Company Quick10K Filing
Quick10K
Escalade
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$11.52 14 $167
10-Q 2019-07-13 Quarter: 2019-07-13
10-Q 2019-03-23 Quarter: 2019-03-23
10-K 2018-12-29 Annual: 2018-12-29
10-Q 2018-10-06 Quarter: 2018-10-06
10-Q 2018-07-14 Quarter: 2018-07-14
10-Q 2018-03-24 Quarter: 2018-03-24
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-10-07 Quarter: 2017-10-07
10-Q 2017-07-15 Quarter: 2017-07-15
10-Q 2017-03-25 Quarter: 2017-03-25
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-09 Quarter: 2016-07-09
10-Q 2016-03-19 Quarter: 2016-03-19
10-K 2015-12-26 Annual: 2015-12-26
10-Q 2015-10-03 Quarter: 2015-10-03
10-Q 2015-07-11 Quarter: 2015-07-11
10-Q 2015-03-21 Quarter: 2015-03-21
10-K 2014-12-27 Annual: 2014-12-27
10-Q 2014-10-04 Quarter: 2014-10-04
10-Q 2014-07-12 Quarter: 2014-07-12
10-Q 2014-03-22 Quarter: 2014-03-22
10-K 2013-12-28 Annual: 2013-12-28
8-K 2019-08-07 Earnings, Other Events, Exhibits
8-K 2019-06-25 Officers, Exhibits
8-K 2019-05-15 Shareholder Vote
8-K 2019-04-18 Earnings, Other Events, Exhibits
8-K 2019-02-20 Earnings, Other Events, Exhibits
8-K 2019-01-21 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-01-21 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-11-01 Earnings, Other Events, Exhibits
8-K 2018-08-14 Earnings, Other Events, Exhibits
8-K 2018-06-07 Officers, Exhibits
8-K 2018-05-15 Enter Agreement, M&A, Other Events, Exhibits
8-K 2018-03-12 Officers
HRL Hormel Foods 21,160
KEP Korea Electric Power 14,740
JBT John Bean Technologies 3,470
GLOW Glowpoint 7
GXP Great Plains Energy 0
GROUP Kinetic Group 0
WYTC Wytec 0
ISRB Inspired Builders 0
NXT Natcore Technology 0
EEQ Enbridge Energy Management 0
ESCA 2019-07-13
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-31.1 tv526375_ex31-1.htm
EX-31.2 tv526375_ex31-2.htm
EX-32.1 tv526375_ex32-1.htm
EX-32.2 tv526375_ex32-2.htm

Escalade Earnings 2019-07-13

ESCA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv526375_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 July 13, 2019 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 August 2, 2019
Common, no par value   14,467,634

 

 

 

 

 

 

INDEX

 

    Page
No.
     
Part I. Financial Information:  
     
Item 1 - Financial Statements:  
     
  Consolidated Condensed Balance Sheets as of July 13, 2019, December 29, 2018, and July 14, 2018 3
     
  Consolidated Condensed Statements of Operations for the Three Months and Six Months Ended July 13, 2019 and July 14, 2018 4
     
  Consolidated Condensed Statements of Comprehensive Income for the Three Months and Six Months Ended July 13, 2019 and July 14, 2018 5
     
  Consolidated Statements of Stockholders’ Equity for the Three Months and Six Months Ended July 13, 2019 and July 14, 2018 6
     
  Consolidated Condensed Statements of Cash Flows for the Six Months Ended July 13, 2019 and July 14, 2018 7
     
  Notes to Consolidated Condensed Financial Statements 8
     
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 17
     
Item 4 - Controls and Procedures 17
     
Part II. Other Information  
     
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 18
     
Item 6 - Exhibits 19
     
  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  July 13,
2019
   December 29,
2018
   July 14,
2018
 
