OF OPERATIONS
Net Revenues. Net revenues increased approximately $1.4 million (10.3%) for the
three month period ended January 31, 1997 as compared to the same period of
1996. This increase in net revenues reflects increases in revenues associated
primarily with youth sports league customers and the core entities of BSN,
Passons, and GSC. These increases were slightly offset by a decrease in
Government sales.
Gross Profit. Gross profit increased approximately $793,000 (15.5%) for the
three month period ended January 31, 1997 as compared to the same period of
1996. As a percentage of net revenues, gross profit increased from 38.7% to
40.5% for the three month period ended January 31, 1997 as compared to the same
period of 1996. The dollar increase
11
<PAGE> 12
in gross profit as well as the increase in gross profit as a percentage of net
revenues were attributable to, among other factors, the increase in sales
related to SSG's youth league division and core business of BSN, Passons, and
GSC as well as increased prices on youth league products as compared to the
same period of 1996.
Selling, General and Administrative Expenses. Operating expenses increased
approximately $392,000 (6.4%) for the three month period ended January 31, 1997
as compared to the same period of 1996. As a percentage of net revenues,
operating expenses decreased from 46.5% to 44.8% for the three month period
ended January 31, 1997 as compared to the same period of 1996. The dollar
increase in operating expenses was primarily a result of the following:
(i) An increase in advertising expenses due to the expansion of the Company's
marketing efforts, primarily expenses relating to catalogs mailed to
customers and additional advertising relating to the youth league division
Although the Company has combined its BSN, GSC, and Passons' catalogs, the
impact of decreased catalog expenses will not be realized until future
operating periods.
(ii) An increase in payroll costs associated with an increase in employees in
the youth league division.
These increases in operating expenses were somewhat offset by the decrease in
the following:
(i) A decrease in expenses relating to the Company's participation in the 1996
Olympic games as all expenses related to royalties and travel were
incurred and paid in fiscal year 1996.
(ii) A decrease in depreciation and amortization related to the write-offs of
certain software and forecasting systems recorded in the fourth quarter of
fiscal year 1996.
(iii) A decrease in warehouse compensation associated with the redesign of
certain aspects of the Company's primary distribution facility as
efficiencies have made it possible to eliminate some of the fixed expenses
that occurred in fiscal year 1996.
Nonrecurring Charges. A majority of the nonrecurring pre-tax charge of $1.3
million for the three month period ended January 31, 1997 related to the
"change in control" of management that occurred on December 10, 1996 (including
severance payments to the former CEO of approximately $680,000). The change in
control was the result of a stock purchase agreement with Emerson. As part of
the agreement, Emerson purchased 1,600,000 shares of SSG common stock and
caused a majority of the members of SSG's Board of Directors to consist of
Emerson's designees.
Operating Profit. Operating profit for the three months ended January 31, 1997
decreased approximately $900,000. However, not including the nonrecurring
charges, operating profit increased approximately $400,000 for the three months
ended January 31, 1997 as compared to the same period of 1996, which reflects
the impact of the increase in both gross profit dollars as well as gross profit
percentages related to increased sales in the youth league division and the
core business of BSN, Passons, and GSC.
Interest Expense. Interest expense decreased approximately $261,000 (57.1%)
for the three month period ended January 31, 1997 as compared to the same
period of 1996. The significant decrease in interest expense resulted from
lower borrowing levels as a result of the equity infusion by Emerson. Interest
expense is expected to decrease in future operating periods once the sale of
the discontinued operations has been completed as the proceeds from the sale
will be used to reduce the Company's outstanding borrowings. See Item 2
"Liquidity and Capital Resources" for a discussion of the lower borrowing
levels associated with the Company's senior credit facility.
Benefit from Income Taxes. The benefit for income taxes increased approximately
$233,000 for the three month period ended January 31, 1997 as compared to the
same period of 1996. The Company's effective tax rate decreased slightly from
36.4% to 36.1% for the three month period ended January 31, 1997 as compared to
the same period of 1996.
