What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-04-14 · 57 added, 14 removed, 89 unchanged (44% of the section changed)

20 unchanged sentences

changes in the securities markets;

continued listing of the Company’s common stock on the NASDAQ Global Market and/or inclusion in market indices such as the Russell 2000;

continued listing of the Company’s common stock on the NASDAQ Global Market;

the Company’s inclusion or exclusion from certain market indices;

Escalade’s ability to obtain financing and to maintain compliance with the terms of such financing;

1 unchanged sentence

risks related to data security of privacy breaches;

the potential impact of actual or perceived defects in, or safety of, our products, including any impact of product recalls or legal or regulatory claims, proceedings or investigations involving our products;

and other risks detailed from time to time in Escalade’s filings with the Securities and Exchange Commission.

19 unchanged sentences

The ultimate extent of the effects of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic ends.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the period ended March 19, 2022 are not necessarily indicative of the results to be expected for fiscal year 2022.

Due to the above circumstances and as described generally in this Form 10-Q, the Company’s results of operations for the period ended July 9, 2022 are not necessarily indicative of the results to be expected for fiscal year 2022.

Results of Operations

1 unchanged sentence

Three Months Ended

March 19, 2022

March 20, 2021

Six Months Ended

July 10, 2021

Cost of products sold

2 unchanged sentences

Revenue and Gross Margin

Sales increased by 22.3% for the first quarter of 2022, compared with the same period in the prior year.

The increase in sales was driven by strong organic growth across the basketball, archery, pickleball, and indoor game categories, together with contributions from the Company’s acquisition of Brunswick Billiards®.

The overall gross margin percentage decreased to 27.8% for the first quarter of 2022, compared to 29.5% for 2021.

The decline in gross margin was due to continued challenges related to the global supply chain, raw materials cost inflation and labor constraints.

Sales decreased by 5.4% for the second quarter of 2022, compared with the same period in the prior year.

The decrease in sales was driven by timing of sales in basketball, lower demand in the fitness category and a reduction in outdoor category sales, including archery and water sports.

For the first half of 2022, sales were up 4.9% compared to prior year.

The overall gross margin percentage remained flat at 25.2% for the second quarter of 2022 compared to 2021, despite continued challenges related to the global supply chain, raw materials cost inflation , and labor constraints.

Gross margin percentage decreased to 26.3% for the first six months of 2022, compared to 26.8% for the same period in the prior year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses (SG&A) were $10.5 million for the first quarter of 2022 compared to $9.9 million for the same period in the prior year, an increase of $0.6 million or 6.6%.

SG&A as a percent of sales is 14.5% for the first quarter of 2022 compared with 16.7% for the same period in the prior year.

Selling, general and administrative expenses (SG&A) were $14.7 million for the second quarter of 2022 compared to $13.8 million for the same period in the prior year, an increase of $0.9 million or 6.3%.

SG&A as a percent of sales is 15.5% for the second quarter of 2022 compared with 13.9% for the same period in the prior year.

For the first half of 2022, SG&A were $25.2 million compared to $23.7 million for the same period in 2021, an increase of $1.5 million or 6.4%.

As a percent of sales, SG&A is 15.1% for the first half of 2022 compared with 14.9% for the same period in the prior year.

Provision for Income Taxes

The effective tax rate for the first three months of 2022 was 21.8% compared to 21.5% for the same period last year.

The effective tax rate for the first half of 2022 was 21.9% compared to 21.3% for the same period last year.

Financial Condition and Liquidity

Total debt at the end of the first three months of 2022 was $100.0 million, an increase of $42.5 million from December 25, 2021.

Total debt at the end of the first six months of 2022 was $101.2 million, an increase of $43.6 million from December 25, 2021.

The increase in debt was largely driven by the funding of the Brunswick Billiards acquisition completed in January of 2022.

3 unchanged sentences

As a percentage of stockholders’

equity, total debt was 66.0%, 39.2% and 33.1% at March 19, 2022, December 25, 2021, and March 20, 2021 respectively.

equity, total debt was 64.9%, 39.2% and 34.5% at July 9, 2022, December 25, 2021, and July 10, 2021, respectively.

