1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997 COMMISSION FILE NUMBER 0-6966 ESCALADE, INCORPORATED ---------------------- (Exact name of registrant as specified in its charter) Indiana 13-2739290 ------- ---------- (State of incorporation) (IRS 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. X --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X --- Aggregate market value of voting stock held by nonaffiliates of the registrant as of February 27, 1998: $36,232,452 The number of shares of Registrant's common stock (no par value) outstanding as of February 27, 1998: 3,060,109 DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the registrant's Proxy Statement relating to its annual meeting of stockholders scheduled to be held on April 25, 1998 are incorporated by reference into Part III of this Report. Index to Exhibits is found on page 14.
2 ESCALADE, INCORPORATED AND SUBSIDIARIES TABLE OF CONTENTS <TABLE> <CAPTION> PAGE - ----------------------------------------------------------------------------------------------------- <S> <C> <C> PART I Item 1. Business 1 Item 2. Properties 6 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 7 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 8 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 7. A. Quantitative and Qualitative Disclosures About Market Risk 12 Item 8. Financial Statements and Supplementary Data 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 PART III Item 10. Directors and Executive Officers of the Registrant 13 Item 11. Executive Compensation 13 Item 12. Security Ownership of Certain Beneficial Owners and Management 13 Item 13. Certain Relationships and Related Transactions 13 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 14 </TABLE>
3 PART I ITEM 1--BUSINESS GENERAL Escalade, Incorporated (Escalade or Company) is a diversified company engaged in the manufacture and sale of sporting goods and office and graphic arts products. Escalade and its predecessors have produced sporting goods for over 70 years and have produced office machines for over 40 years. Escalade is the successor to The Williams Manufacturing Company, an Ohio-based manufacturer and retailer of women's and children's footwear formed in 1922. Through a series of acquisitions commencing in the 1970's, the Company has diversified its business. The Company currently manufactures sporting goods in Evansville, Indiana, Compton, California and Tijuana, Mexico and manufactures office and graphic arts products in Wabash, Indiana, Los Angeles, California and Tijuana, Mexico. In 1972, the Company merged with Martin Yale Industries, Inc. (Martin Yale), an Illinois manufacturer of office and graphic arts products and leisure time items such as toys and hobby and craft items. In 1973, the Company acquired both Indian Industries, Inc. (Indian), an Indiana manufacturer of archery equipment and table tennis tables, and Harvard Table Tennis, Inc., a Massachusetts manufacturer of table tennis accessories. Escalade discontinued the Williams Manufacturing footwear operations in 1976 and sold Martin Yale's leisure time product line to an unaffiliated party in 1979. In 1980, the Company purchased Harvard Sports, Inc. (formerly Crown Recreation (West), Inc.), a California manufacturer of table tennis tables and home pool tables. In 1983, the Company closed Harvard Table Tennis, Inc. and consolidated it with Harvard Sports, Inc. (Harvard). Escalade has diversified within both the sporting goods and office and graphic arts products industries, principally through the introduction of new product lines and acquisitions of related assets and businesses. Escalade expanded its sporting goods business in 1982 with the introduction of basketball backboards, goals and poles. In 1988, the Company acquired the business machine division assets of Swingline, Inc., further expanding the range of products offered within the office machine and equipment product lines. In 1989, the Company started limited manufacturing in Tijuana, Mexico under a shelter program known as "maquiladora". In 1990, the Company built a new manufacturing and office facility in Wabash, Indiana and consolidated the manufacturing of office and graphic arts products into the new facility. In 1992, the company established a European sales office and warehouse based in the United Kingdom under the name of Escalade International Limited. In 1994, the Company purchased certain assets of Data-Link Corporation which manufactured products to apply postage and other stamps. In 1997, the Company purchased Master Products Manufacturing Company, Inc. (Master Products), a manufacturer of paper punches and catalog rack systems. Escalade's sporting goods products are produced by Indian and Harvard and are sold through a single consolidated sales and marketing group, Escalade Sports. Escalade's office and graphic arts products are produced by Martin Yale and Master Products and are sold through a single consolidated sales and marketing group, Martin Yale.
4 The following table presents the percentages contributed to Escalade's net sales by each of its business segments: <TABLE> <CAPTION> FISCAL YEAR 1997 1996 1995 - ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Sporting goods 73% 79% 81% Office and graphic arts products 27 21 19 ----------------------------------------------------- Total net sales 100% 100% 100% ===================================================== </TABLE> For additional segment information, see the notes to consolidated financial statements. SPORTING GOODS Escalade manufactures and sells a variety of sporting goods such as table tennis tables and accessories, archery equipment, home pool tables and accessories, combination bumper pool and card tables, game tables, basketball backboards, goals and poles, darts, dart cabinets and junior sporting goods, including Mini Ping Pong, Mini Pool(TM), Mini Court(R) basketball and Shot Clock basketball. Some of Escalade's domestic sporting goods shipments are made from Harvard, which primarily services the Company's U. S. Western marketing region, but most of such shipments are made from Indian, which primarily serves the rest of the United States. The majority of foreign shipments are made through Escalade FSC Inc., a foreign sales corporation established by the Company in 1994. Escalade produces and sells sporting goods under various brand names in addition to its Indian and Harvard brand names. Beginning in 1985, Indian and Harvard entered into an agreement with Spalding and Evenflo Companies, Inc. (Spalding) for the exclusive right and license to utilize the Spalding(R) trademark in conjunction with the manufacture, sale and distribution in the United States of certain sporting goods product lines. The principal product lines covered by licensing agreements with Spalding are basketball backboards, goals and poles, indoor darts, table tennis sets and pool accessories. Beginning in 1990, Indian entered into an agreement and contract with Baker Sport AB, a Swedish company, for the exclusive right and license to distribute and produce table tennis equipment under the brand name STIGA for the United States and Canada. Subsequently, Baker Sport AB filed bankruptcy under Swedish laws. A plan of reorganization was instituted and a new company was formed called Sweden Table Tennis AB and, effective February 2, 1994, Escalade purchased 37.5%, the Bandstigen Family purchased 37.5% and AB Traction purchased 25% of Sweden Table Tennis AB. Escalade also manufactures various sporting goods under private label for Sears Roebuck & Co. (Sears) and various other customers. Many of Escalade's products are sold to Sears, Escalade's largest customer, which accounted for approximately 33% of Escalade's sporting goods item net sales in 1997. No other customer accounted for more than 10% of Escalade's sporting goods net sales in 1997. Certain of the Company's sporting goods products are subject to the regulation of the Consumer Product Safety Commission. The Company believes that it is in compliance with such regulations. As previously announced, in October 1997, the Company retained CIBC Oppenheimer Corp. (CIBC) to assist in exploring potential opportunities to enhance stockholder value through transactions involving the Company's sporting goods operations, including a possible sale. CIBC is at the initial stage of exploring such possibilities. No offers have been received, although several parties have expressed interest. The resulting impact of any such transaction on the value of the Company and its stock is uncertain, and there can be no assurance that any such transaction will ultimately occur. (2)
