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 March 23, 2002 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 offices) 812-467-1200 ------------ 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 April 5, 2002 : 6,460,353
INDEX <TABLE> <CAPTION> Page No. <S> <C> <C> Part I. Financial Information: Item 1 - Financial Statements: Consolidated Condensed Balance Sheets (Unaudited) March 23, 2002, March 24, 2001, and December 29, 2001 3 Consolidated Condensed Statements of Operations (Unaudited) Three Months Ended March 23, 2002 and March 24,2001 4 Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended March 23, 2002 and March 24, 2001 4 Consolidated Condensed Statements of Cash Flows (Unaudited) Three Months Ended March 23, 2002 and March 24, 2001 5 Notes to Consolidated Condensed Financial Statements 6-8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations: 9-11 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 11 Part II. Other Information 11 Signatures 11 </TABLE>
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> (Dollars in Thousands) March 23, March 24, December 29, 2002 2001 2001 -------------------------------------- <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 802 $ 348 $ 920 Receivables, less allowances of $553, $686 and $514 14,713 13,600 27,268 Inventories 18,411 16,899 17,293 Prepaid expense 160 75 164 Deferred income tax benefit 902 824 902 -------- -------- -------- TOTAL CURRENT ASSETS 34,988 31,746 46,547 Property, plant, and equipment 34,486 34,715 33,985 Accum. depr. and amortization (24,405) (25,662) (23,779) -------- -------- -------- 10,081 9,053 10,206 Other assets 12,416 6,178 6,597 Goodwill 13,361 10,672 12,761 -------- -------- -------- $ 70,846 $ 57,649 $ 76,111 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - bank $ 1,277 $ 3,500 $ 9,770 Current portion of long-term debt 167 167 167 Trade accounts payable 2,812 3,030 2,606 Accrued liabilities 12,419 9,628 18,748 Federal income tax payable 602 552 1,682 -------- -------- -------- TOTAL CURRENT LIABILITIES 17,277 16,877 32,973 Other Liabilities: Long-term debt 17,667 14,967 7,467 Deferred compensation 1,278 1,220 1,275 -------- -------- -------- 18,945 16,187 8,742 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 - 6,458,853, 2,166,951, and 6,424,092 at 3-23-02, 3-24-01, and 12-29-01 6,459 2,167 6,424 Retained earnings 27,957 22,246 27,847 Accumulated other comprehensive income 208 172 125 -------- -------- -------- 34,624 24,585 34,396 -------- -------- -------- $ 70,846 $ 57,649 $ 76,111 ======== ======== ======== </TABLE> See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in Thousands, except per share amounts) <TABLE> <CAPTION> Three Months Ended March 23, 2002 March 24, 2001 -------------- -------------- <S> <C> <C> Net sales $ 17,505 $ 18,496 Costs, expenses and other income: Cost of products sold 12,334 12,710 Selling, administrative and general expenses 4,982 4,060 Interest 121 317 Amortization of goodwill -- 227 Other (income) expense 175 167 -------- -------- 17,612 17,481 INCOME (LOSS) BEFORE INCOME TAXES (107) 1,015 Provision (benefit) for income taxes (39) 381 -------- -------- NET INCOME (LOSS) $ (68) $ 634 ======== ======== Per share data: Basic earnings per share $ (.01) $ .10 Diluted earnings per share $ (.01) $ .10 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) NET INCOME (LOSS) $ (68) $ 634 UNREALIZED GAIN (LOSS)ON SECURITIES, NET OF TAX 83 (25) -------- -------- COMPREHENSIVE INCOME $ 15 $ 609 ======== ======== </TABLE> See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in Thousands) <TABLE> <CAPTION> Three Months Ended March 23, 2002 March 24, 2001 ------------------------------- <S> <C> <C> Operating Activities: Net Income (Loss) $ (68) $ 634 Depreciation and amortization 831 821 Adjustments necessary to reconcile net income (loss) to net cash provided by operating activities 3,769 7,370 -------- -------- Net cash provided by operating activities 4,532 8,825 -------- -------- Investing Activities: Purchase of property and equipment (501) (341) Purchase of certain assets of Steve Mizerak, Inc. (1,229) -- Purchase of all assets relating to The Step(R) product line (4,840) -- Purchase of certain assets of Accudart -- (1,966) -------- -------- Net cash used by investing activities (6,570) (2,307) -------- -------- Financing Activities: Net decrease in notes payable- bank (8,493) (9,767) Net increase in long term debt 10,200 2,434 Proceeds from exercise of stock options 213 16 -------- -------- Net cash provided (used) by financing activities 1,920 (7,317) -------- -------- Decrease in cash and cash equivalents (118) (799) Cash and cash equivalents, beginning of period 920 1,147 -------- -------- Cash and cash equivalents, end of period $ 802 $ 348 ======== ======== </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. The condensed consolidated balance sheet of the Company as of December 29, 2001 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company's annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Form 10-K annual report for 2001 filed with the Securities and Exchange Commission. Note B - Seasonal Aspects - ------------------------- The results of operations for the three month periods ended March 23, 2002 and March 24, 2001 are not necessarily indicative of the results to be expected for the full year. Note C - Inventories (Dollars in Thousands) - ------------------------------------------- <TABLE> <CAPTION> 3-23-02 3-24-01 12-29-01 ------- ------- -------- <S> <C> <C> <C> Raw Materials $ 5,946 $ 4,855 $ 4,469 Work In Process 4,079 3,672 4,110 Finished Goods 8,386 8,372 8,714 ------- ------- ------- $18,411 $16,899 $17,293 ======= ======= ======= </TABLE> Note D - Income Taxes - --------------------- The provision for income taxes was computed based on financial statement income.
