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 11, 1998
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 30, 1998: 3,107,420
2
INDEX
Page No.
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheet --
July 11, 1998, July 12, 1997, and
December 27, 1997 3
Consolidated Condensed Statement of Income --
Three Months and Six Months Ended
July 11, 1998 and July 12,1997 4
Consolidated Condensed Statement of Cash Flows --
Six Months Ended July 11, 1998 and July 12, 1997 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
Part II. Other Information 12
Signatures 12
Exhibit 10.21 13-15
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(Dollars in Thousands) July 11, July 12, December 27,
1998 1997 1997
ASSETS ----------------------------------------------
Current assets:
Cash $ 115 $ 742 $ 1,246
Receivables, less allowances of
$927, $772 and $893 10,838 12,065 30,602
Inventories 16,004 17,384 12,637
Prepaid expense 210 491 237
Deferred income tax benefit 1,138 1,298 1,205
-------- -------- --------
TOTAL CURRENT ASSETS 28,305 31,980 45,927
Property, plant, and equipment 35,447 37,790 34,995
Accum. depr. and amortization (24,725) (26,428) (23,356)
-------- -------- --------
10,722 11,362 11,639
Goodwill 5,811 5,962 6,157
Other assets 2,592 1,848 2,422
Deferred income tax benefit -- 431 --
-------- -------- --------
$ 47,430 $ 51,583 $ 66,145
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ 1,875 $ 2,700 $ 8,275
Current portion of long-term debt 2,300 2,300 5,800
Trade accounts payable 3,032 3,496 2,696
Accrued liabilities 6,370 9,594 12,128
Federal income tax payable 43 31 1,550
-------- -------- --------
TOTAL CURRENT LIABILITIES 13,620 18,121 30,449
Other Liabilities:
Long-term debt 7,400 12,700 10,700
Deferred compensation 1,115 1,115 1,066
Deferred income tax liability 453 -- 429
-------- -------- --------
8,968 13,815 12,195
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 - 3,105,250
3,107,941, and 3,050,691 at
7-11-98, 7-12-97, and 12-27-97 6,262 8,379 5,880
Retained earnings 18,297 11,268 17,374
Net unrealized gain on securities
available for sale 283 -- 247
-------- -------- --------
24,842 19,647 23,501
-------- -------- --------
$ 47,430 $ 51,583 $ 66,145
======== ======== ========
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 11, July 12, July 11, July 12,
1998 1997 1998 1997
------------------------------------------------------------
Net sales $ 19,077 $ 17,765 $ 34,860 $ 30,467
Costs, expenses and other income:
Cost of products sold 13,783 12,744 24,649 21,849
Selling, administrative and
general expenses 4,253 4,469 7,786 7,589
Interest 311 254 588 471
Amortization of Goodwill 123 33 217 33
Other income (121) (56) (189) (116)
-------- -------- -------- --------
18,349 17,444 33,051 29,826
INCOME BEFORE INCOME TAXES 728 321 1,809 641
Provision for income taxes 390 217 886 386
-------- -------- -------- --------
NET INCOME $ 338 $ 104 $ 923 $ 255
======== ======== ======== ========
Per share data:
Basic earnings per share $ .11 $ .03 .30 $ .08
Diluted earning per share $ .11 $ .03 .30 $ .08
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
NET INCOME $ 338 $ 104 $ 923 $ 255
UNREALIZED GAIN (LOSS)
ON SECURITIES, NET OF TAX (.22) -- 36 --
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 316 $ 104 $ 959 $ 255
======== ======== ======== ========
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 11,1998 July 12,1997
Operating Activities: -----------------------------
Net Income $ 923 $ 255
Depreciation and amortization 1,599 1,343
Adjustments necessary to reconcile
net income to net cash provided by
operating activities 9,626 9,440
-------- --------
Net cash provided by operating
activities 12,148 11,038
-------- --------
Investing Activities:
Purchase of 100% of the stock of
Master Product Manufacturing, Inc. -- (9,118)
Purchase of property and equipment (461) (1,109)
-------- --------
Net cash used by investing activities (461) (10,227)
-------- --------
Financing Activities:
Net decrease in notes pay.- bank (6,400) (1,175)
Net reduction of long-term debt (6,800) (300)
Proceeds from exercise of stock options 382 95
Purchase of Common Stock -- (8)
-------- --------
Net cash used by financing activities (12,818) (1,388)
-------- --------
Decrease in cash (1,131) (577)
Cash, beginning of period 1,246 1,319
-------- --------
Cash, end of period $ 115 $ 742
======== ========
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 11, 1998, July 12, 1997, and December 27, 1997 and the
results of operations and changes in financial position for the six months ended
July 11,1998 and July 12, 1997. The balance sheet at December 27, 1997 was
derived from the audited balance sheet included in the 1997 annual report to
shareholders.
