Forward-Looking Statements





This report contains forward-looking statements relating to present or future
trends or factors that are subject to risks and uncertainties. These risks
include, but are not limited to: specific and overall impacts of the COVID-19
global pandemic on Escalade's financial condition and results of operations; the
impact of competitive products and pricing; product demand and market
acceptance; new product development; Escalade's ability to achieve its business
objectives, especially with respect to its Sporting Goods business on which it
has chosen to focus; Escalade's ability to successfully achieve the anticipated
results of strategic transactions, including the integration of the operations
of acquired assets and businesses and of divestitures or discontinuances of
certain operations, assets, brands, and products; the continuation and
development of key customer, supplier, licensing and other business
relationships; Escalade's ability to develop and implement our own direct to
consumer e-commerce distribution channel; Escalade's ability to successfully
negotiate the shifting retail environment and changes in consumer buying habits;
the financial health of our customers; disruptions or delays in our business
operations, including without limitation disruptions or delays in our supply
chain, arising from political unrest, war, labor strikes, natural disasters,
public health crises such as the coronavirus pandemic, and other events and
circumstances beyond our control; Escalade's ability to control costs;
Escalade's ability to successfully implement actions to lessen the potential
impacts of tariffs and other trade restrictions applicable to our products and
raw materials, including impacts on the costs of producing our goods, importing
products and materials into our markets for sale, and on the pricing of our
products; general economic conditions; fluctuation in operating results; changes
in foreign currency exchange rates; changes in the securities markets; continued
listing of the Company's common stock on the NASDAQ Global Market; the Company's
inclusion or exclusion from certain market indices; Escalade's ability to obtain
financing and to maintain compliance with the terms of such financing; the
availability, integration and effective operation of information systems and
other technology, and the potential interruption of such systems or technology;
risks related to data security of privacy breaches; the potential impact of
actual or perceived defects in, or safety of, our products, including any impact
of product recalls or legal or regulatory claims, proceedings or investigations
involving our products; and other risks detailed from time to time in Escalade's
filings with the Securities and Exchange Commission. Escalade's future financial
performance could differ materially from the expectations of management
contained herein. Escalade undertakes no obligation to release revisions to
these forward-looking statements after the date of this report.



Overview



Escalade, Incorporated (Escalade, the Company, we, us or our) is focused on
growing its Sporting Goods business through organic growth of existing
categories, strategic acquisitions, and new product development. The Sporting
Goods business competes in a variety of categories including basketball goals,
archery, billiards, indoor and outdoor game recreation and fitness products.
Strong brands and on-going investment in product development provide a solid
foundation for building customer loyalty and continued growth.



Within the sporting goods industry, the Company has successfully built a robust
market presence in several niche markets. This strategy is heavily dependent on
expanding our customer base, barriers to entry, strong brands, excellent
customer service and a commitment to innovation. A key strategic advantage is
the Company's established relationships with major customers that allow the
Company to bring new products to market in a cost effective manner while
maintaining a diversified portfolio of products to meet the demands of
consumers. In addition to strategic customer relations, the Company has
substantial manufacturing and import experience that enable it to be a low cost
supplier.



To enhance growth opportunities, the Company has focused on promoting new
product innovation and development and brand marketing. In addition, the Company
has embarked on a strategy of acquiring companies or product lines that
complement or expand the Company's existing product lines or provide expansion
into new or emerging categories in sporting goods. A key objective is the
acquisition of product lines with barriers to entry that the Company can take to
market through its established distribution channels or through new market
channels. Significant synergies are achieved through assimilation of acquired
product lines into the existing Company structure. In January 2022, the Company
completed its acquisition of the assets of the Brunswick Billiards® business,
complementing its existing portfolio of billiards brands and other offerings in
the Company's indoor recreation market. The Company also sometimes divests or
discontinues certain operations, assets, brands, and products that do not
perform to the Company's expectations or no longer fit with the Company's
strategic objectives.

Management believes that key indicators in measuring the success of these strategies are revenue growth, earnings growth, new product introductions, and the expansion of channels of distribution.


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As the impact of the COVID-19 pandemic evolves, the Company continues to respond
to the challenges and opportunities arising from the COVID-19 pandemic. Even
though the pandemic may not have had a material adverse direct effect on the
Company, the pandemic's effects on the global supply chain, higher freight and
materials costs, supplier product delays, workforce availability and labor costs
have caused operational challenges for the Company. The ultimate extent of the
effects of the COVID-19 pandemic on the Company is highly uncertain and will
depend on future developments, and such effects could exist for an extended
period of time even after the pandemic ends. Consumer demand for the Company's
products may be slowing due to additional factors such as general economic
conditions, inflation, recessionary fears, rising interest rates, changes in the
housing market and declining consumer confidence. Management cannot predict the
full impact of these factors on the Company. Due to the above circumstances and
as described generally in this Form 10-Q, the Company's results of operations
for the period ended October 1, 2022 are not necessarily indicative of the
results to be expected for fiscal year 2022.

Results of Operations

The following schedule sets forth certain consolidated statement of operations data as a percentage of net revenue:





                                                    Three Months Ended                Nine Months Ended
                                               October 1,        October 2,      October 1,       October 2,
                                                  2022              2021            2022             2021

Net revenue                                          100.0 %           100.0 %         100.0 %          100.0 %
Cost of products sold                                 81.8 %            77.5 %          76.2 %           74.7 %
Gross margin                                          18.2 %            22.5 %          23.8 %           25.3 %
Selling, administrative and general expenses          11.7 %            12.6 %          14.0 %           14.1 %
Amortization                                           0.9 %             0.5 %           0.9 %            0.6 %
Operating income                                       5.6 %             9.4 %           8.9 %           10.6 %




Revenue and Gross Margin

Sales decreased by 7.9% for the third quarter of 2022, compared with the same
period in the prior year. Sales declined due to softening consumer demand and
excess inventories in the retail channel. During the third quarter of 2022,
increases in billiards and pickleball sales, together with the contribution from
the Brunswick Billiards® acquisition completed January 21, 2022, were more than
offset by lower sales in outdoor categories including archery, games, water
sports, and playground. For the first nine months of 2022, sales were up 0.6%
compared to prior year.



