UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
⌧☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended October 3, 20202, 2021 or
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number 0-6966
ESCALADE, INCORPORATED
(Exact name of registrant as specified in its charter)
Indiana |
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(State of incorporation) | 13-2739290 (I.R.S. EIN) |
817 Maxwell Ave, Evansville, Indiana |
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(Address of principal executive office) | 47711 (Zip Code) |
812-467-1358
(Registrant’sRegistrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol | Name of Exchange on which registered | ||
Common Stock, No Par Value |
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| The NASDAQ Stock Market LLC |
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 ⌧☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ⌧☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☒ | |
Non-accelerated filer ☐ | Smaller reporting company | |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ⌧☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at October | |
Common, no par value |
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INDEX
2
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2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
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| October 3, |
| December 28, |
| October 5, | |||||||||||||||
All Amounts in Thousands Except Share Information | | 2020 | | 2019 | | 2019 | October 2, 2021 | December 26, 2020 | October 3, 2020 | ||||||||||||
| | (Unaudited) | | (Audited) | | (Unaudited) | |||||||||||||||
(Unaudited) | (Audited) | (Unaudited) | |||||||||||||||||||
ASSETS |
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Current Assets: |
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Cash and cash equivalents | | $ | 6,811 | | $ | 5,882 | | $ | 5,226 | $ | 6,492 | $ | 3,505 | $ | 6,811 | ||||||
Receivables, less allowance of $798; $483; and $519; respectively | |
| 63,750 | |
| 35,450 | |
| 35,592 | ||||||||||||
Receivables, less allowance of $636; $896; and $798; respectively | 68,849 | 65,280 | 63,750 | ||||||||||||||||||
Inventories | |
| 63,738 | |
| 42,269 | |
| 48,424 | 91,755 | 72,488 | 63,738 | |||||||||
Prepaid expenses | |
| 2,580 | |
| 3,151 | |
| 2,696 | 6,527 | 4,068 | 2,580 | |||||||||
Prepaid income tax | |
| — | |
| 163 | |
| 1,613 | -- | 57 | -- | |||||||||
TOTAL CURRENT ASSETS | |
| 136,879 | |
| 86,915 | |
| 93,551 | 173,623 | 145,398 | 136,879 | |||||||||
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Property, plant and equipment, net | |
| 16,029 | |
| 15,111 | |
| 15,207 | 24,000 | 18,232 | 16,029 | |||||||||
Operating lease right-of-use assets | |
| 1,271 | |
| 1,080 | |
| 1,242 | 2,500 | 1,608 | 1,271 | |||||||||
Intangible assets, net | |
| 17,739 | |
| 18,847 | |
| 19,181 | 21,207 | 22,645 | 17,739 | |||||||||
Goodwill | |
| 26,749 | |
| 26,749 | |
| 26,749 | 32,695 | 32,695 | 26,749 | |||||||||
Other assets | |
| 49 | |
| 77 | |
| 86 | 131 | 127 | 49 | |||||||||
TOTAL ASSETS | | $ | 198,716 | | $ | 148,779 | | $ | 156,016 | $ | 254,156 | $ | 220,705 | $ | 198,716 | ||||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||||||||||||
Current Liabilities: | |
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Note payable | | $ | — | | $ | 135 | | $ | 135 | ||||||||||||
Current portion of long-term debt | $ | 7,143 | $ | -- | $ | -- | |||||||||||||||
Trade accounts payable | |
| 32,102 | |
| 7,765 | |
| 9,947 | 25,071 | 20,947 | 32,102 | |||||||||
Accrued liabilities | |
| 18,702 | |
| 9,689 | |
| 8,819 | 18,100 | 24,271 | 18,702 | |||||||||
Income tax payable | | | 1,675 | | | 0 | | | 0 | 124 | -- | 1,675 | |||||||||
Current operating lease liabilities | |
| 693 | |
| 621 | |
| 689 | 990 | 854 | 693 | |||||||||
TOTAL CURRENT LIABILITIES | |
| 53,172 | |
| 18,210 | |
| 19,590 | 51,428 | 46,072 | 53,172 | |||||||||
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Other Liabilities: | |
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Long-term debt | |
| — | |
| 0 | |
| 5,221 | ||||||||||||
Long‑term debt | 51,874 | 30,073 | -- | ||||||||||||||||||
Deferred income tax liability | |
| 3,537 | |
| 3,537 | |
| 3,409 | 4,193 | 4,193 | 3,537 | |||||||||
Operating lease liabilities | |
| 591 | |
| 475 | |
| 575 | 1,493 | 763 | 591 | |||||||||
Other liabilities | |
| 387 | |
| 387 | |
| 1,094 | 448 | 448 | 387 | |||||||||
TOTAL LIABILITIES | |
| 57,687 | |
| 22,609 | |
| 29,889 | 109,436 | 81,549 | 57,687 | |||||||||
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Stockholders’ Equity: | |
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Stockholders' Equity: | |||||||||||||||||||||
Preferred stock: | |
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Authorized 1,000,000 shares; 0 par value, NaN issued | |
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Authorized 1,000,000 shares; no par value, none issued | |||||||||||||||||||||
Common stock: | |
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Authorized 30,000,000 shares; 0 par value, issued and outstanding – 14,169,404; 14,214,777; and 14,291,347; shares respectively | |
| 14,169 | |
| 14,215 | |
| 14,291 | ||||||||||||
Authorized 30,000,000 shares; no par value, issued and outstanding – 13,557,879; 13,919,380; and 14,169,404; shares respectively | 13,558 | 13,919 | 14,169 | ||||||||||||||||||
Retained earnings | |
| 126,860 | |
| 111,955 | |
| 111,836 | 131,162 | 125,237 | 126,860 | |||||||||
TOTAL STOCKHOLDERS’ EQUITY | |
| 141,029 | |
| 126,170 | |
| 126,127 | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 198,716 | | $ | 148,779 | | $ | 156,016 | ||||||||||||
TOTAL STOCKHOLDERS' EQUITY | 144,720 | 139,156 | 141,029 | ||||||||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 254,156 | $ | 220,705 | $ | 198,716 | |||||||||||||||
See notes to Consolidated Condensed Financial Statements.