Note B - Seasonal Aspects
- -------------------------
The results of operations for the six month periods ended July 11, 1998
and July 12, 1997 are not necessarily indicative of the results to be expected
for the full year.
Note C - Inventories (Dollars in Thousands)
- -------------------------------------------
7-11-98 7-12-97 12-27-97
------- ------- --------
Raw Materials $ 4,977 $ 5,773 $ 3,560
Work In Process 3,672 3,587 3,412
Finished Goods 7,355 8,024 5,665
------- ------- -------
$16,004 $17,384 $12,637
======= ======= =======
Note D - Income Taxes
- ---------------------
The provision for income taxes was computed based on financial
statement income.
7
Note E - Earnings Per Share
- -----------------------------
Earnings per share (EPS) were computed as follows:
Three Months Ended
July 11, 1998
-------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
Net Income $ 338
-------
Basic Earnings per Share
Income available to common
stockholders 338 3,101 $.11
=======
Effect of Dilutive Securities
Stock options 20
------- --------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 338 3,121 $.11
======= ======= =======
Three Months Ended
July 12, 1997
--------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
Net Income $ 104
-------
Basic Earnings per Share
Income available to common
stockholders 104 3,097 $.03
=======
Effect of Dilutive Securities
Stock options 47
Warrants 22
------- -------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 104 3,166 $.03
======= ======= =======
8
Note E - Earnings Per Share
- -----------------------------
Earnings per share (EPS) were computed as follows:
Six Months Ended
July 11, 1998
--------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
Net Income $ 923
-------
Basic Earnings per Share
Income available to common
stockholders 923 3,085 $.30
=======
Effect of Dilutive Securities
Stock options 20
------- --------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 923 3,105 $.30
======= ======= =======
Six Months Ended
July 12, 1997
--------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
Net Income $ 255
-------
Basic Earnings per Share
Income available to common
stockholders 225 3,094 $.08
=======
Effect of Dilutive Securities
Stock options 47
Warrants 22
------- -------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 255 3,163 $.08
======= ======= =======
9
Note F - Segment Information
- -----------------------------
As of and for the Six Months Ended
July 11, 1998
-------------------------------------------------------------
Office and
Sporting Graphic
Goods Arts Corporate Total
-------- ---------- --------- --------
Revenues from external customers $18,041 $16,819 $ --- $ 34,860
Net Income (761) 1,587 97 923
Assets $24,739 $19,355 $3,336 $ 47,430
As of and for the Six Months Ended
July 12, 1997
-------------------------------------------------------------
Office and
Sporting Graphic
Goods Arts Corporate Total
-------- ---------- --------- --------
Revenues from external customers $19,339 $11,128 $ --- $ 30,467
Net Income (865) 1,183 (63) 255
Assets $27,118 $21,007 $3,458 $ 51,583
10
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 1998 vs. 1997
Net sales were $19,077,000 in the second quarter of 1998 as compared
to $17,765,000 in the second quarter of 1997 an increase of $1,312,000 or 7.4%.
Sales of sporting goods decreased $1,354,000 or 12.1% and sales of office and
graphic arts products increased $2,666,000 or 40.6%.
Sporting goods sales decreased in table tennis, basketball and archery
products, 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 in June of 1997. (About 95%)
Cost of sales was $13,783,000 in the second quarter of 1998 as
compared to $12,744,000 in the second quarter of 1997, an increase of $1,039,000
or 8.2%.
Cost of sales as a percentage of net sales was 72.2% in the second
quarter of 1998 as compared to 71.7% in the second quarter of 1997. Sporting
goods cost of sales as a percentage of net sales increased 4.5% and office and
graphic arts cost of sales as a percentage of net sales increased 3.9%. 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 increase in office and graphic arts cost of sales percentage of net sales
was due to increased labor costs and higher product development expenses.
