1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000
COMMISSION FILE NUMBER 0-6966
ESCALADE, INCORPORATED
----------------------
(Exact name of registrant as specified in its charter)
Indiana 13-2739290
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(State of incorporation) (IRS EIN)
817 Maxwell Avenue, Evansville, Indiana 47717
---------------------------------------------
(Address of principal executive office)
(812) 467-1200
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(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act
NONE
Securities registered pursuant to Section 12(g) of the Act
Common Stock, No Par Value
--------------------------
(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. _____X_____
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. ____________
Aggregate market value of voting stock held by nonaffiliates of the registrant
as of March 2, 2001: $28,124,718
The number of shares of Registrant's common stock (no par value) outstanding as
of March 2, 2001: 2,165,862
Documents Incorporated by Reference
Certain portions of the registrant's Proxy Statement relating to its annual
meeting of stockholders scheduled to be held on April 28, 2001 are incorporated
by reference into Part III of this Report.
Index to Exhibits is found on page 14.
2
ESCALADE, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
- ----------------------------------------------------------------------------------------------------------------------------
PART I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 7. A. Quantitative and Qualitative Disclosures About Market Risk 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 12
PART III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 14
3
PART I
ITEM 1--BUSINESS
GENERAL
Escalade, Incorporated (Escalade or Company) is a diversified company engaged in
the manufacture and sale of sporting goods products and office and graphic arts
products. Escalade and its predecessors have produced sporting goods products
for over 70 years and have produced office and graphic arts products for over 60
years.
Escalade is the successor to The Williams Manufacturing Company, an Ohio-based
manufacturer and retailer of women's and children's footwear formed in 1922.
Through a series of acquisitions commencing in the 1970's, the Company has
diversified its business. The Company currently manufactures sporting goods
products in Evansville, Indiana and Tijuana, Mexico and manufactures office and
graphic arts products in Wabash, Indiana, Los Angeles, California and Tijuana,
Mexico.
In 1972, the Company merged with Martin Yale Industries, Inc. (Martin Yale), an
Illinois manufacturer of office and graphic arts products and leisure time items
such as toys and hobby and craft items. In 1973, the Company acquired both
Indian Industries, Inc. (Indian), an Indiana manufacturer of archery equipment
and table tennis tables, and Harvard Table Tennis, Inc., a Massachusetts
manufacturer of table tennis accessories. Escalade discontinued the Williams
Manufacturing footwear operations in 1976 and sold Martin Yale's leisure time
product line to an unaffiliated party in 1979. In 1980, the Company purchased
Harvard Sports, Inc. (formerly Crown Recreation (West), Inc.), a California
manufacturer of table tennis tables and home pool tables. In 1983, the Company
closed Harvard Table Tennis, Inc. and consolidated it with Harvard Sports, Inc.
(Harvard).
Escalade has diversified within both the sporting goods products and office and
graphic arts products industries, principally through the introduction of new
product lines and acquisitions of related assets and businesses. Escalade
expanded its sporting goods business in 1982 with the introduction of basketball
backboards, goals and poles. In 1988, the Company acquired the business machine
division assets of Swingline, Inc., further expanding the range of products
offered within the office machine and equipment product lines. In 1989, the
Company started limited manufacturing in Tijuana, Mexico under a shelter program
known as "maquiladora". In 1990, the Company built a new manufacturing and
office facility in Wabash, Indiana and consolidated the manufacturing of office
and graphic arts products into the new facility. In 1992, the Company
established a European distribution office and warehouse based in the United
Kingdom under the name of Escalade International, Limited and then in 1999 the
Company sold 50% of the stock of Escalade International to an investment group
who assumed responsibility for running the day-to-day operations. In 1994, the
Company purchased certain assets of Data-Link Corporation which manufactured
products to apply postage and other stamps. In 1997, the Company purchased
Master Products Manufacturing Company, Inc. (Master Products), a manufacturer of
paper punches and catalog rack systems. In 1999, the Company acquired certain
assets of Mead Hatcher which manufactured keyboard drawers, computer storage,
copyholders, media retention systems and posting trays. Also, in 1999, the
Company purchased the assets of Zue Corporation which manufactured high quality
basketball systems. In 2000, the Company purchased the table tennis table assets
of Lifetime Products, Inc.
Escalade's sporting goods products are produced by Indian and Harvard and are
sold through a single consolidated sales and marketing group, Escalade Sports.
Escalade's office and graphic arts products are produced by Martin Yale and
Master Products and are sold through a single consolidated sales and marketing
group, Martin Yale.
In 2000, the Company established a new subsidiary, Indian-Martin AG, a Swiss
corporation. The sole operation of Indian-Martin AG is to purchase accounts
receivable from the Company's manufacturing subsidiaries on a periodic basis.
Such purchases are funded by proceeds from the collection of the accounts
receivable and through borrowings under a $30 million line of credit provided to
Indian-Martin AG by Bank One, Indianapolis, National Association. This accounts
receivable purchase program enhances the Company's cash flow and results in
certain tax savings to the Company. As of December 30, 2000, Indian-Martin AG
owned and held approximately $27.2 million of accounts receivable purchased from
the Company's manufacturing subsidiaries.
The following table presents the percentages contributed to Escalade's net sales
by each of its business segments:
FISCAL YEAR 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Sporting goods 69% 61% 67%
Office and graphic arts products 31 39 33
-----------------------------------------------------
Total net sales 100% 100% 100%
=====================================================
For additional segment information, see the notes to consolidated financial
statements.
4
SPORTING GOODS
Escalade manufactures and sells a variety of sporting goods such as table tennis
tables and accessories, archery equipment, home pool tables and accessories,
combination bumper pool and card tables, game tables, basketball backboards,
goals, poles and portables, darts, and dart cabinets. Some of Escalade's
domestic sporting goods shipments are made from National City, California, which
primarily services the Company's U. S. Western marketing region, but most of
such shipments are made from Evansville, Indiana, which primarily serves the
rest of the United States. The majority of foreign shipments are made through
Escalade FSC Inc., a foreign sales corporation established by the Company in
1994.
Escalade produces and sells sporting goods under the Indian Archery, Harvard,
Xi, Ping Pong, Stiga, Goalrilla, Goaliath, Silverback, Rhino Play, Accudart and
Winmau brand names. Escalade also manufactures various sporting goods under
private label for Sears Roebuck & Co. (Sears) and various other customers. Many
of Escalade's products are sold to Sears, Escalade's largest customer, which
accounted for approximately 45% of Escalade's sporting goods items net sales in
2000. No other customer accounted for more than 10% of Escalade's sporting goods
net sales in 2000.
Certain of the Company's sporting goods products are subject to the regulation
of the Consumer Product Safety Commission. The Company believes that it is in
compliance with such regulations.
In December 1998, the Company adopted a plan to discontinue its distribution
operations. Those operations were performed by Escalade International, Limited a
foreign subsidiary located in the United Kingdom. The Company's other
subsidiaries are all manufacturing operations, except for Indiana-Martin AG and
Escalade FSC, Inc. On July 8, 1999, the Company completed a transaction to sell
50% of the stock of Escalade International to an investment group who assumed
responsibility for running the day-to-day operations. The sale was for $500,000
with $50,000 cash paid and notes receivable of $450,000.
The estimated loss on the disposal of Escalade International, Limited was
$1,222,279 including a provision of $250,000 for operating losses during
phaseout. The actual loss on the sale was $1,118,892 which included $213,057 in
operating losses up to the time of sale. 1999 shows a profit of $103,387 which
was the amount by which the reserve for loss on this transaction exceeded actual
losses. Since only 50% was sold, the operations are not considered discontinued
and the financial statements have been revised to eliminate discontinued
operations. Going forward, the Company's ownership value in Escalade
International will be shown as an investment and will be accounted for under the
equity method.
In December 1999, the Company purchased the assets of Zue Corporation which
manufactured high quality basketball systems.
In January 2000, the Company purchased the table tennis table assets of Lifetime
Products, Inc.
(2)
5
OFFICE AND GRAPHIC ARTS PRODUCTS
Escalade's office and graphic arts products include paper trimmers, paper
folding machines, paper drills, collators, decollators, bursting machines,
letter openers, paper joggers, checksigners, stamp affixers, paper shredders,
paper punches, paper cutters, catalog rack systems, bindery carts, business card
slitters, thermography machines, keyboard drawers, computer storage,
copyholders, media retention systems, posting trays and related accessories.
Escalade's office and graphic arts products business is conducted through Martin
Yale and Master Products.
In 1986, the Company introduced a combination checksigner and bursting machine,
which automatically imprints facsimile signatures on payroll checks and then
separates each check for distribution. The Company also further diversified its
office equipment product lines by its August 1988 purchase of the business
machine division assets of Swingline, Inc. consisting primarily of a line of
forms handling equipment including decollators, bursters and checksigners and a
line of shredders and other products, by its 1994 purchase of certain assets of
Data-Link Corporation consisting primarily of products which apply postage and
other stamps, by its 1997 purchase of Master Products, a manufacturer of paper
punches and catalog rack systems, by its 1998 purchase of certain assets of
Steele Industries consisting primarily of its line of business card slitters and
thermography machines and by its 1999 purchase of certain assets of Mead Hatcher
consisting of keyboard drawers, computer storage, copyholders, media retention
systems and posting trays.
Escalade produces and sells office and graphic arts products under the Martin
Yale brand name, the Premier(R) trademark and the Master Products brand name.
The Company also manufactures various office and graphic arts products under
private label for original equipment manufacturers. Three customers individually
accounted for more than 10% of Escalade's office and graphic arts products sales
but not more than 10% of consolidated sales.
RELATIONSHIP WITH SEARS
The Company has supplied sporting goods to Sears for over 30 years beginning
with sales of archery equipment by Indian to Sears. Sears currently purchases
for resale a wide variety of Escalade's sporting goods. Sales to Sears accounted
for approximately 31% in 2000, 28% in 1999 and 25% in 1998 of Escalade's
consolidated sales. Even though the Company has no long-term contracts with
Sears, the Company believes that sales to Sears will continue and that relations
with Sears are good.
