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Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 28, 1996
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.
YES X NO
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.
YES NO X
Aggregate market value of voting stock held by nonaffiliates of
the registrant as of February 28, 1997: $21,595,956
The number of shares of Registrant's common stock (no par value)
outstanding as of February 28, 1997: 3,094,051
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
26, 1997 are incorporated by reference into Part III of this
Report.
Index to Exhibits is found on page 15.
Certain portions of the registrant's Proxy Statement relating to
its annual meeting of stockholders scheduled to be held on April
26, 1997 are incorporated by reference into Part III of this
Report.
The copies of Form 10-K included in this stockholder report
exclude supplementary schedules for the years 1996, 1995 and 1994
which were filed as a part of the 10-K with the Securities and
Exchange Commission. Such schedules are available to any
stockholder on request.
Escalade, Incorporated and Subsidiaries
Table of Contents
Page
Part I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 13
Part III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 15
Part I
ITEM 1-BUSINESS
General
Escalade, Incorporated (Escalade or Company) is a diversified
company engaged in the manufacture and sale of sporting goods and
office and graphic arts products. Escalade and its predecessors
have produced sporting goods for over 65 years and have produced
office machines for over 35 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 in
Evansville, Indiana, Compton, California and Tijuana, Mexico and
manufactures office and graphic arts products in Wabash, Indiana.
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 accessories, 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). In 1989, the Company acquired a 55% stock interest in
Marcy Fitness Products, Inc. (Marcy), a California manufacturer
of home fitness and exercise equipment, such as multi-purpose
gyms, barbells, weight benches and recumbent exercise bikes. In
1991, the Company acquired the remaining 45% stock interest and
Marcy became a wholly owned subsidiary of Escalade. In 1992, the
Company closed Marcy and consolidated its production with the
sporting goods operations of Indian and Harvard.
Escalade has diversified within both the sporting goods 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 1986, the Company acquired the graphic arts-
related assets of Geiss America, Inc. and 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", and acquired Marcy. 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 sales office and warehouse based in the
United Kingdom under the name of Escalade International Limited.
In 1994, the Company purchased certain assets of Data-Link
Corporation which manufactured products to apply postage and
other stamps.
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 manufactured and marketed through Martin Yale.
The following table presents the percentages contributed to
Escalade's net sales by each of its business segments:
Fiscal Year 1996 1995 1994
Sporting goods 79% 81% 83%
Office and graphic arts products 21 19 17
Total net sales 100% 100% 100%
For additional segment information, see the notes to consolidated
financial statements.
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 and poles,
darts, dart cabinets, junior sporting goods including Mini Ping
Pong, Mini Pool, Mini Courtr basketball and Shot Clock
basketball and home fitness machines, weight benches, cast iron
weight sets, steppers and other home fitness accessories.
Approximately 17% of Escalade's domestic sporting goods shipments
are made from Harvard, which primarily services the Company's U.
S. Western marketing region, and 83% of such shipments are made
from Indian, 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 various brand
names in addition to its Indian, Harvard and Marcy brand names.
Beginning in 1985, Indian and Harvard entered into an agreement
with Spalding and Evenflo Companies, Inc. (Spalding) for the
exclusive right and license to utilize the Spaldingr trademark in
conjunction with the manufacture, sale and distribution in the
United States of certain sporting goods product lines. The
principal product lines covered by licensing agreements with
Spalding are basketball backboards, goals and poles, indoor
darts, table tennis sets and pool accessories. Beginning in
1990, Indian entered into an agreement and contract with Baker
Sport AB, a Swedish company, for the exclusive right and license
to distribute and produce table tennis equipment under the brand
name STIGA for the United States and Canada. Subsequently, Baker
Sport AB filed bankruptcy under Swedish laws . A plan of
reorganization was instituted and a new company was formed called
Sweden Table Tennis AB and, effective February 2, 1994, Escalade
purchased 37.5%, the Bandstigen Family purchased 37.5% and AB
Traction purchased 25% of Sweden Table Tennis AB.
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
31% of Escalade's sporting goods item net sales in 1996. No
other customer accounted for more than 10% of Escalade's sporting
goods net sales in 1996.
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.
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, automated paper
joggers, checksigners, stamp affixers, paper shredders, bindery
carts, platemakers, sinks, light tables, cameras and related
accessories. Escalade's office and graphic arts products
business is conducted exclusively through Martin Yale.
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, 1986 purchase of the
graphic arts-related assets of Geiss America, Inc., consisting
primarily of the Sandmar product lines which include such items
as photo and plate sinks, light tables and platemakers and 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, and by its 1994 purchase of
certain assets of Data-Link Corporation consisting primarily of
products which apply postage and other stamps.
Escalade produces and sells office and graphic arts products
under the Martin Yale brand name and the Premierr trademark. The
Company also manufactures various office and graphic arts
products under private label for original equipment
manufacturers.
The Company announced in October 1994 that it intended to
distribute 100% of the Martin Yale stock to Escalade's
stockholders in a tax-free spin-off following the satisfaction of
certain contingencies. The Company's management believes that
the spin-off will be in the best interests of the Company and its
stockholders, although in February 1995 the proposed distribution
was delayed until the Company made satisfactory progress in
improving Escalade's overall profitability. The Company believes
that Escalade's overall profitability has improved to
satisfactory levels and that the spin-off should now proceed.
The Company hopes to accomplish the distribution of Martin-Yale
stock to Esclade's stockholders after mid-year 1997, subject to a
favorable Internal Revenue Service ruling that the distribution
will be tax free.
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 24% of Escalade's consolidated sales in 1996 and
for approximately 23% and 27% of consolidated sales in 1995 and
1994. 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 recognized by Sears for its outstanding service
in ten of the last eleven years and in twenty of the last twenty-
four 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.
Marketing and Product Development
Escalade has developed its existing product lines to adapt to
changed 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 $2,300,000 in 1996, $1,700,000 in
1995, and $2,300,000 in 1994 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.
Licenses, Trademarks and Brand Names
Escalade Sports is licensed to use the Spaldingr trademark
pursuant to licensing agreements entered into with Spalding in
1985. The Company pays royalties to Spalding for the use of the
Spalding trademark in accordance with certain schedules set forth
in the agreements. The licensing agreements further require that
the Company pay Spalding certain minimum annual royalties from
sales of Spaldingr branded goods and that the Company provide
Spalding with periodic reports and maintain quality standards
acceptable to Spalding. In 1996, royalties paid by the Company
to Spalding were less than 1% of net sales. The Company believes
that it currently satisfies all material terms of its agreements
with Spalding. The licensing agreements with Spalding expire on
September 30, 1997.