3
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
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| October 3, |
| October 5, |
| October 3, |
| October 5, | ||||
All Amounts in Thousands Except Per Share Data | | 2020 | | 2019 | | 2020 | | 2019 | ||||
Net sales | | $ | 78,069 | | $ | 45,756 | | $ | 198,882 | | $ | 133,497 |
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Costs and Expenses | |
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Cost of products sold | |
| 54,548 | |
| 35,717 | |
| 141,911 | |
| 102,022 |
Selling, administrative and general expenses | |
| 10,374 | |
| 6,793 | |
| 29,752 | |
| 24,576 |
Amortization | |
| 332 | |
| 347 | |
| 1,108 | |
| 1,135 |
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Operating Income | |
| 12,815 | |
| 2,899 | |
| 26,111 | |
| 5,764 |
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Other Income (Expense) | |
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Interest expense | |
| (44) | |
| (96) | |
| (148) | |
| (295) |
Other income | |
| 40 | |
| 3 | |
| 108 | |
| 12 |
| | | | | | | | | | | | |
Income Before Income Taxes | |
| 12,811 | |
| 2,806 | |
| 26,071 | |
| 5,481 |
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Provision for Income Taxes | |
| 2,625 | |
| 266 | |
| 5,224 | |
| 798 |
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Net Income | | $ | 10,186 | | $ | 2,540 | | $ | 20,847 | | $ | 4,683 |
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Earnings Per Share Data: | |
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Basic earnings per share | | $ | 0.72 | | $ | 0.18 | | $ | 1.48 | | $ | 0.32 |
Diluted earnings per share | | $ | 0.71 | | $ | 0.18 | | $ | 1.47 | | $ | 0.32 |
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Dividends declared | | $ | 0.140 | | $ | 0.125 | | $ | 0.390 | | $ | 0.375 |
Three Months Ended | Nine Months Ended | |||||||||||||||
All Amounts in Thousands Except Per Share Data | October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||
Net sales | $ | 81,298 | $ | 78,069 | $ | 240,168 | $ | 198,882 | ||||||||
Costs and Expenses | ||||||||||||||||
Cost of products sold | 62,992 | 54,548 | 179,355 | 141,911 | ||||||||||||
Selling, administrative and general expenses | 10,202 | 10,374 | 33,888 | 29,752 | ||||||||||||
Amortization | 432 | 332 | 1,438 | 1,108 | ||||||||||||
Operating Income | 7,672 | 12,815 | 25,487 | 26,111 | ||||||||||||
Other Income (Expense) | ||||||||||||||||
Interest expense | (414 | ) | (44 | ) | (1,035 | ) | (148 | ) | ||||||||
Other income | 68 | 40 | 124 | 108 | ||||||||||||
Income Before Income Taxes | 7,326 | 12,811 | 24,576 | 26,071 | ||||||||||||
Provision for Income Taxes | 1,360 | 2,625 | 5,042 | 5,224 | ||||||||||||
Net Income | $ | 5,966 | $ | 10,186 | $ | 19,534 | $ | 20,847 | ||||||||
Earnings Per Share Data: | ||||||||||||||||
Basic earnings per share | $ | 0.44 | $ | 0.72 | $ | 1.41 | $ | 1.48 | ||||||||
Diluted earnings per share | $ | 0.43 | $ | 0.71 | $ | 1.40 | $ | 1.47 | ||||||||
Dividends declared | $ | 0.14 | $ | 0.140 | $ | 0.42 | $ | 0.390 | ||||||||
See notes to Consolidated Condensed Financial Statements.
4
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
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| | Common Stock | | Retained | | | | ||||
All Amounts in Thousands |
| Shares |
| Amount |
| Earnings |
| Total | |||
| | | | | | | | | | | |
Balances at July 13, 2019 |
| 14,468 | | $ | 14,468 | | $ | 112,775 | | $ | 127,243 |
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Net income |
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| 2,540 | |
| 2,540 |
Expense of stock options and restricted stock units |
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| 68 | |
| 68 |
Dividends declared |
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| (1,805) | |
| (1,805) |
Purchase of stock |
| (177) | |
| (177) | |
| (1,742) | |
| (1,919) |
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Balances at October 5, 2019 |
| 14,291 | | $ | 14,291 | | $ | 111,836 | | $ | 126,127 |
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Balances at December 29, 2018 |
| 14,439 | | $ | 14,439 | | $ | 113,882 | | $ | 128,321 |
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Net income |
| | |
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| 4,683 | |
| 4,683 |
Expense of stock options and restricted stock units |
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| 409 | |
| 409 |
Exercise of stock options | | 10 | | | 10 | | | 108 | | | 118 |
Settlement of restricted stock units |
| 25 | |
| 25 | |
| (25) | |
| — |
Dividends declared |
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| (5,423) | |
| (5,423) |
Purchase of stock |
| (192) | | | (192) | | | (1,891) | | | (2,083) |
Stock issued to directors as compensation |
| 9 | | | 9 | | | 93 | | | 102 |
Balances at October 5, 2019 |
| 14,291 | | $ | 14,291 | | $ | 111,836 | | $ | 126,127 |
Common Stock | Retained | |||||||||||||||
All Amounts in Thousands | Shares | Amount | Earnings | Total | ||||||||||||
Balances at July 11, 2020 | 14,154 | $ | 14,154 | $ | 118,410 | $ | 132,564 | |||||||||
Net income | 10,186 | 10,186 | ||||||||||||||
Expense of stock options and restricted stock units | 263 | 263 | ||||||||||||||
Settlement of restricted stock units | 15 | 15 | (15 | ) | -- | |||||||||||
Dividends declared | (1,984 | ) | (1,984 | ) | ||||||||||||
Balances at October 3, 2020 | 14,169 | $ | 14,169 | $ | 126,860 | $ | 141,029 | |||||||||
Balances at December 28, 2019 | 14,215 | $ | 14,215 | $ | 111,955 | $ | 126,170 | |||||||||
Net income | 20,847 | 20,847 | ||||||||||||||
Expense of stock options and restricted stock units | 756 | 756 | ||||||||||||||
Settlement of restricted stock units | 51 | 51 | (51 | ) | -- | |||||||||||
Issuance of restricted stock awards | 35 | 35 | (35 | ) | -- | |||||||||||
Dividends declared | (5,515 | ) | (5,515 | ) | ||||||||||||
Purchase of stock | (142 | ) | (142 | ) | (1,184 | ) | (1,326 | ) | ||||||||
Stock issued to directors as compensation | 10 | 10 | 87 | 97 | ||||||||||||
Balances at October 3, 2020 | 14,169 | $ | 14,169 | $ | 126,860 | $ | 141,029 | |||||||||
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| | Common Stock | | Retained | | | | ||||
All Amounts in Thousands |
| Shares |
| Amount |
| Earnings |
| Total | |||
| | | | | | | | | | | |
Balances at July 11, 2020 |
| 14,154 | | $ | 14,154 | | $ | 118,410 | | $ | 132,564 |
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Net income |
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| 10,186 | |
| 10,186 |
Expense of stock options and restricted stock units |
| | | | | | | 263 | | | 263 |
Settlement of restricted stock units | | 15 | | | 15 | | | (15) | | | -- |
Dividends declared |
| | |
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| (1,984) | |
| (1,984) |
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Balances at October 3, 2020 |
| 14,169 | | $ | 14,169 | | $ | 126,860 | | $ | 141,029 |
| | | | | | | | | | | |
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Balances at December 28, 2019 |
| 14,215 | | $ | 14,215 | | $ | 111,955 | | $ | 126,170 |
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Net income |
| | |
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| 20,847 | |
| 20,847 |
Expense of stock options and restricted stock units |
| | |
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| 756 | |
| 756 |
Settlement of restricted stock units |
| 51 | |
| 51 | |
| (51) | |
| -- |
Issuance of restricted stock awards | | 35 | | | 35 | | | (35) | | | -- |
Dividends declared |
| | |
| | |
| (5,515) | |
| (5,515) |
Purchase of stock |
| (142) | |
| (142) | |
| (1,184) | |
| (1,326) |
Stock issued to directors as compensation |
| 10 | |
| 10 | |
| 87 | |
| 97 |
Balances at October 3, 2020 |
| 14,169 | | $ | 14,169 | | $ | 126,860 | | $ | 141,029 |
Common Stock | Retained | |||||||||||||||
All Amounts in Thousands | Shares | Amount | Earnings | Total | ||||||||||||
Balances at July 10, 2021 | 13,779 | $ | 13,779 | $ | 131,354 | $ | 145,133 | |||||||||
Net income | 5,966 | 5,966 | ||||||||||||||
Expense of stock options and restricted stock units | 229 | 229 | ||||||||||||||
Dividends declared | (1,917 | ) | (1,917 | ) | ||||||||||||
Purchase of stock | (221 | ) | (221 | ) | (4,470 | ) | (4,691 | ) | ||||||||
Stock issued to directors as compensation | ||||||||||||||||
Balances at October 2, 2021 | 13,558 | $ | 13,558 | $ | 131,162 | $ | 144,720 | |||||||||
Balances at December 26, 2020 | 13,919 | $ | 13,919 | $ | 125,237 | $ | 139,156 | |||||||||
Net income | 19,534 | 19,534 | ||||||||||||||
Expense of stock options and restricted stock units | 666 | 666 | ||||||||||||||
Exercise of stock options | 10 | 10 | 134 | 144 | ||||||||||||
Settlement of restricted stock units | 46 | 46 | (46 | ) | -- | |||||||||||
Dividends declared | (5,804 | ) | (5,804 | ) | ||||||||||||
Purchase of stock | (423 | ) | (423 | ) | (8,688 | ) | (9,111 | ) | ||||||||
Stock issued to directors as compensation | 6 | 6 | 129 | 135 | ||||||||||||
Balances at October 2, 2021 | 13,558 | $ | 13,558 | $ | 131,162 | $ | 144,720 | |||||||||
See notes to Consolidated Condensed Financial Statements.
