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The following is an excerpt from a 10-K SEC Filing, filed by SPORT SUPPLY GROUP INC on 11/26/1997.
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SPORT SUPPLY GROUP INC - 10-K - 19971126 - BUSINESS

Item 1. Business.

General

Sport Supply Group, Inc. (the "Company" or "SSG") believes it is the largest direct mail marketer of sports related equipment and leisure products to the institutional market in the United States. The Company principally serves the institutional market, which is comprised primarily of schools, colleges, universities, government agencies, military facilities, athletic clubs, youth sports leagues and recreational organizations. SSG offers a broad line of institutional-grade equipment and provides after-sale customer service through the use of sales personnel strategically located in certain large metropolitan areas (the "Metro Marketing Group"). See Item 1. -- "Business - Sales and Marketing." The Company believes that prompt delivery of a broad range of institutional-grade products at competitive prices differentiates it from the retail sporting goods stores that primarily serve the consumer market. The Company also serves the local sporting goods team dealer market principally with its MacGregor brand products. The Company markets approximately 8,000 sports related equipment products to over 100,000 institutional, retail, mass merchant and team dealer customers and maintains over 200,000 names in mailing lists.

In May 1996, the Company made the strategic decision to dispose of its golf operations to focus on its core institutional business. On May 20, 1996 as part of this plan of disposal, the Company sold virtually all of the assets of its Gold Eagle Professional Golf Products Division, which sold golf accessory products to the retail market. In addition to the sale of Gold Eagle, the Company adopted a plan to dispose of the remaining operations of its retail golf segment and classified these operations as discontinued. On March 28, 1997, the Company disposed of substantially all of the remaining assets of the discontinued operation to Nitro Leisure Products, Inc., a Delaware corporation. The discussion in this Report on Form 10-K regarding the Company's business, unless otherwise noted, relates only to the Company's continuing operations (i.e., core institutional business). Consequently, the Company will no longer report segment information about this operation. For a discussion regarding the Company's discontinued operations, see Note 10 to the consolidated financial statements included in Item 8. -- "Financial Statements and Supplementary Data."

The Company's net revenues have increased from $47 million in 1991 to $79.1 million for the eleven month period ended September 26, 1997. The Company attributes its high level of growth to the successful development of an effective mail order marketing program and competitive pricing that have led to greater market penetration and to the development of, and increase in, the Company's manufacturing capabilities.


On December 10, 1996, pursuant to a Securities Purchase Agreement dated November 27, 1996 between Emerson Radio Corp. ("Emerson") and the Company (the "Purchase Agreement"), Emerson acquired directly from the Company (i) 1,600,000 shares of newly- issued Common Stock (the "Emerson Shares") for an aggregate cash consideration of $11,500,000, or approximately $7.19 per share, and
(ii) 5-year warrants (the "Emerson Warrants") to acquire an additional 1,000,000 shares of Common Stock at an exercise price of $7.50 per share, subject to standard anti-dilution adjustments, for an aggregate cash consideration of $500,000. In addition, Emerson agreed to arrange for foreign trade credit financing of $2 million for the benefit of the Company to supplement the Company's existing credit facilities. If all of the Emerson Warrants are exercised, Emerson will own approximately 36% of the issued and outstanding shares of Common Stock. See Item 12 -- Security Ownership of Certain Beneficial Owners and Management" and Item 13 -- "Certain Relationships and Related Transactions."

The Company is a Delaware corporation incorporated in 1982 and in 1988 became the successor of an operating division of Aurora Electronics, Inc. (f/k/a BSN Corp. and referred to herein as "Aurora"). Prior to the completion of the initial public offering of 3,500,000 shares of the Company's common stock in April, 1991, the Company was a wholly-owned subsidiary of Aurora. The Company has one wholly-owned subsidiary, Sport Supply Group International Holdings, Inc., a shell corporation that formerly held the operations of the Gold Eagle Canada Division that was sold in May 1996.

The Company's executive offices are located at 1901 Diplomat Drive, Farmers Branch, Texas 75234 and its telephone number is (972) 484-9484.

Products

The Company believes it manufactures and distributes one of the broadest lines of sports related equipment and leisure products for the institutional market. SSG offers approximately 8,000 sporting goods and sports related products, over 3,000 of which it manufactures. The product lines offered by SSG include archery, baseball and softball, basketball, camping, football, tennis and other racquet sports, gymnastics, indoor recreation, physical education, soccer, field hockey, lacrosse, track and field, volleyball, weight lifting, and exercise equipment.

