ESCALADE INC 10-K

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. 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 not effective because of material weaknesses in internal control over financial reporting (as described below in Management’s Report on Internal Control over Financial Reporting). See also, “Risk Factors – Legal, Tax, Accounting and Regulatory Risks.” 29 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. 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 31, 2023. 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 control. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. In connection with the preparation of the Company’s financial statements for the year ended December 31, 2023, management identified the following material weaknesses in the Company’s internal control over financial reporting: ● Information technology general controls particularly as such controls related to user access, program change management, and ineffective complementary user-organization controls, which limited management’s ability to rely on technology dependent controls relevant to the preparation of the Company’s consolidated financial statements. ● Controls over the period end process, including the review and approval process of journal entries, account reconciliations, segregation of duties conflicts, and consolidation of intercompany entries. ● Documentation and design of controls related to various key financial statement accounts and assertions. ● The risk assessment, control activities, information and communication, and monitoring components of the Company’s internal control framework such that internal control weaknesses were not detected, communicated, addressed with mitigating control activities, or remediated. Based on this assessment, management believes that, as of December 31, 2023, the Company’s internal control over financial reporting was not effective. 30 Our independent auditor, FORVIS LLP (“FORVIS”), a registered public accounting firm, is appointed by the Audit Committee of our Board of Directors. As a result of the material weaknesses described above, FORVIS has issued an adverse opinion on the effectiveness of our internal control over financial reporting as of December 31, 2023, which appears in Item 8. Financial Statements and Supplementary Data of this 2023 Form 10-K. 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. Remediation Plan and Status The Company’s management and the Company’s Audit Committee are committed to achieving and maintaining a strong internal control environment. The Company’s management, with the Audit Committee’s oversight, is actively engaged in the planning for, and implementation of, remediation efforts to address the above described material weaknesses. In response to the material weaknesses discussed above, we plan to continue efforts already underway to remediate internal control over financial reporting, including the following: ● We are in the process of engaging third-party resources to support our internal control testing and remediation efforts, and we intend to bring in additional resources to oversee remediation efforts. ● We are in the process of hiring an Internal Auditor, a senior level position. ● We are in the process of conducting a risk assessment over our internal control environment, and we are reviewing and prioritizing individual control deficiencies for remediation, including those which aggregated to the above material weaknesses. ● We are in the process of documenting and executing remediation action items, including expansion of mitigating controls where appropriate. ● We are exploring tools to enhance and centralize general information technology components. Management and our Audit Committee will monitor these specific remedial measures and the effectiveness of our overall control environment. The identified material weaknesses in internal control over financial reporting will only be considered remediated when the relevant controls have operated effectively for a sufficient period of time for management to conclude that they have been remediated. We can provide no assurance as to when the remediation of these material weaknesses will be completed to provide for an effective control environment. /s/ Walter P. Glazer, Jr., Chief Executive Officer /s/ Stephen R. Wawrin, Chief Financial Officer 31 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 control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fourth quarter of 2023. In connection with such evaluation, except for the material weaknesses described above, 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 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. ITEM 9B — OTHER INFORMATION None. ITEM 9C — DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. 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 8, 2024 under the captions “Certain Beneficial Owners,” “Election of Directors,” “Executive Officers of the Registrant,” “Board of Directors, Its Committees, Meetings and Functions,” and “Delinquent Section 16(a) Reports,” 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 8, 2024 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. 32 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 8, 2024 under the captions “Certain Beneficial Owners” and “Election of Directors” and is incorporated herein by reference. Equity Compensation Plan Information Plan Category 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 Equity compensation plans approved by security holders (1) -- -- 800,971 Equity compensation plans not approved by security holders -- -- -- Total -- 800,971 (1) The maximum number of shares that can be awarded under the Escalade, Incorporated 2017 Incentive Plan is 1,661,598. The plan was approved by stockholders at Escalade’s Annual Meetings of Stockholders in 2017. (2) Does not include 305,126 shares subject to outstanding, unvested restricted stock unit awards. 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 8, 2024 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 8, 2024 under the caption “Certain Relationships and Related Person Transactions” and is incorporated herein by reference. ITEM 14 — PRINCIPAL ACCOUNTING FEES AND SERVICES The Company’s independent registered accounting firm is FORVIS, LLP , formerly BKD, LLP; Evansville, IN ; PCAOB ID: 686 . 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 8, 2024 under the caption “Principal Accounting Firm Fees” and is incorporated herein by reference. 33 Part IV ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES (A) Documents filed as a part of this report: (1) Financial Statement s Reports of Independent Registered Public Accounting Firm Consolidated financial statements of Escalade, Incorporated and subsidiaries: Consolidated balance sheets—December 31, 2023 and December 31, 2022 Consolidated statements of operations—fiscal years ended December 31, 2023, December 31, 2022, and December 25, 2021 Consolidated statements of stockholders’ equity—fiscal years ended December 31, 2023, December 31, 2022, and December 25, 2021 Consolidated statements of cash flows—fiscal years ended December 31, 2023, December 31, 2022, and December 25, 2021 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 Articles of Incorporation of Escalade, Incorporated (a) 3.2 Amended By-Laws of Escalade, Incorporated (c) 10.1 Amended and Restated Credit Agreement dated as of January 21, 2022 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) (g) 10.2 Amended and Restated Pledge and Security Agreement dated as of January 21, 2022 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) (g) 10.3 First Amendment dated July 18, 2022 to the Amended and Restated Credit Agreement dated as of January 21, 2022 among Escalade, Incorporated, Indian Industries, Inc., each of their domestic subsidiaries, and JPMorgan Chase Bank, N.A., as Administrative Agent (d) 10.4 Second Amendment dated October 26, 2022 to the Amended and Restated Credit Agreement dated as of January 21, 2022 among Escalade, Incorporated, Indian Industries, Inc., each of their domestic subsidiaries, and JPMorgan Chase Bank, N.A., as Administrative Agent (f) 10.5 Third Amendment dated May 8, 2023 to the Amended and Restated Credit Agreement dated as of January 21, 2022 among