Escalade has been awarded the coveted Sears "Partners in Progress Award" for
2000 and has been recognized by Sears for its outstanding service in 12 of the
last 15 years and in 22 of the last 28 years. Sears has awarded Escalade the
Sears "Partners in Progress Award" during those years based upon quality,
service and product innovation. Sears makes this award to less than 80 suppliers
each year. During this period, Sears had more than 10,000 suppliers. In 1987,
Sears further recognized the Company by awarding Escalade the Sears 1986 "Source
of the Year Award" in the recreation-automotive group.
(3)
6
MARKETING AND PRODUCT DEVELOPMENT
Escalade has developed its existing product lines to adapt to changing
conditions. Escalade believes that it is prepared to react to changing market
and economic developments primarily by continuing the quality/price structure of
the Company's product lines and by conducting ongoing research and development
of new products. Escalade is committed to being customer focused.
For many of its sporting goods products, Escalade offers its customers a choice,
based on quality and price, of its line of "good, better and best" items. Such
products are priced in relation to their quality which enables the Company to
sell its goods through a variety of department stores, mass merchandisers,
wholesale clubs, catalog showrooms, discount houses, general sporting goods
stores, specialty sporting goods stores and hardware chains. As a result of such
quality/price structure, Escalade is able to meet the quality/price objectives
of the consumers served by such retail channels.
Escalade sells its office and graphic arts products through office machine
dealers, office supply houses and office product catalogs. Certain of Escalade's
office products, such as paper trimmers and paper folders, are marketed in a
quality/price range designed to accommodate customer needs. Lower cost items are
generally intended for light duty office applications, whereas higher cost items
are more rugged or more sophisticated, and are intended for use in heavy duty or
commercial applications.
Escalade conducts much of its marketing efforts through a network of independent
sales representatives in the office and graphic arts industries. Marketing
efforts in the sporting goods business are coordinated through a marketing
department as well as through a network of Company and independent sales
representatives.
The Company engaged in ongoing research and development activities for new
products in each of its business segments. Escalade spent approximately
$1,700,000 in 2000, $1,450,000 in 1999 and $1,500,000 in 1998 for research and
development activities.
COMPETITION
Escalade is subject to competition with various manufacturers of each product
line produced or sold by Escalade. The Company is not aware of any other single
company that is engaged in both the same industries as Escalade or that produces
the same range of products as Escalade within such industries. Nonetheless,
competition exists for many Escalade products within both the sporting goods and
office and graphic arts industries and some competitors are larger and have
substantially greater resources than the Company. Escalade believes that its
long-term success depends on its ability to strengthen its relationship with
existing customers, to attract new customers and to develop new products that
satisfy the quality and price requirements of sporting goods and office and
graphic arts customers.
(4)
7
LICENSES, TRADEMARKS AND BRAND NAMES
Escalade Sports has an agreement and contract with Sweden Table Tennis AB for
the exclusive right and license to distribute and produce table tennis equipment
under the brand name STIGA for the United States and Canada. Escalade Sports is
also the exclusive distributor of Winmau Products and brand names for the United
States.
Escalade is the owner of several registered trademarks and brand names. For its
sporting goods, the Company holds the Ping-Pong(R), Harvard(R), Accudart(R), and
Goaliath(R), registered trademarks and utilizes the Indian Archery(TM), Xi(TM),
Goalrilla(TM), Silverback(TM) and Rhino Play(TM) brand names. The Company
permits limited uses of the Ping-Pong(R) trademark by other manufacturers
pursuant to various licensing agreements. The Company also owns the Premier(R)
registered trademark for its office and graphic arts products, in addition to
manufacturing such products under the Martin Yale and Master Products brand
names.
SEASONALITY
The backlog of unshipped orders by industry segment is shown below at the
Company's 2000, 1999 and 1998 fiscal year end. All orders in backlog at year end
are generally shipped during the following year. The backlog includes all orders
received but not shipped. Escalade's sporting goods business is seasonal and,
therefore, the backlog is subject to fluctuations. Due to the heavy Christmas
season demand for the Company's sporting goods products, 71% to 75% of the
sporting goods sales are made in the last two quarters of the year. The office
products and graphic arts products business is generally consistent and does not
have significant seasonality fluctuations.
YEARS ENDED DECEMBER 30, DECEMBER 25
AND DECEMBER 26 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Orders received but not shipped
Sporting goods $1,566,800 $1,912,800 $1,266,400
Office and graphic arts products 558,400 632,000 438,000
EMPLOYEES
The Company employs between 625 and 725 employees, consisting of between 250 and
300 people at Indian's Evansville, Indiana facilities, between 100 and 150 at
Harvard's National City, California and Tijuana, Mexico facilities,
approximately 125 employees at Martin Yale's Wabash, Indiana facilities and
approximately 150 at Master Products' Los Angeles, California and Tijuana,
Mexico facilities. The number of employees at the Company's Evansville, Indiana,
National City, California and Tijuana, Mexico sporting goods facilities
increases in the last half of the year to handle the higher Christmas season
demand for the Company's sporting goods products. All hourly rated employees at
Evansville are represented by the International Union of Electronic, Electrical,
Salaried, Machine and Furniture Workers AFL-CIO, whose contract expires April
27, 2003.
Escalade believes that its employee relations are satisfactory.
SOURCES OF SUPPLIES
Raw materials for Escalade's various product lines consist of wood, particle
board, slate, standard grades of steel, steel tubing, plastic vinyl, steel
cables, fiberglass and packaging. Escalade relies upon European suppliers for
its requirement of billiard balls and slate utilized in the production of home
pool tables and upon various Asian manufacturers for certain of its table tennis
needs and other items.
The Company believes that these sources will continue to provide adequate
supplies as needed. All other materials needed for the Company's various
operations are available in adequate quantities from a variety of domestic and
foreign sources.
(5)
8
ITEM 2--PROPERTIES
The Company operates the following facilities:
LOCATION SIZE LEASED OR OWNED
- ------------------------------------------------------------------------------ ------------------- -------------------------
Evansville, Indiana (1) 346,000 sq. ft. Owned
National City, California (1) 51,024 sq. ft. Leased
Tijuana, Mexico (1) 50,000 sq. ft. Owned
Wabash, Indiana (2) 141,000 sq. ft. Owned
Los Angeles, California (2) 72,312 sq. ft. Owned
Tijuana, Mexico (2) 15,000 sq. ft. Leased
(1) Sporting goods facilities
(2) Office products facilities
The Company leases warehousing and office space at its National City, California
facilities and the term of the lease is five years. The lease rate ranges from
$223,736 in year one to $272,971 in year five. The Company also shares in common
area expenses not to exceed 8(cent) per sq. ft. per month. The lease expires
January 31, 2006.
The Company's Wabash facilities are held subject to a mortgage financed by
Economic Development Revenue Bonds. The 141,000 square foot facility is a
pre-engineered metal building supported by structured steel and concrete block
consisting of 21,000 square feet warehousing, 6,000 square feet office and
114,000 square feet manufacturing.
The Company also leases warehousing space next to its Evansville facility for
$18,142 per month. The lease expires on October 31, 2002. The Company has two
two-year renewal options followed by two five-year renewal options.
The Company leases space in Tijuana, Mexico for its office products operations
for $67,128 per year. The lease expires on July 31, 2002.
The Company rents additional space in Tijuana, Mexico for its sporting goods
operations for $45,802 per year. The lease term is month-to-month.
The Company believes that its facilities are in excellent condition and suitable
for their respective operations. The Evansville, Wabash and Tijuana sites also
contain several undeveloped acres which could be utilized for expansion.
The Company believes that all of its facilities are in compliance with
applicable environment regulations and is not subject to any proceeding by any
federal, state or local authorities regarding such matter. The Company provides
regular maintenance and service on its plants and machinery as required.
ITEM 3--LEGAL PROCEEDINGS
The Company is involved in litigation arising in the normal course of its
business. The Company does not believe that the disposition or ultimate
resolution of such claims or lawsuits will have a material adverse affect on the
business or financial condition of the Company.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K and
Instruction 3 to Item 401(b) of Regulation S-K, the following list is
included as an unnumbered item in Part I of this Report in lieu of
being included in the definitive proxy statement for the Company's 2001
Annual Meeting of Stockholders. The following is a list of the names
and ages of all of the executive officers of the Company indicating all
positions and offices held by each such person as of the date of this
Report. Each of the executive officers has served the Company in
various executive capacities throughout the past five years. All such
persons have been elected to serve until the next annual election of
officers and their successors are elected, or until their earlier
resignation or removal.
Age as of Offices and First Elected
Name March 9, 2001 Positions Held An Officer
- -----------------------------------------------------------------------------------------------------
Robert E. Griffin 66 Chairman 12/76
C.W. "Bill" Reed 54 CEO and President 2/94
John R. Wilson 59 Vice President and CFO 12/76
(6)
9
PART II
ITEM 5--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock is traded under the symbol "ESCA" on the Nasdaq
National Market. The following table sets forth, for the calendar periods
indicated, the high and low sales prices of the Common Stock as reported by the
Nasdaq National Market:
PRICES HIGH LOW
- ----------------------------------------------------------------------------------------------------------------------------
2000
First quarter ended March 18, 2000 $17.75 $ 9.75
Second quarter ended July 8, 2000 18.25 14.94
Third quarter ended September 30, 2000 20.31 17.13
Fourth quarter ended December 30, 2000 24.75 18.63
1999
First quarter ended March 20, 1999 $21.00 $17.00
Second quarter ended July 10, 1999 18.00 14.75
Third quarter ended October 2, 1999 18.38 15.63
Fourth quarter ended December 25, 1999 17.63 13.56
The closing market price on March 2, 2001 was $21.56 per share.
On February 24, 2000, the Company announced an offer to purchase up to 700,000
shares of its common stock at a price of $14.50 to $18 per share through a Dutch
Auction tender offer. Pursuant to such offer, the Company purchased 758,312
shares of its common stock at $18.00 per share.
In the fourth quarter of 1998, on December 21, 1998, the Company announced that
Escalade's Board of Directors declared a special cash dividend of $1.00 per
share to shareholders of record January 8, 1999. The dividend was declared at
Escalade's Regular Board Meeting, December 19, 1998. The dividend was paid on
January 22, 1999.
There were approximately 280 holders of record of the Company's Common Stock at
March 2, 2001. The approximate number of stockholders, including those held by
depository companies for certain beneficial owners, was 730.