5
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | | ||||||||
| | Nine Months Ended | ||||||||||||
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| October 3, |
| October 5, | ||||||||||
Nine Months Ended | ||||||||||||||
All Amounts in Thousands | | 2020 | | 2019 | October 2, 2021 | October 3, 2020 | ||||||||
| | | | | | | ||||||||
Operating Activities: |
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Net income | | $ | 20,847 | | $ | 4,683 | $ | 19,534 | $ | 20,847 | ||||
Depreciation and amortization | |
| 3,252 | |
| 3,266 | 3,935 | 3,252 | ||||||
Provision for doubtful accounts | | | 394 | | | 277 | (224 | ) | 394 | |||||
Loss (gain) on disposal of property and equipment | | | (2) | | | 6 | ||||||||
Stock-based compensation | | | 756 | | | 409 | 666 | 756 | ||||||
Adjustments necessary to reconcile net income to net cash provided by operating activities | |
| (14,378) | |
| (1,453) | ||||||||
Net cash provided by operating activities | |
| 10,869 | |
| 7,188 | ||||||||
| | | | | | | ||||||||
Gain on disposal of property and equipment | (27 | ) | (2 | ) | ||||||||||
Adjustments necessary to reconcile net income to net cash used by operating activities | (26,933 | ) | (14,378 | ) | ||||||||||
Net cash provided (used) by operating activities | (3,049 | ) | 10,869 | |||||||||||
Investing Activities: | |
| | |
| | ||||||||
Purchase of property and equipment | |
| (3,064) | |
| (1,849) | (8,281 | ) | (3,064 | ) | ||||
Acquisitions | | | — | | | (765) | ||||||||
Proceeds from sale of property and equipment | 43 | 3 | ||||||||||||
Payment on note payable related to an acquisition | |
| (135) | |
| 0 | -- | (135 | ) | |||||
Proceeds from sale of property and equipment | | | 3 | | | 4 | ||||||||
Net cash used by investing activities | | | (3,196) | | | (2,610) | (8,238 | ) | (3,196 | ) | ||||
| | | | | | | ||||||||
Financing Activities: | |
| | | | | ||||||||
Proceeds from long-term debt | |
| 8,493 | |
| 65,191 | ||||||||
Proceeds from issuance of long-term debt | 192,792 | 8,493 | ||||||||||||
Payments on long-term debt | |
| (8,493) | |
| (59,969) | (163,849 | ) | (8,493 | ) | ||||
Proceeds from exercise of stock options | |
| — | |
| 118 | 144 | -- | ||||||
Deferred financing fees | |
| — | |
| (112) | (33 | ) | -- | |||||
Purchase of stock | |
| (1,326) | |
| (2,083) | (9,111 | ) | (1,326 | ) | ||||
Cash dividends paid | | | (5,515) | | | (5,423) | (5,804 | ) | (5,515 | ) | ||||
Director stock compensation | |
| 97 | |
| 102 | 135 | 97 | ||||||
Net cash used by financing activities | | | (6,744) | | | (2,176) | ||||||||
Net cash provided (used) by financing activities | 14,274 | (6,744 | ) | |||||||||||
Net increase in cash and cash equivalents | |
| 929 | |
| 2,402 | 2,987 | 929 | ||||||
Cash and cash equivalents, beginning of period | |
| 5,882 | |
| 2,824 | 3,505 | 5,882 | ||||||
Cash and cash equivalents, end of period | | $ | 6,811 | | $ | 5,226 | $ | 6,492 | $ | 6,811 | ||||
| | | | | | | ||||||||
Non-Cash Transactions | | | | | | | ||||||||
Note payable for deferred purchase price obligation | | $ | — | | $ | 135 | ||||||||
See notes to Consolidated Condensed Financial Statements.
6
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note A – Summary of Significant Accounting Policies
Presentation of Consolidated Condensed Financial Statements – The significant accounting policies followed by the Company and its wholly owned subsidiaries for interim financial reporting are consistent with the accounting policies followed for its annual financial reporting. All adjustments that are of a normal recurring nature and are in the opinion of management necessary for a fair statement of the results for the periods reported have been included in the accompanying consolidated condensed financial statements. The consolidated condensed balance sheet of the Company as of December 28, 2019 26, 2020 has been derived from the audited consolidated balance sheet of the Company as of that date. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K10-K annual report for 20192020 filed with the Securities and Exchange Commission.
Reclassifications - Certain reclassifications have been made to prior year financial statements to conform to the current year financial statement presentation. These reclassifications had no effect on net earnings.
Note B –‑ Seasonal Aspects
The results of operations for the three and nine month periods ended October 2, 2021 and October 3, 2020 and October 5, 2019 are not necessarily indicative of the results to be expected for the full year.
Note C –‑ Inventories
| | | | | | | | | | ||||||||||||
|
| October 3, |
| December 28, |
| October 5, | |||||||||||||||
In thousands | | 2020 | | 2019 | | 2019 | October 2, 2021 | December 26, 2020 | October 3, 2020 | ||||||||||||
| | | | | | | | | | ||||||||||||
Raw materials | | $ | 8,446 | | $ | 3,186 | | $ | 3,860 | $ | 10,160 | $ | 9,121 | $ | 8,446 | ||||||
Work in progress | |
| 4,217 | |
| 2,177 | |
| 2,410 | 3,873 | 3,538 | 4,217 | |||||||||
Finished goods | |
| 51,075 | |
| 36,906 | |
| 42,154 | 77,722 | 59,829 | 51,075 | |||||||||
| | $ | 63,738 | | $ | 42,269 | | $ | 48,424 | ||||||||||||
| $ | 91,755 | $ | 72,488 | $ | 63,738 | ||||||||||||||||
Note D – Fair Values of Financial Instruments
The following methods were used to estimate the fair value of all financial instruments recognized in the accompanying balance sheets at amounts other than fair values.
