Emerson Radio Corp. Business Information, Profile, and History

Company Perspectives:

Emerson Radio's management team continues to respond well to a number of complex challenges and we are ready to advance, with the addition of new products, into new markets abroad and additional distribution channels domestically. Going confidently forward, we will build on the favorable trends developing in our core product line, licensing, sourcing, marketing and distributor arrangements.

History of Emerson Radio Corp.

Emerson Radio Corp. designs, sources, imports, and markets a variety of consumer electronics products, including television sets, video cassette recorders and players, TV/VCR combination units, home stereo and portable audio products, clock radios, and microwave ovens. These products are mainly sold, and sometimes licensed, under the Emerson and G Clef brand names. Emerson's role in the development of electronic home entertainment is an interesting footnote to American social history in the first half of the 20th century. Its evolution from manufacturer to licenser and outsourcer is an example of the deindustrialization of the United States in the second half of the century.

Fifty Years of Home Entertainment: 1915--65

Victor Hugo Emerson was an early recording engineer and executive who at one time was employed by Thomas A. Edison. In 1915 he established the Emerson Phonograph Co. in New York City. Emerson offered one of the last of the external-horn phonographs for only $3. Its main product, however, was Universal Cut Records, capable of being played laterally or vertically. A wide variety of popular, band, opera, classical, religious, and folk music was offered. Emerson opened factories in Chicago and Framingham, Long Island, in 1920 and described itself as the third largest record manufacturer. Nevertheless, in December of that year, it went into receivership, a victim of the precipitous sales slump for phonograph music that accompanied the post-World War I recession and the growth of commercial radio.

Emerson Phonograph Co. passed into the hands of Benjamin Abrams and Rudolph Kanarak in 1922. The Romanian-born Abrams, who had been working as a phonograph and record salesman, ran the company with two brothers and in 1924 entered the radio business, renaming the company Emerson Radio & Phonograph Corp. and subsequently selling its record interests. Emerson introduced the first radio-phonograph combination sold in the United States but remained an obscure firm until 1932, when, in the depths of the Great Depression, it introduced a "peewee" radio about 8 inches long and 6 inches wide. Of some 500,000 radios sold between the beginning of December 1932 and the end of May 1933, 300,000 were peewees, and Emerson made half of these, marketing a Universal Compact line priced from $17.95 to $32.50. Emerson still led in the production and sale of this class of radio in 1938, having by then sold more than a million.

Emerson Radio & Phonograph held one-sixth of the U.S. radio market in 1942, when the company converted to military production for World War II. It became a public corporation in 1943, when it offered over 40 percent of its stock to the public at $12 a share. Among Emerson's first postwar products was, in 1947, a television set with a 10-inch tube, retailing for $375. By June 1948 the infant television industry had sold 375,000 sets, and Emerson's price had dropped to $269.50. While this represented a month's salary for most working Americans, it put Emerson at the lower end of the market.

The unquenchable hunger for television enabled Emerson Radio & Phonograph to more than double its sales between fiscal 1948 and 1950. Its net income reached a record of $6.5 million in fiscal 1950 (the year ended October 31, 1950) on sales of $74.2 million. By 1954 radio represented only 15 percent of Emerson's revenue, although the company was credited--or credited itself--with such "firsts" as the clock radio, self-powered radio, and transistorized pocket radio. Emerson also entered air conditioning by purchasing the Quiet Heet Corp. in 1953 and began making tape recorders in 1955.

In 1958 Emerson Radio & Phonograph paid $6 million to purchase the consumer products division of Allen B. DuMont Laboratories, Inc. This acquisition added to Emerson's products a higher-priced line of television sets, plus phonographs and high-fidelity and stereo instruments, along with the DuMont trademark. By this time, however, almost every existing U.S. household that wanted a TV set had bought one, and many customers were waiting--vainly--for color television instead of buying a replacement set. Emerson's sales dropped from $87.4 million in fiscal 1955 to $73.9 million in fiscal 1956, when it earned a mere $84,852.

Abrams responded with a cost-cutting campaign that consolidated almost all manufacturing operations in a larger Jersey City plant and employed printed circuits for both radio and television output. Net income rebounded, reaching $2.7 million in fiscal 1959 on sales of $67.4 million. In fiscal 1964--Emerson's last full year of independent operation--it earned $2.1 million on sales of $68.2 million.

