June 27, 2002
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 29, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File number 1-10704
Sport Supply Group, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 75-2241783
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1901 Diplomat Drive, Farmers Branch, Texas 75234 - 8914
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 484-9484
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $ .01 Par Value Over-the-counter
Bulletin Board
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
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.
Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant on June 1, 2002 based on the closing price of the common
stock on the Over the Counter Bulletin Board on such date, was approximately
$4,600,000.
Indicated below is the number of outstanding shares of each class of
the registrant's common stock, as of June 1, 2002.
Title of Each Class of Common Stock Number Outstanding
----------------------------------- ------------------
Common Stock, $.01 par value 8,917,244 shares
DOCUMENTS INCORPORATED BY REFERENCE
Document Part of the Form 10-K
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Proxy Statement for Annual Meeting of
Stockholders to be held on September 26, 2002 Part III
TABLE OF CONTENTS
Item Page
---- ----
PART I
1 Business.......................................... 3
2 Properties........................................ 9
3 Legal Proceedings................................. 10
4 Submission of Matters to a Vote of Security Holders 10
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters............................. 10
6 Selected Financial Data........................... 12
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations ............ 13
8 Financial Statements and Supplementary Data....... 21
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............. 37
PART III
10 Directors and Executive Officers of the Registrant 37
11 Executive Compensation............................ 37
12 Security Ownership of Certain Beneficial Owners
and Management.................................. 37
13 Certain Relationships and Related Transactions.... 37
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................. 37
15 Signatures........................................ 38
PART I.
Item 1. Business.
General
Sport Supply Group, Inc. is a leading direct mail marketer of sporting
goods, physical education, recreational and leisure products and equipment
to the institutional market in the United States. The institutional market
is generally comprised of schools, colleges, universities, government
agencies, military facilities, athletic clubs, athletic teams and dealers,
youth sports leagues and recreational organizations. We offer products
directly to the institutional market primarily through: (i.) a variety of
distinctive, information-rich catalogs; (ii.) sales personnel strategically
located in certain large metropolitan areas; (iii.) in-bound and out-bound
telemarketers; (iv.) a team of experienced bid and quote personnel and (v.)
the Internet. Our marketing efforts are supported by a customer database of
over 250,000 names, a call center at our headquarters located in Farmers
Branch, Texas, a custom-designed 180,000 square foot distribution center,
world-wide sourcing, and domestic manufacturing facilities. We currently
offer approximately 10,000 sports related equipment products to over 100,000
customers.
We believe that over the past few years the sales of sports related,
physical education, recreational and leisure products in the United States
have experienced increased competition and declining participation in
traditional sports activities. There has been a rapidly growing shift from
in-store and on-site sales to satisfying the product and service needs of
the market through printed catalogs, broadcast and cable infomercials, home
shopping channels, direct telephone marketing and the Internet. This shift
has occurred due to the convenience of home shopping for the time
constrained dual-career consumer households, the expanded direct access to
customers outside of major cities and the increasingly high levels of
product fulfillment and customer service offered by leading direct marketing
companies.
We believe the institutional sporting goods market is highly fragmented
and that many of our competitors lack the necessary capital, support
systems, and economies of scale to effectively exploit the institutional
market for the long-term. Nevertheless, additional competition has had an
impact on our business. We are positioned to grow our business because of
our long-term customer relationships, our Information Technology (IT) and
Internet platform, our high capacity order-taking, processing and
fulfillment, our well-developed expertise in catalog design and
merchandising and our superior sourcing capabilities.
One of the most important contributions of the IT platform is that its
order processing and fulfillment capabilities are integrated with all of our
websites. Each website is strategically targeted to a specific customer
group or product line. Our websites enable our customers to place orders,
access account information, track orders, and perform routine customer
service inquires on a real-time basis, twenty-four hours a day, seven days a
week. This functionality allows for more convenience and added flexibility
for our customers, many of whom are part-time coaches and volunteers that
have careers and parenting responsibilities.
We believe the majority of our customers have access to the Internet
and view placing orders and accessing their account information over the
Internet as a significant benefit. We have experienced increased e-commerce
activity through our websites and believe that an increasing portion of our
customer base will use the Internet as the predominant method of quoting,
ordering, and procuring their products, along with performing customer
service inquiries.
Our sourcing, warehousing, distribution and fulfillment capabilities,
and our fully integrated SAP information system, provide the necessary
capacities, logistics, information and technological capabilities to meet
the demands and growth potential of e-commerce and business expansion. We
view the continued migration of our customers to our websites as vital to
our future growth and success.
We are a Delaware corporation incorporated in 1982. In 1988, we became
the successor of an operating division of Aurora Electronics, Inc. (f/k/a
BSN Corp. and referred to herein as "Aurora"). Before completing the
initial public offering of 3,500,000 shares of our common stock in April
1991, we were a wholly-owned subsidiary of Aurora. As of March 29, 2002, we
had two wholly-owned subsidiaries: Athletic Training Equipment Company,
Inc., a Delaware Corporation ("ATEC") and Sport Supply Group Asia, Ltd., a
Hong Kong Corporation. Our ATEC subsidiary purchased substantially all of
the assets of Athletic Training Equipment Company, Inc., a Nevada
corporation in December 1997. On September 25, 2000, we acquired the stock
of Sport Supply Group Asia, Ltd., a Hong Kong corporation from Emerson Radio
Corporation. (See Item 13 -- "Certain Relationships and Related
Transactions"). Effective March 2001, Sport Supply Group, Inc. is a
majority-owned subsidiary of Emerson Radio Corp.
Our executive offices are located at 1901 Diplomat Drive, Farmers
Branch, Texas 75234-8914 and our telephone number is (972) 484-9484. Our
Internet website, sportsupplygroup.com, provides certain additional
information about us.
Products
We believe we manufacture and distribute one of the broadest lines of
sporting goods, physical education, recreational and leisure products and
equipment to the institutional market. We offer approximately 10,000
products for sale. Our product lines include, but are not limited to:
archery, baseball, softball, basketball, camping, football, tennis and other
racquet sports, gymnastics, indoor recreation, physical education, soccer,
field and floor hockey, lacrosse, track and field, volleyball, weight
lifting, fitness equipment, outdoor playground equipment, and early
childhood development products.
We believe brand recognition is important to the institutional market.
Most of our products are marketed under trade names or trademarks owned or
licensed by us. We believe many of our trade names and trademarks are well
recognized among institutional customers. We intend to continue to expand
our product and brand name offerings by actively pursuing product, trademark
and trade name licensing arrangements and acquisitions. Our trademarks,
servicemarks, and trade names include, but are not limited to, the
following:
* Voit[R] -- institutional sports related equipment and products,
including inflated balls and baseball and softball products --
(licensed from Voit Sports, Inc. - see discussion below).
* MacGregor[R] -- certain equipment and accessories relating to baseball,
softball, basketball, soccer, football, volleyball, and general
exercise (e.g., dumbbells, curling bars, etc.) (licensed from MacMark
Corporation, a subsidiary of Riddell Sports, Inc. - see discussion
below).
* Huffy[R] -- early childhood development products (sublicensed from
Huffy Sports Company - see discussion below).
* Alumagoal[R] -- track and field equipment, including starting blocks,
hurdles, pole vault and high jump standards and crossbars.
* AMF[R] -- gymnastics equipment (licensed from AMF Bowling, Inc. - see
discussion below).
* ATEC [R] -- pitching machines and related baseball and softball
training equipment.
* Blastball[R] -- youth recreational baseball.
* BSN[R] -- sport balls.
* Champion -- barbells, dumbbells and weight lifting benches and
machines.
* Curvemaster[R] -- baseball and softball pitching machines.
* Fibersport -- pole vaulting equipment.
* Flag A Tag[R] -- flag football belts.
* Gamecraft - physical education, recreational game tables and coaching
equipment.
* GSC Sports -- gymnastics equipment.
* Hammett & Sons -- indoor table-top games.
* Maxpro[R] -- products include, among others, football practice dummies,
baseball, and other protective helmets and pads (other than football
protective equipment), baseball chest protectors and baseball mitts and
gloves (licensed from Proacq Corp., a subsidiary of Riddell Sports
Inc.).
* New England Camp and Supply -- camping and outdoor recreational
equipment and accessories.
* North American Recreation[R] -- billiard, table tennis and other game
tables.
* Passon's Sports -- mail order catalogs.
* Pillo Polo[R] -- recreational polo and hockey games.
* Port-A-Pit[R] -- high jump and pole-vault landing pits.
* Pro Base[R] -- baseball bases.
* Pro Down[R] -- football down markers.
* Pro Net -- nets, net assemblies and frames and practice cages.
* Rol-Dri[R] and Tidi-Court -- golf course and tennis court maintenance
equipment.
* Toppleball[R] -- recreational ball games.
* U.S. Games, Inc.[R] -- physical education equipment for exercise, games
and childhood development.
The Voit license permits us to use the Voit[R] trademark in connection
with manufacturing, advertising, and selling specified sports related
equipment and products, including inflated balls for all sports and baseball
and softball products to certain institutional customers. We are required
to pay annual royalties under the license. Subject to the terms of the
license agreement, we are permitted to use the Voit trademark through
December 31, 2004.
The Huffy sublicense permits us to use the Huffy[R] trademark in
connection with manufacturing, advertising, selling and distributing certain
sports related products and equipment to institutional customers. We are
required to pay annual royalties under the sublicense subject to the terms
of the sublicense agreement. The term of the sublicense expires September
30, 2003.
In February 1992, we acquired two separate licenses to use several
trade names, styles, and trademarks (including, but not limited to,
MacGregor[R]). On December 21, 2000, the license relating to the use of the
MacGregor[R] trademark was amended and restated in its entirety. The
amended and restated license permits us to manufacture, promote, sell, and
distribute to designated customers throughout the world, specified sports
related equipment and products relating to baseball, softball, basketball,
soccer, football, volleyball, and general exercise. The amended and
restated license requires us to pay an annual royalty based upon sales of
MacGregor branded products, with the minimum annual royalty set at $100,000.
The amended and restated license is exclusive with respect to certain
customers and non-exclusive with respect to others. The amended and
restated license has an original term of forty (40) years, but will
automatically renew for successive forty (40) year periods unless terminated
in accordance with the terms of the license. We have converted a
substantial portion of our products to the MacGregor[R] brand, which is
believed to be a widely recognized trade name in the sporting goods
industry. See Part I. Item 1. -- "Business - Sales and Marketing".
On August 19, 1993, we entered into an exclusive license agreement with
AMF Bowling, Inc. to use the AMF name in connection with the promotion and
sale of certain gymnastics equipment in the United States and Canada. We
are required to pay an annual royalty under the license. The minimum
royalty increases by a predetermined percentage each year the license
agreement is in effect. Subject to the terms of the AMF license, we are
permitted to use the AMF name through December 31, 2002 with the option to
renew the agreement through December 31, 2003.
In addition to the foregoing, we have acquired (or had issued) a number
of patents relating to products sold by us. We also have a number of patent
applications pending before the U.S. Patent and Trademark Office.
Sales and Marketing
We believe we are the largest seller of sporting goods and sports
leisure products to the institutional market in the United States. The
institutional market is made up of well over 500,000 potential customers,
most clearly defined as: 1) Out-of-School Customers including youth sports
leagues, recreational departments and organizations, churches and private
athletic organizations; 2) In-School Customers including all levels of
public and private schools and their related athletic and recreational
departments; 3) Government Customers including federal, state and local
agencies; and 4) Resale and Specialty Customers including sporting goods
resellers and specialty organizations.
We solicit and sell our products through 10 different direct mail
catalogs, an inside sales and customer service staff of over 100 people, an
outside sales force of over 20 people traveling in significant metropolitan
sales territories, and fifteen Internet sites.
We have marketing efforts directed towards the following athletic and
leisure activities: Football, Baseball, Softball, Basketball, Soccer, Track
and Field, Training and Fitness, Camping, Outdoor Recreation, Early
Childhood Development, Table Games, Playground Recreation, Tennis and
Volleyball. We believe we are also a brand leader in the institutional
sporting goods and sports leisure market, marketing our products under a
variety of private label and well recognized name brands including: BSN
Sports, MacGregor[R], Reebok Team Uniforms, Spalding, PortaPit, Champion
Barbell, Voit[R], Huffy[R], AMF[R] and Flag-A-Tag[R]. We believe our
mailing list of over 250,000 customer and target prospects is one of our
most valuable intangible assets.
We also have licenses and marketing alliances with national
organizations including, YMCA, Hershey Chocolate USA, and Antigua[R] In
1996, we entered into an advertising and distribution agreement with Hershey
Chocolate USA. Pursuant to this agreement, we market and distribute
promotional fund raising literature and programs to our customers, and
service the fund raising needs of many nontraditional customers. The
current agreement expires on May 15, 2004 with a two year renewal option.
During fiscal year 1999, we acquired two team dealers. These team
dealer acquisitions continue to service the local institutional customers
and teams with a full line of athletic products. We also use this local
presence to expand our product sales to the local institutional customer
base. Conlin Bros., Inc., located in Southern California, was acquired in
January 1999. Larry Black Sporting Goods, Inc. in Oklahoma and Kansas, was
acquired in February 1999. During October 1999, we further expanded by
acquiring two more local team dealers: Spaulding Athletic, located in Little
Rock Arkansas, and LAKCO Team Sports, located in Southern California.
During fiscal year 1998, we acquired certain assets of Athletic
Training Equipment Company, Inc., a Nevada Corporation. ATEC manufactures
and markets pitching machines and other baseball and softball training
equipment to sporting goods dealers and other sporting goods institutions.
These products are marketed using catalogs and outside sales representatives
to service the dealers. ATEC has one of the broadest and most versatile
lines of pitching machines in the market today. With the use of the latest
technology, ATEC has continued to meet the training needs of professional,
college, high school and youth baseball and softball leagues.
We have fifteen Internet sites listed below:
BSNsports.com -- targets the longstanding customer of SSG
who recognizes the BSN sports name
LeagueDirect.com -- targets Little League and other league
sports
US-Games.com -- targets the early childhood development
buyer
ChampionBarbell.com -- targets fitness
BSNgsanaf.com -- targets the government
NewEnglandCamp.com -- targets camping and outdoor leisure
Portapit.com -- targets track and field
eSportsonline.com -- targets all customers
ATECsports.com -- website for ATEC
Officialfundraising.com -- targets all customers interested in
fundraising
Flagatag.com -- targets flag football and intramural leagues
Blastball.com -- targets users of our exclusive Blastball
product
ConlinSports.com -- targets the West Coast sports customer
familiar with the Conlin Sports name
PEplanet.com -- targets the early childhood and physical
education market
RolDri.com -- targets dealers servicing the tennis market
Each website is strategically targeted to a specific customer group or
product line. Our websites enable our customers to place orders, access
account information, track orders, and perform routine customer service
inquiries on a real-time basis, twenty-four hours a day, seven days a week.
This functionality allows for more convenience and added flexibility for our
customers.
Over the years, we believe we have established a market leader position
by constantly updating and expanding our product lines and targeting selling
efforts to specific customer profiles. We have historically targeted one
market -- institutional sporting goods customers. We also target individual
consumers on our esportsonline.com website and to a lesser extent retail
customers and participants in our new associate programs. The associate
program allows independent third parties to promote our products and
services on their website and share in a percentage of the revenue.
Customers
Our revenues are not dependent upon any single customer. Instead, we
enjoy a very large and diverse customer base. Our customers include all
levels of public and private schools, colleges, universities and military
academies, municipal and governmental agencies, military facilities,
churches, clubs, camps, hospitals, youth sports leagues, non-profit
organizations, team dealers and certain large retail sporting goods chains.
We believe our customer base in the United States is the largest in the
institutional direct mail market for sports related equipment.
Many of our institutional customers typically receive annual
appropriations for sports related equipment, which appropriations are
generally spent in the period preceding the season in which the sport or
athletic activity occurs. Approximately 8%, 7%, 9%, and 7% of our sales in
the fiscal years 2002, 2001, 2000, and 1999, respectively, were to agencies
of the United States Government, a majority of which were sales to military
installations. We have a contract with the General Services Administration
(the "GSA Contract") that grants us an "approved" status when attempting to
make sales to military installations or other governmental agencies. The
existing GSA Contract expires December 31, 2006. Under the GSA Contract, we
agree to sell approximately 550 products to United States Government
agencies and departments at catalog prices or at prices consistent with any
discount provided to our other customers. Products sold to the United
States Government under the GSA Contract are always sold at our lowest
offered price.
We also sell products to United States Government customers from a NAF
contract (Non-Appropriated Funds). Our entire product line is included on
this contract and offers pricing to the U.S. Government at discounted prices
that are consistent with any discount provided to our other customers. This
contract is administered by the United States Air Force and is scheduled to
expire on September 30, 2003.
Seasonal Factors and Backlog
Historically, our revenues are lowest in the quarter ending December
and peak in the quarter ending March. Our revenues reflect a level cycle
during the quarters ending June and September. The peak in revenues in the
quarter ending March is primarily due spring and summer sports, favorable
outdoor weather conditions and school needs before summer closing.
We had a backlog of approximately $2,015,000 at March 29, 2002,
$2,638,000 at March 30, 2001, $2,329,000 at September 29, 2000 and
$2,458,000 at October 1, 1999.
Manufacturing and Suppliers
We manufacture, assemble and distribute many of our products from four
of our facilities. See Item 2. -- "Properties" for details. Gym mats and
netting are manufactured in our two Anniston, Alabama plants. Baseball and
softball pitching machines are manufactured/assembled at our ATEC subsidiary
in Sparks, Nevada. Items of steel and aluminum construction, such as
soccer, football and baseball field equipment, are principally manufactured
at our facilities in Farmers Branch, Texas.
Certain products manufactured by us are custom-made (such as tumbling
mats ordered in color or size specifications), while others are
standardized. The principal raw materials used by us in manufacturing are,
for the most part, readily available from several different sources. Such
raw materials include foam, vinyl, nylon thread, steel and aluminum tubing,
and wood.
During the past year we began the process of outsourcing many of the
products historically manufactured by us, including products such as game
tables and fitness equipment. Products have been outsourced to both
domestic and international vendors. Outsourcing these products has enabled
us to consolidate plants and reduce our manufacturing requirements. We have
closed manufacturing facilities in California and Alabama and reduced the
size of our manufacturing facilities in Texas by approximately 50%.
Outsourcing these products has also enabled us to (i.) reduce our cost of
goods in many of these products, (ii.) reduce our inventory requirements,
(iii.) reduce many selling prices to our customers and (iv.) improve our
remaining manufacturing efficiencies by focusing on longer production runs
of fewer products. We believe selling products to our customers at more
competitive prices will have a positive impact on our revenue base.
Items not manufactured by us are purchased from various suppliers
primarily located in the United States, Taiwan, Australia, the Philippines,
Thailand, the People's Republic of China, Pakistan, Sweden and Canada. We
have no significant purchase contracts with any major supplier of finished
products, and most products purchased from suppliers are readily available
from other sources. We purchase most of our finished product in U.S.
dollars and are, therefore, not subject to direct foreign exchange rate
differences. See Part II. Item 7. - Management Discussion and Analysis -
Certain Factors that May Affect the Company's Business or Future Operating
Results".
Competition
We compete in the institutional sporting goods market principally with
local sporting goods dealers, retail sporting goods stores, other direct
mail catalog marketers and providers of sporting goods on the Internet. We
have identified approximately 15 other direct mail companies in the
institutional market. We believe that most of these competitors are
substantially smaller than us in terms of geographic coverage, products, e-
commerce capability and revenues.
