10-Q 1 l84411ae10-q.txt ESCALADE INCORPORATED FORM 10-Q 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 September 30, 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 October 18, 2000: 2,167,753 2 INDEX
Page No. Part I. Financial Information: Item 1 - Financial Statements: Consolidated Condensed Balance Sheet (Unaudited) September 30, 2000, October 2, 1999, and December 25, 1999 3 Consolidated Condensed Statement of Income (Unaudited) Three Months and Nine Months Ended September 30, 2000 and October 2, 1999 4 Consolidated Statement of Comprehensive Income (Unaudited) Three Months and Nine Months Ended September 30, 2000 and October 2, 1999 4 Consolidated Condensed Statement of Cash Flows (Unaudited) Nine Months Ended September 30, 2000 and October 2, 1999 5 Notes to Consolidated Condensed Financial Statements 6 - 9 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations: 10 - 11 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 11 Part II. Other Information 12 Signatures 12 Exhibit 27 Financial Data Schedule 13
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(Dollars in Thousands) Sept.30, October 2, December 25, 2000 1999 1999 ASSETS --------------------------------------- Current assets: Cash $ 1,886 $ 163 $ 1,756 Receivables, less allowances of $936, $556 and $761 24,255 16,237 24,773 Inventories 20,882 16,010 12,432 Prepaid expense 60 258 126 Deferred income tax benefit 801 1,097 1,248 -------- -------- -------- TOTAL CURRENT ASSETS 47,884 33,765 40,335 Property, plant, and equipment 34,498 35,694 33,516 Accum. depr. and amortization (25,374) (26,449) (24,126) -------- -------- -------- 9,124 9,245 9,390 Goodwill 11,018 6,988 11,729 Other assets 4,854 3,961 5,396 -------- -------- -------- $ 72,880 $ 53,959 $ 66,850 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - bank $ 12,810 $ 10,625 $ 9,570 Current portion of long-term debt 2,800 300 2,000 Trade accounts payable 5,545 4,862 2,967 Accrued liabilities 10,398 7,368 9,590 Federal income tax payable 675 755 1,310 -------- -------- -------- TOTAL CURRENT LIABILITIES 32,228 23,910 25,437 Other Liabilities: Long-term debt 19,100 2,400 10,700 Deferred compensation 1,172 1,246 1,275 -------- -------- -------- 20,272 3,646 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, 2,945,613, and 2,918,178 at 9-30-00, 10-02-99, and 12-25-99 2,168 3,186 2,918 Retained earnings 17,984 22,957 26,319 Accumulated other comprehensive income 228 260 201 -------- -------- -------- 20,380 26,403 29,438 -------- -------- -------- $ 72,880 $ 53,959 $ 66,850 ======== ======== ========
See notes to Consolidated Condensed Financial Statement. 4 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED) (Dollars in Thousands, except per share amounts)
Three Months Ended Nine Months Ended Sept. 30, Oct. 2, Sept. 30, Oct. 2, 2000 1999 2000 1999 ---------------------------------------- Net sales $31,560 $21,296 $73,170 $51,360 Costs, expenses and other income: Cost of products sold 22,082 14,435 49,506 35,263 Selling, administrative and general expenses 4,876 3,636 14,026 11,029 Interest 596 156 1,467 409 Amortization of Goodwill 214 134 711 359 Other (income) expense (2) 47 164 (33) Gain on Disposal of Escalade International -- -- -- (103) ------- ------- ------- ------- 27,766 18,408 65,874 46,924 ------- ------- ------- ------- INCOME BEFORE INCOME TAXES 3,794 2,888 7,296 4,436 Provision for income taxes 1,435 1,165 2,845 1,867 ------- ------- ------- ------- NET INCOME $ 2,359 $ 1,723 $ 4,451 $ 2,569 ======= ======= ======= ======= Per share data: Basic earnings per share $ 1.09 $ .57 $ 1.84 $ .84 Diluted earning per share $ 1.08 $ .57 $ 1.83 $ .84
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) NET INCOME $ 2,359 $ 1,723 $ 4,451 $ 2,569 UNREALIZED GAIN (LOSS) ON SECURITIES, NET OF TAX 20 (31) 27 19 ------- ------- ------- ------- COMPREHENSIVE INCOME $ 2,379 $ 1,692 $ 4,478 $ 2,588 ======= ======= ======= =======
See notes to Consolidated Condensed Financial Statements. 5 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in Thousands)
