UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
For the transition period from _____ to _____
Commission File Number
ESCALADE, INCORPORATED
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (I.R.S. EIN) |
| (Address of principal executive office) | (Zip Code) |
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of Exchange on which registered |
| The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | ||
| Non-accelerated filer ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at April 7, 2021 |
| Common, no par value |
INDEX
| Page No. |
||
| Part I. |
Financial Information: |
|
| Item 1 - |
Financial Statements: |
|
| Consolidated Condensed Balance Sheets as of March 20, 2021, December 26, 2020, and March 21, 2020 |
3 |
|
| Consolidated Condensed Statements of Operations for the Three Months Ended March 20, 2021 and March 21, 2020 |
4 |
|
| Consolidated Condensed Statements of Stockholders’ Equity for the Three Months Ended March 20, 2021 and March 21, 2020 |
5 |
|
| Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 20, 2021 and March 21, 2020 |
6 |
|
| Notes to Consolidated Condensed Financial Statements |
7 |
|
| Item 2 - |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 |
| Item 3 - |
Quantitative and Qualitative Disclosures About Market Risk |
14 |
| Item 4 - |
Controls and Procedures |
15 |
| Part II. |
Other Information |
|
| Item 2 - |
Unregistered Sales of Equity Securities and Use of Proceeds |
16 |
| Item 6 - |
Exhibits |
17 |
| Signature |
17 |
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
| All Amounts in Thousands Except Share Information | March 20, 2021 | December 26, 2020 | March 21, 2020 | |||||||||
| (Unaudited) | (Audited) | (Unaudited) | ||||||||||
| ASSETS | ||||||||||||
| Current Assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | $ | |||||||||
| Receivables, less allowance of $; $; and $; respectively | ||||||||||||
| Inventories | ||||||||||||
| Prepaid expenses | ||||||||||||
| Prepaid income tax | -- | -- | ||||||||||
| TOTAL CURRENT ASSETS | ||||||||||||
| Property, plant and equipment, net | ||||||||||||
| Operating lease right-of-use assets | ||||||||||||
| Intangible assets, net | ||||||||||||
| Goodwill | ||||||||||||
| Other assets | ||||||||||||
| TOTAL ASSETS | $ | $ | $ | |||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||
| Current Liabilities: | ||||||||||||
| Trade accounts payable | $ | $ | $ | |||||||||
| Accrued liabilities | ||||||||||||
| Income tax payable | -- | |||||||||||
| Current operating lease liabilities | ||||||||||||
| TOTAL CURRENT LIABILITIES | ||||||||||||
| Other Liabilities: | ||||||||||||
| Long‑term debt | -- | |||||||||||
| Deferred income tax liability | ||||||||||||
| Operating lease liabilities | ||||||||||||
| Other liabilities | ||||||||||||
| TOTAL LIABILITIES | ||||||||||||
| Stockholders' Equity: | ||||||||||||
| Preferred stock: | ||||||||||||
| Authorized shares; par value, issued | ||||||||||||
| Common stock: | ||||||||||||
| Authorized shares; par value, issued and outstanding – ; ; and ; shares respectively | ||||||||||||
| Retained earnings | ||||||||||||
| TOTAL STOCKHOLDERS' EQUITY | ||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | $ | |||||||||
See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three Months Ended |
||||||||
| All Amounts in Thousands Except Per Share Data |
March 20, 2021 |
March 21, 2020 |
||||||
| Net sales |
$ | $ | ||||||
| Costs and Expenses |
||||||||
| Cost of products sold |
||||||||
| Selling, administrative and general expenses |
||||||||
| Amortization |
||||||||
| Operating Income |
||||||||
| Other Income (Expense) |
||||||||
| Interest expense |
( |
) | ( |
) | ||||
| Other income |
||||||||
| Income Before Income Taxes |
||||||||
| Provision for Income Taxes |
||||||||
| Net Income |
$ | $ | ||||||
| Earnings Per Share Data: |
||||||||
| Basic earnings per share |
$ | $ | ||||||
| Diluted earnings per share |
$ | $ | ||||||
| Dividends declared |
$ | $ | ||||||
See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
| Common Stock |
Retained |
|||||||||||||||
| All Amounts in Thousands |
Shares |
Amount |
Earnings |
Total |
||||||||||||