Escalade, Incorporated, Indian Industries, Inc., each of their domestic subsidiaries, and JPMorgan Chase Bank, N.A., as Administrative Agent (h) (4) Executive Compensation Plans and Arrangements 10.6 Escalade, Incorporated 2017 Incentive Plan, incorporated by reference herein from Annex 1 to the Registrant’s 2017 Definitive Proxy Statement (e) 10.7 Form of Stock Option Award Agreement utilized in Stock Option grants to employees pursuant to the Escalade, Incorporated 2017 Incentive Plan (b) 10.8 Form of Stock Option Award Agreement utilized in Stock Option grants to Directors pursuant to the Escalade, Incorporated 2017 Incentive Plan (b) 10.9 Form of Restricted Stock Unit Agreement utilized in Restricted Stock Unit grants to employees pursuant to the Escalade Incorporated 2017 Incentive Plan (b) 10.10 Form of Restricted Stock Unit Agreement utilized in Restricted Stock Unit grants to Directors pursuant to the Escalade, Incorporated 2017 Incentive Plan (b) 19.1 Escalade, Incorporated Confidentiality of Insider Information and Securities Trades by Company Personnel 21 Subsidiaries of the Registrant 34 23.1 Consent of FORVIS, LLP 31.1 Chief Executive Officer Rule 13a-14(a)/15d-14(a) Certification 31.2 Chief Financial Officer Rule 13a-14(a)/15d-14(a) Certification 32.1 Chief Executive Officer Section 1350 Certification 32.2 Chief Financial Officer Section 1350 Certification 97.1 Escalade, Incorporated Amended and Restated Policy for Recovery of Incentive Compensation 99.1 Fourth Amendment effective as of September 1, 2023 to the Amended and Restated Credit Agreement dated as of January 21, 2022 among Escalade, Incorporated, Indian Industries, Inc., each of their domestic subsidiaries, and JPMorgan Chase Bank, N.A., as Administrative Agent (which Amendment Escalade has determined did not contain any material new or amended terms) (i) 101.Cal Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.Def Inline XBRL Taxonomy Extension Definition Linkbase Document 101.Lab Inline XBRL Taxonomy Extension Label Linkbase Document 101.Pre Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.Ins Inline XBRL Instance Document 101.Sch Inline XBRL Taxonomy Extension Schema Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) (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 10-K for the fiscal year ended December 30, 2017 and filed on February 27, 2018 (c) Incorporated by reference from the Company’s 2022 Third Quarter Report on Form 10-Q filed on October 27, 2022 (d) Incorporated by reference from the Company’s Form 8-K filed on July 21, 2022 (e) Incorporated by reference from the Company’s 2017 Proxy Statement (f) Incorporated by reference from the Company’s Form 8-K filed on October 27, 2022 (g) Incorporated by reference from the Company’s Form 8-K filed on January 24, 2022 (h) Incorporated by reference from the Company’s Form 8-K filed on May 9, 2023 (i) Incorporated by reference from the Company’s 2023 Third Quarter Report on Form 10-Q filed on October 26, 2023. ITEM 16 — FORM 10-K SUMMARY None. 35 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 (PCAOB ID number 686) 37 Consolidated financial statements of Escalade, Incorporated and subsidiaries: Consolidated balance sheets—December 31, 2023 and December 31, 2022 41 Consolidated statements of operations—fiscal years ended December 31, 2023, December 31, 2022 and December 25, 2021 42 Consolidated statements of stockholders’ equity—fiscal years ended December 31, 2023, December 31, 2022 and December 25, 2021 43 Consolidated statements of cash flows—fiscal years ended December 31, 2023, December 31, 2022 and December 25, 2021 44 Notes to consolidated financial statements 45 36 Report of Independent Registered Public Accounting Firm To the Shareholders, Board of Directors, and Audit Committee Escalade, Incorporated Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Escalade, Incorporated (the “Company”) as of December 31, 2023, and December 31, 2022, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2023, 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 consolidated financial position of Escalade, Incorporated as of December 31, 2023, and December 31, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, 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) (PCAOB), Escalade, Incorporated’s internal control over financial reporting as of December 31, 2023, 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 March 29, 2024, expressed an adverse opinion thereon. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. 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. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. 37 Customer Allowances As more fully described in Notes 2 and 15 within the consolidated financial statements, revenue is recognized net of various sales adjustments, which includes estimated customer allowances for advertising subsidies, volume rebates and catalog allowances. The Company reviews such allowances on an ongoing basis and accruals are adjusted based on the information within the customer agreements. These estimated sales adjustments are included as part of Net Sales on the consolidated statements of operations. At December 31, 2023, the total accrued for these customer allowances was $4.1 million and was presented as part of accrued liabilities on the consolidated balance sheet. We identified the customer allowance accruals to be a critical audit matter due to the manual nature of how the calculations are maintained and performed, the high volume of customer contracts containing allowance terms, multiple types of allowances offered to certain customers and the frequency of contract term updates. Based on these factors, determining our audit procedures involved a significant level of judgment and effort. The primary procedures we performed to address this critical audit matter included: ● Testing the completeness and accuracy of the underlying data used to estimate the customer allowance accruals by: o For select allowances, agreeing the sales data used in the calculations to reports that were reconciled to the financial statements and agreeing the various allowance percentages on a test basis to signed customer contracts. o Tracing the allowance amounts remitted to a sample of customers during the year to supporting documentation. ● Testing the clerical accuracy of the individual customer allowances computed by management and agreeing the total of all estimated allowances to the respective account on the consolidated financial statements. ● Comparing the estimated accrual for select allowances at the end of each reporting period to actual results that occurred during subsequent reporting periods. ● Performing a retrospective review for select allowances by comparing amounts remitted to customers subsequent to prior year accrued amounts. /s/ FORVIS, LLP We have served as Escalade, Incorporated’s auditor since 1977. Tysons, VA March 29, 2024 38 Report of Independent Registered Public Accounting Firm To the Shareholders, Board of Directors, and Audit Committee Escalade, Incorporated Opinion on the Internal Control Over Financial Reporting We have audited Escalade, Incorporated’s (the “Company”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control –– Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment: ● Information technology general controls, particularly as such controls related to user access, program change management, and ineffective complementary user-organization controls, which limited management’s ability to rely on technology dependent controls relevant to the preparation of the Company’s consolidated financial statements. ● Controls over the period end close process, including the review and approval process of journal entries, account reconciliations, segregation of duties conflicts, and consolidation of intercompany entries. ● Documentation and design of controls related to various key financial statement accounts and assertions. ● The risk assessment, control activities, information and communication, and monitoring components of the Company’s internal control framework such that internal control weaknesses were not detected, communicated, addressed with mitigating control activities, or remediated. These material weaknesses were considered in determining the nature, timing, and extent of auditing procedures applied in our audit of the Company’s consolidated financial statements, and this report does not affect our report dated March 29, 2024, on those consolidated financial statements. In our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2023 and 2022, and for each of the three years in the period ended December 31, 2023, and our report dated March 29, 2024, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’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 the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 39 We conducted our audit in accordance with the standards of the PCAOB. 