10-Q 1 wdfc-20151130x10q.htm 10-Q 5 Q1 FY16 10Q_Final

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended November 30, 2015

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from              to             

Commission File Number: 000-06936

WD-40 COMPANY

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

95-1797918

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

1061 Cudahy Place, San Diego, California

 

92110

(Address of principal executive offices)

 

(Zip code)

 

Registrant’s telephone number, including area code: (619) 275-1400

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

Yes      No  

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes       No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer          Accelerated filer    Non-accelerated filer         Smaller reporting company  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes      No  

 

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of January 4, 2016 was 14,399,027.

1

 


 

WD-40 COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended November 30, 2015

 

TABLE OF CONTENTS

 

 

 

 

 

 

PART I — FINANCIAL INFORMATION 

 

 

 

Page

Item 1.

Financial Statements

 

 

Condensed Consolidated Balance Sheets

 

Condensed Consolidated Statements of Operations

 

Condensed Consolidated Statements of Comprehensive Income

 

Condensed Consolidated Statement of Shareholders’ Equity

 

Condensed Consolidated Statements of Cash Flows

 

Notes to Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32 

Item 4.

Controls and Procedures

32 

 

 

PART II —  OTHER INFORMATION 

 

 

 

 

Item 1.

Legal Proceedings

33 

Item 1A.

Risk Factors

33 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34 

Item 6.

Exhibits

35 

 

 

 

 

 

 

 

 

 

 

2

 


 

   

 

 

 

 

 

 

 

 

 

 

 

 

PART 1 - FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1. Financial Statements

 

 

 

 

 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands, except share and per share amounts)

 

 

 

 

 

 

 

November 30,

 

August 31,

 

2015

 

2015

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

65,071 

 

$

53,896 

Short-term investments

 

47,665 

 

 

48,603 

Trade and other accounts receivable, less allowance for doubtful

 

 

 

 

 

accounts of $445 and $491 at November 30, 2015

 

 

 

 

 

and August 31, 2015, respectively

 

57,782 

 

 

58,750 

Inventories

 

35,575 

 

 

32,052 

Current deferred tax assets, net

 

6,957 

 

 

5,824 

Other current assets

 

4,392 

 

 

6,127 

Total current assets

 

217,442 

 

 

205,252 

Property and equipment, net

 

10,844 

 

 

11,376 

Goodwill

 

96,291 

 

 

96,409 

Other intangible assets, net

 

22,075 

 

 

22,961 

Other assets

 

3,276 

 

 

3,259 

Total assets

$

349,928 

 

$

339,257 

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

20,671 

 

$

17,128 

Accrued liabilities

 

15,192 

 

 

15,200 

Accrued payroll and related expenses

 

12,393 

 

 

13,357 

Income taxes payable

 

2,607 

 

 

2,287 

Total current liabilities

 

50,863 

 

 

47,972 

Revolving credit facility

 

118,000 

 

 

108,000 

Long-term deferred tax liabilities, net

 

24,918 

 

 

23,145 

Other long-term liabilities

 

2,301 

 

 

2,282 

Total liabilities

 

196,082 

 

 

181,399 

 

 

 

 

 

 

Commitments and Contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

Common stock ― authorized 36,000,000 shares, $0.001 par value;

 

 

 

 

 

19,594,908 and 19,546,888 shares issued at November 30, 2015 and

 

 

 

 

 

August 31, 2015, respectively; and 14,406,219 and 14,450,490 shares

 

 

 

 

 

outstanding at November 30, 2015 and August 31, 2015, respectively

 

20 

 

 

20 

Additional paid-in capital

 

141,815 

 

 

141,651 

Retained earnings

 

267,245 

 

 

260,683 

Accumulated other comprehensive income (loss)

 

(11,385)

 

 

(8,722)

Common stock held in treasury, at cost ― 5,188,689 and 5,096,398

 

 

 

 

 

shares at November 30, 2015 and August 31, 2015, respectively

 

(243,849)

 

 

(235,774)

Total shareholders' equity

 

153,846 

 

 

157,858 

Total liabilities and shareholders' equity

$

349,928 

 

$

339,257 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

3

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)

 

 

 

 

 

 

 

Three Months Ended November 30,

 

 

2015

 

 

2014

 

 

 

 

 

 

Net sales

$

92,522 

 

$

96,353 

Cost of products sold

 

41,114 

 

 

46,652 

Gross profit

 

51,408 

 

 

49,701 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Selling, general and administrative

 

27,848 

 

 

27,424 

Advertising and sales promotion

 

5,660 

 

 

5,915 

Amortization of definite-lived intangible assets

 

755 

 

 

769 

Total operating expenses

 

34,263 

 

 

34,108 

 

 

 

 

 

 

Income from operations

 

17,145 

 

 

15,593 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest income

 

148 

 

 

134 

Interest expense

 

(372)

 

 

(294)

Other (expense) income, net

 

(51)

 

 

102 

Income before income taxes

 

16,870 

 

 

15,535 

Provision for income taxes

 

4,808 

 

 

4,749 

Net income

$

12,062 

 

$

10,786 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

Basic

$

0.83 

 

$

0.73 

Diluted

$

0.83 

 

$

0.73 

 

 

 

