Note 1 —
Nature of Operations and Summary of Significant Accounting Policies
Nature of Operations
Escalade, Incorporated and its wholly-owned
subsidiaries (Escalade, the Company, we, us or our) are engaged in the manufacture and sale of sporting goods products. The Company
is headquartered in Evansville, Indiana and has manufacturing facilities in the United States of America and Mexico. The Company
sells products to customers primarily in North America with minimal sales throughout the remainder of the world.
Principles of Consolidation
The consolidated financial statements include
the accounts of Escalade, Incorporated and its wholly-owned subsidiaries. All material inter-company accounts and transactions
have been eliminated.
Basis of Presentation
The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The books and
records of subsidiaries located in foreign countries are maintained according to generally accepted accounting principles in those
countries. Upon consolidation, the Company evaluates the differences in accounting principles and determines whether adjustments
are necessary to convert the foreign financial statements to the accounting principles upon which the consolidated financial statements
are based. As a result of this evaluation no material adjustments were identified.
Fiscal Year End
The Company’s fiscal year is a 52
or 53 week period ending on the last Saturday in December. Fiscal year 2019 was 52 weeks long, ending December 28, 2019. Fiscal
year 2018 was 52 weeks long, ending December 29, 2018. Fiscal year 2017 was 52 weeks long, ending on December 30, 2017.
Cash and Cash
Equivalents
Highly liquid financial instruments with
insignificant interest rate risk and with original maturities of three months or less are classified as cash and cash equivalents.
Cash and cash equivalent balances may at times be in excess of federally insured limits. The Company maintains its cash and cash
equivalent balances at high-credit quality financial institutions.
Accounts Receivable
Revenue from the sale of the
Company’s products 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. Accounts
receivable are stated at the amount billed to customers. Interest and late charges billed to customers are not material and, because
collection is uncertain, are not recognized until collected and are therefore not included in accounts receivable. The Company
provides an allowance for doubtful accounts which is described in Note 2 – Certain Significant Estimates.
Inventories
Inventory cost is computed on a currently
adjusted standard cost basis (which approximates actual cost on a current average or first-in, first-out basis). Work in process
and finished goods inventory are determined to be saleable based on a demand forecast within a specific time horizon, generally
one year or less. Inventory in excess of saleable amounts is reserved, and the remaining inventory is valued at the lower of cost
or net realizable value. This inventory valuation reserve totaled $786 thousand and $456 thousand at fiscal year-end 2019 and 2018,
respectively. Inventories, net of the valuation reserve, at fiscal year-ends were as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
Raw materials
|
|
$
|
3,186
|
|
|
$
|
3,622
|
|
Work in process
|
|
|
2,177
|
|
|
|
2,892
|
|
Finished goods
|
|
|
36,906
|
|
|
|
32,608
|
|
|
|
$
|
42,269
|
|
|
$
|
39,122
|
|
Property, Plant
and Equipment
Property, plant and equipment are recorded
at cost. Depreciation and amortization are computed for financial reporting purposes principally using the straight-line method
over the following estimated useful lives: buildings, 20-30 years; leasehold improvements, term of the lease; machinery and equipment,
5-15 years; and tooling, dies and molds, 2-5 years. Property, plant and equipment consist of the following:
In Thousands
|
|
2019
|
|
|
2018
|
|
Land
|
|
$
|
1,943
|
|
|
$
|
1,943
|
|
Buildings and leasehold improvements
|
|
|
16,831
|
|
|
|
16,768
|
|
Machinery and equipment
|
|
|
24,721
|
|
|
|
27,458
|
|
Total cost
|
|
|
43,495
|
|
|
|
46,169
|
|
Accumulated depreciation and amortization
|
|
|
(28,384
|
)
|
|
|
(30,671
|
)
|
|
|
$
|
15,111
|
|
|
$
|
15,498
|
|
The Company
evaluates the recoverability of certain long-lived assets whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Estimates of future cash flows used to test recoverability of long-lived assets include separately
identifiable undiscounted cash flows expected to arise from the use and eventual disposition of the assets. Where estimated future
cash flows are less than the carrying value of the assets, impairment losses are recognized based on the amount by which the carrying
value exceeds the fair value of the assets. No asset impairment was recognized during the years ended 2019, 2018, or 2017.
Investments
Non-Marketable Equity Investment: The
Company had an equity position in a company that strategically related to the Company’s business, but the Company did not
have control over that entity. The accounting method employed was dependent on the level of ownership and degree of influence the
Company could exert on operations. Where the equity interest was less than 20% and the degree of influence was not significant,
the cost method of accounting was employed. Where the equity interest was greater than 20% but not more than 50%, the equity method
of accounting was utilized. Under the equity method, the Company’s proportionate share of net income was recorded in equity
in earnings of affiliates on the consolidated statement of operations. The proportionate share of net income was $0.1 million and
$1.6 million in 2018 and 2017, respectively. Total cash dividends received from this equity investment amounted to $2,323 thousand
and $2,168 thousand in 2018 and 2017, respectively. The Company considered whether the fair value of its equity investment declined
below its carrying value whenever adverse events or changes in circumstances indicated that recorded values may not be recoverable.
If the Company considered any such decline to be other than temporary (based on various factors, including historical financial
results, product development activities and overall health of the investments’ industry), a write-down was recorded to estimated
fair value.
Goodwill and Intangible
Assets
Goodwill represents the excess
of the purchase price over fair value of net tangible and identifiable intangible assets of acquired businesses. Intangible assets
consist of patents, consulting agreements, non-compete agreements, customer lists, developed technology, license agreements, and
trademarks. Goodwill is deemed to have an indefinite life and is not amortized, but is subject to impairment testing annually in
accordance with guidance included in FASB ASC 350, Intangibles – Goodwill and Other. Other intangible assets are amortized
using the straight-line method over the following lives: license agreements, 17 years; developed technology, 5 years; trademarks,
20 years to indefinite life; consulting agreements, the life of the agreement; customer lists, 3 to 14 years; non-compete agreements,
the lesser of the term or 5 years; and patents, the lesser of the remaining life or 5 to 15 years.
