SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended October 6, 2001 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 October 19, 2001 : 2,140,694
INDEX Page No. Part I. Financial Information: Item 1 - Financial Statements: Consolidated Condensed Balance Sheet (Unaudited) October 6, 2001, September 30, 2000, and December 30, 2000 3 Consolidated Condensed Statement of Income (Unaudited) Three Months and Nine Months Ended October 6, 2001 and September 30, 2000 4 Consolidated Statement of Comprehensive Income (Unaudited) Three Months and Nine Months Ended October 6, 2001 and September 30, 2000 4 Consolidated Condensed Statement of Cash Flows (Unaudited) Nine Months Ended October 6, 2001 and September 30, 2000 5 Notes to Consolidated Condensed Financial Statements 6 - 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 12 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 12 Part II. Other Information 12 Signatures 13
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) <TABLE> <CAPTION> (Dollars in Thousands) October 6 Sept.30, December 30, 2001 2000 2000 ASSETS --------------------------------------------- <S> <C> <C> <C> Current assets: Cash $ 2,752 $ 1,886 $ 1,147 Receivables, less allowances of $819, $936 and $611 41,410 24,255 26,406 Inventories 27,520 20,882 15,589 Prepaid expense 199 60 137 Deferred income tax benefit 824 801 824 --------- --------- --------- TOTAL CURRENT ASSETS 72,705 47,884 44,103 Property, plant, and equipment 33,091 34,498 34,133 Accum. depr. and amortization (23,100) (25,374) (25,077) --------- --------- --------- 9,991 9,124 9,056 Goodwill 13,755 11,018 10,899 Other assets 6,025 4,854 5,418 --------- --------- --------- $ 102,476 $ 72,880 $ 69,476 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - bank $ 24,640 $ 12,810 $ 13,267 Current portion of long-term debt 167 2,800 -- Trade accounts payable 10,529 5,545 2,093 Accrued liabilities 16,404 10,398 14,282 Federal income tax payable 1,744 675 1,976 --------- --------- --------- TOTAL CURRENT LIABILITIES 53,484 32,228 31,618 Other Liabilities: Long-term debt 18,167 19,100 12,700 Deferred compensation 1,273 1,172 1,198 --------- --------- --------- 19,440 20,272 13,898 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 - 2,140,694, 2,167,753, and 2,165,862 at 10-06-01, 9-30-00, and 12-26-00 2,141 2,168 2,166 Retained earnings 27,237 17,984 21,597 Accumulated other comprehensive income 174 228 197 --------- --------- --------- 29,552 20,380 23,960 --------- --------- --------- $ 102,476 $ 72,880 $ 69,476 ========= ========= ========= </TABLE> See notes to Consolidated Condensed Financial Statement.
ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED) (Dollars in Thousands, except per share amounts) <TABLE> <CAPTION> Three Months Ended Nine Months Ended Oct. 6, Sept 30, Oct. 6, Sept. 30, 2001 2000 2001 2000 ----------------------------------------------------------- <S> <C> <C> <C> <C> Net sales $ 54,423 $ 31,560 $ 100,678 $ 73,170 Costs, expenses and other income: Cost of products sold 39,732 22,082 71,241 49,506 Selling, administrative and general expenses 7,318 4,876 17,024 14,026 Interest 374 596 1,097 1,467 Amortization of Goodwill 228 214 758 711 Other (income) expense 286 (2) 503 164 --------- --------- --------- --------- 47,938 27,766 90,623 65,874 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 6,485 3,794 10,055 7,296 Provision for income taxes 2,445 1,435 3,803 2,845 --------- --------- --------- --------- NET INCOME $ 4,040 $ 2,359 $ 6,252 $ 4,451 ========= ========= ========= ========= Per share data: Basic earnings per share $ 1.89 $ 1.09 $ 2.91 $ 1.84 Diluted earnings per share $ 1.87 $ 1.08 $ 2.87 $ 1.83 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) NET INCOME $ 4,040 $ 2,359 $ 6,252 $ 4,451 UNREALIZED GAIN (LOSS) ON SECURITIES, NET OF TAX (57) 20 (23) 27 --------- --------- --------- --------- COMPREHENSIVE INCOME $ 3,983 $ 2,379 $ 6,229 $ 4,478 ========= ========= ========= ========= </TABLE> See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in Thousands) <TABLE> <CAPTION> Nine Months Ended Oct. 6, 2001 Sept. 30, 2000 Operating Activities: ------------------------------------- <S> <C> <C> Net Income $ 6,252 $ 4,451 Depreciation and amortization 2,842 2,765 Adjustments necessary to reconcile net income to net cash provided by operating activities (13,194) (4,008) -------- -------- Net cash provided (used) by operating activities (4,100) 3,208 -------- -------- Investing Activities: Purchase of property and equipment (2,019) (882) Purchase of certain assets of Lifetime Products, Inc. -- (1,100) Purchase of certain assets of Accudart (1,966) -- Purchase of certain assets of U.S. Weight, Inc. (6,679) -- -------- -------- Net cash used by investing activities (10,664) (1,982) -------- -------- Financing Activities: Net increase in notes payable - bank 11,373 3,240 Net increase in long-term debt 5,634 9,200 Proceeds from exercise of stock options 167 114 Purchase of common stock (805) (13,650) -------- -------- Net cash provided (used) by financing activities 16,369 (1,096) -------- -------- Increase in cash 1,605 130 Cash, beginning of period 1,147 1,756 -------- -------- Cash, end of period $ 2,752 $ 1,886 ======== ======== </TABLE> See notes to Consolidated Condensed Financial Statements.
