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 12, 1997
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) (I.R.S. EIN)
817 Maxwell Avenue, Evansville, Indiana 47717
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(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 30, 1997: 3,126,053
2
INDEX
Page No.
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheet --
July 12, 1997, July 13, 1996, and
December 28, 1996 3
Consolidated Condensed Statement of Income --
Three Months and Six Months Ended
July 12, 1997 and July 13,1996 4
Consolidated Condensed Statement of Cash Flows --
Six Months Ended July 12, 1997 and July 13, 1996 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations: 8-9
Part II. Other Information 10
Signatures 10
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(Dollars in Thousands)
July 12, July 13, December 28,
1997 1996 1996
ASSETS ---------------------------------------------------
Current assets:
Cash $ 742 $ 387 $ 1,319
Receivables, less allowances of
$772, $849 and $682 12,065 12,800 27,297
Inventories 17,384 23,250 11,452
Prepaid expense 491 208 222
Deferred income tax benefit 1,298 1,648 1,561
-------- -------- --------
TOTAL CURRENT ASSETS 31,980 38,293 41,851
Property, plant, and equipment 37,790 33,909 31,818
Accum. depr. and amortization (26,428) (23,411) (21,609)
-------- -------- --------
11,362 10,498 10,209
Goodwill 5,962 -- --
Other assets 1,848 1,816 1,851
Deferred income tax benefit 431 642 519
-------- -------- --------
$ 51,583 $ 51,249 $ 54,430
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ 2,700 $ 6,825 $ 3,875
Current portion of long-term debt 2,300 3,858 9,800
Trade accounts payable 3,496 4,687 2,394
Accrued liabilities 9,594 7,241 11,374
Federal income tax payable 31 84 1,099
-------- -------- --------
TOTAL CURRENT LIABILITIES 18,121 22,695 28,542
Other Liabilities:
Long-term debt 12,700 3,340 5,500
Deferred compensation 1,115 1,067 1,083
-------- -------- --------
13,815 4,407 6,583
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 - 3,107,941
4,111,889, and 3,084,449 at
7-12-97, 7-13-96, and 12-28-96 8,379 17,461 8,292
Retained earnings 11,268 6,686 11,013
-------- -------- --------
19,647 24,147 19,305
-------- -------- --------
$ 51,583 $ 51,249 $ 54,430
======== ======== ========
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 12, July 13, July 12, July 13,
1997 1996 1997 1996
--------------------------------------------------------------
Net sales $ 17,765 $ 19,574 $ 30,467 $ 34,955
Costs, expenses and other income:
Cost of products sold 12,744 13,816 21,849 24,944
Selling, administrative and
general expenses 4,469 4,315 7,589 7,867
Interest 254 295 471 604
Amortization of Goodwill 33 -- 33
Other income ( 56) ( 61) (116) (116)
-------- -------- -------- --------
17,444 18,365 29,826 33,299
INCOME BEFORE INCOME TAXES 321 1,209 641 1,656
Provision for income taxes 217 521 386 736
-------- -------- -------- --------
NET INCOME $ 104 $ 688 $ 255 $ 920
======== ======== ======== ========
Per share data:
NET INCOME $ .03 $ .16 .08 $ .22
======== ======== ======== ========
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 12,1997 July 13,1996
Operating Activities: -----------------------------
Net Income $ 255 $ 920
Depreciation and amortization 1,343 1,571
Adjustments necessary to reconcile
net income to net cash provided by
operating activities 9,440 6,580
-------- -------
Net cash provided by operating
activities 11,038 9,071
-------- -------
Investing Activities:
Purchase of 100% of the stock of
Master Product Manufacturing, Inc. ( 9,118) --
Purchase of property and equipment ( 1,109) (845)
-------- -------
Net cash used by investing activities (10,227) (845)
-------- -------
Financing Activities:
Net decrease in notes pay.- bank ( 1,175) (7,525)
Net reduction of long-term debt ( 300) (1,450)
Proceeds from exercise of stock options 95 3
Purchase of Common Stock ( 8) ( 114)
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Net cash used by financing activities ( 1,388) (9,086)
-------- -------
Decrease in cash ( 577) ( 860)
Cash, beginning of period 1,319 1,247
-------- -------
Cash, end of period $ 742 $ 387
======== ========
See notes to Consolidated Condensed Financial Statements.