Escalade is the owner of several registered trademarks and brand
names. For its sporting goods, the Company holds the Ping-Pongr,
and Harvardr registered trademarks and utilizes the Indian,
Marcyr, Indian Archery and Indian Xi brand names. The Company
permits limited uses of the Ping-Pongr trademark by other
manufacturers pursuant to various licensing agreements. The
Company also owns the Premierr and Sandmarr registered trademarks
for its office and graphic arts products, in addition to
manufacturing such products under the Martin Yale brand name.
Seasonality
The backlog of unshipped orders by industry segment is shown
below at the Company's 1996, 1995, and 1994 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. The increased
sporting goods backlog in 1994 was due to a large order for
dartboard cabinets to be shipped during the first quarter of
1995.
Years Ended December 28, December 30
and December 31 1996 1995 1994
Orders received but not shipped
Sporting goods $2,592,800 $3,128,200 $7,043,600
Office and graphic arts products 419,300 392,300 210,600
Employees
The Company employs between 535 and 700 employees, consisting of
between 310 and 425 people at Indian's Evansville, Indiana
facilities, between 100 and 150 at Harvard's Compton, California
and Tijuana, Mexico facilities and approximately 125 employees at
Martin Yale's Wabash, Indiana facilities. 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, 1997.
Negotiations will begin in March 1997 and no major problems are
expected in the completion of the new contract. All hourly rated
employees at Compton are represented by the International
Brotherhood of Teamsters whose contract expires on December 31,
1997.
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, cast iron weights,
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.
ITEM 2-PROPERTIES
The Company operates the following facilities:
Location Size Leased
or Owned
Evansville, Indiana 346,000 sq. ft. Owned
Compton, California 102,000 sq. ft. Leased
Tijuana, Mexico 50,000 sq. ft. Owned
Wabash, Indiana 141,000 sq. ft. Owned
Swansea, United Kingdom 13,500 sq. ft. Owned
The Company leases its Compton manufacturing facilities at a rate
of $29,600 per month through March 31, 1998 and has a five-year
option to extend the lease.
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 purchased the building adjacent to its Tijuana
facilities for $300,000 in 1996. The two buildings have
approximately 50,000 square feet.
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 of 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.
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 System. The following table sets
forth, for the calendar periods indicated, the high and low bid
prices of the Common Stock as reported by the Nasdaq National
Market System:
Prices High Low
1996
First quarter ended March 23, 1996 $5.13 $2.50
Second quarter ended July 13, 1996 5.50 4.75
Third quarter ended October 5, 1996 9.13 4.88
Fourth quarter ended December 28, 1996 9.25 7.75
1995
First quarter ended March 25, 1995 5.25 4.25
Second quarter ended July 15, 1995 4.50 4.00
Third quarter ended October 7, 1995 5.25 4.00
Fourth quarter ended December 30, 1995 4.75 3.63
The closing market price on February 28, 1997 was $10.88 per
share.
In the third quarter of 1996, the Company announced its offer to
purchase up to $10,000,000 of its common stock at a price per
share of $6 to $10. Pursuant to such offer, the Company
purchased 1,016,682 shares of its common stock at $8.875 per
share in September 1996.
The Company paid no cash dividends during the last two fiscal
years. The Company's existing bank indebtedness restricts the
payment of cash dividends.
The Company intends to reinvest all of its earnings for use in
its business and to finance future expansion. Accordingly, the
Company does not anticipate paying cash dividends in the
foreseeable future.
There were approximately 400 holders of record of the Company's
Common Stock at February 28, 1997. The approximate number of
stockholders, including those held by depository companies for
certain beneficial owners, was 925.
ITEM 6_SELECTED FINANCIAL DATA (In thousands, except per share data)
December 28 December 30, December 31, December 25 December 26,
1996 1995 1994 1993(2) 1992
Income Statement Data
Net sales
Sporting goods $74,077 $73,858 $85,318 $80,397 $78,779
Office and graphic
arts products 19,132 17,321 17,276 14,338 12,548
Total net sales 93,209 9,179 102,594 94,735 91,327
Net income (loss) 5,247 448 (2,403) 6,213 1,818
Weighted average shares 3,850 4,134 4,129 4,111 4,110
Per Share Data (1)
Net income (loss) $1.36 $.11 $(.58) $1.51 $.44
Cash dividends 0 0 0 0 0
Balance Sheet Data
Working capital 13,309 17,069 16,837 22,289 20,920
Total assets 54,430 57,767 75,883 66,142 60,524
Short-term debt 13,675 16,732 31,215 16,640 13,715
Long-term debt 5,500 6,266 9,148 11,563 13,640
Total stockholders'
equity 19,305 23,338 22,889 25,163 18,939
(1) Earnings per common share are based on average shares
outstanding adjusted to reflect the Company's 15% stock
dividend declared on February 19, 1994. Dilutive effects of
stock options were not material in any year.
(2) Includes a cumulative effect adjustment of $3,089,893
relating to the adoption of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes.
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1996 Compared to 1995
In 1996, net sales increased 2.2%, or $2,030,000, to $93,209,000
from $91,179,000 in 1995.
Sporting goods net sales increased $219,000 from $73,858,000 to
$74,077,000. Lower sales in the first three quarters of 1996
were offset by a 14.8% increase in fourth quarter sales over
1995. This increase reflected improved Christmas shipments to
retailers in 1996 as compared to 1995.
Office and graphic arts machines and equipment net sales
increased $1,811,000, or 10.5%, to $19,132,000 from $17,321,000.
Graphic arts equipment sales were up about $400,000, mainly to
dealers, and office product sales were up about $1,400,000,
mainly in wholesale, contract stationer and superstore sales.
Cost of sales of $66,703,000 as a percentage of net sales was
7l.6% in 1996 as compared to $73,433,000, or 80.6%, in 1995.
Sporting goods cost of sales as a percentage of net sales
decreased 10.1% in 1996 from 1995. Material costs were down
about 5%, labor costs were down about 1% and factory expense was
down about 4% as a percentage of net sales. The decrease in the
office and graphic arts machines and equipment cost of sales as a
percentage of net sales was 2.2% and was mainly in material cost.
Selling, administrative and general expenses in 1996 were
$16,628,000 as compared to $13,867,000 in 1995. As a percentage
of net sales, these expenses were 17.8% in 1996 and 15.2% in
1995. This increase was in advertising, sales promotion, volume
discounts, customer allowances and incentives.
