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 2, 1998.
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 February 5, 1998.
Title of Each Class of Common Stock Number Outstanding
Common Stock, $0.01 par value 8,088,759 shares
<PAGE>
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
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 2, 1998 AND SEPTEMBER 26, 1997
<CAPTION>
January 2, September 26,
1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash $ 376,659 $ 602,779
Accounts receivable --
Trade, less allowance for
doubtful accounts of $1,265,000
in 1998 and $797,000 in 1997 7,223,209 13,452,286
Other 137,217 467,661
Income taxes receivable 1,653,875 1,653,875
Inventories, net 17,560,151 12,284,425
Other current assets 876,453 583,414
Deferred tax assets 2,069,678 2,069,678
Total current assets 29,897,242 31,114,118
DEFERRED CATALOG EXPENSES 1,562,388 1,150,514
PROPERTY, PLANT AND EQUIPMENT :
Land 8,663 8,663
Buildings 1,595,228 1,595,228
Machinery and equipment 5,989,572 5,661,315
Furniture and fixtures 2,413,875 2,427,527
Leasehold improvements 2,277,373 2,277,372
12,284,711 11,970,105
Less -- Accumulated depreciation
and amortization (6,892,358) (6,638,319)
5,392,353 5,331,786
DEFERRED TAX ASSETS 6,176,021 5,838,895
COST IN EXCESS OF TANGIBLE NET ASSETS
ACQUIRED,less accumulated amortization
of $1,156,000 in 1998 and $1,130,000
in 1997 3,258,272 2,959,114
TRADEMARKS, less accumulated
amortization of $987,000 in 1998
and $935,000 in 1997 3,312,092 3,364,046
OTHER ASSETS, less accumulated
amortization of $1,067,000
in 1998 and $1,119,000 in 1997 868,103 725,624
$50,466,471 $50,484,097
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES :
Accounts payable 4,499,983 4,956,830
Accrued property taxes 310,191 294,882
Other accrued liabilities 665,881 1,292,247
Notes payable and capital lease
obligations, current portion 588,969 564,638
6,065,024 7,108,597
DEFERRED GAIN 19,079 22,091
NOTES PAYABLE AND CAPITAL LEASE
OBLIGATIONS, net of current portion 5,898,268 4,396,090
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock, par value $0.01,
100,000 shares authorized, no
shares outstanding in 1998 or 1997 - -
Common stock, par value $0.01,
20,000,000 shares authorized,
9,163,124 and 9,158,749 shares
issued in 1998 and 1997,
8,088,759 and 8,084,384 shares
outstanding in 1998 and 1997 91,632 91,588
Paid-in capital 58,604,257 58,574,218
Retained deficit (10,212,659) (9,709,357)
Treasury stock, at cost, 1,074,365
shares in 1998 and 1997 (9,999,130) (9,999,130)
38,484,100 38,957,319
$ 50,466,471 $ 50,484,097
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<CAPTION>
For the Three Months Ended
January 2, December 27,
1998 1996
<S> <C> <C>
Net revenues $ 14,411,846 $ 14,037,795
Cost of sales 8,784,692 9,384,260
Gross Profit 5,627,154 4,653,535
Selling, general and
administrative expenses 6,550,641 7,212,631
Loss before interest, other
income and taxes (923,487) (2,559,096)
Interest expense (118,619) (271,124)
Other income, net 279,523 (935)
Loss from continuing operations
before benefit from
income taxes (762,583) (2,831,155)
Benefit from income taxes 259,281 977,044
Loss from continuing operations (503,302) (1,854,111)
Discontinued operations:
Loss from operations, net - (160,000)
Loss on disposal, net - (3,360,000)
Loss from discontinued operations - (3,520,000)
Net loss $(503,302) $(5,374,111)
Basic and diluted loss per
common share:
Continuing operations (0.06) (0.24)
Discontinued operations 0.00 (0.46)
Net loss $ (0.06) $ (0.70)
Weighted average number of
common shares outstanding -
Basic and Diluted 8,084,617 7,679,120
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<CAPTION>
For The Three Months Ended
January 2, December 27,
1998 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(503,302) $(5,374,111)
Adjustments to reconcile net loss
to net cash used in operating
activities --
Loss on disposal of discontinued
operations - 3,520,000
Depreciation and amortization 353,178 406,653
Provision for allowances for
accounts receivable 65,751 82,506
Changes in assets and liabilities --
Decrease in receivables 7,224,358 7,566,096
Increase in inventories (4,498,553) (808,875)
Increase in deferred catalogs
