Credit Agreements

12 Months Ended

Jan. 30, 2021

Debt Disclosure [Abstract]

Credit Agreements

(9)  Credit Agreements

The Company’s long-term credit facility consists of:

	January 30,2021		February 1,2020
PNC revolving loan due July 27, 2023, principal amount	$	41,000,000	$	53,900,000
PNC term loan due July 27, 2023, principal amount		12,441,000		15,155,000
Less unamortized debt issuance costs		(61,000)		(95,000)
PNC term loan due July 27, 2023, carrying amount		12,380,000		15,060,000
Total long-term credit facility		53,380,000		68,960,000
Less current portion of long-term credit facility		(2,714,000)		(2,714,000)
Long-term credit facility, excluding current portion	$	50,666,000	$	66,246,000

PNC Credit Facility

On February 9, 2012, the Company entered into a credit and security agreement (as amended through February 5, 2021, the "PNC Credit Facility") with PNC Bank, N.A. ("PNC"), a member of The PNC Financial Services Group, Inc., as lender

and agent. The PNC Credit Facility, which includes CIBC Bank USA (formerly known as The Private Bank) as part of the facility, provides a revolving line of credit of $70.0 million and provides for a term loan on which the Company had originally drawn to fund improvements at the Company’s distribution facility in Bowling Green, Kentucky and subsequently to pay down the Company’s previously outstanding GACP Term Loan (as defined below). The PNC Credit Facility also provides an accordion feature that would allow the Company to expand the size of the revolving line of credit by another $20.0 million at the discretion of the lenders and upon certain conditions being met. Maximum borrowings and available capacity under the revolving line of credit under the PNC Credit Facility are equal to the lesser of $70.0 million or a calculated borrowing base comprised of eligible accounts receivable and eligible inventory.

All borrowings under the PNC Credit Facility mature and are payable on July 27, 2023. Subject to certain conditions, the PNC Credit Facility also provides for the issuance of letters of credit in an aggregate amount up to $6.0 million which, upon issuance, would be deemed advances under the PNC Credit Facility. The PNC Credit Facility is secured by a first security interest in substantially all of the Company’s personal property, as well as the Company’s real properties located in Eden Prairie, Minnesota and Bowling Green, Kentucky. Under certain circumstances, the borrowing base may be adjusted if there were to be a significant deterioration in value of the Company’s accounts receivable and inventory.

The revolving line of credit under the PNC Credit Facility bears interest at either a Base Rate or LIBOR plus a margin consisting of between 2% and 3.5% on Base Rate advances and 3% and 4.5% on LIBOR advances based on the Company’s trailing twelve-month reported leverage ratio (as defined in the PNC Credit Facility) measured semi-annually as demonstrated in its financial statements. The term loan bears interest at either a Base Rate or LIBOR plus a margin consisting of between 4% and 5% on Base Rate term loans and 5% to 6% on LIBOR Rate term loans based on the Company’s leverage ratio measured annually as demonstrated in its audited financial statements.

As of January 30, 2021, the Company had borrowings of $41.0 million under its revolving credit facility. Remaining available capacity under the revolving credit facility as of January 30, 2021 was approximately $12.5 million, which provided liquidity for working capital and general corporate purposes. The PNC Credit Facility also provides for a term loan on which the Company had originally drawn to fund an expansion and improvements at the Company’s distribution facility in Bowling Green, Kentucky and subsequently to partially pay down the Company’s previously outstanding term loan with GACP Finance Co., LLC and reduce its revolving line of credit borrowings. As of January 30, 2021, there was approximately $12.4 million outstanding under the PNC Credit Facility term loan of which $2.7 million was classified as current in the accompanying balance sheet.

Principal borrowings under the term loan are payable in monthly installments over an 84-month amortization period commencing on September 1, 2018 and are also subject to mandatory prepayment in certain circumstances, including, but not limited to, upon receipt of certain proceeds from dispositions of collateral. Borrowings under the term loan are also subject to mandatory prepayment in an amount equal to fifty percent (50%) of excess cash flow for such fiscal year, with any such payment not to exceed $2.0 million in any such fiscal year. The PNC Credit Facility is also subject to other mandatory prepayment in certain circumstances. In addition, if the total PNC Credit Facility is terminated prior to maturity, the Company would be required to pay an early termination fee of 0.5% if terminated on or before July 27, 2021, and no fee if terminated after July 27, 2021. As of January 30, 2021, the imputed effective interest rate on the PNC term loan was 6.4%.