| Balances at December 28, 2019 |
$ | $ | $ | |||||||||||||
| Net income |
||||||||||||||||
| Expense of stock options and restricted stock units |
||||||||||||||||
| Settlement of restricted stock units |
( |
) | -- | |||||||||||||
| Dividends declared |
( |
) | ( |
) | ||||||||||||
| Purchase of stock |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Balances at March 21, 2020 |
$ | $ | $ | |||||||||||||
| Balances at December 26, 2020 |
$ | $ | $ | |||||||||||||
| Net income |
||||||||||||||||
| Expense of stock options and restricted stock units |
||||||||||||||||
| Exercise of stock options |
||||||||||||||||
| Settlement of restricted stock units |
( |
) | -- | |||||||||||||
| Dividends declared |
( |
) | ( |
) | ||||||||||||
| Purchase of stock |
( |
) | ( |
) | (954 | ) | ( |
) | ||||||||
| Balances at March 20, 2021 |
$ | $ | $ | |||||||||||||
See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
| Three Months Ended | ||||||||
| All Amounts in Thousands | March 20, 2021 | March 21, 2020 | ||||||
| Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Depreciation and amortization | ||||||||
| Provision for doubtful accounts | ||||||||
| Stock-based compensation | ||||||||
| Loss (gain) on disposal of property and equipment | ( | ) | -- | |||||
| Adjustments necessary to reconcile net income to net cash provided by operating activities | ( | ) | ||||||
| Net cash provided (used) by operating activities | ( | ) | ||||||
| Investing Activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of property and equipment | -- | |||||||
| Payment on note payable related to an acquisition | -- | ( | ) | |||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| Financing Activities: | ||||||||
| Proceeds from issuance of long-term debt | ||||||||
| Payments on long-term debt | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | -- | |||||||
| Purchase of stock | ( | ) | ( | ) | ||||
| Cash dividends paid | ( | ) | ( | ) | ||||
| Net cash provided (used) by financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
See notes to Consolidated Condensed Financial Statements.
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note A – Summary of Significant Accounting Policies
Note B ‑ Seasonal Aspects
The results of operations for the three months ended March 20, 2021 and March 21, 2020 are not necessarily indicative of the results to be expected for the full year.
Note C ‑ Inventories
| In thousands | March 20, 2021 | December 26, 2020 | March 21, 2020 | |||||||||
| Raw materials | $ | $ | $ | |||||||||
| Work in progress | ||||||||||||
| Finished goods | ||||||||||||
| $ | $ | $ | ||||||||||
Note D – Fair Values of Financial Instruments
The following methods were used to estimate the fair value of all financial instruments recognized in the accompanying balance sheets at amounts other than fair values.
Cash and Cash Equivalents
Fair values of cash and cash equivalents approximate cost due to the short period of time to maturity.
Long-term Debt
Fair values of long-term debt is estimated based on borrowing rates currently available to the Company for bank loans with similar terms and maturities and determined through the use of a discounted cash flow model.
The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall in accordance with FASB ASC 825 at March 20, 2021, December 26, 2020 and March 21, 2020.
| Fair Value Measurements Using | ||||||||||||||||
| March 20, 2021 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 | $ | $ | $ | -- | $ | -- | ||||||||||
| Financial liabilities | ||||||||||||||||
| Long-term debt | $ | $ | -- | $ | $ | -- | ||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| December 26, 2020 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 | $ | $ | $ | -- | $ | -- | ||||||||||
| Financial liabilities | ||||||||||||||||
| Long-term debt | $ | $ | -- | $ | $ | -- | ||||||||||
| Fair Value Measurements Using | ||||||||||||||||
| March 21, 2020 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 | $ | $ | $ | -- | $ | -- | ||||||||||
Note E – Stock Compensation
The fair value of stock-based compensation is recognized in accordance with the provisions of FASB ASC 718, Stock Compensation.