The Company believes brand recognition is important in the institutional and team dealer markets. Most of SSG's products are marketed under trade names or trademarks owned or licensed by the Company. SSG believes its trade names and trademarks are well recognized among institutional purchasers of sports related equipment. SSG intends to continue to expand its product and brand name offerings by actively pursuing product, trademark and trade name licensing arrangements and acquisitions. The Company's trademarks, service marks, and trade names include the following:


. Official Factory Direct Equipment Supplier of Little League Baseball (See discussion below).

. Voit[R] -- institutional sports related equipment and products, including inflated balls and baseball and softball products (licensed from Voit Corporation - 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 - see discussion below).

. Alumagoal[R] -- track and field equipment, including starting blocks, hurdles, pole vault and high jump standards and crossbars.

. AMF -- gymnastics equipment (licensed from AMF Bowling, Inc. - see discussion below).

. BSN[R] -- sport balls and mail order catalogs.

. Champion -- barbells, dumbbells and weight lifting benches.

. Curvemaster[R] -- baseball and softball pitching machines.

. Fibersport -- pole vaulting equipment.

. Gamecraft -- field and floor hockey equipment, soccer equipment, scorebooks, coaching equipment, and table tennis 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 -- 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.

. Safe-Squat -- specialty weight lifting squat machines.

. Toppleball[R] -- recreational ball games.

. U.S. Games, Inc.[R] -- goals, nets, playing equipment for physical exercise games and mail order catalogs.

The Voit license permits the Company to use the Voit[R] trademark in connection with the manufacture, advertisement, and sale to institutional customers and sporting goods dealers of specified institutional sports related equipment and products, including inflated balls for all sports and baseball and softball products. The Company is required to pay annual royalties under the license equal to the greater of a certain percentage of revenues from the sale of Voit products or a minimum royalty as set forth in the License Agreement. The initial term of the Voit license expired on December 31, 1989, and was subject to three renewal options for consecutive terms of five years each. SSG has exercised two renewal periods, and currently is permitted to use the Voit trademark through December 31, 1999.

In February, 1992, the Company acquired two separate licenses to use several trade names, styles, and trademarks (including, but not limited to, MacGregor[R]). Each license permits the Company to manufacture, promote, sell, and distribute to institutional sporting goods customers (subject to certain exceptions) in the United States, Canada, and Mexico, specified institutional sports related equipment and products relating to baseball, softball, basketball, soccer, football, volleyball, and general exercise. Each license is royalty- free and exclusive with respect to certain customers and non- exclusive with respect to others. Each license is perpetual provided the Company generates a predetermined minimum amount of revenues each year from the sale of products bearing the MacGregor trademark, maintains certain quality standards for such products and services, and does not commit any default under the license agreements that remains uncured for a period of 30 days after the Company receives notice of such default. The Company has converted a substantial portion of its products to the MacGregor[R] brand, which is believed to be one of the most widely recognized trade names in the industry. These products are being sold to customers using the Company's existing marketing channels. See Item 1. -- "Business - Sales and Marketing."


On August 19, 1993, the Company 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. The Company is required to pay an annual royalty under the license equal to the greater of:
(i) a certain percentage of net revenues from the sale of AMF products; or (ii) a minimum royalty as set forth in the license agreement. The minimum royalty increases by a predetermined percentage each year the license agreement is in effect. The initial term of the agreement expired on December 31, 1995, and was subject to three renewal options for consecutive terms of one year each through December 31, 1998. SSG exercised its first two renewal options, and currently is permitted to use the AMF name through December 31, 1997. The Company may also renew the license agreement after December 31, 1997, subject to certain provisions contained in the license agreement.

On December 15, 1995, the Company entered into a three year agreement with Little League Baseball, Incorporated that, among other things, names the Company as the "Official Factory Direct Equipment Supplier of Little League Baseball." On August 15, 1997, the Company and Little League Baseball extended the expiration of this agreement to December 31, 2001. The Company is required to pay an annual fee to keep the agreement in effect each year.

In addition to the foregoing, the Company has acquired (or had issued) a number of patents relating to products sold by the Company. The following is a list of some of the patents owned by the Company:
(i) 2 separate patents relating to a Power Squat/Weight Lifting Apparatus (expire May 20, 2003 and June 23, 2004, respectively); (ii) Baseball Hitting Practice Device (expires May 9, 2006); (iii) 2 separate patents relating to Football Digital Display Markers (expire June 27, 2006 and November 28, 2006, respectively); (iv) Tennis Net and Method of Making (expires October 1, 2008); (v) Rotator Cuff Exercise Machine (expires January 29, 2008); (vi) Portable Balance Beam (expires July 28, 2009); and (vii) Holder for Beverage Containers (expires August 16, 2011).

