-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ei8r10pJdnHWq7wic6ZPwKlSxflxpoYG6Wm4xxLqTkJqeM2cr+UDv+cQQ0FB/KbP 6z57hfGhkmlZ7vxI8mqkYw== 0000950137-96-000735.txt : 19960724 0000950137-96-000735.hdr.sgml : 19960724 ACCESSION NUMBER: 0000950137-96-000735 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECORATIVE HOME ACCENTS INC CENTRAL INDEX KEY: 0001000453 STANDARD INDUSTRIAL CLASSIFICATION: 2390 IRS NUMBER: 570998387 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-96794 FILM NUMBER: 96567725 BUSINESS ADDRESS: STREET 1: INDUSTRIAL PARK DR STREET 2: P.O. BOX 11877 CITY: ABBEVILLE STATE: SC ZIP: 29620 BUSINESS PHONE: 8644462123 MAIL ADDRESS: STREET 1: P.O. BOX 1187 CITY: ABBEVILLE STATE: SC ZIP: 29620 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 / / For the Quarterly Period Ended: March 31, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number: 33-96794 DECORATIVE HOME ACCENTS, INC. (Exact name of registrant as specified in its charter) Delaware 57-0998387 ------------------------------ ---------------------------------- (State or other jurisdiction of (IRS Employer Idenification Number) incorporation or organization) Industrial Park Drive, Abbeville, South Carolina 29620 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (864) 446-2123 Indicate by check mark whether the registrant 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). Yes /X/ No / / Indicate by check mark whether the registrant has been subject to such filing requirements for the past 90 days. Yes /X/ No / / As of May 10, 1996, there were 1,074,838 shares outstanding of the Registrant's Class A Common Stock ($0.01 par value), 1,756,126 shares outstanding of the Registrant's Class B Non-Voting Common Stock ($0.01 par value), 386,040 shares outstanding of the Registrant's Class C Common Stock ($0.01 par value), 808,333 shares outstanding of the Registrant's Class D Common Stock ($0.01 par value), 125,000 shares outstanding of the Registrant's Class F Common Stock and 51,875 outstanding shares of the Registrant's 14% Cumulative Redeemable Preferred Stock ($0.01 par value). 2 DECORATIVE HOME ACCENTS, INC. QUARTER ENDED MARCH 31, 1996 INDEX
Page No. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of March 31, 1996 and December 31, 1995 ............................................................... 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 1996 and 1995 ............................................ 4 Condensed Consolidated Statement of Stockholders' Equity for the three months ended March 31, 1996 ..................................................... 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1996 and 1995 ................................................... 6 Notes to Condensed Consolidated Financial Statements ..................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ....................................................... 9 PART II OTHER INFORMATION Signature Page ........................................................................... 14
2 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DECORATIVE HOME ACCENTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
March 31, 1996 December 31, (Unaudited) 1995 (1) --------- ------------ (In Thousands) ASSETS CURRENT ASSETS: Cash and cash equivalents $ - $ 169 Investment securities 1,000 1,000 Accounts receivable - net of allowance for doubtful accounts of $2,661 at March 31, 1996 and $2,506 at December 31, 1995 32,258 28,982 Income taxes receivable 3,488 2,714 Inventories 47,705 43,713 Deferred income taxes 3,927 4,282 Other current assets 1,077 598 --------- -------- Total current assets 89,455 81,458 PROPERTY, PLANT AND EQUIPMENT, NET 30,636 30,667 OTHER ASSETS 9,336 8,790 INTANGIBLE ASSETS, NET 93,508 94,938 --------- -------- TOTAL ASSETS $ 222,935 $215,853 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 13,686 14,452 Accrued liabilities 7,157 9,775 Accrued interest 4,067 7,583 ------------ -------- Total current liabilities 24,910 31,810 ----------- -------- LONG-TERM DEBT 151,299 131,452 DEFERRED INCOME TAXES 1,154 3,348 REDEEMABLE PREFERRED STOCK 43,123 41,059 REDEEMABLE COMMON STOCK 1,817 1,639 STOCKHOLDERS' EQUITY: Common stocks 9 9 Additional paid-in capital 13,864 16,107 Reduction of certain equity interest to predecessor basis (6,209) (6,209) Accumulated deficit (7,032) (3,362) --------- -------- Total stockholders' equity 632 6,545 --------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 222,935 $215,853 ========= ========
(1) Derived from December 31, 1995 audited consolidated financial statements. See notes to condensed consolidated financial statements (unaudited). 3 4 DECORATIVE HOME ACCENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
Three Months Ended ------------------ March 31, 1996 March 31, 1995 -------------- -------------- SALES $39,786 $11,276 COST OF GOODS SOLD 28,802 5,819 ------- ------- GROSS PROFIT 10,984 5,457 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 11,851 4,261 ------- ------- INCOME (LOSS) FROM OPERATIONS (867) 1,196 ------- ------- INTEREST INCOME (EXPENSE) Interest expense (4,614) (1,812) Interest income 9 131 ------- ------- Interest income (expense), net (4,605) (1,681) ------- ------- LOSS BEFORE PROVISION FOR INCOME TAXES (5,472) (485) INCOME TAX BENEFIT (1,802) (184) ------- ------- NET LOSS $(3,670) $ (301) ------- -------
See notes to condensed consolidated financial statements (unaudited). 4 5 DECORATIVE HOME ACCENTS, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1996 (IN THOUSANDS) (UNAUDITED)
Reduction of Certain Equity Interest to Total Common Additional Predecessor Retained Stockholders' Stocks Paid-in Capital Basis Earnings Equity ------ --------------- ----- -------- ------ Balances at December 31, 1995 $ 9 $ 16,107 $ (6,209) $ (3,362) $ 6,545 Accretion of redeemable common stock for the three months ended March 31, 1996 (179) (179) Accretion of redeemable preferred stock for the three months ended March 31, 1996 (189) (189) Preferred stock dividend accrual for the three months ended March 31, 1996 (1,875) (1,875) Net loss for the three months ended (3,670) (3,670) ------ ---------- ---------- --------- -------- Balances at March 31, 1996 $ 9 $ 13,864 $ (6,209) $ (7,032) $ 632 ====== ========== ========== ========= ========
