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Debt
6 Months Ended
Jul. 31, 2011
Debt [Abstract]  
Debt
Note 5. Debt
At July 31, 2011, the Company had outstanding borrowings pursuant to its revolving line of credit with Wells Fargo Bank, National Association (the “Lender”) of $28,292,000. The revolving line generally provides for advances of up to 80% on eligible accounts receivable and 20% — 55% on eligible inventory, subject to the specific terms of the facility. The advance rates fluctuate depending on the time of year and the types of assets. The revolving credit facility will mature on June 30, 2012, with interest payable monthly at a fluctuating rate equal to the Wells Fargo Bank’s prime rate plus 1.25%. The facility had an unused commitment fee of 0.375% as of July 31, 2011. Availability under the line was $16,996,000 at July 31, 2011.
The terms of the revolving line of credit are set forth in the Second Amended and Restated Credit Agreement (as amended, the “Credit Agreement”), dated as of March 12, 2008, between the Company and the Lender. The Credit Agreement has been amended from time to time to modify covenants or other terms and conditions. The most recent amendment, Amendment No.8, was entered into effective May 31, 2011. Amendment No. 8 extended the maturity date of the loan to June 30, 2012. No other terms were modified in the Credit Agreement as a result of Amendment No. 8.
The revolving credit facility with the Lender is subject to financial covenants that include a maximum leverage ratio and a minimum net income requirement. The Credit Agreement also places certain restrictions on capital expenditures, incurrence of indebtedness and liens, dividends and the repurchase of the Company’s common stock. The revolving credit facility is secured by substantially all of the assets of the Company and its subsidiary, including the Company’s accounts receivable, inventories, equipment and real property. The Company was not in compliance with the minimum net income covenant requirement and leverage covenant under its revolving credit facility for the period ended July 31, 2011. While the Company is currently in discussions with the Lender to obtain a waiver in order to remedy this noncompliance, there is no guarantee that such a waiver will be provided. If it is not, the Lender, at its option, could declare all amounts owing under the revolving credit facility to be immediately due and payable, and undertake remedies available under the security documents and applicable law in respect of its security interest in substantially all of the assets pledged by the Company under the revolving credit facility. Management believes that the carrying value of debt approximated fair value at July 31, 2011 and 2010, as all of the long-term debt bears interest at variable rates based on prevailing market conditions.
The description set forth herein of the Credit Agreement is qualified in its entirety by the terms of the Credit Agreement, which, together with each amendment thereto, has been filed with the Securities and Exchange Commission.