Quarterly report pursuant to Section 13 or 15(d)

Note 5 - Financing Arrangements

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Note 5 - Financing Arrangements
3 Months Ended
Jul. 01, 2018
Notes to Financial Statements  
Debt Disclosure [Text Block]
Note
5
– Financing Arrangements
 
Master Stand-by Claims Purchase Agreement
s
:
On
May 16, 2017,
the Company entered into an agreement (the “First Agreement”) with JPMorgan Chase Bank, N.A. (“Chase”) wherein the Company had the right to sell, and Chase had the obligation to purchase, certain claims that could arise if accounts receivable amounts owed by Toys “R” Us-Delaware, Inc. (“Toys-Delaware”), an affiliated company of Toys “R” Us, Inc. (“TRU”), to the Company became uncollectible. The First Agreement would have expired on
September 20, 2018
and carried a fee of
1.65%
per month of the limit of
$1.8
million of accounts receivable due from Toys-Delaware. On
September 18, 2017,
TRU and Toys-Delaware filed voluntary petitions for relief under Chapter
11
of the U.S. Bankruptcy Code (the “Bankruptcy Filing”). Pursuant to the terms of the First Agreement, the Bankruptcy Filing allowed the Company to exercise its right to sell to Chase the claim that arose as a result of the Bankruptcy Filing, which amounted to
$866,000
payable to the Company (the “First Exercise”). Of this amount,
$746,000
remained payable to the Company by Chase as of
July 1, 2018
under customary closing procedures and has been classified as other accounts receivable in the accompanying condensed consolidated balance sheets. The First Exercise resulted in the acceleration of the recognition of the remaining unpaid fees owed under the First Agreement. During the
three
-month period ended
July 2, 2017,
the Company recorded
$64,000
in fees under the First Agreement, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income.
 
On
September 19, 2017,
the Company entered into an agreement (the “Second Agreement”) with Chase wherein the Company has the right to sell, and Chase has the obligation to purchase, certain accounts receivable claims that could arise if TRU converts its Chapter
11
case to Chapter
7
of the U.S. Bankruptcy Code or takes other specified actions. The Second Agreement would have expired on
March 31, 2018
and carried a fee of
1.50%
per month of the limit of
$1.8
million of accounts receivable due from Toys-Delaware. On
March 14, 2018,
TRU filed a motion with the Court seeking authority to close the remaining Toys-Delaware stores and distribution centers in the U.S., and to otherwise discontinue, liquidate and wind-down all U.S. operations of Toys-Delaware.
 
Pursuant to the terms of the Second Agreement, the liquidation filing allowed the Company to exercise its right to sell to Chase the claim that arose as a result of the liquidation filing, which amounted to
$1.8
million payable to the Company, the entirety of which remained payable to the Company by Chase as of
July 1, 2018
under customary closing procedures and has been classified as other accounts receivable in the accompanying condensed consolidated balance sheets.
 
Factoring Agreement
s:
The Company assigns the majority of its trade accounts receivable to CIT under factoring agreements whose expiration dates are coterminous with that of the CIT Financing Agreement. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT.
 
CIT bears credit losses with respect to assigned accounts receivable from approved customers that are within approved credit limits, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts. CIT
may
at any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, the Company either assumes (and
may
seek to mitigate) the credit risk for shipments after the date of such termination or limitation or discontinues shipments to such customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to
$56,000
and
$65,000
for the
three
-month periods ended
July 1, 2018
and
July 2, 2017,
respectively.
 
Credit Facility:
The Company’s credit facility at
July 1, 2018
consisted of a revolving line of credit under the CIT Financing Agreement of up to
$26.0
million, which includes a
$1.5
million sub-limit for letters of credit, with an interest rate of prime minus
0.5%
or LIBOR plus
2.0%,
and which is secured by a
first
lien on all assets of the Company. The CIT Financing Agreement was scheduled to mature on
July 11, 2019,
but on
August 7, 2018
the CIT Financing Agreement was amended to extend the maturity date to
July 11, 2022
and to lower the interest rate margin under the LIBOR option to
1.75%,
effective as of
August 1, 2018.
As of
July 1, 2018,
the Company had elected to pay interest on balances owed under the revolving line of credit under the LIBOR option, which was
4.0%
as of
July 1, 2018.
The CIT Financing Agreement also provides for the payment by CIT to the Company of interest at the rate of prime as of the beginning of the calendar month minus
2.0%
on daily cash balances held at CIT.
 
At
July 1, 2018,
there was a balance due on the revolving line of credit of
$3.8
million, the entirety of which will mature during fiscal year
2023.
There was
no
letter of credit outstanding and
$17.9
million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances. At
April 1, 2018,
there was a balance due on the revolving line of credit of
$9.5
million, there was
no
letter of credit outstanding and
$13.2
million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances. The CIT Financing Agreement for the revolving line of credit contains usual and customary covenants for agreements of that type, including limitations on other indebtedness, liens, transfers of assets, investments and acquisitions, merger or consolidation transactions, transactions with affiliates and changes in or amendments to the organizational documents for the Company and its subsidiaries. The Company was in compliance with these covenants as of
July 1, 2018.