See notes to condensed consolidated financial statements (unaudited). 5 6 DECORATIVE HOME ACCENTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Three months ended March 31 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,670) $ (301) Adjustment to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,318 1,027 Deferred tax (benefit) provision (1,839) 131 Changes in operating assets and liabilities Accounts receivable (3,276) 1,548 Inventories (3,992) (639) Income tax receivable (774) - Other current assets (479) (1,158) Accounts payable (766) 1,286 Accrued liabilities (869) (1,419) Accrued interest (3,516) 1,757 Income taxes payable - (567) -------- ------- Net cash provided by (used in) operating activities (16,863) 1,665 -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (857) (440) Other long term assets (546) - -------- ------- Net cash used in investing activities (1,403) (440) -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings under revolving line of credit 19,847 - Redeemable preferred stock dividends paid (1,750) - Payments on notes payable - - -------- ------- Net cash provided by financing activities 18,097 - -------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (169) 1,225 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 169 8,355 -------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 9,580 -------- ------- SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 9,875 $ - ======== ======= Income taxes paid $ - $ - ======== =======
See notes to condensed consolidated financial statements (unaudited). 6 7 DECORATIVE HOME ACCENTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1995 - - ---------------------------------------------------------------------------- 1. BASIS OF INTERIM PRESENTATION The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in the interim financial information. For interim reporting, the Company's subsidiary, Home innovations. Inc. ('HII") uses an estimated gross profit based on information provided by its accounting and financial systems. At year-end, inventories of the Company are stated at the lower of cost, determined using the first-in, first-out (FIFO) method, or market. The Company's business is seasonal in nature, with its highest sales levels historically occurring in the third and fourth fiscal quarters, which include the holiday selling season. Therefore, the results of operations for the interim periods are not necessarily indicative of the operating results of the full year. 2. ORGANIZATION The accompanying interim consolidated financial statements as of March 31, 1996, include the accounts of Decorative Home Accents, Inc. ("DHA" or the "Company") and its wholly-owned subsidiaries, The Rug Barn, Inc. and Home Innovations, Inc. (purchased on July 13, 1995). All significant intercompany transactions and accounts have been eliminated. 3. BALANCE SHEET COMPONENTS Inventories are summarized as follows (in $000's):
March 31, 1996 December 31, 1995 -------------- ----------------- Raw materials $23,552 $24,464 Work-in-process 2,130 973 Finished goods 22,023 18,276 ------- ------- $47,705 $43,713 ======= =======
7 8 DECORATIVE HOME ACCENTS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (CONTINUED) Property, plant and equipment is summarized as follows (in $000's):
March 31, 1996 December 31, 1995 -------------- ----------------- Land $ 863 $ 863 Buildings and improvements 15,398 15,384 Furniture and fixtures 3,193 3,184 Machinery and equipment 14,171 14,101 ------- ------- 33,625 33,532 Accumulated depreciation (3,885) (3,375) ------- ------- 29,740 30,157 Construction in progress 896 510 ------- ------- $30,636 $30,667 ======= =======
8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion provides management's assessment of the results of operations and liquidity and capital resources of DHA and should be read in conjunction with the respective financial statements of DHA and the notes thereto included elsewhere in this Form 10-Q. The following table includes unaudited proforma financial information as if the July 1995 purchase of Home Innovations, Inc. ("HII") occurred as of January 1, 1995. Such adjustments to the proforma financial information consist principally of the following: net adjustments to cost of goods sold and SG & A expenses related to adjusting depreciation expense for the new basis of accounting resulting from the HII acquisition; increases in SG& A expenses to account for the amortization of goodwill and the identifiable intangible assets resulting from the HII acquisition; increases in SG & A expenses to account for compensation expense resulting from granting stock options at less than fair market value; net adjustments to interest expense resulting from issuance of 13% Senior Notes due 2002 and extinguishment of prior debt, amortization of debt issuance costs and accretion of discount on the Senior Notes. Management's discussion and analysis of the results of operations should be read using the proforma financial information presented below:
ACTUAL PROFORMA Three Months Ended ------------------ March 31, March 31, 1996 1995 --------- --------- Sales $39,786 $52,712 Cost of goods sold 28,802 37,531 -------- ------- Gross profit 10,984 15,181 Selling, general and administrative expenses 11,851 11,460 -------- ------- Income (loss) from operations (867) 3,721 Interest expense, net (4,605) (4,222) -------- ------- Loss before income taxes $(5,472) $ (501) ======= =======