We compete in the institutional market principally on the basis of:
brand, price, product availability and customer service. We believe we have
an advantage in the institutional market over traditional sporting goods
retailers and team dealers because our selling prices do not include
comparable price markups attributable to traditional multi-distribution
channel markups. In addition, our ability to control the availability of
goods we source enables us to respond more rapidly to customer demand. We
believe our direct mail competitors operate primarily as wholesalers and
distributors.
Government Regulation
Many of our products are subject to 15 U.S.C.A. SS 2051-2084 (1998 and
Supp. 2002), among other laws, which empowers the Consumer Product Safety
Commission (the "CPSC") to protect consumers from hazardous sporting goods
and other articles. The CPSC has the authority to exclude from the market
certain articles that are found to be hazardous and can require a
manufacturer to refund the purchase price of products that present a
substantial product hazard. CPSC determinations are subject to court
review. Similar laws exist in some states and cities in the United States.
Product Liability and Insurance
Because of the nature of our products, we are periodically subject to
product liability claims resulting from personal injuries. We may become
involved in various lawsuits incidental to our business, some of which
relate to claims allegedly resulting in substantial permanent paralysis.
Significantly increased product liability claims continue to be asserted
successfully against manufacturers and distributors of sports equipment
throughout the United States resulting in general uncertainty as to the
nature and extent of manufacturers' and distributors' liability for personal
injuries. See Item 3. -- "Legal Proceedings".
Since September 11, 2001, product liability insurance has become much
more expensive, more restrictive and more difficult to obtain. We recently
renewed our general product liability insurance through March 2003. There
can be no assurance that our general product liability insurance will be
sufficient to cover any successful product liability claims made against us.
In our opinion, any ultimate liability arising out of currently pending
product liability claims will not have a material adverse effect on
our financial condition or results of operations. However, any claims
substantially in excess of our insurance coverage, or any substantial claim
not covered by insurance, could have a material adverse effect on our
financial condition and results of operations.
Employees
On May 3, 2002, we had approximately 373 full-time employees, of whom
81 were involved in our manufacturing operations. We also hire part-time
and temporary employees primarily during the summer months. None of our
employees are represented by unions, and we believe our relations with
employees are good.
Directors and Executive Officers
--------------------------------
Year First
Became
Director or
Name Age Position Officer
---- --- -------- -------
Geoffrey P. Jurick 61 Chairman of the Board and Chief 1996
Executive Officer
John P. Walker 39 President and Director 1996
Terrence M. Babilla 40 Chief Operating Officer, 1995
Executive Vice President,
General Counsel and Secretary
Eugene J.P. Grant 54 Executive Vice President, Sales 1999
and Marketing
Michael P. Glassman 56 Vice President, Sales and 2001
Marketing
Robert K. Mitchell 50 Chief Financial Officer 2000
Douglas E. Pryor 46 Senior Vice President, Sourcing 1999
and International Operations
Kenneth A. Corby 41 Vice President, Corporate 1998
Development
John C. Bals 44 Vice President, Sales of 2002
Sporting Goods Division
Thomas P. Treichler 58 Director 1997
Peter G. Bunger 62 Director 1996
Johnson C.S. Ko 51 Director 1996
Item 2. Properties.
The following table sets forth the material properties owned or leased
by us or any of our subsidiaries:
Approximate
Square Lease Expires
Facility Purpose Footage Location or is Owned
---------------- ------- -------- --------------
Manufacturing and corporate 135,000 Farmers December, 2004
headquarters (1) Branch, TX
Warehouse and fulfillment 181,000 Farmers December, 2004
processing (2) Branch, TX
Manufacturing 62,500 Sparks, NV July, 2004
Manufacturing 35,000 Anniston, AL Owned
Manufacturing 45,000 Anniston, AL Owned
(1) Approximately 40,000 square feet are utilized by Emerson Radio
Corporation.
(2) Approximately 35,000 square feet are utilized by Emerson Radio
Corporation.
We believe the facilities used in our operations are in satisfactory
condition and adequate for our present and anticipated future operations.
However, we are currently reviewing the possibility of consolidating the
facilities located in Farmers Branch into one facility when the leases
expire in 2004. In addition to the facilities listed above, we lease space
in various locations, primarily for use as sales offices.
Item 3. Legal Proceedings.
Periodically, we become involved in various claims and lawsuits
incidental to our business. In management's opinion, any ultimate liability
arising out of currently pending claims will not have a material adverse
effect on our financial condition or results of operations. However, any
claims substantially in excess of our insurance coverage, or any substantial
claim that may not be covered by insurance or any significant monetary
settlement, could have a material adverse effect on our financial condition
or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Our common stock, par value $.01 per share (the "Common Stock") is
quoted on the Over-the-counter Bulletin Board under the symbol SSPY. As of
April 30, 2002, there were 1,259 holders of the Common Stock (including
individual security position listings). The following table sets forth the
high/low sales range for the periods indicated. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Common Stock
Fiscal Year Fiscal Quarter High Low
----------- --------------- ------ ------
1999 Ended December 9.313 5.875
Ended March 11.875 7.750
Ended June 10.750 8.750
Ended September 10.313 8.125
2000 Ended December 8.438 5.688
Ended March 8.250 5.938
Ended June 6.125 3.875
Ended September 4.875 2.188
2001 Ended December 2.938 0.750
Ended March 2.375 1.063
2002 Ended June 1.500 1.270
Ended September 1.350 0.760
Ended December 1.250 0.850
Ended March 1.100 0.960
We have not declared dividends in the past three fiscal years. We
currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends on our capital stock in the foreseeable
future.
On May 28, 1997, the Board of Directors approved the repurchase of up
to 1,000,000 shares of our issued and outstanding common stock in the open
market and/or privately negotiated transactions. On October 28, 1998, the
Board of Directors approved a second repurchase program of up to an
additional 1,000,000 shares of our issued and outstanding common stock in
the open market and/or privately negotiated transactions. As of March 29,
2002, we repurchased approximately 1,333,000 shares of our issued and
outstanding common stock in the open market and privately negotiated
transactions. Any future purchases will be subject to price and
availability of shares, working capital availability and any alternative
capital spending programs. Our bank agreement currently prohibits the
repurchase of any additional shares without the bank's prior consent.
On January 14, 1998, we issued 50,000 shares of restricted stock to
John P. Walker, President and a Director of Sport Supply Group, Inc., in a
privately negotiated transaction pursuant to Section 4(2) of the Securities
Act of 1933, as amended (i.e. a transaction by an issuer not involving a
public offering). These shares vested over a two-year period. We did not
receive any cash proceeds from the issuance of these shares.
On January 12, 2001, we issued 1,629,629 shares of restricted stock out
of our treasury stock to Emerson Radio Corp. ("Emerson"), our largest
stockholder. Emerson paid $1.35 in cash for each share of stock, for a
total purchase price of $2.2 million. All of the shares issued in this
transaction were issued in a non-public offering pursuant to Section 4(2) of
the Securities Act of 1933, as amended. Proceeds of the sale were used to
pay off our term loan with Comerica Bank.
Item 6. Selected Financial Data (Unaudited).
The following sets forth selected historical financial information.
The data has been derived from our audited financial statements. The
amounts are in thousands, except for per share data. The historical
information should be read in conjunction with Item 7. -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and our financial statements and notes thereto included in Item 8. --
"Financial Statements and Supplementary Data".
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA (UNAUDITED)
( Amounts in thousands, except for per share data )
Fiscal Six Fiscal Fiscal Fiscal Eleven
Year Months Year Year Year Months
Ended Ended Ended Ended Ended Ended
March 29, March 30, Sept 29, Oct 1, Oct 2, Sep 26,
Statement of Earnings Data: 2002 2001(2) 2000 1999 1998 1997 (1) (3)
-------- -------- -------- -------- -------- --------
Net revenues $ 103,601 $ 50,337 $ 119,321 $ 112,880 $ 101,935 $ 83,318
Gross profit 29,495 13,936 36,170 37,283 32,303 26,811
Operating profit (loss) (2,790) (2,411) (437) 8,445 7,782 4,226
Interest expense 986 957 2,022 1,196 474 757
Other income, net 193 14 17 63 215 83
Earnings (loss) from continuing operations (3,582) (2,123) (1,518) 4,623 4,964 2,576
Loss from discontinued operations (3) -- -- -- -- -- (2,574)
-------- -------- -------- -------- -------- --------
Net earnings (loss) $ (3,582) $ (2,123) $ (1,518) $ 4,623 $ 4,964 $ 2
======== ======== ======== ======== ======== ========
Earnings (loss) per common share and
common equivalent share: (notes 1,
2 and 3)
Net earnings (loss) per common share
from continuing operations $ (0.40) $ (0.27) $ (0.21) $ 0.63 $ 0.62 $ 0.32
Net loss per common share from
discontinued operations -- -- -- -- -- (0.32)
-------- -------- -------- -------- -------- --------
Net earnings (loss) per common
share - basic $ (0.40) $ (0.27) $ (0.21) $ 0.63 $ 0.62 $ -
======== ======== ======== ======== ======== ========
Net earnings (loss) per common share from
continuing operations - diluted $ (0.40) $ (0.27) $ (0.21) $ 0.60 0.60 0.32
Net loss per common share from discontinued
operations - diluted -- -- -- -- -- (0.32)
-------- -------- -------- -------- -------- --------
Net earnings (loss) per common
share - diluted $ (0.40) $ (0.27) $ (0.21) $ 0.60 $ 0.60 $ 0.00
======== ======== ======== ======== ======== ========
Weighted average common and common
equivalent shares:
Weighted average common shares
outstanding - basic 8,917 7,964 7,273 7,390 8,026 8,146
Weighted average common shares
outstanding - diluted 8,917 7,964 7,273 7,728 8,237 8,151
At At At At At At
March 29, March 30, Sept 29, Oct 1, Oct 2, Sep 26,
Balance Sheet Data: 2002 2001 (2) 2000 1999 1998 1997 (1) (3)
-------- -------- -------- -------- -------- --------
Working capital $ 26,977 $ 28,383 $ 30,771 $ 31,873 $ 25,245 $ 24,006
Total assets 67,307 73,584 73,687 73,249 54,804 50,484
Long-term obligations, net 17,000 17,333 19,034 18,426 5,161 4,418
Total liabilities 30,258 32,955 33,150 31,141 13,626 11,527
Stockholders equity 37,049 40,629 40,537 42,108 41,178 38,957
Notes to Selected Financial Data (Unaudited)
(1) During 1997, we changed our financial reporting year-end from October 31 to September 30.
Therefore, the fiscal year ended September 26, 1997 is a transition period consisting of
eleven calendar months.
(2) During 2001, we changed our financial reporting year-end from September 30 to March 31.
Therefore, the fiscal year ended March 30, 2001 is a transition period consisting of six
calendar months.
(3) On May 20, 1996 we disposed of substantially all of the assets (other than cash and
accounts receivable) of the Gold Eagle Division to a privately held corporation.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following table sets forth, for the periods indicated, certain
items related to our continuing operations as a percentage of net revenues.
For the For the For the For the
12 Months 6 Months 12 Months 12 Months
Ended Ended Ended Ended
March 29, March 30, Sept. 29, Oct. 1,
2002 2001 2000 1999
------- ------- ------- -------
Net revenues (in thousands) $103,601 $ 50,337 $119,321 $112,880
100.0% 100.0% 100.0% 100.0%
Cost of sales 71.5% 72.3% 69.7% 66.9%
Selling, general and
administrative expenses 30.8% 31.3% 29.2% 25.6%
Internet expenses 0.3% 0.6% 1.0% 0.0%
Nonrecurring charges 0.0% 0.5% 0.5% 0.0%
------- ------- ------- -------
Operating profit (loss) (2.6%) (4.7%) (0.4%) 7.5%
======= ======= ======= =======
2002 Compared to 2001
The following table summarizes certain financial information relating
to our results of operations for the fiscal year ended March 29, 2002 and
the comparable twelve months ended March 30, 2001:
2002 2001
----------- -----------
Net Revenues $103,601,428 $113,060,806
Gross Profit $29,495,185 $32,252,079
SG&A $31,928,924 $34,274,170
Internet expenses $355,766 $1,352,635
Nonrecurring charges -- $253,239
Net loss $(3,582,428) $(3,559,452)
Net Revenues. Net revenues decreased approximately $9.5 million (8.4%) for
the fiscal year ended March 29, 2002 as compared to the comparable twelve
months ended March 30, 2001. The decrease in net revenues was primarily the
result of a general slow-down in the economy, reduced participation in
traditional youth sports, a reduced sales force, and the discontinuation of
certain unprofitable and low margin product lines.
Gross Profit. Gross profit decreased approximately $2.8 million (8.7%) for
the fiscal year ended March 29, 2002 as compared to the same period in
fiscal 2001. As a percentage of net revenues, gross profit remained at 28.5%
for the fiscal year ended March 29, 2002 as compared to the comparable
twelve months ended March 30, 2001. The decrease in gross profit is
directly attributable to the decrease in net revenues.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately $2.3 million (6.8%) for the
fiscal year ended March 29, 2002 as compared to the same period in fiscal
2001. As a percentage of net revenues, selling, general and administrative
expenses increased to 30.8% from 30.3% for the fiscal year ended March 29,
2002 as compared to the comparable twelve months ended March 30, 2001. The
decrease in selling, general and administrative expenses for the fiscal year
ended March 29, 2002 as compared to the comparable twelve months ended March
30, 2001 is primarily a result of the following:
(i.) A decrease in payroll related expense of approximately $1.2 million
primarily a result of reduced headcount.
(ii.) A decrease in selling and promotional expenses of approximately
$774,000 primarily a result of reduced catalog expenses.
(iii.) A decrease in depreciation and amortization expense of approximately
$276,000 primarily a result of assets reaching their full depreciation
levels.
(iv.) A decrease in tax expense of approximately $195,000 primarily a
result of lower sales & use tax expense.
We have realized a full twelve months benefit of our cost reduction plans
that were implemented in fiscal 2000. We do not anticipate further
significant decreases in our selling, general & administrative expenses.
Internet Expenses. Internet related expenses decreased approximately $1.0
million (73.7%) for the fiscal year ended March 29, 2002 as compared to the
comparable twelve months ended March 30, 2001. These expenses are related to
the continued support and enhancement of our websites and web development
to post electronic catalogs on our websites. Internet expenses were
significantly higher in the twelve months ended March 30, 2001 as we were
still developing our e-commerce sites. We anticipate that the current level
of internet related expense is consistent with what we expect going forward.
Nonrecurring Charges. In the twelve months ended March 30, 2001, we
consolidated our manufacturing facility located in Cerritos, CA with our
facilities located in Anniston, AL. In association with this plant
consolidation, we recorded additional nonrecurring expenses of approximately
$114,000. In addition, we recorded approximately $139,000 of nonrecurring
expenses in the twelve month period ended March 30, 2001 related to the
accelerated amortization of loan fees due to the change in lenders in March
2001.
Interest Expense. Interest expense decreased approximately $1.1 million
(51.8%) for the fiscal year ended March 29, 2002 as compared to comparable
twelve months ended March 30, 2001. This increase is due to lower average
borrowings and lower interest rates.
Other Income, Net. Other income increased approximately $163,000 for the
fiscal year ended March 29, 2002 as compared to the comparable twelve months
ended March 30, 2001. This increase is due primarily to the casualty gain
on insurance proceeds received for assets lost in a flood that occurred in
our corporate facility. These proceeds were used to purchase replacement
assets.
Income Tax Provision (Benefit). The benefit for income taxes decreased
approximately $2.1 million to a benefit of $0 in the fiscal year ended March
29, 2001 as compared to the comparable twelve months ended March 30, 2001.
We have a net operating loss carryforward included in net deferred tax
assets that can be used to offset future taxable income and can be carried
forward for 15 to 20 years. As such, realization of our net deferred tax
assets is dependent on generating sufficient taxable income, either through
operations or tax planning strategies, prior to the expiration of loss
carryforwards. Based upon our operating results for the fiscal year ended
March 29, 2002, we have not provided an income tax benefit related to our
loss before income taxes. The amount of our existing net deferred tax assets
considered realizable could be reduced or eliminated if their use becomes
more restricted under the provisions of SFAS No. 109, "Accounting for Income
Taxes".
Net Loss. Net loss increased approximately $23,000 for the fiscal year
ended March 29, 2002 as compared to the comparable twelve months ended March
30, 2001. Net loss per share decreased to $(0.40) from $(0.45) for the
fiscal year ended March 29, 2002 as compared to the comparable twelve months
ended March 30, 2001. The weighted average shares outstanding increased by
approximately 12.0% for the fiscal year ended March 29, 2002, respectively
as compared to the comparable twelve months ended March 30, 2001. The
increase in weighted average shares outstanding is primarily due to the sale
of treasury stock to Emerson Radio Corp in January 2001.
2001 Compared to 2000
The following table summarizes certain financial information relating
to our results of operations for the six month period ended March 30, 2001
and the comparable six month period ended March 31, 2000:
2001 2000
---------- ----------
Net Revenues $50,336,524 $56,596,700
Gross Profit $13,935,999 $17,853,869
SG&A $15,775,650 $16,366,932
Internet expenses $317,808 $101,322
Nonrecurring charges $253,239 $605,000
Net loss $(2,122,515) $(80,669)
Net Revenues. Net revenues decreased approximately $6.3 million (11.1%) for
the six month period ended March 30, 2001 as compared to the same period in
fiscal 2000. We believe the decrease in net revenues was primarily a result
of competitive pressures in the marketplace, a decline in youth baseball
registrations, unusually cold and wet weather in warm weather states
delaying spring sports, a reduction in our sales force, a reduction in the
number of catalogs mailed and a general slow-down in the economy.
Gross Profit. Gross profit decreased approximately $3.9 million (21.9%) for
the six month period ended March 30, 2001 as compared to the same period in
fiscal 2000. As a percentage of net revenues, gross profit decreased to
27.7% from 31.5% for the six month period ended March 30, 2001 as compared
to the same period in fiscal 2000. Gross profit decreased due to product
mix shifts and pricing pressure in the institutional sporting goods
marketplace.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased approximately $591,000 (3.6%) for the six
month period ended March 30, 2001 as compared to the same period in fiscal
2000. As a percentage of net revenues, selling, general and administrative
expenses increased to 31.3% from 28.9% for the six month period ended March
30, 2001 as compared to the same period in fiscal 2000. The decrease in
selling, general and administrative expenses for the six month period ended
March 30, 2001 as compared to the six month period ended March 31, 2000 is
primarily a result of the following:
(i.) A decrease in selling and promotional expense of approximately
$565,000. This decrease is primarily a result of lower catalog expense
as part of our cost reduction programs initiated this year.
(ii.) A decrease in payroll related expense of approximately $364,000. This
is a result of reduced headcount, primarily in the sales and sales
administration areas.
(iii.) A decrease in legal fees of approximately $200,000. This is
primarily the result of a reduction in litigation.
(iv.) A decrease in facility expenses of approximately $156,000. This is
primarily a result of lower rent and telephone expense due to
renegotiations of certain leases and contracts.
These decreases in selling, general and administrative expenses were
partially offset by an increase of approximately $632,000 in computer
related expenses and an increase of approximately $104,000 in license and
royalty related expenses. Fiscal 2001 was the first year of normal, fully
functional MIS department operating expenses. The increase in license and
royalty related expenses is primarily due to the Amended and Restated
License Agreement with MacMark, entered in on December 21, 2000, which
requires us to pay an annual royalty based upon sales of MacGregor branded
products, with the minimum annual royalty set at $100,000.
Internet Expenses. We incurred Internet related expenses of approximately
$318,000 for the six month period ended March 30, 2001 as compared to
approximately $101,000 for the six month period ended March 31, 2000. These
expenses were related to the continued support and enhancement of our
websites and web development to post electronic catalogs on the websites. We
incurred approximately $1.1 million of Internet expenses during fiscal year
2000 to develop and launch fully functional e-commerce web sites that offer
our customers electronic on-line catalogs, customer specific pricing,
on-line ordering and other on-line customer service functions. This
development effort was completed in fiscal 2000.