6
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Basis of Presentation
- ------------------------------
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position
of the company as of July 12, 1997, July 13, 1996, and December 28, 1996 and
the results of operations and changes in financial position for the six months
ended July 12,1997 and July 13, 1996. The balance sheet at December 28, 1996
was derived from the audited balance sheet included in the 1996 annual report
to shareholders.
Note B - Seasonal Aspects
- -------------------------
The results of operations for the six month periods ended July 12,
1997 and July 13, 1996 are not necessarily indicative of the results to be
expected for the full year.
Note C - Inventories (Dollars in Thousands)
- -------------------------------------------
7-12-97 7-13-96 12-28-96
------- ------- --------
Raw Materials $ 5,773 $ 8,156 $ 3,660
Work In Process 3,587 3,281 2,710
Finished Goods 8,024 11,813 5,082
------- ------- -------
$17,384 $23,250 $11,452
======= ======= =======
Note D - Earnings Per Share
- ---------------------------
Earnings per common and common equivalent shares are based on average
shares outstanding. Dilutive effects of stock options on net income are not
material. The number of shares used to calculate earnings per share for the six
months ended July 12, 1997 and July 13, 1996 was 3,093,540 and 4,122,359.
Note E - Income Taxes
- ---------------------
The provision for income taxes was computed based on financial
statement income.
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Note F - Acquisition
- ---------------------
On June 17, 1997, the Company's wholly-owned subsidiary, Martin Yale
Industries, Inc. acquired 100% of the stock of Master Products Manufacturing
Company, Inc., a California corporation, ("Master") for cash in the amount of
$9,118,000. Master manufactures paper punches and catalog rack systems.
The acquisition was accounted for as a purchase and the excess of cost
over the fair value of net assets acquired was $5,994,000, which is being
amortized over fifteen years on a straight-line method. The Company's
consolidated results of operations include the operations of Master from June
17, 1997.
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
The following unaudited pro forma information shows the results of the
Company's operations as though the purchase of Master had been made at January
1, 1996 (in thousands, except per share data):
Six Months Ended
July 12,1997 July 13,1996
---------------------------------------
Net Sales $34,896 $39,904
Net Income 458 1,123
Earnings Per Share .15 .27
The pro forma results of operations are not necessarily indicative of
the actual results of operations that would have occurred had the purchase
actually been made at January 1, 1996, or the results which may occur in the
future.
8
ESCALADE, INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is Management's discussion and analysis of certain significant
factors which have affected the Company's earnings during the periods included
in the accompanying consolidated condensed statements of income.
RESULTS OF OPERATIONS
SECOND QUARTER COMPARISON 1997 vs. 1996
Net sales were $17,765,000 in the second quarter of 1997 as compared
to $19,574,000 in the second quarter of 1996 a decrease of $1,809,000 or 9.2%.
Sales of sporting goods decreased $2,532,000 or 18.4% and sales of office and
graphic arts products increased $723,000 or 12.4%.
Sporting goods sales decreased mainly in game parlor (table tennis and
pool), which was due to a decrease in units sold. The office and graphic arts
machines and equipment sales increase was mainly due to the acquisition of
Master Products. (About 85%).
Cost of sales was $12,744,000 in the second quarter of 1997 as
compared to $13,816,000 in the second quarter of 1996, a decrease of $1,072,000
or 7.8%.
Cost of sales as a percentage of net sales was 71.7% in the second
quarter of 1997 as compared to 70.6% in the second quarter of 1996. Sporting
goods cost of sales as a percentage of net sales increased 6.7% and office and
graphic arts cost of sales as a percentage of net sales decreased 4.1%. The
increase in the sporting goods cost of sales percentage of net sales was due
mainly to the lower sales level causing lower absorption of overhead expenses.
The decrease in office and graphic arts cost of sales percentage of net sales
was due to lower material costs.
Selling, general, and administrative expenses were $4,469,000 in the
second quarter of 1997 as compared to $4,315,000 in the second quarter of 1996,
an increase of $154,000 or 3.6%.
Selling, general and administrative expenses as a percentage of net
sales was 25.2% in the second quarter of 1997 as compared to 22.0% in the
second quarter of 1996. This increase as a percentage of net sales was mainly
due to increased selling expenses in the office and graphic arts products
segment.
Interest expense decreased $ 41,000 to $254,000 in 1997 from $295,000
in 1996, a reduction of 13.9% due to lower borrowing levels.
FIRST HALF COMPARISON 1997 VS. 1996
Net sales were $30,467,000 in the first half of 1997 as compared to
$34,955,000 in the first half of 1996, a decrease of $4,488,000 or 12.8%. Sales
9
of sporting goods decreased $5,318,000 or 21.6% and sales of office and graphic
arts products increased $830,000 or 8.1%.