12
<PAGE> 13
Net Loss from Continuing Operations. Net loss from continuing operations
increased approximately $423,000 for the three month period ended January 31,
1997 as compared to the same period of 1996. Net loss per share from
continuing operations increased from $0.14 to $0.18 for the three month period
ended January 31, 1997 as compared to the same period of 1996. Loss from
continuing operations before nonrecurring charges decreased approximately
$406,000 for the three month period ended January 31, 1997 as compared to the
same period of 1996. Loss per share from continuing operations before
nonrecurring charges decreased from $0.14 to $0.07 for the three month period
ended January 31, 1997 as compared to the same period of 1996. The three month
period ended January 31, 1997 includes an increase of approximately 14.3% in
weighted average shares outstanding related to the purchase of 1,600,000 shares
of newly-issued common stock of SSG by Emerson.
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S BUSINESS OR FUTURE OPERATING
RESULTS
This report contains various forward looking statements and information that
are based on Management's beliefs as well as assumptions made by and
information currently available to Management. When used in this report, the
words "anticipate", "estimate", "expect", "predict", "project", and similar
expressions are intended to identify forward looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected or projected. Among the key factors that may have a
direct bearing on the Company's results are set forth below.
Future trends for revenues and profitability remain difficult to predict. The
Company continues to face many risks and uncertainties, including: general and
specific market economic conditions, United States Government sales, risk of
nonpayment of accounts receivable, competitive factors, and foreign supplier
related issues.
The general economic condition in the U.S. could affect pricing on raw
materials such as metals and other commodities used in the manufacturing of
certain products. The Company believes it will be able to pass any significant
price increases on to its customers; however, any price increases could have an
adverse effect on revenues and costs.
Approximately 8% of the Company's institutional sales are made to the U.S.
Government, a majority of which are made to military installations.
Anticipated reductions in U.S. Government spending could reduce funds available
to various government customers for sports related equipment, which could
adversely affect the Company's results of operations.
Management continues to closely monitor orders and the creditworthiness of its
customers. The Company has not experienced abnormal increases in losses
associated with accounts receivable; however, credit risks associated with the
youth league division are considered by the Company to be greater than any
other division. The Company has made allowances for the amount it believes to
be adequate to properly reflect the risk to accounts receivable; however,
unforeseen market conditions may compel the Company to increase the allowances.
The sports related equipment market in which the Company participates is highly
competitive. SSG competes principally in the institutional market with local
sporting goods dealers, as well as other direct mail companies. While large
sporting goods companies dominate the market of sporting goods in the United
States, the Company does not compete with such companies.
The Company derives a significant portion of its revenues from sales of
products purchased directly from foreign suppliers located primarily in the Far
East. In addition, the Company believes many of the products it purchases from
domestic suppliers are produced by foreign manufacturers. The Company is
subject to risks of doing business abroad, including delays in shipments,
adverse fluctuations in currency exchange rates, increases in import duties,
decreases in quotas, changes in custom regulations and political turmoil. The
occurrence of any one or more of the foregoing could adversely affect the
Company's operations.
13
<PAGE> 14
The Company is in the process of disposing its discontinued operations and has
signed a letter of intent for the sale the assets of the discontinued
operation. The Company has recorded several charges in the past to record the
net assets of the discontinued operation at estimated realizable value and for
anticipated operating losses during the estimated twelve month disposal period.
The current value of discontinued operations is based upon the proposal
received and no assurance can be made that the Company's discontinued
operations will be disposed of for an amount greater than or equal to the net
realizable value as reported on the Company's financial statements. The letter
of intent is subject to completion of definitive documentation mutually
agreeable to the Company and the purchasers of the discontinued retail segment.
If the discontinued operations are disposed of for an amount less than the book
value or if the Company is unable to dispose of such operations, the Company
will be required to record additional charges to discontinued operations.
These charges could materially adversely affect the Company's results of
operations.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company from time to time becomes involved in various claims and lawsuits
incident to its business (primarily relating to product liability issues). In
the opinion of management of SSG, any ultimate liability arising out of
currently pending claims and lawsuits will not have a material effect on the
financial condition or the results of operations of SSG.