Gross margin declined to 18.2% for the third quarter of 2022 compared to 22.5%
for the same period in 2021 due to lower sales, unfavorable product mix, global
supply chain constraints, and nonrecurring product recall expenses.

Gross margin percentage decreased to 23.8% for the first nine months of 2022, compared to 25.3% for the same period in the prior year.

Selling, General and Administrative Expenses



Selling, general and administrative expenses (SG&A) were $8.8 million for the
third quarter of 2022 compared to $10.2 million for the same period in the prior
year, a decrease of $1.4 million or 14.0%. SG&A as a percent of sales is 11.7%
for the third quarter of 2022 compared with 12.6% for the same period in the
prior year. For the first nine months of 2022, SG&A were $34.0 million compared
to $33.9 million for the same period in 2021, an increase of $0.1 million or
0.3%. As a percent of sales, SG&A is 14.0% for the first nine months of 2022
compared with 14.1% for the same period in the prior year.

Provision for Income Taxes

The effective tax rate for the first nine months of 2022 was 19.6% compared to 20.5% for the same period last year.


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Financial Condition and Liquidity





Total debt at the end of the first nine months of 2022 was $106.7 million, an
increase of $49.2 million from December 25, 2021. The increase in debt was
largely driven by the funding of the Brunswick Billiards acquisition completed
in January of 2022. The following schedule summarizes the Company's total debt:



                                     October 1,       December 25,       October 2,
In thousands                            2022              2021              2021

Current portion of long-term debt $ 7,143 $ 7,143 $ 


   7,143
Long term debt                            99,568             50,396           51,874
Total Debt                          $    106,711     $       57,539     $     59,017

As a percentage of stockholders' equity, total debt was 67.8%, 39.2% and 40.8% at October 1, 2022, December 25, 2021, and October 2, 2021, respectively.





On January 21, 2022, the Company entered into an Amended and Restated Credit
Agreement ("Restated Credit Agreement") with its issuing bank, JP Morgan Chase
Bank, N.A. ("Chase"), and the other lenders identified in the Restated Credit
Agreement (collectively, the "Lender"). Under the terms of the Restated Credit
Agreement, Old National Bank has been added as a Lender. The Lenders have now
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.



Each loan bears interest at the Adjusted LIBO Rate for the interest period in
effect plus the Applicable Rate. Applicable Rate means the applicable rate per
annum set forth below, based upon Escalade's Funded Debt to Adjusted Ratio as of
the most recent determination date:



                                         Revolving            Revolving
Funded Debt to                           Commitment        Commitment Term         Letter of       Commitment
EBITDA Ratio                             ABR Spread        Benchmark Spread       Credit Fee        Fee Rate
Category 1
Greater than or equal to 2.50 to 1.0            0.25 %                  2.00 %           2.00 %           0.30 %
Category 2
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 3
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 shall be
effective during the period commencing the date of delivery to the agent.



In addition to the increased revolving borrowing amount and extended maturity
dates, other significant changes reflected in the Restated Credit Agreement
included: specifying that Indian's acquisition of the assets of the Brunswick
Billiards business is a permitted acquisition; providing a $7.5 million
swingline commitment by Chase; replacing LIBOR with the replacement benchmark
secured overnight financing rate as previously contemplated; and adjustments to
certain financial covenants relating to the fixed charge coverage ratio.
Escalade's indebtedness under the Restated Credit Agreement continues to be
collateralized by liens on all of the present and future equity of each of
Escalade's domestic subsidiaries and substantially all of the assets of the
Company (excluding real estate). Each direct and indirect domestic subsidiary of
Escalade 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. Escalade, Indian and all of the domestic subsidiaries
entered into an Amended and Restated Pledge and Security Agreement dated January
21, 2022 in favor of the Lender to continue the existing liens, previously
existing under the original pledge and security agreements entered into on April
30, 2009, as amended, and thereafter for subsidiaries created or acquired after
that date. The obligations, guarantees, liens and other interests granted by
Escalade, Indian, and their domestic subsidiaries continue in full force and
effect.



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On July 18, 2022, the Company entered into the First Amendment to the Restated
Credit Agreement. Under the terms of the First Amendment, the Lender increased
the maximum availability under the senior revolving credit facility from $65.0
million to $75.0 million pursuant to the accordion feature in the Restated
Credit Agreement. The First Amendment also adjusted the funded debt to EBITDA
ratio financial covenant to 3:00 to 1:00 as of the end of the Company's third
and fourth fiscal quarters of 2022.



On October 26, 2022, the Company entered into the Second Amendment ("Second
Amendment") to the Restated Credit Agreement. Under the terms of the Second
Amendment, the Lender 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 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.

As of October 1, 2022, the outstanding principal amount of the term loan was $41.7 million and total amount drawn under the Revolving Facility was $65.0 million.





The Company funds working capital requirements, shareholder dividends, and stock
repurchases through operating cash flows and revolving credit agreements with
its Lenders. The Company expects that cash generated from its 2022 operations
and its access to adequate levels of revolving credit will provide it with
sufficient cash flows for its operations and to meet growth needs.

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