   (Unaudited)   (Audited)   (Unaudited) 
ASSETS               
Current Assets:               
Cash and cash equivalents  $4,598   $2,824   $15,572 
Receivables, less allowance of $533; $532; and $534; respectively   35,229    40,682    30,758 
Inventories   47,984    39,122    41,454 
Prepaid expenses   2,958    4,151    2,834 
Prepaid income tax   1,687    1,082     
Other current assets       2    21 
TOTAL CURRENT ASSETS   92,456    87,863    90,639 
                
Property, plant and equipment, net   15,387    15,498    12,990 
Operating lease right-of-use assets   1,288         
Intangible assets, net   19,529    19,785    18,943 
Goodwill   26,749    26,381    21,548 
Other assets   94         
TOTAL ASSETS  $155,503   $149,527   $144,120 
                
LIABILITIES AND STOCKHOLDERS' EQUITY               
Current Liabilities:               
Note payable  $135   $   $ 
Trade accounts payable   7,187    5,631    6,874 
Accrued liabilities   7,732    11,072    9,242 
Income tax payable           480 
Current operating lease liabilities   694         
TOTAL CURRENT LIABILITIES   15,748    16,703    16,596 
                
Other Liabilities:               
Long-term debt   7,393         
Deferred income tax liability   3,409    3,409    2,469 
Operating lease liabilities   616         
Other liabilities   1,094    1,094    503 
TOTAL LIABILITIES   28,260    21,206    19,568 
                
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 – 14,467,634; 14,438,824; and 14,439,724; shares respectively   14,468    14,439    14,440 
Retained earnings   112,775    113,882    110,112 
TOTAL STOCKHOLDERS' EQUITY   127,243    128,321    124,552 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $155,503   $149,527   $144,120 

 

See notes to Consolidated Condensed Financial Statements.

 

 3 

 

  

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

 

   Three Months Ended   Six Months Ended 
All Amounts in Thousands Except Per Share Data  July 13,
2019
   July 14,
2018
   July 13,
2019
   July 14,
2018
 
                 
Net sales  $55,639   $48,684   $87,741   $80,833 
                     
Costs and Expenses                    
Cost of products sold   42,680    37,187    66,305    60,348 
Selling, administrative and general expenses   10,038    9,121    17,783    16,071 
Amortization   450    425    788    748 
                     
Operating Income   2,471    1,951    2,865    3,666 
                     
Other Income (Expense)                    
Interest expense   (131)   (166)   (199)   (355)
Equity in earnings of affiliates       133        121 
Gain on sale of equity method investment (includes ($3,729) of accumulated other comprehensive loss reclassification from foreign currency translation adjustment)       13,020        13,020 
Other income (expense)   3    (76)   9    (99)
                     
Income Before Income Taxes   2,343    14,862    2,675    16,353 
                     
Provision for Income Taxes   467    2,791    532    3,066 
                     
Net Income  $1,876   $12,071   $2,143   $13,287 
                     
Earnings Per Share Data:                    
Basic earnings per share  $0.13   $0.84   $0.15   $0.92 
Diluted earnings per share  $0.13   $0.84   $0.15   $0.92 
                     
Dividends declared  $0.125   $0.125   $0.25   $0.25 

 

See notes to Consolidated Condensed Financial Statements.

 

 4 

 

 

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

   Three Months Ended   Six Months Ended 
All Amounts in Thousands  July 13,
2019
   July 14,
2018
   July 13,
2019
   July 14,
2018
 
                 
Net Income  $1,876   $12,071   $2,143   $13,287 
                     
Foreign currency translation adjustment before reclassification       (1,028)       (1,119)
                     
Amounts reclassified from comprehensive income due to divestiture of equity investment       3,729        3,729 
                     
Comprehensive Income  $1,876   $14,772   $2,143   $15,897 

 

All amounts are net of tax

See notes to Consolidated Condensed Financial Statements.

