Company Quick10K Filing
Escalade
Price10.77 EPS1
Shares14 P/E19
MCap156 P/FCF22
Net Debt-0 EBIT9
TEV156 TEV/EBIT17
TTM 2019-10-05, in MM, except price, ratios
10-Q 2020-03-21 Filed 2020-04-16
10-K 2019-12-28 Filed 2020-02-21
10-Q 2019-10-05 Filed 2019-10-31
10-Q 2019-07-13 Filed 2019-08-08
10-Q 2019-03-23 Filed 2019-04-18
10-K 2018-12-29 Filed 2019-02-22
10-Q 2018-10-06 Filed 2018-11-01
10-Q 2018-07-14 Filed 2018-08-14
10-Q 2018-03-24 Filed 2018-04-19
10-K 2017-12-30 Filed 2018-02-27
10-Q 2017-10-07 Filed 2017-11-02
10-Q 2017-07-15 Filed 2017-07-31
10-Q 2017-03-25 Filed 2017-04-20
10-K 2016-12-31 Filed 2017-02-28
10-Q 2016-10-01 Filed 2016-10-27
10-Q 2016-07-09 Filed 2016-08-04
10-Q 2016-03-19 Filed 2016-04-15
10-K 2015-12-26 Filed 2016-02-23
10-Q 2015-10-03 Filed 2015-10-30
10-Q 2015-07-11 Filed 2015-08-06
10-Q 2015-03-21 Filed 2015-04-21
10-K 2014-12-27 Filed 2015-02-25
10-Q 2014-10-04 Filed 2014-11-12
10-Q 2014-07-12 Filed 2014-08-25
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10-K 2013-12-28 Filed 2014-02-25
10-Q 2013-10-05 Filed 2013-11-05
10-Q 2013-03-23 Filed 2013-04-26
10-K 2012-12-29 Filed 2013-02-26
10-Q 2012-10-06 Filed 2012-11-16
10-Q 2012-07-14 Filed 2012-08-14
10-Q 2012-03-24 Filed 2012-04-24
10-K 2011-12-31 Filed 2012-03-05
10-Q 2011-10-01 Filed 2011-11-01
10-Q 2011-07-09 Filed 2011-08-09
10-Q 2011-03-19 Filed 2011-04-21
10-K 2010-12-25 Filed 2011-03-01
10-Q 2010-10-02 Filed 2010-11-02
10-Q 2010-07-10 Filed 2010-08-02
10-Q 2010-03-20 Filed 2010-04-16
10-K 2009-12-26 Filed 2010-03-05
8-K 2020-05-13
8-K 2020-04-28
8-K 2020-04-16
8-K 2020-03-30
8-K 2020-03-24
8-K 2020-03-21
8-K 2020-02-21
8-K 2019-11-15
8-K 2019-10-31
8-K 2019-09-03
8-K 2019-08-07
8-K 2019-06-25
8-K 2019-05-15
8-K 2019-04-18
8-K 2019-02-20
8-K 2019-01-21
8-K 2018-11-01
8-K 2018-08-14
8-K 2018-06-07
8-K 2018-05-16
8-K 2018-05-15
8-K 2018-04-19
8-K 2018-03-12
8-K 2018-02-27

ESCA 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits
EX-10.4 tm2014615d1_ex10-4.htm
EX-31.1 tm2014615d1_ex31-1.htm
EX-31.2 tm2014615d1_ex31-2.htm
EX-32.1 tm2014615d1_ex32-1.htm
EX-32.2 tm2014615d1_ex32-2.htm

Escalade Earnings 2020-03-21

Balance SheetIncome StatementCash Flow
170136102683402012201420172020
Assets, Equity
655035205-102012201420172020
Rev, G Profit, Net Income
352311-1-13-252012201420172020
Ops, Inv, Fin

10-Q 1 tm2014615d1_10q.htm FORM 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

x  Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 21, 2020 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

(State of incorporation)

13-2739290

(I.R.S. EIN)

 

817 Maxwell Ave, Evansville, Indiana

(Address of principal executive office)

47711

(Zip Code)

 

812-467-1358

(Registrant's Telephone Number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  Trading Symbol  Name of Exchange on which registered
Common Stock, No Par Value  ESCA  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 x   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 x   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 x
Non-accelerated filer ¨  

Smaller reporting company x

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 x

 

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 April 9, 2020
Common, no par value  14,096,874

 

 

 1 
 

 

INDEX

 

      Page
No.
       
