|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
For the transition period from _____ to _____
Commission File Number
(Exact name of registrant as specified in its charter)
|
(State of incorporation) |
(I.R.S. EIN) |
|
(Address of principal executive office) |
(Zip Code) |
(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 |
|
|
|
The
|
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.
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).
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 ☐ |
|
|
|
Non-accelerated filer ☐ |
Smaller reporting company
Emerging growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
|
Class |
Outstanding at October 21, 2022 |
|
Common, no par value |
|
INDEX
|
Page
|
||
|
Part I. |
Financial Information: |
|
|
Item 1 - |
Financial Statements: |
|
|
Consolidated Condensed Balance Sheets as of October 1, 2022, December 825, 2021, and October 2, 2021 |
3 |
|
|
Consolidated Condensed Statements of Operations for the Three Months and Nine Months Ended October 1, 2022 and October 2, 2021 |
4 |
|
|
Consolidated Condensed Statements of Stockholders’ Equity for the Three Months and Nine Months Ended October 1, 2022 and October 2, 2021 |
5 |
|
|
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended October 1, 2022 and October 2, 2021 |
6 |
|
|
Notes to Consolidated Condensed Financial Statements |
7 |
|
|
Item 2 - |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
14 |
|
Item 3 - |
Quantitative and Qualitative Disclosures About Market Risk |
17 |
|
Item 4 - |
Controls and Procedures |
17 |
|
Part II. |
Other Information |
|
|
Item 1A - |
Risk Factors |
18 |
|
Item 2 - |
Unregistered Sales of Equity Securities and Use of Proceeds |
18 |
|
Item 6 - |
Exhibits |
19 |
|
Signature |
19 |
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
|
All Amounts in Thousands Except Share Information |
October 1, 2022 |
December 25,
|
October 2, 2021 |
|||||||||
|
(Unaudited) |
(Audited) |
(Unaudited) |
||||||||||
|
ASSETS |
||||||||||||
| Current Assets: | ||||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
$ |
|
||||||
|
Receivables, less allowance of $
|
|
|
|
|||||||||
|
Inventories |
|
|
|
|||||||||
|
Prepaid expenses |
|
|
|
|||||||||
|
Prepaid income tax |
|
|
-- | |||||||||
|
TOTAL CURRENT ASSETS |
|
|
|
|||||||||
|
Property, plant and equipment, net |
|
|
|
|||||||||
|
Operating lease right-of-use assets |
|
|
|
|||||||||
|
Intangible assets, net |
|
|
|
|||||||||
|
Goodwill |
|
|
|
|||||||||
|
Other assets |
|
|
|
|||||||||
|
TOTAL ASSETS |
$ |
|
$ |
|
$ |
|
||||||
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||||||
| Current Liabilities: | ||||||||||||
|
Current portion of long-term debt |
$ |
|
$ |
|
$ |
|
||||||
|
Trade accounts payable |
|
|
|
|||||||||
|
Accrued liabilities |
|
|
|
|||||||||
|
Income tax payable |
|
|||||||||||
|
Current operating lease liabilities |
|
|
|
|||||||||
|
TOTAL CURRENT LIABILITIES |
|
|
|
|||||||||
| Other Liabilities: | ||||||||||||
|
Long‑term debt |
|
|
|
|||||||||
|
Deferred income tax liability |
|
|
|
|||||||||
|
Operating lease liabilities |
|
|
|
|||||||||
|
Other liabilities |
|
|
|
|||||||||
|
TOTAL LIABILITIES |
|
|
|
|||||||||
| Stockholders' Equity: | ||||||||||||
|
Preferred stock: |
||||||||||||
|
Authorized
|
||||||||||||
|
Common stock: |
||||||||||||
|
Authorized
|
|
|
|
|||||||||
|
Retained earnings |
|
|
|
|||||||||
|
TOTAL STOCKHOLDERS' EQUITY |
|
|
|
|||||||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ |
|
$ |
|
$ |
|
||||||
See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
All Amounts in Thousands Except Per Share Data |
October 1,
|
