SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 5, 1996
Commission File Number 0-6966
ESCALADE, INCORPORATED
----------------------
(Exact name of registrant as specified in its charter)
Indiana 13-2739290
------- ----------
(State of incorporation) (I.R.S. EIN)
817 Maxwell Avenue, Evansville, Indiana 47717
---------------------------------------------
(Address of principal executive office)
812-467-1200
------------
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(b) of the Act
NONE
Securities registered pursuant to section 12(g) of the Act
Common Stock, No Par Value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Registrant's common stock (no par value)
outstanding as of October 23, 1996 : 3,102,827
INDEX
Page No.
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheet (Unaudited)
October 5, 1996, October 7, 1995, and
December 30, 1995 3
Consolidated Condensed Statement of Income (Unaudited)
Three Months and Nine Months Ended
October 5, 1996 and October 7,1995 4
Consolidated Condensed Statement of Cash Flows (Unaudited)
Nine Months Ended October 5, 1996 and October 7, 1995 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations: 7-9
Part II. Other Information 9
Signatures 9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
<CAPTION>
(Dollars in Thousands) October 5, October 7, December 30,
1996 1995 1995
ASSETS ------------------------------------
<S> <C> <C> <C>
Current assets:
Cash $ 352 $ 264 $ 1,247
Receivables, less allowances of
$583, $776 and $726 20,036 20,641 25,285
Inventories 23,484 25,408 15,152
Prepaid expense 246 383 267
Income tax refundable --- 199 275
Deferred income tax benefit 1,558 2,333 1,828
------- ------- -------
TOTAL CURRENT ASSETS 45,676 49,228 44,054
Property, plant, and equipment 34,469 35,884 33,064
Accum. depr. and amortization (24,084) (24,548) (21,840)
------- ------- -------
10,385 11,336 11,224
Deferred income tax benefit 632 706 662
Other assets 1,876 1,856 1,827
------- ------- -------
$58,569 $63,126 $57,767
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - bank $ 8,925 $19,000 $14,350
Current portion of long-term debt 2,300 2,853 2,383
Trade accounts payable 5,086 4,149 2,370
Accrued liabilities 9,528 7,378 7,553
Federal income tax payable 573 --- 329
------- ------- -------
TOTAL CURRENT LIABILITIES 26,412 33,380 26,985
Other Liabilities:
Long-term debt 14,400 6,573 6,265
Deferred compensation 1,091 1,153 1,179
------- ------- -------
15,491 7,726 7,444
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 - 3,102,827,
4,133,811, and 4,133,954
at 10-05-96, 10-07-95,
and 12-30-95
8,463 17,572 17,572
Retained earnings 8,203 4,448 5,766
------- ------- -------
16,666 22,020 23,338
------- ------- -------
$58,569 $63,126 $57,767
======= ======= =======
<FN>
See notes to Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME (UNAUDITED)
(Dollars in Thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
Oct. 5, Oct. 7, Oct. 5, Oct. 7,
1996 1995 1996 1995
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $23,142 $22,857 $58,097 $60,127
Costs, expenses and other income:
Cost of products sold 15,891 18,052 40,835 47,870
Selling, administrative and
General expenses 4,222 3,224 12,089 10,845
Restructuring charge ----- ----- ----- 1,040
Interest 355 566 959 1,816
Other income (47) (52) (163) (147)
------- -------- ------- --------
20,421 21,790 53,720 61,424
INCOME (LOSS) BEFORE INCOME TAXES 2,721 1,067 4,377 (1,297)
Provision (benefit) 1,204 478 1,940 (427)
for income taxes ------- ------- ------- -------
NET INCOME (LOSS) $ 1,517 $ 589 $ 2,437 $ (870)
======= ======= ======= =======
Per share data:
NET INCOME (LOSS) $ .38 $ .14 $ .60 $ (.21)
======= ======= ======= =======
<FN>
See notes to Consolidated Condensed Financial Statements.
</TABLE>
<TABLE>
ESCALADE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
<CAPTION>
Nine Months Ended
Oct. 5, 1996 Oct. 7, 1995
Operating Activities: -------------------------------
<S> <C> <C>
Net Income (Loss) $ 2,437 $( 870)
Depreciation and amortization 2,244 3,161
Adjustments necessary to reconcile
net income to net cash provided by
operating activities 2,311 9,701
------- --------
Net cash provided (used) by
operating activities 6,992 11,992
------- --------
Investing Activities:
Purchase of property and equipment (1,405) (787)
------- --------
Net cash used by investing activities (1,405) (787)
------- --------
Financing Activities:
Net inc.(dec.) in notes pay.- bank (5,425) (10,237)
Net inc.(dec.) in long-term debt 8,052 (1,700)
Proceeds from exercise of stock options 28 1
Purchase of Common Stock - Dutch Auction
& Open Market (9,137) -----
------- ------
Net cash used by financing activities (6,482) (11,936)
------- ------
Decrease in cash (895) (731)
Cash, beginning of period 1,247 995
------- ------
Cash, end of period $ 352 $ 264
======= ======
<FN>
See notes to Consolidated Condensed Financial Statements.