 

 

 

Shares used in per share calculations:

 

 

 

 

 

Basic

 

14,404 

 

 

14,668 

Diluted

 

14,461 

 

 

14,738 

Dividends declared per common share

$

0.38 

 

$

0.34 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Updated

4

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)

 

 

 

 

 

 

 

Three Months Ended November 30,

 

2015

 

2014

 

 

 

 

 

 

Net income

$

12,062 

 

$

10,786 

Other comprehensive loss:

 

 

 

 

 

Foreign currency translation adjustment

 

(2,663)

 

 

(6,296)

Total comprehensive income

$

9,399 

 

$

4,490 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(Unaudited and in thousands, except share and per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

Total

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

Treasury Stock

 

Shareholders'

 

Shares

 

Amount

 

Capital

 

Earnings

 

Income (Loss)

 

Shares

 

Amount

 

Equity

Balance at August 31, 2015

19,546,888 

 

$

20 

 

$

141,651 

 

$

260,683 

 

$

(8,722)

 

5,096,398 

 

$

(235,774)

 

$

157,858 

Issuance of common stock under share-based

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plan, net of shares withheld for taxes

48,020 

 

 

 

 

 

(1,859)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,859)

Stock-based compensation

 

 

 

 

 

 

633 

 

 

 

 

 

 

 

 

 

 

 

 

 

633 

Tax benefits from settlements of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock-based equity awards

 

 

 

 

 

 

1,390 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,390 

Cash dividends ($0.38 per share)

 

 

 

 

 

 

 

 

 

(5,500)

 

 

 

 

 

 

 

 

 

 

(5,500)

Acquisition of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

92,291 

 

 

(8,075)

 

 

(8,075)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

(2,663)

 

 

 

 

 

 

 

(2,663)

Net income

 

 

 

 

 

 

 

 

 

12,062 

 

 

 

 

 

 

 

 

 

 

12,062 

Balance at November 30, 2015

19,594,908 

 

$

20 

 

$

141,815 

 

$

267,245 

 

$

(11,385)

 

5,188,689 

 

$

(243,849)

 

$

153,846 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

 

 

 

 

 

 

 

Three Months Ended November 30,

 

2015

 

2014

Operating activities:

 

 

 

 

 

Net income

$

12,062 

 

$

10,786 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,661 

 

 

1,633 

Net gains on sales and disposals of property and equipment

 

(3)

 

 

(24)

Deferred income taxes

 

 

 

(615)

Excess tax benefits from settlements of stock-based equity awards

 

(1,390)

 

 

(494)

Stock-based compensation

 

633 

 

 

498 

Unrealized foreign currency exchange losses, net

 

360 

 

 

461 

Provision for bad debts

 

78 

 

 

164 

Changes in assets and liabilities:

 

 

 

 

 

Trade and other accounts receivable

 

430 

 

 

(720)

Inventories

 

(3,730)

 

 

624 

Other assets

 

1,688 

 

 

2,841 

Accounts payable and accrued liabilities

 

3,617 

 

 

(3,563)

Accrued payroll and related expenses

 

(3,187)

 

 

(4,931)

Income taxes payable

 

2,403 

 

 

2,698 

Other long-term liabilities

 

20 

 

 

40 

Net cash provided by operating activities

 

14,645 

 

 

9,398 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(448)

 

 

(1,582)

Proceeds from sales of property and equipment

 

 -

 

 

79 

Acquisition of business

 

 -

 

 

(3,705)

Purchases of short-term investments

 

(2,933)

 

 

(82)

Maturities of short-term investments

 

2,846 

 

 

 -

Net cash used in investing activities

 

(535)

 

 

(5,290)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Treasury stock purchases

 

(8,075)

 

 

(9,863)

Dividends paid

 

(5,500)

 

 

(5,003)

Proceeds from issuance of common stock

 

421 

 

 

685 

Excess tax benefits from settlements of stock-based equity awards

 

1,390 

 

 

494 

Proceeds from revolving credit facility

 

10,000 

 

 

 -

 Net cash used in financing activities

 

(1,764)

 

 

(13,687)

Effect of exchange rate changes on cash and cash equivalents

 

(1,171)

 

 

(1,782)

Net increase (decrease) in cash and cash equivalents

 

11,175 

 

 

(11,361)

Cash and cash equivalents at beginning of period

 

53,896 

 

 

57,803 

Cash and cash equivalents at end of period

$

65,071 

 

$

46,442 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

7

 


 

WD-40 COMPANY

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

Note 1.  The Company

 

WD-40 Company (“the Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products which solve problems in workshops, factories and homes around the world. The Company markets its maintenance products and its homecare and cleaning products under the following well-known brands: WD-40®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®.  Currently included in the WD-40 brand are the WD-40 multi-use product and the WD-40 Specialist® and WD-40 BIKE® product lines. 

 

The Company’s brands are sold in various locations around the world. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia and the Pacific Rim, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia. The Company’s products are sold primarily through mass retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets, sport retailers, independent bike dealers and industrial distributors and suppliers.

