Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 1995
COMMISSION FILE NUMBER 0-6966
(Exact name of registrant as specified in its charter)
Indiana 13-2739290
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(State of incorporation) (I.R.S. EIN)
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Securities registered pursuant to Section 12(b) of the Act
NONE
Securities registered pursuant to Section 12(g) of the Act
(Title of class)
The number of shares of Registrant's common stock (no par value) outstanding as of March 1, 1996: 4,133,954
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's Proxy Statement relating to its annual meeting of stockholders scheduled to be held on April 26, 1996 are incorporated by reference into Part III of this Report.
Index to Exhibits is found on page 16.
Escalade, Incorporated And Subsidiaries
Index to Annual Report
on Form 10-K
Page
Part I
Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Registrant's Common Equity and
Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial
Condition
and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on
Accounting
and Financial Disclosure 13
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Part III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners and Management 14
Item 13. Certain Relationships and Related Transactions 14
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 16
Part I
ITEM 1 - BUSINESS
GENERAL
Escalade, Incorporated (Escalade or Company) is a diversified company engaged in the manufacture and sale of sporting goods and office and graphic arts products. Escalade and its predecessors have produced sporting goods for over 65 years and have produced office machines for over 35 years.
Escalade is the successor to The Williams Manufacturing Company, an Ohio-based manufacturer and retailer of women's and children's footwear formed in 1922. Through a series of acquisitions commencing in the 1970's, the Company has diversified its business. The Company currently manufactures sporting goods in Evansville, Indiana, Compton, California and Tijuana, Mexico and manufactures office and graphic arts products in Wabash, Indiana.
In 1972, the Company merged with Martin Yale Industries, Inc. (Martin Yale), an Illinois manufacturer of office and graphic arts products and leisure time items such as toys and hobby and craft items. In 1973, the Company acquired both Indian Industries, Inc. (Indian), an Indiana manufacturer of archery equipment and table tennis tables and accessories, and Harvard Table Tennis, Inc., a Massachusetts manufacturer of table tennis accessories. Escalade discontinued the Williams Manufacturing footwear operations in 1976 and sold Martin Yale's leisure time product line to an unaffiliated party in 1979. In 1980, the Company purchased Harvard Sports, Inc (formerly Crown Recreation (West), Inc.), a California manufacturer of table tennis tables and home pool tables. In 1983, the Company closed Harvard Table Tennis, Inc. and consolidated it with Harvard Sports, Inc. (Harvard). In 1989, the Company acquired a 55% stock interest in Marcy Fitness Products, Inc. (Marcy), a California manufacturer of home fitness and exercise equipment, such as multi-purpose gyms, barbells, weight benches and recumbent exercise bikes. In 1991, the Company acquired the remaining 45% stock interest and Marcy became a wholly owned subsidiary of Escalade. In 1992, the Company closed Marcy and consolidated its production with the sporting goods operations of Indian and Harvard.
Escalade has diversified within both the sporting goods and office and graphic arts products industries, principally through the introduction of new product lines and acquisitions of related assets and businesses. Escalade expanded its sporting goods business in 1982 with the introduction of basketball backboards, goals and poles, and again in 1985 with the introduction of family games such as volleyball, badminton and croquet. In 1986, the Company acquired the graphic arts-related assets of Geiss America, Inc. and in 1988, the Company acquired the business machine division assets of Swingline, Inc., further expanding the range of products offered within the office machine and equipment product lines. In 1989, the Company started limited manufacturing in Tijuana, Mexico under a shelter program known as "maquiladora", and acquired Marcy. In 1990, the Company built a new manufacturing and office facility in Wabash, Indiana and consolidated the manufacturing of office and graphic arts products into the new facility. In 1992, the company established a European sales office and warehouse based in the United Kingdom under the name of Escalade International Limited. In 1994, the Company purchased certain assets of Data-Link Corporation which manufactured products to apply postage and other stamps.
Escalade's sporting goods products are produced by Indian and Harvard and are sold through a single consolidated sales and marketing group, Escalade Sports. Escalade's office and graphic arts products are manufactured and marketed through Martin Yale.
The following table presents the percentages contributed to Escalade's net sales by each of its business segments:
FISCAL YEAR 1995 1994 1993
Sporting goods 81% 83% 85%
Office and graphic arts products 19 17 15
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Total net sales 100% 100% 100%
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For additional segment information, see the notes to consolidated financial statements.
SPORTING GOODS
Escalade manufactures and sells a variety of sporting goods such as table tennis tables and accessories, archery equipment, home pool tables and accessories, combination bumper pool and card tables, game tables, basketball backboards, goals and poles, darts, dart cabinets, volleyball and badminton equipment, junior sporting goods including Mini Ping Pong, Mini Pool , Mini Court basketball and Shot Clock basketball and home fitness machines, weight benches, cast iron weight sets, steppers and other home fitness accessories. Approximately 25% of Escalade's domestic sporting goods shipments are made from Harvard, which primarily services the Company's U. S. Western marketing region, and 75% of such shipments are made from Indian, which primarily serves the rest of the United States. The majority of foreign shipments are made through Escalade FSC Inc., a foreign sales corporation established by the Company in 1994.
Escalade produces and sells sporting goods under various brand names in addition to its Indian, Harvard and Marcy brand names. Beginning in 1985, Indian and Harvard entered into an agreement with Spalding and Evenflo Companies, Inc. (Spalding) for the exclusive right and license to utilize the Spalding trademark in conjunction with the manufacture, sale and distribution in the United States of certain sporting goods product lines. The principal product lines covered by licensing agreements with Spalding are basketball backboards, goals and poles, volleyball and badminton sets, croquet, horseshoes, tether ball, bocce ball, flying discs, indoor darts, table tennis sets and pool accessories. Beginning in 1990, Indian entered into an agreement and contract with Baker Sport AB, a Swedish company, for the exclusive right and license to distribute and produce table tennis equipment under the brand name STIGA for the United States and Canada. Subsequently, Baker Sport AB filed bankruptcy under Swedish laws . A plan of reorganization was instituted and a new company was formed called Sweden Table Tennis AB and, effective February 2, 1994, Escalade purchased 37.5%, the Bandstigen Family purchased 37.5% and AB Traction purchased 25% of Sweden Table Tennis AB.
Escalade also manufactures various sporting goods under private label for Sears Roebuck & Co. (Sears) and various other customers. Many of Escalade's products are sold to Sears, Escalade's largest customer, which accounted for approximately 42% of Escalade's sporting goods item net sales in 1995. No other customer accounted for more than 10% of Escalade's sporting goods net sales in 1995.
Certain of the Company's sporting goods products are subject to the regulation of the Consumer Product Safety Commission. The Company believes that it is in compliance with such regulations.
OFFICE AND GRAPHIC ARTS PRODUCTS
Escalade's office and graphic arts products include paper trimmers, paper folding machines, paper drills, collators, decollators, bursting machines, letter openers, automated paper joggers, checksigners, stamp affixers, paper shredders, bindery carts, platemakers, sinks, light tables, cameras and related accessories. Escalade's office and graphic arts products business is conducted exclusively through Martin Yale.
In 1986, the Company introduced a combination checksigner and bursting machine, which automatically imprints facsimile signatures on payroll checks and then separates each check for distribution. The Company also further diversified its office equipment product lines by its August, 1986 purchase of the graphic arts-related assets of Geiss America, Inc., consisting primarily of the Sandmar product lines which include such items as photo and plate sinks, light tables and platemakers and by its August, 1988 purchase of the business machine division assets of Swingline, Inc. consisting primarily of a line of forms handling equipment including decollators, bursters and checksigners and a line of shredders and other products, and by its 1994 purchase of certain assets of Data-Link Corporation consisting primarily of products which apply postage and other stamps.
Escalade produces and sells office and graphic arts products under the Martin Yale brand name and the Premier trademark. The Company also manufactures various office and graphic arts products under private label for original equipment manufacturers.
The Company announced in October, 1994 that it intends to distribute 100% of the Martin Yale stock to Escalade's stockholders in a tax-free spinoff following the satisfaction of certain contingencies. The Company's management believes that the spinoff will be in the best interests of the Company and its stockholders, although as announced in February, 1995 the proposed distribution has been delayed until the Company makes satisfactory progress in improving Escalade's overall profitability. The Company's Board of Directors has not established a target date for when the proposed distribution may be completed.
RELATIONSHIP WITH SEARS
The Company has supplied sporting goods to Sears for over 30 years beginning with sales of archery equipment by Indian to Sears. Sears currently purchases for resale a wide variety of Escalade's sporting goods. Sales to Sears accounted for approximately 34% of Escalade's consolidated sales in 1995 and for approximately 27% and 20% of consolidated sales in 1994 and 1993. Even though the Company has no long-term contracts with Sears, the Company believes that sales to Sears will continue and that relations with Sears are good.
Escalade has been recognized by Sears for its outstanding service in each of the last ten years and in twenty of the last twenty-three years. For the last ten years, Sears has awarded Escalade the Sears "Partners in Progress Award" based upon quality, service and product innovation. Sears makes this award to less than 80 suppliers each year. During this period, Sears had more than 10,000 suppliers. In 1987, Sears further recognized the Company by awarding Escalade the Sears 1986 "Source of the Year Award" in the recreation-automotive group.
MARKETING AND PRODUCT DEVELOPMENT
Escalade has developed its existing product lines to adapt to changed conditions. Escalade believes that it is prepared to react to changing market and economic developments primarily by continuing the quality/price structure of the Company's product lines and by conducting ongoing research and development of new products.
For many of its sporting goods products, Escalade offers its customers a choice, based on quality and price, of its line of "good, better and best" items. Such products are priced in relation to their quality which enables the Company to sell its goods through a variety of department stores, mass merchandisers, wholesale clubs, catalog showrooms, discount houses, general sporting goods stores, specialty sporting goods stores and hardware chains. As a result of such quality/price structure, Escalade is able to meet the quality/price objectives of the consumers served by such retail channels.
Escalade sells its office and graphic arts products through office machine dealers, office supply houses and office product catalogs. Certain of Escalade's office products, such as paper trimmers and paper folders, are marketed in a quality/price range designed to accommodate customer needs. Lower cost items are generally intended for light duty office applications, whereas higher cost items are more rugged or more sophisticated, and are intended for use in heavy duty or commercial applications.
Escalade conducts much of its marketing efforts through a network of independent sales representatives in the office and graphic arts industries. The Company also currently employs thirteen sales representatives for its sporting goods business. The Company's efforts through all of its sales representatives are directed toward increasing the number of Escalade customers and expanding the breadth of Escalade products purchased by such customers.
The Company engaged in ongoing research and development activities for new products in each of its business segments. Escalade spent approximately $1,700,000 in 1995, $2,300,000 in 1994, and $1,500,000 in 1993 for research and development activities.
COMPETITION
Escalade is subject to competition with various manufacturers of each product line produced or sold by Escalade. The Company is not aware of any other single company that is engaged in both the same industries as Escalade or that produces the same range of products as Escalade within such industries. Nonetheless, competition exists for many Escalade products within both the sporting goods and office and graphic arts industries and some competitors are larger and have substantially greater resources than the Company. Escalade believes that its long-term success depends on its ability to strengthen its relationship with existing customers, to attract new customers and to develop new products that satisfy the quality and price requirements of sporting goods and office and graphic arts customers.
LICENSES, TRADEMARKS AND BRAND NAMES
Indian and Harvard are licensed to use the Spalding trademark pursuant to licensing agreements entered into with Spalding in 1985. The Company pays royalties to Spalding for the use of the Spalding trademark in accordance with certain schedules set forth in the agreements. The licensing agreements further require that the Company pay Spalding certain minimum annual royalties from sales of Spalding branded goods and that the Company provide Spalding with periodic reports and maintain quality standards acceptable to Spalding. In 1995, royalties paid by the Company to Spalding were less than 1% of net sales. The Company believes that it currently satisfies all material terms of its agreements with Spalding. The licensing agreements with Spalding expire on September 30, 1997.
Escalade is the owner of several registered trademarks and brand names. For its sporting goods, the Company holds the Ping-Pong , and Harvard registered trademarks and utilizes the Indian, Marcy , Indian Archery and Indian Xi brand names. The Company permits limited uses of the Ping-Pong trademark by other manufacturers pursuant to various licensing agreements. The Company also owns the Premier and Sandmar registered trademarks for its office and graphic arts products, in addition to manufacturing such products under the Martin Yale brand name.
Seasonality
The backlog of unshipped orders by industry segment is shown below at the Company's 1995, 1994, and 1993 fiscal year end. All orders in backlog at year end are generally shipped during the following year. The backlog includes all orders received but not shipped. Escalade's sporting goods business is seasonal and, therefore, the backlog is subject to fluctuations. The increased sporting goods backlog in 1994 was due to a large order for dartboard cabinets to be shipped during the first quarter of 1995.
Years Ended December 30, December 31,
and December 25 1995 1994 1993
Orders received but not shipped
Sporting goods $3,128,200 $7,043,600 $1,875,300
Office and graphic arts
products 392,300 210,600 82,600
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EMPLOYEES
The Company employs between 535 and 700 employees, consisting of between 310 and 425 people at Indian's Evansville, Indiana facilities, between 100 and 150 at Harvard's Compton, California and Tijuana, Mexico facilities and approximately 125 employees at Martin Yale's Wabash, Indiana facilities. All hourly rated employees at Evansville are represented by the International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers AFL-CIO, whose contract expires April 27, 1997. All hourly rated employees at Compton are represented by the International Brotherhood of Teamsters whose contract expires on December 31, 1997.
Escalade believes that its employee relations are satisfactory.
SOURCES OF SUPPLIES
Raw materials for Escalade's various product lines consist of wood, particle board, slate, standard grades of steel, steel tubing, plastic vinyl, steel cables, cast iron weights, fiberglass and packaging. Escalade relies upon European suppliers for its requirement of billiard balls and slate utilized in the production of home pool tables and upon various Asian manufacturers for certain of its table tennis needs and other items. The Company also imports croquet sets, horseshoe sets, flying discs, bocce ball sets, weight sets and gloves for distribution to Escalade's customers.
