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Emerson Fiscal Q1 CE Revenue Declines 41%

Parsippany, N.J. – Consumer electronics revenue dropped about 41 percent at Emerson Radio during the fiscal first quarter ending June 30, reaching $49.1 million, compared with $82.6 million in the same period last year.

In the first quarter of 2000, however, retail ordering patterns at Emerson departed from those typical of the CE industry, the company said.

With the exception of the first quarter in 2000, Emerson generally experiences stronger CE products demand from its customers in the fiscal quarters ending September 30 and December 31, partially due to a build-up of orders for the Christmas selling season.

However, in last year’s first quarter, at the insistence of retailers, a disproportionate amount of Christmas merchandise was shipped. This was based on retailers having insufficient stocking inventory in the prior holiday selling season, combined with shortages of chips and other components, reducing product availability for last year’s holiday season, the company said.

Due to this, Emerson’s first-quarter 2000 revenues were atypically strong. With the resumption of normalized ordering patterns, and to a lesser extent, weaker prevailing economic conditions, current first-quarter CE revenues took a big drop, compared with last year.

At the same time Emerson has been looking to improve margins in its core CE segment. Gross margin as a percent of revenue in the first quarter reached 15 percent, 240 basis points higher than the 12.6 percent recorded in the same three months last year. The improvement was attributable to the CE segment’s lower product returns and a greater impact of licensing revenue on the margins, since such licensing revenue has minimal associated costs.

Both CE operating income and net income as a percent of revenue climbed 100 basis points in the first quarter, with operating income hitting 6 percent and net income 5 percent.

“The gross margin improvement, in part, reflects the continued rewards of our various licensing agreements,” said Geoffrey P. Jurick, chairman/CEO. “The video license agreement with Funai – under which Funai manufactures, markets and distributes DVD players and recorders, televisions, TV combinations, set-top boxes and video cassette recorders and players that bear the Emerson brand in North America – is proving to be very successful,” he said.

“Furthermore, other licensing agreements are ramping up quite nicely, and we believe licensing activity will have a continued positive impact on operating results by generating royalty income with minimal costs, and without the necessity of utilizing working capital or accepting customer returns,” Jurick said.

“We expect net revenue under this agreement to build, culminating this year with the introduction of high definition and flat panel TVs, which we believe will open distribution for our products in consumer electronics and appliance chains. Globally, we are recognizing significant growth in sales of Emerson-branded products through our licensees.”

Emerson, which has a 52 percent interest in the Sport Supply Group, reported consolidated net revenue of $77.1 million in the first quarter, down 32 percent from the $113.3 million reported in the year-ago three months.

Consolidated net income dropped to $2.2 million in the first quarter, down from the $3 million reported in the same quarter in 2000.

Consolidated selling, general and administrative (SG&A) costs declined 20 percent, with the SG&A in the CE segment decreasing by 35 percent, due primarily to recoveries of previously reserved receivables, reduction in advertising costs and lower professional fees.