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Note 4 - Debt
9 Months Ended
Nov. 10, 2013
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]

NOTE 4 – DEBT


On August 22, 2013 the Company entered into a new loan agreement, comprising two loan facilities, with Huntington National Bank, a national banking association (“Huntington”). The Loan Agreement contains two new loan facilities that, in addition to funding the cash remodel reserve, were used to pay off the Company’s outstanding loan balance of $6,104,000, which carried an interest rate of 9.0%, the lender, Fortress Credit Corp. (“Fortress”), and a prepayment penalty of 1.0% of the balance. The two facilities under the Loan Agreement consist of a term loan and a time loan in the total amount of $8,930,000. The refinance transaction resulted in the write-off of deferred financing costs of $275,000 and prepayment penalties of $61,000.


The Term Note consists of a $7,930,000 three year term loan with an interest rate which has been fixed at the rate of 5.44% through the use of a derivative interest rate swap also entered into with Huntington. Principal and interest on the Term Note are payable in substantially equal monthly payments based on an eight year amortization with a balloon payment of the then remaining principal balance due and payable at the end of the three year term.


The Company’s interest rate swap agreement (the "Swap") with Huntington National Bank had a notional amount at inception equal to the beginning balance of the Term Note, $7,930,000, and amortizes according to the same schedule to hedge its exposure to the variable interest rate of the Term Note. The Company has not designated the Swap as an effective hedge, therefore unrealized changes in the fair value of the Swap will be shown in the Company’s consolidated statements of operation as either income or expense and the fair value will be shown on the Company’s consolidated balance sheet as an asset or liability, as applicable. The critical terms of the Swap are aligned with the terms of the Term Note, including maturity of August 10, 2016. 


Under the Swap, the Company pays a fixed interest rate of 5.44% and it receives a variable interest rate equal to the 30 day London Interbank Offered Rate ("LIBOR") plus 4.25%. The Swap settles monthly on the same date as the payments are due on the Term Note.  The difference between amounts to be received and paid under the Swap is recognized as a component of interest expense on the consolidated statements of operations. The Swap increased interest expense by $17,000 for the quarter and year to date ended November 10, 2013. The market value of the Swap as of November 10, 2013 was a liability of $130,000.


The Time Note consists of $1,000,000 having an 18 month term, no scheduled principal payments and a floating interest rate at 30 day LIBOR plus 4.25%. Principal payments on the Time Note are expected to be made with the proceeds of the sales by the Company of excess real estate of closed restaurants. The balance, if any, at the end of the 18 month term will become due and payable. As of November 10, 2013, the Time Note had a balance of $865,000.


During the fiscal third quarter, on October 12, 2013, the Company entered into a capitalized lease for a new KFC restaurant in Pennsylvania which replaced an older facility for which the Company owns the land and building. The term of the lease is 20 years and resulted in the recording of an asset and liability in the amount of $1,020,000.


At November 10, 2013 the Company’s term loan credit agreement requires the maintenance of a consolidated fixed charge coverage ratio (“FCCR”) of 1.15 or greater regarding all of the Company’s debt. The FCCR is calculated by dividing the cash flow before taxes, debt service and rent (“EBITDAR”) for the previous 12 months by the debt service and capital expenditures less the cash remodel reserve payable for the same period. The Company’s term loan also requires a consolidated cash adjusted leverage ratio (“Leverage”) of not greater than 5.25. Leverage is calculated by dividing the sum of debt and 8 times lease payments less cash, including the remodel reserve, by EBITDAR. The ratios are computed quarterly. At the end of the third quarter of fiscal 2014, the Company had a FCCR of 1.31 and a Leverage ratio of 5.07, being in compliance with all of the required ratios.