October 2,
|
October 1,
|
October 2,
|
||||||||||||
|
Net sales |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Costs and Expenses | ||||||||||||||||
|
Cost of products sold |
|
|
|
|
||||||||||||
|
Selling, administrative and general expenses |
|
|
|
|
||||||||||||
|
Amortization |
|
|
|
|
||||||||||||
|
Operating Income |
|
|
|
|
||||||||||||
| Other Income (Expense) | ||||||||||||||||
|
Interest expense |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Other income (expense) |
(
|
) |
|
|
|
|||||||||||
|
Income Before Income Taxes |
|
|
|
|
||||||||||||
|
Provision for Income Taxes |
|
|
|
|
||||||||||||
|
Net Income |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
| Earnings Per Share Data: | ||||||||||||||||
|
Basic earnings per share |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Diluted earnings per share |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Dividends declared |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
|
Common Stock |
Retained |
|||||||||||||||
|
All Amounts in Thousands |
Shares |
Amount |
Earnings |
Total |
||||||||||||
|
Balances at July 10, 2021 |
|
$ |
|
$ |
|
$ |
|
|||||||||
|
Net income |
|
|
||||||||||||||
|
Expense of stock options and restricted stock units |
|
|
||||||||||||||
|
Dividends declared |
(
|
) |
(
|
) | ||||||||||||
|
Purchase of stock |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Stock issued to directors as compensation |
||||||||||||||||
|
Balances at October 2, 2021 |
|
$ |
|
$ |
|
$ |
|
|||||||||
|
Balances at December 26, 2020 |
|
$ |
|
$ |
|
$ |
|
|||||||||
|
Net income |
|
|
||||||||||||||
|
Expense of stock options and restricted stock units |
|
|
||||||||||||||
|
Exercise of stock options |
|
|
|
|
||||||||||||
|
Settlement of restricted stock units |
|
|
(
|
) | -- | |||||||||||
|
Dividends declared |
(
|
) |
(
|
) | ||||||||||||
|
Purchase of stock |
(
|
) |
(
|
) |
(
|
) |
(
|
) | ||||||||
|
Stock issued to directors as compensation |
|
|
|
|
||||||||||||
|
Balances at October 2, 2021 |
|
$ |
|
$ |
|
$ |
|
|||||||||
|
Common Stock |
Retained |
|||||||||||||||
|
All Amounts in Thousands |
Shares |
Amount |
Earnings |
Total |
||||||||||||
|
Balances at July 9, 2022 |
|
$ |
|
$ |
|
$ |
|
|||||||||
|
Net income |
|
|
||||||||||||||
|
Expense of restricted stock units |
|
|
||||||||||||||
|
Dividends declared |
(
|
) |
(
|
) | ||||||||||||
|
Balances at October 1, 2022 |
13,590 | $ | 13,590 | $ | 143,699 | $ | 157,289 | |||||||||
|
Balances at December 25, 2021 |
|
$ |
|
$ |
|
$ |
|
|||||||||
|
Net income |
|
|
||||||||||||||
|
Expense of restricted stock units |
|
|
||||||||||||||
|
Settlement of restricted stock units |
|
|
(
|
) | -- | |||||||||||
|
Dividends declared |
(
|
) |
(
|
) | ||||||||||||
|
Stock issued to directors as compensation |
|
|
|
|
||||||||||||
|
Balances at October 1, 2022 |
|
$ |
|
$ |
|
$ |
|
|||||||||
See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
|
Nine Months Ended |
||||||||
|
All Amounts in Thousands |
October 1, 2022 |
October 2, 2021 |
||||||
| Operating Activities: | ||||||||
|
Net income |
$ |
|
$ |
|
||||
|
Depreciation and amortization |
|
|
||||||
|
Provision for doubtful accounts |
|
(
|
) | |||||
|
Stock-based compensation |
|
|
||||||
|
Gain on disposal of property and equipment |
(
|
) |
(
|
) | ||||
|
Adjustments necessary to reconcile net income to net cash used by operating activities |
(
|
) |
(
|
) | ||||
|
Net cash used by operating activities |
(
|
) |
(
|
) | ||||
| Investing Activities: | ||||||||
|
Purchase of property and equipment |
(
|
) |
(
|
) | ||||
|
Proceeds from sale of property and equipment |
|
|
