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 March 21, 1998 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 6, 1998 : 3,094,642
2 INDEX <TABLE> <CAPTION> Page No. -------- <S> <C> Part I. Financial Information: Item 1 - Financial Statements: Consolidated Condensed Balance Sheet -- March 21, 1998, March 22, 1997, and December 27, 1997 3 Consolidated Condensed Statement of Income -- Three Months Ended March 21, 1998 and March 22,1997 4 Consolidated Statement of Comprehensive Income -- Three Months Ended March 21, 1998 and March 22,1997 4 Consolidated Condensed Statement of Cash Flows -- Three Months Ended March 21, 1998 and March 22, 1997 5 Notes to Consolidated Condensed Financial Statements 6-8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations: 9-10 Part II. Other Information 10 Signatures 10 </TABLE>
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) (Dollars in Thousands) <TABLE> <CAPTION> March 21, March 22, December 27, 1998 1997 1997 ASSETS ----------------------------------------------- <S> <C> <C> <C> Current assets: Cash $ 735 $ 249 $ 1,246 Receivables, less allowances of $942, $814 and $893 12,712 12,067 30,602 Inventories 14,386 13,647 12,637 Prepaid expense 109 177 237 Deferred income tax benefit 1,205 1,561 1,205 ------- ------- ------- TOTAL CURRENT ASSETS 29,147 27,701 45,927 Property, plant, and equipment 35,071 31,886 34,995 Accum. depr. and amortization (23,948) (22,059) (23,356) ------- ------- ------- 11,123 9,827 11,639 Deferred income tax benefit --- 519 --- Other assets 2,560 1,837 2,422 Goodwill 6,063 --- 6,157 ------- ------- ------- $48,893 $39,884 $66,145 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - bank $ 1,800 $ 350 $ 8,275 Current portion of long-term debt 2,300 2,300 5,800 Trade accounts payable 2,340 2,248 2,696 Accrued liabilities 8,225 9,245 12,128 Federal income tax payable 50 135 1,550 ------- ------- ------- TOTAL CURRENT LIABILITIES 14,715 14,278 30,449 Other Liabilities: Long-term debt 8,200 5,000 10,700 Deferred compensation 1,088 1,107 1,066 Deferred income tax liability 468 --- 429 ------- ------- ------- 9,756 6,107 12,195 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 - 3,093,204, 3,094,626, and 3,050,691 at 3-21-98, 3-22-97, and 12-27-97 6,158 8,335 5,880 Retained earnings 17,959 11,164 17,374 Net unrealized gain on securities available for sale 305 -- 247 ------- ------- ------- 24,422 19,499 23,501 ------- ------- ------- $48,893 $39,884 $66,145 ======= ======= ======= </TABLE> See notes to Consolidated Condensed Financial Statements.
4 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED) (Dollars in Thousands, except per share amounts) <TABLE> <CAPTION> Three Months Ended March 21, 1998 March 22, 1997 -------------- -------------- <S> <C> <C> Net sales $15,783 $12,702 Costs, expenses and other income: Cost of products sold 10,866 9,105 Selling, administrative and general expenses 3,533 3,120 Interest 277 217 Amortization of Goodwill 94 -- Other income (68) (60) ------- ------- 14,702 12,382 INCOME BEFORE INCOME TAXES 1,081 320 Provision for income taxes 496 169 ------- ------- NET INCOME $ 585 $ 151 ======= ======= Per share data: Basic earnings per share $ .19 $ .05 Diluted earnings per share $ .19 $ .05 </TABLE> CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) <TABLE> <CAPTION> <S> <C> <C> NET INCOME $ 585 $ 151 UNREALIZED GAIN ON SECURITIES, NET OF TAX 58 -- ------- ------- COMPREHENSIVE INCOME $ 643 $ 151 ======= ======= </TABLE> See notes to Consolidated Condensed Financial Statements.