During the three months ended March 20, 2021, the Company awarded
For the months ended March 20, 2021 and March 21, 2020, the Company recognized stock based compensation expense of $
Note F ‑ Segment Information
| As of and for the Three Months Ended March 20, 2021 | ||||||||||||
| In thousands | Sporting Goods | Corp. | Total | |||||||||
| Revenues from external customers | $ | $ | -- | $ | ||||||||
| Operating income (loss) | ( | ) | ||||||||||
| Net income | ||||||||||||
| Total assets | $ | $ | $ | |||||||||
| As of and for the Three Months Ended March 21, 2020 | ||||||||||||
| In thousands | Sporting Goods | Corp. | Total | |||||||||
| Revenues from external customers | $ | $ | -- | $ | ||||||||
| Operating income (loss) | ( | ) | ||||||||||
| Net income (loss) | ( | ) | ||||||||||
| Total assets | $ | $ | $ | |||||||||
Note G – Dividend Payment
On March 24, 2021, the Company paid a quarterly dividend of $
Note H ‑ Earnings Per Share
The shares used in computation of the Company’s basic and diluted earnings per common share are as follows:
| Three Months Ended | ||||||||
| In thousands | March 20, 2021 | March 21, 2020 | ||||||
| Weighted average common shares outstanding | ||||||||
| Dilutive effect of stock options and restricted stock units | ||||||||
| Weighted average common shares outstanding, assuming dilution | ||||||||
Stock options that are anti-dilutive as to earnings per share and unvested restricted stock units which have a market condition for vesting that has not been achieved are ignored in the computation of dilutive earnings per share. The number of stock options and restricted stock units that were excluded in 2021 and 2020 were
Note I – 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 months ended March 20, 2021, 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, 2020, that are of significance, or potential significance to the Company.
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying Accounting for Income Taxes, which removes certain exceptions to the general principles of Topic 740, Accounting for Income Taxes (“ASC 740”) and is intended to improve consistency and simplify GAAP in several other areas of ASC 740 by clarifying and amending existing guidance. The Company adopted this standard on December 27, 2020 and the adoption did not have a material impact on its consolidated financial statements.
Note J – Revenue from Contracts with Customers
Revenue Recognition – Revenue is recognized when obligations under the terms of a contract with our customer are satisfied; generally this occurs with the transfer of control of our goods at a point in time based on shipping terms and transfer of title. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Shipping and handling fees charged to customers are reported within revenue.
Gross-to-net sales adjustments – We recognize revenue net of various sales adjustments to arrive at net sales as reported on the statement of operations. These adjustments are referred to as gross-to-net sales adjustments and primarily fall into one of three categories: returns, warranties and customer allowances.
Returns – The Company records an accrued liability and reduction in sales for estimated product returns based upon historical experience. An accrued liability and reduction in sales is also recorded for approved return authorizations that have been communicated by the customer.
Warranties – Limited warranties are provided on certain products for varying periods. We record an accrued liability and reduction in sales for estimated future warranty claims based upon historical experience and management’s estimate of the level of future claims. Changes in the estimated amounts recognized in prior years are recorded as an adjustment to the accrued liability and sales in the current year.
Customer Allowances – Customer allowances are common practice in the industries in which the Company operates. These agreements are typically in the form of advertising subsidies, volume rebates and catalog allowances and are accounted for as a reduction to gross sales. The Company reviews such allowances on an ongoing basis and accruals are adjusted, if necessary, as additional information becomes available.