Nine Months Ended Sept. 30, 2000 Oct. 2, 1999 Operating Activities: -------------------------------- Net Income $ 4,451 $ 2,569 Depreciation and amortization 2,765 2,253 Adjustments necessary to reconcile net income to net cash provided by operating activities (4,008) 5,948 -------- ------- Net cash provided by operating activities 3,208 10,770 -------- ------- Investing Activities: Purchase of property and equipment (882) (1,763) Purchase of certain assets of Lifetime Products, Inc. (1,100) -- -------- ------- Net cash used by investing activities (1,982) (1,763) -------- ------- Financing Activities: Net increase in notes pay.- bank 3,240 2,825 Net increase (decrease) in long-term debt 9,200 (6,000) Proceeds from exercise of stock options 114 279 Purchase of common stock (13,650) (3,166) Payment of special cash dividend -- (3,122) -------- ------- Net cash used by financing activities (1,096) (9,184) -------- ------- Increase (Decrease) in cash 130 (177) Cash, beginning of period 1,756 340 -------- ------- Cash, end of period $ 1,886 $ 163 ======== =======
See notes to Consolidated Condensed Financial Statements. 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 nine month periods ended September 30, 2000 and October 2, 1999 are not necessarily indicative of the results to be expected for the full year. Note C - Inventories (Dollars in Thousands)
9-30-00 10-2-99 12-25-99 ------- ------- -------- Raw Materials $ 4,161 $ 4,210 $ 4,063 Work In Process 4,066 3,253 3,184 Finished Goods 12,655 8,547 5,185 ------- ------- ------- $20,882 $16,010 $12,432 ======= ======= =======
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 were computed as follows:
Three Months Ended September 30, 2000 ---------------------------------------- Weighted Average Per Share Income Shares Amount ------ -------- --------- Net Income $2,359 ------ Basic Earnings per Share Income available to common stockholders 2,359 2,168 $1.09 ===== Effect of Dilutive Securities Stock options 8 ------ ----- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $2,359 2,176 $1.08 ====== ===== =====
Three Months Ended October 2, 1999 ---------------------------------------- Weighted Average Per Share Income Shares Amount ------ -------- --------- Net Income $1,723 ------ Basic Earnings per Share Income available to common stockholders 1,723 3,038 $ .57 ===== Effect of Dilutive Securities Stock options 4 ------ ----- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $1,723 3,042 $ .57 ====== ===== =====
8 Note E - Earnings Per Share (Continued) Earnings per share were computed as follows:
Nine Months Ended September 30, 2000 ---------------------------------------- Weighted Average Per Share Income Shares Amount ------ -------- --------- Net Income $4,451 ------ Basic Earnings per Share Income available to common stockholders 4,451 2,424 $1.84 ===== Effect of Dilutive Securities Stock options 8 ------ ----- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $4,451 2,432 $1.83 ====== ===== =====
Nine Months Ended October 2, 1999 ---------------------------------------- Weighted Average Per Share Income Shares Amount ------ -------- --------- Net Income $2,569 ------ Basic Earnings per Share Income available to common stockholders 2,569 3,069 $ .84 ===== Effect of Dilutive Securities Stock options 4 ------ ----- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $2,569 3,073 $ .84 ====== ===== =====
9 Note F - Segment Information
As of and for the Nine Months Ended September 30, 2000 --------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- ---------- --------- ------- Revenues from external customers $45,085 $28,085 $ -- $73,170 Net income (loss) 1,990 3,362 (901) 4,451 Assets $46,792 $22,025 $4,063 $72,880
As of and for the Nine Months Ended October 2, 1999 --------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- ---------- --------- ------- Revenues from external customers $25,668 $25,692 $ -- $51,360 Net income (loss) (11) 2,524 56 2,569 Assets $26,340 $23,565 $4,054 $53,959
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 2000 vs. 1999 Net sales were $31,560,000 in the third quarter of 2000 as compared to $21,296,000 in the third quarter of 1999, an increase of $10,264,000 or 48.2%. Sales of sporting goods increased $10,659,000, or 85.2% and sales of office and graphic arts products decreased $395,000 or 4.5%. The increase in sporting goods net sales for the quarter was about 10% in the Zue acquisition product (upper end basketball systems) and about 90% in game parlor products (pool tables, table tennis tables, game tables and equipment). The decrease in office and graphic arts products net sales for the quarter was mainly in the master