<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 July 8, 2000
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 July 26, 2000: 2,167,753
<PAGE> 2
INDEX
Page No.
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheet (Unaudited) --
July 8, 2000, July 10, 1999, and
December 25, 1999 3
Consolidated Condensed Statement of Income (Unaudited) --
Three Months and Six Months Ended
July 8, 2000 and July 10,1999 4
Consolidated Condensed Statement of Cash Flows (Unaudited) --
Six Months Ended July 8, 2000 and July 10, 1999 5
Notes to Consolidated Condensed Financial Statements
(Unaudited) 6-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations: 10-11
Part II. Other Information 12
Item 4 - Submission of matters to a Vote of Securities Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12-13
Signatures 14
<PAGE> 3
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(Dollars in Thousands) July 8, July 10, December 25,
2000 1999 1999
---------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 207 $ 230 $ 1,756
Receivables, less allowances of
$937, $532 and $761 13,985 9,690 24,773
Inventories 19,024 13,800 12,432
Prepaid expense 63 430 126
Deferred income tax benefit 1,248 1,057 1,248
-------- -------- --------
TOTAL CURRENT ASSETS 34,527 25,207 40,335
Property, plant, and equipment 34,983 35,866 33,516
Accum. depr. and amortization (25,520) (26,402) (24,126)
-------- -------- --------
9,463 9,464 9,390
Goodwill 11,260 7,122 11,729
Other assets 5,059 4,020 5,396
-------- -------- --------
$ 60,309 $ 45,813 $ 66,850
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ 6,744 $ 5,275 $ 9,570
Current portion of long-term debt 2,850 300 2,000
Trade accounts payable 3,829 3,006 2,967
Accrued liabilities 8,598 7,067 9,590
Federal income tax payable 32 31 1,310
-------- -------- --------
TOTAL CURRENT LIABILITIES 22,053 15,679 25,437
Other Liabilities:
Long-term debt 19,100 2,400 10,700
Deferred compensation 1,155 1,222 1,275
-------- -------- --------
20,255 3,622 11,975
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 - 2,167,753,
3,050,739, and 2,918,178 at
7-8-00, 7-10-99, and 12-25-99 2,168 4,987 2,918
Retained earnings 15,625 21,234 26,319
Accumulated other comprehensive
income 208 291 201
-------- -------- --------
18,001 26,512 29,438
-------- -------- --------
$ 60,309 $ 45,813 $ 66,850
======== ======== ========
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE> 4
<TABLE>
<CAPTION>
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(Dollars in Thousands, except per share amounts)
Three Months Ended Six Months Ended
July 8, July 10, July 8, July 10,
2000 1999 2000 1999
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 24,035 $ 17,086 $ 41,610 $ 30,064
Costs, expenses and other income:
Cost of products sold 15,846 11,935 27,424 20,828
Selling, administrative and
general expenses 5,292 4,290 9,150 7,393
Interest 637 109 871 253
Amortization of goodwill 305 134 497 225
Other (income) expense 48 (56) 166 (80)
Gain on disposal of Escalade
International -- (103) -- (103)
-------- -------- -------- --------
22,128 16,309 38,108 28,516
INCOME BEFORE INCOME TAXES 1,907 777 3,502 1,548
Provision for income taxes 734 365 1,410 702
-------- -------- -------- --------
NET INCOME $ 1,173 $ 412 $ 2,092 $ 846
======== ======== ======== ========
Per share data:
Basic earnings per share $ .52 $ .13 $ .83 $ .27
Diluted earnings per share $ .52 $ .13 $ .82 $ .27
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
NET INCOME $ 1,173 $ 412 $ 2,092 $ 846
UNREALIZED GAIN ON
SECURITIES, NET OF TAX 6 61 7 50
-------- -------- -------- --------
COMPREHENSIVE INCOME $ 1,179 $ 473 $ 2,099 $ 896
======== ======== ======== ========
</TABLE>
See notes to Consolidated Condensed Financial Statements.
<PAGE> 5
<TABLE>
<CAPTION>
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
Six Months Ended
July 8,2000 July 10,1999
-------------------------------
<S> <C> <C>
Operating Activities:
Net Income $ 2,092 $ 846
Depreciation and amortization 1,891 1,551
Adjustments necessary to reconcile
net income to net cash provided by
operating activities 3,219 11,641
-------- --------
Net cash provided by operating
activities 7,202 14,038
-------- --------
Investing Activities:
Purchase of property and equipment (539) (1,415)
Purchase of certain assets of
Lifetime Products, Inc. (1,100) --
-------- --------
Net cash used by investing activities (1,639) (1,415)
-------- --------
Financing Activities:
Net decrease in notes pay.- bank (2,826) (2,525)
Net increase (decrease) in
long-term debt 9,250 (6,000)
Proceeds from exercise of stock options 114 277
Purchase of common stock (13,650) (1,363)
Payment of cash dividend -- (3,122)
-------- --------
Net cash used by financing activities (7,112) (12,733)
-------- --------
Decrease in cash (1,549) (110)
Cash, beginning of period 1,756 340
-------- --------
Cash, end of period $ 207 $ 230
======== ========
</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
------------------------------
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 six month periods ended July 8, 2000
and July 10, 1999 are not necessarily indicative of the results to be expected
for the full year.