Nonrecurring Charges. In the six months ended March 30, 2001, we
consolidated our manufacturing facility located in Cerritos, CA with our
facilities located in Anniston, AL. In association with this plant
consolidation, we recorded additional nonrecurring expenses of approximately
$114,000 in the six month period ended March 30, 2001. In addition, we
recorded approximately $139,000 of nonrecurring expenses in the six month
period ended March 30, 2001 related to the accelerated amortization of loan
fees due to the change in lenders in March 2001. In the six month period
ended March 31, 2000, we recorded a nonrecurring charge related to the
settlement of two lawsuits in the amount of $605,000.
Interest Expense. Interest expense increased approximately $25,000 (2.7%)
for the six month period ended March 30, 2001 as compared to the same period
in fiscal 2000. This increase is due to higher average borrowings.
Other Income, Net. Other income increased approximately $12,000 for the six
month period ended March 30, 2001 as compared to the same period in fiscal
2000.
Income Tax Provision (Benefit). The benefit for income taxes increased
approximately $1.2 million to a benefit of $1.2 million in the six months
ended March 30, 2001 as compared to the same period in fiscal 2000. Our
effective tax rate decreased to 36.7% in the six month ended March 30, 2001
as compared to 46.2% for the same period in fiscal 2000.
Net Loss. Net loss increased approximately $2.0 million for the six month
period ended March 30, 2001 as compared to the same period in fiscal 2000.
Net loss per share increased to $(0.27) from $(0.01) for the six month
period ended March 30, 2001 as compared to the same period in fiscal 2000.
The weighted average shares outstanding increased by approximately 9.5% for
the six month period ended March 30, 2001, respectively as compared to the
same period in fiscal 2000. The increase in weighted average shares
outstanding is primarily due to the sale of treasury stock to Emerson Radio
Corp.
2000 Compared to 1999
The following table summarizes certain financial information relating
to our results of operations for the fiscal years ended September 29, 2000
and October 1, 1999:
2000 1999
----------- -----------
Net Revenues $119,320,982 $112,879,817
Gross Profit $36,169,949 $37,282,908
SG&A $34,865,452 $28,838,366
Internet expenses $1,136,149 --
Nonrecurring charges $605,000 --
Net earnings (loss) $(1,517,606) $4,622,839
Net Revenues. Net revenues for the fiscal year ended September 29, 2000
("fiscal 2000") increased by approximately $6.4 million (5.7%) as compared
to the fiscal year ended October 1, 1999 ("fiscal 1999"). The increase in
net revenues reflected increases in revenues associated primarily with our
team dealers, fund-raising product sales and in-school and out-of-school
sales increases.
Gross Profit. Gross profit for fiscal 2000 decreased by approximately $1.1
million (3.0%) as compared to fiscal 1999. As a percentage of net revenues,
gross profit decreased to 31.9% in fiscal 2000 from 34.8% for fiscal 1999. A
portion of the decrease in gross profit is due to $500,000 in one-time
vendor rebates that were recorded during fiscal 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 2000 increased by approximately $6.0
million (20.9%) as compared to fiscal 1999. As a percentage of net
revenues, selling, general and administrative expenses increased to 30.8%
for fiscal year 2000 as compared to 26.9% for fiscal 1999. The increase in
these expenses as a percentage of net revenues for fiscal year 2000 as
compared to fiscal year 1999 was primarily due to the following factors:
(i.) An increase in payroll and related costs of approximately $3.3
million primarily as a result of the increased number of outside sales
employees, the employees of companies acquired during the second
quarter of the prior year and first quarter of fiscal year 2000 and
temporary help related to increased receivable collection efforts.
(ii.) An increase in computer related expenses of approximately $1.1 million
primarily as the result of higher operating costs of maintaining our IT
system and support after the system was implemented.
(iii.) An increase in depreciation and amortization expense of approximately
$771,000. This is primarily the result of hardware and software
acquisitions related to our successful implementation of our IT
information system.
(iv.) An increase in selling and promotional expense of approximately
$539,000 primarily as a result of higher catalog expenses.
(v.) An increase in facility related expense of $448,000. This is
primarily due to the full year impact of the additional facilities
acquired during the second quarter of the prior year and the additional
facilities acquired in first quarter of fiscal year 2000.
Internet Expenses. We incurred Internet related expenses of approximately
$1.1 million for the year ended September 29, 2000. These expenses related
to significant enhancements, including the creation of shopping cart
capabilities and full integration with our SAP system.
Nonrecurring Charges. We successfully negotiated the settlement of two
lawsuits. Consequently, in fiscal year 2000, we recorded a non-recurring
charge related to these claims in the amount of $605,000.
Operating Profit. Operating profit decreased from a profit of $8.4 million
in fiscal 1999 to a loss of $437,000 in fiscal 2000. The decrease in
operating profit was due to reduced margins and increased SG&A expenses, as
described above.
Interest Expense. Interest expense increased in fiscal 2000 by
approximately $826,000 (69.0%) to $2.0 million compared to $1.2 million in
fiscal 1999. The increase in interest expense resulted from increased
overall levels of borrowing. The higher borrowing levels were the result of
the: (i.) cash payments for the acquisitions of Spaulding and LAKCO in
October 1999; (ii.) stock repurchased under our stock buyback program;
(iii.) cash paid for our IT/ERP, Internet system implementation and Internet
development; and (iv.) funding the growth of inventories. In addition, our
borrowing rates increased as a result of amendments to our credit agreement.
Other Income, Net. Other income decreased approximately $46,000 in fiscal
2000 as compared to fiscal 1999.
Income Tax Provision (Benefit). The benefit for income taxes increased
approximately $3.6 million to a benefit of $924,000 in fiscal 2000 from a
provision of $2.7 million in fiscal 1999. Our effective tax rate increased
to 37.8% in fiscal 2000 from 36.8% in fiscal 1999.
Net Earnings (Loss). Net earnings decreased approximately $6.1 million to a
net loss of $1.5 million in fiscal 2000 from net earnings of $4.6 million in
fiscal 1999. As a percentage of the net revenues, net earnings decreased to
(1.4%) in fiscal 2000 from 4.3% in fiscal 1999. Earnings per share before
dilution from continuing operations decreased to $(0.21) per share in fiscal
2000 from $0.63 per share in fiscal 1999. Fiscal year 2000 included a
decrease of approximately 5.9% in weighted average shares outstanding.
Liquidity and Capital Resources
Our working capital decreased approximately $1.4 million during the
fiscal year ended March 29, 2002, from $28.4 million at March 30, 2001 to
$27.0 million at March 29, 2002. The decrease in working capital is
primarily a result of a decrease of approximately $2.7 million in
inventories, an increase in accrued liabilities of approximately $1.7
million, and a decrease in cash of approximately $700,000. The working
capital decreases are partially offset by a decrease in trade accounts
payable of $4.1 million.
We have a credit agreement with Congress Financial Corporation to
finance our working capital requirements through March 2004. The credit
agreement provides for a $25 million revolving credit facility. Borrowings
under the Credit Agreement are subject to an accounts receivable and
inventory collateral base and are secured by substantially all of our
assets. We are required to maintain certain net worth levels and as of
March 29, 2002 we were in compliance with this requirement. As of March 29,
2002, we had total available borrowings under our senior credit facility of
approximately $21.4 million of which approximately $16.8 million were
outstanding.
We believe we can satisfy our short-term and long-term working capital
requirements to support our current operations from borrowings under our
credit facility and cash flows from operations.
The following table sets forth our contractual obligations at March 29, 2002
for the periods shown:
Due in Due in
Due within two to four to
one year three years five years Thereafter Total
------------------------------------------------------------
Notes payable $ 49,899 $16,940,846 $ 25,202 $ -- $17,015,947
Capital lease
obligations 23,233 34,091 -- -- 57,324
Leases 1,935,988 2,472,415 16,085 -- 4,424,488
------------------------------------------------------------
Total $2,009,120 $19,447,352 $ 41,287 $ -- $21,497,759
============================================================
On May 28, 1997, the Board of Directors approved the repurchase of up
to 1,000,000 shares of our issued and outstanding common stock in the open
market and/or privately negotiated transactions. On October 28, 1998, the
Board of Directors approved a second repurchase program of up to an
additional 1,000,000 shares of our issued and outstanding common stock in
the open market and/or privately negotiated transactions. As of March 29,
2002, we repurchased approximately 1,333,000 shares of our issued and
outstanding common stock in the open market and privately negotiated
transactions. Any future purchases will be subject to price and
availability of shares, working capital availability and any alternative
capital spending programs. Our bank agreement currently prohibits the
repurchase of any additional shares without the bank's prior consent.
We do not currently have any material commitments for capital
expenditures.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements require us
to make estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses. We consider certain accounting policies
related to inventories and trade accounts receivables, impairment of long
lived assets and valuation of deferred tax assets to be critical policies
due to the estimation processes involved in each.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and weighted-average cost methods
for items manufactured by us and weighted-average cost for items purchased
for resale. The inventory allowance for obsolete or slow moving items is
determined based upon our periodic assessment of the net realizable value of
our inventory. If actual market conditions are less favorable than those we
have projected, additional inventory write-downs may be required.
Trade Accounts Receivable
We extend credit based upon evaluations of a customer's financial
condition and provide for any anticipated credit losses in our financial
statements based upon management's estimates and ongoing reviews of recorded
allowances. If the financial conditions of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
Intangible Assets
We have significant intangible assets related to goodwill and other
acquired intangibles. The determination of related estimated useful lives
and whether or not these assets are impaired involves significant
judgements. Changes in strategy and/or market conditions could
significantly impact these judgements and require adjustments to recorded
asset balances.
Income Taxes
We record a valuation allowance to reduce the amount of our deferred
tax assets to the amount that is more likely than not to be realized. While
we have considered future taxable income and ongoing tax planning strategies
in assessing the need for the valuation allowance, in the event that we
determined that we would be able to realize our deferred tax assets in the
future in excess of the net recorded amount, an adjustment to the deferred
tax asset would increase income in the period such determination was made.
Likewise, if it were determined that we would not be able to realize all or
part of the net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such
determination was made.
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 our beliefs as well as assumptions made by and information
currently available to us. When used in this report, the words
"anticipate", "believe", "estimate", "expect", "predict", "intend",
"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 our results are set
forth below.
Future trends for revenues and profitability remain difficult to
predict. We continue to face many risks and uncertainties, including:
1. general and specific market and economic conditions;
2. reduced sales to the United States Government due to changes in
Government spending;
3. unanticipated disruptions or slowdowns;
4. high fixed costs;
5. competitive factors;
6. risk of nonpayment of accounts receivable;
7. foreign supplier related issues;
8. use of deferred tax asset; and
9. return to profitability.
The general economic condition in the U.S. could affect pricing and
availability on raw materials such as metals, petroleum and other
commodities used in manufacturing certain products and certain purchased
finished goods as well as transportation costs. As announced by major
freight carriers, including UPS, freight costs are increasing. If these cost
increases continue, we will be forced to increase prices or recognize lower
margins. Any material price increases to the customer could have an adverse
effect on revenues and any price increases from vendors could have an
adverse effect on our costs. Professional sports have a significant impact
on the market conditions for each individual sport. Collective bargaining,
labor disputes, lockouts or strikes by a professional sport (particularly
Major League Baseball) could have a negative impact on our revenues.
Sales to the U.S. Government have declined and if this decline
continues, it could adversely affect our results of operations.
Our ability to provide high quality customer service, process and
fulfill orders and manage inventory depends on: (i.) the efficient and
uninterrupted operation of our call center, distribution center and
manufacturing facilities and our management information systems and (ii.)
the timely performance of vendors, catalog printers and shipping companies.
Any material disruption or slowdown in the operation of our call center,
distribution center, manufacturing facilities or management information
systems, or comparable disruptions or slowdowns suffered by our principal
service providers, could cause delays in our ability to receive, process and
fulfill customer orders and may cause orders to be canceled, lost or
delivered late, goods to be returned or receipt of goods to be refused.
We ship approximately 70% of our products using United Parcel Service
("UPS"). A strike by UPS or any of our other major carriers could adversely
affect our results of operations due to not being able to deliver our
products in a timely manner and using other more expensive freight carriers.
UPS and the International Brotherhood of Teamsters began negotiations in
late January 2002 on a new contract to replace the five year agreement that
expires on July 31, 2002. No assurance can be made that an agreement will
be reached. Although we have analyzed the cost benefit effect of using
other carriers, we continue to utilize UPS for the majority of our small
package shipments.
Operations and maintenance of our call center, distribution center,
manufacturing facilities and management information systems involve
substantial fixed costs. Paper and postage are significant components of our
operating costs. Catalog mailings entail substantial paper, postage, and
human resources costs, including costs associated with catalog development.
If net sales are substantially below expectations, our results of operations
will be adversely affected.
Paper-based packaging products, such as shipping cartons, constitute a
significant element of distribution expense. Paper prices have been
historically volatile. Future price increases could have a material adverse
affect on our results of operations. Postage for catalog mailings is also a
significant element of our operating expense. Postage rates increase
periodically and can be expected to increase in the future. There can be no
assurance that future increases will not adversely impact our operating
margins. We will be able to further reduce our paper and postage costs if
we continue to migrate portions of our business to the Internet because we
will be less reliant on paper catalogs.
The institutional market for sporting goods and leisure products is
highly competitive and there are no significant barriers to enter this
market. The size of this market has encouraged the entry of new competitors
as well as increased competition from established companies. We are facing
significant competition. These competitors include large retail operations
that also sell to the institutional market, other catalog and direct
marketing companies, team dealers, and Internet sellers. Increased
competition could result in pricing pressures, increased marketing
expenditures and loss of market share and could have a material adverse
effect on our results of operations.
We continue to closely monitor orders and the creditworthiness of our
customers. We have made allowances for the amount we believe to be adequate
to properly reflect the risk to accounts receivable; however, unforeseen
market or economic conditions may compel us to increase the allowances.
We derive a significant portion of our revenues from sales of products
purchased directly from foreign suppliers located primarily in the Far East.
In addition, we believe foreign manufacturers produce many of the products
we purchase from domestic suppliers. We are subject to risks of doing
business abroad, including delays in shipments, adverse fluctuations in
foreign currency exchange rates, increases in import duties, decreases in
quotas, changes in custom regulations, acts of God (such as earthquakes),
war and political turmoil. The occurrence of any one or more of the
foregoing could adversely affect our operations.
The amount of our existing net deferred tax assets considered
realizable could be reduced in the near term if the successful execution of
tax planning strategies does not occur or estimates of future taxable income
during the carryforward period are reduced.
Our ability to return to profitability is dependent on the success of
our revenue enhancement programs, manufacturing facilities restructuring and
cost reductions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We own no marketable securities nor do we have investments that are
subject to market risk.
Item 8. Financial Statements and Supplementary Data.
