1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended July 8, 2000 Commission File Number 0-6966 ESCALADE, INCORPORATED ---------------------- (Exact name of registrant as specified in its charter) Indiana 13-2739290 ------- ---------- (State of incorporation) (I.R.S. EIN) 817 Maxwell Avenue, Evansville, Indiana 47717 --------------------------------------------- (Address of principal executive office) 812-467-1200 ------------ (Registrant's Telephone Number) Securities registered pursuant to Section 12(b) of the Act NONE Securities registered pursuant to section 12(g) of the Act Common Stock, No Par Value -------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of Registrant's common stock (no par value) outstanding as of July 26, 2000: 2,167,753
2 INDEX Page No. Part I. Financial Information: Item 1 - Financial Statements: Consolidated Condensed Balance Sheet (Unaudited) -- July 8, 2000, July 10, 1999, and December 25, 1999 3 Consolidated Condensed Statement of Income (Unaudited) -- Three Months and Six Months Ended July 8, 2000 and July 10,1999 4 Consolidated Condensed Statement of Cash Flows (Unaudited) -- Six Months Ended July 8, 2000 and July 10, 1999 5 Notes to Consolidated Condensed Financial Statements (Unaudited) 6-9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations: 10-11 Part II. Other Information 12 Item 4 - Submission of matters to a Vote of Securities Holders 12 Item 5 - Other Information 12 Item 6 - Exhibits and Reports on Form 8-K 12-13 Signatures 14
3 <TABLE> <CAPTION> PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) (Dollars in Thousands) July 8, July 10, December 25, 2000 1999 1999 --------------------------------------------------------- <S> <C> <C> <C> ASSETS Current assets: Cash $ 207 $ 230 $ 1,756 Receivables, less allowances of $937, $532 and $761 13,985 9,690 24,773 Inventories 19,024 13,800 12,432 Prepaid expense 63 430 126 Deferred income tax benefit 1,248 1,057 1,248 -------- -------- -------- TOTAL CURRENT ASSETS 34,527 25,207 40,335 Property, plant, and equipment 34,983 35,866 33,516 Accum. depr. and amortization (25,520) (26,402) (24,126) -------- -------- -------- 9,463 9,464 9,390 Goodwill 11,260 7,122 11,729 Other assets 5,059 4,020 5,396 -------- -------- -------- $ 60,309 $ 45,813 $ 66,850 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - bank $ 6,744 $ 5,275 $ 9,570 Current portion of long-term debt 2,850 300 2,000 Trade accounts payable 3,829 3,006 2,967 Accrued liabilities 8,598 7,067 9,590 Federal income tax payable 32 31 1,310 -------- -------- -------- TOTAL CURRENT LIABILITIES 22,053 15,679 25,437 Other Liabilities: Long-term debt 19,100 2,400 10,700 Deferred compensation 1,155 1,222 1,275 -------- -------- -------- 20,255 3,622 11,975 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 - 2,167,753, 3,050,739, and 2,918,178 at 7-8-00, 7-10-99, and 12-25-99 2,168 4,987 2,918 Retained earnings 15,625 21,234 26,319 Accumulated other comprehensive income 208 291 201 -------- -------- -------- 18,001 26,512 29,438 -------- -------- -------- $ 60,309 $ 45,813 $ 66,850 ======== ======== ======== </TABLE> See notes to Consolidated Condensed Financial Statements.
