<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 3, 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 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 22, 1998 : 3,108,358
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheet (Unaudited)
October 3, 1998, October 4, 1997, and
December 27, 1997 3
Consolidated Condensed Statement of Income (Unaudited)
Three Months and Nine Months Ended
October 3, 1998 and October 4, 1997 4
Consolidated Condensed Statement of Cash Flows (Unaudited)
Nine Months Ended October 3, 1998 and October 4, 1997 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
Part II. Other Information 13
Signatures 14
Exhibit 10.21
Exhibit 10.32
Exhibit 10.33
</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) October 3, October 4, December 27,
1998 1997 1997
ASSETS -------------------------------------------------
<S> <C> <C> <C>
Current assets:
Cash $ 294 $ 76 $ 1,246
Receivables, less allowances of
$936, $1,002 and $893 17,461 16,687 30,602
Inventories 20,330 22,693 12,637
Prepaid expense 468 402 237
Deferred income tax benefit 1,138 1,311 1,205
------- ------- -------
TOTAL CURRENT ASSETS 39,691 41,169 45,927
Property, plant, and equipment 35,684 37,839 34,995
Accum. depr. and amortization (25,317) (26,939) (23,356)
------- ------- -------
10,367 10,900 11,639
Goodwill 5,721 5,869 6,157
Other assets 2,363 1,818 2,422
Deferred income tax benefit --- 519 ---
------- ------- -------
$58,142 $60,275 $66,145
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ 7,000 $ 6,075 $ 8,275
Current portion of long-term debt 2,300 2,300 5,800
Trade accounts payable 4,241 5,291 2,696
Accrued liabilities 8,868 10,867 12,128
Federal income tax payable 540 929 1,550
------- ------- -------
TOTAL CURRENT LIABILITIES 22,949 25,462 30,449
Other Liabilities:
Long-term debt 6,900 12,200 10,700
Deferred compensation 1,142 1,080 1,066
Deferred income tax liability 359 --- 429
------- ------- -------
8,401 13,280 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 - 3,107,983,
3,130,613, and 3,050,691 at
10-03-98, 10-04-97, and 12-27-97 6,283 8,472 5,880
Retained earnings 20,369 13,061 17,374
Net unrealized gain on securities
available for sale 140 --- 247
------- ------- -------
26,792 21,533 23,501
------- ------- -------
$58,142 $60,275 $66,145
======= ======= =======
</TABLE>
See notes to Consolidated Condensed Financial Statement.
<PAGE> 4
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. 3, Oct. 4, Oct. 3, Oct. 4,
1998 1997 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $22,178 $22,716 $57,038 $53,183
Costs, expenses and other income:
Cost of products sold 14,455 14,845 39,104 36,694
Selling, administrative and
general expenses 3,918 4,345 11,704 11,934
Interest 263 378 851 849
Amortization of Goodwill 91 92 308 125
Other income (70) (126) (259) (242)
------- ------- ------- -------
18,657 19,534 51,708 49,360
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 3,521 3,182 5,330 3,823
Provision for income taxes 1,449 1,389 2,335 1,775
------- ------- ------- -------
NET INCOME $ 2,072 $ 1,793 $ 2,995 $ 2,048
======= ======= ======= =======
Per share data:
Basic earnings per share $ .67 $ .57 $ .97 $ .66
Diluted earning per share $ .66 $ .55 $ .96 $ .64
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
NET INCOME $ 2,072 $ 1,793 $ 2,995 $ 2,048
UNREALIZED GAIN (LOSS)
ON SECURITIES, NET OF TAX (143) --- (107) ---
------- ------- ------- -------
COMPREHENSIVE INCOME $ 1,929 $ 1,793 $ 2,888 $ 2,048
======= ======= ======= =======
</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>
Nine Months Ended
Oct. 3, 1998 Oct. 4, 1997
Operating Activities: ----------------------------------------
<S> <C> <C>
Net Income $ 2,995 $ 2,048
Depreciation and amortization 2,282 2,020
Adjustments necessary to reconcile
net income to net cash provided by
operating activities 2,641 3,686
------- -------
Net cash provided by
operating activities 7,918 7,754
------- -------
Investing Activities:
Purchase of 100% of the stock of
Master Product Manufacturing, Inc. --- (9,118)
Purchase of property and equipment (698) (1,459)
------- -------
Net cash (used) by investing activities (698) (10,577)
------- -------
Financing Activities:
Net inc.(dec.) in notes pay.- bank (1,275) 2,200
Net inc.(dec.) in long-term debt (7,300) (800)