Cash and Cash Equivalents
Fair values of cash and cash equivalents approximate cost due to the short period of time to maturity.
Long-term Debt
Fair values of long-term debt is estimated based on borrowing rates currently available to the Company for bank loans with similar terms and maturities and determined through the use of a discounted cash flow model.
7
The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall in accordance with FASB ASC 825 at October 2, 2021, December 26, 2020 and October 3, 2020, December 28, 2019 and October 5, 2019.2020.
| | | | | | | | | | | | |
| | | | | Fair Value Measurements Using | |||||||
| | | | | Quoted Prices in | | | | | Significant | ||
| | | �� | | Active Markets | | Significant Other | | Unobservable | |||
October 3, 2020 | | Carrying | | for Identical | | Observable Inputs | | Inputs | ||||
In thousands |
| Amount |
| Assets (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Financial assets |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 6,811 | | $ | 6,811 | | $ | 0 | | $ | 0 |
Fair Value Measurements Using | ||||||||||||||||
October 2, 2021 In thousands | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 6,492 | $ | 6,492 | $ | -- | $ | -- | ||||||||
Financial liabilities | ||||||||||||||||
Current portion of long-term debt | $ | 7,143 | $ | -- | $ | 7,143 | $ | -- | ||||||||
Long-term debt | $ | 51,874 | $ | -- | $ | 51,874 | $ | -- | ||||||||
| | | | | | | | | | | | |
| | | | | Fair Value Measurements Using | |||||||
| | | | | Quoted Prices in | | | | | Significant | ||
| | | | | Active Markets | | Significant Other | | Unobservable | |||
December 28, 2019 | | Carrying | | for Identical | | Observable Inputs | | Inputs | ||||
In thousands |
| Amount |
| Assets (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Financial assets |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 5,882 | | $ | 5,882 | | $ | 0 | | $ | 0 |
Fair Value Measurements Using | ||||||||||||||||
December 26, 2020 In thousands | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 3,505 | $ | 3,505 | $ | -- | $ | -- | ||||||||
Financial liabilities | ||||||||||||||||
Long-term debt | $ | 30,073 | $ | -- | $ | 30,073 | $ | -- | ||||||||
| | | | | | | | | | | | |
| | | | | Fair Value Measurements Using | |||||||
| | | | | Quoted Prices in | | | | | Significant | ||
| | | | | Active Markets | | Significant Other | | Unobservable | |||
October 5, 2019 | | Carrying | | for Identical | | Observable Inputs | | Inputs | ||||
In thousands |
| Amount |
| Assets (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Financial assets |
| |
|
| |
|
| |
|
| |
|
Cash and cash equivalents | | $ | 5,226 | | $ | 5,226 | | $ | 0 | | $ | 0 |
| | | | | | | | | | | | |
Financial liabilities | | | | | | | | | | | | |
Long-term debt | | $ | 5,221 | | $ | — | | $ | 5,221 | | $ | — |
Fair Value Measurements Using | ||||||||||||||||
October 3, 2020 In thousands | Carrying Amount | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
Financial assets | ||||||||||||||||
Cash and cash equivalents | $ | 6,811 | $ | 6,811 | $ | -- | $ | -- | ||||||||
Note E – Stock Compensation
The fair value of stock-based compensation is recognized in accordance with the provisions of FASB ASC 718, Stock Compensation.
During the nine months ended October 3, 2020 2, 2021 and pursuant to the 2017 Incentive Plan, in lieu of cash payments of director fees, the Company awarded to certain directors 9,4485,683 shares of common stock. During the nine months ended October 3, 2020, 2, 2021, the Company awarded 22,85013,332 restricted stock units to directors 113,669and 37,283 restricted stock units and 35,000 shares of restricted stock to employees. The restricted stock units awarded to directors time vest over two years (one-half one-half one year from grant date and oneone-half-half two years from grant date) provided that the director is still a director of the Company at the vest date. Director restricted stock units are subject to forfeiture, except for termination of services as a result of retirement, death or disability, if on the vesting date the director no longer holds a position with the Company. All of the 2020The 2021 restricted stock units awarded to employees time vest over three years (oneone-third-thirdone year from grant, oneone-third-thirdtwo years from grant and oneone-third-thirdthree years from grant) provided that the employee is still employed by the Company on the vesting date, and 18,268 of such restricted stock units are also subject to performance conditions. The 35,000 shares of restricted stock vest over three years (40% one year from grant, 30% two years from grant and 30% three years from grant) provided that the employee is still employed by the Company on the vesting date.
For the three and nine months ended October 3, 2020, including expense associated with issuing certain directors stock in lieu of cash for certain director fees, 2, 2021, the Company recognized stock based compensation expense of $263$229 thousand and $853$666 thousand, respectively compared to stock based compensation expense of $68$263 thousand and $511$756 thousand for the same periods in the prior year. At October 2, 2021 and October 3, 2020, and October 5, 2019, respectively, there was $1.2$0.9 million and $0.8$1.2 million in unrecognized stock-based compensation expense related to non-vested stock awards.
8
Note F –‑ Segment Information
| | | | | | | | | | ||||||||||||
| | For the Three Months | |||||||||||||||||||
| | Ended October 3, 2020 | |||||||||||||||||||
For the Three Months Ended October 2, 2021 | |||||||||||||||||||||
In thousands |
| Sporting Goods |
| Corp. |
| Total | Sporting Goods | Corp. | Total | ||||||||||||
| | | | | | | | | | ||||||||||||
Revenues from external customers | | $ | 78,069 | | $ | — | | $ | 78,069 | $ | 81,298 | $ | -- | $ | 81,298 | ||||||
Operating income (loss) | |
| 13,177 | |
| (362) | |
| 12,815 | 8,087 | (415 | ) | 7,672 | ||||||||
Net income | |
| 9,554 | |
| 632 | |
| 10,186 | 5,614 | 352 | 5,966 | |||||||||
| | | | | | | | | | ||||||||||||
| | As of and for the Nine Months | |||||||||||||||||||
| | Ended October 3, 2020 | |||||||||||||||||||
As of and for the Nine Months Ended October 2, 2021 | |||||||||||||||||||||
In thousands |
| Sporting Goods |
| Corp. |
| Total | Sporting Goods | Corp. | Total | ||||||||||||
| | | | | | | | | | ||||||||||||
Revenues from external customers | | $ | 198,882 | | $ | 0 | | $ | 198,882 | $ | 240,168 | $ | -- | $ | 240,168 | ||||||
Operating income (loss) | |
| 27,640 | |
| (1,529) | |
| 26,111 | 27,049 | (1,562 | ) | 25,487 | ||||||||
Net income | |
| 20,017 | |
| 830 | |
| 20,847 | 18,956 | 578 | 19,534 | |||||||||
Total assets | | $ | 190,309 | | $ | 8,407 | | $ | 198,716 | $ | 246,777 | $ | 7,379 | $ | 254,156 | ||||||
| | | | | | | | | | ||||||||||||
| | For the Three Months | |||||||||||||||||||
| | Ended October 5, 2019 | |||||||||||||||||||
For the Three Months Ended October 3, 2020 | |||||||||||||||||||||
In thousands |
| Sporting Goods |
| Corp. |
| Total | Sporting Goods | Corp. | Total | ||||||||||||
| | | | | | | | | | ||||||||||||
Revenues from external customers | | $ | 45,756 | | $ | — | | $ | 45,756 | $ | 78,069 | $ | -- | $ | 78,069 | ||||||
Operating income (loss) | |
| 3,223 | |
| (324) | |
| 2,899 | 13,177 | (362 | ) | 12,815 | ||||||||
Net income | |
| 2,269 | |
| 271 | |
| 2,540 | 9,554 | 632 | 10,186 | |||||||||
| | | | | | | | | |
| | As of and for the Nine Months | |||||||
| | Ended October 5, 2019 | |||||||
In thousands |
| Sporting Goods |
| Corp. |
| Total | |||
| | | | | | | | | |
Revenues from external customers | | $ | 133,497 | | $ | 0 | | $ | 133,497 |
Operating income (loss) | |
| 7,001 | |
| (1,237) | |
| 5,764 |
Net income (loss) | |
| 4,871 | |
| (188) | |
| 4,683 |
Total assets | | $ | 148,664 | | $ | 7,352 | | $ | 156,016 |
As of and for the Nine Months Ended October 3, 2020 | ||||||||||||
In thousands | Sporting Goods | Corp. | Total | |||||||||
Revenues from external customers | $ | 198,882 | $ | -- | $ | 198,882 | ||||||
Operating income (loss) | 27,640 | (1,529 | ) | 26,111 | ||||||||
Net income | 20,017 | 830 | 20,847 | |||||||||
Total assets | $ | 190,309 | $ | 8,407 | $ | 198,716 | ||||||
Note G – Dividend Payment
On September 21, 2020, 14, 2021, the Company paid a quarterly dividend of $0.14 per common share to all shareholders of record on September 14, 2020. 7, 2021. The total amount of the dividend was approximately $2.0$1.9 million and was charged against retained earnings.
