-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DeeLsO5ETq9/wijKcRcw7tm8aLTxqOvAFwV8b3yCyxumyk7sV4dp9OPG4YxT2eLI eXbo78ulYV1mrXeYnqgY5w== 0000950152-01-502566.txt : 20010614 0000950152-01-502566.hdr.sgml : 20010614 ACCESSION NUMBER: 0000950152-01-502566 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001230 FILED AS OF DATE: 20010613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ESCALADE INC CENTRAL INDEX KEY: 0000033488 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 132739290 STATE OF INCORPORATION: IN FISCAL YEAR END: 1226 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-06966 FILM NUMBER: 1660255 BUSINESS ADDRESS: STREET 1: 817 MAXWELL AVE STREET 2: P O BOX 899 CITY: EVANSVILLE STATE: IN ZIP: 47717 BUSINESS PHONE: 8124671200 MAIL ADDRESS: STREET 1: PO BOX 889 CITY: EVANSVILLE STATE: IN ZIP: 47706 FORMER COMPANY: FORMER CONFORMED NAME: MARTIN YALE BUSINESS MACHINES CORP DATE OF NAME CHANGE: 19820310 FORMER COMPANY: FORMER CONFORMED NAME: MARTIN YALE INDUSTRIES INC DATE OF NAME CHANGE: 19720306 FORMER COMPANY: FORMER CONFORMED NAME: WILLIAMS MANUFACTURING CO DATE OF NAME CHANGE: 19710504 10-K/A 1 l88832ae10-ka.txt ESCALADE, INCORPORATED FORM 10-K/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 30, 2000 COMMISSION FILE NUMBER 0-6966 ESCALADE, INCORPORATED ---------------------- (Exact name of registrant as specified in its charter) Indiana 13-2739290 ------- ---------- (State of incorporation) (IRS 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. _____X_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ____________ Aggregate market value of voting stock held by nonaffiliates of the registrant as of March 2, 2001: $28,124,718 The number of shares of Registrant's common stock (no par value) outstanding as of March 2, 2001: 2,165,862 Documents Incorporated by Reference Certain portions of the registrant's Proxy Statement relating to its annual meeting of stockholders scheduled to be held on April 28, 2001 are incorporated by reference into Part III of this Report. Index to Exhibits is found on page 14. 2 ESCALADE, INCORPORATED AND SUBSIDIARIES TABLE OF CONTENTS
PAGE - ---------------------------------------------------------------------------------------------------------------------------- PART I Item 1. Business 1 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security Holders 6 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 7 Item 6. Selected Financial Data 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 7. A. Quantitative and Qualitative Disclosures About Market Risk 12 Item 8. Financial Statements and Supplementary Data 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12 PART III Item 10. Directors and Executive Officers of the Registrant 13 Item 11. Executive Compensation 13 Item 12. Security Ownership of Certain Beneficial Owners and Management 13 Item 13. Certain Relationships and Related Transactions 13 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 14
3 PART I ITEM 1--BUSINESS GENERAL Escalade, Incorporated (Escalade or Company) is a diversified company engaged in the manufacture and sale of sporting goods products and office and graphic arts products. Escalade and its predecessors have produced sporting goods products for over 70 years and have produced office and graphic arts products for over 60 years. Escalade is the successor to The Williams Manufacturing Company, an Ohio-based manufacturer and retailer of women's and children's footwear formed in 1922. Through a series of acquisitions commencing in the 1970's, the Company has diversified its business. The Company currently manufactures sporting goods products in Evansville, Indiana and Tijuana, Mexico and manufactures office and graphic arts products in Wabash, Indiana, Los Angeles, California and Tijuana, Mexico. In 1972, the Company merged with Martin Yale Industries, Inc. (Martin Yale), an Illinois manufacturer of office and graphic arts products and leisure time items such as toys and hobby and craft items. In 1973, the Company acquired both Indian Industries, Inc. (Indian), an Indiana manufacturer of archery equipment and table tennis tables, and Harvard Table Tennis, Inc., a Massachusetts manufacturer of table tennis accessories. Escalade discontinued the Williams Manufacturing footwear operations in 1976 and sold Martin Yale's leisure time product line to an unaffiliated party in 1979. In 1980, the Company purchased Harvard Sports, Inc. (formerly Crown Recreation (West), Inc.), a California manufacturer of table tennis tables and home pool tables. In 1983, the Company closed Harvard Table Tennis, Inc. and consolidated it with Harvard Sports, Inc. (Harvard). Escalade has diversified within both the sporting goods products and office and graphic arts products industries, principally through the introduction of new product lines and acquisitions of related assets and businesses. Escalade expanded its sporting goods business in 1982 with the introduction of basketball backboards, goals and poles. In 1988, the Company acquired the business machine division assets of Swingline, Inc., further expanding the range of products offered within the office machine and equipment product lines. In 1989, the Company started limited manufacturing in Tijuana, Mexico under a shelter program known as "maquiladora". In 1990, the Company built a new manufacturing and office facility in Wabash, Indiana and consolidated the manufacturing of office and graphic arts products into the new facility. In 1992, the Company established a European distribution office and warehouse based in the United Kingdom under the name of Escalade International, Limited and then in 1999 the Company sold 50% of the stock of Escalade International to an investment group who assumed responsibility for running the day-to-day operations. In 1994, the Company purchased certain assets of Data-Link Corporation which manufactured products to apply postage and other stamps. In 1997, the Company purchased Master Products Manufacturing Company, Inc. (Master Products), a manufacturer of paper punches and catalog rack systems. In 1999, the Company acquired certain assets of Mead Hatcher which manufactured keyboard drawers, computer storage, copyholders, media retention systems and posting trays. Also, in 1999, the Company purchased the assets of Zue Corporation which manufactured high quality basketball systems. In 2000, the Company purchased the table tennis table assets of Lifetime Products, Inc. Escalade's sporting goods products are produced by Indian and Harvard and are sold through a single consolidated sales and marketing group, Escalade Sports. Escalade's office and graphic arts products are produced by Martin Yale and Master Products and are sold through a single consolidated sales and marketing group, Martin Yale. In 2000, the Company established a new subsidiary, Indian-Martin AG, a Swiss corporation. The sole operation of Indian-Martin AG is to purchase accounts receivable from the Company's manufacturing subsidiaries on a periodic basis. Such purchases are funded by proceeds from the collection of the accounts receivable and through borrowings under a $30 million line of credit provided to Indian-Martin AG by Bank One, Indianapolis, National Association. This accounts receivable purchase program enhances the Company's cash flow and results in certain tax savings to the Company. As of December 30, 2000, Indian-Martin AG owned and held approximately $27.2 million of accounts receivable purchased from the Company's manufacturing subsidiaries. The following table presents the percentages contributed to Escalade's net sales by each of its business segments:
FISCAL YEAR 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- Sporting goods 69% 61% 67% Office and graphic arts products 31 39 33 ----------------------------------------------------- Total net sales 100% 100% 100% =====================================================
For additional segment information, see the notes to consolidated financial statements. 4 SPORTING GOODS Escalade manufactures and sells a variety of sporting goods such as table tennis tables and accessories, archery equipment, home pool tables and accessories, combination bumper pool and card tables, game tables, basketball backboards, goals, poles and portables, darts, and dart cabinets. Some of Escalade's domestic sporting goods shipments are made from National City, California, which primarily services the Company's U. S. Western marketing region, but most of such shipments are made from Evansville, Indiana, which primarily serves the rest of the United States. The majority of foreign shipments are made through Escalade FSC Inc., a foreign sales corporation established by the Company in 1994. Escalade produces and sells sporting goods under the Indian Archery, Harvard, Xi, Ping Pong, Stiga, Goalrilla, Goaliath, Silverback, Rhino Play, Accudart and Winmau brand names. Escalade also manufactures various sporting goods under private label for Sears Roebuck & Co. (Sears) and various other customers. Many of Escalade's products are sold to Sears, Escalade's largest customer, which accounted for approximately 45% of Escalade's sporting goods items net sales in 2000. No other customer accounted for more than 10% of Escalade's sporting goods net sales in 2000. Certain of the Company's sporting goods products are subject to the regulation of the Consumer Product Safety Commission. The Company believes that it is in compliance with such regulations. In December 1998, the Company adopted a plan to discontinue its distribution operations. Those operations were performed by Escalade International, Limited a foreign subsidiary located in the United Kingdom. The Company's other subsidiaries are all manufacturing operations, except for Indiana-Martin AG and Escalade FSC, Inc. On July 8, 1999, the Company completed a transaction to sell 50% of the stock of Escalade International to an investment group who assumed responsibility for running the day-to-day operations. The sale was for $500,000 with $50,000 cash paid and notes receivable of $450,000. The estimated loss on the disposal of Escalade International, Limited was $1,222,279 including a provision of $250,000 for operating losses during phaseout. The actual loss on the sale was $1,118,892 which included $213,057 in operating losses up to the time of sale. 1999 shows a profit of $103,387 which was the amount by which the reserve for loss on this transaction exceeded actual losses. Since only 50% was sold, the operations are not considered discontinued and the financial statements have been revised to eliminate discontinued operations. Going forward, the Company's ownership value in Escalade International will be shown as an investment and will be accounted for under the equity method. In December 1999, the Company purchased the assets of Zue Corporation which manufactured high quality basketball systems. In January 2000, the Company purchased the table tennis table assets of Lifetime Products, Inc. (2) 5 OFFICE AND GRAPHIC ARTS PRODUCTS Escalade's office and graphic arts products include paper trimmers, paper folding machines, paper drills, collators, decollators, bursting machines, letter openers, paper joggers, checksigners, stamp affixers, paper shredders, paper punches, paper cutters, catalog rack systems, bindery carts, business card slitters, thermography machines, keyboard drawers, computer storage, copyholders, media retention systems, posting trays and related accessories. Escalade's office and graphic arts products business is conducted through Martin Yale and Master Products. In 1986, the Company introduced a combination checksigner and bursting machine, which automatically imprints facsimile signatures on payroll checks and then separates each check for distribution. The Company also further diversified its office equipment product lines by its August 1988 purchase of the business machine