paper punches and catalog racks and the Mead Hatcher computer accessories product lines. Cost of sales was $22,082,000 in the third quarter of 2000 as compared to $14,435,000 in the third quarter of 1999. Cost of sales as a percentage of net sales was 70.0% in the third quarter of 2000 as compared to 67.8% in the third quarter of 1999. This increase in cost of sales as a percentage of net sales was in sporting goods and was mainly due to higher sales volume of imported products which have lower margins. Selling, general, and administrative expenses were $4,876,000 in the third quarter of 2000 as compared to $3,636,000 in the third quarter of 1999, an increase of $1,240,000 or 34.1%. Selling, general and administrative expenses as a percentage of net sales were 15.5% in the third quarter of 2000 as compared to 17.1% in the third quarter of 1999. This decrease as a percentage of net sales was mainly due to the higher sales volume in the sporting goods segment. Interest expense increased $440,000 or 282.1% from $156,000 last year to $596,000 this year because of higher average borrowing levels. Net income for the quarter this year was $2,359,000 as compared to $1,723,000 last year, an increase of $636,000 or 36.9%. This increase was $885,000 in sporting goods, $177,000 in office and graphic arts and corporate was down by $426,000. NINE MONTHS COMPARISON 2000 VS. 1999 Net sales were $73,170,000 in the first nine months of 2000 as compared to $51,360,000 in the first nine months of 1999, an increase of $21,810,000 or 42.5%. Sales of sporting goods increased $19,417,000 or 75.6% and sales of office and graphic arts products increased $2,393,000 or 9.3%. The increase in year to date sporting goods net sales was about 32% in the 11 Zue acquisition products and about 68% in Game Parlor products. The increase in office and graphic arts products year to date net sales was mainly in the Mead Hatcher acquisition products (computer accessories). Cost of sales was $49,506,000 in the first nine months of 2000 as compared to $35,263,000 in 1999, an increase of $14,243,000 or 40.4%. Cost of sales as a percentage of net sales was 67.6% in 2000 as compared to 68.6% in 1999. Selling, general, and administrative expenses were $14,026,000 in the first nine months of 2000 as compared to $11,029,000 in the first nine months of 1999, an increase of $2,997,000 or 27.2%. Selling, general, and administrative expenses as a percentage of net sales were 19.2% in 2000 as compared to 21.5% in 1999. The decrease in these expenses as a percentage of net sales was mainly due to the higher sales level in the sporting goods segment which has lower selling, general and administrative expenses. Interest expense was $1,467,000 in the first nine months of 2000 as compared to $409,000 in the first nine months of 1999, an increase of $1,058,000, or 258.7% due to higher average borrowing levels. The net income in the first nine months of 2000 was $4,451,000 as compared to $2,569,000 in the first nine months of 1999. This is a $1,882,000 increase with sporting goods being up $2,001,000 and office and graphic arts being up $838,000 and corporate down $957,000. LIQUIDITY AND CAPITAL RESOURCES The Company's net cash provided by operating activities was $3,208,000 in the first nine months of 2000 as compared to $10,770,000 in the first nine months of 1999. Most of the cash provided by operating activities in 2000 was from operations. The Company's net cash used for investing activities was $1,982,000 in the first nine months of 2000 as compared to $1,763,000 in the first nine months of 1999. This was used for the purchase of property and equipment and for the purchase of certain assets of Lifetime Products, Inc. The Company's net cash used by financing activities was $1,096,000 in the first nine months of 2000 as compared to $9,184,000 in the first nine months of 1999. 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. 12 PART II. OTHER INFORMATION There were no reports on Form 8-K filed for the three months ended September 30, 2000. 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: October 20, 2000 C. W. (Bill) Reed ---------------- ---------------------------- C. W. (Bill) Reed President and Chief Executive Officer Date: October 20, 2000 John R. Wilson ---------------- ---------------------------- John R. Wilson Vice President and Chief Financial Officer