 

Note 2.  Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Consolidation

 

The condensed consolidated financial statements included herein have been prepared by the Company, without audit, according to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The August 31, 2015 year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

 

In the opinion of management, the unaudited financial information for the interim periods shown reflects all adjustments necessary for a fair statement thereof and such adjustments are of a normal recurring nature. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2015, which was filed with the SEC on October 22, 2015.

 

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year.

 

Foreign Currency Forward Contracts

 

In the normal course of business, the Company employs established policies and procedures to manage its exposure to fluctuations in foreign currency exchange rates. The Company’s U.K. subsidiary, whose functional currency is Pound Sterling, utilizes foreign currency forward contracts to limit its exposure in converting forecasted cash balances denominated in non-functional currencies. The principal currency affected is the Euro. The Company regularly monitors its foreign currency exchange rate exposures to ensure the overall effectiveness of its foreign currency hedge positions. While the

8

 


 

Company engages in foreign currency hedging activity to reduce its risk, for accounting purposes, none of its foreign currency forward contracts are designated as hedges.

 

Foreign currency forward contracts are carried at fair value, with net realized and unrealized gains and losses recognized currently in other income (expense) in the Company’s consolidated statements of operations. Cash flows from settlements of foreign currency forward contracts are included in operating activities in the consolidated statements of cash flows. Foreign currency forward contracts in an asset position at the end of the reporting period are included in other current assets, while foreign currency forward contracts in a liability position at the end of the reporting period are included in accrued liabilities in the Company’s consolidated balance sheets. At November 30, 2015, the Company had a notional amount of $7.3 million outstanding in foreign currency forward contracts, which mature from December 2015 through March 2016. Unrealized net gains and losses related to foreign currency forward contracts were not significant at November 30, 2015 and August 31, 2015. Realized net gains and losses related to foreign currency forward contracts were not material for each of the three month periods ended November 30, 2015 and 2014.

 

Fair Value Measurements

 

Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures”, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes its financial assets and liabilities measured at fair value into a hierarchy that categorizes fair value measurements into the following three levels based on the types of inputs used in measuring their fair value:  

 

Level 1:  Observable inputs such as quoted market prices in active markets for identical assets or liabilities;

Level 2:  Observable market-based inputs or observable inputs that are corroborated by market data; and

Level 3:  Unobservable inputs reflecting the Company’s own assumptions.

 

Under fair value accounting, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. As of November 30, 2015, the Company had no assets or liabilities that are measured at fair value in the financial statements on a recurring basis, with the exception of the foreign currency forward contracts, which are classified as Level 2 within the fair value hierarchy.  The carrying values of cash equivalents and short-term investments are recorded at cost, which approximates their fair values primarily due to their short-term maturities and are classified as Level 2 within the fair value hierarchy. During the three months ended November 30, 2015, the Company did not record any significant nonrecurring fair value measurements for assets or liabilities in periods subsequent to their initial recognition.

 

Recently Issued Accounting Standards

 

In November 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes”, which requires that all deferred tax liabilities and assets be classified as noncurrent on the balance sheet, and eliminates the current requirement for an entity to separate these liabilities and assets into current and noncurrent amounts.  This guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted and may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. The Company is in the process of evaluating which transition method it will elect and whether to early adopt. The Company has also evaluated the potential impacts of this updated guidance, and it does not expect the adoption of this guidance to have a significant impact on its consolidated financial statements given the relative materiality of the deferred tax assets and liabilities that would be reclassified from current to noncurrent.

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers”, which supersedes the revenue recognition requirements in ASC 605, “Revenue Recognition”.  The core principle of this updated guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new rule also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  This guidance was originally to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. In July 2015, the FASB approved a one year deferral for the effective date of this guidance. Early adoption is permitted but only to the original effective date. The Company does not

9

 


 

intend to adopt this guidance early and it will become effective for the Company on September 1, 2018 with the one year deferral. Companies are permitted to adopt this new rule following either a full or modified retrospective approach.  The Company has not yet decided which implementation method it will adopt. The Company is also in the process of evaluating the potential impacts of this updated authoritative guidance on its consolidated financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory, which simplifies the subsequent measurement of inventories valued under first-in, first-out (“FIFO”) or the average cost method. Under this new guidance, inventory will be measured at the lower of cost and net realizable value, with net realizable value defined as the estimated selling price less reasonable costs to sell the inventory. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted and should be applied prospectively. The Company has evaluated the potential impacts of this updated guidance, and it does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

Note 3.  Inventories

 

Inventories consist primarily of raw materials and components, finished goods, and product held at third-party contract manufacturers. Inventories are stated at the lower of cost or market and cost is determined based on a first-in, first-out method or, for a portion of raw materials inventory, the average cost method.  Inventories consisted of the following (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30,

 

August 31,

 

2015

 

2015

Product held at third-party contract manufacturers

$

4,093 

 

$

3,224 

Raw materials and components

 

3,381 

 

 

3,597 

Work-in-process

 

221 

 

 

141 

Finished goods

 

27,880 

 

 

25,090 

Total

$

35,575 

 

$

32,052 

 

 

 

 

 

 

 

Note 4.  Property and Equipment

 

Property and equipment, net, consisted of the following (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30,

 

August 31,

 

2015

 

2015

Machinery, equipment and vehicles

$

15,662 

 

$

15,585 

Buildings and improvements

 

4,283 

 

 