Interest expense in 1996 was $1,408,000 as compared to $2,268,000
in 1995, a decrease of $860,000, or 37.9%. This decrease was due
to lower short-term borrowing levels in 1996 than in 1995.
The income tax provision for 1996 was $3,513,000 for an effective
rate of 40%.
Net income for the year of $5,247,000 compares to net income of
$448,000 in 1995. This is an increase of $4,799,000. Sporting
goods net income increased about $4,700,000 and office and
graphic arts machines and equipment net income increased about
$500,000 with the difference being in corporate expenses.
ITEM 7_MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1995 Compared to 1994
In 1995, net sales decreased 11.1%, or $11,415,000, to
$91,179,000 from $102,594,000 in 1994.
Sporting goods net sales decreased $11,460,000, or 13.4%, to
$73,858,000 from $85,318,000. This decrease was in the fourth
quarter and was due mainly to weak Christmas shipments in the
retail segment.
Office and graphic arts machines and equipment net sales
increased $45,000, or .3%, to $17,321,000 from $17,276,000.
Graphic arts sales were down about 8.8% and office product sales
were up about 1.5%.
Cost of sales of $73,433,000, as a percentage of net sales was
80.6% in 1995 as compared to $83,433,000, or 81.3%, in 1994.
Sporting goods cost of sales, as a percentage of net sales was
the same in both years, while office and graphic arts machines
and equipment cost of sales was down .8% in 1995 from 1994. A 3%
decrease in the Evansville cost of sales percentage was offset by
a 7% increase in the cost of sales percentage at Compton, netting
out to no change in sporting goods overall. The decrease in the
office and graphic arts machines and equipment cost of sales was
mainly in factory expense.
Selling, administrative and general expenses totaled $13,867,000
in 1995 as compared to $16,298,000 in 1994. As a percentage of
net sales, they were 15.2% in 1995 as compared to 15.9% in 1994.
This decrease was in sporting goods mainly and was due to lower
sales promotion and advertising expenses and lower sales volume.
In the fourth quarter of 1994, a restructuring charge of
$4,340,053 before taxes was recorded as a part of a plan to
reduce staff and discontinue a certain product due to
notification by a major customer that the product was being
removed from its line and would not be ordered any more. This
notification was received in December, 1994. In the second
quarter of 1995, an additional charge of $1,040,000 was booked
that related to the 1994 restructuring charge. This additional
amount was for the discontinued product that was written down and
was necessary because the product had to be marked down lower
than originally projected to sell the inventory. There were no
other material differences in the actual vs. estimated costs of
the restructuring charge. The exit plan was completed in the
fourth quarter of 1995 with the sale of the marked down
discontinued product.
Interest expense of $2,268,000 in 1995 was up $148,000, or 7%
over 1994's $2,120,000. This increase is due to higher average
borrowing levels.
The income tax provision was $387,000. This is an effective tax
rate of 46.4%. The difference between this and the actual tax
rate is due to nondeductible foreign losses.
Net income for the year of $448,000 compares to a net loss of
$2,403,000 in 1994. This is a change of $2,851,000. Sporting
goods loss decreased $2,411,000 and office and graphic arts
machines and equipment income increased $440,000.
Liquidity and Capital Resources
Operating Activities
The Company's net cash provided (used) by operating activities
was $15,266,154, $18,666,358, and ($5,697,082), in 1996, 1995 and
1994. Inventory management provided $3,699,263 and $8,244,785 of
cash in 1996 and 1995 and used $7,636,716 of cash in 1994.
Accounts receivable provided $6,411,341 of cash in 1995 and used
$2,439,220 and $2,717,424 in 1996 and 1994. The decrease in year-
end receivables in 1995 was due to lower fourth quarter sales.
Investing Activities
The Company's net cash used by investing activities was
$1,891,594, $1,051,136 and $6,095,344 in 1996, 1995 and 1994.
The Company used $1,902,127, $1,144,922 and $4,262,437 in 1996,
1995 and 1994 to purchase property and equipment.
Financing Activities
Net cash used by financing activities was $13,301,909 and
$17,363,055 in 1996 and 1995 and net cash provided by financing
activities was $12,304,396 in 1994. In 1996, the decrease in
cash was primarily attributed to the reduction of short-term debt
by $10,475,000 less a net increase in long-term debt by
$6,652,000. The Company increased its long-term debt in 1996 by
$9,000,000 to finance the Dutch Auction purchase of shares of its
common stock. During the third quarter of 1996, the Company
purchased 1,016,682 shares at $8.875 per share in the Dutch
Auction for a total of $9,023,053.
The Company's working capital requirements are funded by cash
flow from operations and a domestic short-term line of credit.
The maximum amount that could be drawn under its domestic line of
credit at year end was $18,000,000, of which $3,875,000 was used.
The domestic line of credit has been paid down to zero as of
January 13, 1997. The Company expects to pay $8,000,000 of the
$12,000,000 term loan from cash flow in the first quarter of
1997. This payment is in advance of the schedule payback and has
been classified as current on the balance sheet.
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 1996. 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.
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.
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
scheduled to be held on April 26, 1997 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 scheduled to be held on April 26, 1997 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" 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.
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 scheduled to be held on April 26, 1997 under the
caption "Certain Beneficial Owners" and is incorporated herein by
reference.
ITEM 13-CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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 28, 1996 and
December 30, 1995
Consolidated statement of income-fiscal years ended
December 28, 1996,
December 30, 1995 and December 31, 1994
Consolidated statement of stockholders' equity-fiscal
years ended December 28,
1996, December 30, 1995 and December 31, 1994
Consolidated statement of cash flows-fiscal years
ended December 28, 1996, December 30, 1995 and
December 31, 1994
Notes to consolidated financial statements
(2)Financial Statement Schedules
Independent Auditor's Report on financial statement
schedule
For the three-year period ended December 28, 1996:
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 Spalding and Evenflo Companies,
Inc. and Indian Industries, Inc. dated October 1, 1992 and
extension letter dated May 25, 1995(e)
10.3 Licensing agreement between Sweden Table Tennis AB and Indian
Industries, Inc. dated January 1, 1995 (h)
10.4 Amendment to lease agreement dated April 1, 1983 among Irving
J. Karp, Trustee of the Karp 1977 Trust, Irving J. Karp,
Trustee of the Feldman 1976 Trust and
Harvard Sports, Inc. dated September 8, 1992 (e)
10.8 Federal trademark registration 283,766 for Ping-Pong bats and
rackets (a)
10.9 Federal trademark registration 283,767 for Ping-Pong balls (a)
10.10 Federal trademark registration 294,408 for Ping-Pong tables
and parts (a)
10.11 Federal trademark registration 520,270 for Ping-Pong game (a)
10.12 Federal trademark registration 1,003,289 for Mr. Table Tennis
table tennis equipment (a)
10.13 Federal trademark registration 1,187,832 for Harvard table
tennis equipment (a)
10.14 Federal trademark registration 1,442,274 for Mini Court (a)
10.15 Federal trademark registration 1,292,167 for Premier table
tennis tables and accessories (a)
10.16 Federal trademark registration 1,456,647 for Mini Pool (a)
(3)Exhibits (continued)
10.17 Trademark Assignment_Federal trademark registration 1,348,890
for Sandmar office machines (b)