Selling, general, and administrative expenses were $4,253,000 in the
second quarter of 1998 as compared to $4,469,000 in the second quarter of 1997,
a decrease of $216,000 or 5.1%.
Selling, general and administrative expenses as a percentage of net
sales was 22.3% in the second quarter of 1998 as compared to 25.2% in the second
quarter of 1997. This decrease as a percentage of net sales was mainly due to
lower bad debt expense and reduced compensation expense.
Interest expense increased $57,000 to $311,000 in 1998 from $254,000
in 1997, an increase of 22.4% due to higher borrowing levels.
FIRST HALF COMPARISON 1998 VS. 1997
Net sales were $34,860,000 in the first half of 1998 as compared to
$30,467,000 in the first half of 1997, an increase of $4,393,000 or 14.4%. Sales
of sporting goods decreased $1,298,000 or 6.7% and sales of office and graphic
arts products increased $5,691,000 or 51.1%.
The decrease in sporting goods was mainly due to decreased volume in
table tennis and archery. In the office and graphic arts products segment, the
increase in sales is due mainly to the acquisition of Master Products. (About
90%).
11
ESCALADE, INCORPORATED AND SUBSIDIARIES
RESULTS OF OPERATIONS CONTINUED
Cost of sales was $24,649,000 in the first half of 1998 as compared to
$21,849,000 in 1997, an increase of $2,800,000 or 12.8%.
Cost of sales as a percentage of net sales was 70.7% in the first half
of 1998 as compared to 71.7% in the first half of 1997. This cost of sales % is
1% lower in 1998 than 1997 mainly due to higher % of office product sales in the
total sales dollars.
Selling, general, and administrative expenses were $7,786,000 in the
first half of 1998 as compared to $7,589,000 in the first half of 1997, an
increase of $197,000 or 2.6%.
Selling, general, and administrative expenses as a percentage of net
sales were 22.3% in 1998 as compared to 24.9% in 1997. The decrease in these
expenses as a percentage of net sales was mainly due to lower sales promotion
related expenses.
Interest expense was $588,000 in the first half of 1998 as compared to
$471,000 in the first half of 1997, an increase of $117,000 or 24.8%. The
increase was due to higher average borrowing levels in the first half of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was
$12,148,000 in the first half of 1998 as compared to $11,038,000 in the first
half of 1997. 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 1997 was $30,602,000 and at the end of the
first half of 1998, the net accounts receivable balance was $10,838,000. The
Company's net cash used for investing activities was $461,000 in the first half
of 1998 as compared to $10,227,000 in the first half of 1997. 1997 included
$9,118,000 for the acquisition of Master Products. The Company's net cash used
by financing activities was $12,818,000 in the first half of 1998 as compared to
$1,388,000 in the first half of 1997. In 1998, the cash used by financing
activities paid down bank and long term debt while 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
$7,000,000, which includes a letter of credit facility in the amount of
$2,000,000.
Inventories at the end of the first half of 1998 were $16,004,000 as
compared to $17,384,000 at the end of the first half of 1997, a decrease of
$1,380,000.
12
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
25, 1998. Proxy materials had been circulated on March 20, 1998, proposing the
election of eight members to the Board of Directors for a one year term, and the
appointment of Geo. S. Olive & Co.LLC, to serve as independent auditors of the
Company for the year 1998.
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, 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 10.21 - Fourth Amendment to amended and restated credit agreement
dated as of May 31, 1998 with Bank One, Indianapolis.
(b) Reports on Form 8-K - There was a report on Form 8-K filed on July 8, 1998
reporting that on June 26, 1998 Escalade announced the signing of a definitive
agreement to sell substantially all assets of the sporting goods business to JEN
Sports, Inc., a wholly owned subsidiary of Sportcraft, Ltd., for $74.5 million
subject to adjustments at the close. Consummation of the sale is subject to
among other things, approval by Escalade shareholders. Additional information
regarding the sale was included in the Form 8-K.
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: July 30, 1998 Robert E. Griffin
-------------- ---------------------------
Robert E. Griffin
Chairman and Chief
Executive Officer
Date: July 30, 1998 John R. Wilson
-------------- ---------------------------
John R. Wilson
Vice President and
Chief Financial Officer