division assets of Swingline, Inc. consisting primarily of a line of forms handling equipment including decollators, bursters and checksigners and a line of shredders and other products, by its 1994 purchase of certain assets of Data-Link Corporation consisting primarily of products which apply postage and other stamps, by its 1997 purchase of Master Products, a manufacturer of paper punches and catalog rack systems, by its 1998 purchase of certain assets of Steele Industries consisting primarily of its line of business card slitters and thermography machines and by its 1999 purchase of certain assets of Mead Hatcher consisting of keyboard drawers, computer storage, copyholders, media retention systems and posting trays. Escalade produces and sells office and graphic arts products under the Martin Yale brand name, the Premier(R) trademark and the Master Products brand name. The Company also manufactures various office and graphic arts products under private label for original equipment manufacturers. Three customers individually accounted for more than 10% of Escalade's office and graphic arts products sales but not more than 10% of consolidated sales. RELATIONSHIP WITH SEARS The Company has supplied sporting goods to Sears for over 30 years beginning with sales of archery equipment by Indian to Sears. Sears currently purchases for resale a wide variety of Escalade's sporting goods. Sales to Sears accounted for approximately 31% in 2000, 28% in 1999 and 25% in 1998 of Escalade's consolidated sales. Even though the Company has no long-term contracts with Sears, the Company believes that sales to Sears will continue and that relations with Sears are good. Escalade has been awarded the coveted Sears "Partners in Progress Award" for 2000 and has been recognized by Sears for its outstanding service in 12 of the last 15 years and in 22 of the last 28 years. Sears has awarded Escalade the Sears "Partners in Progress Award" during those years based upon quality, service and product innovation. Sears makes this award to less than 80 suppliers each year. During this period, Sears had more than 10,000 suppliers. In 1987, Sears further recognized the Company by awarding Escalade the Sears 1986 "Source of the Year Award" in the recreation-automotive group. (3) 6 MARKETING AND PRODUCT DEVELOPMENT Escalade has developed its existing product lines to adapt to changing conditions. Escalade believes that it is prepared to react to changing market and economic developments primarily by continuing the quality/price structure of the Company's product lines and by conducting ongoing research and development of new products. Escalade is committed to being customer focused. For many of its sporting goods products, Escalade offers its customers a choice, based on quality and price, of its line of "good, better and best" items. Such products are priced in relation to their quality which enables the Company to sell its goods through a variety of department stores, mass merchandisers, wholesale clubs, catalog showrooms, discount houses, general sporting goods stores, specialty sporting goods stores and hardware chains. As a result of such quality/price structure, Escalade is able to meet the quality/price objectives of the consumers served by such retail channels. Escalade sells its office and graphic arts products through office machine dealers, office supply houses and office product catalogs. Certain of Escalade's office products, such as paper trimmers and paper folders, are marketed in a quality/price range designed to accommodate customer needs. Lower cost items are generally intended for light duty office applications, whereas higher cost items are more rugged or more sophisticated, and are intended for use in heavy duty or commercial applications. Escalade conducts much of its marketing efforts through a network of independent sales representatives in the office and graphic arts industries. Marketing efforts in the sporting goods business are coordinated through a marketing department as well as through a network of Company and independent sales representatives. The Company engaged in ongoing research and development activities for new products in each of its business segments. Escalade spent approximately $1,700,000 in 2000, $1,450,000 in 1999 and $1,500,000 in 1998 for research and development activities. COMPETITION Escalade is subject to competition with various manufacturers of each product line produced or sold by Escalade. The Company is not aware of any other single company that is engaged in both the same industries as Escalade or that produces the same range of products as Escalade within such industries. Nonetheless, competition exists for many Escalade products within both the sporting goods and office and graphic arts industries and some competitors are larger and have substantially greater resources than the Company. Escalade believes that its long-term success depends on its ability to strengthen its relationship with existing customers, to attract new customers and to develop new products that satisfy the quality and price requirements of sporting goods and office and graphic arts customers. (4) 7 LICENSES, TRADEMARKS AND BRAND NAMES Escalade Sports has an agreement and contract with Sweden Table Tennis AB for the exclusive right and license to distribute and produce table tennis equipment under the brand name STIGA for the United States and Canada. Escalade Sports is also the exclusive distributor of Winmau Products and brand names for the United States. Escalade is the owner of several registered trademarks and brand names. For its sporting goods, the Company holds the Ping-Pong(R), Harvard(R), Accudart(R), and Goaliath(R), registered trademarks and utilizes the Indian Archery(TM), Xi(TM), Goalrilla(TM), Silverback(TM) and Rhino Play(TM) brand names. The Company permits limited uses of the Ping-Pong(R) trademark by other manufacturers pursuant to various licensing agreements. The Company also owns the Premier(R) registered trademark for its office and graphic arts products, in addition to manufacturing such products under the Martin Yale and Master Products brand names. SEASONALITY The backlog of unshipped orders by industry segment is shown below at the Company's 2000, 1999 and 1998 fiscal year end. All orders in backlog at year end are generally shipped during the following year. The backlog includes all orders received but not shipped. Escalade's sporting goods business is seasonal and, therefore, the backlog is subject to fluctuations. Due to the heavy Christmas season demand for the Company's sporting goods products, 71% to 75% of the sporting goods sales are made in the last two quarters of the year. The office products and graphic arts products business is generally consistent and does not have significant seasonality fluctuations.
YEARS ENDED DECEMBER 30, DECEMBER 25 AND DECEMBER 26 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- Orders received but not shipped Sporting goods $1,566,800 $1,912,800 $1,266,400 Office and graphic arts products 558,400 632,000 438,000
EMPLOYEES The Company employs between 625 and 725 employees, consisting of between 250 and 300 people at Indian's Evansville, Indiana facilities, between 100 and 150 at Harvard's National City, California and Tijuana, Mexico facilities, approximately 125 employees at Martin Yale's Wabash, Indiana facilities and approximately 150 at Master Products' Los Angeles, California and Tijuana, Mexico facilities. The number of employees at the Company's Evansville, Indiana, National City, California and Tijuana, Mexico sporting goods facilities increases in the last half of the year to handle the higher Christmas season demand for the Company's sporting goods products. All hourly rated employees at Evansville are represented by the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers AFL-CIO, whose contract expires April 27, 2003. Escalade believes that its employee relations are satisfactory. SOURCES OF SUPPLIES Raw materials for Escalade's various product lines consist of wood, particle board, slate, standard grades of steel, steel tubing, plastic vinyl, steel cables, fiberglass and packaging. Escalade relies upon European suppliers for its requirement of billiard balls and slate utilized in the production of home pool tables and upon various Asian manufacturers for certain of its table tennis needs and other items. The Company believes that these sources will continue to provide adequate supplies as needed. All other materials needed for the Company's various operations are available in adequate quantities from a variety of domestic and foreign sources. (5) 8 ITEM 2--PROPERTIES The Company operates the following facilities:
LOCATION SIZE LEASED OR OWNED - ------------------------------------------------------------------------------ ------------------- ------------------------- Evansville, Indiana (1) 346,000 sq. ft. Owned National City, California (1) 51,024 sq. ft. Leased Tijuana, Mexico (1) 50,000 sq. ft. Owned Wabash, Indiana (2) 141,000 sq. ft. Owned Los Angeles, California (2) 72,312 sq. ft. Owned Tijuana, Mexico (2) 15,000 sq. ft. Leased
(1) Sporting goods facilities (2) Office products facilities The Company leases warehousing and office space at its National City, California facilities and the term of the lease is five years. The lease rate ranges from $223,736 in year one to $272,971 in year five. The Company also shares in common area expenses not to exceed 8(cent) per sq. ft. per month. The lease expires January 31, 2006. The Company's Wabash facilities are held subject to a mortgage financed by Economic Development Revenue Bonds. The 141,000 square foot facility is a pre-engineered metal building supported by structured steel and concrete block consisting of 21,000 square feet warehousing, 6,000 square feet office and 114,000 square feet manufacturing. The Company also leases warehousing space next to its Evansville facility for $18,142 per month. The lease expires on October 31, 2002. The Company has two two-year renewal options followed by two five-year renewal options. The Company leases space in Tijuana, Mexico for its office products operations for $67,128 per year. The lease expires on July 31, 2002. The Company rents additional space in Tijuana, Mexico for its sporting goods operations for $45,802 per year. The lease term is month-to-month. The Company believes that its facilities are in excellent condition and suitable for their respective operations. The Evansville, Wabash and Tijuana sites also contain several undeveloped acres which could be utilized for expansion. The Company believes that all of its facilities are in compliance with applicable environment regulations and is not subject to any proceeding by any federal, state or local authorities regarding such matter. The Company provides regular maintenance and service on its plants and machinery as required. ITEM 3--LEGAL PROCEEDINGS The Company is involved in litigation arising in the normal course of its business. The Company does not believe that the disposition or ultimate resolution of such claims or lawsuits will have a material adverse affect on the business or financial condition of the Company. ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, the following list is included as an unnumbered item in Part I of this Report in lieu of being included in the definitive proxy statement for the Company's 2001 Annual Meeting of Stockholders. The following is a list of the names and ages of all of the executive officers of the Company indicating all positions and offices held by each such person as of the date of this Report. Each of the executive officers has served the Company in various executive capacities throughout the past five years. All such persons have been elected to serve until the next annual election of officers and their successors are elected, or until their earlier resignation or removal.