||||||
|
Acquisitions |
(
|
) | -- | |||||
|
Net cash used by investing activities |
(
|
) |
(
|
) | ||||
| Financing Activities: | ||||||||
|
Proceeds from issuance of long-term debt |
|
|
||||||
|
Payments on long-term debt |
(
|
) |
(
|
) | ||||
|
Proceeds from exercise of stock options |
-- |
|
||||||
|
Purchase of stock |
-- |
(
|
) | |||||
|
Director stock compensation |
|
|
||||||
|
Deferred financing fees |
(
|
) |
(
|
) | ||||
|
Cash dividends paid |
(
|
) |
(
|
) | ||||
|
Net cash provided by financing activities |
|
|
||||||
|
Net increase (decrease) in cash and cash equivalents |
(
|
) |
|
|||||
|
Cash and cash equivalents, beginning of period |
|
|
||||||
|
Cash and cash equivalents, end of period |
$ |
|
$ |
|
||||
See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note A – Summary of Significant Accounting Policies
Presentation of Consolidated Condensed Financial Statements
Note B ‑ Seasonal Aspects
The results of operations for the three and nine month periods ended October 1, 2022 and October 2, 2021 are not necessarily indicative of the results to be expected for the full year.
Note C ‑ Inventories
|
In thousands |
October 1, 2022 |
December 25,
|
October 2, 2021 |
|||||||||
|
Raw materials |
$ |
|
$ |
|
$ |
|
||||||
|
Work in progress |
|
|
|
|||||||||
|
Finished goods |
|
|
|
|||||||||
| $ |
|
$ |
|
$ |
|
|||||||
Note D – Fair Values of Financial Instruments
The following methods were used to estimate the fair value of all financial instruments recognized in the accompanying balance sheets at amounts other than fair values.
Cash and Cash Equivalents
Fair values of cash and cash equivalents approximate cost due to the short period of time to maturity.
Long-term Debt
Fair values of long-term debt is estimated based on borrowing rates currently available to the Company for bank loans with similar terms and maturities and determined through the use of a discounted cash flow model.
The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall in accordance with FASB ASC 825 at October 1, 2022, December 25, 2021 and October 2, 2021.
|
Fair Value Measurements Using |
||||||||||||||||
|
October 1, 2022 In thousands |
Carrying
|
Quoted Prices in
|
Significant Other
|
Significant
|
||||||||||||
|
Financial assets |
||||||||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
$ | -- | $ | -- | ||||||||
|
Financial liabilities |
||||||||||||||||
|
Current portion of long-term debt |
$ |
|
$ | -- | $ |
|
$ | -- | ||||||||
|
Long-term debt |
$ |
|
$ | -- | $ |
|
$ | -- | ||||||||
|
Fair Value Measurements Using |
||||||||||||||||
|
December 25, 2021 In thousands |
Carrying Amount |
Quoted Prices in
|
Significant Other
|
Significant
(Level 3) |
||||||||||||
|
Financial assets |
||||||||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
$ | -- | $ | -- | ||||||||
|
Financial liabilities |
||||||||||||||||
|
Current portion of long-term debt |
$ |
|
$ | -- | $ |
|
$ | -- | ||||||||
|
Long-term debt |
$ |
|
$ | -- | $ |
|
$ | -- | ||||||||
|
Fair Value Measurements Using |
||||||||||||||||
|
October 2, 2021 In thousands |
Carrying \Amount |
Quoted Prices in
|
Significant Other
Observable Inputs
|
Significant
|
||||||||||||
|
Financial assets |
||||||||||||||||
|
Cash and cash equivalents |
$ |
|
$ |
|
$ | -- | $ | -- | ||||||||
|
Financial liabilities |
||||||||||||||||
|
Current portion of long-term debt |
$ |
|
$ | -- | $ |
|
$ | -- | ||||||||
|
Long-term debt |
$ |
|
$ | -- | $ |
|
$ | -- | ||||||||
Note E – Stock Compensation
The fair value of stock-based compensation is recognized in accordance with the provisions of FASB ASC 718, Stock Compensation .
