ESCALADE INC

Previous wording

This report contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended, and Rule 3b-6 promulgated thereunder. All statements, other than statements of historical fact, are forward-looking statements. These statements relate to our financial condition, results of operations, plans, objectives, future performance, capital actions or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “potential,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. These risks include, but are not limited to: Escalade’s ability to achieve its business objectives; 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 plans and expectations surrounding the transition to its new Chief Executive Officer and all potential related effects and consequences; Escalade’s ability to develop and implement our own direct to consumer e-commerce distribution channel; the impact of competitive products and pricing; product demand and market acceptance; new product development; 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; the evaluation and implementation of remediation efforts designed and implemented to enhance the Company’s control environment; the potential identification of one or more additional material weaknesses in the Company’s internal control of which the Company is not currently aware or that have not yet been detected; Escalade’s ability to control costs, including managing inventory levels; 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 goo…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This report contains statements that we believe are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated thereunder, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rule 3b-6 promulgated thereunder. All statements, other than statements of historical fact, are forward-looking statements. These statements relate to our financial condition, results of operations, plans, objectives, future performance, capital actions or business. They usually can be identified by the use of forward-looking language such as “will likely result,” “may,” “are expected to,” “is anticipated,” “potential,” “estimate,” “forecast,” “projected,” “intends to,” or may include other similar words or phrases such as “believes,” “plans,” “trend,” “objective,” “continue,” “remain,” or similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” or similar verbs. You should not place undue reliance on these statements, as they are subject to risks and uncertainties. These risks include, but are not limited to: Escalade’s ability to achieve its business objectives; Escalade’s plans and expectations surrounding the transition to its new Chief Executive Officer and all potential related effects and consequences; Escalade’s ability to successfully implement actions to lessen the potential impacts of tariffs, a potential trade war with China 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; our international operations, including any related to political uncertainty and geopolitical tensions; 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 protect its intellectual property; Escalade’s ability to develop and implement our own direct to consumer e-commerce distribution channel; the impact of competitive products and pricing; product demand and market acceptance; new product development; 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, terrorist attacks, labor strikes, natural disasters, public health crises such as the coronavirus pandemic, and other events and circumstances beyond our control; the evaluation and implementation of remediation efforts…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Management seeks acquisitions that strengthen the Company’s leadership in various product categories or provide entry into attractive new product categories. The Company also sometimes divests or discontinues certain operations, assets, and products that do not perform to the Company's expectations or no longer fit with the Company's strategic objectives. Consistent with that philosophy, the Company completed the discontinuance of its Mexico operations and sale of its Mexican facilities in 2024.

Current wording

Management seeks acquisitions that strengthen the Company’s leadership in various product categories or provide entry into attractive new product categories. The Company also sometimes divests or discontinues certain operations, assets, and products that do not perform to the Company's expectations or no longer fit with the Company's strategic objectives. Consistent with that philosophy, the Company completed the discontinuance of its Mexico operations, sale of its Mexican facilities, discontinuance of its Orlando, FL operations and terminated its long-term lease for the Orlando, FL facility in 2024.

Previous wording

Net sales decreased 4.6% in 2024 compared to 2023. The Company recognized declines in sales across multiple categories due to softer consumer demand, partially offset by improved demand in the archery, table tennis, and fitness categories.

Current wording

Net sales decreased 4.5% in 2025 compared to 2024. The Company recognized declines in sales across multiple categories due to softer consumer demand, partially offset by improved demand in the archery, billiards, and fitness categories.

Previous wording

The overall gross margin increased to 24.7% in 2024 compared with 23.4% in 2023. Gross margins were favorably impacted by lower manufacturing and logistics costs.

Current wording

The overall gross margin increased to 26.9% in 2025 compared with 24.7% in 2024. Gross margins were favorably impacted by lower manufacturing costs due to a smaller operational footprint, when compared to the prior-year period.

Previous wording

Selling, general and administrative expenses (SG&A) were $43.3 million in 2024 compared to $41.5 million in 2023, an increase of $1.8 million or 4.4%. The increase in SG&A was primarily related to increased professional service costs during 2024. SG&A as a percent of sales is 17.2% in 2024 compared with 15.7% in 2023.

Current wording

Selling, general and administrative expenses (SG&A) were $43.6 million in 2025 compared to $43.3 million in 2024, an increase of $0.3 million or 0.7%. The increase in SG&A was primarily related to CEO transition costs incurred during 2025. SG&A as a percent of sales is 18.2% in 2025 compared with 17.2% in 2024.

Previous wording

The effective tax rate for 2024 and 2023 was 26.9% and 21.3%, respectively. The 2024 effective tax rate is higher than the federal statutory rate primarily due to state income tax expense, nondeductible expenses, and the sale of Harvard Sports, partially offset by federal income tax credits. The 2023 effective tax rate was slightly higher than the federal statutory rate primarily due to the impact of state taxes partially offset by captive insurance premiums being tax exempt and federal income tax credits.

Current wording

The effective tax rate for 2025 and 2024 was 24.0% and 26.9%, respectively. The 2025 effective tax rate is higher than the federal statutory rate primarily due to the impact of state taxes and nondeductible expenses. The 2024 effective tax rate is higher than the federal statutory rate primarily due to state income tax expense, nondeductible expenses, and the sale of Harvard Sports, partially offset by federal income tax credits.