 

 5 

 

 

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

           Accumulated     
           Other     
   Common Stock   Retained   Comprehensive     
All Amounts in Thousands  Shares   Amount   Earnings   Income (Loss)   Total 
                     
Balances at March 24, 2018   14,416   $14,416   $99,495   $(2,702)  $111,209 
                          
Other comprehensive loss                  2,702    2,702 
Net income             12,071         12,071 
Expense of stock options and restricted stock units             209         209 
Settlement of restricted stock units   12    12    (12)         
Dividends declared             (1,804)        (1,804)
Stock issued to directors as compensation   12    12    153         165 
                          
Balances at July 14, 2018   14,440   $14,440   $110,112   $   $124,552 
                          
Balances at December 30, 2017   14,372   $14,372   $99,908   $(2,610)  $111,670 
                          
Other comprehensive income                  2,610    2,610 
Net income             13,287         13,287 
Expense of stock options and restricted stock units             370         370 
Exercise of stock options   9    9    45         54 
Settlement of restricted stock units   47    47    (47)         
Dividends declared             (3,604)        (3,604)
Stock issued to directors as compensation   12    12    153         165 
                          
Balances at July 14, 2018   14,440   $14,440   $110,112   $   $124,552 

 

           Accumulated     
           Other     
   Common Stock   Retained   Comprehensive     
All Amounts in Thousands  Shares   Amount   Earnings   Income (Loss)   Total 
                     
Balances at March 23, 2019   14,471   $14,471   $112,545   $-   $127,016 
                          
Other comprehensive income                       
Net income             1,876         1,876 
Expense of stock options and restricted stock units             197         197 
Dividends declared             (1,809)        (1,809)
Purchase of stock   (12)   (12)   (127)        (139)
Stock issued to directors as compensation   9    9    93         102 
                          
Balances at July 13, 2019   14,468   $14,468   $112,775   $-   $127,243 
                          
Balances at December 29, 2018   14,439   $14,439   $113,882   $-   $128,321 
                          
Other comprehensive income                       
Net income             2,143         2,143 
Expense of stock options and restricted stock units             341         341 
Exercise of stock options   10    10    108         118 
Settlement of restricted stock units   25    25    (25)         
Dividends declared             (3,618)        (3,618)
Purchase of stock   (15)   (15)   (149)        (164)
Stock issued to directors as compensation   9    9    93         102 
                          
Balances at July 13, 2019   14,468   $14,468   $112,775   $-   $127,243 

 

See notes to Consolidated Condensed Financial Statements.

 

 6 

 

 

ESCALADE, INCORPORATED AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

   Six Months Ended 
All Amounts in Thousands  July 13, 2019   July 14, 2018 
         
Operating Activities:          
Net income  $2,143   $13,287 
Depreciation and amortization   2,266    2,129 
Loss on disposal of property and equipment   6     
Stock-based compensation   341    370 
Gain on sale of equity method investment       (13,020)
Gain on insurance proceeds received for damage to property       (241)
Dividends received from equity method investments       2,323 
Adjustments necessary to reconcile net income to net cash provided by operating activities   (4,563)   1,796 
Net cash provided by operating activities   193    6,644 
           
Investing Activities:          
Purchase of property and equipment   (1,377)   (861)
Acquisitions   (765)    
Proceeds from sale of equity investment       33,705 
Insurance proceeds received for damage to property       1,018 
Proceeds from sale of property and equipment   4     
Net cash provided (used) by investing activities   (2,138)   33,862 
           
Financing Activities:          
Proceeds from issuance of long-term debt   43,299    21,873 
Payments on long-term debt   (35,906)   (44,994)
Proceeds from exercise of stock options   118    54 
Deferred financing fees   (112)    
Purchase of stock   (164)    
Cash dividends paid   (3,618)   (3,604)
Director stock compensation   102    165 
Net cash provided (used) by financing activities   3,719    (26,506)
Net increase in cash and cash equivalents   1,774    14,000 
Cash and cash equivalents, beginning of period   2,824    1,572 
Cash and cash equivalents, end of period  $4,598   $15,572 
           
Non-Cash Transactions          
Note payable for deferred purchase price obligation  $135   $ 

 

See notes to Consolidated Condensed Financial Statements.