During the nine months ended October 1, 2022 and pursuant to the 2017 Incentive Plan, in lieu of cash payments of director fees, the Company awarded to certain directors
For the three and nine months ended October 1, 2022, the Company recognized stock based compensation expense of $
Note F ‑ Segment Information
|
For the Three Months Ended October 1, 2022 |
||||||||||||
|
In thousands |
Sporting
|
Corp. |
Total |
|||||||||
|
Revenues from external customers |
$ |
|
$ | $ |
|
|||||||
|
Operating income (loss) |
|
(
|
) |
|
||||||||
|
Net income (loss) |
|
|
|
|||||||||
|
As of and for the Nine Months Ended October 1, 2022 |
||||||||||||
|
In thousands |
Sporting
|
Corp. |
Total |
|||||||||
|
Revenues from external customers |
$ |
|
$ | $ |
|
|||||||
|
Operating income (loss) |
|
(
|
) |
|
||||||||
|
Net income |
|
|
|
|||||||||
|
Total assets |
$ |
|
$ |
|
$ |
|
||||||
|
For the Three Months Ended October 2, 2021 |
||||||||||||
|
In thousands |
Sporting
|
Corp. |
Total |
|||||||||
|
Revenues from external customers |
$ |
|
$ | $ |
|
|||||||
|
Operating income (loss) |
|
(
|
) |
|
||||||||
|
Net income |
|
|
|
|||||||||
|
As of and for the Nine Months Ended October 2, 2021 |
||||||||||||
|
In thousands |
Sporting
|
Corp. |
Total |
|||||||||
|
Revenues from external customers |
$ |
|
$ | $ |
|
|||||||
|
Operating income (loss) |
|
(
|
) |
|
||||||||
|
Net income |
|
|
|
|||||||||
|
Total assets |
$ |
|
$ |
|
$ |
|
||||||
Note G – Dividend Payment
On September 13, 2022, the Company paid a quarterly dividend of $
On June 7, 2022, the Company paid a quarterly dividend of $
On March 21, 2022, the Company paid a quarterly dividend of $
Note H ‑ Earnings Per Share
The shares used in computation of the Company’s basic and diluted earnings per common share are as follows:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
In thousands |
October 1,
|
October 2,
|
October 1,
|
October 2,
|
||||||||||||
|
Weighted average common shares outstanding |
|
|
|
|
||||||||||||
|
Dilutive effect of stock options and restricted stock units |
|
|
|
|
||||||||||||
|
Weighted average common shares outstanding, assuming dilution |
|
|
|
|
||||||||||||
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 2022 and 2021 were
Note I – New Accounting Standards and Changes in Accounting Principles
There have been no recent accounting pronouncements or changes in accounting pronouncements during the three and nine months ended October 1, 2022, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 25, 2021, that are of significance, or potential significance to the Company.