Proceeds from exercise of stock options 403 188
Purchase of Common Stock - Dutch Auction
& Open Market --- (8)
------- -------
Net cash provided (used) by
financing activities (8,172) 1,580
------- -------
(Decrease) in cash (952) (1,243)
Cash, beginning of period 1,246 1,319
------- -------
Cash, end of period $ 294 $ 76
======= =======
</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 October 3, 1998, October 4, 1997, and December 27, 1997 and
the results of operations and changes in financial position for the nine months
ended October 3, 1998 and October 4, 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 nine month periods ended October 3,
1998 and October 4, 1997 are not necessarily indicative of the results to be
expected for the full year.
Note C - Inventories (Dollars in Thousands)
- -------------------------------------------
<TABLE>
<CAPTION>
10-3-98 10-4-97 12-27-97
------- ------- --------
<S> <C> <C> <C>
Raw Materials $ 6,711 $ 5,854 $ 3,560
Work In Process 3,946 4,030 3,412
Finished Goods 9 673 12,809 5,665
------- ------- -------
$20,330 $22,693 $12,637
======= ======= =======
</TABLE>
Note D - Income Taxes
- ---------------------
The provision for income taxes was computed based on financial
statement income.
<PAGE> 7
Note E - Earnings Per Share
- -----------------------------
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
Three Months Ended
October 3, 1998
------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ---------
<S> <C> <C> <C>
Net Income $ 2,072
-------
Basic Earnings per Share
Income available to common
stockholders 2,072 3,107 $.67
=======
Effect of Dilutive Securities
Stock options .21
------- --------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 2,072 3,128 $.66
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
October 4, 1997
-------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
<S> <C> <C> <C>
Net Income $ 1,793
-------
Basic Earnings per Share
Income available to common
stockholders 1,793 3,128 $.57
=====
Effect of Dilutive Securities
Stock options .46
Warrants .65
------- ------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 1,793 3,239 $.55
======= ====== ======
</TABLE>
<PAGE> 8
Note E - Earnings Per Share
- -----------------------------
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
Nine Months Ended
October 3, 1998
-------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
<S> <C> <C> <C>
Net Income $ 2,995
-------
Basic Earnings per Share
Income available to common
stockholders 2,995 3,091 $.97
=======
Effect of Dilutive Securities
Stock options .19
------- --------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 2,995 3,110 $.96
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
October 4, 1997
--------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
<S> <C> <C> <C>
Net Income $ 2,048
-------
Basic Earnings per Share
Income available to common
stockholders 2,048 3,104 $.66
=====
Effect of Dilutive Securities
Stock options .46
Warrants .65
------- ------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 2,048 3,215 $.64
======= ====== =====
</TABLE>
<PAGE> 9
Note F - Segment Information
- -----------------------------
<TABLE>
<CAPTION>
As of and for the Nine Months Ended
October 3, 1998
-------------------------------------------------------------
Office and
Sporting Graphic
Goods Arts Corporate Total
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from external customers $33,432 $23,606 $ --- $ 57,038
Net Income 664 2,343 (12) 2,995
Assets $34,928 $19,913 $3,301 $58,142
</TABLE>
<TABLE>
<CAPTION>
As of and for the Nine Months Ended
October 4, 1997
-------------------------------------------------------------
Office and
Sporting Graphic
Goods Arts Corporate Total
------------ ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from external customers $35,008 $18,175 $ --- $ 53,183
Net Income 413 1,637 ( 2) 2,048
Assets $36,510 $20,238 $3,527 $60,275
</TABLE>
<PAGE> 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
THIRD QUARTER COMPARISON 1998 vs. 1997
Net sales were $22,178,000 in the third quarter of 1998 as compared to
$22,716,000 in the third quarter of 1997, a decrease of $538,000 or 2.4%. Sales
of sporting goods decreased $278,000, or 1.8% and sales of office and graphic
arts products decreased $260,000 or 3.7%.