Age as of Offices and First Elected Name March 9, 2001 Positions Held An Officer - ----------------------------------------------------------------------------------------------------- Robert E. Griffin 66 Chairman 12/76 C.W. "Bill" Reed 54 CEO and President 2/94 John R. Wilson 59 Vice President and CFO 12/76
(6) 9 PART II ITEM 5--MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded under the symbol "ESCA" on the Nasdaq National Market. The following table sets forth, for the calendar periods indicated, the high and low sales prices of the Common Stock as reported by the Nasdaq National Market:
PRICES HIGH LOW - ---------------------------------------------------------------------------------------------------------------------------- 2000 First quarter ended March 18, 2000 $17.75 $ 9.75 Second quarter ended July 8, 2000 18.25 14.94 Third quarter ended September 30, 2000 20.31 17.13 Fourth quarter ended December 30, 2000 24.75 18.63 1999 First quarter ended March 20, 1999 $21.00 $17.00 Second quarter ended July 10, 1999 18.00 14.75 Third quarter ended October 2, 1999 18.38 15.63 Fourth quarter ended December 25, 1999 17.63 13.56
The closing market price on March 2, 2001 was $21.56 per share. On February 24, 2000, the Company announced an offer to purchase up to 700,000 shares of its common stock at a price of $14.50 to $18 per share through a Dutch Auction tender offer. Pursuant to such offer, the Company purchased 758,312 shares of its common stock at $18.00 per share. In the fourth quarter of 1998, on December 21, 1998, the Company announced that Escalade's Board of Directors declared a special cash dividend of $1.00 per share to shareholders of record January 8, 1999. The dividend was declared at Escalade's Regular Board Meeting, December 19, 1998. The dividend was paid on January 22, 1999. There were approximately 280 holders of record of the Company's Common Stock at March 2, 2001. The approximate number of stockholders, including those held by depository companies for certain beneficial owners, was 730. (7) 10 ITEM 6--SELECTED FINANCIAL DATA (In thousands, except per share data)
DECEMBER 30, December 25, December 26, December 27, December 28, AT AND FOR YEARS ENDED 2000 1999 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA Net sales Sporting goods $79,948 $52,767 $63,072 $66,666 $74,077 Office and graphic arts products 36,133 33,407 30,486 24,836 19,132 Total net sales 116,081 86,174 93,558 91,502 93,209 Net income 8,100 6,100 6,136 6,361 5,247 Weighted-average shares 2,361 3,038 3,095 3,110 3,850 PER SHARE DATA Basic earnings per share $3.43 $2.01 $1.98 $2.05 $1.36 Cash dividends 0 0 1.00 0 0 BALANCE SHEET DATA Working capital 12,485 14,899 15,763 15,478 13,309 Total assets 69,476 66,850 63,489 66,145 54,430 Short-term bank debt 13,267 11,570 10,100 14,075 13,675 Long-term bank debt 12,700 10,700 6,400 10,700 5,500 Total stockholders' equity 23,960 29,438 26,702 23,501 19,305
(8) 11 ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 2000 COMPARED TO 1999 2000 was an excellent year for the Company. Net sales, net income and basic earnings per share were at an all time high. The Company's successful repurchase of its shares through its Dutch Auction tender offer in the first quarter of 2000 reduced the number of outstanding shares by over 25%. Escalade Sports successfully integrated the acquisition of substantially all of the assets of Zue Corporation, a manufacturer of high quality basketball systems and certain assets of the table tennis business of Lifetime Products, Inc. In February, 2001, Escalade Sports also acquired substantially all of the assets of Accudart Corporation, America's leading name in darts. Escalade Sports is currently experiencing a significant sales growth in its game parlor products, including table tennis, pool and game tables and accessories, and its high quality basketball systems. The game tables and accessories are imported products and are becoming a bigger portion of sporting goods sales. These imports carry lower gross profit margins than many of the products manufactured in the United States. The Company expects the sales of imported products to continue to increase. Martin Yale completed the integration of the acquisition of certain assets of Mead Hatcher and experienced an increase in office and graphic arts products net sales in 2000. However in the fourth quarter there was a reduction in the incoming order rate which is expected to continue into 2001. The Company believes that the overall slowdown in the U.S. economy may be adversely impacting orders for Martin Yale's products. The magnitude of any such impact is uncertain at this time. The Company also expects that Martin Yale will actively explore ways to reduce operating costs during 2001 in order to improve profit margins. The Company has not yet seen any signs that the economy is impacting the Escalade Sports business, although the credit worthiness of customers could be affected in the future. In 2000, net sales increased 34.7%, or $29,907,000 to $116,081,000 from $86,174,000 in 1999. Sporting goods net sales increased by $27,181,000, or 51.5% from $52,767,000 to $79,948,000. 79% of this increase was in game parlor which includes table tennis, pool and game tables and accessories and was due to an increase in units sold. 21% was in high quality basketball systems from the Zue Corporation acquisition. Office and graphic arts products net sales increased by $2,726,000, or 8.2% to $36,133,000 from $33,407,000. Most of this increase was due to the Mead Hatcher acquisition. Cost of sales of $79,320,000 as a percentage of net sales was 68.3% in 2000 as compared to $60,038,000, or 69.7% in 1999. This decrease in cost of sales was in sporting goods and office and graphic arts products and was due to lower factory expense as a percentage of net sales. The two primary reasons for the decreases in factory expense as percentage of the net sales were that while net sales increased 34.7%, factory expenses did not increase as much and secondly, the product mix was different in 2000 than in 1999. In 2000, the Escalade Sports sold more imported products that did not require any manufacturing, which caused the factory expense to sales percentage to decreases. Selling, administrative and general expenses in 2000 were $20,253,000, or 17.5% of net sales as compared to $15,524,000, or 18% in 1999. This decrease in selling, general and administrative expense as a percentage of net sales was in the office and graphic arts products segment. This decrease was due to higher sales volume and not having the Y2K costs in 2000 that were increased in 1999. Interest expense in 2000 was $2,092,000 as compared to $616,000 in 1999, an increase of $1,476,000, or 239.6%. This increase in interest expense was due to higher borrowing levels and higher interest rates. The income tax provision for 2000 was $5,174,000 for an effective rate of 39%. Net income for the year was $8,100,000 as compared to $6,100,000 in 1999. Both segments net income was up over $1,400,000 in 2000 which was offset by increased interest expense at corporate for a net increase of $2,000,000. (9) 12 ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 1999 COMPARED TO 1998 1999 was a year of significant shift in the Company's business strategy by committing to build both the Sporting Goods and Office/Graphic Arts products businesses. In 1998, the Company actively pursued the sale of its Sporting Goods business so that it could focus on building its more profitable Office/Graphic Arts business. In 1999, it was determined that there were no immediate prospects for selling the Sporting Goods business on favorable terms, and as a result, refocused efforts on and regaining momentum in the Sporting Goods business. Evidence of the renewed commitment was Escalade Sports' fourth quarter acquisition of substantially all the assets of Zue Corporation, a manufacturer of upper end basketball systems. In January 2000, Escalade Sports acquired the table tennis assets of Lifetime Corporation. Additionally during 1999, Martin Yale acquired certain assets of Mead-Hatcher, a manufacturer of computer accessories. The 1999 operating income declined due to a variety of factors, including higher than expected Y2K compliance costs at Martin Yale; unusually high variances at Martin Yale due to one-time costs incurred in shifting a product overseas because of competitive pricing pressure and some operational inefficiencies; lower Sporting Goods sales; and product label and warranty expenses in Sporting Goods. In 1999, net sales decreased 7.9%, or $7,384,000 to $86,174,000 from $93,558,000 in 1998. Sporting goods net sales decreased by $10,305,000, or 16.3% from $63,072,000 to $52,767,000. 72% of this decrease was mainly in game parlor which includes table tennis, pool and game tables and accessories and was due to a decrease in units sold. 28% was due to the disposal of Escalade International, Limited. Office and graphic arts products net sales increased by $2,921,000, or 9.6% to $33,407,000 from $30,486,000. Most of this increase was due to the Mead Hatcher acquisition on June 21, 1999. Cost of sales of $60,038,000 as a percentage of net sales was 69.7% in 1999 as compared to $62,626,000, or 66.9% in 1998. This increase in cost of sales was in sporting goods and was mainly due to lower sales volume reducing factory expense absorption and some product labeling and warranty issues. Selling, administrative and general expenses in 1999 were $15,524,000, or 18% of net sales as compared to $17,041,000, or 18.2% in 1998. The decreases in selling, general and administrative expenses in the sporting goods segment totalled $2,574,000 or 31.3% and were offset by increases in the office and graphic arts machines and equipment segment of $1,826,000 or 25.4%. These increases were due to Y2K expenses and catalog allowances. Interest expense in 1999 was $616,000 as compared to $1,118,000 in 1998, a decrease of $502,000, or 55.1%. This decrease in interest expense was due to lower borrowing levels in 1999. The income tax provision for 1999 was $3,542,525 for an effective rate of 36.7%. Net income for the year was $6,100,000 as compared to $6,136,000 in 1998. Lower operating profit in 1999 was offset by lower interest expense, no loss on terminated sporting goods sale and a small gain as opposed to a loss on disposal of Escalade International as compared to 1998. Consequently, the net income levels are similar in both years. (10) 13 LIQUIDITY AND CAPITAL RESOURCES OPERATING ACTIVITIES The Company's net cash provided by operating activities was $11,533,587, $14,908,085 and $8,575,091 in 2000, 1999 and 1998. Inventory management provided (used) cash of $(3,156,221), $1,655,781 and $(10,009) in 2000, 1999 and 1998. Accounts receivable provided (used) cash of $(1,775,023), $5,971,315 and $(561,035) in 2000, 1999 and 1998. INVESTING ACTIVITIES The Company's net cash used by investing activities was $2,266,008, $12,816,722 and $1,399,086 in 2000, 1999 and 1998. The Company used $915,667, $1,104,897 and $1,067,546 in 2000, 1999 and 1998 to purchase property and equipment. In 1999, the Company used $7,969,672 to purchase certain assets of Zue Corporation and $3,481,170 to purchase certain assets of Mead Hatcher. In 2000, the Company used $1,400,000 to purchase certain assets of Lifetime Products. The Company expects that it will continue to explore additional acquisition opportunities. FINANCING ACTIVITIES Net cash used by financing activities in 2000, 1999 and 1998 was $9,876,849, $675,720 and $8,082,003. In 1998, the Company paid $7,800,000 on long-term debt. At year end, the short-term debt had decreased $475,000 from 1997. In 1999, the Company paid $6,000,000 on long-term debt and borrowed $10,000,000 additional long-term debt for acquisitions. In 2000, the Company paid $10,500,000 and borrowed $10,500,000 of long-term debt and also used $13,687,908 to purchase its common stock. The Company's short term working capital requirements are funded by cash flow and a $30,000,000 revolving line of credit used to finance the purchase of trade receivables by the Company's Swiss subsidiary from the Company's manufacturing subsidiaries. The Company utilizes a Borrowing Base formula which defines and identifies eligible accounts receivables in order to calculate the maximum amount that could be borrowed under this revolving line of credit. At December 30, 2000, the maximum amount that could be drawn under this line of credit was $24,004,811 of which $13,267,135 was used. The $30,000,000 revolving line of credit had an initial scheduled maturity date of May 14, 2001, which date can be extended upon the agreement of the parties. The maturity date has been extended until May 13, 2002. Indian-Martin AG's borrowings under this line of credit are not guaranteed by, and are without recourse to, the Company or any of the Company's subsidiaries. This line of credit replaced the Company's prior $12,000,000 short term revolving line of credit. The Company's long term financing requirements are currently funded by a $20,500,000 revolving term loan which expires March 31, 2005. Under the terms of the credit agreement, which was amended in May 2000, the maximum borrowing available to the Company under this revolving term loan is reduced by $4,100,000 on March 31 of each year until the line expires. The May 2000 amendment increased the amount of available borrowing from the prior maximum amount of $10,000,000. The Company uses this revolving term loan from time to time to finance acquisitions, stock buy backs and other material obligations that may arise. The Company believes that future long term funding for acquisitions, stock buy backs or other material obligations deemed appropriate by the Company's Board of Directors is available from similar credit vehicles and/or other financial institutions. The Company declared no cash dividends during 1999 and 2000. On December 21, 1998, the Company announced that Escalade's Board of Directors declared a special cash dividend of $1.00 per share to shareholders of record January 8, 1999. The dividend was declared at Escalade's Regular Board Meeting, December 19, 1998 and was paid on January 22, 1999. EFFECT OF INFLATION The Company cannot accurately determine the precise effects of inflation; however, there were some increases in sales and costs due to inflation in 2000. The Company attempts to pass on increased costs and expenses through price increases when necessary. The Company is working on reducing expense levels, improving manufacturing technologies and redesigning products to keep these costs under control. CAPITAL EXPENDITURES As of December 30, 2000, the Company had no material commitments for capital expenditures. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements relating to present or future trends or factors that are subject to risks and uncertainties. Escalade's future financial performance could differ materially from the expectations of management contained herein. Escalade undertakes no obligation to release revisions to these forward-looking statements after the date of this report. (11) 14 ITEM 7. A.--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data required by Item 8 are set forth in Part IV, Item 14. ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. (12) 15 PART III ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information required under this item with respect to Directors and Executive Officers is contained in the registrant's Proxy Statement relating to its annual meeting of stockholders held on April 28, 2001 under the captions "Certain Beneficial Owners" and "Election of Directors" and is incorporated herein by reference. ITEM 11--EXECUTIVE COMPENSATION Information required under this item is contained in the registrant's Proxy Statement relating to its annual meeting of stockholders held on April 28, 2001 under the caption "Executive Compensation" and is incorporated herein by reference, except that the information required by Items 402(k) and (l) of Regulation S-K which appear within such caption under the sub-headings "Compensation and Stock Option Committees", "Report of Audit Committee" and "Financial Performance" are specifically not incorporated by reference into this Form 10-K or into any other filing by the registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934. In addition, the following table regarding stock option grants made in 2000 to the Company's executive officers in provided in lieu of the analogous table that was included in such proxy statement. The following table shows information concerning individual grants of options to purchase the Company's common stock made in 2000 to the Company's executive officers.
