1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended July 14, 2001
Commission File Number 0-6966
ESCALADE, INCORPORATED
----------------------
(Exact name of registrant as specified in its charter)
Indiana 13-2739290
------- ----------
(State of incorporation) (I.R.S. EIN)
817 Maxwell Avenue, Evansville, Indiana 47717
---------------------------------------------
(Address of principal executive office)
812-467-1200
------------
(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.
Yes X No
--- ---
The number of shares of Registrant's common stock (no par value)
outstanding as of July 27, 2001: 2,139,694
2
INDEX
Page No.
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheet (Unaudited)
July 14, 2001, July 8, 2000, and
December 30, 2000 3
Consolidated Condensed Statement of Income (Unaudited)
Three Months and Six Months Ended
July 14, 2001 and July 8,2000 4
Consolidated Condensed Statement of Comprehensive
Income (Unaudited)
Three Months and Six Months Ended
July 14, 2001 and July 8, 2000 4
Consolidated Condensed Statement of Cash Flows (Unaudited)
Six Months Ended July 14, 2001 and July 8, 2000 5
Notes to Consolidated Condensed Financial Statements 6-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations: 10-11
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 12
Part II. Other Information 12
Item 4 - Submission of matters to a Vote of Securities Holders 12
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 13
Signatures 13
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(Dollars in Thousands)
July 14, July 8, December 30,
2001 2000 2000
--------------------------------------
ASSETS
Current assets:
Cash $ 377 $ 207 $ 1,147
Receivables, less allowances of
$770, $937 and $611 18,148 13,985 26,406
Inventories 22,952 19,024 15,589
Prepaid expense 223 63 137
Deferred income tax benefit 824 1,248 824
-------- -------- --------
TOTAL CURRENT ASSETS 42,524 34,527 44,103
Property, plant, and equipment 34,270 34,983 34,133
Accum. depr. and amortization (25,139) (25,520) (25,077)
-------- -------- --------
9,131 9,463 9,056
Goodwill 10,369 11,260 10,899
Other assets 6,157 5,059 5,418
-------- -------- --------
$ 68,181 $ 60,309 $ 69,476
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ 7,337 $ 6,744 $ 13,267
Current portion of long-term debt 2,567 2,850 ---
Trade accounts payable 5,514 3,829 2,093
Accrued liabilities 9,682 8,598 14,282
Federal income tax payable 612 32 1,976
-------- -------- --------
TOTAL CURRENT LIABILITIES 25,712 22,053 31,618
Other Liabilities:
Long-term debt 15,667 19,100 12,700
Deferred compensation 1,251 1,155 1,198
-------- -------- --------
16,918 20,255 13,898
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 - 2,139,694,
2,167,753, and 2,165,862 at
7-14-01, 7-8-00, and 12-30-00 2,140 2,168 2,166
Retained earnings 23,180 15,625 21,597
Accumulated other comprehensive
income 231 208 197
-------- -------- --------
25,551 18,001 23,960
-------- -------- --------
$ 68,181 $ 60,309 $ 69,476
======== ======== ========
See notes to Consolidated Condensed Financial Statements.
4
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(Dollars in Thousands, except per share amounts)
Three Months Ended Six Months Ended
July 14, July 8, July 14, July 8,
2001 2000 2001 2000
----------------------------------------
Net sales $27,759 $24,035 $46,255 $41,610
Costs, expenses and other income:
Cost of products sold 18,799 15,846 31,509 27,424
Selling, administrative and
general expenses 5,646 5,292 9,706 9,150
Interest 406 637 723 871
Amortization of goodwill 303 305 530 497
Other (income) expense 50 48 217 166
------- ------- ------- -------
25,204 22,128 42,685 38,108
INCOME BEFORE INCOME TAXES 2,555 1,907 3,570 3,502
Provision for income taxes 977 734 1,358 1,410
------- ------- ------- -------
NET INCOME $ 1,578 $ 1,173 $ 2,212 $ 2,092
======= ======= ======= =======
Per share data:
Basic earnings per share $ .73 $ .52 $ 1.03 $ .83
Diluted earnings per share $ .73 $ .52 $ 1.02 $ .82
CONSOLIDATED CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
NET INCOME $ 1,578 $ 1,173 $ 2,212 $ 2,092
UNREALIZED GAIN ON
SECURITIES, NET OF TAX 59 6 34 7
------- ------- ------- -------
COMPREHENSIVE INCOME $ 1,637 $ 1,179 $ 2,246 $ 2.099
======= ======= ======= =======
See notes to Consolidated Condensed Financial Statements.
