10-Q 1 wdfc-20170531x10q.htm 10-Q 5 Q3 FY17 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 May 31, 2017

 



 

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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.



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

Emerging growth company         



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  



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 July 5, 2017 was 14,016,583.

1

 


 

WD-40 COMPANY

QUARTERLY REPORT ON FORM 10-Q

For the Quarter Ended May 31, 2017



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

20 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40 

Item 4.

Controls and Procedures

40 



 

PART II —  OTHER INFORMATION

 



 

 

Item 1.

Legal Proceedings

41 

Item 1A.

Risk Factors

41 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

41 

Item 6.

Exhibits

42 



 

 















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)



 

 

 

 

 



May 31,

 

August 31,



2017

 

2016

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

32,205 

 

$

50,891 

Short-term investments

 

79,391 

 

 

57,633 

Trade accounts receivable, less allowance for doubtful

 

 

 

 

 

accounts of $229 and $394 at May 31, 2017

 

 

 

 

 

and August 31, 2016, respectively

 

65,177 

 

 

64,680 

Inventories

 

36,549 

 

 

31,793 

Other current assets

 

2,959 

 

 

4,475 

Total current assets

 

216,281 

 

 

209,472 

Property and equipment, net

 

25,510 

 

 

11,545 

Goodwill

 

95,557 

 

 

95,649 

Other intangible assets, net

 

16,936 

 

 

19,191 

Deferred tax assets, net

 

609 

 

 

621 

Other assets

 

2,886 

 

 

3,190 

Total assets

$

357,779 

 

$

339,668 



 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

$

18,557 

 

$

18,690 

Accrued liabilities

 

17,364 

 

 

15,757 

Accrued payroll and related expenses

 

12,762 

 

 

20,866 

Revolving credit facility, current

 

20,000 

 

 

 -

Income taxes payable

 

1,509 

 

 

3,381 

Total current liabilities

 

70,192 

 

 

58,694 

Revolving credit facility

 

134,000 

 

 

122,000 

Deferred tax liabilities, net

 

17,286 

 

 

16,365 

Other long-term liabilities

 

1,962 

 

 

2,214 

Total liabilities

 

223,440 

 

 

199,273 



 

 

 

 

 

Commitments and Contingencies (Note 11)

 

 

 

 

 



 

 

 

 

 

Shareholders' equity:

 

 

 

 

 

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

 

 

 

 

 

19,681,883 and 19,621,820 shares issued at May 31, 2017 and

 

 

 

 

 

August 31, 2016, respectively; and 14,023,428 and 14,208,338 shares

 

 

 

 

 

outstanding at May 31, 2017 and August 31, 2016, respectively

 

20 

 

 

20 

Additional paid-in capital

 

149,767 

 

 

145,936 

Retained earnings

 

308,308 

 

 

289,642 

Accumulated other comprehensive income (loss)

 

(29,624)

 

 

(27,298)

Common stock held in treasury, at cost ― 5,658,455 and 5,413,482

 

 

 

 

 

shares at May 31, 2017 and August 31, 2016, respectively

 

(294,132)

 

 

(267,905)

Total shareholders' equity

 

134,339 

 

 

140,395 

Total liabilities and shareholders' equity

$

357,779 

 

$

339,668 



 

 

 

 

 

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 May 31,

 

Nine Months Ended May 31,



 

2017

 

 

2016

 

 

2017

 

 

2016



 

 

 

 

 

 

 

 

 

 

 

Net sales

$

98,178 

 

$

96,446 

 

$

283,945 

 

$

283,518 

Cost of products sold

 

43,891 

 

 

41,635 

 

 

124,156 

 

 

124,937 

Gross profit

 

54,287 

 

 

54,811 

 

 

159,789 

 

 

158,581 



 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

27,558 

 

 

29,215 

 

 

86,391 

 

 

85,755 

Advertising and sales promotion

 

5,398 

 

 

6,188 

 

 

15,251 

 

 

16,865 

Amortization of definite-lived intangible assets

 

718 

 

 

740 

 

 

2,156 

 

 

2,242 

Total operating expenses

 

33,674 

 

 

36,143 

 

 

103,798 

 