Trading on the Emerson Name: 1965--90

Emerson Radio & Phonograph was purchased in 1965 by National Union Electric Corp., a diversified manufacturer, for about $62 million in cash and stock. This company continued to produce television and radio sets and phonographs distributed under the Emerson and DuMont names and hi-fi equipment under the Pilot name. (Emerson had acquired the Pilot Radio Corp. from Jerrold Corp. in 1965.) Its line of Quiet Kool air conditioners became a separate National Union Electric division.

Emerson began operating in the red under National Union Electric, with the problem apparently too little volume to cover fixed costs. Between 1967 and 1971 the division lost about $27 million. To alleviate the problem, National Union in 1970 contracted out the manufacturing of the Emerson unit's television sets and some of its other home entertainment products to Admiral Corp., laying off 1,800 employees. Emerson continued to be responsible for design, engineering, and marketing and also imported some of its home entertainment products from the Far East.

In late 1972 National Union Electric announced that Emerson was discontinuing distribution of television sets and other home entertainment products. A license for marketing products under the Emerson name was sold to Brooklyn-based Major Electronics Corp. in 1973. Founded in 1948 by Melvin Lane and incorporated in 1956, this Brooklyn-based company originally made children's phonographs. Subsequently the company diversified into the production and sale of a broader line of low-priced home entertainment products, including stereos, radios, and clock radios. Major also began importing low-cost radios in 1971 and was only manufacturing portable phonographs in 1975. The company moved its headquarters to Secaucus, New Jersey, in 1976 and changed its name to Emerson Radio Corp. in 1977.

The new Emerson profited, its sales rising from $11.5 million in fiscal 1975 (the year ended March 31, 1975) to $49.2 million in fiscal 1978. From a net loss of $870,000 in 1975 the company advanced to net income of $1.5 million in 1978. That year it was importing, assembling, and marketing, primarily under the Emerson name, phonographs, radios, tape recorders and players, compact stereos, digital clock radios, and other low- and medium-priced electronic equipment. It was importing--for assembly in Secaucus or Sun Valley, California&mdashout 60 percent of its components from the Far East, 20 percent from Great Britain, and 20 percent domestically.

In 1980 Emerson Radio dropped its last U.S.-made product--the phonograph line--because labor costs had made it unprofitable. Despite the brutally competitive nature of its business, Emerson Radio raised its sales to $81.9 million in fiscal 1980 and its earnings to $1.6 million. Its strategy was to put its suppliers--chiefly in Taiwan and South Korea&mdashø work imitating Sony and Panasonic audio/video products and then selling them at a lower price. "I think most of the profits we've made have been because of controlling overhead and purchasing," company President Stephen Lane told Thomas Baker of Forbes in 1981. "Our travel and entertainment is the lowest in the industry. We take customers to breakfast rather than lunch. We run the company the way you're supposed to."

Emerson Radio started putting out a medical product, Heart Aid, after purchasing 80 percent of near-bankrupt Cardiac Resuscitator Corp. in 1979. The company spent heavily to develop and produce an improved defibrillator-pacemaker and a pacer. It also took an 18 percent share in a developer of computerized axial tomographic (CAT) scanners. This line of products never made money, and Emerson disposed of its holdings in them during 1987--88.

Emerson Radio's consumer electronics business was faring better. The company's reintroduction of television sets in 1983, purchased from South Korea's Goldstar Electric Co. but sold at a higher price level, caused sales to soar from $94.8 million in fiscal 1983 to $181.6 million in fiscal 1984, when net income came to $9.1 million. That year it introduced a product line of video cassette recorders (VCRs). Emerson's other products at this time were portable, clock, and telephone-clock radios; portable cassette player-recorders; modular and compact stereo systems; and stereo rack systems. A compact disc player and microwave oven were introduced late in 1984. In fiscal 1985 sales doubled again, to $357.5 million, and net income rose to $13.3 million. TV sets and VCR's accounted for two-thirds of sales that year.

In 1985 Emerson Radio moved its headquarters to North Bergen, New Jersey, and acquired H.H. Scott Inc., a manufacturer of high-fidelity audio and visual equipment, selling products under the Scott name until 1991, when the line was discontinued. Emerson began importing and marketing compact refrigerators in 1986. It added camcorders, telephones, and answering machines to its product line in fiscal 1988. Personal computers and facsimile machines were subsequently added, with a major 1990 rollout to more than 500 Wal-Mart stores. Sales reached a peak of $891.4 million two years later. Net income, however, was an unimpressive $10.4 million, considering the company's sales volume, while short-term debt climbed to $162.9 million.

