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EXHIBIT 99.2
Message to the Shareholders
Third quarter net sales increased 6.6% to $78,492,000, bringing year to
date sales to $168,397,000, a gain of 10.4% over the comparable year ago period.
Operating income for the third quarter decreased 4% compared to the same period
last year. However, if non-recurring restructuring costs are excluded, operating
income for the quarter increased a healthy 10% compared to last year. Due to the
non-recurring restructuring costs and loss on impairment of goodwill recorded in
the office product business, net income year to date declined 17.9% to
$6,881,000, or fifty-three cents a share as compared to sixty-five cents a share
last year. On a comparable running twelve months, net income is up 4% this
year to $1.03 per share.
Escalade Sports' sales of sporting goods products increased 13% for the
quarter to $61,486,000 bringing year to date net sales to $107,795,000, a 17%
gain over the prior years comparable period. For the quarter, the increased
sales are primarily the result of earlier shipments. Additionally, the first
half was helped by the Bear acquisition and more normal purchasing patterns by
some of our customers due to their 2003 year end inventories being at more
appropriate levels. Escalade Sports' net income was up 11% for the quarter and
is ahead 25% for the year due to the increased sales and the continued reduction
of operating expenses. The earlier shipments already experienced indicate a
fourth quarter somewhat softer than last year, however, we expect the full year
for Escalade Sports to be another good year and end ahead of last year.
Net sales of office products declined 12% to $17,006,000 for the
quarter, primarily due to shipping delays and lower paper shredder orders in
North America, putting year to date net sales at $60,602,000, virtually even
with last year. During the third quarter the office products segment recorded a
restructuring charge of $1,412,000 ($1,250,000 net of taxes) and a goodwill
impairment loss of $1,312,000 ($840,000 net of taxes). These non-recurring
charges resulted from restructuring efforts undertaken to reduce operating costs
and position the business in a more favorable competitive position. Primarily
due to these one time expenses, net income declined 179% for the quarter and
105% year to date. If these one time costs are excluded form net income the
decline is reduced to 35% for the quarter and 26% year to date compared to the
same periods last year. The restructuring costs include $963,000 for involuntary
termination benefits and $449,000 for the write down of assets associated with
consolidating distribution operations in North America. The turnaround for the
European acquisition has taken longer than predicted; however, we continue to
believe it will be a good addition to our group. During the quarter, we have
continued to bolster the management team and we have an ongoing process of cost
reduction, product pricing analysis, and product rationalization that will
improve profitability.
Interest expense declined 30% for the quarter and 21% year to date as
our strong cash flow allowed us to reduce debt $13,908,000 ($1.07 per share) as
compared to the end of the third quarter last year. Early in the quarter when
our share price dipped, we repurchased 14,450 of our shares for $165,065, an
average price of $11.42 per share. We have now used $2,164,192 of the previously
authorized $3,000,000 for share repurchases.
We are continuing to actively evaluate acquisition opportunities in the
sporting goods industry.
Thank you for your continued support,
/s/ C. W. Reed
President & CEO
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited, In Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended Twelve Months Ended
---------------------------- ---------------------------- ----------------------------
02 October 04 October 02 October 04 October 02 October 04 October
2004 2003 2004 2003 2004 2003
------------ ------------ ------------ ------------ ------------ ------------
NET SALES ........................ $ 78,492 $ 73,660 $ 168,397 $ 152,600 $ 237,525 $ 206,490
OPERATING EXPENSES
Cost of goods sold .......... 56,738 53,552 118,381 103,371 169,375 143,936
Selling and administrative .. 12,223 11,619 35,690 35,941 46,117 42,637
Restructuring costs ......... 1,412 -- 1,412 -- 1,412 --
------------ ------------ ------------ ------------ ------------ ------------
OPERATING INCOME ................. 8,119 8,489 12,914 13,288 20,621 19,917
OTHER INCOME (EXPENSE)
Interest expense ............ (489) (700) (1,427) (1,800) (1,909) (2,080)
Goodwill impairment loss .... (1,312) -- (1,312) -- (1,312) --
Other income (expense) ...... 245 1,124 546 1,084 1,975 1,235
------------ ------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES ....... 6,563 8,913 10,721 12,572 19,375 19,072
PROVISION FOR INCOME TAXES ....... (2,233) (2,788) (3,840) (4,187) (6,030) (6,232)
------------ ------------ ------------ ------------ ------------ ------------
NET INCOME ....................... $ 4,330 $ 6,125 $ 6,881 $ 8,385 $ 13,345 $ 12,840
============ ============ ============ ============ ============ ============
PER SHARE DATA
Basic earnings per share .... $ 0.33 $ 0.48 $ 0.53 $ 0.65 $ 1.03 $ 0.99
============ ============ ============ ============ ============ ============
Diluted earnings per share .. $ 0.33 $ 0.47 $ 0.52 $ 0.64 $ 1.01 $ 0.97
============ ============ ============ ============ ============ ============
Average shares outstanding .. 13,041 12,854 13,024 12,962 12,921 12,975
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited, In Thousands)
02 October 2004 04 October 2003 27 December 2003
--------------- --------------- ---------------
ASSETS
Current assets ...................... $ 106,142 $ 110,414 $ 79,619
Property, Plant & Equipment - net ... 15,919 17,578 17,537
Other assets ........................ 17,645 16,593 18,504
Goodwill ............................ 17,399 17,946 18,777
--------------- --------------- ---------------
Total ............................ $ 157,105 $ 162,531 $ 134,437
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ................. $ 71,572 $ 77,047 $ 54,962
Other liabilities ................... 19,099 32,215 18,192
Stockholders' equity ................ 66,434 53,269 61,283
--------------- --------------- ---------------
Total ............................ $ 157,105 $ 162,531 $ 134,437
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