Annual Report 2018
President’s Message to Shareholders
February 26, 2019
We continue to see the purchase habits of the sporting goods consumer transition from
traditional brick and mortar to online retail. As this trend continues, we are making
investments in our operational infrastructure, online marketing content, advertising and
promotion, and increased sales support to meet the consumers’ requirements where
they are choosing to shop and make purchases. Despite retail dynamics that caused
the demise of additional retailers, Escalade Sports maintained momentum in the
market.
Net income for the full year 2018 was $20.4 million, or $1.41 diluted earnings per share
compared to a full year net income of $14.1 million, or $0.98 diluted earnings per share
in 2017. We were impacted favorably with the selling of our equity position in Stiga
Sports in Sweden which overcame the one-time benefit of the Tax Cuts and Job Act
signed into law in 2017.
Our long-term strategy of growing the business through innovation and acquisitions led to
our purchase of Victory Tailgate and supports our understanding of the needs and
requirements of our consumers. We will continue to boldly invest in the categories and
channels where there is opportunity. Our focus remains on continuing to improve our
operational cost though consolidation and out sourcing as we aggressively execute and
integrate on acquisitions that align with our business growth.
In closing, 2018 was a good year in a market that remains in a dynamic transformation. I
am very proud of our team and their ability to anticipate and meet the challenges of the
rapidly changing market by developing best-in-class products and customer service for
our consumers, providing excellent support to our retail partners, and driving value for
shareholders.
Dave Fetherman
President & CEO
Escalade, Inc.
Premium Basketball Systems
and Training Equipment
Basketball Systems and
Accessories
Basketball Systems and
Accessories
Basketball Systems and
Accessories
Premium Archery
Accessories
Bowfishing Equipment
and Accessories
Hunting Broadheads
TM
Crossbows and
Accessories
TM
Premium Fitness and
Strength Training Equipment
Premium Athletic
Training Equipment
Premium Yoga
Fitness Products
Rick Black
White
Rick Black
PANTONE 3005 C
White
Rick Black
Please match
PANTONE to the
AA-011B yellow
men
White
Rick Black
PANTONE 200 C
White
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended December 29, 2018
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 0-6966
ESCALADE, INCORPORATED
(Exact name of registrant as specified in its charter)
Indiana
(State of incorporation)
817 Maxwell Ave, Evansville, Indiana
(Address of Principal Executive Office)
13-2739290
(I.R.S. EIN)
47711
(Zip Code)
812-467-4449
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act
Common Stock, No Par Value
(Title of Class)
The NASDAQ Stock Market LLC
(Name of Exchange on Which Registered)
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act
Yes [ ] No [X]
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. Yes [X] No [ ]
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 during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a
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.
1
Large accelerated filer [ ]
Non-accelerated filer [ ]
Accelerated filer [X]
Smaller reporting company [X]
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 checkmark whether the registrant is a shell company (as defined in Rule 12 b-2 of the Exchange Act).
Yes [ ] No [X]
Aggregate market value of common stock held by nonaffiliates of the registrant as of July 14, 2018 based on the closing
sale price as reported on the NASDAQ Global Market: $146,185,880.
The number of shares of Registrant's common stock (no par value) outstanding as of February 20, 2019: 14,441,608.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Proxy Statement relating to its annual meeting of stockholders scheduled to be held on
May 15, 2019 are incorporated by reference into Part III of this Report.
ESCALADE, INCORPORATED AND SUBSIDIARIES
Table of Contents
Part I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Part II
Item 5.
Market for the Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7.
Selected Financial Data
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting
Item 9.
and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accounting Fees and Services
Part IV
Item 15.
Item 16. Form 10-K Summary
Exhibits and Financial Statement Schedules
2
Page
3
5
14
15
15
15
16
16
17
22
23
23
23
24
25
25
25
26
26
26
27
ITEM 1—BUSINESS
General
Part I
Escalade, Incorporated (Escalade, the Company, we, us or our) operates in one business segment: Sporting
Goods (Escalade Sports). Escalade and its predecessors have more than 80 years of manufacturing and selling
experience in this industry.
Sporting Goods
Headquartered in Evansville, Indiana, Escalade Sports manufactures, imports, and distributes widely
recognized sporting goods brands in basketball goals, archery, indoor and outdoor game recreation and
fitness products through major sporting goods retailers, specialty dealers, key on-line retailers, traditional
department stores and mass merchants. Escalade is a leader in table tennis tables, residential in-ground
basketball goals and in archery bows. Some of the Company’s most recognized brands, owned or distributed,
include:
Product Category
Archery
Table Tennis
Basketball Goals
Trampoline
Play Systems
Fitness
Game Tables (Hockey and Soccer)
Billiard Accessories
Darting
Outdoor Games
Brand Names
Bear® Archery, Trophy Ridge®, Whisker Biscuit®, Cajun Bowfishing™,
Karnage™, Fletcher™, Rocket®, SIK™, BearX™
STIGA®, Ping-Pong®
Goalrilla™, Goaliath®, Silverback®, Hoopstar®, Goalsetter®
Vuly™
Woodplay®, Childlife®
The STEP®, USWeight™, Lifeline®, Kettleworx®, Natural Fitness™,
PER4M®
Atomic®, American Legend®, Redline®, Triumph Sports™
Mizerak®, Minnesota Fats®, Lucasi®, PureX®, Rage®, Players®
Unicorn®, Accudart®, Arachnid®, Nodor®, Winmau®
Zume Games®, Pickleball Now, Onix®, Viva Sol®, Triumph Sports™,
Victory Tailgate™
During 2018, 2017 and 2016, the Company had one customer, Amazon.com, Inc., that accounted for
approximately 19%, 18% and 13%, respectively of the Company’s revenues. During 2018, 2017 and 2016
the Company had another customer, Dick’s Sporting Goods, which accounted for approximately 13%, 17%
and 18%, respectively, of the Company’s revenues.
As of December 29, 2018, the Company had approximately 14% and 24% of its total accounts receivable
with Dick’s Sporting Goods and Amazon.com, Inc., respectively. As of December 30, 2017, the Company
had approximately 22% and 25% of its total accounts receivable with Dick’s Sporting Goods and
Amazon.com, Inc., respectively.
Escalade Sports manufactures in the USA and Mexico and imports product from Asia, where the Company
utilizes a number of contract manufacturers.
Certain products produced by Escalade Sports are subject to regulation by the Consumer Product Safety
Commission. The Company believes it is in material compliance with all applicable regulations.
3
Marketing and Product Development
The Company makes a substantial investment in product development and brand marketing to differentiate
its product line from its competition. We conduct market research and development efforts to design
products which satisfy existing and emerging consumer needs. The Company markets directly to the
consumer or end-user as well as through its retail partners in the form of advertising and other promotional
allowances.
Competition
Escalade is subject to competition with various manufacturers in each product line. The Company is not aware
of any other single company that is engaged in the same product lines as Escalade or that produces the same
range of products as Escalade. Nonetheless, competition exists for many Escalade products. Some competitors
are larger and have substantially greater resources than the Company. Escalade believes that its long-term
success depends on its ability to strengthen its relationship with existing customers, attract new customers and
develop new products that satisfy the quality and price requirements of sporting goods customers.
Licenses, Trademarks and Brand Names
The Company has an agreement and contract with STIGA Sports AB for the exclusive right and license to
distribute and produce table tennis equipment under the brand name STIGA® for North America. The
Company also owns several registered trademarks and brand names including but not limited to Goalrilla™,
Goalsetter®, Bear® Archery, Ping-Pong®, The Step®, Lifeline® and Woodplay®.
Backlog and Seasonality
Sales are based primarily on standard purchase orders and in most cases orders are shipped within the same
month received. Unshipped orders at the end of the fiscal year (backlog) were not material and therefore are
not an indicator of future results. Due to diversity in product categories, revenues have not been seasonal and
are not expected to be so in the future.
Employees
The number of employees at December 29, 2018 and December 30, 2017 were as follows:
Sporting Goods
USA
Mexico
Asia
Total
2018
2017
416
97
18
531
353
131
17
501
The I.U.E./C.W.A. (United Electrical Communication Workers of America, AFL-CIO) represents hourly rated
employees at the Escalade Sports’ Evansville, Indiana distribution center. There were approximately 27
covered employees at December 29, 2018. A five year labor contract was negotiated and renewed in May 2016
and expires on May 1, 2021.
Sources of Supplies
Raw materials for Escalade's various product lines consist of, but are not limited to, wood, steel, aluminum,
plastics, fiberglass and packaging. Escalade relies upon suppliers in various countries and upon various third
party Asian manufacturers for many of its products. The Company believes that these sources will continue to
provide adequate supplies as needed and that all other materials needed for the Company’s various operations
are available in adequate quantities from a variety of domestic and foreign sources.
4
SEC Reports
The Company’s Internet site (www.escaladeinc.com) makes available free of charge to all interested parties
the Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form
8-K, and all amendments to those reports, as well as all other reports and schedules filed electronically with
the Securities and Exchange Commission (the Commission), as soon as reasonably practicable after such
material is electronically filed with or furnished to the Commission. Interested parties may also find reports,
proxy and information statements and other information on issuers that file electronically with the
Commission at the Commission's Internet site at www.sec.gov.
ITEM 1A—RISK FACTORS
Operating results may be impacted by changes in the economy that influence business and consumer
spending.
Operating results are directly impacted by the health of the North American and to a lesser extent, European
and Asian economies. We cannot predict how robust the economy will be or whether or not it will be
sustained. If the economic recovery slows, or if the economy experiences a prolonged period of decelerating
or negative growth, the Company’s results of operations may be negatively impacted. In general, the
Company’s sales depend on discretionary spending by consumers. Business and financial performance may
be adversely affected by current and future economic conditions, including unemployment levels, energy
costs, interest rates, recession, inflation, the impact of natural disasters and terrorist activities, and other
matters that influence business and consumer spending.
Fluctuation in economic conditions could prevent the Company from accurately forecasting demand for
its products which could adversely affect its operating results or market share.
Fluctuation in economic conditions and market instability in the United States and globally makes it difficult
for the Company, customers and suppliers to accurately forecast future product demand trends, which could
cause the Company to produce excess products that can increase inventory carrying costs and result in
obsolete inventory. Alternatively, this forecasting difficulty could cause a shortage of products, or materials
used in products, that could result in an inability to satisfy demand for products and a loss of market share.
Markets are highly competitive which could limit the Company’s growth and reduce profitability.
The market for sporting goods is highly fragmented and intensely competitive. A majority of the Company’s
products are in markets that are experiencing low growth rates. Escalade competes with a variety of regional,
national and international manufacturers for customers, employees, products, services and other important
aspects of the business. The Company has historically sold a large percentage of its sporting goods products
to mass merchandisers and has increasingly attempted to expand sales to specialty retailer and dealer markets
and to on-line retailers. In addition to competition for sales into those distribution channels, vendors also
must compete in sporting goods with large format sporting goods stores, traditional sporting goods stores
and chains, warehouse clubs, discount stores and department stores. Competition from on-line retailers may
also impact sales. Some of the current and potential competitors are larger than Escalade and have
substantially greater financial resources that may be devoted to sourcing, promoting and selling their
products, and may discount prices more heavily than the Company can afford.
If the Company is unable to predict or effectively react to changes in consumer demand, it may lose
customers and sales may decline.
Success depends in part on the ability to anticipate and respond in a timely manner to changing consumer
demand and preferences regarding sporting goods. Products must appeal to a broad range of consumers
whose preferences cannot be predicted with certainty and are subject to change. The Company often makes
commitments to manufacture products months in advance of the proposed delivery to customers. If Escalade
misjudges the market for products, sales may decline significantly. The Company may have to take
5
significant inventory markdowns on unpopular products that are overproduced and/or miss opportunities for
other products that may rise in popularity, both of which could have a negative impact on profitability. A
major shift in consumer demand away from sporting goods products could also have a material adverse
effect on the Company’s business, results of operations and financial condition.
The Company derives a substantial portion of its revenue from a few significant customers and loss of
any of these customers could materially affect our results of operations and financial condition.
The Company has two major customers, each of which accounted for more than ten percent of consolidated
gross sales and more than ten percent of total accounts receivable. The Company also has several other large
customers, none of which represent more than ten percent of consolidated gross sales, and historically has
derived substantial revenues from these customers. Our customers continue to experience industry
consolidation, which increases our risk that we may be unable to find sufficient alternative customers. The
Company needs to continue to expand its customer base to minimize the effects of the loss of any single
customer in the future. If sales to one or more of the large customers would be lost or materially reduced,
there can be no assurance that the Company will be able to replace such revenues, which could have a
material adverse effect on the Company's business, results of operations and financial condition.
The Company’s customers may experience financial difficulties that could result in losses to the
Company.
From time to time, one or more of the Company’s customers have experienced, are experiencing, or may in
the future experience financial difficulties that impair their ability to pay all amounts owed to the Company.
In such instances, the customer may file bankruptcy or take other actions to restructure the amounts owed to
secured and unsecured creditors, including unsecured trade creditors such as the Company. When this
occurs, the Company may not be able to collect the full amount owed to it by the customer, and in severe
situations may have to write off all or a substantial portion of those customer receivables. Any significant
resulting losses incurred by the Company relating to these or other customers could have a material adverse
effect on the Company’s business, results of operation, and financial condition.
Quarterly operating results are subject to fluctuation.