</TABLE>
ESCALADE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Note A - Basis of Presentation
- ------------------------------
In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position of
the company as of October 5, 1996, October 7, 1995, and December 30, 1995 and
the results of operations and changes in financial position for the nine months
ended October 5, 1996 and October 7, 1995. The balance sheet at December 30,
1995 was derived from the audited balance sheet included in the 1995 annual
report to shareholders.
Note B - Seasonal Aspects
- -------------------------
The results of operations for the nine month periods ended October 5, 1996
and October 7, 1995 are not necessarily indicative of the results to be expected
for the full year.
Note C - Inventories (Dollars in Thousands)
- -------------------------------------------
10-5-96 10-7-95 12-30-95
------- ------- --------
Raw Materials $ 6,777 $10,810 $ 6,692
Work In Process 3,491 3,599 3,136
Finished Goods 13,216 10,999 5,324
------- ------- -------
$23,484 $25,408 $15,152
======= ======= =======
Note D - Earnings Per Share
- ---------------------------
Earnings (loss) per common and common equivalent shares are based on
average shares outstanding. Dilutive effects of stock options on net income
(loss) are not material. The number of shares used to calculate earnings (loss)
per share for the nine months ended October 5, 1996 and October 7, 1995 was
4,076,670 and 4,133,454.
Note E - Income Taxes
- ---------------------
The provision (benefit) for income taxes was computed based on financial
statement income (loss).
Note F - Dutch Auction Tender Offer
- -----------------------------------
During the third quarter of 1996, the Company conducted a Dutch Auction
Tender Offer which was completed on September 24, 1996 with the purchase of
1,016,682 shares at $8.875 per share for a total of $9,023,053. The shares
purchased were retired.
ESCALADE, INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's earnings during the
periods included in the accompanying consolidated condensed statements of
income.
RESULTS OF OPERATIONS
THIRD QUARTER COMPARISON 1996 vs. 1995
Net sales were $23,142,000 in the third quarter of 1996 as compared to
$22,857,000 in the third quarter of 1995, an increase of $285,000 or 1.2%.
Sales of sporting goods increased $7,000 and sales of office and graphic arts
products increased $278,000 or 6.7%.
Sporting goods net sales were comparable in both quarters. The office and
graphic arts products net sales increase was due mainly to increased graphic
arts dealer business.
Cost of sales was $15,891,000 in the third quarter of 1996 as compared to
$18,052,000 in the third quarter of 1995, a decrease of $2,161,000 or 12.0%.
Cost of sales as a percentage of net sales was 68.7% in the third quarter
of 1996 as compared to 79.0% in the third quarter of 1995. Sporting goods cost
of sales as a percentage of net sales decreased 12.2% and office and graphic
arts cost of sales as a percentage of net sales decreased .5%. The decrease in
the sporting goods cost of sales percentage of net sales was due to decreased
material cost, reduced labor costs and lower factory expenses.
Selling, general, and administrative expenses were $ 4,222,000 in the
third quarter of 1996 as compared to $3,224,000 in the third quarter of 1995, an
increase of $998,000 or 30.9%.
Selling, general and administrative expenses as a percentage of net sales
was 18.2% in the third quarter of 1996 as compared to 14.1% in the third quarter
of 1995. This increase as a percentage of net sales was mainly due to increased
expenses in compensation, allowances, marketing and advertising.
Interest expense decreased $211,000 or 59.4% from last year's third
quarter due to lower borrowing levels.
Net income for the quarter this year was $1,517,000 as compared to
$589,000 last year, an increase of $928,000 or 157.6%. 95% of this increase was
in sporting goods.
RESULTS OF OPERATIONS CONTINUED
NINE MONTHS COMPARISON 1996 VS. 1995
Net sales were $58,097,000 in the first nine months of 1996 as compared to
$60,127,000 in the first nine months of 1995, a decrease of $2,030,000 or
3.4%. Sales of sporting goods decreased $3,730,000 or 8.6% and sales of office
and graphic arts products increased $1,700,000 or 13.0%.
The decrease in sporting goods net sales was due mainly to reduced volume
in dartboard cabinet business. The increase in net sales for the office and
graphic arts product segment was due to increased dealer business, expanded
distribution and new products.
Cost of sales was $40,835,000 in the first nine months of 1996 as compared
to $47,870,000 in 1995, a decrease of $7,035,000 or 14.7%.
Cost of sales as a percentage of net sales was 70.3% in the first nine
months of 1996 as compared to 79.6% in the first nine months of 1995. This
decrease is due to lower material cost (60%), lower labor cost (11%) and lower
factory expense (29%).