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 nine month periods ended October 6, 2001 and September 30, 2000 are not necessarily indicative of the results to be expected for the full year. Note C - Inventories (Dollars in Thousands) ------------------------------------------- <TABLE> <CAPTION> 10-6-01 9-30-00 12-30-00 ------- ------- -------- <S> <C> <C> <C> Raw Materials $ 6,427 $ 4,161 $ 4,871 Work In Process 4,765 4,066 3,748 Finished Goods 16,328 12,655 6,970 ------- ------- ------- $27,520 $20,882 $15,589 ======= ======= ======= </TABLE> Note D - Income Taxes --------------------- The provision for income taxes was computed based on financial statement income.
ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Note E - Earnings Per Share ----------------------------- Earnings per share were computed as follows: <TABLE> <CAPTION> Three Months Ended October 6, 2001 ----------------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- ---------- <S> <C> <C> <C> Net Income $4,040 ------ Basic Earnings per Share Income available to common stockholders 4,040 2,140 $ 1.89 ====== Effect of Dilutive Securities Stock options 24 ------ ------ Diluted Earnings Per Share Income available to common stockholders and assumed conversions $4,040 2,164 $ 1.87 ====== ====== ====== <CAPTION> Three Months Ended September 30, 2000 ----------------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- ---------- <S> <C> <C> <C> Net Income $2,359 ------ Basic Earnings per Share Income available to common stockholders 2,359 2,168 $ 1.09 ====== Effect of Dilutive Securities Stock options 8 ------ ------ Diluted Earnings Per Share Income available to common stockholders and assumed conversions $2,359 2,176 $ 1.08 ====== ====== ====== </TABLE>
ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Note E - Earnings Per Share --------------------------------------- Earnings per share were computed as follows: <TABLE> <CAPTION> Nine Months Ended October 6, 2001 ------------------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- ---------- <S> <C> <C> <C> Net Income $ 6,252 ------- Basic Earnings per Share Income available to common stockholders 6,252 2,151 $2.91 ======= Effect of Dilutive Securities Stock options 24 ------- -------- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $ 6,252 2,175 $2.87 ======= ======= ======= <CAPTION> Nine Months Ended September 30, 2000 ------------------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- ---------- <S> <C> <C> <C> Net Income $ 4,451 ------- Basic Earnings per Share Income available to common stockholders 4,451 2,424 $1.84 ======= Effect of Dilutive Securities Stock options 8 ------- ------- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $ 4,451 2,432 $1.83 ======= ======= ======= </TABLE>
ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) Note F - Segment Information ----------------------------- <TABLE> <CAPTION> As of and for the Nine Months Ended October 6, 2001 ------------------------------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- ---------- --------- --------- <S> <C> <C> <C> <C> Revenues from external customers $ 76,726 $ 23,952 $ -- $100,678 Net income 3,681 2,238 333 6,252 Assets $ 74,003 $ 21,648 $ 6,825 $102,476 <CAPTION> As of and for the Nine Months Ended September 30, 2000 ------------------------------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- ---------- --------- --------- <S> <C> <C> <C> <C> Revenues from external customers $ 45,085 $ 28,085 $ -- $ 73,170 Net income (loss) 1,990 3,362 (901) 4,451 Assets $ 46,792 $ 22,025 $ 4,063 $ 72,880 </TABLE>