The Company believes that these sources will continue to provide adequate supplies as needed. All other materials needed for the Company's various operations are available in adequate quantities from a variety of domestic and foreign sources.
ITEM 2 - PROPERTIES
The Company operates the following facilities:
LOCATION SIZE LEASED OR OWNED Evansville, Indiana 346,000 sq. ft. Owned and leased Compton, California manufacturing 102,000 sq. ft. Leased Compton, California warehouse 72,400 sq. ft. Leased Tijuana, Mexico 20,000 sq. ft. Owned Wabash, Indiana 141,000 sq. ft. Owned Swansea, United Kingdom 13,500 sq. ft. Owned |
The Company's Evansville facilities are, in part, subject to a mortgage. The Company leases its Compton manufacturing facilities at a rate of $29,600 per month through March 31, 1998 and has a five-year option to extend the lease. The Company leases its Compton warehouse building next door to the plant at a cost of $21,000 per month through March 31, 1998. The Company intends to vacate this building in 1996 and will negotiate a lease cancellation and has expensed its estimate of the lease cancellation penalties.
The Company's Wabash facilities are held subject to a mortgage financed by Economic Development Revenue Bonds. The 141,000 square foot facility is a pre-engineered metal building supported by structured steel and concrete block consisting of 21,000 square feet warehousing, 6,000 square feet office and 114,000 square feet manufacturing.
The Company purchased its Tijuana facilities for a cost of $450,000 in 1994.
The Company believes that its facilities are in excellent condition and suitable for their respective operations. The Evansville and Wabash sites also contain several undeveloped acres which could be utilized for expansion.
The Company believes that all of its facilities are in compliance with applicable environment regulations and is not subject to any proceeding by any federal, state or local authorities regarding such matter. The Company provides regular maintenance and service on its plants and machinery as required.
ITEM 3 - LEGAL PROCEEDINGS
The Company is involved in litigation arising in the normal course of its business. The Company does not believe that the disposition or ultimate of resolution of such claims or lawsuits will have a material adverse affect on the business or financial condition of the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Part II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded under the symbol "ESCA" on the Nasdaq National Market System. The following table sets forth, for the calendar periods indicated, the high and low bid prices of the Common Stock as reported by the Nasdaq National Market System:
Prices High Low 1995 First quarter ended March 25, 1995 $5.25 $4.25 Second quarter ended July 15, 1995 4.50 4.00 Third quarter ended October 7, 1995 5.25 4.00 Fourth quarter ended December 30, 1995 4.75 3.63 1994 First quarter ended March 19, 1994 9.13 7.00 Second quarter ended July 9, 1994 8.25 7.00 Third quarter ended October 1, 1994 7.50 5.50 Fourth quarter ended December 31, 1994 5.75 4.50 |
The closing market price on March 1, 1996 was $5.13 per share.
The Company paid no cash dividends during the last two fiscal years. The Company's existing bank indebtedness restricts the payment of cash dividends which would exceed 25% of consolidated net income for any fiscal year.
The Company intends to reinvest all of its earnings for use in its business and to finance future expansion. Accordingly, the Company does not anticipate paying cash dividends in the foreseeable future.
There were approximately 500 holders of record of the Company's Common Stock at March 1, 1996. The approximate number of stockholders, including those held by depository companies for certain beneficial owners, was 1,000.
On February 19, 1994, the Board of Directors declared a 15% stock dividend payable to stockholders of record on March 11, 1994, which was paid on March 31, 1994. The stock prices have been adjusted to reflect the 15% stock dividend.
ITEM 6 - SELECTED FINANCIAL DATA (In thousands, except per share
data)
December 30, December 31, December 25, December 26, December 28,
At and For Years Ended 1995 1994 1993(2) 1992 1991
Income Statement Data
Net sales
Sporting goods $73,858 $85,318 $80,397 $78,779 $77,598
Office and graphic
arts products 17,321 17,276 14,338 12,548 10,986
Total net sales 91,179 102,594 94,735 91,327 88,584
Net income (loss) 448 (2,403) 6,213 1,818 (443)
Weighted average shares 4,134 4,129 4,111 4,110 4,110
Per Share Data (1)
Net income (loss) $ .11 $ (.58) $ 1.51 $ .44 $ (.11)
Cash dividends 0 0 0 0 0
Balance Sheet Data
Working capital 17,069 16,837 22,289 20,920 10,078
Total assets 57,767 75,883 66,142 60,524 54,799
Short-term debt 16,732 31,215 16,640 13,715 21,511
Long-term debt 6,266 9,148 11,563 13,640 5,823
Total stockholders'
equity 23,338 22,889 25,163 18,939 17,121
(1) Earnings per common share are based on average shares
outstanding adjusted to reflect the Company's 15% stock dividend
declared on February 19, 1994. Dilutive effects of stock
options were not material in any year.
(2) Includes a cumulative effect adjustment of $3,089,893 relating
to the adoption of Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes.
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ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1995 Compared to 1994
In 1995, net sales decreased 11.1%, or $11,415,000, to $91,179,000 from $102,594,000 in 1994.
Sporting goods net sales decreased $11,460,000, or 13.4%, to $73,858,000 from $85,318,000. This decrease was in the fourth quarter and was due mainly to weak Christmas shipments in the retail segment.
Office and graphic arts machines and equipment net sales increased $45,000, or .3%, to $17,321,000 from $17,276,000. Graphic arts sales were down about 8.8% and office product sales were up about 1.5%.
Cost of sales of $73,433,000, as a percentage of net sales was 80.6% in 1995 as compared to $83,433,000, or 81.3%, in 1994. Sporting goods cost of sales, as a percentage of net sales was the same in both years, while office and graphic arts machines and equipment cost of sales was down .8% in 1995 from 1994. A 3% decrease in the Evansville cost of sales percentage was offset by a 7% increase in the cost of sales percentage at Compton, netting out to no change in sporting goods overall. The decrease in the office and graphic arts machines and equipment cost of sales was mainly in factory expense.
Selling, administrative and general expenses totaled $13,867,000 in 1995 as compared to $16,298,000 in 1994. As a percentage of net sales, they were 15.2% in 1995 as compared to 15.9% in 1994. This decrease was in sporting goods mainly and was due to lower sales promotion and advertising expenses and lower sales volume.
In the fourth quarter of 1994, a restructuring charge of $4,340,053 before taxes was recorded as a part of a plan to reduce staff and discontinue a certain product due to notification by a major customer that the product was being removed from its line and would not be ordered any more. This notification was received in December, 1994. In the second quarter of 1995, an additional charge of $1,040,000 was booked that related to the 1994 restructuring charge. This additional amount was for the discontinued product that was written down and was necessary because the product had to be marked down lower than originally projected to sell the inventory. There were no other material differences in the actual vs. estimated costs of the restructuring charge. The exit plan was completed in the fourth quarter of 1995 with the sale of the marked down discontinued product.
Interest expense of $2,268,000 in 1995 was up $148,000, or 7% over 1994's $2,120,000. This increase is due to higher average borrowing levels.
The income tax provision was $387,000. This is an effective tax rate of 46.4%. The difference between this and the actual tax rate is due to nondeductible foreign losses.
Net income for the year of $448,000 compares to a net loss of $2,403,000 in 1994. This is a change of $2,851,000. Sporting goods loss decreased $2,411,000 and office and graphic arts machines and equipment income increased $440,000.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
In 1994, net sales increased 8.3%, or $7,859,000, to $102,594,000 from $94,735,000 in 1993. The Company's 1994 fiscal year had 53 weeks as compared to 52 weeks in 1993.
Sporting goods net sales increased $4,921,000, or 6.1%, to $85,318,000 from $80,397,000. This increase was mainly due to increased volume with department store and premium accounts. There was an increase in volume of 16% in dartboard cabinets, fitness machines and game tables offset by a decrease in volume of 24% in archery and basketball.
Office and graphic arts machines and equipment net sales increased $2,938,000, or 20%, to $17,276,000 from $14,338,000. Total graphic arts sales were up 13% while U. S. office product sales were up 25% and export office sales were up 35%. These increases were due to increased volume and the new stamp affixer from the Data-Link acquisition.
Cost of sales, of $83,432,921, as a percentage of net sales, was 81.3% in 1994 as compared to $72,269,412, or 76.3%, in 1993. Sporting goods cost of sales, as a percentage of net sales was up 6.9% and office and graphic arts machines and equipment cost of sales was down 2%. The increase in the cost of sales of sporting goods was in new products whose costs were higher than originally estimated. These cost increases were in material and tooling. The decrease in cost of sales in office and graphics arts machines and equipment was in material costs.
Selling, administrative and general expenses totaled $16,297,865 in 1994 compared to $15,995,677 in 1993. As a percentage of net sales, they were 15.9% in 1994 and 16.9% in 1993. The decrease as a percentage of net sales was due to higher sales volume. The $302,188 increase in these expenses was in sales promotion and marketing development expenses.
During the fourth quarter of 1994, a restructuring charge of $4,340,053 before taxes was recorded in connection with various restructuring actions taken by the Company to strengthen its sporting goods segment. Product lines and products within those lines were reviewed for sales viability and profitability. This charge included writedowns associated with discontinued products of $2,807,414 for inventory; $802,100 for tooling; $360,000 for royalty minimums; and $370,539 for severance arrangements.
The goodwill set up as a part of the Data-Link acquisition was written off in the fourth quarter. This amounted to $399,000. The main reason for this write off was due to lower sales than projected of the Stamp E-Z affixer in 1994 and anticipated lower sales of this product in 1995 than originally projected. These reduced sales levels are the result of the emergence of a competing product copied after the Stamp E-Z affixer. This product was not in the market at the time of purchase. While the Data-Link product will still be marketed and sold, management determined that the goodwill has no future value.
Interest expense of $2,120,104 in 1994 was up $531,383, or 33.4%, over 1993's $1,588,721. This increase is due to higher short-term borrowing levels and higher interest rates in 1994.
The Company's benefit for income taxes for 1994 was $1,283,983. This is an effective tax benefit of 34.8%. The difference between this and the actual tax rate is due to nondeductible foreign losses and tax timing differences.
The 1994 net loss of $2,403,421 compares to net income before cumulative effect of accounting change of $3,123,243 in 1993. This reduction in net income of $5,526,664 is mainly due to the restructuring charges and goodwill writedowns with the balance attributable to less profitable operations, as previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES
The Company's net cash provided (used) by operating activities was
$18,666,358, ($5,697,082), and $4,397,477 in 1995, 1994 and 1993.
Inventory management provided $8,244,785 of cash in 1995 and used
$7,636,716 and $1,263,100 of cash in 1994 and 1993. The cash
provided in 1995 was from the sale of the excess inventory.
Accounts receivable provided $6,411,341 of cash in 1995 and used
$2,717,424 and $3,991,108 in 1994 and 1993. The decrease in year-end
receivables in 1995 was due to lower fourth quarter sales.
INVESTING ACTIVITIES
The Company's net cash used by investing activities was $1,048,336,
$6,095,344 and $5,792,420 in 1995, 1994 and 1993. The Company used
$1,142,922, $4,262,237 and $5,674,406 in 1995, 1994 and 1993 to
purchase property and equipment.
FINANCING ACTIVITIES
Net cash used by financing activities was $17,363,055 in 1995 and
net cash provided by financing activities was $12,304,396 and
$878,813 in 1994 and 1993. In 1995, the decrease in cash was
primarily attributed to the reduction of short-term debt by
$14,887,500 and long-term debt by $2,477,500.
The Company's working capital requirements are funded by cash flow from operations and a domestic short-term line of credit. The maximum amount that could be drawn under its domestic line of credit at year end was $28,000,000, of which $14,350,000 was used. The domestic line of credit has been paid down to $6,250,000 as of March 1, 1996.
EFFECT OF INFLATION
The Company cannot accurately determine the precise effects of
inflation; however, there were some increases in sales and costs
due to inflation in 1995. The Company attempts to pass on
increased costs and expenses through price increases when
necessary. The Company is working on reducing expense levels,
improving manufacturing technologies and redesigning products to
keep these costs under control.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by Item 8 are set forth in Part IV, Item 14.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Part III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 April 26, 1996 under the captions "Certain Beneficial Owners" and "Election of Directors" 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 April 26, 1996 under the
caption "Executive Compensation" and is incorporated herein by
reference, except that the information required by Items 402(k) and
(l) of Regulation S-K which appear within such caption under the
sub-headings "Compensation and Stock Option Committees" and
"Financial Performance" are 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.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 April 26, 1996 under the caption "Certain Beneficial Owners" and is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
Part IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Documents filed as a part of this report:
(1) FINANCIAL STATEMENTS
Independent Auditor's Report
Consolidated financial statements of Escalade,
Incorporated and subsidiaries:
Consolidated Balance Sheet-December 30, 1995
and December 31, 1994
Consolidated Statement of Income-fiscal years
ended December 30, 1995, December 31, 1994, and
December 25, 1993
Consolidated Statement of Stockholders' Equity-fiscal
years ended December 30, 1995, December 31, 1994 and
December 25, 1993
Consolidated Statement of Cash Flows-fiscal
years ended December 30, 1995, December 31, 1994
and December 25, 1993
Notes to consolidated financial statements.
