-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Blfm9+FQYNVvf8+xGEownNJbpAEfQ3bQTp5OezghIoaGsu5p2/ARc/19TlADN3na nV788qj7WoAER0vy7NWQig== 0000926236-01-500125.txt : 20010809 0000926236-01-500125.hdr.sgml : 20010809 ACCESSION NUMBER: 0000926236-01-500125 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010629 FILED AS OF DATE: 20010808 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPORT SUPPLY GROUP INC CENTRAL INDEX KEY: 0000872855 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 752241783 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10704 FILM NUMBER: 1700618 BUSINESS ADDRESS: STREET 1: 1901 DIPLOMAT DRIVE CITY: FARMERS BRANCH STATE: TX ZIP: 75234-8914 BUSINESS PHONE: 9724849484 10-Q 1 ssg02q1c.txt QUARTERLY PERIOD ENDED JUNE 29, 2001 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 29, 2001. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________. Commission File Number 1-10704 Sport Supply Group, Inc. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 75-2241783 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1901 Diplomat Drive, Farmers Branch, Texas 75234 - 8914 ------------------------------------------ ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 484-9484 Not Applicable Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceeding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicated below is the number of shares outstanding of each class of the registrant's common stock as of August 7, 2001. Title of Each Class of Common Stock Number Outstanding ----------------------------------- ------------------ Common Stock, $0.01 par value 8,914,606 shares PART I. FINANCIAL INFORMATION Item 1. Financial Statements. --------------------- Index to Consolidated Financial Statements Page ------------------------------------------ ---- Consolidated Balance Sheets (Unaudited) 3 Consolidated Statements of Operations (Unaudited) 4 Consolidated Statements of Cash Flows (Unaudited) 5 Notes to Consolidated Financial Statements (Unaudited) 6 SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 29, March 30, 2001 2001 ----------- ----------- (Unaudited) CURRENT ASSETS : Cash and equivalents $ 463,285 $ 1,271,096 Accounts receivable: Trade, less allowance for doubtful accounts of $925,000 at June 29, 2001 and $929,000 at March 30, 2001 14,189,285 19,128,835 Other 166,042 287,866 Inventories, net 19,640,350 21,050,539 Other current assets 944,545 847,212 Deferred tax assets 1,585,362 1,418,835 ----------- ----------- Total current assets 36,988,869 44,004,383 ----------- ----------- DEFERRED CATALOG EXPENSES 1,656,197 2,436,756 PROPERTY, PLANT AND EQUIPMENT : Land 8,663 8,663 Buildings 1,605,102 1,605,102 Computer Equipment & Software 11,640,908 11,635,763 Machinery and equipment 6,404,345 6,397,134 Furniture and fixtures 1,545,221 1,540,484 Leasehold improvements 2,437,801 2,434,451 ----------- ----------- 23,642,040 23,621,597 Less -- Accumulated depreciation and amortization (12,743,783) (12,214,075) ----------- ----------- 10,898,257 11,407,522 ----------- ----------- DEFERRED TAX ASSETS 4,081,390 4,081,390 COST IN EXCESS OF NET ASSETS ACQUIRED, less accumulated amortization of $1,958,000 at June 29, 2001 and $1,887,000 at March 30, 2001 7,655,495 7,726,516 TRADEMARKS, less accumulated amortization of $1,695,000 at June 29, 2001 and $1,646,000 at March 30, 2001 3,145,452 3,192,523 OTHER ASSETS, less accumulated amortization of $489,000 at June 29, 2001 and $655,000 at March 30, 2001 714,837 735,254 ----------- ----------- $ 65,140,497 $ 73,584,344 =========== =========== CURRENT LIABILITIES : Accounts payable $ 8,135,579 $ 13,613,835 Other accrued liabilities 1,821,804 1,929,357 Notes payable and capital lease obligations, current portion 72,786 78,604 ----------- ----------- Total current liabilities 10,030,169 15,621,796 ----------- ----------- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS, net of current portion 14,814,561 17,333,451 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, 9,359,759 shares issued at June 29, 2001 and March 30, 2001 8,914,606 shares outstanding at June 29, 2001 and March 30, 2001 93,598 93,598 Additional paid-in capital 48,099,109 48,099,109 Accumulated deficit (4,095,658) (3,762,328) Treasury stock, at cost, 445,153 shares at June 29, 2001 and March 30, 2001 (3,801,282) (3,801,282) ----------- ----------- 40,295,767 40,629,097 ----------- ----------- $ 65,140,497 $ 73,584,344 =========== =========== The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) -For The Three Months Ended- June 29, 2001 June 30, 2000 ----------- ----------- Net revenues $ 27,955,231 $ 30,756,664 Cost of sales 20,015,872 21,356,179 ----------- ----------- Gross profit 7,939,359 9,400,485 Selling, general & administrative expenses 8,118,150 9,167,115 Internet expenses 87,053 314,793 ----------- ----------- Operating loss (265,844) (81,423) Interest expense (332,365) (445,402) Other income (expense), net 75,378 (1,904) ----------- ----------- Loss before income taxes (522,831) (528,729) Benefit from income taxes 189,501 200,057 ----------- ----------- Net loss $ (333,330) $ (328,672) =========== =========== Loss per share: Net loss - basic $ (0.04) $ (0.05) =========== =========== Net loss - diluted $ (0.04) $ (0.05) =========== =========== Weighted average number of common shares outstanding - basic 8,914,606 7,272,558 =========== =========== Weighted average number of common shares outstanding - diluted 8,914,606 7,272,558 =========== =========== The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) -For The Three Months Ended- June 29, 2001 June 30, 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES : Net loss $ (333,330) $ (328,672) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 676,461 