INDIVIDUAL GRANTS IN 2000 Potential Realized Value Percent of at Assumed Annual Rates of Stock Total Options Price Appreciation for Option Term Options Granted To (5) Granted Employees in Exercise Price Expiration ----------------------------------- Name (# Shares) Fiscal Year ($/Share) Date 5% ($) 10% ($) - ---------------------------------------------------------------------------------------------------------------------- Robert E. Griffin 924(1) 5.15% $15.69 4/28/04 4,001(3) 8,852(3) - ---------------------------------------------------------------------------------------------------------------------- C.W. "Bill" Reed 7,500(2) 41.82% $14.50 2/20/05 30,075(4) 66,374(4) 509(1) 2.84% $15.69 4/28/04 2,204(3) 4,876(3) - ---------------------------------------------------------------------------------------------------------------------- John R. Wilson 2,500(2) 13.94% $14.50 2/20/05 10,025(4) 22,125(4) - ----------------------------------------------------------------------------------------------------------------------
(1) Of the options granted pursuant to the Company's 1997 Director Stock Compensation and Option Plan, none are exercisable in the first year and then 100% of the grant becomes exercisable in the second year. Issued at market price on day of grant. (2) Of the options granted pursuant to the Company's 1997 Incentive Stock Plan, none are exercisable in the first year and then 25% of the grant become exercisable in each of the next four years. Issued at market price on day of grant. (3) Calculated based upon assumed stock prices for the Company's common stock of $20.02 and $25.27, respectively, if 5% and 10% annual rates of stock appreciation are achieved over the full term of the option. (4) Calculated based upon assumed stock prices for the Company's common stock of $18.51 and $ 23.35, respectively, if 5% and 10% annual rates of stock appreciation are achieved over the full term of the option. (5) The potential realizable gain equals the product of the number of shares underlying the stock option grant and the difference between the assumed stock price and the exercise price of each option. ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this item is contained in the Registrant's Proxy Statement relating to its annual meeting of stockholders held on April 28, 2001 under the caption "Certain Beneficial Owners" and is incorporated herein by reference. ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None. (13) 16 PART IV ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Documents filed as a part of this report: (1) FINANCIAL STATEMENTS Independent Auditor's Report Consolidated financial statements of Escalade, Incorporated and subsidiaries: Consolidated balance sheet--December 30, 2000 and December 25, 1999 Consolidated statement of income--fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998 Consolidated statement of stockholders' equity--fiscal years ended December 30 2000, December 25, 1999 and December 26, 1998 Consolidated statement of cash flows--fiscal years ended December 30, 2000, December 25, 1999 and December 26, 1998 Notes to consolidated financial statements (2) FINANCIAL STATEMENT SCHEDULES Independent Auditor's Report on financial statement schedule For the three-year period ended December 30, 2000: Schedule II--Valuation and qualifying accounts All other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto. (3) EXHIBITS 3.1 Articles of incorporation of Escalade, Incorporated (a) 3.2 By-Laws of Escalade, Incorporated (a) 4.1 Form of Escalade, Incorporated's common stock certificate (a) 10.1 Licensing agreement between Sweden Table Tennis AB and Indian Industries, Inc. dated January 1, 1995 (e) 10.2 Federal trademark registration 283,766 for Ping-Pong(R) bats and rackets (a) 10.3 Federal trademark registration 283,767 for Ping-Pong(R) balls (a) 10.4 Federal trademark registration 294,408 for Ping-Pong(R) tables and parts (a) 10.5 Federal trademark registration 520,270 for Ping-Pong(R) game (a) 10.6 Federal trademark registration 1,003,289 for Mr. Table Tennis(R) table tennis equipment (a) 10.7 Federal trademark registration 1,187,832 for Harvard(R)table tennis equipment (a) 10.8 Federal trademark registration 1,442,274 for Mini Court(R)(a) 10.9 Federal trademark registration 1,292,167 for Premier(R)table tennis tables and accessories (a) 10.10 Federal trademark registration 1,456,647 for Mini Pool(R)(a)
(14) 17 (3) EXHIBITS (continued) 10.11 Trademark Assignment--Federal trademark registration 1,348,890 for Sandmar(R)office machines (b) 10.12 Agreement dated May 1, 2000 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 (h) 10.13 Tenth Amendment to Credit Agreement dated May 31, 1996 between Escalade, Incorporated and Bank One, Indianapolis, National Association dated May 15, 2000 (h) 10.14 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 (h) 10.15 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 (h) 10.16 Pledge Agreement dated as of May 15, 2000 by Indian-Martin AG in favor of Bank One, Indiana, National Association (h) 10.17 Collateral Agreement and Security Agreement dated as of May 15, 2000 by Indian-Martin AG in favor of Bank One, Indiana, National Association (h) 10.18 Receivables Purchase Agreement dated as of May 15, 2000 between Indian-Martin AG and Indian Industries, Inc. 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 (h) 10.19 Services Agreement dated as of May 15, 2000 between Indian-Martin AG and Indian Industries, Inc. 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 (h) 10.20 Subordinated Promissory Note dated as of May 15, 2000 in principal amount of $5,086,501 executed by Indian Industries, Inc. in favor of Indian-Martin AG. 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, $3,130,191 and $3,593,149 (h) 10.21 Standby and Subordination Agreement dated as of May 15, 2000 among Bank One, Indiana, National Association, Indian-Martin AG and Indian Industries, Inc. 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 (h) 10.22 Promissory Note dated as of May 15, 2000 in principal amount of $13,153,045 executed by Escalade, Incorporated in favor of Indian-Martin AG (h) 10.23 Escalade Subordination Agreement dated as of May 15, 2000 between Escalade, Incorporated and Bank One, Indiana, National Association (h) 10.24 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. (h) 10.25 Loan Agreement dated September 1, 1998 between Martin Yale Industries, Inc. and City of Wabash, Indiana (g)
(15) 18 (3) EXHIBITS (continued) 10.26 Trust Indenture between the City of Wabash, Indiana and Bank One Trust Company, NA as Trustee dated September 1, 1998 relating to the Adjustable Rate Economic Development Revenue Refunding Bonds, Series 1998 (Martin Yale Industries, Inc. Project) (g) 10.27 Real Estate Sales Contract dated September 17, 1990 between Martin Yale Industries, Inc. and Fritkin-Jones Design Group, Inc. (c) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 10.28 The Harvard Sports/Indian Industries, Inc. 401(k) Plan as amended and merged in 1993 (d) 10.29 Martin Yale Industries, Inc. 401(k) Retirement Plan as amended in 1993 (d) 10.30 Incentive Compensation Plan for Escalade, Incorporated and its subsidiaries (a) 10.31 Example of contributory deferred compensation agreement between Escalade, Incorporated and certain management employees allowing for deferral of compensation (a) 10.32 1997 Director Stock Compensation and Option Plan (f) 10.33 1997 Incentive Stock Option Plan (f) ************* 21 Subsidiaries of the Registrant ************* 23 Consent of Olive LLP
(16) 19 (a) 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 (b) Incorporated by reference from the Company's 1988 Annual Report on Form 10-K (c) Incorporated by reference from the Company's 1990 Annual Report on Form 10-K (d) Incorporated by reference from the Company's 1993 Annual Report on Form 10-K (e) Incorporated by reference from the Company's 1995 Annual Report on Form 10-K (f) Incorporated by reference from the Company's 1997 Proxy Statement (g) Incorporated by reference from the Company's 1998 Third Quarter Report on Form 10-Q (h) Incorporated references from the Company's 2000 Second Quarter Report of Form 10-Q (B) No reports on Form 8-K for the fourth quarter ended December 30, 2000 were required to be filed.