4,264 

Computer and office equipment

 

3,841 

 

 

3,895 

Software

 

7,198 

 

 

7,029 

Furniture and fixtures

 

1,416 

 

 

1,414 

Land

 

277 

 

 

282 

Subtotal

 

32,677 

 

 

32,469 

Less: accumulated depreciation and amortization

 

(21,833)

 

 

(21,093)

Total

$

10,844 

 

$

11,376 

 

 

 

 

 

 

 

10

 


 

 

 

    

Note 5.  Goodwill and Other Intangible Assets

 

Goodwill

 

The following table summarizes the changes in the carrying amounts of goodwill by segment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

EMEA

 

Asia-Pacific

 

Total

Balance as of August 31, 2015

$

85,532 

 

$

9,667 

 

$

1,210 

 

$

96,409 

Translation adjustments

 

(12)

 

 

(106)

 

 

 -

 

 

(118)

Balance as of November 30, 2015

$

85,520 

 

$

9,561 

 

$

1,210 

 

$

96,291 

 

 

 

 

 

 

 

 

 

 

 

 

There were no indicators of impairment identified as a result of the Company’s review of events and circumstances related to its goodwill subsequent to February 28, 2015, the date of its most recent annual goodwill impairment test. To date, there have been no impairment losses identified and recorded related to the Company’s goodwill.

 

Definite-lived Intangible Assets

 

The Company’s definite-lived intangible assets, which include the 2000 Flushes, Spot Shot, Carpet Fresh, 1001 and GT85 trade names, the Belgium customer list, the GT85 customer relationships and the GT85 technology are included in other intangible assets, net in the Company’s condensed consolidated balance sheets. The following table summarizes the definite-lived intangible assets and the related accumulated amortization and impairment (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30,

 

August 31,

 

2015

 

2015

Gross carrying amount

$

37,622 

 

$

37,805 

Accumulated amortization

 

(15,333)

 

 

(14,702)

Translation adjustments

 

(214)

 

 

(142)

Net carrying amount

$

22,075 

 

$

22,961 

 

 

 

 

 

 

There were no indicators of potential impairment identified as a result of the Company’s review of events and circumstances related to its existing definite-lived intangible assets for the three months ended November  30, 2015.

 

Changes in the carrying amounts of definite-lived intangible assets by segment for the three months ended November 30, 2015 are summarized below (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Americas

 

EMEA

 

Asia-Pacific

 

Total

Balance as of August 31, 2015

$

17,121 

 

$

5,840 

 

$

 -

 

$

22,961 

Amortization expense

 

(552)

 

 

(203)

 

 

 -

 

 

(755)

Translation adjustments

 

 -

 

 

(131)

 

 

 -

 

 

(131)

Balance as of November 30, 2015

$

16,569 

 

$

5,506 

 

$

 -

 

$

22,075 

 

 

 

 

 

 

 

 

 

 

 

 

 

11

 


 

The estimated amortization expense for the Company’s definite-lived intangible assets in future fiscal years is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade Names

 

Customer-Based

 

Technology

Remainder of fiscal year 2016

$

1,840 

 

$

389 

 

$

29 

Fiscal year 2017

 

2,448 

 

 

518 

 

 

39 

Fiscal year 2018

 

2,448 

 

 

518 

 

 

39 

Fiscal year 2019

 

2,448 

 

 

300 

 

 

 -

Fiscal year 2020

 

2,053 

 

 

191 

 

 

 -

Thereafter

 

8,431 

 

 

384 

 

 

 -

Total

$

19,668 

 

$

2,300 

 

$

107 

 

 

 

 

 

 

 

 

 

Included in the total estimated future amortization expense is the amortization expense for the 1001 trade name and the GT85 intangible assets, which are based on current foreign currency exchange rates, and as a result amounts in future periods may differ from those presented due to fluctuations in those rates.

 

 

 

Note 6. Accrued and Other Liabilities

 

Accrued liabilities consisted of the following (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30,

 

August 31,

 

2015

 

2015

Accrued advertising and sales promotion expenses

$

8,690 

 

$

9,259 

Accrued professional services fees

 

1,300 

 

 

1,207 

Accrued sales taxes

 

216 

 

 

797 

Accrued other taxes

 

448 

 

 

246 

Other

 

4,538 

 

 

3,691 

Total

$

15,192 

 

$

15,200 

 

 

 

 

 

 

Accrued payroll and related expenses consisted of the following (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30,

 

August 31,

 

2015

 

2015

Accrued incentive compensation

$

2,610 

 

$

5,530 

Accrued payroll

 

4,319 

 

 

3,644 

Accrued profit sharing

 

3,239 

 

 

2,508 

Accrued payroll taxes

 

1,630 

 

 

1,189 

Other

 

595 

 

 

486 

Total

$

12,393 

 

$

13,357 

 

 

 

 

 

 

 

Note 7. Debt

 

Revolving Credit Facility

 

On June 17, 2011, the Company entered into an unsecured credit agreement with Bank of America, N.A. (“Bank of America”). Since June 17, 2011, this unsecured credit agreement has been amended three times, most recently on November 16, 2015, (the “Third Amendment”). This Third Amendment increased the revolving commitment from an amount not to exceed $150.0 million to an amount not to exceed $175.0 million. The Third Amendment also increased the aggregate amount of the Company’s capital stock that it may repurchase from $125.0 million to $150.0 million during the period from and including the Third Amendment effective date to the maturity date of the agreement so long as no default exists immediately

12

 


 

prior and after giving effect thereto.  This revolving credit facility matures on May 13, 2020, and includes representations, warranties and covenants customary for credit facilities of this type, as well as customary events of default and remedies.