Operating results have fluctuated from quarter to quarter in the past, and the Company expects that they will
continue to do so in the future. Factors that could cause these quarterly fluctuations include the following:
international, national and local general economic and market conditions; the size and growth of the overall
sporting goods markets; intense competition among manufacturers, marketers, distributors and sellers of
products; demographic changes; changes in consumer preferences; popularity of particular designs,
categories of products and sports; seasonal demand for products; adverse weather conditions that may create
fluctuations in demand for certain of our products; the size, timing and mix of purchases of products;
fluctuations and difficulty in forecasting operating results; ability to sustain, manage or forecast growth and
inventories; new product development and introduction; ability to secure and protect trademarks, patents and
other intellectual property; performance and reliability of products; customer service; the loss of significant
customers or suppliers; dependence on distributors; business disruptions; increased costs of freight and
transportation to meet delivery deadlines; changes in business strategy or development plans; general risks
associated with doing business outside the United States, including, without limitation: exchange rates,
import duties, tariffs, quotas and political and economic instability; changes in government regulations; any
liability and other claims asserted against the Company; ability to attract and retain qualified personnel; and
other factors referenced or incorporated by reference in this Form 10-K and any other filings with the
Securities and Exchange Commission.
6
The Company may pursue strategic acquisitions, divestitures, or investments and the failure of a strategic
transaction to produce anticipated results or the inability to fully integrate an acquired company could
have an adverse impact on the Company’s business.
The Company has made acquisitions of complementary companies or businesses, which have been part of
the strategic plan, and may continue to pursue acquisitions in the future from time to time. Acquisitions may
result in difficulties in assimilating acquired companies, and may result in the diversion of capital and
management’s attention from other business issues and opportunities. The Company may not be able to
successfully integrate operations that it acquires, including personnel, financial systems, distribution, and
operating procedures. If the Company fails to successfully integrate acquisitions, the Company’s business
could suffer. In addition, acquisitions may result in the incurrence of debt, contingent liabilities,
amortization expense or write-offs of goodwill or other intangibles, any of which could affect the Company’s
financial position. The Company also has sometimes divested or discontinued certain operations, assets,
and products that did not perform to the Company’s expectations or no longer fit with the Company’s
strategic objectives. Divestitures may result in gains, losses, contingent liabilities, write-offs, tax
consequences, or other related costs and expenses that could affect the Company’s financial position.
Escalade will consider acquisitions, divestitures, and investments in the future, one or more of which,
individually or in the aggregate, could be material to the Company’s overall business, operations or financial
position.
Growth may strain resources, which could adversely affect the Company’s business and financial
performance.
The Company has grown in the past through strategic acquisitions, and continues to make acquisitions in its
Sporting Goods business. Our growth strategy also depends on our ability to grow our e-commerce business.
Growth places additional demands on management and operational systems. If the Company is not
successful in continuing to support operational and financial systems, expanding the management team and
increasing and effectively managing customers and suppliers, growth may result in operational inefficiencies
and ineffective management of the Company’s business, which could adversely affect its business and
financial performance.
The Company’s ability to operate and expand business and to respond to changing business and economic
conditions will be dependent upon the availability of adequate capital.
The rate of expansion will also depend on the availability of adequate capital, which in turn will depend in
large part on cash flow generated by the business and the availability of equity and debt capital. The
Company can make no assurances that it will be able to obtain equity or debt capital on acceptable terms or
at all. Our current senior secured revolving credit facility contains provisions that limit our ability to incur
additional indebtedness or make substantial asset sales, which might otherwise be used to finance our
operations. In the event of our insolvency, liquidation, dissolution or reorganization, the lenders under our
senior secured revolving credit facility would be entitled to payment in full from our assets before
distributions, if any, to our stockholders.
The Company could suffer if it fails to attract and retain skilled management and key personnel.
The Company’s success depends in large part on its ability to attract and retain highly qualified management
executives and key personnel. Significant competition for qualified candidates exists in the Company’s
business lines and geographic locations. If the Company is not able to hire and retain its executives and key
personnel, or if the compensation costs required to attract and retain such individuals becomes more
expensive, the Company may suffer adverse consequences to its business, operations, and financial
condition.
7
The Company’s business may be adversely affected by the actions of and risks associated with third-party
suppliers.
The raw materials that the Company purchases for manufacturing operations and many of the products that
it sells are sourced from a wide variety of third-party suppliers. The Company cannot control the supply,
design, function or cost of many of the products that are offered for sale and are dependent on the availability
and pricing of key materials and products. Disruptions in the availability of raw materials used in production
of these products may adversely affect sales and result in customer dissatisfaction. In addition, global
sourcing of many of the products sold is an important factor in the Company’s financial performance. The
ability to find qualified suppliers and to access products in a timely and efficient manner is a significant
challenge, especially with respect to goods sourced outside the United States. Political instability, financial
instability of suppliers, merchandise quality issues, trade restrictions, tariffs, currency exchange rates,
transport capacity and costs, inflation and other factors relating to foreign trade are beyond the Company’s
control.
Historically, instability in the political and economic environments of the countries in which the Company
or its suppliers obtain products and raw materials has not had a material adverse effect on operations.
However, the Company cannot predict the effect that future changes in economic or political conditions in
the United States and in such foreign countries may have on operations. In the event of disruptions or delays
in supply due to economic or political conditions, such disruptions or delays could adversely affect results
of operations unless and until alternative supply arrangements could be made. In addition, products and
materials purchased from alternative sources may be of lesser quality or more expensive than the products
and materials currently purchased abroad.
Deterioration in relationships with suppliers or in the financial condition of suppliers could adversely
affect liquidity, results of operations and financial position.
Access to materials, parts and supplies is dependent upon close relationships with suppliers and the ability
to purchase products from the principal suppliers on competitive terms. The Company does not enter into
long-term supply contracts with these suppliers, and has no current plans to do so in the future. These
suppliers are not required to sell to the Company and are free to change the prices and other terms. Any
deterioration or change in the relationships with or in the financial condition of the Company’s significant
suppliers could have an adverse impact on its ability to procure materials and parts necessary to produce
products for sale and distribution. If any of the significant suppliers terminated or significantly curtailed its
relationship with the Company or ceased operations, the Company would be forced to expand relationships
with other suppliers, seek out new relationships with new suppliers or risk a loss in market share due to
diminished product offerings and availability. Any change in one or more of these suppliers’ willingness or
ability to continue to supply the Company with their products could have an adverse impact on the
Company’s liquidity, results of operations and financial position.
Disruptions to our supply chain could have an adverse impact on our operations.
Many of the Company’s products are manufactured outside the United States. Those products must be
transported by third parties over large geographic distances. Delays in the shipment or delivery of our
products could occur due to work stoppages, port strikes, lack of availability of transportation, and other
factors beyond the Company’s control. Such delays could impair our ability to timely and efficiently deliver
our products, and could adversely impact our operating results.
8
The Company may be subject to product warranty claims that require the replacement or repair of the
product sold. Such warranty claims could adversely affect the Company’s financial position and
relationships with its customers.
The Company manufactures and/or distributes a variety of products. From time to time, such products may
contain manufacturing defects or design flaws that are not detected prior to sale, particularly as to new
product introductions or upon design changes to existing products. The failure to identify and correct
manufacturing defects and product design issues prior to the sale of those products could result in product
warranty claims that result in costs to replace or repair any such defective products. Because many of the
Company’s products are sold to retailers for broad consumer distribution and/or to customers who buy in
large quantities, the costs associated with product warranty claims could have a material adverse effect on
the Company’s results of operations and financial position. Product warranty claims also could cause
customer dissatisfaction that may have a material adverse effect on the Company’s reputation and on the
Company’s relationships with its customers, which may result in lost or reduced sales.
The Company may be subject to various types of litigation and the Company’s insurance may not be
sufficient to cover damages related to those claims.
From time to time the Company or its subsidiaries may be involved in lawsuits or other claims arising in the
course of business, including those related to product liability, consumer protection, employment,
intellectual property, torts and other matters. In addition, it may be subject to lawsuits relating to the design,
manufacture or distribution of its products. The Company may be subject to lawsuits resulting from injuries
associated with the use of sporting goods equipment that it sells and information security and print finishing
products that it sold prior to divesting that business. The Company may incur losses relating to these claims
or the defense of these claims. There is a risk that claims or liabilities will exceed the Company’s insurance
coverage. In addition, the Company may be unable to retain adequate liability insurance in the future.
Further, the Company is subject to regulation by the Consumer Product Safety Commission and similar state
regulatory agencies. If the Company fails to comply with government and industry safety standards, it may
be subject to claims, lawsuits, fines, product recalls and adverse publicity that could have a material adverse
effect on the Company’s business, results of operations and financial condition.
Intellectual property rights are valuable, and any inability to protect them could reduce the value of
products.
The Company obtains patents, trademarks and copyrights for intellectual property, which represent
important assets to the Company. If the Company fails to adequately protect intellectual property through
patents, trademarks and copyrights, its intellectual property rights may be misappropriated by others,
invalidated or challenged, and our competitors could duplicate the Company’s products or may otherwise
limit any competitive design or manufacturing advantages. The Company believes that success is likely to
depend upon continued innovation, technical expertise, marketing skills and customer support and services
rather than on legal protection of intellectual property rights. However, the Company intends to aggressively
assert its intellectual property rights when necessary.
The expiration or termination of our material trademarks, brand names and licensing agreements could
have a material adverse effect on the Company’s business.
The Company has invested substantial resources in developing and marketing the Company’s brands and
products over many years. The expiration or termination of one or more of the Company’s material
trademarks, patents or licensing agreements could result in the loss of such intellectual property. In such
event, the Company may not be able to recoup its investments in, and continue to benefit from the affected
brand names or products. The loss of such intellectual property and related rights could have a material
adverse effect on the Company.
9
The Company is subject to risks associated with laws and regulations related to health, safety and
environmental protection.
Products, and the production and distribution of products, are subject to a variety of laws and regulations
relating to health, safety and environmental protection. Laws and regulations relating to health, safety and
environmental protection have been passed in several jurisdictions in which the Company operates in the
United States and abroad. Although the Company does not anticipate any material adverse effects based on
the nature of operations and the thrust of such laws, there is no assurance such existing laws or future laws
will not have a material adverse effect on the Company’s business, results of operations and financial
condition.
International operations expose the Company to the unique risks inherent in foreign operations.
The Company has operations in Mexico. Foreign operations encounter risks similar to those faced by U.S.
operations, as well as risks inherent in foreign operations, such as local customs and regulatory constraints,
control over product quality and content, foreign trade policies, competitive conditions, foreign currency
fluctuations and unstable political and economic conditions. The Company’s business relationships in Asia
further increase its exposure to these foreign operating risks, which could have an adverse impact on the
Company’s income and profitability.
The Company could be adversely affected by changes in currency exchange rates and/or the value of the
United States dollar.
The Company is exposed to risks related to the effects of changes in foreign currency exchange rates and
the value of the United States dollar. Changes in currency exchange rates and the value of the United States
dollar can have a significant impact on earnings. While the Company carefully watches fluctuations in
currency exchange rates, these types of changes can have material adverse effects on the Company’s
business, results of operations and financial condition.
Failure to improve and maintain the quality of internal controls over financial reporting could materially
and adversely affect the ability to provide timely and accurate financial information, which could harm
the Company’s reputation and share price.
Management is responsible for establishing and maintaining adequate internal controls over financial
reporting for the Company to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements in accordance with generally accepted accounting principles.
Management cannot be certain that weaknesses and deficiencies in internal controls will not arise or be
identified or that the Company will be able to correct and maintain adequate controls over financial processes
and reporting in the future. Any failure to maintain adequate controls or to adequately implement required
new or improved controls could harm operating results or cause failure to meet reporting obligations in a
timely and accurate manner. Ineffective internal controls over financial reporting could also cause investors
to lose confidence in reported financial information, which could adversely affect the trading price of the
Company’s common stock.
Disclosure controls and procedures are designed to provide reasonable assurance of achieving their
objectives. However, management, including the Chief Executive Officer and Chief Financial Officer, does
not expect that disclosure controls and procedures will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected.
10
Problems with the Company’s information system software or hardware could disrupt operations and
negatively impact financial results and materially adversely affect the Company’s business operations.
The Company relies on a suite of applications and third party software to receive and process customer
orders and for the core of its manufacturing, distribution, and accounting systems. These systems, if not
functioning properly, could disrupt its operations, including the Company’s ability to receive and ship orders
and to process financial information or engage in similar normal business activities. Any material disruption,
malfunction, cyber-attack or other similar problems in or with these systems could negatively impact our
financial results and materially adversely affect our business operations.
Breaches of data or technology security could damage the Company’s reputation, cause the Company to
incur additional expense, expose the Company to litigation, and adversely affect the Company’s business.
A breach of our data or technology security could result in an unauthorized transfer or release of Company
proprietary, employee, customer and other Company related information, or the loss of valuable business
data or technology, that could cause a disruption in our business. Hackers are increasingly sophisticated and
operate large scale and complex cyber security attacks. In the event of such an attack, we may expend
significant capital and other resources to protect against, respond to, and/or alleviate problems caused by a
breach. Such an event could also result in unwanted negative media attention, damage to the Company’s
reputation, damage to our customers, and result in lost sales and lawsuits. The Company also must comply
with increasingly complex regulatory cyber security and privacy standards, which can be costly and
negatively impact the Company’s profitability.