Disaggregation of Revenue – We generate revenue from the sale of widely recognized sporting goods brands in basketball goals, archery, indoor and outdoor game recreation and fitness products. These products are sold through multiple sales channels that include: mass merchants, specialty dealers, key on-line retailers (“E-commerce”) and international. The following table depicts the disaggregation of revenue according to sales channel:
| Three Months Ended | ||||||||
| All Amounts in Thousands | March 20, 2021 | March 21, 2020 | ||||||
| Gross Sales by Channel: | ||||||||
| Mass Merchants | $ | $ | ||||||
| Specialty Dealers | ||||||||
| E-commerce | ||||||||
| International | ||||||||
| Other | ||||||||
| Total Gross Sales | ||||||||
| Less: Gross-to-Net Sales Adjustments | ||||||||
| Returns | ||||||||
| Warranties | ||||||||
| Customer Allowances | ||||||||
| Total Gross-to-Net Sales Adjustments | ||||||||
| Total Net Sales | $ | $ | ||||||
Note K – Leases
We have operating leases for office, manufacturing and distribution facilities as well as for certain equipment. Our commenced leases have remaining lease terms of
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:
| Three Months Ended | ||||||||
| All Amounts in Thousands | March 20, 2021 | March 21, 2020 | ||||||
| Lease Expense | ||||||||
| Operating Lease Cost | $ | $ | ||||||
| Short-term Lease Cost | ||||||||
| Variable Lease Cost | ||||||||
| Total Operating Lease Cost | $ | $ | ||||||
| Operating Lease – Operating Cash Flows | $ | $ | ||||||
| New ROU Assets – Operating Leases (non-cash) | $ | $ | ||||||
| Weighted Average Remaining Lease Term – Operating Leases (in years) | ||||||||
| Weighted Average Discount Rate – Operating Leases | % | % | ||||||
Future minimum lease payments under non-cancellable leases as of March 20, 2021 were as follows:
| All Amounts in Thousands | ||||
| Year 1 | $ | |||
| Year 2 | ||||
| Year 3 | ||||
| Year 4 | ||||
| Year 5 | ||||
| Thereafter | ||||
| Total future minimum lease payments | ||||
| Less imputed interest | ( | ) | ||
| Total | $ | |||
| Reported as of March 20, 2021 | ||||
| Current operating lease liabilities | ||||
| Long-term operating lease liabilities | ||||
| Total | $ |
As of March 20, 2021, we have entered into two leases for additional warehouse and operations which have not yet commenced. Although one of the locations is currently under construction, we do not control the building during construction, and are thus not deemed to be the owner during construction. Amounts in the table above exclude legally binding minimum lease payments for leases signed but not yet commenced of $
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This report contains forward-looking statements relating to present or future trends or factors that are subject to risks and uncertainties. These risks include, but are not limited to: specific and overall impacts of the COVID-19 global pandemic on Escalade’s financial condition and results of operations; Escalade’s plans and expectations surrounding the transition to its new Interim Chief Executive Officer and all potential related effects and consequences; the impact of competitive products and pricing; product demand and market acceptance; new product development; Escalade’s ability to achieve its business objectives, especially with respect to its Sporting Goods business on which it has chosen to focus; Escalade’s ability to successfully achieve the anticipated results of strategic transactions, including the integration of the operations of acquired assets and businesses and of divestitures or discontinuances of certain operations, assets, brands, and products; the continuation and development of key customer, supplier, licensing and other business relationships; Escalade’s ability to develop and implement our own direct to consumer e-commerce distribution channel; Escalade’s ability to successfully negotiate the shifting retail environment and changes in consumer buying habits; the financial health of our customers; disruptions or delays in our business operations, including without limitation disruptions or delays in our supply chain, arising from political unrest, war, labor strikes, natural disasters, public health crises such as the coronavirus pandemic, and other events and circumstances beyond our control; Escalade’s ability to control costs; Escalade’s ability to successfully implement actions to lessen the potential impacts of tariffs and other trade restrictions applicable to our products and raw materials, including impacts on the costs of producing our goods, importing products and materials into our markets for sale, and on the pricing of our products; general economic conditions; fluctuation in operating results; changes in foreign currency exchange rates; changes in the securities markets; Escalade’s ability to obtain financing and to maintain compliance with the terms of such financing; the availability, integration and effective operation of information systems and other technology, and the potential interruption of such systems or technology; risks related to data security of privacy breaches; and other risks detailed from time to time in Escalade’s filings with the Securities and Exchange Commission. Escalade’s future financial performance could differ materially from the expectations of management contained herein. Escalade undertakes no obligation to release revisions to these forward-looking statements after the date of this report.
Overview
Escalade, Incorporated (Escalade, the Company, we, us or our) is focused on growing its Sporting Goods business through organic growth of existing categories, strategic acquisitions, and new product development. The Sporting Goods business competes in a variety of categories including basketball goals, archery, billiards, indoor and outdoor game recreation and fitness products. Strong brands and on-going investment in product development provide a solid foundation for building customer loyalty and continued growth.
