Exhibit 10.1
FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT
THIS FIRST AMENDMENT TO RECEIVABLES PURCHASE AGREEMENT, dated as of May
28, 2003 (this "Amendment"), is entered into among XXXXXX FUNDING CORPORATION, a
Delaware corporation (the "Seller"), XXXXXX CO., a Pennsylvania corporation (the
"Servicer"), MARKET STREET FUNDING CORPORATION, a Delaware corporation (the
"Issuer") and PNC BANK, NATIONAL ASSOCIATION, a national banking association, as
Administrator (the "Administrator").
RECITALS
1. The Seller, the Servicer, the Issuer and the Administrator are
parties to the Receivables Purchase Agreement, dated as of May 29, 1998 (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Agreement"); and
2. The parties hereto desire to amend the Agreement as hereinafter set
forth.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Certain Defined Terms. Capitalized terms that are used herein
without definition and that are defined in Exhibit I to the Agreement shall have
the same meanings herein as therein defined.
2. Amendments to Agreement. The Agreement is hereby amended as follows:
2.1 Section 1.8 of the Agreement is hereby amended and
restated in its entirety to read as follows:
"Section 1.8. Increased Costs and Yield Protection. (a) If the
Administrator, the Issuer, any Purchaser, any other Program Support
Provider or any of their respective Affiliates (each an "Affected
Person") determines that the existence of or compliance with (i) any
law, regulation or generally accepted accounting principles or any
change therein or in the interpretation or application thereof, in each
case adopted, issued or occurring after the date hereof or (ii) any
request, guideline or directive from any central bank or other
Governmental Authority (whether or not having the force of law) issued
or occurring after the date of this Agreement affects or would affect
the amount of capital required or expected to be maintained by such
Affected Person and such Affected Person determines that the amount of
such capital is increased by or based upon the existence of any
commitment to make purchases of or otherwise to maintain the investment
in Pool Receivables related to this Agreement or any related liquidity
facility or credit enhancement facility and other commitments of the
same type, then, upon demand by such Affected Person (with a copy to
the Administrator), the Seller shall promptly pay to the Administrator,
for the account of such Affected Person, from time to time as specified
by such Affected Person, additional amounts sufficient to compensate
such Affected Person for both increased costs and maintenance of
bargained for yield in light of such circumstances, to the extent that
such Affected Person reasonably determines such
increase in capital to be allocable to the existence of any of such
commitments. A certificate as to such amounts submitted to the Seller
and the Administrator by such Affected Person shall be conclusive and
binding for all purposes, absent manifest error.
(b) If, due to either (i) the introduction of or any change (other than
any change by way of imposition or increase of reserve requirements
referred to in Section 1.9) in or in the interpretation or application
of any law, regulation or generally accepted accounting principles, or
(ii) compliance with any request, guideline or directive from any
central bank or other Governmental Authority (whether or not having the
force of law), there shall be any increase in the cost to any Affected
Person of agreeing to purchase or purchasing, or maintaining the
ownership of the Purchased Interest in respect of which Discount is
computed by reference to the Eurodollar Rate, then, upon demand by such
Affected Person, the Seller shall promptly pay to such Affected Person,
from time to time as specified by such Affected Person, additional
amounts sufficient to compensate such Affected Person for both
increased costs and maintenance of bargained for yield. A certificate
as to such amounts submitted to the Seller by such Affected Person
shall be conclusive and binding for all purposes, absent manifest
error.
(c) If such increased costs affect the related Affected Person's
portfolio of financing transactions, such Affected Person shall use
reasonable averaging and attribution methods to allocate such increased
costs to the transactions contemplated by this Agreement.
(d) For avoidance of doubt, any increase in cost and/or reduction in
bargained for yield caused by regulatory capital allocation adjustments
due to Financial Accounting Standards Board's Interpretation 46 (or any
future statement or interpretation issued by the Financial Accounting
Standards Board or any successor thereto) shall be covered by this
Section 1.8."