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 reliable 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. 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. /s/ FORVIS, LLP Tysons, Virginia March 29, 2024 40 Escalade, Incorporated and Subsidiaries Consolidated Balance Sheets All Amounts in Thousands Except Share Information December 31, 2023 December 31, 2022 ASSETS Current Assets: Cash and cash equivalents $ 16 $ 3,967 Receivables, less allowances of $ 652 and $ 492 ; respectively 49,985 57,419 Inventories 92,462 121,870 Prepaid expenses 4,280 4,942 Prepaid income tax 88 -- TOTAL CURRENT ASSETS 146,831 188,198 Property, plant and equipment, net 23,786 24,751 Assets held for sale 2,653 2,823 Operating lease right-of-use assets 8,378 9,100 Intangible assets 28,640 31,120 Goodwill 42,326 42,326 Other assets 391 400 TOTAL ASSETS $ 253,005 $ 298,718 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt $ 7,143 $ 7,143 Trade accounts payable 9,797 9,414 Accrued liabilities 15,283 21,320 Income tax payable -- 71 Current operating lease liabilities 1,041 993 TOTAL CURRENT LIABILITIES 33,264 38,941 Long-term debt 43,753 87,738 Deferred income tax liability 3,125 4,516 Operating lease liabilities 7,897 8,641 Other liabilities 387 407 TOTAL LIABILITIES 88,426 140,243 Commitments and contingencies Stockholders' equity: Preferred stock Authorized: 1,000,000 shares, no par value, none issued Common stock Authorized: 30,000,000 shares, no par value Issued and outstanding: 2023 — 13,736,800 shares, 2022 — 13,594,407 shares 4,480 2,025 Retained earnings 160,099 156,450 TOTAL STOCKHOLDERS’ EQUITY 164,579 158,475 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 253,005 $ 298,718 See notes to consolidated financial statements. 41 Escalade, Incorporated and Subsidiaries Consolidated Statements of Operations Years Ended All Amounts in Thousands Except Per Share Data December 31, 2023 December 31, 2022 December 25, 2021 Net Sales $ 263,566 $ 313,757 $ 313,612 Costs and Expenses Cost of products sold 201,795 240,118 236,482 Selling, administrative and general expenses 41,480 44,765 43,367 Amortization 2,480 2,559 1,867 Operating Income 17,811 26,315 31,896 Other Income (Expense) Interest expense ( 5,349 ) ( 3,780 ) ( 1,510 ) Other income (expense) 31 79 163 Income Before Income Taxes 12,493 22,614 30,549 Provision for Income Taxes 2,664 4,625 6,144 Net Income $ 9,829 $ 17,989 $ 24,405 Earnings Per Share Data: Basic earnings per share $ 0.72 $ 1.33 $ 1.78 Diluted earnings per share $ 0.71 $ 1.31 $ 1.76 See notes to consolidated financial statements. 42 Escalade, Incorporated and Subsidiaries Consolidated Statements of Stockholders ’ Equity Common Stock Retained All Amounts in Thousands Shares Amount Earnings Total Balances at December 26, 2020 13,919 $ 4,598 $ 134,558 $ 139,156 Net income 24,405 24,405 Expense of stock options and restricted stock units 902 -- 902 Exercise of stock options 10 144 -- 144 Settlement of restricted stock units 50 -- -- -- Dividends declared ( 7,693 ) ( 7,693 ) Stock issued to directors as compensation 6 135 -- 135 Purchase of stock ( 492 ) ( 5,779 ) ( 4,655 ) ( 10,434 ) Balances at December 25, 2021 13,493 $ -- $ 146,615 $ 146,615 Net income 17,989 17,989 Expense of stock options and restricted stock units 1,974 -- 1,974 Settlement of restricted stock units 97 -- -- -- Dividends declared ( 8,154 ) ( 8,154 ) Stock issued to directors as compensation 4 51 -- 51 Balances at December 31, 2022 13,594 $ 2,025 $ 156,450 $ 158,475 Net income 9,829 9,829 Expense of restricted stock units 2,008 -- 2,008 Settlement of restricted stock units 108 -- -- -- Dividends declared ( 6,180 ) ( 6,180 ) Stock issued to directors as compensation 4 52 -- 52 Issuance of common stock for service 31 395 -- 395 Balances at December 31, 2023 13,737 $ 4,480 $ 160,099 $ 164,579 See notes to consolidated financial statements. 43 Escalade, Incorporated and Subsidiaries Consolidated Statements of Cash Flows Years Ended All Amounts in Thousands December 31, 2023 December 31, 2022 December 25, 2021 Operating Activities: Net Income $ 9,829 $ 17,989 $ 24,405 Reconciling adjustments: Depreciation and amortization 5,671 6,063 4,835 Allowance for credit losses 566 108 ( 408 ) Stock option and restricted stock unit expense 2,008 1,974 902 Common stock issued in lieu of bonus to officers 395 -- -- Director stock compensation 52 51 135 Deferred income taxes ( 1,391 ) ( 244 ) 567 Gain on disposals of assets ( 111 ) ( 22 ) ( 19 ) Changes in Accounts receivable 6,867 9,738 ( 301 ) Inventories 29,409 ( 15,847 ) ( 19,894 ) Prepaids and other assets 752 3,433 ( 4,163 ) Accounts payable and accrued expenses ( 5,719 ) ( 14,668 ) ( 4,985 ) Net cash provided by operating activities 48,328 8,575 1,074 Investing Activities: Purchase of property and equipment ( 2,085 ) ( 2,111 ) ( 9,696 ) Acquisitions -- ( 35,757 ) -- Proceeds from sale of property and equipment 140 40 43 Net cash used in investing activities ( 1,945 ) ( 37,828 ) ( 9,653 ) Financing Activities: Dividends paid ( 6,180 ) ( 8,154 ) ( 7,693 ) Proceeds from issuance of long-term debt 93,998 197,369 232,065 Payments on long-term debt ( 137,983 ) ( 160,027 ) ( 204,601 ) Proceeds from exercise of stock options -- -- 144 Deferred financing fees ( 169 ) ( 342 ) ( 33 ) Purchase of stock -- -- ( 10,434 ) Net cash provided by (used in) financing activities ( 50,334 ) 28,846 9,448 Increase (decrease) in Cash and Cash Equivalents ( 3,951 ) ( 407 ) 869 Cash and Cash Equivalents, beginning of year 3,967 4,374 3,505 Cash and Cash Equivalents, end of year $ 16 $ 3,967 $ 4,374 Supplemental Cash Flows Information Interest paid $ 5,330 $ 3,867 $ 1,433 Income taxes paid $ 4,260 $ 4,144 $ 6,284 Information regarding the Company’s acquisitions in 2022: Fair value of assets acquired $ -- $ 41,496 $ -- Cash paid for assets -- ( 35,757 ) -- Liabilities assumed $ -- $ 5,739 $ -- See notes to consolidated financial statements. 44 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 currently has manufacturing facilities in the United States of America. 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. Correction of Immaterial Errors During the year ended December 31, 2023, management became aware of an error in reporting of common stock value within the consolidated balance sheet and statement of stockholders’ equity. Common stock previously was reported with a $1.00 stated value even though, per the Company’s Articles of Incorporation, the common stock has no par value. Additionally, components of equity that should have been reflected within common stock were improperly reported within retained earnings. We have reviewed historical activity reflected in common stock and retained earnings and have identified adjustments to be made to correct the immaterial reporting error. The consolidated balance sheet and consolidated statement of stockholders’ equity have been corrected and have been updated for prior years within this Form 10-K. We assessed the materiality of this error on prior periods' financial statements in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 99, Materiality , codified in Accounting Standards Codification (ASC) 250, Presentation of Financial Statements . We concluded that the error was not material to any prior annual or interim period and therefore, amendments of previously filed reports are not required. In accordance with ASC 250, we have corrected the reporting for all prior periods presented by revising the consolidated financial statements appearing herein. Periods not presented herein will be revised, as applicable, in future filings. The revisions had no impact on total assets, total