Within the sporting goods industry, the Company has successfully built a robust market presence in several niche markets. This strategy is heavily dependent on expanding our customer base, barriers to entry, strong brands, excellent customer service and a commitment to innovation. A key strategic advantage is the Company’s established relationships with major customers that allow the Company to bring new products to market in a cost effective manner while maintaining a diversified portfolio of products to meet the demands of consumers. In addition to strategic customer relations, the Company has substantial manufacturing and import experience that enable it to be a low cost supplier.
To enhance growth opportunities, the Company has focused on promoting new product innovation and development and brand marketing. In addition, the Company has embarked on a strategy of acquiring companies or product lines that complement or expand the Company's existing product lines or provide expansion into new or emerging categories in sporting goods. A key objective is the acquisition of product lines with barriers to entry that the Company can take to market through its established distribution channels or through new market channels. Significant synergies are achieved through assimilation of acquired product lines into the existing Company structure. The Company also sometimes divests or discontinues certain operations, assets, brands, and products that do not perform to the Company's expectations or no longer fit with the Company's strategic objectives.
Management believes that key indicators in measuring the success of these strategies are revenue growth, earnings growth, new product introductions, and the expansion of channels of distribution.
COVID-19 Pandemic
The novel coronavirus (COVID-19) pandemic continued to affect the Company’s operations through the first quarter of 2021 and may continue to do so indefinitely thereafter. Increased customer demand the Company experienced through 2020, likely caused in part by consumers remaining home to limit the spread of COVID-19, has carried over into the first quarter of 2021. While the Company continues to meet these demands through accelerated ordering schedules and increased inventory, a substantial decrease in customer demand or slower payments by the Company’s mass merchants, specialty dealers or other customers could adversely impact the Company’s liquidity. All of these factors may have far reaching impacts on the Company’s business, operations, and financial results and conditions, directly and indirectly, including without limitation impacts on the health of the Company’s management and employees, many of whom are still working remotely, manufacturing, distribution, marketing and sales operations, customer and consumer behaviors, and on the overall economy. The scope and nature of these impacts, most of which are beyond the Company’s control, continue to evolve and the outcomes are uncertain. In particular, uncertainty concerning the ongoing severity of the pandemic, potential government actions in response to the pandemic, and the length of time it takes for normal economic operating conditions to resume all contribute to a volatile environment for conducting business.
Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the period ended March 20, 2021 are not necessarily indicative of the results to be expected for fiscal year 2021. Management cannot predict the full impact of the COVID-19 pandemic on the Company’s sales channels, supply chain, manufacturing and distribution nor to economic conditions generally, including the effects on consumer spending. The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic ends.
Results of Operations
The following schedule sets forth certain consolidated statement of operations data as a percentage of net revenue:
| Three Months Ended |
||||||||
| March 20, 2021 |
March 21, 2020 |
|||||||
| Net revenue |
100.0 | % | 100.0 | % | ||||
| Cost of products sold |
70.5 | % | 72.6 | % | ||||
| Gross margin |
29.5 | % | 27.4 | % | ||||
| Selling, administrative and general expenses |
16.7 | % | 20.0 | % | ||||
| Amortization |
0.8 | % | 0.9 | % | ||||
| Operating income |
12.0 | % | 6.5 | % | ||||
Revenue and Gross Margin
Sales increased by 58.7% for the first quarter of 2021, compared with the same period in the prior year. The increase in sales was driven by growth in nearly all our product lines, led by our archery and outdoor categories.
The overall gross margin percentage increased to 29.5% for the first quarter of 2021, compared to 27.4% for 2020. The improvement in gross margin was primarily due to product mix and operating efficiencies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were $9.9 million for the first quarter of 2021 compared to $7.5 million for the same period in the prior year, an increase of $2.4 million or 32.4%. SG&A as a percent of sales is 16.7% for the first quarter of 2021 compared with 20.0% for the same period in the prior year.
Provision for Income Taxes
The effective tax rate for the first three months of 2021 was 21.5% compared to 19.6% for the same period last year.