The Company reviews goodwill
for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable,
in accordance with guidance in FASB ASC 350, Intangibles – Goodwill and Other. A qualitative assessment is first performed
to determine if the fair value of the reporting unit is "more likely than not" less than the carrying value. If so, we
proceed to step one of the two-step goodwill impairment test, in which the fair value of the reporting unit is compared to its
carrying value. If not, then performance of the second step of the goodwill impairment test is not necessary. If the carrying value
of goodwill exceeds the implied estimated fair value calculated in the second step, an impairment charge to current operations
is recorded to reduce the carrying value to the implied estimated fair value.
Employee Incentive Plan
During 2017, the Company approved an incentive
plan explained in Note 10. The Company accounts for this plan under the recognition and measurement principles of FASB ASC 718,
Equity Based Payments.
Foreign Currency
Translation
The
functional currency for the foreign operations of Escalade is the U.S. dollar. Gains or losses resulting from foreign currency
transactions are included in selling, general and administrative expense in the Consolidated Statements of Operations and were
insignificant in fiscal years 2019, 2018, and 2017.
Cost of Products Sold
Cost of products sold is comprised of those
costs directly associated with or allocated to the products sold and include materials, labor and factory overhead.
Other Income (Loss)
The components of Other Income (Loss) are
as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Other income (loss)
|
|
$
|
15
|
|
|
$
|
(89
|
)
|
|
$
|
(169
|
)
|
|
|
$
|
15
|
|
|
$
|
(89
|
)
|
|
$
|
(169
|
)
|
Provision for
Income Taxes
Income tax in the consolidated
statement of operations includes deferred income tax provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. A valuation allowance is established if it is more likely
than not that a deferred tax asset will not be realized.
Research and Development
Research and development costs
are charged to expense as incurred. Research and development costs incurred during 2019, 2018 and 2017 were approximately $1.6
million, $1.5 million, and $1.6 million, respectively.
New Accounting Pronouncements and
Changes in Accounting Principles
Standards Adopted:
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 4 for disclosure requirements
related to this standard.
New Accounting Standards to be Adopted
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This amendment
requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces
the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to
calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related
to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized
cost basis of the securities. These changes will result in earlier recognition of credit losses. The amendments are effective in
fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. We do not expect the standard to
have a material impact on our consolidated financial statements. In November 2019, the FASB issued ASU 2019-10, Financial Instruments
– Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates. This amendment
delays the effective dates of specific ASUs, including ASU 2016-13 by one year.
In January 2017, the FASB issued ASU 2017-04,
Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. These amendments eliminate
Step 2 from the goodwill impairment test. The amendments also eliminate the requirements for any reporting unit with a zero or
negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill
impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the
quantitative impairment test is necessary. The amendments are effective for annual impairment tests in fiscal years beginning after
December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The provisions of the amendment should be adopted on a prospective basis. Adoption of this standard will not have
a material impact on our consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes.
This guidance will be effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.
We are currently evaluating the impact of the new guidance on our consolidated financial statements.
Note 2 —
Certain Significant Estimates
The preparation of consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities; the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements; and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments
are evaluated on an ongoing basis and are based on experience; current and expected future conditions; third party evaluations;
and various other assumptions believed reasonable under the circumstances. The results of these estimates form the basis for making
judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with
respect to commitments and liabilities. Actual results may differ from the estimates and assumptions used in the financial statements
and related notes.
Listed below are certain significant
estimates and assumptions related to the preparation of the consolidated financial statements:
Goodwill and Intangible
Assets
The Company reviews goodwill
for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable,
in accordance with guidance in FASB ASC 350, Intangibles – Goodwill and Other. A qualitative assessment is first performed
to determine if the fair value of the reporting unit is "more likely than not" less than the carrying value. If so, we
proceed to step one of the two-step goodwill impairment test, in which the fair value of the reporting unit is compared to its
carrying value. If not, then performance of the second step of the goodwill impairment test is not necessary. If the carrying value
of goodwill exceeds the implied estimated fair value calculated in the second step, an impairment charge to current operations
is recorded to reduce the carrying value to the implied estimated fair value.
Other intangible assets are
amortized using the straight-line method over the following lives: license agreements, 17 years; developed technology, 5 years;
trademarks, 20 years to indefinite life; consulting agreements, the life of the agreement; customer lists, 3 to 14 years; non-compete
agreements, the lesser of the term or 5 years; and patents, the lesser of the remaining life or 5 to 15 years.
Indefinite-lived intangible
assets are reviewed for impairment annually, or whenever events or changes in circumstances indicate the carrying amount of an
intangible asset may not be recoverable.
There are inherent assumptions
and judgments required in the analysis of goodwill and intangible impairment.
Product Warranty
The Company provides limited warranties
on certain of its products, for varying periods. Generally, the warranty periods range from 90 days to one year. However, some
products carry extended warranties of three-year, five-year, seven-year, ten-year, fifteen-year, and lifetime warranties. The Company
records 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. Changes in product warranty were as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Beginning balance
|
|
$
|
702
|
|
|
$
|
691
|
|
|
$
|
876
|
|
Additions
|
|
|
1,736
|
|
|
|
1,448
|
|
|
|
1,036
|
|
Deductions
|
|
|
(1,750
|
)
|
|
|
(1,437
|
)
|
|
|
(1,221
|
)
|
Ending balance
|
|
$
|
688
|
|
|
$
|
702
|
|
|
$
|
691
|
|
Inventory Valuation Reserves
The Company evaluates inventory
for obsolescence and excess quantities based on demand forecasts based on specified time frames; usually one year. The demand forecast
is based on historical usage, sales forecasts and current as well as anticipated market conditions. All amounts in excess of the
demand forecast are deemed to be excess or obsolete and a reserve is established based on the anticipated net realizable value.