The decrease in sporting goods was mainly due to decreased volume
caused by excess inventory carryover from the prior year by several large
customers and the discontinuance of yard games and fitness product lines. In
the office and graphic arts products segment, the increase in sales is due
mainly to the acquisition of Master Products.
ESCALADE, INCORPORATED AND SUBSIDIARIES
RESULTS OF OPERATIONS CONTINUED
Cost of sales was $21,849,000 in the first half of 1997 as compared to
$24,944,000 in 1996, a decrease of $3,095,000 or 12.4%.
Cost of sales as a percentage of net sales was 71.7% in the first half
of 1997 as compared to 71.4% in the first half of 1996. This cost of sales % is
about the same for both years.
Selling, general, and administrative expenses were $7,589,000 in the
first half of 1997 as compared to $7,867,000 in the first half of 1996, a
decrease of $278,000 or 3.5%.
Selling, general, and administrative expenses as a percentage of net
sales were 24.9% in 1997 as compared to 22.5% in 1996. The increase in these
expenses as a percentage of net sales was mainly due to an increase in office
and graphic arts equipment sales which carry higher selling expenses and a
decrease in sporting goods sales volume.
Interest expense was $471,000 in the first half of 1997 as compared to
$604,000 in the first half of 1996, a decrease of $133,000 or 22.0%. The
decrease was due to lower average borrowing levels in the first half of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was
$11,038,000 in the first half of 1997 as compared to $ 9,071,000 in the first
half of 1996. 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 1996 was $27,297,000 and at the end of the
first half of 1997, the net accounts receivable balance was $12,065,000. The
Company's net cash used for investing activities was $10,227,000 in the first
half of 1997 as compared to $845,000 in the first half of 1996. This increase
of $9,382,000 was primarily due to the $9,118,000 acquisition of Master
Products. The Company's net cash used by financing activities was $1,388,000 in
the first half of 1997 as compared to $9,086,000 in the first half of 1996. The
Company's pay down of bank debt in the first half of 1997 was offset by an
increase in bank debt from the Master Products purchase.
The Company's working capital requirements are currently funded by
cash flow from operations, a domestic line of credit in the amount of
$10,000,000, and a letter of credit facility in the amount of $2,000,000.
Inventories at the end of the first half of 1997 were $17,384,000 as
compared to $23,250,000 at the end of the first half of 1996, a decrease of
$5,866,000.
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ESCALADE, INCORPORATED AND SUBSIDIARIES
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 Indianapolis, Indiana on April
26, 1997. Proxy materials had been circulated on March 21, 1997, proposing the
election of eight members to the Board of Directors for a one year term, the
approval of the Company's 1997 Director Stock Compensation and Option Plan, the
approval of the Company's 1997 Incentive Stock Option Plan and the appointment
of Geo. S. Olive & Co.LLC, to serve as independent auditors of the Company for
the year 1997.
The stockholders approved the election of Yale A. Blanc, Gerald J. Fox, Robert
E. Griffin, Blaine E. Matthews, Jr., Robert D. Orr, C. W. ("Bill") Reed,
A. Graves Williams, Jr., and Keith P. Williams to the Board of Directors, the
Company's 1997 Director Stock Compensation and Option Plan, the Company's 1997
Incentive Stock Option Plan, and the appointment of Geo. S. Olive & Co.LLC as
the Company's independent auditors.
Item 5. Not Required.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit - 10.18 - Agreement dated April 28, 1997 between Escalade Sports
and International Union of Electronic, Electrical, Salaried, Machine and
Furniture Workers, AFL-CIO Local No. 848.
Exhibit - 10.21 - Second Amendment to amended and restated credit
agreement dated May 31, 1997 with Bank One, Indianapolis.
Exhibit - 10.34 - Stock purchase Agreement dated June 17, 1997 between
Martin Yale Industries, Inc. and James Crean International, B.V.
regarding purchase of Master Products Manufacturing Company, Inc.
(b) Reports on Form 8-K - There was a report on Form 8-K filed on June 17,
1997 reporting the acquisition of 100% of the stock of Master Products
Manufacturing, Inc. for cash.
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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 1, 1997 /s/ Robert E. Griffin
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Robert E. Griffin
Chairman and Chief
Executive Officer
Date: August 1, 1997 /s/ John R. Wilson
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John R. Wilson
Vice President and
Chief Financial Officer