 

Per the terms of the amended agreement, the Company and Bank of America may enter into an autoborrow agreement in form and substance satisfactory to Bank of America, providing for the automatic advance of revolving loans in U.S. Dollars to the Company’s designated account at Bank of America. No such autoborrow agreement has been signed to date. In addition, the definition of consolidated EBITDA includes the add back of non-cash stock-based compensation to consolidated net income when arriving at consolidated EBITDA. The terms of the financial covenants are as follows:

 

·

The consolidated leverage ratio cannot be greater than three to one.  The consolidated leverage ratio means, as of any date of determination, the ratio of (a) consolidated funded indebtedness as of such date to (b) consolidated EBITDA for the most recently completed four fiscal quarters.

·

The consolidated interest coverage ratio cannot be less than three to one.  The consolidated interest coverage ratio means, as of any date of determination, the ratio of (a) consolidated EBITDA for the most recently completed four fiscal quarters to (b) consolidated interest charges for the most recently completed four fiscal quarters.

The amended agreement no longer contains the material adverse effect clause as an event of default. Prior to the removal of the material adverse effect clause as an event of default in the second amendment to the agreement, which was entered into by the Company in May 2015, all amounts outstanding under the revolving credit facility were classified as short-term on the Company’s consolidated balance sheets as Bank of America could require the Company to immediately repay all amounts outstanding on the credit facility based on subjective factors. With the removal of the material adverse effect clause as an event of default, Bank of America can no longer require this immediate repayment of amounts outstanding on the line of credit.  As a result, the Company is permitted to classify draws on the line of credit as long-term provided that management has determined it has the ability and intent to refinance such draws on the line of credit for a period in excess of twelve months.  The Company assesses its ability and intent associated with draws on the line of credit at the end of each reporting period in order to determine the proper balance sheet classification for amounts outstanding on the line of credit.  Since the autoborrow feature allows for borrowings to be made and repaid by the Company on a daily basis, any such borrowings made under an active autoborrow agreement would be classified as short-term on the Company’s consolidated balance sheets.

 

During the three months ended November 30, 2015,  the Company borrowed an additional $10.0 million U.S. dollars under the revolving credit facility. The Company regularly converts existing draws on its line of credit to new draws with new maturity dates and interest rates. As of November 30, 2015, the Company had a $118.0 million outstanding balance on the revolving credit facility and was in compliance with all debt covenants under this credit facility. Based on management’s ability and intent to refinance the short-term borrowings under the facility with successive short-term borrowings for a period of at least twelve months, the Company has classified the entire amount outstanding under the revolving credit facility as a long-term liability at November 30, 2015.

 

Note 8. Share Repurchase Plans 

 

On October 14, 2014, the Company’s Board of Directors approved a share buy-back plan. Under the plan, which became effective at the beginning of the third quarter of fiscal year 2015, once the Company’s previous $60.0 million plan was exhausted,  the Company is authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2016. The timing and amount of repurchases will be based on terms and conditions as may be acceptable to the Company’s Chief Executive Officer and Chief Financial Officer and in compliance with all laws and regulations applicable thereto. During the period from March 1, 2015 through November 30, 2015, the Company repurchased 278,334 shares at a total cost of $23.8 million under this $75.0 million plan.

13

 


 

Note 9.  Earnings per Common Share

 

The table below reconciles net income to net income available to common shareholders (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended November 30,

 

2015

 

2014

Net income

$

12,062 

 

$

10,786 

Less: Net income allocated to

 

 

 

 

 

participating securities

 

(75)

 

 

(62)

Net income available to common shareholders

$

11,987 

 

$

10,724 

 

 

 

 

 

 

The table below summarizes the weighted-average number of common shares outstanding included in the calculation of basic and diluted EPS (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended November 30,

 

2015

 

2014

Weighted-average common

 

 

 

 

 

shares outstanding, basic

 

14,404 

 

 

14,668 

Weighted-average dilutive securities

 

57 

 

 

70 

Weighted-average common

 

 

 

 

 

shares outstanding, diluted

 

14,461 

 

 

14,738 

 

 

 

 

 

 

For the three months ended November 30, 2015 and 2014,  weighted-average stock-based equity awards outstanding that are non-participating securities in the amounts of 8,030 and 5,347, respectively, were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive. 

 

Note 10.  Related Parties

 

On October 11, 2011, the Company’s Board of Directors elected Mr. Gregory A. Sandfort as a director of WD-40 Company. Mr. Sandfort is President and Chief Executive Officer of Tractor Supply Company (“Tractor Supply”), which is a WD-40 Company customer that acquires products from the Company in the ordinary course of business.

 

The condensed consolidated financial statements include sales to Tractor Supply of $0.3 million and $0.2 million for the three months ended November 30, 2015 and 2014, respectively.  Accounts receivable from Tractor Supply were not material as of November 30, 2015.  