The preparation of the Company’s financial statements requires the use of estimates that may vary from
actual results.
The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States requires management to make significant estimates that may affect financial
statements. Due to the inherent nature of making estimates, actual results may vary substantially from such
estimates, which could materially adversely affect the Company’s business, results of operations and
financial condition. For more information on the Company’s critical accounting estimates, please see the
Critical Accounting Estimates section of this Form 10-K.
Changes in accounting standards could impact reported earnings and financial condition.
The accounting standard setters, including the Financial Accounting Standards Board and the Securities and
Exchange Commission, periodically change the financial accounting and reporting standards that govern the
preparation of the Company’s consolidated financial statements. These changes can be hard to predict and
apply and can materially affect how the Company records and reports its financial condition and results of
operations. In some cases, the Company could be required to apply a new or revised standard retrospectively,
which may result in the restatement of prior period financial statements.
11
The Company’s effective tax rate may fluctuate.
The Company is a multi-channel provider of sporting goods. As a result, the Company’s effective tax rate
is derived from a combination of applicable tax rates in the various countries, states and other jurisdictions
in which the Company operates. In addition to the effects of the 2017 U.S. Tax Reforms, the effective tax
rate may be lower or higher than its tax rates have been in the past due to numerous factors, including the
sources of income, any agreement with taxing authorities in various jurisdictions, the tax filing positions
taken in various jurisdictions and changes in the political environment in the jurisdictions in which the
Company operates. The Company bases estimates of an effective tax rate at any given point in time upon a
calculated mix of the tax rates applicable to the Company and to estimates of the amount of business likely
to be done in any given jurisdiction. The loss of one or more agreements with taxing jurisdictions, a change
in the mix of business from year to year and from country to country, changes in rules related to accounting
for income taxes, changes in tax laws and any of the multiple jurisdictions in which the Company operates,
or adverse outcomes from tax audits that the Company may be subject to in any of the jurisdictions in which
the Company operates, could result in an unfavorable change in the effective tax rate which could have an
adverse effect on the Company’s business and results of operations.
The market price of the Company’s common stock is likely to be highly volatile as the stock market in
general can be highly volatile.
The public trading of the Company’s common stock is based on many factors which could cause fluctuation
in the Company’s stock price. These factors may include, among other things:
General economic and market conditions;
Actual or anticipated variations in quarterly operating results;
Limited research coverage by securities analysts;
Relatively low market capitalization resulting in low trading volume in the Company’s stock;
If securities analysts provide coverage, our inability to meet or exceed securities analysts' estimates
or expectations;
Conditions or trends in the Company’s industries;
Changes in the market valuations of other companies in the Company’s industries;
Announcements by the Company or the Company’s competitors of significant acquisitions, strategic
partnerships, divestitures, joint ventures or other strategic initiatives;
Capital commitments;
Additions or departures of key personnel;
Sales and repurchases of the Company’s common stock; and
The ability to maintain listing of the Company’s common stock on the NASDAQ Global Market.
Many of these factors are beyond the Company’s control. These factors may cause the market price of the
Company’s common stock to decline, regardless of operating performance.
If we are unable to pay quarterly dividends at intended levels, our reputation and stock price may be
harmed.
Our quarterly cash dividend is currently $0.125 per common share. The dividend program requires the use
of a portion of our cash flow. Our ability to pay dividends will depend on our ability to generate sufficient
cash flows from operations in the future. This ability may be subject to certain economic, financial,
competitive and other factors that are beyond our control. Our Board of Directors (Board) may, at its
discretion, increase or decrease the intended level of dividends or entirely discontinue the payment of
dividends at any time. Any failure to pay dividends after we have announced our intention to do so may
negatively impact our reputation, investor confidence in us and negatively impact our stock price.
12
Unauthorized disclosure of sensitive or confidential customer information could harm the Company’s
business and its standing with its customers.
Through sales and marketing activities, the Company collects and stores certain information that customers
provide to purchase products or services or otherwise communicate and interact with the Company. Despite
instituted safeguards for the protection of such information, the Company cannot be certain that all of its
systems are entirely free from vulnerability to attack. Computer hackers may attempt to penetrate the
Company’s network security and, if successful, misappropriate confidential customer or business
information. In addition, an employee, a contractor or other third party with whom the Company does
business may attempt to circumvent the Company’s security measures in order to obtain such information
or inadvertently cause a breach involving such information. Loss of customer or business information could
disrupt operations, damage the Company’s reputation, and expose the Company to claims from customers,
financial institutions, payment card associations and other persons, any of which could have an adverse
effect on the Company’s business, results of operations and financial condition. In addition, compliance
with tougher privacy and information security laws and standards may result in significant expense due to
increased investment in technology and the development of new operational processes.
Terrorist attacks, acts of war or natural disaster may seriously harm the Company’s business.
Among the chief uncertainties facing the nation and the world and, as a result, our business, is the instability
and conflict in the Middle East and uncertainties regarding North Korea, Russia, China and other Asian and
European countries. Obviously, no one can predict with certainty what the overall economic impact will be
as a result of these circumstances. Terrorist attacks may cause damage or disruption to the Company,
employees, facilities and customers, which could significantly impact net sales, costs and expenses and
financial condition. The potential for future terrorist attacks, the national and international responses to
terrorist attacks, and other acts of war and hostility may cause greater uncertainty and cause business to
suffer in ways the Company currently cannot predict.
In addition, any natural disaster or other serious disruption to one of the Company’s manufacturing or
distribution sights due to fire, tornado, earthquake or any other causes could damage a material portion of
inventory or impair our ability to provide product to our customers and could negatively affect our sales and
profitability.
New laws, policies, regulations, rulemaking and oversight, as well as changes to those currently in effect,
could adversely impact our earnings, cash flows and operations.
Our assets and operations are subject to regulation and oversight by federal, state, and local regulatory
authorities. Legislative changes, as well as regulatory actions taken by these agencies, have the potential to
adversely affect our profitability. In addition, a certain degree of regulatory uncertainty is created by the U.S.
political climate. It remains unclear specifically what the current presidential administration and Congress
may do with respect to future policies and regulations that may affect us. Regulation affects many aspects
of our business and extends to such matters as (i) federal, state, and local taxation; (ii) rates (which include
tax, commodity, surcharges and fuel); (iii) the integrity, safety and security of facilities and operations; (iv)
the acquisition of other businesses; (v) the acquisition, extension, disposition or abandonment of services or
facilities; (vi) reporting and information requirements; and (vii) the maintenance of accounts and records.
Failure to sustain a continuing economic recovery in the United States and elsewhere could have a
substantial adverse effect on our business.
Our business is tied to general economic and industry conditions as demand for sporting goods depends
largely on the strength of the economy, employment levels, consumer confidence levels and the availability
and cost of credit. These factors have had and could continue to have a substantial impact on our business.
13
Certain political developments in recent years have provided increased economic uncertainty. The United
Kingdom's decision to exit the European Union and political conflicts in the U.S. both could result in
economic and trade policy actions that would impact economic conditions in various countries, the cost of
importing into the U.S. and the competitive landscape of our customers, suppliers and competitors.
Adverse global economic conditions could also cause our customers and suppliers to experience severe
economic constraints in the future, including bankruptcy, which could have a material adverse impact on
our financial position and results of operations.
Our business is subject to risks associated with sourcing and manufacturing overseas.
We import both raw materials and finished goods into our operating facilities. Our ability to import products
in a timely and cost-effective manner may be affected by conditions at ports or issues that otherwise affect
transportation and warehousing providers, such as port and shipping capacity, labor disputes and work
stoppages, political unrest, severe weather, or security requirements in the United States and other countries.
These issues could delay importation of products or require us to locate alternative ports or warehousing
providers to avoid disruption to our customers. These alternatives may not be available on short notice or
could result in higher transportation costs, which could have an adverse impact on our business and financial
condition, specifically our gross margin and overall profitability.
Substantially all of our import operations are subject to customs and tax requirements as well as trade
regulations, such as tariffs and quotas set by governments through mutual agreements or bilateral actions. In
addition, the countries in which our products are manufactured or imported may from time to time impose
additional quotas, duties, tariffs or other restrictions on our imports or adversely modify existing restrictions.
Adverse changes in these import costs and restrictions, or our suppliers' failure to comply with customs
regulations or similar laws, could harm our business. In this regard, possible changes in U.S. policies and
the potential effects of Brexit have introduced greater uncertainty with respect to future tax and trade
regulations. Changes in tax policy or trade regulations, such as the disallowance of tax deductions on
imported merchandise or the imposition of new tariffs on imported products, could have a material adverse
effect on our business and results of operations.
Our operations are also subject to the effects of international trade agreements and regulations that impose
requirements that could adversely affect our business, such as setting quotas on products that may be
imported from a particular country.
These risks are not exhaustive.
Other sections of this Form 10-K may include additional factors which could adversely impact the
Company’s business and financial performance. Moreover, the Company operates in a very competitive and
rapidly changing environment. New risk factors emerge from time to time and it is not possible for
management to predict all risk factors, nor can the Company assess the impact of all factors on business or
the extent to which any factor, or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements. Given these risks and uncertainties, investors should not
place undue reliance on forward-looking statements as a prediction of actual results.
ITEM 1B—UNRESOLVED STAFF COMMENTS
None.
14
ITEM 2—PROPERTIES
At December 29, 2018, the Company owned or operated from the following locations:
Location
Square
Footage
Owned or
Leased
Use
Evansville, Indiana, USA
523,000
Owned
Rosarito, Mexico
Gainesville, Florida, USA
Olney, Illinois, USA
Jacksonville, Florida, USA
Orlando, Florida, USA
174,700
154,200
108,500
31,800
50,018
Distribution; sales and marketing;
engineering; administration
Manufacturing and distribution
Manufacturing and distribution
Manufacturing and distribution
Distribution; sales and marketing
Owned
Owned
Leased
Leased
Leased Marketing; manufacturing and
Orlando, Florida, USA
Chicago, IL, USA
10,587
1,300
Leased
Leased
Shanghai, China
3,225
Leased
distribution
Manufacturing and distribution
Sales and marketing; product
management
Sales and sourcing
The Company believes that its facilities are in satisfactory and suitable condition for their respective operations.
The Company also believes that it is in material compliance with all applicable environmental regulations and
is not subject to any proceeding by any federal, state or local authorities regarding such matters. The Company
provides regular maintenance and service on its plants and machinery as required. During 2016, the Company
sold its Wabash, IN land and building for a purchase price of approximately $2.1 million. The sale resulted in
a gain of approximately $1.9 million, recognized within operating income.
ITEM 3—LEGAL PROCEEDINGS
The Company is involved in litigation arising in the normal course of its business, but the Company does not
believe that the disposition or ultimate resolution of such claims or lawsuits will have a material adverse effect
on the business or financial condition of the Company.
The Company is not aware of any probable or levied penalties against the Company relating to the American
Jobs Creation Act.
ITEM 4—MINE SAFETY DISCLOSURES
Not applicable.
15
Part II
ITEM
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
5—MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED
The Company's common stock is traded under the symbol “ESCA” on the NASDAQ Global Market.
As of February 20, 2019, there were approximately 123 stockholders of record of our common stock, although
there is a significantly larger number of beneficial owners of our common stock.
ISSUER PURCHASES OF EQUITY SECURITIES
(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
982,916
$8.84
982,916
$ 2,273,939
None
None
900
None
None
$10.71
None
None
983,916
No Change
No Change
$2,264,304
Period
Share purchases prior to
10/6/2018 under the
current repurchase
program.
Fourth quarter purchases:
10/7/2018 – 11/3/2018
11/4/2018 – 12/1/2018
12/2/2018 – 12/29/2018
Total share purchases under
the current program
983,816
$8.85
983,816
$2,264,304
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 each of February 2005 and 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. The repurchase plan has no termination date and there have been no share repurchases
that were not part of a publicly announced program.
ITEM 6—SELECTED FINANCIAL DATA [Not Required]
16
ITEM 7—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following section should be read in conjunction with Item 1: Business; Item 1A: Risk Factors; and Item 8:
Financial Statements and Supplementary Data.
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, 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, the 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 supply
chain, Escalade’s ability to control costs, general economic conditions, fluctuation in operating results, changes
in foreign currency exchange rates, changes in the securities market, 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
segment through organic growth of existing categories, strategic acquisitions, and new product development.
The Sporting Goods segment competes in a variety of categories including basketball goals, archery, indoor
and outdoor game recreation and fitness products. Strong brands and on-going investment in product
development provide a solid foundation for building customer loyalty and continued growth.
Within the sporting goods industry, the Company has successfully built a robust market presence in several
niche markets. This strategy is heavily dependent on expanding our customer base, barriers to entry, strong
brands, excellent customer service and a commitment to innovation. A key strategic advantage is the
Company’s established relationships with major customers that allow the Company to bring new products to
market in a cost effective manner while maintaining a diversified portfolio of products to meet the demands of
consumers. In addition to strategic customer relations, the Company has substantial manufacturing and import
experience that enable it to be a low cost supplier.
To enhance growth opportunities, the Company has focused on promoting new product innovation and
development and brand marketing. In addition, the Company has embarked on a strategy of acquiring
companies or product lines that complement or expand the Company's existing product lines or provide
expansion into new or emerging categories in sporting goods. A key objective is the acquisition of product
lines with barriers to entry that the Company can take to market through its established distribution channels
or through new market channels. Significant synergies are achieved through assimilation of acquired product
lines into the existing Company structure.