IMPACT OF THE PURCHASE OF HOME INNOVATIONS, INC. On July 13, 1995, DHA acquired HII, a leading manufacturer of niche oriented home accessories with the following product categories: bath furnishings, window and speciality products, bedding products and the new Calvin Klein Home Collection, a new line of designer home products launched in September 1995 under the Calvin Klein trademark. The cash purchase price of HII was approximately $95.1 million, after a $6.7 million reduction to the purchase price, including acquisition related costs of approximately $1.8 million and the assumption of approximately $31.0 million in liabilities consisting of trade payables and accruals and $2.3 million of junior subordinated notes. The $6.7 million adjustment to the purchase price was determined as a result of the level of net assets acquired as of the closing date and certain indemnifications from the sellers. The $6.7 million was received from the sellers in December, 1995. RESULTS OF OPERATIONS As described above, the results of operations for the three months ended March 31, 1995 reflect proforma adjustments related to the merger agreement discussed above. Comparison of Results of Operations for the Three Months Ended March 31, 1996 (Actual) with the Proforma Results of Operations for the Three Months Ended March 31, 1995 (with proforma adjustments as discussed above). 9 10 NET SALES Net sales for three months ended March 31, 1996 decreased by $12.9 million, or 24.5% from $52.7 million of proforma net sales for the three months ended March 31, 1995 to $39.8 million for the three months ended March 31, 1996. Sales across most of the Company's major product lines decreased principally as a result of soft retail conditions in the major markets served by the Company. All distribution channels served were affected by the soft retail environment including the giftware trade. The reduction of consumer spending and the associated tightening of retailer's inventory positions which began in the third quarter of 1995 continued to have negative effects on the Company's sales performance as expected. If current market conditions prevail, the Company expects full year sales to continue to be adversely affected. GROSS PROFIT The gross profit margin decreased from a proforma of 28.8% for the three months ended March 31, 1995 to 27.6% for the three months ended March 31, 1996. The decrease of approximately 1.2 percentage points in the Company's gross profit margin primarily resulted from plant efficiency losses in the printing and cut-and-sew operations. As part of the Company's program to improve long-term operating performance and control inventory investment, the Company temporarily reduced manufacturing operations at certain plants during the quarter. This resulted in fixed overhead being unabsorbed by inventory production. The Company believes that its manufacturing operations are now properly sized relative to current market demand for the Company's products. There were no significant changes in the prices paid for raw materials between the 1995 and 1996 periods as the Company was able to secure raw material purchase contracts at levels equal to or more favorable than that of the prior year. SELLING, GENERAL & ADMINISTRATIVE EXPENSES SG&A expenses increased $391,000 or 3.4% from a proforma of $11.5 million for the three months ended March 31, 1995 to $11.8 million for the three months ended March 31, 1996. As a percentage of sales, SG&A expenses increased from a proforma of 21.7% for the three months ended March 31, 1995 to 29.8% for the same period of 1996. The increase in SG&A expenses as a percentage of sales was principally attributable to the fixed nature of the Company's selling and administrative salary base. Specifically, marketing and design functions, while not increasing substantially from year to year on an absolute dollar basis, reflect a higher percentage because of the decreased sales in the 1996 quarter. SG&A expenses associated with the launch of the Calvin Klein Home line, which since its inception in September 1995 have as a percentage of sales exceeded the level of the Company's mature businesses, also contributed to the increased SG&A for the 1996 quarter. Historically, the Company's SG&A costs as a percentage of sales have exceeded many of the Company's competitors due to the Commission structure associated with the giftware trade and a relatively high fixed cost structure within Home Innovation. During the 1996 quarter, the Company implemented a consolidation of many of its marketing and administrative functions in an attempt to improve the SG&A expense ratio and expects to see improvement in its absolute dollar of SG&A costs going forward beginning in the second half of 1996. INTEREST EXPENSE, NET Interest expense, net increased from a proforma of $4.2 million for the three months ended March 31, 1995 to $4.6 million for the three months ended March 31, 1996. This increase was principally due to increased borrowings under the Company's revolving line of credit during the first quarter of 1996. SEASONALITY The Company's business is seasonal in nature with its highest sales levels historically occurring during the third and fourth fiscal quarters, which includes the holiday selling season. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity for operations and expansion have historically been funds generated internally and borrowings under the Company's $50.0 million revolving credit facility. Available borrowings under the credit facility are based on specified levels of underlying collateral. As of March 31, 1996, the Company had approximately $9.1 million available under the revolving credit facility described above (net of $24.7 million of outstanding borrowings and $1.4 million in outstanding letters 10 11 of credit). The Company intends to utilize borrowings under the revolving credit facility to meet seasonal fluctuations in the Company's working capital requirements, typically peaking in early October, and to fund the anticipated build up of inventory relating to the continued introduction of the Calvin Klein Home line of products. Management expects the Calvin Klein Home line of products to increase the Company's working capital needs in 1996 by approximately $8 to $12 million from 1995 levels. Management believes that the working capital requirements related to Calvin Klein in 1996 peaked in April 1996. Management believes that the Company's cash flow from operations and borrowing under the revolving credit facility will be sufficient to fund the Calvin Klein Home requirements. The obligations under the revolving credit facility are secured by a first lien on the inventory and receivables of The Rug Barn, Inc. and Home Innovations, Inc. and its subsidiaries. The revolving credit facility contains certain financial and other covenants with which the Company must comply, including, but not limited to a requirement to maintain certain financial ratios and limitations on the ability of Rug Barn and Home Innovations to incur additional indebtedness and pay dividends. The Company was in compliance with the loan covenants, as amended, at March 31, 1996. Cash flows used in operating activities were approximately $16.8 million for the three month period ended March 31, 1996. Driving the cash used in operating activities for the first quarter, in addition to the Company's net loss, were an increase in receivables of $3.3 million and inventory of $3.9 million and a reduction of $3.5 million in accrued interest. The additional inventory investment related principally to the introduction of the new Calvin Klein Home line. The increase in receivables resulted from a slight increase in the Company's sales velocity in the latter weeks of the quarter. The reduction of $5.3 million in accrued interest resulted from the semi-annual interest payment on the Company's $125 million, 13% Senior Notes. Capital expenditures for the three month period in 1996 approximated $857,000. The Company currently has no material commitments for capital expenditures. Borrowings under the Company's line of credit increased by approximately $19.8 million during the three month period ended March 31, 1996. The additional borrowings resulted primarily from the cash used in operating activities including the interest payment on the Company's Senior Notes and the continued inventory investment in Calvin Klein Home. Additionally, the Company paid dividends totalling $1.75 million on its redeemable preferred stock in January 1996. During 1996 the Company expects that dividends will be paid in kind rather than in cash. Management expects that the Company's cash flow from operations and borrowings under the revolving credit facility, as required, will be adequate to finance anticipated operation needs, planned capital expenditures and to meet its debt service obligations in 1996. INFLATION Although the operations of the Company are generally influenced by economic conditions, the Company does not believe that inflation had a material effect on the results of operations during the three months ended March 31, 1996 and 1995. The Company has been historically able to mitigate the impact of the increases in the spot market prices of cotton through fixed price purchase contracts. EFFECT OF COMPLIANCE WITH ENVIRONMENTAL PROTECTION PROVISIONS Compliance with Federal, State and local provisions that have been enacted or adopted regulating the discharge of materials in the environment, or otherwise relating to protection of the environment, has not had, and is not expected to have, a material adverse effect on the capital expenditures, net income or competitive position of the Company. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements contained in this Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations) that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. The Company cautions readers of this Quarterly Report on Form 10-Q that a number of important factors could cause the Company's actual results in 1996 and beyond to differ materially from those expressed in any such forward-looking statements. These factors include, without limitation, the general economic and business conditions affecting the retail industry, the Company's ability to meet its debt service obligations, contractual restrictions on HII's and the Rug Barn's ability to pay dividends to the Company, competition from a variety of firms ranging from small manufacturers to large textile mills, the seasonality of the Company's sales, the volatility of the Company's raw material cost, the Company's dependence on key personnel and the risk of loss of a material customer or a 11 12 significant license. These and other factors are more fully described in the Company's previous filings with the Securities and Exchange Commission including, without limitation, the Company's Prospectus dated November 10, 1995. 12 13 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various routine legal proceedings incidental to the conduct of its business. Management believes that none of these legal proceedings will have a material adverse impact on the financial condition or results of operations of the Company. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS SEE EXHIBIT INDEX. (B) REPORTS ON FORM 8-K NONE 13 14 SIGNATURES 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. Decorative Home Accents, Inc. ----------------------------- (Registrant) Date: /s/ Jay N. Baker ----------------------------- Jay N. Baker* Chief Financial Officer *Duly authorized to sign on behalf of the Registrant. 14 15 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - - ------ ----------- 3.3 Certificate of Correction to Certificate of Designation for Decorative Home Accents, Inc. 27 Financial data schedule 4.6 Form of Third Amendment to the Amended and Restated Credit Agreement, dated as of July 13, 1995, by among LaSalle National Bank, as co-agent and lender, General Electric Capital Corporation, as co-agent and lender, the Rug Barn, Inc., Home Innovations, Inc., Home Curtain Corp., Calvin Klein Home, Inc., Draymore Mfg. Corp. and R.A. Briggs and Company, as amended by the First Amendment, dated as of November 17, 1995, and by the Second Amendment, dated as of December 31, 1995.
