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 October 4, 1997
Commission File Number 0-6966
ESCALADE, INCORPORATED
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(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
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(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act
NONE
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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 October 22, 1997 : 3,130,613
2
INDEX
Page No.
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheet (Unaudited)
October 4, 1997, October 5, 1996, and
December 28, 1996 3
Consolidated Condensed Statement of Income (Unaudited)
Three Months and Nine Months Ended
October 4, 1997 and October 5, 1996 4
Consolidated Condensed Statement of Cash Flows (Unaudited)
Nine Months Ended October 4, 1997 and October 5, 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)
October 4, October 5, December 28,
1997 1996 1996
ASSETS -----------------------------------------------
Current assets:
Cash $ 76 $ 352 $ 1,319
Receivables, less allowances of
$1,002, $583 and $682 16,687 20,036 27,297
Inventories 22,693 23,484 11,452
Prepaid expense 402 246 222
Deferred income tax benefit 1,311 1,558 1,561
------- ------- -------
TOTAL CURRENT ASSETS 41,169 45,676 41,851
Property, plant, and equipment 37,839 34,469 31,818
Accum. depr. and amortization (26,939) (24,084) (21,609)
------- ------- -------
10,900 10,385 10,209
Goodwill 5,869 --- ---
Other assets 1,818 1,876 1,851
Deferred income tax benefit 519 632 519
------- ------- -------
$60,275 $58,569 $54,430
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ 6,075 $ 8,925 $ 3,875
Current portion of long-term debt 2,300 2,300 9,800
Trade accounts payable 5,291 5,086 2,394
Accrued liabilities 10,867 9,528 11,374
Federal income tax payable 929 573 1,099
------- ------- -------
TOTAL CURRENT LIABILITIES 25,462 26,412 28,542
Other Liabilities:
Long-term debt 12,200 14,400 5,500
Deferred compensation 1,080 1,091 1,083
------- ------- -------
13,280 15,491 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 - 3,130,613,
3,102,827, and 3,084,449 at
10-04-97, 10-05-96, and 12-28-96 8,472 8,463 8,292
Retained earnings 13,061 8,203 11,013
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21,533 16,666 19,305
------- ------- -------
$60,275 $58,569 $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 Nine Months Ended
Oct. 4, Oct. 5, Oct. 4, Oct. 5,
1997 1996 1997 1996
------------------------------------------------------------
Net sales $22,716 $23,142 $53,183 $58,097
Costs, expenses and other income:
Cost of products sold 14,845 15,891 36,694 40,835
Selling, administrative and
general expenses 4,345 4,222 11,934 12,089
Interest 378 355 849 959
Amortization of Goodwill 92 --- 125 ---
Other income (126) (47) (242) (163)
-------- -------- -------- --------
19,534 20,421 49,360 53,720
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 3,182 2,721 3,823 4,377
Provision for income taxes 1,389 1,204 1,775 1,940
-------- -------- -------- --------
NET INCOME $ 1,793 $ 1,517 $ 2,048 $ 2,437
======== ======= ======== ========
Per share data:
NET INCOME $ .57 $ .38 $ .66 $ .60
======== ======= ======== ========
See notes to Consolidated Condensed Financial Statements.
5
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
Nine Months Ended
Oct. 4, 1997 Oct. 5, 1996
Operating Activities: --------------------------------------
Net Income $ 2,048 $ 2,437
Depreciation and amortization 2,020 2,244
Adjustments necessary to reconcile
net income to net cash provided by
operating activities 3,686 2,311
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Net cash provided by
operating activities 7,754 6,992
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Investing Activities:
Purchase of 100% of the stock of
Master Product Manufacturing, Inc. (9,118) ---
Purchase of property and equipment (1,459) (1,405)
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Net cash (used) by investing activities (10,577) (1,405)
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Financing Activities:
Net inc.(dec.) in notes pay.- bank 2,200 (5,425)
Net inc.(dec.) in long-term debt (800) 8,052
Proceeds from exercise of stock options 188 28
Purchase of Common Stock - Dutch Auction
& Open Market (8) (9,137)
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Net cash provided (used) by
financing activities 1,580 (6,482)
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(Decrease) in cash (1,243) ( 895)
Cash, beginning of period 1,319 1,247
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Cash, end of period $ 76 $ 352
======== =========
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 October 4, 1997, October 5, 1996, and December 28, 1996 and
the results of operations and changes in financial position for the nine months
ended October 4, 1997 and October 5, 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 nine month periods ended October 4,
1997 and October 5, 1996 are not necessarily indicative of the results to be
expected for the full year.
Note C - Inventories (Dollars in Thousands)
- -------------------------------------------
10-4-97 10-5-96 12-28-96
------- ------- --------
Raw Materials $ 5,854 $ 6,777 $ 3,660
Work In Process 4,030 3,491 2,710
Finished Goods 12,809 13,216 5,082
------- ------- -------
$22,693 $23,484 $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 nine
months ended October 4, 1997 and October 5, 1996 was 3,103,777 and 4,076,670.
Note E - Income Taxes
- ---------------------
The provision for income taxes was computed based on financial
statement income.
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.
7
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):
Nine Months Ended
Oct. 4,1997 Oct. 5,1996
---------------------------------------
Net Sales $57,612 $65,617
Net Income 2,251 2,977
Earnings Per Share .73 .73
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
THIRD QUARTER COMPARISON 1997 vs. 1996
Net sales were $22,716,000 in the third quarter of 1997 as compared to
$23,142,000 in the third quarter of 1996, a decrease of $426,000 or 1.8%. Sales
of sporting goods decreased $3,059,000, or 16.3% and sales of office and graphic
arts products increased $2,633,000 or 59.7%.
The sporting goods net sales decrease was mainly due to a reduction in
units shipped in the game parlor and archery categories. The office and graphic
arts products net sales increase was due mainly to the acquisition of Master
Products.
Cost of sales was $14,845,000 in the third quarter of 1997 as compared
to $15,891,000 in the third quarter of 1996, a decrease of $1,046,000 or 6.6%.
Cost of sales as a percentage of net sales was 65.4% in the third
quarter of 1997 as compared to 68.7% in the third quarter of 1996. Sporting
goods cost of sales as a percentage of net sales decreased 2.8% and office and
graphic arts cost of sales as a percentage of net sales increased 1.9%. The
decrease in the sporting goods cost of sales percentage of net sales was due to
decreased material cost, reduced labor costs and lower factory expenses. The
increase in cost of sales as a percentage of office and graphic arts products
net sales was due to the Master Products acquisition.
Selling, general, and administrative expenses were $ 4,345,000 in the
third quarter of 1997 as compared to $4,222,000 in the third quarter of 1996, an
increase of $123,000 or 2.9%.
Selling, general and administrative expenses as a percentage of net
sales was 19.1% in the third quarter of 1997 as compared to 18.2% in the third
quarter of 1996. This increase as a percentage of net sales was mainly due to
increased compensation expenses, customer allowances and sales promotions.
Interest expense increased $23,000 or 6.5% from $355,000 last year to
$378,000 this year.
Net income for the quarter this year was $1,793,000 as compared to
$1,517,000 last year, an increase of $276,000 or 18.2%. 70% of this increase was
in sporting goods.
9
RESULTS OF OPERATIONS CONTINUED
NINE MONTHS COMPARISON 1997 VS. 1996
Net sales were $53,183,000 in the first nine months of 1997 as compared
to $58,097,000 in the first nine months of 1996, a decrease of $4,914,000 or
8.5%. Sales of sporting goods decreased $8,377,000 or 19.3% and sales of office
and graphic arts products increased $3,463,000 or 23.5%.
The decrease in sporting goods net sales was due to reduced volume in
game parlor and archery business and the discontinuation of fitness and outdoor
games. The increase in net sales for the office and graphic arts product segment
was due to the Master Products acquisition.
Cost of sales was $36,694,000 in the first nine months of 1997 as
compared to $40,835,000 in 1996, a decrease of $4,141,000 or 10.1%.
Cost of sales as a percentage of net sales was 69.0% in the first nine
months of 1997 as compared to 70.3% in the first nine months of 1996. This was a
combination of a 1.5% increase in sporting goods and a 1.5% decrease in office
and graphic arts. The overall % went down because the office and graphic arts
products segment has lower cost of sales than sporting goods and was a higher
percentage of net sales in 1997.
Selling, general, and administrative expenses were $11,934,000 in the
first nine months of 1997 as compared to $12,089,000 in the first nine months of
1996, a decrease of $155,000 or 1.3%.
Selling, general, and administrative expenses as a percentage of net
sales were 22.4% in 1997 as compared to 20.8% in 1996. The increase in these
expenses as a percentage of net sales was mainly due to increased compensation
expenses, customer allowances, and sales promotions.
Interest expense was $849,000 in the first nine months of 1997 as
compared to $959,000 in the first nine months of 1996, a decrease of $110,000 or
11.5%. The decrease was due to lower average borrowing levels.
The net income in the first nine months of 1997 was $2,048,000 as
compared to $2,437,000 in the first nine months of 1996. This is a $389,000
decrease with sporting goods being down about $669,000 and office and graphic
arts products up about $280,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was $7,754,000
in the first nine months of 1997 as compared to $6,992,000 in the first nine
months of 1996. Most of the cash provided by operating activities in 1997 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 nine months of 1997, the net accounts receivable balance was $16,687,000.
The Company's net cash used for investing activities was $10,577,000 in the
first nine months of 1997 as compared to $1,405,000 in the first nine months of
1996. This increase of $9,172,000 was due to the acquisition of Master Products.
The Company's net cash provided by financing activities was $1,580,000 in the
first nine months of 1997 as compared to $6,482,000 net cash used by financing
in the first nine months of 1996. This cash provided in 1997 was from notes
payable bank.
10
LIQUIDITY AND CAPITAL RESOURCES CONTINUED
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. The outstanding
loans under the domestic line of credit bear interest at either of the following
rates, as selected by the Company from time to time; the bank's prime lending
rate or the London Inter-Bank Offered Rate plus 1.40%. The Company's domestic
line of credit agreement expires on May 31, 1998.
PART II. OTHER INFORMATION
Item 1, 2, 3, 4, and 5. Not Required.
Item 6. Exhibits and Reports on Form 8-K.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the nine
months ended October 4, 1997.
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: October 24, 1997 Robert E. Griffin
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Robert E. Griffin
Chairman and Chief
Executive Officer
Date: October 24, 1997 John R. Wilson
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John R. Wilson
Vice President and
Chief Financial Officer