(7)
10
ITEM 6--SELECTED FINANCIAL DATA (In thousands, except per share data)
DECEMBER 30, December 25, December 26, December 27, December 28,
AT AND FOR YEARS ENDED 2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Net sales
Sporting goods $79,948 $52,767 $63,072 $66,666 $74,077
Office and graphic
arts products 36,133 33,407 30,486 24,836 19,132
Total net sales 116,081 86,174 93,558 91,502 93,209
Net income 8,100 6,100 6,136 6,361 5,247
Weighted-average shares 2,361 3,038 3,095 3,110 3,850
PER SHARE DATA
Basic earnings per share $3.43 $2.01 $1.98 $2.05 $1.36
Cash dividends 0 0 1.00 0 0
BALANCE SHEET DATA
Working capital 12,485 14,899 15,763 15,478 13,309
Total assets 69,476 66,850 63,489 66,145 54,430
Short-term bank debt 13,267 11,570 10,100 14,075 13,675
Long-term bank debt 12,700 10,700 6,400 10,700 5,500
Total stockholders' equity 23,960 29,438 26,702 23,501 19,305
(8)
11
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
2000 was an excellent year for the Company. Net sales, net income and basic
earnings per share were at an all time high. The Company's successful repurchase
of its shares through its Dutch Auction tender offer in the first quarter of
2000 reduced the number of outstanding shares by over 25%.
Escalade Sports successfully integrated the acquisition of substantially all of
the assets of Zue Corporation, a manufacturer of high quality basketball systems
and certain assets of the table tennis business of Lifetime Products, Inc. In
February, 2001, Escalade Sports also acquired substantially all of the assets of
Accudart Corporation, America's leading name in darts. Escalade Sports is
currently experiencing a significant sales growth in its game parlor products,
including table tennis, pool and game tables and accessories, and its high
quality basketball systems. The game tables and accessories are imported
products and are becoming a bigger portion of sporting goods sales. These
imports carry lower gross profit margins than many of the products manufactured
in the United States. The Company expects the sales of imported products to
continue to increase.
Martin Yale completed the integration of the acquisition of certain assets of
Mead Hatcher and experienced an increase in office and graphic arts products net
sales in 2000. However in the fourth quarter there was a reduction in the
incoming order rate which is expected to continue into 2001. The Company
believes that the overall slowdown in the U.S. economy may be adversely
impacting orders for Martin Yale's products. The magnitude of any such impact is
uncertain at this time. The Company also expects that Martin Yale will actively
explore ways to reduce operating costs during 2001 in order to improve profit
margins. The Company has not yet seen any signs that the economy is impacting
the Escalade Sports business, although the credit worthiness of customers could
be affected in the future.
In 2000, net sales increased 34.7%, or $29,907,000 to $116,081,000 from
$86,174,000 in 1999.
Sporting goods net sales increased by $27,181,000, or 51.5% from $52,767,000 to
$79,948,000. 79% of this increase was in game parlor which includes table
tennis, pool and game tables and accessories and was due to an increase in units
sold. 21% was in high quality basketball systems from the Zue Corporation
acquisition.
Office and graphic arts products net sales increased by $2,726,000, or 8.2% to
$36,133,000 from $33,407,000. Most of this increase was due to the Mead Hatcher
acquisition.
Cost of sales of $79,320,000 as a percentage of net sales was 68.3% in 2000 as
compared to $60,038,000, or 69.7% in 1999. This decrease in cost of sales was in
sporting goods and office and graphic arts products and was due to lower factory
expense as a percentage of net sales. The two primary reasons for the decreases
in factory expense as percentage of the net sales were that while net sales
increased 34.7%, factory expenses did not increase as much and secondly, the
product mix was different in 2000 than in 1999. In 2000, the Escalade Sports
sold more imported products that did not require any manufacturing, which caused
the factory expense to sales percentage to decreases.
Selling, administrative and general expenses in 2000 were $20,253,000, or 17.5%
of net sales as compared to $15,524,000, or 18% in 1999. This decrease in
selling, general and administrative expense as a percentage of net sales was in
the office and graphic arts products segment. This decrease was due to higher
sales volume and not having the Y2K costs in 2000 that were increased in 1999.
Interest expense in 2000 was $2,092,000 as compared to $616,000 in 1999, an
increase of $1,476,000, or 239.6%. This increase in interest expense was due to
higher borrowing levels and higher interest rates.
The income tax provision for 2000 was $5,174,000 for an effective rate of 39%.
Net income for the year was $8,100,000 as compared to $6,100,000 in 1999. Both
segments net income was up over $1,400,000 in 2000 which was offset by increased
interest expense at corporate for a net increase of $2,000,000.
(9)
12
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1999 COMPARED TO 1998
1999 was a year of significant shift in the Company's business strategy by
committing to build both the Sporting Goods and Office/Graphic Arts products
businesses. In 1998, the Company actively pursued the sale of its Sporting Goods
business so that it could focus on building its more profitable Office/Graphic
Arts business. In 1999, it was determined that there were no immediate prospects
for selling the Sporting Goods business on favorable terms, and as a result,
refocused efforts on and regaining momentum in the Sporting Goods business.
Evidence of the renewed commitment was Escalade Sports' fourth quarter
acquisition of substantially all the assets of Zue Corporation, a manufacturer
of upper end basketball systems. In January 2000, Escalade Sports acquired the
table tennis assets of Lifetime Corporation. Additionally during 1999, Martin
Yale acquired certain assets of Mead-Hatcher, a manufacturer of computer
accessories.
The 1999 operating income declined due to a variety of factors, including higher
than expected Y2K compliance costs at Martin Yale; unusually high variances at
Martin Yale due to one-time costs incurred in shifting a product overseas
because of competitive pricing pressure and some operational inefficiencies;
lower Sporting Goods sales; and product label and warranty expenses in Sporting
Goods.
In 1999, net sales decreased 7.9%, or $7,384,000 to $86,174,000 from $93,558,000
in 1998.
Sporting goods net sales decreased by $10,305,000, or 16.3% from $63,072,000 to
$52,767,000. 72% of this decrease was mainly in game parlor which includes table
tennis, pool and game tables and accessories and was due to a decrease in units
sold. 28% was due to the disposal of Escalade International, Limited.
Office and graphic arts products net sales increased by $2,921,000, or 9.6% to
$33,407,000 from $30,486,000. Most of this increase was due to the Mead Hatcher
acquisition on June 21, 1999.
Cost of sales of $60,038,000 as a percentage of net sales was 69.7% in 1999 as
compared to $62,626,000, or 66.9% in 1998. This increase in cost of sales was in
sporting goods and was mainly due to lower sales volume reducing factory expense
absorption and some product labeling and warranty issues.
Selling, administrative and general expenses in 1999 were $15,524,000, or 18% of
net sales as compared to $17,041,000, or 18.2% in 1998. The decreases in
selling, general and administrative expenses in the sporting goods segment
totalled $2,574,000 or 31.3% and were offset by increases in the office and
graphic arts machines and equipment segment of $1,826,000 or 25.4%. These
increases were due to Y2K expenses and catalog allowances.
Interest expense in 1999 was $616,000 as compared to $1,118,000 in 1998, a
decrease of $502,000, or 55.1%. This decrease in interest expense was due to
lower borrowing levels in 1999.
The income tax provision for 1999 was $3,542,525 for an effective rate of 36.7%.
Net income for the year was $6,100,000 as compared to $6,136,000 in 1998. Lower
operating profit in 1999 was offset by lower interest expense, no loss on
terminated sporting goods sale and a small gain as opposed to a loss on disposal
of Escalade International as compared to 1998. Consequently, the net income
levels are similar in both years.
(10)
13
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
The Company's net cash provided by operating activities was $11,533,587,
$14,908,085 and $8,575,091 in 2000, 1999 and 1998. Inventory management provided
(used) cash of $(3,156,221), $1,655,781 and $(10,009) in 2000, 1999 and 1998.
Accounts receivable provided (used) cash of $(1,775,023), $5,971,315 and
$(561,035) in 2000, 1999 and 1998.
INVESTING ACTIVITIES
The Company's net cash used by investing activities was $2,266,008, $12,816,722
and $1,399,086 in 2000, 1999 and 1998. The Company used $915,667, $1,104,897 and
$1,067,546 in 2000, 1999 and 1998 to purchase property and equipment. In 1999,
the Company used $7,969,672 to purchase certain assets of Zue Corporation and
$3,481,170 to purchase certain assets of Mead Hatcher. In 2000, the Company used
$1,400,000 to purchase certain assets of Lifetime Products. The Company expects
that it will continue to explore additional acquisition opportunities.
FINANCING ACTIVITIES
Net cash used by financing activities in 2000, 1999 and 1998 was $9,876,849,
$675,720 and $8,082,003. In 1998, the Company paid $7,800,000 on long-term debt.
At year end, the short-term debt had decreased $475,000 from 1997. In 1999, the
Company paid $6,000,000 on long-term debt and borrowed $10,000,000 additional
long-term debt for acquisitions. In 2000, the Company paid $10,500,000 and
borrowed $10,500,000 of long-term debt and also used $13,687,908 to purchase its
common stock.
The Company's short term working capital requirements are funded by cash flow
and a $30,000,000 revolving line of credit used to finance the purchase of trade
receivables by the Company's Swiss subsidiary from the Company's manufacturing
subsidiaries. The Company utilizes a Borrowing Base formula which defines and
identifies eligible accounts receivables in order to calculate the maximum
amount that could be borrowed under this revolving line of credit. At December
30, 2000, the maximum amount that could be drawn under this line of credit was
$24,004,811 of which $13,267,135 was used.
The $30,000,000 revolving line of credit had an initial scheduled maturity date
of May 14, 2001, which date can be extended upon the agreement of the parties.
The maturity date has been extended until May 13, 2002. Indian-Martin AG's
borrowings under this line of credit are not guaranteed by, and are without
recourse to, the Company or any of the Company's subsidiaries. This line of
credit replaced the Company's prior $12,000,000 short term revolving line of
credit.
The Company's long term financing requirements are currently funded by a
$20,500,000 revolving term loan which expires March 31, 2005. Under the terms of
the credit agreement, which was amended in May 2000, the maximum borrowing
available to the Company under this revolving term loan is reduced by $4,100,000
on March 31 of each year until the line expires. The May 2000 amendment
increased the amount of available borrowing from the prior maximum amount of
$10,000,000. The Company uses this revolving term loan from time to time to
finance acquisitions, stock buy backs and other material obligations that may
arise. The Company believes that future long term funding for acquisitions,
stock buy backs or other material obligations deemed appropriate by the
Company's Board of Directors is available from similar credit vehicles and/or
other financial institutions.