 

 7 

 

 

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 29, 2018 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 2018 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 six month periods ended July 13, 2019 and July 14, 2018 are not necessarily indicative of the results to be expected for the full year.

 

Note C - Inventories

 

In thousands  July 13,
2019
   December 29,
2018
   July 14,
2018
 
             
Raw materials  $4,329   $3,622   $3,924 
Work in progress   2,729    2,892    3,452 
Finished goods   40,926    32,608    34,078 
   $47,984   $39,122   $41,454 

 

Note D – Equity Interest Investments

 

The Company had a 50% interest in a joint venture, Stiga Sports AB (Stiga). The joint venture was accounted for under the equity method of accounting. Stiga, located in Sweden, is a global sporting goods company producing table tennis equipment, snow sleds, and game products. The Company entered into a share purchase agreement for the private sale of the Company’s 50% interest in the Stiga joint venture. On May 17, 2018, the Company completed the sale of its 50% interest for $33.7 million, resulting in a gain on sale of $13.0 million. In conjunction with the sale, the Company entered into a new license agreement with Stiga for the licensing rights to manufacture, market, promote, sell and distribute Stiga-branded table tennis hobby products in the United States, Mexico and Canada. The Company has had the licensing rights for such products since 1995 pursuant to an existing license agreement that expired December 31, 2018. The new license agreement went into effect on January 1, 2019.

 

Financial information for Stiga reflected in the table below has been translated from local currency to U.S. dollars using exchange rates in effect at the respective period-end for balance sheet amounts and using average exchange rates for income statement amounts. The Company’s 50% portion of net income for Stiga, included in equity in earnings of affiliates on the Company’s statements of operations, is as follows:

 

In thousands  Period from March 25,
2018 through May 17, 2018
   Period from December 31,
2017 through May 17, 2018
 
         
Equity in earnings of affiliates  $133   $121 

 

 8 

 

 

Summarized financial information for Stiga Sports AB statements of operations for the period from March 25, 2018 through May 17, 2018 and the period from December 31, 2017 through May 17, 2018 is as follows:

 

In thousands  Period from
March 25,
2018 through
May 17, 2018
   Period from
December 31,
2017 through
May 17, 2018
 
         
Net sales  $6,804   $12,978 
Gross profit   3,342    6,019 
Net income   264    241 

 

Note E – Income Taxes

 

 

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

 

Note F – 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. Proceeds from the sale of the Company’s 50% interest in Stiga were used to pay off outstanding debt during the quarter ending July 14, 2018.

 

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 July 13, 2019, December 29, 2018 and July 14, 2018.

 

       Fair Value Measurements Using 

July 13, 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  $4,598   $4,598   $   $ 
                     
Financial liabilities                    
Long-term debt  $7,393   $   $7,393   $ 

 

       Fair Value Measurements Using 

December 29, 2018

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  $2,824   $2,824   $   $ 

 

 9 

 

  

       Fair Value Measurements Using 

July 14, 2018

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  $15,572   $15,572   $   $ 

 

Note G – Stock Compensation

 

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

 

During the six months ended July 13, 2019 and pursuant to the 2017 Incentive Plan, in lieu of cash payments of director fees, the Company awarded to certain directors 8,839 shares of common stock. During the six months ended July 13, 2019, the Company awarded 11,400 restricted stock units to directors and 35,900 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 2019 restricted stock units awarded to employees are subject to a three year cliff vesting schedule, which means that these restricted stock units will fully vest, if at all, three years from the grant date provided that the employee is still employed by the Company on the vesting date. In addition, vesting of certain of the restricted stock units is subject to the Company meeting certain conditions based on Return on Equity and Adjusted EBITDA.