Note J – Revenue from Contracts with Customers
Revenue Recognition – 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:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
All Amounts in Thousands |
October 1,
|
October 2,
|
October 1,
|
October 2,
|
||||||||||||
|
Gross Sales by Channel: |
||||||||||||||||
|
Mass Merchants |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Specialty Dealers |
|
|
|
|
||||||||||||
|
E-commerce |
|
|
|
|
||||||||||||
|
International |
|
|
|
|
||||||||||||
|
Other |
|
|
|
|
||||||||||||
|
Total Gross Sales |
|
|
|
|
||||||||||||
|
Less: Gross-to-Net Sales Adjustments |
||||||||||||||||
|
Returns |
|
|
|
|
||||||||||||
|
Warranties |
|
|
|
|
||||||||||||
|
Customer Allowances |
|
|
|
|
||||||||||||
|
Total Gross-to-Net Sales Adjustments |
|
|
|
|
||||||||||||
|
Total Net Sales |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Note K – 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 10 years. As of October 1, 2022, 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 is as follows:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
All Amounts in Thousands |
October 1,
|
October 2,
|
October 1, 2022 |
October 2,
|
||||||||||||
|
Lease Expense |
||||||||||||||||
|
Operating Lease Cost |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Short-term Lease Cost |
|
|
|
|
||||||||||||
|
Variable Lease Cost |
|
|
|
|
||||||||||||
|
Total Operating Lease Cost |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
Operating Lease – Operating Cash Flows |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
|
New ROU Assets – Operating Leases |
$ |
|
$ |
|
$ |
|
$ |
|
||||||||
Other information about lease amounts recognized in our consolidated financial statements is summarized as follows:
|
Nine Months Ended |
||||||||
|
All Amounts in Thousands |
October 1,
|
October 2,
|
||||||
|
Weighted Average Remaining Lease Term – Operating Leases (in years) |
|
|
||||||
|
Weighted Average Discount Rate – Operating Leases |
|
% |
|
% | ||||
Future minimum lease payments under non-cancellable leases as of October 1, 2022 were as follows:
|
All Amounts in Thousands |
||||
|
Year 1 |
$ |
|
||
|
Year 2 |
|
|||
|
Year 3 |
|
|||
|
Year 4 |
|
|||
|
Year 5 |
|
|||
|
Thereafter |
|
|||
|
Total future minimum lease payments |
|
|||
|
Less imputed interest |
(
|
) | ||
|
Total |
$ |
|
||
|
Reported as of October 1, 2022 |
||||
|
Current operating lease liabilities |
|
|||
|
Long-term operating lease liabilities |
|
|||
|
Total |
$ |
|
Note L – Commitments and Contingencies
The Company is involved in litigation arising in the normal course of business. The Company does not believe that the disposition or ultimate resolution of existing claims or lawsuits will have a material adverse effect on the business or financial condition of the Company.
Note M – Acquisition
On January 21, 2022, the Company completed its acquisition of the assets constituting the Brunswick Billiards business of Life Fitness, LLC. The purchase price of the acquisition is $
Note N – Debt
On January 21, 2022, the Company entered into an Amended and Restated Credit Agreement (“Restated Credit Agreement”) with its issuing bank, JP Morgan Chase Bank, N.A. (“Chase”), and the other lenders identified in the Restated Credit Agreement (collectively, the “Lender”). Under the terms of the Restated Credit Agreement, Old National Bank has been added as a Lender. The Lenders have now made available to the Company a senior revolving credit facility with increased maximum availability of $
On July 18, 2022, the Company entered into the First Amendment to the Restated Credit Agreement. Under the terms of the First Amendment, the Lender increased the maximum availability under the senior revolving credit facility from $
As of October 1, 2022, the outstanding principal amount of the term loan was $
Note O – Subsequent Events
On October 26, 2022, the Company entered into the Second Amendment ("Second Amendment”) to the Restated Credit Agreement. Under the terms of the Second Amendment, the Lender increased the maximum availability under the senior revolving credit facility from $
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; 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; Escalade’s ability to develop and implement our own direct to consumer e-commerce distribution channel; Escalade’s ability to successfully negotiate the shifting retail environment and changes in consumer buying habits; the financial health of our customers; disruptions or delays in our business operations, including without limitation disruptions or delays in our supply chain, arising from political unrest, war, labor strikes, natural disasters, public health crises such as the coronavirus pandemic, and other events and circumstances beyond our control; Escalade’s ability to control costs; Escalade’s ability to successfully implement actions to lessen the potential impacts of tariffs and other trade restrictions applicable to our products and raw materials, including impacts on the costs of producing our goods, importing products and materials into our markets for sale, and on the pricing of our products; general economic conditions; fluctuation in operating results; changes in foreign currency exchange rates; changes in the securities markets; continued listing of the Company’s common stock on the NASDAQ Global Market; the Company’s inclusion or exclusion from certain market indices; 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; the potential impact of actual or perceived defects in, or safety of, our products, including any impact of product recalls or legal or regulatory claims, proceedings or investigations involving our products; 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, billiards, 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. In January 2022, the Company completed its acquisition of the assets of the Brunswick Billiards® business, complementing its existing portfolio of billiards brands and other offerings in the Company’s indoor recreation market. 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.