Changes in inventory valuation reserves were as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Beginning balance
|
|
$
|
456
|
|
|
$
|
504
|
|
|
$
|
415
|
|
Additions
|
|
|
756
|
|
|
|
383
|
|
|
|
288
|
|
Deductions
|
|
|
(426
|
)
|
|
|
(431
|
)
|
|
|
(199
|
)
|
Ending balance
|
|
$
|
786
|
|
|
$
|
456
|
|
|
$
|
504
|
|
Allowance for Doubtful Accounts
The Company provides an allowance
for doubtful accounts based upon a review of outstanding receivables, historical collection information and existing economic conditions.
Accounts receivable are ordinarily due between 30 and 60 days after the issuance of the invoice. Accounts are considered delinquent
when more than 90 days past due. Delinquent receivables are reserved or written off based on individual credit evaluation and specific
circumstances of the customer. Changes in allowance for doubtful accounts were as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Beginning balance
|
|
$
|
532
|
|
|
$
|
623
|
|
|
$
|
910
|
|
Additions
|
|
|
322
|
|
|
|
155
|
|
|
|
775
|
|
Deductions
|
|
|
(371
|
)
|
|
|
(246
|
)
|
|
|
(1,062
|
)
|
Ending balance
|
|
$
|
483
|
|
|
$
|
532
|
|
|
$
|
623
|
|
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. Changes in customer allowances for advertising
subsidies, volume rebates and catalog allowances were as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Beginning balance
|
|
$
|
1,550
|
|
|
$
|
3,357
|
|
|
$
|
2,777
|
|
Additions
|
|
|
7,292
|
|
|
|
6,575
|
|
|
|
6,608
|
|
Deductions
|
|
|
(7,550
|
)
|
|
|
(8,382
|
)
|
|
|
(6,028
|
)
|
Ending balance
|
|
$
|
1,292
|
|
|
$
|
1,550
|
|
|
$
|
3,357
|
|
Note 3 —
Accrued Liabilities
Accrued liabilities consist of the following:
In Thousands
|
|
2019
|
|
|
2018
|
|
Employee compensation
|
|
$
|
1,917
|
|
|
$
|
2,858
|
|
Customer related allowances and accruals
|
|
|
4,876
|
|
|
|
4,627
|
|
Other accrued items
|
|
|
2,896
|
|
|
|
3,587
|
|
|
|
$
|
9,689
|
|
|
$
|
11,072
|
|
Note 4 —
Leases
We have operating leases for office, manufacturing
and distribution facilities as well as for certain equipment. Our leases have remaining lease terms of 1 year to 5 years. As of
December 28, 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.
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
|
|
Twelve
Months
Ended
December
28, 2019
|
|
Lease Expense
|
|
|
|
|
Operating Lease Cost
|
|
$
|
826
|
|
Short-term Lease Cost
|
|
|
446
|
|
Variable Lease Cost
|
|
|
244
|
|
Total Operating Lease Cost
|
|
$
|
1,516
|
|
|
|
|
|
|
Operating Lease – Operating Cash Flows
|
|
$
|
755
|
|
New ROU Assets – Operating Leases
|
|
$
|
867
|
|
Other information about lease amounts recognized
in our consolidated financial statements is summarized as follows:
|
|
Period Ended
December 28,
2019
|
|
Weighted Average Remaining Lease Term – Operating Leases
|
|
|
1.98 years
|
|
Weighted Average Discount Rate – Operating Leases
|
|
|
5.00%
|
|
Future minimum lease payments under non-cancellable
leases as of December 28, 2019 were as follows:
All Amounts in Thousands
|
|
|
|
Year 1
|
|
$
|
658
|
|
Year 2
|
|
|
378
|
|
Year 3
|
|
|
70
|
|
Year 4
|
|
|
31
|
|
Year 5
|
|
|
13
|
|
Thereafter
|
|
|
-
|
|
Total future minimum lease payments
|
|
|
1,150
|
|
Less imputed interest
|
|
|
(54
|
)
|
Total
|
|
$
|
1,096
|
|
|
|
|
|
|
Reported as of December 28, 2019
|
|
|
|
|
Current operating lease liabilities
|
|
|
621
|
|
Long-term operating lease liabilities
|
|
|
475
|
|
Total
|
|
$
|
1,096
|
|
Note 5 —
Acquired Intangible Assets and Goodwill
The carrying basis and accumulated amortization
of recognized intangible assets are summarized in the following table:
|
|
2019
|
|
|
2018
|
|
In Thousands
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
|
Gross Carrying Amount
|
|
|
Accumulated Amortization
|
|
Patents
|
|
|
24,515
|
|
|
|
23,689
|
|
|
|
24,515
|
|
|
|
23,506
|
|
Non-compete agreements
|
|
|
2,749
|
|
|
|
2,702
|
|
|
|
2,749
|
|
|
|
2,625
|
|
Customer list
|
|
|
14,317
|
|
|
|
5,575
|
|
|
|
13,963
|
|
|
|
4,520
|
|
Trademarks
|
|
|
8,359
|
|
|
|
143
|
|
|
|
8,181
|
|
|
|
124
|
|
Developed technology
|
|
|
475
|
|
|
|
111
|
|
|
|
475
|
|
|
|
16
|
|
License agreements
|
|
|
700
|
|
|
|
48
|
|
|
|
700
|
|
|
|
7
|
|
|
|
|
51,115
|
|
|
|
32,268
|
|
|
|
50,583
|
|
|
|
30,798
|
|
Amortization expense was $1.5 million,
$1.4 million and $1.6 million for 2019, 2018 and 2017, respectively.
Estimated future amortization expense is
summarized in the following table:
In
Thousands
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
Thereafter
|
|
Sporting
Goods
|
|
|
1,437
|
|
|
|
1,388
|
|
|
|
1,368
|
|
|
|
1,290
|
|
|
|
1,165
|
|
|
|
4,415
|
|
All goodwill is allocated to the operating
segment of the business. The changes in the carrying amount of goodwill were:
In Thousands
|
|
Sporting
Goods
|
|
Balance at December 30, 2017
|
|
$
|
21,548
|
|
Acquisition
|
|
|
4,833
|
|
Balance at December 29, 2018
|
|
$
|
26,381
|
|
Acquisition
|
|
|
368
|
|
Balance at December 28, 2019
|
|
$
|
26,749
|
|
The Company reviews goodwill for impairment annually and whenever
events or changes in circumstances indicate the carrying value of goodwill may not be recoverable, in accordance with guidance
in FASB ASC 350, Intangibles – Goodwill and Other. A qualitative assessment is first performed to determine if the
fair value of the reporting unit is “more likely than not” less than the carrying value. If so, we proceed to step
one of the two-step goodwill impairment test, in which the fair value of the reporting unit is compared to its carrying value.