(2) FINANCIAL STATEMENT SCHEDULES
Independent Auditor's Report on financial statement schedule
For the three-year period ended December 30, 1995:
Schedule II Valuation and qualifying accounts
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 By-Laws of Escalade, Incorporated (a)
4.1 Form of Escalade, Incorporated's common
stock certificate (a)
10.1 Licensing agreement between Spalding and
Evenflo Companies, Inc. and Indian
Industries, Inc. dated October 1, 1992 and
extension
letter dated May 25, 1995 (f)
10.3 Licensing agreement between Sweden Table
Tennis AB and Indian Industries, Inc.
dated January 1, 1995
10.4 Amendment to lease agreement dated April 1,
1983 among Irving J. Karp, Trustee of the
Karp 1977 Trust, Irving J. Karp, Trustee of
the Feldman 1976 Trust and Harvard Sports,
Inc. dated September 8, 1992 (f)
10.5 Lease agreement dated as of May 1, 1977
between City of Evansville and Indian
Industries, Inc. (a)
10.6 Addendum No. 1 to lease agreement (lease
agreement dated as of May 1, 1977) dated as
of June 1, 1981 between City of Evansville
and Indian Industries, Inc. (a)
(3) EXHIBITS (continued)
10.8 Federal trademark registration 283,766 for
Ping-Pong bats and rackets (a)
10.9 Federal trademark registration 283,767 for
Ping-Pong balls (a)
10.10 Federal trademark registration 294,408 for
Ping-Pong tables and parts (a)
10.11 Federal trademark registration 520,270 for
Ping-Pong game (a)
10.12 Federal trademark registration 1,003,289 for
Mr. Table Tennis table tennis equipment (a)
10.13 Federal trademark registration 1,187,832 for
Harvard table tennis equipment (a)
10.14 Federal trademark registration 1,442,274 for
Mini Court (a)
10.15 Federal trademark registration 1,292,167 for
Premier table tennis tables and accessories (a)
10.16 Federal trademark registration 1,456,647 for
Mini Pool (a)
10.17 Trademark Assignment--Federal trademark
registration 1,348,890 for Sandmar office
machines (b)
10.18 Agreement dated January 3, 1993 between Indian
Industries, Inc. and International Union of
Electronic, Electrical, Salaried, Machine and
Furniture Workers, AFL-CIO Local No. 848 (g)
10.19 Amendment to agreement dated April 1, 1991
between Harvard Sports, Inc. and Food,
Industrial and Beverage Warehouse, Driver and
Clerical Employees, Local 630 dated January
16, 1995 (i)
10.20 Lease Agreement dated January 25, 1989 between
Orbis International, S.A. DE C.V. and Harvard
Sports, Inc. (c)
10.21 Amendments to credit agreement dated June 5,
1990 between Escalade, Incorporated and Bank
One, Indianapolis, National Association dated
March 1, 1995, May 31, 1995 and July 15,
1995
10.30 Mortgage, security agreement, collateral
assignment of rents and fixture, filing dated
June 4, 1990 between Martin Yale Industries,
Inc. and Bank One, Indianapolis, National
Association (d)
10.31 Trust Indenture between the City of Wabash,
Indiana and The Citizens National Bank of
Evansville as Trustee dated May 1, 1990
relating to the Economic Development Revenue
Bonds, Series 1990 (Martin Yale Industries,
Inc. Project) (d)
10.32 Real Estate Sales Contract dated September 17,
1990 between Martin Yale Industries, Inc. and
Fritkin-Jones Design Group, Inc. (d)
10.33 Stock and Warrant Exchange Agreement dated
June 30, 1991 between Escalade and the
minority stockholders of Marcy (e)
10.34 Lease agreement dated April 1, 1993 between A.
C. Properties and Harvard Sports, Inc. (h)
21 Subsidiaries of the Registrant
23 Consent of Geo. S. Olive & Co.LLC
27 Financial Data Schedule
(4) EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.24 The Harvard Sports/Indian Industries, Inc.
401(k) Plan as amended and merged in 1993(h)
10.26 Martin Yale Industries, Inc. 401(k) Retirement
Plan as amended in 1993 (h)
10.27 Incentive Compensation Plan for Escalade,
Incorporated and its subsidiaries (a)
10.28 Escalade, Incorporated 1984 Incentive Stock
Option Plan (a)
10.29 Example of contributory deferred compensation
agreement between Escalade, Incorporated and
certain management employees allowing for deferral
of compensation (a)
(a) Incorporated by reference from the Company's Form S-2 Registration Statement, File No. 33-16279, as declared effective by the Securities and Exchange Commission on September 2, 1987.
(b) Incorporated by reference from the Company's 1988 Annual Report on Form 10-K
(c) Incorporated by reference from the Company's 1989 Annual Report on Form 10-K
(d) Incorporated by reference from the Company's 1990 Annual Report on Form 10-K
(e) Incorporated by reference from the Company's 1991 Second Quarter Report on Form 10-Q
(f) Incorporated by reference from the Company's 1991 Annual Report on Form 10-K
(g) Incorporated by reference from the Company's 1992 Annual Report on Form 10-K
(h) Incorporated by reference from the Company's 1993 Annual Report on Form 10-K
(i) Incorporated by reference from the Company's 1994 Annual Report on Form 10-K
(B) No reports on Form 8-K for the fourth quarter ended December 30, 1995 were required to be filed.
Independent Auditor's Report
To the Stockholders and Board of Directors
Escalade, Incorporated
Evansville, Indiana
We have audited the consolidated balance sheet of Escalade, Incorporated and subsidiaries as of December 30, 1995 and December 31, 1994 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Escalade, Incorporated and subsidiaries at December 30, 1995 and December 31, 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 30, 1995 in conformity with generally accepted accounting principles.
As discussed in the notes to consolidated financial statements, the Company changed its method of accounting for income taxes in 1993.
GEO. S. OLIVE & CO.LLC
Evansville, Indiana
February 9, 1996
Escalade, Incorporated and Subsidiaries
Consolidated Balance Sheet
December 30 and December 31 1995 1994
Assets
Current assets
Cash $ 1,246,668 $ 994,501
Receivables, less
allowances of $726,352 and
$777,195 25,285,014 31,871,914
Inventories 15,151,696 24,436,481
Prepaid expenses 266,770 258,462
Income tax refundable 275,000 398,909
Deferred income tax benefit 1,828,489 1,644,261
----------- ------------
Total current assets 44,053,637 59,604,528
Property, plant and equipment 11,223,763 13,709,966
Other assets 1,827,628 1,862,373
Deferred income tax benefit 662,326 705,699
----------- ------------
$57,767,354 $75,882,566
=========== ============
Liabilities and Stockholders' Equity
Current liabilities
Notes payable--bank $14,350,000 $29,237,500
Current portion of long-term debt 2,382,500 1,977,500
Trade accounts payable 2,369,637 3,585,944
Accrued liabilities 7,553,307 7,967,063
Federal income tax payable 329,072
----------- -----------
Total current liabilities 26,984,516 42,768,007
----------- -----------
Other liabilities
Long-term debt 6,265,500 9,148,000
Deferred compensation 1,178,863 1,077,762
----------- ----------
7,444,363 10,225,762
----------- ----------
Stockholders' equity
Preferred stock
Authorized 1,000,000 shares;
no par value, none issued
Common stock
Authorized 10,000,000 shares;
no par value Issued and
outstanding 4,133,954
and 4,133,361 shares for
1995 and 1994 17,572,397 17,570,452
Retained earnings 5,766,078 5,318,345
----------- ----------
23,338,475 22,888,797
----------- ----------
$57,767,354 $75,882,566
=========== ===========
See notes to consolidated financial statements.
|
Escalade, Incorporated and Subsidiaries
Consolidated Statement of Income
Years Ended December 30, December 31,
and December 25 1995 1994 1993
Net Sales $91,178,757 $102,594,116 $94,734,870
----------- ------------ -----------
Costs, Expenses and Other Income
Cost of products sold 73,443,333 83,432,921 72,269,412
Selling, administrative and
general expenses 13,867,421 16,297,865 15,995,677
Restructuring charge 1,040,000 4,340,053
Write-off of goodwill 399,000
Interest 2,267,620 2,120,104 1,588,721
Other income (274,483) (308,423) (233,949)
----------- ------------ -----------
90,343,891 106,281,520 89,619,861
----------- ------------ -----------
Income (Loss) Before Income Taxes
and Cumulative Effect of a Change
in Accounting Method 834,866 (3,687,404) 5,115,009
Provision (Benefit) for Income Taxes 387,133 (1,283,983) 1,991,766
----------- ------------ -----------
Income (Loss) Before Cumulative
Effect of a Change in Accounting
Method 447,733 (2,403,421) 3,123,243
Cumulative Effect of Change in
Accounting for Income Taxes 3,089,893
----------- ------------ -----------
Net Income (Loss) $ 447,733 $ (2,403,421) $ 6,213,136
----------- ------------ -----------
Per Share Data
Income (loss) before cumulative
effect of a change in accounting
method $.11 $(.58) $.76
Cumulative effect of change in
accounting for income taxes ----------- ------------ ----------- .75
Net income (loss) per share $.11 $(.58) $1.51
=========== ============ ===========
Weighted average shares outstanding 4,133,566 4,128,865 4,110,611
See notes to consolidated financial statements.
|
Escalade, Incorporated And Subsidiaries
Consolidated Statement of Stockholders' Equity
Common Stock Retained
Shares Amount Earnings
-------------------------------------------
Balances at December 26, 1992 4,109,734 $11,796,628 $7,142,245
Exercise of stock options 2,127 11,313
Net income 6,213,136
Common stock dividend 5,631,454 (5,631,454)
---------- ----------- ----------
Balances at December 25, 1993 4,111,861 17,439,395 7,723,927
Exercise of stock options 21,500 131,057
Net loss (2,403,421)
Cash paid for fractional shares (2,161)
---------- ----------- ----------
Balances at December 31, 1994 4,133,361 17,570,452 5,318,345
Exercise of stock options 593 1,945
Net income 447,733
---------- ------------ ----------
Balances at December 30, 1995 4,133,954 $17,572,397 $5,766,078
========== ============= ==========
See notes to consolidated financial statements.
|
Escalade, Incorporated And Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 30, December 31
and December 25 1995 1994 1993
- ------------------------------------------------------------------------------------------
Operating Activities
Net income (loss) $ 447,733 $(2,403,421) $6,213,136
Items not affecting net cash
provided (used) by
operating activities
Depreciation and amortization 3,618,194 4,436,609 3,204,703
Provision for losses on accounts
receivable 175,559 181,732 354,403
Provision for deferred income
tax (140,855) (1,251,833) (1,098,127)
Provision for deferred
compensation 98,101 93,133 79,256
Provision for restructuring
charges 1,040,000 4,340,053
Gain on disposals of equipment (23,293) (699) (2,730)
Amortization of prepaid loan
fees 8,502 8,502 8,502
Write-off of goodwill 399,000
Change in cash surrender value
(net of loans and premiums) (39,407) (31,298) (8,075)
Changes in
Accounts receivable 6,411,341 (2,717,424) (3,991,108)
Income tax refundable 123,909 (142,631) 2,558,165
Inventories 8,244,785 (7,636,716) (1,263,100)
Prepaids (8,308) (57,434) (52,334)
Other assets 9,289 83,509 (51,305)
Income tax payable 329,072
Accounts payable and accrued
expenses (1,628,264) (998,164) (1,553,909)
---------- ---------- ----------
Net cash provided (used) by
operating activities 18,666,358 (5,697,082) 4,397,477
---------- ---------- ----------
Investing Activities
Premiums paid for life insurance (131,600) (35,000) (85,800)
Proceeds from non-trade notes
receivable 21,630
Purchase of property and equipment (1,144,922) (4,262,437) (5,674,406)
Proceeds from sale of property and
equipment 34,425 10,000 13,700
Purchase of long-term investments (99,256) (917,407) (73,065)
Purchase of certain Data-Link
Corporation assets (900,000)
Proceeds from sale of long-term
investments 290,217 9,500 5,521
---------- ---------- ----------
Net cash used by investing
activities (1,051,136) (6,095,344) (5,792,420)
---------- ---------- ----------
Financing Activities
Net increase (decrease) in notes
payable--bank $(14,887,500) $14,675,000 $2,462,500
Proceeds from exercise of stock
options 1,945 131,057 11,313
Cash paid for fractional shares (2,161)
Proceeds from loan against life
insurance 15,000 20,000
Reduction of long-term debt (2,477,500) (2,514,500) (1,615,000)
------------ ------------ -----------
Net cash provided (used) by
financing activities (17,363,055) 12,304,396 878,813
------------ ------------ -----------
Increase (Decrease) in Cash 252,167 511,970 (516,130)
Cash, Beginning of Year 994,501 482,531 998,661
------------ ------------ ------------
Cash, End of Year $ 1,246,668 $ 994,501 $ 482,531
============ ============ ============
Supplemental Cash Flows Information
Interest paid $ 2,332,038 $ 1,864,327 $ 1,503,958
Income taxes paid (refunded), net (413,773) 891,607 (2,558,165)
Fixed assets in accounts payable 10,000 11,799 72,137
See notes to consolidated financial statements.
|
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Escalade is primarily engaged in the manufacture and sale of sporting goods and office and graphic arts products. The Company is located in Evansville, Indiana and has four manufacturing facilities, one in Evansville, Indiana, Compton, California, Tijuana, Mexico, and Wabash, Indiana. The Company sells products to customers throughout the United States and provides foreign shipments of sporting goods through a foreign sales corporation. The consolidated financial statements include the accounts of all significant subsidiaries. Intercompany transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Inventories are stated at the lower of cost or market. Cost is based on the first-in, first-out method.
The Company has long-term marketable equity securities, which are included in other assets on the consolidated balance sheet and are recorded at fair value. The effects of Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, is not material to the financial statements.
Land, buildings and equipment are recorded at cost. Contracts under which certain facilities are leased have been treated as purchases. Provisions for depreciation and amortization are computed by the straight-line and double declining balance methods.
The estimated useful lives used in computing depreciation are as follows:
Years
Buildings 20 to 30
Leasehold improvements 4 to 8
Machinery and equipment 5 to 15
Tooling, dies and molds 2 to 4
|
Maintenance and repairs are expensed and major renewals and improvements are capitalized. The cost of assets sold or otherwise disposed of, and the related allowances for depreciation, are eliminated from the accounts in the year of disposal and the resulting gains or losses are included in operations.