Note C - Inventories (Dollars in Thousands)
-------------------------------------------
7-8-00 7-10-99 12-25-99
------- ------- --------
Raw Materials $ 5,247 $ 4,396 $ 4,063
Work In Process 3,375 3,165 3,184
Finished Goods 10,402 6,239 5,185
------- ------- -------
$19,024 $13,800 $12,432
======= ======= =======
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
July 8, 2000
-------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ---------
<S> <C> <C> <C>
Net Income $1,173
------
Basic Earnings per Share
Income available to common
stockholders 1,173 2,245 $ .52
=======
Effect of Dilutive Securities
Stock options 5
------ ------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $1,173 2,250 $ .52
====== ====== =======
<CAPTION>
Three Months Ended
July 10, 1999
-------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ---------
<S> <C>
Net Income $ 412
------
Basic Earnings per Share
Income available to common
stockholders 412 3,060 $ .13
=======
Effect of Dilutive Securities
Stock options 4
------ ------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 412 3,064 $ .13
====== ====== =======
</TABLE>
<PAGE> 8
Note E - Earnings Per Share
-----------------------------
Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>
Six Months Ended
July 8, 2000
----------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
<S> <C> <C> <C>
Net Income $ 2,092
-------
Basic Earnings per Share
Income available to common
stockholders 2,092 2,534 $.83
=======
Effect of Dilutive Securities
Stock options 5
------- --------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 2,092 2,539 $.82
======= ======== =======
<CAPTION>
Six Months Ended
July 10, 1999
------------------------------------------------------
Weighted
Average Per Share
Income Shares Amount
------- --------- ----------
<S> <C> <C> <C>
Net Income $ 846
-------
Basic Earnings per Share
Income available to common
stockholders 846 3,083 $.27
=======
Effect of Dilutive Securities
Stock options 4
------- -------
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $ 846 3,087 $.27
======= ======= =======
</TABLE>
<PAGE> 9
Note F - Segment Information
-----------------------------
<TABLE>
<CAPTION>
As of and for the Six Months Ended
July 8, 2000
-----------------------------------------------------------------
Office and
Sporting Graphic
Goods Arts Corporate Total
-------- ---------- --------- ---------
<S> <C> <C> <C>
Revenues from external customers $21,919 $19,691 -- $41,610
Net Income 231 2,414 (553) 2,092
Assets $29,923 $29,026 $ 1,360 $60,309
<CAPTION>
As of and for the Six Months Ended
July 10, 1999
-----------------------------------------------------------------
Office and
Sporting Graphic
Goods Arts Corporate Total
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues from external customers $ 13,161 $ 16,903 $ -- $ 30,064
Net Income (885) 1,753 (22) 846
Assets $ 18,476 $ 23,220 $ 4,117 $ 45,813
</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
SECOND QUARTER COMPARISON 2000 vs. 1999
Net sales were $24,035,000 in the second quarter of 2000 as compared
to $17,086,000 in the second quarter of 1999 an increase of $6,949,000 or 40.7%.
Sales of sporting goods increased $5,337,000 or 70.6% and sales of office and
graphic arts products increased $1,612,000 or 16.9%.
The increase in sporting goods net sales for the quarter was about 75%
due to the Zue acquisition products (upper end basketball systems) and about 25%
due to unit sales increases in game parlor products. The increase in office and
graphic arts machines and equipment net sales was mainly due to the Mead Hatcher
acquisition products (computer accessories) which were only shipped for one week
of last years second quarter.
Cost of sales was $15,846,000 in the second quarter of 2000 as
compared to $11,935,000 in the second quarter of 1999, an increase of $3,911,000
or 32.8%.
Cost of sales as a percentage of net sales was 65.9% in the second
quarter of 2000 as compared to 69.9% in the second quarter of 1999. Sporting
goods cost of sales as a percentage of net sales decreased 11.7% and office and
graphic arts cost of sales as a percentage of net sales decreased 2.5%. The
decrease in the sporting goods cost of sales percentage of net sales was due
mainly to the increased volume resulting in higher factory expense absorption.
The decrease in office and graphic arts cost of sales percentage of net sales
was mainly in factory expense.