In 2016, the Company acquired Triumph Sports USA, Inc., strengthening the Company’s leadership in the
indoor games category and providing new opportunities for the Company’s outdoor games category. In 2017,
the Company acquired Lifeline Products, LLC, a fitness leader of over 40 years, providing products used for
bodyweight, progressive variable resistance and functional training.
17
In 2018, the Company acquired Victory Tailgate, LLC, a brand known for its premium licensed and customer
tailgating games. The acquisition will significantly strengthen the Company’s leadership in the tailgating and
lawn games’ categories, while providing exciting new opportunities within the sports licensing and
customization space. The Company also sometimes divests or discontinues certain operations, assets, 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. The following table
sets forth the annual percentage change in revenues and net income over the past three years:
Net revenue
Sporting Goods
Total
Net income
Sporting Goods
Total
Results of Operations
2018
2017
2016
(0.9%)
(0.9%)
14.4%
45.4%
3.3%
3.3%
(1.7%)
22.3%
7.7%
7.7%
(4.1%)
(1.0%)
The following schedule sets forth certain consolidated statement of operations data as a percentage of net
revenue:
Net revenue
Cost of products sold
Gross margin
Selling, administrative and general expenses
Amortization
Operating income
Revenue and Gross Margin
Net revenue was down 0.9% in 2018 compared to 2017.
2018
100.0%
74.4%
25.6%
16.9%
0.8%
7.9%
2017
100.0%
74.8%
25.2%
16.1%
0.9%
8.2%
2016
100.0%
74.2%
25.8%
15.9%
1.4%
8.5%
The overall gross margin percentage increased to 25.6% in 2018 compared with 25.2% in 2017 due primarily
to favorable product mix and increased sales and margins in archery.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (SG&A) were $29.8 million in 2018 compared to $28.5 million
in 2017, an increase of $1.3 million or 4.4%. SG&A increased as a result of acquisition related activity and
customer specific advertising. SG&A as a percent of sales is 16.9% in 2018 compared with 16.1% in 2017.
Other Income
Other income, including equity in earnings of affiliates, increased in 2018 to $13.1 million compared with $1.7
million in 2017. During 2018, the Company recognized a $13.0 million gain in other income on the sale of our
50% owned equity method investment, Stiga, a Swedish entity. Equity in earnings of affiliates was $0.1 million
in 2018 compared with $1.6 million in 2017.
18
Provision for Income Taxes
The effective tax rate for 2018 and 2017 was 22.7% and 9.4%, respectively. The 2018 effective tax rate is
higher than the statutory rate primarily due to the impact of state income taxes and additional provisional
expenses booked relative to the 2017 U.S. Tax Reform one-time transition tax on the mandatory deemed
repatriation of cumulative foreign earnings. The 2017 effective tax rate was lower than the statutory rate
primarily due to the 2017 U.S. Tax Reforms signed into law on December 22, 2017 making significant
changes to the Internal Revenue Code. Changes included, but were not limited to, a corporate tax rate
decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S
international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on
the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.
Sporting Goods
Net revenues, operating income, and net income for the Sporting Goods segment for the three years ended
December 29, 2018 were as follows:
In Thousands
2018
2017
2016
Net revenue
Operating income
Net income
$175,780
13,999
9,869
$177,333
15,600
8,626
$171,662
15,731
8,774
Net revenue decreased 0.9% in 2018 compared to 2017. The Company continues to aggressively pursue
opportunities to increase revenue through introduction of new products, expansion of product distribution,
acquisitions, and increased investment in consumer marketing. Sales channels are predominately mass market
retail customers, specialty retailers, dealers, and e-commerce.
Gross margin improved in 2018 compared with 2017. The gross margin ratio in 2018 was 25.6% compared to
25.2% in 2017 due primarily to favorable product mix and increased sales and margins in archery. Operating
income as a percentage of net revenue decreased to 8.0% in 2018 compared to 8.8% in 2017.
Financial Condition and Liquidity
The current ratio, a basic measure of liquidity (current assets divided by current liabilities), for 2018 was 5.3,
compared to 4.1 in 2017. Receivable levels increased to $40.7 million in 2018 compared with $39.4 million
in 2017 and net inventory increased $3.9 million to $39.1 million in 2018 from $35.2 million in 2017. With
proceeds from the sale of our 50% ownership in Stiga, total notes payable and long-term debt were extinguished
during 2018 compared to $23.1 million in 2017. Total notes payable and long-term debt as a percentage of
stockholders equity was 20.7% in 2017.
The Company’s working capital requirements are primarily funded through cash flows from operations and
revolving credit agreements with its bank. During 2018, the Company’s maximum borrowings under its
primary revolving credit lines and overdraft facility totaled $24.2 million compared to $29.0 million in 2017.
The overall effective interest rate in 2018 was 4.9% compared to the effective rate of 3.1% in 2017. Proceeds
from the sale of the Company’s 50% interest in Stiga were used to pay off outstanding debt, including the
repayment of the Company’s outstanding term loan facility. Total debt at the end of the Company’s 2018 fiscal
year was zero.
19
On January 21, 2019, the Company entered into an Amended and Restated Credit Agreement (“2019 Restated
Credit Agreement”) with the its issuing bank, JPMorgan Chase Bank, N.A. (“Chase”), and the other lenders
identified in the 2019 Restated Credit Agreement (collectively, 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.
Operating cash flows were used to fund acquisitions and to pay shareholder dividends.
In 2019, the Company estimates capital expenditures to be approximately $3.0 million.
The Company believes that cash generated from its projected 2019 operations and the commitment of
borrowings from its primary lender will provide it with sufficient cash flows for its operations.
It is possible that if economic conditions deteriorate, this could have adverse effects on the Company’s ability
to operate profitably during fiscal year 2019. To the extent that occurs, management will pursue cost
reduction initiatives and consider realignment of its infrastructure in an effort to match the Company’s
overhead and cost structure with the sales level dictated by current market conditions.
New Accounting Pronouncements
Refer to Note 1 to the consolidated financial statements under the sub-heading “New Accounting
Pronouncements”.
Off Balance Sheet Financing Arrangements
The Company has no financing arrangements that are not recorded on the Company’s balance sheet.
Contractual Obligations
The following schedule summarizes the Company’s material contractual obligations as of December 29, 2018:
Amounts in thousands
Total
2019
2020 – 2021 2022 – 2023 Thereafter
Debt
Future interest payments
Operating leases
Minimum payments under
purchase, royalty and license
agreements
Total
Critical Accounting Estimates
$ -
-
812
$ -
-
594
$ -
-
218
$ -
-
--
$ --
--
--
3,977
1,159
1,616
1,202
--
$ 4,789
$ 1,753
$ 1,834
$ 1,202
$ --
The methods, estimates and judgments used in applying the Company’s accounting policies have a significant
impact on the results reported in its financial statements. Some of these accounting policies require difficult
and subjective judgments, often as a result of the need to make estimates of matters that are inherently
uncertain. The most critical accounting estimates are described below and in the Notes to the Consolidated
Financial Statements.
20
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. To the extent there are
product defects in current products that are unknown to management and do not fall within historical defect
rates, the product warranty reserve could be understated and the Company could be required to accrue
additional product warranty costs thus negatively affecting gross margin.
Inventory Valuation Reserves
The Company evaluates inventory for obsolescence and excess quantities based on demand forecasts over
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 potentially excess or obsolete and a reserve is established based on the anticipated net realizable value. To
the extent that demand forecasts are greater than actual demand and the Company fails to reduce manufacturing
output accordingly, the Company could be required to record additional inventory reserves which would have
a negative impact on gross margin.
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. To the extent that actual bad debt losses exceed the allowance recorded
by the Company, additional reserves would be required which would increase selling, general and
administrative costs.
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.
Impairment of Goodwill
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 Financial
Accounting Standards Board (FASB) Accounting Standard Codification (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.
21
If the second step of the goodwill impairment testing is required, the Company establishes fair value by using
an income approach or a combination of a market approach and an income approach. The market approach
uses the guideline-companies method to estimate the fair value of a reporting unit based on reported sales of
publicly-held entities engaged in the same or a similar business as the reporting unit. The income approach
uses the discounted cash flow method to estimate the fair value of a reporting unit by calculating the present
value of the expected future cash flows of the reporting unit. The discount rate is based on a weighted average
cost of capital determined using publicly-available interest rate information on the valuation date and data
regarding equity, size and country-specific risk premiums/decrements compiled and published by a
commercial source. The Company uses assumptions about expected future operating performance in
determining estimates of those cash flows, which may differ from actual cash flows.
The Company has one reporting unit that is identical to our operating segment, Sporting Goods. Of the total
recorded goodwill of $26.4 million at December 29, 2018, the entire amount was allocated to the Escalade
Sports reporting unit. The results of the qualitative impairment assessment of the Escalade Sports reporting
unit indicated that the fair value of the invested capital exceeded the carrying value of the invested capital
as of December 29, 2018.
Long Lived Assets
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.
Non-Marketable Equity Method Investment
The Company had a minority equity position in a company strategically related to the Company’s business,
but did not have control over this company. The accounting method employed was dependent on the level of
ownership and degree of influence the Company can exert on operations. Where the equity interest was less
than 20% and the degree of influence was not significant, the cost method of accounting is employed. Where
the equity interest was greater than 20% but not more than 50%, the equity method of accounting is utilized.
Under the equity method, the Company’s proportionate share of net income was recorded in equity in earnings
of affiliates on the consolidated statements of operations. The proportionate share of net income was $0.1
million and $1.6 million and $1.7 million in 2018, 2017 and 2016, respectively. Total cash dividends received
from this equity investment amounted to $2,323 thousand, $2,168 thousand, and $1,060 thousand in 2018,
2017 and 2016, respectively. 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.
Effect of Inflation
The Company cannot accurately determine the precise effects of inflation. The Company attempts to pass on
increased costs and expenses through price increases when necessary. The Company is working on reducing
expenses; improving manufacturing technologies; and redesigning products to keep these costs under control.
Capital Expenditures
As of December 29, 2018, the Company had no material commitments for capital expenditures. In 2019, the
Company estimates capital expenditures to be approximately $3.0 million.
ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK [Not
Required]
22
ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Item 8 are set forth in Part IV, Item 15.
ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A —CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Escalade maintains disclosure controls and procedures that are designed to ensure that information required to
be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within
the time periods specified in the SEC’s rules and forms, and that such information is accumulated and
communicated to the Company’s management, including its Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition
of “disclosure controls and procedures” in Rules 13a-15(e) and 15d-15(e). In designing and evaluating the
disclosure controls and procedures, management recognized that any controls and procedures, no matter how
well designed and operated, could provide only reasonable assurance of achieving the desired control
objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Also, the Company has investments in certain unconsolidated
entities. As the Company does not control or manage these entities, its disclosure controls and procedures with
respect to such entities are necessarily substantially more limited than those it maintains with respect to its
consolidated subsidiaries.
The Company carried out an evaluation, under the supervision and with the participation of the Company’s
management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of
the period covered by this report. Based on the foregoing, the Company’s Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Escalade’s management is responsible for establishing and maintaining adequate internal control over financial
reporting for the Company. Escalade’s internal control system was designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. Internal control over financial reporting of the
Company includes those policies and procedures that:
(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the
transactions of the Company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with authorizations of management and
directors of the Company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s
financial statements.
23
All internal control systems, no matter how well designed, have inherent limitations, including the possibility
of human error or circumvention through collusion or improper overriding of controls. Therefore, even those
internal control systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control
may vary over time.
The management of Escalade assessed the effectiveness of the Company’s internal control over financial
reporting as of December 29, 2018. In making its assessment of internal control over financial reporting,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control – Integrated Framework (published in 2013) and implemented a
process to monitor and assess both the design and operating effectiveness of the Company’s internal controls.
Based on this assessment, management believes that, as of December 29, 2018, the Company’s internal control
over financial reporting was effective.
This annual report on Form 10-K includes an attestation report of the Company’s registered public accounting
firm regarding internal control over financial reporting. Management’s report regarding internal control over
financial reporting is subject to attestation by the Company’s registered public accounting firm pursuant to
rules of the Securities and Exchange Commission. In addition, this report by management regarding internal
control over financial reporting is specifically not incorporated by reference into any other filing by the
Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
/s/ David L. Fetherman, Chief Executive Officer /s/ Stephen R. Wawrin, Chief Financial Officer
Changes in Internal Control over Financial Reporting
Management of the Company has evaluated, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, changes in the Company’s internal controls over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter of 2018. In
connection with such evaluation, there have been no changes to the Company’s internal control over
financial reporting that occurred since the beginning of the Company’s fourth quarter of 2018 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over
financial reporting.
ITEM 9B — OTHER INFORMATION
None.
24
Part III
ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required under this item with respect to Directors and Executive Officers is contained in the
registrant's Proxy Statement relating to its annual meeting of stockholders scheduled to be held on May 15,
2019 under the captions “Certain Beneficial Owners,” “Election of Directors,” “Executive Officers of the
Registrant,” “Board of Directors, Its Committees, Meetings and Functions,” and “Beneficial Ownership
Reporting Compliance” and is incorporated herein by reference.