Part I.  Financial Information:   
       
Item 1 -  Financial Statements:   
       
   Consolidated Condensed Balance Sheets as of March 21, 2020, December 28, 2019, and March 23, 2019  3
       
   Consolidated Condensed Statements of Operations for the Three Months Ended March 21, 2020 and March 23, 2019  4
       
   Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 21, 2020 and March 23, 2019  5
       
   Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 21, 2020 and March 23, 2019  6
       
   Notes to Consolidated Condensed Financial Statements  7
       
Item 2 -  Management’s Discussion and Analysis of Financial Condition and Results of Operations  13
       
Item 3 -  Quantitative and Qualitative Disclosures About Market Risk  15
       
Item 4 -  Controls and Procedures  15
       
Part II.  Other Information   
       
Item 2 -  Unregistered Sales of Equity Securities and Use of Proceeds  17
       
Item 6 -  Exhibits  18
       
   Signature  19

 

 2 
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

 

All Amounts in Thousands Except Share Information  March 21,
2020
   December 28,
2019
   March 23,
2019
 
   (Unaudited)   (Audited)   (Unaudited) 
ASSETS            
Current Assets:               
Cash and cash equivalents  $6,167   $5,882   $4,299 
Receivables, less allowance of $565; $483; and $548; respectively   32,594    35,450    31,951 
Inventories   42,235    42,269    47,744 
Prepaid expenses   2,646    3,151    2,986 
Prepaid income tax   --    163    1,033 
TOTAL CURRENT ASSETS   83,642    86,915    88,013 
                
Property, plant and equipment, net   14,867    15,111    15,523 
Operating lease right-of-use assets   1,581    1,080    878 
Intangible assets, net   18,513    18,847    19,447 
Goodwill   26,749    26,749    26,381 
Other assets   69    77    90 
TOTAL ASSETS  $145,421   $148,779   $150,332 
                
LIABILITIES AND STOCKHOLDERS' EQUITY               
Current Liabilities:               
Note payable  $--   $135   $-- 
Trade accounts payable   6,387    7,765    7,756 
Accrued liabilities   8,029    9,689    6,512 
Income tax payable   315    --    -- 
Current operating lease liabilities   730    621    595 
TOTAL CURRENT LIABILITIES   15,461    18,210    14,863 
                
Other Liabilities:               
Long-term debt   --    --    3,662 
Deferred income tax liability   3,537    3,537    3,409 
Operating lease liabilities   867    475    288 
Other liabilities   387    387    1,094 
TOTAL LIABILITIES   20,252    22,609    23,316 
                
Stockholders' Equity:               
Preferred stock:               
Authorized 1,000,000 shares; no par value, none issued               
Common stock:               
Authorized 30,000,000 shares; no par value, issued and outstanding – 14,096,874; 14,214,777; and 14,471,496; shares respectively   14,097    14,215    14,471 
Retained earnings   111,072    111,955    112,545 
TOTAL STOCKHOLDERS' EQUITY   125,169    126,170    127,016 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $145,421   $148,779   $150,332 

 

See notes to Consolidated Condensed Financial Statements.

 3 
 

 

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

 

   Three Months Ended 
All Amounts in Thousands Except Per Share Data  March 21,
2020
   March 23,
2019
 
         
Net sales  $37,289   $32,102 
           
Costs and Expenses          
Cost of products sold   27,074    23,625 
Selling, administrative and general expenses   7,457    7,745 
Amortization   334    338 
           
Operating Income   2,424    394 
           
Other Income (Expense)          
Interest expense   (44)   (68)
Other income   46    6 
           
Income Before Income Taxes   2,426    332 
           
Provision for Income Taxes   475    65 
           
Net Income  $1,951   $267 
           
Earnings Per Share Data:          
Basic earnings per share  $0.14   $0.02 
Diluted earnings per share  $0.14   $0.02 
           
Dividends declared  $0.125   $0.125 

  

See notes to Consolidated Condensed Financial Statements.