5 OFFICE AND GRAPHIC ARTS PRODUCTS Escalade's office and graphic arts products include paper trimmers, paper folding machines, paper drills, collators, decollators, bursting machines, letter openers, automated paper joggers, checksigners, stamp affixers, paper shredders, paper punches, catalog rack systems, bindery carts and related accessories. Escalade's office and graphic arts products business is conducted through Martin Yale and Master Products. In 1986, the Company introduced a combination checksigner and bursting machine, which automatically imprints facsimile signatures on payroll checks and then separates each check for distribution. The Company also further diversified its office equipment product lines by its August 1988 purchase of the business machine division assets of Swingline, Inc. consisting primarily of a line of forms handling equipment including decollators, bursters and checksigners and a line of shredders and other products, by its 1994 purchase of certain assets of Data-Link Corporation consisting primarily of products which apply postage and other stamps and by its 1997 purchase of Master Products, a manufacturer of paper punches and catalog rack systems. Escalade produces and sells office and graphic arts products under the Martin Yale brand name, the Premier(R) trademark and the Master Products brand name. The Company also manufactures various office and graphic arts products under private label for original equipment manufacturers. The Company announced in October 1994 that it intended to distribute 100% of the Martin Yale stock to Escalade's stockholders in a tax-free spin-off following the satisfaction of certain contingencies. The Company's management believed that the spin-off would be in the best interests of the Company and its stockholders, although in February 1995 the proposed distribution was delayed until the Company made satisfactory progress in improving Escalade's overall profitability. However, in 1997, this was deemed infeasible due to uncertain tax consequences to the Company and its stockholders and the possible resulting limitations on future business operations. RELATIONSHIP WITH SEARS The Company has supplied sporting goods to Sears for over 30 years beginning with sales of archery equipment by Indian to Sears. Sears currently purchases for resale a wide variety of Escalade's sporting goods. Sales to Sears accounted for approximately 24% of Escalade's consolidated sales in 1997 and for approximately 24% and 23% of consolidated sales in 1996 and 1995. Even though the Company has no long-term contracts with Sears, the Company believes that sales to Sears will continue and that relations with Sears are good. Escalade has been recognized by Sears for its outstanding service in ten of the last 12 years and in 20 of the last 25 years. Sears has awarded Escalade the Sears "Partners in Progress Award" during those years based upon quality, service and product innovation. Sears makes this award to less than 80 suppliers each year. During this period, Sears had more than 10,000 suppliers. In 1987, Sears further recognized the Company by awarding Escalade the Sears 1986 "Source of the Year Award" in the recreation-automotive group. (3)
6 MARKETING AND PRODUCT DEVELOPMENT Escalade has developed its existing product lines to adapt to changed conditions. Escalade believes that it is prepared to react to changing market and economic developments primarily by continuing the quality/price structure of the Company's product lines and by conducting ongoing research and development of new products. Escalade is committed to being customer focused. For many of its sporting goods products, Escalade offers its customers a choice, based on quality and price, of its line of "good, better and best" items. Such products are priced in relation to their quality which enables the Company to sell its goods through a variety of department stores, mass merchandisers, wholesale clubs, catalog showrooms, discount houses, general sporting goods stores, specialty sporting goods stores and hardware chains. As a result of such quality/price structure, Escalade is able to meet the quality/price objectives of the consumers served by such retail channels. Escalade sells its office and graphic arts products through office machine dealers, office supply houses and office product catalogs. Certain of Escalade's office products, such as paper trimmers and paper folders, are marketed in a quality/price range designed to accommodate customer needs. Lower cost items are generally intended for light duty office applications, whereas higher cost items are more rugged or more sophisticated, and are intended for use in heavy duty or commercial applications. Escalade conducts much of its marketing efforts through a network of independent sales representatives in the office and graphic arts industries. Marketing efforts in the sporting goods business are coordinated through a marketing department as well as through a network of Company and independent sales representatives. The Company engaged in ongoing research and development activities for new products in each of its business segments. Escalade spent approximately $1,400,000 in 1997, $2,300,000 in 1996 and $1,700,000 in 1995 for research and development activities. COMPETITION Escalade is subject to competition with various manufacturers of each product line produced or sold by Escalade. The Company is not aware of any other single company that is engaged in both the same industries as Escalade or that produces the same range of products as Escalade within such industries. Nonetheless, competition exists for many Escalade products within both the sporting goods and office and graphic arts industries and some competitors are larger and have substantially greater resources than the Company. Escalade believes that its long-term success depends on its ability to strengthen its relationship with existing customers, to attract new customers and to develop new products that satisfy the quality and price requirements of sporting goods and office and graphic arts customers. (4)
7 LICENSES, TRADEMARKS AND BRAND NAMES Escalade Sports is licensed to use the Spalding(R) trademark pursuant to licensing agreements entered into with Spalding in 1985. The Company pays royalties to Spalding for the use of the Spalding trademark in accordance with certain schedules set forth in the agreements. The licensing agreements further require that the Company pay Spalding certain minimum annual royalties from sales of Spalding(R) branded goods and that the Company provide Spalding with periodic reports and maintain quality standards acceptable to Spalding. In 1997, royalties paid by the Company to Spalding were less than 1% of net sales. The Company believes that it currently satisfies all material terms of its agreements with Spalding. The licensing agreements with Spalding expire on September 30, 1999. Escalade is the owner of several registered trademarks and brand names. For its sporting goods, the Company holds the Ping-Pong(R), and Harvard(R) registered trademarks and utilizes the Indian, Indian Archery and Indian Xi brand names. The Company permits limited uses of the Ping-Pong(R) trademark by other manufacturers pursuant to various licensing agreements. The Company also owns the Premier(R) and Sandmar(R) registered trademarks for its office and graphic arts products, in addition to manufacturing such products under the Martin Yale and Master Products brand names. SEASONALITY The backlog of unshipped orders by industry segment is shown below at the Company's 1997, 1996, and 1995 fiscal year end. All orders in backlog at year end are generally shipped during the following year. The backlog includes all orders received but not shipped. Escalade's sporting goods business is seasonal and, therefore, the backlog is subject to fluctuations. <TABLE> <CAPTION> YEARS ENDED DECEMBER 27, DECEMBER 28 AND DECEMBER 30 1997 1996 1995 - ------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Orders received but not shipped Sporting goods $4,375,600 $2,592,800 $3,128,200 Office and graphic arts products 570,100 419,300 392,300 </TABLE> EMPLOYEES The Company employs between 625 and 825 employees, consisting of between 275 and 425 people at Indian's Evansville, Indiana facilities, between 100 and 150 at Harvard's Compton, California and Tijuana, Mexico facilities, approximately 125 employees at Martin Yale's Wabash, Indiana facilities and approximately 125 at Master Products' Los Angeles, California and Tijuana, Mexico facilities. All hourly rated employees at Evansville are represented by the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers AFL-CIO, whose contract expires April 30, 2000. All hourly rated employees at Compton, California are represented by the International Brotherhood of Teamsters whose contract expires on March 31, 1998, by which time the Company will have ceased operations at its Compton, California facility and will have moved those operations to a new location in San Diego, California. Escalade believes that its employee relations are satisfactory. (5)
8 SOURCES OF SUPPLIES Raw materials for Escalade's various product lines consist of wood, particle board, slate, standard grades of steel, steel tubing, plastic vinyl, steel cables, fiberglass and packaging. Escalade relies upon European suppliers for its requirement of billiard balls and slate utilized in the production of home pool tables and upon various Asian manufacturers for certain of its table tennis needs and other items. The Company believes that these sources will continue to provide adequate supplies as needed. All other materials needed for the Company's various operations are available in adequate quantities from a variety of domestic and foreign sources. YEAR 2000 COMPLIANCE The Company's sporting goods and office and graphic arts machines and equipment subsidiaries have both initiated programs to prepare their computer systems and applications for the Year 2000 and to identify all systems and applications affected by Year 2000 compliance issues. They expect to incur internal staff costs as well as consulting and other expenses to test and convert system applications in the amount of approximately $250,000 over the next one and a half years. Any necessary modifications to the Company's systems are expected to be approximately 90% complete by the end of 1998 and completely finished in 1999. The Company does not expect that Year 2000 compliance issues and related expenses will have a material adverse impact on the Company's operations, cash flows or financial conditions in future periods. ITEM 2--PROPERTIES The Company operates the following facilities: <TABLE> <CAPTION> LOCATION SIZE LEASED OR OWNED - ------------------------------------------------------------ ------------------- ------------------------- <S> <C> <C> Evansville, Indiana (1) 346,000 sq. ft. Owned Compton, California (1) 102,000 sq. ft. Leased Tijuana, Mexico (1) 50,000 sq. ft. Owned Swansea, United Kingdom (1) 13,500 sq. ft. Owned Wabash, Indiana (2) 141,000 sq. ft. Owned Los Angeles, California (2) 72,312 sq. ft. Owned Tijuana, Mexico (2) 15,000 sq. ft. Leased </TABLE> (1) Sporting goods facilities (2) Office products facilities The Company leases its Compton, California manufacturing facilities at a rate of $29,600 per month through March 31, 1998. When the lease expires, the Company will commence leasing other space in the San Diego, California area and the Company will conduct the operations formerly performed in Compton, California, except for manufacturing, at this location. (6)