As the impact of the COVID-19 pandemic evolves, the Company continues to respond to the challenges and opportunities arising from the COVID-19 pandemic. Even though the pandemic may not have had a material adverse direct effect on the Company, the pandemic’s effects on the global supply chain, higher freight and materials costs, supplier product delays, workforce availability and labor costs have caused operational challenges for the Company. 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 ends. Consumer demand for the Company’s products may be slowing due to additional factors such as general economic conditions, inflation, recessionary fears, rising interest rates, changes in the housing market and declining consumer confidence. Management cannot predict the full impact of these factors on the Company. Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the period ended October 1, 2022 are not necessarily indicative of the results to be expected for fiscal year 2022.
Results of Operations
The following schedule sets forth certain consolidated statement of operations data as a percentage of net revenue:
|
Three Months Ended |
Nine Months Ended |
|||||||||||||||
|
October 1,
|
October 2,
|
October 1,
|
October 2,
|
|||||||||||||
|
Net revenue |
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
|
Cost of products sold |
81.8 | % | 77.5 | % | 76.2 | % | 74.7 | % | ||||||||
|
Gross margin |
18.2 | % | 22.5 | % | 23.8 | % | 25.3 | % | ||||||||
|
Selling, administrative and general expenses |
11.7 | % | 12.6 | % | 14.0 | % | 14.1 | % | ||||||||
|
Amortization |
0.9 | % | 0.5 | % | 0.9 | % | 0.6 | % | ||||||||
|
Operating income |
5.6 | % | 9.4 | % | 8.9 | % | 10.6 | % | ||||||||
Revenue and Gross Margin
Sales decreased by 7.9% for the third quarter of 2022, compared with the same period in the prior year. Sales declined due to softening consumer demand and excess inventories in the retail channel. During the third quarter of 2022, increases in billiards and pickleball sales, together with the contribution from the Brunswick Billiards® acquisition completed January 21, 2022, were more than offset by lower sales in outdoor categories including archery, games, water sports, and playground. For the first nine months of 2022, sales were up 0.6% compared to prior year.
Gross margin declined to 18.2% for the third quarter of 2022 compared to 22.5% for the same period in 2021 due to lower sales, unfavorable product mix, global supply chain constraints, and nonrecurring product recall expenses.
Gross margin percentage decreased to 23.8% for the first nine months of 2022, compared to 25.3% for the same period in the prior year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were $8.8 million for the third quarter of 2022 compared to $10.2 million for the same period in the prior year, a decrease of $1.4 million or 14.0%. SG&A as a percent of sales is 11.7% for the third quarter of 2022 compared with 12.6% for the same period in the prior year. For the first nine months of 2022, SG&A were $34.0 million compared to $33.9 million for the same period in 2021, an increase of $0.1 million or 0.3%. As a percent of sales, SG&A is 14.0% for the first nine months of 2022 compared with 14.1% for the same period in the prior year.
Provision for Income Taxes
The effective tax rate for the first nine months of 2022 was 19.6% compared to 20.5% for the same period last year.