 4 
 

 

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

   Common Stock   Retained     
All Amounts in Thousands  Shares   Amount   Earnings   Total 
                 
Balances at December 29, 2018   14,439   $14,439   $113,882   $128,321 
                     
Net income             267    267 
Expense of stock options and restricted stock units             144    144 
Exercise of stock options   10    10    108    118 
Settlement of restricted stock units   25    25    (25)   -- 
Dividends declared             (1,809)   (1,809)
Purchase of stock   (3)   (3)   (22)   (25)
                     
Balances at March 23, 2019   14,471   $14,471   $112,545   $127,016 
                     
                     
Balances at December 28, 2019   14,215   $14,215   $111,955   $126,170 
                     
Net income             1,951    1,951 
Expense of stock options and restricted stock units             136    136 
Settlement of restricted stock units   24    24    (24)   -- 
Dividends declared             (1,762)   (1,762)
Purchase of stock   (142)   (142)   (1,184)   (1,326)
                     
Balances at March 21, 2020   14,097   $14,097   $111,072   $125,169 

 

See notes to Consolidated Condensed Financial Statements.

 

 5 
 

 

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   Three Months Ended 
All Amounts in Thousands  March 21,
2020
   March 23,
2019
 
         
Operating Activities:          
Net income  $1,951   $267 
Depreciation and amortization   928    936 
Provision for doubtful accounts   77    212 
Stock-based compensation   136    144 
Adjustments necessary to reconcile net income to net cash provided by operating activities   767    (1,311)
Net cash provided by operating activities   3,859    248 
           
Investing Activities:          
Purchase of property and equipment   (351)   (623)
Payment on note payable related to an acquisition   (135)   -- 
Net cash used by investing activities   (486)   (623)
           
Financing Activities:          
Proceeds from issuance of long-term debt   679    14,200 
Payments on long-term debt   (679)   (10,538)
Proceeds from exercise of stock options   --    118 
Deferred financing fees   --    (96)
Purchase of stock   (1,326)   (25)
Cash dividends paid   (1,762)   (1,809)
Net cash provided (used) by financing activities   (3,088)   1,850 
Net increase in cash and cash equivalents   285    1,475 
Cash and cash equivalents, beginning of period   5,882    2,824 
Cash and cash equivalents, end of period  $6,167   $4,299 

  

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 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-K annual report for 2019 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 months ended March 21, 2020 and March 23, 2019 are not necessarily indicative of the results to be expected for the full year.

 

Note C - Inventories

 

In thousands  March 21,
2020
   December 28,
2019
   March 23,
2019
 
             
Raw materials  $4,452   $3,186   $4,052 
Work in progress   2,329    2,177    2,891 
Finished goods   35,454    36,906    40,801 
   $42,235   $42,269   $47,744 

 

Note D – Income Taxes

 

The provision for income taxes was computed based on financial statement income.

 

Note E – 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 March 21, 2020, December 28, 2019 and March 23, 2019.

 

       Fair Value Measurements Using 
March 21, 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  $6,167   $6,167   $--   $-- 

 

 

       Fair Value Measurements Using 
December 28, 2019
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  $5,882   $5,882   $--   $-- 

 

 

       Fair Value Measurements Using 
March 23, 2019
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  $4,299   $4,299   $--   $-- 
                     
Financial liabilities                    
Long-term debt  $3,662   $--   $3,662   $-- 

  

Note F – Stock Compensation

 

The fair value of stock-based compensation is recognized in accordance with the provisions of FASB ASC 718, Stock Compensation.

 

During the three months ended March 21, 2020, the Company awarded 20,000 restricted stock units to directors and 68,000 restricted stock units to employees. The restricted stock units awarded to directors time vest over two years (one-half one year from grant date and one-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. The 2020 restricted stock units awarded to employees time vest over three years (one-third one year from grant, one-third two years from grant and one-third three years from grant) provided that the employee is still employed by the Company on the vesting date.