5
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
Six Months Ended
July 14,2001 July 8,2000
-------------------------
Operating Activities:
Net Income $ 2,212 $ 2,092
Depreciation and amortization 1,936 1,891
Adjustments necessary to reconcile
net income to net cash provided by
operating activities (664) 3,219
-------- --------
Net cash provided by operating
activities 3,484 7,202
-------- --------
Investing Activities:
Purchase of property and equipment (1,237) (539)
Purchase of certain assets of
Lifetime Products, Inc. --- (1,100)
Purchase of certain assets of Accudart (1,966) ---
-------- --------
Net cash used by investing activities (3,203) (1,639)
-------- --------
Financing Activities:
Net decrease in notes payable- bank (5,930) (2,826)
Net increase in long-term debt 5,534 9,250
Proceeds from exercise of stock options 150 114
Purchase of common stock (805) (13,650)
-------- --------
Net cash used by financing activities (1,051) (7,112)
-------- --------
Decrease in cash (770) (1,549)
Cash, beginning of period 1,147 1,756
-------- --------
Cash, end of period $ 377 $ 207
======== ========
See notes to Consolidated Condensed Financial Statements.
6
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Basis of Presentation
- ------------------------------
The significant accounting policies followed by the Company and its
wholly owned subsidiaries for interim financial reporting are consistent with
the accounting policies followed for annual financial reporting. All adjustments
which are of a normal recurring nature and are in the opinion of management
necessary for a fair statement of the results for the periods reported have been
included in the accompanying consolidated condensed financial statements.
Note B - Seasonal Aspects
- -------------------------
The results of operations for the six month periods ended July 14, 2001
and July 8, 2000 are not necessarily indicative of the results to be expected
for the full year.
Note C - Inventories (Dollars in Thousands)
- -------------------------------------------
7-14-01 7-8-00 12-30-00
------- ------- --------
Raw Materials $ 6,723 $ 5,247 $ 4,871
Work In Process 4,675 3,375 3,748
Finished Goods 11,554 10,402 6,970
------- ------- -------
$22,952 $19,024 $15,589
======= ======= =======
Note D - Income Taxes
- ---------------------
The provision for income taxes was computed based on financial
statement income.
7
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note E - Earnings Per Share
- -----------------------------
Earnings per share (EPS) were computed as follows:
Three Months Ended
July 14, 2001
---------------------------------------
Weighted
Average Per Share
Income Shares Amount
------ ------ ------
Net Income $1,578
------
Basic Earnings per Share
Income available to common
stockholders 1,578 2,149 $.73
====
Effect of Dilutive Securities
Stock options 16
------ ------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $1,578 2,165 $.73
====== ====== ====
Three Months Ended
July 8, 2000
---------------------------------------
Weighted
Average Per Share
Income Shares Amount
------ ------ ----
Net Income $1,173
------
Basic Earnings per Share
Income available to common
stockholders 1,173 2,245 $.52
====
Effect of Dilutive Securities
Stock options 5
------ ------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $1,173 2,250 $.52
====== ====== ====
8
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note E - Earnings Per Share
- -----------------------------
Earnings per share (EPS) were computed as follows:
Six Months Ended
July 14, 2001
----------------------------------------
Weighted
Average Per Share
Income Shares Amount
------ ------ ------
Net Income $2,212
------
Basic Earnings per Share
Income available to common
stockholders 2,212 2,156 $ 1.03
======
Effect of Dilutive Securities
Stock options 17
------ ------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $2,212 2,173 $ 1.02
====== ====== ======
Six Months Ended
July 8, 2000
----------------------------------------
Weighted
Average Per Share
Income Shares Amount
------ ------ ------
Net Income $2,092
------
Basic Earnings per Share
Income available to common
stockholders 2,092 2,534 $ .83
======
Effect of Dilutive Securities
Stock options 5
------ ------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $2,092 2,539 $ .82
====== ====== ======
9
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note F - Segment Information
- -----------------------------
As of and for the Six Months Ended
July 14, 2001
-----------------------------------------
Office and
Sporting Graphic
Goods Arts Corporate Total
----- ---- --------- -----
Revenues from external customers $29,422 $16,833 $ --- $46,255
Net Income 562 1,731 (81) 2,212
Assets $41,944 $21,674 $4,563 $68,181
As of and for the Six Months Ended
July 8, 2000
-----------------------------------------
Office and
Sporting Graphic
Goods Arts Corporate Total
----- ---- --------- -----
Revenues from external customers $21,919 $19,691 $ --- $41,610
Net Income 160 2,414 (482) 2,092
Assets $32,990 $23,070 $4,249 $60,309
10
ESCALADE, INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER COMPARISON 2001 vs. 2000
The second quarter was a good quarter with net sales increasing
$3,724,000 or 15.5%. Net income increased $405,000 or 34.5%. Earnings per share
increased 40.4% from 52(cent) per share to 73(cent) per share due mainly to
increased net sales and partly due to the reduction in average shares
outstanding.