9 The Company's Wabash facilities are held subject to a mortgage financed by Economic Development Revenue Bonds. The 141,000 square foot facility is a pre-engineered metal building supported by structured steel and concrete block consisting of 21,000 square feet warehousing, 6,000 square feet office and 114,000 square feet manufacturing. The Company leases space in Tijuana, Mexico for its office products operations for $61,000 per year. The Company believes that its facilities are in excellent condition and suitable for their respective operations. The Evansville, Wabash and Tijuana sites also contain several undeveloped acres which could be utilized for expansion. The Company believes that all of its facilities are in compliance with applicable environment regulations and is not subject to any proceeding by any federal, state or local authorities regarding such matter. The Company provides regular maintenance and service on its plants and machinery as required. ITEM 3--LEGAL PROCEEDINGS The Company is involved in litigation arising in the normal course of its business. The Company does not believe that the disposition or ultimate resolution of such claims or lawsuits will have a material adverse affect on the business or financial condition of the Company. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. (7)
10 PART II ITEM 5--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded under the symbol "ESCA" on the Nasdaq National Market System. The following table sets forth, for the calendar periods indicated, the high and low sales prices of the Common Stock as reported by the Nasdaq National Market System: <TABLE> <CAPTION> PRICES HIGH LOW - ------------------------------------------------------------------------------------------------ <S> <C> <C> 1997 First quarter ended March 22, 1997 $ 12.63 $ 8.25 Second quarter ended July 12, 1997 10.88 9.38 Third quarter ended October 4, 1997 12.25 9.50 Fourth quarter ended December 27, 1997 14.75 10.88 1996 First quarter ended March 23, 1996 $ 5.13 $ 2.50 Second quarter ended July 13, 1996 5.50 4.75 Third quarter ended October 5, 1996 9.13 4.88 Fourth quarter ended December 28, 1996 9.25 7.75 </TABLE> The closing market price on February 27, 1998 was $18 per share. In the fourth quarter of 1997, the Company announced its offer to purchase up to 1,000,000 shares of its common stock at a price of $11 to $14 per share. Pursuant to such offer, the Company purchased 117,766 shares of its common stock at $14 per share in December 1997. In the third quarter of 1996, the Company announced its offer to purchase approximately 1,000,000 shares of its common stock at a price of $6 to $10 per share. Pursuant to such offer, the Company purchased 1,016,682 shares of its common stock at $8.875 per share in September 1996. The Company paid no cash dividends during the last two fiscal years. The Company's existing bank indebtedness restricts the payment of cash dividends. There were approximately 360 holders of record of the Company's Common Stock at February 27, 1998. The approximate number of stockholders, including those held by depository companies for certain beneficial owners, was 850. (8)
11 ITEM 6--SELECTED FINANCIAL DATA (In thousands, except per share data) <TABLE> <CAPTION> DECEMBER 27, December 28, December 30, December 31, December 25, AT AND FOR YEARS ENDED 1997 1996 1995 1994 1993(2) - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> INCOME STATEMENT DATA Net sales Sporting goods $66,666 $74,077 $73,858 $85,318 $80,397 Office and graphic arts products 24,836 19,132 17,321 17,276 14,338 Total net sales 91,502 93,209 91,179 102,594 94,735 Net income (loss) 6,361 5,247 448 (2,403) 6,213 Weighted average shares 3,110 3,850 4,134 4,129 4,111 PER SHARE DATA (1) Basic earnings per share $2.05 $1.36 $.11 $(.58) $1.51 Cash dividends 0 0 0 0 0 BALANCE SHEET DATA Working capital 15,478 13,309 17,069 16,837 22,289 Total assets 66,145 54,430 57,767 75,883 66,142 Short-term debt 14,075 13,675 16,732 31,215 16,640 Long-term debt 10,700 5,500 6,266 9,148 11,563 Total stockholders' equity 23,501 19,305 23,338 22,889 25,163 </TABLE> (1) Basic earnings per common share are based on average shares outstanding adjusted to reflect the Company's 15% stock dividend declared on February 19, 1994. (2) Includes a cumulative effect adjustment of $3,089,893 relating to the adoption of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. (9)
12 ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1997 COMPARED TO 1996 In 1997, net sales decreased 1.8%, or $1,707,000 to $91,502,000 from $93,209,000 in 1996. Sporting goods net sales decreased by $7,411,000 from $74,077,000 to $66,666,000. Of this decrease, 34% was due to discontinued product or product lines and the remaining 66% was due to a decrease in units sold. The decrease in units sold was mainly caused by excess inventory carryover from the prior year by several large customers. Office and graphic arts machines and equipment net sales increased by $5,704,000, or 29.8%, to $24,836,000 from $19,132,000. Of this increase, 95% was due to the acquisition of Master Products and the other 5% was mainly due to increased export sales. Cost of sales of $61,717,000 as a percentage of net sales was 67.4% in 1997 as compared to $66,703,000, or 71.6%, in 1996. This decrease in cost of sales as a percentage of net sales was in the sporting goods segment. This decrease in cost of goods sold was in factory expense, primarily in depreciation, product development, salaries and management services. Selling, administrative and general expenses in 1997 were $17,397,000, or 19%, of net sales as compared to $16,628,000, or 17.8%, in 1996. This increase as a percentage of net sales was in the office and graphic arts machines and equipment segment. Professional services, travel, customer allowances and bad debts increased. Also, this segment's selling, general and administrative expenses are higher than sporting goods as a percentage of net sales and this segment's sales are increasing as a percentage of total sales. Interest expense in 1997 was $1,277,000 as compared to $1,408,000 in 1996, a decrease of $131,000, or 9.3%. This decrease in interest expense was due to lower average borrowing levels in 1997 than in 1996. The income tax provision for 1997 was $4,689,000 for an effective rate of 42%. Net income for the year was $6,361,000 as compared to $5,247,000 in 1996. This increase in net income was from sporting goods and was primarily due to increased margins as a result of lower factory expenses. (10)
13 ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1996 COMPARED TO 1995 In 1996, net sales increased 2.2%, or $2,030,000, to $93,209,000 from $91,179,000 in 1995. Sporting goods net sales increased $219,000 from $73,858,000 to $74,077,000. Lower sales in the first three quarters of 1996 were offset by a 14.8% increase in fourth quarter sales over 1995. This increase reflected improved Christmas shipments to retailers in 1996 as compared to 1995. Office and graphic arts machines and equipment net sales increased $1,811,000, or 10.5%, to $19,132,000 from $17,321,000. Graphic arts equipment sales were up about $400,000, mainly to dealers, and office product sales were up about $1,400,000, mainly in wholesale, contract stationer and superstore sales. Cost of sales of $66,703,000 as a percentage of net sales was 7l.6% in 1996 as compared to $73,433,000, or 80.6%, in 1995. Sporting goods cost of sales as a percentage of net sales decreased 10.1% in 1996 from 1995. Material costs were down about 5%, labor costs were down about 1% and factory expense was down about 4% as a percentage of net sales. The decrease in the office and graphic arts machines and equipment cost of sales as a percentage of net sales was 2.2% and was mainly in material cost. Selling, administrative and general expenses in 1996 were $16,628,000 as compared to $13,867,000 in 1995. As a percentage of net sales, these expenses were 17.8% in 1996 and 15.2% in 1995. This increase was in advertising, sales promotion, volume discounts, customer allowances and incentives. Interest expense in 1996 was $1,408,000 as compared to $2,268,000 in 1995, a decrease of $860,000, or 37.9%. This decrease was due to lower short-term borrowing levels in 1996 than in 1995. The income tax provision for 1996 was $3,513,000 for an effective rate of 40%. Net income for the year of $5,247,000 compares to net income of $448,000 in 1995. This is an increase of $4,799,000. Sporting goods net income increased about $4,700,000 and office and graphic arts machines and equipment net income increased about $500,000 with the difference being in corporate expenses. (11)