10.18 Agreement dated January 3, 1993 between Indian Industries, Inc.
and International Union of Electronic, Electrical, Salaried,
Machine and Furniture Workers, AFL-CIO Local No. 848 (f)
10.19 Amendment to agreement dated April 1, 1991 between Harvard
Sports, Inc. and Food, Industrial and Beverage Warehouse,
Driver and Clerical Employees, Local 630 dated January 16,
1995 (g)
10.21 Amendment to credit agreement dated May 31, 1996 between
Escalade, Incorporated and Bank One, Indianapolis, National
Association dated September 19, 1996 (i)
10.30 Mortgage, security agreement, collateral assignment of rents
and fixture, filing dated June 4, 1990 between Martin Yale
Industries, Inc. and Bank One, Indianapolis, National
Association (c)
10.31 Trust Indenture between the City of Wabash, Indiana and The
Citizens National Bank of Evansville as Trustee dated May 1,
1990 relating to the Economic Development Revenue Bonds,
Series 1990 (Martin Yale Industries, Inc. Project) (c)
10.32 Real Estate Sales Contract dated September 17, 1990 between
Martin Yale Industries, Inc. and Fritkin-Jones
Design Group, Inc. (c)
10.33 Stock and Warrant Exchange Agreement dated June 30, 1991
between Escalade, Incorporated and the minority stockholders
of Marcy (d)
21 Subsidiaries of the Registrant
23 Consent of Geo. S. Olive & Co. LLC
27 Financial Data Schedule
(4)Executive Compensation Plans and Arrangements
10.24 The Harvard Sports/Indian Industries, Inc. 401(k) Plan as
amended and merged in 1993 (h)
10.26 Martin Yale Industries, Inc. 401(k) Retirement Plan as amended
in 1993 (h)
10.27 Incentive Compensation Plan for Escalade, Incorporated and its
subsidiaries (a)
10.28 Escalade, Incorporated 1984 Incentive Stock Option Plan (a)
10.29 Example of contributory deferred compensation agreement
between Escalade,Incorporated and certain management
employees allowing for deferral of compensation (a)
(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 1991 Second Quarter
Report on Form 10-Q
(e) Incorporated by reference from the Company's 1991 Annual Report on
Form 10-K
(f) Incorporated by reference from the Company's 1992 Annual Report on
Form 10-K
(g) Incorporated by reference from the Company's 1994 Annual Report on
Form 10-K
(h) Incorporated by reference from the Company's 1995 Annual Report on
Form 10-K
(i) Incorporated by reference from the Company's 1996 Third Quarter
Report on Form 10-Q
(B) No reports on Form 8-K for the fourth quarter ended December 28, 1996
were required to be filed.
Index to Financial Statements
Escalade, Incorporated and Subsidiaries
Index to Financial Statements
The following consolidated financial statements of the Registrant
and its subsidiaries and Independent Auditor's Report are
submitted herewith:
Independent Auditor's Report
To the Stockholders and Board of Directors
Escalade, Incorporated
Evansville, Indiana
We have audited the consolidated balance sheet of
Escalade, Incorporated and subsidiaries as of December
28, 1996 and December 30, 1995 and the related
consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period
ended December 28, 1996. These financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these
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 28,
1996 and December 30, 1995 and the results of their
operations and their cash flows for each of the three
years in the period ended December 28, 1996 in conformity
with generally accepted accounting principles.
GEO. S. OLIVE & CO. LLC
Evansville, Indiana
February 3, 1997
Escalade, Incorporated and Subsidiaries
Consolidated Balance Sheet
December 28 and December 30 1996 1995
Assets
Current assets
Cash $ 1,319,319 $ 1,246,668
Receivables, less allowances of
$681,606 and $726,352 27,296,584 25,285,014
Inventories 11,452,433 15,151,696
Prepaid expenses 221,850 266,770
Income tax refundable 275,000
Deferred income tax benefit 1,560,814 1,828,489
------------ --------------
Total current assets 41,851,000 44,053,637
Property, plant and equipment 10,208,548 11,223,763
Other assets 1,851,511 1,827,628
Deferred income tax benefit 518,653 662,326
------------ --------------
$54,429,712 $57,767,354
============ ==============
Liabilities and
Stockholders' Equity
Current liabilities
Notes payable_bank $ 3,875,000 $14,350,000
Current portion of
long-term debt 9,800,000 2,382,500
Trade accounts payable 2,393,980 2,369,637
Accrued liabilities 11,374,159 7,553,307
Federal income tax payable 1,099,072 329,072
------------ --------------
Total current liabilities 28,542,211 26,984,516
Other liabilities
Long-term debt 5,500,000 6,265,500
Deferred compensation 1,082,790 1,178,863
------------ --------------
6,582,790 7,444,363
Stockholders' equity
Preferred stock
Authorized 1,000,000 shares;
no par value, none issued
Common stock
Authorized 10,000,000 shares;
no par value
Issued and outstanding-3,084,449
and 4,133,954
shares for 1996 and 1995 8,291,516 17,572,397
Retained earnings 11,013,195 5,766,078
------------ --------------
19,304,711 23,338,475
------------ --------------
$54,429,712 $57,767,354
============ ==============
See notes to consolidated financial statements.
