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 26, 2015 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 2015 filed with the Securities and Exchange Commission.
Reclassifications
– Certain reclassifications have
been made to prior year financial statements to conform to the current year financial statement presentation. These reclassifications
had no effect on net earnings.
Note B – Seasonal Aspects
The results of operations for the three and nine month periods
ended October 1, 2016 and October 3, 2015 are not necessarily indicative of the results to be expected for the full year.
Note C –
Inventories
In thousands
|
|
October 1,
2016
|
|
|
December 26,
2015
|
|
|
October 3,
2015
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
5,467
|
|
|
$
|
3,621
|
|
|
$
|
4,943
|
|
Work in progress
|
|
|
5,093
|
|
|
|
4,297
|
|
|
|
5,168
|
|
Finished goods
|
|
|
32,376
|
|
|
|
17,944
|
|
|
|
30,226
|
|
|
|
$
|
42,936
|
|
|
$
|
25,862
|
|
|
$
|
40,337
|
|
Note D – Equity Interest
Investments
The Company has a 50% interest in a joint venture, Stiga Sports
AB (Stiga). The joint venture is 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. 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 statement of operations amounts. Certain differences exist between
U.S. GAAP and local GAAP in Sweden, and the impact of these differences is not reflected in the summarized information reflected
in the table below. The most significant difference relates to the accounting for goodwill for Stiga which is amortized over eight
years in Sweden but is not amortized for U.S. GAAP reporting purposes. The goodwill for Stiga was fully amortized as of December
27, 2014. The effect on Stiga’s net assets resulting from the cumulative amortization of goodwill for the periods ended October
1, 2016 and October 3, 2015 are addbacks to Stiga’s consolidated net assets of $10.4 million and $10.7 million, respectively.
These net differences are comprised of cumulative goodwill adjustments of $14.6 million offset by the related cumulative tax effect
of $4.2 million as of October 1, 2016 and cumulative goodwill adjustments of $14.9 million offset by the related cumulative tax
effect of $4.2 million as of October 3, 2015. The Company’s 50% portion of the statement of operations impact of other individually
insignificant U.S. GAAP adjustments for the nine month periods ended October 1, 2016, and October 3, 2015 are to increase Stiga’s
net income by approximately zero and $0.4 million, respectively. The Company’s 50% portion of net income for Stiga, included
in equity in earnings of affiliates on the Company’s statements of operations, for the three and nine month periods ended
October 1, 2016 and October 3, 2015 is as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
In thousands
|
|
October 1,
2016
|
|
|
October 3,
2015
|
|
|
October 1,
2016
|
|
|
October 3,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates
|
|
$
|
573
|
|
|
$
|
1,069
|
|
|
$
|
749
|
|
|
$
|
2,080
|
|
Summarized financial information for Stiga Sports AB balance
sheets as of October 1, 2016, December 26, 2015, and October 3, 2015 and statements of operations for the three month and nine
month periods ended October 1, 2016 and October 3, 2015 is as follows:
In thousands
|
|
October 1,
2016
|
|
|
December 26,
2015
|
|
|
October 3,
2015
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
28,857
|
|
|
$
|
29,300
|
|
|
$
|
31,044
|
|
Non-current assets
|
|
|
9,908
|
|
|
|
9,908
|
|
|
|
9,533
|
|
Total assets
|
|
|
38,765
|
|
|
|
39,208
|
|
|
|
40,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
5,604
|
|
|
|
5,096
|
|
|
|
7,777
|
|
Non-current liabilities
|
|
|
5,583
|
|
|
|
5,835
|
|
|
|
5,736
|
|
Total liabilities
|
|
|
11,187
|
|
|
|
10,931
|
|
|
|
13,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
27,578
|
|
|
$
|
28,277
|
|
|
$
|
27,064
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
In thousands
|
|
October 1,
2016
|
|
|
October 3,
2015
|
|
|
October 1,
2016
|
|
|
October 3,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
10,635
|
|
|
$
|
12,846
|
|
|
$
|
27,161
|
|
|
$
|
30,161
|
|
Gross profit
|
|
|
4,918
|
|
|
|
6,304
|
|
|
|
12,661
|
|
|
|
14,899
|
|
Net income
|
|
|
1,146
|
|
|
|
2,138
|
|
|
|
1,498
|
|
|
|
3,346
|
|
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.