Escalade Sports had an increase in net sales of $5,792,000 or 44.9%.
Of this increase, 54% was in imported product sales, including darts and game
tables, and 46% was in manufactured product sales, including archery,
basketball, and pool tables. The Company expects the sale of imported products
will continue to increase. Escalade Sports continues the integration of recently
acquired Accudart into operations and has reached tentative agreement on two
possible acquisitions that may close in the third quarter and could add up to
$5,000,000 to annual sales and is in discussion with others.
Martin Yale had a decrease in net sales of $2,068,000 or 18.6%. The
reduction in the incoming order rate continues which the Company believes is the
result of the overall slowdown in the US economy. Martin Yale is exploring
acquisition possibilities.
Cost of sales as a percentage of net sales was 67.7% in the second
quarter of 2001 as compared to 65.9% in the second quarter of 2000. This
increase in cost of sales percentage of net sales was due mainly to the
increased volume in sporting goods net sales. Sporting goods has a higher cost
of sales than office and graphic arts. Martin Yale is continuing the transfer of
all West Coast manufacturing to Mexico.
Selling, general, and administrative expenses were $5,646,000 in the
second quarter of 2001 or 20.3% of net sales as compared to $5,292,000 or 22.0%
in the second quarter of 2000. This decrease as a percentage of net sales was
mainly due to the increased volume in sporting goods net sales. Sporting goods
has lower selling, general, and administrative expenses than office and graphic
arts.
Interest expense in 2001 was $406,000 as compared to $637,000 in 2000,
a decrease of 36.2%. This decrease was due to lower interest rates.
FIRST HALF COMPARISON 2001 VS. 2000
First half net sales were up $4,645,000 over last year and net income
was up $120,000. Earnings per share increased 24.1% from 83(cent) to $1.03. This
increase was due mainly to the reduction in average shares outstanding from
2,534,000 to 2,156,000.
Escalade Sports net sales increased $7,503,000. Sales of manufactured
product, including archery, basketball and pool tables, was 39% of this
increase. Sales of imported product, including darts and game tables, was 61% of
the increase. Escalade Sports expects the last half of the year to continue to
be strong.
Martin Yale net sales decreased $2,858,000. This is a 14.5% decrease
from last year. The company believes that the overall slowdown in the US economy
may be adversely impacting orders for Martin Yale product and will continue to
do so through the second half. Martin Yale will continue to shift West Coast
manufacturing to Mexico in the second half. This project is about 35% complete
and we have expensed about $222,000.
11
ESCALADE, INCORPORATED AND SUBSIDIARIES
RESULTS OF OPERATIONS CONTINUED
Cost of sales as a percentage of net sales was 68.1% in the first half
of 2001 as compared to 65.9% in the first half of 2000. This increase in cost of
sales percentage of net sales was due mainly to the increased volume in sporting
goods net sales and decreased volume in office and graphic arts net sales. In
the first half of 2001, sporting goods net sales were 64% of the total and in
the first half of 2000, they were 53% of the total. Sporting goods cost of sales
as a percentage of net sales is higher than office and graphic arts.
Selling, general, and administrative expenses as a percentage of net
sales were 21.0% in 2001 as compared to 22.0% in 2000. The decrease in these
expenses as a percentage of net sales was mainly due to higher sales volume in
the sporting goods segment.
Interest expense was $723,000 in the first half of 2001 as compared to
$871,000 in the first half of 2000, a decrease of $148,000 or 17.0%. This
decrease was due to lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was $3,484,000
in the first half of 2001 as compared to $7,202,000 in the first half of 2000.