14 LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES The Company's net cash provided by operating activities was $8,784,231, $15,266,154 and $18,666,358 in 1997, 1996 and 1995. Inventory management provided cash of $272,909, $3,699,263 and $8,244,785 in 1997, 1996 and 1995. Accounts receivable used cash of $2,113,236 and $2,439,220 in 1997 and 1996 and provided cash of $6,411,341 in 1995. The increase in year-end receivables in 1997 was due to higher fourth quarter sales. INVESTING ACTIVITIES The Company's net cash used by investing activities was $10,651,115, $1,891,594 and $1,051,136 in 1997, 1996 and 1995. The Company used $1,597,055, $1,902,127 and $1,144,922 in 1997, 1996 and 1995 to purchase property and equipment. In 1997, the Company used $8,958,745 for the purchase of certain assets of Master Products, net of cash acquired. FINANCING ACTIVITIES Net cash provided by financing activities in 1997 was $1,793,961 and net cash used by financing activities was $13,301,909 and $17,363,055 in 1996 and 1995. In 1997, the Company borrowed an additional $11,500,000 and paid $10,300,000 on long-term debt. At year end, the short-term debt had increased $3,120,650 over last year. This is a net increase of $4,320,650 in total bank debt. The additional borrowings were used for the purchase of Master Products and Company stock and warrants. The Company's working capital requirements are funded by cash flow from operations and a domestic short-term line of credit. The maximum amount that could be drawn under its domestic line of credit at year end was $12,000,000, of which $8,275,000 was used. The domestic line of credit has been paid down to zero as of January 26, 1998. The Company expects to pay $4,000,000 of the $13,500,000 term loan from cash flow in the first quarter of 1997. This payment is in advance of the schedule payback and has been classified as current on the balance sheet. EFFECT OF INFLATION The Company cannot accurately determine the precise effects of inflation; however, there were some increases in sales and costs due to inflation in 1997. The Company attempts to pass on increased costs and expenses through price increases when necessary. The Company is working on reducing expense levels, improving manufacturing technologies and redesigning products to keep these costs under control. ITEM 7. A.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Item 8 are set forth in Part IV, Item 14. ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. (12)
15 PART III ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required under this item with respect to Directors and Executive Officers is contained in the registrant's Proxy Statement relating to its annual meeting of stockholders scheduled to be held on April 25, 1998 under the captions "Certain Beneficial Owners" and "Election of Directors" and is incorporated herein by reference. ITEM 11--EXECUTIVE COMPENSATION Information required under this item is contained in the registrant's Proxy Statement relating to its annual meeting of stockholders scheduled to be held on April 25, 1998 under the caption "Executive Compensation" and is incorporated herein by reference, except that the information required by Items 402(k) and (l) of Regulation S-K which appear within such caption under the sub-headings "Compensation and Stock Option Committees" and "Financial Performance" are specifically not incorporated by reference into this Form 10-K or into any other filing by the registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934. ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this item is contained in the Registrant's Proxy Statement relating to its annual meeting of stockholders scheduled to be held on April 25, 1998 under the caption "Certain Beneficial Owners" and is incorporated herein by reference. ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. (13)
16 PART IV ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) Documents filed as a part of this report: (1) FINANCIAL STATEMENTS Independent Auditor's Report Consolidated financial statements of Escalade, Incorporated and subsidiaries: Consolidated balance sheet--December 27, 1997 and December 28, 1996 Consolidated statement of income--fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 Consolidated statement of stockholders' equity--fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 Consolidated statement of cash flows--fiscal years ended December 27, 1997, December 28, 1996 and December 30, 1995 Notes to consolidated financial statements (2) FINANCIAL STATEMENT SCHEDULES Independent Auditor's Report on financial statement schedule For the three-year period ended December 27, 1997: Schedule II--Valuation and qualifying accounts All other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto. (3) EXHIBITS 3.1 Articles of incorporation of Escalade, Incorporated (a) 3.2 By-Laws of Escalade, Incorporated (a) 4.1 Form of Escalade, Incorporated's common stock certificate (a) 10.1 Licensing agreement between Spalding and Evenflo Companies, Inc. and Indian Industries, Inc. dated October 1, 1992 and extension letter dated May 25, 1995 (e) 10.3 Licensing agreement between Sweden Table Tennis AB and Indian Industries, Inc. dated January 1, 1995 (h) 10.4 Amendment to lease agreement dated April 1, 1983 among Irving J. Karp, Trustee of the Karp 1977 Trust, Irving J. Karp, Trustee of the Feldman 1976 Trust and Harvard Sports, Inc. dated September 8, 1992 (e) 10.8 Federal trademark registration 283,766 for Ping-Pong(R) bats and rackets (a) 10.9 Federal trademark registration 283,767 for Ping-Pong(R) balls (a) 10.10 Federal trademark registration 294,408 for Ping-Pong(R) tables and parts (a) 10.11 Federal trademark registration 520,270 for Ping-Pong(R) game (a) 10.12 Federal trademark registration 1,003,289 for Mr. Table Tennis(R)table tennis equipment (a) 10.13 Federal trademark registration 1,187,832 for Harvard(R) table tennis equipment (a) 10.14 Federal trademark registration 1,442,274 for Mini Court(R)(a) 10.15 Federal trademark registration 1,292,167 for Premier(R) table tennis tables and accessories (a) 10.16 Federal trademark registration 1,456,647 for Mini Pool(R)(a) (14)
17 (3) EXHIBITS (continued) 10.17 Trademark Assignment--Federal trademark registration 1,348,890 for Sandmar(R) office machines (b) 10.18 Agreement dated April 28, 1997 between Indian Industries, Inc. and International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers, AFL-CIO Local No. 848 (j) 10.19 Amendment to agreement dated April 1, 1991 between Harvard Sports, Inc. and Food, Industrial and Beverage Warehouse, Driver and Clerical Employees, Local 630 dated January 16, 1995 (g) 10.21 Amendment to credit agreement dated May 31, 1996 between Escalade, Incorporated and Bank One, Indianapolis, National Association dated May 31, 1997 (j) 10.32 Mortgage, security agreement, collateral assignment of rents and fixture, filing dated June 4, 1990 between Martin Yale Industries, Inc. and Bank One, Indianapolis, National Association (c) 10.33 Trust Indenture between the City of Wabash, Indiana and The Citizens National Bank of Evansville as Trustee dated May 1, 1990 relating to the Economic Development Revenue Bonds, Series 1990 (Martin Yale Industries, Inc. Project) (c) 10.34 Real Estate Sales Contract dated September 17, 1990 between Martin Yale Industries, Inc. and Fritkin-Jones Design Group, Inc. (c) 10.35 Stock and Warrant Exchange Agreement dated June 30, 1991 between Escalade, Incorporated and the minority stockholders of Marcy (d) 10.36 Stock purchase agreement dated June 17, 1997 between Martin Yale Industries, Inc. and James Crean International, G.V. regarding the purchase of Master Products Manufacturing Company, Inc. (j) 21 Subsidiaries of the Registrant 23 Consent of Geo. S. Olive & Co. LLC 27 Financial Data Schedule EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 10.24 The Harvard Sports/Indian Industries, Inc. 401(k) Plan as amended and merged in 1993 (h) 10.26 Martin Yale Industries, Inc. 401(k) Retirement Plan as amended in 1993 (h) 10.27 Incentive Compensation Plan for Escalade, Incorporated and its subsidiaries (a) 10.28 Escalade, Incorporated 1984 Incentive Stock Option Plan (a) 10.29 Example of contributory deferred compensation agreement between Escalade, Incorporated and certain management employees allowing for deferral of compensation (a) 10.30 1997 Director Stock Compensation and Option Plan (k) 10.31 1997 Incentive Stock Option Plan (k) (15)
18 (a) 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) Incorporated by reference from the Company's 1988 Annual Report on Form 10-K (c) Incorporated by reference from the Company's 1990 Annual Report on Form 10-K (d) Incorporated by reference from the Company's 1991 Second Quarter Report on Form 10-Q (e) Incorporated by reference from the Company's 1991 Annual Report on Form 10-K (f) Incorporated by reference from the Company's 1992 Annual Report on Form 10-K (g) Incorporated by reference from the Company's 1994 Annual Report on Form 10-K (h) Incorporated by reference from the Company's 1995 Annual Report on Form 10-K (i) Incorporated by reference from the Company's 1996 Third Quarter Report on Form 10-Q (j) Incorporated by reference from the Company's 1997 Second Quarter Report on Form 10-Q (k) Incorporated by reference from the Company's 1997 Proxy Statement (B) No reports on Form 8-K for the fourth quarter ended December 27, 1997 were required to be filed. (16)
19 INDEPENDENT AUDITOR'S REPORT To the Stockholders and Board of Directors Escalade, Incorporated Evansville, Indiana We have audited the consolidated balance sheet of Escalade, Incorporated and subsidiaries as of December 27, 1997 and December 28, 1996 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 27, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Escalade, Incorporated and subsidiaries at December 27, 1997 and December 28, 1996 and the results of their operations and their cash flows for each of the three years in the period ended December 27, 1997 in conformity with generally accepted accounting principles. GEO. S. OLIVE & CO. LLC Evansville, Indiana January 30, 1998 (F-1)