Notes
Payable and Long-term Debt
Fair values of notes payable and long-term debt approximates
the carrying value and 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, 2016, December 26, 2015 and October 3, 2015.
|
|
|
|
|
Fair Value Measurements Using
|
|
October 1, 2016
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
|
|
$
|
4,306
|
|
|
$
|
4,306
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Marketable securities
|
|
$
|
395
|
|
|
$
|
395
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
30,686
|
|
|
$
|
—
|
|
|
$
|
30,686
|
|
|
$
|
—
|
|
Current portion of long-term debt
|
|
$
|
1,405
|
|
|
$
|
—
|
|
|
$
|
1,405
|
|
|
$
|
—
|
|
Long-term debt
|
|
$
|
5,313
|
|
|
$
|
—
|
|
|
$
|
5,313
|
|
|
$
|
—
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
December 26, 2015
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
|
|
$
|
1,982
|
|
|
$
|
1,982
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
19,776
|
|
|
$
|
—
|
|
|
$
|
19,776
|
|
|
$
|
—
|
|
Current portion of long-term debt
|
|
$
|
1,810
|
|
|
$
|
—
|
|
|
$
|
1,810
|
|
|
$
|
—
|
|
Long-term debt
|
|
$
|
1,750
|
|
|
$
|
—
|
|
|
$
|
1,750
|
|
|
$
|
—
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
October 3, 2015
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
|
|
$
|
2,701
|
|
|
$
|
2,701
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable
|
|
$
|
27,963
|
|
|
$
|
—
|
|
|
$
|
27,963
|
|
|
$
|
—
|
|
Current portion of long-term debt
|
|
$
|
1,810
|
|
|
$
|
—
|
|
|
$
|
1,810
|
|
|
$
|
—
|
|
Long-term debt
|
|
$
|
1,750
|
|
|
$
|
—
|
|
|
$
|
1,750
|
|
|
$
|
—
|
|
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 nine months ended October 1, 2016 and pursuant to
the 2007 Incentive Plan, in lieu of cash payments of director fees, the Company awarded to certain directors 13,112 shares of common
stock. During the nine months ended October 1, 2016, the Company awarded 13,250 restricted stock units to directors and 34,000
restricted stock units to employees. The restricted stock units awarded to directors time vest over two years (one-half one year
from grant date and one-half two years from grant date) provided that the director is still a director of the Company at the vest
date. Director restricted stock units are subject to forfeiture, except for termination of services as a result of retirement,
death or disability, if on the vesting date the director no longer holds a position with the Company. The 2016 restricted stock
units awarded to employees vest over four years (one-third two years from grant date, one-third three years from grant date and
one-third four years from grant date) provided that the employee is still employed by the Company and that the performance criteria
related to the market price of the Company’s stock is satisfied. The criteria is for any 30 consecutive trading days on the
NASDAQ Stock Market (or such other principal securities exchange on which the Company’s shares of common stock are then traded)
during the period beginning on the grant date and ending on the fourth anniversary thereof, the cumulative average Volume Weighted
Average Price per share is at least 15% higher than the closing price per share on the grant date plus any incremental dividends
paid above the current quarterly dividend rate of $0.11 per share by the Company during such four year period. The Company utilizes
the Monte Carlo technique to determine the fair value of restricted stock units granted for awards with market conditions. In addition,
the Company awarded 20,000 stock options to an employee. The stock options awarded will vest over five years (one-third three years
from the grant date, one-third four years from the grant date and one-third five years from the grant date). The stock options
have an exercise price 15% higher than the closing price of a share of Escalade common stock on the grant date and are subject
to forfeiture if on the vesting date the employee is no longer employed. The Company utilizes the Black-Scholes option pricing
model to determine the fair value of stock options granted.
For the three and nine month periods ended October 1, 2016,
including expense associated with issuing certain directors stock in lieu of cash for certain director fees, the Company recognized
stock based compensation expense of ($13) thousand and $374 thousand, respectively, compared to stock based compensation expense
of $155 thousand and $478 thousand for the same periods in the prior year. At October 1, 2016 and October 3, 2015, respectively,
there was $0.6 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 October 1, 2016
|
|
In thousands
|
|
Sporting
Goods
|
|
|
Corp.
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
38,793
|
|
|
$
|
—
|
|
|
$
|
38,793
|
|
Operating income
|
|
|
4,334
|
|
|
|
995
|
|
|
|
5,329
|
|
Net income
|
|
|
2,502
|
|
|
|
1,741
|
|
|
|
4,243
|
|
|
|
As of and for the Nine Months
Ended October 1, 2016
|
|
In thousands
|
|
Sporting
Goods
|
|
|
Corp.
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
121,824
|
|
|
$
|
—
|
|
|
$
|
121,824
|
|
Operating income (loss)
|
|
|
11,324
|
|
|
|
(512
|
)
|
|
|
10,812
|
|
Net income
|
|
|
6,492
|
|
|
|
1,538
|
|
|
|
8,030
|
|
Total assets
|
|
$
|
137,747
|
|
|
$
|
27,531
|
|
|
$
|
165,278
|
|
|
|
For the Three Months
Ended October 3, 2015
|
|
In thousands
|
|
Sporting
Goods
|
|
|
Corp.