 

For the three and six months ended July 13, 2019, including expense associated with issuing certain directors stock in lieu of cash for certain director fees, the Company recognized stock based compensation expense of $299 thousand and $443 thousand, respectively compared to stock based compensation expense of $374 thousand and $535 thousand for the same periods in the prior year. At July 13, 2019 and July 14, 2018, respectively, there was $1.0 million and $0.8 million in unrecognized stock-based compensation expense related to non-vested stock awards.

 

Note H - Segment Information

 

   For the Three Months
Ended July 13, 2019
 
In thousands  Sporting
Goods
   Corp.   Total 
             
Revenues from external customers  $55,639   $   $55,639 
Operating income (loss)   3,017    (546)   2,471 
Net income (loss)   2,094    (218)   1,876 

 

   As of and for the Six Months
Ended July 13, 2019
 
In thousands  Sporting
Goods
   Corp.   Total 
             
Revenues from external customers  $87,741   $   $87,741 
Operating income (loss)   3,778    (913)   2,865 
Net income (loss)   2,602    (459)   2,143 
Total assets  $148,846   $6,657   $155,503 

 

 10 

 

  

   For the Three Months
Ended July 14, 2018
 
In thousands  Sporting
Goods
   Corp.   Total 
             
Revenues from external customers  $48,684   $   $48,684 
Operating income (loss)   2,468    (517)   1,951 
Net income   1,685    10,386    12,071 

 

   As of and for the Six Months
Ended July 14, 2018
 
In thousands  Sporting
Goods
   Corp.   Total 
             
Revenues from external customers  $80,833   $   $80,833 
Operating income (loss)   4,561    (895)   3,666 
Net income   3,069    10,218    13,287 
Total assets  $127,777   $16,343   $144,120 

 

Note I – Dividend Payment

 

On June 10, 2019, the Company paid a quarterly dividend of $0.125 per common share to all shareholders of record on June 3, 2019. The total amount of the dividend was approximately $1.8 million and was charged against retained earnings.

 

On March 18, 2019, the Company paid a quarterly dividend of $0.125 per common share to all shareholders of record on March 11, 2019. The total amount of the dividend was approximately $1.8 million and was charged against retained earnings.

 

Note J - 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   Six Months Ended 
In thousands  July 13,
2019
   July 14,
2018
   July 13,
2019
   July 14,
2018
 
                 
Weighted average common shares outstanding   14,472    14,424    14,462    14,407 
Dilutive effect of stock options and restricted stock units   23    26    23    24 
Weighted average common shares outstanding, assuming dilution   14,495    14,450    14,485    14,431 

 

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 2019 and 2018 were 89,431 and 71,781, respectively.

 

Note K – 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 six month periods ended July 13, 2019, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018, that are of significance, or potential significance to the Company.

 

 11 

 

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU) 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. The amendments in this update will increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Under ASU 2016-02, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-to-use asset representing its right to use the underlying asset for the lease term. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from current GAAP. ASU 2016-02 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases will be substantially similar to the classification criteria for distinguishing between capital leases and operating leases under prior GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

 

The guidance permits a practical expedient with regards to initial adoption, allowing adopters the option to apply the new leases standard prospectively at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Under this expedient, comparative periods presented in the financial statements in which the new lease standard is adopted, will continue to be presented in accordance with prior GAAP.

 

The Company adopted this standard on December 30, 2018 using the prospective application method practical expedient. The adoption of this standard had an immaterial impact on our consolidated balance sheet, recognizing a ROU asset and lease liability of $985 thousand. Refer to Note M for disclosure requirements related to this standard.

