<PAGE> 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 20, 1999
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 7, 1999 : 3,066,883
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheet --
March 20, 1999, March 21, 1998, and
December 26, 1998 3
Consolidated Condensed Statement of Income --
Three Months Ended March 20, 1999 and March 21,1998 4
Consolidated Statement of Comprehensive Income --
Three Months Ended March 20, 1999 and March 21,1998 4
Consolidated Condensed Statement of Cash Flows --
Three Months Ended March 20, 1999 and March 21, 1998 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
Part II. Other Information 11
Signatures 11
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in Thousands) March 20, March 21, December 26,
1999 1998 1998
--------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 689 $ 735 $ 340
Receivables, less allowances of
$695, $942 and $582 11,857 12,712 30,792
Inventories 11,758 14,386 12,647
Prepaid expense 148 109 130
Deferred income tax benefit 1,057 1,205 1,002
-------- -------- --------
TOTAL CURRENT ASSETS 25,509 29,147 44,911
Property, plant, and equipment 35,678 35,071 35,443
Accum. depr. and amortization (25,922) (23,948) (25,339)
-------- -------- --------
9,756 11,123 10,104
Other assets 2,904 2,560 2,844
Goodwill 5,539 6,063 5,630
-------- -------- --------
$ 43,708 $ 48,893 $ 63,489
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ --- $ 1,800 $ 7,800
Current portion of long-term debt 2,300 2,300 2,300
Trade accounts payable 1,957 2,340 2,959
Accrued liabilities 9,310 8,225 11,643
Federal income tax payable 267 50 1,324
Dividends Payable --- --- 3,122
-------- -------- --------
TOTAL CURRENT LIABILITIES 13,834 14,715 29,148
Other Liabilities:
Long-term debt 2,400 8,200 6,400
Deferred compensation 1,190 1,088 1,166
Deferred income tax liability 6 468 73
-------- -------- --------
3,596 9,756 7,639
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 - 3,066,655,
3,093,204, and 3,097,357 at
3-20-99, 3-21-98, and 12-26-98 5,226 6,158 6,073
Retained earnings 20,822 17,959 20,388
Net unrealized gain on securities
available for sale 230 305 241
-------- -------- --------
26,278 24,422 26,702
-------- -------- --------
$ 43,708 $ 48,893 $ 63,489
======== ======== ========
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE> 4
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(Dollars in Thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 20, 1999 March 21, 1998
-------------- --------------
<S> <C> <C>
Net sales $ 12,978 $ 15,265
Costs, expenses and other income:
Cost of products sold 8,893 10,515
Selling, administrative and
general expenses 3,103 3,280
Interest 144 277
Amortization of Goodwill 91 94
Other income (24) (68)
-------- --------
12,207 14,098
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 771 1,167
Provision for income taxes 337 496
-------- --------
INCOME FROM CONTINUING OPERATIONS 434 671
Loss from Discontinued Operations 0 (86)
-------- --------
NET INCOME $ 434 $ 585
======== ========
Per share data:
Basic earnings per share from
continuing operations $ .14 $ .22
Diluted earnings per share from
continuing operations $ .14 $ .22
Basic earnings per share $ .14 $ .19
Diluted earnings per share $ .14 $ .19
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
NET INCOME $ 434 $ 585
UNREALIZED GAIN (LOSS)ON SECURITIES, NET OF TAX (11) 58
-------- --------
COMPREHENSIVE INCOME $ 423 $ 643
======== ========
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE> 5
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 20, 1999 March 21, 1998
--------------------------------
<S> <C> <C>
Operating Activities:
Net Income $ 434 $ 585
Depreciation and amortization 674 686
Adjustments necessary to reconcile
net income to net cash provided by
operating activities 15,245 10,491
-------- --------
Net cash provided by operating
activities 16,353 11,762
-------- --------
Investing Activities:
Purchase of property and equipment (235) (76)
-------- --------
Net cash used by investing activities (235) (76)
-------- --------
Financing Activities:
Net decrease in notes payable- bank (11,800) (12,475)
Purchase of common stock (1,032) --
Proceeds from exercise of stock options 185 278
Payment of Cash Dividend (3,122) --
-------- --------
Net cash used by financing activities (15,769) (12,197)
-------- --------
Increase (Decrease) in cash 349 (511)
Cash, beginning of period 340 1,246
-------- --------
Cash, end of period $ 689 $ 735
======== ========
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE> 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 20, 1999, March 21, 1998, and December 26, 1998 and the
results of operations and changes in financial position for the three months
ended March 20, 1999 and March 21, 1998. The balance sheet at December 26, 1998
was derived from the audited balance sheet included in the 1998 annual report to
shareholders.
Note B - Seasonal Aspects
- -------------------------
The results of operations for the three month periods ended March 20,
1999 and March 21, 1998 are not necessarily indicative of the results to be
expected for the full year.