ITEM 2. CHANGES IN SECURITIES
(a) Not applicable.
(b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a) Not applicable.
(b) Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
In November 1995, the Company received a notice from the United States
Securities and Exchange Commission (the "SEC") that the SEC is conducting a
non-public, informal inquiry concerning, among other things, trading in the
Company's securities and certain accounting issues raised by the Company's
October 24, 1995 press release. The Company is providing the SEC with its full
cooperation.
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Item
(a)(1) Exhibit 3.1 -- Amended and Restated Certificate of Incorporation
of the Company (incorporated by reference from
Exhibit 4.1 to the Company's Registration
Statement on Form S-8 (Registration No.
33-80028)).
(a)(2) Exhibit 3.1.1 -- Certificate of Amendment of Amended and Restated
Certificate of Incorporation to the Company
(incorporated by reference from Exhibit 4.1 to
the Company's Registration Statement on Form S-8
(Registration No. 33 80028)).
(a)(3) Exhibit 3.2 -- Amended and Restated Bylaws of the Company
(incorporated by reference from Exhibit 3.2 to
the Company's Report on Form 10-K for the year
ended November 1, 1996).
(a)(4) Exhibit 4.1 -- Specimen of Common Stock Certificate
(incorporated by reference from Exhibit 4.1 to
the Company's Registration Statement on Form S-1
(Registration No. 33-39218)).
(a)(5) Exhibit 4.2 -- Warrant Agreement entered into between the
Company and Warrant Agent, including form of
Warrant, relating to the purchase of up to
1,300,000 shares of the Company's common stock
for $25.00 per share, which expires on December
15, 1998 (incorporated by reference from Exhibit
4.2 to the Company's Registration Statement on
Form S-3 (Registration No. 33- 71574)).
(a)(6) Exhibit 4.3 -- Warrant Agreement entered into between the
Company and Emerson relating to the purchase of
up to 1,000,000 shares of the Company's common
stock for $7.50 per share, which expires on
December 10, 2001 (incorporated by reference from
Exhibit 4 (a) to the Company's Report on Form 8-K
filed on December 12, 1996.
(a)(7) Exhibit 10 -- Amended and Restated Loan and Security Agreement
between the Company and LaSalle Business Credit,
Inc. dated as of March 23, 1995 (incorporated by
reference from Exhibit 10.20 to the Company's
Report on Form 10-K for the fiscal year ended
October 31, 1995).
(a)(8) Exhibit 10.1 -- Amendment No. 1 to Amended and Restated Loan and
Security Agreement between the Company and
LaSalle Business Credit, Inc. (incorporated by
reference from Exhibit 10.20.1 to the Company's
Report on Form 10-K for the fiscal year ended
October 31, 1995).
(a)(9) Exhibit 10.2 -- Amendment No. 2 to Amended and Restated Loan and
Security Agreement between the Company and
LaSalle Business Credit, Inc. (incorporated by
reference from Exhibit 10 of the Company's Report
on Form 10-Q for the quarter ended February 2,
1996).
(a)(10) Exhibit 10.3 -- Amendment No. 3 to Amended and Restated Loan and
Security Agreement between the Company and
LaSalle Business Credit, Inc. (incorporated by
reference from Exhibit 10.3 of the Company's
Report on Form 10-Q for the quarter ended August
1, 1996).
(a)(11) Exhibit 10.4 -- Amendment No. 4 to Amended and Restated Loan and
Security Agreement between the Company and
LaSalle Business Credit, Inc. (incorporated by
reference from Exhibit 4 (d) of the Company's
Report on Form 8-K filed on December 12, 1996).
16
<PAGE> 17
(a)(12) Exhibit 10.5 -- Amendment No. 5 to Amended and Restated Loan and
Security Agreement between the Company and
LaSalle Business Credit, Inc. (incorporated by
reference from Exhibit 10.20.5 of the Company's
Report on Form 10-K for the year ended November
1, 1996).