Escalade, Incorporated and Subsidiaries
Consolidated Statement of Income
Years Ended December 28, December 30
and December 31 1996 1995 1994
Net Sales $93,209,331 $91,178,757 102,594,116
---------------------------------------
Costs, Expenses and Other Income
Cost of products sold 66,703,061 73,443,333 83,432,921
Selling, administrative and
general expenses 16,628,415 13,867,421 16,297,865
Restructuring charge 1,040,000 4,340,053
Write off of goodwill 399,000
Interest 1,408,070 2,267,620 2,120,104
Other income (290,666) (274,483) (308,423)
---------------------------------------
84,448,888 90,343,891 106,281,520
---------------------------------------
Income (Loss) Before Income Taxes 8,760,451 834,866 (3,687,404)
Provision (Benefit) for Income Taxes 3,513,334 387,133 (1,283,983)
---------------------------------------
Net Income (Loss) $ 5,247,117 $ 447,733 $(2,403,421)
=======================================
Per Share Data
Net income (loss) per share $1.36 $.11 $(.58)
Weighted average shares outstanding 3,849,783 4,133,566 4,128,865
See notes to consolidated financial statements.
Escalade, Incorporated and Subsidiaries
Consolidated Statement of Stockholders' Equity
Common Stock Retained
Shares Amount Earnings
Balances at December 25, 1993 4,111,861 $17,439,395 $ 7,723,927
Exercise of stock options 21,500 131,057
Net loss (2,403,421)
Cash paid for fractional shares (2,161)
------------------------------------
Balances at December 31, 1994 4,133,361 17,570,452 5,318,345
Exercise of stock options 593 1,945
Net income 447,733
-------------------------------------
Balances at December 30, 1995 4,133,954 17,572,397 5,766,078
Exercise of stock options 11,786 38,766
Net income 5,247,117
Purchase of stock (1,061,291) (9,319,647)
-------------------------------------
Balances at December 28, 1996 3,084,449 $ 8,291,516 $11,013,195
=====================================
See notes to consolidated financial statements.
Escalade, Incorporated and Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 28, December 30
and December 31 1996 1995 1994
Operating Activities
Net income (loss) $ 5,247,117 $ 447,733 $(2,403,421)
Items not affecting net cash provided
(used) by operating activities
Depreciation and amortization 3,018,039 3,618,194 4,436,609
Provision for losses on accounts
receivable 427,650 175,559 181,732
Provision for deferred income tax 411,348 (140,855) (1,251,833)
Provision for deferred compensation 101,955 98,101 93,133
Provision for restructuring charges 1,040,000 4,340,053
Gain on disposals of equipment (60,146) (23,293) (699)
Amortization of prepaid loan fees 8,502 8,502 8,502
Write-off of goodwill 399,000
Change in cash surrender value
(net of loans and premiums) (47,734) (39,407) (31,298)
Changes in
Accounts receivable (2,439,220) 6,411,341 (2,717,424)
Income tax refundable 275,000 123,909 (142,631)
Inventories 3,699,263 8,244,785 (7,636,716)
Prepaids 44,920 (8,308) (57,434)
Other assets 81,149 9,289 83,509
Income tax payable 770,000 329,072
Accounts payable and accrued expenses 3,728,311 (1,628,264) (998,164)
---------------------------------------
Net cash provided (used) by
operating activities 15,266,154 18,666,358 (5,697,082)
---------------------------------------
Investing Activities
Premiums paid for life insurance (65,800) (131,600) (35,000)
Purchase of property and equipment (1,902,127) (1,144,922) (4,262,437)
Proceeds from sale of property and
equipment 76,333 34,425 10,000
Purchase of long-term investments (99,256) (917,407)
Purchase of certain Data-Link
Corporation assets (900,000)
Proceeds from sale of long-term
investments 290,217 9,500
----------------------------------------
Net cash used by investing activities (1,891,594) (1,051,136) (6,095,344)
----------------------------------------
Financing Activities
Net increase (decrease) in
notes payable-bank (10,475,000) (14,887,500) 14,675,000
Proceeds from exercise of
stock options 38,766 1,945 131,057
Cash paid for fractional shares (2,161)
Proceeds from loan against
life insurance 15,000
Reduction of long-term debt (7,248,000) (2,477,500) (2,514,500)
Purchase of stock (9,319,647)
Proceeds from long-term debt 13,900,000
Deferred compensation paid (198,028)
----------------------------------------
Net cash provided (used) by
financing activities (13,301,909) (17,363,055) 12,304,396
----------------------------------------
Increase in Cash 72,651 252,167 511,970
Cash, Beginning of Year 1,246,668 994,501 482,531
----------------------------------------
Cash, End of Year $ 1,319,319 $ 1,246,668 $ 994,501
========================================
Supplemental Cash Flows Information
Interest paid $ 1,379,847 $ 2,332,038 $ 1,864,327
Income taxes paid (refunded), net 2,286,986 (413,773) 891,607
Fixed assets in accounts payable 126,884 10,000 11,799
See notes to consolidated financial statements.
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
Nature of Operations and Summary of Significant Accounting
Policies
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 four manufacturing facilities, one in Evansville, Indiana;
Compton, California; Tijuana, Mexico; and Wabash, Indiana. 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.
Inventories are stated at the lower of cost or market. Cost is
based on the first-in, first-out method.
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. The effects of Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, is not
material to the financial statements.
Land, buildings and equipment are recorded at cost. Contracts
under which certain facilities are leased have been treated as
purchases. Provisions for 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
Maintenance and repairs are expensed and major renewals and
improvements are capitalized. The costs of assets sold or
otherwise disposed of, and the related allowances for
depreciation, are eliminated from the accounts in the year of
disposal and the resulting gains or losses are included in
operations.
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
The carrying values of all of the Company's financial instruments
approximate their fair values.
Earnings per common share information is based on average shares
outstanding adjusted for stock dividends. Dilutive effects of
stock options and warrants were not material in any year.
The Company's fiscal year ends on the Saturday nearest December
31, within the calendar year.
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.
Deferred federal income taxes applicable to the difference
between financial statement income and taxable income and the
bases of assets and liabilities for financial statement and tax
purposes are provided in the financial statements.
Research and development costs are charged to income as
incurred. The research and development costs incurred during
1996, 1995 and 1994 were approximately $2,300,000, $1,700,000
and $2,300,000.
Revenue from the sale of the Company's products is recognized as
products are shipped to customers.
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.