On January 21, 2022, the Company entered into an Amended and Restated Credit Agreement (“Restated Credit Agreement”) with its issuing bank, JP Morgan Chase Bank, N.A.

5 unchanged sentences

The Restated Credit Agreement further extended the maturity date for the term loan facility to January 21, 2027.

As of March 19, 2022, the outstanding principal amount of the term loan was $45.8 million.

As of July 9, 2022, the outstanding principal amount of the term loan was $43.5 million and total amount drawn under the Revolving Facility was $57.7 million.

Each loan bears interest at the Adjusted LIBO Rate for the interest period in effect plus the Applicable Rate.

16 unchanged sentences

The obligations, guarantees, liens and other interests granted by Escalade, Indian, and their domestic subsidiaries continue in full force and effect.

On July 18, 2022, the Company entered into the First Amendment to the Restated Credit Agreement.

Under the terms of the First Amendment, the Lender increased the maximum availability under the senior revolving credit facility from $65.0 million to $75.0 million pursuant to the accordion feature in the Restated Credit Agreement.

The First Amendment also adjusted the funded debt to EBITDA ratio financial covenant to 3:00 to 1:00 as of the end of the Company’s third and fourth fiscal quarters of 2022.

The Company funds working capital requirements, shareholder dividends, and stock repurchases through operating cash flows and revolving credit agreements with its Lenders.

The Company expects that cash generated from its 2022 operations and its access to adequate levels of revolving credit will provide it with sufficient cash flows for its operations and to meet growth needs.

Item 3.   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Required.

Item 4.   

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Escalade maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures”

in Rules 13a-15(e) and 15d-15(e).

In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, could provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s 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.

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 Rule 13a-15(f) and 15d-15(f) of the Exchange Act) during the second quarter of 2022.

There have been no changes to the Company’s internal control over financial reporting that occurred since the beginning of the Company’s first quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. 

OTHER INFORMATION

Item 1. 

LEGAL PROCEEDINGS.

Item 1A. 

RISK FACTORS.

In addition to the other information set forth in this report, you should carefully consider the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021.

These risks and uncertainties could materially and adversely affect our business, consolidated financial condition, results of operations, or cash flows.

Our operations could also be affected by additional risks or uncertainties that are not presently known to us or that we currently do not consider material to our business.

As of the date of this filing, except for the additional risk factor set forth below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 25, 2021, which risk factors are incorporated herein by reference.

Our business involves the potential for  

product  

recalls, warranty liability,  

product  

liability, and other claims against us, which could adversely affect our reputation, earnings and financial condition.

As a manufacturer, marketer and distributor of consumer products, we are subject to the United States Consumer Products Safety Act of 1972, as amended by the Consumer Product Safety Improvement Act of 2008, which empowers the Consumer Products Safety Commission (“CPSC”) to recall or exclude from the market products that are found to be unsafe or hazardous.

Although recalls of our products have been infrequent, in the first quarter of 2022, we voluntarily recalled our Ping Pong Avenger table tennis table due to concerns that it could create a potential fall risk to consumers.

Notwithstanding that we extensively and rigorously test our products, there can be no assurance we will be able to detect, prevent, or fix all defects and safety concerns.

Under certain circumstances, the CPSC could require us to repurchase or recall additional products, even if we disagree with the defect determination or have data that shows the actual safety risk to be nominal.

Any repurchase or recall of our products, monetary judgment, fine or other penalty could be costly and damaging to our reputation and/or adversely affect our brands.

Furthermore, the occurrence of any material defects in our products could expose us to liability for warranty claims in excess of our current reserves, and/or to product liability claims that could exceed the limits of our insurance coverage, to the extent coverage may exist.

If our warranty reserves and/or insurance coverage are inadequate to cover future warranty claims and/or potential product liability claims, our financial condition and operating results may be harmed.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis