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 18, 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 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 5, 2000 : 2,159,866
2 INDEX Page No. Part I. Financial Information: Item 1 - Financial Statements: Consolidated Condensed Balance Sheet (Unaudited) March 18, 2000, March 20, 1999, and December 25, 1999 3 Consolidated Condensed Statement of Income (Unaudited) Three Months Ended March 18, 2000 and March 20,1999 4 Consolidated Condensed Statement of Cash Flows (Unaudited) Three Months Ended March 18, 2000 and March 20, 1999 5 Notes to Consolidated Condensed Financial Statements 6-8 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations: 9-10 Part II. Other Information 10 Signatures 10 Exhibit 10.21 11-16
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) <TABLE> <CAPTION> (Dollars in Thousands) March 18, March 20, December 25, 2000 1999 1999 ------------------------------------------- <S> <C> <C> <C> ASSETS Current assets: Cash $ 7 $ 689 $ 1,756 Receivables, less allowances of $811, $695 and $761 13,609 11,857 24,773 Inventories 13,926 11,758 12,432 Prepaid expense 59 148 126 Deferred income tax benefit 1,248 1,057 1,248 -------- -------- -------- TOTAL CURRENT ASSETS 28,849 25,509 40,335 Property, plant, and equipment 34,785 35,678 33,516 Accum. depr. and amortization (24,716) (25,922) (24,126) -------- -------- -------- 10,069 9,756 9,390 Other assets 5,274 2,904 5,396 Goodwill 11,537 5,539 11,729 -------- -------- -------- $ 55,729 $ 43,708 $ 66,850 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable - bank $ 1,000 $ -- $ 9,570 Current portion of long-term debt 2,000 2,300 2,000 Trade accounts payable 3,742 1,957 2,967 Accrued liabilities 9,081 9,310 9,590 Federal income tax payable 544 267 1,310 -------- -------- -------- TOTAL CURRENT LIABILITIES 16,367 13,834 25,437 Other Liabilities: Long-term debt 7,700 2,400 10,700 Deferred compensation 1,304 1,190 1,275 Deferred income tax liability -- 6 -- -------- -------- -------- 9,004 3,596 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 - 2,918,178, 3,066,655, and 2,918,178 at 3-18-00, 3-20-99, and 12-25-99 2,918 5,226 2,918 Retained earnings 27,238 20,822 26,319 Accumulated other comprehensive income 202 230 201 -------- -------- -------- 30,358 26,278 29,438 -------- -------- -------- $ 55,729 $ 43,708 $ 66,850 ======== ======== ======== </TABLE> See notes to Consolidated Condensed Financial Statements.
4 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED) (Dollars in Thousands, except per share amounts) <TABLE> <CAPTION> Three Months Ended March 18, 2000 March 20, 1999 -------------- -------------- <S> <C> <C> Net sales $17,575 $12,978 Costs, expenses and other income: Cost of products sold 11,578 8,893 Selling, administrative and general expenses 3,858 3,103 Interest 234 144 Amortization of goodwill 192 91 Other (income) expense 118 (24) ------- ------- 15,980 12,207 INCOME BEFORE INCOME TAXES 1,595 771 Provision for income taxes 676 337 ------- ------- NET INCOME $ 919 $ 434 ======= ======= Per share data: Basic earnings per share $ .31 $ .14 Diluted earnings per share $ .31 $ .14 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) NET INCOME $ 919 $ 434 UNREALIZED GAIN (LOSS)ON SECURITIES, NET OF TAX 1 (11) ------- ------- COMPREHENSIVE INCOME $ 920 $ 423 ======= ======= </TABLE> See notes to Consolidated Condensed Financial Statements.