 

104,862 



 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

20,613 

 

 

18,668 

 

 

55,991 

 

 

53,719 



 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

112 

 

 

186 

 

 

392 

 

 

517 

Interest expense

 

(693)

 

 

(433)

 

 

(1,822)

 

 

(1,222)

Other income (expense), net

 

254 

 

 

(799)

 

 

527 

 

 

470 

Income before income taxes

 

20,286 

 

 

17,622 

 

 

55,088 

 

 

53,484 

Provision for income taxes

 

5,842 

 

 

4,957 

 

 

16,526 

 

 

15,088 

Net income

$

14,444 

 

$

12,665 

 

$

38,562 

 

$

38,396 



 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

1.02 

 

$

0.88 

 

$

2.71 

 

$

2.66 

Diluted

$

1.02 

 

$

0.88 

 

$

2.71 

 

$

2.65 



 

 

 

 

 

 

 

 

 

 

 

Shares used in per share calculations:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

14,056 

 

 

14,306 

 

 

14,115 

 

 

14,365 

Diluted

 

14,088 

 

 

14,349 

 

 

14,151 

 

 

14,413 

Dividends declared per common share

$

0.49 

 

$

0.42 

 

$

1.40 

 

$

1.22 



 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

 

 

 

 

 

 

 

 

 

 

























 



 

4

 


 







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited and in thousands)



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended May 31,

 

Nine Months Ended May 31,



 

2017

 

 

2016

 

 

2017

 

 

2016



 

 

 

 

 

 

 

 

 

 

 

Net income

$

14,444 

 

$

12,665 

 

$

38,562 

 

$

38,396 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

3,504 

 

 

6,156 

 

 

(2,326)

 

 

(5,928)

Total comprehensive income

$

17,948 

 

$

18,821 

 

$

36,236 

 

$

32,468 



 

 

 

 

 

 

 

 

 

 

 

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, 2016

19,621,820 

 

$

20 

 

$

145,936 

 

$

289,642 

 

$

(27,298)

 

5,413,482 

 

$

(267,905)

 

$

140,395 

Issuance of common stock under share-based

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

compensation plan, net of shares withheld for taxes

60,063 

 

 

 

 

 

(1,144)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,144)

Stock-based compensation

 

 

 

 

 

 

3,543 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,543 

Tax benefits from settlements of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

stock-based equity awards

 

 

 

 

 

 

1,432 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,432 

Cash dividends ($1.40 per share)

 

 

 

 

 

 

 

 

 

(19,896)

 

 

 

 

 

 

 

 

 

 

(19,896)

Acquisition of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

244,973 

 

 

(26,227)

 

 

(26,227)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

(2,326)

 

 

 

 

 

 

 

(2,326)

Net income

 

 

 

 

 

 

 

 

 

38,562 

 

 

 

 

 

 

 

 

 

 

38,562 

Balance at May 31, 2017

19,681,883 

 

$

20 

 

$

149,767 

 

$

308,308 

 

$

(29,624)

 

5,658,455 

 

$

(294,132)

 

$

134,339 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



















 

6

 


 











 

 

 

 

 



 

 

 

 

 

WD-40 COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)



 

 

 

 

 



Nine Months Ended May 31,



2017

 

2016

Operating activities:

 

 

 

 

 

Net income

$

38,562 

 

$

38,396 

Adjustments to reconcile net income to net cash provided by

 

 

 

 

 

operating activities:

 

 

 

 

 

Depreciation and amortization

 

5,005 

 

 

4,893 

Net gains on sales and disposals of property and equipment

 

(109)

 

 

(30)

Deferred income taxes

 

(101)

 

 

(601)

Excess tax benefits from settlements of stock-based equity awards

 

(1,432)

 

 

(1,618)

Stock-based compensation

 

3,543 

 

 

2,518 

Unrealized foreign currency exchange losses

 

872 

 

 

214 

Provision for bad debts

 

(141)

 

 

15 

Changes in assets and liabilities:

 

 

 

 

 

Trade and other accounts receivable

 

(1,915)

 

 

(7,229)

Inventories

 

(4,926)

 

 

(1,533)

Other assets

 

1,660 

 