Selling, general, and administrative expenses were $12,089,000 in the
first nine months of 1996 as compared to $10,845,000 in the first nine months of
1995, an increase of $1,244,000 or 11.5%.
Selling, general, and administrative expenses as a percentage of net sales
were 20.8% in 1996 as compared to 18.0% in 1995. The increase in these expenses
as a percentage of net sales was mainly due to increased compensation expenses,
marketing development, customer allowances, sales promotion and rebates.
Interest expense was $959,000 in the first nine months of 1996 as compared
to $1,816,000 in the first nine months of 1995, a decrease of $857,000 or 47.2%.
The decrease was due to lower average borrowing levels.
The net income in the first nine months of 1996 was $2,437,000 as compared
to a net loss of $870,000 in the first nine months of 1995. The 1995 loss
included a $1,040,000 pre tax charge for restructuring. There was a $3,307,000
improvement comparing 1996 to 1995 and 91.5% of this improvement was in sporting
goods.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net cash provided by operating activities was $6,992,000 in
the first nine months of 1996 as compared to $11,992,000 used in the first nine
months of 1995. Most of the cash provided by operating activities in 1996 was
from collection of the year end accounts receivable. The net accounts receivable
balance at the end of the year in 1995 was $25,285,000 and at the end of the
first nine months of 1996, the net accounts receivable balance was $20,036,000.
The Company's net cash used for investing activities was $1,405,000 in the first
nine months of 1996 as compared to $787,000 in the first nine months of 1995.
This increase of $618,000 was in the purchase of property and equipment. The
Company's net cash used by financing activities was $6,482,000 in the first nine
months of 1996 as compared to $11,936,000 net cash used by financing in the
first nine months of 1995. Long term debt increased a gross amount of
$10,000,000, with a net increase of $8,052,000. $9,023,000 of the new long term
debt was used to purchase 1,016,682 shares of the Company's common stock in a
dutch auction tender offer completed on 9-24-96.
LIQUIDITY AND CAPITAL RESOURCES CONTINUED
The Company's working capital requirements are currently funded by cash
flow from operations, a domestic line of credit in the amount of $18,000,000,
and a letter of credit facility in the amount of $4,000,000. The outstanding
loans under the domestic line of credit bear interest at either of the following
rates, as selected by the Company from time to time; the bank's prime lending
rate plus .25% or the London Inter-Bank Offered Rate plus 2.00%. The Company's
domestic line of credit agreement expires on May 31, 1997.
PART II. OTHER INFORMATION
Item 1, 2, 3, 4, and 5. Not Required.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - 10.21 - First and ninth amendments, dated as of September 19,
1996, to credit agreements with Bank One, Indianapolis.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the
nine months ended October 5, 1996.
SIGNATURE
Pursuant to the requirements 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
Date: October 25, 1996 ROBERT E. GRIFFIN
---------------- ----------------------------
Robert E. Griffin
Chairman and Chief
Executive Officer
Date: October 25, 1996 JOHN R. WILSON
---------------- ----------------------------
John R. Wilson
Vice President and
Chief Financial Officer
FIRST AMENDMENT TO
AMENDED AND RESTATED 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 Amended and Restated
Credit Agreement dated as of May 31, 1996 (the "Agreement"), hereby agree
to amend the Agreement by this First Amendment to Amended and Restated
Credit Agreement (the "First Amendment"), on the terms and subject to the
conditions set forth as follows:
1. DEFINITIONS
a. Terms used in this First Amendment with their initial letter
capitalized which are not defined herein shall have the meanings ascribed
to them in the Agreement.
b. The definition of "Applicable Rate" set forth in Section 1 of
the Agreement is hereby amended and restated in its entirety to read as
follows:
"Applicable Rate" means that number of percentage points to be taken
into account in determining the Applicable Spread which is used in
computing the rate at which interest accrues on the Loans, the
Applicable Unused Fee Rate which is used in calculating the Unused
Fee, the Applicable Commission Rate which is used in calculating the
amount of Commission which is payable with respect to Standby Letters
of Credit, and the Applicable Issuance Fee Rate which is used in
calculating the amount of Issuance Fees payable with respect to
Commercial Letters of Credit. Initially, from the date of this
Agreement and until receipt by the Bank of the Company's 1996 fiscal
year end financial statements furnished to the Bank pursuant to the
requirements of Section 5.b(i), the Applicable Rate shall be
determined by reference to the following table:
<TABLE>
<CAPTION>
Applicable Rate
-------------------------------------------------------------------------
Applicable Spread*
----------------------- Applicable Applicable Applicable
Prime-based LIBOR-based Unused Fee Commission Issuance
Rate Rate Rate Rate Fee Rate
------- -------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
.25% RL 2.00% RL
.25% TL 2.25% TL .375% 1.50% .50%
</TABLE>
* Where "RL" means Revolving Loan and "TL" means Term Loan.
