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REVOLVING BANK LOAN AND LONG-TERM DEBT

12 Months Ended

Dec. 31, 2011

REVOLVING BANK LOAN AND LONG-TERM DEBT

5. REVOLVING BANK LOAN AND LONG-TERM DEBT

Outstanding long-term debt consisted of the following (amounts in thousands):

	December 31, 2011			January 1, 2011
Secured term loan	$	4,283		$	5,535
Less current portion	(500		)	(1,125		)
Total long-term debt	$	3,783		$	4,410

On April 16, 2009, the Company entered into a secured credit agreement (Credit Agreement) under which the bank lender initially provided a total credit facility of $30,000,000, consisting of a $20,000,000 revolving credit facility (with credit availability reduced by letters of credit that may be issued by the lender on the Company’s behalf) and a $10,000,000 term loan. Borrowings under the Credit Agreement are secured by the Company’s accounts receivable, inventories, machinery, equipment, vehicles, certain real estate and the common stock of all of the Company’s subsidiaries. Borrowings under the revolving credit facility are limited to 80% of eligible accounts receivable and 50% of eligible inventories. Borrowings under the Credit Agreement bear interest based on a London Interbank Offer Rate (LIBOR) or prime rate based option. The lender required the Company to enter into an interest rate swap transaction to hedge the interest rate on $5,000,000 of term debt. On May 29, 2009 the Company entered into an interest rate swap transaction for a specified notional amount (initially $5,000,000), whereby the Company pays a fixed rate of 3.07% on the notional amount and receives a floating rate equivalent to the 30 day LIBOR rate but not less than 2.0%. Since the inception of this agreement the 30 day LIBOR rate has remained below 2.0%. Hence, the effect of the transaction has been to increase the Company’s effective interest rate on $5,000,000 of its outstanding term debt by 1.07%. The notional amount was decreased by $500,000 on September 30, 2011 and $500,000 on December 31, 2011 such that the notional amount at December 31, 2011 was $4,000,000. The notional amount is further reduced by $500,000 on March 31, 2012 and terminates on April 16, 2012. The Company did not elect hedge accounting. The Credit Agreement has been amended five times (Amendments) since its inception.

The Credit Agreement and its Amendments either limit or require prior approval by the lender of additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends. Payment of accrued interest is due monthly or at the end of the applicable LIBOR period on both the revolving credit borrowings and the term debt borrowings. Principal payments under the term loan are due quarterly with a final payment of all remaining unpaid principal at the maturity date.

The Company entered into an Amended and Restated Credit Agreement (the Restated Agreement) effective November 18, 2011 in order to obtain a waiver of the covenant requiring a Fixed Charge Coverage Ratio of 1.15 to 1.00 as of October 1, 2011, to extend the maturity date of the Credit Agreement, to increase the maximum amount available under the revolving credit facility and to modify certain other amounts, terms and conditions. The Restated Agreement provides for the following:

· The Fixed Charge Coverage Ratio requirement of 1.15 to 1.00 was waived for the twelve month period ended October 1, 2011. The Minimum Fixed Charge Coverage Ratio of 1.15 to 1.00 will commence with the Computation Period ending March 31, 2013.

· The Company must maintain a Minimum Tangible Net Worth as of the last day of any Computation Period of $32,000,000 plus 50% of the Consolidated Net Income for the immediately preceding Fiscal Year.

· Annual capital expenditures may not exceed $3,500,000 excluding those of Williams EcoLogix, Inc.

· The Balance Sheet Leverage Ratio as of the last day of any Computation Period may not exceed 1.00 to 1.00.

· The maximum revolving credit facility line is increased to $20,000,000.

· Inventory borrowings are limited to a maximum of $8,500,000.

· The maturity date of the credit facility is extended to May 1, 2015.

· Interest rate pricing for the revolving credit facility is LIBOR plus 3.25% or the prime rate plus 1%. The interest on the term loan is LIBOR plus 3.75% or the prime rate plus 1.5%.

· The term loan principal repayment schedule has been revised and reduced. The table below reflects the new maturities under the Restated Agreement.

· As previously reported, WFC, through its wholly owned subsidiary WEI, has entered into an agreement to distribute a product currently being developed by a third party. Should the product be successfully developed such that it results in a commercially salable product, WEI is likely to incur start-up costs and other expenses prior to the realization of revenues by this new business venture. The permitted maximum cumulative cash expenditures for this venture are $2,500,000 commencing on March 24, 2011.

Definitions under the Credit Agreement as amended are as follows:

· Tangible Net Worth is defined as net worth plus subordinated debt, minus intangible assets (goodwill, intellectual property, prepaid expenses, deposits and deferred charges), minus all obligations owed to the Company or any of its subsidiaries by any affiliate or any or its subsidiaries and minus all loans owed by its officers, stockholders, subsidiaries or employees.

· Adjusted EBITDA is defined as net income, excluding the operating results of discontinued operations, plus interest, income taxes, depreciation, depletion and amortization plus other non-cash charges approved by the lender.

· Fixed Charge Coverage Ratio is defined as, for any computation period, the ratio of (a) the sum for such period of Adjusted EBITDA minus the sum of income taxes paid in cash and (b) all unfinanced capital expenditures to the sum for such period of interest expense plus the required payments of principal of the term debt.

· Balance Sheet Leverage Ratio is defined as the ratio of Total Debt to Tangible Net Worth.

Outstanding borrowings under the revolving credit facility as of December 31, 2011 were $8,150,000. The highest balance outstanding on the revolving credit facility during 2011 was $9,000,000. Average outstanding revolving credit during the year was $6,085,000. The weighted average interest rates on the outstanding revolving credit and term debt in 2011 and 2010 were 5.2% and 7.0%, respectively, including the effect of the interest rate swap discussed above. At all times since the inception of the Credit Agreement, the Company had sufficient qualifying and eligible assets such that the available borrowing capacity exceeded the cash needs of the Company and this situation is expected to continue for the foreseeable future.

The Company has prepared a projection of cash sources and uses for the next 12 months. Under this projection, adjusted for the actual results of the first two months of 2012, the Company believes that its existing cash balance, anticipated cash flow from operations and borrowings available under the Credit Agreement, will be sufficient to cover expected cash needs, including servicing debt and planned capital expenditures, for the next twelve months. The Company also expects to be in compliance with all debt covenants, as amended, during this period.

Term loan payments under the Restated Agreement and the amortization of deferred financing fees are scheduled as follows (amounts in thousands):

			Amortization
	Term Loan		of Deferred
	Payments		Financing Fees
2012	$	500	$	60
2013	500		—
2014	500		—
2015	2,783		—
	$	4,283	$	60

In April 2009 the Company deposited cash of $4,840,000 with its casualty insurance carrier to serve as collateral for the self-insured obligations under the Company’s casualty insurance program. Previously these obligations were secured by a bank letter of credit. This deposit was funded with borrowings under the revolving credit line. In April 2011, the insurance carrier reduced its collateral requirement and returned $500,000 to the Company. The remaining balance at December 31, 2011 of $4,340,000 is classified as a current asset as the Company received a full refund of the cash in March 2012 when a Letter of Credit was issued to the insurance company for the same amount.