 

2,258 

Accounts payable and accrued liabilities

 

(125)

 

 

2,963 

Accrued payroll and related expenses

 

(9,629)

 

 

507 

Income taxes payable

 

702 

 

 

3,294 

Other long-term liabilities

 

(246)

 

 

112 

Net cash provided by operating activities

 

31,720 

 

 

44,159 



 

 

 

 

 

Investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(15,410)

 

 

(3,311)

Proceeds from sales of property and equipment

 

403 

 

 

195 

Purchases of short-term investments

 

(26,815)

 

 

(22,920)

Maturities of short-term investments

 

4,517 

 

 

6,516 

Net cash used in investing activities

 

(37,305)

 

 

(19,520)



 

 

 

 

 

Financing activities:

 

 

 

 

 

Treasury stock purchases

 

(26,227)

 

 

(24,691)

Dividends paid

 

(19,896)

 

 

(17,647)

Proceeds from issuance of common stock

 

548 

 

 

821 

Excess tax benefits from settlements of stock-based equity awards

 

1,432 

 

 

1,618 

Net proceeds from revolving credit facility

 

32,000 

 

 

10,000 

 Net cash used in financing activities

 

(12,143)

 

 

(29,899)

Effect of exchange rate changes on cash and cash equivalents

 

(958)

 

 

(1,263)

Net decrease in cash and cash equivalents

 

(18,686)

 

 

(6,523)

Cash and cash equivalents at beginning of period

 

50,891 

 

 

53,896 

Cash and cash equivalents at end of period

$

32,205 

 

$

47,373 



 

 

 

 

 

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 that 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, 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, online retailers 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, 2016 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, 2016, which was filed with the SEC on October 24, 2016.



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 to net asset balances held in non-functional currency, specifically 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 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.  



8

 


 

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 May 31, 2017,  the Company had a notional amount of $24.5 million outstanding in foreign currency forward contracts, which mature in July 2017. Unrealized net gains and losses related to foreign currency forward contracts were not significant at May 31, 2017 and August 31, 2016. Realized net gains and losses related to foreign currency forward contracts were not material for each of the three and nine month periods ended May 31, 2017 and 2016.



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 May 31, 2017, 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, short-term investments and short-term borrowings 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 nine months ended May 31, 2017, 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 May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-09, Scope of Modification Accounting, to reduce diversity in practice and provide clarity regarding existing guidance in ASC 718, “Stock Compensation”. The amendments in this updated guidance clarify that an entity should apply modification accounting in response to a change in the terms and conditions of an entity’s share-based payment awards unless three newly specified criteria are met. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. 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 and related disclosures.



In January 2017, the FASB issued ASU No. 2017-04, “Simplifying the Test for Goodwill Impairment”. This updated guidance eliminates Step 2 from the current two-step quantitative model for goodwill impairment tests. Step 2 required an entity to calculate an implied fair value, which included a hypothetical purchase price allocation requirement, for reporting units that failed Step 1. Per this updated guidance, a goodwill impairment will instead be measured as the amount by which a reporting unit’s carrying value exceeds its fair value as identified in Step 1. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. 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 and related disclosures.



In October 2016, the FASB issued ASU No. 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory”, which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods

9

 


 

within that reporting period. Early adoption is permitted in the first interim period of an entity's annual financial statements. 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 and related disclosures.



In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments”. The amendments in this updated guidance address eight specific cash flow issues to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted and should be applied using a retrospective approach. The Company is in the process of evaluating the potential impacts of this new guidance on its consolidated financial statements.



In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments”, which requires entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The updated guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted. The Company is in the process of evaluating the potential impacts of this new guidance on its consolidated financial statements.