Note E - Earnings Per Share - ----------------------------- Earnings per share were computed as follows: Three Months Ended March 23, 2002 ---------------------------------- Weighted Average Per Share Income Shares Amount ------ ------ ------ Net (Loss) $ (68) ----- Basic Earnings per Share Income available to common stockholders (68) 6,429 ($.01) ===== Effect of Dilutive Securities Stock options 111 ----- ----- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $ (68) 6,540 ($.01) ===== ===== ===== Three Months Ended March 24, 2001 ------------------------------------ Weighted Average Per Share Income Shares Amount ------ ------ ------ Net Income $ 634 ----- Basic Earnings per Share Income available to common stockholders 634 6,498 $.10 ==== Effect of Dilutive Securities Stock options 48 ----- ----- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $ 634 6,546 $.10 ===== ===== ====
Note F - Segment Information - ----------------------------- <TABLE> <CAPTION> As of and for the Three Months Ended March 23, 2002 --------------------------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- -------- -------- -------- <S> <C> <C> <C> <C> Revenues from external customers $ 10,606 $ 6,899 $ -- $ 17,505 Net income (loss) (420) 730 (378) (68) Assets $ 42,087 $ 23,721 $ 5,038 $ 70,846 </TABLE> <TABLE> <CAPTION> As of and for the Three Months Ended March 24, 2001 -------------------------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- -------- -------- -------- <S> <C> <C> <C> <C> Revenues from external customers $ 10,734 $ 7,762 $ -- $ 18,496 Net income (loss) (264) 929 (31) 634 Assets $ 31,166 $ 22,347 $ 4,136 $ 57,649 </TABLE>
ESCALADE, INCORPORATED AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FIRST QUARTER COMPARISON 2002 vs. 2001 First quarter net sales were down $991,000 from $18,496,000 to $17,505,000 or 5.4%. There was a 1(cent) per share loss in the first quarter this year as compared to a 10(cent) per share earnings in the first quarter of last year. During the quarter, Escalade Sports acquired all assets relating to the Step(R) product line (America's original step fitness system) from Bollinger Industries, substantially all of the assets of Steve Mizerak Inc. (including an exclusive line of billiard equipment along with the registered trademarks of "Steve Mizerak", "Mizerak", "The Miz", and "The Miz Collection") and the rights to the Willie Mosconi name, likeness and brand for use on high end billiard tables and billiard equipment. The Company also completed its previously announced three for one stock split. Martin Yale is evaluating the opportunity to exclusively market a unique patented line of photo frame/desktop accessories with a pop out front matte and high quality finish. During the first quarter, $79,000 was expensed on this project. Escalade Sports net sales were down $128,000 from $10,734,000 to $10,606,000 or 1.2%. A decrease in imported game room product sales of about $600,000 offset by new sales of the U. S. Weight fitness product, acquired in September, 2001 of about $470,000 made up the net decrease. Escalade Sports will continue to look for acquisitions, work on integrating recent acquisitions into its operations and concentrate on improving product margins and quality and increasing revenues during 2002. The first quarter is traditionally a slow quarter as is the second quarter for sporting goods with 75% of sales being made in the last two quarters. Escalade Sports still expects strong sales for this year. Martin Yale's net sales were down $863,000 from $7,762,000 to $6,899,000 or 11.1%. About $630,000 of the decrease was in Master punches and racks and computer peripherals and desktop accessories with the other $233,000 being in Martin Yale folding machines and forms handling equipment. The folding machine units were virtually flat, but the revenues were down about 5% due to the introduction of new lower priced models. The move of Martin Yale's Los Angeles, California manufacturing operations to Tijuana, Mexico was completed in the first quarter. The relocation of West Coast distribution to Mexico will be completed in the second quarter. While Martin Yale is and will remain profitable, it is still uncertain at this time if and when orders will pick up. Martin Yale will continue to focus on cost reduction, product development and increasing revenues. Cost of sales was $12,334,000 in the first quarter of 2002 as compared to $12,710,000 in the first quarter of 2001, a decrease of $376,000 or 3.0%. Cost of sales as a percentage of net sales was 70.5% in the first quarter of 2002 as compared to 68.7% in the first quarter of 2001. This increase was in office and graphic arts cost of sales and was mainly due to an increase in material cost. Selling, general, and administrative expenses were $4,982,000 in the first quarter of 2002 as compared to $4,060,000 in the first quarter of 2001, an increase of $922,000 or 22.7%. About 65% of this increase was in salaries and compensation expenses including the cashless exercise of options for 20,000 shares of common stock by our CEO. Catalog allowances, marketing development expenses and professional services accounted for about 26% of the increase and the remaining 9% of the increase was in the project related to photo frame/desktop accessories.