Sales and Marketing

The Company markets its products through four primary marketing divisions: 1) Sport Supply Group; 2) The Athletic Connection;
3) Youth Sports; and 4) U.S. Games.

The Sport Supply Group marketing division markets SSG's products to institutional customers through catalogs, outbound telemarketing, and bid related sales efforts. SSG publishes two primary catalogs designed for institutional customers: BSN[R] Sports, and New England Camp and Recreation. Master catalogs containing a broad variety of the Company's products are sent to all customers and potential customers on the Company's mailing lists. Seasonal or specialty supplements are prepared and mailed periodically to certain accounts that pertain to particular sports, such as weight training, baseball or track and field. SSG services its existing accounts and solicits new customers with a total of over 2.2 million pieces of mail each year, including approximately 2.0 million catalogs.


The Company's mailing lists, developed over 20 years, are carefully maintained, screened, and cross-checked. SSG frequently buys and rents lists that it attempts to screen, improve, and cross reference before incorporating them into the Company's master list. The master list is subdivided into various combinations designed to place catalogs in the hands of individual purchase decision makers. The master list is also subdivided by relevant product types, seasons, and customer profiles.

While SSG maintains a strong institutional customer base in rural and small metropolitan areas, the institutional markets in large metropolitan areas have historically been dominated by local sporting goods dealers and retailers. Over the last several years, there has been a growing trend of large metropolitan area school districts, city recreation departments, and other institutions submitting proposed purchases through competitive bids. In response to this trend, SSG intensified its bid related sales efforts by having its Metro Marketing Group target large metropolitan area school districts and institutions in an effort to include SSG's products among those specified on bid invitations.

The U.S. Games marketing division was established to market certain of the Company's products to elementary schools and the preschool market.

The Athletic Connection marketing division was established in 1992 to market certain of the Company's products, principally MacGregor brand products, to sporting goods team dealers who also market these products to institutional customers. Products are marketed through annual catalogs and commissioned sales representatives to team dealers as opposed to institutional customers targeted by the Sport Supply Group marketing division.

The Youth Sports marketing division concentrates on selling team sports products to independent youth leagues. The Youth Sports division utilizes outbound telemarketing, outside salesmen and a master catalog in conjunction with a supplier contract with Little League Baseball, Inc. to reach this marketplace. In addition to equipment and uniforms, the Youth Sports division also provides trophies and fund raising products. On May 15, 1996, SSG entered into a five-year Advertising and Distribution Agreement with Hershey Chocolate U.S.A. Pursuant to this Agreement, SSG advertises and distributes promotional materials featuring Hershey fund raising programs and products to youth sports leagues and teams and also sells Hershey Chocolate products to its customers. The Youth Sports division has entered into Promotional Agreements with Pizza Hut, Lever Brothers, Lionel Trains, and Warner-Lambert (Bubbilicious) in an effort to leverage SSG's direct marketing and distribution network. These relationships help offset marketing costs and create valuable brand-name recognition.


Customers

The Company's revenues are not dependent upon any one or a few major customers. Instead, the Company enjoys a very large and diverse customer base. The Company's 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 and team dealer suppliers. SSG believes its customer base in the United States is the largest in the institutional direct mail market. The Company's 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. While institutions are subject to budget constraints, once allocations have been made, aggregate levels of expenditures are typically not reduced.

Approximately 7%, 8%, and 10% of the Company's sales in fiscal 1997 (which consisted of the eleven months ending September 26, 1997), 1996, and 1995 (which consisted of the 10 months ending October 31, 1995), respectively, were to the United States Government, a majority of which sales were to military installations. SSG has a contract with the General Services Administration (the "GSA Contract") that grants the Company an "approved" status when attempting to make sales to military installations or other governmental agencies. The existing GSA Contract expires in December 2001. Under the GSA Contract, the Company agrees to sell approximately 700 products to United States Government agencies and departments at catalog prices or at prices consistent with any discount provided to other customers of the Company. Products sold to the United States Government under the GSA Contract are always sold at the Company's lowest offered price. The Company also has a contract with the General Services Administration for the sale of approximately 40 camp related products with terms similar to the GSA Contract. This contract expires in August 2002.

SSG also sells products not covered by the GSA Contract to United States Government customers, although the appropriation process for purchases of these products differs. These sales are made through a U.S. Government non-appropriated fund contract. This contract is administered by the United States Air Force and is scheduled to expire on September 30, 1999. See Note 6 to the consolidated financial statements included in Item 8. -- "Financial Statements and Supplementary Data."