In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting”. The amendments in this updated guidance include changes to simplify the Codification for several aspects of the accounting for share-based payment transactions, including those related to the income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, minimum statutory withholding requirements and classification of certain items on the statement of cash flows. Certain of these changes are required to be applied retrospectively while other changes are required to be applied prospectively. This guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is permitted. The Company does not expect that it will adopt this updated guidance early, but it expects that the adoption of this new guidance will have a more than inconsequential impact on the Company’s consolidated financial statements. For example, if the Company had adopted this updated guidance in fiscal year 2016, its income tax expense for the year would have been reduced by approximately $2.1 million due to the recognition of excess tax benefits in the provision for income taxes rather than through additional paid-in-capital. The Company also expects to change its policy related to forfeitures upon adoption of this new guidance such that it will recognize the impacts of forfeitures as they occur rather than recognizing them based on an estimated forfeiture rate. Although the Company is still assessing the impacts of this change in policy for forfeitures on its consolidated financial statements, it does not expect that the impact will be material. In addition, the Company’s presentation of employee taxes paid on shares of certain equity awards withheld by the Company for tax-withholding purposes will be reported as a financing activity instead of an operating activity in the Statement of Cash Flows, while the excess tax benefits from settlements of stock-based equity awards will be reported as an operating activity under this new guidance. 



In February 2016, the FASB issued ASU No. 2016-02, “Leases”. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. Early adoption is permitted and should be applied using a modified retrospective approach. The Company is in the process of evaluating the impacts of this new guidance on its consolidated financial statements and related disclosures.



In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. This updated guidance requires management to evaluate whether there is a substantial doubt about an entity's ability to continue as a going concern within one year of the date that the financial statements are issued and provide related disclosures if necessary. This guidance is effective for the first annual fiscal period ending after December 15, 2016, and for all interim and annual periods thereafter. Early adoption is permitted. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

10

 


 

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 and related amendments 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. This new guidance requires an entity to recognize revenue for product sales at the point in time in which control of goods transfers to the Company’s customers which, as defined, could be different than the point in time in which revenue had been recognized by the Company under existing U.S. GAAP, which was based on when title and the risks and rewards of ownership were transferred to the customer. The new guidance 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.  Although early adoption is permitted, the Company has concluded that it will not adopt this guidance early and it will become effective for the Company on September 1, 2018. The Company will adopt this new guidance following the modified retrospective approach and will recognize the cumulative effect of initially applying the guidance as an adjustment to the opening balance of retained earnings on September 1, 2018.  Management is in the process of a detailed review of the Company’s customer contracts which is focused principally on, but not limited to, identifying the point in time at which the control of goods transfers to customers. Management is nearing the completion of this review and is still in the process of determining the impacts that this new guidance will have on the Company's consolidated financial statements and related disclosures.



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): 



 

 

 

 

 



 

 

 

 

 



May 31,

 

August 31,



2017

 

2016

Product held at third-party contract manufacturers

$

3,585 

 

$

3,521 

Raw materials and components

 

3,138 

 

 

2,996 

Work-in-process

 

317 

 

 

163 

Finished goods

 

29,509 

 

 

25,113 

Total

$

36,549 

 

$

31,793 



 

 

 

 

 







Note 4.  Property and Equipment



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





 

 

 

 

 



 

 

 

 

 



May 31,

 

August 31,



2017

 

2016

Machinery, equipment and vehicles

$

17,326 

 

$

14,892 

Buildings and improvements

 

4,059 

 

 

4,223 

Computer and office equipment

 

3,644 

 

 

3,605 

Software

 

7,891 

 

 

7,392 

Furniture and fixtures

 

1,230 

 

 

1,286 

Capital in progress

 

15,021 

 

 

2,200 

Land

 

251 

 

 

254 

Subtotal

 

49,422 

 

 

33,852 

Less: accumulated depreciation and amortization

 

(23,912)

 

 

(22,307)

Total

$

25,510 

 

$

11,545 



 

 

 

 

 



At May 31, 2017, capital in progress on the balance sheet included $14.2 million associated with capital costs related to the purchase and buildout of the Company’s new office building and related land in San Diego which will house corporate

11

 


 

employees and employees of the Company’s Americas segment.  Upon completion of the buildout, the Company will place these assets into service and reclassify the amounts recorded in capital in progress to the respective fixed asset categories, which includes amounts attributable to the land. For further information, see the Liquidity and Capital Resources section in Part I—Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.