On the first day of the month which follows receipt by the Bank of
the Company's 1996 fiscal year end financial statements furnished to
the Bank pursuant to the requirements of Section 5.b(i), the
Applicable Rate shall be determined by reference to the Company's
Leverage Ratio in accordance with the following table:
<TABLE>
Applicable Rate
<CAPTION>
Applicable Spread*
---------------------------- Applicable Applicable Applicable
Prime-based LIBOR-based Unused Fee Commission Issuance
Leverage Ratio Rate Rate Rate Rate Fee Rate
- -------------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
greater than
or equal to
3.00:1.0 0.25% RL 2.00% RL .375% 1.50% .50%
0.25% TL 2.25% TL
less than or
equal to
2.99:1.00,
but
greater than
or
equal to 0.00% RL 1.75% RL .375% 1.375% .4375%
2.50:1.00 0.25% TL 2.00% TL
less than or
equal to
2.49:1.00,
but
greater than
or
equal to 0.00% RL 1.50% RL .25% 1.25% .375%
2.00:1.00 0.00% TL 1.75% TL
less than or
equal to
1.99:1.00,
but
greater than
or
equal to 0.00% RL 1.25% RL .25% 1.125% .3125%
1.50:1.00 0.00% TL 1.50% TL
less than 0.00% RL 1.00% RL .25% 1.00% .25%
1.50:1.00 0.00% TL 1.25% RL
</TABLE>
* Where "RL" means Revolving Loan and "TL" means Term Loan.
Such determination will be effective as of January 1, 1997 and the
Interest and Unused Fees paid will be adjusted retroactively to such
date. Any overpayment shall be promptly refunded by the Bank and any
deficiency shall then be due and payable by the Company.
Thereafter, the Applicable Rate shall be determined on the basis of
the financial statements of the Company for each fiscal year
furnished to the Bank pursuant to the requirements of Section 5.b(i),
and shall be effective as of January 1 of each fiscal year. Interest
and Unused Fees paid will be adjusted retroactively to such date with
any overpayment of fees being promptly refunded by the Bank and any
deficiency being immediately due and payable by the Company.
Commissions and Issuance Fees with respect to Letters of Credit shall
be determined from the Applicable Rate in effect when the related
Letter of Credit is issued or renewed, and will thereafter adjust
annually after receipt of the financial statements and determination
of the Applicable Rate. It is noted that the above table provides an
Applicable Rate for a Leverage Ratio greater than that which will be
permissible under the terms of Section 5.g(ii). For the avoidance of
doubt, it is agreed that it is the intent of the parties that the
Bank shall be free to exercise all remedies otherwise provided for in
this Agreement in the event of the violation by the Company of the
covenant stated in Section 5.g(ii), notwithstanding the accrual of
interest upon the Loan at a rate determined in accordance with this
definition.
2. TERM LOAN. Section 2.c. of the Agreement is hereby amended and
restated in its entirety, to read as follows:
c. The Term Loan. The Bank will make a term loan (the "Term
Loan") to the Company contemporaneously with the execution of this
Agreement on the following terms and subject to the following
conditions:
(i) Amount. The principal amount of the Term Loan shall be
Thirteen Million Nine Hundred Thousand and No/100 Dollars
($13,900,000). The proceeds of the Term Loan may be disbursed in two
separate disbursements, at the option of the Company.
(ii) The Term Note. The obligation of the Company to repay
the Term Loan shall be evidenced by a promissory note (the "Term
Note") in the form of Exhibit A. The principal of the Term Loan
shall be repayable in equal quarterly installments of $500,000 each,
due and payable on the last day of each September, December, March
and June, commencing September 30, 1996. On September 30, 2001, the
entire remaining principal amount of the Term Loan shall be due and
payable, together with all accrued and unpaid interest. Subject to
the contemporaneous payment of any Prepayment Premium which would
become due on account of any proposed prepayment, the principal of
the Term Loan may be prepaid at any time in whole or in part,
provided that any partial prepayment shall be in an amount which is
an integral multiple of $250,000.00 and provided, further, that any
partial prepayment shall be applied to the principal installments
payable on the Term Loan in the inverse order of their maturities.
(iii) Excess Cash Flow Recapture Payment. Annually, while the
Term Loan is outstanding, within ten (10) days of the Bank's receipt
of the Company's financial statements required to be provided under
Section 5.b.(i) of the Agreement, the Company shall make an excess
cash flow recapture payment equal to fifty percent (50%) of the sum
of the Company's consolidated net income before taxes plus interest
expense plus depreciation and amortization expense plus any non-recurring
or extraordinary charges minus the sum of scheduled Term
Loan principal payments plus interest expense plus cash income taxes
plus capital expenditures not financed with term debt. Such excess
cash flow recapture payment shall be applied against the latest
maturing installment of principal.