Note C - Inventories (Dollars in Thousands)
- -------------------------------------------
<TABLE>
<CAPTION>
3-20-99 3-21-98 12-26-98
------- ------- -------
<S> <C> <C> <C>
Raw Materials $ 3,226 $ 4,429 $ 3,488
Work In Process 3,161 3,767 3,442
Finished Goods 5,371 6,190 5,717
------- ------- -------
$11,758 $14,386 $12,647
======= ======= =======
</TABLE>
Note D - Income Taxes
- ---------------------
The provision for income taxes was computed based on financial
statement income.
Note E - Discontinued Operations
- --------------------------------
In December 1998, the Company adopted a plan to discontinue its
distribution operations. Those operations were performed by Escalade
International, Limited, a foreign subsidiary located in the United Kingdom. The
Company's other subsidiaries are all manufacturing operations. Accordingly,
Escalade International, Limited is reported as a discontinued operation for the
three month periods ended March 20, 1999 and March 21, 1998. The divestiture
period is expected to run into the fourth quarter of 1999.
The estimated loss on the disposal of Escalade International, Limited
is $1,222,279 including a provision of $250,000 for operating losses during
phaseout. The operating loss for the three month period ended March 20, 1999 was
$70,286.
<PAGE> 7
Note F - Earnings Per Share
- -----------------------------
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 20, 1999
--------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
<S> <C> <C> <C>
Net Income $434
-------
Basic Earnings per Share
Income available to common
stockholders 434 3,114 $.14
=======
Effect of Dilutive Securities
Stock options 3
------- -------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $434 3,117 $.14
======= ======= =======
</TABLE>
<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>
<PAGE> 8
Note G - Segment Information
- -----------------------------
<TABLE>
<CAPTION>
As of and for the Three Months Ended
March 20, 1999
--------------------------------------------------------
Office and
Sporting Graphic
Goods Arts Corporate Total
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from external customers $ 5,602 $ 7,376 $ $ 12,978
Income from Continuing Operations (425) 858 1 434
Assets $ 19,745 $ 20,656 $ 3,307 $ 43,708
</TABLE>
<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 $ 7,683 $ 7,582 $ --- $ 15,265
Income from Continuing Operations (195) 806 60 671
Assets $ 25,244 $ 21,239 $ 2,410 $ 48,893
</TABLE>
<PAGE> 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 1999 vs. 1998
Net sales were $12,978,000 in the first quarter of 1999 as compared to
$15,265,000 in the first quarter of 1998 a decrease of $2,287,000 or 15.0%. Net
sales of sporting goods decreased $2,081,000 or 27.1% and net sales of office
and graphic arts products decreased $206,000 or 2.7%.
The decrease in sporting goods net sales was about 50% due to a
decrease in Premium sales, about 25% due to excess inventory carryover by a
large customer and about 25% due to a bankruptcy filing by a large customer. The
decrease in office and graphic arts machines and equipment net sales was mainly
due to a slight increase in returns and allowances.
Cost of sales was $ 8,893,000 in the first quarter of 1999 as compared
to $10,515,000 in the first quarter of 1998, a decrease of $1,622,000 or 15.4%.
Cost of sales as a percentage of net sales was 68.5% in the first
quarter of 1999 as compared to 68.9% in the first quarter of 1998. Sporting
goods cost of sales as a percentage of net sales increased 6.5% and office and
graphic arts machines and equipment cost of sales as a percentage of net sales
decreased 1.7%. Sporting goods cost of sales increase was mainly due to the
reduced volume resulting in lower factory expense absorption. Office and graphic
arts machines and equipment cost of sales decreased evenly amongst material,
labor and factory expense.
Selling, general, and administrative expenses were $3,103,000 in the
first quarter of 1999 as compared to $3,280,000 in the first quarter of 1998, a
decrease of $177,000 or 5.4%.
Selling, general and administrative expenses as a percentage of net
sales was 23.9% in the first quarter of 1999 as compared to 21.5% in the first
quarter of 1998. This increase as a percentage of net sales was mainly due to
the lower sales volume.
Interest expense decreased $133,000 to $144,000 in 1999 from $277,000
in 1998, a decrease of 48.0% due to lower average borrowing levels.
The effective income tax rate for the first quarter of 1999 was 43.7%
as compared to 42.5% in 1998.
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was
$16,353,000 in the first quarter of 1999 as compared to $11,762,000 in the first
quarter of 1998. 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 $30,792,000 and at the
end of the first quarter the net accounts receivable balance was $11,857,000.
The Company's net cash used for investing activities was $235,000 in the first
quarter of 1999 as compared to $76,000 in the first quarter of 1998. This
increase of $159,000 was in the purchase of property and equipment. The
Company's net cash used by financing activities was $15,769,000 in the first
quarter of 1999 as compared to $12,197,000 in the first quarter of 1998. 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 $16,500,000 and
at the end of the first quarter the bank debt bank was $4,700,000. A special
cash dividend of $1 per share totaling $3,122,000 was paid out in the first
quarter.