Financial Condition and Liquidity
Total debt at the end of the first three months of 2021 was $46.9 million, an increase of $16.8 million from December 26, 2020. The following schedule summarizes the Company’s total debt:
| In thousands |
March 20, 2021 |
December 26, 2020 |
March 21, 2020 |
|||||||||
| Long term debt |
$ | 46,907 | $ | 30,073 | $ | -- | ||||||
As a percentage of stockholders’ equity, total debt was 33.1%, 21.6% and zero at March 20, 2021, December 26, 2020, and March 21, 2020 respectively.
On December 14, 2020, the Company and its wholly owned subsidiary, Indian Industries, Inc. (“Indian”) entered into the Third Amendment dated as of December 14, 2020 (the “Third Amendment”) to the 2019 Restated Credit Agreement dated as of January 21, 2019 among the Company, Indian, each of their domestic subsidiaries, and Chase, as Administrative Agent and as Lender. Under the terms of the Third Amendment, the maximum availability under the senior revolving credit facility increased to $75.0 million, up from $50.0 million. The maturity date of the revolving credit facility was extended to December 14, 2023. In addition to the increased borrowing amount and extended maturity date, other significant changes reflected in the Third Amendment include: increases in borrowing base availability if the Company’s funded debt to EBITDA ratio is less than 1.75 to 1:00; increasing to $30.0 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; resetting the maximum authorized stock repurchases to $15.0 million for the period commencing upon entry into the Third Amendment; increasing the interest rate on borrowings by twenty five basis points; increasing the unused facility fee by five basis points; and adding more specific provisions and procedures for replacement of LIBOR if and when LIBOR would no longer be the benchmark for determining interest rates.
The Company funds working capital requirements, shareholder dividends, and stock repurchases through operating cash flows and revolving credit agreements with its bank. The Company expects to have access to adequate levels of revolving credit to meet growth needs.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Required.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Escalade maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Interim Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, could provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Interim Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, the Company’s Interim Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
Management of the Company has evaluated, with the participation of the Company’s Interim Chief Executive Officer and Chief Financial Officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the first quarter of 2021.
There have been no changes to the Company’s internal control over financial reporting that occurred since the beginning of the Company’s first quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None.
Item 1A. RISK FACTORS.
As of the date of this filing, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 26, 2020.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
c) Issuer Purchases of Equity Securities
| Period |
(a) Total Number of Shares (or Units) Purchased |
(b) Average Price Paid per Share (or Unit) |
(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs |
(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs |
||||||||||||
| Share purchases prior to 12/26/2020 under the current repurchase program. |
1,661,514 | $ | 11.06 | 1,661,514 | $ | 14,586,649 | ||||||||||
| First quarter purchases: |
||||||||||||||||
| 12/27/2020–1/23/2021 |
17,600 | $ | 20.49 | 1,679,114 | $ | 14,225,967 | ||||||||||
| 1/24/2021-2/20/2021 |
3,527 | $ | 20.45 | 1,682,641 | $ | 14,153,839 | ||||||||||
| 2/21/2021-3/20/2021 |
27,961 | $ | 20.41 | 1,710,602 | $ | 13,583,278 | ||||||||||
| Total share purchases under the current program |
1,710,602 | $ | 11.33 | 1,710,602 | $ | 13,583,278 | ||||||||||
The Company has one stock repurchase program which was established in February 2003 by the Board of Directors and which initially authorized management to expend up to $3,000,000 to repurchase shares on the open market as well as in private negotiated transactions. In February 2005, February 2006, August 2007 and February 2008 the Board of Directors increased the remaining balance on this plan to its original level of $3,000,000. In September 2019, the Board of Directors increased the stock repurchase program from $3,000,000 to $5,000,000. In December 2020, the Board of Directors increased the stock repurchase program to $15,000,000. From its inception date through March 20, 2021, the Company has repurchased 1,710,602 shares of its common stock under this repurchase program for an aggregate price of $19,382,659. The repurchase program has no termination date and there have been no share repurchases that were not part of a publicly announced program.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ESCALADE, INCORPORATED | ||
| Date: April 15, 2021 | /s/ Stephen R. Wawrin | |
| Vice President and Chief Financial Officer | ||
| (On behalf of the registrant and in his | ||
| capacities as Principal Financial Officer | ||
| and Principal Accounting Officer) | ||