(iv) Interest on the Term Loan. The unpaid principal balance
from time to time of the Term Loan shall bear interest from the date
the Loan is made prior to the maturity of the Term Note at a rate per
annum equal to the Prime Rate plus the Applicable Spread, except that
at the option of the Company exercised from time to time as provided
in Section 2.d(i) of the Agreement, interest may accrue prior to
maturity on the entire outstanding balance of the Term Loan or on any
portion thereof which is in excess of $1,000,000.00 and as to which
no Optional Rate previously selected remains in effect at a LIBOR-based
Rate for a period of 30, 90 or 180 days; provided that no
Optional Rate may be elected for a period extending beyond the
scheduled final maturity of the Term Loan. Those elections of a
"LIBOR-based Rate" which have been made under the "Term Loan" (as
that term was defined in the Prior Agreement) and which remain in
effect on the date of this Agreement, shall continue, under this
Agreement, to be in effect through the end of the interest period for
which elected. After maturity, whether scheduled maturity or
maturity by virtue of acceleration on account of the occurrence of an
Event of Default, interest will accrue on the Term Loan at a rate per
annum equal to the Prime Rate plus the Applicable Spread, except that
as to any portion of the Loan for which the Company may have elected
an Optional Rate for a period of time that has not expired at
maturity, such portion shall, during the remainder of such period,
bear interest at the greater of the Prime Rate plus the Applicable
Spread per annum or the Optional Rate then in effect plus two percent
(2%) per annum. Prior to maturity, interest shall be due and payable
on the last Banking Day of each month in addition to any installment
of principal which may be due and payable on such date. After
maturity, interest shall be payable as accrued and without demand.
(v) Use of Proceeds of the Term Loan; Prepayment from Unusued
Proceeds. The proceeds of the Term Loan shall be used to finance the
repurchase of stock by the Company from existing shareholders in a
tender offer filed with and in compliance with the applicable
regulations of the Securities and Exchange Commission or through
open-market purchases in an aggregate amount not to exceed Ten
Million Dollars ($10,000,000) on or prior to December 31, 1996; to
refinance an Industrial Revenue Bond held by the Citizens National
Bank of Evansville, Indiana in the amount of [$648,000]; and to
refinance the Company's existing Term Loan in the amount of Three
Million Two Hundred Fifty Thousand Dollars ($3,250,000). On or
before December 31, 1996, the Company shall deliver to the Bank a
Certificate of an Authorized Officer certifying that the Company has
used $10,000,000 of the Term Loan proceeds, or such lesser amount as
actually used, to repurchase the common stock of the Company through
the tender offer or open-market purchases. In the event that the
Company has not fully utilized the $10,000,000 for such purpose by
December 31, 1996, the remaining unused proceeds of the Term Loan
shall be immediately repaid by the Company as a prepayment of the
Term Loan and shall be applied against the latest maturing
installment of principal.
3. COLLATERAL FOR THE OBLIGATIONS. Section 4 of the Agreement is hereby
amended and restated in its entirety to read as follows:
SECTION 4. Collateral for the Obligations. All of the Obligations
will be supported and secured as hereinafter set forth:
a. Limited Guaranties. The Obligations are and will
continue to be supported by the unconditional limited guaranties of
prompt payment of Harvard Sports, Inc., Indian Industries, Inc.,
Martin Yale Industries, Inc. and Escalade International, Limited,
each of whom executed a Guaranty Agreement effective as of May 31,
1996. Each such entity shall execute and deliver on the date hereof
a Reaffirmation of Guaranty in the form attached as Exhibit "B". Any
other Subsidiary hereinafter formed or otherwise acquired by the
Company shall also guaranty the Obligations which guaranty shall be
evidenced by a Guaranty Agreement in the form of Exhibit "C".
b. Company Security Agreement. The Company shall grant to
the Bank a first and prior lien on and security interest in all of
the personal property of the Company, including but not limited to,
all accounts and accounts receivable, inventory, equipment and
general intangibles, whether now owned or hereafter acquired and
wherever located. Such lien and security interest will be evidenced
by a Security Agreement in the form of Exhibit "D" and by the filing
of Uniform Commercial Code ("UCC") Financing Statements in all
offices deemed appropriate by the Bank.
c. Subsidiary Security Agreements. The obligations shall be
further secured by the grant of a first and prior lien on and
security interest in all of the personal property of Indian
Industries, Inc., Martin Yale Industries, Inc., Harvard Sports, Inc.,
and Escalade International, Limited and any other Subsidiary
hereafter formed or acquired by the Company. Such lien and security
interest shall be evidenced by a Subsidiary Security Agreement in the
form of Exhibit "E" and by the filing of UCC Financing Statements in
all offices deemed appropriate by the Bank.
d. Pledge Agreement. The Obligations will be further
secured by the pledge by the Company to the Bank of its ownership
interests in the common stock of Indian Industries, Inc., Martin Yale
Industries, Inc., Harvard Sports, Inc. and Escalade International,
Limited. Such pledge shall be evidenced by a Pledge Agreement in the
form of Exhibit "F". The Company shall deliver the stock
certificates of each such Subsidiary and any other Subsidiary formed
or acquired by the Company hereafter, together with Stock Powers
executed in blank.