Interest expense decreased $196,000 to $121,000 in 2002 from $317,000 in 2001, a decrease of 61.8% mainly due to lower interest rates. The effective income tax rate for the first quarter of 2002 was 36.0% as compared to 37.5% in 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's net cash provided by operating activities was $4,532,000 in the first quarter of 2002 as compared to $8,825,000 in the first quarter of 2001. Most of the cash provided by operating activities was from collection of the year end accounts receivable during the first quarter. The net accounts receivable balance at the end of the year was $27,268,000 and at the end of the first quarter the net accounts receivable balance was $14,713,000. The Company's net cash used for investing activities was $6,570,000 in the first quarter of 2002 as compared to $2,307,000 in the first quarter of 2001. $1,229,000 of the cash used in 2002 was for the purchase of certain assets of Steve Mizerak Inc. and $4,840,000 of the cash used in 2002 was for the purchase of all assets relating to The Step(R) product line. The Company's net cash provided by financing activities was $1,920,000 in the first quarter of 2002 as compared to net cash used of $7,317,000 in the first quarter of 2001. The net cash provided by financing activities was from an increase in long term debt. The Company's short term working capital requirements are funded by cash flow and a $30,000,000 revolving line of credit used to finance the purchase of trade receivables by the Company's Swiss subsidiary from the Company's manufacturing subsidiaries. This revolving line of credit has a scheduled maturity date of May 13, 2002, which date can be extended upon the agreement of the parties. The Company utilizes a borrowing base formula which defines and identifies eligible accounts receivable in order to calculate the maximum amount that could be borrowed under this revolving line of credit. At March 23, 2002, the maximum amount that could be drawn under this line of credit was $11,614,218 of which $1,276,920 was used. The Company's long term financing requirements are currently funded by a $25,000,000 revolving term loan which 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. As of April 1, 2002, the maximum amount available under this revolving term loan was $20,000,000 of which $16,750,000 was used. 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 acquisitions, 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. ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (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 was required to adopt the provision of SFAS No. 141 on December 30, 2001, which it did.
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 was required to adopt the provisions on December 30, 2001. Upon adoption, the Company was required to reassess the useful lives and residual values of all intangible assets and make any necessary amortization period adjustments by March 31, 2002. There were no such adjustments required or made upon the adoption of SFAS No. 142. The goodwill amortization in 2001 was $862,045 and under the new Accounting Standards will be zero in 2002 and thereafter, unless there is impairment. We will have additional amortization for intangibles in 2002 resulting from The Step(R) acquisition. The Step(R) patent/license is being amortized over the remaining life of nine years. That will add about $535,000 additional amortization for intangibles in 2002 and yearly thereafter until fully amortized. 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, Escalade's ability to successfully integrate the operations of acquired assets and businesses, 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 update these forward- looking statements after the date of this report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. None. PART II. OTHER INFORMATION There were no reports on Form 8-K filed for the three months ended March 23, 2002. 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: April 12, 2002 C. W. (Bill) Reed -------------- ---------------------------- C. W. (Bill) Reed President and Chief Executive Officer Date: April 12, 2002 John R. Wilson -------------- ---------------------------- John R. Wilson Vice President and Chief Financial Officer