The events of default under the fixed-rate term loan include the following:
- Failure to pay principal or interest when due
- Failure to comply with covenants, representations or warranties, terms or conditions under the credit agreements
- Commencing any proceeding for bankruptcy, insolvency, reorganization, dissolution or liquidation
- The sale, transfer, abandonment, forfeiture or disposal of the WD-40 trademark or any other trademark used in a material product line
On March 27, 2007, the Company’s Board of Directors approved a share buy-back plan. As a result of the share buy-back plan, the Company’s debt covenants related to its fixed-rate term loan have been revised. Under the revised debt covenants, the aggregate payments for dividends and share repurchases by the Company are limited to $35 million, plus 75% of consolidated net income for each quarter beginning March 1, 2007.
The Company is in compliance with all debt covenants as required by the term loan agreement.
The Company’s cash balance has not been used to prepay the term loan due to certain prepayment penalties under the loan agreements.
The Company’s primary source of funds is cash flow from operations, which is expected to provide sufficient funds to meet both short and long-term operating needs, as well as future dividends, which are determined on a quarterly basis.
For the fiscal year ended August 31, 2007, cash and cash equivalents increased by $15.9 million, from $45.2 million at the end of fiscal year 2006 to $61.1 million at August 31, 2007. Operating cash flow of $51.7 million was offset by cash used in investing activities of $2.2 million and cash used in financing activities of $34.1 million.
Current assets increased by $15.0 million to $130.6 million at August 31, 2007, up from $115.5 million at August 31, 2006. Accounts receivable increased to $47.2 million, up $2.7 million from $44.5 million at August 31, 2006, as a result of the timing of sales. Inventory decreased to $13.2 million, down $2.1 million from $15.3 million at August 31, 2006 due to timing. Other current assets decreased by $1.4 million to $3.5 million at August 31, 2007, down from $4.9 million at August 31, 2006 due to the timing of prepaid expenses and the reduction of federal income taxes receivable as the Company received tax refunds for amended returns from prior years.
Current liabilities were $53.9 million at August 31, 2007, up from $43.7 million at August 31, 2006. Accounts payable and accrued liabilities increased by $12.7 million due to timing of payments and higher sales levels in the fourth quarter of fiscal year 2007 compared to the fourth quarter of fiscal year 2006. Accrued payroll and related expenses were down $0.6 million primarily due to a decreased bonus accrual as several regions did not achieve profit and performance targets that had been met in the prior fiscal year. Income taxes payable was down $1.9 million due to the timing of payments for federal income taxes.
At August 31, 2007, working capital increased to $76.7 million, up $4.8 million from $71.9 million at the end of fiscal year 2006. The current ratio was 2.4 at August 31, 2007, down from 2.6 at August 31, 2006.
Net cash provided by operating activities for the fiscal year ended August 31, 2007 was $51.7 million. This amount consisted of $31.5 million from net income with an additional $7.1 million of adjustments for non-cash items, including depreciation and amortization, gains on sales of equipment, deferred income tax expense, excess tax benefits from exercises of stock options, distributions received and equity earnings from VML Company L.L.C. (VML) and stock-based compensation, along with $13.0 million related to changes in the working capital as described above and changes in other long-term liabilities.
Net cash used in investing activities for the fiscal year ended August 31, 2007 was $2.2 million. The Company purchased and sold $224.7 million of short-term investments, which consisted of investment grade auction rate securities with an active resale market to ensure liquidity and the ability to be readily converted into cash. Capital expenditures of $2.6 million were primarily in the areas of computer hardware and software, buildings and improvements, furniture and fixtures and vehicle replacements.
For fiscal year 2007, net cash used in financing activities included a $10.7 million principal payment on debt in October 2006, $16.6 million of dividend payments and $17.3 million for purchases of 500,000 shares of common stock held in treasury, partially offset by $9.8 million in proceeds from the exercise of common stock options and $0.7 million of excess tax benefits from exercises of stock options. The $10.7 million payment on debt was the second principal payment on the Company’s original $75 million, 7.28% fixed-rate term loan.
Under the share buy-back plan approved by the Company’s Board of Directors on March 27, 2007, the Company is authorized to acquire up to $35.0 million of the Company’s outstanding shares. As of August 31, 2007, the Company has acquired 500,000 shares at a total cost of $17.3 million under the plan. Further disclosures associated with stock repurchased during fiscal year 2007 are included under Note 4 of the Consolidated Financial Statements and in Part II, Item 5 of this report.
Management believes the Company has access to sufficient capital through the combination of available cash balances and internally generated funds. Management considers various factors when reviewing liquidity needs and plans for available cash on hand including: future debt principal and interest payments, early debt repayment penalties, future capital expenditure requirements, future dividend payments (which are determined on a quarterly basis by the Company’s Board of Directors), alternative investment opportunities, loan covenants and any other relevant considerations currently facing the business.
On October 4, 2007, the Company’s Board of Directors declared a cash dividend of $0.25 per share payable on October 31, 2007 to shareholders of record on October 18, 2007. The Company’s ability to pay dividends could be affected by future business performance, liquidity, capital needs, alternative investment opportunities and loan covenants.
The following schedule summarizes the Company’s contractual obligations and commitments to make future payments as of August 31, 2007:
| Contractual Obligations: | Payments Due by Period | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Total | 1 year | 2-3 years | 4-5 years | After 5 years | |||||||||||||||
| Total debt | $ | 53,571,000 | $ | 10,714,000 | $ | 21,428,000 | $ | 21,429,000 | $ | — | |||||||||
| Interest payments on debt | 8,775,000 | 3,315,000 | 4,290,000 | 1,170,000 | — | ||||||||||||||
| Operating leases | 3,095,000 | 1,461,000 | 1,386,000 | 238,000 | 10,000 | ||||||||||||||
| Marketing and other commitments | 2,039,000 | 1,163,000 | 876,000 | — | — | ||||||||||||||
| Capital expenditure commitments | 2,019,000 | 2,019,000 | — | — | — | ||||||||||||||
| Total contractual cash obligations | $ | 69,499,000 | $ | 18,672,000 | $ | 27,980,000 | $ | 22,837,000 | $ | 10,000 | |||||||||