 

Note 11.  Commitments and Contingencies

 

Purchase Commitments 

 

The Company has ongoing relationships with various suppliers (contract manufacturers) who manufacture the Company’s products.  The contract manufacturers maintain title to and control of certain raw materials and components, materials utilized in finished products, and of the finished products themselves until shipment to the Company’s customers or third-party distribution centers in accordance with agreed upon shipment terms.  Although the Company typically does not have definitive minimum purchase obligations included in the contract terms with its contract manufacturers, when such obligations have been included, they have been immaterial. In the ordinary course of business, supply needs are communicated by the Company to its contract manufacturers based on orders and short-term projections, ranging from two to five months. The Company is committed to purchase the products produced by the contract manufacturers based on the projections provided.

 

Upon the termination of contracts with contract manufacturers, the Company obtains certain inventory control rights and is obligated to work with the contract manufacturer to sell through all product held by or manufactured by the contract manufacturer on behalf of the Company during the termination notification period. If any inventory remains at the contract

14

 


 

manufacturer at the termination date, the Company is obligated to purchase such inventory which may include raw materials, components and finished goods. The amounts for inventory purchased under termination commitments have been immaterial. 

 

In addition to the commitments to purchase products from contract manufacturers described above, the Company may also enter into commitments with other manufacturers to purchase finished goods and components to support innovation and renovation initiatives and/or supply chain initiatives. As of November 30, 2015,  no such commitments were outstanding.

 

Litigation  

 

The Company is party to various claims, legal actions and complaints, including product liability litigation, arising in the ordinary course of business.

 

On May 31, 2012, a legal action was filed against the Company in a United States District Court, in Texas (IQ Products Company v. WD-40 Company). The complaint alleged that the Company wrongfully terminated a contract manufacturing relationship. IQ Products Company (“IQPC”) also raised alleged safety concerns regarding a long-standing manufacturing specification related to the Company’s products. On November 13, 2014, the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) of the Department of Transportation (“DOT”) addressed a letter to IQPC to inform IQPC that it concluded an investigation and found no evidence of non-compliance with existing PHMSA regulations or an imminent public safety hazard posed by WD-40 Company products.

 

Pursuant to a court order, the dispute was submitted to arbitration. Following nine days of testimony and full briefing, a panel of three arbitrators issued their Interim Award and decision on the merits of the dispute on May 15, 2015. The arbitrators rejected all of IQPC’s claims.  On August 14, 2015, the arbitrators issued a further Interim Award to declare that the Company is the prevailing party in the proceeding for purposes of awarding attorney’s fees and costs. On November 19, 2015, the arbitrators issued a Final Award, incorporating each of the two Interim Awards and ordering IQPC to pay to the Company the sum of $1.5 million for attorney’s fees and costs.  On December 4, 2015, the Company filed a motion in the United States District Court in Texas to confirm the Final Award and for the entry of judgment for the award of fees and costs.

 

On September 24, 2015, IQPC filed an action in the United States District Court in New Jersey against the DOT and PHMSA alleging that the PHMSA failed to properly follow the applicable regulations when it previously investigated the manufacturing and required regulatory testing of the Company’s products. The Company is not named as a party to this action, but IQPC continues to allege that the Company’s products do not comply with the applicable regulation and that such alleged failure is evidence of a dangerous condition. The Company’s position, supported by the PHMSA’s prior investigation and conclusions noted above, is that all of the Company’s aerosol products are properly manufactured and tested in accordance with the applicable regulation. The Company will monitor this pending litigation and the Company will take such action as may be necessary or appropriate to protect the Company’s interests.

 

The Company does not believe that there is any reasonable possibility that these matters related to IQPC will have a materially negative impact on the Company’s financial condition or results of operations.

 

Indemnifications

 

As permitted under Delaware law, the Company has agreements whereby it indemnifies senior officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company maintains Director and Officer insurance coverage that mitigates the Company’s exposure with respect to such obligations. As a result of the Company’s insurance coverage, management believes that the estimated fair value of these indemnification agreements is minimal. Thus, no liabilities have been recorded for these agreements as of November 30, 2015.

 

From time to time, the Company enters into indemnification agreements with certain contractual parties in the ordinary course of business, including agreements with lenders, lessors, contract manufacturers, marketing distributors, customers and certain vendors. All such indemnification agreements are entered into in the context of the particular agreements and are provided in an attempt to properly allocate risk of loss in connection with the consummation of the underlying contractual arrangements. Although the maximum amount of future payments that the Company could be required to make under these indemnification agreements is unlimited, management believes that the Company maintains adequate levels of insurance coverage to protect

15

 


 

the Company with respect to most potential claims arising from such agreements and that such agreements do not otherwise have value separate and apart from the liabilities incurred in the ordinary course of the Company’s business. Thus, no liabilities have been recorded with respect to such indemnification agreements as of November 30, 2015.

 

Note 12.  Income Taxes

 

The Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rates from quarter to quarter.