729,243 Provision for accounts receivable 108,586 114,391 Changes in assets and liabilities: (Increase) decrease in accounts receivable 4,952,788 3,885,492 (Increase) decrease in inventories 1,410,189 (528,974) (Increase) decrease in deferred catalog expenses and other current assets 683,226 1,023,465 Increase (decrease) in accounts payable (5,478,256) (1,266,319) (Increase) decrease in income tax receivable - 804,318 (Increase) decrease in deferred tax assets (166,527) 197,040 Increase (decrease) in accrued liabilities (107,553) (768,219) (Increase) decrease in other assets (7,897) (185,708) ----------- ----------- Net cash provided by operating activites 1,737,687 3,676,057 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES : Acquisitions of property, plant & equipment (20,790) (168,700) ----------- ----------- Net cash used in investing activities (20,790) (168,700) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES : Payments of notes payable and capital lease obligations (2,524,708) (3,713,784) Proceeds from common stock issuances - 16,047 ----------- ----------- Net cash used in financing activities (2,524,708) (3,697,737) ----------- ----------- NET CHANGE IN CASH AND EQUIVALENTS (807,811) (190,380) Cash and equivalents, beginning of period 1,271,096 351,512 ----------- ----------- Cash and equivalents, end of period $ 463,285 $ 161,132 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 308,246 $ 397,615 =========== =========== Cash paid (received) during the period for income taxes $ 60,089 $ (1,121,252) =========== =========== The accompanying notes are an integral part of these financial statements.
SPORT SUPPLY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 29, 2001 (Unaudited) Basis of Presentation --------------------- These consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of Sport Supply Group, Inc.'s ("SSG") consolidated financial position as of June 29, 2001 and the results of its operations for the three month period ended June 29, 2001. The consolidated financial statements include the accounts of SSG and its wholly-owned subsidiaries, Athletic Training Equipment Company, Inc., a Delaware corporation and Sport Supply Group Asia Limited, a Hong Kong corporation. All significant intercompany accounts and transactions have been eliminated in consolidation. Effective March 2001, Sport Supply Group, Inc. became a majority-owned subsidiary of Emerson Radio Corp. The consolidated financial statements also include estimates and assumptions made by management that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses, provisions for and the disclosure of contingent assets and liabilities. Actual results could materially differ from those estimates. Certain financial information for the previous fiscal year has been reclassified to conform with fiscal 2002 presentation. Note 1 - 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 June 29, 2001 and March 30, 2001, inventories consisted of the following: June 29, March 30, 2001 2001 ----------- ----------- Raw materials $ 3,131,749 $ 3,727,855 Work-in-progress 411,186 376,683 Finished and purchased goods 17,332,344 18,226,706 ----------- ----------- 20,875,278 22,331,244 Less inventory allowance for obsolete or slow moving items (1,234,929) (1,280,705) ----------- ----------- Inventories, net $ 19,640,350 $ 21,050,539 =========== =========== Note 2 - Stockholders' Equity ----------------------------- 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.) 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 10 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 (or a Stock Option Committee comprised of members of the Board of Directors). The following table contains transactional data for our stock option plan. For The Three Months Ended June 29, 2001 June 30, 2000 ------- --------- Options outstanding - beginning of period 906,929 1,097,199 Options granted 20,000 0 Options exercised 0 0 Options forfeited (1,375) (37,825) ------- --------- Options outstanding - end of period 925,554 1,059,374 ======= ========= Weighted average exercise prices $7.57 $7.78 ======= ========= Stock Options Outstanding Stock Options Exercisable ------------------------------ ------------------------- Wtd. Avg. Wtd. Avg. Wtd. Avg. Range of Remaining Exercise Exercise Exercise Prices Shares Life Price Shares Price --------------- ------ --------- --------- ------- --------- $1.38 - $9.44 925,554 6.7 yrs. $7.52 819,719 $7.59 Note 3 - Notes Payable and Capital Lease Obligations ---------------------------------------------------- As of June 29, 2001 and March 30, 2001, notes payable and capital lease obligations consisted of the following: June 29, March 30, 2001 2001 ---------- ---------- Note payable under revolving line of credit, Interest ranging from prime minus 0.25% to prime plus 1.0% (8.50% at March 30, 2001 and 7.00% at June 29, 2001) or LIBOR plus 2.5% (6.554% at June 29, 2001), due March 27, 2004, collateralized by substantially all assets. $14,625,319 $17,088,314 Capital lease obligation, interest at 9.0%, payable in annual installments of principal and interest totaling $55,000 through August 2005. 158,682 196,038 Other 103,346 127,703 ---------- ---------- Total 14,887,347 17,412,005 Less - current portion (72,786) (78,604) ---------- ---------- Long-term notes payable and capital lease obligations, net $14,814,561 $17,333,451 ========== ========== We have a three-year 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. Amounts outstanding under the senior credit facility are secured by substantially all the assets of the Sport Supply Group, Inc. and subsidiaries. At June 29, 2001 the available borrowings under this agreement were approximately $18.7 million of which approximately $14.6 million was outstanding. 