The small decreases in both sporting goods and office and graphic arts
products net sales were the result of some small increases being offset by some
small decreases in various product lines.
Cost of sales was $14,455,000 in the third quarter of 1998 as compared
to $14,845,000 in the third quarter of 1997, a decrease of $390,000 or 2.6%.
Cost of sales as a percentage of net sales was 65.2% in the third
quarter of 1998 as compared to 65.4% in the third quarter of 1997.
Selling, general, and administrative expenses were $3,918,000 in the
third quarter of 1998 as compared to $4,345,000 in the third quarter of 1997, a
decrease of $427,000 or 9.8%.
Selling, general and administrative expenses as a percentage of net
sales was 17.7% in the third quarter of 1998 as compared to 19.1% in the third
quarter of 1997. This decrease as a percentage of net sales was mainly due to
lower compensation expenses, sales promotion expenses and bad debt expense.
Interest expense decreased $115,000 or 30.4% from $378,000 last year
to $263,000 this year because of reduced borrowing levels.
Net income for the quarter this year was $2,072,000 as compared to
$1,793,000 last year, an increase of $279,000 or 15.6%. This increase was
basically 50% in sporting goods and 50% in office and graphic arts products.
NINE MONTHS COMPARISON 1998 VS. 1997
Net sales were $57,038,000 in the first nine months of 1998 as
compared to $53,183,000 in the first nine months of 1997, an increase of
$3,855,000 or 7.2%. Sales of sporting goods decreased $1,576,000 or 4.7% and
sales of office and graphic arts products increased $5,431,000 or 29.9%.
The decrease in sporting goods net sales was due mainly to reduced
volume in table tennis tables. The increase in net sales for the office and
graphic arts product segment was mainly due to the Master Products acquisition
in June of 1997.
Cost of sales was $39,104,000 in the first nine months of 1998 as
compared to $36,694,000 in 1997, an increase of $2,410,000 or 6.6%.
Cost of sales as a percentage of net sales was 68.6% in the first nine
months of 1998 as compared to 69.0% in the first nine months of 1997.
<PAGE> 11
Selling, general, and administrative expenses were $11,704,000 in the
first nine months of 1998 as compared to $11,934,000 in the first nine months of
1997, a decrease of $230,000 or 1.9%.
Selling, general, and administrative expenses as a percentage of net
sales were 20.5% in 1998 as compared to 22.4% in 1997. The decrease in these
expenses as a percentage of net sales was mainly due to reduced compensation
expenses, sales promotion expenses, and bad debt expense.
Interest expense was $851,000 in the first nine months of 1998 as
compared to $849,000 in the first nine months of 1997.
The net income in the first nine months of 1998 was $2,995,000 as
compared to $2,048,000 in the first nine months of 1997. This is a $947,000
increase with sporting goods being about 25% and office and graphic arts
products 75% of the increase.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was $7,918,000
in the first nine months of 1998 as compared to $7,754,000 in the first nine
months of 1997. Most of the cash provided by operating activities in 1998 was
from collection of the year end accounts receivable. The net accounts receivable
balance at the end of the year in 1997 was $30,602,000 and at the end of the
first nine months of 1998, the net accounts receivable balance was $17,461,000.
The Company's net cash used for investing activities was $698,000 in the first
nine months of 1998 as compared to $10,577,000 in the first nine months of 1997.