The Company declared no cash dividends during 1999 and 2000. On December 21,
1998, the Company announced that Escalade's Board of Directors declared a
special cash dividend of $1.00 per share to shareholders of record January 8,
1999. The dividend was declared at Escalade's Regular Board Meeting, December
19, 1998 and was paid on January 22, 1999.
EFFECT OF INFLATION
The Company cannot accurately determine the precise effects of inflation;
however, there were some increases in sales and costs due to inflation in 2000.
The Company attempts to pass on increased costs and expenses through price
increases when necessary. The Company is working on reducing expense levels,
improving manufacturing technologies and redesigning products to keep these
costs under control.
CAPITAL EXPENDITURES
As of December 30, 2000, the Company had no material commitments for capital
expenditures.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements relating to present or future
trends or factors that are subject to risks and uncertainties. Escalade's future
financial performance could differ materially from the expectations of
management contained herein. Escalade undertakes no obligation to release
revisions to these forward-looking statements after the date of this report.
(11)
14
ITEM 7. A.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Item 8 are set forth
in Part IV, Item 14.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
(12)
15
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required under this item with respect to Directors and Executive
Officers is contained in the registrant's Proxy Statement relating to its annual
meeting of stockholders held on April 28, 2001 under the captions "Certain
Beneficial Owners" and "Election of Directors" and is incorporated herein by
reference.
ITEM 11--EXECUTIVE COMPENSATION
Information required under this item is contained in the registrant's Proxy
Statement relating to its annual meeting of stockholders held on April 28, 2001
under the caption "Executive Compensation" and is incorporated herein by
reference, except that the information required by Items 402(k) and (l) of
Regulation S-K which appear within such caption under the sub-headings
"Compensation and Stock Option Committees", "Report of Audit Committee" and
"Financial Performance" are specifically not incorporated by reference into this
Form 10-K or into any other filing by the registrant under the Securities Act of
1933 or the Securities Exchange Act of 1934. In addition, the following table
regarding stock option grants made in 2000 to the Company's executive officers
in provided in lieu of the analogous table that was included in such proxy
statement.
The following table shows information concerning individual grants of
options to purchase the Company's common stock made in 2000 to the Company's
executive officers.
INDIVIDUAL GRANTS IN 2000
Potential Realized Value
Percent of at Assumed Annual Rates of Stock
Total Options Price Appreciation for Option Term
Options Granted To (5)
Granted Employees in Exercise Price Expiration -----------------------------------
Name (# Shares) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------------------------------------
Robert E. Griffin 924(1) 5.15% $15.69 4/28/04 4,001(3) 8,852(3)
- ----------------------------------------------------------------------------------------------------------------------
C.W. "Bill" Reed 7,500(2) 41.82% $14.50 2/20/05 30,075(4) 66,374(4)
509(1) 2.84% $15.69 4/28/04 2,204(3) 4,876(3)
- ----------------------------------------------------------------------------------------------------------------------
John R. Wilson 2,500(2) 13.94% $14.50 2/20/05 10,025(4) 22,125(4)
- ----------------------------------------------------------------------------------------------------------------------
(1) Of the options granted pursuant to the Company's 1997 Director Stock
Compensation and Option Plan, none are exercisable in the first year and then
100% of the grant becomes exercisable in the second year. Issued at market price
on day of grant.
(2) Of the options granted pursuant to the Company's 1997 Incentive Stock Plan,
none are exercisable in the first year and then 25% of the grant become
exercisable in each of the next four years. Issued at market price on day of
grant.
(3) Calculated based upon assumed stock prices for the Company's common stock
of $20.02 and $25.27, respectively, if 5% and 10% annual rates of stock
appreciation are achieved over the full term of the option.
(4) Calculated based upon assumed stock prices for the Company's common stock of
$18.51 and $ 23.35, respectively, if 5% and 10% annual rates of stock
appreciation are achieved over the full term of the option.
(5) The potential realizable gain equals the product of the number of shares
underlying the stock option grant and the difference between the assumed stock
price and the exercise price of each option.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in the Registrant's Proxy
Statement relating to its annual meeting of stockholders held on April 28, 2001
under the caption "Certain Beneficial Owners" and is incorporated herein by
reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
(13)
16
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Documents filed as a part of this report:
(1) FINANCIAL STATEMENTS
Independent Auditor's Report
Consolidated financial statements of Escalade, Incorporated and
subsidiaries:
Consolidated balance sheet--December 30, 2000
and December 25, 1999
Consolidated statement of income--fiscal years ended
December 30, 2000, December 25, 1999 and December 26,
1998
Consolidated statement of stockholders' equity--fiscal
years ended December 30 2000, December 25, 1999 and
December 26, 1998
Consolidated statement of cash flows--fiscal years ended
December 30, 2000, December 25, 1999 and December 26,
1998
Notes to consolidated financial statements
(2) FINANCIAL STATEMENT SCHEDULES
Independent Auditor's Report on financial statement schedule
For the three-year period ended December 30, 2000:
Schedule II--Valuation and qualifying accounts
All other schedules are omitted because of the absence of
conditions under which they are required or because the required
information is given in the consolidated financial statements or
notes thereto.
(3) EXHIBITS
3.1 Articles of incorporation of Escalade, Incorporated (a)
3.2 By-Laws of Escalade, Incorporated (a)
4.1 Form of Escalade, Incorporated's common stock certificate (a)
10.1 Licensing agreement between Sweden Table Tennis AB and Indian Industries, Inc. dated
January 1, 1995 (e)
10.2 Federal trademark registration 283,766 for Ping-Pong(R) bats and rackets (a)
10.3 Federal trademark registration 283,767 for Ping-Pong(R) balls (a)
10.4 Federal trademark registration 294,408 for Ping-Pong(R) tables and parts (a)
10.5 Federal trademark registration 520,270 for Ping-Pong(R) game (a)
10.6 Federal trademark registration 1,003,289 for Mr. Table Tennis(R) table tennis
equipment (a)
10.7 Federal trademark registration 1,187,832 for Harvard(R)table tennis equipment (a)
10.8 Federal trademark registration 1,442,274 for Mini Court(R)(a)
10.9 Federal trademark registration 1,292,167 for Premier(R)table tennis tables and
accessories (a)
10.10 Federal trademark registration 1,456,647 for Mini Pool(R)(a)
(14)
17
(3) EXHIBITS (continued)
10.11 Trademark Assignment--Federal trademark registration 1,348,890 for Sandmar(R)office machines (b)
10.12 Agreement dated May 1, 2000 between Indian Industries, Inc. d/b/a Escalade Sports and
International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers,
AFL-CIO, and Local 848 (h)
10.13 Tenth Amendment to Credit Agreement dated May 31, 1996 between Escalade, Incorporated and Bank
One, Indianapolis, National Association dated May 15, 2000 (h)
10.14 Credit Agreement dated as of May 15, 2000 by and between Indian-Martin AG and Bank One, Indiana,
National Association (excluding exhibits and schedules not deemed to be material (h)
10.15 Revolving Note dated as of May 15, 2000 in principal amount of $30,000,000 executed by
Indian-Martin AG in favor of Bank One, Indiana, National Association (h)
10.16 Pledge Agreement dated as of May 15, 2000 by Indian-Martin AG in favor of Bank One, Indiana,
National Association (h)
10.17 Collateral Agreement and Security Agreement dated as of May 15, 2000 by Indian-Martin AG in
favor of Bank One, Indiana, National Association (h)
10.18 Receivables Purchase Agreement dated as of May 15, 2000 between Indian-Martin AG and Indian
Industries, Inc. Substantially similar Receivables Purchase Agreements were also entered
into by each of the Registrant's other domestic operating subsidiaries, Harvard Sports,
Inc., Martin Yale Industries, Inc. and Master Products Manufacturing Company, Inc., with
Indian-Martin AG (h)
10.19 Services Agreement dated as of May 15, 2000 between Indian-Martin AG and Indian Industries,
Inc. Substantially similar Services Agreements were also entered into by each of the
Registrant's other domestic operating subsidiaries, Harvard Sports, Inc., Martin Yale
Industries, Inc. and Master Products Manufacturing Company, Inc., with Indian-Martin AG (h)
10.20 Subordinated Promissory Note dated as of May 15, 2000 in principal amount of $5,086,501
executed by Indian Industries, Inc. in favor of Indian-Martin AG. Substantially similar
Subordinated Promissory Notes were also entered into by each of the Registrant's other
domestic operating subsidiaries, Harvard Sports, Inc., Martin Yale Industries, Inc. and
Master Products Manufacturing Company, Inc., with Indian-Martin AG in the respective
principal amounts of $1,343,202, $3,130,191 and $3,593,149 (h)
10.21 Standby and Subordination Agreement dated as of May 15, 2000 among Bank One, Indiana, National
Association, Indian-Martin AG and Indian Industries, Inc. Substantially similar Standby
and Subordination Agreements were also entered into by each of the Registrant's other
domestic operating subsidiaries, Harvard Sports, Inc., Martin Yale Industries, Inc. and
Master Products Manufacturing Company, Inc. with Indian-Martin AG and Bank One, Indiana,
National Association (h)
10.22 Promissory Note dated as of May 15, 2000 in principal amount of $13,153,045 executed by
Escalade, Incorporated in favor of Indian-Martin AG (h)
10.23 Escalade Subordination Agreement dated as of May 15, 2000 between Escalade, Incorporated and
Bank One, Indiana, National Association (h)
10.24 Offset Waiver Agreement dated as of May 15, 2000 among Escalade, Incorporated and Bank One,
Indiana, National Association, Indian-Martin AG, Indian Industries, Inc., Harvard Sports,
Inc., Martin Yale Industries, Inc. and Master Products Manufacturing Company, Inc. (h)
10.25 Loan Agreement dated September 1, 1998 between Martin Yale Industries, Inc. and City
of Wabash, Indiana (g)
(15)
18
(3) EXHIBITS (continued)
10.26 Trust Indenture between the City of Wabash, Indiana and Bank One Trust Company, NA as Trustee
dated September 1, 1998 relating to the Adjustable Rate Economic Development Revenue
Refunding Bonds, Series 1998 (Martin Yale Industries, Inc. Project) (g)
10.27 Real Estate Sales Contract dated September 17, 1990 between Martin Yale Industries, Inc. and
Fritkin-Jones Design Group, Inc. (c)
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.28 The Harvard Sports/Indian Industries, Inc. 401(k) Plan as amended and merged in 1993 (d)
10.29 Martin Yale Industries, Inc. 401(k) Retirement Plan as amended in 1993 (d)
10.30 Incentive Compensation Plan for Escalade, Incorporated and its subsidiaries (a)
10.31 Example of contributory deferred compensation agreement between Escalade, Incorporated and
certain management employees allowing for deferral of compensation (a)
10.32 1997 Director Stock Compensation and Option Plan (f)
10.33 1997 Incentive Stock Option Plan (f)
************* 21 Subsidiaries of the Registrant
************* 23 Consent of Olive LLP
(16)
19
(a) Incorporated by reference from the Company's Form S-2 Registration Statement, File No. 33-16279,
as declared effective by the Securities and Exchange Commission on September 2, 1987
(b) Incorporated by reference from the Company's 1988 Annual Report on Form 10-K
(c) Incorporated by reference from the Company's 1990 Annual Report on Form 10-K
(d) Incorporated by reference from the Company's 1993 Annual Report on Form 10-K
(e) Incorporated by reference from the Company's 1995 Annual Report on Form 10-K
(f) Incorporated by reference from the Company's 1997 Proxy Statement
(g) Incorporated by reference from the Company's 1998 Third Quarter Report on Form 10-Q
(h) Incorporated references from the Company's 2000 Second Quarter Report of Form 10-Q
(B) No reports on Form 8-K for the fourth quarter ended December 30, 2000 were required to be filed.