Selling, general, and administrative expenses were $5,292,000 in the
second quarter of 2000 as compared to $4,290,000 in the second quarter of 1999,
an increase of $1,002,000 or 23.4%.
Selling, general and administrative expenses as a percentage of net
sales was 22.0% in the second quarter of 2000 as compared to 25.1% in the second
quarter of 1999. This decrease as a percentage of net sales was mainly in the
sporting goods segment and was due to the increased sales level.
Interest expense increased $528,000 to $637,000 in 2000 from $109,000
in 1999, an increase of 484.4% due to higher borrowing levels from acquisitions
and stock repurchases.
FIRST HALF COMPARISON 2000 VS. 1999
Net sales were $41,610,000 in the first half of 2000 as compared to
$30,064,000 in the first half of 1999, an increase of $11,546,000 or 38.4%.
Sales of sporting goods increased $8,758,000 or 66.5% and sales of office and
graphic arts products increased $2,788,000 or 16.5%.
The increase in sporting goods net sales for the first half was about
60% due to the Zue acquisition products (upper end basketball systems) and 40%
due to stronger demand for our products, primarily game parlor, due to improved
sell through by our retail partners in the prior year. The increase in office
and graphic arts machines and equipment net sales was all in the Mead Hatcher
acquisition products (computer accessories) which offset some decreases in other
products.
<PAGE> 11
ESCALADE, INCORPORATED AND SUBSIDIARIES
RESULTS OF OPERATIONS CONTINUED
Cost of sales was $27,424,000 in the first half of 2000 as compared to
$20,828,000 in 1999, an increase of $6,596,000 or 31.7%.
Cost of sales as a percentage of net sales was 65.9% in the first half
of 2000 as compared to 69.3% in the first half of 1999. Sporting goods cost of
sales as a percentage of net sales decreased 11.1% and office and graphic arts
cost of sales as a percentage of net sales decreased 2.0%. The decrease in the
sporting goods cost of sales percentage of net sales was due mainly to the
increased volume resulting in higher factory expense absorption. The decrease in
office and graphic arts cost of sales percentage of net sales was mainly in
factory expense.
Selling, general, and administrative expenses were $9,150,000 in the
first half of 2000 as compared to $7,393,000 in the first half of 1999, an
increase of $1,757,000 or 23.7%.
Selling, general, and administrative expenses as a percentage of net
sales were 22.0% in 2000 as compared to 24.6% in 1999. The decrease in these
expenses as a percentage of net sales was mainly due to higher sales volume in
the sporting goods segment.
Interest expense was $871,000 in the first half of 2000 as compared to
$253,000 in the first half of 1999, an increase of $618,000 or 244.3%. This
increase was due to higher average borrowing levels in the first half of 2000
and higher interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was $7,202,000
in the first half of 2000 as compared to $14,038,000 in the first half of 1999.
Most of the cash provided by operating activities was from collection of the
year end accounts receivable. The net accounts receivable balance at the end of
the year in 1999 was $24,773,000 and at the end of the first half of 2000, the
net accounts receivable balance was $13,985,000. The lower cash provided in 2000
was the result of a higher increase in inventory as compared to 1999.
Inventories at the end of the first half of 2000 were $19,024,000 as compared to
$13,800,000 at the end of the first half of 1999, an increase of $5,224,000. The
Company's net cash used for investing activities was $1,639,000 in the first
half of 2000 as compared to $1,415,000 in the first half of 1999. The Company's
net cash used by financing activities was $7,112,000 in the first half of 2000
as compared to $12,733,000 in the first half of 1999. In 2000, the net cash used
was primarily for the purchase of company stock in a Dutch Auction.
The Company's working capital requirements are currently funded by
cash flow from operations and a domestic line of credit in the amount of
$30,000,000, which includes a letter of credit facility in the amount of
$2,000,000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
<PAGE> 12
ESCALADE, INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1, 2, and 3. Not Required.
Item 4. Submission of Matters to a Vote of Securities Holders.
The annual meeting of the Registrant was held at the offices of the Company in
Evansville, Indiana on April 29, 2000. Proxy materials had been circulated on
March 31, 2000, proposing the election of seven members to the Board of
Directors for a one year term, and the appointment of Olive LLP to serve as
independent auditors of the Company for the year 2000.
The stockholders approved the election of Yale A. Blanc, Robert E. Griffin,
Blaine E. Matthews, Jr., Robert D. Orr, C. W. ("Bill") Reed, A. Graves Williams,
Jr., and Keith P. Williams to the Board of Directors, and the appointment of
Olive LLP as the Company's independent auditors.