20 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET <TABLE> <CAPTION> DECEMBER 27 AND DECEMBER 28 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Current assets Cash $ 1,246,396 $ 1,319,319 Receivables, less allowances of $893,434 and $681,606 30,602,245 27,296,584 Inventories 12,637,345 11,452,433 Prepaid expenses 236,500 221,850 Deferred income tax benefit 1,205,196 1,560,814 -------------------------------------------- Total current assets 45,927,682 41,851,000 Property, plant and equipment 11,638,686 10,208,548 Other assets 2,422,066 1,851,511 Deferred income tax benefit 518,653 Goodwill 6,157,350 -------------------------------------------- $66,145,784 $54,429,712 ============================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable--bank $ 8,275,000 $ 3,875,000 Current portion of long-term debt 5,800,000 9,800,000 Trade accounts payable 2,696,478 2,393,980 Accrued liabilities 12,128,256 11,374,159 Federal income tax payable 1,550,000 1,099,072 -------------------------------------------- Total current liabilities 30,449,734 28,542,211 -------------------------------------------- Other liabilities Long-term debt 10,700,000 5,500,000 Deferred compensation 1,065,973 1,082,790 Deferred income tax liability 429,412 -------------------------------------------- 12,195,385 6,582,790 -------------------------------------------- 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--3,050,691 and 3,084,449 shares 5,879,827 8,291,516 Retained earnings 17,373,846 11,013,195 Net unrealized gain on securities available for sale 246,992 -------------------------------------------- 23,500,665 19,304,711 -------------------------------------------- $66,145,784 $54,429,712 ============================================ </TABLE> See notes to consolidated financial statements. (F-2)
21 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME <TABLE> <CAPTION> YEARS ENDED DECEMBER 27, DECEMBER 28 AND DECEMBER 30 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Net Sales $91,501,865 $93,209,331 $91,178,757 ----------------------------------------------------------- Costs, Expenses and Other Income Cost of products sold 61,716,502 66,703,061 73,443,333 Selling, administrative and general expenses 17,397,633 16,628,415 13,867,421 Restructuring charge 1,040,000 Amortization of goodwill 217,223 Interest 1,276,883 1,408,070 2,267,620 (Gain) loss on disposal of assets 319,066 (60,146) (23,293) Other income (475,580) (230,520) (251,190) ----------------------------------------------------------- 80,451,727 84,448,880 90,343,891 Income Before Income Taxes 11,050,138 8,760,451 834,866 Provision for Income Taxes 4,689,487 3,513,334 387,133 ----------------------------------------------------------- NET INCOME $ 6,360,651 $ 5,247,117 $ 447,733 =========================================================== Per Share Data Basic earnings per share $2.05 $1.36 $.11 Diluted earnings per share $2.02 $1.35 $.11 </TABLE> See notes to consolidated financial statements. (F-3)
22 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> NET UNREALIZED COMMON STOCK GAIN ON SECURITIES --------------------------------------- RETAINED AVAILABLE SHARES AMOUNT EARNINGS FOR SALE ---------------------------------------------------------------------------- <S> <C> <C> <C> <C> BALANCES AT JANUARY 1, 1995 4,133,361 $17,570,452 $ 5,318,345 Exercise of stock options 593 1,945 Net income 447,733 ---------------------------------------------------------------------------- BALANCES AT DECEMBER 30, 1995 4,133,954 17,572,397 5,766,078 Exercise of stock options 11,786 38,766 Net income 5,247,117 Purchase of stock (1,061,291) (9,319,647) ---------------------------------------------------------------------------- BALANCES AT DECEMBER 28, 1996 3,084,449 8,291,516 11,013,195 Exercise of stock options 84,808 433,808 Net income 6,360,651 Purchase of stock (118,566) (1,656,368) Put option to retire warrants (1,189,129) Net change in unrealized gain on securities available for sale $246,992 ---------------------------------------------------------------------------- BALANCES AT DECEMBER 27, 1997 3,050,691 $5,879,827 $17,373,846 $246,992 ============================================================================ </TABLE> See notes to consolidated financial statements. (F-4)
23 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> YEARS ENDED DECEMBER 27, DECEMBER 28 AND DECEMBER 30 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> OPERATING ACTIVITIES Net income $ 6,360,651 $ 5,247,117 $ 447,733 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 2,381,201 3,026,541 3,626,696 Provision for losses on accounts receivable 474,050 427,650 175,559 Provision for deferred income tax 1,303,683 411,348 (140,855) Provision for deferred compensation 98,183 101,955 98,101 Provision for restructuring charges 1,040,000 (Gain) loss on disposals of equipment 319,066 (60,146) (23,293) Change in cash surrender value, net of loans and premiums (36,000) (47,734) (39,407) Changes in Accounts receivable (2,113,236) (2,439,220) 6,411,341 Income tax refundable 275,000 123,909 Inventories 272,909 3,699,263 8,244,785 Prepaids 96,969 44,920 (8,308) Other assets (89,397) 81,149 9,289 Income tax payable 450,928 770,000 329,072 Accounts payable and accrued expenses (734,776) 3,728,311 (1,628,264) ----------------------------------------------------- Net cash provided by operating activities 8,784,231 15,266,154 18,666,358 ----------------------------------------------------- INVESTING ACTIVITIES Premiums paid for life insurance (65,800) (131,600) Purchase of property and equipment (1,597,055) (1,902,127) (1,144,922) Proceeds from sale of property and equipment 76,333 34,425 Purchase of long-term investments (95,315) (99,256) Purchase of certain Master Products assets, net of cash acquired (8,958,745) Proceeds from sale of long-term investments 290,217 ----------------------------------------------------- Net cash used by investing activities (10,651,115) (1,891,594) (1,051,136) ----------------------------------------------------- FINANCING ACTIVITIES Net increase (decrease) in notes payable--bank 3,120,650 (10,475,000) (14,887,500) Proceeds from exercise of stock options 433,808 38,766 1,945 Reduction of long-term debt (10,300,000) (7,248,000) (2,477,500) Purchase of stock and warrants (2,845,497) (9,319,647) Proceeds from long-term debt 11,500,000 13,900,000 Deferred compensation paid (115,000) (198,028) ----------------------------------------------------- Net cash provided (used) by financing activities 1,793,961 (13,301,909) (17,363,055) ----------------------------------------------------- INCREASE (DECREASE) IN CASH (72,923) 72,651 252,167 CASH, BEGINNING OF YEAR 1,319,319 1,246,668 994,501 ----------------------------------------------------- CASH, END OF YEAR $ 1,246,396 $ 1,319,319 $ 1,246,668 ===================================================== SUPPLEMENTAL CASH FLOWS INFORMATION Interest paid $ 1,302,577 $ 1,379,847 $ 2,332,038 Income taxes paid (refunded), net 3,819,632 2,286,986 (413,773) Fixed assets in accounts payable 35,253 126,884 10,000 </TABLE> See notes to consolidated financial statements. (F-5)
24 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Escalade, Incorporated (Company) is primarily engaged in the manufacture and sale of sporting goods and office and graphic arts products. The Company is located in Evansville, Indiana and has six manufacturing facilities, one in Evansville, Indiana; Compton, California; Wabash, Indiana and Los Angeles, California and two in Tijuana, Mexico. The Company sells products to customers throughout the United States and provides foreign shipments of sporting goods through a foreign sales corporation. The consolidated financial statements include the accounts of all significant subsidiaries. Intercompany transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Inventories are stated at the lower of cost or market. Cost is based on the first-in, first-out method. The Company has long-term marketable equity securities, which are included in other assets on the consolidated balance sheet and are recorded at fair value. Land, buildings and equipment are recorded at cost. Contracts under which certain facilities are leased have been treated as purchases. Provisions for depreciation and amortization are computed by the straight-line and double declining balance methods. The estimated useful lives used in computing depreciation are as follows: <TABLE> <CAPTION> YEARS - ------------------------------------------------------------------------------ <S> <C> Buildings 20-30 Leasehold improvements 4-8 Machinery and equipment 5-15 Tooling, dies and molds 2-4 </TABLE> Maintenance and repairs are expensed and major renewals and improvements are capitalized. The costs of assets sold or otherwise disposed of, and the related allowances for depreciation, are eliminated from the accounts in the year of disposal and the resulting gains or losses are included in operations. The carrying values of all of the Company's financial instruments approximate their fair values. Basic earnings per common share information is based on average shares outstanding adjusted for stock dividends. The Company's fiscal year ends on the Saturday nearest December 31, within the calendar year. (F-6)
