3. DEBT

6 Months Ended

Apr. 30, 2013

Debt Disclosure [Abstract]

3. Debt

On March 13, 2013, the Company amended its Credit Agreement (the “Agreement”) with Bank of America to provide a senior financing facility consisting of term debt and a revolving line of credit.  Under the Agreement, the Company became obligated on $11,000,000 of debt in the form of a term note to refinance the previous senior term debt and to fund repayment of a portion of its outstanding subordinated debt. Additionally, the Agreement includes a $5,000,000 revolving line of credit that can be used for the purchase of fixed assets, to fund acquisitions, to collateralize letters of credit, and for operating capital.

The Agreement amortizes the term debt over a five year period with 59 equal monthly installments of $130,952 and a final payment of $3,273,832 due in March 2018. The revolving line of credit matures in March 2016.  There are various restrictive covenants under the Agreement, and the Company is prohibited from entering into other debt agreements without the bank’s consent.  The Agreement also prohibits the Company from paying dividends without the prior consent of the bank.

There was no balance on the line of credit but it collateralized a letter of credit of $1,466,000 as of April 30, 2013.  Consequently, as of that date, there was $3,534,000 available to borrow from the revolving line of credit. There was $10,869,000 outstanding on the term note as of April 30, 2013.

Under the Agreement, interest is paid at a rate of one-month LIBOR plus a margin based on the achievement of a specified leverage ratio.  As of April 30, 2013, the margin was 2.50% for the term note and 2.25% for the revolving line of credit.  The Company fixed the interest rate on 75% of its term debt by purchasing an interest rate swap as of the date of the Agreement. As of April 30, 2013, the Company had $2,717,000 of the term debt subject to variable interest rates.  The one-month LIBOR was .20% on the last business day of April 2013 resulting in total variable interest rates of 2.70% and 2.45%, for the term note and the revolving line of credit, respectively, as of April 30, 2013.

The Agreement requires the Company to be in compliance with certain financial covenants at the end of each fiscal quarter.  The covenants include senior debt service coverage as defined of greater than 1.25 to 1, total debt service coverage as defined of greater than 1 to 1, and senior debt to EBITDA of less than 2.50 to 1.  As of April 30, 2013, the Company was in compliance with these covenants and terms of the Agreement. 

In addition to the senior debt, as of April 30, 2013, the Company has subordinated debt owed to Henry, Peter and John Baker.  On December 21, 2012 the Company made a discretionary payment of $1,500,000 to the subordinated debt holders. With a portion of the proceeds from the senior debt re-financing above, the Company paid down the amount of subordinated debt by an additional $1,500,000 leaving an aggregate remaining principal outstanding of $10,000,000 due by the amended maturity date of October 5, 2018. The interest rate on each of these notes is 12% per annum.

In 2012, the Company made an acquisition that resulted in the issuance of a note for $101,000 to the seller. The note was due on March 20, 2013 but remains a liability and has not been paid because certain contingencies in the acquisition agreement that were required to be met for payment were not met subsequent to the transaction. The Company is currently discussing settlement of these contingencies with the seller and is uncertain of if or when the amount due, in whole or in part, will be paid.