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 October 5, 1996 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 23, 1996 : 3,102,827 INDEX Page No. Part I. Financial Information: Item 1 - Financial Statements: Consolidated Condensed Balance Sheet (Unaudited) October 5, 1996, October 7, 1995, and December 30, 1995 3 Consolidated Condensed Statement of Income (Unaudited) Three Months and Nine Months Ended October 5, 1996 and October 7,1995 4 Consolidated Condensed Statement of Cash Flows (Unaudited) Nine Months Ended October 5, 1996 and October 7, 1995 5 Notes to Consolidated Condensed Financial Statements 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations: 7-9 Part II. Other Information 9 Signatures 9 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS <TABLE> ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) <CAPTION> (Dollars in Thousands) October 5, October 7, December 30, 1996 1995 1995 ASSETS ------------------------------------ <S> <C> <C> <C> Current assets: Cash $ 352 $ 264 $ 1,247 Receivables, less allowances of $583, $776 and $726 20,036 20,641 25,285 Inventories 23,484 25,408 15,152 Prepaid expense 246 383 267 Income tax refundable --- 199 275 Deferred income tax benefit 1,558 2,333 1,828 ------- ------- ------- TOTAL CURRENT ASSETS 45,676 49,228 44,054 Property, plant, and equipment 34,469 35,884 33,064 Accum. depr. and amortization (24,084) (24,548) (21,840) ------- ------- ------- 10,385 11,336 11,224 Deferred income tax benefit 632 706 662 Other assets 1,876 1,856 1,827 ------- ------- ------- $58,569 $63,126 $57,767 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - bank $ 8,925 $19,000 $14,350 Current portion of long-term debt 2,300 2,853 2,383 Trade accounts payable 5,086 4,149 2,370 Accrued liabilities 9,528 7,378 7,553 Federal income tax payable 573 --- 329 ------- ------- ------- TOTAL CURRENT LIABILITIES 26,412 33,380 26,985 Other Liabilities: Long-term debt 14,400 6,573 6,265 Deferred compensation 1,091 1,153 1,179 ------- ------- ------- 15,491 7,726 7,444 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 - 3,102,827, 4,133,811, and 4,133,954 at 10-05-96, 10-07-95, and 12-30-95 8,463 17,572 17,572 Retained earnings 8,203 4,448 5,766 ------- ------- ------- 16,666 22,020 23,338 ------- ------- ------- $58,569 $63,126 $57,767 ======= ======= ======= <FN> See notes to Consolidated Condensed Financial Statements. </TABLE> <TABLE> ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED) (Dollars in Thousands, except per share amounts) <CAPTION> Three Months Ended Nine Months Ended Oct. 5, Oct. 7, Oct. 5, Oct. 7, 1996 1995 1996 1995 ------------------------------------------------------- <S> <C> <C> <C> <C> Net sales $23,142 $22,857 $58,097 $60,127 Costs, expenses and other income: Cost of products sold 15,891 18,052 40,835 47,870 Selling, administrative and General expenses 4,222 3,224 12,089 10,845 Restructuring charge ----- ----- ----- 1,040 Interest 355 566 959 1,816 Other income (47) (52) (163) (147) ------- -------- ------- -------- 20,421 21,790 53,720 61,424 INCOME (LOSS) BEFORE INCOME TAXES 2,721 1,067 4,377 (1,297) Provision (benefit) 1,204 478 1,940 (427) for income taxes ------- ------- ------- ------- NET INCOME (LOSS) $ 1,517 $ 589 $ 2,437 $ (870) ======= ======= ======= ======= Per share data: NET INCOME (LOSS) $ .38 $ .14 $ .60 $ (.21) ======= ======= ======= ======= <FN> See notes to Consolidated Condensed Financial Statements. </TABLE> <TABLE> ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in Thousands) <CAPTION> Nine Months Ended Oct. 5, 1996 Oct. 7, 1995 Operating Activities: ------------------------------- <S> <C> <C> Net Income (Loss) $ 2,437 $( 870) Depreciation and amortization 2,244 3,161 Adjustments necessary to reconcile net income to net cash provided by operating activities 2,311 9,701 ------- -------- Net cash provided (used) by operating activities 6,992 11,992 ------- -------- Investing Activities: Purchase of property and equipment (1,405) (787) ------- -------- Net cash used by investing activities (1,405) (787) ------- -------- Financing Activities: Net inc.(dec.) in notes pay.- bank (5,425) (10,237) Net inc.