Index to Financial Statements Page
----------------------------- ----
Report of Independent Auditors 22
Consolidated Balance Sheets as of March 29, 2002,
March 30, 2001, and September 29, 2000 23
Consolidated Statements of Operations for the Fiscal Year
Ended March 29, 2002, the Six Months Ended March 30, 2001,
and the Years Ended September 29, 2000, and October 1, 1999 24
Consolidated Statements of Stockholders' Equity for the Fiscal
Year Ended March 29, 2002 the Six Months Ended March 30, 2001
and the Years Ended September 29, 2000, and October 1, 1999 25
Consolidated Statements of Cash Flows for the Fiscal Year Ended
March 29, 2002, the Six Months Ended March 30, 2001 and the
Years Ended September 29, 2000, and October 1, 1999 26
Notes to Consolidated Financial Statements 27
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Sport Supply Group, Inc.:
We have audited the accompanying consolidated balance sheets of Sport
Supply Group, Inc. and subsidiaries as of March 29, 2002, March 30, 2001,
and September 29, 2000 and the related consolidated statements of
operations, stockholders' equity, and cash flows for the fiscal year ended
March 29, 2002, the six month period ended March 30, 2001 and each of the
two fiscal years in the period ended September 29, 2000. Our audits also
included the financial statement schedule listed in the Index at Item
14(a)(2). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Sport Supply Group, Inc. and subsidiaries as of March 29, 2002,
March 30, 2001 and September 29, 2000, and the consolidated results of their
operations and their cash flows for the fiscal year ended March 29, 2002,
the six month period ended March 30, 2001 and each of the two fiscal years
in the period ended September 29, 2000 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion,
the related financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
May 10, 2002
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 29, March 30, September 29,
2002 2001 2000
----------- ----------- -----------
CURRENT ASSETS :
Cash and equivalents $ 586,911 1,271,096 112,017
Accounts receivable:
Trade, less allowance for doubtful accounts
of $524,000 at March 29, 2002, $929,000 at
March 30, 2001 and $836,000 at Sept. 29, 2000 18,824,829 19,128,835 21,699,695
Other 235,008 287,866 727,830
Inventories, net 18,368,392 21,050,539 19,853,059
Other current assets 560,362 847,212 1,152,639
Deferred tax assets 1,659,039 1,418,835 1,341,203
----------- ----------- -----------
Total current assets 40,234,541 44,004,383 44,886,443
----------- ----------- -----------
DEFERRED CATALOG EXPENSES 2,017,280 2,436,756 1,552,838
PROPERTY, PLANT AND EQUIPMENT :
Land 8,663 8,663 8,663
Buildings 1,605,102 1,605,102 1,605,102
Computer Equipment & Software 11,231,120 11,635,763 11,589,567
Machinery and equipment 6,358,546 6,397,134 6,402,708
Furniture and fixtures 1,673,683 1,540,484 1,521,374
Leasehold improvements 2,384,335 2,434,451 2,425,562
----------- ----------- -----------
23,261,449 23,621,597 23,552,976
Less -- Accumulated depreciation and amortization (13,310,710) (12,214,075) (11,131,183)
----------- ----------- -----------
9,950,739 11,407,522 12,421,793
----------- ----------- -----------
DEFERRED TAX ASSETS 3,841,186 4,081,390 2,866,910
COST IN EXCESS OF NET ASSETS ACQUIRED,
less accumulated amortization of $2,171,000 at
March 29, 2002, $1,887,000 at March 30, 2001,
and $1,745,000 at Sept. 29, 2000 7,442,432 7,726,516 7,867,222
TRADEMARKS
less accumulated amortization of $1,114,000 at
March 29, 2002, $1,646,000 at March 30, 2001,
and $1,547,000 at Sept. 29, 2000 3,044,888 3,192,523 3,235,996
OTHER ASSETS
less accumulated amortization of $589,000 at
March 29, 2002 $655,000 at March 30, 2001,
and $451,000 at Sept. 29, 2000 775,839 735,254 855,613
----------- ----------- -----------
$ 67,306,905 $ 73,584,344 $ 73,686,815
=========== =========== ===========
CURRENT LIABILITIES :
Accounts payable 9,532,407 13,613,835 9,871,068
Other accrued liabilities 3,652,310 1,929,357 2,604,680
Notes payable and capital lease
obligations, current portion 73,132 78,604 1,639,458
----------- ----------- -----------
Total current liabilities 13,257,849 15,621,796 14,115,206
----------- ----------- -----------
NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS,
net of current portion 17,000,139 17,333,451 19,034,345
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock, par value $0.01, 100,000 shares
authorized, no shares outstanding - - -
Common stock, par value $0.01, 20,000,000 shares
authorized, 9,362,397, 9,359,759, 9,350,731
shares issued at March 29, 2002, March 30, 2001,
and Sept. 29, 2000 8,917,244, 8,914,606, and
7,275,949 shares outstanding at March 29, 2002,
March 30, 2001, and Sept. 29, 2000 93,624 93,598 93,507
Additional paid-in capital 48,101,331 48,099,109 59,785,587
Accumulated deficit (7,344,756) (3,762,328) (1,639,813)
Treasury stock, at cost, 445,153, at March 29,
2002 and March 30, 2001, and 2,074,782 at
Sept. 29, 2000 (3,801,282) (3,801,282) (17,702,017)
----------- ----------- -----------
37,048,917 40,629,097 40,537,264
----------- ----------- -----------
$ 67,306,905 $ 73,584,344 $ 73,686,815
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Year Ended March 29, 2002, The Six Month Period Ended March 30, 2001,
The Year Ended September 29 2000, and The Year Ended October 1, 1999
------------ ------------ ----------- -----------
2002 2001 2000 1999
------------ ------------ ----------- -----------
Net revenues $ 103,601,428 $ 50,336,524 $119,320,982 $112,879,817
Cost of sales 74,106,243 36,400,525 83,151,033 75,596,909
------------ ------------ ----------- -----------
Gross profit 29,495,185 13,935,999 36,169,949 37,282,908
Selling, general and
administrative expenses 31,928,924 15,775,650 34,865,452 28,838,366
Internet expenses 355,766 317,808 1,136,149 -
Nonrecurring charges - 253,239 605,000 -
------------ ------------ ----------- -----------
Earnings (loss) before interest,
other income, and taxes (2,789,505) (2,410,698) (436,652) 8,444,542
Interest expense (985,509) (957,270) (2,021,763) (1,196,112)
Other income, net 192,586 14,400 16,924 62,738
------------ ------------ ----------- -----------
Earnings (loss) before provision
for income taxes (3,582,428) (3,353,568) (2,441,491) 7,311,168
Income tax provision (benefit) - (1,231,053) (923,885) 2,688,329
------------ ------------ ----------- -----------
Net earnings (loss) $ (3,582,428) $ (2,122,515) $ (1,517,606) $ 4,622,839
============ ============ =========== ===========
Earnings (loss) per share:
Net earnings (loss) - basic $ (0.40) $ (0.27) $ (0.21) $ 0.63
============ ============ =========== ===========
Net earnings (loss) - diluted $ (0.40) $ (0.27) $ (0.21) $ 0.60
============ ============ =========== ===========
Weighted average number of common
shares outstanding - basic 8,917,244 7,963,989 7,272,570 7,390,274
============ ============ =========== ===========
Weighted average number of common
shares outstanding - diluted 8,917,244 7,963,989 7,272,570 7,727,777
============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For The Year Ended March 29, 2002, The Six Month Period Ended March 30, 2001,
The Year Ended September 29, 2000, and The Year Ended October 1, 1999
Common Stock Additional Treasury Stock
------------------- Paid in Accumulated -----------------------
Shares Amount Capital Deficit Shares Amount Total
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, October 2, 1998 9,243,195 $ 92,432 $59,100,187 $(4,745,046) 1,488,492 $(13,269,861) $41,177,712
Issuances of common stock upon
exercises of outstanding options 81,445 814 598,071 598,885
Issuances of common stock 8,601 86 73,036 73,122
Purchase of treasury stock 595,900 (4,603,987) (4,603,987)
Reissuances of treasury shares (27,910) (25,050) 267,496 239,586
Net earnings (comprehensive income) 4,622,839 4,622,839
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, October 1, 1999 9,333,241 $ 93,332 $59,743,384 $ (122,207) 2,059,342 $(17,606,352) $42,108,157
--------- ------- ---------- ---------- --------- ----------- ----------
Issuances of common stock upon
exercises of outstanding options 5,000 50 50
Issuances of common stock 12,490 125 51,503 51,628
Purchase of treasury stock 16,420 (112,437) (112,437)
Reissuances of treasury shares (9,300) (980) 16,772 7,472
Net loss (comprehensive loss) (1,517,606) (1,517,606)
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, September 29, 2000 9,350,731 $ 93,507 $59,785,587 $(1,639,813) 2,074,782 $(17,702,017) $40,537,264
--------- ------- ---------- ---------- --------- ----------- ----------
Issuances of common stock 9,028 91 14,257 14,348
Sale of treasury shares (11,700,735) (1,629,629) 13,900,735 2,200,000
Net loss (comprehensive loss) (2,122,515) (2,122,515)
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, March 30, 2001 9,359,759 $ 93,598 $48,099,109 $(3,762,328) 445,153 $ (3,801,282) $40,629,097
--------- ------- ---------- ---------- --------- ----------- ----------
Issuances of common stock 2,638 26 2,222 2,248
Net loss (comprehensive loss) (3,582,428) (3,582,428)
--------- ------- ---------- ---------- --------- ----------- ----------
Balance, March 29, 2002 9,362,397 $ 93,624 $48,101,331 $(7,344,756) 445,153 $ (3,801,282) $37,048,917
========= ======= ========== ========== ========= =========== ==========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Year Ended March 29, 2002, The Six Month Period Ended March 30, 2001,
The Year Ended September 29 2000, and The Year Ended October 1, 1999
2002 2001 2000 1999
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES :
Net earnings (loss) $ (3,582,428) $ (2,122,515) $ (1,517,606) $ 4,622,839
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,572,600 1,556,419 2,855,172 2,072,117
Provision for allowances for accounts receivable 351,306 220,884 319,025 411,512
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 5,558 2,789,939 1,902,706 (6,602,602)
(Increase) decrease in inventories 2,682,147 (1,197,480) (565,986) (3,039,248)
(Increase) decrease in deferred catalog expenses
and other current assets 706,326 (578,491) 284,757 57,542
Increase (decrease) in accounts payable (4,081,428) 3,742,767 1,161,798 602,636
(Increase) decrease in deferred taxes (240,204) (77,632) (279,015) (157,870)
Increase (decrease) in accrued liabilities 1,722,953 (675,323) 170,301 (1,012,097)
(Increase) decrease in other assets (187,490) (140,580) (284,426) 132,638
(Increase) decrease in noncurrent deferred
tax assets 240,204 (1,214,480) (765,671) 2,557,950
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activites 189,544 2,303,508 3,281,055 (354,583)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES :
Acquisitions of property, plant & equipment (537,194) (97,030) (2,025,608) (6,438,359)
Payments for acquisitions, net of cash acquired - - (854,093) (4,260,100)
Proceeds from sale of investments - - - 23,891
----------- ----------- ----------- -----------
Net cash used in investing activities (537,194) (97,030) (2,879,701) (10,674,568)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES :
Proceeds from issuances of notes payable - 17,134,214 2,205,620 21,099,089
Payments of notes payable and capital
lease obligations, net (338,784) (20,395,961) (2,643,581) (7,211,099)
Proceeds from common stock issuances 2,248 2,214,348 59,150 911,593
Purchase of treasury stock - - (112,437) (4,603,987)
----------- ----------- ----------- -----------
Net cash (used in) provided by financing activities (336,536) (1,047,399) (491,248) 10,195,596
----------- ----------- ----------- -----------
NET CHANGE IN CASH AND EQUIVALENTS (684,186) 1,159,079 (89,894) (833,555)
Cash and equivalents, beginning of period 1,271,096 112,017 201,911 1,035,466
----------- ----------- ----------- -----------
Cash and equivalents, end of period $ 586,910 $ 1,271,096 $ 112,017 $ 201,911
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION :
Cash paid during the period for interest $ 986,297 $ 824,353 $ 2,169,859 $ 1,181,529
=========== =========== =========== ===========
Cash paid during the period for income taxes $ 55,287 $ 73,435 $ 204,455 $ 160,000
=========== =========== =========== ===========
We acquired the assets of certain entities. In
connection with these acquisitions, liabilities were
assumed as follows:
Fair value of assets acquired $ - $ - $ 1,968,685 $ 8,296,490
Cash paid for the acquisitions, net - - (854,093) (4,260,100)
Debt issued for the acquisitions - - (275,000) (700,000)
----------- ----------- ----------- -----------
Liabilities assumed $ - $ - $ 839,592 $ 3,336,390
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 2002
1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Background
Sport Supply Group, Inc. ("SSG") was incorporated in 1982. The assets
of the Sports & Recreation Division of Aurora Electronics, Inc. (f/k/a BSN
Corp., "Aurora") were contributed to us effective September 30, 1988. We
were a wholly-owned subsidiary of Aurora before our initial public offering
in April 1991. Effective March 2001, Sport Supply Group, Inc is a majority-
owned subsidiary of Emerson Radio Corp. Our financial statements do not
include any purchase accounting adjustments to reflect our acquisition by
Emerson Radio Corp. Our operations are all within one financial reporting
segment: manufacturing and marketing of sports related equipment and leisure
products to institutional customers in the United States. We manufacture
many of the products we sell. Manufactured items include, but are not
limited to: 1.) Tennis, volleyball, and other sports nets; 2.) Steel and
aluminum construction items, such as soccer and field hockey goals; 3.)
track and field equipment; and 4.) Gymnastic equipment and exercise mats.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of SSG and
our wholly owned subsidiaries, Athletic Training Equipment Company, Inc., a
Delaware corporation ("ATEC") and Sport Supply Group Asia Limited, a Hong
Kong corporation ("SSGA"). All significant intercompany accounts and
transactions have been eliminated in consolidation. The consolidated
financial statements also include estimates and assumptions made by us 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.
Certain financial information for previous fiscal years has been
reclassified to conform to the fiscal 2002 presentation.
Change in Fiscal Year
In May 2001, we changed our financial reporting year end from September
30 to March 31. Accordingly, the fiscal year ended March 30, 2001 is a
transition period consisting of six months. We operate on a 52/53 week year
ending on the Friday closest to March 31. All twelve month periods
reflected in the consolidated statements of operations consist of 52 weeks.
The six month period ended March 30, 2001 consisted of 26 weeks.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out and weighted-average cost methods
for items manufactured by us and weighted-average cost for items purchased
for resale. As of March 29, 2002, March 30, 2001, and September 29, 2000,
inventories consisted of the following:
Inventory Data: Mar. 29, 2002 Mar. 30, 2001 Sept. 29, 2000
--------------- ---------- ---------- ----------
Raw materials $ 2,153,634 $ 3,727,855 $ 3,300,001
Work-in-process 257,653 376,683 536,550
Finished and purchased goods 17,121,730 18,226,706 17,148,643
---------- ---------- ----------
Inventory, Gross 19,533,017 22,331,244 20,985,194
Less inventory allowance for
obsolete or slow moving items (1,164,625) (1,280,705) (1,132,135)
---------- ---------- ----------
Inventory, Net $18,368,392 $21,050,539 $19,853,059
========== ========== ==========
The inventory allowance for obsolete or slow moving items is determined
based upon our periodic assessment of the net realizable value of our
inventory. As of March 29, 2002, March 30, 2001, and September 29, 2000,
approximately 23%, 30%, and 28%, respectively, of total ending inventories
were products manufactured by us with the balance being products purchased
from outside suppliers. Sales of products manufactured by us accounted for
approximately 26%, 30%, 31%, and 36% of total net revenues in fiscal 2002,
2001, 2000, and 1999, respectively.
Accounts Receivable and Concentration of Credit Risk
Financial instruments that potentially subject us to concentration of
credit risk are accounts receivable. Accounts receivable represent sales of
sporting goods and leisure products to all levels of public and private
schools, colleges, universities, and military academies, municipal and
governmental agencies, military facilities, churches, clubs, camps,
hospitals, youth sport leagues, nonprofit organizations, team dealers, and
certain other retailers. We did not have any individual customers that
accounted for more than 10% of outstanding accounts receivable as of March
29, 2002, March 30, 2001, or September 29, 2000. The majority of our sales
are to publicly funded institutional customers. We extend credit based upon
evaluations of a customer's financial condition and provide for any
anticipated credit losses in our financial statements based upon
management's estimates and ongoing reviews of recorded allowances. The
allowance for doubtful accounts was approximately $524,000, $929,000, and
$836,000 as of March 29, 2002, March 30, 2001, and September 29, 2000,
respectively.
Advertising and Deferred Catalog Expenses
We expense the production costs of advertising as incurred, except for
production costs related to direct-response advertising activities, which
are capitalized. Direct response advertising consists primarily of catalogs
that include order forms for our products. Production costs, primarily
printing and postage, associated with catalogs are amortized using the
straight-line method over twelve months which approximates average usage of
the catalogs produced. Our advertising expenses for the fiscal year ended
March 29, 2002, the six month period ended March 30, 2001, and the fiscal
years ended September 29, 2000 and October 1, 1999, were approximately
$3,026,000, $1,312,000, $4,122,000, and $3,571,000, respectively.
Internet Expenses
We expense the operating and development costs of our Internet websites
as incurred. Hardware and related software modules that interface with our
SAP AS/400 system are capitalized and subsequently amortized over the
remaining estimated useful life of the assets.
Property, Plant, and Equipment
Property, plant and equipment are stated at cost and depreciated over
the estimated useful lives of the related assets using the straight-line
method. Leasehold improvements and property and equipment leased under
capital lease obligations are amortized over the terms of the related leases
or their estimated useful lives, whichever is shorter. The cost of
maintenance and repairs is charged to expense as incurred. Significant
renewals and betterments are capitalized and depreciated over the remaining
estimated useful lives of the related assets.
Depreciation of property, plant and equipment is provided by the
straight-line method as follows:
Buildings Thirty to forty years
Machinery and Equipment Five years to ten years
Computer Equipment and Software Three years to ten years
Furniture and Fixtures Five years
Leasehold Improvements Remaining lease term
Intangible Assets
Cost in excess of net assets acquired relates to acquisitions made by
us. Trademarks and servicemarks relate to costs incurred in connection with
the licensing agreements for the use of certain trademarks and servicemarks
in conjunction with the sale of our products. Other intangible assets are
classified as other assets and consist principally of patents.
Amortization of intangible assets is provided by the straight-line
method as follows:
Cost in excess of net assets acquired Principally thirty to
forty years
Trademarks and servicemarks Five to forty years
Patents Seven to eleven years
We periodically assess the recoverability of the carrying value of
intangible assets in relation to projected earnings and projected
undiscounted cash flows. Based on our assessment, we believe our
investments in intangible assets are fully realizable as of March 29, 2002.
The cost of intangible assets and related accumulated amortization are
removed from our accounts during the year in which they become fully
amortized.
Income Taxes
Deferred tax assets and liabilities are determined quarterly based upon
the estimated future tax effects of the differences in the tax bases of
existing assets and liabilities and the related financial statement carrying
amounts, using currently enacted tax laws and rates in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (See Note 4).
Net Earnings (Loss) Per Share of Common Stock
Net earnings (loss) per share of common stock are based upon the
weighted average number of common and common equivalent shares outstanding.
Outstanding stock options and common stock purchase warrants are treated as
common stock equivalents when dilution results from their assumed exercise.
Revenue Recognition
Our policy is to recognize revenue upon shipment of inventory, and
record an estimate against revenues for possible returns based upon our
historical return rate. Subject to certain limitations, customers have the
right to return product within 30 days if they are not completely satisfied.
We believe sales are final upon shipment of inventory based upon the
following criteria under SFAS 48 and SAB 101:
- Our price to our customers is fixed at the time an order is placed.
- The customers have paid, or are obligated to pay, us.
- The customers' obligation to pay does not change in the event of theft,
damaged product, etc. (A claim must be filed to issue credit.)
- Customers are verified through credit investigations for economic
substance before products are shipped.
- We are not obligated for future performance to any of our customers.
- Future returns can be reasonably estimated based on historical data.
Recent Pronouncements
In August 2001, the Financial Accounting Standards Board issued
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" (SFAS No. 144). This statement supersedes Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS No. 121), but carries over the key guidance
from SFAS No. 121 in establishing the framework for the recognition and
measurement of long-lived assets to be disposed of by sale and addresses
significant implementation issues. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001, with early adoption permitted. We
are in the process of evaluating the effects this statement will have on our
financial reporting and disclosures.
In June 2001, the Financial Accounting Standards Board issued Statement
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), which requires
that goodwill not be amortized but instead be tested for impairment at least
annually by reporting unit. We have adopted SFAS 142 effective March 30,
2002. We are still in the process of evaluating the relevant provisions of
SFAS 142 and have not yet determined whether SFAS 142 will have an immediate
effect on the financial statements upon adoption. However amortization of
goodwill, which amounted to approximately $284,000 for fiscal year ended
March 29, 2002, before any tax effects, will cease upon adoption of SFAS
142.
On September 30, 2000, we adopted the provisions of the Emerging Issues
Task Force, EITF 00-10, Accounting for Shipping and Handling Fees and Costs.
Prior to September 30, 2000, we netted shipping fees against shipping costs.
The net difference was included in cost of sales in our consolidated
statements of operations. The provisions of EITF 00-10 provide that all
amounts billed to a customer in a sale transaction related to shipping and
handling, if any, represent revenues earned for the goods provided and
should be classified as revenue. Accordingly, we have classified shipping
and handling fees as revenues in our consolidated statements of operations
for the fiscal year ended March 29, 2002. Previous periods have been
restated to conform to fiscal 2002 presentation.
2. STOCKHOLDERS' EQUITY:
Stock Options
We maintain 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. Under the stock option plan, the exercise price of
options will not be less than: (i.) the fair market value of the common
stock at the date of grant; or (ii.) not less than 110% of the 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 ten years from the grant date, or five 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).
The following table contains transactional data for our stock option
plan.
Exercise Price or
Stock Option Plan Shares Weighted Avg. Price
----------------- --------- -------------------
Outstanding at October 2, 1998 860,286 $7.30
Granted 328,625 $8.52
Exercised (81,445) $6.63
Forfeited (19,667) $6.75
--------- -------------------
Outstanding at October 1, 1999 1,087,799 $7.695
Granted 44,375 $7.43
Exercised (5,000) $6.50
Forfeited (199,308) $7.90
--------- -------------------
Outstanding at September 29, 2000 927,866 $7.64
Granted 9,375 $1.46
Exercised -- --
Forfeited (30,312) $7.87
--------- -------------------
Outstanding at March 30, 2001 906,929 $7.65
Granted 29,375 $1.30
Exercised -- --
Forfeited (10,125) $8.09
--------- -------------------
Outstanding at March 29, 2002 926,179 $7.45
========= ===================
Stock Options Outstanding Stock Options Exercisable
as of Mar. 29, 2002 as of Mar. 29, 2002
-------------------------------------------------- --------------------
Wtd. Avg. Wtd. Avg. Wtd. Avg.
Range of Remaining Exercise Exercise
Exercise Prices Shares Life Price Shares Price
--------------- --------- --------- ------ ------- -----
$0.95 - $9.44 926,179 5.8 years $7.45 896,178 $7.57
All options granted under the stock option plan during the year ended
March 29, 2002, six month period ended March 30, 2001, and the years ended
September 29, 2000 and October 1, 1999 were at exercise prices equal to or
greater than the fair market value of our stock on the date of the grant.
In addition to options granted pursuant to the stock option plan, we
periodically grant options to purchase shares of our common stock that are
not reserved for issuance under the stock option plan ("non-plan options").
Such exercise prices were equal to or greater than the fair market value of
our common stock on the dates of grant. At March 30, 2001 there were
options to acquire 100,000 shares of common stock for $6.88 per share that
were issued outside the plan. These options expired on May 3, 2001,
unexercised.