Interest expense recorded under the PNC Credit Facility was $3,497,000, $3,758,000 and $3,499,000 for fiscal 2020, fiscal 2019 and fiscal 2018.

The PNC Credit Facility contains customary covenants and conditions, including, among other things, maintaining a minimum of unrestricted cash plus unused line availability of $10.0 million at all times and limiting annual capital expenditures. Certain financial covenants, including minimum EBITDA levels (as defined in the PNC Credit Facility) and a minimum fixed charge coverage ratio of 1.1 to 1.0, become applicable only if unrestricted cash plus unused line availability falls below $10.8 million. As of January 30, 2021, the Company’s unrestricted cash plus unused line availability was $28.0 million and the Company was in compliance with applicable financial covenants of the PNC Credit Facility and expects to be in compliance with applicable financial covenants over the next twelve months. In addition, the PNC Credit Facility places restrictions on the Company’s ability to incur additional indebtedness or prepay existing indebtedness, to create liens or other encumbrances, to sell or otherwise dispose of assets, to merge or consolidate with other entities, and to make certain restricted payments, including payments of dividends to common shareholders.

Deferred financing costs, net of amortization, relating to the revolving line of credit were $243,000 and $406,000 as of January 30, 2021 and February 1, 2020 and are included within other assets within the accompanying consolidated balance sheets. These costs are being expensed as additional interest over the five-year term of the PNC Credit Facility.

Maturities

The aggregate maturities of the Company’s long-term credit facility as of January 30, 2021 are as follows:

	PNC Credit Facility
Fiscal year	Term loan		Revolving loan		Total
2021	$	2,714,000	$	—	$	2,714,000
2022		2,714,000		—		2,714,000
2023		7,013,000		41,000,000		48,013,000
	$	12,441,000	$	41,000,000	$	53,441,000

Cash Requirements

Currently, the Company's principal cash requirements are to fund business operations, which consist primarily of purchasing inventory for resale, funding ValuePay installment receivables, funding the Company's basic operating expenses, particularly the Company's contractual commitments for cable and satellite programming distribution, and the funding of necessary capital expenditures. The Company closely manages its cash resources and working capital. The Company attempts to manage its inventory receipts and reorders in order to ensure its inventory investment levels remain commensurate with the Company's current sales trends. The Company also monitors the collection of its credit card and ValuePay installment receivables and manages vendor payment terms in order to more effectively manage the Company's working capital which includes matching cash receipts from the Company's customers, to the extent possible, with related cash payments to the Company's vendors. ValuePay remains a cost-effective promotional tool for the Company. The Company continues to make strategic use of its ValuePay program in an effort to increase sales and to respond to similar competitive programs.

The Company experienced a decline in net sales and a decline in its active customer file during fiscal 2020, 2019 and 2018 and a corresponding impact to the Company's profitability. The Company has taken or is taking the following steps to enhance its operations and liquidity position: completed equity public offerings during the first quarter of fiscal 2021 and third quarter of fiscal 2020 in which the Company received proceeds of $21.2 million and $15.8 million, respectively, after deducting underwriters’ discounts and commissions and other offering costs; entered into a private placement securities purchase agreement in which the Company received gross proceeds of $6.0 million during the first quarter of fiscal 2019; entered into a common stock and warrant purchase agreement in which the Company received gross proceeds of $4.0 million during the first half of fiscal 2020; implemented a reduction in overhead costs totaling $22 million in expected annualized savings for the reductions made during fiscal 2019 and an additional $16 million in expected annualized savings for the reductions made during the first quarter of fiscal 2020, primarily driven by a reduction in the Company's work force; negotiated improved payment terms with the Company's inventory vendors; reduced capital expenditures in fiscal 2020 compared to prior years; renegotiating with certain cable and satellite distributors to reduce service costs and improve payment terms; and managed the Company's inventory receipts in fiscal 2020 to reduce inventory on hand.

The Company's ability to fund operations and capital expenditures in the future will be dependent on its ability to generate cash flow from operations, maintain or improve margins, decrease the rate of decline in its sales and to use available funds from its PNC Credit Facility. The Company's ability to borrow funds is dependent on its ability to maintain an adequate borrowing base and its ability to meet its credit facility's covenants (as described above). The Company believes that it is probable its existing cash balances, together with the cost cutting measures described above and its availability under the PNC Credit Facility, will be sufficient to fund the Company's normal business operations over the next twelve months from the issuance of this report.