liabilities, total shareholders' equity, net income or the cash flow statement. The impact of this revision on our consolidated balance sheet and consolidated statement of stockholders’ equity as of December 31, 2022 was as follows: Year Ended December 31, 2022 As Previously Reported Correction As Corrected In Thousands Common Stock $ 13,594 $ ( 11,569 ) $ 2,025 Retained Earnings 144,881 11,569 156,450 Total Stockholders’ Equity $ 158,475 -- $ 158,475 45 The impact of this revision on our consolidated statement of stockholders’ equity as of December 25, 2021 was as follows: Year Ended December 25, 2021 As Previously Reported Correction As Corrected In Thousands Common Stock $ 13,493 $ ( 13,493 ) $ -- Retained Earnings 133,122 13,493 146,615 Total Stockholders’ Equity $ 146,615 -- $ 146,615 Fiscal Year End Through and including December 31, 2022, the Company’s fiscal year was a 52 or 53 week period ending on the last Saturday in December. Fiscal year 2022 was 53 weeks long, ending December 31, 2022. Fiscal year 2021 was 52 weeks long, ending December 25, 2021. On August 10, 2022, Escalade’s Board of Directors approved a change in its fiscal year end from the last Saturday in December of each year to December 31 of each year. Escalade’s fiscal quarters will end on March 31, June 30, and September 30. The fiscal year change was effective beginning with Escalade’s 2023 fiscal calendar, which began on January 1, 2023. Consistent with SEC guidance, no transition report was required in connection with the change in Escalade’s fiscal year end. Cash and Cash Equivalents Highly liquid financial instruments with insignificant interest rate risk and with original maturities of three months or less are classified as cash and cash equivalents. Cash and cash equivalent balances may at times be in excess of federally insured limits. The Company maintains its cash and cash equivalent balances at high-credit quality financial institutions. Book overdrafts that result from outstanding checks in excess of our bank balance are reclassified to accrued liabilities. As of December 31, 2023, the Company reclassed $ 3.4 million of book overdrafts to accrued liabilities. As of December 31, 2022, the Company reclassed $ 6.9 million of book overdrafts to accrued liabilities. 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 credit losses which is described in Note 2 – Certain Significant Estimates. Inventories Inventory cost is computed on a currently adjusted standard cost basis (which approximates actual cost on a current average or first-in, first-out basis). Work in process and finished goods inventory are determined to be saleable based on a demand forecast within a specific time horizon, generally one year or less. Inventory in excess of saleable amounts is reserved, and the remaining inventory is valued at the lower of cost or net realizable value. This inventory valuation reserve totaled $ 891 thousand and $ 1,568 thousand at fiscal year-end 2023 and 2022, respectively. Inventories, net of the valuation reserve, at fiscal year-ends were as follows: In Thousands 2023 2022 Raw materials $ 4,050 $ 7,789 Work in process 2,308 3,478 Finished goods 86,104 110,603 $ 92,462 $ 121,870 46 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 2023 2022 Land $ 1,306 $ 1,306 Buildings and leasehold improvements 28,207 27,406 Machinery and equipment 29,194 27,497 Total cost 58,707 56,209 Accumulated depreciation and amortization ( 34,921 ) ( 31,458 ) $ 23,786 $ 24,751 Depreciation expenses relating to property, plant and equipment for the years ended December 31, 2023 and 2022 were $ 3,191 thousand and $ 3,504 thousand, respectively. 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 2023, 2022, or 2021. We classify assets as held for sale when our management approves and commits to a formal plan of sale that is probable of being completed within one (1) year. Assets designated as held for sale are recorded at the lower of their current carrying value or their fair market value, less costs to sell, beginning in the period in which the assets meet the criteria to be classified as held for sale. 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 15 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 a quantitative assessment, in which the fair value of the reporting unit is compared to its carrying value. If the carrying value of the reporting unit exceeds the fair value, an impairment charge to current operations is recorded to reduce the carrying value to the fair value. The results of the qualitative impairment assessment of the Escalade Sports reporting unit indicated that it was not “more likely than not” that the fair value of the reporting unit was less than the carrying value as of December 31, 2023 and December 31, 2022. Employee Incentive Plan During 2017, the Company approved an incentive plan explained in Note 9. The Company accounts for this plan under the recognition and measurement principles of FASB ASC 718, Equity Based Payments . 47 Debt Issuance Costs Costs incurred with the issuance of the Company’s senior revolving credit facility have been deferred and amortized over the term of the facility as a component of interest expense using the straight-line method. These deferred costs are included in other assets in the consolidated balance sheets. Foreign Currency 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 2023, 2022, and 2021. 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. Research and Development Research and development costs are charged to expense as incurred. Research and development costs incurred during 2023, 2022 and 2021 were approximately $ 3.1 million, $ 2.7 million, and $ 2.0 million, respectively. Selling, General and Administrative Expense Selling, general and administrative expenses include personnel-related costs, including stock-based compensation, selling, advertising, and other general operating expenses. Advertising costs are expensed in the period incurred. Total advertising expenses incurred during 2023, 2022 and 2021 were approximately $ 6.9 million, $ 7.8 million, and $ 7.5 million, respectively. 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. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company accounts for uncertainty in tax positions by recognizing in its financial statements the impact of a tax position only if that position is more likely than not of being sustained. New Accounting Pronouncements and Changes in Accounting Principles Standards Adopted: In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This amendment requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. The Company adopted this standard on January 1, 2023. The adoption of this standard did not have a material impact on the financial statements of the Company. 48 New Accounting Standards to be Adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This amendment expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. This guidance is effective for annual periods beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024, with early adoption permitted, including adoption in any interim period. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently in the process of evaluating the disclosure requirements related to the new standard. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This amendment requires entities to provide additional information in the income tax rate reconciliation and additional disclosures about income taxes paid. The amendment requires entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if the items meet a quantitative threshold. The amendment is effective for annual periods beginning after December 15, 2024, and should not be applied prospectively, but entities have the option to apply it retrospectively for each period presented. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is in the process of evaluating the impact of the new standard on the related disclosures. Note 2 — Certain Significant Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities; the disclosure of contingent assets and liabilities at the date of the consolidated financial statements; and the reported amounts of revenues and expenses during the reporting period. These estimates and judgments are evaluated on an ongoing basis and are based on experience; current and expected future conditions; third party evaluations; and various other assumptions believed reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and liabilities. Actual results may differ from the estimates and assumptions used in the financial statements and related notes. Listed below are certain significant estimates and assumptions related to the preparation of the consolidated financial statements: Goodwill and Intangible Assets The Company reviews goodwill for impairment annually and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable, in accordance with guidance in FASB ASC 350 , Intangibles – Goodwill and Other . A qualitative assessment is first performed to determine if the fair value of the reporting unit is "more likely than not" less than the carrying value. If so, we proceed to a quantitative assessment, in which the fair value of the reporting unit is compared to its carrying value. If the carrying value of the reporting unit exceeds the fair value, an impairment charge to current operations is recorded to reduce the carrying value to the 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 15 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. 49 Product Warranty The Company provides limited warranties on certain of its products, for varying periods. Generally, the warranty periods range from 30 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 2023 2022 2021 Beginning balance $ 1,013 $ 1,119 $ 962 Additions 528 2,472 2,487 Deductions ( 951 ) ( 2,578 ) ( 2,330 ) Ending balance $ 590 $ 1,013 $ 1,119 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 potentially 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 2023 2022 2021 Beginning balance $ 1,568 $ 748 $ 697 Additions 725 1,083 446 Deductions ( 1,402 ) ( 263 ) ( 395 ) Ending balance $ 891 $ 1,568 $ 748 Allowance for Credit Losses The Company provides an allowance for credit losses based upon a review of outstanding receivables, historical collection information and existing and forecasted 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 credit losses were as follows: In Thousands 2023 2022 2021 Beginning balance $ 492 $ 457 $ 896 Additions (Reductions) 566 108 ( 408 ) Deductions ( 406 ) ( 73 ) ( 31 ) Ending balance $ 652 $ 492 $ 457 50 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 2023 2022 2021 Beginning balance $ 1,641 $ 2,340 $ 2,296 Additions 10,792 11,627 12,930 Deductions ( 10,762 ) ( 12,326 ) ( 12,886 ) Ending balance $ 1,671 $ 1,641 $ 2,340 Note 3 — Accrued Liabilities Accrued liabilities consist of the following: In Thousands 2023 2022 Employee compensation $ 2,653 $ 3,647 Customer co-op and volume allowances 1,671 1,641 Customer return accruals and other allowances 3,654 4,225 Other accrued items 7,305 11,807 $ 15,283 $ 21,320 Note 4 — Leases We have operating leases for office, manufacturing and distribution facilities as well as for certain equipment. Our leases have remaining lease terms of 1 year to 8 years. As of December 31, 2023, the Company has not entered into any lease arrangements classified as a finance lease. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities and operating lease liabilities on our consolidated balance sheet. The Company has elected an accounting policy to not recognize short-term leases (one year or less) on the balance sheet. The Company also elected the package of practical expedients which applies to leases that commenced before the adoption date. By electing the package of practical expedients, the Company did not need to reassess the following; whether any existing contracts are or contain leases, the lease classification for any existing leases and initial direct costs for any existing leases. 51 ROU assets and operating lease liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. When the implicit rate of the lease is not provided or cannot be determined, we use our incremental borrowing rate based on the information available at the commencement date to determine the present value of future payments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise those options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Components of lease expense and other information is as follows: All Amounts in Thousands Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022 Lease Expense Operating Lease Cost $ 1,522 $ 1,481 Short-term Lease Cost 1,998 2,587 Variable Lease Cost 464 502 Total Operating Lease Cost $ 3,984 $ 4,570 Operating Lease – Operating Cash Flows $ 1,020 $ 860 New ROU Assets – Operating Leases (non-cash) $ 325 $ 8,084 Other information about lease amounts recognized in our consolidated financial statements is summarized as follows: Period Ended December 31, 2023 Period Ended December 31, 2022 Weighted Average Remaining Lease Term – Operating Leases (years) 8.09 8.98 Weighted Average Discount Rate – Operating Leases 5.20 % 5.06 % Future minimum lease payments under non-cancellable leases as of December 31, 2023 were as follows: All Amounts in Thousands 2024 $ 1,480 2025 1,445 2026 1,401 2027 1,314 2028 1,074 Thereafter 4,257 Total future minimum lease payments 10,971 Less imputed interest ( 2,033 ) Total $ 8,938 Reported as of December 31, 2023 Current operating lease liabilities 1,041 Long-term operating lease liabilities 7,897 Total $ 8,938 52 Note 5 — Acquired Intangible Assets and Goodwill The carrying basis and accumulated amortization of recognized intangible assets are summarized in the following table: 2023 2022 In Thousands Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Patents 24,715 24,410 24,715 24,270 Non-compete agreements 2,749 2,749 2,749 2,749 Customer list 22,017 11,466 22,017 9,783 Trademarks 18,636 1,339 18,636 802 Developed technology 475 475 475 396 License agreements 700 213 700 172 69,292 40,652 69,292 38,172 Amortization expense was $ 2.5 million, $ 2.6 million and $ 1.9 million for 2023, 2022 and 2021, respectively. At December 31, 2023, the net carrying amount of trademarks includes $ 7.8 million related to indefinite-lived intangible assets which are not amortized but are evaluated for impairment. Estimated future amortization expense is summarized in the following table: All Amounts in Thousands 2024 $ 2,356 2025 2,307 2026 2,259 2027 2,172 2028 1,523 Thereafter 10,239 Subtotal 20,856 Indefinite-lived intangible asset balance 7,784 Total $ 28,640 Consistent with our operating segment conclusion, we have concluded one reporting unit exists and all goodwill is allocated to that reporting unit. The changes in the carrying amount of goodwill were: In Thousands Sporting Goods Balance at December 25, 2021 $ 32,695 Acquisition 9,631 Balance at December 31, 2022 $ 42,326 Acquisition -- Balance at December 31, 2023 $ 42,326 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 . Annually, the Company evaluates goodwill for impairment as of the last day of the fiscal year. 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 a quantitative assessment, in which the fair value of the reporting unit is compared to its carrying value. If the carrying value of the reporting unit exceeds the fair value, an impairment charge to current operations is recorded to reduce the carrying value to the fair value. 