6. Long-term Debt
Long-term debt is comprised of the following:
| As of August 31, | |||||||
|---|---|---|---|---|---|---|---|
| 2007 | 2006 | ||||||
| Total debt | $ | 53,571,000 | $ | 64,285,000 | |||
| Less: current portion | (10,714,000 | ) | (10,714,000 | ) | |||
| Long-term debt | $ | 42,857,000 | $ | 53,571,000 | |||
As of August 31, 2007, the Company had $53.6 million remaining on an original $75 million, 7.28% fixed-rate term loan financed through Prudential Capital. The $75 million term loan, which originated in October 2001, has a 10-year term and required interest-only payments for the first three years.
The term loan agreement has covenant requirements, which require the Company to maintain minimum consolidated net worth greater than the sum of $57 million plus 25% of consolidated net income for each fiscal quarter beginning with the first fiscal quarter of 2002, plus proceeds of all equity securities other than those issued under the Company’s stock option plan. A consolidated fixed charge coverage ratio greater than 1.20:1.00 on the last day of any fiscal quarter must be maintained. The Company is also limited to a maximum ratio of funded debt to earnings before interest, taxes, depreciation and amortization (EBITDA) of 2.25 to 1.00. The term loan is collateralized by the Company’s cash, property, inventory, trade receivables and intangible assets. The term loan also includes certain provisions for prepayment penalties.
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 and warranties, or other terms and 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
In the event of default, the term loan may be due and callable immediately at the option of the holders.
The term loan agreement also limits the Company’s ability, without prior approval from the Company’s lenders, to incur additional unsecured indebtedness, sell, lease or transfer assets, place liens on properties, complete certain acquisitions, mergers or consolidations, enter into guarantee obligations, enter into related party transactions and make certain loan advances and investments.
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 aggregate maturities of the remaining fixed-rate term loan are as follows:
| Year ending August 31, | 2008 | $10,714,000 |
| 2009 | 10,714,000 | |
| 2010 | 10,714,000 | |
| 2011 | 10,714,000 | |
| 2012 | 10,715,000 | |
| Total | $53,571,000 |