Inventories
December 28 and December 30 1996 1995
Finished products $ 5,082,134 $ 5,323,465
Work in process 2,709,752 3,135,909
Raw materials and supplies 3,660,547 6,692,322
----------------------------
$11,452,433 $15,151,696
============================
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
Property, Plant and Equipment
December 28 and December 30 1996 1995
Land $ 345,210 $ 340,210
Buildings and leasehold
improvements 9,562,524 9,672,666
Machinery and equipment 21,909,966 23,051,491
--------------------------
31,817,700 33,064,367
Accumulated depreciation
and amortization (21,609,152) (21,840,604)
--------------------------
$10,208,548 $11,223,763
==========================
Long-Term Debt
December 28 and December 30 1996 1995
Mortgage payable, paid off in 1996 $ 648,000
Mortgage payable, due in annual
installments varying from $300,000
in 1997 to $500,000 in 2005,
interest varies from 7.65% to 7.95%,
due 2005, secured by plant facility,
machinery and equipment, and letter
of credit $ 3,300,000 3,500,000
Term loan, due in quarterly
installments of $500,000,
interest varies from prime
plus .25% or London
Interbank Offered Rate (LIBOR)
plus 2.25%, secured by equipment,
inventory, accounts receivable,
general intangibles and securities 12,000,000 4,500,000
------------------------------
15,300,000 8,648,000
Portion classified as current (9,800,000) (2,382,500)
------------------------------
$ 5,500,000 $6,265,500
==============================
Maturities of long-term indebtedness for the ensuing five years
are: 1997, $9,800,000; 1998, $2,300,000; 1999, $800,000; 2000,
$300,000; 2001, $400,000 and thereafter, $1,700,000.
The Company expects to pay $8,000,000 of the $12,000,000 term
loan from cash flow in the first quarter of 1997. This payment
is in excess of the scheduled payback and therefore has been
classified as current on the balance sheet.
The mortgages payable and term loan agreements contain certain
restrictive covenants, of which the more significant include
maintenance of specified net worth and working capital,
restrictions on capital expenditures and dividends, and
maintenance of specified ranges of current and leverage ratios.
At December 28, 1996, the Company was in violation of a current
ratio covenant dating back to June 4, 1990 on the mortgage
payable credit agreement; however, the lender waived compliance
with this covenant and agreed to delete that and other sections
of the agreement.
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
Stock Options and Warrants
A total of 227,700 common shares were initially reserved for
issuance of stock options under the 1984 Stock Option Plan. At
the Company's 1991 annual meeting, the stockholders approved an
amendment to the Incentive Stock Option Plan increasing the
total number of common shares reserved for issuance of stock
options to 345,000. Total options granted under this plan are
307,684 and the date for granting options expired on October 26,
1994.
Stock option transactions (adjusted for the 1994 15% stock
dividend) are summarized as follows:
1996 1995 1994
Option Option Option
Shares Price Shares Price Shares Price
Outstanding at beginning $3.26 to $3.26 to $3.26 to
of year 196,581 7.25 204,211 7.25 162,358 6.93
Issued during year $5.50 to
71,374 7.25
Canceled or expired (16,485) (7,037) (8,021)
Exercised during year $3.26 to
(11,785) $3.26 (593) $3.26 (21,500) 6.30
------------------------------------------------------------
Outstanding at end
of year $3.26 to $3.26 to $3.26 to
168,311 7.25 196,581 7.25 204,211 7.25
======= ======= =======
Exercisable at end
of year 120,699 92,925 45,928
======= ======= =======
The options granted in 1994 are exercisable at the rate of 25%
over each of the four years beginning in 1995.
In connection with the Company's 1987 public offering of its
common stock, the Company sold to Oppenheimer & Co., Inc., the
representative of the underwriters for such offering, warrants
to purchase 75,900 shares of common stock for $.85 per warrant,
or an aggregate of $65,000. Each warrant gives the holder the
right to buy one share of the Company's common stock at a price
equal to $12.33. Each warrant became exercisable on September
2, 1988 and the initial termination date of September 1, 1992
was extended by three years to September 1, 1995. These
warrants expired during 1995.
To acquire all of the common stock of Marcy Fitness Products,
Inc., the Company exchanged 272,113 Escalade warrants with an
exercise price of $9.13 per share. The warrants are exercisable
until August 19, 1999. These warrants are outstanding at
December 28, 1996.
Stockholders' Equity Transactions
During 1996, the Company conducted a "Dutch Auction" whereby it
repurchased approximately 1,000,000 shares of its common stock at
a price of $8.875 per share.
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
The Company paid no cash dividends during the last three fiscal
years. The Company's existing bank indebtedness restricts the
payment of cash dividends.
On February 19, 1994, the Board of Directors of the Company
declared a 15% stock dividend to stockholders of record on March
11, 1994. The dividend was paid March 31, 1994. All share and
per share data was adjusted to reflect the stock dividend.
Operating Leases
The Company leases manufacturing, warehousing and office space
at its Compton facilities for $29,600 per month from October 1,
1990 through March 31, 1998. The Company has a five-year option
to extend the lease.
The Company also leases warehousing space next to its Evansville
facility for $17,317 per month for two years expiring on October
31, 1998. The Company has four two-year renewal options
followed by two five-year renewal options.
At December 28, 1996, the minimum rental payments under
noncancelable leases with terms of more than one year are as
follows:
Years Ending Amount
- ------------------------------------------------------------
1997 $588,532
1998 262,761
--------
$851,293
========
The following schedule shows the composition of total rental
expense for operating leases except those with terms of a month
or less:
1996 1995 1994
----------------------------
Rentals $656,082 $638,670 $656,670
============================
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
Income Taxes
Provision for income taxes consists of the following:
Years Ended December 28, December 30
and December 31 1996 1995 1994
Current
Federal $2,670,000 $329,072 $ 132,240
State 431,986 198,916 (164,390)
---------------------------------
3,101,986 527,988 (32,150)
---------------------------------
Deferred
Federal 401,443 (85,548) (1,070,217)
State 9,905 (55,307) (181,616)
---------------------------------
411,348 (140,855) $(1,251,833)
---------------------------------
$3,513,334 $387,133 $(1,283,983)
=================================
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 28, December 30
and December 31 1996 1995 1994
- -----------------------------------------------------------------------------
Income tax at statutory rate $2,978,553 $283,854 $(1,253,717)
Increase (decrease) in income
tax resulting from
Recurring permanent differences
(goodwill amortization, dividend
exclusion, and non-deductible
officers' life insurance expense) (24,279) (5,522) 10,196
State tax expense (benefit)_net of
federal effect 291,648 94,782 (228,364)
Benefit of foreign subsidiary
loss not recognized 166,402 138,846 76,373
Other 101,010 (124,827) 111,529
------------------------------------
Provision (benefit) for income
taxes recorded $3,513,334 $387,133 $(1,283,983)
=====================================
The $8,760,451 income before income taxes for the year ended
December 28, 1996 was comprised of $489,417 foreign losses and
$9,249,868 domestic income.