2.2 Section 5.1 of the Agreement is hereby amended by deleting
the phrase "; provided, however, that no such material amendment shall be
effective until both Moody's and Standard & Poor's have notified the Servicer
and the Administrator in writing that such action will not result in a reduction
or withdrawal of the rating of any Notes" in such Section.
2.3 Section 5.4(a) of the Agreement is hereby amended by
adding the phrase "and audits by other auditors" immediately after the first
occurrence of the words "Pool Receivables" in such Section.
2.4 The definition of "Concentration Percentage" in Exhibit I
to the Agreement is hereby amended and restated in its entirety to read as
follows:
""Concentration Percentage" means: (a) for Home Depot, 35% as long as
Home Depot would be considered a Group A Obligor and for any other
Group A Obligor, 20%, (b) for any Group B Obligor, 16%, (c) for any
Group C Obligor, 8% and (d) for Menards and Ace Hardware, 5% as long as
such entities would be considered a Group D Obligor and for any other
Group D Obligor, 2%; provided, however, that the Issuer may, with prior
-2-
written consent from the Administrator and the Liquidity Agent, approve
higher Concentration Percentages for selected Obligors."
2.5 The definition of "Debt-to-Capital Ratio" in Exhibit
I to the Agreement is hereby deleted in its entirety.
2.6 The definition of "Default Ratio" in Exhibit I to the
Agreement is hereby amended and restated in its entirety to read as follows:
""Default Ratio" means the ratio (expressed as a percentage and rounded
to the nearest 1/100 of 1%, with 5/1000th of 1% rounded upward)
computed as of the last day of each calendar month by dividing: (a) the
aggregate Outstanding Balance of all Pool Receivables that became
Defaulted Receivables during such month (other than Receivables that
became Defaulted Receivables as a result of an Event of Bankruptcy with
respect to the Obligor thereof during such month), by (b) the aggregate
credit sales made by the Originator during the month that is four
calendar months before such month."
2.7 The definition of "Defaulted Receivable" in Exhibit I to
the Agreement is hereby amended and restated in its entirety to read as follows:
""Defaulted Receivable" means a Receivable:
(a)as to which any payment, or part thereof, remains
unpaid for more than 90 days from the original due date for
such payment, or
(b) without duplication (i) as to which an Event of
Bankruptcy shall have occurred with respect to the Obligor
thereof or any other Person obligated thereon or owning any
Related Security with respect thereto, or (ii) that has been
written off the Seller's books as uncollectible."
2.8 The definition of "Dilution Reserve Percentage" in Exhibit
I to the Agreement is hereby amended and restated in its entirety to read as
follows:
""Dilution Reserve Percentage" means on any date, the greater of: (a)
6% or (b) the product of (i) the Dilution Horizon multiplied by (ii)
the sum of (x) 2 times the average of the Dilution Ratios for the
twelve most recent calendar months and (y) the Spike Factor."
2.9 Clause (a) of the definition of "Eligible Receivable" in
Exhibit I to the Agreement is hereby amended and restated in its entirety to
read as follows:
"(a) the Obligor of which is (i) a United States or Canadian resident;
provided, however, that the aggregate Outstanding Balance of all
Receivables the related Obligors of which are Canadian residents, shall
not exceed 2.5% of the aggregate Outstanding Balance of Pool
Receivables at such time, (ii) not a government or a governmental
subdivision, affiliate or agency, (iii) not subject to any action of
the type described in paragraph (f) of
-3-
Exhibit V to the Agreement and (iv) not an Affiliate of Xxxxxx or any
Affiliate of Xxxxxx,"
2.10 The definition of "Facility Termination Date" in Exhibit
I to the Agreement is hereby amended and restated in its entirety to read as
follows:
""Facility Termination Date" means the earliest to occur of: (a) May
26, 2006, (b) the date determined pursuant to Section 2.2 of the
Agreement, (c) the date the Purchase Limit reduces to zero pursuant to
Section 1.1(b) of the Agreement, (d) the date that the commitments of
the Purchasers terminate under the Liquidity Agreement and (e) the
Issuer's failure to cause the amendment or modification of any
Transaction Document or related opinion as required by Standard &
Poor's or Moody's, and such failure shall continue for 30 days after
such amendment or modification is initially requested."