Previous wording

Gross margin in 2024 was 24.7% compared to 23.4% in 2023. Operating income, as a percentage of net sales, increased to 9.2% in 2024 compared to 6.6% in 2023.

Current wording

Gross margin in 2025 was 26.9% compared to 24.7% in 2024. Operating income, as a percentage of net sales, decreased to 8.9% in 2025 compared to 9.2% in 2024.

Previous wording

The current ratio, a basic measure of liquidity (current assets divided by current liabilities), for 2024 was 3.9, compared to 4.4 in 2023. Receivable levels decreased to $48.8 million in 2024 compared with $50.0 million in 2023 as a result of lower sales. Net inventory decreased $16.5 million to $76.0 million in 2024 from $92.5 million in 2023, due to continued efforts to right size our on hand inventory. Trade accounts payable and accrued liabilities increased $1.8 million to $26.9 million from $25.1 million in 2023.

Current wording

The current ratio, a basic measure of liquidity (current assets divided by current liabilities), for 2025 was 4.3, compared to 3.9 in 2024. Receivable levels decreased to $46.3 million in 2025 compared with $48.8 million in 2024 as a result of lower sales. Net inventory decreased $7.5 million to $68.5 million in 2025 from $76.0 million in 2024, due to continued efforts to right size our on hand inventory. Trade accounts payable and accrued liabilities decreased $4.1 million to $22.8 million from $26.9 million in 2024.

Previous wording

The Company’s working capital requirements are primarily funded through cash flows from operations and revolving credit agreements with its bank. During 2024, the Company’s maximum borrowings under its primary revolving credit lines and overdraft facility totaled $58.7 million compared to $100.6 million in 2023. The overall effective interest rate in 2024 was 5.4% compared to the effective rate of 6.3% in 2023. Total debt at the end of the Company’s 2024 fiscal year was $25.6 million.

Current wording

The Company’s working capital requirements are primarily funded through cash flows from operations and revolving credit agreements with its bank. During 2025, the Company’s maximum borrowings under its primary revolving credit lines and overdraft facility totaled $27.0 million compared to $58.7 million in 2024. The overall effective interest rate in 2025 was 3.7% compared to the effective rate of 5.4% in 2024. Total debt at the end of the Company’s 2025 fiscal year was $18.5 million.

Previous wording

The October 11, 2024 amendments also eliminated the fixed charge coverage ratio covenant and related provisions. The fixed charge ratio covenant was replaced by a new minimum interest coverage ratio covenant of 3.50 to 1:00 effective September 30, 2024. The amendments further revised the restricted payments covenant to provide that if at any time the Company’s Funded Debt to EBITDA Ratio would exceed 1.75 to 1.0, then the aggregate combined total of cash dividends and Company share repurchases may not exceed $12.0 million in any trailing twelve month period.

Current wording

On October 11, 2024, the Company entered into the Fifth Amendment to the 2022 Restated Credit Agreement. This amendment eliminated the fixed charge coverage ratio covenant and related provisions. The fixed charge ratio covenant was replaced by a new minimum interest coverage ratio covenant of 3.50 to 1:00 effective September 30, 2024. The amendment further revised the restricted payments covenant to provide that if at any time the Company’s Funded Debt to EBITDA Ratio would exceed 1.75 to 1.0, then the aggregate combined total of cash dividends and Company share repurchases may not exceed $12.0 million in any trailing twelve-month period.

Previous wording

As of December 31, 2024, the outstanding principal amount of the term loan was $25.6 million and total amount drawn under the Revolving Facility was zero.

Current wording

As of December 31, 2025, the outstanding principal amount of the term loan was $18.5 million and total amount drawn under the Revolving Facility was zero.

Previous wording

The Company believes cash generated from its projected 2025 operations and the commitment of borrowings from its primary lender will provide it with sufficient cash flows for its operations.

Current wording

The Company believes cash generated from its projected 2026 operations and the commitment of borrowings from its primary lender will provide it with sufficient cash flows for its operations. The Company expects cash generated from 2026 and Q1 2027 operations will be sufficient to pay the remaining term loan balance of $11.3 million due on January 21, 2027.

Previous wording

The Company has one reporting unit that is identical to our operating segment, Sporting Goods. Of the total recorded goodwill of $42.3 million at December 31, 2024, the entire amount was allocated to the Escalade Sports reporting unit. The results of the quantitative impairment assessment of the Escalade Sports reporting unit indicated that the fair value of the reporting unit was greater than the carrying value as of November 1, 2024.

Current wording

The Company has one reporting unit that is identical to our operating segment, Sporting Goods. Of the total recorded goodwill of $42.3 million at December 31, 2025, the entire amount was allocated to the Escalade Sports reporting unit. The results of the quantitative impairment assessment of the Escalade Sports reporting unit indicated that the fair value of the reporting unit was greater than the carrying value as of September 1, 2025. The Company performed a qualitative assessment for the interim period from September 1, 2025 to December 31, 2025. The results of the qualitative impairment assessment 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, 2025.

Previous wording

As of December 31, 2024, the Company had no material commitments for capital expenditures. In 2025, the Company estimates capital expenditures to be approximately $2.5 million.

Current wording

As of December 31, 2025, the Company had no material commitments for capital expenditures. In 2026, the Company has budgeted capital expenditures in the range of approximately $4.2 million to $5.2 million. Actual expenditures may be higher or lower than budgeted amounts.