 

The provision for income taxes was 28.5% and 30.6% of income before income taxes for the three months ended November 30, 2015 and 2014, respectively.  The decrease in the effective income tax rate from period to period was driven by an increase in  earnings from foreign operations, particularly those in the United Kingdom, which are taxed at decreasing tax rates and  a one-time, nonrecurring benefit from the release of liabilities associated with unrecognized tax benefits that resulted from the expiration of statutes.

 

The Company is subject to taxation in the U.S. and in various state and foreign jurisdictions. Due to expired statutes, the Company’s federal income tax returns for years prior to fiscal year 2013 are not subject to examination by the U.S. Internal Revenue Service. Generally, for the majority of state and foreign jurisdictions where the Company does business, periods prior to fiscal year 2011 are no longer subject to examination. The Company has estimated that up to $0.4 million of unrecognized tax benefits related to income tax positions may be affected by the resolution of tax examinations or expiring statutes of limitation within the next twelve months. Audit outcomes and the timing of settlements are subject to significant uncertainty.

16

 


 

Note 13.  Business Segments and Foreign Operations

 

The Company evaluates the performance of its segments and allocates resources to them based on sales and operating income. The Company is organized on the basis of geographical area into the following three segments: the Americas; EMEA; and Asia-Pacific. Segment data does not include inter-segment revenues. Unallocated corporate expenses are general corporate overhead expenses not directly attributable to the operating segments and are reported separate from the Company’s identified segments. The corporate overhead costs include expenses for the Company’s accounting and finance, information technology, human resources, research and development, quality control and executive management functions, as well as all direct costs associated with public company compliance matters including legal, audit and other professional services costs.

 

Summary information about reportable segments is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

For the Three Months Ended

Americas

 

EMEA

 

Asia-Pacific

 

Corporate (1)

 

Total

November 30, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

44,412 

 

$

32,086 

 

$

16,024 

 

$

 -

 

$

92,522 

Income from operations

$

10,860 

 

$

6,715 

 

$

5,123 

 

$

(5,553)

 

$

17,145 

Depreciation and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

amortization expense

$

1,080 

 

$

510 

 

$

64 

 

$

 

$

1,661 

Interest income

$

 

$

103 

 

$

43 

 

$

 -

 

$

148 

Interest expense

$

369 

 

$

 -

 

$

 

$

 -

 

$

372 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

November 30, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

44,773 

 

$

34,591 

 

$

16,989 

 

$

 -

 

$

96,353 

Income from operations

$

9,966 

 

$

6,380 

 

$

4,446 

 

$

(5,199)

 

$

15,593 

Depreciation and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

amortization expense

$

1,028 

 

$

542 

 

$

55 

 

$

 

$

1,633 

Interest income

$

 

$

100 

 

$

31 

 

$

 -

 

$

134 

Interest expense

$

293 

 

$

 -

 

$

 

$

 -

 

$

294 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Unallocated corporate expenses are general corporate overhead expenses not directly attributable to any one of the operating segments. These expenses are reported separate from the Company’s identified segments and are included in Selling, General and Administrative expenses on the Company’s condensed consolidated statements of operations.

 

 

The Company’s Chief Operating Decision Maker does not review assets by segment as part of the financial information provided and therefore, no asset information is provided in the above table.

 

Net sales by product group are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended November 30,

 

2015

 

2014

Maintenance products

$

82,241 

 

$

84,904 

Homecare and cleaning products

 

10,281 

 

 

11,449 

Total

$

92,522 

 

$

96,353 

 

 

 

 

 

 

 

Note 14. Subsequent Events

 

On December 8, 2015, the Company’s Board of Directors approved an 11% increase in the regular quarterly cash dividend, increasing it from $0.38 per share to $0.42 per share. The $0.42 per share dividend declared on December 8, 2015 is payable on January 29, 2016 to shareholders of record on January 15, 2016.

17

 


 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

As used in this report, the terms “we,” “our,” “us” and “the Company” refer to WD-40 Company and its wholly-owned subsidiaries, unless the context suggests otherwise. Amounts and percents in tables and discussions may not total due to rounding.

 

The following information is provided as a supplement to, and should be read in conjunction with, the unaudited condensed consolidated financial statements and notes thereto included in Part IItem 1 of this Quarterly Report and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended August 31, 2015, which was filed with the Securities and Exchange Commission (“SEC”) on October 22, 2015.

 

In order to show the impact of changes in foreign currency exchange rates on our results of operations, we have included constant currency disclosures, where necessary, in the Overview and Results of Operations sections which follow. Constant currency disclosures represent the translation of our current fiscal year revenues and expenses from the functional currencies of our subsidiaries to U.S. dollars using the exchange rates in effect for the corresponding period of the prior fiscal year. We use results on a constant currency basis as one of the measures to understand our operating results and evaluate our performance in comparison to prior periods. Results on a constant currency basis are not in accordance with accounting principles generally accepted in the United States of America (“non-GAAP”) and should be considered in addition to, not as a substitute for, results prepared in accordance with GAAP.

 

Forward-Looking Statements 

 

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. This report contains forward-looking statements, which reflect the Company’s current views with respect to future events and financial performance.