Seeking to Survive in the 1990s

The recession that began in 1990 and the entry into personal computers--which eventually proved a $150 million loser--were disastrous to Emerson Radio. The company incurred a loss of $37.5 million in the last nine months of the year. Shares of stock fell as low as $2, compared to a high of $12.75 in 1987. Several shareholder suits charged some Emerson directors and officials with breach of fiduciary duty and self-dealing. Emerson also fell into technical default on its long-term debt, which was $55.4 million at the end of the year, by exceeding its ratio of liabilities to assets.

A Swiss firm, Fidenas Investment Ltd., began purchasing shares of Emerson Radio stock in 1989. By 1992 it held a 20 percent stake--more than that held by Stephen and William Lane--and began a takeover attempt. The Lane brothers, who were seeking to restructure $180 million in debt, conceded defeat in June 1992. Emerson's financial situation worsened, and in fiscal 1993 the company incurred a loss of $56 million on sales of $741.4 million. When it filed for bankruptcy in October 1993, Emerson had been in default on $223 million in debt for the past two years. It emerged from bankruptcy four months later, with Fidenas paying $75 million for a 60-percent stake. Creditors took a ten percent share in the firm, now based in Parsippany, New Jersey.

In order to cut its costs, Emerson Radio in early 1995 licensed the manufacture of certain video products under the Emerson and G Clef trademarks for a three-year period to Otake Trading Co. Ltd. and the sale of these products in the United States and Canada for the same period to Wal-Mart Stores, Inc. As a result, Emerson's net sales fell from $654.7 million in fiscal 1995 to $245.7 million in fiscal 1996. The licensing agreement provided about $4 million a year in royalty income.

Emerson Radio entered the home theater and car audio fields in 1995. It also entered the $900-million-a-year home and personal security market with a carbon monoxide detector and eventually planned to lend its name to burglar alarms, motion detectors, personal alarms, smoke detectors, and safety lights. The company left this field, however, in fiscal 1997. Emerson also announced it would license the Emerson name to more than 250 audio and video accessories made by Jasco Products Co., an Oklahoma firm selling cables, remote controls, and appliance cleaning devices. In late 1996 the company took a 27 percent stake in Sport Supply Group, Inc., the largest direct-mail distributor of sporting goods equipment and supplies to the U.S. institutional market, for $11.5 million.

On the expiration of Emerson's licensing agreement with Otake, this company was replaced by Daewoo Electronics Co. Ltd., which entered into a four-year agreement with Emerson to manufacture and sell television and video products bearing the Emerson and G Clef trademark to U.S. retailers. Emerson, in 1999, also had five-year license/supply agreements with Cargil International covering the Caribbean and Central and South American markets and WW Mexicana for certain consumer products to be sold in Mexico. In addition, it had a licensing agreement with Telesound Electronics for telephones, answering machines, and caller ID products in the United States and Canada.

After earning net income of $7.4 million in fiscal 1995, Emerson fell into the red the following three years, losing $13.4 million, $24 million, and $1.4 million in fiscal 1996, 1997, and 1998, respectively, on net revenues of $245.7 million, $178.7 million, and $162.7 million. Geoffrey P. Jurick, Fidenas's owner, held 60 percent of Emerson's common stock in December 1998. He had been chief executive officer of the company since 1992 and in 1998 also held the titles of president and chairman of the board.

In December 1998 Oaktree Capital Management, a Los Angeles-based investment firm that held a smaller stake in Emerson Radio, and Kenneth S. Grossman, a private investor, proposed to buy Jurick's holdings in the company for more than $14.6 million. This offer was rejected as inadequate. According to one account, Oaktree's real interest in the company was its stake--now 39 percent, counting warrants--in Sports Supply Group. Emerson announced in August 1999 that it planned to sell this stake to Oaktree for $28.9 million.

Emerson Radio had net income of $289,000 on net revenues of $158.7 million in fiscal 1999 and a long-term debt of $20.8 million at the end of the fiscal year. Some 84 percent of its merchandise in fiscal 1999 was imported, primarily from China, Hong Kong, Malaysia, South Korea, and Thailand. Tonic Electronics (32 percent), Daewoo (22 percent), and Imarflex (12 percent) were its chief suppliers. The company was heavily dependent on two customers: Wal-Mart Stores, which took about 52 percent of its goods in fiscal 1999, and Target Stores, Inc., which took about 24 percent.

Principal Subsidiaries: Emerson Radio (Hong Kong) Ltd.; Emerson Radio International Ltd.