Seasonal Factors and Backlog

Historically, SSG's revenues have peaked in the second and third calendar quarters of each year due primarily to the budgeting procedures of many of its customers and the seasonal demand for product offered by the Company. Less revenues are generated in the first and fourth calendar quarters because of the reduced demand arising from decreased sports activities, adverse weather conditions inhibiting customer demand, holiday seasons and school recesses. See Note 12 to the consolidated financial statements included in Item 8. -- "Financial Statements and Supplementary Data."


SSG had a backlog for continuing operations of approximately $2,526,000 at September 26, 1997, compared to approximately $2,174,000 at November 1, 1996.

Manufacturing and Suppliers

The Company manufactures many of the products it distributes at its four manufacturing facilities. See Item 2. -- "Properties." Game tables, gym mats, netting, and tennis and baseball equipment are manufactured in the Company's two Anniston, Alabama plants. Gymnastics equipment is manufactured at SSG's facility in Cerritos, California. Items of steel and aluminum construction, such as soccer field equipment and weight room equipment, are principally manufactured at SSG's facilities in Farmers Branch, Texas.

Certain products manufactured by the Company are custom-made (such as tumbling mats ordered in color or size specifications), while others are standardized. The principal raw materials used by the Company 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, wood, slate, and cloth. Except as noted above, items not manufactured by SSG are purchased from various suppliers primarily located in the United States, the Republic of China (Taiwan), South Korea, Australia, the Philippines, Thailand, the People's Republic of China, Pakistan, and Germany. SSG has no significant purchase contracts with any major supplier of finished products, and most products purchased from suppliers are readily available from other sources. The Company purchases most of its finished product in U.S. dollars and is therefore not subject to exchange rate differences.

Competition

SSG competes in the institutional market principally with local sporting goods dealers and retail sporting goods stores, which collectively dominate the institutional market. Dealers and retail stores occasionally fill institutional orders with Company products. The Company has identified approximately 15 other direct mail companies in the institutional market. SSG believes that most of these competitors are substantially smaller than SSG in terms of geographic coverage, products offered, and revenues.

The Company competes in the institutional market principally on the basis of price, product availability and customer service. SSG believes it has an advantage in the institutional market over traditional sporting goods retailers and team dealers because its selling prices do not include comparable price markups attributable to wholesalers, manufacturers, and/or distributors. In addition, the Company's ability to control the availability of goods it manufactures enables it to respond more rapidly to customer demand. SSG believes its direct mail competitors operate primarily as wholesalers and distributors, with little or no manufacturing capability.


While large sporting goods companies such as Wilson Sporting Goods Co., Spalding Sporting Goods, a division of Evenflo, Inc., Rawlings Sporting Goods, and Russell Athletic Company dominate the marketing of sports related equipment in the United States, SSG does not compete directly with such companies. Rather, certain of these companies supply products to SSG as well as retail sporting goods stores and team dealers, the Company's primary competitors in the institutional market.

Government Regulation

Many of the Company's products are subject to 15 U.S.C. SS 2051- 2084 (1992 and Supp. 1996), 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 which 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 the Company's products, SSG is periodically subject to product liability claims resulting from personal injuries. The Company from time to time may become involved in various lawsuits incidental to the Company's business, some of which will relate to claims of injuries allegedly resulting in substantial permanent paralysis. Significantly increased product liability claims continue to be asserted successfully against manufacturers and distributors 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."

There can be no assurance that the Company's general product liability insurance will be sufficient to cover any successful product liability claims made against the Company. Any claims substantially in excess of the Company's insurance coverage, or any substantial claim not covered by insurance, could have a material adverse effect on the Company's results of operations and financial condition.

Employees

On September 26, 1997, SSG had approximately 395 full-time employees in its core institutional business, 146 of whom were involved in the Company's manufacturing operations. SSG also hires part-time and temporary employees primarily during the summer months. None of the Company's employees are represented by a union, and the Company believes its relations with employees is good.


EXECUTIVE OFFICERS OF THE COMPANY

                                                           Year
                                                          First
                                                          Became
     Name           Age           Present Position       Officer

Geoffrey P.          57     Chairman of the Board and      1996
Jurick                      Chief Executive Officer

Peter S.             49     President and Chief            1991
Blumenfeld                  Operating Officer

John P. Walker       34     Executive Vice President       1996
                            and Chief Financial Officer

Terrence M.          35     General Counsel and            1995
Babilla                     Secretary

All officers are elected for a term of one year or until their successors are duly elected.

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