15 EX-4.6 2 THIRD AMENDED & RESTATED CREDIT AGREEMENT 1 EXHIBIT 4.6 THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment") is dated as of March 31, 1996 by and among The Rug Barn, Inc., a South Carolina corporation ("Rug Barn"), Home Innovations, Inc., a Delaware corporation ("HII"), Calvin Klein Home, Inc., a Delaware corporation ("Calvin Klein"), Draymore Mfg. Corp., a North Carolina corporation ("Draymore"), R.A. Briggs and Company, an Illinois corporation ("R.A. Briggs") (each of Rug Barn, HII, Calvin Klein, Draymore and R.A. Briggs a "Borrower" and collectively the "Borrowers"), LaSalle National Bank, as Agent and Lender, and General Electric Capital Corporation, as Co-Agent and Lender. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement (as hereinafter defined). W I T N E S S E T H WHEREAS, Rug Barn, Home Innovations, Inc., a Delaware corporation, Home Curtain Corp., a New York corporation, Calvin Klein, Draymore and R.A. Briggs, the Agent, the Co-Agent and the Lenders have entered into that certain Amended and Restated Credit Agreement dated as of July 13, 1995, as amended by the First Amendment to Amended and Restated Credit Agreement dated as of November 17, 1995 and the Second Amendment to Amended and Restated Credit Agreement dated as of December 31, 1995 (as the same may hereafter be further amended, supplemented or otherwise modified, the "Credit Agreement"); and WHEREAS, the Lenders are willing to amend the Credit Agreement as herein set forth, to, among other things, modify the financial covenants, all on the terms and conditions set forth herein; NOW THEREFORE, in consideration of the premises herein and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Borrowers hereby agree with the Agent, the Co-Agent and the Lenders as follows: SECTION 1. Amendments to the Credit Agreement. The parties hereto agree that the Credit Agreement is amended as follows: 2 A. Subsection (a) of Schedule I to the Credit Agreement is hereby amended and replaced in its entirety with the following: " (a) Maximum Total Liabilities Coverage Ratio. Holdings and each of its Subsidiaries on a consolidated basis shall have at the end of each Fiscal Quarter after the Closing Date, a Total Liabilities Coverage Ratio for the 12-month period then ended (or with the Fiscal Quarters ending on or before June 30, 1996, the period from the Closing Date to the last day of such Fiscal Quarter) of not greater than 6.5 to 1.0 for the Fiscal Quarters ending before (but not including the Fiscal Quarter ending on) December 31, 1995 or after (but not including the Fiscal Quarter ending on) March 31, 1996; provided, however, that for each Fiscal Quarter ending on or before June 30, 1996, the calculation of EBITDA of Holdings used in determining the Total Liabilities Coverage Ratio for the period from the Closing Date through such Fiscal Quarter end shall be made by taking the actual amount of EBITDA ("Actual EBITDA") that would otherwise be calculated for such period in accordance with the Agreement and (i) dividing such Actual EBITDA by the number of days in the period then being tested and then (ii) multiplying such product in clause (i) by 365." B. The first sentence of subsection (b) of Schedule I to the Credit Agreement is hereby amended and replaced in its entirety with the following sentence: "Holdings and its Subsidiaries shall have on a consolidated basis at the end of each Fiscal Quarter beginning with June 30, 1995, a Debt Service Coverage Ratio for the 12-month period then ended of not less than 1.15 to 1.0 for the Fiscal Quarters ending before September 30, 1995, 1.05 to 1.0 for the Fiscal Quarter ending on September 30, 1995, 1.0 to 1.0 for the Fiscal Quarter ending on December 31, 1995 and 1.25 to 1.0 for the Fiscal Quarters ending after (but not including the Fiscal Quarter ending on) March 31, 1996; provided, however, that notwithstanding anything to the contrary herein, this paragraph (b) shall not directly or indirectly prohibit Holdings from paying in cash the 2 3 interest due on the Senior Notes and the dividends due on the Preferred Stock in January, 1996, if the Debt Service Coverage Ratio for the trailing 12 month period ending on September 30, 1995 is not less than 1.15 to 1.0; provided, further, that for Fiscal Quarters ending on or before June 30, 1996 the Debt Service Coverage Ratio shall be calculated using historical EBITDA before the Closing Date of Holdings and Borrowers (on a consolidated basis) to the extent necessary to complete a twelve month period, and Debt Service shall be calculated assuming (i) for all periods prior to the Closing Date, the Senior Notes, Preferred Stock, Subordinated Notes and Revolving Credit Facility (with debt service calculated as described in the next sentence) were the only Indebtedness and Preferred Stock outstanding during such periods (ii) that the Subordinated Debt and Senior Notes accrued interest in accordance with their terms during such periods; (iii) that cash dividends on the Preferred Stock were paid in full during