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 31, 2016 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 2016 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 7, 2017 and October 1, 2016 are not necessarily indicative of the results to be expected for the full year.
Note C - Inventories
In thousands
|
|
October 7,
2017
|
|
|
December 31,
2016
|
|
|
October 1,
2016
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
4,049
|
|
|
$
|
4,781
|
|
|
$
|
5,467
|
|
Work in progress
|
|
|
3,660
|
|
|
|
3,671
|
|
|
|
5,093
|
|
Finished goods
|
|
|
34,683
|
|
|
|
25,350
|
|
|
|
32,376
|
|
|
|
$
|
42,392
|
|
|
$
|
33,802
|
|
|
$
|
42,936
|
|
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
7, 2017 and October 1, 2016 are addbacks to Stiga’s consolidated financial information of $11.0 million and $10.4 million,
respectively. These net differences are comprised of cumulative goodwill adjustments of $15.4 million offset by the related cumulative
tax effect of $4.4 million as of October 7, 2017 and cumulative goodwill adjustments of $14.6 million offset by the related cumulative
tax effect of $4.2 million as of October 1, 2016. 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 7, 2017
and October 1, 2016 is as follows:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
In thousands
|
|
October 7,
2017
|
|
|
October 1,
2016
|
|
|
October 7,
2017
|
|
|
October 1,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in earnings of affiliates
|
|
$
|
615
|
|
|
$
|
573
|
|
|
$
|
639
|
|
|
$
|
749
|
|
Summarized financial information for Stiga Sports AB balance sheets
as of October 7, 2017, December 31, 2016, and October 1, 2016 and statements of operations for the three month and nine month periods
ended October 7, 2017 and October 1, 2016 is as follows:
In thousands
|
|
October 7,
2017
|
|
|
December 31,
2016
|
|
|
October 1,
2016
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
33,874
|
|
|
$
|
28,322
|
|
|
$
|
28,857
|
|
Non-current assets
|
|
|
10,645
|
|
|
|
9,379
|
|
|
|
9,908
|
|
Total assets
|
|
|
44,519
|
|
|
|
37,701
|
|
|
|
38,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
11,481
|
|
|
|
4,847
|
|
|
|
5,604
|
|
Non-current liabilities
|
|
|
5,556
|
|
|
|
5,133
|
|
|
|
5,583
|
|
Total liabilities
|
|
|
17,037
|
|
|
|
9,980
|
|
|
|
11,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
27,482
|
|
|
$
|
27,721
|
|
|
$
|
27,578
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
In thousands
|
|
October 7,
2017
|
|
|
October 1,
2016
|
|
|
October 7,
2017
|
|
|
October 1,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
13,036
|
|
|
$
|
10,635
|
|
|
$
|
29,333
|
|
|
$
|
27,161
|
|
Gross profit
|
|
|
6,006
|
|
|
|
4,918
|
|
|
|
13,718
|
|
|
|
12,661
|
|
Net income
|
|
|
1,229
|
|
|
|
1,146
|
|
|
|
1,278
|
|
|
|
1,498
|
|
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.
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 7, 2017, December 31, 2016 and October 1, 2016.
|
|
|
|
|
Fair Value Measurements Using
|
|
October 7, 2017
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
|
|
$
|
1,646
|
|
|
$
|
1,646
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
1,300
|
|
|
$
|
—
|
|
|
$
|
1,300
|
|
|
$
|
—
|
|
Long-term debt
|
|
$
|
24,738
|
|
|
$
|
—
|
|
|
$
|
24,738
|
|
|
$
|
—
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
December 31, 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
|
|
$
|
1,013
|
|
|
$
|
1,013
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
1,250
|
|
|
$
|
—
|
|
|
$
|
1,250
|
|
|
$
|
—
|
|
Long-term debt
|
|
$
|
24,189
|
|
|
$
|
—
|
|
|
$
|
24,189
|
|
|
$
|
—
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
1,405
|
|
|
$
|
—
|
|
|
$
|
1,405
|
|
|
$
|
—
|
|
Long-term debt
|
|
$
|
35,999
|
|
|
$
|
—
|
|
|
$
|
35,999
|
|
|
$
|
—
|
|
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 7, 2017 and pursuant to the 2007 Incentive Plan and the 2017 Incentive
Plan, in lieu of cash payments of director fees, the Company awarded to certain directors 12,683 shares of common stock. During
the nine months ended October 7, 2017, the Company awarded 14,250 restricted stock units to directors and 40,782 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 2017 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 $0.115 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.
For the three and nine month periods ended October 7, 2017, including
expense associated with issuing certain directors stock in lieu of cash for certain director fees, the Company recognized stock
based compensation expense of $103 thousand and $543 thousand, respectively, compared to stock based compensation expense of ($13)
thousand and $374 thousand for the same periods in the prior year. At October 7, 2017 and October 1, 2016, respectively, there
was $0.6 million and $0.6 million in unrecognized stock-based compensation expense related to non-vested stock awards.
Note H - Segment Information
|
|
For the Three Months
Ended October 7,
2017
|
|
In thousands
|
|
Sporting
Goods
|
|
|
Corp.