(17)
20
OLIVE
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Escalade, Incorporated
Evansville, Indiana
We have audited the accompanying consolidated balance sheet of
Escalade, Incorporated and subsidiaries as of December 30,
2000 and December 25, 1999 and the related consolidated
statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 30, 2000.
These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 Escalade, Incorporated and
subsidiaries at December 30, 2000 and December 25, 1999 and
the results of their operations and their cash flows for each
of the three years in the period ended December 30, 2000 in
conformity with generally accepted accounting principles.
OLIVE LLP
Evansville, Indiana
February 2, 2001
(F-1)
21
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 30 AND DECEMBER 25 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 1,146,771 $ 1,756,041
Receivables, less allowances of $611,052 and 761,363 26,406,471 24,772,584
Inventories 15,588,575 12,432,354
Prepaid expenses 136,853 126,305
Deferred income tax benefit 824,095 1,248,270
--------------------------------------------
Total current assets 44,102,765 40,335,554
Property, plant and equipment 9,055,992 9,390,022
Other assets 5,417,956 5,395,678
Goodwill, net of accumulated amortization
of $1,914,305 and $1,084,630 10,899,032 11,728,707
--------------------------------------------
$69,475,745 $66,849,961
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable--bank $13,267,135 $ 9,569,672
Current portion of long-term debt 2,000,000
Trade accounts payable 2,093,151 2,967,276
Accrued liabilities 14,281,958 9,590,171
Income tax payable 1,975,352 1,309,493
--------------------------------------------
Total current liabilities 31,617,596 25,436,612
--------------------------------------------
Other liabilities
Long-term debt 12,700,000 10,700,000
Deferred compensation 1,198,125 1,275,345
--------------------------------------------
13,898,125 11,975,345
--------------------------------------------
Stockholders' equity
Preferred stock
Authorized--1,000,000 shares, no par value, none issued
Common stock
Authorized--10,000,000 shares, no par value
Issued and outstanding--2,165,862 and 2,918,178 shares 2,165,862 2,918,178
Retained earnings 21,597,413 26,318,825
Accumulated other comprehensive income 196,749 201,001
--------------------------------------------
23,960,024 29,438,004
--------------------------------------------
$69,475,745 $66,849,961
============================================
See notes to consolidated financial statements.
(F-2)
22
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 30, DECEMBER 25
AND DECEMBER 26 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
Net Sales $116,081,388 $86,174,390 $93,557,971
------------------------------------------------------------
Costs, Expenses and Other Income
Cost of products sold 79,319,747 60,037,740 62,626,061
Selling, administrative and general expenses 20,253,094 15,524,377 17,041,492
Loss on terminated sporting goods sale 427,315
Amortization of goodwill 829,675 469,121 398,286
Interest 2,092,438 615,564 1,117,851
Loss on disposal of assets 25,651 64,287 207,687
Other (income) expense 286,479 (75,773) (410,252)
(Gain) loss on disposal of Escalade International (103,387) 1,222,279
------------------------------------------------------------
102,807,084 76,531,929 82,630,719
------------------------------------------------------------
Income Before Income Taxes 13,274,304 9,642,461 10,927,252
Provision for Income Taxes 5,173,720 3,542,525 4,791,463
------------------------------------------------------------
NET INCOME $ 8,100,584 $ 6,099,936 $ 6,135,789
============================================================
Per Share Data
Basic earnings per share $3.43 $2.01 $1.98
============================================================
Diluted earnings per share $3.42 $2.00 $1.97
============================================================
See notes to consolidated financial statements.
(F-3)
23
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK
-------------------------- ACCUMULATED OTHER
COMPREHENSIVE RETAINED COMPREHENSIVE
SHARES AMOUNT INCOME EARNINGS INCOME TOTAL
----------------------------------------------------------------------------------------
BALANCES AT DECEMBER 28, 1997 3,050,691 $5,879,827 $17,373,846 $246,992 $23,500,665
Comprehensive income
Net income $6,135,789 6,135,789 6,135,789
Unrealized losses on
securities,
net of tax (5,567) (5,567) (5,567)
-------------------
Comprehensive income $6,130,222
===================
Stock issued under the Director
Stock Option Plan 6,638 65,550 65,550
Exercise of stock options 51,279 341,216 341,216
Purchase of stock (11,251) (213,769) (213,769)
Payment of dividend (3,121,718) (3,121,718)
-------------------------- ---------------------------------------------
BALANCES AT DECEMBER 26, 1998 3,097,357 6,072,824 20,387,917 241,425 26,702,166
Comprehensive income
Net income $6,099,936 6,099,936 6,099,936
Unrealized losses on
securities,
net of tax (40,424) (40,424) (40,424)
-------------------
Comprehensive income $6,059,512
===================
Exercise of stock options 25,768 189,958 189,958
Stock issued under the Director
Stock Option Plan 4,256 89,376 89,376
Purchase of stock (209,203) (3,433,980) (169,028) (3,603,008)
-------------------------- ---------------------------------------------
BALANCES AT DECEMBER 25, 1999 2,918,178 2,918,178 26,318,825 201,001 29,438,004
Comprehensive income
Net income $8,100,584 8,100,584 8,100,584
Unrealized losses on
securities,
net of tax (4,252) (4,252) (4,252)
-------------------
Comprehensive income $8,096,332
===================
Exercise of stock options 1,743 1,743 15,469 17,212
Stock issued under the Director
Stock Option Plan 6,144 6,144 90,240 96,384
Purchase of stock (760,203) (760,203) (12,927,705) (13,687,908)
-------------------------- ---------------------------------------------
BALANCES AT DECEMBER 30, 2000 2,165,862 $2,165,862 $21,597,413 $196,749 $23,960,024
========================== =============================================
See notes to consolidated financial statements.
(F-4)
24
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 30, DECEMBER 25 AND DECEMBER 26 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 8,100,584 $ 6,099,936 $6,135,789
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 3,178,721 2,757,986 2,796,004
Provision for doubtful accounts 141,136 577,150 371,672
Deferred income taxes (285,590) (591,379) (153,633)
Provision for deferred compensation 109,972 109,376 99,996
Deferred compensation paid (187,192)
Loss on disposals of assets 25,651 64,287 207,687
Changes in
Accounts receivable (1,775,023) 5,971,315 (561,035)
Inventories (3,156,221) 1,655,781 (10,009)
Prepaids (10,548) 3,430 106,765
Other assets 933,576 (377,312) 33,362
Income tax payable 665,859 (14,923) (225,584)
Accounts payable and accrued expenses 3,792,662 (1,347,562) (225,923)
-----------------------------------------------------
Net cash provided by operating activities 11,533,587 14,908,085 8,575,091
-----------------------------------------------------
INVESTING ACTIVITIES
Premiums paid for life insurance (150,000) (150,000) (297,000)
Change in cash surrender value, net of loans and premiums 267,129 (36,186) 30,510
Purchase of property and equipment (915,667) (1,104,897) (1,067,596)
Purchase of long-term investments (67,470) (74,797) (65,000)
Purchase of certain Lifetime Products assets (1,400,000)
Purchase of certain Zue Corporation assets (7,969,672)
Purchase of certain Mead Hatcher assets (3,481,170)
-----------------------------------------------------
Net cash used by investing activities (2,266,008) (12,816,722) (1,399,086)
-----------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in notes payable--bank 3,697,463 1,769,672 (475,000)
Proceeds from exercise of stock options 113,596 279,334 406,766
Reduction of long-term debt (10,500,000) (6,000,000) (7,800,000)
Purchase of stock (13,687,908) (3,603,008) (213,769)
Proceeds from long-term debt 10,500,000 10,000,000
Cash dividends paid (3,121,718)
-----------------------------------------------------
Net cash used by financing activities (9,876,849) (675,720) (8,082,003)
-----------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (609,270) 1,415,643 (905,998)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,756,041 340,398 1,246,396
-----------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,146,771 $ 1,756,041 $ 340,398
=====================================================
SUPPLEMENTAL CASH FLOWS INFORMATION
Interest paid $ 2,067,494 $ 627,904 $1,120,229
Income taxes paid, net 3,190,000 4,256,320 4,775,283
Fixed assets in accounts payable 25,000 31,954
See notes to consolidated financial statements.
(F-5)
25
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Escalade, Incorporated (Company) is primarily engaged in the manufacture and
sale of sporting goods and office and graphic arts products. The Company is
located in Evansville, Indiana and has five manufacturing facilities, one in
Evansville, Indiana; Wabash, Indiana and Los Angeles, California and two in
Tijuana, Mexico. The Company sells products to customers throughout the United
States and provides foreign shipments of sporting goods through a foreign sales
corporation. The consolidated financial statements include the accounts of all
significant subsidiaries. Intercompany transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of bank deposits in federally insured
accounts.