Earnings per common share information is based on average shares outstanding adjusted for stock dividends. Dilutive effects of stock options and warrants were not material in any year.
The Company's fiscal year ends on the Saturday nearest December 31, within the calendar year.
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
The Company has an employee profit sharing salary reduction plan, pursuant to the provisions of Section 401(k) of the Internal Revenue Code, for non-union employees. It is the Company's policy to fund costs accrued on a current basis.
Deferred federal income taxes applicable to the difference between financial statement income and taxable income and the bases of assets and liabilities for financial statement and tax purposes are provided in the financial statements.
The Company paid no cash dividends during the last three fiscal years. The Company's existing bank indebtedness restricts the payment of cash dividends which would exceed 25% of consolidated net income for any fiscal year.
On February 19, 1994, the Board of Directors of the Company declared a 15% stock dividend to stockholders of record on March 11, 1994. The dividend was paid March 31, 1994. All share and per share data was adjusted to reflect the stock dividend.
The Company expenses advertising costs as incurred. Advertising costs were $3,874,981, $5,411,800 and $4,491,089 for 1995, 1994 and 1993.
Research and development costs are charged to income as incurred. The research and development costs incurred during 1995, 1994 and 1993 were $1,700,000, $2,300,000 and $1,500,000, respectively.
From time to time during the year, the Company's cash accounts exceeded federally insured limits.
INVENTORIES
December 30 and December 31 1995 1994
Finished products $ 5,323,465 $13,117,361
Work in process 3,135,909 3,723,052
Raw materials and supplies 6,692,322 7,596,068
----------- -----------
$15,151,696 $24,436,481
=========== ===========
Escalade, Incorporated and Subsidiaries
|
Notes to Consolidated Financial Statements
PROPERTY, PLANT AND EQUIPMENT
December 30 and December 31 1995 1994
Land $ 340,210 $ 340,210
Buildings and leasehold improvements 9,672,666 9,862,687
Machinery and equipment 23,051,491 27,321,979
------------ ----------
33,064,367 37,524,876
Accumulated depreciation and amortization (21,840,604) (23,814,910)
------------ ----------
$ 11,223,763 $13,709,966
============ ===========
LONG-TERM DEBT
December 30 and December 31 1995 1994
Mortgage payable, due in annual installments
varying from $307,500 in 1996 to $340,500
in 1997, 88% of prime (current prime 8 1/4%),
due 1997, secured by real estate $ 648,000 $ 925,500
Mortgage payable, due in annual installments
varying from $200,000 in 1996 to $500,000
in 2005, interest varies from 7.55% to 7.95%,
due 2005, secured by plant facility,
machinery and equipment, and letter of credit 3,500,000 3,700,000
Term loan, due in quarterly installments
varying from $625,000 in 1996 to $1,000,000
in 1997, interest varies from prime plus .75%
or London Interbank Offered Rate (LIBOR)
plus 2.50%, unsecured 4,500,000 6,500,000
----------- -----------
8,648,000 11,125,500
Portion classified as current (2,382,500) (1,977,500)
------------ ------------
$ 6,265,500 $ 9,148,000
============ ============
|
Maturities of long-term indebtedness for the ensuing five years are: 1996, $2,382,500; 1997, $3,265,500; 1998, $300,000; 1999, $300,000; 2000, $300,000 and thereafter, $2,100,000.
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
The mortgages payable and term loan agreements contain certain restrictive covenants, of which the more significant include maintenance of specified net worth and working capital, restrictions on capital expenditures and dividends, and maintenance of specified ranges of current and leverage ratios. At December 30, 1995, the Company was in violation of the net worth covenant; however, the lender waived compliance with this covenant.
STOCK OPTIONS AND WARRANTS
A total of 227,700 common shares were initially reserved for issuance of stock options under the 1984 Stock Option Plan. At the Company's 1991 annual meeting, the stockholders approved an amendment to the Incentive Stock Option Plan increasing the total number of common shares reserved for issuance of stock options to 345,000. Total options granted under this plan are 331,205 and the date for granting options expired on October 26, 1994.
Stock option transactions (adjusted for the 1994 15% stock dividend) are summarized as follows:
1995 1994 1993
--------------------------------------------------------------
Option Option Option
Shares Price Shares Price Shares Price
--------------------------------------------------------------
Outstanding at
beginning
of year 204,211 $3.26 to 162,358 $3.26 to 139,415 $3.26 to
6.93 8.59
Issued during year 71,374 $5.50 to
7.25 81,650 6.30 to
6.93
Canceled or expired 7,037 (8,021) (56,580)
Exercised during year 593 $3.26 (21,500) $3.26 to $3.26 to
6.30 (2,127) $6.72
---------------------------------------------------------------
Outstanding at end of
year $3.26 to $3.26 to $3.26 to
196,581 7.25 204,211 $7.25 162,358 6.93
======= ======= =======
Exercisable at end
of year 92,925 45,928 33,672
======= ======= =======
|
The options granted in 1993 and 1994 are exercisable at the rate of 25% over each of the four years beginning in 1994 and 1995.
In connection with the Company's 1987 public offering of its common stock, the Company sold to Oppenheimer & Co., Inc., the representative of the underwriters for such offering, warrants to purchase 75,900 shares of common stock for $.85 per warrant, or an aggregate of $65,000. Each warrant gives the holder the right to buy one share of the Company's common stock at a price equal to $12.33. Each warrant became exercisable on September 2, 1988 and the initial termination date of September 1, 1992 was extended by three years to September 1, 1995. These warrants expired during 1995.
To acquire all of the common stock of Marcy Fitness Products, Inc., the Company exchanged 272,113 Escalade warrants with an exercise price of $9.13 per share. The warrants are exercisable until August 19, 1999. These warrants are outstanding at December 30,
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
OPERATING LEASES
The Company leases manufacturing, warehousing and office space at three locations. The Company's Evansville facilities are held subject to a mortgage. The Company leases its Compton facilities for $29,600 per month from October 1, 1990 through March 31, 1998. The Company has a five-year option to extend the lease. On April 1, 1993, the Company leased a new warehouse facility adjacent to its Compton facilities for $21,000 per month through March 31, 1998. The Company has a five year option to extend this lease. The Company intends to vacate this warehouse facility in 1996 and will negotiate a lease cancellation.
At December 30, 1995, the minimum rental payments under noncancelable leases with terms of more than one year are as follows:
Years Ending Amount
- --------------------------------------------------------------------
1996 $ 636,192
1997 632,723
1998 152,587
----------
$1,421,502
==========
|
The following schedule shows the composition of total rental expense for operating leases except those with terms of a month or less:
1995 1994 1993
--------------------------------------
Rentals $638,670 $656,670 $663,544
======================================
|
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
INCOME TAXES
Provision for income taxes consists of the following:
Years Ended December 30, December 31,
and December 25 1995 1994 1993
- --------------------------------------------------------------------------------
Current
Federal $329,072 $ 132,240
State 198,916 (164,390)
---------------------------
527,988 (32,150)
---------------------------
Deferred
Federal (85,548) (1,070,217) $1,591,255
State (55,307) (181,616) 400,511
------------------------------------------
(140,855) (1,251,833) 1,991,766
------------------------------------------
$387,133 $(1,283,983) $1,991,766
==========================================
|
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:
Years Ended December 30, December 31,
and December 25 1995 1994 1993
- -----------------------------------------------------------------------------------
Income tax at statutory rate $283,854 $(1,253,717) $1,739,103
Increase (decrease) in income tax
resulting from
Recurring permanent differences
(goodwill amortization, dividend
exclusion, and non-deductible
officers' life insurance expense) (5,522) 10,196 7,595
State tax expense (benefit)--
net of federal effect 94,782 (228,364) 264,337
Benefit of foreign subsidiary
loss not recognized 138,846 76,373 19,886
Other (124,827) 111,529 (39,155)
-------------------------------------------
Provision (benefit) for income
taxes recorded $387,133 $(1,283,983) $1,991,766
===========================================
|
The Company had alternative minimum tax credit carryforwards in the amount of $362,713 at December 30, 1995. Such credits do not have expiration dates.
The $834,866 income before income taxes for the year ended December 30, 1995 was comprised of $408,370 foreign losses and $1,243,236 domestic income. The $3,687,404 loss before income taxes for the year ended December 31, 1994 was comprised of $224,626 foreign losses and $3,462,778 domestic losses.
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
In 1993, the Company adopted SFAS No. 109. The change required by SFAS No. 109 resulted in the recording of a deferred tax asset of $3,089,893 in the first quarter of 1993.
At December 30, 1995 and December 31, 1994, a cumulative deferred tax asset of $2,490,815 and $2,349,960 is included in current and other assets.
The components of the net deferred tax asset were as follows:
December 30 and December 31 1995 1994
- -----------------------------------------------------------------------
Depreciation $ 78,654 $ 32,534
Deferred compensation 447,662 473,676
Valuation reserves 851,968 774,001
Net operating loss carryover 272,823
Alternative minimum tax
credit carryover 362,713 220,594
Differences in accounting
for royalties 88,390 144,000
Differences in accounting
for goodwill 135,846 148,960
Differences in accounting
for employee benefits 234,877 283,372
Differences in accounting
for lease expense 182,672
Differences in accounting
for professional fees 108,033
------------------------------------
$ 2,490,815 $2,349,960
====================================
|
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 non-union 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 $60,940, $111,808 and $343,563 for 1995, 1994 and 1993.
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
SEGMENT INFORMATION AND CONCENTRATIONS
Years Ended December 30, December 31,
and December 25 1995 1994 1993
(In Thousands)
- -----------------------------------------------------------------------------------------
Sales to unaffiliated customers
Sporting goods $73,858 $ 85,318 $80,397
Office and graphic arts products 17,321 17,276 14,338
----------------------------------------------
Total consolidated $91,179 $102,594 $94,735
==============================================
Operating profit (loss)
Sporting goods $ (262) $ (4,303) $ 4,623
Office and graphic arts products 3,363 2,872 2,105
Corporate (273) (445) (258)
-----------------------------------------------
Total consolidated 2,828 (1,876) 6,470
Consolidated other income 274 309 234
-----------------------------------------------
3,102 (1,567) 6,704
Consolidated interest expense 2,267 2,120 1,589
-----------------------------------------------
Consolidated income (loss) from
operations before income taxes $ 835 $ (3,687) $ 5,115
===============================================
Identifiable assets
Sporting goods $43,122 $61,475 $55,108
Office and graphic
arts products 10,317 10,039 9,072
Corporate 4,328 4,369 1,962
-----------------------------------------------
Total assets $57,767 $75,883 $66,142
===============================================
Depreciation and
amortization
charged to operations
Sporting goods $ 2,886 $ 3,827 $ 2,625
Office and graphic
arts products 732 610 580
-----------------------------------------------
Total consolidated $ 3,618 $ 4,437 $ 3,205
===============================================
Capital expenditures
Sporting goods $ 617 $ 3,750 $ 5,324
Office and graphic
arts products 526 452 361
-----------------------------------------------
$ 1,143 $ 4,202 $ 5,685
===============================================
|
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
The Company operates principally in two industries, sporting goods and office and graphic arts products. The Company sells its products primarily to retailers located throughout the United States. Operations in the sporting goods industry consist of production and sale of table tennis tables and accessories, archery equipment, home pool tables and accessories, combination bumper pool and card tables, game tables, basketball backboards, goals and poles, darts, dart cabinets, volleyball and badminton equipment, junior sporting goods including Mini Ping Pong, Mini Pool , Mini Court basketball and Shot Clock basketball and home fitness machines, weight benches, cast iron weight sets, and other home fitness accessories. The Company has a licensing agreement with Spalding to manufacture and distribute basketball backboards, goals and poles; volleyball and badminton sets, croquet, horseshoe, tether ball, bocce ball, flying discs, indoor darts, table tennis sets and pool accessories under the Spalding brand name. Operations in the office and graphic arts products industry consist of production and sale of paper trimmers, paper folding machines, paper drills, collators, decollators, bursting machines, letter openers, automated paper joggers, electric staplers, checksigners, stamp affixers, paper shredders, bindery carts, platemakers, sinks, light tables, cameras and related accessories.
Operating profit is total revenue less operating expenses. In computing operating profit neither interest expense nor income taxes have been deducted.
Identifiable assets are principally those assets used in each industry. Corporate assets are principally deferred taxes, marketable equity securities and the cash surrender value of life insurance.
In 1995, approximately 42% of the sporting goods were sold to Sears, Roebuck & Co. (34% of consolidated sales). In 1994 and 1993, the percentages were 32% (27% consolidated) and 23% (20% consolidated). At December 30, 1995, accounts receivable included $10,439,845 due from Sears, Roebuck & Co.
During 1994, the Company announced that it intended to distribute 100% of the stock of its wholly owned subsidiary, Martin Yale Industries, Inc., to its stockholders. The Company's Board of Directors will discuss this distribution and other ways of increasing stockholder value in future meetings.
Approximately 44% of the Company's labor force is covered by collective bargaining agreements. Management acknowledges that there usually will be differences between Company offers and union demands during negotiations. However, management has no reason to expect such differences to result in protracted conflict. The current contracts all expire in 1997.
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
CERTAIN SIGNIFICANT ESTIMATES
Management's estimates that influence the financial statements are normally based on knowledge and experience about past and current events and assumptions about future events. The following estimates affecting the financial statements are particularly sensitive because of their significance, and it is at least reasonably possible that a change in these estimates will occur in the near term:
Product warranty reserves based on an analysis of customers' product return histories, current status, sales volume and management's expectations from new products introduced into the market.
Customer allowance reserves based on agreements for customer purchase rebates and shared advertising, and prior year's shipments.
Inventory valuation reserves based on estimates of costs of inventory amounts overstocked or obsolete in excess of realizable value.
