Note 10 – Debt

We have a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. that provides for an unsecured total revolving commitment of up to $570 million. The commitment under the Credit Agreement terminates on December 30, 2015. Borrowings accrue interest under one of two alternative methods as described in the Credit Agreement. With each borrowing against our credit line, we can elect the interest rate method based on our funding needs at the time. We also incur loan commitment fees and letter of credit fees under the Credit Agreement. Outstanding letters of credit reduce the borrowing availability under the Credit Agreement on a dollar-for-dollar basis. As of August 31, 2014, the outstanding revolving loan principal balance was $488.90 million and there were $1.32 million of open letters of credit outstanding against the Credit Agreement. For the fiscal quarter and year-to-date ended August 31, 2014, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.90 to 4.00 percent for both periods. For the fiscal quarter and year-to-date ended August 31, 2013, borrowings under the Credit Agreement incurred interest charges at rates ranging from 1.18 to 3.63 percent for both periods. As of August 31, 2014, the amount available for borrowings under the Credit Agreement was $79.78 million.

A summary of our long-term debt is as follows:

LONG-TERM DEBT

(dollars in thousands)

Original

Date

Interest

August 31,

February 28,

Borrowed

Rates

Matures

2014

2014

$37.61 million unsecured loan with the Mississippi Business Finance Corporation (“MBFC Loan”), interest is set and payable quarterly at a Base Rate, plus a margin of up to 1.125%, or applicable LIBOR plus a margin of up to 2.125%, as determined by the interest rate elected. Loan subject to holder’s call on or after March 1, 2018. Loan can be prepaid without penalty. (1)

03/13

1.91%

03/23

35,707

37,607

$75 million unsecured floating interest rate Senior Notes. Interest set and payable quarterly at three month LIBOR plus 90 basis points. Principal was due and paid on June 30, 2014. (2)

06/04

6.01%

06/14

75,000

$100 million unsecured Senior Notes payable at a fixed interest rate of 3.90%. Interest payable semi-annually. Annual principal payments of $20 million began in January 2014. Prepayment of notes are subject to a “make whole” premium.

01/11

3.90%

01/18

80,000

80,000

Total long-term debt

115,707

192,607

Less current maturities of long-term debt

(21,900

)

(96,900

)

Long-term debt, excluding current maturities

93,807

95,707

(1) A $1.90 million principal payment was made on March 1, 2014. The remaining loan balance is payable as follows: $1.90 million on March 1 in each of 2015, 2018, 2019, 2020, 2021, and 2022; $3.80 million on March 1, 2016; $5.70 million on March 1, 2017; and $14.81 million on March 1, 2023. Any remaining outstanding principal and interest is due upon maturity on March 1, 2023.

(2) Floating interest rates were hedged with an interest rate swap to effectively fix interest rates. Additional information regarding the swap is provided in Note 13 to these consolidated condensed financial statements.

The fair market value of the fixed rate debt at August 31, 2014, computed using a discounted cash flow analysis, was $84.18 million compared to the $80 million book value and represents a Level 2 liability. All other long-term debt has floating interest rates, and its book value approximates its fair value at August 31, 2014.

In connection with the acquisition of Healthy Directions, on June 11, 2014 we entered into a fourth amendment to the Credit Agreement (the “Amendment”) with Bank of America, N.A. and other lenders. We also entered into an amendment of a guaranty agreement in favor of Bank of America, N.A. and other lenders, which relates to the MBFC Loan (the “Amended Guaranty”). The Amendment, among other things, increased the unsecured revolving commitment of the Credit Agreement from $375 million to $570 million. Additionally, the Amendment and the Amended Guaranty modified the limitation on dividends and stock repurchases to allow for the Company to declare or pay cash dividends to shareholders or make stock repurchases if, after giving effect to the dividends or share repurchases, the Leverage Ratio (as defined in the Credit Agreement) is not greater than 2.75 to 1.00. Finally, the Amendment and the Amended Guaranty increased the Leverage Ratio limit to 3.25 to 1.00, from a previous limit of 3.00 to 1.00.

All of our debt is unconditionally guaranteed, on a joint and several basis, by the Company and certain of its subsidiaries. Our debt agreements require the maintenance of certain financial covenants, including maximum leverage ratios, minimum interest coverage ratios and minimum consolidated net worth levels (as each of these terms is defined in the various agreements). Our debt agreements also contain other customary covenants, including, among other things, covenants restricting or limiting the Company, except under certain conditions set forth therein, from (1) incurring debt, (2) incurring liens on its properties, (3) making certain types of investments, (4) selling certain assets or making other fundamental changes relating to mergers and consolidations, and (5) repurchasing shares of our common stock and paying dividends.

As of August 31, 2014, our debt agreements effectively limited our ability to incur more than $65.58 million of additional debt from all sources, including the Credit Agreement. We were in compliance with the terms of these agreements as of August 31, 2014.