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. Note 4 - Capital Structure -------------------------- As of June 29, 2001, our issued and outstanding capital stock consisted solely of common stock. We have 925,554 options outstanding under the stock option plan with exercise prices ranging from $1.38 to $9.44 per share, and 1,000,000 warrants outstanding with an exercise price of $7.50 per share. The warrants are scheduled to expire on December 10, 2001. If the options and warrants were exercised, all holders would have rights similar to common shareholders. Note 5 - Loss Per Common Share ------------------------------- Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution that could occur if securities convertible or exercisable into shares of common stock were converted or exercised into common stock. The following table sets forth the computation of basic and diluted loss per share: For the Three Months Ended June 29, June 30, 2001 2000 --------- --------- Numerator: Net loss $ (330,330) $ (328,672) ========= ========= Denominator: Weighted average common shares - basic 8,914,606 7,272,558 ========= ========= Weighted average common shares - diluted 8,914,606 7,272,558 ========= ========= Per Share Calculations: Net loss - basic $(0.04) $(0.05) ========= ========= Net loss - diluted $(0.04) $(0.05) ========= ========= Securites excluded from weighted average common shares diluted because their effect would be antidilutive 1,925,554 2,159,374 --------- --------- Note 6 - Recently Announced Accounting Pronouncements ----------------------------------------------------- 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 intend to adopt 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 amounts to approximately $142,000 for the six month period ended March 30, 2001 and approximately $71,000 for the three month period ended June 29, 2001, before any tax effects, will cease upon adoption of SFAS 142. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), as amended, which we adopted on September 30, 2000. SFAS 133 requires that all derivatives be recorded on the balance sheet at fair value. Changes in derivatives that are not hedges are adjusted to fair value through income. Changes in derivatives that meet the Statement's hedge criteria will either be offset through income, or recognized in other comprehensive income until the hedged item is recognized in earnings. The adoption of SFAS 133 on September 30, 2000 did not have any impact on our financial condition, results of operations or cash flows. 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, for our first quarter ended June 29, 2001, we classified shipping and handling fees of approximately $1.6 million as revenues in our consolidated statement of operations. The three month period ended June 30, 2000 has also been restated, resulting in shipping and handling fees of approximately $1.7 million being classified as revenues in our consolidated statement of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------- Results of Operations --------------------- Net Revenues. Net revenues decreased approximately $2.8 million (9.1%) for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. The decrease in net revenues is primarily the result of a general slow-down in the economy, competitive pressures in the marketplace, a slow-down in Government sales during the quarter, and a decline in youth baseball registrations. Gross Profit. Gross profit decreased approximately $1.5 million (15.5%) for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. As a percentage of net revenues, gross profit decreased to 28.4% from 30.6% for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. Gross profit decreased due to product mix shifts and pricing pressure in the institutional sporting goods marketplace. We expect to continue to experience a lower gross profit as a percentage of net revenue as compared to the previous year due to these factors. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased approximately $1.0 million (11.4%) for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. As a percentage of net revenues, selling, general and administrative expenses decreased to 29.0% from 29.8% for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. The decrease in selling, general and administrative expenses is primarily a result of the following: (i.) A decrease in selling and promotional expense of approximately $414,000 for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. This decrease is primarily a result of lower catalog expense as part of our cost reduction programs. We expect selling and promotional expense to be less than the comparable prior fiscal quarter for the quarter ended September 28, 2001 as a result of our cost reduction programs. (ii.) A decrease in payroll related expense of approximately $403,000 for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. This is a result of reduced headcount, primarily in the sales and sales administration areas. We have implemented cost reduction programs to reduce future operating expenses by migrating customers to our fully integrated websites, reducing catalog and other selling expenditures, renegotiating certain leases and contracts, consolidating operations, and reducing staff. We expect our Selling, General, and Administrative expenses to be approximately $500,000 to $800,000 less than the comparable prior year quarter for the quarter ending September 28, 2001. Internet Expense. We incurred internet related expenses of approximately $87,000 for the three month period ended June 29, 2001 as compared to approximately $315,000 for the three month period ended June 30, 2000. These expenses are related to the continued