25 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The Company has an employee profit sharing salary reduction plan, pursuant to the provisions of Section 401(k) of the Internal Revenue Code, for non-union employees. It is the Company's policy to fund costs accrued on a current basis. Deferred federal income taxes applicable to the difference between financial statement income and taxable income and the bases of assets and liabilities for financial statement and tax purposes are provided in the financial statements. Research and development costs are charged to income as incurred. The research and development costs incurred during 1997, 1996 and 1995 were approximately $1,400,000, $2,300,000 and $1,700,000. Revenue from the sale of the Company's products is recognized as products are shipped to customers. The Company has elected to act as a self-insurer for certain costs related to employee health and accident benefit programs. Costs resulting from non-insured losses are charged to income when incurred. The Company has purchased insurance which limits its exposure for individual claims and which limits its aggregate exposure to $1,100,000. INVENTORIES <TABLE> <CAPTION> DECEMBER 27 AND DECEMBER 28 1997 1996 - ---------------------------------------------------------------------------------------------------- <S> <C> <C> Finished products $ 5,665,390 $ 5,082,134 Work in process 3,412,443 2,709,752 Raw materials and supplies 3,559,512 3,660,547 -------------------------------------------- $12,637,345 $11,452,433 ============================================ PROPERTY, PLANT AND EQUIPMENT DECEMBER 27 AND DECEMBER 28 1997 1996 - ---------------------------------------------------------------------------------------------------- Land $ 757,210 $ 345,210 Buildings and leasehold improvements 10,649,336 9,562,524 Machinery and equipment 23,588,382 21,909,966 -------------------------------------------- 34,994,928 31,817,700 Accumulated depreciation and amortization (23,356,242) (21,609,152) -------------------------------------------- $11,638,686 $10,208,548 ============================================ </TABLE> (F-7)
26 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS LONG-TERM DEBT <TABLE> <CAPTION> DECEMBER 27 AND DECEMBER 28 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Mortgage payable, due in annual installments varying from $300,000 in 1998 to $500,000 in 2005, interest varies from 7.65% to 7.95%, due 2005, secured by plant facility, machinery and equipment, and letter of credit $ 3,000,000 $ 3,300,000 Term loan, due in quarterly installments of $500,000, interest varies from prime to London Interbank Offered Rate (LIBOR) plus 1.75%, secured by equipment, inventory, accounts receivable, general intangibles and securities 13,500,000 12,000,000 -------------------------------------------- 16,500,000 15,300,000 Portion classified as current (5,800,000) (9,800,000) -------------------------------------------- $10,700,000 $ 5,500,000 ============================================ </TABLE> Maturities of long-term indebtedness for the ensuing five years are: 1998, $5,800,000; 1999, $2,300,000; 2000, $2,300,000; 2001, $2,400,000; 2002, $2,400,000 and thereafter, $1,300,000. The Company expects to pay $4,000,000 of the $13,500,000 term loan from cash flow in the first quarter of 1998. This payment is in excess of the scheduled payback and therefore has been classified as current on the balance sheet. The mortgages payable and term loan agreements contain certain restrictive covenants, of which the more significant include maintenance of specified net worth, restrictions on capital expenditures and dividends, and maintenance of specified ranges of debt service and leverage ratios. INVESTMENTS <TABLE> <CAPTION> GROSS APPROXIMATE AMORTIZED UNREALIZED MARKET COST GAINS VALUE ----------------------------------------------------- <S> <C> <C> <C> DECEMBER 27, 1997 Available for sale Marketable equity securities (included in other assets) $730,196 $411,653 $1,141,849 ===================================================== DECEMBER 28, 1996 Available for sale Marketable equity securities (included in other assets) $576,883 $ 576,883 ===================================================== </TABLE> (F-8)
27 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS STOCK OPTIONS AND WARRANTS A total of 76,821 options were outstanding at year end from the 1984 Stock Option Plan (Plan). The date for granting options under this Plan expired on October 26,1994 and the date for exercising options expires on September 26, 1999. At the Company's 1997 annual meeting, the stockholders approved two new Stock Option Plans reserving 300,000 common shares for issuance under an Incentive Stock Option Plan (ISO) and 100,000 common shares for issuance under a Director Stock Option Plan (DSO). Total options granted during 1997 and outstanding at year end under the ISO were 25,000. No options were granted under the DSO. Under the Company's ISO, which is accounted for in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, the Company grants selected executives and other key employees stock option awards which vest over four years of continued employment. During 1997, the Company authorized the grant of options for up to 25,000 shares of the Company's common stock. The exercise price of each option, which has a five-year life, was equal to the market price of the Company's stock on the date of grant; therefore, no compensation expense was recognized. Options are exercisable commencing one year from the date of issuance to the extent vested. Although the Company has elected to follow APB Opinion No. 25, Statement of Financial Accounting Standards (SFAS) No. 123 requires pro forma disclosures of net income and earnings per share as if the Company had accounted for its employee stock options under that statement. The fair value of each option grant was estimated on the grant date using an option pricing model with the following assumptions: <TABLE> <CAPTION> 1997 ------------ <S> <C> Risk-free interest rates 6% Dividend yields 0% Volatility factors of expected market price of common stock 49.1% Weighted average expected life of the options 4 years </TABLE> Under SFAS No. 123, compensation cost is recognized in the amount of the estimated fair value of the options and amortized to expense over the options' vesting period. The pro forma effect on net income and earnings per share of this statement is as follows: <TABLE> <CAPTION> 1997 ------------------ <S> <C> <C> Net income As reported $6,360,651 Pro forma 6,353,257 Basic earnings per share As reported 2.05 Pro forma 2.04 Diluted earnings per share As reported 2.02 Pro forma 2.02 </TABLE> (F-9)
28 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Stock option transactions are summarized as follows: <TABLE> <CAPTION> 1997 1996 1995 ------------------------------------------------------------------------------------------- OPTION Option Option SHARES PRICE Shares Price Shares Price ------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Outstanding at beginning of year $3.26 TO $3.26 to $3.26 to 168,311 7.25 196,581 7.25 204,211 7.25 Issued during year 25,000 $9.88 Canceled or expired (6,682) (16,485) (7,037) $3.26 TO Exercised during year (84,808) 7.25 (11,785) $3.26 (593) $3.26 ---------------- ------------------------------------------------------------- $6.30 TO $3.26 to $3.26 to Outstanding at end of year 101,821 9.88 168,311 7.25 196,581 7.25 ================ ================ ================ Exercisable at end of year 63,113 120,699 92,925 ================ ================ ================ </TABLE> The options granted in 1997 are exercisable at the rate of 25% over each of the four years beginning in 1998. In connection with the Company's 1987 public offering of its common stock, the Company sold to Oppenheimer & Co., the representative of the underwriters for such offering, warrants to purchase 75,900 shares of common stock for $.85 per warrant, or an aggregate of $65,000. Each warrant gives the holder the right to buy one share of the Company's common stock at a price equal to $12.33. Each warrant became exercisable on September 2, 1988 and the initial termination date of September 1, 1992 was extended by three years to September 1, 1995. These warrants expired during 1995. To acquire all of the common stock of Marcy Fitness Products, Inc., the Company exchanged 272,112 Escalade warrants with an exercise price of $9.13 per share. The warrants were exercisable until August 19, 1999. During 1997, these warrants were put to the Company and retired at $13.50 per share for a total cost of $1,189,129. STOCKHOLDERS' EQUITY TRANSACTIONS During 1997, the Company conducted a Dutch Auction self-tender offer whereby it purchased 117,766 shares of its common stock at $14.00 per share. The Company also conducted a Dutch Auction self-tender offer in 1996 whereby it purchased approximately 1,000,000 shares of its common stock at a price of $8.875 per share. (F-10)
29 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The Company paid no cash dividends during the last three fiscal years. The Company's existing bank indebtedness restricts the payment of cash dividends. EARNINGS PER SHARE Earnings per share (EPS) were computed as follows: <TABLE> <CAPTION> 1997 1996 ----------------------------------------------------------------------------------- WEIGHTED PER Weighted Per YEARS ENDED DECEMBER 27 AVERAGE SHARE Average Share AND DECEMBER 28 INCOME SHARES AMOUNT Income Shares Amount - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> NET INCOME $6,360,651 $5,247,117 --------------- ---------------- BASIC EARNINGS PER SHARE Income available to common stockholders 6,360,651 3,109,514 $2.05 5,247,117 3,849,783 $1.36 ============= ============= EFFECT OF DILUTIVE SECURITIES Stock options 35,328 43,822 ------------------------------ ------------------------------ DILUTED EARNINGS PER SHARE Income available to common stockholders and assumed conversions $6,360,651 3,144,842 $2.02 $5,247,117 3,893,605 $1.35 =================================================================================== </TABLE> Warrants to purchase 272,112 shares of common stock at $9.13 per share were outstanding at December 28, 1996 and during a portion of the year ended December 27, 1997 but were not included in the computation of diluted EPS because the warrants' exercise price was greater than the average market price of the common shares. <TABLE> <CAPTION> 1995 ----------------------------------------------------- Weighted Per Average Share Year Ended December 30 Income Shares Amount - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> NET INCOME $447,733 ------------------ BASIC EARNINGS PER SHARE Income available to common stockholders 447,733 4,133,566 $.11 ================== EFFECT OF DILUTIVE SECURITIES Stock options 10,056 ------------------------------------ DILUTED EARNINGS PER SHARE Income available to common stockholders and assumed conversions $447,733 4,143,622 $.11 ===================================================== </TABLE> Options to purchase 55,293 shares of common stock from $5.50 to $7.25 per share were outstanding at December 30, 1995 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. Warrants to purchase 272,112 shares of common stock at $9.13 per share were outstanding at December 30, 1995 but were not included in the computation of diluted EPS because the warrants' exercise price was greater than the average market price of the common shares. (F-11)