each Fiscal Quarter of such period, and (iv) that no Revolving Credit Loans were outstanding on June 30, 1995, and for each Fiscal Quarter end thereafter for purposes of calculating Debt Service on the Revolving Credit Facility, Interest Expenses actually incurred by Borrowers subsequent to the Closing Date shall be annualized as if such Interest Expenses had been incurred during such period." C. The proviso following Subsection 6.14(c) of the Credit Agreement is hereby amended and replaced in its entirety as follows: "provided, however, that for payments under clause (c)(iii) or the last proviso to clause (b)(iii) above to be permitted under this Agreement, Holdings and its Subsidiaries, on a consolidated basis, must also demonstrate that they could have achieved a Debt Service Coverage Ratio for the trailing twelve month period ending on the last day of the most recently completed Fiscal Quarter for which financial statements are available prior to such payment date of at least 1.15 to 1.0 for the Fiscal Quarters ending before September 30, 1995, 1.05 to 1.0 for the Fiscal Quarter ending on September 30, 1995, 1.0 to 1.0 for the Fiscal Quarter 3 4 ending on December 31, 1995 and 1.25 to 1.0 for the Fiscal Quarters ending after (but not including the Fiscal Quarter ending on) March 31, 1996 (which shall include for purposes of such calculation if Holdings intends to pay a cash dividend on the Preferred Stock or the arrearage on any Management Fees in cash, an assumption that the amount of any then contemplated cash dividend on the Preferred Stock or cash payment of the Management Fee had been made in cash during the twelve month period being tested and therefor increased Debt Service by the amount of such payment, unless (with respect to Preferred Stock) such twelve month period already includes four quarterly dividend payments on the Preferred Stock which were made in cash, in which case the then contemplated cash dividend need not be counted); provided, however, that notwithstanding anything to the contrary herein, paragraph (b) of Schedule I shall not directly or indirectly prohibit Holdings from paying in cash the interest on the Senior Notes and the dividends due on the Preferred Stock on January 1, 1996, if the Debt Service Coverage Ratio for the trailing 12 month period ending on September 30, 1995 is not less than 1.15 to 1.0." D. The following section is hereby inserted after section (b) of Schedule I of the Credit Agreement: " (c) Minimum Excess Availability. From the Fiscal Quarter ending on March 31, 1996 until Holdings receives a notice signed by each of the Lenders expressly terminating application of this section (c), Holdings and its Subsidiaries shall not permit at any given time the difference between (a) Borrowing Availability minus (b) the aggregate amount of all outstanding Revolving Credit Advances to be less than $2,000,000." Section 2. Borrowers' Representations and Warranties. In order to induce the Agent, the Co-Agent and the Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, the Borrowers represent and warrant to the Agent, the Co-Agent and the Lenders that the following statements are true, correct and complete: 4 5 A. Corporate Power and Authority. The Borrowers have all requisite corporate power and authority to enter into this Amendment, and to carry out the transactions contemplated by, and to perform their obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). B. Authorization of Agreements. The execution, delivery and performance of this Amendment, and the performance of the Amended Agreement have been duly authorized by all necessary corporate action by the Borrowers. C. No Conflict. The execution, delivery and performance by the Borrowers of this Amendment, and the performance by the Borrowers of the Amended Agreement do not and will not (i) violate any provision of any law, rule or regulation applicable to the Borrowers or Holdings, the Certificate or Articles of Incorporation or Bylaws of the Borrowers or Holdings or any order, judgment or decree of any court or other agency or government binding on any Borrower or Holdings, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any contract, agreement, mortgage or obligation of any Borrower or Holdings except where the Borrowers or Holdings, as the case may be, shall have obtained waivers or consents from the other parties to such agreements and disclosed the same to the Agent, (iii) result in or require the creation or imposition of any lien upon any of the Borrowers' or Holdings' properties or assets (other than Permitted Encumbrances) or (iv) require any approval of stockholders or any approval or consent of any Person under any contract, agreement, mortgage or obligation to which any Borrower or Holdings is a party (or by which its assets or properties are bound) except for the approvals or consents which will be obtained on or before the date hereof and disclosed in writing to the Agent. D. Governmental Consents. The execution, delivery and performance by the Borrowers of this Amendment, and the performance by the Borrowers of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any 5 6 Federal, state or other governmental authority or regulatory body or other governmental Person. E. Binding Obligation. This Amendment and the Amended Agreement are legally valid and binding obligations of the Borrowers, enforceable against the Borrowers in accordance with their respective terms except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect relating to or limiting creditors' rights generally or general principles of equity, whether such enforceability is considered in a proceeding in equity or at law, and subject to the discretion of the court before which any proceeding therefor may be brought. F. Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 3 of the Amended Agreement are and will be true, correct and complete in all material respects on and as of the effective date of this Amendment to the same extent as though made on and as of that date, except to the extent that such representations and warranties specifically relate to an earlier date, in which case they are true, correct and complete in all material respects as of such earlier date. G. Absence of Default. No event has occurred and is continuing or will result after giving effect to the consummation of the transactions contemplated by this Amendment which would constitute a Default or an Event of Default. H. Accuracy of Information. All factual information heretofore or contemporaneously furnished by or on behalf of Borrowers to the Agent, the Co-Agent or any Lender for purposes of or in connection with this Amendment or any transaction contemplated hereby is true, complete and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Amendment by the Agent and the Lenders and such information is not incomplete by omitting to state any material fact necessary to make such information not misleading. 6 7 I. Material Adverse Change. Except as disclosed in the financial statements that have heretofore been delivered to Agent, the Co-Agent and the Lenders, there has been no material adverse change in the business, assets, operations, operating properties, prospects or financial or other condition of the Borrowers since the Closing Date. SECTION 3. Borrowing Base Amendment. The parties hereto agree that upon delivery by Agent and Co-Agent to the Borrowers of a notice describing the final written results and recommendations of the certain field audit completed on March 7, 1996, they shall negotiate in good faith to make any necessary revisions to the method of calculation of the Borrowing Base, including but not limited to amendments to: (a) the definition to "Borrowing Base" set forth in Schedule A to the Credit Agreement, (b) the definition of "Eligible Account" set forth in Schedule C to the Credit Agreement, (c) the definition of "Eligible Inventory" set forth in Schedule D to the Credit Agreement and (d) Exhibit B to the Credit Agreement. THE ENTIRETY OF THIS AMENDMENT SHALL BE VOID AND OF NO FURTHER FORCE OR EFFECT UNLESS, WITHIN 30 DAYS OF THE DELIVERY TO THE BORROWERS OF THE FINAL RESULTS AND RECOMMENDATIONS RESULTING FROM THE FIELD AUDIT, ALL PARTIES TO THIS AMENDMENT (OR THEIR SUCCESSORS) SHALL (A) EXECUTE AN AMENDMENT TO THE CREDIT AGREEMENT SETTING FORTH THE REVISIONS TO THE METHOD OF CALCULATION OF THE BORROWING BASE NEGOTIATED AS DESCRIBED ABOVE OR (B) ACKNOWLEDGE IN WRITING THAT, AFTER THE NEGOTIATION REFERRED TO ABOVE, NO REVISIONS TO THE CREDIT AGREEMENT ARE NECESSARY. Section 4. Conditions to Effectiveness. This Amendment shall become effective only upon the satisfaction of all of the following conditions precedent on the date hereof: A. Amendment. Fully executed copies of this Amendment signed by the Borrowers, each Lender, the Agent and the Co-Agent shall have been delivered to the Agent. B. Opinion of Borrowers' Counsel. The Agent shall have received an opinion of the Borrowers' counsel in form and substance satisfactory to the Agent and its counsel covering, without limitations, (i) the due incorporation, valid existence, good standing and corporate power and authority to conduct business of Holdings, (ii) each Borrower's due incorporation, valid existence and good standing, corporate 7 8 power and authority to conduct business, due authorization, execution and delivery of this Amendment, (iii) enforceability of this Amendment and (iv) no conflicts with laws generally or Holding's or each Borrower's certificate or articles of incorporation, by-laws and other material contracts. C. Other Documents. The Agent shall have received copies of such other documents as the Agent may reasonably request. Section 5. Miscellaneous A. Effect upon the Credit Agreement. Except as specifically amended hereunder, the Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agent or any Lender under any Loan Document, nor constitute a waiver of any provision of any Loan Document or any Default or Event of Default. B. Section Headings. All section headings are inserted for convenience of reference only and shall not affect any construction or interpretation of this Amendment or the Amended Agreement. C. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. D. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL LAWS, AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS, AND DECISIONS OF THE STATE OF ILLINOIS. This Amendment and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. 8 9 E. Severability. Whenever possible, each provision of this Amendment shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Amendment shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Amendment or the Amended Agreement. F. Binding Agreement. This Amendment shall be binding upon the Borrowers, the Agent, the Co-Agent and the Lenders and their respective successors and assigns, and shall inure to the benefit of the Borrowers, the Agent, the Co-Agent and each Lender and the successors and assigns of the Borrowers, the Agent, the Co-Agent and the Lenders. G. JURY TRIAL WAIVER. THE BORROWERS, THE AGENT, THE CO-AGENT AND THE LENDERS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND AND RIGHTS UNDER THIS AMENDMENT, THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH THIS AMENDMENT OR ANY LOAN DOCUMENT, AND AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. H. Costs, Expenses and Taxes. As provided in Section 11.3 of the Credit Agreement, the Borrowers agree to pay on demand all fees, costs and expenses incurred by the Agent, the Co-Agent and the Lenders in connection with the preparation, execution and delivery of this Amendment (including, without limitation, all attorneys fees). In addition, the Borrowers shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution and delivery of this Amendment and agree to hold the Agent and the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes or fees. 9 10 I. Reaffirmation of Guaranty. Each of the Borrowers as a guarantor under Section 12 of the Credit Agreement hereby (i) acknowledges and reaffirms all of its obligations and undertakings under the guaranty under Section 12 of the Credit Agreement, and (ii) acknowledges and agrees that subsequent to, and taking into account this Amendment, the guaranty under Section 12 of the Credit Agreement is and shall remain in full force and effect in accordance with the terms thereof. J. Releases. In further consideration of the execution of this Amendment by the Agent, the Co-Agent and the Lenders, the Borrowers and Holdings hereby release the Agent, the Co-Agent and the Lenders and all current and future holders of assignments of or participations in the Obligations and their respective affiliates, officers, employees, directors, agents and attorneys (collectively, the "Releasees") from any and all claims, demands, liabilities, responsibilities, disputes, causes of action (whether at law or in equity) and obligations of every nature whatsoever, whether liquidated or unliquidated, known or unknown, matured or unmatured, fixed or contingent (collectively, "Claims") that any Borrower or Holdings may have against the Releasees which arise from or relate to any actions which the Releasees may have taken or omitted to take on or prior to the date hereof with respect to the Obligations, any Collateral, the Credit Agreement, any other Loan Document and any third parties liable in whole or in part for the Obligations. For purposes of the release contained in this paragraph, the term "Borrowers" and "Holdings" shall mean and include the Borrowers, Holdings and their successors and assigns, including, without limitation, any trustees acting on behalf of such parties and any debtor-in-possession in respect of any such party. [signature pages follow] 10 11 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their duly authorized officers on the date first above written. "BORROWERS" HOME INNOVATIONS, INC. By: _____________________________ Title: __________________________ THE RUG BARN, INC. By: _____________________________ Title: __________________________ DRAYMORE MFG. CORP. By: _____________________________ Title: __________________________ CALVIN KLEIN HOME, INC. By: _____________________________ Title: __________________________ R.A. BRIGGS AND COMPANY By: _____________________________ Title: __________________________ "LENDERS" LASALLE NATIONAL BANK, as Agent and Lender 12 By: _____________________________ Title: __________________________ GENERAL ELECTRIC CAPITAL CORPORATION, as Co-Agent and Lender By: _____________________________ Title: __________________________ Acknowledged and agreed to DECORATIVE HOME ACCENTS, INC. By: _____________________________ Title: __________________________ EX-27 3 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF DECORATIVE HOME ACCENTS, INC. FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS 1,000 3-MOS DEC-31-1995 JAN-01-1996 MAR-31-1996 0 1,000 35,746 2,661 47,705 89,455 34,521 3,885 222,935 24,910 0 43,123 0 0 0 222,935 39,786 39,786 28,802 0 0 0 4,614 (5,472) (1,802) 0 0 0 0 (3,670) 0 0
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