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments; if any, purchased with an original maturity of three
months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is based on the
first-in, first-out (FIFO) method.
INVESTMENTS
The Company has long-term marketable equity securities, which are included in
other assets on the consolidated balance sheet and are recorded at fair value
with unrealized gains and losses reported, net of tax, in accumulated other
comprehensive income.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization are computed by the straight-line and double declining balance
methods.
The estimated useful lives used in computing depreciation are as follows:
YEARS
- ----------------------------------------------------------------------------------------------------------------------------
Buildings 20-30
Leasehold improvements 4-8
Machinery and equipment 5-15
Tooling, dies and molds 2-4
The cost of maintenance and repairs are charged to income as incurred;
significant renewals and improvements are capitalized. When assets are retired
or otherwise disposed of, the costs and related accumulated depreciation are
removed from the accounts, and the resulting gains or losses are recognized in
income for the period.
(F-6)
26
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FINANCIAL INSTRUMENTS
The carrying values of all of the Company's financial instruments approximate
their fair values.
EARNINGS PER SHARE
Earnings per share have been computed based upon the weighted average-common
shares outstanding during each year.
FISCAL YEAR END
The Company's fiscal year ends on the Saturday nearest December 31, within the
calendar year.
BAD DEBTS
The Company uses the reserve method of accounting for bad debts on receivables.
PRODUCT WARRANTY
The Company provides for the estimated cost of its warranty obligations at the
time of the sale.
EMPLOYEE BENEFITS
The Company has an employee profit-sharing salary reduction plan, pursuant to
the provisions of Section 401(k) of the Internal Revenue Code, for non-union
employees. It is the Company's policy to fund costs accrued on a current basis.
INCOME TAXES
Income tax in the consolidated statement of income includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred. The research
and development costs incurred during 2000, 1999 and 1998 were approximately
$1,700,000, $1,450,000 and $1,500,000.
INTANGIBLE ASSETS
The Company has various intangible assets including consulting and
noncompetition agreements and goodwill. Amortization is computed using the
straight-line method over the following lives:
YEARS
- ----------------------------------------------------------------------------------------------------------------------------
Consulting agreements 1
Non-compete agreements 5
Goodwill 15
REVENUE RECOGNITION
Revenue from the sale of the Company's products is recognized as products are
shipped to customers.
SELF INSURANCE
The Company has elected to act as a self-insurer for certain costs related to
employee health and accident benefit programs. Costs resulting from non-insured
losses are charged to income when incurred. The Company has purchased insurance
which limits its exposure for individual claims and which limits its aggregate
exposure to $1,100,000.
(F-7)
27
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 2 -- INVENTORIES
Inventories consist of the following:
DECEMBER 30 AND DECEMBER 25 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Finished products $ 6,970,249 $ 5,184,896
Work in process 3,747,427 3,183,855
Raw materials and supplies 4,870,899 4,063,603
--------------------------------------------
$15,588,575 $12,432,354
============================================
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
DECEMBER 30 AND DECEMBER 25 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Land $ 712,705 $ 712,705
Buildings and leasehold improvements 10,381,117 10,387,479
Machinery and equipment 23,039,234 22,416,055
--------------------------------------------
Total cost 34,133,056 33,516,239
Accumulated depreciation and amortization (25,077,064) (24,126,217)
--------------------------------------------
$ 9,055,992 $ 9,390,022
============================================
NOTE 4 -- LINE OF CREDIT
The Company's directly owned subsidiary, Indian-Martin AG, has a revolving line
of credit under which it will borrow funds from time to time to purchase
eligible accounts receivable from Escalade's operating subsidiaries which
accounts are and will be pledged to secure those borrowings. At December 30,
2000, this line of credit aggregated $30,000,000, of which $13,267,135 was
borrowed. The interest rate on the line of credit is at the Bank One
Indianapolis, N.A. prime rate minus 1.25%. A LIBOR option is also available for
the interest rate. At December 31, 2000, $12,000,000 of this line of credit was
at a LIBOR option rate of 8.15125%.
(F-8)
28
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- LONG-TERM DEBT
DECEMBER 30 AND DECEMBER 25 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Mortgage payable (Wabash, Indiana Adjustable Rate Economic Development Revenue
Refunding Bonds), annual installments are optional, interest varies with
short-term rates and is adjustable weekly based on market conditions, maximum
rate is 10.00%, current rate is 4.85%, due September 2028, secured
by plant facility, machinery and equipment, and letter of credit $ 2,700,000 $ 2,700,000
Revolving term loan of $20,500,000, the amount available under this revolving
term loan shall reduce by $4,100,000 annually starting March 31, 2001.
Interest varies from prime to London Interbank Offered Rate (LIBOR) plus
1.50%, unsecured 10,000,000 10,000,000
--------------------------------------------
12,700,000 12,700,000
Portion classified as current (2,000,000)
--------------------------------------------
$12,700,000 $10,700,000
============================================
Maturities of long-term indebtedness for the ensuing five years are: 2001, 0;
2002, $0; 2003, $1,800,000; 2004, $4,100,000; 2005, $4,100,000 and thereafter,
$2,700,000.
The mortgages payable and term loan agreements contain certain restrictive
covenants, of which the more significant include maintenance of specified net
worth and maintenance of specified ranges of debt service and leverage ratios.
NOTE 6 -- INVESTMENTS
GROSS APPROXIMATE
AMORTIZED UNREALIZED MARKET
COST GAINS VALUE
-----------------------------------------------------
DECEMBER 30, 2000
Available for sale
Marketable equity securities (included in
other assets) $1,084,628 $327,915 $1,412,543
=====================================================
DECEMBER 25, 1999
Available for sale
Marketable equity securities (included in
other assets) $912,013 $335,001 $1,247,014
=====================================================
(F-9)
29
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 7 -- STOCK OPTIONS
There were no options outstanding at year end from the 1984 Stock Option Plan
(Plan). The date for granting options under this Plan expired on October 26,1994
and the date for exercising options expired on September 26, 1999. At the
Company's 1997 annual meeting, the stockholders approved two new Stock Option
Plans reserving 300,000 common shares for issuance under an Incentive Stock
Option Plan (ISO) and 100,000 common shares for issuance under a Director Stock
Option Plan (DSO). During 2000, 1999 and 1998, there were 16,500, 37,000 and
19,250 options granted under the ISO and there were 88,261, 74,786 and 67,131
options outstanding at each respective year end under this plan. During 2000,
1999 and 1998, there were 3,072, 2,128 and 3,319 options granted and 8,026,
5,447 and 3,319 options outstanding at each respective year end under the DSO.
Under the Company's ISO, which is accounted for in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations, the Company grants selected executives and other
key employees stock option awards which vest over four years of continued
employment. The exercise price of each option, which has a five-year life, was
equal to the market price of the Company's stock on the date of grant;
therefore, no compensation expense was recognized. Options are exercisable
commencing one year from the date of issuance to the extent vested.
Although the Company has elected to follow APB Opinion No. 25, Statement of
Financial Accounting Standards (SFAS) No. 123 requires pro forma disclosures of
net income and earnings per share as if the Company had accounted for its
employee stock options under that statement. The fair value of each option grant
was estimated on the grant date using an option pricing model with the following
assumptions:
2000 1999 1998
-----------------------------------------------------
Risk-free interest rates 6.26% 5.00% 4.75%
Dividend yields 0% 0% 0%
Volatility factors of expected market price of common stock 45% 36% 51%
Weighted average expected life of the options 5 YEARS 5 years 5 years
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement is as follows:
2000 1999 1998
----------------------------------------------------
Net income As reported $8,100,584 $6,099,936 $6,135,789
Pro forma 7,963,644 5,982,255 6,076,755
Basic earnings per share As reported $3.43 $2.01 $1.98
Pro forma 3.37 1.97 1.96
Diluted earnings per share As reported $3.42 $2.00 $1.97
Pro forma 3.36 1.97 1.95
(F-10)
30
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Stock option transactions are summarized as follows:
2000 1999 1998
-------------------------------------------------------------------------------------------
OPTION Option Option
SHARES PRICE Shares Price Shares Price
-------------------------------------------------------------------------------------------
Outstanding at beginning $9.88 TO $5.50 to $6.30 to
of year 80,233 21.00 70,450 18.75 101,821 9.88
$14.50 TO $17.69 to $9.88 to
Issued during year 19,572 15.69 39,128 21.00 22,569 18.75
Canceled or expired (1,650) (3,577) (2,661)
$5.50 to $3.26 to
Exercised during year (1,868) $9.88 (25,768) 9.88 (51,279) 9.88
-------------------------------------------------------------------------------------------
$9.88 TO $9.88 to $5.50 to
21.00 21.00 18.75
Outstanding at end of year 96,287 80,233 70,450
================ ================ ================
Exercisable at end of year 35,505 16,890 30,297
================ ================ ================
Weighted-average fair value
of options granted during
the year $7.57 $7.10 $9.83
================ ================ ================
The following table summarizes information about fixed stock options outstanding
at December 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 12/30/00 CONTRACTUAL LIFE EXERCISE PRICE AT 12/30/00 EXERCISE PRICE
- ----------------------------------------------------------------------------------------------------------------------------
$ 9.88 20,737 1.6 years $ 9.88 15,452 $ 9.88
18.75 17,850 2.2 18.75 8,925 18.75
17.69 36,000 3.2 17.69 9,000 17.69
21.00 2,128 2.3 21.00 2,128 21.00
14.50 16,500 4.2 14.50 14.50
15.69 3,072 3.3 15.69 15.69
------------------ --------------------
$9.88 to 21.00 96,287 35,505
================== ====================
The incentive stock options granted in 2000 and 1999 are exercisable at the rate
of 25% over each of the four years beginning in 2001 and 2000.
3,072 Director Stock Options were issued during the year 2000 at an option price
of $15.69 and can be exercised after April 29, 2001 with an expiration date of
April 28, 2004.
(F-11)
31
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 8 -- STOCKHOLDERS' EQUITY TRANSACTIONS
During 2000, the Company conducted a Dutch Auction self-tender offer whereby it
purchased 758,312 shares of its common stock at $18.00 per share.