As of March 29, 2002, there were a total of 926,179 options outstanding
with exercise prices ranging from $0.95 per share to $9.44 per share. As of
March 29, 2002, 896,178 of the total options outstanding were fully vested
with 30,001 vesting through April 2003. As of March 30, 2001, 921,094 of
the total options outstanding were fully vested with 85,835 options vesting
through November 2002. As of September 29, 2000, 875,781 of the total
options outstanding were fully vested with 152,085 options vesting through
November 2002. As of October 1, 1999, there were 1,187,799 options
(including non-plan options) outstanding with exercise prices ranging from
$6.125 per share to $9.44 per share. As of October 1, 1999, 630,712 of the
total options outstanding were fully vested with 557,087 options vesting
through July 2002. As of October 2, 1998, there were 960,286 options
(including non-plan options) outstanding with exercise princes ranging from
$5.60 per share to $8.38 per share.
Pro forma information regarding net income and net income per share has
been determined as if we had accounted for employee stock options subsequent
to December 31, 1995 under the fair value method. The fair value for those
options was estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted average assumptions: (i.) risk-
free interest rates of 4.15%, 4.29%, 5.93% and 5.63% in 2002, 2001, 2000,
and 1999 respectively; (ii.) dividend yield of 0% for all years; (iii.)
expected volatility of 39%, 55%, 49%, and 30% in 2002, 2001, 2000 and 1999,
respectively; and (iv.) weighted average expected life for each option of 3
years. The weighted average fair value of employee stock options granted in
2002, 2001, 2000, and 1999 are $0.41, $0.59, $2.41 and $2.34, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period; therefore, our
proforma effect will not be fully realized until the completion of one full
vesting cycle. Our pro forma information is as follows:
For the Fiscal For the Six For the Fiscal For the Fiscal
Year Ended Months Ended Year Ended Year Ended
Mar. 29, 2002 Mar. 30, 2001 Sept. 29, 2000 Oct. 1, 1999
---------- ---------- ---------- ---------
Net income (loss):
As reported $(3,582,428) $(2,122,515) $(1,517,606) $4,622,839
Pro forma $(3,593,138) $(2,390,606) $(1,988,647) $4,119,255
Earnings (loss) per share:
As reported - basic $(0.40) $(0.27) $(0.21) $0.63
As reported - diluted $(0.40) $(0.27) $(0.21) $0.60
Pro forma earnings (loss) - basic $(0.40) $(0.30) $(0.27) $0.56
Pro forma earnings (loss) - diluted $(0.40) $(0.30) $(0.27) $0.53
Repurchase of Common Stock
On May 28, 1997, we approved the repurchase of up to 1,000,000 shares
of our issued and outstanding common stock in the open market and/or
privately negotiated transactions. On October 28, 1998, we approved a second
repurchase program of up to an additional 1,000,000 shares of our issued and
outstanding common stock in the open market and/or privately negotiated
transactions. As of March 30, 2001 we repurchased approximately 1,333,000
shares of our issued and outstanding common stock in the open market and
privately negotiated transactions. Any future purchases will be subject to
price and availability of shares, working capital availability and any of
our alternative capital spending programs. Our bank agreement currently
prohibits the repurchase of any additional shares without the bank's prior
consent.
Net Earnings Per Common Share
The following table sets forth the computation of basic and diluted
earnings per share:
For the Six
For the Fiscal Month Period For the Fiscal For the Fiscal
Year Ended Ended Year Ended Year Ended
Mar. 29, 2002 Mar. 30, 2001 Sept. 29, 2000 Oct. 1, 1999
---------- ---------- --------- ---------
Numerator:
Net earnings (loss) $(3,582,428) $(2,122,515) $(1,517,606) $4,622,839
========== ========== ========= =========
Denominator:
Weighted average
shares outstanding 8,917,244 7,963,989 7,272,570 7,390,274
Effect of dilutive
securities:
Warrants -- -- -- 148,577
Employee stock options -- -- -- 188,926
---------- ---------- --------- ---------
Adjusted weighted
average shares and
assumed conversions 8,917,244 7,963,989 7,272,570 7,727,777
========== ========== ========= =========
Per Share Calculations:
Basic earnings
(loss) per share $(0.40) $(0.27) $(0.21) $0.63
========== ========== ========= =========
Diluted earnings
(loss) per share $(0.40) $(0.27) $(0.21) $0.60
========== ========== ========= =========
Securities excluded
from weighted average
shares diluted because
their effect would be
antidilutive 926,179 2,006,929 2,027,866 --
3. NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS:
As of March 29, 2002, March 30, 2001 and September 29, 2000, notes
payable and capital lease obligations consisted of the following:
2002 2001 2000
---------- ---------- ----------
Note payable under revolving line of credit,
interest ranging from prime minus 0.25% to prime
plus 1.0% (4.75% at Mar. 29, 2002, 8.50% at Mar.
30, 2001, and 8.53% - 10.50% at Sept. 29, 2000)
and LIBOR (4.35% at Mar. 29, 2002) due Mar. 27,
2004 and collateralized by substantially all $16,838,905 $17,088,314 $17,804,126
assets.
Term loan, paid in full January 15, 2001 -- -- 2,500,000
Promissory note, paid in full December 20, 2001 -- -- 79,214
Capital lease obligation, interest at 9%, payable
in annual installments of principal and interest
Totaling $55,000 through August 2005. 158,682 196,038 196,038
Other 75,684 127,703 94,425
---------- ---------- ----------
Total 17,073,271 17,412,055 20,673,803
Less - current portion (73,132) (78,604) (1,639,458)
---------- ---------- ----------
Long-term debt and capital lease
obligations, net $17,000,139 $17,333,451 $19,034,345
========== ========== ==========
Credit Facilities
We have a Loan and Security Agreement with Congress Financial
Corporation to finance our working capital requirements through March 2004.
This agreement provides for revolving loans and letters of credit which, in
the aggregate, cannot exceed the lesser of $25 million or a "Borrowing Base"
amount based on specified percentages of eligible accounts receivable and
inventories. We are required to maintain certain net worth levels and as of
March 29, 2002 we were in compliance with this requirement. As of March 29,
2002, we had total available borrowings under our senior credit facility of
approximately $21.4 million of which approximately $16.8 million were
outstanding. Amounts outstanding under the senior credit facility are
secured by substantially all the assets of the Sport Supply Group, Inc. and
its subsidiaries. Pursuant to the Loan and Security Agreement, we are
restricted from, among other things, paying cash dividends and entering into
certain transactions without the lender's prior consent and we are required
to maintain certain net worth levels.
Maturities of our capital lease obligations and borrowings under the
senior credit facility as of March 29, 2002, by fiscal year and in the
aggregate, are as follows:
2003 $ 73,132
2004 16,909,987
2005 64,950
2006 25,202
Thereafter --
------------
Total 17,073,271
Less current portion (73,132)
------------
Total long term portion $ 17,000,139
============
As of March 29, 2002 the carrying value of our long-term debt
approximates its fair value.
4. INCOME TAXES:
As of March 29, 2002, March 30, 2001, and September 29, 2000 the
components of the net deferred tax assets and liabilities are as follows:
2002 2001 2000
---------- ---------- ----------
Current deferred tax assets
(liabilities):
---------------------------
Allowances for doubtful
accounts $ 198,910 $ 315,904 $ 389,000
Inventories 1,068,038 959,270 897,767
Other accrued liabilities 392,091 143,661 54,436
Valuation allowance for
deferred tax assets -- -- --
---------- ---------- ----------
Total current deferred tax
assets, net of
valuation allowance $ 1,659,039 $ 1,418,835 $ 1,341,203
Noncurrent deferred tax assets
(liabilities):
------------------------------
Cost in excess of net assets
acquired $ (212,890) $ (298,034) $ (218,807)
Other intangible assets (3,172,755) (2,921,841) (2,892,670)
Net operating loss 8,926,654 6,815,029 5,492,151
carryforward
Minimum tax credit
carryforward 486,236 486,236 486,236
Valuation allowance for
deferred tax assets (2,186,059) -- --
---------- ---------- ----------
Total non current deferred
tax assets, net of
valuation allowance $ 3,841,186 $ 4,081,390 $ 2,866,910
========== ========== ==========
We have a net operating loss carryforward that can be used to offset
future taxable income and can be carried forward for 15 to 20 years. As of
March 29, 2002 we have net deferred tax assets of approximately $5.5
million, inclusive of a $2.2 million valuation allowance. We believe the net
deferred tax assets will be realized through tax planning strategies
available in future periods and future profitable operating results.
Although realization is not assured, we believe it is more likely than not
that all of the net deferred tax assets will be realized. The amount of the
deferred tax asset considered realizable, however, could be reduced in the
near term if the successful execution of tax planning strategies does not
occur or estimates of future taxable income during the carryforward period
are reduced.
The income tax provision (benefit) in the accompanying statements of
operations for the fiscal year ended March 29, 2002, the six month period
ended March 30, 2001 and the fiscal years ended September 29, 2000, and
October 1, 1999 consisted of the following:
2002 2001 2000 1999
---------- ---------- ---------- ----------
Current $ -- $ (6,333) $ 118,115 $ 288,249
Deferred -- (1,224,720) (1,042,000) 2,400,080
---------- ---------- ---------- ----------
Income tax
provision (benefit) $ -- $(1,231,053) $ (923,885) $ 2,688,329
========== ========== ========== ==========
The provision (benefit) for income taxes in the accompanying statements
of operations for the fiscal year ended March 29, 2002, the six month period
ended March 30, 2001 and the fiscal years ended September 29, 2000, and
October 1, 1999 differ from the statutory federal rate as follows:
2002 2001 2000 1999
---------- ---------- ---------- ----------
Income tax provision
(benefit) at statutory
federal rate $(1,269,060) $(1,140,213) $ (830,107) $2,485,797
Permanent differences 65,965 -- -- --
State income taxes,
net of federal effect (605,116) (105,254) (75,865) 124,964
Increase in
valuation reserve 2,186,059 -- -- --
Other (377,848) 14,414 (17,913) 77,568
---------- ---------- ---------- ----------
Total provision
(benefit) for
income taxes $ -- $(1,231,053) $ (923,885) $ 2,688,329
========== ========== ========== ==========
5. ACQUISITIONS:
During October 1999, we acquired, for cash and the assumption of
certain liabilities, certain assets of LAKCO, Inc. and Spaulding, Inc., both
distributors of sporting goods equipment to the institutional market. On
September 25, 2000, we acquired the stock of Sport Supply Group Asia
Limited, a shell corporation, from Emerson Radio. We have accounted for
these acquisitions using the purchase method and, as such, our results of
operations are combined with the acquired company's results of operations
subsequent to the acquisition date.
No proforma information for the above acquisitions is presented herein
because the proforma information, individually or in aggregate, would not
materially differ from actual results.
6. COMMITMENTS AND CONTINGENCIES:
Leases
We lease a portion of our office, warehouse, distribution, fulfillment,
computer equipment and manufacturing locations under noncancelable operating
leases with terms ranging from one to five years. The majority of our
leases contain renewal options that extend the leases beyond the current
lease terms.
Future minimum lease payments under noncancelable operating leases for
office, warehouse, computer equipment and manufacturing locations, with
remaining terms in excess of one year are as follows:
2003 1,935,988
2004 1,505,941
2005 966,474
2006 15,009
2007 1,076
---------
Total $4,424,488
=========
Rent expense was approximately $2,199,000, $1,056,000, $1,935,000 and
$1,815,000 for the fiscal year ended March 29, 2002, for the six month
period ended March 30, 2001, and the fiscal years ended September 29, 2000,
and October 1, 1999, respectively.
Product Liability and Other Claims
Because of the nature of our products, we are periodically subject to
product liability claims resulting from personal injuries. From time to
time we may become involved in various lawsuits incidental to our business,
some of which may relate to injuries allegedly resulting in substantial
permanent paralysis. Significantly increased product liability claims
continue to be asserted successfully against manufacturers throughout the
United States resulting in general uncertainty as to the nature and extent
of manufacturers' and distributors' liability for personal injuries. See
Part I. Item 3. - "Legal Proceedings".
There can be no assurance that our general product liability insurance
will be sufficient to cover any successful claim made against us. In our
opinion, any ultimate liability arising out of currently pending product
liability and other claims will not have a material adverse effect on
our financial condition or results of operations. However, any claims
substantially in excess of our insurance coverage, or any substantial claim
not covered by insurance, could have a material adverse effect on our
results of operations and financial condition.
During 2000, we successfully negotiated the settlement of two
outstanding lawsuits. Consequently, we recorded a nonrecurring charge
related to these claims in the amount of $605,000, which is included in
Nonrecurring charges on the Consolidated Statement of Operations.
7. EMPLOYEES' SAVINGS PLAN:
Effective June 1, 1993, we established a defined contribution profit
sharing plan (the "401(k) Plan") for the benefit of eligible employees. All
employees with 90 days of service and who have attained the age of 21 are
eligible to participate in the 401(k) Plan. Employees may contribute up to
20% of their compensation, subject to certain limitations, which qualifies
under the compensation deferral provisions of Section 401(k) of the U.S.
Internal Revenue Code.
The 401(k) Plan contains provisions that allow us to make discretionary
contributions during each plan year. Employer contributions for the fiscal
year ended March 29, 2002, six month period ended March 30, 2001, and the
fiscal years ended September 29, 2000, and October 1, 1999 were
approximately $0, $26,000, $89,000, and $84,000, respectively. We pay all
administrative expenses of the 401(k) Plan.
8. UNAUDITED STATEMENT OF OPERATIONS DATA:
The following table sets forth certain information regarding our
results of operations for each full quarter within the fiscal year ended
March 29, 2002, the six month period ended March 30, 2001 and the fiscal
year ended September 29, 2000, with amounts in thousands, except for per
share data. Due to rounding, quarterly amounts may not fully sum to yearly
amounts.
2002 Fiscal Year 2001 Fiscal Year
---------------- ----------------
Twelve Six Month
Months Qtr Qtr Qtr Qtr Period Qtr Qtr
Statement of Ended ended ended ended ended ended ended ended
Operations Data: Mar. June Sept. Dec. Mar. Mar. Dec. Mar.
---------------- ------- ------ ------ ------ ------ ------ ------ ------
Net revenues $103,601 $27,955 $28,245 $17,043 $30,358 $50,336 $18,201 $32,135
Gross profit 29,495 7,939 7,888 4,832 8,835 13,936 4,917 9,019
Operating profit
(loss) (note 1) (2,790) (266) (246) (3,112) 834 (2,411) (2,994) 583
Interest expense 985 332 261 219 173 957 533 424
Other income, net 193 75 -- 11 107 14 2 12
Income tax provision
(benefit) -- (189) (186) 375 -- (1,231) (1,297) 66
Net earnings (loss) $ (3,582) $ (333) $ (322) $(3,695) $ 768 $(2,123) $(2,228) $ 105
------- ------ ------ ------ ------ ------ ------ ------
Net earnings (loss)
per share -
basic and diluted $(0.40) $(0.04) $(0.04) $(0.41) $0.09 $(0.27) $(0.31) $0.01
Weighted average
shares outstanding -
basic 8,917 8,915 8,915 8,915 8,917 7,964 7,270 8,643
diluted 8,917 8,915 8,915 8,915 8,917 7,964 7,273 8,649
2000 Fiscal Year
------------------
Qtr Qtr Qtr Qtr
Statement of ended ended ended ended
Operations Data: Year Dec. Mar. June Sept.
------- ------ ------ ------ ------
Net revenues $119,321 $20,070 $36,526 $30,757 $31,968
Gross profit 36,170 6,341 11,514 9,400 8,915
Operating profit
(loss) (note 1) (437) (1,330) 2,110 (81) (1,136)
Interest expense 2,022 414 519 445 644
Other income
(expense), net 17 (6) 8 (2) 17
Income tax provision
(benefit) (924) (643) 572 (199) (655)
Net earnings (loss) $ (1,518) $(1,107) $ 1,027 $ (329) $(1,108)
------- ------ ------ ------ ------
Net earnings (loss)
per share -
basic and diluted $(0.21) $(0.15) $0.14 $(0.05) $(0.15)
Weighted average shares
outstanding -
basic 7,273 7,270 7,270 7,273 7,273
Diluted 7,273 7,270 7,273 7,273 7,273
(1) The 2nd quarter of fiscal year 2000 includes $605,000 of nonrecurring
charges. The 2nd quarter of fiscal year 2001 includes $253,239 of
nonrecurring charges.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
See the discussion under the captions "Election of Directors" and
"Executive Compensation and Other Information" contained in the Proxy
Statement for the Annual Meeting of Stockholders to be held September 26,
2002, which information is incorporated herein by reference, and Item 1.--
"Business - Executive Officers of the Company".
Item 11. Executive Compensation.
See the discussion under the caption "Executive Compensation and Other
Information" contained in the Proxy Statement for the Annual Meeting of
Stockholders to be held September 26, 2002, which information, except the
Performance Graph and the Report of the Compensation Committee and Stock
Option Committee on Executive Compensation, is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See the discussion under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the Proxy Statement for the
Annual Meeting of Stockholders to be held September 26, 2002, which
information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
See the discussion under the caption "Certain Relationships and Related
Transactions" contained in the Proxy Statement for the Annual Meeting of
Stockholders to be held on September 26, 2002, which information is
incorporated herein by reference.
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements. See Item 8.
(a) (2) Supplemental Schedule Supporting Financial Statements. See Page 51
(a) (3) Management Contract or Compensatory Plan. [See Index].
[Each of the following Exhibits described on the Index to
Exhibits is a management contract or compensatory plan:
Exhibits 10.1, 10.1.1, 10.2, 10.2.1, 10.3, 10.4,
10.5,10.5.1, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10. 27,
10.31, and 10.32].
(b) Reports on Form 8-K. A report on Form 8-K was filed with
the Securities and Exchange Commission on May 14, 2001
relating to a press release concerning the Company's change
of fiscal year-end from September 30 to March 31.
(c) Exhibits. See Index.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on our behalf by the undersigned, thereunto duly authorized.
Dated: June 27, 2002
SPORT SUPPLY GROUP, INC.
By: /s/ Geoffrey P. Jurick
----------------------
Geoffrey P. Jurick
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on June 27, 2002 by the following persons on
behalf of the registrant and in the capacities indicated.
Signature Title
--------- -----
/s/ Geoffrey P. Jurick Chairman of the Board and
---------------------- Chief Executive Officer
Geoffrey P. Jurick
/s/ John P. Walker President
----------------------
John P. Walker
/s/ Robert K. Mitchell Chief Financial Officer
----------------------
Robert K. Mitchell
/s/ Johnson C. S. Ko Director
----------------------
Johnson C. S. Ko
/s/ Peter G. Bunger Director
----------------------
Peter G. Bunger
/s/ Thomas P. Treichler Director
----------------------
Thomas P. Treichler
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES
Schedule II -- Valuation and Qualifying Accounts
For The Year Ended March 29, 2002, The Six Month Period Ended March 30, 2001,
The Year Ended September 29, 2000, and The Year Ended October 1, 1999
------------Additions--------------
Balance at Charged to Charged to Balance at
Beginning costs and other End of
of Period expense accounts(1) Deductions(2) Period
---------- ---------- ----------- ---------- ----------
Allowance for Doubtful Accounts
-------------------------------
Year ended March 29, 2002 $ 929,128 $ 351,306 $ - $ 756,028 $ 524,406
Six Month period ended March 30, 2001 $ 836,356 $ 220,884 $ - $ 128,112 $ 929,128
Year ended September 29, 2000 $ 465,497 $ 319,025 $ 503,612 $ 451,778 $ 836,356
Year ended October 1, 1999 $ 372,340 $ 411,512 $ - $ 318,355 $ 465,497
Inventory Allowance
-------------------
Year ended March 29, 2002 $ 1,280,705 $ 526,072 $ - $ 642,152 $ 1,164,625
Six Month period ended March 30, 2001 $ 1,132,135 $ 150,000 $ - $ 1,430 $ 1,280,705
Year ended September 29, 2000 $ 1,064,903 $ 34,616 $ 297,364 $ 264,748 $ 1,132,135
Year ended October 1, 1999 $ 425,920 $ - $ 1,498,822 $ 859,839 $ 1,064,903
(1) Amounts consist primarily of reserves added for acquired entities.