The $834,866 income before income taxes for the year ended
December 30, 1995 was comprised of $408,370 foreign losses and
$1,243,236 domestic income. The $3,687,404 loss before income
taxes for the year ended December 31, 1994 was comprised of
$224,626 foreign losses and $3,462,778 domestic losses.
At December 28, 1996 and December 31, 1995, a cumulative
deferred tax asset of $2,079,467 and $2,490,815 is included in
current and other assets.
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
The components of the net deferred tax asset were as follows:
December 28 and December 30 1996 1995
- --------------------------------------------------------------------------
Depreciation $ (12,934) $ 78,654
Deferred compensation 341,825 447,662
Valuation reserves 1,014,582 851,968
Alternative minimum tax credit carryover 362,713
Differences in accounting for royalties 88,390 88,390
Differences in accounting for goodwill 125,382 135,846
Differences in accounting for employee benefits 406,205 234,877
Differences in accounting for lease expense 116,017 182,672
Differences in accounting for professional fees 108,033
------------------------
$2,079,467 $2,490,815
========================
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 $311,701, $60,940 and
$111,808 for 1996, 1995 and 1994.
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.
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
Segment Information and Concentrations
Years Ended December 28, December 30
and December 31 1996 1995 1994
(In Thousands)
Sales to unaffiliated customers
Sporting goods $74,077 $73,858 $ 85,318
Office and graphic arts products 19,132 17,321 17,276
------------------------------------
Total consolidated $93,209 $91,179 $102,594
====================================
Operating profit (loss)
Sporting goods $ 6,156 $ (262) $ (4,303)
Office and graphic arts products 4,103 3,363 2,872
Corporate (381) (273) (445)
------------------------------------
Total consolidated 9,878 2,828 (1,876)
Consolidated other income 290 274 309
------------------------------------
10,168 3,102 (1,567)
Consolidated interest expense 1,408 2,267 2,120
Consolidated income (loss) from
operations before ------------------------------------
income taxes $ 8,760 $ 835 $ (3,687)
====================================
Identifiable assets
Sporting goods $40,543 $43,122 $ 61,475
Office and graphic arts products 10,199 10,317 10,039
Corporate 3,688 4,328 4,369
------------------------------------
Total assets $54,430 $57,767 $ 75,883
====================================
Depreciation and amortization
charged to operations
Sporting goods $ 2,123 $ 2,438 $ 3,827
Office and graphic arts products 895 714 610
------------------------------------
Total consolidated $ 3,018 $ 3,152 $ 4,437
====================================
Capital expenditures
Sporting goods $ 1,262 $ 617 $ 3,750
Office and graphic arts products 757 526 452
------------------------------------
$ 2,019 $ 1,143 $ 4,202
====================================
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 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 and poles, darts, dart
cabinets, junior sporting goods including Mini Ping Pong, Mini
Pool, Mini Courtr basketball and Shot Clock basketball and home
fitness machines, weight benches, cast iron weight sets, and
other home fitness accessories. The Company has a licensing
agreement with Spalding to manufacture and distribute basketball
backboards, goals and poles, indoor darts, table tennis sets and
pool accessories under the Spalding brand name. 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, automated paper joggers, electric staplers,
checksigners, stamp affixers, paper shredders, bindery carts,
platemakers, sinks, light tables, cameras and related
accessories.
Operating profit is total revenue less operating expenses. In
computing operating profit neither interest expense nor income
taxes have been deducted.
Identifiable assets are principally those assets used in each
industry. Corporate assets are principally deferred taxes,
marketable equity securities and the cash surrender value of
life insurance.
In 1996, approximately 31% of the sporting goods were sold to
Sears, Roebuck & Co. (24% of consolidated sales). In 1995 and
1994, the percentages were 29% (23% consolidated) and 32% (27%
consolidated). At December 28, 1996 and December 30, 1995,
accounts receivable included $10,613,368 and $10,439,845 due
from Sears, Roebuck & Co.
During 1994, the Company announced that it intended to pursue
distribution, subject to various preconditions occurring, 100%
of the stock of its office and graphic arts products wholly
owned subsidiary, Martin Yale Industries, Inc., to its
stockholders. The Company's Board of Directors is continuing
discussion of this potential distribution.
Approximately 44% of the Company's labor force is covered by
collective bargaining agreements. 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 contracts all expire in 1997.
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
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.
Additional Information
December 28 and December 30 1996 1995
- --------------------------------------------------------------------
Accrued Liabilities
Employees' compensation $ 2,972,848 $1,031,435
Payroll taxes and taxes
withheld from employees'
compensation 257,251 167,499
Taxes other than taxes on income 412,505 460,066
Accrued interest 156,408 182,362
Customer volume discounts payable 3,204,500 1,522,000
Other accrued items 4,370,647 4,189,945
------------------------------
$11,374,159 $7,553,307
==============================
Long-Term Marketable
Equity Securities-
(included in other assets) $ 576,883 $ 517,493
==============================
Line of Credit
The Company has available an unsecured line of credit for short-
term borrowings. The line-of-credit arrangement is based upon a
written agreement and can be withdrawn at the banks' option. At
December 28, 1996, the line of credit for short-term borrowings
aggregated $18,000,000, of which $3,875,000 was borrowed. The
interest rate on the line of credit is at the Bank One
Indianapolis, N.A. prime rate plus .25%. A LIBOR option is also
available to use for the interest rate. This line of credit is
subject to the same restrictive covenants that are as discussed
in the long-term debt footnote to the consolidated financial
statements.
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
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.
Commitments and Contingencies
At December 28, 1996, standby letters of credit aggregated
$4,000,000, of which the Company was obligated in the amount of
$990,480 relating to the purchase of certain raw materials and
finished goods from suppliers.
Additionally, the Company has obtained a letter of credit for
the benefit of the mortgage holders. At December 28, 1996, the
balance of the letter of credit was $3,441,877. 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.
Restructuring Charge
During the fourth quarter of 1994, a restructuring charge of
$4,340,053 before taxes was recorded in connection with various
restructuring actions taken by the Company to strengthen its
sporting goods segment. Product lines and products within those
lines were reviewed for sales viability and profitability. This
charge included writedowns associated with discontinued products
of $2,807,414 for inventory; $802,100 for tooling; $360,000 for
royalty minimums; and $370,539 for severance arrangements.