If not, then performance of the second step of the goodwill impairment test is not necessary. If the carrying value of goodwill
exceeds the implied estimated fair value calculated in the second step, an impairment charge to current operations is recorded
to reduce the carrying value to the implied estimated fair value.
Note 6 —
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 average exchange rates for income statement amounts.
The Company’s 50% portion of net income for Stiga for the period from December 31, 2017 through May 17, 2018 is $121 thousand.
The Company’s 50% portion of net income for Stiga for the year ended December 30, 2017 was $1.6 million. For each of the
years ended December 29, 2018 and December 30, 2017, the Company paid royalties to Stiga in the amount of $0.4 million. For the
year ended December 28, 2019, the Company paid royalties to Stiga in the amount of $0.5 million.
In accordance with Rule 4-08(g) of Regulation
S-X, summarized financial information for Stiga Sports AB statements of operations for the period from December 31, 2017 through
May 17, 2018 and for the year ended December 31, 2017 is as follows:
|
|
Period from
December 31,
2017 through
May 17, 2018
|
|
|
2017
|
|
Net sales
|
|
$
|
12,978
|
|
|
$
|
46,296
|
|
Gross profit
|
|
|
6,019
|
|
|
|
21,427
|
|
Net income
|
|
|
241
|
|
|
|
3,268
|
|
Note 7 —
Borrowings
On January 21, 2019, the Company entered
into an Amended and Restated Credit Agreement (“2019 Restated Credit Agreement”) with 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 2019 Restated Credit Agreement allows
Escalade to request the issuance of letters of credit of up to $5.0 million. Each loan will bear 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
Eurodollar
Borrowing
|
ABR
Revolving Borrowing
|
Letter of
Credit Fee
|
Commitment
Fee
|
Category 1
Greater than or equal to
2.50 to 1.0
|
2.00%
|
-0-
|
2.00%
|
0.30%
|
Category 2
Greater than or equal to
1.50 to 1.0 but
less than 2.50 to 1.0
|
1.75%
|
(.25%)
|
1.75%
|
0.30%
|
Category 3
Less than 1.50 to 1.0
|
1.50%
|
(.50%)
|
1.50%
|
0.30%
|
The Applicable Rate shall be 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.
Indebtedness under the 2019 Restated Credit
Agreement continues to be collateralized by liens on all of the present and future equity of each of the Company’s and Indian
Industries’ domestic subsidiaries and substantially all of the assets of their respective assets pursuant to the Pledge and
Security Agreement dated January 25, 2019 by and among the Company, Indian Industries, their domestic subsidiaries, and Chase.
The 2019 Pledge and Security Agreement supersedes the pledge and security agreements previously entered into by the Company, Indian
Industries, and their domestic subsidiaries. In addition, each direct and indirect domestic subsidiary of the Company and Indian
Industries, Inc. continues to unconditionally guarantee all of the indebtedness of Escalade arising under the 2019 Restated Credit
Agreement pursuant to the terms thereof. The subsidiary guarantees arising under the 2019 Restated Credit Agreement supersede the
unlimited continuing guaranty agreements previously entered into by such domestic subsidiaries.
As of December 28, 2019, the Company did not
have any borrowings outstanding under the 2019 Restated Credit Agreement.
Note 8 —
Earnings Per Share
The shares used in the computation of the
Company’s basic and diluted earnings per common share are as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Weighted average common shares outstanding
|
|
|
14,407
|
|
|
|
14,422
|
|
|
|
14,352
|
|
Dilutive effect of stock options and restricted stock units
|
|
|
32
|
|
|
|
55
|
|
|
|
39
|
|
Weighted average common shares outstanding, assuming dilution
|
|
|
14,439
|
|
|
|
14,477
|
|
|
|
14,391
|
|
Number of anti-dilutive stock options and unvested restricted stock units
|
|
|
80
|
|
|
|
70
|
|
|
|
58
|
|
Weighted average common shares outstanding,
assuming dilution, includes the incremental shares that would be issued upon the assumed exercise of stock options outstanding.
Note 9 —
Employee Benefit Plans
The Company has an employee
profit-sharing salary reduction plan, pursuant to the provisions of Section 401(k) of the Internal Revenue Code, for all employees.
The Company’s contribution is a matching percentage of the employee contribution as determined by the Board of Directors
annually. The Company’s expense for the plan was $816 thousand, $715 thousand and $695 thousand for 2019, 2018 and 2017,
respectively.
Note 10 —
Stock Compensation Plans
In May 2017, Shareholders
approved the Escalade, Incorporated 2017 Incentive Plan (2017 Incentive Plan), which is an incentive plan for key employees, directors
and consultants with various equity-based incentives as described in the plan document. The 2017 Incentive Plan is a replacement
for the 2007 Incentive Plan, which expired at the end of April 2017. All options issued and outstanding under the expired plans
will remain in effect until exercised, expired or forfeited.
The 2017 Incentive
Plan is administered by the Board of Directors or a committee thereof, which is authorized to determine, among other things, the
key employees, directors or consultants who will receive awards under the plan, the amount and type of award, exercise prices or
performance criteria, if applicable, and vesting schedules. Under the original terms of the plan and subject to various restrictions
contained in the plan document, the total number of shares of common stock which may be issued pursuant to awards under the Plan
may not exceed 1,661,598.
Restricted
Stock Units
During 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. In 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 vesting 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.