2.11 The definition of "Group A Obligor" in Exhibit I to the
Agreement is hereby amended and restated in its entirety to read as follows:
""Group A Obligor" means (i) any Obligor (other than as set forth in
clause (ii) below) with a short-term rating of at least: (a) "A-1" by
Standard & Poor's, or if such Obligor does not have a short-term rating
from Standard & Poor's, a rating of "A+" or better by Standard & Poor's
on its long-term senior unsecured and uncredit-enhanced debt
securities, and (b) "P-1" by Moody's, or if such Obligor does not have
a short-term rating from Xxxxx'x, "X0" or better by Moody's on its
long-term and (ii) Lowe's, so long as Lowe's maintains an "A-1"
short-term rating by Standard & Poor's, or if Lowe's does not have a
short-term rating from Standard & Poor's, a rating of "A+" or better by
Standard & Poor's on Lowe's long-term senior unsecured and
uncredit-enhanced debt securities."
2.12 The definition of "Group C Obligor" in Exhibit I to the
Agreement is hereby amended and restated in its entirety to read as follows:
""Group C Obligor" means an Obligor, not a Group A Obligor or a Group B
Obligor, with a short-term rating of at least: (a) "A-3" by Standard &
Poor's, or if such Obligor does not have a short-term rating from
Standard & Poor's, a rating of "BBB-" to "BBB" by Standard & Poor's on
its long-term senior unsecured and uncredit-enhanced debt securities,
and (b) "P-3" by Moody's, or if such Obligor does not have a short-term
rating from Moody's, "Baa3" to "Baa2" by Moody's on its long-term
senior unsecured and uncredit-enhanced debt securities."
2.13 The definition of "Rating Agency Condition" in Exhibit I
to the Agreement is hereby deleted in its entirety.
2.14 The definition of "Receivable" in Exhibit I to the
Agreement is hereby amended and restated in its entirety to read as follows:
""Receivable" means any indebtedness and other obligations (whether or
not earned by performance) owed to the Seller (as assignee of the
Originator) or the Originator by, or
-4-
any right of the Seller or the Originator to payment from or on behalf
of, an Obligor, whether constituting an account, chattel paper,
instrument or general intangible, arising in connection with goods that
have been or are to be sold or otherwise disposed of, or services
rendered or to be rendered by the Originator, in the ordinary course of
its business, and includes the obligation to pay any finance charges,
fees and other charges with respect thereto. Indebtedness and other
obligations arising from any one transaction, including indebtedness
and other obligations represented by an individual invoice or
agreement, shall constitute a Receivable separate from a Receivable
consisting of the indebtedness and other obligations arising from any
other transaction."
2.15 Clause 2(a) of Exhibit III to the Agreement is hereby
amended by replacing the word "Delaware" therein with the word "Pennsylvania".
2.16 Exhibit III to the Agreement is hereby amended by adding,
immediately at the end of such Exhibit, the additional representations and
warranties as set forth on Annex A to this Amendment.
2.17 Clause (g) of Exhibit V to the Agreement is hereby
amended and restated in its entirety to read as follows:
"(g)(i) the (A) Default Ratio shall exceed 4.0% or (B) the Delinquency
Ratio shall exceed 8.0% or (ii) the average for three consecutive
calendar months of: (A) the Default Ratio shall exceed 3.0%, (B) the
Delinquency Ratio shall exceed 6.5% or (C) the Dilution Ratio shall
exceed 4.5%."
2.18 Schedule I to the Agreement is hereby replaced in its
entirety by Schedule I to this Amendment.