    

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, 2016

$

85,452 

 

$

8,987 

 

$

1,210 

 

$

95,649 

Translation adjustments

 

(10)

 

 

(82)

 

 

 -

 

 

(92)

Balance as of May 31, 2017

$

85,442 

 

$

8,905 

 

$

1,210 

 

$

95,557 



 

 

 

 

 

 

 

 

 

 

 

During the second quarter of fiscal year 2017, the Company performed its annual goodwill impairment test. The annual goodwill impairment test was performed at the reporting unit level as required by the authoritative guidance. In accordance with ASU No. 2011-08, “Testing Goodwill for Impairment”, companies are permitted to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The Company performed a qualitative assessment of each reporting unit to determine whether it was more likely than not that the fair value of a reporting unit was less than its carrying amount. In performing this qualitative assessment, the Company assessed relevant events and circumstances that may impact the fair value and the carrying amount of each of its reporting units. Factors that were considered included, but were not limited to, the following: (1) macroeconomic conditions; (2) industry and market conditions; (3) historical financial performance and expected financial performance; (4) other entity specific events, such as changes in management or key personnel; and (5) events affecting the Company’s reporting units, such as a change in the composition of net assets or any expected dispositions. Based on the results of this qualitative assessment, the Company determined that it is more likely than not that the carrying value of each of its reporting units is less than its fair value and, thus, the two-step quantitative analysis was not required. As a result, the Company concluded that no impairment of its goodwill existed as of February 28, 2017.



In addition, 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, 2017, 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):





 

 

 

 

 



 

 

 

 

 



May 31,

 

August 31,



2017

 

2016

Gross carrying amount

$

35,813 

 

$

36,009 

Accumulated amortization

 

(18,877)

 

 

(16,818)

Net carrying amount

$

16,936 

 

$

19,191 



 

 

 

 

 



There has been no impairment charge for the nine months ended May 31, 2017 as a result of the Company’s review of events and circumstances related to its existing definite-lived intangible assets.

12

 


 

 Changes in the carrying amounts of definite-lived intangible assets by segment for the nine months ended May 31, 2017 are summarized below (in thousands):





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Americas

 

EMEA

 

Asia-Pacific

 

Total

Balance as of August 31, 2016

$

14,913 

 

$

4,278 

 

$

 -

 

$

19,191 

Amortization expense

 

(1,656)

 

 

(500)

 

 

 -

 

 

(2,156)

Translation adjustments

 

 -

 

 

(99)

 

 

 -

 

 

(99)

Balance as of May 31, 2017

$

13,257 

 

$

3,679 

 

$

 -

 

$

16,936 



 

 

 

 

 

 

 

 

 

 

 



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 2017

$

608 

 

$

111 

 

$

Fiscal year 2018

 

2,412 

 

 

442 

 

 

33 

Fiscal year 2019

 

2,412 

 

 

256 

 

 

 -

Fiscal year 2020

 

2,018 

 

 

164 

 

 

 -

Fiscal year 2021

 

1,228 

 

 

164 

 

 

 -

Thereafter

 

6,917 

 

 

163 

 

 

 -

Total

$

15,595 

 

$

1,300 

 

$

41 



 

 

 

 

 

 

 

 

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): 



 

 

 

 

 



 

 

 

 

 



May 31,

 

August 31,



2017

 

2016

Accrued advertising and sales promotion expenses

$

10,361 

 

$

9,763 

Accrued professional services fees

 

1,705 

 

 

1,262 

Accrued sales taxes and other taxes

 

1,338 

 

 

954 

Other

 

3,960 

 

 

3,778 

Total

$

17,364 

 

$

15,757 



 

 

 

 

 

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





 

 

 

 

 



 

 

 

 

 



May 31,

 

August 31,



2017

 

2016

Accrued incentive compensation

$

5,310 

 

$

12,203 

Accrued payroll

 

4,111 

 

 

3,559 

Accrued profit sharing

 

1,435 

 

 

2,716 

Accrued payroll taxes

 

1,383 

 

 

1,744 

Other

 

523 

 

 

644 

Total

$

12,762 

 

$

20,866 



 

 

 

 

 





13

 


 

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 four times, most recently on September 1, 2016, (the “Fourth Amendment”). This Fourth Amendment amended the credit agreement in connection with the purchase of the Company’s new headquarters office and land located at 9715 Businesspark Avenue, San Diego, California (the “Property”). The Fourth Amendment permits the Company to spend $18.0 million in aggregate for the acquisition and improvement costs for the Property, with any excess applied against the $7.5 million permitted annually by the amended agreement for other capital expenditures. In addition, the Fourth Amendment also includes changes to the agreement that will allow, as a permitted lien, any agreement with Bank of America for secured debt.  