ITEM 11— EXECUTIVE COMPENSATION
Information required under this item is contained in the registrant's Proxy Statement relating to its annual
meeting of stockholders scheduled to be held on May 15, 2019 under the captions “Compensation Discussion
and Analysis,” “Compensation Committee Interlocks and Insider Participation,” “Report of the Compensation
Committee” and “Executive Compensation” and is incorporated herein by reference, except that the
information required by Item 407(e)(5) of Regulation S-K which appears under the caption “Report of the
Compensation Committee” is specifically not incorporated by reference into this Form 10-K or into any other
filing by the registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934.
ITEM 12—SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Except for the information required by Item 201(d) of Regulation S-K, which is included below, information
required by this item is contained in the registrant’s proxy statement relating to its annual meeting of
stockholders scheduled to be held on May 15, 2019 under the captions “Certain Beneficial Owners” and
“Election of Directors” and is incorporated herein by reference.
Equity Compensation Plan Information
Plan Category
Equity compensation plans approved by
security holders (1)
Equity compensation plans not approved by
security holders
Total
Number of
Securities to be Issued
Upon Exercise of
Outstanding Options,
Warrants and Rights (2)
Weighted-Average
Exercise Price
of Outstanding Options,
Warrants
and Rights
Number of
Securities Remaining
Available for Future
Issuance Under Equity
Compensation Plans
35,000
--
35,000
$ 13.31
--
1,412,402
--
1,412,402
(1) These plans include the Escalade, Incorporated 2007 Incentive Plan, including an additional 1,500,000
shares added under a 2012 amendment to the Escalade 2007 Incentive Plan, and the Escalade, Incorporated
2017 Incentive Plan. All plans were approved by stockholders at Escalade’s Annual Meetings of Stockholders
in 2007, 2012, and 2017, respectively.
(2) Does not include 125,987 shares subject to outstanding, unvested restricted stock awards.
25
ITEM 13—CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by Item 407(a) of Regulation S-K is contained in the registrant’s proxy statement
relating to its annual meeting of stockholders to be held on May 15, 2019 under the captions “Election of
Directors” and “Board of Directors, Its Committees, Meetings and Functions” and is incorporated herein by
reference. The information required by Item 404 of Regulation S-K is contained in the registrant’s proxy
statement relating to its annual meeting of stockholders scheduled to be held on May 15, 2019 under the caption
“Certain Relationships and Related Person Transactions” and is incorporated herein by reference.
ITEM 14 — PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is contained in the registrant’s proxy statement relating to its annual
meeting of stockholders scheduled to be held on May 15, 2019 under the caption “Principal Accounting Firm
Fees” and is incorporated herein by reference.
ITEM 15—EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Part IV
(A) Documents filed as a part of this report:
(1) Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated financial statements of Escalade, Incorporated and subsidiaries:
Consolidated balance sheets—December 29, 2018 and December 30, 2017
Consolidated statements of operations—fiscal years ended December 29, 2018, December
30, 2017, and December 31, 2016
Consolidated statements of comprehensive income—fiscal years ended December 29,
2018, December 30, 2017, and December 31, 2016
Consolidated statements of stockholders’ equity—fiscal years ended December 29, 2018,
December 30, 2017, and December 31, 2016
Consolidated statements of cash flows—fiscal years ended December 29, 2018, December
30, 2017, and December 31, 2016
Notes to consolidated financial statements
All other schedules are omitted because of the absence of conditions under which they are
required or because the required information is given in the consolidated financial statements or
notes thereto.
(3) Exhibits
3.1
3.2
10.1
10.2
Articles of Incorporation of Escalade, Incorporated (a)
Amended By-Laws of Escalade, Incorporated (f)
Amended and Restated Credit Agreement dated as of January 21, 2019 among Escalade,
Incorporated, Indian Industries, Inc., each of their domestic subsidiaries, and JPMorgan
Chase Bank, N.A., as Administrative Agent (without exhibits and schedules, which
Escalade has determined are not material) (b)
Pledge and Security Agreement dated as of January 21, 2019 among Escalade,
Incorporated, Indian Industries, Inc., each of their domestic subsidiaries, and JPMorgan
Chase Bank, N.A., as Administrative Agent (without exhibits and schedules, which
Escalade has determined are not material) (c)
(4) Executive Compensation Plans and Arrangements
10.3
Escalade, Incorporated 2007 Incentive Plan, as amended, incorporated by reference herein
from Annex 1 and 2 to the Registrant’s 2012 Definitive Proxy Statement (e)
26
10.9
10.4
10.8
10.7
10.5
10.6
Escalade, Incorporated 2017 Incentive Plan, incorporated by reference herein from Annex 1
to the Registrant’s 2017 Definitive Proxy Statement (i)
Form of Stock Option Award Agreement utilized in Stock Option grants to employees
pursuant to the Escalade, Incorporated 2017 Incentive Plan (d)
Form of Stock Option Award Agreement utilized in Stock Option grants to Directors
pursuant to the Escalade, Incorporated 2017 Incentive Plan (d)
Form of Restricted Stock Unit Agreement utilized in Restricted Stock Unit grants to
employees pursuant to the Escalade Incorporated 2017 Incentive Plan (d)
Form of Restricted Stock Unit Agreement utilized in Restricted Stock Unit grants to
Directors pursuant to the Escalade, Incorporated 2017 Incentive Plan (d)
Executive Severance agreement, dated June 9, 2016 between David L. Fetherman and
Escalade, Inc. (h)
Subsidiaries of the Registrant
21
Consent of BKD, LLP
23.1
Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification
31.1
Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certification
31.2
Chief Executive Officer Section 1350 Certification
32.1
32.2
Chief Financial Officer Section 1350 Certification
101.Cal XBRL Taxonomy Extension Calculation Linkbase Document
101.Def XBRL Taxonomy Extension Definition Linkbase Document
101.Lab XBRL Taxonomy Extension Label Linkbase Document
101.Pre XBRL Taxonomy Extension Presentation Linkbase Document
101.Ins XBRL Instance Document
101.Sch XBRL Taxonomy Extension Schema Document
(a) Incorporated by reference from the Company's 2007 First Quarter Report on Form 10-Q
(b) Incorporated by reference from the Company's Form 8-K/A filed on February 1, 2019. The 2019
Amended and Restated Credit Agreement supersedes the 2016 Credit Agreement with JPMorgan
Chase Bank, N.A. previously entered into by the Company and Indian Industries, Inc. The
domestic subsidiaries of the Company and Indian Industries are parties to the 2019 Amended and
Restated Credit Agreement as subsidiary guarantors, which supersedes the Unlimited Continuing
Guarantees previously entered into by those subsidiaries.
(c) Incorporated by reference from the Company’s Form 8-K filed on January 25, 2019. The 2019
Pledge and Security Agreement supersedes the pledge agreements previously entered into by the
Company, Indian Industries, Inc. and their domestic subsidiaries
(d) Incorporated by reference from the Company’s Form 10-K for the fiscal year ended December
30, 2017 and filed on February 27, 2018
(e) Incorporated by reference from the Company’s 2012 Proxy Statement
(f) Incorporated by reference from the Company’s 2014 First Quarter Report on Form 10-Q filed on
April 22, 2014
(g) Incorporated by reference from the Company’s 2016 First Quarter Form 10-Q filed on April 15,
2016
(h) Incorporated by reference from the Company’s Form 8-K filed on June 13, 2016
(i) Incorporated by reference from the Company’s 2017 Proxy Statement
ITEM 16—FORM 10-K SUMMARY
None.
27
ESCALADE, INCORPORATED AND SUBSIDIARIES
Index to Financial Statements
The following consolidated financial statements of the Registrant and its subsidiaries and Independent
Accountants’ Reports are submitted herewith:
Page
Reports of Independent Registered Public Accounting Firm .................................................................... 29
Consolidated financial statements of Escalade, Incorporated and subsidiaries:
Consolidated balance sheets—December 29, 2018 and December 30, 2017 ...................................... 32
Consolidated statements of operations—fiscal years ended December 29, 2018,
December 30, 2017 and December 31, 2016 ................................................................................... 33
Consolidated statements of comprehensive income—fiscal years ended
December 29, 2018, December 30, 2017 and December 31, 2016……………………………… 34
Consolidated statements of stockholders’ equity—fiscal years ended December 29, 2018,
December 30, 2017 and December 31, 2016 ................................................................................... 34
Consolidated statements of cash flows—fiscal years ended December 29, 2018,
December 30, 2017 and December 31, 2016 ................................................................................... 35
Notes to consolidated financial statements ............................................................................................ 36
28
Reports of Independent Registered Public Accounting Firms
Audit Committee, Board of Directors and Stockholders
Escalade, Incorporated
Evansville, Indiana
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Escalade, Incorporated as of December 29, 2018,
and December 30, 2017, and the related consolidated statements of operations, comprehensive income, stockholders’
equity and cash flows for each of the years in the three-year period ended December 29, 2018 and the related notes
(collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Escalade, Incorporated as of December 29,
2018, and December 30, 2017, and the results of its operations and its cash flows for each of the years in the three-
year period ended December 29, 2018, in conformity with accounting principles generally accepted in the United
States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), Escalade, Incorporated’s internal control over financial reporting as of December 29, 2018, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO), and our report dated February 22, 2019, expressed an unqualified opinion on
the effectiveness of Escalade, Incorporated’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of Escalade, Incorporated’s management. Our
responsibility is to express an opinion on Escalade, Incorporated’s consolidated financial statements based on our
audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) and
are required to be independent with respect to Escalade, Incorporated in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the Public Company
Accounting Oversight Board (United States).
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ BKD, LLP
We have served as the Company’s auditor since 1977.
Evansville, Indiana
February 22, 2019
29
Report of Independent Registered Public Accounting Firm
Audit Committee, Board of Directors and Stockholders
Escalade, Incorporated
Evansville, Indiana
Opinion on the Internal Control Over Financial Reporting
have
audited Escalade,
We
of
December 29, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Incorporated’s
reporting
financial
internal
control
over
as
In our opinion, Escalade, Incorporated maintained, in all material respects, effective internal control over financial
reporting as of December 29, 2018, based on criteria established in Internal Control – Integrated Framework: (2013)
issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements of Escalade, Incorporated and our report dated February 22, 2019,
expressed an unqualified opinion thereon.
Basis for Opinion
Escalade, Incorporated’s management is responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on
Escalade, Incorporated’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) and
are required to be independent with respect to Escalade, Incorporated in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the Public Company
Accounting Oversight Board (United States).
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definitions and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have
a material effect on the financial statements.
30
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may
deteriorate.
As permitted, the Company excluded the operations of Victory Tailgate, LLC, a business acquired on November 8,
2018, from the scope of management’s report on internal control over financial reporting. As such, this entity has also
been excluded from the scope of our audit of internal control over financial reporting.
/s/ BKD, LLP
Evansville, Indiana
February 22, 2019
31
ESCALADE, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
All Amounts in Thousands Except Share Information
ASSETS
Current Assets:
Cash and cash equivalents
Receivables, less allowances of $532 and $623
Inventories
Prepaid expenses
Prepaid income tax
Other current assets
TOTAL CURRENT ASSETS
Property, plant and equipment, net
Intangible assets
Goodwill
Investments
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
Trade accounts payable
Accrued liabilities
TOTAL CURRENT LIABILITIES
Long-term debt
Deferred income tax liability
Other liabilities
TOTAL LIABILITIES
Commitments and contingencies
Stockholders' equity:
Preferred stock
December 29,
2018
December 30,
2017
$ 2,824
40,682
39,122
4,151
1,082
2
87,863
15,498
19,785
26,381
-
-
$149,527
$ -
5,631
11,072
16,703
-
3,409
1,094
21,206
--
$ 1,572
39,350
35,160
3,414
764
-
80,260
14,286
19,691
21,548
20,278
42
$156,105
$ 1,250
4,295
13,997
19,542
21,871
2,469
553
44,435
--
Authorized: 1,000,000 shares, no par value, none issued
Common stock
Authorized: 30,000,000 shares, no par value
Issued and outstanding: 2018 —14,438,824 shares, 2017 —14,371,586 shares
Retained earnings
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
See notes to consolidated financial statements.
14,439
113,882
-
128,321
$149,527
14,372
99,908
(2,610)
111,670
$156,105
32
ESCALADE, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
All Amounts in Thousands Except Per Share Data
Net Sales
Costs and Expenses
Cost of products sold
Selling, administrative and general expenses
Amortization
Operating Income
Other Income (Expense)
Interest expense
Equity in earnings of affiliates
Gain on sale of equity method investment (includes
($3,729) of accumulated other comprehensive loss
reclassification from foreign currency translation
adjustment)
Gain on bargain purchase
Other income (expense)
Income Before Income Taxes
Provision for Income Taxes
Net Income
Earnings Per Share Data:
Basic earnings per share
Diluted earnings per share
See notes to consolidated financial statements.
December 29,
2018
Years Ended
December 30,
2017
December 31,
2016
$175,780
$177,333
$171,662
130,750
29,807
1,406
13,817
(427)
121
13,020
--
(89)
26,442
6,000
132,606
28,548
1,579
14,600
(804)
1,634
--
256
(169)
15,517
1,456
127,395
27,357
2,327
14,583
(834)
1,672
--
--
121
15,542
4,049
$ 20,442
$ 14,061
$ 11,493
$ 1.42
$ 1.41
$ 0.98
$ 0.98
$ 0.81
$ 0.80
33
Escalade, Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income
All Amounts in Thousands
Net Income
December 29,
2018
Years Ended
December 30,
2017
December 31,
2016
$ 20,442
$ 14,061
$ 11,493
Foreign currency translation adjustment before
reclassifications
(1,119)
1,670
(1,102)
Amounts reclassified from comprehensive income due to
divestiture of equity investment
3,729
-
-
Comprehensive Income
$ 23,052
$ 15,731
$ 10,391
See notes to consolidated financial statements.
