Forward-Looking Statements





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



Overview



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



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



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

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


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COVID-19 Pandemic



The novel coronavirus (COVID-19) pandemic continued to affect the Company's
operations through the second quarter of 2021 and may continue to do so
indefinitely thereafter. Increased customer demand the Company experienced
through 2020, likely caused in part by consumers remaining home to limit the
spread of COVID-19, has carried over into the first two quarters of 2021. While
the Company continues to meet these demands through accelerated ordering
schedules and increased inventory, a substantial decrease in customer demand or
slower payments by the Company's mass merchants, specialty dealers or other
customers could adversely impact the Company's liquidity. All of these factors
may have far reaching impacts on the Company's business, operations, and
financial results and conditions, directly and indirectly, including without
limitation impacts on the health of the Company's management and employees,
manufacturing, distribution, marketing and sales operations, customer and
consumer behaviors, and on the overall economy. The scope and nature of these
impacts, most of which are beyond the Company's control, continue to evolve and
the outcomes are uncertain. In particular, uncertainty concerning the ongoing
severity of the pandemic, potential government actions in response to the
pandemic, the length of time it takes for normal economic operating conditions
to resume, and potential changes in consumer habits following the lifting of
COVID restrictions, all contribute to a volatile environment for conducting
business.



Due to the above circumstances and as described generally in this Form 10-Q, the
Company's results of operations for the period ended July 10, 2021 are not
necessarily indicative of the results to be expected for fiscal year 2021.
Management cannot predict the full impact of the COVID-19 pandemic on the
Company's sales channels, supply chain, manufacturing and distribution nor to
economic conditions generally, including the effects on consumer spending. The
ultimate extent of the effects of the COVID-19 pandemic on the Company is highly
uncertain and will depend on future developments, and such effects could exist
for an extended period of time even after the pandemic ends.

Results of Operations

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





                                                        Three Months Ended                       Six Months Ended
                                                July 10, 2021        July 11, 2020       July 10, 2021       July 11, 2020
Net revenue                                              100.0 %              100.0 %             100.0 %             100.0 %
Cost of products sold                                     74.8 %               72.2 %              73.2 %              72.3 %
Gross margin                                              25.2 %               27.8 %              26.8 %              27.7 %
Selling, administrative and general expenses              13.9 %               14.3 %              14.9 %              16.0 %
Amortization                                               0.6 %                0.5 %               0.7 %               0.7 %
Operating income                                          10.7 %               13.0 %              11.2 %              11.0 %




Revenue and Gross Margin

Sales increased by 19.3% for the second quarter of 2021, compared with the same
period in the prior year. The increase in sales was driven by growth in nearly
all our product lines, led by our archery, games and outdoor categories,
including pickleball, playground, and water sports. For the first half of 2021,
sales were up 31.5% compared to prior year.



The overall gross margin percentage decreased to 25.2% for the second quarter of
2021, compared to 27.8% for 2020. Gross margin was negatively impacted by higher
material costs, increased wage pressure, and inventory handling costs.

Gross margin percentage decreased to 26.8% for the first six months of 2021, compared to 27.7% for the same period in the prior year.

Selling, General and Administrative Expenses



Selling, general and administrative expenses (SG&A) were $13.8 million for the
second quarter of 2021 compared to $11.9 million for the same period in the
prior year, an increase of $1.9 million or 15.8%. SG&A as a percent of sales is
13.9% for the second quarter of 2021 compared with 14.3% for the same period in
the prior year. For the first half of 2021, SG&A were $23.7 million compared to
$19.4 million for the same period in 2019, an increase of $4.3 million or 22.2%.
As a percent of sales, SG&A is 14.9% for the first half of 2021 compared with
16.0% for the same period in the prior year.

Provision for Income Taxes

The effective tax rate for the first half of 2021 was 21.3% compared to 19.6% for the same period last year.


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Financial Condition and Liquidity

Total debt at the end of the first six months of 2021 was $50.0 million, an increase of $19.9 million from December 26, 2020. The following schedule summarizes the Company's total debt:





                                    July 10,       December 26,       July 11,
In thousands                          2021             2020             2020

Current portion of long-term debt   $   7,143     $           --     $       --
Long term debt                      $  42,857     $       30,073     $       --

As a percentage of stockholders' equity, total debt was 34.5%, 21.6% and zero at July 10, 2021, December 26, 2020, and July 11, 2020 respectively.





On July 7, 2021, the Company and its wholly owned subsidiary, Indian Industries,
Inc. ("Indian") entered into the Fourth Amendment dated as of July 7, 2021 (the
"Fourth Amendment") to the 2019 Restated Credit Agreement dated as of January
21, 2019 among the Company, Indian, each of their domestic subsidiaries, and
Chase, as Administrative Agent and as Lender (the "Lender"). 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 maturity date of the term loan
is July 7, 2026 and the maturity date of the revolving credit facility likewise
was extended to July 7, 2026. The Company may prepay the revolving credit
facility, in whole or in part, and reborrow prior to the revolving loan maturity
date. The Company's indebtedness under the Credit Agreement continues to be
collateralized by liens on all of the present and future equity of each of the
Company's domestic subsidiaries and substantially all of the assets of the
Company (excluding real estate).



The Company funds working capital requirements, shareholder dividends, and stock
repurchases through operating cash flows and revolving credit agreements with
its bank. The Company expects to have access to adequate levels of revolving
credit to meet growth needs.

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