4 <TABLE> <CAPTION> ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED) (Dollars in Thousands, except per share amounts) Three Months Ended Six Months Ended July 8, July 10, July 8, July 10, 2000 1999 2000 1999 ------------------------------------------------------------------ <S> <C> <C> <C> <C> Net sales $ 24,035 $ 17,086 $ 41,610 $ 30,064 Costs, expenses and other income: Cost of products sold 15,846 11,935 27,424 20,828 Selling, administrative and general expenses 5,292 4,290 9,150 7,393 Interest 637 109 871 253 Amortization of goodwill 305 134 497 225 Other (income) expense 48 (56) 166 (80) Gain on disposal of Escalade International -- (103) -- (103) -------- -------- -------- -------- 22,128 16,309 38,108 28,516 INCOME BEFORE INCOME TAXES 1,907 777 3,502 1,548 Provision for income taxes 734 365 1,410 702 -------- -------- -------- -------- NET INCOME $ 1,173 $ 412 $ 2,092 $ 846 ======== ======== ======== ======== Per share data: Basic earnings per share $ .52 $ .13 $ .83 $ .27 Diluted earnings per share $ .52 $ .13 $ .82 $ .27 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) NET INCOME $ 1,173 $ 412 $ 2,092 $ 846 UNREALIZED GAIN ON SECURITIES, NET OF TAX 6 61 7 50 -------- -------- -------- -------- COMPREHENSIVE INCOME $ 1,179 $ 473 $ 2,099 $ 896 ======== ======== ======== ======== </TABLE> See notes to Consolidated Condensed Financial Statements.
5 <TABLE> <CAPTION> ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in Thousands) Six Months Ended July 8,2000 July 10,1999 ------------------------------- <S> <C> <C> Operating Activities: Net Income $ 2,092 $ 846 Depreciation and amortization 1,891 1,551 Adjustments necessary to reconcile net income to net cash provided by operating activities 3,219 11,641 -------- -------- Net cash provided by operating activities 7,202 14,038 -------- -------- Investing Activities: Purchase of property and equipment (539) (1,415) Purchase of certain assets of Lifetime Products, Inc. (1,100) -- -------- -------- Net cash used by investing activities (1,639) (1,415) -------- -------- Financing Activities: Net decrease in notes pay.- bank (2,826) (2,525) Net increase (decrease) in long-term debt 9,250 (6,000) Proceeds from exercise of stock options 114 277 Purchase of common stock (13,650) (1,363) Payment of cash dividend -- (3,122) -------- -------- Net cash used by financing activities (7,112) (12,733) -------- -------- Decrease in cash (1,549) (110) Cash, beginning of period 1,756 340 -------- -------- Cash, end of period $ 207 $ 230 ======== ======== </TABLE> See notes to Consolidated Condensed Financial Statements.
6 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Note A - Basis of Presentation - ------------------------------ The significant accounting policies followed by the Company and its wholly owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for annual financial reporting. All adjustments which are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported have been included in the accompanying consolidated condensed financial statements. Note B - Seasonal Aspects - ------------------------- The results of operations for the six month periods ended July 8, 2000 and July 10, 1999 are not necessarily indicative of the results to be expected for the full year. Note C - Inventories (Dollars in Thousands) - ------------------------------------------- 7-8-00 7-10-99 12-25-99 ------- ------- -------- Raw Materials $ 5,247 $ 4,396 $ 4,063 Work In Process 3,375 3,165 3,184 Finished Goods 10,402 6,239 5,185 ------- ------- ------- $19,024 $13,800 $12,432 ======= ======= ======= Note D - Income Taxes - --------------------- The provision for income taxes was computed based on financial statement income.