 

Note L – 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:

 

 12 

 

  

   Three Months Ended   Six Months Ended 
All Amounts in Thousands  July 13,
2019
   July 14,
2018
   July 13,
2019
   July 14,
2018
 
                 
Gross Sales by Channel:                    
Mass Merchants  $18,838   $19,493   $30,268   $32,582 
Specialty Dealers   16,163    19,110    29,764    31,761 
E-commerce   24,806    12,988    34,740    20,346 
International   2,174    2,487    3,348    4,802 
Other   740    348    1,442    536 
Total Gross Sales   62,721    54,426    99,562    90,027 
                     
Less: Gross-to-Net Sales Adjustments                    
Returns   1,705    1,272    2,880    2,198 
Warranties   359    494    732    801 
Customer Allowances   5,018    3,976    8,209    6,195 
Total Gross-to-Net Sales Adjustments   7,082    5,742    11,821    9,194 
Total Net Sales  $55,639   $48,684   $87,741   $80,833 

 

Contract Balances – The following table provides information on changes in our contract liability balances during the three and six month periods ending July 13, 2019 and July 14, 2018. The contract liability recorded during the quarter ending July 14, 2018 is related to a lump sum payment received for consulting services to be provided over the next year. The contract liability will be amortized, and revenues recognized, evenly over the year. As of July 13, 2019, the contract liability was fully amortized.

 

   Three Months Ended   Six Months Ended 
All Amounts in Thousands  July 13,
2019
   July 14,
2018
   July 13,
2019
   July 14,
2018
 
                 
Increase due to cash received, excluding amounts recognized as revenue during the period  $-   $930   $-   $930 
Revenue recognized that was included in the contract liability balance at the beginning of the period   154    -    413    - 
Increase (decrease) in contract liability during the period  $(154)  $930   $(413)  $930 

 

Note M – 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 3 years. As of July 13, 2019, 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.

 

 13 

 

 

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:

 

All Amounts in Thousands  Thee
Months
Ended
July 13,
2019
   Six
Months
Ended
July 13,
2019
 
         
Lease Expense          
Operating Lease Cost  $253   $444 
Short-term Lease Cost   109    199 
Variable Lease Cost   86    141 
Total Operating Lease Cost  $448   $784 
           
Operating Lease – Operating Cash Flows  $221   $396 
New ROU Assets – Operating Leases  $652   $725 

 

Other information about lease amounts recognized in our consolidated financial statements is summarized as follows:

 

   Period
Ended July
13, 2019
 
Weighted Average Remaining Lease Term – Operating Leases   2.07 years 
Weighted Average Discount Rate – Operating Leases   5.00%

 

Future minimum lease payments under non-cancellable leases as of July 13, 2019 were as follows:

 

All Amounts in Thousands    
     
Year 1  $739 
Year 2   487 
Year 3   121 
Year 4   20 
Year 5   11 
Thereafter   - 
Total future minimum lease payments   1,378 
Less imputed interest   (68)
Total  $1,310 
      
Reported as of July 13, 2019     
Current operating lease liabilities   694 
Long-term operating lease liabilities   616 
Total  $1,310 

 

Note N – 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

 

 14 

 

 

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, 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 supply chain, Escalade’s ability to control costs, general economic conditions, fluctuation in operating results, changes in foreign currency exchange rates, changes in the securities market, 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, 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.

 

 15 

 

 

Results of Operations

 

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

 

   Three Months Ended   Six Months Ended 
   July 13, 2019   July 14, 2018   July 13, 2019   July 14, 2018 
Net revenue   100.0%   100.0%   100.0%   100.0%
Cost of products sold   76.7%   76.4%   75.6%   74.7%
Gross margin   23.3%   23.6%   24.4%   25.3%
Selling, administrative and general expenses   18.0%   18.7%   20.3%   19.9%
Amortization   0.8%   0.9%   0.9%   0.9%
Operating income   4.5%   4.0%   3.2%   4.5%

 

Revenue and Gross Margin

Sales increased by 14.3% for the second quarter of 2019, compared with the same period in the prior year. Expanded distribution within major customers and a return to normal weather resulted in higher sales in our Outdoor categories, which more than offset underperformance in other categories. For the first half of 2019, sales were up 8.5% compared to prior year.