 

For the three months ended March 21, 2020 and March 23, 2019, the Company recognized stock based compensation expense of $136 thousand and $144 thousand, respectively. At March 21, 2020 and March 23, 2019, respectively, there was $1.2 million and $1.2 million in unrecognized stock-based compensation expense related to non-vested stock awards.

 

 8 
 

 

Note G - Segment Information

 

   As of and for the Three Months
Ended March 21, 2020
 
In thousands  Sporting Goods   Corp.   Total 
             
Revenues from external customers  $37,289   $--   $37,289 
Operating income (loss)   2,823    (399)   2,424 
Net income (loss)   2,049    (98)   1,951 
Total assets  $137,010   $8,411   $145,421 

 

   As of and for the Three Months
Ended March 23, 2019
 
In thousands  Sporting Goods   Corp.   Total 
             
Revenues from external customers  $32,102   $--   $32,102 
Operating income (loss)   761    (367)   394 
Net income (loss)   507    (240)   267 
Total assets  $144,006   $6,326   $150,332 

  

Note H – Dividend Payment

 

On March 16, 2020, the Company paid a quarterly dividend of $0.125 per common share to all shareholders of record on March 9, 2020. The total amount of the dividend was approximately $1.8 million and was charged against retained earnings.

 

Note I - 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 
In thousands  March 21,
2020
   March 23,
2019
 
         
Weighted average common shares outstanding   14,118    14,447 
Dilutive effect of stock options and restricted stock units   56    28 
Weighted average common shares outstanding, assuming dilution   14,174    14,475 

 

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 2020 and 2019 were 79,700 and 89,431, respectively.

 

Note J – 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 months ended March 21, 2020, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019, that are of significance, or potential significance to the Company.

 

 9 
 

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU) 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed 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.

 

The Company adopted this standard on December 29, 2019. The adoption of this standard did not have an impact to the financial statements of the Company.

 

Note K – 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; 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.

 

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; mass merchants, specialty dealers, key on-line retailers (“E-commerce”) and international. The following table depicts the disaggregation of revenue according to sales channel:

 

 10 
 

  

   Three Months Ended 
All Amounts in Thousands  March 21,
2020
   March 23,
2019
 
         
Gross Sales by Channel:          
Mass Merchants  $13,468   $11,430 
Specialty Dealers   13,067    13,601 
E-commerce   13,581    9,934 
International   1,556    1,174 
Other   476    702 
Total Gross Sales   42,148    36,841 
           
Less: Gross-to-Net Sales Adjustments          
Returns   1,079    1,175 
Warranties   405    373 
Customer Allowances   3,375    3,191 
Total Gross-to-Net Sales Adjustments   4,859    4,739 
Total Net Sales  $37,289   $32,102 

 

 

Note L – Leases

 

We have operating leases for office, manufacturing and distribution facilities as well as for certain equipment. Our leases have remaining lease terms of 1 year to 5 years. As of March 21, 2020, 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 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 
All Amounts in Thousands  March 21,
2020
   March 23,
2019
 
         
Lease Expense          
Operating Lease Cost  $207   $191 
Short-term Lease Cost   23    90 
Variable Lease Cost   36    55 
Total Operating Lease Cost  $266   $336 
           
Operating Lease – Operating Cash Flows  $187   $175 
New ROU Assets – Operating Leases  $688   $73 
Weighted Average Remaining Lease Term – Operating Leases   2.61 years    1.65 years 
Weighted Average Discount Rate – Operating Leases   5.00%   5.00%

 

 11 
 

 

Future minimum lease payments under non-cancellable leases as of March 21, 2020 were as follows:

 

All Amounts in Thousands    
     
Year 1  $790 
Year 2   502 
Year 3   291 
Year 4   86 
Year 5   30 
Thereafter   2 
Total future minimum lease payments   1,701 
Less imputed interest   (104)
Total  $1,597 
      
Reported as of March 21, 2020     
Current operating lease liabilities   730 
Long-term operating lease liabilities   867 
Total  $1,597 

 

Note M – 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.