A summary of restricted
stock unit activity is as follows:
|
|
Number of
Shares
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Non-vested stock units as of December 30, 2017
|
|
|
103,076
|
|
|
$
|
11.92
|
|
Granted
|
|
|
74,528
|
|
|
|
12.39
|
|
Vested
|
|
|
(47,358
|
)
|
|
|
12.34
|
|
Forfeited
|
|
|
(4,259
|
)
|
|
|
11.65
|
|
Non-vested stock units as of December 29, 2018
|
|
|
125,987
|
|
|
$
|
12.05
|
|
Granted
|
|
|
47,300
|
|
|
|
11.54
|
|
Vested
|
|
|
(28,888
|
)
|
|
|
12.40
|
|
Forfeited
|
|
|
(15,763
|
)
|
|
|
12.08
|
|
Non-vested stock units as of December 28, 2019
|
|
|
128,636
|
|
|
$
|
11.78
|
|
When vesting is dependent on certain market
criteria, the fair value of restricted stock units is determined by the use of Monte Carlo techniques. The market price of the
Company’s stock on the grant date is used to value restricted stock units where vesting is not contingent on market criteria.
In 2019, 2018, and 2017 the Company recognized $505 thousand, $591 thousand, and $504 thousand respectively in compensation expense
related to restricted stock units and as of December 28, 2019 and December 29, 2018, there was $622 thousand and $754 thousand
respectively, of unrecognized compensation expense related to restricted stock units.
Stock Options
Total compensation expense recorded in
the statements of operations for 2019, 2018 and 2017 relating to stock options was $8 thousand, $13 thousand and $18 thousand,
respectively. As of December 28, 2019 and December 29, 2018, there was $5 thousand and $13 thousand respectively, of total unrecognized
compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 1.0 years.
No stock options were awarded during 2019, 2018 or 2017.
The following table summarizes option activity
for each of the three years ended 2019:
|
|
|
|
Incentive Stock Options
|
|
|
Director Stock Options
|
|
|
|
|
|
Granted
|
|
|
|
Outstanding
|
|
|
|
Granted
|
|
|
|
Outstanding
|
|
2019
|
|
|
|
--
|
|
|
|
20,000
|
|
|
|
--
|
|
|
|
--
|
|
2018
|
|
|
|
--
|
|
|
|
20,000
|
|
|
|
--
|
|
|
|
15,000
|
|
2017
|
|
|
|
--
|
|
|
|
29,250
|
|
|
|
--
|
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes stock option
transactions for the three years ended 2019:
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
|
Shares
|
|
|
Option Price
|
|
|
Shares
|
|
|
Option Price
|
|
|
Shares
|
|
|
Option
Price
|
|
Outstanding at beginning of year
|
|
|
35,000
|
|
|
$11.86 to $14.39
|
|
|
|
44,250
|
|
|
$5.85 to $14.39
|
|
|
|
72,375
|
|
|
|
$5.28 to $14.39
|
|
Issued during year
|
|
|
--
|
|
|
--
|
|
|
|
--
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Canceled or expired
|
|
|
(5,000
|
)
|
|
$11.86
|
|
|
|
--
|
|
|
|
|
|
|
--
|
|
|
|
|
|
Exercised during year
|
|
|
(10,000
|
)
|
|
$11.86
|
|
|
|
(9,250
|
)
|
|
$5.85
|
|
|
|
(28,125
|
)
|
|
|
$5.28 to $5.85
|
|
Outstanding at end of year
|
|
|
20,000
|
|
|
$14.39
|
|
|
|
35,000
|
|
|
$11.86 to $14.39
|
|
|
|
44,250
|
|
|
|
$5.85 to $14.39
|
|
Exercisable at end of year
|
|
|
6,666
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
|
24,250
|
|
|
|
|
|
Weighted-average fair value of options granted during the year
|
|
|
--
|
|
|
|
|
|
|
--
|
|
|
|
|
|
|
--
|
|
|
|
|
|
The total intrinsic value of options exercised
was $0.0 million, $0.1 million and $0.2 million for 2019, 2018 and 2017, respectively.
The following table summarizes information
about stock options outstanding at December 28, 2019:
|
|
|
|
|
Options
Outstanding
|
|
|
|
Options
Exercisable
|
|
Range
of
Exercise Prices
|
|
|
|
Number
of
Shares
|
|
|
|
Weighted-Average
Remaining
Contractual Life
|
|
|
|
Weighted-Average
Exercise Price
|
|
|
|
Number
of
Shares
|
|
|
|
Weighted-Average
Exercise Price
|
|
$
|
14.39
|
|
|
|
20,000
|
|
|
|
2.17
years
|
|
|
$
|
14.39
|
|
|
|
6,666
|
|
|
$
|
14.39
|
|
During the year ended December 28, 2019,
the following activity occurred under the Company’s stock option plan:
|
|
Number of
Options
|
|
|
Weighted
Average Grant
Date Fair Value
|
|
Nonvested balance, beginning of year
|
|
|
20,000
|
|
|
$
|
2.52
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
Vested
|
|
|
(6,666
|
)
|
|
$
|
2.52
|
|
Forfeited
|
|
|
--
|
|
|
|
--
|
|
Nonvested balance, end of year
|
|
|
13,334
|
|
|
$
|
2.52
|
|
Note 11 —
Other Comprehensive Loss
The components of other comprehensive loss
were as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Change in foreign currency translation adjustment before reclassifications
|
|
|
--
|
|
|
$
|
(1,119
|
)
|
|
$
|
1,670
|
|
Amounts reclassified from comprehensive income due to a divestiture of equity investment
|
|
|
--
|
|
|
|
3,729
|
|
|
|
--
|
|
The components of accumulated other comprehensive
loss, net of tax, were as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Foreign currency translation adjustment
|
|
$
|
--
|
|
|
$
|
--
|
|
|
$
|
(2,610
|
)
|
Note 12 —
Provision for Taxes
Income before taxes and the provision for
taxes consisted of the following:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Income before taxes:
|
|
$
|
8,934
|
|
|
$
|
26,442
|
|
|
$
|
15,517
|
|
Provision (benefit) for taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,419
|
|
|
$
|
4,574
|
|
|
$
|
4,191
|
|
State
|
|
|
129
|
|
|
|
486
|
|
|
|
212
|
|
|
|
|
1,548
|
|
|
|
5,060
|
|
|
|
4,403
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
367
|
|
|
|
591
|
|
|
|
(2,441
|
)
|
State
|
|
|
(239
|
)
|
|
|
349
|
|
|
|
(506
|
)
|
|
|
|
128
|
|
|
|
940
|
|
|
|
(2,947
|
)
|
|
|
$
|
1,676
|
|
|
$
|
6,000
|
|
|
$
|
1,456
|
|
The provision for income taxes was computed
based on financial statement income. A reconciliation of the provision for income taxes to the amount computed using the statutory
rate follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Income tax at statutory rate
|
|
$
|
1,876
|
|
|
$
|
5,553
|
|
|
$
|
5,431
|
|
Increase (decrease) in income tax resulting from
|
|
|
|
|
|
|
|
|
|
|
|
|
State tax expense, net of federal effect
|
|
|
(86
|
)
|
|
|
660
|
|
|
|
(191
|
)
|
Federal true-ups
|
|
|
(60
|
)
|
|
|
(23
|
)
|
|
|
193
|
|
Federal tax credits
|
|
|
(93
|
)
|
|
|
(115
|
)
|
|
|
(242
|
)
|
Effect of foreign tax rates
|
|
|
--
|
|
|
|
(304
|
)
|
|
|
(399
|
)
|
Valuation allowances (state and foreign)
|
|
|
--
|
|
|
|
(150
|
)
|
|
|
(148
|
)
|
Captive insurance earnings
|
|
|
--
|
|
|
|
(263
|
)
|
|
|
(128
|
)
|
Incentive stock options
|
|
|
(1
|
)
|
|
|
(9
|
)
|
|
|
(22
|
)
|
Tax Cuts & Jobs Act of 2017
|
|
|
--
|
|
|
|
588
|
|
|
|
(2,986
|
)
|
Other
|
|
|
40
|
|
|
|
63
|
|
|
|
(52
|
)
|
Recorded provision for income taxes
|
|
$
|
1,676
|
|
|
$
|
6,000
|
|
|
$
|
1,456
|
|
The provision
for income taxes was computed based on financial statement income. In accordance with FASB ASC 740, the Company does not have any
uncertain tax positions as of and for the years ended December 28, 2019 and December 29, 2018. Interest costs and penalties
related to income taxes are classified as interest expense and selling, general and administrative costs, respectively in the Company’s
financial statements. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and multiple state
and foreign jurisdictions. The Company is subject to future examinations by federal, state and other tax authorities for all years
after 2015.
The Company also has state, net of federal
benefit, research tax credit carryforwards of $346 thousand as of December 28, 2019. The state research tax credit carryforwards
begin to expire in 2021.
During the year ended December 30, 2017,
the Company calculated its best estimate of the impact of the Tax Cuts and Jobs Act of 2017 and as a result, recorded $3.0 million
of income tax benefits. During the year ended December 29, 2018, the Company continued its work to determine the amount of accumulated
foreign earnings and the corresponding foreign tax credit. Based on the work completed, the Company recorded $0.6 million in income
tax expense. We do not expect any further changes or adjustments to be made for the accumulated foreign earnings and corresponding
foreign tax credit.
At December 28, 2019, the Company had domestic
federal income taxes payable of $41 thousand, domestic income taxes receivable of $204 thousand and a transition tax payable of
$387 thousand recorded. At December 29, 2018, the Company had domestic federal income taxes receivable of $943 thousand, domestic
state income taxes receivable of $139 thousand, and transition tax payable of $1.1 million recorded.
The components of the net
deferred tax liabilities are as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
Assets
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
$
|
55
|
|
|
$
|
30
|
|
Valuation reserves
|
|
|
779
|
|
|
|
615
|
|
Stock based compensation
|
|
|
208
|
|
|
|
179
|
|
Federal and state credits
|
|
|
347
|
|
|
|
297
|
|
Net operating loss carry forward
|
|
|
--
|
|
|
|
1
|
|
Total assets
|
|
|
1,389
|
|
|
|
1,122
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Property and equipment
|
|
|
(470
|
)
|
|
|
(532
|
)
|
Goodwill and intangible assets
|
|
|
(4,278
|
)
|
|
|
(3,812
|
)
|
Prepaid insurance
|
|
|
(178
|
)
|
|
|
(187
|
)
|
Total liabilities
|
|
|
(4,926
|
)
|
|
|
(4,531
|
)
|
|
|
|
|
|
|
|
|
|
Valuation Allowance
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
|
--
|
|
|
|
(160
|
)
|
Decrease during period
|
|
|
--
|
|
|
|
160
|
|
Ending balance
|
|
|
--
|
|
|
|
--
|
|
|
|
$
|
(3,537
|
)
|
|
$
|
(3,409
|
)
|
Deferred tax assets (liabilities) are included
in the consolidated balance sheets as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
Deferred income tax asset - current
|
|
$
|
--
|
|
|
$
|
--
|
|
Deferred income tax asset (liability) – long-term
|
|
|
(3,537
|
)
|
|
|
(3,409
|
)
|
|
|
$
|
(3,537
|
)
|
|
$
|
(3,409
|
)
|
The Company has utilized all
state net operating losses during the year ended December 28, 2019.
Note 13 —
Operating Segment and Geographic Information
The following table presents certain operating
segment information.