On June 8, 2020, 2021, the Company paid a quarterly dividend of $0.125$0.14 per common share to all shareholders of record on June 1, 2020. 2021. The total amount of the dividend was approximately $1.7$1.9 million and was charged against retained earnings.
On March 16, 2020, 24, 2021, the Company paid a quarterly dividend of $0.125$0.14 per common share to all shareholders of record on March 9, 2020. 17, 2021 (the amount was funded to the transfer agent by the Company on March 19, 2021). The total amount of the dividend was approximately $1.8$1.9 million and was charged against retained earnings.
Note H –‑ Earnings Per Share
The shares used in computation of the Company’s basic and diluted earnings per common share are as follows:
| | | | | | | | | ||||||||||||||||
| | Three Months Ended | | Nine Months Ended | ||||||||||||||||||||
|
| October 3, |
| October 5, |
| October 3, |
| October 5, | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
In thousands | | 2020 | | 2019 | | 2020 | | 2019 | October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||
| | | | | | | | | ||||||||||||||||
Weighted average common shares outstanding |
| 14,128 |
| 14,440 |
| 14,117 |
| 14,455 | 13,706 | 14,128 | 13,821 | 14,117 | ||||||||||||
Dilutive effect of stock options and restricted stock units |
| 137 |
| 28 |
| 105 |
| 30 | 102 | 137 | 102 | 105 | ||||||||||||
Weighted average common shares outstanding, assuming dilution |
| 14,265 |
| 14,468 |
| 14,222 |
| 14,485 | 13,808 | 14,265 | 13,923 | 14,222 | ||||||||||||
9
Stock options that are anti-dilutive as to earnings per share and unvested restricted stock units which have a market condition for vesting that has not been achieved are ignored in the computation of dilutive earnings per share. The number of stock options and restricted stock units that were excluded in 20202021 and 20192020 were 11,900 and 57,569, and 80,950, respectively.
Note I – New Accounting Standards and Changes in Accounting Principles
With the exception of that discussed below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three and nine month periods months ended October 3, 2020, 2, 2021, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K10-K for the fiscal year ended December 28, 2019, 26, 2020, that are of significance, or potential significance to the Company.
In January 2017, December 2019, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU) 2017-04, Intangibles (“ASU”) 2019- Goodwill and Other12,Income Taxes (Topic 350)740): Simplifying Accounting for Income Taxes, which removes certain exceptions to the Testgeneral principles of Topic 740,Accounting for Goodwill Impairment. The amendmentsIncome Taxes (“ASC 740”) and is intended to improve consistency and simplify GAAP in this update eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performedseveral other areas of ASC 740 by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.
clarifying and amending existing guidance. The Company adopted this standard on December 29, 2019. The27, 2020 and the adoption of this standard did not have ana material impact to theon its consolidated financial statements of the Company.statements.
Note J – Revenue from Contracts with Customers
Revenue Recognition – Effective December 31, 2017, we adopted ASC 606. The adoption of this standard did not impact the timing of revenue recognition for customer sales. Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our goods at a point in time based on shipping terms and transfer of title. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue.
Gross-to-net sales adjustments – We recognize revenue net of various sales adjustments to arrive at net sales as reported on the statement of operations. These adjustments are referred to as gross-to-net sales adjustments and primarily fall into one of three categories; categories: returns, warranties and customer allowances.
Returns – The Company records an accrued liability and reduction in sales for estimated product returns based upon historical experience. An accrued liability and reduction in sales is also recorded for approved return authorizations that have been communicated by the customer.
Warranties – Limited warranties are provided on certain products for varying periods. We record an accrued liability and reduction in sales for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims. Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the accrued liability and sales in the current year.
Customer Allowances – Customer allowances are common practice in the industries in which the Company operates. These agreements are typically in the form of advertising subsidies, volume rebates and catalog allowances and are accounted for as a reduction to gross sales. The Company reviews such allowances on an ongoing basis and accruals are adjusted, if necessary, as additional information becomes available.