2.19 Schedule II to the Agreement is hereby amended by
replacing the word "NationsBank" therein with the words "Bank of America".
3. Representations and Warranties; No Default. The Seller hereby
represents and warrants to each of the parties hereto as follows:
(a) Representations and Warranties. The representations and
warranties contained in Exhibit III of the Agreement are true and
correct as of the date hereof.
(b) No Default. Both before and immediately after giving
effect to this Amendment and the transactions contemplated hereby, no
Termination Event or Unmatured Termination Event exists or shall exist.
4. Effect of Amendment. All provisions of the Agreement, as expressly
amended and modified by this Amendment, shall remain in full force and effect.
After this Amendment becomes effective, all references in the Agreement (or in
any other Transaction Document) to "this Agreement", "hereof", "herein" or words
of similar effect referring to the Agreement shall be deemed to be references to
the Agreement as amended by this Amendment. This Amendment
-5-
shall not be deemed, either expressly or impliedly, to waive, amend or
supplement any provision of the Agreement other than as set forth herein.
5. Conditions Precedent to Effectiveness. This Amendment shall become
effective as of the date hereof upon receipt by the Administrator of:
(a) counterparts of this Amendment (whether by facsimile or
otherwise) executed by each of the parties hereto;
(b) (i) counterparts of that certain fee letter agreement,
dated of even date herewith, among the Seller, the Servicer, the Issuer
and the Administrator, and (ii) the "structuring fee" referred to
therein; and
(c) such other opinions, approvals, certificates or other
documents (including, without limitation, any lien search reports
requested by the Administrator), in each case, in form and substance
satisfactory to the Administrator and its counsel.
6. Receipt of Certain Opinions. Notwithstanding anything in this
Amendment, the Agreement or any other Transaction Document to the contrary, the
parties hereto expressly agree that, on or prior to the close of business on
June 4, 2003, the Administrator shall have received favorable legal opinions
from counsel to the Seller and the Servicer, covering such matters (including,
without limitation, general corporate matters, bankruptcy matters, and UCC
perfection and priority matters) as the Administrator may reasonably request, in
each case, in form and substance satisfactory to the Administrator and its
counsel and that the failure of the timely occurrence of the condition set forth
in this Section 6 shall, without any notice, declaration, demand, or other act
by any Person, be deemed to result in the automatic occurrence of the Facility
Termination Date, unless the time period set forth above has been extended in
writing by the Administrator (on behalf of the Issuer) or such failure has been
otherwise waived or excused in writing by the Administrator (on behalf of the
Issuer).
7. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
when so executed shall be deemed to be an original and all of which when taken
together shall constitute but one and the same instrument.
8. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the internal laws of the State of New York (without regard to
any otherwise applicable principles of conflicts of law).
9. Section Headings. The various headings of this Amendment are
included for convenience only and shall not affect the meaning or interpretation
of this Amendment, the Agreement or any provision hereof or thereof.
[signature pages follow]
-6-
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first written above.
XXXXXX FUNDING CORPORATION
as Seller
By: ________________________________
Name: ________________________________
Title: ________________________________
XXXXXX CO.,
As Servicer
By: ________________________________
Name: ________________________________
Title: ________________________________
-0-
XXXXXX XXXXXX FUNDING CORPORATION
as Issuer
By: ________________________________
Name: ________________________________
Title: ________________________________
PNC BANK, NATIONAL ASSOCIATION,
as Administrator
By: ________________________________
Name: ________________________________
Title: ________________________________
-8-
ANNEX A TO
FIRST AMENDMENT TO
RECEIVABLES PURCHASE AGREEMENT
3. Additional Representations and Warranties with respect to the Receivables.
(a) Receivables; Lock-Box Accounts.
(i) Receivables. The Pool Receivables constitute "accounts", "general
intangibles"or "tangible chattel paper", each within the meaning of the
applicable UCC.