and other current assets (704,913) (1,192,790)
Decrease in payables (456,847) (1,740,773)
Increase (decrease) in
accrued liabilities (911,057) 315,340
Increase in other assets (119,031) (4,524,714)
Other (3,012) (3,013)
Discontinued operations - noncash
charges and working capital changes - 1,176,298
Net cash provided by (used in)
operations activities 446,572 (577,383)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant &
and equipment (140,534) -
Payments for acquisitions, net of
cash acquired (1,500,682) -
Proceeds from sale of investments - 10,000
Net cash provided by (used in)
investing activities (1,641,216) 10,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of
notes payable 1,197,139 858,178
Payments of notes payable and
capital lease obligations (258,698) (12,164,441)
Proceeds from common stock issuances 30,083 12,000,000
Net cash provided by financing
activities 968,524 693,737
Net change in cash (226,120) 126,354
Cash, beginning of period 602,779 577,888
Cash, end of period $ 376,659 $ 704,242
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
SPORT SUPPLY GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
UNAUDITED
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<CAPTION>
For The Three Months Ended
January 2, December 27,
1998 1996
<S> <C> <C>
Cash paid during the period for interest $ 19,285 $ 670,220
Cash paid during the period for
income taxes 856 -
The accompanying notes are an integral part of these financial statements
</TABLE>
<PAGE>
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 2,
1998 and the results of its operations for the three month periods
ended January 2, 1998 and December 27, 1996. In January 1997, the
Company changed its financial reporting year end from October 31 to
September 30. The Company is operating on a 52/53 week year ending on
the Friday closest to September 30. Consequently, results of
operations presented for the three month period ended December 27, 1996
represent a different period than historically reported by the Company.
The consolidated financial statements include the accounts of SSG and
its wholly-owned subsidiary, Athletic Training Equipment Company, Inc.
("ATEC"), previously named 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 that affect the reported
amounts of assets and liabilities, the reported amounts of revenues and
expenses, provisions for and the disclosure of contingent assets and
liabilities. Actual results could materially differ from those
estimates.
During May 1996, the Company sold substantially all of the assets
(other than cash and accounts receivable) of its Gold Eagle
Professional Golf Products Division (the "Gold Eagle Division").
Subsequent to the sale of the Gold Eagle Division, the Company
adopted a formal plan to dispose of the remaining operations of the
Company's retail segment (which previously included the Gold Eagle
Division) and therefore has classified these operations as
discontinued. On March 28, 1997, SSG disposed of substantially all
of the remaining assets of the discontinued operation to Nitro
Leisure Products, Inc., a Delaware corporation. As a result, the
Company's retail segment is being reported as a discontinued
operation through the date of disposal in the accompanying
consolidated financial statements.
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 2, 1998 and September 26, 1997, inventories
consisted of the following:
<TABLE>
<CAPTION>
January 2, September 26,
1998 1997
<S> <C> <C>
Raw materials $ 3,042,096 $2,410,009
Work-in-progress 269,548 113,170
Finished and purchased goods 15,096,999 10,471,262
18,408,643 12,994,441
Less inventory reserve for
obsolete or slow moving items (848,492) (710,016)
$17,560,151 $12,284,425
</TABLE>
<PAGE>
Note 2 - Stockholders' Equity
The Company maintains a stock option plan that provides up to 2,000,000
shares of common stock for awards of incentive and non-qualified stock
options to directors and employees of the Company. Under the stock
option plan, the exercise price of options will not be less than 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 Amended and Restated
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 (or a Stock Option Committee comprised of
members of the Board of Directors).