ADDITIONAL INFORMATION
December 30 and December 31 1995 1994
- ----------------------------------------------------------------------
Accrued Liabilities
Employees' compensation $1,031,435 $1,569,859
Payroll taxes and taxes withheld
from employees' compensation 167,499 280,238
Taxes other than taxes on income 460,066 229,915
Accrued interest 182,362 291,933
Customer volume discounts payable 1,522,000 2,131,852
Other accrued items 4,189,945 3,463,266
---------------------------
$7,553,307 $7,967,063
===========================
Long-Term Marketable Equity Securities
(included in other assets) $ 517,493 $ 445,497
===========================
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Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
LINE OF CREDIT
The Company has available an unsecured line of credit for short-term borrowings. The line-of-credit arrangement is based upon a written agreement and can be withdrawn at the banks' option. At December 30, 1995, the line of credit for short-term borrowings aggregated $28,000,000, of which $14,350,000 was borrowed. The interest rate on the line of credit is at the Bank One Indianapolis, N.A. prime rate plus .50%. A LIBOR option is also available to use for the interest rate. This line of credit is subject to the same restrictive covenants that are as discussed in the long-term debt footnote to the consolidated financial statements.
DEFERRED COMPENSATION PLAN
In October, 1985, the Board of Directors approved the adoption of a Contributory Deferred Compensation Plan pursuant to which some recipients of incentive compensation could elect to defer receipt thereof. For each dollar of deferred compensation, the Company provided a 75% matching amount. Amounts deferred earn interest at the rate of 9%. Such amounts are not intended to be recognized for tax purposes until receipt. All deferrals allowed under this plan have been made. Participants have no vested rights in deferred amounts credited to their accounts and are general creditors of the Company until such amounts are actually paid.
COMMITMENTS AND CONTINGENCIES
At December 30, 1995, standby letters of credit aggregated $4,000,000, of which the Company was obligated in the amount of $769,076 relating to the purchase of certain raw materials and finished goods from suppliers.
Additionally, the Company has obtained a letter of credit for the benefit of the mortgage holders. At December 30, 1995, the balance of the letter of credit was $3,649,479. It is to be used in the event of a default in either interest or principal payments.
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.
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
RESTRUCTURING CHARGE
During the fourth quarter of 1994, a restructuring charge of $4,340,053 before taxes was recorded in connection with various restructuring actions taken by the Company to strengthen its sporting goods segment. Product lines and products within those lines were reviewed for sales viability and profitability. This charge included writedowns associated with discontinued products of $2,807,414 for inventory; $802,100 for tooling; $360,000 for royalty minimums; and $370,539 for severance arrangements.
The exit plan for this restructuring charge was completed in the fourth quarter of 1995. In the second quarter of 1995, an additional $1,040,000 restructuring charge was taken as a part of the 1994 restructuring charge. This additional amount, related to the discontinued product writedown, was the result of larger than anticipated markdowns to sell this inventory. There were no other material differences in the actual vs. estimated costs of the exit plan. The exit plan was completed in the fourth quarter of 1995 with the sale of the marked down discontinued product.
SUMMARY OF QUARTERLY RESULTS
(In Thousands, Except Per Share Data)
(Unaudited)
1995 March 25 July 15 October 7 December 30
- ------------------------------------------------------------------------------------
Net sales $18,110 $19,160 $22,857 $31,052
Gross profit 3,993 3,459 4,805 5,479
Net income (loss) (41) (1,418) 589 1,318
Earnings (loss) per
share (.01) (.34) .14 .32
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1994 March 19 July 9 October 1 December 31 - ------------------------------------------------------------------------------------ Net sales $14,200 $19,340 $25,395 $43,659 Gross profit 2,612 3,606 5,530 7,413 Net income (loss) (677) (1,030) 657 (1,353) Earnings (loss) per share (.16) (.25) .16 (.33) |
ACQUISITIONS
ACQUISITION OF SWEDEN TABLE TENNIS AB
On February 2, 1994, the Company, along with the Bandstigen Family
and AB Traction, purchased Sweden Table Tennis AB. The Bandstigen
Family of Sweden has been actively involved with table tennis
internationally since the late 1960's. AB Traction is a major
Swedish venture-capital company. Sweden Table Tennis AB
manufactures and distributes products under the Stiga and Banda
brand names. These products are sold in 75 countries throughout
the world. Sweden Table Tennis AB has offices and warehousing in
Eskilstuna, Sweden and a manufacturing plant in Tranas, Sweden.
Escalade is the North American distributor of Stiga brand products
and is the world's only licensed manufacturer of Stiga table tennis
tables.
Escalade, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
Escalade owns 37.5%, the Bandstigen Family owns 37.5% and AB Traction owns 25% of Sweden Table Tennis AB. The Company made an equity investment of 675,000 SEK and a loan of 3,000,000 SEK ($85,357 and $379,363 in U. S. dollars). The loan has an interest rate of 12.75%. Interest on the loan was paid through October 31, 1995. The investment in Sweden Table Tennis AB by all the principals was switched to Valhalla and Sweden Table Tennis is now owned by Valhalla, which is owned by the same principals in the same percentages.
ACQUISITION OF CREATUM AB (NOW VALHALLA FASTIGHETS AB) On June 20, 1994, the Company, along with the Bandstigen Family, each purchased 37.5% of Creatum AB from AB Traction. Creatum AB owns the real estate in Eskilstuna, Sweden where Sweden Table Tennis AB has its offices and warehousing. Creatum AB leases these facilities to Sweden Table Tennis AB. The Company made an equity investment of 91,500 SEK and a loan of 2,062,000 SEK ($11,693 and $262,908 in U. S. dollars). The loan had an interest rate of 12.50% and was paid in 1995. The name was changed in 1995 to Valhalla Fastighets AB.
ACQUISITION OF PACIFIC WORLD TRADE, INC.
On June 7, 1994, the Company acquired a 10% ownership interest in
Pacific World Trade, Inc. (PWT). PWT is an Indiana based company
and will provide Escalade with two primary services, including the
management of the purchasing and supply and sales and distribution
functions in Asia. The 10% equity investment totalled $142,500.
Acquisition of Certain Data-Link Corporation Assets In July, 1994, Martin Yale Industries, Inc., a wholly-owned subsidiary of the Company, acquired certain assets of Data-Link Corporation (Data-Link), which was a manufacturer of certain stamp affixing products. The purchase price was $900,000, and is allocated as follows:
Inventories $150,000
Equipment 351,000
Goodwill 399,000
---------
$900,000
=========
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The combination was accounted for by using the purchase method. The consolidated statement of income includes the results of operations from the acquired division from the date acquired. Historical results of operations prior to acquisition for the assets acquired are not available and, therefore, no historical data has been presented.
The remaining goodwill set up as a part of the Data-Link acquisition was written off in the fourth quarter. This amounted to $399,000. The main reason for this write off was due to lower sales than projected in 1994 and anticipated lower sales in 1995 than originally projected. These reduced sales levels are the result of the emergence of a competing product copied after the Stamp E-Z affixer. This product was not on the market at the time of purchase. While the Data-Link product will still be marketed and sold, management determined that the goodwill has no future value. Sales are only one-half of original expectations.
Independent Auditor's Report
Stockholders and Board of Directors
Escalade, Incorporated
Evansville, Indiana
We have audited the consolidated financial statements of Escalade, Incorporated as of December 30, 1995 and December 31, 1994 and for each of the three years in the period ended December 30, 1995 and have issued our report thereon dated February 9, 1996; such consolidated financial statements and report are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedules of Escalade, Incorporated listed in Item 14. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
GEO. S. OLIVE & CO. LLC
Evansville, Indiana
February 9, 1996
Escalade, Incorporated and Subsidiaries
Schedule II Valuation and Qualifying Accounts
Col. A Col. B Col. C Col. D Col. E
- ------------------------------------------------------------------------------------------------------------------
Additions
----------
Charged
Balance at to Other Balance
Beginning Charged to Costs Accounts Deductions at End
Description of Period and Expenses Describe Describe (2) of Period
- ------------------------------------------------------------------------------------------------------------------
Allowance for doubtful
accounts and discounts (1)
Fiscal year ended December 30, 1995 $777,195 $175,559 $226,402 $726,352
Fiscal year ended December 31, 1994 650,111 181,732 54,648 777,195
Fiscal year ended December 25, 1993 630,874 354,403 335,166 650,111
(1) Deducted from related assets
(2) Accounts charged off, less recoveries
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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: C. W. BILL REED
____________________________________ March 15, 1996
C. W. "Bill" Reed
President and Chief Operating 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.
Chairman and Director
ROBERT E. GRIFFIN (Principal Executive
___________________ Officer) March 15, 1996
Robert E. Griffin
Secretary and Treasurer
JOHN R. WILSON (Principal Financial
___________________ Officer) March 15, 1996
John R. Wilson
BLAINE E. MATTHEWS JR.
____________________ Director March 15, 1996
Blaine E. Matthews, Jr.
A. GRAVES WILLIAMS, JR.
___________________ Director March 15, 1996
A. Graves Williams, Jr.
GERALD J. FOX
___________________ Director March 15, 1996
Gerald J. Fox
KEITH P. WILLIAMS
___________________ Director March 15, 1996
Keith P. Williams
YALE BLANC
___________________ Director March 15, 1996
Yale Blanc
ROBERT D. ORR
____________________ Director March 15, 1996
Robert D. Orr
Exhibit 21
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Escalade, Incorporated and Subsidiaries
List of Subsidiaries at December 30, 1995
State or Other Percent of Voting
Jurisdiction of Securities Owned
Parent Incorporation by Parent
- --------------------------------------------------------------------------
Escalade, Incorporated Indiana
Subsidiaries
Indian Industries, Inc. (1) Indiana 100%
Martin Yale Industries, Inc. (1) Indiana 100%
Harvard Sports, Inc. (1) California 100%
Escalade, International Limited (1) United Kingdom 100%
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(1) Each subsidiary company so designated has been included in Consolidated Financial Statements for all periods following its acquisition. See Notes to Consolidated Financial Statements.
Exhibit 23
Independent Auditor's Consent
We consent to the incorporation by reference in Registration Statement No. 33-16279 of Escalade, Incorporated on Form S-8 of our report dated February 9, 1996, appearing in this Annual Report on Form 10-K of Escalade, Incorporated for the year ended December 30, 1995.
Evansville, Indiana
March 18, 1996
Exhibit 10.1
May 25, 1995
Mr. Daniel A. Messmer
INDIAN INDUSTRIES, INC.
817 Maxwell Avenue
Evansville, Indiana 47711
Reference: License Extension
Dear Dan:
This will acknowledge receipt of your letter of May 18, 1995 whereby Indian is exercising their right to extend the current Spalding/Indian license agreement until September 30, 1997 and Spalding is agreement to such extension.
We look forward to continued growth with Indian Industries over the two year renewal period.
Very truly yours,
WILLIAM C. MULDOON
Manager
Licensing/Contract Administration
cc: Bob Adikes - Tampa Legal
Al Bender
Ralph Carlson
Exhibit 10.21
EIGHTH AMENDMENT TO CREDIT AGREEMENT
ESCALADE, INCORPORATED, an Indiana corporation (the "Company") and BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION, a national banking association (the "Bank"), being parties to that certain Credit Agreement dated June 5, 1990, as amended (collectively, the "Agreement"), hereby agree to further amend the Agreement by this Eights Amendment to Credit Agreement (this "Eighth Amendment"), on the terms and subject to the conditions set forth as follows:
1. DEFINITIONS.
a. Terms used in this Eighth Amendment with their initial
letter capitalized and which are not defined herein shall have the meanings
ascribed to them in the Agreement.
b. Subsection vv. Of Section 1 of the Agreement is amended and restated in its entirety, to read as follows:
vv. Applicable margin. "Applicable Margin" means that number of percentage points to be taken into account in determining the per annum rate at which interest will accrue on the Loans, determined in accordance with the following table:
Applicable Margin
Loan Prime-based Rate LIBOR-based Rate
Revolving Loan 0.50 2.00
Term Loan 0.75 2.50
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and means that number of percentage points to be taken in account in determining the per annum Commission payable with respect to Standby Letters of Credit and in determining the Negotiation Fee and the Sight Draft Fee payable with respect to the Commercial Letters of Credit, determined in accordance with the following table:
Letter Applicable Margin of Credit Commission Negotiation Fee Sight Draft Fee Standby 1.75 N/A N/A Commercial N/A .25 .25 |
c. The following new subsection is added to Section 1 of the Agreement, reading as follows:
kkk. Eighth Amendment. "Eighth Amendment" means that agreement entitled "Eighth Amendment to Credit Agreement" dated as of March 1, 1995, entered into by and between the Company and the Bank for the purpose of amending this Agreement.
2. AFFIRMATIVE COVENANTS. SUBSECTION (i), (ii) and (iii) of
Section 5.g of the Agreement are hereby amended and restated in each of
their respective entireties, so that hereafter they will read,
respectively, as follows:
(i) Tangible Net Worth. The Company shall maintain its Tangible Net Worth, determined on a consolidated basis, at levels not less than those shown in the following table during the periods indicated:
Period Tangible Net Worth
at March 25, 1995 $22,450,000.00
at March 26, 1995, and until
October 7, 1995 $21,500,000.00
at October 7, 1995, and until
fiscal year-end 1995 $22,500,000.00
at fiscal year-end 1995 $25,250,000.00
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(ii) Ratio of Debt to Tangible Net Worth. The Company shall maintain the ratio of its total liabilities to its Tangible Net Worth, all determined on a consolidated basis, at levels not greater than those shown in the following table during the periods indicated:
Period Ratio
from the dated of the Eighth
Amendment and until
October 7, 1995 2.00 to 1.00
at October 7, 1995, and until
fiscal year-end 1995 2.25 to 1.0
at fiscal year-end 1995 2.00 to 1.0
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For purposes of testing compliance with this covenant, the term "liabilities: shall include the present value of all capital lease obligations of the Company, determined as of any date the ratio is to be tested.