ESCALADE, INCORPORATED AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THIRD QUARTER COMPARISON 2001 vs. 2000 The third quarter was a good quarter with net sales increasing $22,863,000 or 72.4%. Earnings per share increased 73.3% from $1.09 per share to $1.89 per share due mainly to the increase in net sales. On September 10, 2001 Escalade Sports acquired substantially all of the assets of U S Weight, Inc., the only U.S. manufacturer of filled vinyl weights and sets. This acquisition is expected to increase Escalade's on-going annual revenues by approximately $7,000,000. Escalade Sports has reached agreement in principle to acquire two sporting goods companies that should add approximately $4,000,000 to annual sales. Escalade Sports had an increase in net sales of $24,138,000 or 104.2%. Imported product sales, including darts and game tables, was 78% of this increase while 22% of the increase was in manufactured product sales, including archery, basketball, table tennis tables and pool tables. Net sales of the newly acquired U S Weight product was only $147,000 for the quarter. Escalade Sports expects fourth quarter sales to be strong. However, if retail sales by our customers in the fourth quarter are adversely impacted by the economy, we could experience less demand in early 2002. Martin Yale had a decrease in net sales of $1,275,000 or 15.2%. The reduction in the incoming order rate , which started in the fourth quarter of 2000, continues with orders received for the quarter being down 23%. It is not clear yet when the order pattern might pick up. Martin Yale continues to suffer declines in sales and income due to the sharp falloff of demand in office products related to the poor economic environment, customer inventory reduction and customer distribution center consolidation. Cost of sales as a percentage of net sales was 73.0% in the third quarter of 2001 as compared to 70.0% last year. This increase in cost of sales percentage of net sales was due mainly to the increase in sporting goods net sales. Sporting goods product has a higher cost of sales than office and graphic arts product. Martin Yale is continuing the transfer of all West Coast manufacturing to Mexico. This should be completed in the first quarter of 2002. One time costs of the transfer total $242,000 and capital expenditures relating to the transfer total $340,000 through the third quarter. Selling, general and administrative expenses were 13.5% of net sales in the third quarter of 2001 as compared to 15.5% of net sales last year. This decrease as a percentage of net sales was mainly due to the increase in sporting goods net sales. Sporting goods has lower selling, general and administrative expenses than office and graphic arts. Interest expense in 2001 was $374,000 as compared to $596,000 last year. This decrease was due to lower interest rates. NINE MONTHS COMPARISON 2001 VS. 2000 Net sales were up $27,508,000 in the first nine months of 2001 as compared to last year, an increase of 37.6%. Net income was up $1,801,000 or 40.5% and earnings per share increased 58.2% from $1.84 to $2.91. About 69% of the earnings per share increase is due to increased sales and 31% due to lower average shares outstanding. Escalade Sports net sales were up $31,641,000 or 70.2% over last year. Sales of all products are up, with 68% of the increase being in imported product and 32% in manufactured product. As discussed above, sporting goods expects a good fourth quarter.