Transactions under the plan for the three months ended January 2, 1998
and December 27, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended
January 2, December 27,
1998 1996
<S> <C> <C>
Options outstanding -
beginning of period 1,040,573 708,723
Options granted 182,300 6,250
Options exercised (4,375) --
Options forfeited -- (23,250)
Options outstanding -
end of period 1,218,498 691,723
Weighted average prices $7.30 $6.89
<CAPTION>
Stock Options Stock Options
Outstanding Exercisable
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Range of Exercise Remaining Exercise Exercise
Prices Shares Life Price Shares Price
<S> <C> <C> <C> <C> <C>
$4.80 - $7.50 1,218,498 7.5 yrs. $7.30 508,498 $7.12
</TABLE>
As of January 2, 1998 there were 186,200 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 2, 1998 and September 26, 1997, notes payable and capital
lease obligations consisted of the following:
<TABLE>
<CAPTION>
January 2, September 26,
1998 1997
<S> <C> <C>
Note payable under revolving line
of credit, interest at prime plus
1/2% (9.25% at January 2, 1998)
or LIBOR plus 2-1/4% (8.50% at
January 2, 1998), due October 31,
2000 collateralized by substantially
all assets $ 4,198,992 $ 3,000,000
<PAGE>
Term loan, interest at LIBOR plus
2-1/4% (8.50% at January 2, 1998),
payable in quarterly installments
plus accrued interest of $125,000
through October 31, 2000,
collateralized by substantially
all assets 1,375,000 1,625,000
Promissory note, noninterest
bearing, due June 30, 1999 525,000 --
Capital lease obligation,
interest at 9.0%, payable
in annual installments of
principal and interest totaling
$55,000 through August 2005 290,599 290,599
Other 97,646 45,129
Total 6,487,239 4,960,728
Less - current portion (588,969) (564,638)
Long-term debt and capital
lease obligations, net $ 5,898,268 $4,396,090
</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 receivable and eligible inventories. On
September 9, 1997, the Company entered into a Second Amended and
Restated Loan and Security Agreement ("Agreement"), which includes a
senior credit facility of $25,000,000 with a maturity date of
October 31, 2000. This Agreement provides for a revolving line of
credit, a letter of credit facility, a term loan, and additional
loans to be made to SSG for the cost of certain capital expenditures
(up to a maximum of $4,000,000) and reduced interest rates and fees.
The Agreement also contains financial and net worth covenants in
addition to limits on capital expenditures. As of January 2, 1998,
the Company was in compliance with the covenants in the senior credit
facility.
Amounts outstanding under the senior credit facility are
collateralized by substantially all assets of the Company. As of
January 2, 1998, the Company had the option of electing the revolving
credit facility and the term loan to bear interest at the prevailing
LIBOR rate plus 2-1/4% (8.50% at January 2, 1998) or the lender's
prime rate plus 1/2% (9.25% at January 2, 1998). Historically, the
Company has elected the lower of the interest rates available under
the facility.
As of January 2, 1998, the Company had borrowings of approximately
$4,199,000 outstanding under the revolving credit facility,
approximately $1,746,000 of letters of credit outstanding for foreign
purchases of inventory, and availability of approximately $9,524,000.
In addition, as of January 2, 1998, SSG had borrowings of $1,375,000
under the term loan which is payable in quarterly installments of
principal and accrued interest of $125,000 through October 31, 2000.
<PAGE>
Note 4 - Net Earnings (Loss) Per Common Share
In 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share". Statement No. 128 replaced the previously
reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share.
All earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement No. 128
requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
For the Three Months Ended
January 2, 1998 December 27, 1996
<S> <C> <C>
Numerator:
Net loss from continuing
operations ($503,302) ($1,854,111)
Numerator for basic and
diluted earnings per
share - loss available to
common stockholders ($503,302) ($1,854,111)
Denominator:
Denominator for basic diluted
earnings per share - weighted
average shares 8,084,617 7,679,120
Basic and diluted
earnings per share ($0.06) ($0.24)
</TABLE>
<PAGE>
Note 5 - Acquisitions
During December 1997, the Company acquired certain assets of Athletic
Training Equipment Company, Inc. ("ATEC"), a manufacturer of pitching
machines for cash, a noninterest bearing promissory note and the
assumption of certain liabilities.
Note 6 - Recently Issued Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income," which is required to be adopted
in fiscal year 1999. At that time, the Company will be required to
disclose total comprehensive income and comprehensive income per
share. Comprehensive income is defined as all changes in
stockholders' equity exclusive of transactions with owners such as
capital investments and dividends.
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 $173,000 during
the three months ended January 2, 1998, from $24.0 million at September
26, 1997 to $23.8 million at January 2, 1998. The small decrease in
working capital is primarily a result of: (i) a $5.3 million increase
in inventory associated with the seasonality of the Company's business
as well as the inventory acquired from the acquisition of Athletic
Training Equipment Company, Inc. ("ATEC") in December, 1997; and (ii) a
$0.6 million decrease in accrued liabilities. This increase in working
capital was offset by a $6.2 million decrease in trade receivables due
to lower revenues generated in the first fiscal quarter of 1998 as
compared to the fourth fiscal quarter of 1997. The lower revenues are
a result of the seasonality of the Company's business.
As of January 2, 1998, the Company had total borrowings under its
senior credit facility of approximately $5.6 million including a term
loan of $1.4 million which is payable in quarterly installments of
principal and accrued interest of $125,000 through October 31, 2000,
outstanding letters of credit for foreign purchases of inventory of
approximately $1.7 million, and availability of approximately $9.5
million. The net increase of $949,000 in borrowings under the senior
credit facility compared to September 26, 1997 partially reflects the
cash payment for the ATEC acquisition in December, 1997.