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Sporting Goods
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
$
|
180,541
|
|
|
$
|
175,780
|
|
|
$
|
177,333
|
|
Operating income
|
|
|
8,611
|
|
|
|
13,999
|
|
|
|
15,600
|
|
Interest expense
|
|
|
358
|
|
|
|
427
|
|
|
|
975
|
|
Provision for taxes
|
|
|
2,272
|
|
|
|
3,739
|
|
|
|
6,134
|
|
Net income
|
|
|
5,997
|
|
|
|
9,869
|
|
|
|
8,626
|
|
Identifiable assets
|
|
|
141,167
|
|
|
|
142,490
|
|
|
|
130,388
|
|
Depreciation & amortization
|
|
|
4,031
|
|
|
|
3,857
|
|
|
|
3,910
|
|
Capital expenditures
|
|
|
2,185
|
|
|
|
2,818
|
|
|
|
2,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Operating income (loss)
|
|
|
664
|
|
|
|
(182
|
)
|
|
|
(1,000
|
)
|
Interest expense (income)
|
|
|
(2
|
)
|
|
|
--
|
|
|
|
(171
|
)
|
Provision (benefit) for taxes
|
|
|
(596
|
)
|
|
|
2,261
|
|
|
|
(4,678
|
)
|
Net income
|
|
|
1,261
|
|
|
|
10,573
|
|
|
|
5,435
|
|
Identifiable assets
|
|
|
7,612
|
|
|
|
7,037
|
|
|
|
25,717
|
|
Non-marketable equity investments (equity method)
|
|
|
--
|
|
|
|
--
|
|
|
|
20,278
|
|
Depreciation & amortization
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Capital expenditures
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
|
|
180,541
|
|
|
|
175,780
|
|
|
|
177,333
|
|
Operating income
|
|
|
9,275
|
|
|
|
13,817
|
|
|
|
14,600
|
|
Interest expense
|
|
|
356
|
|
|
|
427
|
|
|
|
804
|
|
Provision for taxes
|
|
|
1,676
|
|
|
|
6,000
|
|
|
|
1,456
|
|
Net income
|
|
|
7,258
|
|
|
|
20,442
|
|
|
|
14,061
|
|
Identifiable assets
|
|
|
148,779
|
|
|
|
149,527
|
|
|
|
156,105
|
|
Non-marketable equity investments (equity method)
|
|
|
--
|
|
|
|
--
|
|
|
|
20,278
|
|
Depreciation & amortization
|
|
|
4,031
|
|
|
|
3,857
|
|
|
|
3,910
|
|
Capital expenditures
|
|
|
2,185
|
|
|
|
2,818
|
|
|
|
2,745
|
|
Each operating segment is individually
managed and has separate financial results that are reviewed by the Company’s management. There were no changes to the composition
of segments in 2019. The accounting policies of the reportable segments are the same as those described in the summary of significant
accounting policies.
The Sporting Goods segment consists
of home entertainment products such as table tennis tables and accessories; basketball goals; pool tables and accessories; outdoor
playsets; soccer and hockey tables; archery equipment and accessories; and fitness, arcade and darting products. Customers include
retailers, dealers and wholesalers located throughout North America, Europe and the rest of the world.
All Other consist of general and administrative
expenses not specifically related to the operating business segments and included investment income from equity investments.
Interest expense is allocated to operating
segments based on working capital usage and the provision for taxes is allocated based on a combined federal and state statutory
rate of 27.5% adjusted for actual taxes on foreign income. Permanent tax adjustments and timing differences are included in the
all other segment.
Identifiable assets are principally
those assets used in each segment. The assets in the all other segment are principally cash and cash equivalents; deferred tax
assets; and investments.
During 2019, 2018 and 2017, the Company
had one customer, Amazon.com, Inc., that accounted for approximately 21%, 19% and 18%, respectively of the Company’s revenues.
During 2019, 2018 and 2017 the Company had another customer, Dick’s Sporting Goods, which accounted
for approximately 13%, 13% and 17%, respectively, of the Company’s revenues.
As of December 28, 2019, the
Company had approximately 27% and 18% of its total accounts receivable with Amazon.com, Inc. and Dick’s Sporting Goods, respectively.
As of December 29, 2018, the Company had approximately 24% and 14% of its total accounts receivable with Amazon.com, Inc. and Dick’s
Sporting Goods, respectively.
As of December 28, 2019, approximately
31 employees of the Company's labor force were covered by a collective bargaining agreement that expires May 1, 2021.
Raw materials for Escalade’s various
product lines consist of wood, tempered glass, particle board, standard grades of steel and steel tubing, aluminum, engineering
plastics, fiberglass and packaging materials. Escalade relies upon domestic, Mexico, and Asian suppliers for these materials and
upon various Asian manufacturers for many of its products.
Net sales are attributed to country based
on location of customer. Net sales by geographic region/country were as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
North America
|
|
$
|
178,069
|
|
|
$
|
172,656
|
|
|
$
|
175,065
|
|
Europe
|
|
|
1,001
|
|
|
|
965
|
|
|
|
974
|
|
Other
|
|
|
1,471
|
|
|
|
2,159
|
|
|
|
1,294
|
|
|
|
$
|
180,541
|
|
|
$
|
175,780
|
|
|
$
|
177,333
|
|
Identified assets by geographic region/country
were as follows:
In Thousands
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
North America
|
|
$
|
148,779
|
|
|
$
|
149,527
|
|
|
$
|
156,105
|
|
Europe
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
$
|
148,779
|
|
|
$
|
149,527
|
|
|
$
|
156,105
|
|
Note 14 —
Summary of Quarterly Results
In thousands,
except per share data (unaudited)
|
|
March
23
|
|
|
July
13
|
|
|
October
5
|
|
|
December
28
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
32,102
|
|
|
$
|
55,639
|
|
|
$
|
45,756
|
|
|
$
|
47,044
|
|
Operating
Income
|
|
|
394
|
|
|
|
2,471
|
|
|
|
2,899
|
|
|
|
3,511
|
|
Net
income
|
|
|
267
|
|
|
|
1,876
|
|
|
|
2,540
|
|
|
|
2,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share Data:
|
|
$
|
0.02
|
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
Diluted
Earnings Per Share Data:
|
|
$
|
0.02
|
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
0.18
|
|
In thousands,
except per share data (unaudited)
|
|
March
24
|
|
|
July
14
|
|
|
October
6
|
|
|
December
29
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
32,149
|
|
|
$
|
48,684
|
|
|
$
|
43,955
|
|
|
$
|
50,992
|
|
Operating
Income
|
|
|
1,715
|
|
|
|
1,951
|
|
|
|
5,134
|
|
|
|
5,017
|
|
Net
income
|
|
|
1,216
|
|
|
|
12,071
|
|
|
|
3,575
|
|
|
|
3,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
Earnings Per Share Data:
|
|
$
|
0.08
|
|
|
$
|
0.84
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
Diluted
Earnings Per Share Data:
|
|
$
|
0.08
|
|
|
$
|
0.84
|
|
|
$
|
0.25
|
|
|
$
|
0.25
|
|
Note 15 —
Acquisitions
All of the Company’s acquisitions
have been accounted for using the purchase method of accounting.