Per the terms of the amended agreement, the revolving commitment may not exceed $175.0 million and the aggregate amount of the Company’s capital stock that it may repurchase may not exceed $150.0 million during the period from November 16, 2015 to the maturity date of the agreement so long as no default exists immediately 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. In addition, 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. In the second quarter of fiscal year 2016, the Company entered into an autoborrow agreement with Bank of America and this agreement has been in effect since that time.



For the financial covenants, 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.

Since the autoborrow feature provides for borrowings to be made and repaid by the Company on a daily basis, any such borrowings made under an active autoborrow agreement are classified as short-term on the Company’s consolidated balance sheets. The Company had no balance under the autoborrow agreement as of May 31, 2017. In addition, the Company assesses its ability and intent to refinance the outstanding 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. During the nine months ended May 31, 2017, the Company borrowed $20.0 million on the line of credit which it intends to repay in less than twelve months.  As a result, the Company has classified $20.0 million borrowed under the revolving credit facility during the nine months ended May 31, 2017 as short-term on its consolidated balance sheets.



In addition to the $20.0 million in borrowings classified as short-term, the Company borrowed an additional $12.0 million U.S. Dollars under the revolving credit facility during the nine months ended May 31, 2017. Based on management’s ability and intent to refinance these new draws and remainder of the Company’s short-term borrowings under the facility with successive short-term borrowings for a period of at least twelve months, the Company has classified $134.0 million outstanding under the revolving credit facility as a long-term liability at May 31, 2017. The Company regularly converts existing draws on its line of credit to new draws with new maturity dates and interest rates. As of May 31, 2017, the Company had a $154.0 million outstanding balance on the revolving credit facility and was in compliance with all debt covenants under this credit facility.

14

 


 

Note 8. Share Repurchase Plans 



On June 21, 2016, the Company’s Board of Directors approved a share buy-back plan. Under the plan, which became effective on September 1, 2016, the Company is authorized to acquire up to $75.0 million of its outstanding shares through August 31, 2018. The timing and amount of repurchases are 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 September 1, 2016 through May 31, 2017, the Company repurchased 244,973 shares at a total cost of $26.2 million under this $75.0 million plan. 



Note 9.  Earnings per Common Share



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















 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended May 31,

 

Nine Months Ended May 31,



2017

 

2016

 

2017

 

2016

Net income

$

14,444 

 

$

12,665 

 

$

38,562 

 

$

38,396 

Less: Net income allocated to

 

 

 

 

 

 

 

 

 

 

 

participating securities

 

(86)

 

 

(84)

 

 

(238)

 

 

(246)

Net income available to common shareholders

$

14,358 

 

$

12,581 

 

$

38,324 

 

$

38,150 



 

 

 

 

 

 

 

 

 

 

 



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 May 31,

 

Nine Months Ended May 31,



2017

 

2016

 

2017

 

2016

Weighted-average common

 

 

 

 

 

 

 

 

 

 

 

shares outstanding, basic

 

14,056 

 

 

14,306 

 

 

14,115 

 

 

14,365 

Weighted-average dilutive securities

 

32 

 

 

43 

 

 

36 

 

 

48 

Weighted-average common

 

 

 

 

 

 

 

 

 

 

 

shares outstanding, diluted

 

14,088 

 

 

14,349 

 

 

14,151 

 

 

14,413 



 

 

 

 

 

 

 

 

 

 

 

For the three months ended May 31, 2017, there were no anti-dilutive stock-based equity awards outstanding.  For the three months ended May 31, 2016, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 1,090 were excluded from the calculation of diluted EPS under the treasury stock method as they were anti-dilutive.