(dec.) in long-term debt 8,052 (1,700) Proceeds from exercise of stock options 28 1 Purchase of Common Stock - Dutch Auction & Open Market (9,137) ----- ------- ------ Net cash used by financing activities (6,482) (11,936) ------- ------ Decrease in cash (895) (731) Cash, beginning of period 1,247 995 ------- ------ Cash, end of period $ 352 $ 264 ======= ====== <FN> See notes to Consolidated Condensed Financial Statements. </TABLE> 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 5, 1996, October 7, 1995, and December 30, 1995 and the results of operations and changes in financial position for the nine months ended October 5, 1996 and October 7, 1995. The balance sheet at December 30, 1995 was derived from the audited balance sheet included in the 1995 annual report to shareholders. Note B - Seasonal Aspects - ------------------------- The results of operations for the nine month periods ended October 5, 1996 and October 7, 1995 are not necessarily indicative of the results to be expected for the full year. Note C - Inventories (Dollars in Thousands) - ------------------------------------------- 10-5-96 10-7-95 12-30-95 ------- ------- -------- Raw Materials $ 6,777 $10,810 $ 6,692 Work In Process 3,491 3,599 3,136 Finished Goods 13,216 10,999 5,324 ------- ------- ------- $23,484 $25,408 $15,152 ======= ======= ======= Note D - Earnings Per Share - --------------------------- Earnings (loss) per common and common equivalent shares are based on average shares outstanding. Dilutive effects of stock options on net income (loss) are not material. The number of shares used to calculate earnings (loss) per share for the nine months ended October 5, 1996 and October 7, 1995 was 4,076,670 and 4,133,454. Note E - Income Taxes - --------------------- The provision (benefit) for income taxes was computed based on financial statement income (loss). Note F - Dutch Auction Tender Offer - ----------------------------------- During the third quarter of 1996, the Company conducted a Dutch Auction Tender Offer which was completed on September 24, 1996 with the purchase of 1,016,682 shares at $8.875 per share for a total of $9,023,053. The shares purchased were retired. 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 1996 vs. 1995 Net sales were $23,142,000 in the third quarter of 1996 as compared to $22,857,000 in the third quarter of 1995, an increase of $285,000 or 1.2%. Sales of sporting goods increased $7,000 and sales of office and graphic arts products increased $278,000 or 6.7%. Sporting goods net sales were comparable in both quarters. The office and graphic arts products net sales increase was due mainly to increased graphic arts dealer business. Cost of sales was $15,891,000 in the third quarter of 1996 as compared to $18,052,000 in the third quarter of 1995, a decrease of $2,161,000 or 12.0%. Cost of sales as a percentage of net sales was 68.7% in the third quarter of 1996 as compared to 79.0% in the third quarter of 1995. Sporting goods cost of sales as a percentage of net sales decreased 12.2% and office and graphic arts cost of sales as a percentage of net sales decreased .5%. The decrease in the sporting goods cost of sales percentage of net sales was due to decreased material cost, reduced labor costs and lower factory expenses. Selling, general, and administrative expenses were $ 4,222,000 in the third quarter of 1996 as compared to $3,224,000 in the third quarter of 1995, an increase of $998,000 or 30.9%. Selling, general and administrative expenses as a percentage of net sales was 18.2% in the third quarter of 1996 as compared to 14.1% in the third quarter of 1995. This increase as a percentage of net sales was mainly due to increased expenses in compensation, allowances, marketing and advertising. Interest expense decreased $211,000 or 59.4% from last year's third quarter due to lower borrowing levels. Net income for the quarter this year was $1,517,000 as compared to $589,000 last year, an increase of $928,000 or 157.6%. 