4. AFFIRMATIVE COVENANTS. Section 5.(g) of the Agreement is hereby
amended and restated in its entirety to 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, of not
less than $500,000 below the Company's consolidated Tangible
Net Worth as of the date of funding of the tender offer (after
giving effect to the tender offer and its related transactional
expenses) until December 28, 1996, provided that no default of
this covenant will occur if the Tangible Net Worth is decreased
by more than $500,000 directly and solely as a result of the
Company's open market purchases of stock with proceeds of the
Term Loan. At December 28, 1996 and at the last day of each
fiscal year thereafter, the Tangible Net Worth to be maintained
by the Company on that date and at all times thereafter until
the last day of the next year shall be increased by an amount
equal to fifty percent (50%) of the Company's consolidated net
income, exclusive of losses, for the fiscal year then ended.
(ii) Leverage Ratio. For each period of four consecutive
fiscal quarters of the Company, ending during the periods
indicated in the table below, the Company shall maintain a
Leverage Ratio, at levels not greater than those shown in the
following table:
Period Ratio
from the date of this Amendment and until
December 27, 1997 3.50 to 1.0
at December 27, 1997 and until
December 26, 1998 3.25 to 1.0
at December 26, 1998 and until
December 25, 1999 3.00 to 1.0
at December 25, 1999 and until
December 30, 2000 2.75 to 1.0
at December 30, 2000 and
at all times thereafter 2.50 to 1.0
(iii) Debt Service Coverage. For each period of four
consecutive fiscal quarters ending during the periods indicated
in the table below, the Company shall maintain a debt service
coverage ratio (hereinafter defined), determined on a
consolidated basis, of not less than that indicated in the
table below.
Period Ratio
from the date of this Amendment and until
December 26, 1998 1.10 to 1.0
at December 26, 1998 and until
December 25, 1999 1.15 to 1.0
at December 25, 1999 and at all
times thereafter 1.20 to 1.0
For purposes of this covenant, the phrase "debt service
coverage ratio" means the ratio of (A) the sum of consolidated
net income before taxes plus interest expense plus depreciation
and amortization expense plus non-recurring and extraordinary
charges, all for the period for which the ratio is being
determined, over (B) the sum of scheduled Term Loan and other
term debt payments (excluding excess cash flow recapture
payments under Section 2.c(iii) hereof) plus interest expense
plus cash income taxes plus capital expenditures which were not
financed, all for the period for which such ratio is being
determined.
5. NEGATIVE COVENANTS. Sections 6.a. and i. of the Agreement are hereby
amended and restated in their entirety to read as follows:
a. Restricted 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; provided, however, that notwithstanding anything to the
contrary contained herein, the Company may purchase and redeem shares
of its capital stock through a tender offer or open-market purchases
for an aggregate purchase or redemption price not to exceed Ten
Million Dollars ($10,000,000) with the proceeds of the Term Loan.
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 of the Company.
i. Capital Expenditures Limitation. The Company shall not make
consolidated capital expenditures in the aggregate in any fiscal year
in excess of the amount of the Company's consolidated depreciation
expenses for the prior fiscal year. For purposes of testing
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.
6. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this First Amendment, the Company represents and warrants to the Bank
that:
a. The execution and delivery of this First Amendment, the
execution and delivery of all of the other documents executed in
connection herewith, and the performance by the Company of its
obligations under this First Amendment and all of the documents
executed in connection herewith are within the corporate power of the
Company, have been duly authorized by all necessary corporate action,
have received any required governmental or regulatory agency
approvals and do not and will not contravene or conflict with any
provision of law or of the Articles of Incorporation or Bylaws of the
Company or of any agreement binding upon the Company or any of its
property.
b. This First Amendment and all of the documents executed by the
Company in connection herewith are the legal, valid and binding
obligations of the Company, enforceable against the Company in
accordance with their respective terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws enacted for the relief of
debtors generally and other similar laws affecting the enforcement of
creditors' rights generally or by equitable principles which may
affect the availability of specific performance and other equitable
remedies.
c. The representations and warranties contained in Section 3 of
the Agreement are true and correct as of the date hereof except that
the representations contained in Section 3.d. of the Agreement shall
be deemed to refer to the latest financial statements furnished by
the Company to the Bank.
d. No Event of Default or Unmatured Event of Default has occurred
and is continuing as of the date of this First Amendment.