Most of the cash provided by operating activities was from collection of the
year end accounts receivable. The net accounts receivable balance at the end of
the year in 2000 was $26,406,000 and at the end of the first half of 2001, the
net accounts receivable balance was $18,148,000. The lower cash provided in 2001
was the result of a higher increase in inventory as compared to 2000.
Inventories at the end of the first half of 2001 were $22,952,000 as compared to
$19,024,000 at the end of the first half of 2000, an increase of $3,928,000. The
Company's net cash used for investing activities was $3,203,000 in the first
half of 2001 as compared to $1,639,000 in the first half of 2000. The cash used
in the first half of 2001 included $1,966,000 for the purchase of certain assets
of Accudart. The Company's net cash used by financing activities was $1,051,000
in the first half of 2001 as compared to $7,112,000 in the first half of 2000.
In 2000, the net cash used was primarily for the purchase of company stock in a
Dutch Auction.
The Company's short term working capital requirements are funded by
cash flow and a 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 the end of
the second quarter, the maximum amount that could be drawn under this line of
credit was $13,990,121 of which $7,336,922 was used.
This short term revolving line of credit has been extended until May
13, 2002 with various levels of credit available. The line of credit is
$15,000,000 from June through September, $25,000,000 in October, $30,000,000 in
November, $25,000,000 in December, $20,000,000 in January, and $10,000,000 from
February through May.
The Company's long term financing requirements are currently funded by
a $16,400,000 revolving term loan which expires March 31, 2005. Under the terms
of the credit agreement 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 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.
During the second quarter, the Company purchased 36,004 shares of its
common stock on the open market or in private purchases at a cost of $804,827.
The Company issued 8,747 new shares under its stock option plans and received
$134,624 for these stock options.
12
ESCALADE, INCORPORATED AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements relating to present or
future trends or factors that are subject to risks and uncertainties. These
risks, include, but are not limited to, the impact of competitive products and
pricing, product demand and market acceptance, new product development, the
continuation and development of key customer and supplier relationships,
Escalade's ability to control costs, general economic conditions, fluctuations
in operating results, changes in the securities markets and other risks detailed
from time to time in Escalade's filings with the Securities and Exchange
Commission. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
PART II. OTHER INFORMATION
Item 1, 2, and 3. Not Required.
Item 4. Submission of Matters to a Vote of Securities Holders.
The annual meeting of the Registrant was held at the offices of the
Company in Evansville, Indiana on April 28, 2001. Proxy materials had been
circulated on March 16, 2001, proposing the election of seven members to the
Board of Directors for a one year term, and the appointment of BKD LLP (formerly
Olive LLP) to serve as independent auditors of the Company for the year 2001.
The stockholders approved the election of Directors by the following
vote:
For Withheld
Yale A. Blanc 1,817,943 303
Robert E. Griffin 1,808,808 9,438
Blaine E. Matthews, Jr. 1,817,943 303
Robert D. Orr 1,804,483 13,763
C. W. "Bill" Reed 1,808,808 9,438
A. Graves Williams, Jr. 1,817,943 303
Keith P. Williams 1,817,943 303
The stockholders approved the appointment of BKD LLP (formerly Olive
LLP) to serve as independent auditors of the Company for the year 2001 with the
following vote: 1,808,513 shares for, 303 shares against, and 9,430 shares
abstained.
13
ESCALADE, INCORPORATED AND SUBSIDIARIES
Item 5. Not Required
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
3.1 Articles of incorporation of Escalade, Incorporated (1)
3.2 By-Laws of Escalade, Incorporated (1)
10.1 First Amendment to Credit Agreement dated as of May 15, 2000 by and
between Indian-Martin AG and Bank One, Indiana, National
Association. Effective date of the Amendment was May 14, 2001.
10.2 Eleventh Amendment to that Certain Amended and Restated Credit
Agreement dated as of May 31, 1996 between Escalade,
Incorporated and Bank One, Indiana, National Association.
Effective date of the Amendment was May 31, 2001.
(1) 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) Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESCALADE, INCORPORATED
Date: August 3,2001 C. W. (Bill) Reed
-------------- ----------------------------
C. W. (Bill) Reed
President and Chief Executive Officer
Date: August 3, 2001 John R. Wilson
-------------- ----------------------------
John R. Wilson
Vice President and
Chief Financial Officer