 

These forward-looking statements include, but are not limited to, discussions about future financial and operating results, including:  growth expectations for maintenance products; expected levels of promotional and advertising spending; plans for and success of product innovation, the impact of new product introductions on the growth of sales; anticipated results from product line extension sales; and forecasted foreign currency exchange rates and commodity prices.  These forward-looking statements are generally identified with words such as “believe,” “expect,” “intend,” “plan,” “could,” “may,” “aim,” “anticipate,” “estimate” and similar expressions. The Company undertakes no obligation to revise or update any forward looking statements.

 

Actual events or results may differ materially from those projected in forward-looking statements due to various factors, including, but not limited to, those identified in Part IItem 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2015, and in the Company’s Quarterly Reports on Form 10-Q, which may be updated from time to time.

 

Overview

 

The Company

 

WD-40 Company (“the Company”), based in San Diego, California, is a global marketing organization dedicated to creating positive lasting memories by developing and selling products which solve problems in workshops, factories and homes around the world. We market our maintenance products and our homecare and cleaning products under the following well-known brands: WD-40®, 3-IN-ONE®, GT85®, X-14®, 2000 Flushes®, Carpet Fresh®, no vac®, Spot Shot®, 1001®, Lava® and Solvol®.  Currently included in the WD-40 brand are the WD-40 multi-use product and the WD-40 Specialist® and WD-40 BIKE® product lines. 

 

Our brands are sold in various locations around the world. Maintenance products are sold worldwide in markets throughout North, Central and South America, Asia, Australia and the Pacific Rim, Europe, the Middle East and Africa. Homecare and cleaning products are sold primarily in North America, the United Kingdom (“U.K.”) and Australia. We sell our products primarily through mass retail and home center stores, warehouse club stores, grocery stores, hardware stores, automotive parts outlets, sport retailers, independent bike dealers and industrial distributors and suppliers.

18

 


 

 

Highlights

 

The following summarizes the financial and operational highlights for our business during the three months ended November 30, 2015: 

 

·

Consolidated net sales decreased $3.8 million for the three months ended November 30, 2015 compared to the corresponding period of the prior fiscal year. As a result of translating the sales of our subsidiaries from their functional currencies to U.S. Dollar, consolidated net sales were unfavorably impacted by $3.7 million from period to period. Thus, on a constant currency basis, net sales would have decreased by $0.1 million from period to period. Of this $3.7 million unfavorable impact from changes in foreign currency exchange rates, $2.1 million came from our EMEA segment, which accounted for 35% of our consolidated sales for the three months ended November 30, 2015.

 

·

Consolidated net sales for the WD-40 Specialist product line were $4.3 million which is a 2% increase for the three months ended November 30, 2015 compared to the corresponding period of the prior fiscal year. Although the WD-40 Specialist product line is expected to provide the Company with long-term growth opportunities, we will see some volatility in sales levels from period to period due to the timing of promotional programs, the building of distribution, and various other factors that come with building a new product line

 

·

Gross profit as a percentage of net sales increased to 55.6% for the three months ended November 30, 2015 compared to 51.6% for the corresponding period of the prior fiscal year.

 

·

Consolidated net income increased $1.3 million, or 12%, for the three months ended November 30, 2015 compared to the corresponding period of the prior fiscal year. As a result of translating the net income of our subsidiaries from their functional currencies to U.S. Dollar, consolidated net income was unfavorably impacted by  $0.5 million from period to period. Thus, on a constant currency basis, net income would have increased $1.8 million.

 

·

Diluted earnings per common share for the three months ended November 30, 2015 were $0.83 versus $0.73 in the prior fiscal year period.

 

·

Share repurchases continue to be executed under our current $75.0 million share buy-back plan, which was approved by the Company’s Board of Directors in October 2014.  During the period from September 1, 2015 through November 30, 2015, the Company repurchased 92,291 shares at an average price of $87.47 per share, for a total cost of $8.1 million. 

 

Our strategic initiatives and the areas where we will continue to focus our time, talent and resources in future periods include: (i) maximizing WD-40 multi-use product sales through geographic expansion and increased market penetration; (ii) leveraging the WD-40 brand by growing the WD-40 Specialist product line; (iii) leveraging the strengths of the Company through broadened product and revenue base; (iv) attracting, developing and retaining talented people; and (v) operating with excellence.

19

 


 

Results of Operations

 

Three Months Ended November 30, 2015 Compared to Three Months Ended November 30, 2014

 

Operating Items

 

The following table summarizes operating data for our consolidated operations (in thousands, except percentages and per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended November 30,

 

 

 

 

 

 

 

Change from
Prior Year

 

2015

 

2014

 

Dollars

 

Percent

Net sales:

 

 

 

 

 

 

 

 

 

 

 

Maintenance products

$

82,241 

 

$

84,904 

 

$

(2,663)

 

 

(3)%

Homecare and cleaning products

 

10,281 

 

 

11,449 

 

 

(1,168)

 

 

(10)%

Total net sales

 

92,522 

 

 

96,353 

 

 

(3,831)

 

 

(4)%

Cost of products sold

 

41,114 

 

 

46,652 

 

 

(5,538)

 

 

(12)%

Gross profit

 

51,408 

 

 

49,701 

 

 

1,707 

 

 

3% 

Operating expenses

 

34,263 

 

 

34,108 

 

 

155 

 

 

 -

Income from operations

$

17,145 

 

$

15,593 

 

$

1,552 

 

 

10%&nb