5 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in Thousands) <TABLE> <CAPTION> Three Months Ended March 21, 1998 March 22, 1997 -------------- -------------- <S> <C> <C> Operating Activities: Net Income $ 585 $ 151 Depreciation and amortization 686 567 Adjustments necessary to reconcile net income to net cash provided by operating activities 10,491 9,879 ------- ------- Net cash provided by operating activities 11,762 10,597 ------- ------- Investing Activities: Purchase of property and equipment ( 76) (185) ------- ------- Net cash used by investing activities ( 76) (185) ------- ------- Financing Activities: Net decrease in notes pay.- bank (12,475) (11,525) Purchase of common stock -- -- Proceeds from exercise of stock options 278 43 ------- ------- Net cash used by financing activities (12,197) (11,482) ------- ------- Decrease in cash (511) (1,070) Cash, beginning of period 1,246 1,319 ------- ------- Cash, end of period $ 735 $ 249 ======= ======= </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 - ------------------------------ In the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position of the company as of March 21, 1998, March 22, 1997, and December 27, 1997 and the results of operations and changes in financial position for the three months ended March 21, 1998 and March 22, 1997. The balance sheet at December 27, 1997 was derived from the audited balance sheet included in the 1997 annual report to shareholders. Note B - Seasonal Aspects - ------------------------- The results of operations for the three month periods ended March 21, 1998 and March 22, 1997 are not necessarily indicative of the results to be expected for the full year. Note C - Inventories (Dollars in Thousands) - ------------------------------------------- <TABLE> <CAPTION> 3-21-98 3-22-97 12-27-97 ------- ------- -------- <S> <C> <C> <C> Raw Materials $ 4,429 $ 4,537 $ 3,560 Work In Process 3,767 2,753 3,412 Finished Goods 6,190 6,357 5,665 ------- ------- ------- $14,386 $13,647 $12,637 ======= ======= ======= </TABLE> 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 March 21, 1998 ------------------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- ---------- <S> <C> <C> <C> Net Income $585 ------- Basic Earnings per Share Income available to common stockholders 585 3,062 $.19 ======= Effect of Dilutive Securities Stock options 16 ------- ------- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $585 3,078 $.19 ======= ======= ======= </TABLE> <TABLE> <CAPTION> Three Months Ended March 22, 1997 ------------------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- ---------- <S> <C> <C> <C> Net Income $151 ------- Basic Earnings per Share Income available to common stockholders 151 3,089 $.05 ======= Effect of Dilutive Securities Stock options 55 Warrants 43 ------- ------- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $151 3,187 $.05 ======= ======= ======= </TABLE>
8 Note F - Segment Information - ----------------------------- <TABLE> <CAPTION> As of and for the Three Months Ended March 21, 1998 ------------------------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- ---------- --------- --------- <S> <C> <C> <C> <C> Revenues from external customers $ 8,201 $ 7,582 $ -- $15,783 Net Income (281) 806 60 585 Assets $25,244 $21,239 $2,410 $48,893 </TABLE> <TABLE> <CAPTION> As of and for the Three Months Ended March 22, 1997 ------------------------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- ---------- --------- --------- <S> <C> <C> <C> <C> Revenues from external customers $ 8,145 $ 4,557 $ -- $12,702 Net Income (323) 508 (34) 151 Assets $26,104 $10,188 $3,592 $39,884 </TABLE>
9 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 FIRST QUARTER COMPARISON 1998 vs. 1997 Net sales were $15,783,000 in the first quarter of 1998 as compared to $12,702,000 in the first quarter of 1997 an increase of $3,081,000 or 24.3%. Sales of sporting goods increased $56,000 or 0.7% and sales of office and graphic arts products increased $3,025,000 or 66.4%. Domestic sporting goods sales increased $353,000 or 4.8% while international sporting goods sales decreased $297,000 or 36.4%. 81.7% of the increase in office and graphic arts machines and equipment sales was due to the Master Products acquisition and the balance was in Martin Yale office equipment product. Cost of sales was $10,866,000 in the first quarter of 1998 as compared to $9,105,000 in the first quarter of 1997, an increase of $1,761,000 or 19.3%. Cost of sales as a percentage of net sales was 68.9% in the first quarter of 1998 as compared to 71.7% in the first quarter of 1997. Sporting goods cost of sales as a percentage of net sales increased 0.5% and office and graphic arts machines and equipment cost of sales as a percentage of net sales increased 1.4%. While both segments cost of sales as a percentage of net sales increased slightly the overall cost of sales as a percentage of net sales decreased because the office and graphic arts machines and equipment segment percentage is lower than sporting goods and it is becoming a larger part of the total. (48% of sales in the first quarter this year as compared to 36% last year). Selling, general, and administrative expenses were $3,533,000 in the first quarter of 1998 as compared to $3,120,000 in the first quarter of 1997, an increase of $413,000 or 13.2%. Selling, general and administrative expenses as a percentage of net sales was 22.4% in the first quarter of 1998 as compared to 24.6% in the first quarter of 1997. This decrease as a percentage of net sales was mainly in the office and graphic arts product segment and was mainly due to increased sales volume vs. lower expenses because of consolidation. Interest expense increased $60,000 to $277,000 in 1998 from $217,000 in 1997, an increase of 27.6% due to higher average borrowing levels. The effective income tax rate for the first quarter of 1998 was 45.9% as compared to 52.8% in 1997. Both of these rates are higher than normal due to non-deductible foreign losses.
10 LIQUIDITY AND CAPITAL RESOURCES The Company's net cash provided by operating activities was $11,762,000 in the first quarter of 1998 as compared to $10,597,000 in the first quarter of 1997. 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 $30,602,000 and at the end of the first quarter the net accounts receivable balance was $12,712,000. The Company's net cash used for investing activities was $76,000 in the first quarter of 1998 as compared to $185,000 in the first quarter of 1997. This decrease of $109,000 was in the purchase of property and equipment. The Company's net cash used by financing activities was $12,197,000 in the first quarter of 1998 as compared to $11,482,000 in the first quarter of 1997. Most of the cash used by financing activities was for the pay down of short term and long term bank debt. At the end of the year, the bank debt was $24,775,000 and at the end of the first quarter the bank debt bank was $12,300,000. The Company's working capital requirements are currently funded by cash flow from operations and a domestic line of credit in the amount of $12,000,000 which includes letters of credit. The outstanding loans under the domestic line of credit bear interest at either of the following rates, as selected by the Company from time to time; the bank's prime lending rate or the London Inter-Bank Offered Rate plus 1.25%. The Company's domestic line of credit agreement expires on May 31, 1998 and will be renewed or extended during the second quarter. The amount borrowed under this domestic line of credit at the end of the first quarter was $1,800,000. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (b) Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended March 21, 1998. 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 9, 1998 Robert E. Griffin -------------- ---------------------------- Robert E. Griffin Chairman and Chief Executive Officer Date: April 9, 1998 John R. Wilson -------------- ---------------------------- John R. Wilson Vice President and Chief Financial Officer