53 Note 6 — Borrowings On January 21, 2019, the Company entered into an Amended and Restated Credit Agreement (“2019 Restated Credit Agreement”) among the Company and its wholly owned subsidiary, Indian Industries, Inc. (“Indian”), each of their domestic subsidiaries, and JPMorgan Chase Bank, N.A., as Administrative Agent and as Lender (the “Lender”). Under the terms of the 2019 Restated Credit Agreement, the Lender made available to the Company a senior revolving credit facility with maximum availability of $ 50.0 million having a maturity date of January 31, 2022. The 2019 Restated Credit Agreement also allowed Escalade to request the issuance of letters of credit of up to $ 5.0 million. On December 14, 2020, the Company entered into the Third Amendment dated as of December 14, 2020 (the “Third Amendment”) to the 2019 Restated Credit Agreement. Under the terms of the Third Amendment, the maximum availability under the senior revolving credit facility increased to $ 75.0 million and the maturity date was extended to December 14, 2023. Other significant changes reflected in the Third Amendment included: increases in borrowing base availability if the Company’s funded debt to EBITDA ratio is less than 1.75 to 1:00; increasing to $ 30.0 million the total consideration that the Company may use for acquisitions without obtaining the Lender’s consent, as long as no event of default exists; resetting the maximum authorized stock repurchases to $ 15.0 million for the period commencing upon entry into the Third Amendment; increasing the interest rate on borrowings by twenty five basis points; increasing the unused facility fee by five basis points; and adding specific provisions and procedures for replacement of LIBOR if and when LIBOR would no longer be the benchmark for determining interest rates. On July 7, 2021, the Company entered into the Fourth Amendment dated as of July 7, 2021 (the “Fourth Amendment”) to the 2019 Restated Credit Agreement. Under the terms of the Fourth Amendment, the Lender extended a $ 50.0 million term loan to the Company and reduced the maximum availability under the senior revolving credit facility from $ 75.0 million to $ 50.0 million. The proceeds of the term loan were used to pay down the Company’s then-outstanding indebtedness under the revolving credit facility, with the balance of the term loan proceeds being available for general working capital purposes. The maturity date of the term loan was July 7, 2026 and the maturity date of the revolving credit facility likewise was extended to July 7, 2026. On January 21, 2022, the Company entered into an Amended and Restated Credit Agreement (“2022 Restated Credit Agreement”) with its issuing bank, JP Morgan Chase Bank, N.A. (“Chase”), and the other lenders identified in the 2022 Restated Credit Agreement (collectively, the “Lenders”). Under the terms of the 2022 Restated Credit Agreement, Old National Bank was added as a Lender. The Lenders made available to the Company a senior revolving credit facility with increased maximum availability of $ 65.0 million (the “Revolving Facility”), up from $ 50.0 million, plus an accordion feature that would allow borrowings up to $ 90.0 million under the Revolving Facility subject to certain terms and conditions. The maturity date of the revolving credit facility was extended to January 21, 2027. The Company may prepay the Revolving Facility, in whole or in part, and reborrow prior to the revolving loan maturity date. The Restated Credit Agreement further extended the maturity date for the term loan facility to January 21, 2027. In addition to the increased borrowing amount and extended maturity date, the 2022 Restated Credit Agreement provided a $ 7.5 million swingline commitment by Chase, replaced LIBOR with the replacement benchmark secured overnight financing rate, and adjusted certain financial covenants relating to the fixed charge coverage ratio. On July 18, 2022, the Company entered into the First Amendment (the “First Amendment”) to the 2022 Restated Credit Agreement. Under the terms of the First Amendment, the Lenders 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 2022 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. On October 26, 2022, the Company entered into the Second Amendment (the “Second Amendment”) to the 2022 Restated Credit Agreement. Under the terms of the Second Amendment, the Lenders increased the maximum availability under the senior revolving credit facility from $ 75.0 million to $ 90.0 million pursuant to the accordion feature in the 2022 Restated Credit Agreement. The Second Amendment adjusted the funded debt to EBITDA ratio financial covenant to 3:25 to 1:00 as of the end of the Company’s third and fourth fiscal quarters of 2022 and 3 :00 to 1:00 as of the end of the Company’s first fiscal quarter of 2023. The Second Amendment also modified the EBITDA definition to permit add-backs of a) up to $ 2.0 million for disposition related expenses; and b) up to $ 2.0 million for unusual or non-recurring expenses which are incurred prior to the end of fiscal year 2023 and which are subject to the approval of the Administrative Agent. 54 On May 8, 2023, the Company entered into the Third Amendment (the “Third Amendment”) to the Restated Credit Agreement. The Third Amendment adjusted the funded debt to EBITDA ratio financial covenant to 4:25 to 1:00 as of the end of the Company’s second fiscal quarter of 2023, 3:00 to 1:00 as of the end of the Company’s third fiscal quarter of 2023, and 2:75 to 1:00 as of the end of the Company’s fourth fiscal quarter of 2023 and thereafter. The Third Amendment adjusted the fixed charge coverage ratio covenant to 1:10 to 1:00 commencing as of the Company’s fourth fiscal quarter of 2023 and 1:25 to 1:00 as of the end of the Company’s first fiscal quarter of 2024 and thereafter. For the Company’s second and third fiscal quarters in 2023, the Third Amendment suspended the fixed charge coverage ratio covenant and added a minimum EBITDA covenant of $ 22.5 million as of the end of each such fiscal quarter. Under the terms of the Third Amendment, the Company and the Lender also agreed to decrease the maximum availability under the senior revolving credit facility from $ 90.0 million to $ 75.0 million, upon the consummation of the sale of the Company’s Mexican subsidiary and the dissolution of Escalade Insurance, Inc. The proceeds from such sale and dissolution, respectively, will be used to partially prepay the amounts outstanding under the revolving credit facility. As reflected in the Fourth Amendment to the Restated Credit Agreement effective September 1, 2023, the maximum availability of the senior revolving credit facility was reduced to $ 85.0 million following the dissolution of Escalade Insurance, Inc. Each loan will bear interest based on the applicable SOFR rate for the interest period in effect plus the Applicable Rate. From May 8, 2023 up to and including the fiscal quarter ending December 31, 2023, the applicable rate per annum is set forth below in Category 1. After the fiscal quarter ending December 31, 2023, the Applicable Rate shall be determined as of the end of each quarter based upon Escalade’s Funded Debt to Adjusted Ratio as of the most recent determination date: Funded Debt to EBITDA Ratio Revolving Commitment ABR Spread Revolving Commitment Term Benchmark Spread Letter of Credit Fee Commitment Fee Rate Category 1 Greater than or equal to 3.50 to 1.0 1.25 % 3.00 % 3.00 % 0.50 % Category 2 Greater than or equal to 3.00 to 1.0 but less than 3.50 to 1.0 0.75 % 2.50 % 2.50 % 0.35 % Category 3 Greater than or equal to 2.50 to 1.0 but less than 3.00 to 1.0 0.25 % 2.00 % 2.00 % 0.30 % Category 4 Greater than or equal to 1.50 to 1.0 but less than 2.50 to 1.0 - 0 - 1.75 % 1.75 % 0.25 % Category 5 Less than 1.50 to 1.0 ( 0.25 %) 1.50 % 1.50 % 0.20 % The Applicable Rate is determined as of the end of each quarter based upon the Company’s annual or quarterly consolidated financial statements and is effective during the period commencing the date of delivery to the agent. The Company’s indebtedness under the 2022 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’s domestic subsidiaries and substantially all of the assets of the Company (excluding real estate). Each direct and indirect domestic subsidiary of the Company and Indian has secured its guaranty of indebtedness incurred under the revolving facility with a first priority security interest and lien on all of such subsidiary’s assets. The obligations, guarantees, liens and other interests granted by the Company, Indian, and their domestic subsidiaries continues in full force and effect. The Company was in compliance with the debt covenants set forth in the 2022 Restated Credit Agreement as of December 31, 2023. 55 Long-Term Debt Long-term debt at fiscal year-ends was as follows: In Thousands 2023 2022 Senior secured revolving credit facility of $ 85.0 million with a maturity of January 21, 2027. The interest rate at December 31, 2023 was 8.54 % and 6.92 % at December 31, 2022. $ 18,158 $ 55,000 Term loan of $ 50.0 million with a maturity date of January 21, 2027. The interest rate at December 31, 2023 and December 31, 2022, was 2.97 %. 