The Company paid no cash dividends during 1999 and 2000. On December 21, 1998,
the Company announced that Escalade's Board of Directors declared a special cash
dividend of $1.00 per share to shareholders of record January 8, 1999. The
dividend was declared at Escalade's Regular Board Meeting, December 19, 1998.
The dividend was paid on January 22, 1999.
NOTE 9 -- EARNINGS PER SHARE
Earnings per share (EPS) were computed as follows:
WEIGHTED- PER
AVERAGE SHARE
YEAR ENDED DECEMBER 30, 2000 INCOME SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Net Income $8,100,584
------------------
Basic Earnings per Share
Income available to common stockholders 8,100,584 2,360,904 $3.43
==================
Effect of Dilutive Securities
Stock options 10,183
------------------------------------
Diluted Earnings Per Share
Income available to common stockholders and
assumed conversions $8,100,584 2,371,087 $3.42
=====================================================
YEAR ENDED DECEMBER 25, 1999
Net Income $6,099,936
------------------
Basic Earnings per Share
Income available to common stockholders 6,099,936 3,038,282 $2.01
==================
Effect of Dilutive Securities
Stock options 5,180
------------------------------------
Diluted Earnings Per Share
Income available to common stockholders and
assumed conversions $6,099,936 3,043,462 $2.00
=====================================================
YEAR ENDED DECEMBER 26, 1998
Net Income $6,135,789
------------------
Basic Earnings per Share
Income available to common stockholders 6,135,789 3,094,638 $1.98
==================
Effect of Dilutive Securities
Stock options 18,741
------------------------------------
Diluted Earnings Per Share
Income available to common stockholders and
assumed conversions $6,135,789 3,113,379 $1.97
=====================================================
(F-12)
32
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 10 -- OPERATING LEASES
The Company leases warehousing and office space at its National City, California
facilities and the term of the lease is five years. The lease rate ranges from
$223,736 in year one to $272,971 in year five. The Company also shares in common
area expenses not to exceed 8(cent) per sq. ft. per month. The lease expires
January 31, 2006.
The Company leases warehousing space next to its Evansville facility for $18,142
per month. The lease expires on October 31, 2002. The Company has two two-year
renewal options followed by two five-year renewal options.
The Company leases manufacturing space in Tijuana, Mexico for its office
products operations for $67,128 per year. The lease expires on July 31, 2002.
The Company leases additional space in Tijuana, Mexico for its sporting goods
operations for $45,802 per year. The lease term is month-to-month.
At December 30, 2000, the minimum rental payments under noncancelable leases
with terms of more than one year are as follows:
YEARS ENDING AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
2001 $ 508,568
2002 447,983
2003 249,440
2004 288,918
2005 272,971
------------------
$1,767,880
==================
The following schedule shows the composition of total rental expense for
operating leases except those with terms of a month or less:
2000 1999 1998
-----------------------------------------------------
Rentals $441,601 $448,516 $469,650
=====================================================
(F-13)
33
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 11 -- INCOME TAXES
Provision for income taxes consists of the following:
YEARS ENDED DECEMBER 30, DECEMBER 25 AND
YEARS ENDED DECEMBER 30, DECEMBER 25 AND DECEMBER 26 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Current
Federal $4,456,013 $3,255,081 $3,888,985
State 855,217 878,823 1,056,111
International 148,080
-----------------------------------------------------
5,459,310 4,133,904 4,945,096
-----------------------------------------------------
Deferred
Federal (226,759) (497,779) (121,668)
State (58,831) (93,600) (31,965)
-----------------------------------------------------
(285,590) (591,379) (153,633)
-----------------------------------------------------
$5,173,720 $3,542,525 $4,791,463
=====================================================
The provision for income taxes was computed based on financial statement income.
A reconciliation of the provision for income taxes to the amount computed using
the statutory rate follows:
YEARS ENDED DECEMBER 30, DECEMBER 25
AND DECEMBER 26 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Income tax at statutory rate $4,513,263 $3,278,437 $3,715,266
Increase (decrease) in income tax resulting from
Recurring permanent differences (goodwill
amortization, dividend exclusion and non-
deductible officers' life insurance expense) 188,314 55,662 (76,770)
State tax expense, net of federal effect 525,615 518,247 675,936
Benefit of foreign subsidiary loss not recognized 558,280
International taxes 148,080
Foreign tax credit (148,080)
Other (53,472) (309,821) (81,249)
-----------------------------------------------------
Provision for income taxes recorded $5,173,720 $3,542,525 $4,791,463
=====================================================
At December 30, 2000, a cumulative deferred tax asset of $1,806,386 is included
in current assets and other assets. At December 25, 1999, a cumulative deferred
tax asset of $1,520,796 is included in current assets and other liabilities.
(F-14)
34
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The components of the net deferred tax asset are as follows:
DECEMBER 30 AND DECEMBER 25 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS
Employee benefits $ 841,765 $ 584,559
Valuation reserves 550,603 681,472
Goodwill and intangible assets 172,903 94,352
Deferred compensation 442,294 480,490
------------------------------------
Total assets 2,007,565 1,840,873
------------------------------------
LIABILITIES
Depreciation (70,012) (186,076)
Unrealized gain on securities available for sale (131,167) (134,001)
------------------------------------
Total liabilities (201,179) (320,077)
------------------------------------
$1,806,386 $1,520,796
====================================
NOTE 12 -- EMPLOYEE BENEFIT PLANS
The Company has an employee profit-sharing salary reduction plan, pursuant to
the provisions of Section 401(k) of the Internal Revenue Code, for non-union
employees. The Company's contribution is a matching percentage of the employee
contribution as determined by the Board of Directors annually. The Company's
expense for the plan was $403,235, $273,763 and $316,155 for 2000, 1999 and
1998.
NOTE 13 -- VOLUNTARY EMPLOYEE BENEFITS ASSOCIATION TRUST (VEBA)
The Company established a VEBA as a tax-exempt organization to provide life,
medical, disability and other similar welfare benefits permitted pursuant to
Internal Revenue Code Section 501(c)(9) for its employees.
(F-15)
35
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 14 -- SEGMENT INFORMATION AND CONCENTRATIONS
YEARS ENDED DECEMBER 30, DECEMBER 25
AND DECEMBER 26 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Sales to unaffiliated customers
Sporting goods $ 79,948 $52,767 $63,072
Office and graphic arts products 36,133 33,407 30,486
-----------------------------------------------------
Total consolidated $116,081 $86,174 $93,558
=====================================================
SEGMENT PROFIT
Sporting goods $ 3,520 $ 2,098 $ 2,418
Office and graphic arts products 5,022 3,534 3,671
Corporate (442) 470 47
-----------------------------------------------------
Total consolidated 8,100 6,100 6,136
=====================================================
INTEREST EXPENSE
Sporting goods $ 890 $ 34 $ 225
Office and graphic arts products 55 222 302
Corporate 1,147 360 591
-----------------------------------------------------
Total consolidated $ 2,092 $ 616 $ 1,118
=====================================================
LOSS ON DISPOSAL OF ASSETS
Sporting goods $ 20 $ 10
Office and graphic arts products 6 64 196
-----------------------------------------------------
Total consolidated $ 26 $ 64 $ 208
=====================================================
LOSS ON TERMINATED SPORTING GOODS SALE
Corporate $ 427
-----------------------------------------------------
Total consolidated $ 427
=====================================================
(GAIN) LOSS ON DISPOSAL OF ESCALADE
INTERNATIONAL
Corporate $ (103) $ 1,222
-----------------------------------------------------
Total consolidated $ (103) $ 1,222
=====================================================
Identifiable assets
Sporting goods $41,119 $37,208 $39,819
Office and graphic arts products 22,892 23,971 20,770
Corporate 5,465 5,671 2,900
-----------------------------------------------------
Total assets $69,476 $66,850 $63,489
=====================================================
Depreciation and amortization (including goodwill)
Sporting goods $ 1,715 $ 1,154 $ 1,207
Office and graphic arts products 1,464 1,604 1,589
-----------------------------------------------------
Total consolidated $ 3,179 $ 2,758 $ 2,796
=====================================================
Capital expenditures
Sporting goods $ 754 $ 862 $ 699
Office and graphic arts products 187 276 372
-----------------------------------------------------
$ 941 $ 1,138 $ 1,071
=====================================================
(F-16)
36
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
The Company operates principally in two industries, sporting goods and office
and graphic arts products. The Company sells its products primarily to retailers
and wholesalers located throughout the United States. Operations in the sporting
goods industry consist of production and sale of table tennis tables and
accessories, archery equipment, home pool tables and accessories, combination
bumper pool and card tables, game tables, basketball backboards, goals, poles
and portables, darts and dart cabinets. Operations in the office and graphic
arts products industry consist of production and sale of paper trimmers, paper
folding machines, paper drills, collators, decollators, bursting machines,
letter openers, paper joggers, checksigners, stamp affixers, paper shredders,
paper punches, paper cutters, catalog rack systems, bindery carts, business card
slitters, thermography machines, keyboard drawers, computer storage,
copyholders, media retention systems, posting trays and related accessories.
Identifiable assets are principally those assets used in each industry.
Corporate assets are principally cash and cash equivalents, deferred taxes,
marketable equity securities and the cash surrender value of life insurance.
In 2000, 1999 and 1998, approximately 45% (31% of consolidated sales), 46% (28%
of consolidated sales) and 38% (25% of consolidated sales) of the sporting goods
were sold to Sears, Roebuck & Co. At December 30, 2000 and December 25, 1999,
accounts receivable included $11,323,174 and $9,117,867 due from Sears, Roebuck
& Co.
Approximately 30% of the Company's labor force is covered by a collective
bargaining agreement. Management acknowledges that there usually will be
differences between Company offers and union demands during negotiations.
However, management has no reason to expect such differences to result in
protracted conflict. The current contract expires on April 27, 2003.
Consolidated assets include approximately $2.4 million of assets located in the
United Kingdom and Mexico and $27.7 million of assets located in Switzerland.
(F-17)
37
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 15 -- CERTAIN SIGNIFICANT ESTIMATES
Management's estimates that influence the financial statements are normally
based on knowledge and experience about past and current events and assumptions
about future events. The following estimates affecting the financial statements
are particularly sensitive because of their significance, and it is at least
reasonably possible that a change in these estimates will occur in the near
term:
Product warranty reserves--based on an analysis of customers' product
return histories, current status, sales volume and management's
expectations from new products introduced into the market.
Customer allowance reserves--based on agreements for customer purchase
rebates and shared advertising, and prior year's shipments.
Inventory valuation reserves--based on estimates of costs of inventory
amounts overstocked or obsolete in excess of realizable value.
NOTE 16 -- ADDITIONAL INFORMATION
DECEMBER 30 AND DECEMBER 25 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
Accrued Liabilities
Employees' compensation $ 4,563,533 $2,478,862
Payroll taxes and taxes withheld from employees'
compensation 309,488 191,926
Taxes other than taxes on income 396,674 342,960
Accrued interest 173,694 129,950
Customer volume discounts payable 7,178,735 5,193,302
Other accrued items 1,659,834 1,253,171
--------------------------------------------
$14,281,958 $9,590,171
============================================
NOTE 17 -- DEFERRED COMPENSATION PLAN
In October 1985, the Board of Directors approved the adoption of a Contributory
Deferred Compensation Plan pursuant to which some recipients of incentive
compensation could elect to defer receipt thereof. For each dollar of deferred
compensation, the Company provided a 75% matching amount. Amounts deferred earn
interest at the rate of 9%. Such amounts are not intended to be recognized for
tax purposes until receipt. All deferrals allowed under this plan have been
made. Participants have no vested rights in deferred amounts credited to their
accounts and are general creditors of the Company until such amounts are
actually paid.
(F-18)
38
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 18 -- COMMITMENTS AND CONTINGENCIES
At December 30, 2000, standby letters of credit aggregated $50,000.
Additionally, the Company has obtained a letter of credit for the benefit of the
mortgage holders. At December 30, 2000, the balance of the letter of credit was
$2,733,750. It is to be used in the event of a default in either interest or
principal payments.
The Company is involved in litigation arising in the normal course of its
business. The Company does not believe that the disposition or ultimate
resolution of existing claims or lawsuits will have a material adverse effect on
the business or financial condition of the Company.
NOTE 19 -- SUMMARY OF QUARTERLY RESULTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
MARCH 18 JULY 8 SEPTEMBER 30 DECEMBER 30
--------------------------------------------------------------------------
2000
Net sales $17,575 $24,035 $31,560 $42,911
Gross profit 5,997 8,189 9,478 13,097
Net income 919 1,173 2,359 3,649
Basic earnings per share .31 .52 1.09 1.68
1999
Net sales $12,978 $17,086 $21,296 $34,814
Gross profit 4,085 5,151 6,861 10,039
Net income 434 412 1,723 3,531
Basic earnings per share .14 .13 .57 1.20
On March 31, 2000, the Company reduced its outstanding shares by 758,312 shares
through a Dutch Auction tender offer. Consequently, if the four quarters
earnings per share are added together, they are different than the actual
earnings per weighted-average share for the year.
During 1999, the Company reduced its outstanding shares by 179,179 shares. These
reductions occurred at various times throughout the year. Consequently, if the
four quarters earnings per share are added together, they are different than the
actual earnings per weighted average share for the year.
(F-19)
39
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 20 -- DISPOSAL OF ESCALADE INTERNATIONAL, LIMITED
In December 1998, the Company adopted a plan to discontinue its distribution
operations. Those operations were performed by Escalade International, Limited,
a foreign subsidiary located in the United Kingdom. The Company's other
subsidiaries are all manufacturing operations. On July 8, 1999, the Company
completed a transaction to sell 50% of the stock of Escalade International to an
investment group who assumed responsibility for running the day-to-day
operations. The sale was for $500,000 with $50,000 cash paid and notes
receivable of $450,000.
The estimated loss on the disposal of Escalade International, Limited was
$1,222,279 including a provision of $250,000 for operating losses during
phaseout. The actual loss on the sale was $1,118,892 which included $213,057 in
operating losses up to the time of sale. 1999 shows a profit of $103,387 which
was the amount by which the reserve for loss on this transaction exceeded actual
losses. Since only 50% was sold, the operations are not considered discontinued
and the financial statements have been revised to eliminate discontinued
operations. Going forward, the Company's ownership value in Escalade
International will be shown as an investment and will be accounted for under the
equity method.
NOTE 21 -- ACQUISITIONS
ACQUISITION OF MEAD HATCHER
On June 21, 1999, Martin Yale, the Company's office and graphic arts products
subsidiary, acquired certain assets of Mead Hatcher for cash. The purchased
assets include all of Mead Hatcher's manufactured products consisting of
keyboard drawers, computer storage, copyholders, media retention systems, and
posting trays along with all associated tooling and production machinery
necessary to manufacture the products. The purchase price was $3,481,170. The
acquisition was accounted for as a purchase and the excess of cost over the fair
value of net assets acquired was $1,417,594, which is being amortized over 15
years on the straight-line method. Martin Yale relocated the manufacturing of
these products to its Los Angeles, California facility.
ACQUISITION OF ZUE CORPORATION
On December 8, 1999, Indian Industries, the Company's sporting goods subsidiary,
acquired substantially all of the assets of Zue Corporation for cash. Zue was a
manufacturer of high quality basketball systems located in Noblesville, Indiana.
The Zue product line will complement Indian's product line and the manufacturing
operations were relocated to Indian's Evansville, Indiana facility. The cost of
the purchase was $7,969,672. The acquisition was accounted for as a purchase and
the excess of cost over the fair value of net assets acquired was $5,150,172,
which is being amortized over 15 years on the straight-line method.
ACQUISITION OF LIFETIME PRODUCTS, INC.
On January 5, 2000, Indian Industries acquired certain assets of the table
tennis business of Lifetime Products, Inc., a Utah corporation, who wished to
discontinue its table tennis business. Those assets consisted mainly of
machinery, equipment and tooling and are being relocated to Indian's Evansville
Indiana facility. The cost of the purchase was $1,400,000, which was paid on
January 5, 2000.
(F-20)
40
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE 22 -- OTHER COMPREHENSIVE INCOME
2000
-----------------------------------------------------
BEFORE-TAX TAX NET-OF-TAX
YEAR ENDED DECEMBER 30 AMOUNT BENEFIT AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized holding losses arising during the year $(7,086) $2,834 $(4,252)
=====================================================
1999
-----------------------------------------------------
BEFORE-TAX TAX NET-OF-TAX
YEAR ENDED DECEMBER 25 AMOUNT BENEFIT AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized holding losses arising during the year $(67,374) $26,950 $(40,424)
=====================================================
1998
-----------------------------------------------------
BEFORE-TAX TAX NET-OF-TAX
YEAR ENDED DECEMBER 26 AMOUNT BENEFIT AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------
Unrealized holding losses arising during the year $(9,278) $3,711 $(5,567)
=====================================================
NOTE 23 -- SUBSEQUENT EVENTS
On February 5, 2001, Escalade Sports acquired substantially all of the assets of
Accudart Corporation for cash. The purchased assets included inventory,
equipment and intellectual property. Accudart is America's number one name in
darts. The cost of the purchase was $1,966,339 and it is estimated that annual
sales of these products will be approximately 3% of Escalade's consolidated net
sales.
(F-21)
41
OLIVE
INDEPENDENT AUDITOR'S REPORT
Stockholders and Board of Directors
Escalade, Incorporated
Evansville, Indiana
We have audited the consolidated financial statements of
Escalade, Incorporated as of December 30, 2000 and December
25, 1999 and for each of the three years in the period ended
December 30, 2000 and have issued our report thereon dated
February 2, 2001; such consolidated financial statements and
report are included elsewhere in this Form 10-K. Our audits
also included the consolidated financial statement schedules
of Escalade, Incorporated listed in Item 14. These
consolidated financial statement schedules are the
responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material
respects the information set forth therein.
OLIVE LLP
Evansville, Indiana
February 2, 2001
(S-1)
42
ESCALADE, INCORPORATED AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------------------------------------------------------------------------
ADDITIONS
----------------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE (2) OF PERIOD
- ---------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
and discounts (1)
Fiscal year ended December 30, 2000 $ 761,363 $ 141,136 $ 291,447 $ 611,052
Fiscal year ended December 25, 1999 581,830 577,150 397,617 761,363
Fiscal year ended December 26, 1998 893,434 371,672 683,276 581,830
Product warranty reserves
Fiscal year ended December 30, 2000 $ 707,633 $2,075,288 $1,708,265 $1,704,556
Fiscal year ended December 25, 1999 650,100 780,228 722,795 707,533
Fiscal year ended December 26, 1998 540,000 769,344 659,244 650,100
Customer allowance reserves
Fiscal year ended December 30, 2000 $2,286,686 $3,419,862 $2,286,686 $3,419,862
Fiscal year ended December 25, 1999 1,656,692 2,286,686 1,656,692 2,286,686
Fiscal year ended December 26, 1998 1,694,257 1,656,692 1,694,257 1,656,692
Inventory valuation reserves
Fiscal year ended December 30, 2000 $ 759,050 $ 904,787 $ 863,815 $ 800,022
Fiscal year ended December 25, 1999 846,513 594,066 681,229 759,050
Fiscal year ended December 26, 1998 1,215,881 209,728 579,096 846,513
(1) Deducted from related assets
(2) Accounts charged off, less recoveries
(S-2)
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
ESCALADE, INCORPORATED
By: \s\C. W. "Bill" Reed June 13, 2001
- ------------------------------------------------------------------
C. W. "Bill" Reed
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Chief Executive Officer
and Director
\s\C. W. Reed (Principal Executive Officer) June 13, 2001
- ------------------------------------------------------------------
C. W. Reed
Chairman and Director
- ------------------------------------------------------------------
Robert E. Griffin
Secretary and Treasurer
(Principal Financial and Accounting
\s\John R. Wilson Officer) June 13, 2001
- ------------------------------------------------------------------
John R. Wilson
Director
- ------------------------------------------------------------------
Blaine E. Matthews, Jr.
Director
- ------------------------------------------------------------------
A. Graves Williams, Jr.
Director
- ------------------------------------------------------------------
Keith P. Williams
Director
- ------------------------------------------------------------------
Yale Blanc
Director
- ------------------------------------------------------------------
Robert D. Orr
(S-3)