Quarterly report pursuant to Section 13 or 15(d)

Note 6 - Financing Arrangements

Note 6 - Financing Arrangements
3 Months Ended
Jul. 03, 2011
Debt Disclosure [Text Block]
Note 6 – Financing Arrangements

Factoring Agreement:  The Company assigns the majority of its trade accounts receivable to CIT under factoring agreements.  Under the terms of the factoring agreements, which expire in July 2013, CIT remits payments to the Company on the average due date of each group of invoices assigned.  If a customer fails to pay CIT on the due date, then the Company is charged interest at prime plus 1.0%, which was 4.25% at July 3, 2011, until payment is received.  The Company incurred interest expense of $17,000 for each of the three-month periods ended July 3, 2011 and June 27, 2010 as a result of the failure of the Company’s customers to pay CIT by the due date.  CIT bears credit losses with respect to assigned accounts receivable from approved customers that are within approved credit limits.  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 were to occur, the Company must either assume the credit risk for shipments after the date of such termination or cease shipments to such customer.  Factoring fees, which are included in marketing and administrative expenses in the accompanying consolidated statements of income, were $83,000 and $134,000 for the three-month periods ended July 3, 2011 and June 27, 2010, respectively.  There were no advances from the factor at either July 3, 2011 or June 27, 2010.

Notes Payable and Other Credit Facilities: At July 3, 2011 and April 3, 2011, long-term debt of the Company consisted of (in thousands):

July 3, 2011
April 3, 2011
Revolving line of credit
  $ 427     $ 4,336  
Non-interest bearing notes
    2,000       2,000  
Original issue discount
    (12 )     (48 )
      2,415       6,288  
Less current maturities
    1,988       1,952  
    $ 427     $ 4,336  

The Company’s credit facilities at July 3, 2011 consisted of the following:

Revolving Line of Credit under a financing agreement with CIT of up to $26.0 million, which includes a $1.5 million sub-limit for letters of credit, with an interest rate of prime plus 1.00%, which was 4.25% at July 3, 2011, or LIBOR plus 3.00%, which was 3.19% at July 3, 2011, maturing on July 11, 2013 and secured by a first lien on all assets of the Company.  As of July 3, 2011, the Company had elected to pay interest on the revolving line of credit under the LIBOR option.  Also under the financing agreement, a monthly fee is assessed based on 0.25% of the average unused portion of the $26.0 million revolving line of credit, less any outstanding letters of credit.  This unused line fee amounted to $16,000 and $10,000 for the three-month periods ended July 3, 2011 and June 27, 2010, respectively.  At July 3, 2011, there was a balance due on the revolving line of credit of $427,000, there was a $500,000 letter of credit outstanding and the Company had $21.5 million available under the revolving line of credit based on its eligible accounts receivable and inventory balances.

The 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, dividends and transactions with affiliates.  The Company was in compliance with these covenants as of July 3, 2011.

Subordinated Notes totaling $2.0 million.  The notes do not bear interest and are due on July 11, 2011.  The original issue discount of $12,000 on these non-interest bearing obligations at a market interest rate of 7.25% is being amortized over the life of the notes.

Minimum annual maturities as of July 3, 2011 are as follows (in thousands):

Fiscal Year
Sub Notes
  $ -     $ 2,000     $ 2,000  
    -       -       -  
    427       -       427  
  $ 427     $ 2,000     $ 2,427