(17) 20 OLIVE INDEPENDENT AUDITOR'S REPORT To the Stockholders and Board of Directors Escalade, Incorporated Evansville, Indiana We have audited the accompanying consolidated balance sheet of Escalade, Incorporated and subsidiaries as of December 30, 2000 and December 25, 1999 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 30, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Escalade, Incorporated and subsidiaries at December 30, 2000 and December 25, 1999 and the results of their operations and their cash flows for each of the three years in the period ended December 30, 2000 in conformity with generally accepted accounting principles. OLIVE LLP Evansville, Indiana February 2, 2001 (F-1) 21 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
DECEMBER 30 AND DECEMBER 25 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 1,146,771 $ 1,756,041 Receivables, less allowances of $611,052 and 761,363 26,406,471 24,772,584 Inventories 15,588,575 12,432,354 Prepaid expenses 136,853 126,305 Deferred income tax benefit 824,095 1,248,270 -------------------------------------------- Total current assets 44,102,765 40,335,554 Property, plant and equipment 9,055,992 9,390,022 Other assets 5,417,956 5,395,678 Goodwill, net of accumulated amortization of $1,914,305 and $1,084,630 10,899,032 11,728,707 -------------------------------------------- $69,475,745 $66,849,961 ============================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Notes payable--bank $13,267,135 $ 9,569,672 Current portion of long-term debt 2,000,000 Trade accounts payable 2,093,151 2,967,276 Accrued liabilities 14,281,958 9,590,171 Income tax payable 1,975,352 1,309,493 -------------------------------------------- Total current liabilities 31,617,596 25,436,612 -------------------------------------------- Other liabilities Long-term debt 12,700,000 10,700,000 Deferred compensation 1,198,125 1,275,345 -------------------------------------------- 13,898,125 11,975,345 -------------------------------------------- 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--2,165,862 and 2,918,178 shares 2,165,862 2,918,178 Retained earnings 21,597,413 26,318,825 Accumulated other comprehensive income 196,749 201,001 -------------------------------------------- 23,960,024 29,438,004 -------------------------------------------- $69,475,745 $66,849,961 ============================================
See notes to consolidated financial statements. (F-2) 22 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
YEARS ENDED DECEMBER 30, DECEMBER 25 AND DECEMBER 26 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------- Net Sales $116,081,388 $86,174,390 $93,557,971 ------------------------------------------------------------ Costs, Expenses and Other Income Cost of products sold 79,319,747 60,037,740 62,626,061 Selling, administrative and general expenses 20,253,094 15,524,377 17,041,492 Loss on terminated sporting goods sale 427,315 Amortization of goodwill 829,675 469,121 398,286 Interest 2,092,438 615,564 1,117,851 Loss on disposal of assets 25,651 64,287 207,687 Other (income) expense 286,479 (75,773) (410,252) (Gain) loss on disposal of Escalade International (103,387) 1,222,279 ------------------------------------------------------------ 102,807,084 76,531,929 82,630,719 ------------------------------------------------------------ Income Before Income Taxes 13,274,304 9,642,461 10,927,252 Provision for Income Taxes 5,173,720 3,542,525 4,791,463 ------------------------------------------------------------ NET INCOME $ 8,100,584 $ 6,099,936 $ 6,135,789 ============================================================ Per Share Data Basic earnings per share $3.43 $2.01 $1.98 ============================================================ Diluted earnings per share $3.42 $2.00 $1.97 ============================================================
See notes to consolidated financial statements. (F-3) 23 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK -------------------------- ACCUMULATED OTHER COMPREHENSIVE RETAINED COMPREHENSIVE SHARES AMOUNT INCOME EARNINGS INCOME TOTAL ---------------------------------------------------------------------------------------- BALANCES AT DECEMBER 28, 1997 3,050,691 $5,879,827 $17,373,846 $246,992 $23,500,665 Comprehensive income Net income $6,135,789 6,135,789 6,135,789 Unrealized losses on securities, net of tax (5,567) (5,567) (5,567) ------------------- Comprehensive income $6,130,222 =================== Stock issued under the Director Stock Option Plan 6,638 65,550 65,550 Exercise of stock options 51,279 341,216 341,216 Purchase of stock (11,251) (213,769) (213,769) Payment of dividend (3,121,718) (3,121,718) -------------------------- --------------------------------------------- BALANCES AT DECEMBER 26, 1998 3,097,357 6,072,824 20,387,917 241,425 26,702,166 Comprehensive income Net income $6,099,936 6,099,936 6,099,936 Unrealized losses on securities, net of tax (40,424) (40,424) (40,424) ------------------- Comprehensive income $6,059,512 =================== Exercise of stock options 25,768 189,958 189,958 Stock issued under the Director Stock Option Plan 4,256 89,376 89,376 Purchase of stock (209,203) (3,433,980) (169,028) (3,603,008) -------------------------- --------------------------------------------- BALANCES AT DECEMBER 25, 1999 2,918,178 2,918,178 26,318,825 201,001 29,438,004 Comprehensive income Net income $8,100,584 8,100,584 8,100,584 Unrealized losses on securities, net of tax (4,252) (4,252) (4,252) ------------------- Comprehensive income $8,096,332 =================== Exercise of stock options 1,743 1,743 15,469 17,212 Stock issued under the Director Stock Option Plan 6,144 6,144 90,240 96,384 Purchase of stock (760,203) (760,203) (12,927,705) (13,687,908) -------------------------- --------------------------------------------- BALANCES AT DECEMBER 30, 2000 2,165,862 $2,165,862 $21,597,413 $196,749 $23,960,024 ========================== =============================================
See notes to consolidated financial statements. (F-4) 24 ESCALADE, INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 30, DECEMBER 25 AND DECEMBER 26 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 8,100,584 $ 6,099,936 $6,135,789 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 3,178,721 2,757,986 2,796,004 Provision for doubtful accounts 141,136 577,150 371,672 Deferred income taxes (285,590) (591,379) (153,633) Provision for deferred compensation 109,972 109,376 99,996 Deferred compensation paid (187,192) Loss on disposals of assets 25,651 64,287 207,687 Changes in Accounts receivable (1,775,023) 5,971,315 (561,035) Inventories (3,156,221) 1,655,781 (10,009) Prepaids (10,548) 3,430 106,765 Other assets 933,576 (377,312) 33,362 Income tax payable 665,859 (14,923) (225,584) Accounts payable and accrued expenses 3,792,662 (1,347,562) (225,923) ----------------------------------------------------- Net cash provided by operating activities 11,533,587 14,908,085 8,575,091 ----------------------------------------------------- INVESTING ACTIVITIES Premiums paid for life insurance (150,000) (150,000) (297,000) Change in cash surrender value, net of loans and premiums 267,129 (36,186) 30,510 Purchase of property and equipment (915,667) (1,104,897) (1,067,596) Purchase of long-term investments (67,470) (74,797) (65,000) Purchase of certain Lifetime Products assets (1,400,000) Purchase of certain Zue Corporation assets (7,969,672) Purchase of certain Mead Hatcher assets (3,481,170) ----------------------------------------------------- Net cash used by investing activities (2,266,008) (12,816,722) (1,399,086) ----------------------------------------------------- FINANCING ACTIVITIES Net increase (decrease) in notes payable--bank 3,697,463 1,769,672 (475,000) Proceeds from exercise of stock options 113,596 279,334 406,766 Reduction of long-term debt (10,500,000) (6,000,000) (7,800,000) Purchase of stock (13,687,908) (3,603,008) (213,769) Proceeds from long-term debt 10,500,000 10,000,000 Cash dividends paid (3,121,718) ----------------------------------------------------- Net cash used by financing activities (9,876,849) (675,720) (8,082,003) ----------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (609,270) 1,415,643 (905,998) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,756,041 340,398 1,246,396 ----------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,146,771 $ 1,756,041 $ 340,398 ===================================================== SUPPLEMENTAL CASH FLOWS INFORMATION Interest paid $ 2,067,494 $ 627,904 $1,120,229 Income taxes paid, net 3,190,000 4,256,320 4,775,283 Fixed assets in accounts payable 25,000 31,954
See notes to consolidated financial statements. (F-5) 25 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Escalade, Incorporated (Company) is primarily engaged in the manufacture and sale of sporting goods and office and graphic arts products. The Company is located in Evansville, Indiana and has five manufacturing facilities, one in Evansville, Indiana; Wabash, Indiana and Los Angeles, California and two in Tijuana, Mexico. The Company sells products to customers throughout the United States and provides foreign shipments of sporting goods through a foreign sales corporation. The consolidated financial statements include the accounts of all significant subsidiaries. Intercompany transactions have been eliminated. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of bank deposits in federally insured accounts. For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments; if any, purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost or market. Cost is based on the first-in, first-out (FIFO) method. INVESTMENTS The Company has long-term marketable equity securities, which are included in other assets on the consolidated balance sheet and are recorded at fair value with unrealized gains and losses reported, net of tax, in accumulated other comprehensive income. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Depreciation and amortization are computed by the straight-line and double declining balance methods. The estimated useful lives used in computing depreciation are as follows:
YEARS - ---------------------------------------------------------------------------------------------------------------------------- Buildings 20-30 Leasehold improvements 4-8 Machinery and equipment 5-15 Tooling, dies and molds 2-4
The cost of maintenance and repairs are charged to income as incurred; significant renewals and improvements are capitalized. When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and the resulting gains or losses are recognized in income for the period. (F-6) 26 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS FINANCIAL INSTRUMENTS The carrying values of all of the Company's financial instruments approximate their fair values. EARNINGS PER SHARE Earnings per share have been computed based upon the weighted average-common shares outstanding during each year. FISCAL YEAR END The Company's fiscal year ends on the Saturday nearest December 31, within the calendar year. BAD DEBTS The Company uses the reserve method of accounting for bad debts on receivables. PRODUCT WARRANTY The Company provides for the estimated cost of its warranty obligations at the time of the sale. EMPLOYEE BENEFITS The Company has an employee profit-sharing salary reduction plan, pursuant to the provisions of Section 401(k) of the Internal Revenue Code, for non-union employees. It is the Company's policy to fund costs accrued on a current basis. INCOME TAXES Income tax in the consolidated statement of income includes deferred income tax provisions or benefits for all significant temporary differences in recognizing income and expenses for financial reporting and income tax purposes. RESEARCH AND DEVELOPMENT Research and development costs are charged to expense as incurred. The research and development costs incurred during 2000, 1999 and 1998 were approximately $1,700,000, $1,450,000 and $1,500,000. INTANGIBLE ASSETS The Company has various intangible assets including consulting and noncompetition agreements and goodwill. Amortization is computed using the straight-line method over the following lives:
YEARS - ---------------------------------------------------------------------------------------------------------------------------- Consulting agreements 1 Non-compete agreements 5 Goodwill 15
REVENUE RECOGNITION Revenue from the sale of the Company's products is recognized as products are shipped to customers. SELF INSURANCE The Company has elected to act as a self-insurer for certain costs related to employee health and accident benefit programs. Costs resulting from non-insured losses are charged to income when incurred. The Company has purchased insurance which limits its exposure for individual claims and which limits its aggregate exposure to $1,100,000. (F-7) 27 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 2 -- INVENTORIES Inventories consist of the following:
DECEMBER 30 AND DECEMBER 25 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Finished products $ 6,970,249 $ 5,184,896 Work in process 3,747,427 3,183,855 Raw materials and supplies 4,870,899 4,063,603 -------------------------------------------- $15,588,575 $12,432,354 ============================================
NOTE 3 -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
DECEMBER 30 AND DECEMBER 25 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Land $ 712,705 $ 712,705 Buildings and leasehold improvements 10,381,117 10,387,479 Machinery and equipment 23,039,234 22,416,055 -------------------------------------------- Total cost 34,133,056 33,516,239 Accumulated depreciation and amortization (25,077,064) (24,126,217) -------------------------------------------- $ 9,055,992 $ 9,390,022 ============================================
NOTE 4 -- LINE OF CREDIT The Company's directly owned subsidiary, Indian-Martin AG, has a revolving line of credit under which it will borrow funds from time to time to purchase eligible accounts receivable from Escalade's operating subsidiaries which accounts are and will be pledged to secure those borrowings. At December 30, 2000, this line of credit aggregated $30,000,000, of which $13,267,135 was borrowed. The interest rate on the line of credit is at the Bank One Indianapolis, N.A. prime rate minus 1.25%. A LIBOR option is also available for the interest rate. At December 31, 2000, $12,000,000 of this line of credit was at a LIBOR option rate of 8.15125%. (F-8) 28 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 5 -- LONG-TERM DEBT
DECEMBER 30 AND DECEMBER 25 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Mortgage payable (Wabash, Indiana Adjustable Rate Economic Development Revenue Refunding Bonds), annual installments are optional, interest varies with short-term rates and is adjustable weekly based on market conditions, maximum rate is 10.00%, current rate is 4.85%, due September 2028, secured by plant facility, machinery and equipment, and letter of credit $ 2,700,000 $ 2,700,000 Revolving term loan of $20,500,000, the amount available under this revolving term loan shall reduce by $4,100,000 annually starting March 31, 2001. Interest varies from prime to London Interbank Offered Rate (LIBOR) plus 1.50%, unsecured 10,000,000 10,000,000 -------------------------------------------- 12,700,000 12,700,000 Portion classified as current (2,000,000) -------------------------------------------- $12,700,000 $10,700,000 ============================================
Maturities of long-term indebtedness for the ensuing five years are: 2001, 0; 2002, $0; 2003, $1,800,000; 2004, $4,100,000; 2005, $4,100,000 and thereafter, $2,700,000. The mortgages payable and term loan agreements contain certain restrictive covenants, of which the more significant include maintenance of specified net worth and maintenance of specified ranges of debt service and leverage ratios. NOTE 6 -- INVESTMENTS
GROSS APPROXIMATE AMORTIZED UNREALIZED MARKET COST GAINS VALUE ----------------------------------------------------- DECEMBER 30, 2000 Available for sale Marketable equity securities (included in other assets) $1,084,628 $327,915 $1,412,543 ===================================================== DECEMBER 25, 1999 Available for sale Marketable equity securities (included in other assets) $912,013 $335,001 $1,247,014 =====================================================
(F-9) 29 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 7 -- STOCK OPTIONS There were no options outstanding at year end from the 1984 Stock Option Plan (Plan). The date for granting options under this Plan expired on October 26,1994 and the date for exercising options expired on September 26, 1999. At the Company's 1997 annual meeting, the stockholders approved two new Stock Option Plans reserving 300,000 common shares for issuance under an Incentive Stock Option Plan (ISO) and 100,000 common shares for issuance under a Director Stock Option Plan (DSO). During 2000, 1999 and 1998, there were 16,500, 37,000 and 19,250 options granted under the ISO and there were 88,261, 74,786 and 67,131 options outstanding at each respective year end under this plan. During 2000, 1999 and 1998, there were 3,072, 2,128 and 3,319 options granted and 8,026, 5,447 and 3,319 options outstanding at each respective year end under the DSO. Under the Company's ISO, which is accounted for in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations, the Company grants selected executives and other key employees stock option awards which vest over four years of continued employment. The exercise price of each option, which has a five-year life, was equal to the market price of the Company's stock on the date of grant; therefore, no compensation expense was recognized. Options are exercisable commencing one year from the date of issuance to the extent vested. Although the Company has elected to follow APB Opinion No. 25, Statement of Financial Accounting Standards (SFAS) No. 123 requires pro forma disclosures of net income and earnings per share as if the Company had accounted for its employee stock options under that statement. The fair value of each option grant was estimated on the grant date using an option pricing model with the following assumptions:
2000 1999 1998 ----------------------------------------------------- Risk-free interest rates 6.26% 5.00% 4.75% Dividend yields 0% 0% 0% Volatility factors of expected market price of common stock 45% 36% 51% Weighted average expected life of the options 5 YEARS 5 years 5 years
Under SFAS No. 123, compensation cost is recognized in the amount of the estimated fair value of the options and amortized to expense over the options' vesting period. The pro forma effect on net income and earnings per share of this statement is as follows:
2000 1999 1998 ---------------------------------------------------- Net income As reported $8,100,584 $6,099,936 $6,135,789 Pro forma 7,963,644 5,982,255 6,076,755 Basic earnings per share As reported $3.43 $2.01 $1.98 Pro forma 3.37 1.97 1.96 Diluted earnings per share As reported $3.42 $2.00 $1.97 Pro forma 3.36 1.97 1.95
(F-10) 30 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS Stock option transactions are summarized as follows:
2000 1999 1998 ------------------------------------------------------------------------------------------- OPTION Option Option SHARES PRICE Shares Price Shares Price ------------------------------------------------------------------------------------------- Outstanding at beginning $9.88 TO $5.50 to $6.30 to of year 80,233 21.00 70,450 18.75 101,821 9.88 $14.50 TO $17.69 to $9.88 to Issued during year 19,572 15.69 39,128 21.00 22,569 18.75 Canceled or expired (1,650) (3,577) (2,661) $5.50 to $3.26 to Exercised during year (1,868) $9.88 (25,768) 9.88 (51,279) 9.88 ------------------------------------------------------------------------------------------- $9.88 TO $9.88 to $5.50 to 21.00 21.00 18.75 Outstanding at end of year 96,287 80,233 70,450 ================ ================ ================ Exercisable at end of year 35,505 16,890 30,297 ================ ================ ================ Weighted-average fair value of options granted during the year $7.57 $7.10 $9.83 ================ ================ ================
The following table summarizes information about fixed stock options outstanding at December 30, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ---------------------------------------------------------------------------------------------------------------------------- NUMBER WEIGHTED-AVERAGE NUMBER RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE EXERCISE PRICES AT 12/30/00 CONTRACTUAL LIFE EXERCISE PRICE AT 12/30/00 EXERCISE PRICE - ---------------------------------------------------------------------------------------------------------------------------- $ 9.88 20,737 1.6 years $ 9.88 15,452 $ 9.88 18.75 17,850 2.2 18.75 8,925 18.75 17.69 36,000 3.2 17.69 9,000 17.69 21.00 2,128 2.3 21.00 2,128 21.00 14.50 16,500 4.2 14.50 14.50 15.69 3,072 3.3 15.69 15.69 ------------------ -------------------- $9.88 to 21.00 96,287 35,505 ================== ====================
The incentive stock options granted in 2000 and 1999 are exercisable at the rate of 25% over each of the four years beginning in 2001 and 2000. 3,072 Director Stock Options were issued during the year 2000 at an option price of $15.69 and can be exercised after April 29, 2001 with an expiration date of April 28, 2004. (F-11) 31 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 8 -- STOCKHOLDERS' EQUITY TRANSACTIONS During 2000, the Company conducted a Dutch Auction self-tender offer whereby it purchased 758,312 shares of its common stock at $18.00 per share. The Company paid no cash dividends during 1999 and 2000. On December 21, 1998, the Company announced that Escalade's Board of Directors declared a special cash dividend of $1.00 per share to shareholders of record January 8, 1999. The dividend was declared at Escalade's Regular Board Meeting, December 19, 1998. The dividend was paid on January 22, 1999. NOTE 9 -- EARNINGS PER SHARE Earnings per share (EPS) were computed as follows:
WEIGHTED- PER AVERAGE SHARE YEAR ENDED DECEMBER 30, 2000 INCOME SHARES AMOUNT - ---------------------------------------------------------------------------------------------------------------------------- Net Income $8,100,584 ------------------ Basic Earnings per Share Income available to common stockholders 8,100,584 2,360,904 $3.43 ================== Effect of Dilutive Securities Stock options 10,183 ------------------------------------ Diluted Earnings Per Share Income available to common stockholders and assumed conversions $8,100,584 2,371,087 $3.42 ===================================================== YEAR ENDED DECEMBER 25, 1999 Net Income $6,099,936 ------------------ Basic Earnings per Share Income available to common stockholders 6,099,936 3,038,282 $2.01 ================== Effect of Dilutive Securities Stock options 5,180 ------------------------------------ Diluted Earnings Per Share Income available to common stockholders and assumed conversions $6,099,936 3,043,462 $2.00 ===================================================== YEAR ENDED DECEMBER 26, 1998 Net Income $6,135,789 ------------------ Basic Earnings per Share Income available to common stockholders 6,135,789 3,094,638 $1.98 ================== Effect of Dilutive Securities Stock options 18,741 ------------------------------------ Diluted Earnings Per Share Income available to common stockholders and assumed conversions $6,135,789 3,113,379 $1.97 =====================================================