On September 9, 1997, the Company entered into a Second Amended and
Restated Loan and Security Agreement ("Agreement") which includes a
senior credit facility of $25,000,000 with a maturity date of October
31, 2000. This Agreement provides for a revolving line of credit, a
letter of credit facility, a term loan, additional loans to be made to
SSG for the cost of certain capital expenditures (up to a maximum of
$4,000,000) and reduced interest rates. The Agreement also contains
financial and net worth covenants in addition to limits on capital
expenditures.
The Company believes it will satisfy its short-term and long-term
liquidity needs from borrowings under its senior credit facility and
cash flows from operations. As a result of reduced interest rates
included in the new credit agreement, interest expense is expected to
be less in future operating periods as compared to fiscal year 1997.
<PAGE>
On May 28, 1997, the Company approved the repurchase of up to 1,000,000
shares of its issued and outstanding common stock in the open market
and/or privately negotiated transactions. Such purchases are subject
to price and availability of shares, working capital availability and
any alternative capital spending programs of the Company. As of
January 2, 1998, the Company repurchased approximately 287,300 of its
issued and outstanding common stock in the open market. Except as
described below, the Company does not currently have any material
commitments for capital expenditures.
Impact of Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year.
Some of the Company's computer programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a failure or miscalculations causing
disruptions of operations, including a temporary inability to process
transactions or engage in normal business activities. The Company has
determined that it will be necessary to replace significant portions of
its software so that its computer systems will function properly with
respect to dates in the year 2000 and thereafter. The Company believes
that with successful conversions to new software which are Year 2000
compatible, the Year 2000 Issue will pose no significant operational
problems for its computer systems. However, if such conversions are
not made, or are not completed timely, the Year 2000 Issue could have
a material impact on the operations of the Company. The Company will
utilize internal and external resources to convert to, test and implement
the new software. The Company anticipates completing the Year 2000
project during the calendar year 1999. The Company is currently in
the process of receiving competitive bids from vendors and has not
determined the total cost of the Year 2000 Project, which cost will
be funded through operating cash flows and borrowings under the
Company's senior credit facility. The majority of the costs associated
with the Year 2000 Project will be capitalized and amortized beginning
in fiscal year 2000.
Results of Operations
Net Revenues. Net revenues increased approximately $374,000 (2.7%) for
the three month period ended January 2, 1998 as compared to the same
period ended December 27, 1996. This increase in net revenues reflects
increases in revenues associated primarily with the Company's Youth
and U.S. Games divisions as well as the Company's new subsidiary,
ATEC, which was acquired on December 1, 1997. These increases were
partially offset by a decrease in Government sales. If Government
spending continues to be reduced, the Company may continue to
experience a decrease in Government sales in future periods. Net
revenues were also adversely impacted because the Company mailed
significantly less catalogs to its customers after consolidating the
BSN, GSC, and Passons' catalogs into one catalog. The benefits
from reducing catalog and postage expenses are reflected in the "Selling,
General and Administrative Expenses." The Company is constantly
reviewing its methods to maximize revenue growth and minimize expenses.
The Company expects to experience an increase in sales related to
sporting goods dealers and retailers as a result of the ATEC acquisition.
<PAGE>
Gross Profit. Gross profit increased approximately $974,000 (20.9%)
for the three month period ended January 2, 1998 as compared to the
same period ended December 27, 1996. As a percentage of net revenues,
gross profit increased from 33.2% to 39.1% for the three month period
ended January 2, 1998 as compared to the same period ended December
27, 1996. The dollar increase in gross profit as well as the increase
in gross profit as a percentage of net revenues were attributable to a
prior year provision recorded for obsolete inventory of $950,000.
Selling, General and Administrative Expenses. Operating expenses
decreased approximately $662,000 (9.2%) for the three month period
ended January 2, 1998 as compared to the same period ended December
27, 1996. As a percentage of net revenues, operating expenses
decreased from 51.4% to 45.5% for the three month period ended January
2, 1998 as compared to the same period ended December 27, 1996. The
dollar decrease in operating expenses for the three month period ended
January 2, 1998 was primarily a result of the following:
(i) A decrease in catalog expenses associated with the Company's
consolidation of the BSN, GSC, and Passons' catalogs.
(ii) A decrease in professional fees and expenses primarily
relating to investment banking, financial and legal services
provided to the Company during the period ended December 27, 1996
in connection with the Company's efforts to raise additional
debt and equity financing.
(iii) A decrease in management information system expenses.