(iii) Debt Service Coverage. For each period of consecutive fiscal periods indicated in the table below, the Company shall maintain a debt service coverage ratio, determined on a consolidated basis, of not less than that indicated opposite such period in the table. For purposes of this covenant, the phrase "debt service coverage ratio" means the ration of (A) the sum of net income plus depreciation, amortization and interest expense, all for which the period for which the ratio is being determined, over (B) the sum of (I) payments made on long-term debt, including capital lease payments made, during the period for which the ratio is being determined, plus (II) interest expense and capital expenditures, all for the period for which such ratio is being determined.
Period Ratio
for the three fiscal periods
in calendar year 1995
ending on March 25, 1995 .75 to 1.0
for the seven fiscal periods
in calendar year 1995
ending on July 15, 1995 .50 to 1.0
for the ten fiscal periods
in calendar year 1995
ending on October 7, 1995 .90 to 1.0
for the thirteen fiscal periods
in calendar year 1995
ending on the Company's 1995
fiscal year-end 1.15 to 1.0
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3. NEGATIVE COVENANTS. Section 6.j of the Agreement is amended and restated in its entirety, to read as follows:
j. Capital Expenditure Limitation. The Company shall not make consolidated capital expenditures in excess of $3,000,000.00 in the aggregate in any fiscal year. For purposes of testing for compliance with this covenant, any expenditure or obligation which is not required, under generally accepted accounting principles, to be recorded in full as an expense in the fiscal period when made or incurred shall be considered a capital expenditure and capital expenditures shall include, without limitation, the present value of all capital lease obligations incurred by the Company, determined as of the date such obligations are incurred.
4. WAIVER. The Bank hereby waives the violations of (a)
Section 5.g(I) of the Agreement (with respect to the failure by the Company
to maintain its Tangible Net Worth at levels above the minimum required
level), (b) Section 5.g(ii) of the Agreement (with respect to the failure
by the Company to maintain the ratio of its debt to Tangible Net Worth
within the permitted level, and (c) 5.g(iii) of the Agreement (with respect
to the failure by the Company to maintain compliance with the debt service
coverage ratio), which violations occurred prior to the date of this Eighth
Amendment, but strict compliance with these covenants shall be required at
all times hereafter. Nothing in this paragraph shall be construed as a
waiver of any other term or condition of the Agreement, nor shall be
construed as a commitment on the part of the Bank to waive any subsequent
violation of the same or any other term or condition set forth in the
Agreement, as amended by this Eighth Amendment.
5. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES/NO EVENT OF DEFAULT. To induce the Bank to enter into this Eighth Amendment, the Company reaffirms, as of the date of the Eighth Amendment, each of the representations and warranties contained in Section 3 of the Agreement, as fully as if restated herein in each of their respective entireties, except that the representations and warranties contained in Section 3.d of the Agreement shall, for the purpose of this Eighth Amendment, be deemed to refer to the latest fiscal year end and interim financial statements of the Company delivered to the Bank. To induce the Bank to enter into this Eighth Amendment, the Company further represents and warrants that, as of the date of the Eighth Amendment, no Event of Default or Unmatured Event of Default has occurred and is continuing.
6. CONDITIONS PRECEDENT. This Eighth Amendment shall become effective upon receipt by the Bank of the following, contemporaneously with the execution and delivery of this Eighth Amendment, each duly executed, dated and in form and substance satisfactory to the Bank:
a. This Eighth Amendment
b. Such other documents as the Bank may reasonably request.
7. PRIOR AGREEMENTS. The Agreement, as amended by this Eighth Amendment, supersedes all previous agreements and commitments made or issued by the Bank with respect to the Loans, the Letters of Credit and all other subjects of the Agreement, as amended by this Eighth Amendment, including, without limitation, the letter dated March 3, 1995, from the Bank to the Company and the letter dated March 20, 1995, from the Bank to the Company, and accepted by the Company on March 20, 1995, and any oral or written proposals or commitments made or issued by the Bank.
8. REAFFIRMATION. Except as expressly amended by this Eighth Amendment, all of the terms and conditions of the Agreement and each of the Loan Documents remain in full force and effect.
IN WITNESS WHEREOF, the Company and the Bank, by their duly authorized officers, have executed and delivered this Eighth Amendment to Credit Agreement on March, 30, 1995, but with effect as of March 1, 1995.
ESCALADE, INCORPORATED
By: John R. Wilson
Vice President & CFO
BANK ONE, INDIANAPOLIS
NATIONAL ASSOCIATION
By: D. Kelly Queisser
Vice President
NINTH AMENDMENT TO CREDIT AGREEMENT
ESCALADE, INCORPORATED, and Indiana corporation (the "Company"), and BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION, a national banking association (the "Bank"), being parties to that certain Credit Agreement dated June 5, 1990 (as amended, the "Agreement"), hereby agree to further amend the Agreement by this Ninth Amendment to Credit Agreement (this "Ninth Amendment"), on the terms and subject to the conditions set forth as follows:
1. DEFINITIONS.
a. Terms used in this Ninth Amendment with their initial letter capitalized and which are not defined herein shall have the meanings ascribed to them in the Agreement.
b. Subsection vv. Of Section 1 of the Agreement is amended and restated in its entirety, to read as follows:
vv. Applicable Margin. "Applicable Margin" means that number of percentage points to be taken into account in determining the per annum rate at which interest will accrue on the Loans, determined by reference to the ratio of the Company's total liabilities to its Tangible Net Worth, all determined on a consolidated basis, in accordance with the following table:
Ratio of Total Liabilities Applicable Margin
To Tangible Net Worth Prime-based Rate LIBOR-based rate
Greater than or equal
to 1.75:1.0
- Revolving Loan .50 2.00
- Term Loan .75 2.50
Less than 1.75:1.0, but
greater than or equal
to 1.50:1.0
- Revolving Loan 0.00 1.50
- Term Loan .25 2.00
Less than 1.50:1.0, but
greater than or equal
to 1.00:1.0
- Revolving Loan 0.00 1.25
- Term Loan .25 1.75
Less than 1.00:1.0
- Revolving Loan 0.00 1.00
- Term Loan 0.00 1.50
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and means that number of percentage points to be taken in account in determining the per annum Commission payable with respect to Standby Letters of Credit and in determining the Negotiation Fee and the Sight Draft Fee payable with respect to the Commercial Letters of Credit, determined by reference to the ratio of the Company's total liabilities to its Tangible Net Worth, all determined on a consolidated basis, in accordance with the following table:
Ratio of Total Liabilities to Applicable Margin Tangible Net Worth Commission Negotiation Fee Sight Draft Fee Greater than or equal to 1.75:1.0 - Standby 1.75 N/A N/A - Commercial N/A .375 .375 Less than 1.75:1.0, but greater than or equal to 1.50:1.0 - Standby 1.25 N/A N/A - Commercial N/A .25 .25 Less than 1.50:1.0, but greater than or equal to 1.00:1.0 - Standby 1.125 N/A N/A - Commercial N/A .1875 .1875 Less than 1.00:1.0 - Standby 1.00 N/A N/A - Commercial N/A .1875 .1875 |
The Applicable Margin shall be determined initially on the
basis of the ratio of the Company's total liabilities to Tangible Net Worth
of greater than or equal to 1.75 to 1.0. Thereafter, the Applicable Margin
shall be determined on the basis of the financial statements of the Company
for each fiscal year furnished to the Bank pursuant to the requirement of
Section 5.b(I), with effect on the first interest payment date on the Loans
which follows receipt by the Bank of such financial statements. Interest
will accrue and be payable on the Loans, including, without limitation,
those portions of the Loans on which interest is accruing at a Prime-based
Rate or at a LIBOR-based Rate, beginning on the first interest payment date
following receipt by the Bank of such financial statements, based on the
Applicable Margin determined from such financial statements. On the first
interest payment date which follows receipt of such financial statements,
the amount of Commission which was previously paid by the Company on
account of each Standby Letter of Credit shall be adjusted for the
remaining term for which such Standby Letter of Credit was issued, based on
the Applicable Margin determined from such financial statements, with any
overpayment of Commission for such remaining period being credited against
the interest payment then due or any deficiency then being due and payable
by the Company to the Bank. With respect to any Commercial Letters of
Credit which are outstanding, on the first interest payment date which
follows the Bank's receipt of such financial statements, no adjustment
shall be made with respect to Negotiation Fees which have been previously
paid by the Company to the Bank, but the amount of the Sight Draft Fees
shall be redetermined on the basis of the Applicable Margin determined from
such financial statements. For the avoidance of doubt, it is noted that
the provisions set forth in this definition are not intended to and shall
not be construed as authorizing any violation by the Company of Section
5.g(ii) or of waiving or of the making of any commitment on the part of the
Bank to waive any violation by the Company of Section 5.g(ii),
notwithstanding the fact that this definition includes provision for an
Applicable Margin which would violate the maximum levels of the total
liabilities to Tangible Net Worth ratio permitted by Section 5.g(ii).
c. The following new subsection is added to Section 1 of the Agreement, reading as follows:
111. Ninth Amendment. "Ninth Amendment" means that agreement entitled "Ninth Amendment to Credit Agreement" dated as of May 31, 1995, entered into by and between the Company and the Bank for the purpose of amending this Agreement.
2. REVOLVING LOAN.
a. On the terms and subject to the conditions set forth in
this Ninth Amendment, including, without limitations, the execution and
delivery by the Company to the Bank of the Revolving Note in the form of
Exhibit "A" attached to the Ninth Amendment, the Bank is willing to renew
and extend the Revolving Loan Maturity Date of May 31, 1996. This renewal
and extension of the Revolving Loan Maturity Date is made pursuant to
Section 2.a(iv) of the Agreement.
b. Subsection (I) of Section 2.a of the Agreement is amended and restated in its entirety, so that hereafter it will read as follows:
(I) The Commitment -- Use of Proceeds. From the date of the Ninth Amendment and until the Revolving Loan Maturity Date, the Bank agrees to make Advances (Collectively, the "Revolving Loan") under a revolving line of credit from time to time to the Company in amounts not exceeding Twenty Eight Million and No/100 Dollars ($28,000,000.00) (the "Commitment") in the aggregate at any time outstanding, provided that all conditions of lending stated in Section 7 of this Agreement as being applicable to the Revolving Loan have been fulfilled at the time of each Advance. Proceeds of the Revolving Loan may be used by the Company only to fund its working capital requirements.
c. The first sentence of Section 2.a(ii) of the Agreement is amended and restated in its entirety, to read as follows:
(ii) The obligation of the Company to repay the Revolving Loan shall be evidenced by a promissory note (the "Revolving Note") of the Company in the form of Exhibit "A" attached to the Ninth Amendment.
3. THE LETTERS OF CREDIT. Section 2.b of the Agreement is amended and restated in its entirety, so that hereafter it will read as follows:
b. The Letters of Credit. Provided that no Event of Default or Unmatured Event of Default has occurred and is continuing, the Bank shall from time to time prior to May 31, 1996, upon application by the Company or any Subsidiary, issue commercial letters of credit (each a "Commercial Letter of Credit") and standby letters of credit (each a "Standby Letter of Credit") (all of such Commercial Letters of Credit and Standby Letter of Credit being referred to herein as the "Letters of Credit") for the account of the Company or any Subsidiary. Commercial Letters of Credit will be issued for the purpose of facilitating foreign trade transactions entered into by the Company or any Subsidiary in the ordinary course of its business. Standby Letters of Credit will be issued for the purpose of supporting any transaction by the Company or any Subsidiary in the ordinary course of its business. It shall be a condition precedent to the Bank's obligation to issue any Letter of Credit for the account of the Company or any Subsidiary that the account party (whether the Company or any Subsidiary) execute and deliver to the Bank, the Bank's standard form, then in use, of application for commercial letter of credit (an "Application for Commercial Letter of Credit") or of application for standby letter of credit, (an "Application for Standby Letter of Credit"), as the case may be. All obligations undertaken by any Subsidiary pursuant to an application for Letter of Credit, including without limitation, the obligation to immediately reimburse the Bank for all draws made under the Letter of Credit, together with interest, all as further provided in the application for Letter of Credit, together with interest, all as further provided in the application for Letter of Credit, will be supported by the unconditional guaranty of prompt payment of the Company and each other Subsidiary. All obligations undertaken by the Company pursuant to an application for a Letter of Credit, including without limitation, the obligation to immediately reimburse the Bank for all draws made under the Letter of Credit, together with interest, will be supported by the unconditional guaranty of prompt payment of each Subsidiary. Each such guaranty shall be evidenced by a Guaranty Agreement (each a "Letter of Credit Guaranty Agreement") in the form of Exhibit "D" attached to the Second Amendment. The aggregate amount of all Letters of Credit issued pursuant to the provisions of this Agreement outstanding at any time shall not exceed $4,000,000.00 and the Bank has no obligation to issue any Letter of Credit having an expiry date beyond May 31, 1996, but may do so from time to time in its sole discretion. The issuance of each Commercial Letter of Credit shall be subject to the payment by the applicant (the "Account Party") to the Bank of a fee (a "Negotiation Fee") which shall be equal to the Applicable Margin multiplied times the amount thereof, which Negotiation Fee shall be due and payable within ten (10) days following the issue of any Commercial Letter of Credit. Upon presentation of each draft drawn under a Commercial Letter of Credit to the Bank by the beneficiary thereof, the Account Party shall also pay the Bank a fee (a "Sight Draft Fee") , which shall be an amount equal to the Applicable Margin (determined at the time of such presentation) multiplied times the amount drawn of such Commercial Letter of Credit. The issuance and each renewal of each Standby Letter of Credit shall be subject to the payment by the Account Party to the Bank of a fee (a "Commission"), which shall be equal to the applicable Margin per annum (calculated on the basis that an entire year's Commission is earned in 360 days) multiplied times the amount thereof, which Commission shall be due and payable within ten (10) days following the issuance or renewal of any Standby Letter of Credit. On the date of the Ninth Amendment, the Company shall pay to the Bank an amount with respect to each Letter of Credit which is outstanding as of the date of this Ninth Amendment, an amount equal to the difference, for each Standby Letter of Credit, between the amount of Commission which would have been payable if such Letter of Credit would have been reissued by the Bank for the balance of the term of such Letter of Credit, and the pro rata amount of the Commission actually paid by the Company with respect to such Letter of Credit for the balance of the term of such Letter of Credit, and for each Commercial Letter of Credit, between the Negotiation Fee which would be payable on such Letter of Credit if it would have been reissued by the Bank on the date of The Ninth Amendment, minus the Negotiation Fee actually paid by the Company with respect to such Letter of Credit, multiplied times a fraction, the numerator of which is the number of days from the date of the Ninth Amendment to the expiry date of such Letter of Credit and the denominator Of which is the number of days from the later of the date of issuance or the most recent renewal of such Letter of Credit to the expiry date of such Commercial Letter of Credit.