2019
During 2019, the Company acquired Dura
Pickleball, a brand known for being the official ball of the US Open Pickleball Championships, Tournament of Champions, and the
USA National Pickleball Championships for a total consideration of cash and note payable to seller of $900 thousand.
2018
During 2018, the Company acquired Victory
Tailgate, LLC, a brand known for its premium licensed and custom tailgating games for total consideration of cash of approximately
$7.2 million, subject to adjustments for working capital and consideration of holdback provision.
The consideration paid by the Company for
this acquisition was allocated to the assets acquired, net of the liabilities assumed, based upon their estimated fair values as
of the date of the acquisition. The excess of the purchase price over the estimated fair value of the assets acquired, net of the
estimated fair value of the liabilities assumed, was recorded as goodwill. The allocation of the purchase price, including values
assigned to assets, liabilities and the amount of goodwill and intangible assets are represented in the table below.
In thousands
|
|
|
|
Assets acquired and liabilities assumed:
|
|
|
|
|
Cash
|
|
$
|
94
|
|
Accounts receivable
|
|
|
252
|
|
Inventories
|
|
|
603
|
|
Other assets
|
|
|
2,003
|
|
Goodwill
|
|
|
4,833
|
|
Intangible assets
|
|
|
1,500
|
|
Accounts payable
|
|
|
(2,088
|
)
|
Other liabilities
|
|
|
(314
|
)
|
|
|
$
|
6,883
|
|
Consideration of holdback provision
|
|
|
286
|
|
|
|
$
|
7,169
|
|
2017
During 2017, the Company acquired certain
assets and liabilities through two acquisitions. Total consideration paid for the acquisitions was $1.5 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
|
|
Note 16 —
Commitments and Contingencies
The Company is involved in litigation
arising in the normal course of its 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.
The Company has entered into
various agreements whereby it is required to make royalty and license payments. At December 28, 2019, the Company had future estimated
minimum non-cancelable royalty and license payments as follows:
In Thousands
|
|
Amount
|
|
2020
|
|
$
|
1,662
|
|
2021
|
|
|
845
|
|
2022
|
|
|
677
|
|
2023
|
|
|
540
|
|
2024
|
|
|
--
|
|
Thereafter
|
|
|
--
|
|
|
|
$
|
3,724
|
|
Note 17 —
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 and Time Deposits
Fair values of cash and cash equivalents
approximate cost due to the short period of time to maturity.
Notes
Payable and Long-term Debt
The Company believes the carrying value
of short-term debt, including current portion of long-term debt, and long-term debt adequately reflects the fair value of these
instruments.
The following table presents estimated
fair values of the Company’s financial instruments in accordance with FASB ASC 825 at December 28, 2019 and December 29,
2018.
|
|
|
Fair
Value Measurements Using
|
2019
In
Thousands
|
|
|
Fair
Value
|
|
|
|
Quoted
Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
5,882
|
|
|
$
|
5,882
|
|
|
$
|
--
|
|
|
$
|
--
|
|
|
|
|
Fair
Value Measurements Using
|
2018
In
Thousands
|
|
|
Fair
Value
|
|
|
|
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
|
|
|
$
|
--
|
|
|
$
|
--
|
|
Note 18 —
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:
|
|
Years Ended
|
|
All Amounts in Thousands
|
|
December 28,
2019
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
Gross Sales by Channel:
|
|
|
|
|
|
|
|
|
|
|
|
|
Mass Merchants
|
|
$
|
66,428
|
|
|
$
|
68,196
|
|
|
$
|
80,539
|
|
Specialty Dealers
|
|
|
53,878
|
|
|
|
59,211
|
|
|
|
56,862
|
|
E-commerce
|
|
|
74,029
|
|
|
|
58,026
|
|
|
|
50,431
|
|
International
|
|
|
6,562
|
|
|
|
8,533
|
|
|
|
7,545
|
|
Other
|
|
|
2,475
|
|
|
|
1,828
|
|
|
|
402
|
|
Total Gross Sales
|
|
|
203,372
|
|
|
|
195,794
|
|
|
|
195,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Gross-to-Net Sales Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
Returns
|
|
|
5,415
|
|
|
|
5,085
|
|
|
|
4,729
|
|
Warranties
|
|
|
1,736
|
|
|
|
1,448
|
|
|
|
1,036
|
|
Customer Allowances
|
|
|
15,680
|
|
|
|
13,481
|
|
|
|
12,681
|
|
Total Gross-to-Net Sales Adjustments
|
|
|
22,831
|
|
|
|
20,014
|
|
|
|
18,446
|
|
Total Net Sales
|
|
$
|
180,541
|
|
|
$
|
175,780
|
|
|
$
|
177,333
|
|
Contract Balances
– The following table provides information on changes in our contract liability balances during the twelve month periods
ended December 28, 2019, December 29, 2018 and December 30, 2017. The contract liability recorded during the twelve month periods
ended December 29, 2018 is related to a lump sum payment received for consulting services to be provided over the next year. The
contract liability was amortized, and revenues recognized, evenly over the year. At December 29, 2018, the contract liability balance
was $413 and was reported within Accrued liabilities in our Consolidated Balance Sheet. During the year ended December 28, 2019,
the liability was fully amortized.
|
|
Years Ended
|
|
All Amounts in Thousands
|
|
December 28,
2019
|
|
|
December 29,
2018
|
|
|
December 30,
2017
|
|
Increase due to cash received, excluding amounts recognized as revenue during the period
|
|
$
|
-
|
|
|
$
|
413
|
|
|
$
|
-
|
|
Revenue recognized that was included in the contract liability balance at the beginning of the period
|
|
|
(413
|
)
|
|
|
-
|
|
|
|
-
|
|
Increase in contract liability during the period
|
|
$
|
-
|
|
|
$
|
413
|
|
|
$
|
-
|
|