(ii) Lock-Box Accounts. Each Lock-Box Account constitutes a "deposit
account" within the meaning of the applicable UCC.
(b) Creation of Security Interest. The Seller owns and is the legal and
beneficial owner of the Pool Receivables and Lock-Box Accounts, free and
clear of any Adverse Claim. The Agreement creates a valid and continuing
security interest (as defined in the applicable UCC) in the Pool
Receivables and the Lock-Box Accounts in favor of the Issuer, which
security interest is prior to all other Adverse Claims and is enforceable
as such as against any creditors of and purchasers from the Seller.
(c) Perfection.
(i) General. The Seller has or has caused, or will or will cause within
ten days after the date of the Agreement, the filing of all appropriate
financing statements in the proper filing office in the appropriate
jurisdictions under applicable law in order to perfect the sale of the
Pool Receivables from the Originator to the Seller pursuant to the Sale
Agreement and the security interest granted by the Seller to the Issuer in
the Receivables and Lock-Box Accounts hereunder.
(ii) Tangible Chattel Paper. With respect to any Pool Receivable that
constitutes "tangible chattel paper", the Servicer is in possession of the
original copies of the tangible chattel paper that constitute or evidence
such Pool Receivables, and the Seller has filed or has caused the
Originator to file, or will file or will cause the Originator to file
within ten days after the date of the Agreement, the financing statements
described in paragraph (a) above. The Pool Receivables to the extent they
are evidenced by "tangible chattel paper" do not have any marks or
notations indicating that they have been pledged, assigned or otherwise
conveyed to any Person other than the Seller or the Issuer.
(iii) Lock-Box Accounts. With respect to all Lock-Box Accounts, the Seller
has delivered to the Administrator, on behalf of the Issuer, a fully
executed Lock-Box Agreement pursuant to which the applicable Lock-Box Bank
has agreed, following the occurrence and continuation of a Termination
Event, to comply with all instructions given by the Administrator with
respect to all funds on deposit in such Lock-Box Account (and all funds
sent to the respective lock-box), without further consent by the Seller or
the Servicer.
-9-
(d) Priority.
(i) Other than the transfer of the Receivables by the Originator to the
Seller pursuant to the Sale Agreement and the grant of security interest
by the Seller to the Issuer in the Pool Receivables and Lock-Box Accounts
hereunder, neither the Seller nor the Originator has pledged, assigned,
sold, conveyed, or otherwise granted a security interest in any of the
Pool Receivables or Lock-Box Accounts to any other Person.
(ii) Neither the Seller nor the Originator has authorized, or is aware of,
any filing of any financing statement against the Seller or the Originator
that includes a description of collateral covering the Pool Receivables or
any other Pool Assets, other than any financing statement filed pursuant
to the Sale Agreement and the Agreement or financing statements that have
been validly terminated prior to the date of the Agreement.
(iii) The Seller is not aware of any judgment, ERISA or tax lien filings
against either the Seller or the Originator.
(iv) None of the Lock-Box Accounts are in the name of any Person other
than the Seller or the Issuer. None of the Seller, the Servicer or the
Originator has consented to any Lock-Box Bank's complying with
instructions of any person other than the Administrator.
(e) Survival of Supplemental Representations. Notwithstanding any other
provision of the Agreement or any other Transaction Document, the
representations contained in this Exhibit III shall be continuing, and
remain in full force and effect until such time as all the Capital has
finally been paid in full and all other obligations of the Seller under
the Agreement and each of the other Transaction Documents have been fully
performed.