10
Disaggregation of Revenue – We generate revenue from the sale of widely recognized sporting goods brands in basketball goals, archery, indoor and outdoor game recreation and fitness products. These products are sold through multiple sales channels that include;include: mass merchants, specialty dealers, key on-line retailers (“E-commerce”) and international. The following table depicts the disaggregation of revenue according to sales channel:
| | | | | | | | | | | | | ||||||||||||||||
| | Three Months Ended | | Nine Months Ended | ||||||||||||||||||||||||
|
| October 3, |
| October 5, |
| October 3, |
| October 5, | ||||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||
All Amounts in Thousands | | 2020 | | 2019 | | 2020 | | 2019 | October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
Gross Sales by Channel: |
| |
|
| |
|
| |
|
| |
| ||||||||||||||||
Mass Merchants | | $ | 36,234 | | $ | 20,757 | | $ | 77,418 | | $ | 51,025 | $ | 41,792 | $ | 36,234 | $ | 93,298 | $ | 77,418 | ||||||||
Specialty Dealers | |
| 21,741 | |
| 11,826 | |
| 57,666 | |
| 41,590 | 19,170 | 21,741 | 73,347 | 57,666 | ||||||||||||
E-commerce | |
| 25,172 | |
| 15,712 | |
| 78,242 | |
| 50,452 | 25,116 | 25,172 | 86,053 | 78,242 | ||||||||||||
International | |
| 2,637 | |
| 1,880 | |
| 6,129 | |
| 5,228 | 2,259 | 2,637 | 9,182 | 6,129 | ||||||||||||
Other | | | 598 | | | 637 | | | 1,669 | | | 2,079 | 883 | 598 | 2,469 | 1,669 | ||||||||||||
Total Gross Sales | |
| 86,382 | |
| 50,812 | |
| 221,124 | |
| 150,374 | 89,220 | 86,382 | 264,349 | 221,124 | ||||||||||||
| |
| | |
| | |
| | |
| | ||||||||||||||||
Less: Gross-to-Net Sales Adjustments | |
| | |
| | |
| | |
| | ||||||||||||||||
Returns | |
| 2,117 | |
| 1,473 | |
| 5,538 | |
| 4,353 | 1,283 | 2,117 | 5,531 | 5,538 | ||||||||||||
Warranties | |
| 376 | |
| 360 | |
| 1,152 | |
| 1,092 | �� | 590 | 376 | 1,703 | 1,152 | |||||||||||
Customer Allowances | |
| 5,820 | |
| 3,223 | |
| 15,552 | |
| 11,432 | 6,049 | 5,820 | 16,947 | 15,552 | ||||||||||||
Total Gross-to-Net Sales Adjustments | |
| 8,313 | |
| 5,056 | |
| 22,242 | |
| 16,877 | 7,922 | 8,313 | 24,181 | 22,242 | ||||||||||||
Total Net Sales | | $ | 78,069 | | $ | 45,756 | | $ | 198,882 | | $ | 133,497 | $ | 81,298 | $ | 78,069 | $ | 240,168 | $ | 198,882 | ||||||||
Note K – Leases
We have operating leases for office, manufacturing and distribution facilities as well as for certain equipment. Our commenced leases have remaining lease terms of 1 year to 56 years. As of October 3, 2020, 2, 2021, the Company has not entered into any lease arrangements classified as a finance lease.
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities and operating lease liabilities on our consolidated balance sheet. The Company has elected an accounting policy to not recognize short-term leases (one(one year or less) on the balance sheet. The Company also elected the package of practical expedients which applies to leases that commenced before the adoption date. By electing the package of practical expedients, the Company did not need to reassess the following; whether any existing contracts are or contain leases, the lease classification for any existing leases and initial direct costs for any existing leases.
ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. When the implicit rate of the lease is not provided or cannot be determined, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Components of lease expense and other information as follows:
| | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended | ||||||||
| | October 3, | | October 5, | | October 3, | | October 5, | ||||
All Amounts in Thousands |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
| | | | | | | | | | | | |
Lease Expense |
| | | | | | | |
|
| |
|
Operating Lease Cost | | $ | 197 | | $ | 164 | | $ | 610 | | $ | 608 |
Short-term Lease Cost | | | 137 | | | 149 | |
| 411 | |
| 348 |
Variable Lease Cost | | | 52 | | | 47 | |
| 169 | |
| 188 |
Total Operating Lease Cost | | | 386 | | $ | 360 | | $ | 1,190 | | $ | 1,144 |
| | | | | | | | | | | | |
Operating Lease - Operating Cash Flows | | $ | 182 | | $ | 156 | | $ | 557 | | $ | 552 |
New ROU Assets - Operating Leases | | $ | 56 | | $ | 108 | | $ | 744 | | $ | 833 |
Three Months Ended | Nine Months Ended | |||||||||||||||
All Amounts in Thousands | October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||
Lease Expense | ||||||||||||||||
Operating Lease Cost | $ | 433 | $ | 197 | $ | 1,151 | $ | 610 | ||||||||
Short-term Lease Cost | 330 | 137 | 1,361 | 411 | ||||||||||||
Variable Lease Cost | 101 | 52 | 304 | 169 | ||||||||||||
Total Operating Lease Cost | $ | 864 | 386 | $ | 2,816 | $ | 1,190 | |||||||||
Operating Lease – Operating Cash Flows | $ | 434 | $ | 182 | $ | 1,050 | $ | 557 | ||||||||
New ROU Assets – Operating Leases | $ | 1,189 | $ | 56 | $ | 2,329 | $ | 744 | ||||||||
11
Other information about lease amounts recognized in our consolidated financial statements is summarized as follows:
| | | | | |
| | Nine Months Ended |
| ||
| | October 3, | | October 5, | |
All Amounts in Thousands |
| 2020 |
| 2019 |
|
Weighted Average Remaining Lease Term – Operating Leases |
| 2.40 | years | 2.03 | years |
Weighted Average Discount Rate – Operating Leases |
| 5.00 | % | 5.00 | % |
Nine Months Ended | ||||||||
All Amounts in Thousands | October 2, 2021 | October 3, 2020 | ||||||
Weighted Average Remaining Lease Term – Operating Leases (years) | 3.93 | 2.40 | ||||||
Weighted Average Discount Rate – Operating Leases | 5.00 | % | 5.00 | % | ||||
Future minimum lease payments under non-cancellable leases as of October 3, 2020 2, 2021 were as follows:
| | | | ||||
All Amounts in Thousands |
| | | ||||
| | | | ||||
Year 1 | | $ | 738 | $ | 325 | ||
Year 2 | |
| 330 | 884 | |||
Year 3 | |
| 211 | 405 | |||
Year 4 | |
| 53 | 336 | |||
Year 5 | |
| 27 | 312 | |||
Thereafter | |
| 1 | 486 | |||
Total future minimum lease payments | |
| 1,360 | 2,748 | |||
Less imputed interest | |
| (76) | (265 | ) | ||
Total | | $ | 1,284 | $ | 2,483 | ||
| |
| | ||||
Reported as of October 3, 2020 | |
| | ||||
Reported as of October 2, 2021 | |||||||
Current operating lease liabilities | |
| 693 | 990 | |||
Long-term operating lease liabilities | |
| 591 | 1,493 | |||
Total | | $ | 1,284 | $ | 2,483 | ||
As of October 2, 2021, we have entered into a lease for additional warehouse and operations which has not yet commenced. Although the location is currently under construction, we do not control the building during construction, and are thus not deemed to be the owner during construction. Amounts in the table above exclude legally binding minimum lease payments for the lease signed but not yet commenced of $9.9 million.
Note L – Commitments and Contingencies
The Company is involved in litigation arising in the normal course of 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.
12
Item 2. MANAGEMENT’S
Item 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This report contains forward-looking statements relating to present or future trends or factors that are subject to risks and uncertainties. These risks include, but are not limited to: specific and overall impacts of the COVID-19 global pandemic on Escalade’s financial condition and results of operations; Escalade’s plans and expectations surrounding the transition to its newInterim Chief Executive Officer and all potential related effects and consequences; the impact of competitive products and pricing; product demand and market acceptance; new product development; Escalade’s ability to achieve its business objectives, especially with respect to its Sporting Goods business on which it has chosen to focus; Escalade’s ability to successfully achieve the anticipated results of strategic transactions, including the integration of the operations of acquired assets and businesses and of divestitures or discontinuances of certain operations, assets, brands, and products; the continuation and development of key customer, supplier, licensing and other business relationships; theEscalade’s ability to develop and implement our own direct to consumer e-commerce distribution channel; Escalade’s ability to successfully negotiate the shifting retail environment and changes in consumer buying habits; the financial health of our customers; disruptions or delays in our business operations, including without limitation disruptions or delays in our supply chain, arising from political unrest, war, labor strikes, natural disasters, public health crises such as the coronavirus pandemic, and other events and circumstances beyond our control; Escalade’s ability to control costs; Escalade’s ability to successfully implement actions to lessen the potential impacts of tariffs and other trade restrictions applicable to our products and raw materials, including impacts on the costs of producing our goods, importing products and materials into our markets for sale, and on the pricing of our products; general economic conditions; fluctuation in operating results; changes in foreign currency exchange rates; changes in the securities markets; Escalade’s ability to obtain financing and to maintain compliance with the terms of such financing; the availability, integration and effective operation of information systems and other technology, and the potential interruption of such systems or technology; risks related to data security of privacy breaches; and other risks detailed from time to time in Escalade’s filings with the Securities and Exchange Commission. 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.