For the nine months ended May 31, 2017, there were no anti-dilutive stock-based equity awards outstanding. For the nine months ended May 31, 2016, weighted-average stock-based equity awards outstanding that are non-participating securities in the amount of 6,001 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 $0.4 million for the three months ended May 31, 2017 and 2016, respectively, and $0.8 million for both the nine months ended May 31, 2017 and 2016.  Accounts receivable from Tractor Supply were not material as of May 31, 2017. 

15

 


 

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 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 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 May 31, 2017, no such commitments were outstanding.



Litigation 



From time to time, the Company is subject to various claims, lawsuits, investigations and proceedings arising in the ordinary course of business, including but not limited to, product liability litigation and other claims and proceedings with respect to intellectual property, breach of contract, labor and employment, tax and other matters. 



On February 24, 2017, a legal action was filed against the Company in a United States District Court in Ohio (FirstPower Group, LLC v. WD-40 Company, WD-40 Manufacturing Company, Wal-Mart Stores East, LP, Lowe’s Home Centers, LLC, and Home Depot U.S.A., Inc.). The complaint alleges trademark infringement, unfair competition, counterfeiting, and deceptive trade practices arising out of the Company’s marketing and sale of the WD‑40 EZ-REACH Flexible Straw product. FirstPower Group, LLC (“FirstPower”) claims exclusive ownership and the right to use the words “EZ REACH” for lubricating oil products based on certain registered trademarks covering such words. In addition to findings on the merits of FirstPower’s infringement claims, the complaint seeks an award of damages and a permanent injunction prohibiting the alleged infringement of FirstPower’s asserted trademark rights.



On February 24, 2017, FirstPower also filed a motion for preliminary injunction seeking an interim order prohibiting the alleged infringement of FirstPower’s asserted trademark rights pending disposition of FirstPower’s claims on the merits at trial.



The Company disputes FirstPower’s claims of trademark infringement arising out of the Company’s sale of the WD‑40 EZ-REACH Flexible Straw product. The Company contends that there is no likelihood of confusion as to the source of the products marketed and sold by WD-40 Company and FirstPower with the words “EZ REACH” in their respective names. The Company intends to vigorously oppose FirstPower’s claims. Although the Company believes that any loss resulting from this litigation will not have a material impact on the Company’s financial condition or results of operations, such a loss is reasonably possible. The Company is unable to estimate the possible loss or a range of possible loss that the Company may incur.   

16

 


 

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 May 31, 2017.



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 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 May 31, 2017.



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 28.8% and 28.1% of income before income taxes for the three months May 31, 2017 and 2016, respectively. The increase in the effective income tax rate was primarily driven by a  slight shift of expected annual earnings between U.S. and foreign jurisdictions year over year.  The provision for income taxes was 30.0% and 28.2% of income before income taxes for the nine months ended May 31, 2017 and 2016, respectively. The increase in the effective income tax rate from period to period was primarily driven by an immaterial out-of-period correction that the Company recorded in the second quarter of fiscal year 2017 associated with the tax impacts from certain unrealized foreign currency exchange losses in periods prior to fiscal year 2017.



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 2014 are not subject to examination by the U.S. Internal Revenue Service. The Company was notified in September 2016 by the U.S. Internal Revenue Service of its plans to perform an income tax audit for the tax period ended August 31, 2015. The income tax examination has been concluded with no changes to the original return as filed. The Company is also currently under audit in various state and international jurisdictions for fiscal years 2013 through 2016. Generally, for the majority of state and foreign jurisdictions where the Company does business, periods prior to fiscal year 2013 are no longer subject to examination. The Company has estimated that up to $0.3 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.

17

 


 

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

May 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

49,046 

 

$

34,386 

 

$

14,746 

 

$

 -

 

$

98,178 

Income from operations

$

14,402 

 

$

8,009 

 

$

4,159 

 

$

(5,957)

 

$

20,613 

Depreciation and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

amortization expense

$

1,100 

 

$

534 

 

$

63 

 

$

10 

 

$

1,707 

Interest income

$

 

$

97 

 

$

13 

 

$

 -

 

$

112 

Interest expense

$

691 

 

$

 -

 

$

 

$

 -

 

$

693 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 31, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

49,878 

 

$

32,922 

 

$

13,646