4. AFFIRMATIVE COVENANTS.
a. Section 5.b of the Agreement is hereby amended by adding a new subsection to the end thereof, reading as follows:
(viii) Additional Monthly Reports. Contemporaneously
with the furnishing of each set of financial statements provided for in
Section 5.b(ii) and at such other times as the Bank may request, the
Company shall provide the Bank with a monthly operations report of those
business units of Escalade Sports - Evansville Operations, commonly known
as "Game Parlor," "Fitness and Basketball" and "Archery," comparing actual
results of operations of such business unit to the operations report for
the prior year and to the budget for the current year, together with a
monthly closed-out inventory report by product lines with respect to the
Company's slow-moving inventory, and copies of the quarterly management
reports from the business unit managers of the Company to the Board of
Directors of the Company. Such reports shall be in form and substance
satisfactory to the Bank, and shall contain such detail as may be
satisfactory to the Bank.
b. Section 5.g of the Agreement is amended and restated in its entirety, so that hereafter it will read as follows:
g. Financial Covenants. The Company shall observe the following financial covenants:
(I) Tangible Net Worth. The Company shall maintain its Tangible Net Worth, determined on a consolidated basis, at levels not less than those shown in the following table during the periods indicated:
Period Tangible Net Worth from the date of the Ninth Amendment and until October 7, 1995 $21,500,000.00 at October 7, 1995, and until fiscal year-end 1995 $22,500,000.00 at fiscal year-end 1995 $25,250,000.00 at January 1, 1996, and through the last day of the third fiscal month in fiscal year 1996 $25,000,000.00 at the first day of the fourth fiscal month in fiscal year 1996, and until the last day of the sixth fiscal month in fiscal year 1996 $24,750,000.00 at the last day of the sixth fiscal period in fiscal year 1996, and at all times thereafter $28,500,000.00 |
(ii) Ratio of Debt to Tangible Net Worth. The Company shall maintain the ratio of its total liabilities to its Tangible Net Worth, all determined on a consolidated basis, at levels not greater than those shown in the following table during the periods indicated:
Period Ratio
from the date of the Ninth
Amendment and until
October 7, 1995 2.00 to 1.00
at October 7, 1995, and until
fiscal year-end, 1995 2.25 to 1.0
at fiscal year-end 1995,
and all times thereafter 2.00 to 1.0
|
For purposes of testing compliance with this covenant, the term "liabilities: shall include the present value of all capital lease obligations of the Company, determined as of any date the ratio is to be tested.
(iii) Debt Service Coverage. For each period of consecutive fiscal periods indicated in the table below, the Company shall maintain a debt service coverage ratio, determined on a consolidated basis, of not less than that indicated opposite such period in the table. For purposes of this covenant, the phrase "debt service coverage ratio" means the ratio of (A) the sum of net income after taxes, plus depreciation, amortization and interest expense, all for which the period for which the ratio is being determined, over (B) the sum of (I) payments on long-term debt, including capital lease payments, made during the period for which the ratio is being determined, plus (II) interest expense and capital expenditures which were not financed, all for the period for which such ratio is being determined.
Period Ratio
for the seven fiscal periods
in calendar year 1995
ending on July 15, 1995 .50 to 1.0
for the ten fiscal periods
in calendar year 1995
ending on October 7, 1995 .90 to 1.0
for the thirteen fiscal periods
in calendar year 1995
ending on the Company's 1995
fiscal year-end, and for each period
of four consecutive fiscal quarters
ending at any time thereafter 1.15 to 1.0
|
c. For the avoidance of doubt it is noted that the annual cleanup requirement with respect to Advances outstanding under the Revolving Loan, which was contained in Section 5.g(iv) of the Agreement prior to the execution of the Ninth Amendment has been deleted in its entirety.
5. NEGATIVE COVENANTS. Section 6.a of the Agreement is amended and restated in its entirety, so that hereafter it will read as follows:
a. Restrictive Payments. The Company shall not purchase or redeem any shares of the capital stock of the Company or declare or pay any dividends thereon except for dividends payable entirely in capital stock. The Company shall not make any other distributions to shareholders as shareholders, or set aside any funds for any such purpose, or prepay, purchase or redeem any subordinated indebtedness to the Company.
6. WAIVER. The Bank hereby waives the violations of Section
5.g(iv) of the Agreement as it existed prior to the execution of this Ninth
Amendment (with respect to the failure by the Company to observe the annual
clean-up requirement with respect to the Revolving Loan), which violations
occurred prior to the date of this Ninth Amendment. Strict compliance with
all of the terms and conditions set forth in the Agreement shall be
required at all times hereafter. Nothing in this paragraph shall be
construed as a waiver of any of the terms or conditions of the Agreement or
shall be construed as a commitment on the part of the Bank to waive any
subsequent violations of the same or any other term or condition set forth
in the Agreement, as amended by this Ninth Amendment.
7. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES/NO EVENT OF DEFAULT. To induce the Bank to enter into this Ninth Amendment, the Company reaffirms, as of the date of the Ninth Amendment, each of the representations and warranties contained in Section 3 of the Agreement, as fully as if restated herein in each of their respective entireties, except that the representations and warranties contained in Section 3.d of the Agreement shall, for the purpose of this Ninth Amendment, be deemed to refer to the latest fiscal year-end and interim financial statements of the Company delivered to the Bank. To induce the Bank to enter into this Ninth Amendment, the Company further represents and warrants that, as of the date of this Ninth Amendment, no Event of Default or Unmatured Event of Default has occurred and is continuing.
8. CONDITIONS PRECEDENT. This Ninth Amendment shall become effective upon:
a. Receipt by the Bank of the following, contemporaneously with the execution and delivery of this Ninth Amendment, each duly executed, dated and in form and substance satisfactory to the Bank:
(I) This Ninth Amendment.
(ii) The Revolving Note.
(iii) Certified copy of the Resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance, respectively, of this Ninth Amendment and the other Loan Documents provided for in this Ninth Amendment to which the Company is a party.
(iv) Certificate of the Secretary of the Company, certifying the names of the officer or officers authorized to sign this Ninth Amendment and the other Loan Documents provided for in this Ninth Amendment to which the Company is a party, together with a sample of the true signature of each such officer.
(v) Sixth Amendment to Credit Agreement, with respect to the Credit Agreement dated June 4, 1990, between the Bank and Martin Yale Industries, Inc.
(vi) Such other documents as the Bank may reasonably request.
b. Payment to the Bank of accrued interest through the date of this Ninth Amendment on the Revolving Loan, together with payment of the facility fee which is due and payable by the Company to the Bank pursuant to Section 2.a(vi) of the Agreement, and payment with respect to the outstanding Letters of Credit as provided in Section 2.b.
9. PRIOR AGREEMENTS. The Agreement, as amended by this Ninth Amendment, supersedes all previous agreements and commitments made or issued by the Bank with respect to the Loans, the Letters of Credit and all other subjects of the Agreement, as amended by this Ninth Amendment, including, without limitation, the letter dated March 3, 1995, from the Bank to the Company and the letter dated March 20, 1995, from the Bank to the Company, and accepted by the Company on March 20, 1995, and any oral or written proposals or commitments made or issued by the Bank.
10. REAFFIRMATION. Except as expressly amended by this Ninth Amendment, all of the terms and conditions of the Agreement and each of the Loan Documents remain in full force and effect.
Executed on June 2, 1995, but with effect as of May 31, 1995.
ESCALADE, INCORPORATED
By: Robert E. Griffin
Chairman and CEO
BANK ONE, INDIANAPOLIS
NATIONAL ASSOCIATION
By: D. Kelly Queisser
Vice President
TENTH AMENDMENT TO CREDIT AGREEMENT
ESCALADE, INCORPORATED, an Indiana corporation (the "Company") and BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION, a national banking association (the "Bank"), being parties to that certain Credit Agreement dated June 5, 1990 (as amended, the "Agreement"), hereby agree to further amend the agreement by this Tenth Amendment to Credit Agreement (this "Tenth Amendment"), on the terms and subject to the conditions set forth as follows:
1. DEFINITIONS.
a. Terms used in this Tenth Amendment with their initial letter capitalized and which are not defined herein shall have the meanings ascribed to them in the Agreement.
b. The following new subsection is added to Section 1 of the Agreement, reading as follows:
mmm. Tenth Amendment. "Tenth Amendment" means that agreement entitled "Tenth Amendment to Credit Agreement" dated as of July 15, 1995, entered into by and between the Company and the Bank for the purpose of amending this Agreement.
2. AFFIRMATIVE COVENANTS. Sections 5.g(I) and 5.g(iii) of the Agreement are amended and restated in their entireties, so that hereafter they will read as follows:
(I) Tangible Net Worth. The Company shall maintain its Tangible Net Worth, determined on a consolidated basis, at levels not less than those shown in the following table during the periods indicated:
Period Tangible Net Worth from the date of the Tenth Amendment and until October 7, 1995 $21,100,000.00 at October 7, 1995, and until fiscal year-end 1995 $21,500,000.00 at fiscal year-end 1995 $24,000,000.00 at January 1, 1996, and through the last day of the third fiscal month in fiscal year 1996 $23,500,000.00 at the first day of the fourth fiscal month in fiscal year 1996, and until the last day of the seventh fiscal month in fiscal year 1996 $23,250,000.00 at the last day of the seventh fiscal period in fiscal year 1996, and at all times thereafter $28,500,000.00 |
(iii) Debt Service Coverage. For each period of consecutive fiscal periods indicated in the table below, the Company shall maintian a debt service coverage ratio, determined on a consolidated basis, of not less than that indicated opposite such period in the table. For purposes of this covenant, the phrase "debt service coverage ratio" means the ratio of (A) the sum of net income after taxes, plus depreciation, amortization and interest expense, all computed for the period for which the ratio is being determined, over (B) the sum of (I) payments on long-term debt, including capital lease payments, amde during the period for which the ratio is being determined, plus (II) interest expense and capital expenditures which were not financed, all for the period for which such ratio is being determined.
Period Ratio for the ten fiscal periods in calendar year 1995 ending on October 7, 1995 .60 to 1.0 for the thirteen fiscal periods in calendar year 1995 ending on the Company's 1995 fiscal year-end 1.05 to 1.0 for each period of four consecutive fiscal quarters ending at any time thereafter 1.15 to 1.0 |
3. WAIVER. The Bank hereby waives the violations of Section
5.g(i) of the Agreement (with respect to the failure by the Company to
observe the minimum Tangible Net Worht required), which voilations occurred
prior to the date of this Tenth Amendment. Strict compliance with this
covenant and all of the other terms and conditions set forth in the
Agreement shall be required at all times hereafter. Nothing in this
paragraph shall be construed as a waiver of any other term or condition of
the Agreement nor shall be construed as a commitment on the part of the
Bank to waive any subsequent violation of the same or any other term or
condition set forth in the Agreement, as amended by this Tenth Amendment.
4. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES/NO EVENT OF DEFAULT. To induce the Bank to enter into this Tenth Amendment, the Company reaffirms, as of the date of the Tenth Amendment, each of the representations and warranties contained in Section 3 of the Agreement, as fully as if restated herein in each of their respective entireties, except that the representations and warrantiees contained in Section 3.d of the Agreement shall, for the purpose of this Tenth Amendment, be deemed to refer to the latest fiscal year-end and interim financial statements of the Company delivered to the Bank. To induce the Bank to enter into this Tenth Amendment, the Company further represents and warrants that, as of the date of this Tenth Amendment, no Event of Default or Unmatured Event of Default has occurred and is continuing.
5. PRIOR AGREEMENTS. The Agreement, as amended by this Tenth Amendment, supersedes all previous agreements and commitments made or issued by the Bank with respect to the Loans, the Letter of Credit and all other subjects of the Agreement, as amended by this Tenth Amendment, including, without limitation, the letter dated August 3, 1995, sent by the Bank of the Company, and any oral or written proposals or commitments made or issued by the Bank.
6. REAFFIRMATION. Except as expressly amended by this Tenth Amendment, all of the terms and conditions of the Agreement and each of the Loan Documents remain in full force and effect.
Executed on August 21, 1995, but with effect as of July 15, 1995.
ESCALADE, INCORPORATED
By: John R. Wilson
Vice President & CFO
BANK ONE, INDIANAPOLIS
NATIONAL ASSOCIATION
By: D. Kelly Queisser
Vice President
Exhibit 10.3
Sweden Table Tennis AB
CONTRACT
BETWEEN THE UNDERSIGNED:
1. Sweden Table Tennis AB, Box 642, 631 08 Eskilstuna, Sweden; (hereinafter referred to as the company) on the one part AND
2. Indian Industries, Inc., Evansville, Indiana, USA; (hereinafter referred to as the producer) of the other part.
1. The company grants to the producer the exclusive licence, and for the period of the present contract, to reproduce the Stiga logo on table tennis tables, to manufacture such tennis table tables and sell them to wholesalers, department stores or retailers in the territory of USA.