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, 1999 and will be renewed or extended during the
second quarter. There was no borrowing under this domestic line of credit at the
end of the first quarter.
YEAR 2000 COMPLIANCE
The Company's sporting goods division, Escalade Sports, has completed
the evaluation, conversion and testing of its critical business systems to
determine whether such systems will be able to properly process data for the
year 2000. Escalade Sports employees first reviewed the underlying software
codes for year 2000 compatibility, and then converted the codes where necessary
to allow years to be read using four digits rather than two digits. Escalade
Sports employees then tested the converted code to determine whether the
affected business system would operate without interruption when data using the
year 2000 was input. Based on these processes, the Company believes that
Escalade Sports' internal software systems are currently year 2000 compliant and
have so notified the customers of Escalade Sports where appropriate.
Escalade Sports has also substantially completed the evaluation,
conversion and testing of its business and manufacturing equipment to prepare
for the year 2000. Escalade Sports has requested year 2000 compliance assurances
from its customers, vendors and other third parties such as utility companies.
Responses from these third parties have been slow to date. Escalade is uncertain
whether it will receive responses from all such parties and whether all such
responses will be satisfactory.
Martin Yale has completed the evaluation phase for year 2000
compatibility and is working on the conversion of software codes. Martin Yale
expects that all necessary conversion and testing should be completed in the
fourth quarter of 1999. Outside third parties are working with Martin Yale
employees in preparing for the year 2000. Martin Yale is also seeking year 2000
compliance assurances from its customers, vendors and other third parties, such
as utility companies.
As of the end of its first quarter of 1999, the Company had incurred
approximately $125,000 in connection with preparing for the year 2000. The
Company expects to incur approximately another $125,000 of year 2000 expenses by
the end of 1999. The Company estimates that its actual and future expenditures
in this area are 75% attributable to internal costs and external fees for
conversion of systems. The remaining 25% of year 2000 expenses are attributable
to new software and equipment. The Company is funding these expenses from
working capital. To the extent that the Company has utilized internal resources
to remedy potential year 2000 problems, the Company has foregone evaluating and
upgrading its systems that it otherwise would have
<PAGE> 11
undertaken in the ordinary course of business. The Company does not believe that
such reallocation of its internal resources has had or will have a material
adverse effect on it.
The Company believes that all of its operations, including those of
Escalade Sports and Martin Yale, will timely meet all requirements necessary to
be year 2000 compliant. As indicated above, the Company's subsidiaries are
continuing to implement their year 2000 plans but have not yet completed those
actions. In addition, the Company and its subsidiaries will continue to request
compliance assurances from its major customers, vendors and other third parties.
At this time, the Company cannot provide any assurances that it will be fully
year 2000 compliant, although the Company does not believe it will be materially
adversely affected by year 2000 issues.
The most likely year 2000 problems that the Company may face appear to
arise from the possible noncompliance of third parties. Possible difficulties
could arise in interfacing with major customers and/or in receiving raw
materials from suppliers. The Company is continuing to work with its customers
to ensure that no material data transmission problems will arise. The Company
also has, and is continuing to develop, back up sources for material vendors.
Accordingly, the Company does not anticipate that any such third party problems
should have a material adverse effect on the Company. However, in the event that
the year 2000 would cause the widespread loss of power, telecommunications and
other utilities in the areas where the Company operates, the disruption to the
Company's business may be material depending upon he length of time it would
take such suppliers to restore service to normal levels.
At this time, the Company has not developed specific contingency plans
in preparation for the year 2000 other than for identifying back up sources for
its material vendors. As the Company continues to complete its evaluation,
conversion and testing, the Company will assess whether there are any specific
areas where a contingency plan could help alleviate possible adverse effects
from the year 2000. If so, the Company will develop contingency plans in those
areas prior to the end of 1999.
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 20, 1999.
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, 1999 Robert E. Griffin
-------------- ----------------------------
Robert E. Griffin
Chairman and Chief
Executive Officer
Date: April 9, 1999 John R. Wilson
-------------- ----------------------------
John R. Wilson
Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1ST QUARTER
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> MAR-20-1999
<CASH> 689
<SECURITIES> 0
<RECEIVABLES> 12,552
<ALLOWANCES> 695
<INVENTORY> 11,758
<CURRENT-ASSETS> 25,509
<PP&E> 35,678
<DEPRECIATION> 25,922
<TOTAL-ASSETS> 43,708
<CURRENT-LIABILITIES> 13,834
<BONDS> 2,400
0
0
<COMMON> 5,226
<OTHER-SE> 21,052
<TOTAL-LIABILITY-AND-EQUITY> 43,708
<SALES> 12,978
<TOTAL-REVENUES> 12,978
<CGS> 8,893
<TOTAL-COSTS> 11,996
<OTHER-EXPENSES> 67
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> 771
<INCOME-TAX> 337
<INCOME-CONTINUING> 434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 434
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