Overview
Escalade, Incorporated (Escalade, the Company, we, us or our) is focused on growing its Sporting Goods business through organic growth of existing categories, strategic acquisitions, and new product development. The Sporting Goods business competes in a variety of categories including basketball goals, archery, pickleball, billiards, indoor and outdoor game recreation, water sports, and fitness products. Strong brands and on-going investment in product development provide a solid foundation for building customer loyalty and continued growth.
Within the sporting goods industry, the Company has successfully built a robust market presence in several niche markets. This strategy is heavily dependent on expanding our customer base, barriers to entry, strong brands, excellent customer service and a commitment to innovation. A key strategic advantage is the Company’s established relationships with major customers that allow the Company to bring new products to market in a cost effective manner while maintaining a diversified portfolio of products to meet the demands of consumers. In addition to strategic customer relations, the Company has substantial manufacturing and import experience that enableenables it to be a low cost supplier.
To enhance growth opportunities, the Company has focused on promoting new product innovation and development and brand marketing. In addition, the Company has embarked on a strategy of acquiring companies or product lines that complement or expand the Company’sCompany's existing product lines or provide expansion into new or emerging categories in sporting goods. A key objective is the acquisition of product lines with barriers to entry that the Company can take to market through its established distribution channels or through new market channels. Significant synergies are achieved through assimilation of acquired product lines into the existing Company structure. The Company also sometimes divests or discontinues certain operations, assets, brands, and products that do not perform to the Company’sCompany's expectations or no longer fit with the Company’sCompany's strategic objectives.
Management believes that key indicators in measuring the success of these strategies are revenue growth, earnings growth, new product introductions, and the expansion of channels of distribution.
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COVID-19 Pandemic
The emergence of thenovel coronavirus (COVID-19) around the world, and particularly in the United States and China, presents significant risks to the Company, not all of which the Company is able to fully evaluate or even to foresee at the current time. Economic and health conditions in the United States and across most of the globe continue to change. In the short-term, demand for the Company’s products has increased, notably in our fitness products, basketball, playground, and indoor/outdoor games. Some of the increase in demand is likely due to consumers being required or encouraged by governmental authorities to stay at home, schools being closed, and employers requiring employees to work remotely and/or implementing furloughs and layoffs. Such increased demand may not continue and/or demand may decrease from historical levels depending on the duration and severity of the COVID-19 pandemic, the length of time it takes for normal economic and operating conditions to resume, additional governmental actions that may be taken and/or extensions of time for restrictions that have been imposed to date, and numerous other uncertainties.
In addition, increased customer demand for certain products presents challenges for the Company to anticipate and adjust inventory levels to meet such demand. So far, the Company has been able to obtain products from its suppliers on a timely basis, but management anticipates that there may be delays in the future due to factory and shipping capacities that may impact timing of shipments in the first half of 2021, if not sooner. The Company is seeking to alleviate such concerns by accelerating its timing for placing 2021 orders with its suppliers and by continuing to develop other potential sources of products and raw materials.
The COVID-19 pandemic continued to affect the Company’s operations inthrough the third quarter of 2021 and may continue to do so indefinitely thereafter. Increased customer demand the Company experienced through 2020, likely caused in part by consumers remaining home to limit the spread of COVID-19, has carried over into the 2021 fiscal year. While the Company continues to meet these demands through accelerated ordering schedules and increased inventory, a substantial decrease in customer demand or slower payments by the Company’s mass merchants, specialty dealers or other customers could adversely impact the Company’s liquidity. All of these factors may have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, –many of whom are still working remotely, manufacturing, distribution, marketing and sales operations, customer and consumer behaviors, and on the overall economy. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain. In particular, uncertainty concerning the ongoing severity of the pandemic, potential government actions in response to the pandemic, the length of time it takes for normal economic operating conditions to resume, and potential changes in consumer habits following the lifting of COVID restrictions, all contribute to a volatile environment for conducting business.
Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three and nine month periodsperiod ended October 3, 20202, 2021 are not necessarily indicative of the results to be expected for the full fiscal year.year 2021. Management cannot predict the full impact of the COVID-19 pandemic on the Company’s sales channels, supply chain, manufacturing and distribution nor to economic conditions generally, including the effects on consumer spending. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.ends.
Results of Operations
The following schedule sets forth certain consolidated statement of operations data as a percentage of net revenue:
| | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| ||||
|
| October 3, 2020 |
| October 5, 2019 |
| October 3, 2020 |
| October 5, 2019 |
|
Net revenue |
| 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % |
Cost of products sold |
| 69.9 | % | 78.1 | % | 71.4 | % | 76.4 | % |
Gross margin |
| 30.1 | % | 21.9 | % | 28.6 | % | 23.6 | % |
Selling, administrative and general expenses |
| 13.3 | % | 14.8 | % | 15.0 | % | 18.4 | % |
Amortization |
| 0.4 | % | 0.8 | % | 0.5 | % | 0.9 | % |
Operating income |
| 16.4 | % | 6.3 | % | 13.1 | % | 4.3 | % |
Three Months Ended | Nine Months Ended | |||||||||||||||
October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | |||||||||||||
Net revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of products sold | 77.5 | % | 69.9 | % | 74.7 | % | 71.4 | % | ||||||||
Gross margin | 22.5 | % | 30.1 | % | 25.3 | % | 28.6 | % | ||||||||
Selling, administrative and general expenses | 12.6 | % | 13.3 | % | 14.1 | % | 15.0 | % | ||||||||
Amortization | 0.5 | % | 0.4 | % | 0.6 | % | 0.5 | % | ||||||||
Operating income | 9.4 | % | 16.4 | % | 10.6 | % | 13.1 | % | ||||||||
Revenue and Gross Margin
Sales increased by 70.6%4.1% for the third quarter of 2020,2021, compared with the same period in the prior year. The increase in sales was attributable to growthdriven by continued demand for our products, primarily in nearly all of ourthe archery and games product categories, but most notably in our archery, outdoor and fitness categories, including basketball, Lifeline Fitness and Victory Tailgate.lines. For the first nine months of 2020,2021, sales were up 49.0%20.8% compared to prior year.
The overall gross margin percentage increaseddecreased to 30.1%22.5% for the third quarter of 2020,2021, compared to 21.9%30.1% for 2019 primarily due to factory absorption2020. Gross margin was negatively impacted by higher transportation expenses, raw material costs, currency exchange rates, increased wage pressure, and product mix.inventory handling costs.