(f) Seller to Maintain Perfection and Priority. In order to evidence the
interests of the Issuer under the Agreement, the Seller shall, from time
to time take such action, or execute and deliver such instruments (other
than filing financing statements) as may be necessary or advisable
(including, without limitation, such actions as are requested by the
Administrator on behalf of the Issuer) to maintain and perfect, as a
first-priority interest, the Issuer's security interest in the Pool
Assets. The Seller shall, from time to time and within the time limits
established by law, prepare and present to the Administrator for the
Administrator's authorization and approval all financing statements,
amendments, continuations or initial financing statements in lieu of a
continuation statement, or other filings necessary to continue, maintain
and perfect the Issuer's security interest in the Pool Assets as a
first-priority interest. The Administrator's approval of such filings
shall authorize the Seller to file such financing statements under the UCC
without the signature of the Seller, the Originator or the Issuer where
allowed by applicable law. Notwithstanding anything else in the
Transaction Documents to the contrary, neither the Seller, the Servicer,
nor the Originator, shall have any authority to file a termination,
partial termination, release, partial release or any amendment that
deletes the name of a debtor or excludes collateral of any such financing
statements, without the prior written consent of the Administrator, on
behalf of the Issuer.
-10-
SCHEDULE I TO
FIRST AMENDMENT TO
RECEIVABLES PURCHASE AGREEMENT
SCHEDULE I
CREDIT AND COLLECTION POLICY
-11-
XXXXXX CO.
CREDIT POLICY
Typically, prospective customers are pre-screened by
the credit department upon the request of sales staff
through the use of a D&B report. The credit procedure
is as follows:
1. Review prospective customer's rating using the
D&B disk. If the D&B information supports the
anticipated credit level, credit it approved.
2. If not, order a full D&B report. If additional
support is required bank and trade inquiries
are sent. In some instances it may be necessary
to request recent financial statements.
3. If sufficient credit information cannot be
obtained or if the information does not
support the extension of credit, the
customer will be required to pay in advance
by check or wire transfer.
The Company utilizes credit limits for some
customers, but limits are not used for behavioral
control. Xxxxxx uses a credit code system to monitor
and control payment behavior.
Credit Codes All customers are assigned a credit code that
determines the credit approvals that are necessary
when an order is entered. Codes are established by
the credit managers at the time of approval and can
only be changed by the credit managers. The codes
and their distribution in the current portfolio are
as follows:
Code Description % of Total
Y Automatic approval 72%
H Credit Department must approve order 14%
A Credit Department only advised of order 12%
E Export account 2%
N Do not ship - order entry prohibited 1%
R Requires secured terms - credit must
approve less than 1%
The credit department consists of two credit managers
and four clerks. Xxxxxx Xxxxxxxxx has been the credit
manager for WXP for the past 14 years. He has over 35
years credit experience, including time with Rockwell
-12-
International, United Technologies, and Alumax.
Xxxxxxx Xxxxxxxx has been the credit manager for WL
for over 12 years. He has over 35 years credit
experience, including time with GF Industries and
RCA. The two credit managers oversee credit
extension, collections, cash application, credit memo
issuance, and accounts receivable control. Both are
members of the NACM.
For WL, approximately 60 to 70% of the portfolio (by
dollars), including Home Depot, Lowe's, Sears, and
Ace Hardware, utilizes EDI to send orders to the
sales service system. The remainder of orders are
mailed or faxed. Orders are priced automatically and
invoices are automatically generated the day of
shipment and either sent by EDI or mailed the
following day. The receivable is created when the
invoice is generated. For WXP orders, the receivable
is created the day after the invoice is generated.
Xxxxxx offers over several different payment term
options, however over 50% of the active accounts are
on 30 day terms. Less than 10% of the portfolio has
terms exceeding 90 days.
Billing is centralized at the Greenville,
Pennsylvania facility. Payments are received via one
of three methods: (I) 10-15% of the portfolio pays
via EDI; (ii) 85-90% of the portfolio remits payments
to one of three lockboxes; and (iii) approximately 1%
of the portfolio remits payment to the local bank in
Greenville or directly to the Company. The three
lockboxes are located in Charlotte (Bank of America)
Los Angeles (Xxxxx Fargo), and Chicago (LaSalle).