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
34,584
|
|
|
$
|
—
|
|
|
$
|
34,584
|
|
Operating income (loss)
|
|
|
2,875
|
|
|
|
(1,002
|
)
|
|
|
1,873
|
|
Net income
|
|
|
1,582
|
|
|
|
446
|
|
|
|
2,028
|
|
|
|
As of and for the Nine Months
Ended October 3, 2015
|
|
In thousands
|
|
Sporting
Goods
|
|
|
Corp.
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
111,798
|
|
|
$
|
—
|
|
|
$
|
111,798
|
|
Operating income (loss)
|
|
|
13,372
|
|
|
|
(3,055
|
)
|
|
|
10,317
|
|
Net income
|
|
|
8,035
|
|
|
|
712
|
|
|
|
8,747
|
|
Total assets
|
|
$
|
124,423
|
|
|
$
|
25,115
|
|
|
$
|
149,538
|
|
Note I – Dividend Payment
On September 19, 2016, the company paid a quarterly dividend
of $0.11 per common share to all shareholders of record on September 12, 2016. The total amount of the dividend was approximately
$1.6 million and was charged against retained earnings.
On June 17, 2016, the company paid a quarterly dividend of $0.11
per common share to all shareholders of record on June 10, 2016. The total amount of the dividend was approximately $1.6 million
and was charged against retained earnings.
On March 21, 2016, the Company paid a quarterly dividend of
$0.11 per common share to all shareholders of record on March 14, 2016 (the amount was funded to the transfer agent by the Company
on March 16, 2016). The total amount of the dividend was approximately $1.6 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
|
|
|
Nine Months Ended
|
|
In thousands
|
|
October 1,
2016
|
|
|
October 3,
2015
|
|
|
October 1,
2016
|
|
|
October 3,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
14,289
|
|
|
|
14,120
|
|
|
|
14,253
|
|
|
|
14,069
|
|
Dilutive effect of stock options and restricted stock units
|
|
|
60
|
|
|
|
190
|
|
|
|
60
|
|
|
|
188
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
14,349
|
|
|
|
14,310
|
|
|
|
14,313
|
|
|
|
14,257
|
|
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 2016 and 2015 were
64,000 and 4,200, respectively.
Note K – New Accounting
Standards
With the exception of that discussed below, there have been
no recent accounting pronouncements or changes in accounting pronouncements during the three and nine month periods ended October
1, 2016, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the
fiscal year ended December 26, 2015, that are of significance, or potential significance to the Company.
In February 2016, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU”) 2016-02,
Leases (Topic 842)
. 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. This amendment is effective for fiscal years beginning after December 15,
2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the effect, if
any, on its financial statements.
In March 2016, FASB issued
ASU 2016-09, “
Compensation – Stock Compensation (Topic 718)
. The amendments in this update are intended to simplify
accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity
or liabilities, and classification on the statement of cash flows. This amendment is effective for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal years. Early adoption is permitted for any interim or annual period.
The Company is currently evaluating the effect that the updated standard will have on its consolidated financial statements and
related disclosures.
In August 2016, FASB issued ASU 2016-15, “
Statement
of Cash Flows (Topic 230)
. The amendments in this update address diversity in how certain cash receipts and cash payments are
presented and classified in the statement of cash flows. This amendment is effective for fiscal years beginning after December
15, 2017, including interim periods within those fiscal years. Early adoption is permitted for any interim or annual period. The
Company is currently evaluating the effect, if any, that the updated standard will have on its consolidated statement of cash flows.
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 – Property, Plant
and Equipment
During the three month periods ended October 1, 2016, the Company
sold its Wabash, Indiana land and building for a purchase price of approximately $2.1 million. The sale resulted in a gain of approximately
$1.9 million, recognized within operating income, for the three and nine month periods ended October 1, 2016.
Note N – Acquisitions
On January 21, 2016, the Company acquired substantially all
of the business and assets of Triumph Sports USA, Inc.’s business, a brand known for its innovative lines of indoor and outdoor
games. Of the $10.0 million purchase price for the acquisition, $9.5 million was paid in cash and the remaining $0.5 million is
contingent upon the attainment of certain targets. The more significant assets acquired and liabilities assumed were comprised
of receivables ($1.4 million), inventory ($1.4 million), prepaid and other assets ($0.1 million), accounts payable ($0.6 million),
goodwill ($1.4 million) and other intangible assets ($6.3 million).
This acquisition was not and would not
have been material to the Company’s net sales, results of operations or total assets during the three and nine month periods
ended October 1, 2016. Accordingly, our consolidated results from operations do not differ materially from historical performance
as a result of this acquisition, and therefore, pro-forma results are not presented.