2. The present agreement is concluded for a period of 3 years, January 1, 1995 - December 31, 1998. At the expiration of this agreement, this licence will be automatically renewed for additional one year periods, unless one party in writing signifies to the other part its unwillingness to renew this licence.
2.1 The company must in writing approve designs/models and any changes therein before introduction to the market.
2.2 The producer shall not duplicate the quality and/or construction of the Stiga table tennis in any way on any other product manufactured by the producer.
2.3 The producer shall not divulge any information concerning the quality and/or construction of Stiga table tennis tables to any other entity, manufacturer or company. All constructions and/or quality specifications are confidential.
3. It is understood that the right to reproduce and to use the name Stiga is only granted for reproduction on table tennis tables.
4. In compensation for the licence which has been granted by this agreement, the producer agrees to pay the company a royalty based on the invoiced prices, net of all taxes and other deductions.
The royalty per model is: Model 1 (Expert Roller) 7% Model 2 (Elite Roller) 6% Model 3 (Private Roller) 4% Model 4 (Outdoor model) 4% Model 5 (Low end Stiga table) 3% |
Payments shall be made quarterly to the company and shall be based on the invoices actually paid to the producer. Each payment shall be accompanied by quarterly reports detailing the number of table tennis tables sold together with the selling price of those tables.
The designated Stiga representative shall have the right to review the invoices and the quarterly reports at any time during regular business hours.
5. This agreement will immediately become null and void 30 days after simple presentation of a recommended letter of the company to the producer, if the producer is in default for any of the below reasons and if the default has not been cured 30 days after such notice. Reasons for default:
a) If the producer does not manufacture, sell or distribute the table tennis tables in reasonable volumes accepted by the company, or if the producer fails to make payments as required in paragraph 4 above, or if the producer fails to file the quarterly reports as defined in paragraph 4 above, or if the producer, generally speaking, does not respect any clause of this agreement;
b) If the producer uses, without prior authorization, the Stiga trademark on products other than table tennis tables;
c) If the producer is declared bankrupt or goes into liquidation.
6. Upon termination of this agreement, the producer will immediately remit to the company a complete inventory of its stock.
During the 6 months following the end of the contract the producer will have the right to sell (but not to manufacture) the table tennis tables remaining in stock. This right is granted to the producer on the conditions that it respects the dispositions of the present agreement pertaining to such sales.
7. The present contract can only be modified by written agreements between the producer and the company.
8. This contract shall be governed by and construed in accordance with the laws of Sweden.
9. Any dispute or claim arising out of this agreement shall be submitted to the jurisdiction of the Swedish courts. The company has however the exclusive right to have any dispute or claim submitted to the relevant US court and the parties agree in such a case that any dispute are to be settled in accordance with the law of the state of Indiana.
Made in two copies.
Sweden Table Tennis AB Indian Industries, Inc.
Bengt Bandstigen John R. Wilson
Eskilstuna 12th of June, 1995
Sweden Table Tennis AB
Between
Sweden Table Tennis Aktiebolag
whose registered office is at Box 642, Eskilstuna, Sweden
(hereinafter called "the Supplier")
and
Escalade Incorporated
whose registered office is at P.O. Box 889, Evansville, Indiana 47706, USA
(hereinafter called "the Distributor").
IT IS AGREED AS FOLLOWS
Article 1. Territory and products.
1.1 The Supplier grants and the Distributor accepts the exclusive right to market and sell Table Tennis equipment, clothing and footwear, under the brand name STIGA (hereinafter called "the Products") in USA (hereinafter called "the Territory").
The parties agreement concerning table tennis tables are agreed in a separate document.
1.2
If the Supplier decides to market any other products under the brand name
STIGA in the Territory, it shall so inform the Distributor in order to
discuss the possibility of including such other products within the
Products defined above. However, the above obligation to inform the
Distributor does not apply if, in consideration of the characteristics of
the new products and the specialization of the Distributor, it is not to be
expected that such products may be marketed by the Distributor.
Article 2. Good faith and fair dealing.
2.1
In carrying out their obligations under this contract, the parties will act
in accordance with good faith and fair dealing.
2.2
The provisions of this contract, as well an any statements made by the
parties in connection with this distributorship, shall be interpreted in
good faith.
Article 3. Distributor's functions.
3.1
The Distributor sells in its own name and for its own account, in the
Territory, the Products supplied by the Supplier.
3.2
The Distributor agrees to use its best efforts to promote the sale of the
Products in the Territory in accordance with the Supplier's policy and
shall protect the Supplier's interests with the diligence of responsible
businessman.
3.3
The Distributor is not entitled to act in the name or on behalf of the
Supplier, unless previously and specifically authorized to do so by the
latter.
Article 4. Undertaking not to compete.
4.1
Without the prior written authorization of the Supplier, the Distributor
shall not represent, manufacture, market or sell in the Territory any
products which are in competition with the Products, for the entire term of
this contract. The Distributor is allowed to sell low priced table tennis
products under their own trademarks "Harvard", "Spalding", "Ping-pong" and
"Apex" for the entire term of this contract.
Article 5. Sales organization.
5.1
The Distributor shall set up and maintain an adequate organization for
sales and, where appropriate, after-sales service, with all means and
personnel as are reasonably necessary in order to ensure the fulfilment of
its obligations under this contract for all Products and throughout the
Territory.
Article 6. Advertising and Fairs.
6.1
The parties shall discuss in advance the advertising programme for each
year. All advertising should be in accordance with the Supplier's image
and marketing policies. The costs of agreed advertising shall be for the
account of the Distributor.
6.2
The parties shall agree on their participation in fairs or exhibitions
within the Territory. The costs of the Distributor's participation in such
fairs and exhibitions shall be for the account of the Distributor.
6.3
During September/October each year the parties shall agree on marketing
support to the Distributor for the coming calendar year.
Article 7. Conditions of supply Prices.
7.1
The Supplier shall in principle supply all Products ordered, subject to
their availability, and provided payment of the Products is adequately
warranted.
7.2
The Supplier agrees to make its best efforts to fulfil the orders it has
accepted.
7.3
Sales of the Products to the Distributor shall be governed by the
Supplier's general conditions of sale.
7.4
The prices payable by the Distributor shall be those set forth in the
Supplier's price-list in force at the time the order is received by the
Supplier. Unless otherwise agreed, such prices are subject to change at
any time, subject to one month's notice.
7.5
The Distributor agrees to comply, with the utmost care, with the terms of
payment agreed upon between the parties.
7.6
It is agreed that the Products delivered remain the Supplier's property
until the Supplier has received payment in full.
Article 8. Sales Target - Guaranteed Minimum Target.
8.1
The parties have agreed on the below stated Sales Targets for the years
1995, 1996 and 1997.
Targets 1995 1996 1997 Orders in MSEK 3,5 4,0 5,0 Orders in $ $500,000 $575,000 $650,000 |
8.2
The Distributor shall make its best efforts to attain the target agreed
upon, however the nonfulfillment of these targets shall be considered as a
breach of this contract and the Supplier has at such circumstances the
right to terminate this contract in accordance with section 18.1 below.
Article 9. Subdistributors or agents.
9.1
The Distributor may not appoint subdistributors or agents for the sale of
the Products in the Territory.
Article 10. Extra ordinary costs.
10.1
Any specific costs to authorities, organizations or others within the
territory that have to be paid in connection with sales and marketing of
the products in the territory are for the account of the Distributor.
Article 11. Supplier to be kept informed.
11.1
The Distributor shall exercise due diligence to keep the Supplier informed
about the Distributor's activities, market conditions and the state of
competition within the Territory. The Distributor shall answer any
reasonable request for information made by the Supplier.
11.2
The Distributor shall exercise due diligence to keep the Supplier informed
about:
(I) the laws and regulations which are applicable in the Territory and relate to the Products (e.g. import regulations, labeling, technical specifications, safety requirement, etc), and
(ii) as far as they are relevant for the Supplier, the laws and regulations concerning the Distributor's activity.
Article 12. Resale prices.
12.1
The Distributor is free to fix the resale prices of the Products. The
Distributor shall avoid such pricing policies as would clearly adversely
affect the image of the Products.
Article 13. Sales outside the Territory.
13.1
The Distributor agrees not to advertise the Products or establish any
branch or maintain any distribution depot for distributing the Products
outside the Territory.
Article 14. Supplier's trademarks and symbols.
14.1
The Distributor shall use the Supplier's trademark STIGA. However, the
Distributor may do so only for the purpose of identifying and advertising
the Products within the scope of this contract and in the Supplier's sole
interest.
14.2
The Distributor's right to use the Supplier's trademark STIGA as provided
for under the first paragraph of this Article, shall cease immediately upon
the expiration or termination, for any reason, of the present contract.
This does not preclude the Distributor's right to sell the Products in
stock at the date of expiration of the contract which bear the Supplier's
trademarks.
14.3
The Distributor shall notify the Supplier of any infringement in the
Territory of the Supplier's trademark or other industrial property rights,
that comes to the Distributor's attention.
Article 15. Stock of Products and spare parts - After-sales service.
15.1
The Distributor agrees to maintain at its own expense, for the whole term
of this contract, a stock of Products and spare parts sufficient for normal
needs of the Territory.
15.2
The Distributor agrees to provide sufficient after-sales service for the
Products in the Territory.
Article 16. Sole distributorship.
16.1
The Supplier shall not, during the life of this contract, grant any other
person or undertaking (including a subsidiary of the Supplier) within the
Territory the right to represent or market the Products.
Article 17. Term of the Contract.
17.1
This contract enters into force on the 1st day of January, 1995 and shall
remain in force until 31st of December, 1998.
17.2
This contract shall be automatically renewed for successive periods of one
year, unless termination by either party by notice given in writing by
means of communication ensuring evidence and date of receipt (e.g.
registered mail with return receipt, special courier), not less than four
months before the date of expiry.
Article 18. Earlier termination.
18.1
Each party may terminate this contract with immediate effect, by notice
given in writing by means of communication ensuring evidence and date of
receipt (e.g. registered mail with return receipt, special courier), in
case of a substantial breach by the other party of the obligations arising
out of the contract, or in case of exceptional circumstances justifying the
earlier termination.
18.2
Any failure by a party to carry out all or part of its obligations under
the contract resulting in such detriment to the other party as to
substantially deprive such other party of what it is entitled to expect
under the contract, shall be considered a substantial breach for the
purpose of Article 18.1 above.
18.3
The parties agree that the following situations shall be inter alia
considered as exceptional circumstances which justify the earlier
termination by the other party: bankruptcy, moratorium, receivership,
liquidation or any kind of arrangement between debtor and creditors, or any
other circumstances which are likely to affect substantially that party's
ability to carry out its obligations under this contract.
Article 19. Indemnity in case of termination.
19.1
The Distributor shall not be entitled to an indemnity for goodwill or
similar compensation ("indemnity") in case of termination of the contract.
Article 20. Return of documents and products in stock.
20.1
Upon expiry of this contract, the Distributor shall return to the Supplier
all promotional material and other documents and samples which have been
supplied to it by the Supplier and are in the Distributor's possession.
20.2
At the Supplier's option, the Supplier will buy from the Distributor all
Products the latter has in stock, provided they are still currently sold by
the Supplier and are in new condition and in original packaging, at the
price originally paid by the Distributor. Products not so purchased by the
Supplier must be sold by the Distributor in accordance with this contract
as good terms as possible.
Article 21. Arbitration - Applicable law.
21.1
Any dispute arising out of or in connection with the present contract shall
be finally settled in accordance with the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by one or more
arbitrators appointed in accordance with said Rules.
21.2
This contract is governed by the laws of Sweden.
21.3
In any event, consideration shall be given to mandatory provisions of the
law of the country where the Distributor is established which should be
applicable even if the contract is governed by a foreign law. Any such
provisions will be taken into account to the extent they embody principles
which are universally recognized and provided their application appears
reasonable in the context of international trade.
Article 22. Previous agreements - Modifications - Nullity - Assignment.
22.1
This contract replaces any other preceding agreement between the parties on
the subject.
22.2
No addition or modification to this contract shall be valid unless made in
writing.
22.3
If any provision or clause of this contract is found to be null or
unenforceable, the contract will be construed as a whole to effect as
closely as practicable the original intent of the parties; however, if for
good cause, either party would not have entered in the contract knowing the
interpretation of the contract resulting from the foregoing, the contract
itself shall be null.
22.4
The present contract cannot be assigned without the prior written agreement
of the parties.
Article 23. Authentic text.
The English text of this contract is the only authentic text.
The Supplier The Distributor
Bengt Bandstigen John R. Wilson
Made in Eskilstuna on the 12th day of June, 1995
| ARTICLE 5 |
| MULTIPLIER: 1000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 30 1995 |
| PERIOD END | DEC 30 1995 |
| CASH | 1,247 |
| SECURITIES | 0 |
| RECEIVABLES | 26,011 |
| ALLOWANCES | 726 |
| INVENTORY | 15,152 |
| CURRENT ASSETS | 44,054 |
| PP&E | 33,064 |
| DEPRECIATION | 21,840 |
| TOTAL ASSETS | 57,767 |
| CURRENT LIABILITIES | 26,985 |
| BONDS | 0 |
| PREFERRED MANDATORY | 17,572 |
| PREFERRED | 0 |
| COMMON | 0 |
| OTHER SE | 5,766 |
| TOTAL LIABILITY AND EQUITY | 57,767 |
| SALES | 91,179 |
| TOTAL REVENUES | 91,179 |
| CGS | 73,443 |
| TOTAL COSTS | 88,351 |
| OTHER EXPENSES | (274) |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 2,268 |
| INCOME PRETAX | 835 |
| INCOME TAX | 387 |
| INCOME CONTINUING | 448 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 448 |
| EPS PRIMARY | .11 |
| EPS DILUTED | .11 |