(2) Amounts consist primarily of asset write-offs.
INDEX TO EXHIBITS
Exhibit
Nbr. Description of Exhibit
---------------------------------------------------------------------------
2.1 Securities Purchase Agreement dated November 27, 1996 by and
between the Company and Emerson Radio Corp. ("Emerson")
(incorporated by reference from Exhibit 2 to the Company's
Report on Form 8-K filed on December 12, 1996).
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)).
3.1.1 Certificate of Amendment of 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)).
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 Fiscal Year ended November 1, 1996).
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)).
10.1 Employment Agreement entered into by and between the Company and
Terrence M. Babilla (incorporated by reference from Exhibit 10.3
to the Company's Report on Form 10-Q for the quarter ended April
13, 1999).
10.1.1 Amendment Number One to Employment Agreement between the Company
and Terrence M. Babilla dated to be effective as of February 25,
2000 (incorporated by reference from Exhibit 10.1 to the
Company's Report on Form 10-Q for the quarter ended June 30,
2000).
10.2 Employment Agreement by and between the Company and
John P. Walker (incorporated by reference from Exhibit 10.4 to
the Company's Report on Form 10-Q for the quarter ended April 13,
1999).
10.2.1 Amendment Number One to Employment Agreement between the Company
and John P. Walker dated to be effective as of February 25, 2000
(incorporated by reference from Exhibit 10.2 to the Company's
Report on Form 10-Q for the quarter ended June 30, 2000).
10.4 Non-Qualified Stock Option Agreement by and between the Company
and Geoffrey P. Jurick (incorporated by reference from Exhibit
10.5 to the Company's Report on Form 10-Q for the quarter ended
August 1,1997).
10.5 Non-Qualified Stock Option Agreement by and between the Company
and John P. Walker (incorporated by reference from Exhibit 10.6
to the Company's Report on Form 10-Q for the quarter ended August
1, 1997).
10.5.1 Amendment No. 1 to Stock Option Agreement by and between the
Company and John P. Walker (incorporated by reference from
Exhibit 10.8 to the Company's Report on Form 10-Q for the quarter
ended April 3, 1998).
Exhibit
Nbr. Description of Exhibit
---------------------------------------------------------------------------
10.6 Form of Non-Qualified Stock Option Agreement by and between
the Company and John P. Walker (incorporated by reference from
Exhibit 10.1 to the Company's Report on Form 10-Q for the
quarter ended July 2, 1999).
10.7 Restricted Stock Agreement by and between the Company and John
P. Walker (incorporated by reference from Exhibit 10.6 to the
Company's Report on Form 10-Q for the quarter ended April 3,
1998).
10.8 Consulting and Separation Agreement dated as of September 16,
1994 by and between the Company and Jerry L. Gunderson
(incorporated by reference from Exhibit 10.4 to the Company's
Report on Form 10-K for the year ended December 31, 1996).
10.9 Form of Severance Agreement entered into between the Company
and each of Messrs. John P. Walker and Terrence M. Babilla
(incorporated by reference from Exhibits 10.2 and 10.3 to the
Company's Report on Form 10-Q for the quarter ended April 12,
1999).
10.10 Form of Severance Agreement entered into between the Company and
Doug Pryor (incorporated by reference from Exhibit 10.7 to the
Company's Report on Form 10-Q for the quarter ended April 3,
1998).
10.11 Form of Indemnification Agreement entered into between the
Company and each of the directors of the Company and the
Company's General Counsel (incorporated by reference from
Exhibit 10.3 to the Company's Registration Statement on Form
S-1 (Registration No. 33-39218)).
10.13 Sport Supply Group, Inc. Amended and Restated Stock Option Plan
(incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-8 (Registration No. 33-27193)).
10.14 Registration Rights Agreement by and among the Company, Emerson
and Emerson Radio (Hong Kong) Limited (incorporated by reference
from Exhibit 4(b) to the Company's Report on Form 8-K filed on
December 12, 1996).
10.15 Assignment of Agreement and Inventory Purchase Agreement to
Affiliate by Aurora (incorporated by reference from Exhibit
10.10 to the Company's Registration Statement on Form S-1
(Registration No. 33-39218)).
10.16 Form of Tax Indemnity Agreement by and between the Company and
Aurora (incorporated by reference from Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (Registration No.
33-39218)).
10.17 Assignment and Assumption Agreement, dated to be effective as
of February 28, 1992, by and between Aurora and the Company
(incorporated by reference from Exhibit 10.27 to the Company's
Report on Form 10-K for the year ended 1991).
10.18 Amendment No. 1 to AMF Licensing Agreement (incorporated by
reference from Exhibit 10 to the Company's Report on Form 10-Q
for the quarter ended January 1, 1999).
10.19 Amended Lease Agreement entered into between the Company and
ACQUIPORT DFWIP, Inc., dated as of July 13, 1998 (incorporated
by reference from Exhibit 10 to the Company's Report on Form
10-Q filed on August 14, 1998).
10.19.1 Amended Lease Agreement entered into between the Company and
ACQUIPORT DFWIP, Inc., dated as of July 30, 2000 (incorporated
by reference from Exhibit 10.3 to the Company's Report on Form
10-Q for the quarter ended June 30, 2000).
10.20 Lease, dated July 28, 1989, by and between Merit Investment
Partners, L.P. and the Company (incorporated by reference from
Exhibit 10.14 to the Company's Registration Statement on Form
S-1 (Registration No. 33-39218)).
Exhibit
Nbr. Description of Exhibit
---------------------------------------------------------------------------
10.21 Industrial Lease Agreement, dated April 25, 1994, by and between
the Company and Centre Development Co. regarding the property at
13700 Benchmark (incorporated by reference from Exhibit 10.1 to
the Company's Report on Form 10-Q for the quarter ended June 30,
1994).
10.21.1 Amendment to Industrial Lease Agreement, dated July 8, 1994, by
and between the Company and Centre Development Co. regarding the
property at 13700 Benchmark (incorporated by reference from
Exhibit 10.19.1 to the Company's Report on Form 10-K for the
fiscal year ended December 31, 1994).
10.23 License Agreement, dated as of September 23, 1991, by and
between Proacq Corp. and the Company (incorporated by reference
from Exhibit 10.17 to the Company's Report on Form 10-K for the
year ended 1991).
10.24 Sport Supply Group Employees' Savings Plan dated June 1, 1993
(incorporated by reference from Exhibit 10.27 to the Company's
Report on Form 10-K for the year ended 1993).
10.25 Management Services Agreement dated July 1, 1997 to be effective
as of March 7, 1997 by and between the Company and Emerson
(incorporated by reference from Exhibit 10.2 to the Company's
Report on Form 10-Q for the quarter ended August 1, 1997).
10.25.1 Letter Agreement dated October 18, 1997 amending the Management
Services Agreement (incorporated by reference from Exhibit
10.31.1 to the Company's Report on Form 10-K for the year ended
September 26, 1997).
10.26 Lease Agreement by and between Athletic Training Equipment
Company, Inc. and The Northwestern Mutual Life Insurance
Company, dated January 29, 1999 regarding the property located
in Sparks, NV (incorporated by reference from Exhibit 10.4 to
the Company's Report on Form 10-Q for the quarter ended April 2,
1999).
10.27 Employment Agreement entered into by and between the Company and
Michael Glassman dated April 1, 2001 (incorporated by reference
from Exhibit 10.27 to the Company's Report on Form 10-K for the
year ended March 30, 2001).
10.28 Services Agreement between the Company and EJB Development dated
March 1, 2001 (incorporated by reference from Exhibit 10.27 to
the Company's Report on Form 10-K for the year ended March 30,
2001).
10.29 Loan and Security Agreement dated March 27, 2001 by and between
the Company and Congress Financial Corporation (incorporated by
reference from Exhibit 10.29 to the Company's Report on Form 10-
K for the year ended March 30, 2001).
10.30 Amended and Restated License Agreement dated as of December 21,
2000 by and between MacMark Corporation, Equilink Licensing
Corporation and the Company (incorporated by reference from
Exhibit 10.23.2 from the Company's Report on Form 10-Q for the
quarter ended December 29, 2000.)
10.31 (*) Form of Severance Agreement entered into between the Company and
Mitch Labov dated March 24, 1999.
10.32 (*) Form of Severance Agreement entered into between the Company and
John Bals dated February 8, 2002.
21 (*) Subsidiaries of the Registrant.
23.1 (*) Consent of Independent Auditors.
99 Pledge and Security Agreement, dated December 10, 1996 by
Emerson in favor of Congress Financial Corporation (incorporated
by reference from Exhibit 99 to the Company's Report on Form 8-K
filed on December 12, 1996.)
-----------------------------
( * ) = Filed Herewith
*******************************************************************************
EXHIBIT 10.31
NON-COMPETITION, CONFIDENTIALITY AND SEVERANCE AGREEMENT
This Non-Competition, Confidentiality and Severance Agreement (this
"Agreement") is made as of March 24, 1999, by and between Sport Supply
Group, Inc., a Delaware corporation ("Employer"), and Mitch Labov
("Employee").
RECITALS:
WHEREAS, Employee has requested that Employer pay Employee a specified
severance amount if Employee is terminated without cause (as described in
Paragraph 1 below) by Employer;
WHEREAS, Employer has agreed to the severance arrangement described
herein so long as Employee agrees to abide by the terms and provisions of
this Agreement.
WHEREAS, but for Employee's promises and representations made herein,
Employer would not have agreed to the payment of severance as set forth
herein;
NOW, THEREFORE, in consideration of the covenants and agreements of the
parties herein contained, the parties to this Agreement agree as follows:
1. Severance.
Employee acknowledges and agrees that Employee is an employee at will
and may be terminated by Employer at any time with or without cause (as
described below). Notwithstanding the foregoing, in consideration for the
promises made by Employee herein, including but not limited to Employee's
agreement regarding non-competition and nondisclosure of Confidential
Information below, Employer agrees as follows: If Employee is terminated by
Employer without cause, Employer agrees to pay Employee his then current bi-
weekly salary (i.e., happening every two weeks) for a period of twenty-four
(24) bi-weekly periods from the date of termination (less all amounts
required to be deducted or withheld therefrom and all amounts owed or due by
Employee to Employer). In exchange for Employer's agreement to make such
severance payments to Employee and other promises made by Employer herein,
Employee agrees that upon the termination of his employment without cause he
will sign and deliver to Employer a Release in the form of Exhibit A
attached hereto. If Employee revokes the Release pursuant to Section 4
thereof or otherwise, or does not sign the release, Employer shall not be
obligated to pay any severance to Employee.
Employee acknowledges that he shall not be entitled to the severance
payments referenced above (but he will continue to be obligated by all the
provisions that survive termination of this Agreement, including without
limitation Sections 2, 3 and 4) if Employee (i) dies, (ii) resigns, (iii) is
absent from employment or unable to satisfactorily perform his essential job
functions, by reason of physical or mental illness or disability for more
than thirty (30) days in the aggregate in any twelve (12) month period, or
(iv) is terminated for cause. For the purposes of this Agreement, a
discharge "for cause" shall mean a discharge resulting from a determination
by Employer that Employee: (i) has committed a crime involving moral
turpitude, including fraud, theft or embezzlement; (ii) has failed and/or
refused to follow the policies, practices, directives, or orders established
by Employer's Board of Directors; (iii) has committed acts of gross
negligence or misconduct to the detriment of Employer; (iv) has been
insubordinate and/or has persistently failed to perform his duties
hereunder; or (v) has breached any of the terms or provisions of this
Agreement (including, but not limited to, a breach of Section 2, 3 or 4
hereof).
Except as set forth in this Section and/or required by federal or state
law, Employer will have no other obligations to Employee if Employee is
terminated with or without cause.
2. Confidentiality
(a) In exchange for and in consideration for the promises made by
Employee herein, including promises made by Employee regarding
noncompetition in Section 3 herein as well as Employee's agreement to
execute the attached Release in the event of Employee's discharge from
employment without cause, Employer promises and agrees to provide Employee
with confidential, nonpublic information (in addition to any such
information previously obtained by Employee in the course of his employment)
consistent with the duties of an individual in Employee's position,
including but not limited to Employer's customer, supplier, and distributor
lists, trade secrets, plans, manufacturing techniques, sales, marketing and
expansion strategies, and technology and processes of Employer and/or its
affiliates, as they may exist from time to time, and information concerning
the products, services, production, development, technology and all
technical information, procurement and sales activities and procedures,
promotion and pricing techniques and credit and financial data concerning
customers of, and suppliers to, Employer and/or its Affiliates (referred to
hereinafter as "Confidential Information"). Employee acknowledges that such
Confidential Information constitutes valuable, special and unique assets of
the Employer and that his access to and knowledge of the Confidential
Information is essential to the performance of his duties under this
Agreement. In consideration for Employer's promises herein, Employee agrees
that all Confidential Information previously provided or known to Employee
in the course of his employment with Employer and all such Confidential
Information made available and provided to Employee pursuant to the terms of
this Agreement will be considered Confidential Information owned by Employer
and Employee agrees that Employee will not (i) disclose any Confidential
Information to any person or entity other than in connection with his
employment for Employer in accordance with Employer's policy, or (ii) make
use of any Confidential Information for his own purposes or for the benefit
of any other person or entity, other than Employer. Employee further
represents and warrants that, on or prior to the date of this Agreement, he
has not (i) disclosed any Confidential Information to any person or entity
other than in connection with his employment for Employer in accordance with
Employer's policy or (ii) made use of any Confidential Information for his
own purposes or for the benefit of any other person or entity, other than
Employer.
(b) Employee acknowledges and agrees that all manuals, drawings,
blueprints, letters, notes, notebooks, reports, financial records
(including, without limitation, budgets, business plans and financial
statements), computers, computer equipment, computer disks, hard drives,
electronic storage devices, books, procedures, forms, documents, records or
paper, or copies thereof, pertaining to the operations or business of
Employer made or received by Employee or made known to him in any way in
connection with his employment and any other Confidential Information are
and will be the exclusive property of Employer. Employee agrees not to copy
or remove any of the above from the premises and custody of Employer, or
disclose the contents thereof to any other person or entity except in the
ordinary course of business consistent with Employer's policies. Employee
acknowledges that all such papers and records will at all times be subject
to the control of Employer, and Employee agrees to surrender the same upon
request of Employer, and will surrender such no later than any termination
of his employment with Employer, whether voluntary of involuntary.
3. Non-Compete Covenant.
Employee acknowledges that the Confidential Information specified above
is valuable to the Employer and that, therefore, its protection and
maintenance constitutes a legitimate interest to be protected by the
Employer by the enforcement of this covenant not to compete. Therefore, in
consideration for the promises made by Employer herein, including but not
limited to Employer's promises regarding the payment of severance benefits
set forth in Section 1 and the provision of Confidential Information set
forth in Section 2 herein, Employee covenants and agrees that, (i) during
the term of his employment by the Employer (or an affiliate of Employer) and
(ii) for a period commencing upon the termination of Employee's employment
by Employer (or an affiliate of Employer) and ending upon the second
anniversary thereof, Employee will not, directly or indirectly, either as
an individual or as an employer, employee, consultant, partner, officer,
director, shareholder, substantial investor, trustee, agent, advisor, or
consultant or in any other capacity whatsoever, of any person or entity
(other than the Employer):
(a) conduct or assist others in conducting any business in any
market area in the United States related to the promotion, marketing,
distribution, manufacturing, sourcing, importing, bidding and/or sale of
sports related equipment and/or supplies to institutional customers
(including, without limitation, schools, government agencies,
municipalities, military facilities, athletic clubs, youth sport leagues,
recreational organizations, sporting goods dealers, etc.) or any other
business that generates more than 10% of Employer's revenues at the time of
termination (the "Employer's Business");
(b) recruit, hire, assist others in recruiting or hiring, discuss
employment with or refer to others for employment (collectively referred to
as "Recruiting Activity") any person who is, or within the twenty-four (24)
month period immediately preceding the date of any such Recruiting Activity
was, at any time, an employee of, or a consultant to, the Employer or its
affiliates; or
(c) (i) communicate to any competing entity or enterprise any
competitive non-public information concerning any past, present or
identified prospective client or customer of, or supplier to, Employer; or
(ii) call on, solicit or hire or attempt to call on, solicit or hire any of
the customers, suppliers, clients, licensors, licensees, manufacturers,
distributors, dealers or independent salespersons of the Employer or any of
its affiliates which are engaged in the Employer's Business or that conduct
business with Employer in the United States; or induce, attempt to induce or
assist any other person or entity in inducing or attempting to induce,
directly or indirectly, any such customer, supplier, client, licensor,
licensee, manufacturer, dealer, distributor or independent salesperson to
discontinue their relationship with the Employer or its affiliates.
The existence of any claim or cause of action of Employee against
Employer, or any officer, director, or shareholder of Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by Employer of the covenants of Employee contained in this
Section 3. In addition, the provisions of this Section 3 shall continue to
be binding upon Employee in accordance with its terms, notwithstanding the
termination of Employee for any reason.
If Employee violates any covenant contained in this Section 3 and
Employer brings legal action for injunctive or other relief, Employer shall
not, as a result of the time involved in obtaining the relief, be deprived
of the benefit of the full period of any such covenant. Accordingly, the
covenants of Employee contained in this Section 3 shall be deemed to have
durations as specified above, which periods shall commence upon the later of
(i) the termination of Employee's employment with Employer, and (ii) the
date of entry by a court of competent jurisdiction of a final, non-
appealable judgment enforcing the covenants of Employee in this Section 3.
During any period of time in which Employee is in breach of this covenant
not to compete, the parties agree that the time period of this covenant
shall be extended for an amount of time that Employee is in breach hereof.
Employee understands and agrees that the scope of this covenant
contained in this Section 3 is reasonable as to time, area, and persons and
is necessary to protect the proprietary and legitimate business interests of
the Employer, and but for such covenant the Employer would not have agreed
to enter into the transactions contemplated by this Agreement. Employee
agrees that this covenant is reasonable in light of the compensation and
other benefits Employee has accepted pursuant to this Agreement. It is
further agreed that such covenant will be regarded as divisible and will be
operative as to time, area, and persons to the extent that it may be so
operative. If any part of this Section is declared invalid, unenforceable,
or void as to time, area, or persons, the validity and enforceability of the
remainder will not be affected. Should a court of competent jurisdiction
determine this covenant unenforceable as written, the parties agree that the
court shall modify this covenant to the extent necessary to make it
enforceable. The alleged breach of any other provision of this Agreement
asserted by Employee shall not be a defense to claims arising from
Employer's enforcement of this covenant.
The provisions of Sections 1, 2, 3 4, 5, 6, 10 and 12 shall survive
any termination or expiration of this Agreement.
4. Proprietary Information. Employee hereby assigns to Employer
all of Employee's right, title and interest to, and shall promptly disclose
to Employer, all ideas, inventions, products, services, discoveries or
improvements (whether or not patentable) conceived or developed solely or
jointly by Employee during the term of this Agreement (a) which relate to
the business or the actual or anticipated research or development of
Employer, (b) which result from any work performed by Employee for Employer,
or (c) for which equipment, supplies, facilities or Confidential Information
of Employer was used. Employee agrees to execute any further documents
and/or patents that Employer requests and will otherwise assist Employer (at
Employer's expense) in protecting Employer's rights to such ideas,
inventions, products, services, discoveries or improvements. Employee
hereby appoints Employer as his attorney-in-fact, with full power of
substitution, to execute and deliver such documents or patents on behalf of
Employee. Employee represents to Employer that Employee has not conceived
or reduced to practice any ideas, inventions, products, services,
discoveries or improvements at the time of signing this Agreement.