Item 5. Other Information
On May 15, 2000, Indian-Martin AG, the Company's directly owned
subsidiary, obtained a $30,000,000 credit facility from Bank One, Indiana,
National Association. Indian-Martin will borrow funds from time to time under
that credit facility to purchase eligible accounts receivable from Escalade's
operating subsidiaries, which accounts are and will be pledged to secure
Indian-Martin's borrowings from Bank One. The Company's operating subsidiaries
will continue to service all such accounts receivable. The Company believes that
this financing arrangement will provide the Company and its domestic operating
subsidiaries increased liquidity with respect to their outstanding receivables.
The material documents relating to this financing arrangement are included as
exhibits to this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
3.1 Articles of incorporation of Escalade, Incorporated(1)
3.2 By-Laws of Escalade, Incorporated(2)
10.1 Credit Agreement dated as of May 15, 2000 by and between
Indian-Martin AG and Bank One, Indiana, National Association
(excluding exhibits and schedules not deemed to be material)
10.2 Revolving Note dated as of May 15, 2000 in principal amount of
$30,000,000 executed by Indian-Martin AG in favor of Bank One,
Indiana, National Association
10.3 Pledge Agreement dated as of May 15, 2000 by Indian-Martin AG in
favor of Bank One, Indiana, National Association
10.4 Collateral Assignment and Security Agreement dated as of May 15,
2000 by Indian-Martin AG in favor of Bank One, Indiana, National
Association
----------------------
1 Incorporated by reference from the Company's Form S-2
Registration Statement, File No. 33-16279, as declared
effective by the Securities and Exchange Commission on
September 2, 1987
2 Incorporated by reference from the Company's Form S-2
Registration Statement, File No. 33-16279, as declared
effective by the Securities and Exchange Commission on
September 2, 1987
<PAGE> 13
10.5 Receivables Purchase Agreement dated as of May 15, 2000
between Indian-Martin AG and Indian Industries, Inc.(3)
10.6 Services Agreement dated as of May 15, 2000 between
Indian-Martin AG and Indian Industries, Inc.(4)
10.7 Subordinated Promissory Note dated as of May 15, 2000 in
principal amount of $5,086,501.81 executed by Indian
Industries, Inc. in favor of Indian-Martin AG(5)
10.8 Standby and Subordination Agreement dated as of May 15, 2000
among Bank One, Indiana, National Association, Indian-Martin
AG and Indian Industries, Inc.(6)
10.9 Promissory Note dated as of May 15, 2000 in principal amount
of $13,153,045.33 executed by Escalade, Incorporated in favor
of Indian-Martin AG
10.10 Escalade Subordination Agreement dated as of May 15, 2000
between Escalade, Incorporated and Bank One, Indiana, National
Association
10.11 Offset Waiver Agreement dated as of May 15, 2000 among
Escalade, Incorporated and Bank One, Indiana, National
Association, Indian-Martin AG, Indian Industries, Inc.,Harvard
Sports, Inc., Martin Yale Industries, Inc. and Master Products
Manufacturing Company, Inc.
10.12 Tenth Amendment dated as of May 15, 2000 between Escalade,
Incorporated and Bank One, Indiana, National Association to
Amended and Restated Credit Agreement
10.13 Agreement dated as of May 1, 2000 by and between Indian
Industries, Inc. d/b/a Escalade Sports and International Union
of Electronic, Electrical, Salaried, Machine and Furniture
Workers, AFL-CIO, and Local 848
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
-----------------------------------
3 Substantially similar Receivables Purchase Agreements were also
entered into by each of the Registrant's other domestic operating
subsidiaries, Harvard Sports, Inc., Martin Yale Industries, Inc.
and Master Products Manufacturing Company, Inc., with
Indian-Martin AG.
4 Substantially similar Services Agreements were also entered into
by each of the Registrant's other domestic operating subsidiaries,
Harvard Sports, Inc., Martin Yale Industries, Inc. and Master
Products Manufacturing Company, Inc., with Indian-Martin AG.
5 Substantially similar Subordinated Promissory Notes were also
entered into by each of the Registrant's other domestic operating
subsidiaries, Harvard Sports, Inc., Martin Yale Industries, Inc.
and Master Products Manufacturing Company, Inc., with
Indian-Martin AG in the respective principal amounts of
$1,343,202.65, $3,130,191.08 and $3,593,149.78.
6 Substantially similar Standby and Subordination Agreements were
also entered into by each of the Registrant's other domestic
operating subsidiaries, Harvard Sports, Inc., Martin Yale
Industries, Inc. and Master Products Manufacturing Company, Inc.,
with Indian-Martin AG and Bank One, Indiana, National Association.
<PAGE> 14
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: July 28,2000 C. W. (Bill) Reed
-------------- ----------------------------
C. W. (Bill) Reed
President and Chief Executive Officer
Date: July 28, 2000 John R. Wilson
-------------- ----------------------------
John R. Wilson
Vice President and
Chief Financial Officer