support and enhancement of our websites and web development to post electronic catalogs on the websites. Internet expenses were significantly higher in fiscal 2000 as we were developing our e-commerce sites. The major portion of the website development effort was completed in fiscal 2000. Consequently, we expect our Internet expenses to be approximately $500,000 less than the comparable prior year quarter for the quarter ending September 28, 2001. Interest Expense. Interest expense decreased approximately $113,000 (25.4%) for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. This decrease is due to lower overall borrowing levels. Net Loss. Net loss increased approximately $5,000 for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. Net loss per share decreased from $(0.05) to $(0.04) for the three month period ended June 29, 2001 as compared to the three month period ended June 30, 2000. Liquidity and Capital Resources ------------------------------- Our working capital decreased approximately $1.4 million during the three month period ended June 29, 2001, from $28.4 million at March 30, 2001 to $27.0 million at June 29, 2001. The decrease in working capital is primarily a result of a decrease in trade receivables of approximately $4.9 million, a decrease in inventories of approximately $1.4 million and a decrease in cash of approximately $800,000. These working capital decreases were partially offset by a decrease in trade payables of $5.5 million. We have a three-year 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. Amounts outstanding under the senior credit facility are secured by substantially all the assets of the Sport Supply Group, Inc. and subsidiaries. At June 29, 2001 the available borrowings under this agreement were approximately $18.7 million of which approximately $14.6 million was outstanding. 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. 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. We do not currently have any material commitments for capital expenditures. 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 June 29, 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 alternative capital spending programs. Our bank agreement currently prohibits the repurchase of any additional shares without the bank's prior consent. 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 a reduction in Government spending; 3. unanticipated disruptions or slowdowns; 4. high fixed costs; 5. competitive factors; 6. risk of nonpayment of accounts receivable; and 7. foreign supplier related issues. 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 as well as finished goods. Recently, increasing fuel prices have increased our cost of freight and the cost of petroleum based products such as foam and vinyl. In addition, the price of leather, which is a component of many of our products such as baseballs, gloves, basketballs, footballs, weightlifting belts, etc., has increased recently due to supply shortages caused by the hoof and mouth disease among cattle. 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. Approximately 7% of our fiscal year 2001 sales were made to the U.S. Government, a majority of which were made to military installations. Anticipated reductions in U.S. Government spending could reduce funds available to various government customers for sports related equipment, which could adversely affect 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 50% of our products using United Parcel Service ("UPS"). As experienced in 1997, 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. 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 reduce our paper and postage costs if we successfully migrate a significant portion 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 many new competitors as well as increased competition from established companies. We are facing significant competitors and competition from new entrants. 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 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) and political turmoil. The occurrence of any one or more of the foregoing could adversely affect our operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- There have been no significant changes from items disclosed in Form 10-K for the six month period ended March 30, 2001. PART II. OTHER INFORMATION Item 1. 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 2. Changes in Securities and Proceeds ---------------------------------- None. Item 3. Defaults Upon Senior Securities ------------------------------- (a) Not applicable. (b) Not applicable. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None. Item 5. Other Information ----------------- None. Item 6. Exhibits and Reports on Form 8-K -------------------------------- Exhibit Nbr. Description of Exhibit ------- ---------------------- (a) (1) Exhibit 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration No. 33-80028)). (a) (2) Exhibit 3.1.1 Certificate of Amendment of Amended and Restated Certificate of Incorporation to the Company (incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-8 (Registration No. 33-80028)). (a) (3) Exhibit 3.2 Amended and Restated Bylaws of the Company (incorporated by reference from Exhibit 3.2 to the Company's Report on Form 10-K for the year ended November 1, 1996). (a) (4) Exhibit 4.1 Specimen of Common Stock Certificate (incorporated by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-39218)). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: August 7, 2001 SPORT SUPPLY GROUP, INC. By: /s/ John P. Walker -------------------------- John P. Walker President By: /s/ Robert K. Mitchell -------------------------- Robert K. Mitchell Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----