7. CONDITIONS PRECEDENT. This First Amendment shall become effective
upon the Bank's receipt of the following, contemporaneously with the
execution of this First Amendment, each duly executed, dated and in form
and substance satisfactory to the Bank:
a. This First Amendment;
b. The Replacement Term Loan Note;
c. The Company's Security Agreement, together with appropriate UCC
financing statements;
d. The Company's Pledge Agreement, together with executed Stock
Powers and the original stock certificates of Indian
Industries, Inc., Martin Yale Industries, Inc., Harvard Sports,
Inc. and Escalade International, Limited;
e. A Reaffirmation of Guaranty from each of Indian Industries,
Inc., Martin Yale Industries, Inc., Harvard Sports, Inc. and
Escalade International, Limited;
f. Subsidiary Security Agreement from each of Indian Industries,
Inc., Martin Yale Industries, Inc., Harvard Sports, Inc. and
Escalade International, Limited, together with appropriate UCC
financing statements;
g. The Ninth Amendment to the Martin Yale Industries, Inc. Credit
Agreement;
h. Certified copies of Resolutions of the Boards of Directors of
the Company and each of the Subsidiaries authorizing the
execution, delivery and performance, respectively of this First
Amendment and the Term Loan Note, the Security Agreement, the
Pledge Agreement, the Reaffirmations of Guaranty, the
Subsidiary Security Agreements, and the other Loan Documents to
which each such entity is a party;
i. Certificates of the Secretaries of each of the Company and the
Subsidiaries certifying the name of the officer or officers
authorized to sign each document to which the Company or any
Subsidiary is a party, together with a sample of the true
signature of each such officer;
j. Copies of the Articles of Incorporation and Bylaws of each of
the Company and the Subsidiaries, certified by the Secretary of
each such entity or a Certificate of No Change to such
documents if previously delivered to the Bank;
k. An opinion of counsel for the Company and the Subsidiaries, in
form and substance acceptable to the Bank and its counsel; and
l. Such other documents as the Bank may reasonably request.
8. PRIOR AGREEMENTS. The Agreement, as amended by this First Amendment,
supersedes all previous agreements and commitments made or issued by the
Bank, related to all of the subjects of the Agreement, as amended by this
First Amendment, and any oral or written proposals or commitments made or
issued by the Bank.
9. AFFIRMATION. Except as expressly amended by this First Amendment,
all of the terms and conditions of the Agreement and each of the Loan
Documents remains in full force and effect.
Executed on September 19, 1996.
ESCALADE, INCORPORATED
By________________________________________
________________________________________
Printed Name and Title
BANK ONE, INDIANAPOLIS, NATIONAL
ASSOCIATION
By
-------------------------------------
D. Kelly Queisser, Vice President and
Senior Relationship Manager
SS-81652-3
NINTH AMENDMENT TO CREDIT AGREEMENT
MARTIN YALE INDUSTRIES, INC., an Indiana corporation, (the "Account
Party"), ESCALADE, INCORPORATED, an Indiana corporation (the "Guarantor"),
and BANK ONE, INDIANAPOLIS, NATIONAL ASSOCIATION, a national banking
association (the "Bank"), being parties to that certain Credit Agreement
dated June 4, 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 which are not defined herein shall have the
meanings ascribed to them in the Agreement.
b. Section 1.gg of the Agreement is amended and restated in
its entirety, so that hereafter it will read as follows:
gg. Applicable Margin. "Applicable Margin" means that number
of percentage points taken into account in determining
the commission payable with respect to the Letter of
Credit, pursuant to Section 2.b of the Agreement.
Initially, from the date of the Ninth Amendment and until
May 1, 1997, the Applicable Margin shall be three-eighths
percent (3/8%), which shall be payable on the date of
execution of this Ninth Amendment. Thereafter, the
Applicable Margin shall be determined by reference to the
"Guarantor's Leverage Ratio" (as that term is defined in
the Guarantor's Credit Agreement), in accordance with the
following table:
Leverage Ratio Applicable Margin
-------------- -----------------
Greater than or equal to 1.50
3.00:1.0
Less than or equal to
2.99:1.0, but greater
than or equal to
2.50:1.0 1.375
Less than or equal to 2.49:1.0,
but greater than or equal
to 2.0:1.0 1.25
Less than or equal to 1.99:1.0
but greater than or equal
to 1.50:1.0 1.125
Less than 1.50:1.0 1.00
On and after May 1, 1997, the Applicable Margin shall be determined
on the basis of the financial statements of the Guarantor for each
fiscal year furnished to the Bank pursuant to the requirements of
Section 5.b(i) with effect on each May 1 immediately preceding or
immediately following the Bank's receipt of such statements. On the
first day of the month which follows the Bank's receipt of such
financial statements, the amount of Commission which was previously
paid by the Account Party (if such financial statements are received
after May 1) on account of the Letter of Credit shall be adjusted
from the last "Commission Due Date" (as that term is defined in
Section 2.b) which occurred prior to the first date of such month and
until the next "Commission Due Date" which follows the first day of
such month based on the Applicable Margin determined from such
financial statements, except that no adjustment will be made for
amounts paid or changes occurring prior to May 1, 1997. Any
overpayment of Commission for the remainder of such period shall be
promptly refunded by the Bank to the Account Party, and any
deficiency shall then be due and payable by the Account Party to the
Bank. If such financial statements are received prior to May 1 of
each year, the adjustment will occur on the Commission Due Date. 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 Guarantor or the Account Party of
any provision of Section 5.g or of the making of any commitment on
the part of the Bank to waive any violation by the Guarantor or the
Account Party of any provision of Section 5.g, notwithstanding the
fact that this definition includes provisions for an Applicable
Margin which would violate the Guarantor's maximum Leverage Ratio
permitted by Section 5.g.