5. Injunctive Relief. Each party acknowledges that a remedy at law
for any breach or attempted breach of this Agreement will be inadequate,
agrees that each party will be entitled to specific performance and
injunctive and other equitable relief in case of any breach or attempted
breach and agrees not to use as a defense that any party has an adequate
remedy at law. This Agreement shall be enforceable in a court of equity, or
other tribunal with jurisdiction, by a decree of specific performance, and
appropriate injunctive relief may be applied for and granted in connection
herewith. Such remedy shall not be exclusive and shall be in addition to
any other remedies now or hereafter existing at law or in equity, by statute
or otherwise. No delay or omission in exercising any right or remedy set
forth in this Agreement shall operate as a waiver thereof or of any other
right or remedy and no single or partial exercise thereof shall preclude any
other or further exercise thereof or the exercise of any other right or
remedy.
6. Binding Nature. The rights and obligations of Employer under
this Agreement will inure to the benefit of and will be binding upon the
successors and assigns of Employer.
7. Confidentiality. Employee further agrees to keep the terms of
this Agreement wholly and completely confidential. Further, Employee
agrees not to disclose the amount, terms, substance, or contents of this
Agreement to any person or persons, excluding only his spouse, his
attorneys, his tax advisors and any government agency to which he is
required by law to reveal the terms of this Agreement.
8. Severability. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, in whole or in part, then both
parties will be relieved of all obligations arising under such provision,
but only to the extent it is illegal, unenforceable or void. The intent and
agreement of the parties to this Agreement is that this Agreement will be
deemed amended by modifying and/or reforming any such illegal, unenforceable
or void provision to the extent necessary to make it legal and enforceable
while preserving its intent, or if such is not possible, by substituting
therefor another provision that is legal and enforceable and achieves the
same objectives. Notwithstanding the foregoing, if the remainder of this
Agreement will not be affected by such declaration or finding and is capable
of substantial performance, then each provision not so affected will be
enforced to the extent permitted by law.
9. Waiver. No delay or omission by either party to this Agreement
to exercise any right or power under this Agreement will impair such right
or power or be construed as a waiver thereof. A waiver by either of the
parties to this Agreement of any of the covenants to be performed by the
other or any breach thereof will not be construed to be a waiver of any
succeeding breach thereof or of any other covenant contained in this
Agreement. All remedies provided for in this Agreement will be cumulative
and in addition to and not in lieu of any other remedies available to either
party at law, in equity, or otherwise.
10. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Texas without giving effect to
any principle of conflict-of-laws that would require the application of the
law of any other jurisdiction.
11. Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to Employee: If to Employer:
Conlin Bros., Inc. Sport Supply Group, Inc.
Attention: Mitch Labov Attention: Chief Executive Officer
[ deleted for confidentiality ] 1901 Diplomat Drive
Farmers Branch, Texas 75234
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
12. Submission to Jurisdiction. Each party agrees that this
Agreement is performable in Dallas, Dallas County, Texas, and that any
action or proceeding arising out of or related in any way to this Agreement
shall be brought solely in a court of competent jurisdiction sitting in
Dallas, Dallas county, Texas. All parties hereto hereby irrevocably submit
to the nonexclusive jurisdiction of the state and federal courts of the
State of Texas and agree and consent that service of process may be made
upon it in any proceeding arising out of this Agreement by service of
process as provided by Texas law. All parties hereto hereby irrevocably
waive, to the fullest extent permitted by law, any objection which it may
now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement brought in the
District Court of Dallas County, State of Texas, or in the United States
District Court for the Northern District of Texas, and hereby further
irrevocably waive any claims that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
14. Assignment. The rights and obligations of Employer may, without
the consent of Employee, be assigned by Employer to any parent, subsidiary,
affiliate, or successor of Employer. Employee may not assign any of his
rights or obligations under this Agreement.
15. Entire Agreement. This Agreement (along with the Exhibit)
constitutes the entire agreement between the parties to this Agreement with
respect to the subject matter of this Agreement and there are no
understandings or agreements relative to this Agreement which are not fully
expressed in this Agreement and the Exhibit. All prior or contemporaneous
agreements between the parties with respect to the subject matter of this
Agreement being expressly superseded by this Agreement and the Exhibit. No
change, waiver, or discharge of this Agreement will be valid unless in
writing and signed by the party against which such change, waiver, or
discharge is to be enforced.
16. Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to receive from the other its reasonable attorneys' fees,
costs, and necessary disbursements in addition to any other relief to which
such party may be entitled.
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement on the date first above written.
EMPLOYER:
SPORT SUPPLY GROUP, INC.
By:
---------------------------------------
John P. Walker
President, Chief Operating Officer
and Chief Financial Officer
EMPLOYEE:
---------------------------------------
Mitch Labov
EXHIBIT A
RELEASE
This Release (this "Agreement") is made and entered into on
____________, ___ (the "Effective Date") by and between Sport Supply Group,
Inc., a Delaware corporation (the "Company") and Mitch Labov ("Labov").
WHEREAS, the Company and Labov entered into that certain Non-
Competition, Confidentiality and Severance Agreement dated March 24, 1998
(the "Severance Agreement").
WHEREAS, Labov's execution and delivery of this Agreement is a
condition precedent to Labov being paid pursuant to the terms of the
Severance Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Labov agree as
follows:
1. Covenants and Agreements of Labov. Labov acknowledges and agrees that
the consideration he has accepted and received pursuant to the
Severance Agreement is not otherwise due to him. In consideration for
the compensation in the Severance Agreement, the receipt and
sufficiency of which are hereby acknowledged, Labov voluntarily and
knowingly:
a.Nondisparagement of Company. Agrees that after the date hereof, he
will not say, publish or do anything that casts the Company or any
of the Company's affiliates (including, without limitation,
successors, assigns, officers, directors, or employees), any of its
products or the industry or management of the Company or any of the
Company's affiliates in an unfavorable light, or disparage or injure
the Company's or any of the Company's affiliate's goodwill, business
reputation or relationship with existing or potential suppliers,
vendors, customers, employees, contractors, investors or the
financial community in general, or the goodwill or business
reputation of the Company's or any of the Company's affiliates'
employees, former employees, officers, directors, consultants or
contractors. Notwithstanding the foregoing, nothing herein shall
prohibit Labov from truthfully testifying in a hearing, deposition
or other legal proceeding in which Labov could be criminally or
civilly sanctioned for the failure to respond truthfully.
b.Release. Hereby waives, releases and forever discharges and
covenants not to sue the Company and/or its predecessors;
successors; partners; affiliates, parents, or subsidiaries; assigns,
employee retirement, health and welfare benefit plans and the
fiduciaries thereof; officers; administrators; employees; former
employees; directors; trustees; shareholders; representatives;
attorneys; and agents, from all claims, liabilities, demands,
actions, or causes of action, in contract, tort or otherwise,
including but not limited to all wrongful discharge claims, all
tort, intentional tort, personal injury, negligence, defamation, and
contract claims, any claim for attorneys' fees, or any claim arising
from any federal, state or local civil rights and/or employment
legislation (including but not limited to Title VII of the Civil
Rights Act of 1964, as amended by the Civil Rights Act of 1991, the
Age Discrimination in Employment Act of 1967, the Americans with
Disabilities Act, and any claim for benefits, including but not
limited to those arising under the Employee Retirement Income
Security Act of 1974 ("ERISA")), known or hereafter discovered by
Labov, on account of or connected with or growing out of, directly
or indirectly, Labov's employment and termination thereof or any
act or omission by the Company or its agents occurring on or before
the Effective Date. By execution hereof, Labov represents,
covenants, and warrants that no claims released or waived herein
have been previously conveyed, assigned, or transferred in any
manner, whether in whole or in part, to any persons, entity, or
other third party. Labov expressly represents that he is competent
and authorized to release and/or waive any claim he may have against
the Company on any basis whatsoever.
c.Acknowledgment. Acknowledges that as of Effective Date: (i) Labov's
employment by the Company is lawfully and voluntarily terminated;
(ii) Labov has received all due and owing pay for all labor and
services performed by him for the Company; (iii) he has received or
been compensated for all salary, vacation time, sick leave,
compensatory time, reimbursable expenses, car allowance, personal
injuries, bonuses, profit-sharing, retirement, health, welfare,
pension, all rights under all employee benefits to which he may have
been entitled as of the Effective Date; (iv) he will promptly
reimburse the Company for all personal expenses incurred by Labov,
including, without limitation, travel advances; and (v) there are no
other agreements, whether written or oral, between Labov and the
Company, other than certain Stock Option Agreements that Labov may
have, and the Severance Agreement. The options governed by the
Stock Option Agreements, if any, may be exercised for a period of
one-hundred twenty (120) days after the Effective Date; thereafter,
the Stock Option Agreements will be deemed to be terminated and of
no further force or effect.
d.Transition. Agrees to cooperate and assist the Company in the
training of Labov's successor during the period of time in which
Labov is being paid pursuant to the Severance Agreement.
2. Conditions. It is expressly understood that the obligations and
agreements of the Company pursuant to this Agreement and the Severance
Agreement are expressly subject to the continuing performance by Labov
of the obligations, covenants and agreements assumed by him pursuant
hereto. In the event the Company's Board of Directors in good faith
determines Labov breached any representation, agreement, covenant or
obligation contained herein or in said Severance Agreement, the
agreements, covenants and obligations of the Company pursuant hereto
and the Severance Agreement shall terminate and be of no further force
or effect, without prejudice to any other right the Company may have
hereunder to performance of the agreements and obligations assumed by
Labov hereunder and the Severance Agreement.
3. Return of Property. Labov further agrees to return to the Company
(Attention: President), simultaneously with the execution of this
Agreement, all computers, computer disks or other magnetic storage
data, facsimile machines, telephones, credit cards, calling cards,
keys, security codes, and other property of the Company in Labov's
possession or control and all documents, records, notebooks, mailing
lists, business proposals, contracts, agreements and other repositories
containing information concerning the Company or its business, whether
copies or originals (including but not limited to all correspondence,
client and/or customer lists, vendor agreements, minutes or agenda(s)
for any meeting, hand-written notes, journals, computer printouts or
programs, office memoranda, other tangible items or materials).
4. Revocation of this Agreement. Labov further acknowledges and agrees
that he has the right to discuss all aspects of this Agreement with a
private attorney, and that he has done so to the extent he desires.
Labov acknowledges and understands that he has twenty-one (21) days to
sign this Agreement after receipt of it in order to fully consider all
of its terms. Labov further acknowledges and understands that this
Agreement may be revoked by him in writing within seven (7) days from
the date he signs it, and that this Agreement shall not become
effective or enforceable until eight (8) days after Labov has signed
this Agreement.
5. Full and Final Settlement. This Agreement is contractual, not a mere
recital, and is a full and final settlement of any and all claims each
party hereto may have against the other and its affiliates on any basis
whatsoever, and shall be binding on the each party hereto and their
heirs, personal representative(s), estate, successors and assigns.
6. Entire Agreement. This Agreement and the Severance Agreement
constitute the entire understanding Labov has with the Company and
supersedes any previous agreements (other than the Severance
Agreement), whether oral or written, between the Company and Labov. No
other promises or agreements regarding the matters addressed herein
shall be binding unless they are in writing and signed by Labov and the
Company.
7. No Continuing Waiver. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. Any waiver must be in writing and signed by the
party entitled to performance.
8. Attorneys' Fees. If any civil action, whether at law or in equity, is
necessary to enforce or interpret any of the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees,
court costs and other reasonable expenses of litigation, in addition to
any other relief to which such party may be entitled.
9. Confidentiality. Labov further agrees to keep the terms of this
Agreement and the Severance Agreement wholly and completely
confidential. Further, Labov agrees not to disclose the amount, terms,
substance, or contents of this Agreement or the Severance Agreement to
any person or persons, excluding only his spouse, his attorneys, his
tax advisors and any government agency to which he is required by law
to reveal the terms of this Agreement or the Severance Agreement. In
addition, Labov agrees not to use or disclose any Confidential
Information as defined in the Severance Agreement.
10. Injunctive Relief. Each party acknowledges that a remedy at law for
any breach or attempted breach of this Agreement will be inadequate,
agrees that each party will be entitled to specific performance and
injunctive and other equitable relief in case of any breach or
attempted breach and agrees not to use as a defense that any party has
an adequate remedy at law. This Agreement shall be enforceable in a
court of equity, or other tribunal with jurisdiction, by a decree of
specific performance, and appropriate injunctive relief may be applied
for and granted in connection herewith. Such remedy shall not be
exclusive and shall be in addition to any other remedies now or
hereafter existing at law or in equity, by statute or otherwise. No
delay or omission in exercising any right or remedy set forth in this
Agreement shall operate as a waiver thereof or of any other right or
remedy and no single or partial exercise thereof shall preclude any
other or further exercise thereof or the exercise of any other right or
remedy.
11. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas without giving effect to
any principle of conflict-of-laws that would require the application of
the law of any other jurisdiction.
12. Submission to Jurisdiction. Each party agrees that this Agreement is
performable in Dallas, Dallas County, Texas, and that any action or
proceeding arising out of our related in any way to this Agreement
shall be brought solely in a court of competent jurisdiction sitting in
Dallas, Dallas County, Texas. All parties hereto hereby irrevocably
submit to the nonexclusive jurisdiction of the state and federal courts
of the State of Texas and agree and consent that service of process may
be made upon it in any proceeding arising out of this Agreement by
service of process as provided by Texas law. All parties hereto hereby
irrevocably waive, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this
Agreement brought in the District Court of Dallas County, State of
Texas, or in the United States District Court for the Northern District
of Texas, and hereby further irrevocably waive any claims that any such
suit, action or proceeding brought in any such court has been brought
in an inconvenient forum.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
___________,_______.
SPORT SUPPLY GROUP, INC.
By: _____________________________________ _______________________________
Name: John P. Walker Mitch Labov
Title: President, Chief Operating Officer
and Chief Financial Officer
*******************************************************************************
EXHIBIT 10.32
NON-COMPETITION, CONFIDENTIALITY AND SEVERANCE AGREEMENT
This Non-Competition, Confidentiality and Severance Agreement (this
"Agreement") is made as of February 8, 2002, by and between Sport Supply
Group, Inc., a Delaware corporation ("Employer"), and John Bals
("Employee").
RECITALS:
WHEREAS, Employee has requested that Employer pay Employee a specified
severance amount if Employee is terminated without cause (as described in
Paragraph 1 below) by Employer;
WHEREAS, Employer has agreed to the severance arrangement described
herein so long as Employee agrees to abide by the terms and provisions of
this Agreement.
WHEREAS, but for Employee's promises and representations made herein,
Employer would not have agreed to the payment of severance as set forth
herein;
NOW, THEREFORE, in consideration of the covenants and agreements of the
parties herein contained, the parties to this Agreement agree as follows:
1. Severance.
Employee acknowledges and agrees that Employee is an employee at will
and may be terminated by Employer at any time with or without cause (as
described below). Notwithstanding the foregoing, in consideration for the
promises made by Employee herein, including but not limited to Employee's
agreement regarding non-competition and nondisclosure of Confidential
Information below, Employer agrees as follows: If Employee is terminated by
Employer without cause, Employer agrees to pay Employee his then current bi-
weekly salary (i.e., happening every two weeks) for a period of twenty-four
(24) bi-weekly periods from the date of termination (less all amounts
required to be deducted or withheld therefrom and all amounts owed or due by
Employee to Employer). In exchange for Employer's agreement to make such
severance payments to Employee and other promises made by Employer herein,
Employee agrees that upon the termination of his employment without cause he
will sign and deliver to Employer a Release in the form of Exhibit A
attached hereto (as such Release may be modified by Employer due to changes
in applicable law). If Employee revokes the Release pursuant to Section 4
thereof or otherwise, or does not sign the release, Employer shall not be
obligated to pay any severance to Employee.
Employee acknowledges that he shall not be entitled to the severance
payments referenced above (but he will continue to be obligated by all the
provisions that survive termination of this Agreement, including without
limitation Sections 2, 3 and 4) if Employee (i) dies, (ii) resigns, (iii) is
absent from employment or unable to satisfactorily perform his essential job
functions, by reason of physical or mental illness or disability for more
than thirty (30) days in the aggregate in any twelve (12) month period, or
(iv) is terminated for cause. For the purposes of this Agreement, a
discharge "for cause" shall mean a discharge resulting from a determination
by Employer that Employee: (i) has committed a crime involving moral
turpitude, including fraud, theft or embezzlement; (ii) has failed and/or
refused to follow the policies, practices, directives, or orders established
by Employer's Board of Directors; (iii) has committed acts of gross
negligence or misconduct to the detriment of Employer; (iv) has been
insubordinate and/or has persistently failed to perform his duties as
described on Exhibit B attached hereto; or (v) has breached any of the terms
or provisions of this Agreement (including, but not limited to, a breach of
Section 2, 3 or 4 hereof).
Except as set forth in this Section and/or required by federal or state
law, Employer will have no other obligations to Employee if Employee is
terminated with or without cause.
2. Confidentiality
(a) In exchange for and in consideration for the promises made by
Employee herein, including promises made by Employee regarding
noncompetition in Section 3 herein as well as Employee's agreement to
execute the attached Release in the event of Employee's discharge from
employment without cause, Employer promises and agrees to provide Employee
with confidential, nonpublic information (in addition to any such
information previously obtained by Employee in the course of his employment)
consistent with the duties of an individual in Employee's position,
including but not limited to Employer's customer, supplier, and distributor
lists, trade secrets, plans, manufacturing techniques, sales, marketing and
expansion strategies, and technology and processes of Employer and/or its
affiliates, as they may exist from time to time, and information concerning
the products, services, production, development, technology and all
technical information, procurement and sales activities and procedures,
promotion and pricing techniques and credit and financial data concerning
customers of, and suppliers to, Employer and/or its Affiliates (referred to
hereinafter as "Confidential Information"). Employee acknowledges that such
Confidential Information constitutes valuable, special and unique assets of
the Employer and that his access to and knowledge of the Confidential
Information is essential to the performance of his duties under this
Agreement. In consideration for Employer's promises herein, Employee agrees
that all Confidential Information previously provided or known to Employee
in the course of his employment with Employer and all such Confidential
Information made available and provided to Employee pursuant to the terms of
this Agreement will be considered Confidential Information owned by Employer
and Employee agrees that Employee will not (i) disclose any Confidential
Information to any person or entity other than in connection with his
employment for Employer in accordance with Employer's policy, or (ii) make
use of any Confidential Information for his own purposes or for the benefit
of any other person or entity, other than Employer. Employee further
represents and warrants that, on or prior to the date of this Agreement, he
has not (i) disclosed any Confidential Information to any person or entity
other than in connection with his employment for Employer in accordance with
Employer's policy or (ii) made use of any Confidential Information for his
own purposes or for the benefit of any other person or entity, other than
Employer.
(b) Employee acknowledges and agrees that all manuals, drawings,
blueprints, letters, notes, notebooks, reports, financial records
(including, without limitation, budgets, business plans and financial
statements), computers, computer equipment, computer disks, hard drives,
electronic storage devices, books, procedures, forms, documents, records or
paper, or copies thereof, pertaining to the operations or business of
Employer made or received by Employee or made known to him in any way in
connection with his employment and any other Confidential Information are
and will be the exclusive property of Employer. Employee agrees not to copy
or remove any of the above from the premises and custody of Employer, or
disclose the contents thereof to any other person or entity except in the
ordinary course of business consistent with Employer's policies. Employee
acknowledges that all such papers and records will at all times be subject
to the control of Employer, and Employee agrees to surrender the same upon
request of Employer, and will surrender such no later than any termination
of his employment with Employer, whether voluntary of involuntary.