Gross margin percentage increaseddecreased to 28.6%25.3% for the first nine months of 2020,2021, compared to 23.6%28.6% for the same period in the prior year.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were $10.4$10.2 million for the third quarter of 20202021 compared to $6.8$10.4 million for the same period in the prior year, an increasea decrease of $3.6$0.2 million or 52.7%1.7%. The increase in SG&A is in line with the growth of the business. SG&A as a percent of sales is 13.3%12.6% for the third quarter of 20202021 compared with 14.8%13.3% for the same period in the prior year. For the first nine months of 2020,2021, SG&A were $29.8$33.9 million compared to $24.6$29.8 million for the same period in 2019,2020, an increase of $5.2$4.1 million or 21.1%13.9%. As a percent of sales, SG&A is 15.0%14.1% for the first nine months of 20202021 compared with 18.4%15.0% for the same period in the prior year.
Provision for Income Taxes
The effective tax rate for the first nine months of 20202021 was 20.0%20.5% compared to 14.6%20.0% for the same period last year.
Financial Condition and Liquidity
Total debt at the end of the first nine months of 20202021 was zero, a decrease$59.0 million, an increase of $135 thousand$28.9 million from December 28, 2019.26, 2020. The following schedule summarizes the Company’s total debt:
| | | | | | | | | |
|
| October 3, |
| December 28, |
| October 5, | |||
In thousands | | 2020 | | 2019 | | 2019 | |||
| |
| | |
| | |
| |
Note payable | | $ | — | | $ | 135 | | $ | 135 |
Long term debt | |
| — | |
| — | |
| 5,221 |
Total | | $ | — | | $ | 135 | | $ | 5,356 |
In thousands | October 2, 2021 | December 26, 2020 | October 3, 2020 | |||||||||
Current portion of long-term debt | $ | 7,143 | $ | -- | $ | -- | ||||||
Long term debt | $ | 51,874 | $ | 30,073 | $ | -- | ||||||
As a percentage of stockholders’ equity, total debt was 40.8%, 21.6% and zero 0.1%at October 2, 2021, December 26, 2020, and 4.2% at October 3, 2020 December 28, 2019, and October 5, 2019 respectively.
On March 24, 2020,July 7, 2021, the Company and its wholly owned subsidiary, Indian Industries, Inc. (“Indian”) entered into a Secondthe Fourth Amendment to the Amended and Restated Credit Agreement (“2019 Restated Credit Agreement”dated as of July 7, 2021 (the “Fourth Amendment”) with its issuing bank, JP Morgan Chase Bank, N.A. (“Chase”), and the other lenders identified into the 2019 Restated Credit Agreement (collectively,dated as of January 21, 2019 among the Company, Indian, each of their domestic subsidiaries, and Chase, as Administrative Agent and as Lender (the “Lender”). The sole purposeUnder the terms of the SecondFourth Amendment, the Lender extended a $50.0 million term loan to the Company and reduced the maximum availability under the senior revolving credit facility from $75.0 million to $50.0 million. The maturity date of the term loan is July 7, 2026 and the maturity date of the revolving credit facility likewise was extended to permit an increaseJuly 7, 2026. The Company may prepay the revolving credit facility, in authorized stock repurchases, increasingwhole or in part, and reborrow prior to the limit from $5,000,000revolving loan maturity date. The Company’s indebtedness under the Credit Agreement continues to $15,000,000.be collateralized by liens on all of the present and future equity of each of the Company’s domestic subsidiaries and substantially all of the assets of the Company (excluding real estate).
The Company funds working capital requirements, shareholder dividends, and stock repurchases through operating cash flows and revolving credit agreements with its bank. Based on working capital requirements, theThe Company expects to have access to adequate levels of revolving credit to meet growth needs.
Item 3. |
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Not Required.
Item 4. |
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Evaluation of Disclosure Controls and Procedures
Escalade maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, could provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Interim Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
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Changes in Internal Control over Financial Reporting
Management of the Company has evaluated, with the participation of the Company’s Interim Chief Executive Officer and Chief Financial Officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the third quarter of 2020.2021.
There have been no changes to the Company’s internal control over financial reporting that occurred since the beginning of the Company’s first quarter of 20202021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 1A. RISK FACTORS.
None.
As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
c) Issuer Purchases of Equity Securities
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| |
| |
| (c) Total Number |
| (d) Maximum Number | ||
| | (a) Total | | | | of Shares (or Units) | | (or Approximate Dollar | ||
| | Number of | | (b) Average | | Purchased as Part | | Value) of Shares (or | ||
| | Shares (or | | Price Paid | | of Publicly | | Units) that May Yet Be | ||
| | Units) | | per Share | | Announced Plans | | Purchased Under the | ||
Period | | Purchased | | (or Unit) | | or Programs | | Plans or Programs | ||
Share purchases prior to 7/11/2020 under the current repurchase program. |
| 1,397,490 | | $ | 9.28 |
| 1,397,490 | | $ | 10,000,330 |
Third quarter purchases: |
| | |
| |
| | |
| |
7/12/2020–8/8/2020 |
| None | | | None |
| No Change | | | No Change |
8/9/2020-9/5/2020 |
| None | | | None |
| No Change | | | No Change |
9/6/2020-10/3/2020 |
| None | |
| None |
| No Change | |
| No Change |
Total share purchases under the current program |
| 1,397,490 | | $ | 9.28 |
| 1,397,490 | | $ | 10,000,330 |
Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
Share purchases prior to 7/10/2021 under the current repurchase program. | 1,862,975 | $12.24 | 1,862,975 | $10,167,563 | ||||||||||||
Third quarter purchases: | ||||||||||||||||
7/11/2021-8/7/2021 | 46,046 | $22.90 | 1,909,021 | $9,113,132 | ||||||||||||
8/8/2021-9/4/2021 | 33,222 | $22.95 | 1,942,243 | $8,350,693 | ||||||||||||
9/5/2021-10/2/2021 | 142,342 | $20.20 | 2,084,585 | $5,475,786 | ||||||||||||
Total share purchases under the current program | 2,084,585 | $13.19 | 2,084,585 | $5,475,786 | ||||||||||||
The Company has one stock repurchase program which was established in February 2003 by the Board of Directors and which initially authorized management to expend up to $3,000,000 to repurchase shares on the open market as well as in private negotiated transactions. In February 2005, February 2006, August 2007 and February 2008 the Board of Directors increased the remaining balance on this plan to its original level of $3,000,000. In September 2019, the Board of Directors increased the stock repurchase program from $3,000,000 to $5,000,000. On March 24,In December 2020, the Board of Directors increased the stock repurchase program from $5,000,000 to $15,000,000. No additional stock repurchases yet have been made pursuant to the increased amount now available for stock repurchases. From its inception date through October 3, 2020,2, 2021, the Company has repurchased 1,397,4902,084,585 shares of its common stock under this repurchase program for an aggregate price of $12,966,498.$27,490,151. The repurchase program has no termination date and there have been no share repurchases that were not part of a publicly announced program.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Item 5. OTHER INFORMATION.
None.
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Item 6. EXHIBITS
Number | Description | |
3.1 | ||
3.2 | ||
31.1 | Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification. | |
31.2 | Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certification. | |
32.1 | ||
32.2 | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
101.INS | Inline XBRL Instance Document | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ESCALADE, INCORPORATED |
| ||
Date: October | /s/ Stephen R. Wawrin | ||
Vice President and Chief Financial Officer | |||
(On behalf of the registrant and in his | |||
| capacities as Principal Financial Officer | |||
| and Principal Accounting Officer) | |||
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