 

Note N – Subsequent Events

 

There are many uncertainties regarding the current coronavirus ("COVID-19") pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution channels. While the pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s first fiscal quarter ended March 21, 2020, we are unable to predict the impact that COVID-19 will have on its financial position and operating results due to numerous uncertainties. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its responses accordingly.

 

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in the United States. On April 14, 2020, Indian Industries, Inc., a wholly-owned subsidiary of Escalade, Incorporated (“Indian”), was informed by its lender, JPMorgan Chase Bank, N.A. (the “Bank”), that the Bank received approval from the U.S. Small Business Administration (“SBA”) to fund Indian’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted CARES Act administered by the SBA. In connection with the PPP Loan, Indian has entered into the promissory note attached as Exhibit 10.4 to this Form 10-Q. Per the terms of the PPP Loan, Indian will receive total proceeds of $5,627,500 from the Bank. In accordance with the requirements of the CARES Act, Indian intends to use the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan is scheduled to mature on April 9, 2022, has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act.

 

As disclosed in the Company’s Form 8-K filed with the SEC on April 1, 2020, on March 30, 2020, the Board of Directors of Escalade, Incorporated announced that Scott Sincerbeaux has agreed to become the Company’s new President and Chief Executive Officer. Mr. Sincerbeaux is expected to commence his employment with the Company on or about April 27, 2020.

  

 12 
 

 

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 newly hired 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; the 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. Additionally, many of these risks and uncertainties are currently elevated by and may or will continue to be elevated by the COVID-19 pandemic. It is not possible to predict or identify all such risks, but may become material in the future. 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, indoor and outdoor game recreation 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 enable 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'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's expectations or no longer fit with the Company'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.

 

 13 
 

 

COVID-19 Pandemic

 

The emergence of the 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. While the COVID-19 pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s first fiscal quarter ended March 21, 2020, economic and health conditions in the United States and across most of the globe have changed rapidly since the end of the quarter. In the short-term, demand for the Company’s products has increased, notably in our fitness products, basketball, playground, indoor/outdoor games, and trampolines. 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.

 

The COVID-19 pandemic is affecting the Company’s operations in the second quarter, and may continue to do so indefinitely thereafter. 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, 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.

 

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the three month period ended March 21, 2020 are not necessarily indicative of the results to be expected for the full fiscal year. 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.

 

Results of Operations

The following schedule sets forth certain consolidated statement of operations data as a percentage of net revenue:

 

   Three Months Ended 
   March 21, 2020   March 23, 2019 
Net revenue   100.0%   100.0%
Cost of products sold   72.6%   73.6%
Gross margin   27.4%   26.4%
Selling, administrative and general expenses   20.0%   24.1%
Amortization   0.9%   1.1%
Operating income   6.5%   1.2%

 

Revenue and Gross Margin

Sales increased by 16.2% for the first quarter of 2020, compared with the same period in the prior year due primarily to increased sales in our outdoor categories of basketball, pickleball and Victory Tailgate.

 

The overall gross margin percentage increased to 27.4% for the first quarter of 2020, compared to 26.4% for 2019 due to product mix and operational improvements the Company has performed over the last year.

 

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) were $7.5 million for the first quarter of 2020 compared to $7.7 million for the same period in the prior year, a decrease of $0.2 million or 3.7%. The reduction in SG&A was a result of organizational changes and operating efficiencies put in place during 2019. SG&A as a percent of sales is 20.0% for the first quarter of 2020 compared with 24.1% for the same period in the prior year.

 

Provision for Income Taxes

The effective tax rate for the first three months of 2020 was flat compared to last year at 19.6%.

 

 14 
 

 

Financial Condition and Liquidity

Total debt at the end of the first three months of 2020 was zero, a decrease of $135 thousand from December 28, 2019. The following schedule summarizes the Company’s total debt:

 

In thousands  March 21,
2020
   December 28,
2019
   March 23,
2019
 
             
Note payable  $--   $135   $-- 
Long term debt   --    --    3,662 
Total  $--   $135   $3,662 

 

As a percentage of stockholders’ equity, total debt was zero, 0.1% and 2.9 at March 21, 2020, December 28, 2019, and March 23, 2019 respectively.