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
41,892
|
|
|
$
|
—
|
|
|
$
|
41,892
|
|
Operating income (loss)
|
|
|
5,046
|
|
|
|
(918
|
)
|
|
|
4,128
|
|
Net income
|
|
|
3,034
|
|
|
|
84
|
|
|
|
3,118
|
|
|
|
As of and for the Nine Months
Ended October
7, 2017
|
|
In thousands
|
|
Sporting
Goods
|
|
|
Corp.
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers
|
|
$
|
125,097
|
|
|
$
|
—
|
|
|
$
|
125,097
|
|
Operating income (loss)
|
|
|
11,215
|
|
|
|
(1,759
|
)
|
|
|
9,456
|
|
Net income (loss)
|
|
|
6,835
|
|
|
|
(233
|
)
|
|
|
6,602
|
|
Total assets
|
|
$
|
135,574
|
|
|
$
|
22,673
|
|
|
$
|
158,247
|
|
|
|
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
|
|
Note I – Dividend Payment
On September 18, 2017, the Company paid a quarterly dividend of
$0.115 per common share to all shareholders of record on September 11, 2017. The total amount of the dividend was approximately
$1.7 million and was charged against retained earnings.
On June 15, 2017, the Company paid a quarterly dividend of $0.115
per common share to all shareholders of record on June 8, 2017. The total amount of the dividend was approximately $1.7 million
and was charged against retained earnings.
On March 20, 2017, the Company paid a quarterly dividend of $0.115
per common share to all shareholders of record on March 13, 2017. 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 7,
2017
|
|
|
October 1,
2016
|
|
|
October 7,
2017
|
|
|
October 1,
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
14,367
|
|
|
|
14,289
|
|
|
|
14,347
|
|
|
|
14,253
|
|
Dilutive effect of stock options and restricted stock units
|
|
|
33
|
|
|
|
60
|
|
|
|
33
|
|
|
|
60
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
14,400
|
|
|
|
14,349
|
|
|
|
14,380
|
|
|
|
14,313
|
|
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 2017 and 2016 were
77,600 and 64,000, 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 nine month periods ended October 7, 2017,
as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2016, that are of significance, or potential significance to the Company.
In March 2016, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standards Update (“ASU) 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends
existing guidance related to accounting for employee share-based payments affecting the income tax consequences of awards, classification
of awards as equity or liabilities, and classification on the statement of cash flows. This guidance is effective for fiscal years,
and interim periods within those years, beginning after December 15, 2016.
The new standard requires excess tax benefits and tax deficiencies
to be recorded as income tax expense or benefit in the income statement and also requires a policy election to either estimate
the number of awards that are expected to vest or account for forfeitures when they occur. The Company has elected to account for
forfeitures when they actually occur. The new guidance also requires cash paid by an employer when directly withholding shares
for tax withholding purposes to be classified in the Consolidated Statement of Cash Flows as a financing activity, which is the
classification currently used by the Company. Lastly, the guidance requires that excess tax benefits should be classified along
with other income tax cash flows as an operating activity on the statement of cash flows. The Company elected to apply this provision
using the prospective transition method. Adoption of this guidance did not impact the presentation of cash flows in the current
period.
In November 2015, the FASB issued ASU 2015-17 Income Taxes (Topic
740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 eliminates the current requirement for organizations to present
deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required
to classify all deferred tax assets and liabilities as noncurrent. The ASU is effective for financial statements issued for annual
periods beginning after December 15, 2016, and interim periods within those annual periods. The Company adopted this standard on
January 1, 2017 and has elected to apply the requirements prospectively. Comparative financial statements of prior periods have
not been retrospectively adjusted. Adoption of this standard did not impact results of operations or cash flows in the current
or previous reporting periods.
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
During the nine months ended October 7, 2017, the Company acquired
certain assets and liabilities through two acquisitions. These acquisitions, individually and in aggregate, were 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 7, 2017. Accordingly, our consolidated results from operations do not differ materially from historical performance
as a result of these acquisitions, and therefore, pro-forma results are not presented.
Total consideration paid for the acquisitions was $1.5 million,
of which $1.4 million was paid in cash and a note payable was recorded for the remaining $0.1 million. The consideration paid by
the company for these acquisitions was allocated to the assets acquired, net of the liabilities assumed, based upon their estimated
fair values as of the date of the acquisition.
ASC 805 requires that when fair value of the net assets acquired
exceeds the purchase price, resulting in a bargain purchase, the acquirer must reassess the reasonableness of the values assigned
to all of the net assets acquired, liabilities assumed and consideration transferred. The Company has performed such assessment
and has concluded that the values assigned appear to be reasonable. The following table summarizes the allocation of the purchase
price for the acquisition that resulted in a bargain purchase:
In thousands
|
|
|
|
Accounts receivable, net
|
|
$
|
852
|
|
Inventories, net
|
|
|
737
|
|
Other assets
|
|
|
64
|
|
Intangible assets
|
|
|
413
|
|
Total fair value of assets acquired
|
|
|
2,066
|
|
Total liabilities assumed
|
|
|
(563
|
)
|
Net assets acquired
|
|
|
1,503
|
|
Total consideration paid
|
|
|
(1,101
|
)
|
Gain before deferred income tax liability
|
|
|
402
|
|
Income tax liability – deferred
|
|
|
(146
|
)
|
Gain on bargain purchase
|
|
$
|
256
|
|