5 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in Thousands) <TABLE> <CAPTION> Three Months Ended March 18, 2000 March 20, 1999 Operating Activities: -------------------------------- <S> <C> <C> Net Income $ 919 $ 434 Depreciation and amortization 782 674 Adjustments necessary to reconcile net income to net cash provided by operating activities 9,389 15,245 -------- -------- Net cash provided by operating activities 11,090 16,353 -------- -------- Investing Activities: Purchase of property and equipment (169) (235) Purchase of certain assets of Lifetime Products, Inc. (1,100) -- -------- -------- Net cash used by investing activities (1,269) (235) -------- -------- Financing Activities: Net decrease in notes payable- bank (11,570) (11,800) Purchase of common stock -- (1,032) Proceeds from exercise of stock options -- 185 Payment of cash dividend -- (3,122) -------- -------- Net cash used by financing activities (11,570) (15,769) -------- -------- Increase (Decrease) in cash (1,749) 349 Cash, beginning of period 1,756 340 -------- -------- Cash, end of period $ 7 $ 689 ======== ======== </TABLE> 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 three month periods ended March 18, 2000 and March 20, 1999 are not necessarily indicative of the results to be expected for the full year. Note C - Inventories (Dollars in Thousands) - ------------------------------------------- <TABLE> <CAPTION> 3-18-00 3-20-99 12-25-99 ------- ------- -------- <S> <C> <C> <C> Raw Materials $ 4,311 $ 3,226 $ 4,063 Work In Process 2,906 3,161 3,184 Finished Goods 6,709 5,371 5,185 ------- ------- ------- $13,926 $11,758 $12,432 ======= ======= ======= </TABLE> 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 (EPS) were computed as follows: <TABLE> <CAPTION> Three Months Ended March 18, 2000 ------------------------------------------------------- Weighted Average Per Share Income Shares Amount ------- --------- ---------- <S> <C> <C> <C> Net Income $ 919 ------- Basic Earnings per Share Income available to common stockholders 919 2,918 $.31 ======= Effect of Dilutive Securities Stock options 5 ------- ------- Diluted Earnings Per Share Income available to common stockholders and assumed conversions $ 919 2,923 $.31 ======= ======= ======= </TABLE> <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>
8 Note F - Segment Information - ----------------------------- <TABLE> <CAPTION> As of and for the Three Months Ended March 18, 2000 ------------------------------------------------------------- Office and Sporting Graphic Goods Arts Corporate Total -------- ---------- --------- --------- <S> <C> <C> <C> <C> Revenues from external customers $ 9,023 $ 8,552 $ -- $ 17,575 Net income (31) 1,015 (65) 919 Assets $28,301 $23,239 $4,189 $ 55,729 </TABLE> <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 Net income (425) 858 1 434 Assets $19,745 $20,656 $3,307 $ 43,708 </TABLE>
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 2000 vs. 1999 Net sales were $17,575,000 in the first quarter of 2000 as compared to $12,978,000 in the first quarter of 1999 an increase of $4,597,000 or 35.4%. Net sales of sporting goods increased $3,421,000 or 61.1% and net sales of office and graphic arts products increased $ 1,176,000 or 15.9%. The increase in sporting goods net sales was about 1/3 due to the Zue acquisition products (upper end basketball systems) and 2/3 due to some sales increases this year and prior year sales being adversely impacted by excess inventory carryover by a major customer which reduced first quarter requirements mainly 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 which were not in last year's first quarter. Cost of sales was $11,578,000 in the first quarter of 2000 as compared to $8,893,000 in the first quarter of 1999, an increase of $2,685,000 or 30.2%. Cost of sales as a percentage of net sales was 65.9% in the first quarter of 2000 as compared to 68.5% in the first quarter of 1999. Sporting goods cost of sales as a percentage of net sales decreased 10.2% and office and graphic arts machines and equipment cost of sales as a percentage of net sales decreased 1.2%. Sporting goods cost of sales decrease was mainly due to the increased volume resulting in higher factory expense absorption. Office and graphic arts machines and equipment cost of sales decrease was mainly in factory expense. Selling, general, and administrative expenses were $3,858,000 in the first quarter of 2000 as compared to $3,103,000 in the first quarter of 1999, an increase of $755,000 or 24.3%. Selling, general and administrative expenses as a percentage of net sales was 21.9% in the first quarter of 2000 as compared to 23.9% in the first quarter of 1999. This decrease as a percentage of net sales was mainly due to the higher sales volume. Interest expense increased $90,000 to $234,000 in 2000 from $144,000 in 1999, an increase of 62.5% due to higher average borrowing levels and higher interest rates. The effective income tax rate for the first quarter of 2000 was 42.4% as compared to 43.7% in 1999.
10 LIQUIDITY AND CAPITAL RESOURCES The Company's net cash provided by operating activities was $11,090,000 in the first quarter of 2000 as compared to $16,353,000 in the first quarter of 1999. 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 $24,773,000 and at the end of the first quarter the net accounts receivable balance was $13,609,000. The Company's net cash used for investing activities was $1,269,000 in the first quarter of 2000 as compared to $235,000 in the first quarter of 1999. $1,100,000 of this increase was due to the purchase of Lifetime table tennis assets. The Company's net cash used by financing activities was $11,570,000 in the first quarter of 2000 as compared to $15,769,000 in the first quarter of 1999. The cash used by financing activities was for the pay down of bank debt. At the end of the year, the bank debt was $22,270,000 and at the end of the first quarter the bank debt bank was $10,700.000. 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 1.00%. There was $1,000,000 borrowed under this domestic line of credit at the end of the first quarter. On March 31,2000 the Company completed its Dutch Auction with the purchase of 758,312 shares of its Common stock from its stockholders at a price of $18.00 per share. This transaction was financed by additional term debt from Bank One in the amount of $13.5 million. This increased the Company's long term bank debt with Bank One to $20.5 million payable over a 5-year period in annual installments of $4.1 million on March 31. 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 18, 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: April 5, 2000 C. W. (Bill) Reed -------------- ---------------------------- C. W. (Bill) Reed President and Chief Executive Officer Date: April 5, 2000 John R. Wilson -------------- ---------------------------- John R. Wilson Vice President and Chief Financial Officer