c. The following new subsection is added to Section 1 of the
Agreement, reading as follows:
pp. Ninth Amendment. "Ninth Amendment" means that agreement
entitled "Ninth Amendment to Credit Agreement" dated as of September
19, 1996, entered into among the Account Party, the Guarantor and the
Bank for the purpose of amending this Agreement.
2. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to
enter into this Ninth Amendment, the Companies each represent and warrant
to the Bank that:
a. The execution and delivery of this Ninth Amendment, the
execution and delivery of all of the other documents executed
in connection herewith, and the performance by the Companies of
their respective obligations under this Ninth Amendment and all
of the documents executed by the Companies in connection
herewith are within the corporate powers of the Companies, have
been duly authorized by all necessary corporate action, have
received any required governmental or regulatory agency
approvals and do not and will not contravene or conflict with
any provision of law or of the articles of incorporation or
bylaws of either of the Companies or of any agreement binding
upon either Company or any of either Company's properties;
b. This Ninth Amendment and all of the documents executed by the
Companies in connection herewith are the legal, valid and
binding obligations of the Companies, enforceable against the
Companies in accordance with their respective terms, except to
the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium and other
laws enacted for the relief of debtors generally and other
similar laws affecting the enforcement of creditors' rights
generally or by equitable principles which may affect the
availability of specific performance and other equitable
remedies;
c. The representations and warranties contained in Section 3 of
the Agreement are true and correct as of the date hereof,
except that (a) the representations and warranties in Section
3.a of the Agreement shall be deemed to refer to the Account
Party as an Indiana corporation, and (b) the representations
contained in Section 3(d) of the Agreement shall be deemed to
refer to the latest financial statements furnished to the Bank
by Martin Yale Industries, Inc., an Indiana corporation; and
d. No Event of Default or Unmatured Event of Default has occurred
and is continuing as of the date of this Ninth Amendment.
3. CONDITIONS PRECEDENT. This Ninth Amendment shall become
effective upon the Bank's receipt 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:
a. This Ninth Amendment.
b. The Guarantor's Amendment to Credit Agreement between Escalade,
Inc., and the Bank, and such other documents as are required
thereunder.
c. A certified copy of a Resolution of the Board of Directors of
the Company authorizing the execution, delivery and
performance, respectively, of this Ninth Amendment and the
other Credit Documents provided for in this Ninth Amendment to
which the Company is a party.
d. A certificate of the Secretary of the Company certifying the
names of the officer or officers authorized to sign this Ninth
Amendment and the other Credit 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.
e. A copy of the file-marked Articles of Incorporation of the
Company, and a copy of the By-Laws of the Company, certified as
complete and correct by the Secretary of the Company, or a
Certificate of No Change to such documents.
f. Such other documents as the Bank may reasonably request.
4. PRIOR AGREEMENTS. The Agreement, as amended by this Ninth
Amendment, supersedes all previous agreements and commitments made or
issued by the Bank, related to all of the subjects of the Agreement, as
amended by this Ninth Amendment, and any oral or written proposals or
commitments made or issued by the Bank.
5. REAFFIRMATION. Except as expressly amended by this Ninth
Amendment, all of the terms and conditions of the Agreement and each of the
Credit Documents remain in full force and effect.
Executed on September 19, 1996.
MARTIN YALE INDUSTRIES, INC.
By:___________________________________
___________________________________
(Printed name and title)
By:__________________________________
__________________________________
(Printed name and title)
ESCALADE, INCORPORATED
By:___________________________________
___________________________________
(Printed name and title)
BANK ONE, INDIANAPOLIS
NATIONAL ASSOCIATION
By:___________________________________
D. Kelly Queisser, Vice President
And Senior Relationship Manager
SS-81320-2
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