Financial Condition and Liquidity
Total debt at the end of the first nine months of 2022 was $106.7 million, an increase of $49.2 million from December 25, 2021. The increase in debt was largely driven by the funding of the Brunswick Billiards acquisition completed in January of 2022. The following schedule summarizes the Company’s total debt:
|
In thousands |
October 1, 2022 |
December 25,
|
October 2, 2021 |
|||||||||
|
Current portion of long-term debt |
$ | 7,143 | $ | 7,143 | $ | 7,143 | ||||||
|
Long term debt |
99,568 | 50,396 | 51,874 | |||||||||
|
Total Debt |
$ | 106,711 | $ | 57,539 | $ | 59,017 | ||||||
As a percentage of stockholders’ equity, total debt was 67.8%, 39.2% and 40.8% at October 1, 2022, December 25, 2021, and October 2, 2021, respectively.
On January 21, 2022, the Company entered into an Amended and Restated Credit Agreement (“Restated Credit Agreement”) with its issuing bank, JP Morgan Chase Bank, N.A. (“Chase”), and the other lenders identified in the Restated Credit Agreement (collectively, the “Lender”). Under the terms of the Restated Credit Agreement, Old National Bank has been added as a Lender. The Lenders have now made available to the Company a senior revolving credit facility with increased maximum availability of $65.0 million (the “Revolving Facility”), up from $50.0 million, plus an accordion feature that would allow borrowings up to $90.0 million under the Revolving Facility subject to certain terms and conditions. The maturity date of the revolving credit facility was extended to January 21, 2027. The Company may prepay the Revolving Facility, in whole or in part, and reborrow prior to the revolving loan maturity date. The Restated Credit Agreement further extended the maturity date for the term loan facility to January 21, 2027.
Each loan bears interest at the Adjusted LIBO Rate for the interest period in effect plus the Applicable Rate. Applicable Rate means the applicable rate per annum set forth below, based upon Escalade’s Funded Debt to Adjusted Ratio as of the most recent determination date:
|
Funded Debt to EBITDA Ratio |
Revolving
|
Revolving
|
Letter of
|
Commitment Fee Rate |
||||||||||||
|
Category 1 Greater than or equal to 2.50 to 1.0 |
0.25 | % | 2.00 | % | 2.00 | % | 0.30 | % | ||||||||
|
Category 2 Greater than or equal to 1.50 to 1.0 but less than 2.50 to 1.0 |
-0- | 1.75 | % | 1.75 | % | 0.25 | % | |||||||||
|
Category 3 Less than 1.50 to 1.0 |
(0.25% | ) | 1.50 | % | 1.50 | % | 0.20 | % | ||||||||
The Applicable Rate is determined as of the end of each quarter based upon the Company’s annual or quarterly consolidated financial statements and shall be effective during the period commencing the date of delivery to the agent.
In addition to the increased revolving borrowing amount and extended maturity dates, other significant changes reflected in the Restated Credit Agreement included: specifying that Indian’s acquisition of the assets of the Brunswick Billiards business is a permitted acquisition; providing a $7.5 million swingline commitment by Chase; replacing LIBOR with the replacement benchmark secured overnight financing rate as previously contemplated; and adjustments to certain financial covenants relating to the fixed charge coverage ratio. Escalade’s indebtedness under the Restated Credit Agreement continues to be collateralized by liens on all of the present and future equity of each of Escalade’s domestic subsidiaries and substantially all of the assets of the Company (excluding real estate). Each direct and indirect domestic subsidiary of Escalade and Indian has secured its guaranty of indebtedness incurred under the Revolving Facility with a first priority security interest and lien on all of such subsidiary’s assets. Escalade, Indian and all of the domestic subsidiaries entered into an Amended and Restated Pledge and Security Agreement dated January 21, 2022 in favor of the Lender to continue the existing liens, previously existing under the original pledge and security agreements entered into on April 30, 2009, as amended, and thereafter for subsidiaries created or acquired after that date. The obligations, guarantees, liens and other interests granted by Escalade, Indian, and their domestic subsidiaries continue in full force and effect.