ESCALADE, INCORPORATED AND SUBSIDIARIES Martin Yale net sales were down $4,133,000 or 14.7% from last year. Martin Yale believes that the overall slowdown in the U.S. economy may be adversely impacting orders and will continue to do so in the fourth quarter. Martin Yale continues to suffer declines in sales and income due to the sharp falloff of demand in office products related to the poor economic environment, customer inventory reduction and customer distribution center consolidation. Cost of sales as a percentage of net sales was 70.7% in 2001 as compared to 67.7% in 2000. Sporting goods net sales were 76% of total net sales in 2001 as compared to 62% in 2000. Sporting goods has a higher cost of sales than office and graphic arts. The increase in sporting goods sales as a percentage of total sales is the reason for the increase in cost of sales percentage. Selling, general and administrative expenses as a percentage of net sales were 16.9% as compared to 19.2% last year. The decrease in these expenses as a percentage of net sales was mainly due to higher sales volume in sporting goods, which have lower selling, general and administrative expenses as a percentage of net sales than office and graphic arts. Interest expense decreased $370,000 from last year or 25.2%. This decrease was due to lower interest rates. LIQUIDITY AND CAPITAL RESOURCES The Company's net cash used by operating activities was $4,100,000 during the first nine months of 2001. Inventories are up $11,931,000 and accounts receivable are up $15,004,000 from the end of the year. Receivables are up due to strong third quarter sales and inventories are up due to acquisitions and in preparation for fourth quarter shipments. The Company's net cash used by investing activities was $10,664,000 during the first nine months of 2001. The sporting goods acquisitions of Accudart in the first quarter of 2001 and U S Weight, Inc. in the third quarter of 2001 totaled $8,645,000. The Company's short term working capital requirements are funded by cash flow and a revolving line of credit used to finance the purchase of trade receivables by the Company's Swiss subsidiary from the Company's manufacturing subsidiaries. The Company utilizes a Borrowing Base formula which defines and identifies eligible accounts receivables in order to calculate the maximum amount that could be borrowed under this revolving line of credit. At the end of the third quarter, the maximum amount that could be drawn under this line of credit was $25,000,000 of which $22,362,644 was used. This short term revolving line of credit has been extended until May 13, 2002 with various levels of credit available. The line of credit is $15,000,000 from June through September, $25,000,000 in October, $30,000,000 in November, $25,000,000 in December, $20,000,000 in January, and $10,000,000 from February through May. The Company's long term financing requirements are currently funded by a term loan which was increased to $25,000,000 in the third quarter and expires March 31, 2005. Under the terms of the credit agreement the maximum borrowing available to the Company under this revolving term loan is reduced by $5,000,000 on March 31 of each year until the line expires. The Company uses this revolving term loan from time to time to finance acquisitions, stock buy backs and other material obligations that may arise. The Company believes that future long term funding for acquisition, stock buy backs or other material obligations deemed appropriate by the Company's Board of Directors is available from similar credit vehicles and/or other financial institutions. During the third quarter, the Company purchased substantially all of the assets of U S Weight, Inc., the only U.S. manufacturer of filled vinyl weights and sets.
ESCALADE, INCORPORATED AND SUBSIDIARIES ACCOUNTING STANDARDS In July 2001, the FASB issued SFAS No. 141, Business Combinations, which requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001. SFAS No. 141 specifies that certain acquired intangible assets in a business combination be recognized as assets separately from goodwill. Additionally, it requires the Company to evaluate its existing intangible assets and goodwill and to make any necessary reclassifications in order to conform with the new separation requirements at the date of adoption. Goodwill and intangible assets determined to have indefinite useful lives that are acquired in a business combination completed after June 30, 2001 will not be amortized. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized until December 29, 2001. With the exception of the immediate requirement to use the purchase method of accounting for all future business combinations completed after June 30, 2001, the Company is required to adopt the provision of SFAS No. 141 on December 30, 2001. In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 required that goodwill no longer be amortized but instead be tested for impairment at least annually, and that intangible assets other than goodwill should be amortized over their useful lives. The Company is required to adopt the provisions on December 30, 2001. Upon adoption, the Company will be required to reassess the useful lives and residual values of all intangible assets and make any necessary amortization period adjustments by March 31, 2002. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements relating to present or future trends or factors that are subject to risks and uncertainties. These risks, include, but are not limited to, the impact of competitive products and pricing, product demand and market acceptance, new product development, the continuation and development of key customer and supplier relationships, Escalade's ability to control costs, general economic conditions, fluctuations in operating results, changes in the securities markets and other risks detailed from time to time in Escalade's filings with the Securities and Exchange Commission. Escalade's future financial performance could differ materially from the expectations of management contained herein. Escalade undertakes no obligation to release revisions to these forward-looking statements after the date of this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. None. PART II. OTHER INFORMATION Item 1, 2, 3, 4, and 5. Not required. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Number Description 10.2 Amended and Restated Credit Agreement between Escalade, Incorporated and Bank One, Indiana, National Association (b) Reports on Form 8-K None.
ESCALADE, INCORPORATED AND SUBSIDIARIES SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ESCALADE, INCORPORATED Date: October 26, 2001 C. W. (Bill) Reed ---------------- ---------------------------- C. W. (Bill) Reed President and Chief Executive Officer Date: October 26, 2001 John R. Wilson ---------------- ---------------------------- John R. Wilson Vice President and Chief Financial Officer