(F-12) 32 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 10 -- OPERATING LEASES The Company leases warehousing and office space at its National City, California facilities and the term of the lease is five years. The lease rate ranges from $223,736 in year one to $272,971 in year five. The Company also shares in common area expenses not to exceed 8(cent) per sq. ft. per month. The lease expires January 31, 2006. The Company leases warehousing space next to its Evansville facility for $18,142 per month. The lease expires on October 31, 2002. The Company has two two-year renewal options followed by two five-year renewal options. The Company leases manufacturing space in Tijuana, Mexico for its office products operations for $67,128 per year. The lease expires on July 31, 2002. The Company leases additional space in Tijuana, Mexico for its sporting goods operations for $45,802 per year. The lease term is month-to-month. At December 30, 2000, the minimum rental payments under noncancelable leases with terms of more than one year are as follows:
YEARS ENDING AMOUNT - ---------------------------------------------------------------------------------------------------------------------------- 2001 $ 508,568 2002 447,983 2003 249,440 2004 288,918 2005 272,971 ------------------ $1,767,880 ==================
The following schedule shows the composition of total rental expense for operating leases except those with terms of a month or less:
2000 1999 1998 ----------------------------------------------------- Rentals $441,601 $448,516 $469,650 =====================================================
(F-13) 33 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 11 -- INCOME TAXES Provision for income taxes consists of the following: YEARS ENDED DECEMBER 30, DECEMBER 25 AND
YEARS ENDED DECEMBER 30, DECEMBER 25 AND DECEMBER 26 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- Current Federal $4,456,013 $3,255,081 $3,888,985 State 855,217 878,823 1,056,111 International 148,080 ----------------------------------------------------- 5,459,310 4,133,904 4,945,096 ----------------------------------------------------- Deferred Federal (226,759) (497,779) (121,668) State (58,831) (93,600) (31,965) ----------------------------------------------------- (285,590) (591,379) (153,633) ----------------------------------------------------- $5,173,720 $3,542,525 $4,791,463 =====================================================
The provision for income taxes was computed based on financial statement income. A reconciliation of the provision for income taxes to the amount computed using the statutory rate follows:
YEARS ENDED DECEMBER 30, DECEMBER 25 AND DECEMBER 26 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- Income tax at statutory rate $4,513,263 $3,278,437 $3,715,266 Increase (decrease) in income tax resulting from Recurring permanent differences (goodwill amortization, dividend exclusion and non- deductible officers' life insurance expense) 188,314 55,662 (76,770) State tax expense, net of federal effect 525,615 518,247 675,936 Benefit of foreign subsidiary loss not recognized 558,280 International taxes 148,080 Foreign tax credit (148,080) Other (53,472) (309,821) (81,249) ----------------------------------------------------- Provision for income taxes recorded $5,173,720 $3,542,525 $4,791,463 =====================================================
At December 30, 2000, a cumulative deferred tax asset of $1,806,386 is included in current assets and other assets. At December 25, 1999, a cumulative deferred tax asset of $1,520,796 is included in current assets and other liabilities. (F-14) 34 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The components of the net deferred tax asset are as follows:
DECEMBER 30 AND DECEMBER 25 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- ASSETS Employee benefits $ 841,765 $ 584,559 Valuation reserves 550,603 681,472 Goodwill and intangible assets 172,903 94,352 Deferred compensation 442,294 480,490 ------------------------------------ Total assets 2,007,565 1,840,873 ------------------------------------ LIABILITIES Depreciation (70,012) (186,076) Unrealized gain on securities available for sale (131,167) (134,001) ------------------------------------ Total liabilities (201,179) (320,077) ------------------------------------ $1,806,386 $1,520,796 ====================================
NOTE 12 -- EMPLOYEE BENEFIT PLANS The Company has an employee profit-sharing salary reduction plan, pursuant to the provisions of Section 401(k) of the Internal Revenue Code, for non-union employees. The Company's contribution is a matching percentage of the employee contribution as determined by the Board of Directors annually. The Company's expense for the plan was $403,235, $273,763 and $316,155 for 2000, 1999 and 1998. NOTE 13 -- VOLUNTARY EMPLOYEE BENEFITS ASSOCIATION TRUST (VEBA) The Company established a VEBA as a tax-exempt organization to provide life, medical, disability and other similar welfare benefits permitted pursuant to Internal Revenue Code Section 501(c)(9) for its employees. (F-15) 35 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 14 -- SEGMENT INFORMATION AND CONCENTRATIONS
YEARS ENDED DECEMBER 30, DECEMBER 25 AND DECEMBER 26 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- (In Thousands) Sales to unaffiliated customers Sporting goods $ 79,948 $52,767 $63,072 Office and graphic arts products 36,133 33,407 30,486 ----------------------------------------------------- Total consolidated $116,081 $86,174 $93,558 ===================================================== SEGMENT PROFIT Sporting goods $ 3,520 $ 2,098 $ 2,418 Office and graphic arts products 5,022 3,534 3,671 Corporate (442) 470 47 ----------------------------------------------------- Total consolidated 8,100 6,100 6,136 ===================================================== INTEREST EXPENSE Sporting goods $ 890 $ 34 $ 225 Office and graphic arts products 55 222 302 Corporate 1,147 360 591 ----------------------------------------------------- Total consolidated $ 2,092 $ 616 $ 1,118 ===================================================== LOSS ON DISPOSAL OF ASSETS Sporting goods $ 20 $ 10 Office and graphic arts products 6 64 196 ----------------------------------------------------- Total consolidated $ 26 $ 64 $ 208 ===================================================== LOSS ON TERMINATED SPORTING GOODS SALE Corporate $ 427 ----------------------------------------------------- Total consolidated $ 427 ===================================================== (GAIN) LOSS ON DISPOSAL OF ESCALADE INTERNATIONAL Corporate $ (103) $ 1,222 ----------------------------------------------------- Total consolidated $ (103) $ 1,222 ===================================================== Identifiable assets Sporting goods $41,119 $37,208 $39,819 Office and graphic arts products 22,892 23,971 20,770 Corporate 5,465 5,671 2,900 ----------------------------------------------------- Total assets $69,476 $66,850 $63,489 ===================================================== Depreciation and amortization (including goodwill) Sporting goods $ 1,715 $ 1,154 $ 1,207 Office and graphic arts products 1,464 1,604 1,589 ----------------------------------------------------- Total consolidated $ 3,179 $ 2,758 $ 2,796 ===================================================== Capital expenditures Sporting goods $ 754 $ 862 $ 699 Office and graphic arts products 187 276 372 ----------------------------------------------------- $ 941 $ 1,138 $ 1,071 =====================================================
(F-16) 36 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS The Company operates principally in two industries, sporting goods and office and graphic arts products. The Company sells its products primarily to retailers and wholesalers located throughout the United States. Operations in the sporting goods industry consist of production and sale of table tennis tables and accessories, archery equipment, home pool tables and accessories, combination bumper pool and card tables, game tables, basketball backboards, goals, poles and portables, darts and dart cabinets. Operations in the office and graphic arts products industry consist of production and sale of paper trimmers, paper folding machines, paper drills, collators, decollators, bursting machines, letter openers, paper joggers, checksigners, stamp affixers, paper shredders, paper punches, paper cutters, catalog rack systems, bindery carts, business card slitters, thermography machines, keyboard drawers, computer storage, copyholders, media retention systems, posting trays and related accessories. Identifiable assets are principally those assets used in each industry. Corporate assets are principally cash and cash equivalents, deferred taxes, marketable equity securities and the cash surrender value of life insurance. In 2000, 1999 and 1998, approximately 45% (31% of consolidated sales), 46% (28% of consolidated sales) and 38% (25% of consolidated sales) of the sporting goods were sold to Sears, Roebuck & Co. At December 30, 2000 and December 25, 1999, accounts receivable included $11,323,174 and $9,117,867 due from Sears, Roebuck & Co. Approximately 30% of the Company's labor force is covered by a collective bargaining agreement. Management acknowledges that there usually will be differences between Company offers and union demands during negotiations. However, management has no reason to expect such differences to result in protracted conflict. The current contract expires on April 27, 2003. Consolidated assets include approximately $2.4 million of assets located in the United Kingdom and Mexico and $27.7 million of assets located in Switzerland. (F-17) 37 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 15 -- CERTAIN SIGNIFICANT ESTIMATES Management's estimates that influence the financial statements are normally based on knowledge and experience about past and current events and assumptions about future events. The following estimates affecting the financial statements are particularly sensitive because of their significance, and it is at least reasonably possible that a change in these estimates will occur in the near term: Product warranty reserves--based on an analysis of customers' product return histories, current status, sales volume and management's expectations from new products introduced into the market. Customer allowance reserves--based on agreements for customer purchase rebates and shared advertising, and prior year's shipments. Inventory valuation reserves--based on estimates of costs of inventory amounts overstocked or obsolete in excess of realizable value. NOTE 16 -- ADDITIONAL INFORMATION
DECEMBER 30 AND DECEMBER 25 2000 1999 - ---------------------------------------------------------------------------------------------------------------------------- Accrued Liabilities Employees' compensation $ 4,563,533 $2,478,862 Payroll taxes and taxes withheld from employees' compensation 309,488 191,926 Taxes other than taxes on income 396,674 342,960 Accrued interest 173,694 129,950 Customer volume discounts payable 7,178,735 5,193,302 Other accrued items 1,659,834 1,253,171 -------------------------------------------- $14,281,958 $9,590,171 ============================================