32,738 39,881 50,896 94,881 Current portion of long-term debt ( 7,143 ) (7,143 ) $ 43,753 $ 87,738 The Company makes monthly principal payments under the Term loan of $ 595 thousand. As of December 31, 2023, the Company had $66.8 million of availability on its senior secured revolving credit facility. Note 7 — Earnings Per Share The shares used in the computation of the Company’s basic and diluted earnings per common share are as follows: In Thousands 2023 2022 2021 Weighted average common shares outstanding 13,714 13,572 13,747 Dilutive effect of stock options and restricted stock units 190 117 119 Weighted average common shares outstanding, assuming dilution 13,904 13,689 13,866 Number of anti-dilutive stock options and unvested restricted stock units -- -- -- Weighted average common shares outstanding, assuming dilution, includes the incremental shares that would be issued upon the assumed exercise of stock options outstanding. Note 8 — 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 $ 1,094 thousand, $ 1,179 thousand and $ 1,041 thousand for 2023, 2022 and 2021, respectively. Note 9 — 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. 56 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 Awards During 2023, and pursuant to the 2017 Incentive Plan, the Company issued 30,921 shares of common stock with a fair market value of $ 395 thousand in lieu of accrued and unpaid annual cash incentives for fiscal year 2022 to certain officers. During 2023, and pursuant to the 2017 Incentive Plan, in lieu of cash payments of director fees, the Company awarded to certain directors 4,441 shares of common stock. In 2023, the Company awarded 21,200 restricted stock units to directors and 145,563 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. All of the 2023 restricted stock units awarded to employees time vest over three years (one-third one year from grant, one-third two years from grant and one-third three years from grant) provided that the employee is still employed by the Company on the vesting date. The Company has elected to account for forfeitures when they actually occur. A summary of restricted stock awards activity is as follows: Number of Shares Weighted Average Grant Date Fair Value Non-vested stock units as of December 25, 2021 154,120 $ 13.19 Granted 216,254 14.15 Vested ( 97,189 ) 12.16 Forfeited ( 21,156 ) 14.10 Non-vested stock units as of December 31, 2022 252,029 $ 14.33 Granted 166,763 12.68 Vested ( 107,031 ) 13.97 Forfeited ( 6,635 ) 13.31 Non-vested stock units as of December 31, 2023 305,126 $ 13.58 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. For fiscal years 2023, 2022, and 2021 no awards were granted that were contingent on market criteria. In 2023, 2022, and 2021 the Company recognized $ 2,008 thousand, $ 1,974 thousand, and $ 902 thousand respectively in compensation expense related to restricted stock units and as of December 31, 2023 and December 31, 2022, there was $ 1,433 thousand and $ 1,415 thousand respectively, of unrecognized compensation expense related to restricted stock units. The unrecognized compensation expense of unvested restricted stock awards not yet recognized as of December 31, 2023 are expected to be recognized over the weighted average period of 1.33 years. 57 Note 10 — Provision for Taxes Income before taxes and the provision for taxes consisted of the following: In Thousands 2023 2022 2021 Income before taxes: $ 12,493 $ 22,614 $ 30,549 Provision (benefit) for taxes: Current Federal $ 3,472 $ 4,149 $ 4,819 State 583 720 758 4,055 4,869 5,577 Deferred Federal ( 1,230 ) ( 502 ) 408 State ( 161 ) 258 159 ( 1,391 ) ( 244 ) 567 $ 2,664 $ 4,625 $ 6,144 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 2023 2022 2021 Income tax at statutory rate $ 2,623 $ 4,749 $ 6,415 Increase (decrease) in income tax resulting from State tax expense, net of federal effect 333 773 724 Federal true-ups ( 53 ) ( 49 ) ( 38 ) Federal tax credits ( 405 ) ( 413 ) ( 251 ) Captive insurance earnings ( 112 ) ( 478 ) ( 456 ) Incentive stock options 33 ( 18 ) ( 214 ) Other 245 61 ( 36 ) Recorded provision for income taxes $ 2,664 $ 4,625 $ 6,144 The provision for income taxes was computed based on financial statement income. In accordance with FASB ASC 740, the Company has an uncertain tax position as of and for the years ended December 31, 2023 and December 31, 2022. 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 2019. The Company has state, net of federal benefit, research tax credit carryforwards of $ 319 thousand as of December 31, 2023. The state research tax credit carryforwards begin to expire in 2025. A valuation allowance has been established in the amount of $ 319 thousand as of December 31, 2023 related to the state tax credit carryforwards, leaving an ending deferred, net of federal benefit, in the amount of zero . The increase in the valuation allowance relates to the decrease in the projected tax liability which would be offset by the credit carryforward. The valuation allowance is based on the historical results and estimated future results of the Company, as it is the judgment of management not all of these tax carryforward attributes will be realized before they begin to expire. In addition, the Company has foreign tax credit carryforwards of $ 521 thousand, as of December 31, 2023. The foreign tax credit carryforwards will begin to expire in 2030. 58 At December 31, 2023, the Company had domestic federal income taxes receivable of $ 150 thousand, domestic state income taxes payable of $ 62 thousand, and transition tax payable of $ 387 thousand recorded. At December 31, 2022, the Company had domestic federal income taxes payable of $ 158 thousand, domestic state income taxes receivable of $ 87 thousand, and transition tax payable of $ 387 thousand recorded. The components of the net deferred tax liabilities are as follows: In Thousands 2023 2022 Assets Valuation reserves $ 1,088 $ 1,167 Stock based compensation 295 389 Federal and state credits 840 674 Lease obligation 2,090 2,252 Other 28 4 Capitalized research costs 2,104 605 Total assets 6,445 5,091 Liabilities Property and equipment ( 1,206 ) ( 1,502 ) Goodwill and intangible assets ( 5,732 ) ( 5,347 ) Lease – right of use asset ( 1,959 ) ( 2,127 ) Prepaid insurance ( 354 ) ( 280 ) Total liabilities ( 9,251 ) ( 9,256 ) Valuation Allowance Beginning balance ( 351 ) ( 23 ) (Increase) Decrease during period 32 ( 328 ) Ending balance ( 319 ) ( 351 ) $ ( 3,125 ) $ ( 4,516 ) The following table reconciles the total amounts of unrecognized tax benefits: In Thousands 2023 2022 2021 Balance at beginning of year $ 20 $ 61 $ 61 Increases related to prior year tax positions - - - Decreases related to prior year tax positions - - - Increases related to current year tax positions - - - Settlements - - - Closure of tax years ( 20 ) ( 41 ) - Balance at end of year $ -- $ 20 $ 61 The total amount of unrecognized tax benefits, net of federal income tax benefits, of zero at December 31, 2023, and $ 16 thousand at December 31, 2022, that if recognized, would affect the effective tax rate on income from continuing operations. The Company had no accrued interest and penalties related to taxes, recognized as a liability, as of December 31, 2023. The Company has assessed its risk associated with all tax return positions and believes its tax reserve estimate reflects its best estimate of the deductions and positions it will be able to sustain, or it may be willing to concede as part of a settlement. At this time, the Company does not anticipate any change in its tax reserves in the next twelve months. The Company will continue to monitor the progress and conclusion of all audits and will adjust its estimated liability as necessary. 59 Note 11 — Operating Segment and Geographic Information The following table presents certain operating segment information. In Thousands 2023 2022 2021 Sporting Goods Net sales $ 263,566 $ 313,757 $ 313,612 Operating income 17,496 25,925 31,534 Interest expense 5,349 3,780 1,510 Provision for taxes 3,411 6,106 8,295 Net income 8,767 16,117 21,892 Identifiable assets 246,875 286,417 241,547 Depreciation & amortization 5,671 6,063 4,835 Capital expenditures 2,085 2,111 9,696 All Other Net sales -- -- -- Operating income 315 390 362 Interest expense (income) -- -- -- Benefit for taxes ( 747 ) ( 1,481 ) ( 2,151 ) Net income 1,062 1,872 2,513 Identifiable assets 6,130 12,301 10,251 Depreciation & amortization -- -- -- Capital expenditures -- -- -- Total Net sales 263,566 313,757 313,612 Operating income 17,811 26,315 31,896 Interest expense 5,349 3,780 1,510 Provision for taxes 2,664 4,625 6,144 Net income 9,829 17,989 24,405 Identifiable assets 253,005 298,718 251,798 Depreciation & amortization 5,671 6,063 4,835 Capital expenditures 2,085 2,111 9,696 There were no changes to the composition of segments in 2023. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Sporting Goods segment consists of home entertainment products such as table tennis tables and accessories; basketball goals; pickleball; pool tables and accessories; outdoor playsets; water sports; 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 segment. 60 The Company had net assets of $ 5.3 million and $ 14.8 million located in Mexico as of December 31, 2023 and December 31, 2022, respectively. During 2023, 2022 and 2021, the Company had one customer that accounted for approximately 20 %, 23 % and 21 %, respectively of the Company’s revenues. During 2023, 2022 and 2021 the Company had another customer which accounted for approximately 11 %, 12 % and 11 %, respectively, of the Company’s revenues. As of December 31, 2023 and December 31, 2022, the Company had approximately 29 % and 28 %, respectively, of its total accounts receivable with one customer. As of December 31, 2023, approximately 29 employees of the Company's labor force were covered by a collective bargaining agreement that expires on January 31, 2025. 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, Brazil, and Asian suppliers for these materials and upon various Asian manufacturers for many of its products. Net sales are attributed to country based on location of customer. Net sales by geographic region/country were as follows: In Thousands 2023 2022 2021 North America $ 257,228 $ 307,318 $ 309,211 Europe 2,856 3,036 2,153 Other 3,482 3,403 2,248 $ 263,566 $ 313,757 $ 313,612 Note 12 — Acquisitions All of the Company’s acquisitions have been accounted for using the purchase method of accounting. 2022 On January 21, 2022, the Company completed its acquisition of the assets constituting the Brunswick Billiards business of Life Fitness, LLC. The purchase price of the acquisition was $ 35.8 million. Acquisition-related costs of $ 134 thousand were incurred during the year ended December 31, 2022. The acquisition was funded by cash and the Company’s revolving credit facility. The Company allocated the purchase price to the assets acquired, net of the liabilities assumed, based on their estimated fair value as of the date of the acquisition. The excess of the purchase price over the fair value of the assets acquired, net of the fair value of liabilities assumed, was recorded as goodwill. The recorded goodwill is deductible for tax purposes. 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: Accounts receivable, net $ 1,275 Inventories, net 13,641 Fixed assets, including building and land 4,049 Goodwill 9,631 Intangible assets 12,900 Accounts payable ( 3,193 ) Other liabilities ( 2,546 ) $ 35,757 61 Note 13 — Commitments and Contingencies The Company is involved in litigation arising in the normal course of its business. The Company does not believe that the disposition or ultimate resolution of existing claims or lawsuits will have a material adverse effect on the business or financial condition of the Company. The Company has entered into various agreements whereby it is required to make royalty and license payments. At December 31, 2023, the Company had future estimated minimum non-cancelable royalty and license payments as follows: In Thousands Amount 2024 $ 1,106 2025 1,511 2026 601 2027 620 2028 641 Thereafter 664 $ 5,143 Note 14 — 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 borrowings under our senior secured revolving credit facility, due to variable rate interest, adequately reflects the fair value of these instruments. The carrying value of our Term loan at December 31, 2023 was $ 32.7 million. The estimated fair value of the Term loan was approximately $ 29.4 million at December 31, 2023, which value was estimated using treasury rates for a similar instrument and is classified as Level 2 within the fair value hierarchy. The carrying value of our Term loan at December 31, 2022 was $ 39.9 million. The estimated fair value of the Term loan was approximately $ 34.7 million at December 31, 2022, which value was estimated using treasury rates for a similar instrument and is classified as Level 2 within the fair value hierarchy. The following table presents estimated fair values of the Company’s financial instruments in accordance with FASB ASC 825 at December 31, 2023 and December 31, 2022. Fair Value Measurements Using 2023 In Thousands Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets Cash and cash equivalents $ 16 $ 16 $ -- $ -- Financial liabilities Notes Payable and Long-term debt $ 47,597 $ -- $ 47,597 $ -- 62 Fair Value Measurements Using 2022 In Thousands Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Financial assets Cash and cash equivalents $ 3,967 $ 3,967 $ -- $ -- Financial liabilities Notes Payable and Long-term debt $ 89,744 $ -- $ 89,744 $ -- Note 15 — Revenue from Contracts with Customers Revenue Recognition – Revenue is recognized when a contract exists with a customer that specifies the goods to be provided at an agreed upon sales price and when the performance obligations under the terms of the contract 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. Sales are made on normal and customary short-term credit terms or upon delivery of point-of-sale transactions. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods. Sales commissions are expensed as incurred. These costs are recorded in selling, general and administrative expenses in the accompanying consolidated statements of operations. 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. The Company enters into contractual arrangements with customers in the form of customer orders that specify goods, quantity, pricing, and associated order terms. The Company does not have long-term contracts that are satisfied over time. Due to the nature of the contracts, no significant judgment exists in relation to the identification of the customer contract, satisfaction of the performance obligations, or transaction price. The Company expenses incremental costs of obtaining a contract due to the short-term nature of the contracts. 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. 63 Disaggregation of Revenue – We generate revenue from the sale of widely recognized sporting goods brands in basketball goals, archery, indoor and outdoor game recreation and fitness products. These products are sold through multiple sales channels that include; mass merchants, specialty dealers, key on-line retailers (“E-commerce”) and international. The following table depicts the disaggregation of revenue according to sales channel: Years Ended All Amounts in Thousands December 31, 2023 December 31, 2022 December 25, 2021 Gross Sales by Channel: Mass Merchants $ 88,991 $ 104,097 $ 115,949 Specialty Dealers 85,713 98,954 96,166 E-commerce 101,964 119,401 119,550 International 12,011 16,183 11,337 Other 3,975 4,490 3,240 Total Gross Sales 292,654 343,125 346,242 Less: Gross-to-Net Sales Adjustments Returns 8,426 5,256 8,304 Warranties 528 2,472 2,488 Customer Allowances 20,134 21,640 21,838 Total Gross-to-Net Sales Adjustments 29,088 29,368 32,630 Total Net Sales 263,566 $ 313,757 $ 313,612 64 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/ Walter P. Glazer, Jr. March 29, 2024 Walter P. Glazer, Jr. President and Chief Executive Officer 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. Chairman and Director and President and Chief Executive Officer March 29, 2024 Walter P. Glazer, Jr. /s/ Katherine F. Franklin Director March 29, 2024 Katherine F. Franklin /s/ Edward E. Williams Director March 29, 2024 Edward E. Williams /s/ Richard Baalmann, Jr. Director March 29, 2024 Richard Baalmann, Jr. /s/ Anita Sehgal Director March 29, 2024 Anita Sehgal /s/ Patrick Griffin Director March 29, 2024 Patrick Griffin /s/ Stephen R. Wawrin Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) March 29, 2024 Stephen R. Wawrin 65