Payment information is received in Greenville each
day for the prior days' receipts from the lockboxes
and is applied manually by the credit and collection
staff. A credit or debit memo is issued in the case
of any mismatch between the remittance and the
invoice and the original invoice is eliminated.
Credit/debit memos are coded to reflect the reason
for the mismatch and begin aging the following day as
one day past due.
The credit managers view a delinquency report on
approximately the 3rd workday of the month. The
report is sorted from the largest delinquent balance
to the smallest. For larger customers, a fax of the
invoice is typically
-13-
sufficient to stimulate payment or discussion of the
reason for non-payment. For smaller customers, the
credit managers begin calling from the top of the
sorted list, making notes either in the receivables
system or on the printed report. A follow-up call,
which can be flagged through tickler capability
within the receivables system, is made 7 days
following the initial call. A demand letter is sent
between 30-60 days past due. The account is
forwarded to a collection agency between 60-90 days
past due. Any delinquency below $500 is forwarded to
D&B's letter writing service. The service, for a
cost of $10 per letter, sends letters to customers
by mail. It has been the Company's experience that
by third letter, almost all of the delinquent
customers pay off their balance.
Xxxxxx does not write- off accounts at a specific
number of days past due. Accounts, or a portion
thereof, are written off when deemed uncollectible.
The Company does not re-age or cure any balances.
Occasionally, credits that have aged for some time
are debited as "miscellaneous income" and cleared
from the receivables system.
Xxxxxx established a bad debt reserve based upon past
experience and an analysis of the current receivables
portfolio. The reserve is reviewed quarterly and both
the reserve and the monthly accrual are adjusted when
necessary. Amounts charged against the reserve must
have the approval of the credit manager, the
assistant controller, and the CFO. Adjustments to the
reserve require the approval of the assistant
controller. Monthly reports are circulated to
management detailing activity in the reserve. A
quarterly analysis is prepared for both management
and the Company's auditors.
Dilution can occur from cash discounts, returns,
rebates and allowances, and billing
adjustments/credits.
Cash Discounts Xxxxxx provides a multitude of cash discount terms
for prompt pay; however, only approximately $300,000
in cash discounts are taken each month. The
receivables system will automatically deduct the
discount unless Instructed not to do so.
Returns For WL, returns are taken liberally - power retailers
such as Home Depot allow their customers to return
items for any reason. For WXP, due to the
customization of
-14-
each sale, returns are only permitted for quality
and quantity discrepancies. Returns can occur
several months after their respective Invoice given
the "shelf Item" nature of ladders. When a return
occurs, an RMA ("return merchandise authorization")
is generated by the system and a credit is created.
Rebates and The Company offers a series of volume rebates and
Allowances advertising allowances to its customers. Volume
rebate programs have payouts on a monthly, quarterly,
and annually basis. For advertising allowances,
customers must send proof, such as a copy of the
advertisement and the related xxxx. Rebates and
allowances are typically paid via a credit memo. A
separate reserve is maintained with monthly accrual,
and adjustments are made when necessary. Beginning
in January of 1996, accrual for this reserve was
automated within the sales system.
Billing
Adjustments/Credits Adjustments for pricing errors, damaged goods,
freight allowances, carrier claims, and other credits
and debits are typically cured within 2-4 weeks of
due dates on average. At any one time, there is
approximately 3,000 credits or debits in the
receivables system.
Xxxxxx employs approximately 35 staff members in its
internal MIS department.
Hardware The Company operates on multiple IBM AS400s with
significant excess capacity and multiple PCs
connected via a network.
Software Xxxxxx owns its software package, a X.X. Xxxxxxx
accounts receivable and financial reporting system.
New releases are automatically received by the
Company.
Backup and The system is backed up daily via tapes with offsite
Recovery storage. Xxxxxx utilizes a Imaging system for
hardcopy storage whereby Invoices and other
documents can be accessed through each PC
eliminating the need for an on-site document filing
system.
-15-