The exit plan for this restructuring charge was completed in the
fourth quarter of 1995. In the second quarter of 1995, an
additional $1,040,000 restructuring charge was taken as a part
of the 1994 restructuring charge. This additional amount,
related to the discontinued product writedown, was the result of
larger than anticipated markdowns to sell this inventory. There
were no other material differences in the actual vs. estimated
costs of the exit plan. The exit plan was completed in the
fourth quarter of 1995 with the sale of the marked down
discontinued product.
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
Summary of Quarterly Results
(In Thousands, Except Per Share Data)
(Unaudited)
March 25 July 15 October 7 December 30
1996
Net sales $15,381 $19,574 $23,142 $35,112
Gross profit 4,253 5,758 7,251 9,244
Net income 232 688 1,517 2,810
Earnings per share. .06 .16 .38 .91
1995
Net sales 18,110 19,160 22,857 31,052
Gross profit 3,993 3,459 4,805 5,479
Net income (loss) (41) (1,418) 589 1,318
Earnings (loss) per share (.01) (.34) .14 .32
A reduction in outstanding shares of approximately 1,000,000
shares as a result of the completion of the Dutch Auction in
September caused the fourth quarter earnings per share to be
greater than the first three quarters proportionately.
Consequently, if the four quarters earnings per share are added
together, they are greater than the actual earnings per weighted
average share for the year.
Acquisitions
Acquisition of Sweden Table Tennis AB
On February 2, 1994, the Company, along with the Bandstigen
Family and AB Traction, purchased Sweden Table Tennis AB. The
Bandstigen Family of Sweden has been actively involved with
table tennis internationally since the late 1960's. AB Traction
is a major Swedish venture-capital company. Sweden Table Tennis
AB manufactures and distributes products under the Stiga and
Banda brand names. These products are sold in 75 countries
throughout the world. Sweden Table Tennis AB has offices and
warehousing in Eskilstuna, Sweden and a manufacturing plant in
Tranas, Sweden. Escalade is the North American distributor of
Stiga brand products and is the world's only licensed
manufacturer of Stiga table tennis tables.
Escalade owns 37.5%, the Bandstigen Family owns 37.5% and AB
Traction owns 25% of Sweden Table Tennis AB. The Company made an
equity investment of 675,000 SEK and a loan of 3,000,000 SEK
($85,357 and $379,363 in U. S. dollars). The loan has an
interest rate of 12.75%. Interest on the loan was paid through
September 30, 1996. The investment in Sweden Table Tennis AB by
all the principals was switched to Valhalla, and Sweden Table
Tennis is now owned by Valhalla, which is owned by the same
principals in the same percentages.
Escalade, Incorporated and Subsidiaries
Notes to Financial Statements
Acquisition of Creatum AB (now Valhalla Fastighets AB)
On June 20, 1994, the Company, along with the Bandstigen Family,
each purchased 37.5% of Creatum AB from AB Traction. Creatum AB
owns the real estate in Eskilstuna, Sweden where Sweden Table
Tennis AB has its offices and warehousing. Creatum AB leases
these facilities to Sweden Table Tennis AB. The Company made an
equity investment of 91,500 SEK and a loan of 2,062,000 SEK
($11,693 and $262,908 in U. S. dollars). The loan had an
interest rate of 12.50% and was paid in 1995. The name was
changed in 1995 to Valhalla Fastighets AB.
Acquisition of Pacific World Trade, Inc.
On June 7, 1994, the Company acquired a 10% ownership interest in
Pacific World Trade, Inc. (PWT). PWT is an Indiana based company
and will provide Escalade with two primary services, including
the management of the purchasing and supply and sales and
distribution functions in Asia.
Acquisition of Certain Data-Link Corporation Assets
In July, 1994, Martin Yale Industries, Inc., a wholly-owned
subsidiary of the Company, acquired certain assets of Data-Link
Corporation (Data-Link), which was a manufacturer of certain
stamp affixing products. The purchase price was $900,000, and is
allocated as follows:
Inventories $150,000
Equipment 351,000
Goodwill 399,000
--------
$900,000
========
The combination was accounted for by using the purchase method.
The consolidated statement of income includes the results of
operations from the acquired division from the date acquired.
Historical results of operations prior to acquisition for the
assets acquired are not available and, therefore, no historical
data has been presented.
The remaining goodwill set up as a part of the Data-Link
acquisition was written off in the fourth quarter of 1994. This
amounted to $399,000. The main reason for this write off was due
to lower sales than projected in 1994 and anticipated lower sales
in 1995 than originally projected. These reduced sales levels
are the result of the emergence of a competing product copied
after the Stamp E-Z affixer. This product was not on the market
at the time of purchase. While the Data-Link product will still
be marketed and sold, management determined that the goodwill has
no future value. Sales are only one-half of original
expectations.
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 28, 1996 and December 30, 1995 and for
each of the three years in the period ended December 28, 1996 and
have issued our report thereon dated February 3, 1997; 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.
GEO. S. OLIVE & CO. LLC
Evansville, Indiana
February 3, 1997
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 at
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 28, 1996 $726,352 $427,650 $472,396 $681,606
Fiscal year ended
December 30, 1995 777,195 175,559 226,402 726,352
Fiscal year ended
December 31, 1994 650,111 181,732 54,648 777,195
(1) Deducted from related assets
(2) Accounts charged off, less recoveries
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ESCALADE, INCORPORATED
By: C.W. "BILL" REED March 14, 1997
----------------
C. W. "Bill" Reed
President and Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
ROBERT E. GRIFFIN
- ----------------- Chairman and Director
Robert E. Griffin (Principal Executive Officer) March 14, 1997
JOHN R. WILSON
- --------------
John R. Wilson Secretary and Treasurer
(Principal Financial Officer) March 14, 1997
BLAINE E. MATTHEWS, JR.
- -----------------------
Blaine E. Matthews, Jr. Director March 14, 1997
A. GRAVES WILLIAMS, JR.
- -----------------------
A. Graves Williams, Jr. Director March 14, 1997
GERALD J. FOX
- -------------
Gerald J. Fox Director March 14, 1997
KEITH P. WILLIAMS
- -----------------
Keith P. Williams Director March 14, 1997
YALE BLANC
- ----------
Yale Blanc Director March 14, 1997
ROBERT D. ORR
- -------------
Robert D. Orr Director March 14, 1997