Consolidated Statements of Stockholders’ Equity
All Amounts in Thousands
Common Stock
Shares
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balances at December 26, 2015
14,180
$14,180
$85,478
$ (3,178)
$96,480
Other comprehensive loss
Net income
Expense of stock options and restricted stock units
Exercise of stock options
Settlement of restricted stock units
Tax benefit from settlement of stock compensation
Dividends declared
Stock issued to directors as compensation
96
16
13
96
16
13
11,493
398
451
(16)
35
(6,282)
131
(1,102)
(1,102)
11,493
398
547
--
35
(6,282)
144
Balances at December 31, 2016
14,305
$14,305
$91,688
$ (4,280)
$101,713
Other comprehensive income
Net income
Expense of stock options and restricted stock units
Exercise of stock options
Settlement of restricted stock units
Dividends declared
Stock issued to directors as compensation
28
26
13
28
26
13
14,061
522
131
(26)
(6,607)
139
1,670
1,670
14,061
522
159
--
(6,607)
152
Balances at December 30, 2017
14,372
$14,372
$99,908
$ (2,610)
$111,670
Other comprehensive income
Net income
Expense of stock options and restricted stock units
Exercise of stock options
Settlement of restricted stock units
Dividends declared
Stock issued to directors as compensation
Purchase of stock
9
47
12
(1)
9
47
12
(1)
20,442
604
45
(47)
(7,215)
154
(9)
2,610
2,610
20,442
604
54
--
(7,215)
166
(10)
Balances at December 29, 2018
14,439
$14,439
$113,882
$ -
$128,321
See notes to consolidated financial statements.
34
ESCALADE, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
December 29,
2018
Years Ended
December 30,
2017
December 31,
2016
$ 20,442
$ 14,061
$ 11,493
3,857
155
604
(121)
940
(13,020)
(377)
--
--
2,323
(1,140)
(3,359)
194
(3,992)
6,506
(2,818)
(7,169)
33,705
--
1,154
--
24,872
(7,215)
28,024
(51,145)
54
--
--
(10)
166
(30,126)
1,252
1,572
$2,824
$ 423
$4,844
$9,285
(7,169)
286
$2,402
3,910
775
522
(1,634)
(2,947)
--
--
(256)
(5)
2,168
(3,366)
(468)
(507)
1,110
13,363
(2,745)
(1,450)
--
--
--
5
(4,190)
(6,607)
56,713
(59,031)
159
--
--
--
152
(8,614)
559
1,013
$1,572
$ 792
$3,816
$2,018
(1,450)
--
$ 568
5,244
1,758
398
(1,672)
(375)
--
--
--
(2,158)
1,060
2,709
(6,548)
950
(690)
12,169
(2,653)
(9,659)
--
(57)
--
2,568
(9,801)
(6,282)
65,887
(63,585)
547
(83)
35
--
144
(3,337)
(969)
1,982
$1,013
$ 866
$3,333
$10,597
(9,464)
--
$ 1,133
All Amounts in Thousands
Operating Activities:
Net Income
Reconciling adjustments:
Depreciation and amortization
Provision for doubtful accounts
Stock option and restricted stock unit expense
Equity in net income of joint venture investments
Deferred income taxes
Gain on sale of equity method investment
Gain on insurance proceeds received for damage to property
Gain on bargain purchase
Gain on disposals of assets
Dividends received from equity method investments
Changes in
Accounts receivable
Inventories
Prepaids and other assets
Accounts payable and accrued expenses
Net cash provided by operating activities
Investing Activities:
Purchase of property and equipment
Acquisitions
Proceeds from sale of equity investment
Net purchase of marketable securities
Insurance proceeds received for damage to property
Proceeds from sale of property and equipment
Net cash provided by (used in) investing activities
Financing Activities:
Dividends paid
Proceeds from issuance of long-term debt
Payments on long-term debt
Proceeds from exercise of stock options
Deferred financing fees
Tax benefit from settlement of stock compensation
Purchase of stock
Director stock compensation
Net cash used in financing activities
Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents, beginning of year
Cash and Cash Equivalents, end of year
Supplemental Cash Flows Information
Interest paid
Income taxes paid
Information regarding the Company’s acquisitions in 2018, 2017 and 2016 are as
follows:
Fair value of assets acquired
Cash paid for assets
Consideration of holdback provision
Liabilities assumed
See notes to consolidated financial statements.
35
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 2018 was
52 weeks long, ending December 29, 2018. Fiscal year 2017 was 52 weeks long, ending on December 30, 2017. Fiscal
year 2016 was 53 weeks long, ending December 31, 2016.
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.
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 for 2018 and
2017. This inventory valuation reserve totaled $456 thousand and $504 thousand at fiscal year-end 2018 and 2017,
respectively. Inventories, net of the valuation reserve, at fiscal year-ends were as follows:
In Thousands
Raw materials
Work in process
Finished goods
2018
2017
$3,622
2,892
32,608
$39,122
$3,462
2,927
28,771
$35,160
36
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
2018
2017
Land
Buildings and leasehold improvements
Machinery and equipment
Total cost
Accumulated depreciation and amortization
$ 1,943
16,768
27,458
46,169
(30,671)
$ 15,498
$ 1,943
16,392
24,453
42,788
(28,502)
$ 14,286
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 2018, 2017, or 2016.
During the year ended December 31, 2016, the Company sold its Wabash, Indiana land and building for a purchase
price of approximately $2.1 million. The sale resulted in a gain of approximately $1.9 million, recognized within
operating income for the year ended December 31, 2016.
Investments
Investments are composed of the following:
In Thousands
Non-marketable equity investments (equity method)
2018
$ --
2017
$ 20,278
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 (loss) was recorded in equity
in earnings of affiliates on the consolidated statement of operations. The proportionate share of net income was $0.1
million, $1.6 million and $1.7 million in 2018, 2017 and 2016, respectively. Total cash dividends received from this
equity investment amounted to $2,323 thousand, $2,168 thousand, and $1,060 thousand in 2018, 2017 and 2016,
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.
37
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 2018, 2017, and 2016.
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
Rent income from real estate
Other loss
2018
2017
2016
$ --
(89)
$ (89)
$ --
(169)
($169)
$ 158
(37)
$ 121
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
2018, 2017 and 2016 were approximately $1.5 million, $1.6 million, and $1.5 million, respectively.
Reclassifications
Certain reclassifications have been made to prior year financial statements to conform to the current year financial
statement presentation. These reclassifications had no effect on net earnings.
38
New Accounting Pronouncements and Changes in Accounting Principles
Standards Adopted:
In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU)
2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides
guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15,
2017, with early adoption permitted, including adoption in any interim period for which financial statements have
not yet been issued. The Company adopted this standard on December 31, 2017. The adoption of this ASU did not
have an impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805) to clarify the definition of a
business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals)
of assets or businesses. ASU 2017-01 is effective for fiscal years beginning after December 15, 2017 including
interim periods within those fiscal years. The Company adopted this standard on December 31, 2017. The adoption
did not have any impact on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments. The new standard is in response to current diversity in practice and will make
eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash
flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 including interim periods within
those fiscal years, with early adoption permitted. The Company adopted this standard on December 31, 2017. The
adoption of this ASU did not have any impact on our consolidated statements of cash flows.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines
a single comprehensive revenue model for entities to use in accounting for revenue arising from contracts with
customers. The guidance supersedes most current revenue recognition guidance, including industry-specific
guidance, and requires a company to recognize revenue to depict the transfer of goods or services to a customer at
an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-
09 is effective for fiscal years beginning after December 15, 2017 including interim periods within those fiscal
years, with early adoption permitted for periods beginning after December 15, 2016. The guidance permits two
methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or
retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial
application (modified retrospective method). In 2016, the FASB issued further guidance that offers narrow scope
improvements and clarifies certain implementation issues related to revenue recognition, including principal versus
agent considerations and the identification of performance obligations and licensing. These additional updates have
the same effective date as the new revenue guidance.
The Company adopted this standard on December 31, 2017 using the modified retrospective method. The adoption
of this standard did not impact the timing of revenue recognition for our customer sales. We do not incur significant
costs to obtain or to fulfill revenue contracts. For the Company, the most significant impact of the new standard is
the requirement for enhanced footnote disclosures. Refer to Note 18 for disclosure requirements related to the
adoption of this standard.
39
New Accounting Standards to be Adopted
In February 2016, the FASB issued 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 (i.e. capital
leases under current GAAP) 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 current GAAP. We have completed our analysis of the impact this guidance
will have on our consolidated financial statements and related disclosures, and other than an increase in the level of
disclosures, we do not expect the impact to be material.
In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11
Leases: Targeted Improvements. Both ASUs amend ASC 842, Leases. The provisions impacting the Company in
these ASUs are an option that will not require prior periods to be restated at the adoption date. These amendments
are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.
Early adoption is permitted. The Company is evaluating the effect on its financial statements and plans to adopt the
ASU using the modified-retrospective approach that will not require prior periods to be restated. We do not expect
the standard to have a material impact on our consolidated financial statements.
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. We do not expect the standard to have a material impact on our consolidated financial statements.
In March 2018, the FASB issued ASU 2018-05, Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting
Bulletin No. 118, which amends ASC 740, Income Taxes. The ASU provides guidance on when to record and
disclose provisional amounts related to tax reform. The ASU allows for a measurement period up to one year after
the enactment date of tax reform to complete the related accounting requirements and was effective when issued.
The Company completed the adjustments related to tax reform within the allowed period. The effects of tax reform
to the Company’s Consolidated Statement of Operations are presented in Note 12.
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:
40
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
2018
2017
2016
Beginning balance
Additions
Deductions
Ending balance
$ 691
1,448
(1,437)
$ 702
$ 876
1,036
(1,221)
$ 691
$ 847
1,501
(1,472)
$ 876
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
2018
2017
2016
Beginning balance
Additions
Deductions
Ending balance
$ 504
383
(431)
$ 456
$ 415
288
(199)
$ 504
$ 471
327
(383)
$ 415
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:
41
In Thousands
2018
2017
2016
Beginning balance
Additions
Deductions
Ending balance
$ 623
155
(246)
$ 532
$ 910
775
(1,062)
$ 623
$ 1,086
1,758
(1,934)
$ 910
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
2018
2017
2016
Beginning balance
Additions
Deductions
Ending balance
Note 3 —
Accrued Liabilities
Accrued liabilities consist of the following:
In Thousands
Employee compensation
Customer related allowances and accruals
Other accrued items
Note 4 — Operating Leases
$ 3,357
6,575
(8,382)
$ 1,550
$ 2,777
6,608
(6,028)
$ 3,357
$ 2,151
5,778
(5,152)
$ 2,777
2018
2017
$ 2,858
4,627
3,587
$ 11,072
$ 2,813
6,324
4,860
$ 13,997
The Company leases warehouse and office space under non-cancelable operating leases that expire at various dates
through 2021. Terms of the leases, including renewals, taxes, utilities, and maintenance, vary by lease. Total rental
expense included in the results of operations relating to all leases was $0.9 million in 2018, $1.0 million in 2017, and
$0.9 million in 2016.
At December 29, 2018, minimum rental payments for warehouse and office space under non-cancelable leases with
terms of more than one year were as follows:
In Thousands
2019
2020
2021
2022
Thereafter
Amount
$ 594
178
40
--
--
$ 812
42
Note 5 —
Acquired Intangible Assets and Goodwill
The carrying basis and accumulated amortization of recognized intangible assets are summarized in the following
table:
In Thousands
Patents
Non-compete agreements
Customer list
Trademarks
Developed technology
License agreements
2018
2017
Gross
Carrying
Amount
Accumulated
Amortization
24,515
2,749
13,963
8,181
475
700
50,583
23,506
2,625
4,520
124
16
7
30,798
Gross
Carrying
Amount
$24,515
2,749
13,913
7,905
--
--
$49,082
Accumulated
Amortization
$23,322
2,545
3,403
121
--
--
$29,391
Amortization expense was $1.4 million, $1.6 million and $2.3 million for 2018, 2017 and 2016, respectively.
Estimated future amortization expense is summarized in the following table:
In Thousands
2019
2020
2021
2022
2023
Thereafter
Sporting Goods
1,446
1,401
1,351
1,332
1,254
5,217
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 31, 2016
Acquisition
Balance at December 30, 2017
Acquisition
Balance at December 29, 2018
$21,456
92
$21,548
4,833
$26,381
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.
43
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 exchange rates in effect at the respective year-end for balance sheet amounts and 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 years ended December 30, 2017 and December 31, 2016 are $1.6 million and $1.7 million, respectively.
Additionally, for each of the years ended December 29, 2018, December 30, 2017 and December 31, 2016, the
Company paid royalties to Stiga in the amount of $0.4 million.