This decrease of $9,879,000 was due to the acquisition of Master Products in
1997. The Company's net cash used by financing activities was $8,172,000 in the
first nine months of 1998 as compared to $1,580,000 net cash provided by
financing in the first nine months of 1997. The cash used in 1998 was mainly to
pay down long term debt.
The Company's working capital requirements are currently funded by
cash flow from operations, a domestic line of credit in the amount of
$12,000,000, which includes a letter of credit facility in the amount of
$2,000,000.
Inventories at the end of the first nine months of 1998 were
$20,330,000 as compared to $22,693,000 at the end of the first nine months of
1997, a decrease of $2,363.000.
YEAR 2000 COMPLIANCE
The Company's sporting goods subsidiary, 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. The Company believes that such process will be completed in
its entirety by the end of the first quarter of 1999. Escalade Sports has also
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.
Beginning in the fourth quarter of 1998, the Company's office and
graphic arts machines and equipment subsidiary, Martin Yale, will conduct a
similar process to assess the year 2000 readiness of its information and
non-information systems, including business and manufacturing equipment. Martin
Yale expects that the evaluation phase will be completed in the first quarter of
1999 and that conversion of software codes will commence during that quarter.
Martin Yale further expects that all necessary conversion and testing should be
completed by the end of the third quarter or early in the fourth quarter of
1999. Employees of Escalade Sports and outside third parties are anticipated to
work with Martin Yale employees in preparing for the year 2000. Martin Yale will
also seek year 2000 compliance assurances from its customers, vendors and other
third parties, such as utility companies.
As of the end of its third quarter of 1998, the Company had incurred
approximately $100,000 in connection with preparing for the year 2000. The
Company expects to incur approximately another $150,000 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 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.
<PAGE> 12
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 the 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.
<PAGE> 13
PART II. OTHER INFORMATION
Item 1, 2, and 3. Not Required.
Item 4. Submission of Matters to a Vote of Securities Holders.
The Registrant convened a special meeting of its stockholders on September 15,
1998 at the Registrant's principal executive offices in Evansville, Indiana.
Proxy materials for the special meeting had been mailed to all stockholders
commencing on September 4, 1998 relating to the proposed sale of the
Registrant's sporting goods assets to a subsidiary of Sportcraft, Ltd. (the
"Asset Sale") and the related name change of the Registrant to Martin Yale
Group, Inc.
As reported in the Registrant's recent Form 8-K, as amended, the agreement for
the proposed sale to Sportcraft was terminated in November 1998 and the special
meeting of stockholders was cancelled.
Item 5. Not Required.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 10.21 - Fifth Amendment to amended and restated credit agreement
dated as of September 30, 1998 with Bank One, Indiana.*
Exhibit 10.32 - Loan Agreement between City of Wabash, Indiana and
Martin Yale Industries, Inc. Dated September 1, 1998.*
Exhibit 10.33 - Trust Indenture between City of Wabash, Indiana and
Bank One Trust Company, NA dated September 1, 1998.*
* Previously filed with the Company's initial Form 10-Q for the quarter ended
October 3, 1998.
(b) Reports on Form 8-K - There was a report on Form 8-K filed on July 8, 1998
reporting that on June 26, 1998 Escalade announced the signing of a definitive
agreement providing for the Asset Sale. This Form 8-K has subsequently been
amended on August 25, 1998, September 23, 1998, October 2, 1998, November 4,
1998 and December 1, 1998 to reflect ongoing developments leading to the
termination of the Asset Sale and the cancellation of the special meeting of
stockholders (as discussed in Item 4 above).
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned thereunto duly authorized.
ESCALADE, INCORPORATED
Date: January 25, 1999 Robert E. Griffin
---------------- ----------------------------
Robert E. Griffin
Chairman and Chief
Executive Officer
Date: January 25, 1999 John R. Wilson
---------------- ----------------------------
John R. Wilson
Vice President and
Chief Financial Officer