*(a)(13) Exhibit 10.6 -- Amendment No. 6 to Amended and Restated Loan and
Security Agreement between the Company and
LaSalle Business Credit, Inc. dated as of January
31, 1997).
*(a)(14) Exhibit 11 -- Earnings per Common and Common Equivalent Share.
*(a)(15) Exhibit 27 -- Financial Data Schedule
- ----------------------------------
* Filed Herewith
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
SPORT SUPPLY GROUP, INC.
March 14, 1997 By: /s/ JOHN P. WALKER
---------------------------
John P. Walker
Executive Vice President and
Chief Financial Officer
18
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
ITEM
- ----
<S> <C>
Exhibit 10.6 -- Amendment No. 6 to Amended and Restated Loan and Security
Agreement between the Company and LaSalle Business Credit,
Inc. dated as of January 31, 1997
Exhibit 11 -- Earnings per Common and Common Equivalent Share
Exhibit 27 -- Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.6
AMENDMENT NUMBER 6 TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
By
SPORT SUPPLY GROUP, INC.,
A Delaware Corporation
Borrower
SPORT SUPPLY GROUP INTERNATIONAL HOLDINGS, INC.,
A Delaware Corporation
Guarantor
And
LASALLE BUSINESS CREDIT, INC.,
Formerly Known As StanChart Business Credit, Inc.,
A Delaware Corporation
LaSalle
<PAGE> 2
AMENDMENT NUMBER 6 TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER 6 TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment") is made as of ______________, 1997, by and between
SPORT SUPPLY GROUP, INC., a Delaware corporation ("Borrower"), SPORT SUPPLY
GROUP INTERNATIONAL HOLDINGS, INC., a Delaware corporation ("Guarantor"), and
LASALLE BUSINESS CREDIT, INC., formerly known as StanChart Business Credit,
Inc., a Delaware corporation ("LaSalle").
RECITALS
Pursuant to the Amended and Restated Loan and Security Agreement
between the Borrower and LaSalle dated March 23, 1995, as modified by (i) the
Amendment Number 1 to Amended and Restated Loan and Security Agreement dated
December 20, 1995, (ii) a letter agreement dated February 2, 1996, (iii) the
Amendment Number 2 to Amended and Restated Loan and Security Agreement dated
March 12, 1996, (iv) the Amendment Number 3 to Amended and Restated Loan and
Security Agreement dated September 19, 1996,(v) the Amendment Number 4 to
Amended and Restated Loan and Security Agreement dated November 27, 1996 and
(vi) Amendment Number 5 to Amended and Restated Loan and Security Agreement
dated January 28, 1997 (collectively, "Agreement"), the Borrower is indebted to
LaSalle in connection with: (a) revolving loans in the maximum aggregate
principal amount outstanding at any one time of Twenty-Two Million Five Hundred
Thousand Dollars ($22,500,000.00) (collectively, "Revolving Loans"); and (b) a
term loan in the original principal amount of Two Million Five Hundred Thousand
Dollars ($2,500,00.00) ("Term Loan"). Pursuant to a Guaranty Agreement dated
September 16, 1994, the Guarantor has guaranteed the payment and performance of
all of the Borrower's obligations to LaSalle, including without limitation the
Borrower's obligations under the Agreement. Unless otherwise defined herein,
capitalized terms used in this Amendment shall have the meanings given to such
terms in the Agreement.
The Borrower has requested that LaSalle modify the Agreement in certain
respects. LaSalle has agreed to the Borrower's request, but only in accordance
with the terms set forth in this Amendment.
NOW THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1. Recitals. The Recitals set forth above are hereby incorporated
into this Amendment by reference, and the Borrower and the Guarantor
acknowledge that the Recitals are accurate in all respects.