 

On March 24, 2020, the Company entered into a Second Amendment to the Amended and Restated Credit Agreement (“2019 Restated Credit Agreement”) with its issuing bank, JP Morgan Chase Bank, N.A. (“Chase”), and the other lenders identified in the 2019 Restated Credit Agreement (collectively, the “Lender”). The sole purpose of the Second Amendment was to permit an increase in authorized stock repurchases, increasing the limit from $5,000,000 to $15,000,000.

 

The Company funds working capital requirements through operating cash flows and revolving credit agreements with its bank. Based on working capital requirements, the Company expects to have access to adequate levels of revolving credit to meet growth needs.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Required.

 

Item 4. CONTROLS AND PROCEDURES

 

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 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 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 Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting

 

Management of the Company has evaluated, with the participation of the Company’s 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 first quarter of 2020.

 

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 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 15 
 

 

PART II. OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS.

 

None.

 

Item 1A. RISK FACTORS.

 

The following risk factors are in addition to the risks described in the Company’s Form 10-K under Item 1A, “Risk Factors” for its fiscal year ended December 28, 2019 and in its subsequent periodic reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. The effects of the events and circumstances described in the following risk factors may have the additional effect of heightening many of the risks contained in the Company’s Form 10-K and other periodic reports.

 

The COVID-19 pandemic is adversely affecting the Company’s business currently. Additional factors could exacerbate such negative consequences and/or cause other materially adverse effects.

 

While the COVID-19 pandemic did not materially adversely affect the Company’s financial results and business operations in the Company’s first fiscal quarter ended March 21, 2020, economic and health conditions in the United States and across most of the globe have changed rapidly since the end of the quarter. In the short-term, demand for the Company’s products has increased, notably in our fitness products, basketball, playground, indoor/outdoor games, and trampolines. 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. Such events may result in business and manufacturing disruption, inventory shortages, delivery delays, and reduced sales and operations, any of which could materially affect our business, financial condition, and results of operations.

 

The ability of the Company’s employees to work may be significantly impacted by the coronavirus.

 

The Company’s employees are being affected by the COVID-19 pandemic. The majority of our office and management personnel are working remotely, and some of our employees engaged in manufacturing, production and distribution facilities have been restricted by the Company and/or by governmental order from coming to work. The health of the Company’s workforce is of primary concern and the Company may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the coronavirus. Further, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time and resources across the entire Company, thereby diverting their attention from other priorities that existed prior to the outbreak of the pandemic. If these conditions worsen, or last for an extended period of time, the Company’s ability to manage its business may be impaired, and operational risks, cybersecurity risks and other risks facing the Company even prior to the pandemic may be elevated.

 

The Company cannot predict the impact of the COVID-19 pandemic on its customers, suppliers, vendors, and other business partners.

 

The COVID-19 pandemic is affecting the Company’s customers, suppliers, vendors, and other business partners, but the Company is not able to assess the full extent of the current impact nor predict the ultimate consequences that will result therefrom. Amazon, the Company’s largest customer, has changed its practices and is not currently accepting deliveries of non-essential goods to its warehouses, although Amazon’s on-hand inventories are expected to continue to be sold until depleted. Dick’s Sporting Goods, the Company’s second largest customer, has closed all or substantially all of its stores in the United States, but continues to fill online orders and to provide curbside pick-up. The Company’s other mass merchant customers and specialty dealers are taking similar actions, although such customers do not have the same resources and breadth of customers that Amazon and Dick’s Sporting Goods enjoy. The Company’s planning and efforts in recent years to position itself to ship many goods purchased on Amazon direct to consumers and to make direct consumer online sales may mitigate some, but not all, of the adverse effects resulting from changes in the businesses of the Company’s resellers. If the Company’s sales channels are substantially impaired for an extended period of time, the Company’s sales will be materially reduced.

 

 16 
 

 

The full effects of the COVID-19 pandemic are highly uncertain and cannot be predicted.