On July 18, 2022, the Company entered into the First Amendment to the Restated Credit Agreement. Under the terms of the First Amendment, the Lender increased the maximum availability under the senior revolving credit facility from $65.0 million to $75.0 million pursuant to the accordion feature in the Restated Credit Agreement. The First Amendment also adjusted the funded debt to EBITDA ratio financial covenant to 3:00 to 1:00 as of the end of the Company’s third and fourth fiscal quarters of 2022.
On October 26, 2022, the Company entered into the Second Amendment ("Second Amendment”) to the Restated Credit Agreement. Under the terms of the Second Amendment, the Lender increased the maximum availability under the senior revolving credit facility from $75.0 million to $90.0 million pursuant to the accordion feature in the Restated Credit Agreement. The Second Amendment adjusted the funded debt to EBITDA ratio financial covenant to 3:25 to 1:00 as of the end of the Company’s third and fourth fiscal quarters of 2022 and 3:00 to 1:00 as of the end of the Company’s first fiscal quarter of 2023. The Second Amendment also modified the EBITDA definition to permit add-backs of a) up to $2.0 million for disposition related expenses; and b) up to $2.0 million for unusual or non-recurring expenses which are incurred prior to the end of fiscal year 2023 and which are subject to the approval of the Administrative Agent.
As of October 1, 2022, the outstanding principal amount of the term loan was $41.7 million and total amount drawn under the Revolving Facility was $65.0 million.
The Company funds working capital requirements, shareholder dividends, and stock repurchases through operating cash flows and revolving credit agreements with its Lenders. The Company expects that cash generated from its 2022 operations and its access to adequate levels of revolving credit will provide it with sufficient cash flows for its operations and 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 third quarter of 2022.
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 2022 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.
In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021, as updated in our Quarterly Report on Form 10-Q for the fiscal quarter ended July 9, 2022. These risks and uncertainties could materially and adversely affect our business, consolidated financial condition, results of operations, or cash flows. Our operations could also be affected by additional risks or uncertainties that are not presently known to us or that we currently do not consider material to our business. As of the date of this filing, there have been no material changes in our risk factors from those disclosed in the above-referenced Form 10-K and Form 10-Q, which risk factors are incorporated herein by reference.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
c) Issuer Purchases of Equity Securities
|
Period |
(a) Total
|
(b) Average
|
(c) Total Number
|
(d) Maximum Number
(or Approximate Dollar
|
|
Share purchases prior to 7/9/2022 under the current repurchase program. |
2,153,132 |
$13.38 |
2,153,132 |
$4,153,252 |
|
Third quarter purchases: |
||||
|
7/10/2022–8/6/2022 |
None |
None |
No Change |
No Change |
|
8/7/2022-9/3/2022 |
None |
None |
No Change |
No Change |
|
9/4/2022-10/1/2022 |
None |
None |
No Change |
No Change |
|
Total share purchases under the current program |
2,153,132 |
$13.38 |
2,153,132 |
$4,153,252 |
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. In December 2020, the Board of Directors increased the stock repurchase program to $15,000,000. From its inception date through October 1, 2022, the Company has repurchased 2,153,132 shares of its common stock under this repurchase program for an aggregate price of $28,812,686. The repurchase program has no termination date and there have been no share repurchases that were not part of a publicly announced program.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS
|
Number |
Description |
|
3.1 |
|
|
3.2 |
Amended By-laws of Escalade, Incorporated, as amended August 10, 2022. |
|
10.1 |
Second Amendment dated October 26, 2022 to the Amended and Restated Credit Agreement dated as of January 21, 2022 among Escalade, Incorporated, Indian Industries, Inc., each of their domestic subsidiaries, and JPMorgan Chase Bank, N.A., as Administrative Agent (without exhibits and schedules, which Escalade has determined are not material). Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 27, 2022. |
|
31.1 |
Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification. |
|
31.2 |
Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certification. |
|
32.1 |
|
|
32.2 |
|
|
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
101.INS |
Inline XBRL Instance Document |
|
101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ESCALADE, INCORPORATED
| Date: October 27, 2022 | /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) |