2. Amendment. The definition of "EBITDA" set forth in Section 1.1 of
the Agreement is amended by changing the period at the end thereof to a comma
and adding the following:
"provided that for Borrower's Fiscal Quarter ending on or about January
31, 1997, EBITDA shall be the amount calculated in accordance with
<PAGE> 3
this provision, plus the amounts paid during such period, in the aggregate
amount of Seven Hundred Forty-One Thousand Six Hundred Thirty-Five Dollars
($741,635.00), for (i) severance payments payable to Michael Blumenfeld and
(ii) payments for puts on options held by Terrence Babilla."
3. Cost And Expenses. Borrower shall pay, upon demand by LaSalle,
all costs and expenses incurred by LaSalle in connection with the transactions
described in this Amendment.
4. Warranties And Representations. As an inducement to LaSalle to
enter into this Amendment, Borrower makes the following representations and
warranties to LaSalle and acknowledges LaSalle's justifiable reliance thereon:
a. As of the date of this Amendment, the Borrower is not in default under the
Agreement or any of the other Loan Documents, and Borrower is in full
compliance with all of the terms and conditions thereof;
b. As of the date of this Amendment, no event exists which is, or which with
the passage of time, the giving of notice, or both, would constitute a default
under the Agreement or any of the Loan Documents;
c. All warranties and representations previously made to LaSalle by Borrower
in connection with the Loan Documents remain true, accurate and complete, as of
the date made;
d. Except as previously described in writing to LaSalle, there have been no
material adverse changes in Borrower's finances or operations; and
e. The Agreement, as modified and amended herein, is the valid and binding
obligation of Borrower and is fully enforceable in accordance with its terms.
5. Release. Borrower releases, acquits and forever discharges
LaSalle and LaSalle's subsidiaries, affiliates, officers, directors, agents,
employees, servants, attorneys and representatives from any and all claims,
demands, debts, actions, causes of action, suits, contracts, agreements,
obligations, accounts, defenses, offsets against the Borrower's obligation
under the Loan Documents, and liabilities of any kind or character whatsoever,
known or unknown, which Borrower ever had or now has against LaSalle or any of
LaSalle's subsidiaries, affiliates, officers, directors, agents, employees,
servants, attorneys or representatives.
6. No Novation. The parties to this Amendment specifically intend
that the amendment of the Agreement pursuant to this Amendment shall not
constitute a novation and shall not extinguish, terminate, affect or impair
Borrower's obligations under the Loan Documents.
7. Other Terms. Other than the foregoing, all other terms and
conditions of the Agreement shall remain unchanged and in full force and effect
and are ratified and confirmed in all respects by Borrower.
2
<PAGE> 4
8. Successors and Assigns. This Amendment shall be binding upon and
inure to the benefit of Borrower and LaSalle and their respective successors
and assigns.
IN WITNESS WHEREOF, this Amendment is executed under seal on the date
first above written.
WITNESS/ATTEST: BORROWER:
SPORT SUPPLY GROUP, INC.,
A Delaware Corporation
By: (SEAL)
---------------------- ----------------------------
Name:
----------------------
Title:
---------------------
GUARANTOR:
SPORT SUPPLY GROUP INTERNATIONAL
HOLDINGS, INC.,
A Delaware Corporation
By: (SEAL)
---------------------- ----------------------------
Name:
----------------------
Title:
---------------------
3
<PAGE> 5
LASALLE:
LASALLE BUSINESS CREDIT, INC.,
A Delaware Corporation
By: (SEAL)
- ---------------------- ----------------------------
Herbert M. Kidd, II,
First Vice President
ACKNOWLEDGMENTS
STATE OF _______________, CITY/COUNTY OF _________________, TO WIT:
I HEREBY CERTIFY that on this _____ day of ______________, 1997, before
me, the undersigned Notary Public of the jurisdiction aforesaid, personally
appeared ___________________________, and acknowledged himself to be the
____________________ of SPORT SUPPLY GROUP, INC., a Delaware corporation, and
that he, as such _________________ being authorized so to do, executed the
foregoing instrument for the purposes therein contained by signing the name of
SPORT SUPPLY GROUP, INC., by himself as ___________________.
IN WITNESS MY Hand and Notarial Seal.