30 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS OPERATING LEASES The Company leases manufacturing, warehousing and office space at its Compton, California facilities for $29,600 per month from October 1, 1990 through March 31, 1998. The Company has a five-year option to extend the lease. The Company does not intend to extend the lease but expects to relocate to the San Diego, California area by March 31, 1998. The Company also leases warehousing space next to its Evansville facility for $17,317 per month, expiring on October 31, 1998. The Company has four two-year renewal options followed by two five-year renewal options. At December 27, 1997, the minimum rental payments under noncancelable leases with terms of more than one year are as follows: <TABLE> <CAPTION> YEARS ENDING AMOUNT - --------------------------------------------------------------------- <S> <C> 1998 $61,000 1999 35,582 ------------------ $96,582 ================== </TABLE> The following schedule shows the composition of total rental expense for operating leases except those with terms of a month or less: <TABLE> <CAPTION> 1997 1996 1995 ----------------------------------------------------- <S> <C> <C> <C> Rentals $611,405 $656,082 $638,670 ===================================================== </TABLE> (F-12)
31 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS INCOME TAXES Provision for income taxes consists of the following: <TABLE> <CAPTION> YEARS ENDED DECEMBER 27, DECEMBER 28 AND DECEMBER 30 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Current Federal $3,435,532 $2,670,000 $329,072 State 803,547 431,986 198,916 ----------------------------------------------------- 4,239,079 3,101,986 527,988 ----------------------------------------------------- Deferred Federal 365,830 401,443 (85,548) State 84,578 9,905 (55,307) ----------------------------------------------------- 450,408 411,348 (140,855) ----------------------------------------------------- $4,689,487 $3,513,334 $387,133 ===================================================== </TABLE> The provision for income taxes was computed based on financial statement income. A reconciliation of the provision for income taxes to the amount computed using the statutory rate follows: <TABLE> <CAPTION> YEARS ENDED DECEMBER 27, DECEMBER 28 AND DECEMBER 30 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Income tax at statutory rate $3,757,047 $2,978,553 $283,854 Increase (decrease) in income tax resulting from Recurring permanent differences (goodwill amortization, dividend exclusion, and non- deductible officers' life insurance expense) 25,893 (24,279) (5,522) State tax expense, net of federal effect 586,163 291,648 94,782 Benefit of foreign subsidiary loss not recognized 369,996 166,402 138,846 Other (49,612) 101,010 (124,827) ----------------------------------------------------- Provision for income taxes recorded $4,689,487 $3,513,334 $387,133 ===================================================== </TABLE> The $11,050,138 income before income taxes for the year ended December 27, 1997 was comprised of $1,088,224 foreign losses and $12,138,362 domestic income. The $8,760,451 income before income taxes for the year ended December 28, 1996 was comprised of $489,417 foreign losses and $9,249,868 domestic income. The $834,866 income before income taxes for the year ended December 30, 1995 was comprised of $408,370 foreign losses and $1,243,236 domestic income. At December 27, 1997, a cumulative deferred tax asset of $775,784 is included in current assets and other liabilities. At December 28, 1996, a cumulative deferred tax asset of $2,079,467 is included in current and other assets. (F-13)
32 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The components of the net deferred tax asset are as follows: <TABLE> <CAPTION> DECEMBER 27 AND DECEMBER 28 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> ASSETS Deferred compensation $ 413,588 $ 341,825 Valuation reserves 724,095 1,014,582 Royalties 88,390 Goodwill 115,320 125,382 Employee benefits 399,593 406,205 Lease expense 67,513 116,017 ------------------------------------ Total assets 1,720,109 2,092,401 ------------------------------------ LIABILITIES Depreciation (779,664) (12,934) Unrealized gain on securities available for sale (164,661) ------------------------------------ Total liabilities (944,325) (12,934) ------------------------------------ $ 775,784 $2,079,467 ==================================== </TABLE> EMPLOYEE BENEFIT PLANS The Company has an employee profit sharing salary reduction plan, pursuant to the provisions of Section 401(k) of the Internal Revenue Code, for non-union employees. The Company's contribution is a matching percentage of the employee contribution as determined by the Board of Directors annually. The Company's expense for the plan was $339,931, $311,701 and $60,940 for 1997, 1996 and 1995. VOLUNTARY EMPLOYEE BENEFITS ASSOCIATION TRUST (VEBA) The Company established a VEBA as a tax-exempt organization to provide life, medical, disability and other similar welfare benefits permitted pursuant to Internal Revenue Code Section 501(c)(9) for its employees. (F-14)
33 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS SEGMENT INFORMATION AND CONCENTRATIONS <TABLE> <CAPTION> YEARS ENDED DECEMBER 27, DECEMBER 28 AND DECEMBER 30 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- (In Thousands) <S> <C> <C> <C> Sales to unaffiliated customers Sporting goods $66,666 $74,077 $73,858 Office and graphic arts products 24,836 19,132 17,321 ----------------------------------------------------- Total consolidated $91,502 $93,209 $91,179 ===================================================== Operating profit Sporting goods $ 7,435 $ 6,156 $ (262) Office and graphic arts products 5,244 4,103 3,363 Corporate (291) (381) (273) ----------------------------------------------------- Total consolidated 12,388 9,878 2,828 Consolidated other income 475 230 251 ----------------------------------------------------- 12,863 10,228 3,125 Consolidated interest expense 1,277 1,408 2,267 Consolidated (gain) loss on disposal of assets 319 (60) (23) Consolidated amortization of goodwill 217 ----------------------------------------------------- Consolidated income from operations before income taxes $11,050 $ 8,760 $ 835 ===================================================== Identifiable assets Sporting goods $40,904 $40,543 $43,122 Office and graphic arts products 21,815 10,199 10,317 Corporate 3,427 3,688 4,328 ----------------------------------------------------- Total assets $66,146 $54,430 $57,767 ===================================================== Depreciation and amortization charged to operations Sporting goods $ 1,214 $ 2,123 $ 2,886 Office and graphic arts products 1,167 904 741 ----------------------------------------------------- Total consolidated $ 2,381 $ 3,027 $ 3,627 ===================================================== Capital expenditures Sporting goods $ 582 $ 1,262 $ 617 Office and graphic arts products 923 757 526 ----------------------------------------------------- $ 1,505 $ 2,019 $ 1,143 ===================================================== </TABLE> (F-15)
34 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The Company operates principally in two industries, sporting goods and office and graphic arts products. The Company sells its products primarily to retailers located throughout the United States. Operations in the sporting goods industry consist of production and sale of table tennis tables and accessories, archery equipment, home pool tables and accessories, combination bumper pool and card tables, game tables, basketball backboards, goals and poles, darts, dart cabinets, junior sporting goods including Mini Ping Pong, Mini Pool(TM), Mini Court(R) basketball and Shot Clock basketball. The Company has a licensing agreement with Spalding to manufacture and distribute basketball backboards, goals and poles, indoor darts, table tennis sets and pool accessories under the Spalding brand name. Operations in the office and graphic arts products industry consist of production and sale of paper trimmers, paper folding machines, paper drills, collators, decollators, bursting machines, letter openers, paper joggers, electric staplers, checksigners, stamp affixers, paper shredders, paper punches, catalog rack systems, bindery carts and related accessories. Operating profit is total revenue less operating expenses. In computing operating profit neither interest expense nor income taxes have been deducted. Identifiable assets are principally those assets used in each industry. Corporate assets are principally deferred taxes, marketable equity securities and the cash surrender value of life insurance. In 1997, approximately 33% of the sporting goods were sold to Sears, Roebuck & Co. (24% of consolidated sales). In 1996 and 1995, the percentages were 31% (24% consolidated) and 29% (23% consolidated). At December 27, 1997 and December 28, 1996, accounts receivable included $12,609,120 and $10,613,368 due from Sears, Roebuck & Co. Approximately 34% of the Company's labor force is covered by collective bargaining agreements. Management acknowledges that there usually will be differences between Company offers and union demands during negotiations. However, management has no reason to expect such differences to result in protracted conflict. The current contracts expire in 1998 and 2000. Consolidated assets include approximately $3.7 million of assets located in the United Kingdom and Mexico. (F-16)