7 Note E - Earnings Per Share - ----------------------------- Earnings per share (EPS) were computed as follows: <TABLE> <CAPTION> Three Months Ended July 8, 2000 ------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- --------- <S> <C> <C> <C> Net Income $1,173 ------ Basic Earnings per Share Income available to common stockholders 1,173 2,245 $ .52 ======= Effect of Dilutive Securities Stock options 5 ------ ------ Diluted Earnings Per Share Income available to common stockholders and assumed conversions $1,173 2,250 $ .52 ====== ====== ======= <CAPTION> Three Months Ended July 10, 1999 ------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- --------- <S> <C> Net Income $ 412 ------ Basic Earnings per Share Income available to common stockholders 412 3,060 $ .13 ======= Effect of Dilutive Securities Stock options 4 ------ ------ Diluted Earnings Per Share Income available to common stockholders and assumed conversions $ 412 3,064 $ .13 ====== ====== ======= </TABLE>
8 Note E - Earnings Per Share - ----------------------------- Earnings per share (EPS) were computed as follows: <TABLE> <CAPTION> Six Months Ended July 8, 2000 ---------------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- ---------- <S> <C> <C> <C> Net Income $ 2,092 ------- Basic Earnings per Share Income available to common stockholders 2,092 2,534 $.83 ======= Effect of Dilutive Securities Stock options 5 ------- -------- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $ 2,092 2,539 $.82 ======= ======== ======= <CAPTION> Six Months Ended July 10, 1999 ------------------------------------------------------ Weighted Average Per Share Income Shares Amount ------- --------- ---------- <S> <C> <C> <C> Net Income $ 846 ------- Basic Earnings per Share Income available to common stockholders 846 3,083 $.27 ======= Effect of Dilutive Securities Stock options 4 ------- ------- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $ 846 3,087 $.27 ======= ======= ======= </TABLE>
9 Note F - Segment Information - ----------------------------- <TABLE> <CAPTION> As of and for the Six Months Ended July 8, 2000 ----------------------------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- ---------- --------- --------- <S> <C> <C> <C> Revenues from external customers $21,919 $19,691 -- $41,610 Net Income 231 2,414 (553) 2,092 Assets $29,923 $29,026 $ 1,360 $60,309 <CAPTION> As of and for the Six Months Ended July 10, 1999 ----------------------------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- ---------- --------- --------- <S> <C> <C> <C> <C> Revenues from external customers $ 13,161 $ 16,903 $ -- $ 30,064 Net Income (885) 1,753 (22) 846 Assets $ 18,476 $ 23,220 $ 4,117 $ 45,813 </TABLE>
10 ESCALADE, INCORPORATED AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is Management's discussion and analysis of certain significant factors which have affected the Company's earnings during the periods included in the accompanying consolidated condensed statements of income. RESULTS OF OPERATIONS SECOND QUARTER COMPARISON 2000 vs. 1999 Net sales were $24,035,000 in the second quarter of 2000 as compared to $17,086,000 in the second quarter of 1999 an increase of $6,949,000 or 40.7%. Sales of sporting goods increased $5,337,000 or 70.6% and sales of office and graphic arts products increased $1,612,000 or 16.9%. The increase in sporting goods net sales for the quarter was about 75% due to the Zue acquisition products (upper end basketball systems) and about 25% due to unit sales increases in game parlor products. The increase in office and graphic arts machines and equipment net sales was mainly due to the Mead Hatcher acquisition products (computer accessories) which were only shipped for one week of last years second quarter. Cost of sales was $15,846,000 in the second quarter of 2000 as compared to $11,935,000 in the second quarter of 1999, an increase of $3,911,000 or 32.8%. Cost of sales as a percentage of net sales was 65.9% in the second quarter of 2000 as compared to 69.9% in the second quarter of 1999. Sporting goods cost of sales as a percentage of net sales decreased 11.7% and office and graphic arts cost of sales as a percentage of net sales decreased 2.5%. The decrease in the sporting goods cost of sales percentage of net sales was due mainly to the increased volume resulting in higher factory expense absorption. The decrease in office and graphic arts cost of sales percentage of net sales was mainly in factory expense. Selling, general, and administrative expenses were $5,292,000 in the second quarter of 2000 as compared to $4,290,000 in the second quarter of 1999, an increase of $1,002,000 or 23.4%. Selling, general and administrative expenses as a percentage of net sales was 22.0% in the second quarter of 2000 as compared to 25.1% in the second quarter of 1999. This decrease as a percentage of net sales was mainly in the sporting goods segment and was due to the increased sales level. Interest expense increased $528,000 to $637,000 in 2000 from $109,000 in 1999, an increase of 484.4% due to higher borrowing levels from acquisitions and stock repurchases. FIRST HALF COMPARISON 2000 VS. 1999 Net sales were $41,610,000 in the first half of 2000 as compared to $30,064,000 in the first half of 1999, an increase of $11,546,000 or 38.4%. Sales of sporting goods increased $8,758,000 or 66.5% and sales of office and graphic arts products increased $2,788,000 or 16.5%. The increase in sporting goods net sales for the first half was about 60% due to the Zue acquisition products (upper end basketball systems) and 40% due to stronger demand for our products, primarily game parlor, due to improved sell through by our retail partners in the prior year. The increase in office and graphic arts machines and equipment net sales was all in the Mead Hatcher acquisition products (computer accessories) which offset some decreases in other products.