In accordance with Rule 4-08(g) of Regulation S-X, summarized financial information for Stiga Sports AB
balance sheets as of December 31, 2017, and statements of operations for the period from December 31, 2017
through May 17, 2018 and for the years ended December 31, 2017 and 2016 is as follows:
In Thousands
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Net assets
Net sales
Gross profit
Net income
Note 7 —
Borrowings
2017
$ 30,623
10,854
41,477
6,897
5,462
12,359
$ 29,118
Period from
December 31, 2017
through May 17, 2018
2017
2016
$ 12,978
6,019
241
$ 46,296
21,427
3,268
$ 42,887
19,642
3,344
On January 21, 2019, the Company amended and restated its existing credit agreement. See “Note 19” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operation – Financial Condition and
Liquidity.”
44
Previously, on January 21, 2016, the Company entered into a Second Amended and Restated Credit Agreement
(“Restated Credit Agreement”) with its issuing bank, JP Morgan Chase Bank, N.A. (“Chase”), and the other lenders
identified in the Restated Credit Agreement (collectively, the “Lender”). Under the terms of the Restated Credit
Agreement, the Lender made available to the Company a senior revolving credit facility in a maximum amount of up
to $35.0 million and a term loan in the principal amount of $7.5 million. The maturity date of the revolving credit
facility was January 21, 2019. The credit facility and term debt are secured by substantially all assets of the Company.
In the second quarter of 2018, the Company repaid in full the outstanding revolving borrowings and term loan
amounts. Principal amounts repaid in respect of the term loan were not eligible to be re-borrowed.
The Restated Credit Agreement allowed Escalade to request the issuance of letters of credit of up to $5,000,000.
Each loan, other than a Eurodollar Borrowing, bore interest at the Alternate Base Rate plus the Applicable Base
Rate. Loans comprising each Eurodollar Borrowing bore 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
Adjusted EBITDA
Ratio
Revolving
Eurodollar
Borrowing
Term
Eurodollar
Borrowing
ABR
Revolving
Borrowing
ABR
Term
Borrowing
Letter of
Credit Fee
Commitment
Fee
Category 1
Greater than or equal to 2.50
to 1.0
Category 2
Greater than or equal to 2.25
to 1.0 but less than 2.50 to
1.0
Category 3
Greater than or equal to 2.00
to 1.0 but less than 2.50 to
1.0
Category 4
Greater than or equal to 1.75
to 1.0 but less than 2.00 to
1.0
Category 5
Less than 1.75 to 1.0
2.50%
2.75%
0.50%
0.75%
2.50%
0.45%
2.25%
2.50%
0.25%
0.50%
2.25%
0.40%
2.00%
2.25%
0.00%
0.25%
2.00%
0.35%
1.75%
2.00%
(0.25%)
0.00%
1.75%
0.30%
1.50%
1.75%
(0.50%)
(0.25%)
1.50%
0.30%
The Applicable Rate was determined as of the end of each quarter based upon the Company’s annual or quarterly
consolidated financial statements and was effective during the period commencing the date of delivery to the
agent.
Indebtedness under the Restated Credit Agreement was collateralized by liens on all of the present and future equity
of each of the Company’s domestic subsidiaries and substantially all of the assets of the Company. In addition,
each direct and indirect domestic subsidiary of Escalade unconditionally guaranteed all of the indebtedness of
Escalade arising under the Restated Credit Agreement and secured its guaranty with a first priority security interest
and lien on all of its assets. The Pledge and Security Agreement dated April 30, 2009 by and between Escalade and
Chase, and each Pledge and Security Agreement dated April 30, 2009 by and between each such Escalade subsidiary
and Chase continued in full force and effect, as amended by the Master Amendment to Pledge and Security
Agreements dated May 31, 2010 entered into by Chase, Escalade and each such subsidiary. The Unlimited
Continuing Guaranty dated April 30, 2009 applicable to each of Escalade’s domestic subsidiaries continued in full
force and effect without change.
45
Short-Term Debt
Short-term debt at fiscal year-ends was as follows:
In Thousands
Short-term debt reclassified from long-term debt
2018
2017
$ --
$ --
$ 1,250
$ 1,250
The weighted average interest rate on short-term debt outstanding at December 30, 2017 was 3.19%, respectively.
Long-Term Debt
Long-term debt at fiscal year-ends was as follows:
In Thousands
2018
2017
Senior secured revolving credit facility of $35.0 million with a
maturity of January 21, 2019. The interest rate at December 30,
2017 was 3.227%.
Term loan of $7.5 million with a maturity date of January 21, 2021.
The interest rate at December 30, 2017, was 3.188%.
Portion classified as short-term debt
Note 8 —
Earnings Per Share
$ --
$ 18,121
--
5,000
--
--
$ --
23,121
(1,250)
$ 21,871
The shares used in the computation of the Company’s basic and diluted earnings per common share are as follows:
In Thousands
2018
2017
2016
Weighted average common shares outstanding
Dilutive effect of stock options and restricted stock units
Weighted average common shares outstanding, assuming dilution
14,422
55
14,477
14,352
39
14,391
14,264
53
14,317
Number of anti-dilutive stock options and unvested restricted stock units
70
58
49
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 $715
thousand, $695 thousand and $626 thousand for 2018, 2017 and 2016, respectively.
46
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
In 2018, the Company awarded 14,250 restricted stock units to directors and 60,278 restricted stock units to
employees. The restricted stock units awarded to directors time vest over two years (one-half one year from grant
date and one-half two years from grant date) provided that the director is still a director of the Company at the vest
date. Director restricted stock units are subject to forfeiture, except for termination of services as a result of
retirement, death or disability, if on the vesting date the director no longer holds a position with the Company. The
2018 restricted stock units awarded to employees in March 2018 vest over four years (one-third two years from
grant date, one-third three years from grant date and one-third four years from grant date) provided that the
employee is still employed by the Company and that the performance criteria related to the market price of the
Company’s stock is satisfied. The performance criteria is for any 30 consecutive trading days on the NASDAQ
Stock Market (or such other principal securities exchange on which the Company’s shares of common stock are
then traded) during the period beginning on the grant date and ending on the fourth anniversary thereof, the
cumulative average Volume Weighted Average Price per share is at least 15% higher than the closing price per
share on the grant date plus any incremental dividends paid above the current quarterly dividend rate of $0.125 per
share by the Company during such four year period. If the performance criteria is not satisfied as of an applicable
vesting date, then one-half of the RSUs eligible to vest on that date will vest and the remaining one-half will vest
if, and only if, the performance criteria is met prior to the end of the four year vesting period.
A summary of restricted stock unit activity is as follows:
Non-vested stock units as of December 31, 2016
Granted
Vested
Forfeited
Non-vested stock units as of December 30, 2017
Granted
Vested
Forfeited
Non-vested stock units as of December 29, 2018
Number of
Shares
Weighted
Average Grant
Date Fair Value
82,347
55,032
(25,819)
(8,484)
103,076
74,528
(47,358)
(4,259)
125,987
$11.91
12.26
12.81
11.40
$11.92
12.39
12.34
11.65
$12.05
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 2018, 2017, and 2016 the Company
recognized $591 thousand, $504, and $342 thousand respectively in compensation expense related to restricted
stock units and as of December 29, 2018 and December 30, 2017, there was $754 thousand and $471 respectively,
of unrecognized compensation expense related to restricted stock units.
47
Stock Options
Total compensation expense recorded in the statements of operations for 2018, 2017 and 2016 relating to stock
options was $13 thousand, $18 thousand and $56 thousand, respectively. As of December 29, 2018 and December
30, 2017, there was $13 thousand and $26 thousand respectively, of total unrecognized compensation costs related
to stock options. These costs are expected to be recognized over a weighted average period of 1.6 years.
During 2016, the Company awarded 20,000 stock options to an employee. The stock options awarded will vest over
five years (one-third three years from the grant date, one-third four years from the grant date and one-third five
years from the grant date). The stock options have an exercise price 15% higher than the closing price of a share of
Escalade common stock on the grant date and are subject to forfeiture if on the vesting date the employee is no
longer employed. No stock options were awarded during 2018 or 2017.
The following table summarizes option activity for each of the three years ended 2018:
Incentive Stock Options
Granted
Outstanding
Director Stock Options
Granted
Outstanding
2018
2017
2016
--
--
20,000
20,000
29,250
57,375
--
--
--
15,000
15,000
15,000
The fair value of each option grant award is estimated on the grant date using the Black-Scholes-Merton option
valuation model using the following assumptions:
2018
2017
2016
Risk-free interest rates
Dividend yields
Volatility factors of expected market price of common stock
Weighted average expected life of the options
--
--
--
--
--
--
--
--
1.06%
2.73%
35.60%
1-5 years
The following table summarizes stock option transactions for the three years ended 2018:
2018
Shares
Outstanding at beginning of year
44,250
Issued during year
Canceled or expired
--
--
Option
Price
$5.85 to
$14.39
--
2017
Shares
Option
Price
2016
Shares
Option
Price
$5.28 to
$14.39
--
187,625
$5.28 to
$11.86
20,000 $14.39
72,375
--
--
Exercised during year
(9,250)
$5.85
(28,125)
Outstanding at end of year
Exercisable at end of year
Weighted-average fair value of options
granted during the year
35,000
$11.86 to
$14.39
15,000
--
44,250
24,250
--
$5.28 to
$5.85
$5.85 to
$14.39
(39,250)
(96,000)
72,375
41,125
$2.52
$5.28 to
$6.07
$5.28 to
$14.39
The total intrinsic value of options exercised was $0.1 million, $0.2 million and $0.7 million for 2018, 2017 and
2016, respectively.
48
The following table summarizes information about stock options outstanding at December 29, 2018:
Range of
Exercise Prices
Number of
Shares
Weighted-Average
Remaining
Contractual Life
Weighted-Average
Exercise Price
Number of
Shares
Weighted-Average
Exercise Price
Options Outstanding
Options Exercisable
$11.86
$14.39
15,000
20,000
35,000
0.2 years
3.2 years
$ 11.86
$ 14.39
15,000
--
15,000
$ 11.86
--
During the year ended December 29, 2018, the following activity occurred under the Company’s stock option plan:
Nonvested balance, beginning of year
Granted
Vested
Forfeited
Nonvested balance, end of year
Note 11 — Other Comprehensive Loss
The components of other comprehensive loss were as follows:
Number of
Options
Weighted Average Grant
Date Fair Value
20,000
--
--
--
20,000
$ 2.52
--
--
--
$ 2.52
In Thousands
Change in foreign currency translation adjustment
before reclassifications
Amounts reclassified from comprehensive income due
to a divestiture of equity investment
2018
$ (1,119)
2017
$1,670
2016
$ (1,102)
3,729
--
--
The components of accumulated other comprehensive loss, net of tax, were as follows:
In Thousands
Foreign currency translation adjustment
2018
$ --
2017
$ (2,610)
2016
$ (4,280)
Note 12 — Provision for Taxes
Income before taxes and the provision for taxes consisted of the following:
In Thousands
Income before taxes:
Provision for taxes:
Current
Federal
State
Deferred
Federal
State
2018
2017
2016
$ 26,442
$ 15,517
$ 15,542
$ 4,574
$ 4,191
$ 4,060
486
5,060
591
349
940
$ 6,000
212
4,403
(2,441)
(506)
(2,947)
$ 1,456
363
4,423
1,453
(1,827)
(374)
$ 4,049
49
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
Income tax at statutory rate
Increase (decrease) in income tax resulting from
State tax expense, net of federal effect
Federal true-ups
Federal tax credits
Effect of foreign tax rates
Valuation allowances (state and foreign)
Captive insurance earnings
Incentive stock options
Deferred state rate adjustments
Tax Cuts & Jobs Act of 2017
Other
Recorded provision for income taxes
2018
2017
2016
$ 5,553
$ 5,431
$ 5,439
660
(23)
(115)
(304)
(150)
(263)
(9)
--
588
63
$ 6,000
(191)
193
(242)
(399)
(148)
(128)
(22)
--
(2,986)
(52)
$ 1,456
194
8
(189)
(443)
19
311
20
(1,194)
--
(116)
$ 4,049
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 29, 2018
and December 30, 2017. 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 2014.
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.
The components of the net deferred tax liabilities are as follows:
In Thousands
Assets
Employee benefits
Valuation reserves
Stock based compensation
Federal and state credits
Net operating loss carry forward
Total assets
Liabilities
Property and equipment
Goodwill and intangible assets
Prepaid insurance
Total liabilities
Valuation Allowance
Beginning balance
Decrease during period
Ending balance
50
2018
2017
$ 30
615
179
297
1
1,122
(532)
(3,812)
(187)
(4,531)
$ 24
869
178
382
1
1,454
(175)
(3,465)
(123)
(3,763)
(160)
160
--
$ (3,409)
(411)
251
(160)
$ (2,469)
Deferred tax assets (liabilities) are included in the consolidated balance sheets as follows:
In Thousands
Deferred income tax asset - current
Deferred income tax asset (liability) – long-term
2018
$ --
(3,409)
$ (3,409)
2017
$ --
(2,469)
$ (2,469)
The Company has utilized all state net operating losses during the year ended December 29, 2018.
Note 13 — Operating Segment and Geographic Information
The following table presents certain operating segment information.