(SEAL)
-----------------------------
NOTARY PUBLIC
My Commission Expires:
- -------------------------
STATE OF _______________, CITY/COUNTY OF _________________, TO WIT:
I HEREBY CERTIFY that on this _____ day of ____________, 1997, before
me, the undersigned Notary Public of the jurisdiction aforesaid, personally
appeared ____________________________, and acknowledged himself to be the
___________________ of SPORT SUPPLY GROUP INTERNATIONAL HOLDINGS, INC., a
Delaware corporation, and that he, as such ___________________ being authorized
so to do, executed the foregoing instrument for the purposes therein contained
by signing the name of SPORT SUPPLY GROUP INTERNATIONAL HOLDINGS, INC., by
himself as ___________________.
IN WITNESS MY Hand and Notarial Seal.
(SEAL)
-----------------------------
NOTARY PUBLIC
My Commission Expires:
STATE OF MARYLAND, CITY/COUNTY OF ______________________, TO WIT:
4
<PAGE> 6
I HEREBY CERTIFY, that on this ____ day of ______________, 1997, before
me, the undersigned a Notary Public of the State of Maryland, personally
appeared Herbert M. Kidd, II, who acknowledged himself to be a First Vice
President of LASALLE BUSINESS CREDIT, INC., a Delaware corporation, and
acknowledged that he, as such First Vice President, being authorized so to do,
executed the foregoing instrument for the purposes therein contained by signing
the name of LASALLE BUSINESS CREDIT, INC. by himself as First Vice President.
IN WITNESS MY Hand and Notarial Seal.
(SEAL)
-----------------------------
NOTARY PUBLIC
My Commission Expires:
- -------------------------
<PAGE> 1
EXHIBIT 11
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Adjusted net loss and adjusted number of common shares used in the computation
of net loss per common share were determined as follows :
<TABLE>
<CAPTION>
Three Months Ended January 31, 1997
----------------------------------------------
Full
ADJUSTED NET LOSS Primary Dilution (1)
----------------- -----------------
<S> <C> <C>
Net loss $ (3,929,768) $ (3,929,768)
Add : reduction in interest
expense, net of
income taxes -- --
----------------- -----------------
Adjusted net loss $ (3,929,768) $ (3,929,768)
================= =================
ADJUSTED NUMBER OF COMMON SHARES
Weighted Average Common Shares
Outstanding 7,696,702 7,696,702
Incremental shares for assumed
exercise of
stock options and warrants 1,124 1,124
----------------- -----------------
Adjusted number of common shares 7,697,826 7,697,826
================= =================
Net loss per common share $ (0.51) $ (0.51)
================= =================
</TABLE>
NOTE (1) : These calculations are submitted in accordance with Regulation
S-K Item 601(b)(11) although the calculations are not required
pursuant to Paragraph 40 of APB Opinion No. 15 because the effect
is less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-END> JAN-31-1997
<CASH> 501,327
<SECURITIES> 0
<RECEIVABLES> 9,347,971
<ALLOWANCES> 811,000
<INVENTORY> 19,678,763
<CURRENT-ASSETS> 39,849,661
<PP&E> 12,917,208
<DEPRECIATION> (7,015,893)
<TOTAL-ASSETS> 76,598,098
<CURRENT-LIABILITIES> 39,010,676
<BONDS> 0
0
0
<COMMON> 91,519
<OTHER-SE> 37,141,682
<TOTAL-LIABILITY-AND-EQUITY> 76,598,098
<SALES> 14,579,808
<TOTAL-REVENUES> 14,579,808
<CGS> 8,675,018
<TOTAL-COSTS> 7,838,108
<OTHER-EXPENSES> 7,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,331
<INCOME-PRETAX> (2,122,520)
<INCOME-TAX> (766,752)
<INCOME-CONTINUING> (1,355,768)
<DISCONTINUED> (2,574,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,929,768)
<EPS-PRIMARY> (0.51)
<EPS-DILUTED> (0.51)
</TABLE>