 

The COVID-19 pandemic is affecting the Company’s operations in the second quarter, and may continue to do so indefinitely thereafter. The Company is continuously monitoring its own operations and intends to take appropriate actions to mitigate the risks arising from the COVID-19 pandemic to the best of its abilities, but there can be no assurances that the Company will be successful in doing so. To the extent the Company is able to obtain information about and maintain communications with its customers, suppliers, vendors, and other business partners, the Company will seek to minimize disruptions to its supply chain and distribution channels, but many circumstances will be beyond the Company’s control. Governmental action may further cause the Company to temporarily close its facilities and/or regional quarantines may result in labor shortages and work stoppages. All of these factors may have far reaching direct and indirect impacts on the Company’s business, operations, and financial results and condition. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments which cannot be predicted.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

c) Issuer Purchases of Equity Securities

 

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 12/28/2019 under the current repurchase program.   1,255,590   $9.27    1,255,590   $1,326,098 
First quarter purchases:                    
12/29/2019–1/25/2020   87,346   $9.51    1,342,936   $495,767 
1/26/2020-2/22/2020   54,554   $9.08    1,397,490   $330 
2/23/2020-3/21/2020   None    None    No Change    No Change 
Total share purchases under the current program   1,397,490   $9.28    1,397,490   $10,000,330 

 

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, 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 March 21, 2020, the Company has repurchased 1,397,490 shares of its common stock under this repurchase program for an aggregate price of $12,966,498. 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.

 

On April 14, 2020, Indian Industries, Inc., a wholly-owned subsidiary of Escalade, Incorporated (“Indian”), was informed by its lender, JPMorgan Chase Bank, N.A. (the “Bank”), that the Bank received approval from the U.S. Small Business Administration (“SBA”) to fund Indian’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the SBA. In connection with the PPP Loan, Indian has entered into the promissory note attached as Exhibit 10.4 to this Form 10-Q. Per the terms of the PPP Loan, Indian will receive total proceeds of $5,627,500 from the Bank. In accordance with the requirements of the CARES Act, Indian intends to use the proceeds from the PPP Loan primarily for payroll costs. The PPP Loan is scheduled to mature on April 9, 2022, has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act.

 

 17 
 

 

Item 6. EXHIBITS

 

Number  Description
3.1   Articles of Incorporation of Escalade, Incorporated. Incorporated by reference from the Company’s 2007 First Quarter Report on Form 10-Q.
    
3.2  Amended By-laws of Escalade, Incorporated, as amended April 22, 2014. Incorporated by reference from the Company’s 2014 First Quarter Report on Form 10-Q.
    
10.1  Second Amendment to the Amended and Restated Credit Agreement dated as of March 24, 2020 among Escalade, Incorporated, Indian Industries, Inc., each of their domestic subsidiaries, and JPMorgan Chase Bank, N.A., as Administrative Agent. Incorporated by reference from the Company’s Current Report on Form 8-K filed with the Commission on March 24, 2020.
    
10.2  Offer Letter, dated March 30, 2020, by and between Scott Sincerbeaux and Escalade, Incorporated. Incorporated by reference from the Company’s Current Report on Form 8-K filed with the Commission on April 1, 2020.
    
10.3  Executive Severance Agreement dated March 30, 2020, to be effective as of April 27, 2020 by and between Scott Sincerbeaux and Escalade, Incorporated. Incorporated by reference from the Company’s Current Report on Form 8-K filed with the Commission on April 1, 2020.
    
10.4   Promissory note dated April 9, 2020 entered into by Indian Industries, Inc. in favor of JPMorgan Chase Bank, N.A. pursuant to the Paycheck Protection Program as administered by the U.S. Small Business Administration.
    
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   Chief Executive Officer Section 1350 Certification.
    
32.2  Chief Financial Officer Section 1350 Certification.
    
101.CAL  XBRL Taxonomy Extension Calculation Linkbase Document
    
101.DEF  XBRL Taxonomy Extension Definition Linkbase Document
    
101.LAB  XBRL Taxonomy Extension Label Linkbase Document
    
101.PRE  XBRL Taxonomy Extension Presentation Linkbase Document
    
101.INS  XBRL Instance Document
    
101.SCH  XBRL Taxonomy Extension Schema Document

 

18 

 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

  ESCALADE, INCORPORATED
   
   
Date:April 16, 2020 /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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