3. Non-Compete Covenant.
Employee acknowledges that the Confidential Information specified above
is valuable to the Employer and that, therefore, its protection and
maintenance constitutes a legitimate interest to be protected by the
Employer by the enforcement of this covenant not to compete. Therefore, in
consideration for the promises made by Employer herein, including but not
limited to Employer's promises regarding the payment of severance benefits
set forth in Section 1 and the provision of Confidential Information set
forth in Section 2 herein, Employee covenants and agrees that, (i) during
the term of his employment by the Employer (or an affiliate of Employer) and
(ii) for a period commencing upon the termination of Employee's employment
by Employer (or an affiliate of Employer) and ending upon the first
anniversary thereof, Employee will not, directly or indirectly, either as
an individual or as an employer, employee, consultant, partner, officer,
director, shareholder (except as a shareholder holding less than a five
percent (5%) interest in a corporation whose shares are actively traded on a
regional or national securities exchange or in the over-the-counter market),
substantial investor, trustee, agent, advisor, or consultant or in any other
capacity whatsoever, of any person or entity (other than the Employer):
(a) conduct or assist others in conducting any business in any
market area in the United States related to the promotion, marketing,
distribution, manufacturing, sourcing, importing, bidding and/or sale of
sports related equipment and/or supplies to institutional customers
(including, without limitation, schools, government agencies,
municipalities, military facilities, athletic clubs, youth sport leagues,
recreational organizations, sporting goods dealers, etc.) or any other
business that generates more than 10% of Employer's revenues at the time of
termination (the "Employer's Business");
(b) recruit, hire, assist others in recruiting or hiring, discuss
employment with or refer to others for employment (collectively referred to
as "Recruiting Activity") any person who is, or within the twenty-four (24)
month period immediately preceding the date of any such Recruiting Activity
was, at any time, an employee of, or a consultant to, the Employer or its
affiliates; or
(c) (i) communicate to any competing entity or enterprise any
competitive non-public information concerning any past, present or
identified prospective client or customer of, or supplier to, Employer; or
(ii) call on, solicit or hire or attempt to call on, solicit or hire any of
the customers, suppliers, clients, licensors, licensees, manufacturers,
distributors, dealers or independent salespersons of the Employer or any of
its affiliates which are engaged in the Employer's Business or that conduct
business with Employer in the United States; or induce, attempt to induce or
assist any other person or entity in inducing or attempting to induce,
directly or indirectly, any such customer, supplier, client, licensor,
licensee, manufacturer, dealer, distributor or independent salesperson to
discontinue their relationship with the Employer or its affiliates.
The existence of any claim or cause of action of Employee against
Employer, or any officer, director, or shareholder of Employer, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by Employer of the covenants of Employee contained in this
Section 3. In addition, the provisions of this Section 3 shall continue to
be binding upon Employee in accordance with its terms, notwithstanding the
termination of Employee for any reason.
If Employee violates any covenant contained in this Section 3 and
Employer brings legal action for injunctive or other relief, Employer shall
not, as a result of the time involved in obtaining the relief, be deprived
of the benefit of the full period of any such covenant. Accordingly, the
covenants of Employee contained in this Section 3 shall be deemed to have
durations as specified above, which periods shall commence upon the later of
(i) the termination of Employee's employment with Employer, and (ii) the
date of entry by a court of competent jurisdiction of a final, non-
appealable judgment enforcing the covenants of Employee in this Section 3.
During any period of time in which Employee is in breach of this covenant
not to compete, the parties agree that the time period of this covenant
shall be extended for an amount of time that Employee is in breach hereof.
Employee understands and agrees that the scope of this covenant
contained in this Section 3 is reasonable as to time, area, and persons and
is necessary to protect the proprietary and legitimate business interests of
the Employer, and but for such covenant the Employer would not have agreed
to enter into the transactions contemplated by this Agreement. Employee
agrees that this covenant is reasonable in light of the compensation and
other benefits Employee has accepted pursuant to this Agreement. It is
further agreed that such covenant will be regarded as divisible and will be
operative as to time, area, and persons to the extent that it may be so
operative. If any part of this Section is declared invalid, unenforceable,
or void as to time, area, or persons, the validity and enforceability of the
remainder will not be affected. Should a court of competent jurisdiction
determine this covenant unenforceable as written, the parties agree that the
court shall modify this covenant to the extent necessary to make it
enforceable. The alleged breach of any other provision of this Agreement
asserted by Employee shall not be a defense to claims arising from
Employer's enforcement of this covenant.
The provisions of Sections 1, 2, 3 4, 5, 6, 10 and 12 shall survive
any termination or expiration of this Agreement.
4. Proprietary Information. Employee hereby assigns to Employer
all of Employee's right, title and interest to, and shall promptly disclose
to Employer, all ideas, inventions, products, services, discoveries or
improvements (whether or not patentable) conceived or developed solely or
jointly by Employee during the term of this Agreement (a) which relate to
the business or the actual or anticipated research or development of
Employer, (b) which result from any work performed by Employee for Employer,
or (c) for which equipment, supplies, facilities or Confidential Information
of Employer was used. Employee agrees to execute any further documents
and/or patents that Employer requests and will otherwise assist Employer (at
Employer's expense) in protecting Employer's rights to such ideas,
inventions, products, services, discoveries or improvements. Employee
hereby appoints Employer as his attorney-in-fact, with full power of
substitution, to execute and deliver such documents or patents on behalf of
Employee. Employee represents to Employer that Employee has not conceived
or reduced to practice any ideas, inventions, products, services,
discoveries or improvements at the time of signing this Agreement.
5. Injunctive Relief. Each party acknowledges that a remedy at law
for any breach or attempted breach of this Agreement will be inadequate,
agrees that each party will be entitled to specific performance and
injunctive and other equitable relief in case of any breach or attempted
breach and agrees not to use as a defense that any party has an adequate
remedy at law. This Agreement shall be enforceable in a court of equity, or
other tribunal with jurisdiction, by a decree of specific performance, and
appropriate injunctive relief may be applied for and granted in connection
herewith. Such remedy shall not be exclusive and shall be in addition to
any other remedies now or hereafter existing at law or in equity, by statute
or otherwise. No delay or omission in exercising any right or remedy set
forth in this Agreement shall operate as a waiver thereof or of any other
right or remedy and no single or partial exercise thereof shall preclude any
other or further exercise thereof or the exercise of any other right or
remedy.
6. Binding Nature. The rights and obligations of Employer under
this Agreement will inure to the benefit of and will be binding upon the
successors and assigns of Employer.
7. Confidentiality. Employee further agrees to keep the terms of
this Agreement wholly and completely confidential. Further, Employee
agrees not to disclose the amount, terms, substance, or contents of this
Agreement to any person or persons, excluding only his spouse, his
attorneys, his tax advisors and any government agency to which he is
required by law to reveal the terms of this Agreement.
8. Severability. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, in whole or in part, then both
parties will be relieved of all obligations arising under such provision,
but only to the extent it is illegal, unenforceable or void. The intent and
agreement of the parties to this Agreement is that this Agreement will be
deemed amended by modifying and/or reforming any such illegal, unenforceable
or void provision to the extent necessary to make it legal and enforceable
while preserving its intent, or if such is not possible, by substituting
therefor another provision that is legal and enforceable and achieves the
same objectives. Notwithstanding the foregoing, if the remainder of this
Agreement will not be affected by such declaration or finding and is capable
of substantial performance, then each provision not so affected will be
enforced to the extent permitted by law.
9. Waiver. No delay or omission by either party to this Agreement
to exercise any right or power under this Agreement will impair such right
or power or be construed as a waiver thereof. A waiver by either of the
parties to this Agreement of any of the covenants to be performed by the
other or any breach thereof will not be construed to be a waiver of any
succeeding breach thereof or of any other covenant contained in this
Agreement. All remedies provided for in this Agreement will be cumulative
and in addition to and not in lieu of any other remedies available to either
party at law, in equity, or otherwise.
10. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Texas without giving effect to
any principle of conflict-of-laws that would require the application of the
law of any other jurisdiction.
11. Notices. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to Employee: If to Employer:
John Bals Sport Supply Group, Inc.
[ deleted for confidentiality ] Attention: Chief Executive Officer
1901 Diplomat Drive
Farmers Branch, Texas 75234
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
12. Submission to Jurisdiction. Each party agrees that this
Agreement is performable in Dallas, Dallas County, Texas, and that any
action or proceeding arising out of or related in any way to this Agreement
shall be brought solely in a court of competent jurisdiction sitting in
Dallas, Dallas county, Texas. All parties hereto hereby irrevocably submit
to the nonexclusive jurisdiction of the state and federal courts of the
State of Texas and agree and consent that service of process may be made
upon it in any proceeding arising out of this Agreement by service of
process as provided by Texas law. All parties hereto hereby irrevocably
waive, to the fullest extent permitted by law, any objection which it may
now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement brought in the
District Court of Dallas County, State of Texas, or in the United States
District Court for the Northern District of Texas, and hereby further
irrevocably waive any claims that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
14. Assignment. The rights and obligations of Employer may, without
the consent of Employee, be assigned by Employer to any parent, subsidiary,
affiliate, or successor of Employer. Employee may not assign any of his
rights or obligations under this Agreement.
15. Entire Agreement. This Agreement (along with the Exhibits)
constitutes the entire agreement between the parties to this Agreement with
respect to the subject matter of this Agreement and there are no
understandings or agreements relative to this Agreement which are not fully
expressed in this Agreement and the Exhibit. All prior or contemporaneous
agreements between the parties with respect to the subject matter of this
Agreement being expressly superseded by this Agreement and the Exhibit. No
change, waiver, or discharge of this Agreement will be valid unless in
writing and signed by the party against which such change, waiver, or
discharge is to be enforced.
16. Attorneys' Fees. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the prevailing party
shall be entitled to receive from the other its reasonable attorneys' fees,
costs, and necessary disbursements in addition to any other relief to which
such party may be entitled.
IN WITNESS WHEREOF, the parties to this Agreement have executed and
delivered this Agreement on the date first above written.
EMPLOYER:
SPORT SUPPLY GROUP, INC.
By:
---------------------------------------
John P. Walker
President
EMPLOYEE:
---------------------------------------
John Bals
EXHIBIT A
RELEASE
This Release (this "Agreement") is made and entered into on
____________, ___ (the "Effective Date") by and between Sport Supply Group,
Inc., a Delaware corporation (the "Company") and John Bals ("Bals").
WHEREAS, the Company and Bals entered into that certain Non-
Competition, Confidentiality and Severance Agreement dated ______________
(the "Severance Agreement").
WHEREAS, Bals's execution and delivery of this Agreement is a condition
precedent to Bals being paid pursuant to the terms of the Severance
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Bals agree as
follows:
1. Covenants and Agreements of Bals. Bals acknowledges and agrees that
the consideration he has accepted and received pursuant to the
Severance Agreement is not otherwise due to him. In consideration for
the compensation in the Severance Agreement, the receipt and
sufficiency of which are hereby acknowledged, Bals voluntarily and
knowingly:
a. Nondisparagement of Company. Agrees that after the date hereof, he
will not say, publish or do anything that casts the Company or any
of the Company's affiliates (including, without limitation,
successors, assigns, officers, directors, or employees), any of its
products or the industry or management of the Company or any of the
Company's affiliates in an unfavorable light, or disparage or injure
the Company's or any of the Company's affiliate's goodwill, business
reputation or relationship with existing or potential suppliers,
vendors, customers, employees, contractors, investors or the
financial community in general, or the goodwill or business
reputation of the Company's, or any of the Company's affiliates',
employees, former employees, officers, directors, consultants or
contractors. Notwithstanding the foregoing, nothing herein shall
prohibit Bals from truthfully testifying in a hearing, deposition or
other legal proceeding in which Bals could be criminally or civilly
sanctioned for the failure to respond truthfully.
b. Release. Hereby waives, releases and forever discharges and
covenants not to sue the Company and/or its predecessors;
successors; partners; affiliates, parents, or subsidiaries; assigns,
employee retirement, health and welfare benefit plans and the
fiduciaries thereof; officers; administrators; employees; former
employees; directors; trustees; shareholders; representatives;
attorneys; and agents, from all claims, liabilities, demands,
actions, or causes of action, in contract, tort or otherwise,
including but not limited to all wrongful discharge claims, all
tort, intentional tort, personal injury, negligence, defamation, and
contract claims, any claim for attorneys' fees, or any claim arising
from any federal, state or local civil rights and/or employment
legislation (including but not limited to Title VII of the Civil
Rights Act of 1964, as amended by the Civil Rights Act of 1991, the
Age Discrimination in Employment Act of 1967, the Americans with
Disabilities Act, and any claim for benefits, including but not
limited to those arising under the Employee Retirement Income
Security Act of 1974 ("ERISA")), known or hereafter discovered by
Bals, on account of or connected with or growing out of, directly or
indirectly, Bals's employment and termination thereof or any act or
omission by the Company or its agents occurring on or before the
Effective Date. By execution hereof, Bals represents, covenants,
and warrants that no claims released or waived herein have been
previously conveyed, assigned, or transferred in any manner, whether
in whole or in part, to any persons, entity, or other third party.
Bals expressly represents that he is competent and authorized to
release and/or waive any claim he may have against the Company on
any basis whatsoever.
c. Acknowledgment. Acknowledges that as of Effective Date: (i) Bals's
employment by the Company is lawfully and voluntarily terminated;
(ii) Bals has received all due and owing pay for all labor and
services performed by him for the Company; (iii) he has received or
been compensated for all salary, vacation time, sick leave,
compensatory time, reimbursable expenses, car allowance, personal
injuries, bonuses, profit-sharing, retirement, health, welfare,
pension, all rights under all employee benefits to which he may have
been entitled as of the Effective Date; (iv) he will promptly
reimburse the Company for all personal expenses incurred by Bals,
including, without limitation, travel advances; and (v) there are no
other agreements, whether written or oral, between Bals and the
Company, other than certain Stock Option Agreements that Bals may
have, and the Severance Agreement. The options governed by the
Stock Option Agreements, if any, may be exercised for a period of
one-hundred twenty (120) days after the Effective Date; thereafter,
the Stock Option Agreements will be deemed to be terminated and of
no further force or effect.
d. Transition. Agrees to cooperate and assist the Company in the
training of Bals's successor during the period of time in which Bals
is being paid pursuant to the Severance Agreement.
2. Conditions. It is expressly understood that the obligations and
agreements of the Company pursuant to this Agreement and the Severance
Agreement are expressly subject to the continuing performance by Bals
of the obligations, covenants and agreements assumed by him pursuant
hereto. In the event the Company's Board of Directors in good faith
determines Bals breached any representation, agreement, covenant or
obligation contained herein or in said Severance Agreement, the
agreements, covenants and obligations of the Company pursuant hereto
and the Severance Agreement shall terminate and be of no further force
or effect, without prejudice to any other right the Company may have
hereunder to performance of the agreements and obligations assumed by
Bals hereunder and the Severance Agreement.
3. Return of Property. Bals further agrees to return to the Company
(Attention: President), simultaneously with the execution of this
Agreement, all computers, computer disks or other magnetic storage
data, facsimile machines, telephones, credit cards, calling cards,
keys, security codes, and other property of the Company in Bals's
possession or control and all documents, records, notebooks, mailing
lists, business proposals, contracts, agreements and other repositories
containing information concerning the Company or its business, whether
copies or originals (including but not limited to all correspondence,
client and/or customer lists, vendor agreements, minutes or agenda(s)
for any meeting, hand-written notes, journals, computer printouts or
programs, office memoranda, other tangible items or materials).
4. Revocation of this Agreement. Bals further acknowledges and agrees
that he has the right to discuss all aspects of this Agreement with a
private attorney, and that he has done so to the extent he desires.
Bals acknowledges and understands that he has twenty-one (21) days to
sign this Agreement after receipt of it in order to fully consider all
of its terms. Bals further acknowledges and understands that this
Agreement may be revoked by him in writing within seven (7) days from
the date he signs it, and that this Agreement shall not become
effective or enforceable until eight (8) days after Bals has signed
this Agreement.
5. Full and Final Settlement. This Agreement is contractual, not a mere
recital, and is a full and final settlement of any and all claims each
party hereto may have against the other and its affiliates on any basis
whatsoever, and shall be binding on the each party hereto and their
heirs, personal representative(s), estate, successors and assigns.
6. Entire Agreement. This Agreement and the Severance Agreement
constitute the entire understanding Bals has with the Company and
supersedes any previous agreements (other than the Severance
Agreement), whether oral or written, between the Company and Bals. No
other promises or agreements regarding the matters addressed herein
shall be binding unless they are in writing and signed by Bals and the
Company.
7. No Continuing Waiver. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other
provisions, whether or not similar, nor shall any waiver constitute a
continuing waiver. Any waiver must be in writing and signed by the
party entitled to performance.
8. Attorneys' Fees. If any civil action, whether at law or in equity, is
necessary to enforce or interpret any of the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees,
court costs and other reasonable expenses of litigation, in addition to
any other relief to which such party may be entitled.
9. Confidentiality. Bals further agrees to keep the terms of this
Agreement and the Severance Agreement wholly and completely
confidential. Further, Bals agrees not to disclose the amount, terms,
substance, or contents of this Agreement or the Severance Agreement to
any person or persons, excluding only his spouse, his attorneys, his
tax advisors and any government agency to which he is required by law
to reveal the terms of this Agreement or the Severance Agreement. In
addition, Bals agrees not to use or disclose any Confidential
Information as defined in the Severance Agreement.
10. Injunctive Relief. Each party acknowledges that a remedy at law for
any breach or attempted breach of this Agreement will be inadequate,
agrees that each party will be entitled to specific performance and
injunctive and other equitable relief in case of any breach or
attempted breach and agrees not to use as a defense that any party has
an adequate remedy at law. This Agreement shall be enforceable in a
court of equity, or other tribunal with jurisdiction, by a decree of
specific performance, and appropriate injunctive relief may be applied
for and granted in connection herewith. Such remedy shall not be
exclusive and shall be in addition to any other remedies now or
hereafter existing at law or in equity, by statute or otherwise. No
delay or omission in exercising any right or remedy set forth in this
Agreement shall operate as a waiver thereof or of any other right or
remedy and no single or partial exercise thereof shall preclude any
other or further exercise thereof or the exercise of any other right or
remedy.
11. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Texas without giving effect to
any principle of conflict-of-laws that would require the application of
the law of any other jurisdiction.
12. Submission to Jurisdiction. Each party agrees that this Agreement is
performable in Dallas, Dallas County, Texas, and that any action or
proceeding arising out of our related in any way to this Agreement
shall be brought solely in a court of competent jurisdiction sitting in
Dallas, Dallas County, Texas. All parties hereto hereby irrevocably
submit to the nonexclusive jurisdiction of the state and federal courts
of the State of Texas and agree and consent that service of process may
be made upon it in any proceeding arising out of this Agreement by
service of process as provided by Texas law. All parties hereto hereby
irrevocably waive, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this
Agreement brought in the District Court of Dallas County, State of
Texas, or in the United States District Court for the Northern District
of Texas, and hereby further irrevocably waive any claims that any such
suit, action or proceeding brought in any such court has been brought
in an inconvenient forum.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
___________,_______.
SPORT SUPPLY GROUP, INC.
By: _________________ __________________
Name: John P. Walker John Bals
Title: President
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EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Athletic Training Equipment Company, Inc. ("ATEC")
Sport Supply Group Asia ("SSGA")
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EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
on Form S-8 No.'s 33-42056, 33-48514, 33-80028, 333-27193, and 333-36314 of
our report dated May 10, 2002, with respect to the consolidated financial
statements and schedule of Sport Supply Group, Inc. included in this Form
10-K for the fiscal year ended March 29, 2002.
ERNST & YOUNG LLP
Dallas, Texas
June 26, 2002