11 ESCALADE, INCORPORATED AND SUBSIDIARIES RESULTS OF OPERATIONS CONTINUED Cost of sales was $27,424,000 in the first half of 2000 as compared to $20,828,000 in 1999, an increase of $6,596,000 or 31.7%. Cost of sales as a percentage of net sales was 65.9% in the first half of 2000 as compared to 69.3% in the first half of 1999. Sporting goods cost of sales as a percentage of net sales decreased 11.1% and office and graphic arts cost of sales as a percentage of net sales decreased 2.0%. The decrease in the sporting goods cost of sales percentage of net sales was due mainly to the increased volume resulting in higher factory expense absorption. The decrease in office and graphic arts cost of sales percentage of net sales was mainly in factory expense. Selling, general, and administrative expenses were $9,150,000 in the first half of 2000 as compared to $7,393,000 in the first half of 1999, an increase of $1,757,000 or 23.7%. Selling, general, and administrative expenses as a percentage of net sales were 22.0% in 2000 as compared to 24.6% in 1999. The decrease in these expenses as a percentage of net sales was mainly due to higher sales volume in the sporting goods segment. Interest expense was $871,000 in the first half of 2000 as compared to $253,000 in the first half of 1999, an increase of $618,000 or 244.3%. This increase was due to higher average borrowing levels in the first half of 2000 and higher interest rates. LIQUIDITY AND CAPITAL RESOURCES The Company's net cash provided by operating activities was $7,202,000 in the first half of 2000 as compared to $14,038,000 in the first half of 1999. Most of the cash provided by operating activities was from collection of the year end accounts receivable. The net accounts receivable balance at the end of the year in 1999 was $24,773,000 and at the end of the first half of 2000, the net accounts receivable balance was $13,985,000. The lower cash provided in 2000 was the result of a higher increase in inventory as compared to 1999. Inventories at the end of the first half of 2000 were $19,024,000 as compared to $13,800,000 at the end of the first half of 1999, an increase of $5,224,000. The Company's net cash used for investing activities was $1,639,000 in the first half of 2000 as compared to $1,415,000 in the first half of 1999. The Company's net cash used by financing activities was $7,112,000 in the first half of 2000 as compared to $12,733,000 in the first half of 1999. In 2000, the net cash used was primarily for the purchase of company stock in a Dutch Auction. The Company's working capital requirements are currently funded by cash flow from operations and a domestic line of credit in the amount of $30,000,000, which includes a letter of credit facility in the amount of $2,000,000. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None.
12 ESCALADE, INCORPORATED AND SUBSIDIARIES PART II. OTHER INFORMATION Item 1, 2, and 3. Not Required. Item 4. Submission of Matters to a Vote of Securities Holders. The annual meeting of the Registrant was held at the offices of the Company in Evansville, Indiana on April 29, 2000. Proxy materials had been circulated on March 31, 2000, proposing the election of seven members to the Board of Directors for a one year term, and the appointment of Olive LLP to serve as independent auditors of the Company for the year 2000. The stockholders approved the election of Yale A. Blanc, Robert E. Griffin, Blaine E. Matthews, Jr., Robert D. Orr, C. W. ("Bill") Reed, A. Graves Williams, Jr., and Keith P. Williams to the Board of Directors, and the appointment of Olive LLP as the Company's independent auditors. Item 5. Other Information On May 15, 2000, Indian-Martin AG, the Company's directly owned subsidiary, obtained a $30,000,000 credit facility from Bank One, Indiana, National Association. Indian-Martin will borrow funds from time to time under that credit facility to purchase eligible accounts receivable from Escalade's operating subsidiaries, which accounts are and will be pledged to secure Indian-Martin's borrowings from Bank One. The Company's operating subsidiaries will continue to service all such accounts receivable. The Company believes that this financing arrangement will provide the Company and its domestic operating subsidiaries increased liquidity with respect to their outstanding receivables. The material documents relating to this financing arrangement are included as exhibits to this report. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Number Description 3.1 Articles of incorporation of Escalade, Incorporated(1) 3.2 By-Laws of Escalade, Incorporated(2) 10.1 Credit Agreement dated as of May 15, 2000 by and between Indian-Martin AG and Bank One, Indiana, National Association (excluding exhibits and schedules not deemed to be material) 10.2 Revolving Note dated as of May 15, 2000 in principal amount of $30,000,000 executed by Indian-Martin AG in favor of Bank One, Indiana, National Association 10.3 Pledge Agreement dated as of May 15, 2000 by Indian-Martin AG in favor of Bank One, Indiana, National Association 10.4 Collateral Assignment and Security Agreement dated as of May 15, 2000 by Indian-Martin AG in favor of Bank One, Indiana, National Association - ---------------------- 1 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 2 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
13 10.5 Receivables Purchase Agreement dated as of May 15, 2000 between Indian-Martin AG and Indian Industries, Inc.(3) 10.6 Services Agreement dated as of May 15, 2000 between Indian-Martin AG and Indian Industries, Inc.(4) 10.7 Subordinated Promissory Note dated as of May 15, 2000 in principal amount of $5,086,501.81 executed by Indian Industries, Inc. in favor of Indian-Martin AG(5) 10.8 Standby and Subordination Agreement dated as of May 15, 2000 among Bank One, Indiana, National Association, Indian-Martin AG and Indian Industries, Inc.(6) 10.9 Promissory Note dated as of May 15, 2000 in principal amount of $13,153,045.33 executed by Escalade, Incorporated in favor of Indian-Martin AG 10.10 Escalade Subordination Agreement dated as of May 15, 2000 between Escalade, Incorporated and Bank One, Indiana, National Association 10.11 Offset Waiver Agreement dated as of May 15, 2000 among Escalade, Incorporated and Bank One, Indiana, National Association, Indian-Martin AG, Indian Industries, Inc.,Harvard Sports, Inc., Martin Yale Industries, Inc. and Master Products Manufacturing Company, Inc. 10.12 Tenth Amendment dated as of May 15, 2000 between Escalade, Incorporated and Bank One, Indiana, National Association to Amended and Restated Credit Agreement 10.13 Agreement dated as of May 1, 2000 by and between Indian Industries, Inc. d/b/a Escalade Sports and International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers, AFL-CIO, and Local 848 27 Financial Data Schedule (b) Reports on Form 8-K None. - ----------------------------------- 3 Substantially similar Receivables Purchase Agreements were also entered into by each of the Registrant's other domestic operating subsidiaries, Harvard Sports, Inc., Martin Yale Industries, Inc. and Master Products Manufacturing Company, Inc., with Indian-Martin AG. 4 Substantially similar Services Agreements were also entered into by each of the Registrant's other domestic operating subsidiaries, Harvard Sports, Inc., Martin Yale Industries, Inc. and Master Products Manufacturing Company, Inc., with Indian-Martin AG. 5 Substantially similar Subordinated Promissory Notes were also entered into by each of the Registrant's other domestic operating subsidiaries, Harvard Sports, Inc., Martin Yale Industries, Inc. and Master Products Manufacturing Company, Inc., with Indian-Martin AG in the respective principal amounts of $1,343,202.65, $3,130,191.08 and $3,593,149.78. 6 Substantially similar Standby and Subordination Agreements were also entered into by each of the Registrant's other domestic operating subsidiaries, Harvard Sports, Inc., Martin Yale Industries, Inc. and Master Products Manufacturing Company, Inc., with Indian-Martin AG and Bank One, Indiana, National Association.
14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ESCALADE, INCORPORATED Date: July 28,2000 C. W. (Bill) Reed -------------- ---------------------------- C. W. (Bill) Reed President and Chief Executive Officer Date: July 28, 2000 John R. Wilson -------------- ---------------------------- John R. Wilson Vice President and Chief Financial Officer