NOTE 17 -- DEFERRED COMPENSATION PLAN In October 1985, the Board of Directors approved the adoption of a Contributory Deferred Compensation Plan pursuant to which some recipients of incentive compensation could elect to defer receipt thereof. For each dollar of deferred compensation, the Company provided a 75% matching amount. Amounts deferred earn interest at the rate of 9%. Such amounts are not intended to be recognized for tax purposes until receipt. All deferrals allowed under this plan have been made. Participants have no vested rights in deferred amounts credited to their accounts and are general creditors of the Company until such amounts are actually paid. (F-18) 38 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 18 -- COMMITMENTS AND CONTINGENCIES At December 30, 2000, standby letters of credit aggregated $50,000. Additionally, the Company has obtained a letter of credit for the benefit of the mortgage holders. At December 30, 2000, the balance of the letter of credit was $2,733,750. It is to be used in the event of a default in either interest or principal payments. The Company is involved in litigation arising in the normal course of its business. The Company does not believe that the disposition or ultimate resolution of existing claims or lawsuits will have a material adverse effect on the business or financial condition of the Company. NOTE 19 -- SUMMARY OF QUARTERLY RESULTS
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) MARCH 18 JULY 8 SEPTEMBER 30 DECEMBER 30 -------------------------------------------------------------------------- 2000 Net sales $17,575 $24,035 $31,560 $42,911 Gross profit 5,997 8,189 9,478 13,097 Net income 919 1,173 2,359 3,649 Basic earnings per share .31 .52 1.09 1.68 1999 Net sales $12,978 $17,086 $21,296 $34,814 Gross profit 4,085 5,151 6,861 10,039 Net income 434 412 1,723 3,531 Basic earnings per share .14 .13 .57 1.20
On March 31, 2000, the Company reduced its outstanding shares by 758,312 shares through a Dutch Auction tender offer. Consequently, if the four quarters earnings per share are added together, they are different than the actual earnings per weighted-average share for the year. During 1999, the Company reduced its outstanding shares by 179,179 shares. These reductions occurred at various times throughout the year. Consequently, if the four quarters earnings per share are added together, they are different than the actual earnings per weighted average share for the year. (F-19) 39 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 20 -- DISPOSAL OF ESCALADE INTERNATIONAL, LIMITED In December 1998, the Company adopted a plan to discontinue its distribution operations. Those operations were performed by Escalade International, Limited, a foreign subsidiary located in the United Kingdom. The Company's other subsidiaries are all manufacturing operations. On July 8, 1999, the Company completed a transaction to sell 50% of the stock of Escalade International to an investment group who assumed responsibility for running the day-to-day operations. The sale was for $500,000 with $50,000 cash paid and notes receivable of $450,000. The estimated loss on the disposal of Escalade International, Limited was $1,222,279 including a provision of $250,000 for operating losses during phaseout. The actual loss on the sale was $1,118,892 which included $213,057 in operating losses up to the time of sale. 1999 shows a profit of $103,387 which was the amount by which the reserve for loss on this transaction exceeded actual losses. Since only 50% was sold, the operations are not considered discontinued and the financial statements have been revised to eliminate discontinued operations. Going forward, the Company's ownership value in Escalade International will be shown as an investment and will be accounted for under the equity method. NOTE 21 -- ACQUISITIONS ACQUISITION OF MEAD HATCHER On June 21, 1999, Martin Yale, the Company's office and graphic arts products subsidiary, acquired certain assets of Mead Hatcher for cash. The purchased assets include all of Mead Hatcher's manufactured products consisting of keyboard drawers, computer storage, copyholders, media retention systems, and posting trays along with all associated tooling and production machinery necessary to manufacture the products. The purchase price was $3,481,170. The acquisition was accounted for as a purchase and the excess of cost over the fair value of net assets acquired was $1,417,594, which is being amortized over 15 years on the straight-line method. Martin Yale relocated the manufacturing of these products to its Los Angeles, California facility. ACQUISITION OF ZUE CORPORATION On December 8, 1999, Indian Industries, the Company's sporting goods subsidiary, acquired substantially all of the assets of Zue Corporation for cash. Zue was a manufacturer of high quality basketball systems located in Noblesville, Indiana. The Zue product line will complement Indian's product line and the manufacturing operations were relocated to Indian's Evansville, Indiana facility. The cost of the purchase was $7,969,672. The acquisition was accounted for as a purchase and the excess of cost over the fair value of net assets acquired was $5,150,172, which is being amortized over 15 years on the straight-line method. ACQUISITION OF LIFETIME PRODUCTS, INC. On January 5, 2000, Indian Industries acquired certain assets of the table tennis business of Lifetime Products, Inc., a Utah corporation, who wished to discontinue its table tennis business. Those assets consisted mainly of machinery, equipment and tooling and are being relocated to Indian's Evansville Indiana facility. The cost of the purchase was $1,400,000, which was paid on January 5, 2000. (F-20) 40 ESCALADE, INCORPORATED AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE 22 -- OTHER COMPREHENSIVE INCOME
2000 ----------------------------------------------------- BEFORE-TAX TAX NET-OF-TAX YEAR ENDED DECEMBER 30 AMOUNT BENEFIT AMOUNT - ---------------------------------------------------------------------------------------------------------------------------- Unrealized holding losses arising during the year $(7,086) $2,834 $(4,252) ===================================================== 1999 ----------------------------------------------------- BEFORE-TAX TAX NET-OF-TAX YEAR ENDED DECEMBER 25 AMOUNT BENEFIT AMOUNT - ---------------------------------------------------------------------------------------------------------------------------- Unrealized holding losses arising during the year $(67,374) $26,950 $(40,424) ===================================================== 1998 ----------------------------------------------------- BEFORE-TAX TAX NET-OF-TAX YEAR ENDED DECEMBER 26 AMOUNT BENEFIT AMOUNT - ---------------------------------------------------------------------------------------------------------------------------- Unrealized holding losses arising during the year $(9,278) $3,711 $(5,567) =====================================================
NOTE 23 -- SUBSEQUENT EVENTS On February 5, 2001, Escalade Sports acquired substantially all of the assets of Accudart Corporation for cash. The purchased assets included inventory, equipment and intellectual property. Accudart is America's number one name in darts. The cost of the purchase was $1,966,339 and it is estimated that annual sales of these products will be approximately 3% of Escalade's consolidated net sales. (F-21) 41 OLIVE INDEPENDENT AUDITOR'S REPORT Stockholders and Board of Directors Escalade, Incorporated Evansville, Indiana We have audited the consolidated financial statements of Escalade, Incorporated as of December 30, 2000 and December 25, 1999 and for each of the three years in the period ended December 30, 2000 and have issued our report thereon dated February 2, 2001; such consolidated financial statements and report are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedules of Escalade, Incorporated listed in Item 14. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. OLIVE LLP Evansville, Indiana February 2, 2001 (S-1) 42 ESCALADE, INCORPORATED AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E - ---------------------------------------------------------------------------------------------------------------------------- ADDITIONS ---------------------------------- CHARGED TO BALANCE AT CHARGED TO OTHER BALANCE BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- AT END DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE (2) OF PERIOD - --------------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts and discounts (1) Fiscal year ended December 30, 2000 $ 761,363 $ 141,136 $ 291,447 $ 611,052 Fiscal year ended December 25, 1999 581,830 577,150 397,617 761,363 Fiscal year ended December 26, 1998 893,434 371,672 683,276 581,830 Product warranty reserves Fiscal year ended December 30, 2000 $ 707,633 $2,075,288 $1,708,265 $1,704,556 Fiscal year ended December 25, 1999 650,100 780,228 722,795 707,533 Fiscal year ended December 26, 1998 540,000 769,344 659,244 650,100 Customer allowance reserves Fiscal year ended December 30, 2000 $2,286,686 $3,419,862 $2,286,686 $3,419,862 Fiscal year ended December 25, 1999 1,656,692 2,286,686 1,656,692 2,286,686 Fiscal year ended December 26, 1998 1,694,257 1,656,692 1,694,257 1,656,692 Inventory valuation reserves Fiscal year ended December 30, 2000 $ 759,050 $ 904,787 $ 863,815 $ 800,022 Fiscal year ended December 25, 1999 846,513 594,066 681,229 759,050 Fiscal year ended December 26, 1998 1,215,881 209,728 579,096 846,513
(1) Deducted from related assets (2) Accounts charged off, less recoveries (S-2) 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized.
ESCALADE, INCORPORATED By: \s\C. W. "Bill" Reed June 13, 2001 - ------------------------------------------------------------------ C. W. "Bill" Reed President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this amendment has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Chief Executive Officer and Director \s\C. W. Reed (Principal Executive Officer) June 13, 2001 - ------------------------------------------------------------------ C. W. Reed Chairman and Director - ------------------------------------------------------------------ Robert E. Griffin Secretary and Treasurer (Principal Financial and Accounting \s\John R. Wilson Officer) June 13, 2001 - ------------------------------------------------------------------ John R. Wilson Director - ------------------------------------------------------------------ Blaine E. Matthews, Jr. Director - ------------------------------------------------------------------ A. Graves Williams, Jr. Director - ------------------------------------------------------------------ Keith P. Williams Director - ------------------------------------------------------------------ Yale Blanc Director - ------------------------------------------------------------------ Robert D. Orr
(S-3) EX-21 2 l88832aex21.txt EXHIBIT 21 1 Exhibit 21 ESCALADE, INCORPORATED AND SUBSIDIARIES LIST OF SUBSIDIARIES AT DECEMBER 30, 2000
STATE OF OTHER PERCENT OF VOTING JURISDICTION OF SECURITIES OWNED PARENT INCORPORATION BY PARENT - ---------------------------------------------------------------------------------------------------------------------------- Escalade, Incorporated Indiana Subsidiaries Indian Industries, Inc. (1) Indiana 100% Martin Yale Industries, Inc. (1) Indiana 100% Harvard Sports, Inc. (1) California 100% Master Products Manufacturing Company, Inc. (1) California 100% Indian-Martin AG (1) Switzerland 100% EIM Company, Inc. (1) Nevada 100% SOP Services, Inc. (1) Nevada 100% Escalade FSC, Inc. (1) U.S. Virgin Islands 100%
(1) Each subsidiary company so designated has been included in Consolidated Financial Statements for all periods following its acquisition. See Notes to Consolidated Financial Statements. EX-23 3 l88832aex23.txt EXHIBIT 23 1 Exhibit 23 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-16279, 333-52475 and 333-52477 of Escalade, Incorporated (Company) on Form S-8 of our report dated February 2, 2001 on the consolidated financial statements of the Company appearing in the Company's Annual Report on Form 10-K for the year ended December 30, 2000. OLIVE LLP Evansville, Indiana March 15, 2001 -----END PRIVACY-ENHANCED MESSAGE-----