Operating Profit (Loss). Operating profit for the three month period
ended January 2, 1998 increased approximately $1.6 million (63.9%),
which reflects the impact of the (i) increase in both gross profit
dollars as well as gross profit percentages related to increased
sales, and (ii) the decrease in operating expenses as discussed above.
Interest Expense. Interest expense decreased approximately $153,000
(56.3%) for the three month period ended January 2, 1998 as compared
to the same period ended December 27, 1996. The decrease in interest
expense resulted from lower borrowing levels as well as reduced
interest rates. See Item 2 "Liquidity and Capital Resources".
Other Income, Net. Other income increased approximately $280,000 for
the three month period ended January 2, 1998 as compared to the same
period ended December 27, 1996. The increase in other income
resulted from one year promotional agreements entered into between the
Company and certain corporate sponsors of a market segment. In
addition, other income includes services provided to Emerson
Radio Corp. ("Emerson") such as human resources, advertising,
warehousing/distribution, and banking functions as provided in a
Management Services Agreement between the Company and Emerson
effective May 1997.
Provision (Benefit) for Income Taxes. The benefit for income taxes
decreased approximately $718,000 for the three month period ended
January 2, 1998 as compared to the same period ended December 27,
1996. The Company's effective tax rate decreased from 34.5% to 34.0%
for the three month period ended January 2, 1998 as compared to the
same period ended December 27, 1996.
<PAGE>
Net Earnings (Loss) from Continuing Operations. Net loss from
continuing operations decreased approximately $1.4 million for the
three month period ended January 2, 1998, as compared to the same
period ended December 27, 1996. Net loss per share from continuing
operations decreased from a loss of ($0.24) to ($0.06) for the three
month period ended January 2, 1998 as compared to the same period
ended December 27, 1996. The three month period ended January 2, 1998
includes an increase of approximately 5.0% in weighted average shares
outstanding.
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 7% 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.
The Company ships approximately 80% of its products using United
Parcel Service ("UPS"). As experienced in 1997, a strike by any of
the Company's major carriers could adversely affect the Company's results
of operations due to not being able to deliver its products in a timely
manner and using other more expensive freight carriers. Although the
Company has analyzed the cost benefit effect of using other carriers,
the Company continues to utilize UPS for the majority of its small
package shipments.
Management continues to closely monitor orders and the creditworthiness
of its customers. The Company has not experienced abnormal increases in
losses associated with accounts receivable; however, 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.
<PAGE>
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 and/or economic
turmoil. The occurrence of any one or more of the foregoing could
adversely affect the Company's operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
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
The Company's Annual Meeting of Stockholders was held on January 13,
1998. The only item submitted to the stockholders was a proposal to
elect (6) persons to serve as Directors of the Company. The results
/of the vote on this proposal are as follows:
<PAGE>
ELECTION OF DIRECTORS
Directors Votes For Votes
Withheld
(1) Geoffrey P. Jurick 7,873,757 41,716
(3) Peter S. Blumenfeld 7,880,603 34,870
(4) John P. Walker 7,880,844 34,629
(5) Peter G. Bunger 7,881,219 34,254
(6) Johnson C. S. Ko 7,881,219 34,254
(7) Thomas P. Treichler 7,881,219 34,254
Item 5. Other Information
Not applicable
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)).
<PAGE>
(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)(16) Exhibit 27 -- Financial Data Schedule
(b) No Reports on Form 8-K were filed during the quarter ended
January 2, 1998.
----------------------------------
* Filed Herewith
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.
February 16, 1998 By: /s/ John P. Walker
John P. Walker
Executive Vice President and
Chief Financial Officer
INDEX TO EXHIBITS
ITEM
Exhibit 27 -- Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-02-1998
<PERIOD-END> JAN-02-1998
<CASH> 376,659
<SECURITIES> 0
<RECEIVABLES> 8,625,426
<ALLOWANCES> (1,265,000)
<INVENTORY> 17,560,151
<CURRENT-ASSETS> 30,234,368
<PP&E> 12,284,711
<DEPRECIATION> (6,892,358)
<TOTAL-ASSETS> 50,466,471
<CURRENT-LIABILITIES> 6,065,024
<BONDS> 0
0
0
<COMMON> 91,632
<OTHER-SE> 38,392,468
<TOTAL-LIABILITY-AND-EQUITY> 50,466,471
<SALES> 14,411,846
<TOTAL-REVENUES> 14,411,846
<CGS> 8,784,692
<TOTAL-COSTS> 6,550,641
<OTHER-EXPENSES> 279,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,619
<INCOME-PRETAX> (762,583)
<INCOME-TAX> (259,281)
<INCOME-CONTINUING> (503,302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (503,302)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