 

The overall gross margin percentage decreased to 23.3% for the second quarter of 2019, compared to 23.6% for 2018 due to product mix. Gross margin percentage decreased to 24.4% for the first six months of 2019, compared to 25.3% for the same period in the prior year. The slight decline in gross margin ratio was due to increased customer allowances and product mix.

 

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) were $10.0 million for the second quarter of 2019 compared to $9.1 million for the same period in the prior year, an increase of $0.9 million or 10.1%. The increase in SG&A was due to operating costs associated with Victory Tailgate, which was acquired during the fourth quarter of 2018. SG&A as a percent of sales is 18.0% for the second quarter of 2019 compared with 18.7% for the same period in the prior year. For the first half of 2019, SG&A were $17.8 million compared to $16.1 million for the same period in 2018, an increase of $1.7 million or 10.7%, primarily driven by non-recurring costs of new basketball displayers and operating costs associated with Victory Tailgate. As a percent of sales, SG&A is 20.3% for the first half of 2019 compared with 19.9% for the same period in the prior year.

 

Other Income and Expense

During the second quarter of 2018, the Company sold its 50% equity interest in Stiga Sports AB (Stiga) for $33.7 million, resulting in a gain on sale of $13.0 million. This one time gain substantially increased the Company’s 2018 second quarter earnings.

 

Provision for Income Taxes

The effective tax rate for the first half of 2019 was 19.9% compared to 18.7% for the same period last year.

 

Financial Condition and Liquidity

 

Total debt at the end of the first six months of 2019 was $7.5 million. Proceeds from the sale of the Company’s 50% interest in Stiga were used to pay off outstanding debt during the second quarter ending July 14, 2018. The following schedule summarizes the Company’s total debt:

 

In thousands  July 13,
2019
   December 29,
2018
   July 14,
2018
 
             
Note payable  $135   $0   $0 
Long term debt   7,393    0    0 
Total  $7,528   $0   $0 

 

As a percentage of stockholders’ equity, total debt was 5.9%, zero and zero at July 13, 2019, December 29, 2018, and July 14, 2018 respectively.

 

 16 

 

 

On January 21, 2019, the Company entered into an 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”). Under the terms of the 2019 Restated Credit Agreement, the Lender has made available to the Company a senior revolving credit facility with increased maximum availability of $50.0 million. The maturity date was extended to January 31, 2022. In addition to the increased borrowing amount and extended maturity date, other significant changes reflected in the 2019 Restated Credit Agreement include: more favorable interest rate provisions; increases in borrowing base availability; releases of existing mortgages on the Company’s real property; and increasing to $25.0 million the total consideration that the Company may use for acquisitions without obtaining the Lender’s consent, as long as no event of default exists.

 

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 second quarter of 2019.

 

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 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS.

 

None.

 

Item 1A. RISK FACTORS.

 

Not Required.

 

 17 

 

 

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 3/23/2019 under the current repurchase program.   986,032   $8.85    986,032   $2,239,928 
Second quarter purchases:                    
3/24/2019–4/20/2019   None    None    No Change    No Change 
4/21/2019-5/18/2019   None    None    No Change    No Change 
5/19/2019-6/15/2019   3,323   $10.97    989,355   $2,203,489 
6/16/2019-7/13/2019   9,378   $10.99    998,733   $2,100,456 
Total share purchases under the current program   998,733   $8.88    998,733   $2,100,456 

 

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. The repurchase plan 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.

 

 18 

 

 

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   Amendment No.1 to Executive Severance Agreement dated as of June 25, 2019 between Escalade, Incorporated and David L. Fetherman. Incorporated by reference from the Company’s  Current Report on Form 8-K filed with the Commission on June 25, 2019.
     
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

 

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: August 8, 2019 /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)

 

 19