95% of this increase was in sporting goods. RESULTS OF OPERATIONS CONTINUED NINE MONTHS COMPARISON 1996 VS. 1995 Net sales were $58,097,000 in the first nine months of 1996 as compared to $60,127,000 in the first nine months of 1995, a decrease of $2,030,000 or 3.4%. Sales of sporting goods decreased $3,730,000 or 8.6% and sales of office and graphic arts products increased $1,700,000 or 13.0%. The decrease in sporting goods net sales was due mainly to reduced volume in dartboard cabinet business. The increase in net sales for the office and graphic arts product segment was due to increased dealer business, expanded distribution and new products. Cost of sales was $40,835,000 in the first nine months of 1996 as compared to $47,870,000 in 1995, a decrease of $7,035,000 or 14.7%. Cost of sales as a percentage of net sales was 70.3% in the first nine months of 1996 as compared to 79.6% in the first nine months of 1995. This decrease is due to lower material cost (60%), lower labor cost (11%) and lower factory expense (29%). Selling, general, and administrative expenses were $12,089,000 in the first nine months of 1996 as compared to $10,845,000 in the first nine months of 1995, an increase of $1,244,000 or 11.5%. Selling, general, and administrative expenses as a percentage of net sales were 20.8% in 1996 as compared to 18.0% in 1995. The increase in these expenses as a percentage of net sales was mainly due to increased compensation expenses, marketing development, customer allowances, sales promotion and rebates. Interest expense was $959,000 in the first nine months of 1996 as compared to $1,816,000 in the first nine months of 1995, a decrease of $857,000 or 47.2%. The decrease was due to lower average borrowing levels. The net income in the first nine months of 1996 was $2,437,000 as compared to a net loss of $870,000 in the first nine months of 1995. The 1995 loss included a $1,040,000 pre tax charge for restructuring. There was a $3,307,000 improvement comparing 1996 to 1995 and 91.5% of this improvement was in sporting goods. LIQUIDITY AND CAPITAL RESOURCES The Company's net cash provided by operating activities was $6,992,000 in the first nine months of 1996 as compared to $11,992,000 used in the first nine months of 1995. Most of the cash provided by operating activities in 1996 was from collection of the year end accounts receivable. The net accounts receivable balance at the end of the year in 1995 was $25,285,000 and at the end of the first nine months of 1996, the net accounts receivable balance was $20,036,000. The Company's net cash used for investing activities was $1,405,000 in the first nine months of 1996 as compared to $787,000 in the first nine months of 1995. This increase of $618,000 was in the purchase of property and equipment. The Company's net cash used by financing activities was $6,482,000 in the first nine months of 1996 as compared to $11,936,000 net cash used by financing in the first nine months of 1995. Long term debt increased a gross amount of $10,000,000, with a net increase of $8,052,000. $9,023,000 of the new long term debt was used to purchase 1,016,682 shares of the Company's common stock in a dutch auction tender offer completed on 9-24-96. LIQUIDITY AND CAPITAL RESOURCES CONTINUED The Company's working capital requirements are currently funded by cash flow from operations, a domestic line of credit in the amount of $18,000,000, and a letter of credit facility in the amount of $4,000,000. 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 plus .25% or the London Inter-Bank Offered Rate plus 2.00%. The Company's domestic line of credit agreement expires on May 31, 1997. PART II. OTHER INFORMATION Item 1, 2, 3, 4, and 5. Not Required. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - 10.21 - First and ninth amendments, dated as of September 19, 1996, to credit agreements with Bank One, Indianapolis. (b) Reports on Form 8-K - There were no reports on Form 8-K filed for the nine months ended October 5, 1996. 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 25, 1996 ROBERT E. GRIFFIN ---------------- ---------------------------- Robert E. Griffin Chairman and Chief Executive Officer Date: October 25, 1996 JOHN R. WILSON ---------------- ---------------------------- John R. Wilson Vice President and Chief Financial Officer