In Thousands
2018
2017
2016
Sporting Goods
Net revenue
Operating income
Interest expense
Provision for taxes
Net income
Identifiable assets
Depreciation & amortization
Capital expenditures
All Other
Net revenue
Operating loss
Interest expense (income)
Provision (benefit) for taxes
Net income
Identifiable assets
Non-marketable equity investments (equity method)
Depreciation & amortization
Capital expenditures
Total
Net revenue
Operating income
Interest expense
Provision for taxes
Net income
Identifiable assets
Non-marketable equity investments (equity method)
Depreciation & amortization
Capital expenditures
$ 175,780
13,999
427
3,739
9,869
142,490
3,857
2,818
--
(182)
--
2,261
10,573
7,037
--
--
--
175,780
13,817
427
6,000
20,442
149,527
--
3,857
2,818
$ 177,333
15,600
975
6,134
8,626
130,388
3,910
2,745
$ 171,662
15,731
802
6,173
8,774
125,780
5,244
2,653
--
(1,000)
(171)
(4,678)
5,435
25,717
20,278
--
--
177,333
14,600
804
1,456
14,061
156,105
20,278
3,910
2,745
--
(1,148)
32
(2,124)
2,719
24,981
19,030
--
--
171,662
14,583
834
4,049
11,493
150,761
19,030
5,244
2,653
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 2018. The accounting policies
of the reportable segments are the same as those described in the summary of significant accounting policies.
51
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 2018, 2017 and 2016, the Company had one customer, Amazon.com, Inc., that accounted for approximately
19%, 18% and 13%, respectively of the Company’s revenues. During 2018, 2017 and 2016 the Company had
another customer, Dick’s Sporting Goods, which accounted for approximately 13%, 17% and 18%, respectively, of
the Company’s revenues.
As of December 29, 2018, the Company had approximately 14% and 24% of its total accounts receivable with
Dick’s Sporting Goods and Amazon.com, Inc., respectively. As of December 30, 2017, the Company had
approximately 22% and 25% of its total accounts receivable with Dick’s Sporting Goods and Amazon.com, Inc.,
respectively.
As of December 29, 2018, approximately 27 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 and are for continuing operations. Net sales by
geographic region/country were as follows:
In Thousands
2018
2017
2016
North America
Europe
Other
$ 172,656
965
2,159
$ 175,780
$ 175,065
974
1,294
$ 177,333
$ 168,998
1,302
1,362
$ 171,662
Identified assets by geographic region/country were as follows:
In Thousands
North America
Europe
2018
2017
2016
$ 149,527
--
$ 149,527
$ 156,105
--
$ 156,105
$ 150,761
--
$ 150,761
52
Note 14 — Summary of Quarterly Results
In thousands, except per share data (unaudited)
March 24
July 14
October 6
December 29
2018
Net Sales
Operating Income
Net income
Basic Earnings Per Share Data:
Diluted Earnings Per Share Data:
$ 32,149
1,715
1,216
$ 0.08
$ 0.08
$ 48,684
1,951
12,071
$ 0.84
$ 0.84
$ 43,955
5,134
3,575
$ 0.25
$ 0.25
$ 50,992
5,017
3,580
$ 0.25
$ 0.25
In thousands, except per share data (unaudited)
March 25
July 15
October 7
December 30
2017
Net Sales
Operating Income
Net income
Basic Earnings Per Share Data:
Diluted Earnings Per Share Data:
$ 31,866
1,996
1,388
$ 0.10
$ 0.10
$ 53,921
3,332
2,096
$ 0.15
$ 0.15
$ 42,861
4,128
3,118
$ 0.22
$ 0.22
$ 48,685
5,144
7,459
$ 0.52
$ 0.52
Net income for the quarter ended December 30, 2017, was favorably impacted by approximately $3.0 million of
income tax benefit resulting from the 2017 U.S. Tax Reforms more fully described in Note 12.
Note 15 — Acquisitions
All of the Company’s acquisitions have been accounted for using the purchase method of accounting.
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
Accounts receivable
Inventories
Other assets
Goodwill
Intangible assets
Accounts payable
Other liabilities
Consideration of holdback provision
$ 94
252
603
2,003
4,833
1,500
(2,088)
(314)
$ 6,883
286
$7,169
53
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
Inventories, net
Other assets
Intangible assets
Total fair value of assets acquired
Total liabilities assumed
Net assets acquired
Total consideration paid
Gain before deferred income tax liability
Income tax liability – deferred
Gain on bargain purchase
$ 852
737
64
413
2,066
(563)
1,503
(1,101)
402
(146)
$ 256
2016
On January 21, 2016, the Company acquired substantially all of the business and assets of Triumph Sports USA, Inc.’s
business, a brand known for its innovative lines of indoor and outdoor games. Of the $10.0 million purchase price for
the acquisition, $9.5 million was paid in cash and the remaining $0.5 million was contingent upon the attainment of
certain targets. The more significant assets acquired and liabilities assumed were comprised of receivables ($1.4
million), inventory ($1.4 million), prepaid and other assets ($0.1 million), accounts payable ($0.6 million), goodwill
($1.4 million) and other intangible assets ($6.3 million).
These acquisitions were not and would not have been material to the Company’s net sales, results of operations or
total assets during the years ended December 29, 2018, December 30, 2017 and December 31, 2016, respectively.
Accordingly, our consolidated results from operations do not differ materially from historical performance as a
result of these acquisitions, and therefore, pro-forma results are not presented.
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.
54
The Company has entered into various agreements whereby it is required to make royalty and license payments. At
December 29, 2018, the Company had future estimated minimum non-cancelable royalty and license payments as
follows:
In Thousands
2019
2020
2021
2022
2023
Thereafter
Amount
$ 1,159
895
721
662
540
--
$ 3,977
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 29, 2018 and December 30, 2017.
2018
In Thousands
Financial assets
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Fair Value
Cash and cash equivalents
$ 2,824
$ 2,824
$ --
$ --
2017
In Thousands
Financial assets
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
Significant
Unobservable
Inputs (Level 3)
Fair Value
Cash and cash equivalents
$ 1,572
$ 1,572
$ --
$ --
Financial liabilities
Current portion of Long-term debt
Long-term debt
$ 1,250
$21,871
$ --
$ --
$ 1,250
$21,871
$ --
$ --
55
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:
All Amounts in Thousands
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
December
29, 2018
Years Ended
December
30, 2017
December
31, 2016
$80,539
56,862
50,431
7,545
402
195,779
4,729
1,036
12,681
18,446
$177,333
$84,434
58,622
38,776
7,414
712
189,958
4,666
1,501
12,129
18,296
$171,662
$68,196
59,211
58,026
8,533
1,828
195,794
5,085
1,448
13,481
20,014
$175,780
56
Contract Balances – The following table provides information on changes in our contract liability balances
during the twelve month periods ending December 29, 2018, December 30, 2017 and December 31, 2016. The
contract liability recorded during the twelve month periods ending December 29, 2018 is related to a lump sum
payment received for consulting services to be provided over the next year. The contract liability will be 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 Condensed Balance Sheet.
All Amounts in Thousands
Years Ended
December
29, 2018
December
30, 2017
December
31, 2016
Increase due to cash received, excluding amounts
recognized as revenue during the period
Revenue recognized that was included in the contract
liability balance at the beginning of the period
Increase in contract liability during the period
$ 413
-
$ 413
$ -
-
$ -
$ -
-
$ -
Note 19 — Subsequent Events
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
Category 2
Greater than or equal
to 1.50 to 1.0 but
less than 2.50 to 1.0
Category 3
Less than 1.50 to 1.0
2.00%
-0-
2.00%
0.30%
1.75%
(.25%)
1.75%
0.30%
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.
57
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.
58
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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
By:
/s/ David L. Fetherman
David L. Fetherman
President and Chief Executive Officer
February 22, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Walter P. Glazer, Jr.
Walter P. Glazer, Jr.
/s/ Richard D. White
Richard D. White
/s/ Edward E. Williams
Edward E. Williams
/s/ Richard Baalmann, Jr.
Richard Baalmann, Jr.
/s/ Patrick Griffin
Patrick Griffin
/s/ David L. Fetherman
David L. Fetherman
/s/ Stephen R. Wawrin
Stephen R. Wawrin
Chairman and Director
February 22, 2019
Director
Director
Director
February 22, 2019
February 22, 2019
February 22, 2019
Director
February 22, 2019
Director and President and Chief
Executive Officer (Principal
Executive Officer)
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
February 22, 2019
February 22, 2019
59
Exhibit 21
ESCALADE, INCORPORATED AND SUBSIDIARIES
List of Subsidiaries at December 29, 2018
Parent
Escalade, Incorporated
Subsidiaries (1)
Indian Industries, Inc.
U.S. Weight, Inc.
Lifeline Products, LLC
Harvard Sports, Inc.
Harvard California, S. DE R.L. C.V.
Bear Archery, Inc.
Escalade Sports Playground, Inc.
Escalade Sports (Shanghai) Co., Ltd.
Wedcor Holdings, Inc.
EIM Company, Inc.
SOP Services, Inc.
Escalade Insurance, Inc.
Goalsetter Systems, Inc.
Victory Tailgate, LLC
Victory Made, LLC
State of or Other
Jurisdiction of
Incorporation
Percent of Voting
Securities Owned
by Parent
Indiana, USA
Indiana, USA
Illinois, USA
Illinois, USA
California, USA
B.C. Mexico
Florida, USA
North Carolina, USA
China
Indiana, USA
Nevada, USA
Nevada, USA
Nevada, USA
Iowa, USA
Florida, USA
Florida, USA
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
(1) Each subsidiary Company has been included in Consolidated Financial Statements for all periods following its
acquisition. See Notes to Consolidated Financial Statements.
60
Exhibit 23.1
Independent Registered Public Accounting Firm Consent
We consent to the incorporation by reference in the registration statement of Escalade, Incorporated (Company) on
Form S-8 (File Nos. 333-142756, 333-183322 and 333-218340) of our report dated February 22, 2019, on our audits
of the consolidated financial statements of the Company as of December 29, 2018, and December 30, 2017, and for
each of the three years in the period ended December 29, 2018, which report is included in this Annual Report on
Form 10-K.
/s/ BKD, LLP
BKD, LLP
Evansville, Indiana
February 22, 2019
61
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, David L. Fetherman, certify that:
1. I have reviewed this annual report on Form 10-K of Escalade, Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this annual report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 22, 2019
/s/ David L. Fetherman
David L. Fetherman
Chief Executive Officer
62
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Stephen R. Wawrin, certify that:
1. I have reviewed this annual report on Form 10-K of Escalade, Incorporated;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report,
fairly present in all material respects the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15-15(f)) for the registrant and we have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of
the period covered by this annual report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 22, 2019
/s/ Stephen R. Wawrin
Stephen R. Wawrin
Chief Financial Officer
63
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Escalade, Incorporated (the Company) on Form 10-K for the period ending
December 29, 2018 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, David
L. Fetherman, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant
to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and result of operations of the Company.
/s/ David L. Fetherman
David L. Fetherman
Chief Executive Officer
February 22, 2019
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Escalade, Incorporated (the Company) on Form 10-K for the period ending
December 29, 2018 as filed with the Securities and Exchange Commission on the date hereof (the Report), I,
Stephen R. Wawrin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and result of operations of the Company.
/s/ Stephen R. Wawrin
Stephen R. Wawrin
Chief Financial Officer
February 22, 2019
64
Directors and Executive Officers
Walter P. Glazer, Jr
Chairman of the Board
Executive Officers
Stephen R. Wawrin
Vice President
Chief Financial Officer
Corporate Secretary
Outside Directors
David L. Fetherman
President
Chief Executive Officer
Director
Patrick J. Griffin
Vice President, Corporate
Development & Investor Relations
Director
Walter P. Glazer, Jr
Founder and CEO of
Speedball Art Products
Company
Audit Committee
Richard D. White
Edward E. Williams
Richard F. Baalmann, Jr
CEO of Aeolus Capital
Group, Ltd.
President of Ballast Tools,
Inc.
President of Bramm,
Inc.
Audit Committee
Compensation Committee
Audit Committee
Compensation Committee,
Chairman
Audit Committee, Chairman
Compensation Committee
Subsidiaries
Other:
EIM Company, Inc.
SOP Services, Inc.
Escalade Insurance, Inc.
Wedcor Holdings, Inc.
Escalade Sports Group:
Indian Industries, Inc.
d/b/a Escalade Sports
Harvard Sports, Inc
U.S. Weight, Inc.
Bear Archery, Inc.
Escalade Sports Playground, Inc.
Harvard California, S.DE R.L. DE C.V.
Escalade Sports (Shanghai) Co., Ltd.
Goalsetter Systems, Inc.
Lifeline Products, LLC
Victory Tailgate, LLC
Victory Made, LLC
817 Maxwell Avenue
Evansville, IN 47711
Investor Data
For investor information or data, please
contact:
Independent Accountants:
Escalade, Incorporated
817 Maxwell Avenue
Evansville, IN 47711
Tel: 812-467-4449
Website: www.escaladeinc.com
BKD, LLP
Evansville, Indiana
Information about stock certificates,
changing an address, consolidating
accounts, transferring ownership or other
stock matters can be obtained from:
Broadridge Corporate Issuer Solutions,
Inc.
P.O. Box 1342
Brentwood, NY 11717
Tel: 877-830-4936
Website: www.broadridge.com
The Company’s annual shareholder meeting will
be held at 4:00 pm (Central Daylight Savings
Time) on May 15, 2019 at the Corporate offices
located at
817 Maxwell Avenue
Evansville, IN 47711
Escalade, Incorporated
817 Maxwell Avenue
Evansville, Indiana 47711
812.467.1358