35 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS CERTAIN SIGNIFICANT ESTIMATES Management's estimates that influence the financial statements are normally based on knowledge and experience about past and current events and assumptions about future events. The following estimates affecting the financial statements are particularly sensitive because of their significance, and it is at least reasonably possible that a change in these estimates will occur in the near term: Product warranty reserves--based on an analysis of customers' product return histories, current status, sales volume and management's expectations from new products introduced into the market. Customer allowance reserves--based on agreements for customer purchase rebates and shared advertising, and prior year's shipments. Inventory valuation reserves--based on estimates of costs of inventory amounts overstocked or obsolete in excess of realizable value. ADDITIONAL INFORMATION <TABLE> <CAPTION> DECEMBER 27 AND DECEMBER 28 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> Accrued Liabilities Employees' compensation $ 4,217,671 $ 2,972,848 Payroll taxes and taxes withheld from employees' compensation 298,214 257,251 Taxes other than taxes on income 378,805 412,505 Accrued interest 130,714 156,408 Customer volume discounts payable 3,914,060 3,204,500 Other accrued items 3,188,792 4,370,647 -------------------------------------------- $12,128,256 $11,374,159 ============================================ </TABLE> LINE OF CREDIT The Company has available an unsecured line of credit for short-term borrowings. The line-of-credit arrangement is based upon a written agreement and can be withdrawn at the banks' option. At December 27, 1997, the line of credit for short-term borrowings aggregated $12,000,000, of which $8,275,000 was borrowed. The interest rate on the line of credit is at the Bank One Indianapolis, N.A. prime rate. A LIBOR option is also available to use for the interest rate. This line of credit is subject to the same restrictive covenants that are as discussed in the long-term debt footnote to the consolidated financial statements. (F-17)
36 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS DEFERRED COMPENSATION PLAN In October 1985, the Board of Directors approved the adoption of a Contributory Deferred Compensation Plan pursuant to which some recipients of incentive compensation could elect to defer receipt thereof. For each dollar of deferred compensation, the Company provided a 75% matching amount. Amounts deferred earn interest at the rate of 9%. Such amounts are not intended to be recognized for tax purposes until receipt. All deferrals allowed under this plan have been made. Participants have no vested rights in deferred amounts credited to their accounts and are general creditors of the Company until such amounts are actually paid. COMMITMENTS AND CONTINGENCIES At December 27, 1997, standby letters of credit aggregated $301,709 of which the Company was obligated in the amount of $151,709 relating to the purchase of certain raw materials and finished goods from suppliers. Additionally, the Company has obtained a letter of credit for the benefit of the mortgage holders. At December 27, 1997, the balance of the letter of credit was $3,441,877. It is to be used in the event of a default in either interest or principal payments. The Company is involved in litigation arising in the normal course of its business. The Company does not believe that the disposition or ultimate resolution of existing claims or lawsuits will have a material adverse effect on the business or financial condition of the Company. (F-18)
37 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS SUMMARY OF QUARTERLY RESULTS <TABLE> <CAPTION> (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) MARCH 22 JULY 12 OCTOBER 4 DECEMBER 27 -------------------------------------------------------------------------- <S> <C> <C> <C> <C> 1997 Net sales $12,702 $17,765 $22,716 $38,319 Gross profit 3,597 5,021 7,871 13,296 Net income 151 104 1,793 4,313 Basic earnings per share .05 .03 .57 1.38 1996 Net sales $15,381 $19,574 $23,142 $35,112 Gross profit 4,253 5,758 7,251 9,244 Net income 232 688 1,517 2,810 Basic earnings per share .06 .16 .38 .91 </TABLE> In December 1997, the Company completed a Dutch Auction self-tender offer and purchased 117,766 shares. Since this transaction occurred late in the fourth quarter, it caused the fourth quarter earnings per share to be less than the first three quarters proportionately. Consequently, if the four quarters earnings per share are added together, they are less than the actual earnings per weighted average share for the year. In 1996, a reduction in outstanding shares of approximately 1,000,000 shares, as a result of the completion of a Dutch Auction self-tender offer in September, caused the fourth quarter earnings per share to be greater than the first three quarters proportionately. Consequently, if the four quarters earnings per share are added together, they are greater than the actual earnings per weighted average share for the year. ACQUISITIONS ACQUISITION OF MASTER PRODUCTS MANUFACTURING COMPANY, INC. On June 17, 1997, the Company's wholly-owned subsidiary, Martin Yale Industries, Inc., acquired 100% of the stock of Master Products, a California corporation, for a net cost of $9,951,813, which includes assumed liabilities of $833,813. Master Products 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 $6,374,573, which is being amortized over 15 years on the straight-line method. The Company's consolidated results of operations include Master Products from June 17, 1997. (F-19)
38 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The following unaudited pro forma information shows the results of the Company's operations as though the purchase of Master Products had been made at January 1, 1996. 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. <TABLE> <CAPTION> DECEMBER 27 AND DECEMBER 28 1997 1996 - ----------------------------------------------------------------------------- (In Thousands, Except per Share Data) <S> <C> <C> Net Sales $95,885 $103,429 Net Income 6,535 5,956 Basic Earnings per Share $2.10 $1.55 </TABLE> (F-20)
39 INDEPENDENT AUDITOR'S REPORT Stockholders and Board of Directors Escalade, Incorporated Evansville, Indiana We have audited the consolidated financial statements of Escalade, Incorporated as of December 27, 1997 and December 28, 1996 and for each of the three years in the period ended December 27, 1997 and have issued our report thereon dated January 30, 1998; such consolidated financial statements and report are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedules of Escalade, Incorporated listed in Item 14. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. GEO. S. OLIVE & CO. LLC Evansville, Indiana January 30, 1998 (S-1)
40 ESCALADE, INCORPORATED AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS <TABLE> <CAPTION> COL. A COL. B COL. C COL. D COL. E - ---------------------------------------------------------------------------------------------------------------------------- ADDITIONS ---------------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER ACCOUNTS-- DEDUCTIONS-- AT END DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE (2) OF PERIOD - ---------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Allowance for doubtful accounts and discounts (1) Fiscal year ended December 27, 1997 $681,606 $474,050 $262,222 $893,434 Fiscal year ended December 28, 1996 726,352 427,650 472,396 681,606 Fiscal year ended December 30, 1995 777,195 175,559 226,402 726,352 </TABLE> (1) Deducted from related assets (2) Accounts charged off, less recoveries (S-2)
41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 By: /S/ C. W. "BILL" REED March 13, 1998 ---------------------------------------- C. W. "Bill" Reed President and Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. <TABLE> <S> <C> <C> Chairman, Chief Executive Officer and Director /S/ ROBERT E. GRIFFIN (Principal Executive Officer) March 13, 1998 - ----------------------------------------------------- Robert E. Griffin Secretary and Treasurer (Principal Financial and Accounting /S/ JOHN R. WILSON Officer) March 13, 1998 - ----------------------------------------------------- John R. Wilson /S/ BLAINE E. MATTHEWS, JR. Director March 13, 1998 - ----------------------------------------------------- Blaine E. Matthews, Jr. /S/ A. GRAVES WILLIAMS, JR. Director March 13, 1998 - ----------------------------------------------------- A. Graves Williams, Jr. /S/ GERALD J. FOX Director March 13, 1998 - ----------------------------------------------------- Gerald J. Fox /S/ KEITH P. WILLIAMS Director March 13, 1998 - ----------------------------------------------------- Keith P. Williams /S/ YALE BLANC Director March 13, 1998 - ----------------------------------------------------- Yale Blanc /S/ ROBERT D. ORR Director March 13, 1998 - ----------------------------------------------------- Robert D. Orr /S/ C. W. "BILL" REED - ----------------------------------------------------- Director March 13, 1998 C. W. "Bill" Reed </TABLE> (S-3)